AMERISAFE INC

Previous wording

We begin our discussion with an overview of our Company to give you an understanding of our business and the markets we serve. We then discuss our critical accounting policies. This is followed with a discussion of our results of operations for the three months ended March 31, 2024 and 2023. This discussion includes an analysis of certain significant period-to-period variances in our consolidated statements of operations. Our cash flows and financial condition are discussed under the caption “Liquidity and Capital Resources.”

Current wording

We begin our discussion with an overview of our Company to give you an understanding of our business and the markets we serve. We then discuss our critical accounting policies. This is followed with a discussion of our results of operations for the three and six months ended June 30, 2024 and 2023. This discussion includes an analysis of certain significant period-to-period variances in our consolidated statements of operations. Our cash flows and financial condition are discussed under the caption “Liquidity and Capital Resources.”

Previous wording

The following table summarizes our consolidated financial results for the three months ended March 31, 2024 and 2023.

Current wording

The following table summarizes our consolidated financial results for the three and six months ended June 30, 2024 and 2023.

Previous wording

Gross Premiums Written. Gross premiums written for the quarter ended March 31, 2024 were $80.1 million, compared to $82.5 million for the same period in 2023, a decrease of 2.9%. The decrease was attributable to a $2.5 million decrease in payroll audits and related premium adjustments for policies written in previous quarters partially offset by a $0.3 million increase in residual market premium.

Current wording

Gross Premiums Written. Gross premiums written for the quarter ended June 30, 2024 were $76.4 million, compared to $71.7 million for the same period in 2023, an increase of 6.6%. The increase was attributable to a $2.5 million increase in payroll audits and related premium adjustments for policies written in previous quarters and a $1.8 million increase in annual premiums on voluntary policies written during the period and a $0.4 million increase in residual market premiums.

Previous wording

Net Premiums Written. Net premiums written for the quarter ended March 31, 2024 were $76.1 million, compared to $78.3 million for the same period in 2023, a decrease of 2.8%. The decrease was primarily attributable to the decrease in gross premiums written. As a percentage of gross premiums earned, ceded premiums were 5.4% for the first quarter of 2024 compared to 5.7% for the first quarter of 2023. The decrease in ceded premiums as a percentage of gross premiums earned is a result of a change in our 2024 reinsurance treaties. For additional information, see Item 1, “Business—Reinsurance” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

Net Premiums Written. Net premiums written for the quarter ended June 30, 2024 were $72.4 million, compared to $67.7 million for the same period in 2023, an increase of 6.9%. The increase was primarily attributable to the increase in gross premiums written. As a percentage of gross premiums earned, ceded premiums were 5.5% for the second quarter of 2024 compared to 5.7% for the second quarter of 2023. The decrease in ceded premiums as a percentage of gross premiums earned is a result of a change in our 2024 reinsurance treaties. For additional information, see Item 1, “Business—Reinsurance” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

Net Premiums Earned. Net premiums earned for the first quarter of 2024 were $68.4 million, compared to $69.2 million for the same period in 2023, a decrease of 1.1%. The decrease was primarily attributable to the decrease in net premiums written during the period.

Current wording

Net Premiums Earned. Net premiums earned for the second quarter of 2024 were $68.6 million, compared to $65.6 million for the same period in 2023, an increase of 4.6%. The increase was primarily attributable to the increase in net premiums written during the period.

Previous wording

Net Investment Income. Net investment income for the quarters ended March 31, 2024 and 2023 was $7.4 million. Average invested assets, including cash and cash equivalents, were $902.9 million in the quarter ended March 31, 2024 compared to an average of $960.7 million for the same period in 2023, a decrease of 6.0%. The pre-tax investment yield on our investment portfolio was 3.3% per annum during the quarter ended March 31, 2024 compared to 3.1% per annum during the same period in 2023. The tax-equivalent yield on our investment portfolio was 3.7% per annum for the quarter ended March 31, 2024 and 3.5% for the same period in 2023. The tax-equivalent yield is calculated using the effective interest rate and the appropriate marginal tax rate.

