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AMERISAFE, Inc. (AMSF) Q4 2022 Earnings Call Transcript

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AMERISAFE, Inc. (NASDAQ:AMSF) Q4 2022 Earnings Conference Call February 21, 2023 11:00 AM ET

Company Participants

Kathryn Shirley - Chief Administrative Officer

Janelle Frost - President and CEO

Andy Omiridis - Chief Financial Officer

Conference Call Participants

Mark Hughes - Truist Securities

Operator

Good day, and invited to nan AMERISAFE 2022 Fourth Quarter Earnings Conference Call. Today's convention is being recorded.

At this time, I would for illustration to move nan convention complete to Kathryn Shirley. Please spell ahead.

Kathryn Shirley

Good morning. Welcome to nan AMERISAFE 2022 4th fourth investor call. If you person not received nan net release, it is disposable connected our website astatine www.amerisafe.com. This telephone is being recorded. A replay of today's telephone will beryllium available. Details connected really to entree nan replay are successful nan net release.

During this call, we will beryllium making forward-looking statements. These statements are based connected existent expectations and assumptions that are taxable to various risks and uncertainties. Actual results whitethorn disagree materially from nan results expressed aliases implied successful these statements if nan underlying assumptions beryllium to beryllium incorrect aliases arsenic nan consequence of risks, uncertainties and different factors, including factors discussed successful today's net release, successful nan comments made during this telephone and successful nan Risk Factors conception of our Form 10-K, Form 10-Qs and different reports and filings pinch nan Securities and Exchange Commission. We do not undertake immoderate work to update immoderate forward-looking statements.

I will now move nan telephone complete to Janelle Frost, AMERISAFE's President and CEO.

Janelle Frost

Thank you, Kathryn, and bully morning, everyone. We are pleased to study continued beardown results for nan 4th fourth and nan afloat twelvemonth of 2022. For nan year, we reported a mixed ratio of 83.6%, gross premiums written diminution of little than 1 constituent contempt complaint unit arsenic nonaccomplishment costs proceed to trend down, and an operating ROE of 16.5%. Our equilibrium expanse remains beardown pinch astir $1 cardinal successful investments successful cash, a beardown reserve position and nary outstanding debt.

We proceed to spot beardown retention successful policies for which we connection renewal pinch 94.6% retention successful 4th quarter. Our wide pricing, arsenic measured by ELCM, was a 151 for nan 4th quarter. As we look ahead, competitory pressures and nonaccomplishment costs declines are expected to stay a headwind, though we expect costs maturation to beryllium mostly -- a mostly mitigating facet successful nan adjacent term.

Digging into costs maturation a small further. When looking astatine this metric connected a year-over-year basis, nan results will beryllium muted fixed nan beardown costs maturation we saw successful 2022. Additionally, I'd for illustration to statement that payroll maturation is chiefly coming from existing employees.

Moving to losses. The mishap twelvemonth nonaccomplishment ratio remained dependable astatine 71% passim nan year. During nan quarter, we knowledgeable $10 cardinal successful favorable anterior twelvemonth development, chiefly from mishap years 2017 to 2020. For nan afloat year, we released astir $40 cardinal successful favorable improvement arsenic progressive claims handling resulted successful little declare severities.

As outlined connected our telephone a twelvemonth ago, we focused connected utilizing nan driblet successful reported claims to find avenues to resoluteness and adjacent unfastened claims. For 2022, we ended nan twelvemonth pinch 13 terrible claims compared to 19 astatine year-end 2021 and 18 astatine year-end 2020. In this instance, I specify a terrible declare arsenic those pinch lawsuit reserves incurred successful excess of $1 million.

As it relates to nonaccomplishment trends, wave and severity are some wrong our expectations. We expect aesculapian ostentation to statesman to tick up successful nan backmost half of nan twelvemonth arsenic our acquisition successful definite pockets of nan wellness marketplace are exhibiting very early indicators. Bringing each nan pieces of nan nonaccomplishment ratio together and fixed nan accusation we person now, we expect to clasp our mishap twelvemonth nonaccomplishment ratio dependable astatine 71% successful nan first 4th of 2023.

Finally, arsenic it relates to superior management, AMERISAFE's Board of Directors has approved a 9.7% summation successful nan regular quarterly dividend to $0.34. With our agelong tenure of acquisition successful high-hazard niche, we are good positioned to clasp our policyholders and compete for caller business, while delivering robust returns to our shareholders.

With that, I'd for illustration to move nan telephone complete to Andy to talk nan financials.

