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 healthcare 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's specific metrics during his prepared remarks. To summarize, the impacts of inflation are far-reaching, but the three impacts I named directly influence key areas of AMERISAFE and our financial outcomes. In the quarter, gross premiums written grew 1% over the prior year quarter, driven by robust audit and other premium adjustments. Higher than anticipated payrolls led to positive audit premium for the policies written in the first quarter of 2021 and audited this quarter.
Premiums for policies written this quarter was down 5.6%, principally driven by declines in loss costs. Our overall pricing for the quarter, as reflected by our ELCM, was 151, down from 152 in the second quarter of 2021. Despite competition remaining strong and pricing pressures continuing, we retained 93.7% of the policies we offered renewal to. Continuing with losses, frequency trends for the current accident year remained favorable, with reported claim counts lower than prior accident years at 6 months. Coupled with severity within expectations, the loss ratio for the current accident year remained 71%. We had 10 claims with case incurred above $1 million at the end of the quarter. This compares to 3 for the first six months of 2021 and 19 for the full year of 2021.
Our history has shown there is no seasonality as to which quarters large losses occur. Further, favorable case development reduced the quarter's loss ratio by 13.6 percentage points. Accident years primarily attributing to the $9.6 million of favorable development were 2017, 2018, 2019, and 2020. This is the first quarter that we've adjusted the assumed ultimate loss ratio for accident year 2020. I will now turn the call over to Neal to discuss expenses, investments, and capital management.
Thank you, Janelle, and good morning, everyone. For the second quarter of 2022, AMERISAFE reported net income of $6.1 million, or $0.32 per diluted share, compared with $23.8 million, or $1.23 per diluted share in last year's second quarter. The decline in net income was primarily driven by declines in our equity securities compared with gains in our equity securities in last year's second quarter. Operating net income for the second quarter was $13.1 million, or $0.68 per share, a decrease from $20.2 million or $1.04 per share in the second quarter of 2021. Revenues in the quarter were lower, impacted by this year's $9.9 million decrease in unrealized gains on equity securities. Revenues came in at $68 million, compared with $81.2 million last year.
Net premiums earned increased 0.6% to $70.3 million, compared with $69.9 million in last year's second quarter, and a significant improvement from the trend in recent quarters. Turning to our investment portfolio, net investment income decreased 3.6% in the second quarter to $6.5 million, compared with $6.7 million in the second quarter of 2021. The decrease was driven by the continued impact of lower interest rates on fixed income securities as they work their way through the year-over-year comparisons. On a positive note, net investment income for the third and fourth quarter is expected to grow as the yield on our portfolio continues to increase. During the first six months of the year, our yield on new investments was approximately 100 basis points higher than the securities maturing or sold out of the portfolio.
During the month of July, this difference was over 200 basis points. The tax equivalent yield on our investment portfolio was 2.86% at the end of the second quarter, up 26 basis points from one year ago. The pre-tax yield on the portfolio was 2.56% at the end of the quarter, also up from 2.30% one year ago. Realized gains for the portfolio on securities sold were $1.1 million in the quarter, compared with $1.2 million during the second quarter of 2021.
The investment portfolio remains high quality, carrying an average AA- credit rating with a duration of 4.07 and with 62% in municipal bonds, which includes 15% in taxable munis, 20% in corporate bonds, 4% in U.S. Treasuries and agencies, 6% in equity securities, and 8% in cash and other investments. Approximately 60% of our bond portfolio is comprised of held to maturity securities, and with the substantial rise in rates during the quarter, these bonds are now in a net unrealized loss position of $15.7 million at quarter end. As a reminder, these held to maturity securities are carried at amortized cost and therefore unrealized gains or losses on these securities are not reflected in book value. Moving now to operating expenses.
Our total underwriting and other expenses were $19.9 million in the quarter, compared with $18.5 million in the second quarter of 2021. The increase was primarily due to higher loss-based insurance-related assessments during the quarter compared with last year. By category, the 2022 second quarter expenses included $6.8 million of salaries and benefits, $5.5 million in commissions, and $7.7 million of underwriting and other costs. As a result of the increase in expenses, our expense ratio for the quarter was 28.3%, compared with 26.4% in the second quarter of last year. Our tax rate for the quarter was 13.9%, compared to 18.5% for last year's second quarter, largely due to a higher proportion of tax-exempt income versus underwriting income in the quarter compared with last year.