Current wording

Net Investment Income. Net investment income for the quarter ended June 30, 2024 was $7.4 million, compared to $7.7 million for the same period in 2023, a decrease of 3.6%. The decrease was due to lower investment yields on fixed income securities and cash balances compared to prior year. Average invested assets, including cash and cash equivalents, were $888.7 million in the quarter ended June 30, 2024 compared to an average of $964.1 million for the same period in 2023, a decrease of 7.8%. The pre-tax investment yield on our investment portfolio was 3.3% per annum during the quarter ended June 30, 2024 compared to 3.2% per annum during the same period in 2023. The tax-equivalent yield on our investment portfolio was 3.8% per annum for the quarter ended June 30, 2024 and 3.6% for the same period in 2023. The tax-equivalent yield is calculated using the effective interest rate and the appropriate marginal tax rate.

Previous wording

Net Realized Gains (Losses) on Investments. Net realized losses on investments for the three months ended March 31, 2024 were $0.2 million compared to net realized gains of $0.3 million for the same period in 2023. Net realized losses in the first quarter of 2024 were mostly attributable to sales of fixed maturity securities classified as available-for-sale. Net realized gains in the first quarter of 2023 were attributable to the sale of equity and fixed maturity securities classified as available-for-sale.

Current wording

Net Realized Gains (Losses) on Investments. Net realized losses on investments for the three months ended June 30, 2024 were $0.1 million compared to net realized gains of $0.1 million for the same period in 2023. Net realized losses in the second quarter of 2024 were mostly attributable to sale of equity securities. Net realized gains in the second quarter of 2023 were mostly attributable to sales of fixed maturity securities classified as available-for-sale.

Previous wording

Net Unrealized Gains on Equity Securities. The market value of our equity securities increased by $4.8 million for the three months ended March 31, 2024 compared to an increase of $1.4 million for the same period in 2023.

Current wording

Net Unrealized Gains (Losses) on Equity Securities. The market value of our equity securities decreased by $0.1 million for the three months ended June 30, 2024 compared to an increase of $2.0 million for the same period in 2023.

Previous wording

Loss and Loss Adjustment Expenses Incurred. Loss and loss adjustment expenses (LAE) incurred totaled $40.0 million for the three months ended March 31, 2024, compared to $39.0 million for the same period in 2023, an increase of $1.0 million, or 2.5%. The current accident year loss and LAE incurred were $48.6 million compared to $49.1 million for the same period in 2023. Our initial estimate of the loss and LAE ratio for accident year 2024 remains unchanged at 71.0% of net premiums earned, consistent with the estimate initially set for accident year 2023, and is based on long-term claim frequency and severity trends, as well as medical inflation. We recorded favorable prior accident year development of $8.6 million in the first quarter of 2024, compared to favorable prior accident year development of $10.1 million in the same period of 2023, as further discussed below in “Prior Year Development.” Our net loss ratio was 58.4% in the first quarter of 2024, compared to 56.4% for the same period of 2023.

Current wording

Loss and Loss Adjustment Expenses Incurred. Loss and loss adjustment expenses (LAE) incurred totaled $40.6 million for the three months ended June 30, 2024, compared to $35.6 million for the same period in 2023, an increase of $5.0 million, or 14.0%. The current accident year loss and LAE incurred were $48.7 million compared to $46.6 million for the same period in 2023. Our initial estimate of the loss and LAE ratio for accident year 2024 remains unchanged at 71.0% of net premiums earned, consistent with the estimate initially set for accident year 2023, and is based on long-term claim frequency and severity trends, as well as medical inflation. We recorded favorable prior accident year development of $8.1 million in the second quarter of 2024, compared to favorable prior accident year development of $10.9 million in the same period of 2023, as further discussed below in “Prior Year Development.” Our net loss ratio was 59.2% in the second quarter of 2024, compared to 54.3% for the same period of 2023.

Previous wording

Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other operating costs, commissions and salaries and benefits for the quarter ended March 31, 2024 were $18.7 million, compared to $17.0 million for the same period in 2023. This increase was primarily due to a profit sharing reinsurance commission benefit of $3.3 million in last year's first quarter and a $1.0 million increase in compensation expense. These increases were partially offset by a $2.0 million decrease in insurance related assessments and a $0.4 million decrease in professional fees. Our expense ratio was 27.3% in the first quarter of 2024 compared to 24.5% in the first quarter of 2023.