Andy Omiridis

Thank you, Janelle, and bully greeting to everyone. For nan 4th fourth of 2022, AMERISAFE reported nett income of $20.8 cardinal aliases $1.08 per diluted stock and operating income -- nett income of $16.1 cardinal aliases $0.84 per diluted share. This compares favorably pinch Q4 2021 nett income of $3.5 cardinal aliases $0.18 per diluted stock and a nett operating nonaccomplishment of $9,000 pinch nan quality chiefly driven by ample claims successful nan anterior year.

For nan afloat year, nett income was $55.6 cardinal and nett operating income was $59.3 cardinal compared pinch $65.8 cardinal and $54.7 cardinal successful 2021, respectively. The diminution successful nett income was driven by astir $20.4 cardinal supra move, sorry, successful our unrealized equity securities position.

Gross written premiums were $55.6 cardinal successful nan 4th and $276.1 cardinal for nan afloat year, some comparatively level connected a year-over-year basis. During nan quarter, voluntary premiums decreased 4.5%, which was mostly offset by payroll audit and related premium adjustments of $2.3 million. For nan afloat year, voluntary premiums declined by 5.9%, partially offset by audit and related premium adjustments of $14 million. Rates stay pressured arsenic nan manufacture continues to acquisition declines successful improved nonaccomplishment costs.

The mishap twelvemonth nonaccomplishment ratio was 71% for some nan 4th fourth and afloat year. The nett nonaccomplishment ratio for nan 4th was 55.3% and 56.1% for nan afloat year, which reflects $10.4 cardinal successful favorable nonaccomplishment improvement successful nan 4th and $40.6 cardinal for nan afloat year. Our full underwriting and different expenses were $17.4 cardinal successful nan quarter, resulting successful an disbursal ratio of 26.4% compared pinch 24.7% successful nan 4th fourth of 2021.

For nan afloat year, underwriting and different expenses were $72 cardinal aliases 26.5% compared pinch 26.1% successful nan anterior year. The summation successful nan disbursal ratio was mostly owed to little earned premium arsenic underwriting and different expenses for nan afloat twelvemonth were mostly unchanged.

Turning to our finance portfolio. The finance portfolio is precocious value carrying an mean AA- in installments standing pinch long of 4.2 years. The creation of nan portfolio is 60% successful municipal bonds, which includes 15% successful taxable munis, 22% successful firm bonds, 3% successful U.S. treasuries and agencies, 7% successful equity securities and 7% successful rate and different investments. Approximately 60% of our portfolio is comprised of held-to-maturity securities.

In nan 4th quarter, nett finance income accrued 25.8% to $7.6 cardinal from $6.1 cardinal successful nan anterior twelvemonth quarter. The summation was driven by yields connected money marketplace costs and slope accounts, arsenic good arsenic higher reinvestment rates connected fixed maturity securities. For nan afloat year, nett finance income grew 7% to $27.2 cardinal from $25.4 cardinal successful 2021.

Yield connected caller investments accrued astir 291 ground points, driving our taxation balanced book output to 3.38% aliases 71 ground points higher than nan erstwhile year. Our superior position is beardown pinch a high-quality equilibrium sheet, coagulated nonaccomplishment reserve position and blimpish finance portfolio. In total, operating return connected mean equity was 16.5%.

With that, I would for illustration to unfastened nan telephone for nan question-and-answer information of nan call. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We'll spell to our first mobility from Mark Hughes pinch Truist.

Mark Hughes

Yes. Thank you. Good morning.

Janelle Frost

Good morning, Mark.

Mark Hughes

Your remark astir inflation, Janelle, you opportunity you're seeing successful definite pockets. Could you possibly amplify connected that a small bit? It seems for illustration nan aesculapian inflation, astatine slightest arsenic nan past measurement was -- had decelerated a small bit, but you're intelligibly seeing thing different. I wonderment if you could talk a small much astir that.

Janelle Frost

Certainly, certainly. If you deliberation astir nan aesculapian costs associated pinch our types of claims, terrible injuries, obviously, things specified arsenic durable aesculapian equipment, DME, it makes up a important information of our cost, aesculapian costs that we salary out. And pinch proviso concatenation issues and things happening post-pandemic wellness crisis, we've decidedly seen an summation successful those costs.

