AMERISAFE(AMSF) - 2024 Q1 - Quarterly Report

FORWARD-LOOKING STATEMENTS The report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from expectations - The report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from expectations[8] - Key risk factors include increased competition, changes in relationships with independent agencies, general economic conditions (recession, inflation, interest rates, unemployment), adverse developments in capital markets affecting investments, technology breaches, decreased business activity of policyholders, greater frequency or severity of claims, adverse regulatory or judicial conditions, loss of key employees, changes in regulations/laws/taxes/accounting standards, changes in legal theories of liability, rating agency policy changes, reinsurance availability/cost/quality, and effects of hostilities or terrorism[8] PART I - FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2024 Item 1. Financial Statements This section presents the unaudited consolidated financial statements for AMERISAFE, Inc. and its subsidiaries for the quarter ended March 31, 2024, including the balance sheets, statements of income, comprehensive income, changes in shareholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, accounting policies, and specific financial line items Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity as of March 31, 2024, and December 31, 2023 | Metric (in thousands) | March 31, 2024 (unaudited) | December 31, 2023 | | :-------------------- | :------------------------- | :------------------ | | Total Assets | $1,243,143 | $1,229,162 | | Total Liabilities | $942,049 | $936,711 | | Total Shareholders' Equity | $301,094 | $292,451 | Consolidated Statements of Income This section presents the company's financial performance, including revenues, expenses, and net income for the three months ended March 31, 2024 and 2023 | Metric (in thousands, except per share) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Gross Premiums Written | $80,074 | $82,487 | | Net Premiums Written | $76,148 | $78,308 | | Net Premiums Earned | $68,446 | $69,181 | | Net Investment Income | $7,366 | $7,433 | | Total Revenues | $80,489 | $78,438 | | Loss and Loss Adjustment Expenses Incurred | $39,991 | $39,009 | | Total Expenses | $59,744 | $56,903 | | Income Before Income Taxes | $20,745 | $21,535 | | Income Tax Expense | $3,820 | $4,196 | | Net Income | $16,925 | $17,339 | | Basic Earnings Per Share | $0.89 | $0.91 | | Diluted Earnings Per Share | $0.88 | $0.90 | | Cash Dividends Declared Per Common Share | $0.37 | $0.34 | Consolidated Statements of Comprehensive Income This section details the company's comprehensive income, including net income and other comprehensive income components, for the three months ended March 31, 2024 and 2023 | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net Income | $16,925 | $17,339 | | Unrealized gain (loss) on debt securities, net of tax | $(1,546) | $4,344 | | Comprehensive Income | $15,379 | $21,683 | Consolidated Statements of Changes in Shareholders' Equity This section outlines changes in the company's shareholders' equity, including net income, dividends, and other comprehensive income, for the periods presented | Shareholder Equity Component (in thousands) | Balance at Dec 31, 2023 | Net Income | Other Comprehensive Income | Share-based Compensation | Dividends to Shareholders | Balance at Mar 31, 2024 | | :---------------------------------------- | :---------------------- | :--------- | :------------------------- | :----------------------- | :------------------------ | :---------------------- | | Common Stock (Amounts) | $207 | — | — | — | — | $207 | | Additional Paid-In Capital | $222,078 | — | — | $365 | — | $222,443 | | Treasury Stock (Amounts) | $(36,929) | — | — | — | — | $(36,929) | | Accumulated Earnings | $114,289 | $16,925 | — | — | $(7,101) | $124,113 | | Accumulated Other Comprehensive Loss, net | $(7,194) | — | $(1,546) | — | — | $(8,740) | | Total Shareholders' Equity | $292,451 | $16,925| $(1,546) | $365 | $(7,101) | $301,094 | | Shareholder Equity Component (in thousands) | Balance at Dec 31, 2022 | Net Income | Other Comprehensive Income | Share-based Compensation | Dividends to Shareholders | Balance at Mar 31, 2023 | | :---------------------------------------- | :---------------------- | :--------- | :------------------------- | :----------------------- | :------------------------ | :---------------------- | | Common Stock (Amounts) | $207 | — | — | — | — | $207 | | Additional Paid-In Capital | $220,299 | — | — | $257 | — | $220,556 | | Treasury Stock (Amounts) | $(34,758) | — | — | — | — | $(34,758) | | Accumulated Earnings | $145,512 | $17,339 | — | — | $(6,517) | $156,334 | | Accumulated Other Comprehensive Loss, net | $(13,828) | — | $4,344 | — | — | $(9,484) | | Total Shareholders' Equity | $317,432 | $17,339| $4,344 | $257 | $(6,517) | $332,855 | Consolidated Statements of Cash Flows This section details the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023 | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Provided by Operating Activities | $7,506 | $13,466 | | Net Cash Used in Investing Activities | $(5,717) | $(27,197) | | Net Cash Used in Financing Activities | $(7,096) | $(6,528) | | Change in Cash and Cash Equivalents | $(5,307) | $(20,259) | | Cash and Cash Equivalents at Beginning of Period | $38,682 | $61,469 | | Cash and Cash Equivalents at End of Period | $33,375 | $41,210 | Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures for the financial statements, covering the company's business, equity incentive plans, EPS calculation, investment portfolio breakdown, income tax policies, loss reserving methodologies, comprehensive income components, fair value measurements, treasury stock, and subsequent events Note 1. Basis of Presentation This note describes the company's business and the accounting principles used in preparing the unaudited consolidated financial statements - AMERISAFE, Inc. is an insurance holding company providing workers' compensation insurance for small to mid-sized employers in hazardous industries (construction, trucking, logging, agriculture, manufacturing, telecommunications, maritime)[28][29] - The unaudited consolidated financial statements are prepared in accordance with Form 10-Q instructions and GAAP, involving management estimates and assumptions[30][31] Note 2. Restricted Stock, Restricted Stock Units, and Stock Options This note details the company's equity incentive plans, including awards of restricted stock units and related compensation expenses - The Company awarded 10,384 restricted stock units to officers with a market value of $0.5 million during Q1 2024, compared to 9,064 units ($0.5 million market value) in Q1 2023[36] - Share-based compensation expense was $0.7 million in Q1 2024, up from $0.2 million in Q1 2023[36] Note 3. Earnings Per Share This note provides the calculation of basic and diluted earnings per share for the periods presented | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----- | :-------------------------------- | :-------------------------------- | | Basic EPS | $0.89 | $0.91 | | Diluted EPS | $0.88 | $0.90 | | Basic Weighted Average Common Shares | 19,122,168 | 19,131,356 | | Diluted Weighted Average Common Shares | 19,211,282 | 19,235,411 | Note 4. Investments This note details the composition and fair value of the company's investment portfolio, including held-to-maturity, available-for-sale, and equity securities Held-to-Maturity Securities at March 31, 2024 (in thousands) | Category | Amortized Cost | Allowance for Credit Losses | Carrying Amount | Gross Unrecognized Gains | Gross Unrecognized Losses | Fair Value | | :------- | :------------- | :-------------------------- | :-------------- | :----------------------- | :------------------------ | :--------- | | States and political subdivisions | $412,900 | $(37) | $412,863 | $2,804 | $(13,871) | $401,796 | | Corporate bonds | $48,164 | $(126) | $48,038 | — | $(2,078) | $45,960 | | U.S. agency-based mortgage-backed securities | $3,183 | — | $3,183 | $19 | $(150) | $3,052 | | U.S. Treasury securities and obligations of U.S. government agencies | $11,209 | — | $11,209 | $14 | $(379) | $10,844 | | Asset-backed securities | $31 | $(2) | $29 | — | — | $29 | | Totals | $475,487 | $(165) | $475,322 | $2,837 | $(16,478) | $461,681 | Available-for-Sale Securities at March 31, 2024 (in thousands) | Category | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Allowance for Credit Losses | | :------- | :------------- | :--------------------- | :---------------------- | :--------- | :-------------------------- | | States and political subdivisions | $122,545 | $260 | $(7,013) | $115,792 | — | | Corporate bonds | $159,284 | $1,509 | $(4,042) | $156,751 | — | | U.S. agency-based mortgage-backed securities | $5,032 | — | $(502) | $4,530 | — | | U.S. Treasury securities and obligations of U.S. government agencies | $14,830 | — | $(1,230) | $13,600 | — | | Totals | $301,691 | $1,769 | $(12,787) | $290,673 | — | Equity Securities at March 31, 2024 (in thousands) | Category | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :------- | :--- | :--------------------- | :---------------------- | :--------- | | Domestic common stock | $44,045 | $17,878 | — | $61,923 | | Total equity securities | $44,045 | $17,878 | — | $61,923 | - Net realized losses on investments were $0.2 million in Q1 2024, primarily from available-for-sale fixed maturity securities, compared to net realized gains of $0.3 million in Q1 2023[58] - Net unrealized gains on equity securities recognized through