AMERISAFE(AMSF) - 2023 Q4 - Annual Results

Overall Performance Highlights AMERISAFE reported strong full-year 2023 results with net income of $62.1 million and a return on equity of 20.4%, despite a slight decrease in Q4 net income, achieving 8.4% growth in gross premiums written for Q4 and maintaining a disciplined approach to high-hazard workers' compensation Key Financial Metrics (Q4 and FY 2023 vs 2022, in thousands) | Metric | Three Months Ended Dec 2023 | Three Months Ended Dec 2022 | % Change (QoQ) | Twelve Months Ended Dec 2023 | Twelve Months Ended Dec 2022 | % Change (YoY) | | :----------------------------------------- | :-------------------------- | :-------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Net premiums earned | $65,712 | $66,073 | -0.5% | $267,125 | $271,698 | -1.7% | | Net investment income | $8,077 | $7,642 | 5.7% | $31,339 | $27,223 | 15.1% | | Net income | $19,181 | $20,778 | -7.7% | $62,108 | $55,602 | 11.7% | | Diluted earnings per share | $1.00 | $1.08 | -7.4% | $3.23 | $2.88 | 12.2% | | Operating net income | $14,257 | $16,093 | -11.4% | $55,940 | $59,277 | -5.6% | | Operating earnings per share | $0.74 | $0.84 | -11.9% | $2.91 | $3.07 | -5.2% | | Book value per share | $15.28 | $16.57 | -7.8% | $15.28 | $16.57 | -7.8% | | Net combined ratio | 85.5% | 82.0% | | 85.9% | 83.6% | | | Return on average equity | 24.4% | 24.1% | | 20.4% | 15.5% | | - AMERISAFE reported $62.1 million of Net Income, Return on Equity of 20.4% and Net Combined Ratio of 85.9% in 2023[1] - Gross premium written growth of 8.4% and a combined ratio of 85.5% for the fourth quarter, and a 20.4% ROAE for the full year[2] CEO Commentary The CEO emphasized AMERISAFE's commitment to policyholders, agents, and shareholders through risk assessment, safety measures, and meticulous claims handling, which drove solid performance and positions the company for future value creation - AMERISAFE's value proposition rests on service and delivering on commitments to policyholders, agents, and shareholders[2] - The Company collaborates closely with insured parties to assess risks, bolster safety measures, and meticulously handle claims to achieve optimal results[2] - The Company's capital strength and approach to the high-hazard workers' compensation market position AMERISAFE for solid performance and ability to create long-term shareholder value[2] INSURANCE RESULTS This section details AMERISAFE's underwriting performance, including premium growth, loss ratios, and operational factors influencing profitability Underwriting Performance and Ratios Gross premiums written increased by 8.4% in Q4 2023 and 3.3% for the full year, driven by voluntary premiums and payroll audits, while net premiums earned saw slight declines, and the net combined ratio for the full year was 85.9%, an increase from 83.6% in 2022, primarily due to a higher underwriting expense ratio Insurance Performance Metrics (Q4 and FY 2023 vs 2022, in thousands) | Metric | Three Months Ended Dec 2023 | Three Months Ended Dec 2022 | % Change (QoQ) | Twelve Months Ended Dec 2023 | Twelve Months Ended Dec 2022 | % Change (YoY) | | :------------------------------------------------------------------------------------------------ | :-------------------------- | :-------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Gross premiums written | $60,324 | $55,647 | 8.4% | $285,355 | $276,110 | 3.3% | | Net premiums earned | $65,712 | $66,073 | -0.5% | $267,125 | $271,698 | -1.7% | | Loss and loss adjustment expenses incurred | $36,455 | $36,524 | -0.2% | $148,263 | $152,316 | -2.7% | | Underwriting and certain other operating costs, commissions, salaries and benefits | $18,988 | $17,421 | 9.0% | $78,313 | $72,032 | 8.7% | | Policyholder dividends | $732 | $182 | 302.2% | $2,957 | $2,699 | 9.6% | | Underwriting profit (pre-tax) | $9,537 | $11,946 | -20.2% | $37,592 | $44,651 | -15.8% | | Insurance