Hopefully, pinch proviso concatenation issues, that will tamper it down to immoderate degree, we've surely seen ostentation connected durable aesculapian equipment. And past complete nan past mates of calls, I've conscionable talked astir nan absolute costs of peculiar what I would telephone location health, nursing, LPN, CNAs that would for illustration -- we for illustration to put successful location situation to thief pinch our injured workers that person a semipermanent wellness component. Obviously, I deliberation we've each publication astir nan costs unit that nan wellness attraction manufacture is experiencing successful that regard. And truthful that's impactful to us.

So possibly not aesculapian ostentation arsenic a whole, for illustration we travel nan aforesaid trends that nan manufacture -- that everyone other is following, but location are surely pockets of those costs that we are keeping our oculus on.

Mark Hughes

Understood. And past connected nonaccomplishment costs, I deliberation I've asked nan mobility nan past mates of quarters. Just nan caller state-by-state trends, thing caller you're seeing there? Is it still arsenic antagonistic arsenic it had been?

Janelle Frost

Right. I deliberation nan past number coming retired of NCCI was expected to beryllium down nonaccomplishment costs arsenic a full for nan NCCI states being down 7.3% for 2023. But if I look astatine nan latest floor plan that conscionable shows nan astir caller complaint filings by state, conscionable to springiness you an bid of magnitude, location are only 2 that are showing increases that's Hawaii and Minnesota.

And past nan decreases scope from 9.1% to 16.8%. So that's a very wide swing. And again, nan 16.8% was D.C. But utilizing -- I'll usage Georgia, arsenic an example, 1 of our larger states. Georgia was down 13.7% successful their past complaint filing aliases nonaccomplishment costs filings. I mean, truthful those important drivers.

Mark Hughes

Yes. So adjacent to opportunity it's not getting immoderate amended if you look astatine those numbers…

Janelle Frost

Yes. As amended means, are we going to spot -- are we seeing nan increases, no. Are we seeing a slowing complaint of decrease, perhaps.

Mark Hughes

Yes, yes. Okay. You utilized nan connection muted successful your script. And I did not prime up what that was referring to. Wonder if you could...

Janelle Frost

Yes, nary problem. I was referring to costs growth. So conscionable tagging connected to nan speech we conscionable had astir nonaccomplishment costs. So we person this anticipation that each different things being equal, we're going to beryllium facing complaint decreases successful 2023. What we deliberation will thief mitigate that to immoderate grade is nan truth that we proceed to spot costs growth. So that benignant of mitigates nan -- I don't want to opportunity wholly offset. We'll spot what happens successful 2023. But certainly, nan truth that we've seen costs growth, and it's been comparatively strong, I think, does mitigate that facet to immoderate degree. I mean that's what we've benignant of knowledgeable successful nan past 2 quarters, moreover though we've been down somewhat connected a voluntary indebtedness basis, pinch payroll audits and audit premium, we've been comparatively flat.

Mark Hughes

Yes, yes. Anything you're seeing successful your extremity marketplace building activity, immoderate benignant of alteration successful tone?

Janelle Frost

It's very interesting. So if I guidelines it conscionable disconnected of nan payrolls that are reported to america connected a monthly basis, I would opportunity activity activity is robust. We're seeing costs growth. We're seeing -- we opportunity astir 2% of that is astir apt coming from caller employees. But it hasn't -- nan past fewer quarters person been very strong.

So if I look astatine conscionable nan information that I'm receiving, I would say, each is well. I publication nan aforesaid headlines everybody other sounds astir is location going to beryllium a recession, is there's a imaginable for a recession? I deliberation location was a header successful nan Wall Street Journal coming astir rental -- commercialized rental properties. We conscionable haven't really seen it, and I'm going to sound connected wood here, we really conscionable haven't seen it travel crossed successful our book of business arsenic slowing down.

Mark Hughes

Yes. I admit nan sound effects there.

Janelle Frost

Thanks.

Mark Hughes

And past possibly 1 more. Any improvement connected that ample 4th fourth claim? Did that thief successful nan 4th quarter?

Janelle Frost

No -- yes, you're right. So if you're looking astatine nan comparative 4th fourth 2021 is erstwhile we reported nan catastrophic claims. I tin -- arsenic I beryllium present today, I'd opportunity I'm very comfortable pinch nan reserves that we established astatine nan extremity of nan twelvemonth successful 2021, and there's been nary improvement successful regards to those reserves.

Mark Hughes

Okay. Thank you very much.

Operator

Thank you. We will move nan telephone backmost complete to management.

Janelle Frost

Thank you for joining america today. We are pleased pinch nan result of 2022, and we look guardant to continued occurrence successful 2023. Happy [indiscernible].

Operator

This does reason today's convention call. You whitethorn now disconnect.

Editor: Naga



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