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Section 1: 10-Q (10-Q)

amsf-10q_20190930.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM                 TO

Commission File Number:

001-12251

 

AMERISAFE, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Texas

 

75-2069407

(State of Incorporation)

 

(I.R.S. Employer Identification Number)

 

 

 

2301 Highway 190 West, DeRidder, Louisiana

 

70634

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (337463-9052

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common

 

AMSF

 

NASDAQ

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes     No  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

As of October 29, 2019, there were 19,300,309 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.

 

 


TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

No.

 

 

 

 

FORWARD-LOOKING STATEMENTS

3

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

Item 1

 

Financial Statements

4

 

 

 

 

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

 

Item 4

 

Controls and Procedures

28

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

 

Item 6

 

Exhibits

29

 

2


FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and the insurance industry in general. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the following:

 

the cyclical nature of the workers’ compensation insurance industry;

 

increased competition on the basis of types of insurance offered, premium rates, coverage availability, payment terms, claims management, safety services, policy terms, overall financial strength, financial ratings and reputation;

 

general economic conditions, including recession, inflation, performance of financial markets, interest rates, unemployment rates and fluctuating asset values;

 

changes in relationships with independent agencies;

 

developments in capital markets that adversely affect the performance of our investments;

 

technology breaches or failures, including those resulting from a malicious cyber attack on the Company or its policyholders and medical providers;

 

decreased level of business activity of our policyholders caused by decreased business activity generally, and in particular in the industries we target;

 

greater frequency or severity of claims and loss activity than our underwriting, reserving or investment practices anticipate based on historical experience or industry data;

 

adverse developments in economic, competitive, judicial or regulatory conditions within the workers’ compensation insurance industry;

 

loss of the services of any of our senior management or other key employees;

 

changes in regulations, laws, rates, rating factors, or taxes applicable to the Company, its policyholders or the agencies that sell its insurance;

 

changes in current accounting standards or new accounting standards;

 

changes in legal theories of liability under our insurance policies;

 

changes in rating agency policies, practices or ratings;

 

changes in the availability, cost or quality of reinsurance and the failure of our reinsurers to pay claims in a timely manner or at all;

 

the effects of U.S. involvement in hostilities with other countries and large-scale acts of terrorism, or the threat of hostilities or terrorist acts; and

 

other risks and uncertainties described from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”).

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements in this report, and under the caption “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.

3


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

Fixed maturity securities—held-to-maturity, at amortized cost

   (fair value $626,603 and $616,772 in 2019 and 2018, respectively)

 

$

604,161

 

 

$

613,878

 

Fixed maturity securities—available-for-sale, at fair value

   (amortized cost $424,270 and $479,772 in 2019 and 2018, respectively)

 

 

440,217

 

 

 

478,730

 

Equity securities, at fair value

   (cost $24,082 and $19,962 in 2019 and 2018, respectively)

 

 

25,936

 

 

 

18,651

 

Short-term investments

 

 

20,964

 

 

 

14,231

 

Total investments

 

 

1,091,278

 

 

 

1,125,490

 

Cash and cash equivalents

 

 

125,870

 

 

 

40,344

 

Amounts recoverable from reinsurers

 

 

102,866

 

 

 

112,006

 

Premiums receivable, net of allowance

 

 

170,649

 

 

 

162,478

 

Deferred income taxes

 

 

18,480

 

 

 

21,852

 

Accrued interest receivable

 

 

10,404

 

 

 

10,197

 

Property and equipment, net

 

 

6,430

 

 

 

6,258

 

Deferred policy acquisition costs

 

 

20,341

 

 

 

19,734

 

Other assets

 

 

28,221

 

 

 

17,572

 

Total assets

 

$

1,574,539

 

 

$

1,515,931

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Reserves for loss and loss adjustment expenses

 

$

790,812

 

 

$

798,409

 

Unearned premiums

 

 

154,635

 

 

 

149,296

 

Amounts held for others

 

 

45,216

 

 

 

41,388

 

Policyholder deposits

 

 

45,383

 

 

 

46,795

 

Insurance-related assessments

 

 

29,035

 

 

 

28,258

 

Federal income tax payable

 

 

1,549

 

 

 

3,412

 

Accounts payable and other liabilities

 

 

39,180

 

 

 

38,611

 

Total liabilities

 

 

1,105,810

 

 

 

1,106,169

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock:  voting—$0.01 par value authorized shares—50,000,000

   in 2019 and 2018; 20,558,559 and 20,528,230 shares issued and 19,300,309

   and 19,269,980  shares outstanding in 2019 and 2018, respectively

 

 

205

 

 

 

205

 

Additional paid-in capital

 

 

212,743

 

 

 

211,431

 

Treasury stock, at cost (1,258,250 shares in 2019 and 2018)

 

 

(22,370

)

 

 

(22,370

)

Accumulated earnings

 

 

265,536

 

 

 

221,328

 

Accumulated other comprehensive income (loss), net

 

 

12,615

 

 

 

(832

)

Total shareholders’ equity

 

 

468,729

 

 

 

409,762

 

Total liabilities and shareholders’ equity

 

$

1,574,539

 

 

$

1,515,931

 

 

See accompanying notes.

