Good day, and welcome to the AMERISAFE First Quarter 2025 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kathryn Shirley. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to the AMERISAFE 2025 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 intended to fall within the safe harbor provided under the securities laws. 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 statement. 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 this quarter's results, both financially and operationally. We continue on our track of adding incremental growth with an attractive underwriting margin. Importantly, we have done so within our existing geographic footprint and risk appetite and building on the power of relationships with our agents, policyholders and injured workers. Before I discuss the results for the quarter, I will comment on the environment in which we operate. There is strong competition now driven by declining workers' compensation rates and turmoil amongst other property and casualty lines. Then there's the economy. News headlines lately highlight the level of uncertainty, tariffs, inflation, recession, interest rates. I will not be so bold as to predict what will happen, but we like most companies evaluate the risk of our business directly and to our customers. In the most simplistic of terms, those economic conditions, which impact payrolls have the potential to influence our premium. Examples are unemployment, general economic slowdown, project delays, wage inflation. If history were my guide, our niche industries fared well in prior mild shallow recessions. This is something we monitor closely, but it does not change the course we are currently pursuing. Now back to our results. Gross written premiums grew 4.6% over the first quarter of 2024, which was driven by consistent new business gains and strong premium retention. Premiums on policies we wrote in the quarter grew 7.1% over the prior year quarter. We continue to see strong retention in policies for which we offer renewal with 93.1% retention in the first quarter as well as further policy count growth. Premium growth was partially offset by slowing payroll audits and other premium adjustments, which contributed $5 million to top line in the quarter versus $6.4 million in the year ago quarter. This was not unexpected as we discussed in previous quarters with the moderation in wage inflation. As indicated on our last earnings call, our current accident year loss ratio was in line with the prior accident year at 71%. Looking forward, we expect frequency to remain favorable, which we experienced this quarter and severity trends to be relatively modest. The company experienced $8.7 million in favorable development on prior accident years, primarily from accident years 2020 and 2021. We attribute our favorable case development to our proactive claims handling. And with that, I'll turn the call over to Andy to discuss the financials.

Thank you, Janelle, and good morning to everyone. For the first quarter of 2025, AMERISAFE reported net income of $8.9 million or $0.47 per diluted share and operating net income of $11.4 million or $0.60 per diluted share. In comparison, during the first quarter of 2024, net income was $16.9 million or $0.88 per diluted share and operating net income of $13.3 million or $0.69 per diluted share. The lower net income was primarily driven by lower valuations across our equity holdings, which resulted in a net unrealized loss on equity securities of $3.2 million during the quarter, compared to an unrealized gain on equity securities of $4.8 million in the first quarter of 2024. Gross written premiums increased by 4.6% to $83.8 million in the quarter compared with $80.1 million in the first quarter of 2024. Net premiums earned increased 60 basis points to $68.9 million compared to $68.4 million in the first quarter of 2024. Overall, strong new business production and improved premium retention were the primary drivers of continued top line growth, highlighting our focus on expanding profitable sales despite a competitive market environment. Our total underwriting and other expenses were $20.6 million in the quarter, a $1.9 million increase compared with $18.7 million recognized in the first quarter of 2024. This increase resulted in an expense ratio of 29.9% compared with 27.3% in the first quarter of 2024. The increase in expenses is primarily driven by ongoing investments in the business to support top line growth. Timing differences between the initial expense outlay and the recognition of premium contributed to an elevated expense ratio. For the quarter, our tax rate was 20.2% compared to 18.4% in the first quarter of 2024, which was largely due to an increase in the proportion of underwriting income versus tax-exempt investment income. Turning to our investment portfolio. For the first quarter, net investment income decreased 9.7% to $6.7 million, driven by a decrease in investable assets following the payment of the special dividend. For the quarter, the yield on new investments exceeded portfolio roll off by 296 basis points, driving our tax equivalent book yield to 3.85% or 10 basis points higher than the first quarter of 2024. The investment portfolio is high quality, carrying an average AA- credit rating with a duration of 4.48 years. The composition of the portfolio is 62% in municipal bonds, 22% in corporate bonds, 3% in U.S. treasuries and agencies, 7% in equity securities and 6% in cash and other investments. Approximately 54% of our bond portfolio is classified as held-to-maturity securities, which maintained a net unrealized loss of $13.3 million as of quarter end. As a reminder, the 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 $826 million in investments, cash and cash equivalents. And finally, just a couple of other topics. Book value per share was $13.69 and operating return on average equity was 17.1%. Our statutory surplus was $243.6 million at quarter end, up 3.6% from $235.1 million at December 31, 2024. And finally, we will be filing our Form 10-Q with the SEC today, April 30th, after the market closed. With that, I would like to open the call for the question-and-answer portion.

