Amerisafe Inc.’s (AMSF) second-quarter 2014 operating earnings per share of 67 cents outperformed the Zacks Consensus Estimate of 59 cents by 13.6% and was higher than the prior-year quarter figure of 45 cents by 48.9%. The performance was primarily attributable to strong underwriting results.
With this result, the company’s average four-quarter beat stands at 20.1%. Shares also rose 3.3% following the earnings announcement.
Operating net income escalated 48.8% year over year to $12.6 million. Including extraordinary items, reported net income soared $12.8 million or 68 cents a share from $7.6 million or 41 cents per share in the year-ago quarter.
The results reflect improved pricing and frequency trends as well as higher premiums and investment income that shored up the top line. Alongside, controlled claims, costs and commissions drove the underwriting results. In addition, improved investment portfolio and favorable reserves drove the book value of shares, return on equity (ROE) and combined ratio. These were partially offset by slightly higher loss and loss adjustment expenses (LAE) along with lower investment yields.
Quarter in Detail
Amerisafe’s total revenue was $100.6 million, up 15% over the prior-year quarter. The top line also exceeded the Zacks Consensus Estimate of $99 million. Gross premiums written for the quarter were $103.8 million, reflecting an 8.4% 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 $4.4 million in the reported quarter.
Furthermore,voluntary premiums written climbed 8.2% from the prior-year quarter, whereas net premiums earned increased 14% to $93.5 million. Net investment income, which represented about 7% of total revenue, also improved 2.9% to $6.9 million.
Meanwhile, insurance LAE climbed 10% year over year to $62.5 million (or about 67% of net premiums earned). However, total expenses rose 8.7% year over year to $83.6 million, although net underwriting expense ratio slightly improved to 22.5% from 24.0% in the year-ago quarter, due to higher premiums partially offset by nominal uptick in underwriting and operating costs.
Subsequently, underwriting profit surged 94.4% to $10 million from $5.1 million in the year-ago quarter. Even net combined ratio for the reported quarter improved to 89.4% from 93.8% in the prior-year quarter.
The favorable loss development for prior accident years reduced expenses by $4.4 million. Consequently, the current accident year loss ratio was 66.8%, down from 69.3% in the prior-year quarter. Effective tax rate also reduced to 25.1% from 28.2% in the year-ago quarter.
Financial Update
Amerisafe exited the reported quarter with operating ROE of 11.8% that improved from 8.7% in the year-ago quarter. Additionally, book value per share came in at $23.26 as on Jun 30, 2014, up 9.3% from $21.29 at prior period-end.
As on Jun 30, 2014, Amerisafe’s investment portfolio, including cash and investments, stood at $1.06 billion, slightly higher than $1.0 billion at 2013-end. Moreover, fair value of the portfolio was $1.1 billion, higher than $1.0 billion at 2013-end. Total shareholders’ equity was $435.5 million at Jun 2014-end, up from $416.8 million at 2013-end.
Share Repurchase Update
On Oct 31, 2013, the board of Amerisafe extended the company’s share repurchase program to $25 million, to be executed through Dec 2014. However, no shares were bought back during the whole of 2012 and 2013 as well as in the first half of 2014.
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.
Dividend Update
On Jul 29, 2014, the board of Amerisafe declared a regular quarterly dividend of 12 cents per share, payable on Sep 26, 2014, to shareholders of record as on Sep 12.
On Jun 26, 2014, the company paid its regular quarterly dividend of 12 cents per share to shareholders of record as on Jun 12.
In Mar 2014, the company paid an extraordinary cash dividend of 50 cents per share. In Feb 2014, the regular quarterly dividend was hiked by 50% from the prior 8 cents. The company had initiated dividend payouts in Mar 2013.
Other Stocks to Consider
Currently, Amerisafe sports a Zacks Rank #1 (Strong Buy). Other promising insurers like AmTrust Financial Services Inc. (AFSI), Endurance Specialty Holdings Ltd. (ENH) and White Mountains Insurance Group Ltd. (WTM), all carrying a Zacks Rank #1, are also worth consideration.
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