) third-quarter 2012 operating earnings per share of 35 cents
fell a penny short of the Zacks Consensus Estimate but surpassed
the prior-year quarter's earnings of 23 cents. Consequently,
operating net income soared 48.2% year over year to $6.5
Including after-tax net realized gains of $0.64 million
against $0.5 million in the year-ago period, reported net income
escalated to $7.1 million or 38 cents per share, compared with
$4.9 million or 26 cents a share in the prior-year quarter.
Reported results reflect higher premiums written and earned
that shored up the top line and the underwriting results. In
addition improved investment portfolio and capital position drove
the book value of the shares, return on equity (ROE), combined
ratio and other profitability metrics. However, the positives
were substantially offset by higher-than-expected tax,
underwriting and loss and loss adjustment expenses (LAE) along
with lower investment yields.
The accident years primarily contributed to the favourable
development of $1.6 million, while the accident years 2010 and
2011 incurred about $0.1 million of favourable development,
thereby increasing LAE by $1.7 million. Consequently, the current
accident year loss ratio was 76.5%, down from 78.2% in the
Amerisafe's total revenue for the reported quarter was $80.4
million, up 12.0% from $71.7 million in the prior-year quarter.
This also fell shy of the Zacks Consensus Estimate of $81.0
million. Gross premiums written for the quarter were $77.3
million, reflecting a 17.6% 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 $3.1 million in the reported quarter, while these had
increased premiums by $2.5 million in the year-ago quarter.
Furthermore, voluntary premiums written jumped 16.6% year over
year in the reported quarter. In addition, net premiums earned
increased 12.4% from the year-ago quarter to $72.4 million. Net
investment income, which represented about 8.5% of total revenue,
was $6.8 million for the reported quarter, up 4.7% from the
Conversely, insurance loss and loss adjusted expenses (LAE)
increased 9.2% year over year to $53.9 million (or about 74% of
net premiums earned). As a result, total expenses grew 7.8% year
over year to $72.6 million, while net underwriting expense ratio
decreased to 22.8% from 25.4% in the year-ago quarter, due to
higher premiums and a mere 0.9% growth in underwriting and
Subsequently, underwriting profit stood at $1.1 million
against a loss of $1.5 million in the year-ago quarter. Even net
combined ratio for the reported quarter improved to 98.50% from
102.3% in the prior-year quarter.
Amerisafe exited the reported quarter with ROE of 7.7% that
improved from 5.7% in year-ago quarter. Operating ROE also
climbed to 7.1% from 5.2% in prior-year period. Additionally,
book value per share came in at $20.46 as on September 30, 2012,
up 8.6% from $18.84 in the prior-year quarter.
As on September 30, 2012, Amerisafe's fair value of the
portfolio, including cash and investments, stood at $882.6
million compared with $890.7 million at the end of 2011.
Moreover, the investment portfolio improved to $929.1 million at
September 2012-end versus $806.0 million at 2011-end. Total
shareholders' equity stood at $372.1 million at the end of
September 2012, up from $349.4 million at the end of 2011.
On October 30, 2012, the board of Amerisafe protracted the
company's share repurchase program through December 2013. 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.
However, no shares were repurchased during the first nine
months of 2012, while the company had $24.4 million of shares
available for repurchases as of September 30, 2012.
Amerisafe has been benefiting from the exodus of some
competition in the industry and the somewhat improved pricing
environment, thereby creating excess capacity and demand.
However, we remain cautious of adequate growth as Amerisafe will
continue to face an uncertain environment for the next few
quarters as the economic fragility continues to hurt payrolls,
which could further affect the underwriting results.
Higher-than-expected expenses further add to the woes and risks
to the profitability metrics.
Nevertheless, an improved book value, ROE, prudent capital
management, expanded share repurchase plan and a strong financial
strength rating augur a decent mid- to long-term growth.
Amerisafe competes with
SeaBright Insurance Holdings
Employers Holders Inc.
) in its industry space.
Currently, Amerisafe carries a Zacks Rank #4, implying a
short-term Sell rating and a long-term Neutral stance.
AMERISAFE INC (AMSF): Free Stock Analysis
EMPLOYERS HLDGS (EIG): Free Stock Analysis
SEABRIGHT INSUR (SBX): Free Stock Analysis
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