Business Overview

Founded in 1985 and headquartered in DeRidder, Louisiana, AMERISAFE began operations in 1986 by focusing on workers' compensation insurance for logging contractors in the southeastern United States. The company's strategy has centered on providing workers' compensation coverage to small- and mid-sized employers in high-hazard industries. These industries typically experience fewer but more severe claims, resulting in substantially higher premium rates compared to other sectors.

AMERISAFE's approach includes proactive safety reviews of employers' worksites, which are crucial to both the underwriting process and assisting policyholders in loss prevention. The company also employs intensive claims management practices to effectively manage the overall cost of claims. This combination of disciplined underwriting, safety services, and claims management is designed to help mitigate risks and generate favorable underwriting results.

In 1994, AMERISAFE expanded its focus to include other hazardous industries such as construction, trucking, agriculture, manufacturing, maritime, and telecommunications. Over its history, the company has gained significant experience in underwriting the complex workers' compensation exposures inherent in these high-hazard industries.

AMERISAFE actively markets its insurance in 27 states through independent agencies and its wholly-owned insurance agency subsidiary. The company is also licensed in an additional 20 states, the District of Columbia, and the U.S. Virgin Islands. As of 2023, AMERISAFE stopped accepting direct assignments and now only participates in pooling arrangements to fulfill its residual market obligations.

Financial Performance

In the fiscal year 2024, AMERISAFE reported net income of $55.4 million and operating net income of $48.4 million, compared to $62.1 million and $55.9 million, respectively, in 2023. The company's return on average equity (ROE) was a robust 20.2% in 2024, down slightly from 20.4% in the previous year.

AMERISAFE's gross premiums written increased by 3.1% in 2024 to $294.1 million, driven by strong premium retention and new business production. Net premiums earned grew by 1.3% to $270.6 million. The company's current accident year loss ratio remained steady at 71% in 2024, consistent with the prior year. AMERISAFE reported $34.9 million in favorable reserve development from prior accident years in 2024.

The company's investment portfolio, including cash and cash equivalents, stood at $832.8 million as of December 31, 2024, producing net investment income of $29.2 million for the year, down 6.8% from 2023. The portfolio's average pre-tax investment yield was 3.4% in both 2024 and 2023.

For the most recent quarter (Q4 2024), AMERISAFE reported revenue of $74.1 million, a 0.5% decrease compared to Q4 2023. Net income for the quarter was $13.2 million, a 31.6% decrease compared to Q4 2023. These decreases were primarily due to lower net unrealized gains on equity securities compared to the prior year period.

AMERISAFE's combined ratio for 2024 was 88.7%, reflecting the company's strong underwriting performance. The net loss ratio, representing losses and loss adjustment expenses incurred as a percentage of net premiums earned, was 58.1% in 2024, up from 55.5% in 2023. The net underwriting expense ratio, which includes underwriting and certain other operating costs, commissions, and salaries and benefits, was 29.6% in 2024, compared to 29.3% in the prior year.

Liquidity

AMERISAFE's balance sheet remains strong, with a high-quality investment portfolio and conservative reserve position. As of December 31, 2024, the company's statutory surplus was $235.1 million, and its risk-based capital ratio exceeded regulatory requirements.

The company's financial position is further strengthened by its debt-free status, with a debt-to-equity ratio of 0. Cash and cash equivalents stood at $44.1 million as of December 31, 2024. AMERISAFE also maintains a $20 million unsecured line of credit with Frost Bank, which was undrawn at the end of 2024, providing additional financial flexibility.

Risks and Challenges

The workers' compensation insurance industry is inherently cyclical, with periods of increased competition and lower premium rates followed by periods of reduced capacity and higher rates. AMERISAFE's profitability is heavily dependent on its ability to price policies accurately and maintain adequate reserve levels to cover future claims.

The company is also exposed to credit risk from its reinsurance partners, as well as potential changes in regulations, laws, and insurance policies that could adversely affect its operations. Additionally, AMERISAFE faces competition from other insurance companies, state insurance pools, and self-insurance funds, which could impact its market share and pricing power.

Outlook and Conclusion

Despite the challenges, AMERISAFE remains well-positioned to navigate the volatile workers' compensation market. The company's focus on high-hazard industries, proactive safety services, and disciplined underwriting have allowed it to generate consistent underwriting profits over the years.

Looking ahead, AMERISAFE is focused on top-line growth, targeting a 71% accident year loss ratio in 2025, consistent with its performance in 2024. The company's strong policy retention, robust new business production, and ability to identify and capitalize on profitable opportunities position it well to continue delivering value to shareholders.

AMERISAFE's Board of Directors has approved a 5.4% increase in its regular dividend to $0.39 per share, demonstrating confidence in the company's financial strength and commitment to shareholder returns. The company's voluntary premiums on policies written rose by 4.6% in 2024 compared to 2023, and its enforced policy count grew 9.6% in the same period, indicating positive momentum in its core business.

AMERISAFE operates in 27 states and does not have more than 4.2% market share in any one state, providing geographic diversification and room for potential market share growth. The company remains confident in its ability to identify and write profitable high-risk, high-hazard business to offset broader market challenges.

Overall, AMERISAFE's long-standing industry expertise, conservative financial management, and proven track record make it a compelling investment opportunity in the workers' compensation insurance sector. The company's specialized focus on high-hazard industries, combined with its disciplined underwriting and claims management strategies, position it well to continue generating attractive returns for shareholders in the dynamic workers' compensation insurance market.