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Anastasios Omiridis

Thank you, Janelle, and good morning to everyone. For the third quarter of 2024, AMERISAFE reported net income of $14.3 million or $0.75 per diluted share and operating net income of $11.1 million or $0.58 per diluted share. During the third quarter of 2023, net income was $10 million or $0.52 per diluted share and operating net income was $11.7 million or $0.61 per diluted share.
Gross written premiums were $74.9 million in the quarter compared with $70.8 million in Q3 of 2023. The increase in the top line was driven by a combination of increased sales efforts with agents, which drove increased new business and strong retentions.
Audit premiums increased the top line by $4 million and remain a material contributor to overall premiums. In the third quarter of 2023, audit premiums were $5.6 million.
Our total underwriting and other expenses were $21.3 million in the quarter as compared to $22.4 million in the prior year, resulting in an expense ratio of 31.7% versus 33.6% in the prior year.
As we continue to invest in our business, expense outlays may proceed growth in earned premiums, leading to quarterly expense ratio fluctuations. However, we expect our full year expense ratio to be within historical ranges.
During the quarter, our claims handling practices drove better-than-expected outcomes, resulting in favorable prior year development of $8.5 million or 12.6% loss ratio points. These reserves were primarily released from exiting years 2017 through 2022.
For the quarter, our tax rate was 19.5%, in line with the prior year. Turning to the investment portfolio. In the second quarter, net investment income decreased 7.6% to $7.5 million due to the reduced portfolio size, partially offset by increased reinvestment rates.
For the quarter, yield on new investments increased approximately 119 basis points in relation to roll off, driving our tax equivalent book yield to 3.84% or 7 basis points prior than the third quarter of 2023. Net unrealized gains for the portfolio and equity securities was $3.9 million in the quarter due to a strong equity market returns compared to an unrealized loss of $7.3 million in the third quarter of 2023.
The investment portfolio is high quality, carrying an average AA minus credit rating with a duration of 4.1 years. The composition of the portfolio is 59% in municipal bonds, 24% in corporate bonds, 3% in US treasuries and agencies, 6% in equity securities and 8% in cash and other investments.
Approximately 56% of our bond portfolio is comprised of held-to-maturity securities. As a reminder, these held-to-maturity securities are carried at amortized costs, and therefore, unrealized gains or losses on these securities are not reflected in our book value.
Our capital position is strong with a high-quality balance sheet, solid loss reserve position and conservative investment portfolio. At quarter end, AMERISAFE carried roughly $900 million in investments, cash and cash equivalents. A couple of other topics.
Book value per share was $16.50 and operating return on average equity was 14.2%. Our statutory surplus was $294.1 million at quarter end, up from $254.9 million at December 31, 2023. During the quarter, roughly 22,000 shares were repurchased at an average price of $46.79 for a total of $1 million. Since the inception of the initial share repurchase program in 2010, we have repurchased roughly 1.7 million shares at an average cost of $24.99 per share for a total of $42 million.
And finally, Friday, October 25, 2024, we will be filing our Form 10-Q with the SEC after market close.
With that, I would like to open the call for the question-and-answer portion of the call. Operator?

Question and Answer Session

Operator

(Operator Instructions) Matt Carletti, Citizens JMP.

Matthew Carletti

Janelle, I was hoping I could start with the top line. I mean, obviously, there's been a nice acceleration for a few quarters now, particularly the voluntary kind of the underlying growth. Can you -- you've talked a lot for several quarters about kind of the efforts you're making at the agency level. Can you just give us an idea of maybe what inning you're in there? I mean, I know Ray only joined a little over a year ago, so I'd imagine he's still getting going and what he wants to do. But any sort of high-level perspective would be helpful.

Gerry Frost

Absolutely. Matt, we have really done considerable efforts internally to find ways to better respond to this workers' comp environment that we find ourselves in. We have a tremendous amount of focus, as you mentioned.
We've talked about it over the last few quarters about our agent engagement, our agent experience, how we're handling the effectiveness of our underwriting in terms of our time and process and just a number of things.
I think the thing I'm most proud of is that it's really an employee-led initiative. So from that regard and talking about how much trajectory is there related to that, I used the comment in my opening remarks about success breeds success. I think as we get these wins, the momentum builds for us but I want to be very clear about the underwriting discipline that surrounds that. We are trying to be more efficient. We are attempting to be more effective at the same time not changing our appetite.
All of the things that you think about when you think about AMERISAFE and our underwriting discipline and our pre-quote safety, all of those things are still in place and still working effectively, and I would even argue maybe working more effectively for us.
If you look at our pre-quote number, it's still well north of 90%. Those things are still happening. We're just finding ways to engage our agents a little bit differently. And more importantly, clarifying our appetite so that we are working effectively with those agents. So they understand the types of accounts that we want to underwrite and the types of business that we feel like we can get the appropriate price for.
So I think it's a combination of all of those things. I love that it's starting to show in the top line numbers that we're releasing publicly. I think internally, we've been filling those small wins for a number of quarters now, but it's nice to see it coming to fruition in the numbers that we report publicly.

