AMERISAFE, Inc. ($AMSF)

Good day, and welcome to the AMERISAFE First Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kathryn Shirley, Chief Administrative Officer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to the AMERISAFE 2026 first quarter investor. If you have not received the earnings release, it is available on our website at amerisafe.com. Today, 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 law. 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, in 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's President and CEO.

Thank you, Kathryn, and good afternoon. We are pleased with our solid start to 2026, marked by continued growth, disciplined execution and attractive underwriting performance. During the quarter, we grew net premiums earned by 9%. We also delivered a combined ratio of 93.2% and produced operating earnings of $0.50 per share. These results reflect steady operating momentum amongst the competitive backdrop facing the workers' compensation industry. The workers' compensation market remains competitive and continues to operate in a prolonged soft pricing environment amid persistent industry headwinds, such as claims severity and economic uncertainty. At the same time, workers' compensation remains the most consistently profitable line within the P&C industry, supported by long-term claim development and stable capital structures. In this environment, sustained success depends on appropriately priced risk selection and deep industry experience. At AMERISAFE, our differentiated approach to servicing high hazard industries continues to support consistent returns across the cycle. Our eighth consecutive quarter of premium growth, continued improvement in our expense ratio and favorable prior year loss development underscores the strength of our operating model and the dedication of our team. We believe these fundamentals position us well to navigate current market conditions while continuing to create long-term value for our shareholders. I'll now turn the call over to Vincent to walk through the details of our growth and underwriting performance for the quarter.

Thanks, Janelle. In the first quarter of 2026, gross premiums written were $88.5 million compared to $83.8 million in the first quarter of 2025, increasing 5.6%. Retention for policies for which we offered renewal was 92.4% in the quarter, and pricing remains strong, helping offset continued downward pressure in file loss costs. New business opportunities continue to grow despite steady competition. Together, new and renewal voluntary premium increased 8.2% in the quarter, reflecting ongoing investments in distribution effectiveness and recognition of our commitment to delivering outstanding safety and claim services to our policyholders. In-force policy count increased 1.7% in the quarter and 9.5% since Q1 2025. Audit premium and related adjustments remained positive, adding $3.7 million in the quarter compared to $5 million in the first quarter of 2025. And net earned premiums were $75.1 million in the quarter growing 9% year-over-year. While we don't usually comment on policyholder dividends, I do want to give some color since it was seemingly an outlier for this quarter. If you look at recent quarter history, you'll see that there is some variability in this ratio quarter-to-quarter, albeit in a relatively small range. In last year's first quarter, the dividend ratio was 0.9%, while in the subsequent quarter, Q2 2025, it was 1.8%. We have not changed our policyholder dividend strategy or plans. And this first quarter result was within our expectations. In the few states where we do offer policyholder dividends as a competitive tool. The ultimate outcome depends upon individual policyholder experience for policies in the quarter being evaluated. With recent policy count growth it is not unexpected that more policyholders could qualify for dividends. And finally, back to the routine and update on payroll growth. We continue to see positive wage growth in our targeted classes of business, coming in at 4.5% for the quarter, while headcount change was essentially flat. We believe continued payroll growth across our targeted industries indicates relatively healthy business activity despite ongoing economic uncertainty. Further payroll growth and in particular, wage growth and help offset ongoing pressure on rates, both from competition and filed loss costs. That concludes the overview of premium results. I will hand the call back to Janelle for more information on claims, investments and other financial metrics.

