Amerisafe Beats on Lower Cost

Amerisafe, Inc.’s (AMSF - Analyst Report) third-quarter earnings of 74 cents per share came in substantially ahead of the Zacks Consensus Estimate of 54 cents. This also compares favorably with the earnings of 65 cents in the prior-year quarter.
 
Despite an 11.9% year-over-year decrease in top line, results for the quarter benefited from solid expense management, which helped reduce expenses by 18.7%. An almost stable pricing environment was also observed during the quarter.
 
Total revenues for the quarter were $67.2 million, compared to $76.3 million in the prior-year quarter. During the quarter, the top line was down due primarily to decrease in audit adjustments and an 18.4% decline in net premiums earned that resulted from the soft insurance market condition as a whole. Both the voluntary premiums written and audit premiums for policies written decreased during the quarter.
 
Net income for the quarter increased 12.8% year over year to $15.1 million. Pre-tax income for the reported quarter included a $6.7 million favorable prior year loss development and $2.0 million of realized gains from sales of certain equity securities and one previously impaired fixed maturity security. Pre-tax income for the prior-year quarter included a $6.6 million favorable prior year loss development, realized losses of $2.9 million from the sale of equity securities and other-than-temporary impairments, and income of $703,000 from a reinsurance commutation.  
 
Net investment income – which represented 10.2% of total revenues – was $6.9 million for the third quarter of 2009, down 10.8% from $7.7 million in the prior-year quarter. 
 
Net loss and loss adjustment expense (LAE) increased 20.5% year over year to $33.4 million (or 57.4% of net premiums earned) from $42 million (or 58.9% of net premiums earned) in the prior-year quarter.
    
Combined ratio during the quarter increased slightly to 79.3% from 79.4% in the prior-year quarter. Return on average equity (ROE) for the quarter was 19.30%, compared to 20.50% in the prior-year quarter.
 
Outlook
 
Amerisafe aims to produce an ROE of at least 15% over the long-term while maintaining optimal operating leverage in its insurance subsidiaries.
 
Though the company is expected to face an uncertain environment for the next few quarters as the recession continues to hurt payrolls, the pricing environment is now improving somewhat. Furthermore, the claim frequency has continued to fall and the company has continued its excellence expense management. Also, the premium retention increased significantly and the company continued to gain market share.

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