The use of reinsurance is an important component of our business strategy. We purchase reinsurance to protect us from the impact of large losses. Our reinsurance program for 2014 includes 14 reinsurers that provide coverage to us in excess of a certain specified loss amount, or retention level. Our 2014 reinsurance program provides us with reinsurance coverage for each loss occurrence up to $70.0 million, subject to applicable deductibles, retentions and aggregate limits. However, for any loss occurrence involving only one claimant, our reinsurance coverage is limited to $10.0 million for any single claimant, subject to applicable deductibles, retentions and aggregate limits. For 2014, we raised our retention from $1.0 million to $2.0 million for each loss
occurrence. Losses in the layer between $2.0 million and $5.0 million are ceded to a new multi-year reinsurance cover with an aggregate annual deductible of approximately $5.0 million and an aggregate limit of coverage of approximately $11.5 million for 2014. This cover is 75% placed, with Amerisafe retaining a 25% co-participation. For losses between $5.0 million and $10.0 million, we are subject to an annual aggregate deductible of 6.5% of subject earned premium before our reinsurers are obligated to reimburse us. For losses between $5.0 million and $10.0 million, the three year aggregate limit is $20.0 million. As losses are incurred and recorded, we record amounts recoverable from reinsurers for the portion of the losses ceded to our reinsurers.
Our focus on providing workers’ compensation insurance to employers engaged in hazardous industries results in our receiving relatively fewer but more severe claims than many other workers’ compensation insurance companies. Severe claims, which we define as claims having an estimated ultimate cost of more than $1.0 million, usually have a material effect on each accident year’s loss reserves (and our reported results of operations) as a result of both the number of severe claims reported in any year and the timing of claims in the year. As a result of our focus on higher severity, lower frequency business, our reserve for loss and loss adjustment expenses may have greater volatility than other workers’ compensation insurance companies.
Our gross reserves for loss and loss adjustment expenses at December 31, 2013, 2012 and 2011 were $614.6 million, $570.5 million and $538.2 million, respectively. As a percentage of gross reserves at year end, IBNR represented 20.2% in 2013, 21.6% in 2012 and 22.3% in 2011.
The workers’ compensation insurance industry is cyclical in nature and influenced by many factors, including price competition, medical cost increases, natural and man-made disasters, changes in interest rates, changes in state laws and regulations, and general economic conditions. A hard market in our industry is characterized by decreased competition that results in higher premium rates, more restrictive policy coverage terms, and lower commissions paid to agencies. In contrast, a soft market is characterized by increased competition that results in lower premium rates, expanded policy coverage terms, and higher commissions paid to agencies. We believe that the workers’ compensation insurance industry is transitioning to a hard market cycle. Our strategy is to focus on maintaining underwriting profitability.
Premiums are earned on a daily pro rata basis over the term of the policy. At the end of each reporting period, premiums written that are not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy. Our insurance policies typically have a term of one year. Thus, for a one-year policy written on July 1, 2013 for an employer with constant payroll during the term of the policy, we would earn half of the premiums in 2013 and the other half in 2014. On a monthly basis, we also recognize net premiums earned from mandatory pooling arrangements.
Fee and Other Income. We recognize commission income earned on policies issued by other carriers that are sold by our wholly owned insurance agency subsidiary as the related services are performed. We also recognize a small portion of interest income from mandatory pooling arrangements in which we participate.
In establishing our reserves, we review the results of analyses using actuarial methods that utilize historical loss data from our more than 28 years of underwriting workers’ compensation insurance. The actuarial analysis of our historical data provides the factors we use in estimating our loss reserves. These factors are primarily measures over time of the number of claims paid and reported, average paid and incurred claim amounts, claim closure rates and claim payment patterns. In evaluating the results of our analyses, management also uses substantial judgment in considering other factors that are not considered in these actuarial analyses, including changes in business mix, claims management, regulatory issues, medical trends, employment and wage patterns, insurance policy coverage interpretations, judicial determinations and other subjective factors. Due to the inherent uncertainty associated with these estimates, and the cost of incurred but unreported claims, our actual liabilities may vary significantly from our original estimates.