Thank you, Vince. Next quarter, I'll have the pleasure of passing the financial remarks off to Guillermo Ramos, our new CFO. Until then, bear with me 1 more time as I bloom the financial results with other operational commentary. The current accident year loss ratio was 72% for the quarter compared to 72% for the accident year 2025 at 12 months, but 71% at the first quarter of 2025. As we've discussed over the last 2 quarters, continued rate pressure and general high claim severity are creating modest upward pressure on the current accident year. That said, large claim losses incurred can be lumpy. We ended the first quarter of the current accident year with no claims with incurred value over $1 million compared to 2 in the first quarter of accident year 2025. As for prior accident years, we had $7.6 million or 10.1 points of favorable development in the quarter compared to $8.7 million or 12.7 points in the prior year quarter resulting in a net loss ratio of 61.9% for the quarter. The impact of favorable prior year development to the net loss ratio quarter over prior year quarter is influenced by the growth in net premiums earned. To round out the combined ratio, total underwriting and other expenses were $22.3 million for the quarter, resulting in an expense ratio of 29.7% compared to 29.9% a year ago. This marks the third consecutive year-over-year improvement, reflecting disciplined expense management and continued operating leverage as our strategic growth initiatives drive growth in net premiums earned. During the first quarter of 2026, net income was $8.1 million or $0.43 per diluted share, while operating net income was $9.5 million or $0.50 per diluted share. This compares to net income of $8.9 million or $0.47 per diluted share and operating net income of $11.4 million or $0.60 per diluted share in the first quarter of 2025. The effective tax rate for the quarter was 19.8% compared to 20.2% in the prior year quarter. Turning to our investment portfolio. Net investment income decreased 0.8% to $6.6 million due to lower average investable assets. However, new many yields were favorable during the quarter with the yield on new investments increasing 174 basis points in comparison to the portfolio roll off, driving our tax equivalent yield to 3.9% or 7 basis points higher than the first quarter of 2025. The portfolio remains high quality, carrying an average AA- credit rating and a duration of 4.4 years. Asset allocation was largely unchanged with the portfolio composition being 61% municipals, 24% combined corporate bonds, 3% U.S. treasuries and agencies, 7% equities and 5% in cash. Approximately 43% of our portfolio is designated as held to maturity during a net unrealized loss position of $7.9 million at quarter end. As a reminder, these held-to-maturity securities are carried at amortized costs, and therefore, unrealized gains and losses on these securities are not reflected in our book value. Also during the quarter, we repurchased nearly 120,000 shares common stock under the company's share repurchase program at an average cost of $33.60 per share for a total of $4 million. The remaining outstanding share repurchase authorization under the program as of March 31 is $12.9 million. Overall, our capital position is strong, supported by high-quality balance sheet, solid reserve position and prudent investment strategy. At quarter end, we held approximately $774 million in cash and invested assets. Finally, a couple of other topics. Book value per share at quarter end was $13.18 and we will file our 10-Q on Thursday, April 23, after market close. With that, we'll open the call up for questions.

[Operator Instructions] And we'll take our first question from Mark Hughes with Truist.

Janelle, how did you see inflation in the quarter? It sounds like the medical inflation, claims inflation, it sounds like the large claims were negligible. But any observations, yes about any marginal changes?

No. No marginal changes from what we talked about at year-end, Mark. Medical efficient is real. We are living it. We are reserving properly for it. I still feel I'll stick by what I said at year-end. I still feel fee schedules are doing their job and helping us contain costs. But I also think in CCI recognizing last year, this time last year, the medical inflation was -- medical severity was up 6% eye-opening to the industry. I think CEOs have been talking about it for a while. And we're just a few weeks away from seeing what that number was for 2025 current CCI as well. So I would expect but there's continued pressure on medical inflation industry-wide, not just with our severe claims.

Yes. What do you think they'll say, I guess our observation was it seemed like 2024 and 2025 or not starting off in as good a shape as some of the older accident years? Do you have any observations about what you've seen in the industry data..

Yes. That's a great point, Mark. I think when you look at even in CCI last year and their data had each accident year combined ratio seemed to be worsening, getting closer and closer to that 100% combined ratio for the industry. So I mean, I think they're industry-wide, we're seeing a deterioration in those results. And you're right, accident year '24 and '25 for the industry as a whole. I think there is definitely pressure there. But when you're talking 12 years of declining rates, I think that's a natural progression, right, that there's going to be pressure there. Even though frequency for the industry has continued to go down, medical inflation and the severity on claims has ticked up I mean in a declining rate environment. So I think there's going to be continued pressure for the industry on those accident year combined ratio. So it would be very interesting to see on an accident year basis, what those projections are reported versus, I guess, projected, but also how much that affects the calendar year, like how much favorable development the industry has experienced from older accident years. To your point, that those accident years '22 and prior versus what's developing or what emergence we've seen out of '24 and '25.

Yes. How about NCCI loss costs. I think you've shared kind of the recent experience in some of the updates you've been getting, what does that trend look like?

Mark, this is Vince. We're still looking at mid-single-digit decreases for the year. Most states have already put in their filings for 2026. Just to give you some sense of the range in our 5 biggest states, they range from down almost 9% to down 1.2% and everything in between with a few outliers.

Understood. And then Janelle, I don't know if you gave any specifics on payroll. I think you might have done that in the past, kind of payroll growth or headcount growth, any statistics there you can share?

Its Vince, I'm going to jump in for Janelle. I've got it right in front of -- we're seeing payroll growth across all of our major classes to varying degrees. But it's predominantly wage growth, as we mentioned in the prepared remarks. Headcount growth has been flat to slightly down, different quarters, it varies quite a bit, but -- across all industries, payroll growth continues to be positive.

[Operator Instructions] And we will take our next question from David Sumar with Citizens JMP.

This is David on for Matt. I just had one question. For the voluntary premium growth, are there any certain industries or areas of the market that are driving growth more than others right now?

No. I would say it's been pretty steady across our book of business, which is 1 of the things that we've actually been happy to see as we've had these strategic initiatives to grow policy count into grow premium that the changes that we've made have been serving us across industries, across states. In other words, we don't see pockets of what's working here. It's not working there. It's been pretty prolific throughout the book of business. So -- even if you look at the 10-K last year, which last year was when our growth initiatives really started taking root in terms of the numbers we reported. If you look at the 10-K and the shift between industry groups or even the ships among the states, there's really not a lot of change over '24, '25 over '24. And that held true in the first quarter as well.

