Good day, and welcome to the AMERISAFE's Third Quarter 2024 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kathryn Shirley, Chief Administrative Officer. Please go ahead.

Good morning. Welcome to the AMERISAFE's 2024 Third 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-Qs, 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. We are pleased with AMERISAFE's quarterly financial results, particularly in response to a competitive marketplace driven by declining rates and industry-wide profitability. The workers' compensation industry has benefited from multiyear declines in frequency, moderate severity, and growing wages. AMERISAFE's trends have been no different. However, I would argue our specialist nature and the history of underwriting discipline better position AMERISAFE for consistent returns and a strong balance sheet throughout market cycles, which brings stability to our policyholders and agents and value to our shareholders. As such, our Board of Directors declared a special dividend of $3 for shareholders of record as of December 6, 2024. This special dividend reflects long-term operational excellence and our commitment to shareholder returns. The special dividend is in addition to our regular quarterly dividend of $0.37. Our capital strength is created by our long-term profitability and our current strategic priorities centered on achieving targeted profitable growth. This quarter, similar to the second, we have maintained positive momentum in terms of production and top-line performance. For policies written in the quarter, premium grew 8.8% over last year's third quarter. I have spoken over the last few quarters about the effectiveness of our agent engagement and creating internal efficiencies to enhance agent experience. Through employee-led initiatives and collaboration, we are seeing wins. As the saying goes, success breeds success. Working with agents and without changing our appetite, we are improving our ability to incrementally add new business among strong competition. New business growth, coupled with a strong renewal retention of 93.6%, led to higher in-force policy count and gross written premium growth of 5.8%. While audit premiums remain positive and additive to premiums earned, their contribution is moderating compared to the same period last year. Payroll growth and wage inflation are leveling off within the industries that we insure. Regarding losses, our accident year loss ratio was consistent with last year at 71%. Loss cost trends remain stable. I believe the threat to the current loss trends for the industry are medical inflation and the viability of current fee schedules. That being said, we have not noted any significant changes. The company also saw $80.5 million in favorable development on prior accident years, stemming from favorable case development in accident years 2017 through 2022. To summarize, we are pleased to see premium growth in the quarter and continued favorable loss experience through our claims management efforts. I will now turn the call over to Andy to discuss expenses, investments, and other financial metrics.

Thank you, Janelle, and good morning to everyone. For the third quarter of 2024, AMERISAFE reported net income of $14.3 million, or $0.75 per diluted share, and operating net income of $11.1 million, or $0.58 per diluted share. During the third quarter of 2023, net income was $10 million, or $0.52 per diluted share, and operating net income was $11.7 million, or $0.61 per diluted share. Gross written premiums were $74.9 million in the quarter compared with $70.8 million in Q3 of 2023. The increase in the top line was driven by a combination of increased sales efforts with agents, which drove increased new business and strong retentions. Audit premiums increased the top line by $4 million and remain a material contributor to overall premiums. In the third quarter of 2023, audit premiums were $5.6 million. Our total underwriting and other expenses were $21.3 million in the quarter, as compared to $22.4 million in the prior year, resulting in an expense ratio of 31.7% versus 33.6% in the prior year. As we continue to invest in our business, expense outlays may proceed growth in earned premiums, leading to quarterly expense ratio fluctuations. However, we expect our full-year expense ratio to be within historical ranges. During the quarter, our claims handling practices drove better-than-expected outcomes, resulting in favorable prior year development of $8.5 million, or 12.6% loss ratio points. These reserves were primarily released from exiting years 2017 through 2022. For the quarter, our tax rate was 19.5%, in line with the prior year. Turning to the investment portfolio. In the second quarter, net investment income decreased 7.6% to $7.5 million due to the reduced portfolio size, partially offset by increased reinvestment rates. For the quarter, yield on new investments increased approximately 119 basis points in relation to roll-off, driving our tax equivalent book yield to 3.84%, or 7 basis points higher than the third quarter of 2023. Net unrealized gains for the portfolio and equity securities were $3.9 million in the quarter due to strong equity market returns compared to an unrealized loss of $7.3 million in the third quarter of 2023. The investment portfolio is of high quality, carrying an average AA minus credit rating with a duration of 4.1 years. The composition of the portfolio is 59% in municipal bonds, 24% in corporate bonds, 3% in U.S. treasuries and agencies, 6% in equity securities, and 8% in cash and other investments. Approximately 56% of our bond portfolio is comprised of held-to-maturity securities. As a reminder, these held-to-maturity securities are carried at amortized costs; 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. A couple of other topics. Book value per share was $16.50 and operating return on average equity was 14.2%. Our statutory surplus was $294.1 million at quarter end, up from $254.9 million at December 31, 2023. During the quarter, roughly 22,000 shares were repurchased at an average price of $46.79 for a total of $1 million. Since the inception of the initial share repurchase program in 2010, we have repurchased roughly 1.7 million shares at an average cost of $24.99 per share for a total of $42 million. And finally, on Friday, October 25, 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 of the call.