Amounts Recoverable from Reinsurers. Amounts recoverable from reinsurers represent the portion of our paid and unpaid loss and loss adjustment expenses that are assumed by reinsurers and related commissions due from reinsurers. These amounts are separately reported on our balance sheet as assets and do not reduce our reserves for loss and loss adjustment expenses because reinsurance does not relieve us of liability to our policyholders. We are required to pay claims even if a reinsurer fails to pay us under the terms of a reinsurance contract. We calculate amounts recoverable from reinsurers based on our estimates of the underlying loss and loss adjustment expenses, as well as the terms and conditions of our reinsurance contracts, which could be subject to interpretation. In addition, we bear credit risk with respect to our reinsurers, which can be significant because some of the unpaid loss and loss adjustment expenses for which we have reinsurance coverage remain outstanding for extended periods of time.
Deferred Policy Acquisition Costs. We defer commission expenses, premium taxes and certain marketing, sales, underwriting and safety costs that vary with and are primarily related to the acquisition of insurance policies. These acquisition costs are capitalized and charged to expense ratably as premiums are earned. In calculating deferred policy acquisition costs, these costs are limited to their estimated realizable value, which gives effect to the premiums to be earned, anticipated losses and settlement expenses and certain other costs we expect to incur as the premiums are earned, less related net investment income. Judgments as to the ultimate recoverability of these deferred policy acquisition costs are highly dependent upon estimated future profitability of unearned premiums. If the unearned premiums were less than our expected claims and expenses after considering investment income, we would reduce the deferred costs.
Gross Premiums Written. Gross premiums written for 2013 were $372.2 million, compared to $328.8 million for 2012, an increase of 13.2%. The increase was attributable to a $46.9 million increase in annual premiums on voluntary policies written during the period, a $2.8 million increase in premiums from mandatory pooling arrangements, and a $0.9 million increase in direct assigned risk premiums offset by a $7.4 million decrease in premiums resulting from payroll audits and related premium adjustments. Related premium adjustments in 2013 include a $1.3 million increase in “earned but unbilled”, or EBUB, premium.
Net Premiums Written. Net premiums written for 2013 were $353.8 million, compared to $312.5 million for 2012, an increase of 13.2%. The increase was primarily attributable to the increase in gross premiums written. As a percentage of gross premiums earned, ceded premiums were 5.3% for 2013 and 2012.
Loss and Loss Adjustment Expenses Incurred. Loss and LAE incurred totaled $229.0 million for 2013, compared to $219.9 million for 2012, an increase of $9.1 million, or 4.1%. The current accident year losses and LAE incurred were $241.6 million, or 73.2% of net premiums earned, compared to $222.4 million, or 76.5% of
net premiums earned for 2012. We recorded favorable prior accident year development of $12.6 million in 2013, compared to $2.5 million in 2012. This is further discussed below in “Prior Year Development.” Our net loss ratio was 69.4% for 2013 and 75.6% for 2012.
Income tax expense. Income tax expense for 2013 was $15.6 million, compared to $7.8 million for 2012. The increase was primarily attributable to an increase in pre-tax income, from $37.1 million for 2012 to $59.2 million for 2013. The effective tax rate also increased to 26.3% for 2013, compared to 21.0% for 2012. This increase is due to a higher level of underwriting income relative to our pre-tax income.
Net Premiums Written. Net premiums written for 2012 were $312.5 million, compared to $258.2 million for 2011, an increase of 21.0%. The increase was primarily attributable to the increase in gross premiums written. As a percentage of gross premiums earned, ceded premiums were 5.3% for 2012, compared to 5.2% for 2011.
The table below sets forth the number of open claims as of December 31, 2013, 2012 and 2011, and the numbers of claims reported and closed during the years then ended.
As discussed above under “-Overview,” we purchase reinsurance to protect us against severe claims and catastrophic events. Based on our estimates of future claims, we believe we are sufficiently capitalized to satisfy the deductibles and retentions in our 2014 reinsurance program. We reevaluate our reinsurance program at least annually, taking into consideration a number of factors, including cost of reinsurance, our liquidity requirements, operating leverage and coverage terms.
