AMERISAFE, Inc. (NASDAQ:AMSF) Q2 2022 Earnings Conference Call July 29, 2022 10:30 AM ET

Company Participants

Vincent Gagliano - Chief Risk Officer

Janelle Frost - President and Chief Executive Officer

Neal Fuller - Chief Financial Officer

Conference Call Participants

Matt Carletti - JMP

Mark Hughes - Truist

Operator

Good day and welcome to the AMERISAFE 2022 Second Quarter Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Vincent Gagliano, Chief Risk Officer. Please go ahead, sir.

Vincent Gagliano

Good morning. Welcome to the AMERISAFE 2022 second quarter investor call. If you have not received the earnings release, it is available on our website at www.amerisafe.com. This call is being recorded. A replay of today’s call will be available. Details on how to access the replay are in the earnings release.

During this call, we will be making forward-looking statements. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Actual results may differ materially from the results expressed or implied in these statements if the underlying assumptions prove to be incorrect, or as the results of risks, uncertainties and other factors, including factors discussed in today’s earnings release, in the comments made during this call and in the Risk Factors section of our Form 10-K, Form 10-Qs and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement.

I will now turn the call over to Janelle Frost, AMERISAFE’s President and CEO.

Janelle Frost

Thank you, Vincent, and good morning, everyone. Inflation continues to dominate financial news. Before discussing the quarter’s results, I thought it would be helpful to discuss three ways inflation impacts workers’ compensation industry and AMERISAFE.

First, premium revenue is based on payroll. Wage growth brought about by a labor shortage and inflationary pressures is a potential tailwind for revenue as insurers payrolls increase. AMERISAFE continues to see wage growth reported by our insurers in their monthly payroll reports, which ultimately leads to positive payroll audit premium. During the second quarter, payrolls grew 9.1% based on our analysis of those policies renewed during the quarter.

Second, I believe workers’ compensation medical cost inflation will rise above recent trends as the health care industry passes increased labor costs to end consumers. Industry-wide, this could lead to increased loss ratios and unfavorable development on open claims. AMERISAFE uses long-term averages in our reserve practices, and we work diligently to close claims, therefore, limiting our exposure on open claims. Third, rising interest rates negatively impact fixed income portfolios of insurance carriers. The upside is that new investments can be made at much more attractive yields, growing investment income in future quarters. Neal will provide AMERISAFE specific metrics during his prepared remarks.