Ratios: | | | | | | | | Current accident year loss ratio | 71.0% | 71.0% | | 71.0% | 71.0% | | | Prior accident year loss ratio | -15.5% | -15.7% | | -15.5% | -14.9% | | | Net loss ratio | 55.5% | 55.3% | | 55.5% | 56.1% | | | Net underwriting expense ratio | 28.9% | 26.4% | | 29.3% | 26.5% | | | Net dividend ratio | 1.1% | 0.3% | | 1.1% | 1.0% | | | Net combined ratio | 85.5% | 82.0% | | 85.9% | 83.6% | | - Gross premiums written increased by 8.4% in the fourth quarter of 2023 and 3.3% for the full year 2023[4] - The net combined ratio for the full year 2023 was 85.9%, an increase from 83.6% in 2022[4] Operational Highlights Voluntary premiums increased by 4.7% in Q4 due to higher policy count, while payroll audits significantly boosted premiums written, and the company reported favorable net loss reserve development for prior accident years, reducing loss and loss adjustment expenses, attributed to proactive claims handling, with the underwriting expense ratio increasing due to lower earned premium and higher insurance-related assessments - Voluntary premiums on policies written in Q4 2023 were 4.7% higher than in Q4 2022, primarily due to an increase in policy count[4] - Payroll audits and related premium adjustments increased premiums written by $4.8 million in Q4 2023 and $24.0 million for the full year 2023[4] - Favorable net loss reserve development for prior accident years reduced loss and loss adjustment expenses by $10.2 million in Q4 and $41.4 million for the full year 2023, attributed to proactive claims handling[4] - The underwriting expense ratio increased to 28.9% in Q4 and 29.3% for FY 2023, due to slightly lower earned premium and increased insurance related assessments[4] - The effective tax rate for the full year 2023 was 19.7%, up from 17.8% for 2022, due to a decrease in the proportion of tax-exempt interest income relative to taxable interest income and underwriting profit[4] INVESTMENT RESULTS This section analyzes AMERISAFE's investment income, portfolio performance, and the impact of market conditions on its financial results Investment Income and Portfolio Performance Net investment income increased significantly for both Q4 and the full year 2023, driven by higher fixed income reinvestment rates, and the company also reported net unrealized gains on equity securities, reflecting positive equity market returns Investment Performance Metrics (Q4 and FY 2023 vs 2022, in thousands) | Metric | Three Months Ended Dec 2023 | Three Months Ended Dec 2022 | % Change (QoQ) | Twelve Months Ended Dec 2023 | Twelve Months Ended Dec 2022 | % Change (YoY) | | :----------------------------------------- | :-------------------------- | :-------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | | Net investment income | $8,077 | $7,642 | 5.7% | $31,339 | $27,223 | 15.1% | | Net realized gains on investments (pre-tax) | $1,113 | $1,038 | 7.2% | $6,579 | $3,440 | 91.3% | | Net unrealized gains (losses) on equity securities (pre-tax) | $5,120 | $4,892 | NM | $1,228 | ($8,092) | NM | | Pre-tax investment yield | 3.5% | 3.1% | | 3.4% | 2.7% | | | Tax-equivalent yield | 3.7% | 3.4% | | 3.7% | 3.4% | | - Net investment income increased 5.7% to $8.1 million in Q4 and 15.1% to $31.3 million for the full year 2023, due to higher fixed income reinvestment rates[6] - Net unrealized gains on equity securities were $5.1 million in Q4 and $1.2 million for the full year, reflecting favorable equity market returns[6] - The carrying value of AMERISAFE's investment portfolio, including cash and cash equivalents, was $896.5 million as of December 31, 2023[6] CAPITAL MANAGEMENT This section outlines AMERISAFE's strategies for managing capital, including share repurchases and dividend adjustments, to enhance shareholder value Shareholder Returns and Capital Allocation AMERISAFE continued its capital management efforts by repurchasing