On September 15, 2013, we commuted certain reinsurance agreements with Hannover Reinsurance (Ireland) Limited (“Hannover Re”) and Aspen Insurance Limited (“Aspen”) covering portions of the 2008 through 2010 accident years. Hannover Re and Aspen remain obligated to subsidiaries of the Company under other reinsurance agreements. We received cash of $14.9 million and an additional $17.6 million payment effectuated solely through offset against the balance of the funds withheld account under the reinsurance agreement in exchange for releasing Hannover Re and Aspen from their reinsurance obligations under the commuted agreements. As a result of the commutation, there was no effect on the Company’s net income in the year ended December 31, 2013.
Net cash provided by operating activities was $128.9 million in 2013, as compared to $81.0 million in 2012, and $43.7 million in 2011. Major components of cash provided by operating activities in 2013 were net premiums collected of $325.0 million and investment income collected of $39.5 million, offset in-part by claim payments of $177.7 million, $46.4 million of operating expenditures, federal taxes paid of $14.5 million and dividends to policyholders paid of $1.6 million.
Major components of cash provided by operating activities in 2011 were net premiums collected of $260.1 million and investment income collected of $31.2 million, offset in-part by claim payments of $178.8 million, $65.0 million of operating expenditures, federal taxes paid of $2.0 million and dividends to policyholder paid of $1.6 million.
Net cash used in financing activities was $1.5 million in 2013, as compared to net cash used in financing activities of $24.6 million in 2012 and net cash used in financing activities of $16.2 million in 2011. Major components of cash provided in financing activities in 2013 included $2.3 million of proceeds from the exercise of stock options and $2.0 million of tax benefit from share-based compensation, offset by cash used for dividends paid to shareholders of $5.9 million. Major components of cash used in financing activities in 2012 included $25.8 million for the redemption of subordinated debt securities, $0.8 million of proceeds from the exercise of stock options and $0.4 million of tax benefit from share-based compensation. Major components of cash used in financing activities in 2011 included $10.3 million for the purchase of our common stock, 10.3 million for the redemption of subordinated debt securities, $3.3 million of proceeds from the exercise of stock options and $1.0 million of tax benefit from share-based compensation.
The Board of Directors initially authorized the Company’s share repurchase program in February 2010. In October 2011, 2012 and 2013 the Board reauthorized this program. As of December 31, 2013, we had repurchased a total of 1,258,250 shares of our outstanding common stock for $22.4 million. The Company had $25.0 million available for future purchases at December 31, 2013 under this program. There were no share repurchases in 2013. The purchases will continue to be affected from time to time depending upon market conditions and subject to applicable regulatory considerations. It is anticipated that future purchases will be funded from available capital.
On February 25, 2014, the Company declared a special cash dividend of $0.50 per share payable March 28, 2014 to shareholders of record on March 14, 2014.
Under Nebraska and Texas law, as applicable, each of American Interstate, Silver Oak Casualty and American Interstate of Texas is required to invest only in securities that are either interest-bearing, interest-accruing or eligible for dividends, and must limit its investment in the securities of any single issuer, other than direct obligations of the United States, to five percent of the insurance company’s assets. As of December 31, 2013, we were in compliance with these requirements.
As of December 31, 2013, our investment portfolio, including cash and cash equivalents, totaled $1.0 billion, an increase of 11.2% from December 31, 2012. The majority of our fixed maturity securities are classified as held-to-maturity, as defined by FASB ASC Topic 320, Investments-Debt and Equity Securities. As such, the reported value of those securities is equal to their amortized cost, and is not impacted by changing interest rates. The remainder of our fixed maturity securities and all of equity securities are classified as available-for-sale and reported at fair value.
During 2013, the Company impaired securities totaling $2.2 million related to four equity securities. The impairment charge is included in “Net realized gains (losses) on investments” for 2013. We impaired the securities due to the amount of the accumulated unrealized loss positions, the amount of time in those loss positions and the management’s revised outlook on those securities.
The pre-tax investment yield on our investment portfolio was 2.8% per annum during the twelve months ended December 31, 2013, compared to 3.1% per annum during the same period in 2012.