Operator, we're ready for Q&A.

My apologies. Our first question is coming from Matt Carletti at Citizens.

Good morning, Matt.

Good morning. Just a few questions. One is, do you have handy the kind of the audit premium impact on the year ago second quarter and third quarter too, if you have it? Just trying to get a feel for, obviously, voluntary is seeing a nice rebound, but kind of what we're up against in terms of just the kind of reported number?

Yes, I appreciate that. So I'll just kind of give the four quarters of last year. First quarter was $6.4 million, as I stated earlier, second quarter was $7.3 million, third quarter was $4 million, and fourth quarter was $2.5 million.

Thank you for your insights. Regarding the top line, following the recent impacts from Helene and Milton, it seems that the areas where you have substantial market presence, such as construction and trucking, could benefit from the rebuilding efforts. While these developments may take time, are you observing any work activity or other indicators that suggest you may be gaining from the recovery efforts after those events?

Yes, Matt. When I consider the audit premium we recorded this quarter, it pertains to policies that became effective in the fourth quarter of 2023. Regarding the states affected by the hurricanes you mentioned, specifically Florida, Georgia, and the Carolinas, we observed a slight increase in the audit premium for rebuilding classifications in North Carolina and Georgia, with a small uptick in Florida as well.

Okay. Helpful. And then one last question, can you help us consider the potential impact of tariffs on your business? I understand it may be challenging to assess since the situation is uncertain, but I'm referring more to areas like medical equipment and medicine that would assist your workers in achieving maximum medical improvement. Have you conducted any analysis on what this impact might be or whether we should be concerned about it?

No, it's a great question, and I can speculate with everyone else in the industry, I suppose. Again, putting premiums aside, to your point about medical, if you think about the things that could be impacted by tariffs, I would go to pharmacy and probably durable medical equipment. For the workers' compensation industry as a whole, that's probably about 15% of medical costs. So if there's somehow that impactful tariffs somehow impacting those two, there could be a slight uptick in medical from that perspective. For AMERISAFE, we probably run a little bit higher than that 15% just because of the durable medical equipment, in particular, with the types of injuries that we have. However, I don't know that it'd be that meaningful. I think the real question is going to be is if the cost can be passed through or not, right? And I think that's the same thing everybody is worried about even on the construction side with premiums. If the tariffs do, in fact, somehow impact the construction industry, but the construction industry can pass those costs off to the end customer, then it's less impactful to our premiums. If the construction companies as a whole bear the brunt of that or it delays projects, then it could be impactful to premium. So that's my speculation for what it's worth.

All right. That's super helpful. Thank you for the color. Always appreciate it.

You're welcome.

And our next caller is Mark Hughes from Truist.

Yes, thanks. Good morning.

Good morning, Mark.

Janelle, you mentioned competition in your remarks. Was there any change in that competitive dynamic in the first quarter?

No, there really hasn't been. We closely monitor what's happening in the other lines of business, even though we're a monoline and we write workers' compensation. Certainly, what's happening in the rate environment. And even with the distribution network in the other lines of business is impactful to us. And there really hasn't been a shift good or bad in the level of competition, not at this point.

Yes. Andy, you were talking about the expense ratio being impacted by elevated costs to support growth. Did you quantify that? And would you expect that to persist into coming quarters?

So Mark, as I mentioned earlier, there is roughly a $1.9 million increase compared to last year, related to our investments for scale. As we progress through the year, we expect costs to stabilize or decrease since we anticipate being below 30 for the year. However, there is a timing lag associated with these investments before we observe the benefits.