shares and increasing its regular quarterly dividend - The Company repurchased 46,741 shares at an average cost of $46.45 per share for a total of $2.2 million in Q4 2023[7] - The remaining outstanding share repurchase authorization as of December 31, 2023, is $10.4 million[7] - The Board of Directors increased the regular quarterly dividend by 8.8% from $0.34 per share to $0.37 per share[7] SUPPLEMENTAL INFORMATION This section provides additional financial details, including reconciliations of non-GAAP measures and management's rationale for their use Non-GAAP Financial Measures Reconciliation This section provides a reconciliation of non-GAAP financial measures, such as operating net income and operating earnings per share, to their most directly comparable GAAP measures, which management believes enhances understanding of core operating performance Reconciliation of GAAP to Non-GAAP Financial Measures (Q4 and FY 2023 vs 2022, in thousands except per share amounts) | Metric | Three Months Ended Dec 2023 | Three Months Ended Dec 2022 | Twelve Months Ended Dec 2023 | Twelve Months Ended Dec 2022 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :--------------------------- | :--------------------------- | | Net income | $19,181 | $20,778 | $62,108 | $55,602 | | Less: Net realized gains on investments | $1,113 | $1,038 | $6,579 | $3,440 | | Less: Net unrealized gains (losses) on equity securities | $5,120 | $4,892 | $1,228 | ($8,092) | | Add: Tax effect (1) | ($1,309) | ($1,245) | ($1,639) | $977 | | Operating net income (2) | $14,257 | $16,093 | $55,940 | $59,277 | | Return on average equity (4) | 24.4% | 24.1% | 20.4% | 15.5% | | Operating return on average adjusted equity (2) | 17.4% | 17.8% | 17.7% | 16.5% | | Diluted earnings per share | $1.00 | $1.08 | $3.23 | $2.88 | | Operating earnings per share (2) | $0.74 | $0.84 | $2.91 | $3.07 | - Operating net income for FY 2023 was $55.94 million, compared to GAAP net income of $62.11 million[8] - Operating earnings per share for FY 2023 was $2.91, compared to diluted EPS of $3.23[8] Management's Rationale for Non-GAAP Measures Management uses non-GAAP measures like operating net income and operating earnings per share to provide investors with a clearer view of the company's core operating performance, excluding certain non-recurring or non-operational items - Management believes that investors' understanding of core operating performance is enhanced by AMERISAFE's disclosure of non-GAAP financial measures[9] - Non-GAAP measures include operating net income, average adjusted shareholders' equity, operating return on average adjusted equity, and operating earnings per share[9] CORPORATE INFORMATION This section provides essential corporate details, including conference call schedules, company profile, and forward-looking statement disclaimers Conference Call Information AMERISAFE scheduled a conference call for February 22, 2024, to discuss the results and future outlook, with details provided for participation via phone and webcast - AMERISAFE scheduled a conference call for February 22, 2024, at 10:30 a.m. Eastern Time to discuss the results for the quarter and comment on future periods[10] - Investors, analysts, and the general public can listen to the conference call over the Internet by visiting the 'Investor Relations Home' page of the 'Investors' section of the Company's website (http://www.amerisafe.com)[10](index=10&type=chunk) About AMERISAFE AMERISAFE is a specialty provider of workers' compensation insurance, focusing on small to mid-sized employers in high-hazard industries across 27 states - AMERISAFE, Inc. is a specialty provider of workers' compensation insurance focused on small to mid-sized employers engaged in hazardous industries[11] - Key industries served include construction, trucking, logging and lumber, agriculture, and manufacturing[11] - AMERISAFE actively