We manage risk on certain long-duration claims by settling these claims through the purchase of annuities from unaffiliated life insurance companies. In the event these companies are unable to meet their obligations under these annuity contracts, we could be liable to the claimants, but our reinsurers remain obligated to indemnify us for all or part of these obligations in accordance with the terms of our reinsurance contracts. As of December 31, 2013, the present value of these annuities was $92.4 million, as estimated by our annuity providers. Substantially all of the annuities are issued or guaranteed by life insurance companies that have an A.M. Best rating of “A” (Excellent) or better. For additional information, see Note 17 to our consolidated financial statements in Item 8 of this report.
Rental expense was $0.2 million in 2013, $0.2 million in 2012 and $0.3 million in 2011.
The table below provides information with respect to our contractual obligations as of December 31, 2013.
loss and loss adjustment expenses by period will vary, perhaps materially, from the amounts shown in the table above to the extent that current estimates of loss and loss adjustment expenses vary from actual ultimate claims amounts and as a result of variations between expected and actual payout patterns. See “Risk Factors- Risks Related to Our Business-Our loss reserves are based on estimates and may be inadequate to cover our actual losses” in Item 1A of this report for a discussion of the uncertainties associated with estimating loss and loss adjustment expenses.
Audited Financial Statements as of December 31, 2013 and 2012 and for the three years in the period ended December 31, 2013:
We have audited the accompanying consolidated balance sheets of AMERISAFE, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audits also include the financial statement schedules listed in the Index at Item 15. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
The Company provides workers’ compensation for companies primarily in special trade groups, including construction, trucking, manufacturing, oil and gas and agriculture. Assets and revenues of AIIC represent at least 95% of comparable consolidated amounts of the Company for each of 2013, 2012 and 2011.
The Company regularly reviews the fair value of its investments. Impairment of an investment security results in a reduction of the carrying value of the security and the realization of a loss when the fair value of the
security declines below the cost or amortized cost, as applicable, for the security and the impairment is deemed to be other-than-temporary. The Company regularly reviews its investment portfolio to evaluate the existence of other-than-temporary declines in the fair value of investments. The Company considers various factors in determining if a decline in the fair value of an individual security is other-than-temporary, including but not limited to a reduction or interruption in scheduled cash flows, the financial condition of the issuer, how long and by how much the fair value has been below amortized cost, losses due to credit concerns, downgrades and the Company’s intent to sell or ability to hold the security.
Effective December 31, 2013, Amerisafe determined that to better reflect the collectability of accounts receivable balances, the Company decreased the allowance for doubtful accounts based on an analysis of
The direct costs of successfully acquiring and renewing business are capitalized to the extent recoverable and are amortized over the effective period of the related insurance policies in proportion to premium revenue earned. These capitalized costs consist mainly of sales commissions, premium taxes and other underwriting costs. The Company evaluates deferred policy acquisition costs for recoverability by comparing the unearned premiums to the estimated total expected claim costs and related expenses, offset by anticipated investment income. The Company would reduce the deferred costs if the unearned premiums were less than expected claims and expenses after considering investment income, and report any adjustments in amortization of deferred policy acquisition costs. There were no adjustments necessary in 2013, 2012 or 2011.
In January 2013, the Company commuted reinsurance agreements with Clearwater Insurance Company, covering portions of accident years 1990 through 1995. The Company received cash of $0.3 million in exchange for releasing these reinsurers from their reinsurance obligations under the commuted agreements. Clearwater Insurance Company remains obligated to the Company’s insurance subsidiaries under other reinsurance agreements. As a result of the commutation, the effect on the Company’s net income in the year ended December 31, 2013 was immaterial.
All advertising expenditures incurred by the Company are charged to expense in the period to which they relate and are included in underwriting and certain other operating costs in the consolidated statements of income. Total advertising expenses incurred were $491,000 in 2013, $444,000 in 2012 and $421,000 in 2011.
