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Edited Transcript of AMSF earnings conference call or presentation 1-Aug-19 2:30pm GMT

Q2 2019 Amerisafe Inc Earnings Call

DE RIDDER Aug 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Amerisafe Inc earnings conference call or presentation Thursday, August 1, 2019 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gerry Janelle Frost

Amerisafe, Inc. - President, CEO & Director

* Kathryn Housh Shirley

Amerisafe, Inc. - Executive VP, General Counsel & Secretary

* Neal Andrew Fuller

Amerisafe, Inc. - Executive VP & CFO

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Conference Call Participants

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* Frederique Suzanne Sleiffer

Keefe, Bruyette, & Woods, Inc., Research Division - Associate

* Mark Douglas Hughes

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Matthew John Carletti

JMP Securities LLC, Research Division - MD and Senior Analyst

* Robert Edward Farnam

Boenning and Scattergood, Inc., Research Division - MD and Analyst of Property & Casualty Insurance

* Ryan William Aceto

B. Riley FBR, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the AMERISAFE's 2019 Second Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to one of your presenters, Ms. Kathryn Shirley, General Counsel. You may begin your conference.

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Kathryn Housh Shirley, Amerisafe, Inc. - Executive VP, General Counsel & Secretary [2]

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Good morning. Welcome to the AMERISAFE 2019 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 a 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.

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [3]

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Thank you, Kathryn, and good morning, everyone. It is hard to believe I'm sitting in DeRidder, Louisiana in August and for the past week, have experienced more pleasant temperatures than many other parts of the country. July and August are typically months apt for travel away from Louisiana to more pleasant temperatures.

When I think about it, the current weather is similar to the workers' compensation competitive landscape. Workers' compensation, particularly high hazard, is typically a tough market for carriers, and many shy away from the line for its volatility and long tail. However, for the last few years, industry-wide profitability has made this space more palatable for carriers not to back away. We believe this to be temporary, similar to our cooler temperatures.

For the second quarter, competition remained strong. And as a result, premium for voluntary policies written in the quarter was down 5.3% from last year's second quarter. Premium continued to be significantly impacted by the decline in underlying loss costs. Our overall pricing, as measured by our effective loss cost multiplier, was a 1.61, down from a 1.66 in the prior year quarter. Our response in pricing led to policy retention of 92.5%. Combined with new business, our voluntary policy count was down slightly by 1.4%. Somewhat offsetting the loss cost declines were higher-than-expected payrolls as reflected in audit premium. Audit premium was positive for the second quarter. Combined with endorsements and cancellations, audit premium and other adjustments increased written premium by $1.8 million. This was lower than second quarter last year, which if you recall, second quarter was a second quarter high since 2015. In total, gross premiums written were down 7.1% from the prior year quarter.

Turning to losses, our loss ratio for the quarter was 58.9%. The current accident year loss ratio was unchanged from the first quarter at 72.5%. We did however experience favorable case development in prior accident years, which led to an $11.3 million reduction of loss expense or 13.6 percentage points of favorable loss ratio. Accident years primarily contributing to favorable development were 2014, 2015, 2016 and 2017. This was our first quarter to recognize favorable developments from accident year 2017, in line with our historical loss development patterns.

I now welcome Neal to discuss the financial metrics for the quarter before opening the call for questions.

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Neal Andrew Fuller, Amerisafe, Inc. - Executive VP & CFO [4]

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Thank you, Janelle, and good morning, everyone. For the second quarter of 2019, AMERISAFE reported net income of $17.9 million or $0.93 per diluted share compared with $17 million or $0.88 per diluted share in last year's second quarter. Operating net income for the second quarter was $17.4 million or $0.90 per share compared with $17.8 million or $0.92 per share in the second quarter of 2018. Revenues in the quarter decreased 3.8% to $91.8 million compared with the second quarter of 2018. Net premiums earned decreased 6.8% to $83 million when compared to last year's second quarter.

