) second-quarter 2012 operating earnings per share of 18 cents came
in way behind the Zacks Consensus Estimate of 40 cents and the
prior-year quarter's earnings of 24 cents. Consequently, operating
net income plunged 24.6% year over year to $3.36 million.
Including after-tax net realized gains of $0.09 million against
$0.15 million in the year-ago period, reported net income declined
to $3.45 million or 19 cents per share, compared with $4.6 million
or 24 cents a share in the prior-year quarter.
Reported results reflect higher premiums written and earned that
shored up the top line. In addition improved investment portfolio
and capital position drove the book value of the shares. However,
the positives were substantially offset by higher-than-expected
tax, underwriting and loss and loss adjustment expenses (LAE) along
with lower investment yields. These factors even hampered the
underwriting results, return on equity (ROE), combined ratio and
other profitability metrics.
The accident years prior to 2009 primarily contributed to the
favourable development of $1.9 million, while the accident years
2010 and 2011 incurred $5.3 million of unfavorable development,
thereby reducing LAE by $3.4 million. Nevertheless, the current
accident year loss ratio was 76.5%, down from 79.3% from the
Amerisafe's total revenue for the reported quarter was $76.6
million, up 14.2% from $67.1 million in the prior-year quarter,
also edging past the Zacks Consensus Estimate of $76.0 million.
Gross premiums written for the quarter were $85.5 million,
reflecting a 17.3% year-over-year surge. The uptick was driven by
payroll audits and related premium adjustments for policies written
in previous periods. These adjustments increased premiums by $4.5
million in the reported quarter, while they reduced premiums by
$0.3 million in the year-ago quarter.
Furthermore, voluntary premiums written climbed 8.9% year over
year in the reported quarter. In addition, net premiums earned
increased 15.6% from the year-ago quarter to $69.7 million. Net
investment income, which represented about 9% of total revenue, was
$6.6 million for the reported quarter, almost in line with the
Conversely, insurance loss and loss adjusted expenses (LAE)
increased 21.7% year over year to $56.7 million (or about 81% of
net premiums earned). As a result, total expenses escalated 16.7%
year over year to $72.6 million, while net underwriting expense
ratio decreased to 22.0% from 24.7% in the year-ago quarter, due to
higher premiums that were offset by growth in underwriting and
Subsequently, underwriting loss soared to $2.7 million against
$1.6 million in the year-ago quarter. Even net combined ratio for
the reported quarter deteriorated to 103.8% from 102.6% in the
Amerisafe exited the reported quarter with ROE of 3.8% that
dipped from 5.5% in year-ago quarter. Operating ROE also
decelerated to 3.7% from 5.3% in prior-year period. However, book
value per share came in at $19.98 as on June 30, 2012, up 8.0% from
$18.50 in the prior-year quarter.
As on June 30, 2012, Amerisafe's fair value of the portfolio,
including cash and investments, stood at $878.1 million compared
with $890.7 million at the end of 2011. However, the investment
portfolio improved to $920.4 million at June 2012-end versus $806.0
million at 2011-end.
Total shareholders' equity stood at $363.5 million at the end of
June 2012, up from $349.4 million at the end of 2011. No shares
were repurchased during the reported quarter. Meanwhile, Amerisafe
revised its financial data for 2011 to reflect the retrospective
adoption of a new accounting standard for policy acquisition costs.
The financials for the first half of 2012 also reflect the change
in the estimate of liability for state guaranty fund
As expected, 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. However, though the pricing environment is
somewhat improving now, it fails to drive adequate growth owing to
challenging industry trends and robust price competition fuelled by
excess capacity and muted demand. Higher-than-expected expenses
further add to the woes and risk the profitability metrics.
Nevertheless, an improved book value, prudent capital management,
expanded share repurchase plan and a strong financial strength
rating augur a decent mid- to long-term growth. Amerisafe competes
SeaBright Insurance Holdings
Employers Holders Inc.
) in its industry space.
Currently, Amerisafe carries a Zacks Rank #3, implying a
short-term Hold 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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