We'll go first to Matt Carletti with Citizens JMP.

Janelle, I would like to begin by discussing the top line. There has been a noticeable acceleration over the past few quarters, especially regarding the voluntary underlying growth. Can you provide us with some insight into the progress at the agency level? I understand that Ray joined a little over a year ago, so I'm sure he is still getting started with his plans. Any high-level perspective you can share would be appreciated.

Absolutely. Matt, we have really done considerable efforts internally to find ways to better respond to this workers' comp environment that we find ourselves in. We have a tremendous amount of focus, as you mentioned. We've talked about it over the last few quarters about our agent engagement, our agent experience, how we're handling the effectiveness of our underwriting in terms of our time and process, and just a number of things. I think the thing I'm most proud of is that it's really an employee-led initiative. So from that regard and talking about how much trajectory is there related to that, I used the comment in my opening remarks about success breeds success. I think as we get these wins, the momentum builds for us, but I want to be very clear about the underwriting discipline that surrounds that. We are trying to be more efficient. We are attempting to be more effective at the same time not changing our appetite. All of the things that you think about when you think about AMERISAFE and our underwriting discipline and our pre-quote safety, all of those things are still in place and still working effectively, and I would even argue maybe working more effectively for us. If you look at our pre-quote number, it's still well north of 90%. Those things are still happening. We're just finding ways to engage our agents a little bit differently. And more importantly, clarifying our appetite so that we are working effectively with those agents. So they understand the types of accounts that we want to underwrite and the types of business that we feel like we can get the appropriate price for. So I think it's a combination of all of those things. I love that it's starting to show in the top line numbers that we're releasing publicly. I think internally, we've been filling those small wins for a number of quarters now, but it's nice to see it coming to fruition in the numbers that we report publicly.

Great. That's super helpful. Kind of staying on top line, but maybe a little more nuance in the weeds. As I think about the hurricanes that have occurred in the past couple of months, I look at kind of your footprint and see Florida is 13% of the book, Georgia, 11%, North Carolina, 6%, kind of all top 5 states, construction, half your book. And what have you seen in past events? Like, am I right in thinking that as reconstruction efforts take place that sort of footprint and your exposure to construction, you tend to benefit from the work activity?

Yes, I agree with you, Matt. Being in Louisiana, our primary concern is for the people affected. We empathize with their situation and wish for a swift recovery. From a business standpoint, a rapid recovery could potentially serve as an advantage for us. Our presence in the Southeastern region is crucial, and the composition of business there aligns closely with our overall portfolio, which includes a significant amount of construction and trucking. Getting materials in and out could be beneficial for us.

Great. And then lastly, just my typical numbers question. Do you have the ELCM for the quarter, Andy?

I do. 157 is the ELCM for the quarter.

We'll go next to Mark Hughes with Truist.

Janelle, I'll ask the question another way. Why now on the engagement you've been talking about? This for a while. You have seen some building momentum, but this seemed like another step up. Was there something in the broader market environment, some new steps that you implemented that led to the uptick this quarter?

Yes, I would be happy to address that question. I agree that the competitive landscape has evolved, but unfortunately, it remains quite strong and intense. We believe AMERISAFE is positioning itself differently in the market by reinforcing our appetite and determining how we can best collaborate with our agents. As I mentioned to Matt, these initiatives have been in progress for over a year now. I am pleased to see that we are starting to make progress, which is reflected in our top line growth. Internally, we have been focused on achieving small incremental growth and increasing our policy count, which has been a strategic priority for some time. I want to emphasize that focusing on policy count is crucial to our goals. Our retention has historically been strong, with this quarter showing a rate of 93.6%, accounting for 80% of our premium dollars, making it very important to us. I’ve discussed for at least a year how we could improve our efforts on the new business side to contribute to building renewal retention. I believe we are starting to see success there, even if it’s not a quick fix. It involves consistent efforts, but it is making a difference, especially in terms of our relationships with our agents.

Is there something you haven't changed regarding your appetite or underwriting? Are you noticing that certain end markets, customer sizes, or hazard classes are responding better to this engagement initiative?

Yes, that's a really good question. I looked at our business mix before the call. Regarding hazard classes, specifically classes A through G, about 84% to 85% of our policy count falls within the E, F, and G classes. This has been consistent, as it was true on September 30 and over the past 10 years. We continue writing business in the same hazard groups and classes. The proportions of our book related to construction, trucking, and logging have not changed significantly. While there may have been slight shifts in premium dollars, this is mostly due to wage changes rather than our business mix, which is why I referred to policy count as a better measure. I don't believe we're seeing greater success in any specific policy group compared to before. Rather, we're just being more effective in our approach.

