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Amerisafe Beats YoY, Lags Earnings Est.

Zacks Equity Research

Amerisafe Inc.’s (AMSF) second-quarter 2013 operating earnings per share of 45 cents lagged the Zacks Consensus Estimate of 50 cents per share by 10%. However results were way ahead of the prior-year quarter’s earnings of 18 cents. However, operating net income climbed 152.8% year over year to $8.5 million.

Operating net income included after-tax net realized losses of $1.3 million against an after-tax net realized gain of $0.12 million in the year-ago period. Including these, reported net income stood at to $7.6 million or 41 cents per share, compared with $3.4 million or 19 cents a share in the prior-year quarter.

Reported results reflect higher premiums that shored up the top line as well as the underwriting results. In addition, improved investment portfolio and capital position drove the book value of the shares, return on equity (:ROE) and combined ratio. However, the positives were partially offset by insurance loss and loss adjustment expenses (:LAE) along with lower investment yields.

Amerisafe’s total revenue for the reported quarter was $87.5 million, up 14.2% from $76.6 million in the prior-year quarter. However, it lagged the Zacks Consensus Estimate of $91 million. Gross premiums written for the quarter were $95.8 million, reflecting a 12.1% 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 $3.7 million in the reported quarter, while the same had boosted premiums by $4.5 million in the year-ago quarter.

Furthermore, voluntary premiums written by Amerisafe jumped 12.8% year over year in the reported quarter. In addition, net premiums earned increased 17.6 % from the year-ago quarter to $81.98 million. Net investment income, which represented about 7.6% of total revenue, was $6.6 million for the reported quarter, up 0.7% from the prior-year quarter.

Conversely, insurance loss and loss adjusted expenses (:LAE) increased 0.2% year over year to $56.8 million (or about 69.3% of net premiums earned). As a result, total expenses of Amerisafe grew 5.9% year over year to $76.9 million, while net underwriting expense ratio deteriorated to 24% from 22% in the year-ago quarter, due to a reduced profit commission arising from high severity losses, a timing difference in premium taxes and higher assessment costs.

Subsequently, underwriting profit of Amerisafe came in at $5.1 million during the quarter, compared to an underwriting loss of $2.7 million in the year-ago period. Even net combined ratio for the reported quarter improved to 93.8% from 103.8% in the prior-year quarter owing to a decline in claims frequency and favourable prior year loss development.

Financial Update

Amerisafe exited the reported quarter with operating ROE of 8.7%, up from 3.7% in year-ago quarter. Additionally, book value per share came in at $21.29 as on Jun 30, 2013, up 6.5% from $19.98 at the end of the year-ago quarter.

As on Jun 30, 2013, Amerisafe’s investment portfolio, including cash and investments, stood at $944.1 million compared with $900.8 million at the end of 2012. Moreover, fair value of the portfolio improved to $972.8 million versus $944.9 million at 2012-end. Total shareholder’s equity stood at $392.5 million at the end of Jun 2013, up from $381.2 million at the end of 2012.

Share Repurchase Update

On Oct 30, 2012, the board of Amerisafe protracted the company’s share repurchase program through Dec 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 reported quarter.

Dividend Update

On Jun 26, 2013, Amerisafe paid its second quarterly dividend of 8 cents per share. On Jul 30, 2013, the board of Amerisafe declared a cash dividend of 8 cents a share, which is payable on Sep 27, 2013 to shareholders of record on Sep 13, 2013.

Performance of Another Insurer

Aflac Inc. (AFL) reported second-quarter 2013 operating earnings per share of $1.62. The results comfortably surpassed the Zacks Consensus Estimate of $1.52 but were a penny higher than year-ago quarter figure. Operating earnings edged up 0.5% year over year to $759 million. A weak yen/dollar exchange rate had a negative impact of 22 cents per share on operating earnings.

Zacks Rank

Amerisafe currently carries a Zacks Rank #2 (Buy). Among other strong performers of the insurance sector, Employers Holdings Inc. (EIG) and Hilltop Holdings Inc. (HTH) share the same Zacks Rank as Amerisafe.

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Read the Full Research Report on AMSF

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