AMSF - NASDAQ

Good day, and welcome to the AMERISAFE Third Quarter 2025 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kathryn Shirley. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to the AMERISAFE 2025 Third Quarter Investor Call. If you have not received the earnings release, it is available on our website at amerisafe.com. This call is being recorded. A replay of today's call will be available. Details on how to access the replay are in the earnings release. During this call, we will be making forward-looking statements intended to fall within the safe harbor provided under the securities laws. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Actual results may differ materially from the results expressed or implied in these statements if the underlying assumptions prove to be incorrect or as the results of risks, uncertainties and other factors including factors discussed in the earnings release and the comments made during today's call and in the Risk Factors section of our Form 10-K, Form 10-Qs and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. I will now turn the call over to Janelle Frost, AMERISAFE's President and CEO.

Thank you, Kathryn, and good morning. We are pleased that our growth strategy in this competitive market is yielding a healthy 20.5% return on average equity and a 90.6% combined ratio for the quarter. Our continued success in the market reflects the strength of the AMERISAFE value proposition. At our core, we are a profitable underwriter, focused on knowing our risk, pricing them appropriately and servicing our policyholders and their workers. In doing so, we are a better carrier for our agents and create long-term value for our shareholders. This is our sixth consecutive quarter of top line growth. Voluntary premiums on policies written in the quarter grew 10.6%. Combined with audit premiums, our gross premiums written grew 7.2% and net earned grew 6.2% over the third quarter of 2024. We are seeing the compound benefits of disciplined underwriting, robust new business production and strong renewal performance. Turning to losses. Our accident year loss ratio was in line with the prior year end quarter at 71%. Frequency remains at historically low levels, while severity continues to not higher on a year-over-year basis. We are confident that our claims handling practices, coupled with upfront risk selection remain consistent and disciplined in the current environment. Thus, the company experienced $8.9 million of favorable reserve development on prior accident years, primarily accident years 2020 and prior. In addition to announcing the quarterly results, we also announced the Board of Directors declared both a regular quarterly dividend of $0.39 per share, and a $1 special dividend payable on December 12, 2025, to shareholders as of record as of December 5, 2025. The Board takes a comprehensive approach when evaluating capital deployment, considering both the regular quarterly dividend, share repurchases and any special dividend within the broader framework of AMERISAFE's capital position operating performance and future growth opportunities. This balanced strategy ensures that we continue to reward shareholders while maintaining the flexibility to invest in the business and support long-term value creation. Our capital management philosophy remains consistent. Profitability drives capital and capital is deployed with discipline. We are proud of our track record. Over the past 13 years, AMERISAFE has declared nearly $50 per share in total dividends, including $12.68 in regular dividends and $37.25 in special dividends per share. Along with managing capital, the continued investment we are making in our people and technology is reflected in our solid top line growth at industry-leading returns, delivering long-term value to our shareholders. With that, I'll turn the call over to Andy to discuss the financials.

Thank you, Janelle, and good morning to everyone. For the third quarter of 2025, AMERISAFE reported net income of $13.8 million or $0.72 per diluted share and operating net income of $10.6 million or $0.55 per diluted share. During the third quarter of 2024, net income was $14.3 million or $0.75 per diluted share and operating net income was $11.1 million or $0.58 per diluted share. Gross written premiums were $80.3 million in the quarter compared with $74.9 million in Q3 of 2024, increasing 7.2%. Audit premiums increased the top line by $2.5 million compared with $4 million in the prior year quarter. Despite the audit premium headwinds, voluntary premium grew -- growth of 10.6%, fueled by new business production and strong retention is driving top line growth. Our total underwriting and other expenses were $22.1 million in the quarter compared with $21.3 million in the prior year quarter, which resulted in an expense ratio of 31.1% compared with 31.7% in the prior year quarter. The expense ratio reflects ongoing investment in AMERISAFE's growth as we see elevated opportunity in our target markets. Our effective tax rate was 21% compared with -- to 19.5% in the prior year quarter. Turning to our investment portfolio. In the third quarter, net investment income decreased 12.3% to $6.6 million, driven by a decrease in average investable assets following the payment of the special dividend in the fourth quarter of 2024. At quarter end, we held approximately $817 million in investments cash and cash equivalents compared to $899 million at September 30, 2024. The reinvestment rate environment remains fairly strong with some moderation compared to the second quarter of 2025. Yields on new investments exceeded portfolio roll-off by 77 basis points, driving the portfolio tax equivalent book yield to 3.9%, relatively flat versus the third quarter of 2024. The yield on cash held in money market funds ended the quarter at 4% compared to 4.8% at the end of the prior year quarter. The unrealized gain for the equity securities was $4.1 million compared to $3.9 million in the prior year quarter. Both periods were driven by strength in the U.S. equity market. Our investment portfolio remains high quality, carrying a double an average AA minus credit rating with a duration of 4.3 years. The composition of the portfolio is 61% of municipal bonds, 21% in corporate bonds, 3% in U.S. treasuries and agencies, 7% in equity securities and 8% in cash and other investments. Approximately 45% of the portfolio is classified as held to maturity, which maintains a net unrealized loss position of $7.6 million. As a reminder, these securities are carried at amortized costs, and therefore, unrealized gains and losses are not reflected in our reported book value. Our capital position is strong with a high-quality balance sheet, solid loss reserve position and conservative investment portfolio. During the third quarter, the company repurchased roughly 31,000 shares at average cost of $43.72 per share totaling $1.3 million. And finally, a couple of other topics. Book value per share increased to $14.47, up 7.1% year-to-date. Statutory surplus was $259 million compared to $235.1 million at year-end 2024. Lastly, we will be filing our Form 10-Q with the SEC later today, October 30, 2025, after the close of the market. With that, I'd like to turn the call over to the operator for the question-and-answer portion. Operator?