Yes. Do you notice any differences in the issue of multiliner package writers that bundle compensation compared to your monoline? I assume your engagement may involve some changes that make brokers more open to providing you with the compensation business. Do you see any development in the discussion of package versus monoline?

I would say globally, the answer to that is probably no. We haven't really seen packaged carriers pull away from workers' compensation. What we're selling is the value proposition of AMERISAFE. Our safety services, our claims services, and the fact that we're not entering and exiting those markets add stability for an agent and their clients. That's where we're making a genuine impact. However, I'm not naive enough to think that what's happening in other property and casualty lines isn't affecting us; it certainly is. From an agent's perspective, it's crucial that we refine our understanding of their needs because when commercial clients approach them, they are primarily concerned with where to place their property, liability, and commercial auto coverage. Workers' compensation isn't usually top of mind unless that client has encountered an issue. If they have had an issue, that's typically a win for AMERISAFE, as we tend to excel in service. Therefore, it's vital that agents understand our appetite and we remain a priority for them. Nevertheless, I haven't seen a significant shift in the competitive landscape yet but remain hopeful.

Yes. I had a couple more. I can get back in the queue if there's anybody else in line or should I keep going, Janelle?

Keep going, Mark.

You mentioned the risk of medical inflation possibly related to the current fee schedules. I believe you said there's been no noticeable change yet. In the past, have you observed a breakdown in the fee schedules, and what causes it to go wrong? Is that a possibility?

Last quarter, we briefly discussed Florida, which has some upcoming rate changes related to reimbursement rates for surgeries and physicians. These changes will take effect on January 1, 2025, and will be incorporated into the Florida rate for next year, although we haven't seen that yet. Florida experienced a significant rate decline of about 15% for 2024, so we are hopeful that the fee changes will be reflected in the 2025 policy year rates. This is an instance of a fee schedule change being included in the rate. Generally, if there's a major change or an expansion of benefits mandated by state legislatures, there would be a specific filing for a rate change. Otherwise, depending on the effective date, changes will be included in the regular rate filing. It will be interesting to observe the 2025 loss cost changes as they come through in the states, with Florida drawing particular attention last quarter. Currently, I am not aware of any larger changes happening elsewhere, but we might face pressure from the provider side. For example, in Florida, when providers argue that the rates are insufficient for their needs, that's usually when adjustments are made. However, I believe that workers' compensation isn't currently a top priority for insurance departments considering the recent catastrophes and their impact on other lines of business, so I don't expect any significant changes on my radar.

Yes. Correct me. A lot of the fee schedules are tied to government reimbursement. I don't know that they're going...

You're correct. You're correct.

But they're going to change direction or be unclear.

I think the latest was between 2% and 3% coming out of those schedules. So that's pretty in line with the industry and relatively benign if you think about it, which going back to my opening remarks, I mean that's one of the things that's driving the profitability in workers' comp, right? Severity has been relatively moderate.

Yes. How many large claims have there been year-to-date?

We ended the quarter with 13 claims in excess of $1 million.

Okay. And that's below one constraint?

We are essentially on track with our expectations. Reviewing the recent accident years, the numbers fall within that range, so I don't have any concerns in that regard.

Yes. You mentioned the NCCI loss cost numbers for 2025. Any change in trajectory on those? Where you've seen them lately? Is anything contrary or that kind of study should likely go down?

I think we are still expecting upper single-digit declines. I looked at the chart showing rate changes back to 2004, and it's interesting to see how many years we've been on this trend. Since 2018, the rate of declines has been greater than 5%, and when you think about it, that's a significant amount of rate decreases over consecutive years.

Yes. The cumulative.

You're exactly right.

What is the amount of top line growth here? Is this just the beginning? Will this continue for the next four quarters? Would that be the expected tempo? You've reached a new level of effectiveness and engagement, so it seems reasonable to assume that this will have some staying power in the near to medium term.

Yes. I do not have a crystal ball, but I can assure you, our strategic priority is to add incremental profitable growth each quarter.

Yes. Yes. Okay. And then the new money yields, last question.

New money yields were about 5%.

And the portfolio yield, 2.84, I think you said?

3.84.

With no additional questions in queue. I would like to turn the call back over to Janelle Frost for any additional or closing remarks.

AMERISAFE’s long-standing presence in the high hazard workers’ compensation space positions us well for delivering long-term value to our stakeholders and stability to our policyholders, agents, and employees. Thank you for joining us today.

Thank you. That will conclude today's call. We appreciate your participation.