Amerisafe Inc.’s (AMSF) fourth-quarter 2014 operating earnings per share (EPS) of 87 cents noticeably outpaced the Zacks Consensus Estimate of 75 cents by 16%, marking the four-quarter trailing average beat of 7.7%.
However, operating EPS lagged the prior-year quarter figure of 90 cents by 3.3%. Lower-than-expected underwriting results weakened earnings. Operating net income dipped 2.7% year over year to $16.5 million. Including extraordinary items, reported net income also declined to $16.9 million or 89 cents a share from $17.4 million or 92 cents per share in the year-ago quarter.
Results reflected improved frequency trends and premiums, despite flattened pricing, and prudent reserve analytics and flattish loss and loss adjustment expenses (LAE). However, significantly higher underwriting and operating costs hampered underwriting income, combined ratio and return on equity (ROE). The changes initiated in the company’s 2014 reinsurance treaty yielded lower profit and ceding commissions.
Quarter in Detail
Amerisafe’s total revenue increased 11.2% year over year to $104.9 million. Top line also beat the Zacks Consensus Estimate of $103 million. Gross premiums written were $90.3 million, reflecting 0.8% dip. Furthermore,voluntary premiums written dipped 2.8% from the prior-year quarter.
However, payroll audits and related premium adjustments for policies written in previous periods drove premiums by $4.5 million in the reported quarter against $3.2 million in the year-ago quarter. Net premiums earned increased 12% to $97.1 million. Additionally, net investment income, which represented about 7% of total revenue, grew 5.9% to $7.2 million.
Meanwhile, insurance LAE inched up 0.4% year over year to $59.3 million (or about 61% of net premiums earned). However, total expenses rose 16.7% year over year to $81 million, owing to about 114% hike in underwriting and operating costs. As a result, net underwriting expense ratio also deteriorated to 22.2% from 11.7% in the year-ago quarter.
Subsequently, underwriting profit declined 7.4% to $16.1 million from $17.4 million in the year-ago quarter. Even net combined ratio deteriorated to 83.4% from 80% in the prior-year quarter.
The favorable loss development for prior accident years reduced expenses by $10 million. Consequently, the current accident year loss ratio was 71.5%, down from 73.2% in the prior-year quarter.
Full-Year 2014 Highlights
For 2014, Amerisafe generated operating earnings per share of $2.81, surpassing both the Zacks Consensus Estimate of $2.70 and $2.37 a share in 2013. Operating net income surged 19.8% year over year to $53.2 million.
Additionally, reported net income increased to $53.7 million or $2.84 a share in 2014 from $43.6 million or $2.32 per share in 2013. Net combined ratio also improved to 87.9% from 90% in 2013.
Total revenue grew 13.4% year over year to $404 million in 2014, while total expenses increased 11.2% to $330.3 million. Effective tax rate also rose to 27.2% from 26.3% in 2013.
Financial Update
Amerisafe exited 2014 with operating ROE of 12.4% that improved from 10.9% in 2013. However, operating ROE dipped to 14.8% during the reported quarter from 16.5% in the year-ago period. Additionally, book value per share came in at $23.65 as on Dec 31, 2014, up 5.5% from $22.41 at the end of the year-ago period.
As on Dec 31, 2014, Amerisafe’s investment portfolio, including cash and investments, stood at $1.11 billion, slightly higher than $1.0 billion at 2013-end. Moreover, fair value of the portfolio was $1.1 billion, slightly higher than $1.0 billion at 2013-end. Total shareholders’ equity was $447 million at 2014-end, up from $416.8 million at 2013-end.
Dividend Update
On Feb 24, 2015, the board of Amerisafe hiked its regular quarterly dividend by 25% to 15 cents per share from the prior payout of 12 cents. This is payable on Mar 27, 2015, to shareholders of record as on Mar 13.
On Dec 26, 2014, the company paid its regular quarterly dividend of 12 cents per share to shareholders of record as on Dec 12. Simultaneously, the company paid an extraordinary cash dividend of $1.00 per share.
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 in all of 2012, 2013 and 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 #3 (Hold).
Promising Stock Picks
Some better-ranked insurance players worth considering are Employers Holdings, Inc. (EIG), Endurance Specialty Holdings Ltd. (ENH) and HCI Group Inc. (HCI). All these stockssport a Zacks Rank #1 (Strong Buy).
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