Matthew Carletti

Great. That's super helpful. Kind of staying on top line, but maybe a little more nuance in the weeds. As I think about the hurricanes that have occurred in the past couple of months, I look at kind of your footprint and see Florida is 13% of the book, Georgia, 11%; North Carolina, 6%; kind of all top five states, constructions, half your book. And what have you seen in past events?
Like, am I right in thinking that as reconstruction efforts take place that sort of footprint and your exposure to construction, you tend to benefit from the work activity?

Gerry Frost

Yeah. I think you're right on, Matt. Obviously, being in Louisiana, our first thought is we feel for those people. We understand. We know what that feels like and we hope for a quick recovery.
From a business perspective, a quick recovery for us could mean, to your point, it could be somewhat of a boost for us. We -- our southeastern footprint is very important. And the mix of business there is very much like our overall book, a lot of construction, trucking, getting those materials in and out, I think, would be somewhat beneficial to us.

Matthew Carletti

Great. And then lastly, just my typical numbers question. Do you have the ELCM for the quarter, Andy?

Gerry Frost

I do. [157] is the ELCM for the quarter.

Matthew Carletti

Congrats on that quarter.

Operator

(Operator Instructions) Mark Hughes, Truist.

Mark Hughes

Janelle, I'll ask the question another way. Why now on the engagement you've been talking about this for a while, you have seen some building momentum, but this seemed like another step up. Was there something in the broader market environment, some new steps that you implemented that led to the uptick this quarter?

Gerry Frost

Yeah. I would love to answer that question. I say, yes, the competition level has changed. Unfortunately, that is not the case. The competition level is still quite strong, quite intense. I believe AMERISAFE is trying that we're positioning ourselves a little bit differently in that marketplace.
Again, really reinforcing what our appetite is and trying to figure out how we work best with our agents. And as I talked about with Matt, these efforts have been going on for over a year now. I love that it's starting to gain ground, and we're being able to see it in the top-line growth. But internally, being focused on small incremental growth, adding to our policy count has been a strategic priority for us for a little while now.
I'll say this. I believe that the policy count focus is extremely important to what we're trying to achieve here. We've always -- I'd say, we've always -- our real retention has been quite strong. This quarter, 93.6%. And that is -- if you look at premium dollars, that's 80% of our premium dollars. So that's extremely important to us.
Where I felt like we were lacking, and I've talked about this for at least a year now, where I felt like we were lacking where we could put forth a better effort was on the new business side, how do we add incremental new business to help build up that renewal retention.
I think we're getting -- well, the top line would say we're achieving some success there. It's not a silver bullet. It is the small blocking and tackling, but it's making a difference, and it's making a difference with our agents.

Mark Hughes

Is there some -- you say you haven't changed your appetite or underwriting. Are you finding that there is -- there are certain end markets or customer sizes or hazard classes that are responding better to this engagement initiative?

Gerry Frost

Yes, that's a really good question. I was actually looking right before the call. If I look at our mix of business, so again, you mentioned hazard classes, so I'll use that as an example. Hazard classes A through G. If you look at our overall in-force policy count, we hover between 84% and 85% of our book is in that E, F, and G classes.
That is true today at -- not today, it was true at 9/30. And if I look back over the last 10 years, it was true then. It's still somewhere in that 84% to 85% percentage of our in-force policy count is in those classes of E, F, and G. So from that aspect, we're still writing the same hazard groups, same classes of business. We haven't veered that much.
And if you look at the 10-K and you look at how much of our book comes from construction or trucking or logging in lumber. This percentages haven't varied a lot. I think the premium dollars have shifted ever so slightly, but some of that is really where wages are coming from, not necessarily our mix of business, which is why I was using policy count as the proxy.
So I don't know that we're achieving more success in any particular policy group than we were previously. I think we're just being more effective about it.

Mark Hughes

Yeah. Okay. Any nuance in the issue of multiliner package writers that obviously bundle comp whereas your monoline, have you seen the -- I assume your engagement maybe involves some changes there that the brokers are more open to giving you the comp business. But do you see any evolution in that question of package versus monoline?

Gerry Frost

I would say globally, the answer to that, Mark, is probably no. We haven't really seen it. We haven't seen packaged carriers sort of pull away from comp. What we're selling is the value proposition of AMERISAFE. Our safety services, our claim services, the fact that we're not in and out of those markets and we add stability for an agent, we're adding stability to their clients.
I think it's really where we're bringing a little bit true. But I'm not naive to think that what's happening in the other P&C lines are not impactful to us. It certainly is.
And from an agent perspective, going back to really refining with the agents understanding our appetite, it's extremely important right now because most agents when their commercial clients are coming in the door, they are really focused on where they're going to place their property, where they're going to place their liability, where they're going to place the commercial auto. Workers' comp is not probably top of mind unless that particular client has had an issue of some kind.
And if they had an issue of some kind, that's usually a win for AMERISAFE, right, because we -- I think from a service perspective, we do rise to the top. So making sure that agents understand our appetite and that we're remaining top of mind for them is extremely important.
However, from a competition standpoint, I would say that really hasn't -- I haven't seen a shift happen in the marketplace yet. Still hopeful, but I haven't seen it happen yet.