Return on equity for the second quarter of 2022 was 6.3%. Operating ROE for the quarter was 13.3%. In capital management, the company repurchased shares during the quarter for a total of $3.6 million, leaving $19.3 million remaining on its share repurchase authorization as of June 30, 2022. Also in capital management, the company paid its regular quarterly cash dividend of $0.31 per share in the second quarter, and this quarter the board declared a quarterly cash dividend of $0.31 per share, payable on September 23, 2022 to shareholders of record as of September 9, 2022. Finally, just a couple of other items. Book value per share at June 30, 2022 was $19.95, down 3.2% from $20.62 at year-end.
Our statutory surplus was $300 million at quarter end, up from $278 million at December 31, 2021. Then finally, later today, we will be filing our Form 10-Q with the SEC after the market close. That concludes my remarks and we would like to now open up the call for the question and answer session. Operator?
Thank you, sir. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will now take our first question from Matt Carletti from JMP. Please go ahead.
Hey, thanks. Good morning.
Good morning, Matt.
Morning, Matt.
Janelle, I appreciate your comments at the open about kind of the impacts of inflation on the industry and workers' comp, you know, particularly, you know, caught the comment about expectations for medical loss costs to rise and some of the important differences between AMERISAFE and the industry. Can you, particularly on the claims tail point, expand on that a little bit and just remind us kinda how you view AMERISAFE's claims tail versus what maybe we more commonly think of for workers' comp as an industry?
Yeah, certainly. I'll talk about it in two ways. One is just number of claims reported to us. You know, we've talked about on several calls now that we have not bounced back to pre-pandemic levels, and that still seems to be holding true. Our claim frequency count, number of claims reported is still lower at six months compared to prior accident years. That's certainly benefiting us. To your point about what happens should there be a recession or how inflation impacts that, you know, historically, AMERISAFE has done pretty well with our insured base. Let me back up. Our insured perform pretty well during recessions in terms of whether that increases activity or decreases claim activity. We haven't seen a large fluctuation in claim counts related to that in mild recessions. Certainly in the Great Recession, that was a different story.
When you think about it in terms of duration of claims, which is, I think, where you were headed with the question was, you know, AMERISAFE's average duration is somewhere less than three years, and I think that's probably a year and a half to. I haven't looked at the latest numbers of the industry-wide, but I would say that's probably a year and a half to two years less than industry-wide duration. I think we are benefiting on the front end from just having fewer reported claims. To your point on the duration side, we do a really good job of closing claims. Our open claim counts continue to drop. Our claim closure rates are very healthy, so we feel really good about that.
Great. That's very helpful. Kind of keeping on the inflation point on wage inflation, are you seeing any notable trends, particularly by different industry focuses where you guys have some concentrations in particular industries? Do any stick out as, you know, seeing, you know, notable trends versus, say, the rest of the book?
You know, Matt, the wage growth that we're seeing, and I'll kind of segregate that a little bit, but the wage growth we're seeing is across the board in our industry groups. It sort of tracks with what we see in terms of, you know, if you look at our mix of business. We're seeing it in construction and roofing particularly, trucking particularly, and lumber and logging, we've seen considerable wage growth. You know, we try to give a better, a clearer picture of where that's coming from versus new employees versus actual wage growth itself. I think last quarter, we were quite astonished and reported out that for policies that reported payrolls in that quarter, we saw actual wage growth of 7.3%.
We didn't know if that was a blip or a trend. I'm happy to say it was 6.1% in the second quarter of 2022. 7.3% last quarter, 6.1% this quarter in just wage growth. The other side of that is employee count. Last quarter, that was 1.9%, this quarter, 2.9%. Still not large amounts of growth coming from new employees, which as you know, is our preference. That, again, to your question about industry-specific, seems to be pretty consistent across our industry groups.
Great. That's very helpful. Last one, just housekeeping. You always seem to tell it, and I always seem to miss it. What was the ELCM in the quarter?
151.
Awesome. Great. Thank you for all the answers. Appreciate it.
Thank you, Matt.
Thanks, Matt.
We will now take our next question from Mark Hughes from Truist. Please go ahead.
Yeah, thank you. Good morning.
Good morning.
Morning.
The NCCI loss cost number, if you put that in the release, I didn't see it. Do you happen to have that, generally speaking?
Yeah
How that's trending?
Right. For the second quarter, that was 10% decline. I believe I don't have the historical in front of me, 8.2, Neal, is that correct for last quarter?
Yeah. The NCCI put out a projection in May at their annual insurance symposium that NCCI expects loss costs to be down 7.5% for 2022. We're seeing similar trends in our book of business, although, you know, we are high hazard, it's a slightly different book than all of NCCI's book.
Does the 10% represent where you got information in the second quarter, or does that-
That's a great question.
kind of
The 10% represents of the loss cost declines that were effective in the quarter. For all the states that had loss cost declines effective that quarter, the decline was 10%.
That's kind of a sample.