In April 2004, the Company formed Amerisafe Capital Trust II (“ACT II”) for the sole purpose of issuing $25.0 million in trust preferred securities. ACT II used the proceeds from the sale of these securities and the Company’s initial capital contribution to purchase $25.8 million of subordinated debt securities from the Company. In May 2012, the Company redeemed $12.9 million of the $25.8 million aggregate principal amount of subordinated debt securities. The Company redeemed the remaining $12.9 million of subordinated debt securities from ACT II in August 2012 and the trust was canceled. The debt securities had been the sole assets of ACT II, and the payments under the debt securities were the sole revenues of ACT II.
The updated guidance is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted the updated guidance effective January 1, 2013. This adoption did not have any effect on the Company’s results of operations, financial position or liquidity.
Short-term investments held at December 31, 2013 include $82.7 million of corporate bonds, certificates of deposit of $0.9 million and $0.8 million of municipal securities. Short-term investments held at December 31, 2012 include $63.5 million of corporate bonds, certificates of deposits of $0.9 million and $4.5 million of municipal securities. All certificates of deposits are fully insured by the Federal Deposit Insurance Corporation.
Amerisafe holds investments in a LP, accounted for under the equity method. The carrying value of this investment is $10.6 million at December 31, 2013.
The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-maturity at December 31, 2013 are summarized as follows:
The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-maturity at December 31, 2012 are summarized as follows:
A summary of the amortized cost and fair value of investments in fixed maturity securities, classified as available-for-sale at December 31, 2013, by contractual maturity, is as follows:
At December 31, 2013, there were $16.3 million of held-to-maturity investments on deposit with regulatory agencies of states in which the Company does business.
The Company reviewed all securities with unrealized losses in accordance with the impairment policy described above. With the exception of four equity securities deemed to be other-than-temporarily impaired, the Company expects to hold investments in equity securities for a reasonable period of time sufficient for a recovery of fair value. The Company determined that the unrealized losses in the fixed maturity securities portfolio related primarily to changes in market interest rates since the date of purchase, current conditions in the capital markets and the impact of those conditions on market liquidity and prices generally, and the transfer of the investments from the available-for-sale classification to the held-to-maturity classification in January 2004. Amerisafe did not recognize the unrealized losses in earnings on these fixed maturity securities at December 31, 2013, because we expect to recover the carrying value of these securities since management does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the security before the recovery of its amortized cost basis. In addition, none of the unrealized losses on debt securities are considered credit losses.
(1) Includes a one-time adjustment of $1.7 million in 2013 as a result of a change in accounting estimate of uncollectible accounts based on historical experience.
The Company cedes certain premiums and losses to various reinsurers under quota share and excess-of-loss treaties. These reinsurance arrangements provide for greater diversification of business, allow management to control exposure to potential losses arising from large risks, and provide additional capacity for growth. Ceded reinsurance contracts do not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreements. To minimize its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers on a continual basis. The effect of reinsurance on premiums written and earned in 2013, 2012 and 2011 was as follows:
At December 31, 2013, unsecured reinsurance recoverables from reinsurers that exceeded 1.5% of statutory surplus of the Company’s insurance subsidiary are shown below (in thousands). The A.M. Best Company rating for the reinsurer is shown parenthetically.
In 2012 and 2013, the Company made no adjustment to the valuation allowance. In 2011, the Company recorded a reduction of $1.4 million in the valuation allowance established in 2008 for unrealized losses resulting from other-than-temporary impairments. As of December 31, 2013, there is no valuation allowance.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of December 31, 2013 and 2012.
Tax years 2009 through 2013 are subject to examination by the federal and state taxing authorities. In April 2012, the Company was notified by the Internal Revenue Service that the examination for tax year 2009 had been completed, but remains subject to state taxing authorities.
In October 2007, the Company entered into an agreement providing for a line of credit in the maximum amount of $20.0 million with Frost Bank, NA. The agreement expired in October 2010. The Company renewed this agreement in the fourth quarter 2010 for an additional three years to mature in December 2013. In the fourth quarter 2013, the Company renewed this agreement for an additional three years to mature in December 2016. Under the agreement, advances may be made either in the form of loans or letters of credit. Borrowings under the agreement accrue at interest rates based upon prime rate or LIBOR. The Company pays a fee of 3/8% (three eighths of one percent ) on the unused portion of the loan in arrears quarterly for a fee of $75,000 annually, assuming the line of credit is not used during the calendar year. Under the new agreement, the Company will pay a fee of 0.25% on the unused portion of the loan in arrears quarterly for a fee of $50,000 annually, assuming the line of credit is not used during the calendar year. The line of credit is unsecured. No borrowings or letters of credit were outstanding under the line of credit arrangement at December 31, 2013 or 2012.