Current wording

Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other operating costs, commissions and salaries and benefits for the quarter ended June 30, 2024 were $20.4 million, compared to $20.0 million for the same period in 2023. This increase was primarily due to a $0.6 million increase in insurance related assessments, a $0.5 million increase in professional fees and a $0.3 million increase in compensation expense. Partially offsetting these amounts was an increase of $0.9 million in profit sharing reinsurance commission. Our expense ratio was 29.8% in the second quarter of 2024 compared to 30.4% in the second quarter of 2023.

Previous wording

Income Tax Expense. Income tax expense for the three months ended March 31, 2024 was $3.8 million, compared to $4.2 million for the same period in 2023. The effective tax rate for the Company was 18.4% in the quarter ended March 31, 2024 and 19.5% for the same period in 2023. The decrease in the effective tax rate was due to a higher proportion of income from tax-exempt investments compared to the same period of 2023.

Current wording

Income Tax Expense. Income tax expense for the three months ended June 30, 2024 was $2.8 million, compared to $3.9 million for the same period in 2023. The effective tax rate for the Company for quarter ended June 30, 2024 was 20.0% compared to 20.1% in the second quarter of 2023. The decrease in the effective tax rate is due to a higher proportion of income from tax-exempt investments for the three months ended June 30, 2024 compared with the same period of 2023.

Previous wording

Net cash provided by operating activities was $7.5 million for the three months ended March 31, 2024, which represented a $6.0 million decrease from $13.5 million in net cash provided by operating activities for the three months ended March 31, 2023. This decrease in operating cash flow was due to a $11.8 million decrease in reinsurance recoveries and a $0.4 million decrease in investment income. Offsetting these amounts were a $5.9 million decrease in losses paid and a $0.5 million increase in premium collections.

Current wording

Net cash provided by operating activities was $4.9 million for the six months ended June 30, 2024, which represented a $15.8 million decrease from $20.7 million in net cash provided by operating activities for the six months ended June 30, 2023. This decrease in operating cash flow was due to a $12.7 million decrease in reinsurance recoveries, a $1.8 million increase in federal taxes paid, a $1.3 million decrease in net investment income and a $0.7 million increase in underwriting expenses paid. Partially offsetting these decreases were a $0.6 million increase in premium collections and a $0.3 million decrease in losses paid.

Previous wording

Net cash used in investing activities was $5.7 million for the three months ended March 31, 2024, compared to net cash used in investment activities of $27.2 million for the same period in 2023. Cash provided by sales and maturities of investments totaled $36.9 million for the three months ended March 31, 2024, compared to $24.1 million for the same period in 2023. A total of $41.9 million in cash was used to purchase investments in the three months ended March 31, 2024, compared to $51.2 million in purchases for the same period in 2023. A total of $0.7 million in cash was used to purchase property and equipment in the three months ended March 31, 2024 compared to immaterial purchases for the same period in 2023.

Current wording

Net cash provided by investing activities was $5.8 million for the six months ended June 30, 2024, compared to net cash used in investment activities of $34.3 million for the same period in 2023. Cash provided by sales and maturities of investments totaled $65.6 million for the six months ended June 30, 2024, compared to $59.7 million for the same period in 2023. A total of $59.1 million in cash was used to purchase investments in the six months ended June 30, 2024, compared to $94.0 million in purchases for the same period in 2023. A total of $0.8 million in cash was used to purchase property and equipment in the six months ended June 30, 2024 compared to immaterial purchases for the same period in 2023.

Previous wording

Net cash used in financing activities in the three months ended March 31, 2024 was $7.1 million compared to net cash used in financing activities of $6.5 million for the same period in 2023. In the three months ended March 31, 2024, $7.1 million of cash was used for dividends paid to shareholders compared to $6.5 million in the same period of 2023.

Current wording

Net cash used in financing activities in the six months ended June 30, 2024 was $18.8 million compared to net cash used in financing activities of $13.9 million for the same period in 2023. In the six months ended June 30, 2024, $14.2 million of cash was used for dividends paid to shareholders compared to $13.1 million in the same period of 2023. In the six months ended June 30, 2024, there were repurchases of outstanding shares of our common stock of $4.1 million compared to none for the same period in 2023. Share-based compensation related payroll tax withholding was $0.4 million in the six months ended June 30, 2024 compared to $0.8 million in the same period in 2023.

