AMERISAFE, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, operator, and good morning, everyone.

Welcome to the AMERISAFE 2026 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 a result of risks, uncertainties and other factors, including factors discussed in the earnings release, in 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. I will now turn the call over to Janelle Frost, AMERISAFE's President and CEO.

Thank you, Catherine, and good morning, everyone. Joining me today are Guillermo Ramos, our Chief Financial Officer, and Vincent Gagliano, our Chief Risk Officer. AMERISAFE continues to demonstrate the disciplined underwriting, reserve strength, and capital management that we've defined our company throughout multiple market cycles. While competitive pressures in workers' compensation were elevated, the quarter reinforced several key strengths of our franchise. We grew policy count, we achieved strong renewal retention, we generated favorable reserve development, and maintained exceptional balance sheet strength. These results reflect both the resilience of our business model and the value of our specialized approach to serving hazardous industries. Our strategy emphasizes risk selection, pricing discipline, and long-term profitability. The workers' compensation marketplace is increasingly competitive, with some carriers prioritizing premium growth over underwriting returns. Our approach remains unchanged. Preserve underwriting integrity through the cycle to create superior value for our shareholders.

We believe this positions AMERISAFE exceptionally well to capitalize on opportunities as market conditions evolve. During the quarter, net premiums earned increased 3% year-over-year, supported by continued growth in policy count, strong retention of existing accounts. Voluntary premium on policies written in the quarter grew 0.8%, led by continued strong pricing. We renewed 92.3% of the policies for which we offered renewal. However, competition intensified in the quarter in select states, which slowed our new premium growth. Turning to losses, our current accident year loss ratio remains at 72%. We continue to monitor frequency, severity, and medical trends closely. As we've discussed in previous quarters, medical inflation remains an area of focus for the workers' compensation industry. Throughout the third quarter, both frequency and severity for the current accident year were in line with the prior accident year, with claims reported exceeding premium growth.

Our claims team continues to demonstrate their expertise in actively managing claims and finding opportunities to resolve them effectively and efficiently. We experienced $6.9 million of favorable reserve development during the quarter, primarily from accident years 2023 and prior. We attribute that favorable development to our proactive claims handling and the consistent approach our team takes from the time a claim is reported through resolution. Our ability and experience in handling severe claims and our reserve strength continue to be distinguishing characteristics for AMERISAFE. We remain confident in our long-term outlook for our business and our ability to create sustainable value for shareholders through disciplined underwriting, prudent capital management, and operational excellence. With that, I'll turn the call over to Guillermo.

Thank you, Janelle. Good morning, everyone. For the third quarter of 2026, AMERISAFE reported net income of $7.2 million, or $0.39 per diluted share, and operating net income of $7.4 million, or $0.40 per diluted share. For reference, in the third quarter of 2025, net income was $13.8 million or $0.72 per diluted share, and operating net income was $10.6 million or $0.55 per diluted share. Turning to premiums. Gross written premiums decreased 4.5% to $76.7 million from $80.3 million in the third quarter of 2025. Payroll audits and related adjustments reduced premiums by $1.6 million this quarter, compared with a $2.5 million increase in the prior year quarter. Excuse me. Despite the unfavorable audit and related premium adjustments during the quarter, net premiums earned increased 3% to $73.3 million from $71.2 million, supported by strong premium production in recent quarters.

Total underwriting and other expenses were $23.8 million, compared to $22.1 million in the third quarter of 2025, resulting in an expense ratio of 32.5%, compared with 31.1% a year ago. The increase was driven by increased insurance-related assessments, higher compensation costs, and higher commission expense. Our effective tax rate for the quarter was 20%, compared to 21% in the prior year quarter. The decrease was due to a higher proportion of income from tax-exempt investments. Turning to investments. Net investment income was $6.6 million in the quarter, an increase of 0.6% from the third quarter of 2025. The investment rate environment remained favorable, with yields on new investments exceeding portfolio roll-offs yields by approximately 146 basis points. As a result, the tax equivalent book yield increased to 4%, up nine basis points from the third quarter of 2025.

Our portfolio remains conservatively positioned, carrying an average A minus credit rating and a duration of 4.7 years. At quarter end, we held approximately $753 million in investments, cash, and cash equivalents. The portfolio was comprised of 58% municipal bonds, 25% corporate bonds, 3% US Treasuries and agencies, 9% equity securities, and 5% cash and cash equivalents. Approximately 41% of the portfolio was classified as held to maturity and carry a net unrealized loss position of $23.8 million. As a reminder, these securities are carried at amortized cost, and therefore, unrealized gains and losses are not reflected in reported book value. Our diversified equity holdings recorded a modest unrealized loss of $0.2 million, compared to $4.1 million unrealized gain in the prior year quarter. Statutory surplus was $208.4 million at quarter end, compared to $217.8 million at year-end 2025.

Book value per share decreased to 12.8, down 4.8% year-to-date. During the quarter, we repurchased approximately 5,000 shares at an average price of $30.18 per share, representing $0.2 million return to shareholders. Overall, the quarter reflected growth in earned premiums and continued improvement in portfolio yields, partially offset by unfavorable audit premium adjustments and higher expenses. We remain focused on disciplined underwriting, profitable premium production, and improving operating leverage while maintaining a conservative investment portfolio and a prudent approach to capital management. Lastly, we will file a Form 10-Q with the SEC tomorrow, October 30, 2026, after the market close. With that, I would like to turn the call over to the operator for the questions.

Yeah. Good morning, Mark. Let me start with absolute reported claim counts are up. I would love to say, oh, it's really all premium related, but that is not true. However, at the same time, our reported claims are up. We've written more policies, right? We have more policies in force. Our in-force policies have grown 4% year over year from an in-force basis. Yes, absolute claim counts are up. I think you'll see that when we file the 10-Q later today. But also keep in mind, we have more policies in force. That being said, there's certainly pressure on that denominator in terms of premium. As you know, we came into this year expecting mid to high single-digit rate declines.