Yes. Janelle, could you share any updates on the state loss costs you've observed recently? Do you have any specific details on that, and have you noticed any trends in the state-by-state data?

Unfortunately, the trend is still declining rates. We're still seeing expectations for mid-single digit decreases in 2025, between 6% and 8%. There is a chart that illustrates the latest approved rate decreases, with two increases noted across all states. The decreases vary, ranging from about 0.5% to nearly 14%. On average, the decrease falls within that 6% to 8% range, in case clarification is needed.

Okay. Yes. And then anything on the medical inflation front? You mentioned some of the maybe potential tariff impacts, but on an underlying basis, any changes?

We are observing some increases, especially in physician care, which we are closely monitoring. Overall, there is certainly an increase in that area. I believe this is more related to labor costs than tariffs at this time, but we will see how it unfolds regarding pharmacy and durable medical costs, as well as medical equipment.

Yes. Is that physician impact? Is that utilization? Or is that some kind of fee schedule impact?

Yes. No, great question. And what I was referring to is actual bills coming in the door. So not necessarily utilization, actually what the doctors are charging us.

Yes. And isn't that largely related to state fee schedules?

Yes, we have fee schedules in place, and we also engage in medical repricing like many in the industry, reviewing the specific codes on the bills we receive. However, it appears that the charges we face are increasing, and we are actively negotiating these charges and utilizing fee schedules to our advantage as much as possible.

Yes. You got those deep pockets. Anything you see in the stat data as you look at the industry, your judgments about loss costs or inflation or reserve adequacy? I know we'll get the NCCI data here pretty soon. But anything you see in the industry numbers that caught your eye this time around?

Yes. You're spot on. You took the words right out of my mouth. NCCI is a couple of weeks away. So we'll certainly see what their opinion is in terms of the industry's overall redundancy. I would suspect that the overall redundancy for the industry should be declining. It's really the degree of decline because, again, loss costs are coming out annually, they're still seeing rate decreases and they're basing that off premium and loss data that they're collecting from the individual carriers. So the rate of the decreases may have slowed slightly. Therefore, I would assume that means the industry's overall redundancy should be deteriorating. And plus, if you think about the years that the redundancies have been generated from those what we would call older accident years now, that should be waning a little bit for the industry. So the question would be, does the industry feel as confident in the more current accident years as they did in those pre-COVID accident years? And I think the industry as a whole would say that's probably not the case. But we'll see what happens. The data tells its own story. So we'll see what was being collected and what's reported.

Yes. If I remember properly, you provided wage specifics, maybe increases in payroll versus increases in wages or average wage?

Right. Our indications are that our wage inflation is still trending a little bit above the national average. I think the national average right now is somewhere around 4%. So our wage inflation indications are that we're slightly above that. We do feel like maybe we've had a little bit of increase in new employee count. One quarter, we'll see, if I look at it compared to not sequential quarter, but prior year quarter, same quarter prior year. It would look like we may have a little bit of increase in employee count, but the wage inflation is still trending above the national average.

Yes. And then am I thinking properly that your ELCM is a thing of the past, which is perfect good time?

As far as our public disclosure, we believe that this is competitive information.

Yes. Well, it was a beautiful thing while...

Thank you, Mark. I appreciate that.

Would you consult Alan on that decision?

I did not. He probably would say, come on, Janelle, you've been doing it that long. Why do I change now? We're all better at data. We're all better at data now than we were in the way back in the gap. So I do feel like that's competitive information.

Yes. Understood. And then one final one, large losses in the quarter.

Two.

Two, okay. So kind of below trend...

Right.

Yes, okay. All right. Thank you very much.

Thank you.

And this will conclude our Q&A session. I will now turn it over to Janelle Frost, CEO for closing remarks.

This quarter further demonstrated our success and the effectiveness of our strategy in generating long-term value for our shareholders. We continue to stay competitive and profitable by implementing our service-focused approach from the start of the agent experience through risk selection and safeguarding our policyholders and their injured workers. This defines us: transforming risk into opportunity through the dedication and expertise of our employees. Thank you for being with us today.

And this concludes today's call. Thank you for your participation. You may now disconnect.