Amerisafe Beats, Initiates Dividend

Amerisafe Inc.’s ( AMSF - Analyst Report ) fourth-quarter 2012 operating earnings per share of 49 cents outpaced the Zacks Consensus Estimate of 39 cents and the prior-year quarter’s earnings of 32 cents. Consequently, operating net income spiked 54.5% year over year to $9.2 million.

Operating net income excluded after-tax net realized gains of $0.43 million against $0.95 million in the year-ago period along with valuation allowance of $1.2 million in the prior-year quarter. Including these, reported net income rose to $9.2 million or 50 cents per share, compared with $8.1 million or 44 cents a share in the prior-year quarter.

Reported results reflect higher premiums written and earned that shored up the top line as well as the underwriting results. In addition, improved investment portfolio and capital position drove the book value of the shares, return on equity (ROE), combined ratio and other profitability metrics. However, the positives were substantially offset by higher-than-expected tax, loss and loss adjustment expenses (LAE) along with lower investment yields.

Amerisafe’s total revenue for the reported quarter was $85.6 million, up 14.3% from $74.9 million in the prior-year quarter. This also exceeded the Zacks Consensus Estimate of $83.0 million. Gross premiums written for the quarter were $81.1 million, reflecting a 30.6% year-over-year expansion. The uptick was driven by payroll audits and related premium adjustments for policies written in previous periods. These adjustments increased premiums by $7.9 million in the reported quarter, while the same had boosted premiums by $3.8 million in the year-ago quarter.

Furthermore, voluntary premiums written jumped 25% year over year in the reported quarter. In addition, net premiums earned increased 18.9% from the year-ago quarter to $78.7 million. Net investment income, which represented about 8% of total revenue, was $6.7 million for the reported quarter, down marginally by 0.1% from the prior-year quarter.

Conversely, insurance loss and loss adjusted expenses (LAE) increased 15.9% year over year to $57.5 million (or about 73% of net premiums earned). As a result, total expenses grew 11.5% year over year to $72.9 million, while net underwriting expense ratio improved to 18.9% from 22.7% in the year-ago quarter, due to higher premiums and a mere 0.9% hike in underwriting and operating costs.

Subsequently, underwriting profit surged $5.8 million from $1.1 million in the year-ago quarter. Even net combined ratio for the reported quarter improved to 92.6% from 98.4% in the prior-year quarter.

The accident years primarily contributed to the favorable development of $2.7 million. Consequently, the current accident year loss ratio was 76.5%, down from 78.2% in the prior-year quarter.

Full-Year 2012 Highlights

For full year 2012, Amerisafe generate operating earnings per share of $1.48, noticeably surpassing the Zacks Consensus Estimate of $1.37 and $1.14 in 2011. Operating net income soared 29.8% year over year to $27.4 million.

Additionally, reported net income increased to $29.4 million or $1.58 a share in 2012 from $24.2 million or $1.29 per share in 2011. Net combined ratio also improved to 97.5% from 100.4% in 2011.

Total revenue grew 14.4% year over year to $321.2 million in 2012, and comfortably beat the Zacks Consensus Estimate of $319 million. Meanwhile, total expenses increased 12.2% to $284.1 million.

Financial Update

Amerisafe exited the reported quarter with operating ROE of 9.8% that improved from 6.9% in year-ago quarter. Operating ROE also climbed to 7.6% in 2012 from 6.3% in 2011. Additionally, book value per share came in at $20.88 as on Dec 31, 2012, up 8.5% from $19.25 at 2011-end.

As on Dec 31, 2012, Amerisafe’s investment portfolio, including cash and investments, stood at $900.8 million compared with $890.7 million at the end of 2011. Moreover, fair value of the portfolio improved to $944.9 million at 2012-end versus $806.0 million at 2011-end. Total shareholders’ equity stood at $381.2 million at the end of 2012, up from $349.4 million at the end of 2011.

Share Repurchase Update

On Oct 30, 2012, the board of Amerisafe protracted the company’s share repurchase program through Dec 2013. Since the initiation of its share repurchase program, the company has bought back about 1.26 million shares for $22.4 million, at an average price of $17.78.

However, no shares were repurchased during 2012, while the company had $24.4 million of shares available for repurchases as of Dec 31, 2012.

Dividend Update

Concurrently, the board of Amerisafe announced its first regular quarterly dividend of 8 cents a share, payable on Mar 28, 2013 to shareholders of record on Mar 14, 2013.

Others

Amerisafe carries a Zacks Rank #3 (Hold). Other strong performers in the insurance sector include XL Group Plc ( XL - Analyst Report ) , EMC Insurance Group Inc. ( EMCI - Snapshot Report ) and Navigators Group Inc. ( NAVG - Snapshot Report ) , all of which carry a Zacks Rank #1 (Strong Buy).