[Operator Instructions] And our first question is going to come from Matt Carletti.

Janelle, I was hoping maybe to start off, obviously, voluntary premium growth has been kind of solid double digits for a couple of quarters now, which is a great kind of emerging trend. Could you talk a little bit about where you're seeing success where that growth is coming from, if it's kind of any particular areas? Or maybe it's just more broad-based and it's pretty evenly across kind of all aspects of your business?

Thank you for noticing. And I'm also pleased to say it's more broad-based. We have grown policy count in the quarter over second quarter, we grew policy count roughly 2.7%. On a year-to-year basis, it's more like 11% year-over-year for policy count. So we're growing policy count, which is very important. Our insured payrolls are expanding as well, which is also a positive and particularly in this market when you read all of the headlines about things that are happening in unemployment and wage growth expectations. Our skilled labor jobs in our high-hazard industries are faring pretty well, so that helps support premiums in terms of payroll growth. We're seeing still very strong retention on a renewal basis for the quarter. Our renewal retention for the policies for which we offered renewal was 93.6%, and very healthy number. I think actually, that was the same number we had prior year quarter, so good. Even in this crazy competitive market that we're in, we're able to maintain those accounts that we want to maintain through a lot of collaborative effort from the AMERISAFE employees. So I can't emphasize that enough. We have a seasoned sales staff the way we utilize our safety services as part of the risk selection process is truly a value add, not only for our underwriters and helping our underwriters understand the risk and price the risk appropriately. But I'll say a value-add for our policyholders and their agents. The fact that, that is an AMERISAFE contact that they have and that builds relationships with those policyholders and with those agents. So it's critical to what we do, and it's unique to AMERISAFE. So I think that's huge on our part. And then I can't -- I certainly can't not mention our claims handling experience. From a renewal retention standpoint, I truly believe the way we handle claims benefits us from a renewals perspective. If you've had a claim and it's handled by an AMERISAFE employee, we handle it, I think, the right way, and we treat those injured workers well, and that's meaningful to a policyholder. So all of those things together, I think, is really adding to the growth effort in terms of just the amount of collaboration that we're having. We've really been focused on ease of doing business, speed to market and it's just compounding and bearing fruit now in those growth numbers. And I'll caveat that by saying all without -- we're not adding -- we haven't added class codes. We haven't added -- we haven't expanded geographically. It's really market penetration and better serving -- better working with our agents.

Great. And then if I kind of try to tie it one step further. So as I look at your business, like, I mean, financially kind of earnings returns have been strong for many years now and really unchanged if you want to look at ROE or something like that. So really strong kind of where the business is. you talked a little bit about the special dividend at the outside of the call and it is a little bit smaller than kind of some of the previous years. So would I be correct to kind of interpret that maybe an output of that is expression of your guys' confidence in the kind of the durability of that growth or that growth going forward and that that's where you'd prefer to allocate capital versus giving it back to those growth opportunities are there?

Well said, Mr. Carletti, that is exactly what you should infer into the dividend. I mean I'm excited about the dollar dividend by no question. But I think it definitely infers that we believe what we have going here in terms of our growth strategy is not short-lived that I believe it has longevity. And we've said since the very beginning when we started paying out the special dividend, part of the reason that we were returning that capital to shareholders is because we had internally made the decision. It wasn't the right time to really pour that into organic growth because we wanted that growth to be profitable growth. So now we've had these quarters of top line growth, and it's starting to flow through on the earnings. And so that dividend, we're using that capital and deploying that capital towards that organic growth.

