DeRidder, LA – AMERISAFE, Inc. (Nasdaq:AMSF), a specialty provider of hazardous workers’ compensation insurance, recently announced results for the fourth quarter and year ended December 31, 2017.
G. Janelle Frost, President and Chief Executive Officer said, “AMERISAFE achieved an 84.7% combined ratio, a 13.3% operating return on average equity and maintained our strong balance sheet in 2017. Overall, we are pleased with our performance as the workers’ compensation market continued to soften. Our focus remains on maintaining long-term financial stability and outstanding service desired by our policyholders, while providing superior returns to shareholders.”
Tax Reform Impact
As a result of tax reform legislation enacted in December, AMERISAFE recognized a one-time non-cash charge of $12.6 million in the fourth quarter of 2017 from the estimated impact of a revaluation of its net deferred tax assets. This charge is equal to $0.66 cents per share and is excluded from operating net income and operating earnings per share.
Voluntary premiums for policies written during the quarter ended December 31, 2017 decreased $0.4 million, or 0.5%, compared with the fourth quarter of 2016. For the full year 2017, voluntary premiums written decreased 4.0%, compared with 2016.
Payroll audits and related premium adjustments increased premiums written by $2.1 million in the fourth quarter of 2017, compared with $1.2 million in the fourth quarter of 2016. For the full year, these premium adjustments totaled $0.6 million in 2017 compared with $8.1 million in 2016, a decrease of $7.5 million.
In the fourth quarter, the Company increased the accident year loss ratio for 2017 from 69.0% to 70.5% as a result of severity trends observed in accident year 2017 relative to prior accident years. However, during the quarter, the Company experienced favorable case development for prior accident years which reduced loss and loss adjustment expenses by $7.2 million. Accident years 2014, 2015, as well as 2010 and 2011 were the primary contributors to the favorable development. In total, prior accident year favorable development for the year ended December 31, 2017 was $34.8 million, compared with favorable development of $51.3 million in 2016. These results reflect improved trends for both closing claims and claims severity and were driven largely by favorable case reserve development on claims that were closed during the year.
For the quarter ended December 31, 2017, the underwriting expense ratio was 20.7% compared to 18.6% in the same quarter in 2016. The increase was due to slightly higher insurance related assessments in the fourth quarter compared to the same quarter a year ago as well as lower net premiums earned. For the year ended December 31, 2017, the underwriting expense ratio was 22.8%, compared with 21.9% in 2016.
The effective tax rate for the year ended December 31, 2017 was 43.8%. Excluding the impact of revaluing deferred tax assets, the effective tax rate for the year was 28.4% compared with 31.0% for 2016. The decrease in the rate was due to a higher proportion of tax-exempt investment income to underwriting income in 2017 relative to 2016.
Net investment income for the quarter ending December 31, 2017, decreased 6.9% to $7.3 million from $7.9 million in the fourth quarter of 2016, largely due to the increase in value of an investment in a limited partnership hedge fund in last year’s fourth quarter. For the full year 2017, net investment income was $29.3 million compared with $28.1 million for 2016, an increase of 4.2%.
As of December 31, 2017, the carrying and fair value of AMERISAFE’s investment portfolio, including cash and cash equivalents, was $1.2 billion.
The complete results release is available here: AMERISAFE 2017 Fourth Quarter and Year-End Results