Participants

Kathryn Shirley; Executive Vice President, Chief Administrative Officer, Secretary; Amerisafe Inc

Gerry Frost; President, Chief Executive Officer, Director; Amerisafe Inc

Anastasios Omiridis; Chief Financial Officer, Executive Vice President; Amerisafe Inc

Mark Hughes; Analyst; Truist Securities Inc

Matt Carletti; Analyst; JMP Securities LLC

Presentation

Operator

Good day, and welcome to the Amerisafe 2024 first quarter earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Kathryn Shirley, Chief Administrative Officer. Please go ahead, madam.

Kathryn Shirley

Good morning. Welcome to the Amerisafe 2024 First 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. 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 and the comments made during today's call and in the Risk Factors section of our Form 10-K, Form 10-Q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements.
I will now turn the call over to Janelle Frost, Amerisafe, President and CEO.

Gerry Frost

Thank you, Katherine, and good morning, everyone. workers' compensation rates across the industry continued to decline in the first quarter, spurred by favorable frequency trends and modest increases in severity. Continued wage growth is helping the industry taper the impact of multiyear rate decreases. However, it is not as robust as 2023 with these conditions.
As a backdrop, Amerisafe had solid results in the first quarter, reporting a combined ratio of 87.3% and an ROE of 22.8%. We remained competitive by maintaining our strategy of evaluating risk through safety services and underwriting, giving our insured's peace of mind and continuing our track record of creating value for our shareholders.
Premiums for policies we wrote in the quarter were relatively flat compared to the first quarter of 2023. We continued to see strong retention and policies for which we offered renewal with 94.9% of retention in the first quarter. As well as modest policy growth. Both new business submissions and BIs increased on a year-over-year basis as we're seeing higher agent engagement.
Gross premiums written decreased 2.9% compared with the first quarter of 2023, primarily due to wider audit premiums as wage pressure is moderating each quarter of last year, we reported that wage growth was slowing from the post pandemic highs for the types of jobs that we insure. We continue to see above upper single digit wage growth, which speaks to the economic strength of our insured classes in the near term. For example, the detection industry continues to add jobs. We're looking at the latest national data. I believe we will continue to report positive audit premium in 2024, but at lower levels than 2023. As for losses, our accident year loss ratio was in line with the prior year at 71%. Our expectation is that frequency trends will remain favorable and severity increases will be modest similar to the industry as a whole. In addition, we experienced $8.6 million of favorable development on prior accident years due to proactive claims handling, favorable development was primarily attributable to accident years 2017 to 2020. We continue to monitor the potential impact of rising healthcare costs on the long term medical cost inflation, but nothing noteworthy at this time.
With that, I'd like to turn the call over to Andy to discuss the financials.

Anastasios Omiridis

Thank you, Janelle, and good morning to everyone for the first quarter of 2024 Amerisafe reported net income of $16.9 million or $0.88 per diluted share and operating net income of $13.3 million or $0.69 per diluted share during the first quarter of 2023, net income was $17.3 million, or $0.9 per diluted share and operating net income was $16.1 million or $0.83 per diluted share. The lower net income this year was primarily driven by a combination of lower earned premium and net investment income as well as favorable items impacting the year-ago quarter.
Gross written premiums were $80.1 million in the quarter compared to eight with $82.5 million in the first quarter of 2023. The year-over-year decrease was primarily due to moderating wage inflation, which reached record levels in the prior year. Our total underwriting and other expenses were $18.7 million in the quarter compared with $17 million recognized in the prior year quarter. This increase resulted in an expense ratio of 27.3% compared with 24.5% in the year ago quarter. The increase was primarily the result of lower earned premium and a $3.3 million favorable impact from profit sharing commission in the first quarter of 2023. For the first for the quarter, our tax rate was 18.4% compared to 19.5% in the prior year, largely due to a higher proportion of tax-exempt income versus underwriting income in the quarter compared with last year.
Turning to our investment portfolio in the first quarter. Net investment income decreased 0.9% to $7.4 million, despite increased reinvestment rates as compared to the prior year. For the quarter, the yield on new investments increased approximately 215 basis points in relation to put to the portfolio rollup, driving our tax equivalent book yield to 3.75% or 26 basis points higher than the first quarter of 2023. Realized loss for the portfolio and securities sold were $200,000 in the quarter compared with a realized gain of $300,000 during the first quarter of 2023. Investment portfolio is high quality, carrying an average double A. minus credit rating with a duration of 4.1 years. The composition of the portfolio is 58% municipal bonds, 27% in corporate bonds, 4% in US treasuries and agencies, and 7% in equity securities and 4% in cash and other investments. Approximately 58% of our bond portfolio is comprised of held-to-maturity securities. As a reminder, these held-to-maturity securities are carried at amortized costs and therefore, unrealized gains or losses on these securities are not reflected in our book value.
Our capital position is strong with a high-quality balance sheet, solid loss reserve position and conservative investment portfolio at quarter end, Amerisafe carried roughly $900 million in investments, cash and cash equivalents.
And finally, a couple of other topics. Book value per share was $15.74, an increase of 3% compared to the prior quarter. And operating return on average equity was 17.5%. Our statutory surplus was $270.5 million at quarter end, up 6.1% from $254.9 million at December 31, 2023. And finally, tomorrow Friday, April 26, 2024, we will be filing our Form 10-Q with the SEC after market close.
With that, I would like to open the call for the question and answer portion. Operator?