We will take our next question from Bob Farnam with Brean Capital.

One question. I have one broad question and one specific question. So the specific question is you talked about the duration of your assets for years. I'm just -- a little over 4 years. So I just wanted to know kind of how does that compare to the duration of your liabilities?

Great question. Yes. So our average duration on our portfolio -- on our molality is between 3 and 4 years. So as you know.

Which is surprising.

SP-3 I'm sorry, go ahead.

Again, I'd say that's kind of surprising. People think of all right, workers' comp writers would have a longer duration of claims. So is that...

Yes. I appreciate you asking as one of my favorite subjects. So the way we handle claims in you -- thank you, Bob. The way we handle claims is different than the industry. We really focus on -- I've talked about this numerous times, but our high-touch model involves our claims adjusters getting in quickly, establishing relationships, getting those reserves put up quickly. And then working with our injured workers, working with medical providers, finding ways to close and settle these claims as quickly as we can to the benefit of the injured worker to the benefit of the policyholder and ultimately to the benefit of AMERISAFE and that helps shorten our duration on our claims on these severe claims. So we know that we're lower than the average bear as they say in the industry, but that's part of our operating model, and that's how we manage claims.

Cool. All right. And the broader one, I've been covering workers' comp for quite a while. You obviously have as well. And I would have said maybe 5 or 6 years ago, I thought that frequency would have bottomed.

[indiscernible]

And here we go -- and he would keep going. I was like, "All right, we put you down again. read that again. you've done again. When is this going to end? And what do you think is driving -- you could only do so much safety and risk services and things like that, that I just -- I don't know where it is about...

I would agree with you, Bob. I guess partly a degree, it matters on how you're measuring frequency right. So if you're measuring it per $1 million of payroll or $1 million of premium. But every way you look at it right now, it's still on the decline. A couple of things I think factor into that. I agree with you. Is the workplace safer. Absolutely. I think the mix of jobs that we have, although the fact that our economy is shifting is more towards services, I think that impacts the overall frequency because again, you're talking broadly, not just what AMERISAFE rights but broadly, right? So I think the type of jobs, the types of workforce that we have that's somewhat influencing that number. If you look at if you're looking at really long-term trends, I think our economy has shifted more from manufacturing and those types of jobs to more service-related jobs. So that kind of -- I think that's contributing somewhat to the frequency. But I happen to agree with you, if you would have asked me 3 or 4 years ago, even for the industry. Now you're talking about AMERISAFE specific for the industry, I would have said, well, it's got to reach at some point. I mean people are going to have accidents. We're all humans. But yet whether you measure it on payroll or premium, as of from now, it's down.

Yes. I just remember you talking about it a long time ago and saying, yes, frequency can't drop down to 0. So it's going to end at some point. Man, you guys keep the pricing

[indiscernible]

And we will take our next question from Mark Hughes with Truist.

Yes. Kane, you all have been doing very well on the top line growth and if you touched on this earlier in the call, forgive me. But the -- I think I've asked before about how sustainable this is whether some initiatives you put in place and kind of have potentially run their course or whether there's always something new and you continue to bear fruit with your distribution strategies. I'm just sort of curious if there's any remarks you have about kind of what's keeping the momentum going forward..

Yes. Let me start with the name here at AMERISAFE is executing. We -- and I've talked about this before, 3 years ago, probably at this point, dating back maybe longer now. We started putting together this growth strategy and how we want to be very thoughtful and very measured about that growth strategy. and the team here is just executing. And the fact that, to the question earlier, the fact that it's been prolific across our industry classes across our states, I totally believe it is sustainable. Is it linear? No. But we're shooting for that mid-single-digit range, and we've been hitting that. And I like I said, kudos to the AMERISAFE employees for really executing and taking this idea of adding small incremental growth and not changing our risk profile and sticking to our knitting and being who we want to be and executing on that PAUSE kudos to them for executing on that. So I truly believe that is sustainable. The momentum there, the attitude is there, the strategy is there.

Yes. And this is a trivial question, but why did you move the call to the afternoon.

Great question, actually scheduling conflicts. So thank you for asking. I apologize if it is inconvenient.

Yes. Okay. So next time, it will be 1030 again?

Yes, we will go back to our normal schedule.

And this concludes today's question-and-answer session. I would now like to turn the call back to Janelle Frost, CEO, for closing comments.

Thoughtful and measured growth with pricing adequacy continues to be the anchor for our performance even amidst the competitive pressures of the workers' compensation market. Our results this quarter reflect the strength of these fundamentals, supported by a strong balance sheet that positions Amerita well across the market. We remain confident in our strategy and committed to consistent execution to deliver sustainable underwriting profitability and long-term shareholder value. Thank you for joining us today.

This does conclude today's call. Thank you for your participation. You may now disconnect.