income increased to $4.8 million in Q1 2024 from $1.4 million in Q1 2023[59] Note 5. Income Taxes This note explains the company's income tax policies, effective tax rates, and deferred tax assets and liabilities - The Company had no valuation allowance against deferred income tax assets and liabilities as of March 31, 2024 and 2023[60] - Income tax expense differs from the U.S. federal statutory rate of 21% primarily due to tax-exempt investment income and state income tax accruals[60] Note 6. Loss Reserves This note describes the methodologies for estimating loss and loss adjustment expenses and details prior accident year development - Reserves for loss and loss adjustment expenses are estimated based on individual case-basis valuations, statistical analyses, and historical experience for reported and unreported claims[61] - The Company experienced favorable prior accident year development, reducing loss and loss adjustment expenses incurred by $8.6 million in Q1 2024 and $10.1 million in Q1 2023[63] Note 7. Comprehensive Income and Accumulated Other Comprehensive Loss This note outlines the components of comprehensive income and changes in accumulated other comprehensive loss - Comprehensive income includes net income plus unrealized gains and losses on available-for-sale investment securities, net of a 21% tax rate[66] Changes in Accumulated Other Comprehensive Loss (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----- | :-------------------------------- | :-------------------------------- | | Balance, beginning of period | $(7,194) | $(13,828) | | Other comprehensive income (loss) before reclassification | $(1,637) | $4,339 | | Amounts reclassified from accumulated other comprehensive loss | $91 | $5 | | Net current period other comprehensive income (loss) | $(1,546) | $4,344 | | Balance, end of period | $(8,740) | $(9,484) | Note 8. Fair Value Measurements This note explains the fair value hierarchy and provides details on assets measured at fair value on a recurring basis - Fair value measurements are based on a hierarchy of inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 quoted prices), and Level 3 (unobservable inputs)[74] Assets Measured at Fair Value on a Recurring Basis at March 31, 2024 (in thousands) | Category | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total Fair Value | | :------- | :------------- | :------------- | :------------- | :--------------- | | Securities available-for-sale—fixed maturity: | | | | | | States and political subdivisions | — | $115,792 | — | $115,792 | | Corporate bonds | — | $156,751 | — | $156,751 | | U.S. agency-based mortgage-backed securities | — | $4,530 | — | $4,530 | | U.S. Treasury securities | $13,600 | — | — | $13,600 | | Total securities available-for-sale—fixed maturity | $13,600 | $277,073 | — | $290,673 | | Equity securities: | | | | | | Domestic common stock | $61,923 | — | — | $61,923 | | Total | $75,523 | $277,073 | — | $352,596 | - Equity and treasury securities are generally Level 1 assets, while other fixed maturity securities and short-term investments are Level 2 assets[83] Note 9. Treasury Stock This note details the company's share repurchase program and treasury stock activities - The Company's share repurchase program, reauthorized in October 2016 with a $25.0 million limit, had $10.4 million available for future purchases as of March 31, 2024[87] - No shares were repurchased during the three months ended March 31, 2024 or 2023[87] Note 10. Subsequent Events This note discloses significant events occurring after the balance sheet date, such as dividend declarations - On April 23, 2024, the Board of Directors declared a quarterly cash dividend of $0.37 per share, payable on June 21, 2024[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and key trends, including a business overview, critical accounting policies, detailed analysis of revenue and expense drivers, liquidity, capital resources, and prior year loss development Business Overview This section describes AMERISAFE's specialization in workers' compensation insurance for hazardous industries and its operational strategies - AMERISAFE specializes in workers' compensation insurance for small to mid-sized employers in hazardous industries (e.g., construction, trucking, logging), characterized by higher premium rates and less frequent but more severe claims[92] - The company employs proactive safety reviews, intensive claims management, and audit services to reduce overall claim costs and ensure appropriate premiums[92] - AMERISAFE actively markets insurance in 27 states through independent agencies and its wholly-owned agency subsidiary, and is licensed in an additional 20 states[93] Critical Accounting Policies This section highlights accounting policies requiring significant management estimates and