Previous wording

Our investment portfolio, including cash and cash equivalents, totaled $899.9 million at March 31, 2024, an increase of 0.4% from December 31, 2023. Purchases of fixed maturity securities are classified as available-for-sale or held-to-maturity at the time of purchase based on the individual security. The Company has the ability and positive intent to hold certain investments until maturity. Therefore, fixed maturity securities classified as held-to-maturity, as defined by FASB ASC Topic 320, Investments-Debt and Equity Securities, are recorded at amortized cost net of allowance for credit losses. Our equity securities and fixed maturity securities classified as available-for-sale are reported at fair value.

Current wording

Our investment portfolio, including cash and cash equivalents, totaled $884.2 million at June 30, 2024, a decrease of 1.4% from December 31, 2023. Purchases of fixed maturity securities are classified as available-for-sale or held-to-maturity at the time of purchase based on the individual security. The Company has the ability and positive intent to hold certain investments until maturity. Therefore, fixed maturity securities classified as held-to-maturity, as defined by FASB ASC Topic 320, Investments-Debt and Equity Securities, are recorded at amortized cost net of allowance for credit losses. Our equity securities and fixed maturity securities classified as available-for-sale are reported at fair value.

Previous wording

Our debt securities classified as available-for-sale are “marked to market” as of the end of each calendar quarter. As of that date, unrealized gains and losses that are not credit related are recorded to Accumulated Other Comprehensive Loss. Any available-for-sale credit related losses would be recognized as a credit loss allowance on the balance sheet with a corresponding adjustment to earnings, limited by the amount that the fair value is less than the amortized cost basis. Both the credit loss allowance and adjustment to net income can be reversed if conditions change.

Current wording

Our debt securities classified as available-for-sale are “marked to market” as of the end of each calendar quarter. As of that date, unrealized gains and losses that are not credit related are recorded to Accumulated Other Comprehensive Income (Loss). Any available-for-sale credit related losses would be recognized as a credit loss allowance on the balance sheet with a corresponding adjustment to earnings, limited by the amount that the fair value is less than the amortized cost basis. Both the credit loss allowance and adjustment to net income can be reversed if conditions change.

Previous wording

The Company recorded favorable prior accident year development of $8.6 million in the three months ended March 31, 2024. The table below sets forth the favorable development for the three months ended March 31, 2024 and 2023 for accident years 2019 through 2023 and, collectively, for all accident years prior to 2019.

Current wording

The Company recorded favorable prior accident year development of $8.1 million in the three months ended June 30, 2024. The table below sets forth the favorable development for the three and six months ended June 30, 2024 and 2023 for accident years 2019 through 2023 and, collectively, for all accident years prior to 2019.

Previous wording

The table below sets forth the number of open claims as of March 31, 2024 and 2023, and the number of claims reported and closed during the three months then ended.

Current wording

The table below sets forth the number of open claims as of June 30, 2024 and 2023, and the number of claims reported and closed during the three and six months then ended.

Previous wording

The number of open claims at March 31, 2024 decreased by 495 claims as compared to the number of open claims at March 31, 2023. At March 31, 2024, our incurred amounts for certain accident years, primarily accident years 2017 through 2020, developed more favorably than management previously expected. The revisions to the Company’s reserves reflect new information gained by claims adjusters in the normal course of adjusting claims and is reflected in the financial statements when the information becomes available. It is typical for more serious claims to take several years or longer to settle and the Company continually revises estimates as more information about claimants’ medical conditions and potential disability becomes known and the claims get closer to being settled. Multiple factors can cause both favorable and unfavorable loss development. The favorable loss development we experienced across accident years was largely due to favorable case reserve development from closed claims and claims where the worker had reached maximum medical improvement.

Current wording

The number of open claims at June 30, 2024 decreased by 272 claims as compared to the number of open claims at June 30, 2023. At June 30, 2024, our incurred amounts for certain accident years, primarily 2020 through 2022, developed more favorably than management previously expected. The revisions to the Company’s reserves reflect new information gained by claims adjusters in the normal course of adjusting claims and is reflected in the financial statements when the information becomes available. It is typical for more serious claims to take several years or longer to settle and the Company continually revises estimates as more information about claimants’ medical conditions and potential disability becomes known and the claims get closer to being settled. Multiple factors can cause both favorable and unfavorable loss development. The favorable loss development we experienced across accident years was largely due to favorable case reserve development from closed claims and claims where the worker had reached maximum medical improvement.