markets workers' compensation insurance in 27 states[11] Forward-Looking Statements This section contains a standard disclaimer regarding forward-looking statements, cautioning that actual results may differ materially from projections due to various risks and uncertainties, and the company does not undertake to update these statements - Statements in the press release that are not historical facts are forward-looking statements, based on management's estimates, assumptions, and projections[12] - Actual results may differ materially due to risks, uncertainties, and other factors, as set forth in the Company's filings with the SEC, including the Annual Report on Form 10-K[12] - AMERISAFE cautions not to place undue reliance on forward-looking statements and does not undertake any obligation to publicly update or revise them[12] CONSOLIDATED FINANCIAL STATEMENTS This section presents AMERISAFE's official financial statements, including detailed income statements and balance sheets for the reported periods Consolidated Statements of Income The Consolidated Statements of Income provide a detailed breakdown of revenues (premiums, investment income) and expenses (loss & LAE, underwriting costs, policyholder dividends) leading to net income and earnings per share for Q4 and the full year 2023 and 2022 Consolidated Statements of Income (Q4 and FY 2023 vs 2022, in thousands except per share amounts) | Metric | Three Months Ended Dec 2023 | Three Months Ended Dec 2022 | Twelve Months Ended Dec 2023 | Twelve Months Ended Dec 2022 | | :---------------------------------------------------------------- | :-------------------------- | :-------------------------- | :--------------------------- | :--------------------------- | | Gross premiums written | $60,324 | $55,647 | $285,355 | $276,110 | | Net premiums earned | $65,712 | $66,073 | $267,125 | $271,698 | | Net investment income | $8,077 | $7,642 | $31,339 | $27,223 | | Total revenues | $80,116 | $79,761 | $306,853 | $294,737 | | Loss and loss adjustment expenses incurred | $36,455 | $36,524 | $148,263 | $152,316 | | Underwriting and other operating costs | $18,988 | $17,421 | $78,313 | $72,032 | | Total expenses | $56,169 | $54,111 | $229,476 | $227,091 | | Income before taxes | $23,947 | $25,650 | $77,377 | $67,646 | | Income tax expense | $4,766 | $4,872 | $15,269 | $12,044 | | Net income | $19,181 | $20,778 | $62,108 | $55,602 | | Basic earnings per share | $1.00 | $1.09 | $3.24 | $2.89 | | Diluted earnings per share | $1.00 | $1.08 | $3.23 | $2.88 | - Total revenues for FY 2023 increased to $306.85 million from $294.74 million in FY 2022[15] - Net income for FY 2023 was $62.11 million, resulting in diluted EPS of $3.23[15] Consolidated Balance Sheets The Consolidated Balance Sheets present the company's financial position as of December 31, 2023, and 2022, detailing assets (investments, cash, receivables) and liabilities (reserves, unearned premiums) and shareholders' equity Consolidated Balance Sheets (as of Dec 31, 2023 vs 2022, in thousands) | Metric | December 31, 2023 | December 31, 2022 | | :----------------------------------------- | :---------------- | :---------------- | | Assets: | | | | Investments | $857,786 | $888,987 | | Cash and cash equivalents | $38,682 | $61,469 | | Total Assets | $1,229,162 | $1,269,279 | | Liabilities and Shareholders' Equity: | | | | Reserves for loss and loss adjustment expenses | $673,994 | $696,037 | | Unearned premiums | $116,585 | $114,976 | | Total Liabilities and Shareholders' Equity | $1,229,162 | $1,269,279 | | Shareholders' equity | $292,451 | $317,432 | - Total assets decreased from $1,269.28 million in 2022 to $1,229.16 million in 2023[16] - Shareholders' equity decreased from $317.43 million in 2022 to $292.45 million in 2023[16] - Reserves for loss and loss adjustment expenses decreased from $696.04 million in 2022 to $673.99 million in 2023[16]