4


AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

82,629

 

 

$

85,324

 

 

$

262,754

 

 

$

276,368

 

Ceded premiums written

 

 

(2,170

)

 

 

(2,283

)

 

 

(6,804

)

 

 

(6,982

)

Net premiums written

 

$

80,459

 

 

$

83,041

 

 

$

255,950

 

 

$

269,386

 

Net premiums earned

 

$

82,712

 

 

$

85,184

 

 

$

250,611

 

 

$

261,489

 

Net investment income

 

 

8,264

 

 

 

7,884

 

 

 

24,448

 

 

 

22,396

 

Net realized losses on investments

 

 

(4

)

 

 

(329

)

 

 

(27

)

 

 

(1,471

)

Net unrealized gains on equity securities

 

 

365

 

 

 

573

 

 

 

3,165

 

 

 

259

 

Fee and other income

 

 

151

 

 

 

217

 

 

 

234

 

 

 

411

 

Total revenues

 

 

91,488

 

 

 

93,529

 

 

 

278,431

 

 

 

283,084

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses incurred

 

 

44,325

 

 

 

47,598

 

 

 

142,807

 

 

 

152,836

 

Underwriting and certain other operating costs

 

 

6,736

 

 

 

8,011

 

 

 

21,704

 

 

 

23,842

 

Commissions

 

 

6,153

 

 

 

6,416

 

 

 

18,764

 

 

 

19,526

 

Salaries and benefits

 

 

6,396

 

 

 

6,179

 

 

 

19,202

 

 

 

18,786

 

Policyholder dividends

 

 

1,265

 

 

 

865

 

 

 

3,363

 

 

 

3,290

 

Total expenses

 

 

64,875

 

 

 

69,069

 

 

 

205,840

 

 

 

218,280

 

Income before income taxes

 

 

26,613

 

 

 

24,460

 

 

 

72,591

 

 

 

64,804

 

Income tax expense

 

 

5,227

 

 

 

4,759

 

 

 

13,915

 

 

 

11,978

 

Net income

 

$

21,386

 

 

$

19,701

 

 

$

58,676

 

 

$

52,826

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.11

 

 

$

1.03

 

 

$

3.05

 

 

$

2.75

 

Diluted

 

$

1.11

 

 

$

1.02

 

 

$

3.04

 

 

$

2.74

 

Shares used in computing earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

19,256,069

 

 

 

19,216,545

 

 

 

19,243,689

 

 

 

19,204,196

 

Diluted

 

 

19,302,551

 

 

 

19,272,984

 

 

 

19,320,199

 

 

 

19,281,036

 

Cash dividends declared per common share

 

$

0.25

 

 

$

0.22

 

 

$

0.75

 

 

$

0.66

 

 

See accompanying notes.

5


AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

21,386

 

 

$

19,701

 

 

$

58,676

 

 

$

52,826

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on debt securities, net of tax

 

 

2,475

 

 

 

(2,118

)

 

 

13,447

 

 

 

(7,813

)

Comprehensive income

 

$

23,861

 

 

$

17,583

 

 

$

72,123

 

 

$

45,013

 

 

See accompanying notes.

6


AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Three Months Ended September 30, 2019 and 2018

(in thousands, except share data)

(unaudited)

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Treasury Stock

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amounts

 

 

Capital

 

 

Shares

 

 

Amounts

 

 

Earnings

 

 

Income

 

 

Total

 

Balance at June 30, 2019

 

 

20,556,511

 

 

$

205

 

 

$

212,493

 

 

 

(1,258,250

)

 

$

(22,370

)

 

$

248,975

 

 

$

10,140

 

 

$

449,443

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,386

 

 

 

 

 

 

21,386

 

Other comprehensive

   income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized

   gains, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,475

 

 

 

2,475

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,861

 

Common stock issued

 

 

2,048

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

Share-based compensation

 

 

 

 

 

 

 

 

251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

251

 

Dividends to shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,825

)

 

 

 

 

 

(4,825

)

Balance at September 30, 2019

 

 

20,558,559

 

 

$

205

 

 

$

212,743

 

 

 

(1,258,250

)

 

$

(22,370

)

 

$

265,536

 

 

$

12,615

 

 

$

468,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Treasury Stock

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amounts

 

 

Capital

 

 

Shares

 

 

Amounts

 

 

Earnings

 

 

Loss

 

 

Total

 

Balance at June 30, 2018

 

 

20,528,230

 

 

$

205

 

 

$

210,895

 

 

 

(1,258,250

)

 

$

(22,370

)

 

$

258,744

 

 

$

(2,083

)

 

$

445,391

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,701

 

 

 

 

 

 

19,701

 

Other comprehensive

   income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized

   losses, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,118

)

 

 

(2,118

)

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,583

 

Share-based compensation

 

 

 

 

 

 

 

 

261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

261

 

Dividends to shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,239

)

 

 

 

 

 

(4,239

)

Balance at September 30, 2018

 

 

20,528,230

 

 

$

205

 

 

$

211,156

 

 

 

(1,258,250

)

 

$

(22,370

)

 

$

274,206

 

 

$

(4,201

)

 

$

458,996

 

 

See accompanying notes.

7


AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Nine Months Ended September 30, 2019 and 2018

(in thousands, except share data)

(unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Treasury Stock

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amounts

 

 

Capital

 

 

Shares

 

 

Amounts

 

 

Earnings

 

 

Income (Loss)

 

 

Total

 

Balance at December 31, 2018

 

 

20,528,230

 

 

$

205

 

 

$

211,431

 

 

 

(1,258,250

)

 

$

(22,370

)

 

$

221,328

 

 

$

(832

)

 

$

409,762

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact of adoption of

   ASU 2016-02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

58,676

 

 

 

 

 

 

58,676

 

Other comprehensive

   income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized

   losses, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,447

 

 

 

13,447

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72,123

 

Common stock issued upon

   exercise of options

 

 

5,000

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

Common stock issued

 

 

25,329

 

 

 

 

 

 

559