Question and Answer Session

Operator

Yes, thank you. And if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one, if you would like to ask a question and we'll take our first question from Mark Hughes with Truist.

Mark Hughes

Thank you.
Good morning.

Gerry Frost

Morning, Mark.

Anastasios Omiridis

Good morning.

Mark Hughes

Janelle.
Do you have the media the ELCM quarter, could you give them?

Gerry Frost

It was 144.

Mark Hughes

And then, Tom, you alluded to you expect wage growth to be in the upper single digits, which for both specific numbers for this quarter, payroll growth and what proportion of that wage growth?

Gerry Frost

Yes, our payroll growth for the quarter was 7.6%, 6.4% of that with being wage increases and the others being new employees. So the new employee count has been steady over many quarters now, and we continue to see and wage inflation or extended work hours. I don't have visibility into that and but still higher than what we're seeing from the national averages. I think the national average is somewhere between 4% and 5%. So our industry groups seem to be a little bit higher than that I expect that to somewhat moderate during 2024 this quarter, which we talked about audit premium being down.
Yes, audit premium and other adjustments were down in comparison to first quarter of 2023. But if you recall, first quarter of 2023 was a record number of $8.9 million. So even first quarter of 2024 was actually higher than third quarter, not that there's sequential RPMs on necessarily sequential. So with that being said, I do think we're going to continue to see wage pressure from our insurers, which should in turn be wage growth for us. And but maybe not to the same degree that we were starting if you harken back to 2022 periods of wage growth, we were seeing double digits, right? And then it's slowly started tapering down. So that's my expectation.

Mark Hughes

And with the NQTI., the loss cost for you guys faced in the quarter. How is that trending?

Gerry Frost

It's still trending at this point, Mark. We've seen most of what I would call the approved loss cost for 2024 whether they're in a factor yet or not. We've pretty much seen the filings come through from the NTCI. state. So I mean, I think we originally we said we thought 2024 would be high and mid single digits. And that's what we're seeing. And I think it's in the 7% to 8%, somewhere around that range. If you look at all the states across and the rate filings are, they certainly vary. And I think the highest was made it like 19% decrease of our states. I think Florida. I know there was a lot of talk about Florida. I think Florida was the highest decreases, maybe around 15% and the lowest would have been something like Virginia, which was like maybe half a point, but they were all decreases.

Mark Hughes

Yeah. Would you characterize the competitive environment any change from or last few quarter?

Gerry Frost

Interestingly enough, not really. And you know, throughout this soft cycle as rate as the rate decreases were approved and and we didn't see a real fluctuation in competition. I think we are good or bad right so it's very competitive, obviously, because everyone's showing rate decreases. But we haven't seen really what I would call new capital into the space and nor have we seen companies really out there trying to buy market share. I think the discipline has been pretty good for the industry as a whole and part, I think because the industry has been profitable. I do think there is a concern amongst everyone. How long can these rate decreases continue just because of the magnitude of them over a number of years. And then, of course, there's always as we've talked about in many calls recently is I think there's a concern over medical cost inflation. So you add all those things together. It makes for a competitive marketplace. But it's unchanging in terms of good or bad.

Mark Hughes

And then final question, how many are any large losses in the quarter?

Gerry Frost

We had two claims in excess of $1 million in the quarter, which I guess the same thing we reported last first quarter was two. And if you recall, we ended the year with no. So and during the quarter that you as I always like to remind everyone, this is a lumpy business. We I have no indication as to what quarters those types of claims happen.

Mark Hughes

And allied, did you buy any stock back in the quarter?

Gerry Frost

We did not. (multiple speakers)

Mark Hughes

Thank you, very much.

Gerry Frost

Thanks, Mark.

Operator

(Operator Instructions)
Matt Carletti with Citizens' JMP.

Matt Carletti

Hey, good morning.

Gerry Frost

Good morning, Matt.

Matt Carletti

I know you made I think I caught a comment in your opening script about higher agent engagement and I know that's been a focus for you of late. I was hoping you could just kind of dig into that a little bit and update us on kind of obviously you guys have made a lot of efforts there recently, but kind of what's happening and what results you're seeing?