Turning to our investment portfolio. Net investment income increased 11.9% in the second quarter to $8.2 million compared with $7.3 million in the second quarter of 2018. The increase was driven by higher interest rates on fixed income securities. The tax-equivalent yield on our investment portfolio was 3.14% at the end of the quarter. The pretax yield on the portfolio was 2.83% at the end of the quarter, up from 2.63% 1 year ago.

There were no impairments on any of the securities held in the portfolio during the quarter, and there were no significant realized gains or losses. The investment portfolio is high quality carrying an average AA rating with duration of 3.90 with 55% in municipal bonds, 22% in corporate bonds, 15% in U.S. treasuries and agencies and the remainder in cash and other investments. Approximately 58% of our bond portfolio is comprised of held-to-maturity securities, which were in a net unrealized gain position of $18.3 million at quarter end. These unrealized gains are not reflected in our book value as these bonds are carried at amortized cost.

While we have enjoyed recent quarters where we have seen double-digit percentage increases in net investment income, with a drop in yield since late last year, we expect investment income will only be flat to slightly up in future quarters.

Moving now to operating expenses. Our total underwriting and other expenses were $19.7 million in the quarter compared with $21.3 million in the second quarter of 2018. The decrease in expenses was due to lower estimates of future payouts of share-based incentive compensation as well as lower premium-based assessments compared to last year's second quarter. By category, 2019 second quarter expenses included $6.1 million of salaries and benefits, $6.2 million in commissions and $7.4 million of underwriting and other costs. As a result of the lower expenses, our expense ratio for the quarter was 23.8% compared with 23.9% in the second quarter of 2018.

Two items lowered our expenses unusually during the quarter: approximately $500,000 in lower loss-based assessments and approximately $500,000 in lower future payouts of share-based incentive compensation. Without these 2 items, our expense ratio would have been closer to 25%.

Our tax rate for the quarter was 19.3% compared to 19% for last year's second quarter.

Return on equity for the second quarter of 2019 was 16.3% compared to 15.5% for the second quarter of 2018. Operating ROE for the quarter was 16.1%.

In capital management, our company paid its regular quarterly cash dividend of $0.25 per share in the second quarter. This quarter, the Board declared a quarterly cash dividend of $0.25 per share payable on September 20, 2019, to shareholders of record as of September 6, 2019.

And finally, just a couple of other items. Book value per share at June 30, 2019, was $23.29 per share, up 9.5% from $21.26 per share at year-end 2018. Our statutory surplus was $408 million at quarter end, up from $384 million at December 31, 2018. And then we will be filing our Form 10-Q with the SEC tomorrow, August 2, after the market close.

That concludes my remarks, and we would now like to open up the call for the question-and-answer session. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Matthew Carletti.

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Matthew John Carletti, JMP Securities LLC, Research Division - MD and Senior Analyst [2]

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I have a few questions. Janelle, I was hoping you might be able to expand a little bit on your opening comments about the competitive environment. I like your analogy. And just kind of what you're seeing most recently and then your thoughts on how the fairly significant pullback in interest rates recently as well as the fact that most other lines of the commercial pricing are getting some traction, and a lot of your competitors participate there, too. What you think those 2 items -- what their impact might be on the comp line?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [3]

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Yes. Sure. I'll start with the competitive environment. When the soft market first started, harking back to those days, and we talked a lot about multiline carriers coming into our space and demanding comp as part of a package, carriers that 2 years ago -- or I guess to that point, 3 years before that, were saying, get your workers' comp quote somewhere else. They were demanding comp as part of the package, and that has continued throughout this soft market.

What we've seen is -- and at the beginning, it was really the larger premium sizes. If you recall, we -- in 1 quarter, we lost our 4 largest accounts if you -- back in -- I think it was the fourth quarter of '17, if I'm not mistaken -- or '16 maybe.

So at that point, it was really based on premium size. As we've continued in this soft market and particularly as the other P&C line results have not improved, as you mentioned, the prices, it's getting harder.

Workers' comp has still been attractive. We've, somehow as an industry, managed to string together a few years of profitability. NCCI in May described the industry as delivering. Loss costs have continued to go down. I think the projection for '19 was 10%. So from a carrier perspective, that makes workers' comp attractive to a number of carriers, I guess, for a number of reasons.