Fantastic. I'm glad I put those puzzle pieces together okay. Thanks for the color.

[Operator Instructions] And our next question is going to come from Mark Hughes from Truist.

Janelle or I'll say, Andy, in the spirit of the question about the special dividend and the growth opportunities. How do you view your leverage now? And how much flexibility do you have on the balance sheet? And this would be underwriting leverage.

It is going up, but it's at $1. I mean from our standpoint, I don't think it's really changed. It's -- I think it's increased a little bit, but it's right at $1.

Yes. And then what would you see as kind of the upper bound kind of comfortably where would you be able to take that.

I would say about $1.5 mark.

Okay. The -- what's the latest on medical inflation.

There's been quite a few articles. AM Best actually put out a segment report on workers' compensation, and they spoke to medical inflation. Certainly, everyone has their eye on it. we're not immune to medical inflation. At the same time, I believe the fee schedules and the fee structure and workers' compensation is probably abating that to some degree for workers' compensation much more than it is for nonworkers' compensation things people are seeing in their health care renewals and those kinds of things. So I do think we have some relief from the fee schedules in terms of medical inflation. Utilization is something -- and I think we talked about this on the last call, utilization is something NCCI sort of pointed to when they talked about the 6% increase based on medical inflation, something certainly we're keeping our eyes on, particularly home health, I've been talking about for a number of years, and I'll continue to talk about home health. But even in terms of physician visits, what we've kind of noticed a little bit more PA visits, our physician assistance visits, which sometimes lead to additional visits because a doctor has to sign off on a release of a patient. So we're just keeping our eye on that. I don't know if there's anything that's more anecdotal than in the data yet, but utilization is something we want to keep our eye on since the fee schedules seem to be doing their job, and we know that there is a shortage in the health care industry, so in terms of some services being available. So those are the things we're watching out for.

Yes. What's been latest trend in terms of the approved state loss costs, the most recent ones, any trend there?

Great question. So we have, I think, 4 states that head increases, Missouri, D.C., Nevada, California, and we talked about California on the last call. Those are the ones that I think had increases. On average, what we're seeing and most of the loss costs for 2026 are already in and approved. And what we're seeing is pretty steady state mid-single-digit declines. I did look at the CIAB study because they survey agents and ask them what they're seeing in terms of their clients' renewals. And I noticed -- and they haven't put their third quarter data out, but in their second quarter data, more than 50%, we're basically seeing no change. So that would say, if that's an accurate depiction of what agents are seeing or what's actually happened in the marketplace, that would lead you to believe that carriers are being relatively disciplined about the loss cost may be down in terms of the absolute loss cost. But what they're using in terms of their average pricing is sort of flat, at least based on that agent survey. So that's a sign of, I would speak to relative discipline in the marketplace.

Yes. You'd mentioned your insured payrolls are expanding. Any specific comments on wage growth how wage growth is compared to in 3Q last few quarters?

Right. So wage growth in the quarter, we saw about 6.7%. As the total was about 8.9%. 6.7% was actual wage changes and a new employee count was 2%. So I was happy to see that 2% in new employee count. If you recall, last quarter, it was actually slightly negative and I wondered, okay, is this a blip? Or is this a data point in terms of is there something happening with integration with our particular employee base, but it sort of bounced back to norms this quarter, so I feel pretty confident about that, that was just a blip last quarter.

Yes. What was the wage last quarter, wage growth?

5.7%. Yes, if I look at the last 4 quarters, it was 5.5%, 6.3%, 5,7%, 6. 7%.

Okay. Very good. How about the large losses in the quarter?

We ended the quarter with 17 large loss is over $1 million.

That's year-to-date?

Year-to-date, yes.

Yes. That's up a little bit, isn't it.

I think at this point last year, we were at 13, if I recall correctly for 2024, but then we had an uptick in the fourth quarter. Again, I I'll go to my favorite saying, unfortunately, these things are lumpy. I never know what quarter they're going to happen in. And I'll also say this, when you -- when we file the Q later today, I believe, you'll look at claim counts. Reported claim counts on a year-to-date basis are ever so slightly up. And -- but I think it's a pretty remarkable number when you think about how much we've grown policy count, yet the claim counts really haven't varied very much. So I think that speaks to what I was saying earlier about frequency is low. I mean there's no denying there.

Yes. And then anything on the competitive front, Brand X talking more about getting into high hazard?