Gerry Frost

Yes, we do. Thank you for remembering that we are making efforts in that regard, you know, in this rate and particularly in this rate environment and just what we were just talking about with market, the level of competition that's out there, you know, we at Amerisafe knew we needed to do something about our agent relationships in order to find those opportunities for new business because they get new agents at this point, customers are getting rate decreases and shopping accounts is not a necessary evil in terms of the things agents are having to face right now, particularly when there's rate in other lines of business. So Workers' Compensation sort of falls off that priority list when it when it comes time for renewal. So we had to find ways for them to consider Amerisafe. So just reinforcing with our agents, what our appetite is and what the value proposition of Amerisafe is, particularly with our claims and safety services, our longevity in the high hazard classes, that's the focus and the discipline that we've had over a long period of time. I think we point to that track record. We point to how that serves the agents' clients and that we can be a steady source for that agent. So I'm good for sort of not only a reintroducing ourselves, but really focusing in on our appetite and the things that we do offer. And I think agents just like the rest of us, we get very comfortable with our markets.
And you say, oh, I know Ameritech, that's my tried. That's where I go to for trucking, but maybe they don't think of us when a lumber account comes about or an oil and gas account comes about. And so just reinforcing with those agents and those relationships that we do have while we are high-hazard and we are we do have a niche small and midsize employers. And I do think we get lost in the shuffle sometimes in that regard, too. I'm very proud of our sales force and our underwriting force in our safety force in terms of who you developing those agent relationships. So they can have the right conversations and post possibly get opportunities on books of business that are our accounts that have been continually renewing with the same account and just reminding them what Amerisafe offers. And in that regard, we did see new business increase in the quarter, which we were happy to see even the renewals remaining strong in this rate environment.
When you look at the premium dollars and there's certainly pressure there. So we were able to grow policy count on because of some of the new business efforts that we have.

Matt Carletti

Perfect. That's really helpful. And then maybe just a numbers question for Andy. You mentioned in your opening comments about despite kind of higher yields, but investment income dipped a little. Is there any one-time items kind of going on in there contributing to that?
Or is that more?
So just obviously, you paid out a special and maybe the balances are a little lower for us for a short period of time.

Anastasios Omiridis

Matt was first of all, good morning to, but it's purely on the asset base decrease because of the special dividend.

Matt Carletti

Okay, perfect.
Thank you.
Very much.

Operator

(Operator Instructions)
Mark Hughes with Truist.

Mark Hughes

You know, you in your opening comments before I have my brain got engaged on you had made some comment about the thing was not as robust as in 2023. Was that wage pressure. (multiple speakers) That is why are the right way to think.
Okay.

Gerry Frost

I read recently that the fact that as I was mentioning, if you look at in 2022 quarters or even coming going into 2021, we had double digit wage growth coming through or wage payroll increases in those quarters, which we believe bodes for future audit premiums. So now you look at the third quarters of starting with the second quarter of 2023, that number is going to taper down to 7%, 7.5%, 7.4%, 7.6%, still very robust, higher than national average, but less than what we were seeing in the previous quarter. So if you look at that and say if that's indicative indicative of future audit premium. I do think that while it will remain positive and be a strong number, it's not going to be as robust as 2023. I think the industry in my opening comments, I said I believe that's not only true for Amerisafe, I believe is true across workers' comp. I do think the wage pressure that employers were feeling and experiencing has started to taper. Even if you look at national numbers and the that number has slowly come down over time, if you use that as a gauge for audit premium. I think that same being true. However, as I was talking about for first quarter 2024 for Amerisafe, ours was again a very strong number, over $6 million but in comparison to first quarter of 2023, and which was a record number, in addition, additional decrease.

Mark Hughes

Understood, Andy, the expense ratio underwriting expense ratio of 27.3% on a year over year impact from the profit sharing commission. But is that 27.3% or this level of expense, is that a reasonable run rate or is that skewed by anything?

Anastasios Omiridis

I would say, Mark, first of all, the magnitude, but I'm no, I think we are in the range where we normally would be anywhere between '26 and '29. So there is nothing soon again, I think the [24.5%] from last year is depressed by the [3.3%] deck that favorably can't do for the profit commission.

Mark Hughes

Yeah.
Okay.
All right. Very good. Thank you.

Operator

It appears there are no further questions at this time. I would like to turn the conference back over to Ms. Janelle Frost for closing comments.

Gerry Frost

Despite challenging market conditions, Amyris's focus on providing protection for small to midsize businesses by caring for their injured workers has a track record of strong retention and delivering robust returns to our shareholders throughout the cycle.
The first quarter demonstrated the continued success of our strategy. Thank you for joining today.

Operator

And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.