Right
You have to do what, maybe rolling 4 quarters to get at least the, you know, the country as a whole.
Right. Which is why I think Neal was.
This is the latest information, but it may be skewed.
Right. That's why Neal was saying NCCI projects overall 7.5%.
Yeah. Yeah. Okay. That's still a pretty big number, the 10%.
It is.
Yeah. Well, anything you can say about 2020, recognizing this is the first quarter you're taking a look at it. Do you look at the whole 2020 or just kind of the early 2020 policies at this point?
We look at
In either case, what do you see?
Yeah. No, we look at the accident year as a whole for 2020. If it's short history, but remembering 2020 claim counts dropped for the industry as a whole, same for AMERISAFE. Severity was within, you know, within expectations. As you know, we always try to measure, given the severity of the claims that we have, we like to wait, let those age a little bit and get solid ground on where people are, how we're feeling about medical outcomes and long-term outlooks for particular claims. Hence this being the first quarter for us to adjust kind of consistent with our pattern.
Yeah. I think the 2020 is anomalous in terms of the claims count drop.
Yeah
should we assume that it's gonna be, you know, pretty fruitful as you evaluate that accident year?
Time will tell. Time will tell. You know, if you harken back to 2020, one of the concerns for the industry and AMERISAFE was the impact of COVID, and not necessarily just the number of claims reported for COVID, but how that was gonna impact medical outcomes, even for non-COVID related claims. I'm gonna knock on wood here and say so far, it doesn't seem to be that impactful other than the stress that it put on the healthcare industry as a whole, which obviously everyone's feeling right now or is beginning to feel right now. You know, I think as far as COVID-specific claims, we had less than 40 reported to us. From that aspect, we felt really good about 2020.
Yeah. On the medical inflation, how much of that are you actually seeing in your book or you're just-
Yeah
anticipating?
We're anticipating. Certainly, we've talked about it on the last two calls, what we're seeing and everyone's experiencing in terms of just nursing costs and home health. But, no, I can't. I don't have any clear metrics in our book. It's just something that we're anticipating, you know, trying to be in front of, what we think will be a trend impacting, you know, a large liability on our balance sheet or the industry's balance sheet.
I-
I think AMERISAFE feels better about it simply because we close claims.
Yeah, I guess it doesn't help having the NCCI's 10% decline in the rearview mirror. You're anticipating inflation.
I could not agree more, Mark.
Yeah. I guess if everybody wised up and competition eased up a bit, then that would be good, but it doesn't sound like that's the case either. Is that fair?
You know what? Absolutely. I don't know if you wanna say wise up. I think, you know, NCCI is very data-driven. They're using what they're seeing in the data. I think carriers are more anticipating what's to come. I mean, even if you look at the NCCI reports and you look at accident year 2021, you know, the industry reported a combined ratio of 102. NCCI thinks ultimately that's not going to be a 102. I think that's the difference between what carriers are experiencing and anticipating experiencing and reflecting in their pricing versus what's actually shown up in the data thus far.
Yeah. How about the audit premium? I think you're taking into account what the first quarter of 2021 and, folks were still pretty conservative on their payrolls. Is that a dynamic that's gonna continue for the next several quarters? Is there some reason why it shouldn't or-
Right
What's going on there?
Right. No, I don't have a crystal ball, but I would think we would continue to see positive payroll growth for the next few quarters. You know, if you think, just to your point, if you think about where we were, the economy was, where our insureds were first quarter of 2021 and playing that forward, the economy was still pretty robust. Our insureds were working. I don't think they anticipated the inflationary pressures. That, I believe, both for us in terms of a tailwind and audit premium.
Yeah. The predicate for that is still going through today, that the inflation is coming in pretty hot, you know, to your point.
Right
about the 6%-7% growth in wages, probably more than what folks had anticipated, you know, just a few months ago.
Right.
We'll make that an editorial comment. I presume you wouldn't disagree with any of that.
I don't. I mean, I saw the headline today in The Wall Street Journal about a near record pace in terms of wage growth and benefit growth in the quarter.
Yeah. Well, the funny headline, you know, the Fed doesn't like that. These people are making too much money. We better stop that, you know? Okay. All right. I think I am good there. Appreciate all the answers.
Thank you, Mark. Appreciate it.
Thanks, Mark.
It appears there are no further questions. At this time, I would like to turn the conference back to Janelle Frost for any additional or closing remarks.
Thank you for joining us today. I want to take this opportunity to congratulate the AMERISAFE team on being named to the top 50 P&C carriers for the fourteenth consecutive year. Honors such as this only happen because of your dedication to serving our stakeholders. Thank you for joining us today.
This concludes today's call. Thank you for your participation. You may dis-