AMERISAFE, the DeRidder, Louisiana based workers' compensation specialist, has long been perceived as a steady, reliable, and frankly, somewhat uneventful investment. Quarter after quarter, they deliver consistent profitability, generous dividends, and a conservative approach that appeals to risk-averse investors. However, a deeper dive into their recent Q1 2024 earnings call transcript reveals a tantalizing hint of a potential growth engine that may be flying under the radar of most analysts.

Amidst the usual discussions of declining industry rates, wage inflation, and the ever-present concern about medical cost inflation, CEO Janelle Frost casually drops a bombshell: "Both new business submissions and bonds increased on a year-over-year basis as we’re seeing higher agent engagement." This seemingly innocuous statement carries immense weight when viewed in the context of AMERISAFE's historical performance and the current competitive landscape.

For years, AMERISAFE has excelled at retaining their existing customer base, boasting renewal rates consistently above 90%. This unwavering loyalty stems from their specialized expertise in high-hazard workers' compensation and their commitment to safety services that actively mitigate risks for their insured businesses. However, new business growth has been a more elusive target.

The current soft market in workers' compensation, characterized by persistent rate decreases, creates a challenging environment for attracting new customers. Insureds, understandably focused on cost savings, are less inclined to switch carriers unless offered a compelling value proposition beyond just lower premiums. This dynamic places AMERISAFE in a particularly difficult position, as their niche expertise and safety-centric approach often come at a premium.

Therefore, the revelation of increased new business submissions, coupled with higher agent engagement, suggests a shift in AMERISAFE's strategy and a potential new avenue for growth. Here's why this subtle shift is so significant:

Proactive Agent Outreach: AMERISAFE seems to be actively engaging agents, re-educating them about their comprehensive value proposition beyond just premium pricing. By emphasizing their specialized expertise, long-term track record, and safety services that translate into tangible risk reduction for insureds, AMERISAFE is positioning themselves as a partner, not just a vendor. Shifting Agent Priorities: The current soft market in workers' compensation, combined with hardening in other lines, may be shifting agent priorities. With less emphasis on shopping around for the lowest workers' comp premiums, agents are more open to considering AMERISAFE's unique offering for high-hazard clients, even at a slightly higher cost. Policy Count Growth: The increase in new business submissions is already translating into policy count growth, as noted by Frost. While premium dollars may be impacted by the soft market, the growth in policy count indicates a broadening customer base and a potential for future premium expansion as rates eventually stabilize. Sustained Wage Inflation: AMERISAFE continues to experience robust wage inflation among its insured businesses, with Q1 2024 payroll growth clocking in at 7.6%, of which 6.4% was attributed to wage increases. This sustained wage pressure, a positive factor for audit premiums, further reinforces the potential for future premium growth.

Hypothesis:

If AMERISAFE can sustain this increased agent engagement and translate it into a steady stream of new business, they may be unlocking a hidden growth engine that could significantly enhance their future performance.

Numbers:

While the Q1 2024 transcript doesn't provide specific figures for new business growth, the fact that policy count increased despite the soft market and lighter audit premiums strongly supports the hypothesis. Further, the continued strength of wage inflation (7.6% in Q1 2024) suggests a potential upside for future audit premiums.

Wage Inflation Trend

Conclusion:

AMERISAFE's subtle yet strategic shift towards proactive agent engagement may be a game-changer. While the company remains committed to their core values of conservative underwriting and exceptional customer service, this new focus on highlighting their differentiated value proposition to agents could unlock a significant new growth engine, transforming them from a "boring" insurer into a potential market leader in the high-hazard workers' compensation space.

"Fun Fact: AMERISAFE's headquarters is located in DeRidder, Louisiana, a town deeply rooted in the timber industry. This location reflects their commitment to serving high-hazard industries and their understanding of the unique risks faced by their insured businesses."