assumptions, crucial for financial reporting - Management identifies critical accounting policies as those requiring significant estimates and assumptions, including reserves for loss and loss adjustment expenses, amounts recoverable from reinsurers, premiums receivable, assessments, deferred policy acquisition costs, deferred income taxes, credit losses on investment securities, and share-based compensation[95] Results of Operations The company's Q1 2024 financial results show a decrease in gross and net premiums written and earned, stable net investment income, a shift to net realized losses on investments, and increased net unrealized gains on equity securities. Total expenses increased, driven by higher loss and LAE and operating costs, leading to a slight decrease in net income and diluted EPS, while the net combined ratio worsened Consolidated Results of Operations for Three Months Ended March 31, 2024 Compared to March 31, 2023 This section provides a detailed comparative analysis of the company's financial performance for the first quarter of 2024 versus 2023 Consolidated Financial Results (in thousands, except per share and ratios) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change (%) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :--------- | | Gross Premiums Written | $80,074 | $82,487 | -2.9% | | Net Premiums Earned | $68,446 | $69,181 | -1.1% | | Net Investment Income | $7,366 | $7,433 | -0.9% | | Total Revenues | $80,489 | $78,438 | +2.6% | | Total Expenses | $59,744 | $56,903 | +5.0% | | Net Income | $16,925 | $17,339 | -2.4% | | Diluted Earnings Per Common Share | $0.88 | $0.90 | -2.2% | | Net Combined Ratio | 87.3% | 82.2% | +5.1 pp | | Return on Average Equity | 22.8% | 21.3% | +1.5 pp | | Book Value Per Share | $15.74 | $17.38 | -9.5% | - Gross premiums written decreased by 2.9% to $80.1 million, primarily due to a $2.5 million decrease in payroll audits and related premium adjustments, partially offset by a $0.3 million increase in residual market premium[98] - Net premiums earned decreased by 1.1% to $68.4 million, mainly due to the decrease in net premiums written[99] - Net investment income remained stable at $7.4 million, despite a 6.0% decrease in average invested assets. The pre-tax investment yield increased to 3.3% (from 3.1%) and tax-equivalent yield to 3.7% (from 3.5%)[100] - Net realized losses on investments were $0.2 million in Q1 2024, a shift from net realized gains of $0.3 million in Q1 2023, primarily due to sales of fixed maturity securities[101] - Net unrealized gains on equity securities increased significantly to $4.8 million in Q1 2024, up from $1.4 million in Q1 2023[102] - Loss and loss adjustment expenses incurred increased by 2.5% to $40.0 million. The net loss ratio was 58.4% in Q1 2024, up from 56.4% in Q1 2023[103] - Underwriting and certain other operating costs, commissions, and salaries and benefits increased to $18.7 million (from $17.0 million), primarily due to the absence of a $3.3 million profit sharing reinsurance commission benefit in Q1 2023 and a $1.0 million increase in compensation expense. The expense ratio rose to 27.3% (from 24.5%)[104] - Income tax expense decreased to $3.8 million (from $4.2 million), with the effective tax rate falling to 18.4% (from 19.5%) due to a higher proportion of tax-exempt investment income[105] Liquidity and Capital Resources The company's liquidity is primarily driven by premiums, investment income, and investment sales. Net cash provided by operating activities decreased in Q1 2024, while net cash used in investing activities significantly reduced due to changes in investment purchases and sales. Net cash used in financing activities increased due to higher dividend payments Investment Portfolio This section details the composition and changes in the company's investment portfolio, a key component of its liquidity - Net cash provided by operating activities decreased by $6.0 million to $7.5 million in Q1 2024, mainly due to an $11.8 million decrease in reinsurance recoveries and a $0.4 million decrease in investment income, partially offset by a $5.9 million decrease in losses paid and a $0.5 million increase in premium collections[106] - Net cash used in investing activities significantly decreased to $5.7 million in Q1 2024 (from $27.2 million in Q1 2023), driven by higher proceeds from investment sales and maturities ($36.9 million vs. $24.1 million) and lower investment purchases ($41.9 million vs. $51.2 million)[107] - Net cash used in financing activities increased to $7.1 million (from $6.5 million) in Q1 2024, primarily due to higher dividends paid to shareholders[108] - The total investment portfolio, including cash and cash equivalents, increased by 0.4% to $899.9 million at March 31, 2024[109] Investment Portfolio Composition at