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, ma'am.

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 the results 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's President and CEO.

Thank you, Kathryn, 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 in 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 remain competitive by maintaining our strategy of evaluating risk through safety services and underwriting, giving our insurers 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 continue to see strong retention and policies for which we offered renewal with 94.9% retention in the first quarter as well as modest policy growth. Both new business submissions and buys 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 lighter 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 upper single-digit wage growth, which speaks to the economic strength of our insured classes in the near term. For example, the construction industry continues to add jobs when looking at the latest national data. I believe we will continue to report positive audit premium in 2024, but at lower levels than in 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. The favorable development was primarily attributable to accident years 2017 to 2020. We continue to monitor the potential impact of rising health care 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.

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 $0.90 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 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 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 the portfolio roll-off, 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 on securities sold were $200,000 in the quarter compared with a realized gain of $300,000 during the first quarter of 2023. The investment portfolio is high quality, carrying an average AA- credit rating with a duration of 4.1 years. The composition of the portfolio is 58% in municipal bonds, 27% in corporate bonds, 4% in U.S. 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.

And we'll take our first question from Mark Hughes with Truist.

Janelle, do you have the ELCM in the quarter? Could you give that?

1.44.

And then you alluded to, you expect wage growth to be in the upper single digits. Could you give out specific numbers for this quarter payroll growth and what proportion of that is wage growth?

Yes. Our payroll growth for the quarter was 7.6%, with 6.4% of that being wage increases and then the others being new employees. So the new employee count has been steady over many quarters now, and we continue to see wage inflation or extended work hours — I don't have visibility into that — but still higher than what at least we're seeing from the national average. 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, we talked about audit premium being down. Yes, audit premium and other adjustments were down in comparison to the first quarter of 2023. But if you recall, the first quarter of 2023 was a record number of $8.9 million. So even the first quarter of 2024 was actually higher than the third quarter, not that there's a sequential. Audit premiums aren't necessarily sequential. So 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, but maybe not to the same degree that we were starting. If you harken back to the 2022 periods of wage growth, we were seeing double digits, right? And then it slowly started tapering down. So that's my expectation.

Who was the NCCI, the loss cost where you got the dates in the quarter? How is that trending?

It's still — at this point, Mark, we've seen most of what I would call the approved loss costs for 2024. Whether they're in effect yet or not, we've pretty much seen the filings come through from the NCCI state. So I think we — originally, we said we thought 2024 would be high to mid-single digits, and that's what we're seeing. I think it's in the 7% to 8%, somewhere around that range. If you look at all the states across the rate filings, they certainly vary. I think the highest was Maine at like a 19% decrease. Of our state, I think Florida — I know there was a lot of talk about Florida. I think Florida was the highest decrease of maybe around 15%. And the lowest would have been something like Virginia, which was like maybe 0.5 points, but they were all decreases.

Yes. How would you characterize the competitive environment? Any change from the last few quarters?

I'm just saying not really. Throughout this soft cycle, as the rate decreases were approved, we didn't see a real fluctuation in competition. I think good or bad, right? So it's very competitive, obviously, because everyone is showing rate decreases. But we haven't seen really what I would call new capital enter the space, 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. In part, I think because the industry has been profitable. I do think there's 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.

Yes. And then final question, how many or any large losses in the quarter?

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

Did you buy any stock back in the quarter?

We did not.

Our next question will come from Matt Carletti with Citizens JMP.

Janelle, 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 — you obviously have made a lot of efforts there recently, but kind of what's happening and what results you're seeing.

Yes. Thank you for remembering that we are making efforts in that regard. In this rate — particularly in this rate environment, just what we were just talking about with Mark, the level of competition that's out there, we at AMERISAFE knew we needed to do something about our agent relationships in order to find those opportunities for new business. Because agents at this point, customers are getting rate decreases. 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 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, 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 agent's client and that we can be a steady source for that agent. So sort of not only say reintroducing ourselves, but really focusing in on our appetite and the things that we do offer. I think agents, like the rest of us, we get very comfortable with our markets and you say, 'Oh, I know AMERISAFE. That's my — 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 do have a niche, small to mid-sized employers, I do think we get lost in the shuffle sometimes in that regard. So I'm very proud of our salesforce and our underwriting force and our safety force in terms of developing those agent relationships so they can have the right conversations and possibly get opportunities on books of business or accounts that have been continually renewing with the same account and just reminding them what AMERISAFE offers. So in that regard, we did see new business increase in the quarter, which we were happy to see. Even though renewals remain strong in this rate environment, when you look at the premium dollars, there's certainly pressure there. So we were able to grow policy count because of some of the new business efforts that we have.

Perfect. That's really helpful. And then maybe just a numbers question for Andy. Andy, you mentioned in your opening comments about despite kind of higher yields, 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 balance is a little lower for a short period of time?

Matt, first of all, good morning to you. But it's purely the asset base decreased because of the special dividend.

We will now take a follow-up from Mark Hughes with Truist.

Janelle, in your opening comments, before I was fully engaged, you mentioned that something was not as strong as in 2023. Was that regarding wage pressure? What was that about?

It was, Mark, it was. It was simply the fact that, as I was mentioning, if you look at 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 premium. So now you look at the quarters of starting with the second quarter of 2023, that number tapered down to 7%, 7.5%, 7.4%, 7.6%. So very robust, higher than national average, but less than what we were seeing in the previous quarters. So if you look at that and say that's 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 in 2023. I think the industry, in my opening comments, I said I believe that it's not only true for AMERISAFE, I believe it's 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, 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 the first quarter of 2024 for AMERISAFE, ours was again a very strong number, over $6 million. But in comparison to the first quarter of 2023, which was a record number, it did show a decrease.

Understood. Andy, the expense ratio, underwriting expense ratio of 27.3%. There's a year-over-year impact on 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?

No, I would say, Mark, first of all, good morning to you. But no, I think we are in the range where we normally are anywhere between the 26% and the 29%. And so there is nothing skewed. Again, I think the 24.5% from last year is depressed by the 3.3% that favorably came due for the profit commission.

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

Despite challenging market conditions, AMERISAFE's focus on providing protection for small to midsized 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 us today.

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