On December 16, 2003, the Company entered into a trust preferred securities transaction pursuant to which it issued $10.3 million aggregate principal amount of subordinated debt securities due in 2034. To effect the transaction, the Company formed a Delaware statutory trust, Amerisafe Capital Trust I (“ACT I”). ACT I issued $10.0 million of preferred securities to investors and $0.3 million of common securities to the Company. ACT I used the proceeds from these issuances to purchase the subordinated debt securities. In July 2011, the Company redeemed all $10.3 million of subordinated debt securities from ACT I and the trust was canceled. The Company paid interest on its ACT I subordinated debt securities quarterly at a rate equal to LIBOR plus 4.10% per annum (4.4% at December 31, 2010). ACT I paid interest on its preferred securities at the same rate. Payments of principal, interest and premium, if any, on the ACT I preferred securities were guaranteed by the Company.
On April 29, 2004, the Company entered into a second trust preferred securities transaction pursuant to which it issued $25.8 million aggregate principal amount of subordinated debt securities due in 2034. To effect
The following table provides a reconciliation of the beginning and ending reserve balances, net of related amounts recoverable from reinsurers, for 2013, 2012 and 2011:
The foregoing reconciliation reflects favorable development of the net reserves at December 31, 2013, 2012, and 2011. The favorable development reduced loss and loss adjustment expense incurred by $12.6 million in 2013 driven primarily by 2008, 2009 and 2010 of $2.3 million, $3.9 million and $3.1 million, respectively. In 2012 and 2011, the Company recorded favorable development of $2.5 million and $6.6 million, respectively. The revisions to the Company’s reserves reflect new information gained by claims adjusters in the normal course of
Reserves established for workers’ compensation insurance have included the exposure to occupational disease or accidents related to asbestos or environmental claims. The exposure to asbestos claims emanate from the direct sale of workers’ compensation insurance. These claims resulted from industry workers who were exposed to tremolite asbestos dust and electricians and carpenters who were exposed to products that contained asbestos. There has been no known exposure to asbestos claims arising from assumed business. The emergence of these claims is slow and highly unpredictable. The Company estimates full impact of the asbestos exposure by establishing full case basis reserves on all known losses. Reserves for losses incurred but not reported (IBNR) include a provision for development of reserves on reported losses. Reserves are established for loss adjustment expenses (LAE) associated with these case and IBNR loss reserves.
The Company’s insurance subsidiaries file financial statements prepared in accordance with statutory accounting principles prescribed or permitted by the insurance regulatory authorities of the states in which the subsidiaries are domiciled. Statutory-basis shareholder’s capital and surplus at December 31, 2013, 2012 and 2011 of the directly owned insurance subsidiary, AIIC, and the combined statutory-basis net income and realized investment gains for all AMERISAFE’s insurance subsidiaries for the three years in the period ended December 31, 2013, were as follows (in thousands):
No shares of these classes of capital stock were outstanding at December 31, 2013 or 2012. No shares of these classes of capital stock were issued in the three year period ended December 31, 2013. Effective December 31, 2009, all outstanding shares of Series C preferred stock and Series D preferred stock were redeemed and canceled.
