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Amerisafe Tops on Q4 Earnings, Ups Div

Zacks Equity Research

Amerisafe Inc.’s (AMSF) fourth-quarter 2013 operating earnings per share of 90 cents noticeably outpaced the Zacks Consensus Estimate of 55 cents and the prior-year quarter figure of 49 cents. Consequently, operating net income spiked 84.9% year over year to $17 million.

Operating net income excluded after-tax net realized gains of $0.40 million against $0.04 million in the year-ago period. Including these, reported net income soared to $17.4 million or 92 cents per share from $9.2 million or 50 cents a share earned in the prior-year quarter.

Reported results reflect higher premiums and lower-than-expected decline in investment income that shored up the top line as well as the underwriting results. In addition, improved investment portfolio and lower total expenses drove the book value of the shares, return on equity (:ROE), combined ratio and other profitability metrics. These were partially offset by slightly higher loss and loss adjustment expenses (:LAE) along with lower investment yields.

Amerisafe’s total revenue stood at $94.3 million, up 10.1% over the prior-year quarter. Gross premiums written for the quarter were $91.1 million, reflecting a 12.3% 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 $3.2 million in the reported quarter, while the same had boosted premiums by $7.9 million in the year-ago quarter.

Furthermore, voluntary premiums written jumped 19.6% over the prior-year quarter, whereas net premiums earned increased 10.1% to $86.7 million. Net investment income, which represented about 7% of total revenue, was almost flat at $6.8 million.

Meanwhile, insurance loss and loss adjusted expenses (:LAE) inched up 2.8% year over year to $59.1 million (or about 68% of net premiums earned). However, total expenses dipped 4.9% year over year to $69.3 million, while net underwriting expense ratio improved to 11.7% from 18.9% in the year-ago quarter, due to higher premiums and a 32.1% decline in underwriting and operating costs.

Subsequently, underwriting profit surged $17.4 million from $5.8 million in the year-ago quarter. Even net combined ratio for the reported quarter improved to 80.0% from 92.6% in the prior-year quarter.

The accident years primarily contributed to the favorable development of $4.4 million. Consequently, the current accident year loss ratio was 73.2%, down from 76.5% in the prior-year quarter.

Full-Year 2013 Highlights

For full-year 2013, Amerisafe generate operating earnings per share of $2.37, strikingly surpassing the Zacks Consensus Estimate of $2.02 and $1.48 in 2012. Operating net income soared 62% year over year to $44.4 million.

Additionally, reported net income increased to $43.6 million or $2.32 a share in 2013 from $29.4 million or $1.58 per share in 2012. Net combined ratio also improved to 90.0% from 97.5% in 2012.

Total revenue grew 10.9% year over year to $356.3 million in 2013, while total expenses increased 4.6% to $297.1 million.

Financial Update

Amerisafe exited the reported quarter with operating ROE of 17.1% that improved from 9.8% in the year-ago quarter. Operating ROE also climbed to 10.9% in 2013 from 8.0% in 2012. Additionally, book value per share came in at $22.41 as on Dec 31, 2013, up 7.3% from $20.88 at 2012-end.

As on Dec 31, 2013, Amerisafe’s investment portfolio, including cash and investments, stood at $1.0 billion compared with $900.8 million at 2012-end. Moreover, fair value of the portfolio improved to $1.0 billion at 2013-end versus $944.9 million at 2012-end. Total shareholders’ equity stood at $416.8 million at 2013-end, up from $381.2 million at 2012-end.

Share Repurchase Update

On Oct 31, 2013, the board of Amerisafe extended the company’s share repurchase program to $25 million, to be executed through Dec 2014. However, no shares were bought back during 2012 and 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.

Dividend Update

Concurrently, the board of Amerisafe announced a 50% hike in regular quarterly dividend to 12 cents per share from the prior 8 cents. The hiked dividend is payable on Mar 28, 2014 to shareholders of record on Mar 14. The company had initiated dividend payouts in Mar 2013.

Others

Amerisafe carries a Zacks Rank #3 (Hold). Other better-ranked insurers include American Financial Group Inc. (AFG), EMC Insurance Group Inc. (EMCI) and Navigators Group Inc. (NAVG), all of which sport a Zacks Rank #1 (Strong Buy).

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