Amerisafe Inc.’s (AMSF) third-quarter 2014 operating earnings per share of 72 cents comfortably outpaced the Zacks Consensus Estimate of 65 cents by 10.8% and improved from the prior-year quarter figure of 54 cents by 33.3%. Strong underwriting results boosted earnings.
With this result, the company’s average four-quarter beat stands at 19.6%. However, following the earnings announcement, shares dipped 1.5%, as the market had already absorbed most of the positive sentiment in the stock earlier.
Operating net income escalated 34.1% year over year to $13.6 million. Including extraordinary items, reported net income soared $13.5 million or 71 cents a share from $9.7 million or 52 cents per share in the year-ago quarter.
Results reflected improved frequency trends and premiums, despite sluggish pricing, prudent reserve analytics and expense management, all of which shored up underwriting income, book value of share and return on equity (ROE). While combined ratio improved, higher loss and loss adjustment expenses (LAE), along with lower investment income were the laggards.
Quarter in Detail
Amerisafe’s total revenue surged 16.3% year over year to $102.3 million. Top line also beat the Zacks Consensus Estimate of $101 million. Gross premiums written were $94 million, reflecting 9.2% growth. The uptick was driven by payroll audits and related premium adjustments for policies written in previous periods. These adjustments increased premiums by $4.6 million in the reported quarter.
Furthermore,voluntary premiums written rose 3.6% from the prior-year quarter, whereas net premiums earned increased 17.5% to $95.9 million. However, net investment income, which represented about 6% of total revenue, declined 6.5% to $6.5 million.
Meanwhile, insurance LAE climbed 8.4% year over year to $61.8 million (or about 64% of net premiums earned). However, total expenses rose 9.8% year over year to $83 million, although net underwriting expense ratio slightly improved to 21.9% from 22.6% in the year-ago quarter, due to higher premiums, partially offset by higher underwriting and operating costs.
Subsequently, underwriting profit escalated 114.2% to $12.9 million from $6 million in the year-ago quarter. Even net combined ratio improved to 86.4% from 92.5 % in the prior-year quarter.
The favorable loss development for prior accident years reduced expenses by $6.8 million. Consequently, the current accident year loss ratio was 71.5%, down from 73.2% in the prior-year quarter. Effective tax rate also rose to 30.3% from 22.1% in the year-ago quarter.
Financial Update
Amerisafe exited the reported quarter with operating ROE of 12.2% that improved from 9.8% in the year-ago quarter. Additionally, book value per share came in at $23.85 as on Sep 30, 2014, up 10% from $21.67 at the end of the year-ago period.
As on Sep 30, 2014, Amerisafe’s investment portfolio, including cash and investments, stood at $1.09 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 $448.5 million at Sep 2014-end, up from $416.8 million at 2013-end.
Dividend Update
On Oct 28, 2014, the board of Amerisafe declared a regular quarterly dividend of 12 cents per share. Additionally, the company declared an extraordinary cash dividend of $1.00 per share. Both the dividends are payable on Dec 26, 2014, to shareholders of record as on Dec 12.
On Sep 26, 2014, the company paid its regular quarterly dividend of 12 cents per share to shareholders of record as on Sep 12.
Previously, in Mar 2014, the company had 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.
Share Repurchase Update
On Oct 28, 2014, the board of Amerisafe extended the company’s share repurchase program to $25 million, to be executed through Dec 2015. However, no shares were bought back during the whole of 2012 and 2013 as well as in the first nine months 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.
Zacks Rank
Currently, Amerisafe sports a Zacks Rank #2 (Buy).
Promising Stock Picks
Other promising insurance players 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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