March 31, 2024 (in thousands) | Category | Carrying Amount | Percentage of Portfolio | | :------- | :-------------- | :---------------------- | | Fixed maturity securities—held-to-maturity: | | | | States and political subdivisions | $412,863 | 45.9% | | Corporate bonds | $48,038 | 5.3% | | U.S. agency-based mortgage-backed securities | $3,183 | 0.4% | | U.S. Treasury securities and obligations of U.S. government agencies | $11,209 | 1.2% | | Asset-backed securities | $29 | — | | Total fixed maturity securities—held-to-maturity | $475,322 | 52.8% | | Fixed maturity securities—available-for-sale: | | | | States and political subdivisions | $115,792 | 12.9% | | Corporate bonds | $156,751 | 17.4% | | U.S. agency-based mortgage-backed securities | $4,530 | 0.5% | | U.S. Treasury securities and obligations of U.S. government agencies | $13,600 | 1.5% | | Total fixed maturity securities—available-for-sale | $290,673 | 32.3% | | Equity securities | $61,923 | 6.9% | | Short-term investments | $38,641 | 4.3% | | Cash and cash equivalents | $33,375 | 3.7% | | Total investments, including cash and cash equivalents | $899,934 | 100.0% | Prior Year Development The company recorded favorable prior accident year development of $8.6 million in Q1 2024, primarily from accident years prior to 2019, and saw a decrease in open claims. This favorable development is attributed to new information from claims adjusters and claims reaching maximum medical improvement, though reserve estimates remain inherently uncertain due to the nature of hazardous industry claims - The Company recorded favorable prior accident year development of $8.6 million in Q1 2024, compared to $10.1 million in Q1 2023[112] Net Favorable Development by Accident Year (in millions) | Accident Year | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------ | :-------------------------------- | :-------------------------------- | | 2023 | — | — | | 2022 | — | — | | 2021 | — | — | | 2020 | $1.7 | $1.5 | | 2019 | $1.4 | $2.5 | | Prior to 2019 | $5.5 | $6.1 | | Total net development | $8.6 | $10.1 | - The number of open claims decreased by 495 to 3,812 at March 31, 2024, compared to March 31, 2023[115] - Favorable loss development was largely due to favorable case reserve development from closed claims and claims where the worker had reached maximum medical improvement[115] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are credit risk, interest rate risk, and equity price risk, with no material changes in its market risk profile since December 31, 2023 - Major components of market risk affecting the company are credit risk, interest rate risk, and equity price risk[118] - There have been no material changes in the quantitative or qualitative aspects of the company's market risk profile since December 31, 2023[118] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, providing reasonable assurance for financial reporting. The report acknowledges the inherent limitations of any control system and states no material changes in internal control over financial reporting during the period - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[119] - Management acknowledges that any system of controls has inherent limitations and cannot provide absolute assurance against all misstatements[120] - There have been no material changes in the company's internal control over financial reporting during the quarter ended March 31, 2024[121] PART II - OTHER INFORMATION This section provides additional information including details on equity security sales, other disclosures, and a list of exhibits Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company's share repurchase program, reauthorized in October 2016, had $10.4 million available for future purchases as of March 31, 2024. No shares were repurchased during the first quarter of 2024 or 2023 - As of March 31, 2024, the company had repurchased a total of 1,569,440 shares for $36.9 million under its share repurchase program[123] - There was $10.4 million available for future share purchases under the program as of March 31, 2024[123] - No shares were repurchased during the three months ended March 31, 2024, or March 31, 2023[123] Item 5. Other Information No directors or officers of the company adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the first fiscal quarter of 2024 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended March 31, 2024[124] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications required by the Sarbanes-Oxley Act and XBRL-related documents - Exhibits include certifications from G. Janelle Frost and Anastasios Omiridis pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[126][127][128] - XBRL Instance Document, Taxonomy Extension Schema Document, and Cover Page Interactive Data File are also included as exhibits[129]