Great question. It is still extremely competitive. We haven't -- there hasn't been a lot of movement in terms of competitors either increasing or decreasing their appetite. I think we see it occasionally in a particular class, maybe in a given state, but it's usually because maybe they've had a bad experience in that particular state or class code. That's actually one of the selling points for AMERISAFE with our agents is the fact that we are so consistent about our approach. We've been doing this since 1986. And if you look at our footprint and the classes of business that we underwrite, there's a lot of stability there. And that's actually, to me, one of the value propositions for agents for AMERISAFE.

Yes. Any thoughts when we think about audit premium. Obviously, that's led to some just a little bit of a headwind in terms of the written premium but corrected for that, obviously, you've been up double digits. If you're seeing a little more wage growth, is that a positive for audit premium? Or should that continue to moderate, what are the puts and takes there?

That's a really interesting way to look at it. This is just my take on it. I do feel that the wage growth numbers that we're seeing now, speak well to future audit premium. At the same time, I have to be very cognizant of all the things that are happening in the economy right now with inflation and everybody is talking about jobs, jobs, jobs, and we're seeing these headlines of major layoffs. I feel our industry groups being the skilled labor is somewhat protected from the types of layoffs that we seem to be seeing nationwide. A lot of those are at least being anecdotally been pointed to things like AI is helping us gain efficiencies, et cetera, et cetera, and that's why we're lowering head count. But I do think companies are looking for efficiencies as well. That being said, with skilled labor jobs, a little bit of a different story there. So if we can maintain the wage growth, it should bear well for future audit premium moderating, I would think, over time.

Yes. Yes. Okay. And then last cantered question. How about the construction end market, the next job being important, any observations there?

Yes. Based on the payrolls that are being reported to us and the fact that I'll point to that new employee count number kind of bouncing back to normal, the economies for our insured base are holding up really well as of right now.

[Operator Instructions] And our next question is going to come from Bob Farnam from Janney.

There was -- Mark Hughes asked the question about the claims count, given the growth in the top line in the graph and the number of policies. Actually, I had a question on your claims staff. I mean did you -- have you increased claims staff to be able to handle an influx of more claims, even though I understand that the frequency down it really hasn't happened yet, but I'm just kind of curious how your claims staff is situated in case claims do start to increase.

No, we have not really increased the number of claims staff, but I'll backtrack on that a little bit to say we run a very lean organization. But at the same time, when our claim counts were dipping down, we also did not decrease our claims staff because of the expertise they bring to the table and we want to keep those inventories really low, that's not something that we felt like we should dial down and dial back -- and then try to dial back up. So the number of claims staff has not changed.

Okay. I figured they have -- I mean I understand they have a lower volume of claims they already handled. So I didn't -- I wasn't surprised that they will be able to handle it in-house, but just curious. Do you guys -- are you actively looking to expand into any other states? And if so, what's causing you not to at this point? I'm just kind of curious if you're even looking at this point.

We are constantly looking. We have a committee here that is always looking at geographies of where we're not and maybe where we should be or where we are and maybe we're not having a great experience, whatever the case may be. And so I would always say that we are continually considering that, nothing on the near horizon.

Right. Okay. And the last question I had was on the fee schedules. Obviously, it sounds like that's helping to contain medical costs. I just didn't know, on average, how long do fee schedules stay in place before they're renewed? And do you see that fee schedules are renewed, will they have an impact?

Yes, very, very appropriate. They are updated somewhat regularly. And of course, a lot of them are based off -- there's a lot of things based off Medicare and Medicaid. So however, how often that gets updated. And plus it also there's also a political side to that. If I can say if workers' compensation becomes an issue in any given state, legislatively, they will get involved to make some things happen. And as of right now, and I'll knock on this wooden desk, I say workers' comp doesn't seem to be at the top of anyone's agenda because there are so many other things happening in the P&C space, particularly with homeowners and auto, that legislators are more apt to try to find solutions for and workers' comp has been pretty kind of steady state. So I think employers are relatively happy with the things that are happening. Carriers are pretty much satisfied with the way things are happening. So as of right now, it doesn't seem to be on the top, at least to my knowledge, on the top of any legislative agendas in a large way that would cause the fee schedules to change.

Yes. No, it can make sense. Don't fix what's not broken at this point.

And there appears to be no further questions in the queue at this time. I'd now like to turn the conference back over to Janelle Frost, CEO, for any additional or closing remarks.

Thank you. We are pleased with this quarter's results and the successes we're having in adding small incremental growth while maintaining the standards that make AMERISAFE a profitable underwriter of high hazard workers' compensation. Thank you for joining us today.