Mark Hughes

Yeah. I had a couple of more. I can get back in the queue if there's anybody else in line or should I keep going, Janelle?

Gerry Frost

Keep going, Mark.

Mark Hughes

Okay. You mentioned the medical inflation, the risk of medical inflation, maybe based on the viability of the current fee schedules. I think you said you're not seeing any change yet, not notice any change yet. Have you seen in the past, a breakdown in the fee schedules, where does it start to go off the rails. And is that even possible? Is it -- yeah.

Gerry Frost

Right. Last quarter, we -- I believe in the earnings call -- I should look back. I believe in the earnings call last quarter, we briefly touched on Florida. Florida had some rate changes come through in regards to reimbursement rates for surgeries and physicians. That hasn't -- it's effective 1/1/2025, so it should be built into the Florida rate going into next -- for next year, which we haven't seen yet. So fingers crossed that Florida -- because if you recall, Florida had like a 15% rate decline for 2024.
So hopefully, those fee changes will be reflected in the rate change for Florida going into -- for the 2025 policy year. So that's an example of, I think, a fee schedule change that was built into the rate. Typically, if it's something major or if there's an expansion of benefits that come through state legislatures, they'll have like a -- there will be a law only filing for a rate change. Otherwise, depending on the effective date, they'll just build it into the rate filing. So it will be interesting to see going in when we start seeing to 2025.
Loss cost changes or the approved loss cost changes coming through with the states, if there are any others. Florida is the one that I think caught everyone's attention last quarter. I don't know of any larger ones as of yet that are happening, but the pressure will come from the provider side.
So with -- and I'll use Florida, as my example. When the providers start pushing back saying, these rates are not adequate for our reimbursement, that's typically when the changes happen.
Harkening back to the broader P&C line. However, I will say this, I don't know of workers' comp being on the top of any insurance departments list right now in terms of rates and things happening in the marketplace because of all the catastrophes that we've seen and the impact to the other lines of business, I think workers' comp is probably not the top priority from that regard. So I don't anticipate any major changes, at least that popped up on my radar.

Mark Hughes

Yeah. Correct me. A lot of the fee schedules are tied to government reimbursement. I don't know that they're going --

Gerry Frost

You're correct. You're correct.

Mark Hughes

But they're going to change direction or be so (multiple speakers)

Gerry Frost

Right. I think the latest was between 2% and 3% coming out of those schedules. So that's pretty in line with the industry and relatively benign if you think about it, which going back to my opening remarks. I mean that's one of the things that's driving the profitability in workers' comp, right? Severity has been relatively moderate.

Mark Hughes

Yeah. How many new -- not -- I'm sorry, how many large claims year to date?

Gerry Frost

We ended the quarter with 13 claims in excess of $1 million.

Mark Hughes

Okay. And that's below [one] constraint?

Gerry Frost

Pretty much on track with where we were. I think last year or the last -- I looked at the last few accident years, it's in that range. So nothing from that aspect that gives me pause.

Mark Hughes

Yeah. You mentioned the NCCI loss cost numbers for 2025. Any change in trajectory on those? Where you've seen them lately? Is anything contrary or that kind of study should likely go down?

Gerry Frost

I think we're still anticipating upper single-digit declines. I was looking this morning at the chart that shows, I think it's the rate changes back to 2020 -- 2004. And it's funny when you look at that chart, I lose track of how many years we've actually been at.
So from 2000, I'd say, '18 on the rate of the declines, and this is all NCCI states, not just AMERISAFE classes. Since 2018 forward, it has been greater than a 5% decline. So that's -- when you think about it from that perspective, that is a large number of -- a big number of rate decreases over sequential years.

Mark Hughes

Yeah. The cumulative --

Gerry Frost

You're exactly right.

Mark Hughes

Amount of that, about the top line growth here. And is this just the beginning? I mean, do you does this carry through for the next four quarters? Is that -- would that be the natural tempo? You've hit this new level of effectiveness and engagement. And so therefore, one would kind of assume that it's going to have some staying power for the near to medium term.

Gerry Frost

Yeah. I do not have a crystal ball, but I can assure you, our strategic priority is to add incremental profitable growth each quarter.

Mark Hughes

Yeah. Yeah. Okay. And then the new money yields, last question.

Anastasios Omiridis

New money yields were about 5%.

Mark Hughes

And the portfolio yield, 2.84%, I think you said?

Anastasios Omiridis

3.84%.

Operator

With no additional questions in queue. I would like to turn the call back over to Janelle Frost for any additional or closing remarks.

Gerry Frost

AMERISAFE's long-standing presence in the high hazard workers' compensation space positions us well for delivering long-term value to our stakeholders and stability to our policyholders, agents, and employees. Thank you for joining us today.

Operator

Thank you. That will conclude today's call. We appreciate your participation.