Stock options granted under the 2005 Incentive Plan have an exercise price of not less than 100% of the fair value of the common stock on the date of grant. However, any stock options granted to holders of more than 10% of the Company’s voting stock will have an exercise price of not less than 110% of the fair value of the common stock on the date of grant. Stock option grants are exercisable, subject to vesting requirements determined by the Compensation Committee, for periods of up to ten years from the date of grant, except for any grants to holders of more than 10% of the Company’s voting stock, which will have exercise periods limited to a
In 2010, the Company’s shareholders approved an amendment to the AMERISAFE Non-Employee Director Restricted Stock Plan (the “2010 Restricted Stock Plan”). The Plan is administered by the Compensation Committee of the Board and provides for the automatic grant of restricted stock awards to non-employee directors of the Company. Awards to non-employee directors are generally subject to terms including non-transferability, immediate vesting upon death or total disability of a director, forfeiture of unvested shares upon termination of service by a director and acceleration of vesting upon a change of control of the Company. The maximum number of shares of common stock that may be issued pursuant to restricted stock awards under the 2010 Restricted Stock Plan is 100,000 shares, subject to the authority of the Board to adjust this amount in the event of a merger, consolidation, reorganization, stock split, combination of shares, recapitalization or similar
As of December 31, 2013, there were 5,376 shares of restricted stock outstanding under the 2010 Restricted Stock Plan, all of which will vest on the date of the annual meeting of shareholders in 2014.
The following table summarizes information about the restricted stock outstanding under the 2010 Restricted Stock Plan at December 31, 2013:
The Company recognized compensation expense of $194,000 in 2013, $210,000 in 2012 and $210,000 in 2011 related to the 2010 Restricted Stock Plan. Total tax benefits realized for tax deductions from vesting of restricted stock in 2013, 2012 and 2011 were $18,000, 16,000 and 18,000, respectively.
A maximum of 500,000 shares of common stock may be issued or transferred upon the exercise of option rights or appreciation rights, as restricted shares and released from substantial risk of forfeiture, in payment of restricted stock units, in payment of performance shares or performance units that have been earned, as awards of shares of common stock to non-employee directors, as other awards granted under the 2012 Incentive Plan, or in
In 2013, 80,278 shares of restricted stock were granted under the 2012 Incentive Plan, which will vest through 2020. In 2012, 2,331 shares of restricted stock were granted under the 2012 Incentive Plan, all of which will vest in March 2015. At December 31, 2013, there were 417,391 shares of common stock available for future awards under the 2012 Incentive Plan.
The following table summarizes information about the restricted stock outstanding under the 2012 Incentive Plan at December 31, 2013:
The Company recognized compensation expense of $319,000 and $638,000 in 2013 related to share-based grants and long-term incentive awards under the 2012 Incentive Plan. The long-term incentive award is a liability award.
Diluted earnings per share includes common shares assumed issued under the “treasury stock method,” which reflects the potential dilution that would occur if any outstanding options are exercised. Diluted earnings per share also includes the “if converted” method for participating securities if the result is dilutive. Diluted EPS is calculated as the more dilutive result of either the treasury method or the two-class method.
The calculation of basic and diluted EPS for the years ended December 31, 2013, 2012 and 2011 are presented below.
The Company’s 401(k) benefit plan is available to all employees. The Company matches up to 2% of employee compensation for participating employees, subject to certain limitations. Employees are fully vested in employer contributions to this plan after five years. Company contributions to this plan were $343,000 in 2013, $322,000 in 2012 and $316,000 in 2011.
The Company leases equipment and office space under noncancelable operating leases. At December 31, 2013, future minimum lease payments are as follows (in thousands):
Net premiums earned during 2013, 2012 and 2011 for the top ten states in 2013 and all others are shown below:
Other Investments- Other investments consist of LP interests valued using the net asset value provided by the general partner of the LP, which approximates the fair value of the interest. The LP’s objective is to generate
technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable:
Assets and liabilities measured at amortized cost as of December 31, 2013 and 2012 are as follows:
The following table represents unaudited quarterly financial data for the years ended December 31, 2013 and 2012.
Effective December 31, 2013, Amerisafe determined that to better reflect the collectability of accounts receivable balances, the Company decreased the allowance for doubtful accounts based on an analysis of historical write-offs. This change in estimate was accounted for prospectively during the three months ended December 31, 2013, and lowered underwriting and certain other operating costs by $1.7 million, increased income tax expense $0.6 million for a net income statement impact of $1.1 million or approximately $0.06 per share.
During 2013, the Company’s Board of Directors initiated a quarterly dividend of $0.08 per share.