I don't believe -- and in my opening comments, I -- we think that that's temporary. I think that the cycle is not dead. I do believe carriers will at some point start to experience some adverse development. If you look at the numbers NCCI published in May, while the results were good and profitable, they expect, whether you look at selected or reported, that from '17 to '18, the loss ratio went up 2 percentage points. So there's deterioration in that, not enough that we've seen people pulling back as of yet, but that's our anticipation that as people start either having adverse development or the pricing continues to drop and they realize we can't compete at these prices, that they'll start pulling back.

Specific to AMERISAFE, I think what that means is just keep in mind we have a very specific niche, high hazard, something we do see carriers in our sandbox dipping into our fields. But I -- we do believe that'd be the first phase they start pulling back as well when they get -- we used to joke about when they get that first $1 million claim. In today's environment, maybe that's their first $2 million claim because cost of claim has gone up. But nonetheless, I do think that makes high hazard less attractive from that standpoint.

To your point about the economy, obviously, we like wage inflation because that means same workers, more dollars, more premium dollars. It'd be interesting to see how the economy unfolds. When we look at our audit premium, it's still positive. So we take that as a very good sign for our insured. At least for them, their payrolls are more than expected. For this quarter, in particular, I think it was more heavily weighted toward wage growth versus new employees, which you've been following us long enough to know we prefer that. Newer employees are the ones that tend to have accidents and drive up frequency. So that is actually better news for us in the quarter.

That was a very long-winded answer. I hope it answers...

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Matthew John Carletti, JMP Securities LLC, Research Division - MD and Senior Analyst [4]

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No, it's very helpful. And just a few, I think, quick follow-ups. By industry and as I think about trucking and construction and the other kind of the pie chart you put in your presentation, are there particular areas within there that you're having more success or seeing more competition? Or is it fairly even across the board?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [5]

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Matt, it is fairly even across the board. And it's funny, I used to answer these questions really quickly. But since it is so competitive, I want to be careful about saying, oh, this industry is better than others. But in all honesty, it has been across the board, even from the audit premium perspective. We're seeing positive audit premiums across the industries.

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Matthew John Carletti, JMP Securities LLC, Research Division - MD and Senior Analyst [6]

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Okay. Great. And then you've updated us in the past kind of your -- how large losses at this point in the year -- or maybe comparing to kind of what your expectations would be. Any color you can give us there?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [7]

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Yes. I kind of thought about putting it in my prepared remarks, like it could be my "I told you so " moment. So if you remember, at the end of the first quarter, we had one loss that we thought was within that large loss category. And I said, oh, this is lumpy, this is lumpy. Well, here we are in the second quarter, we have 7 of those losses, which is basically what we had in the second quarter last year. So one quarter is not a trend make. So I wanted to put it in as my lumpy moment that, yes, at the end of the quarter, there were 7, and I think the largest of that had an incurring of around $6 million.

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Matthew John Carletti, JMP Securities LLC, Research Division - MD and Senior Analyst [8]

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Okay. Great. And then last, just a quick number one, probably for Neal. The last Q3, so Q3 '18, can you remind us what the audit premium was that quarter?

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Neal Andrew Fuller, Amerisafe, Inc. - Executive VP & CFO [9]

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Yes. In -- so third quarter of 2018, audit and other adjustments decreased by $2.1 million. So it's actually a detractor from premium.

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Operator [10]

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Your next question comes from Mark Hughes.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [11]

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It's been nice in Nashville as well.

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [12]

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Yes. Isn't it -- we call it a cold front.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [13]

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Yes, yes. It feels great. The loss trends overall, you mentioned the NCCI outlook. Do you think the loss cost numbers stayed -- loss cost developed by NCCI, are those roughly accurate for this year? I think that in aggregate, the NCCI was looking for another high single digit maybe or a 10% decline in loss cost. How was your experience on a kind of a state-by-state basis running against the NCCI assumption?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [14]

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Yes. I want to be careful because there's a lot of smart people that go behind that 10% projection for 2019, but I can't speak to what we're seeing in AMERISAFE. Our expectation -- and I'll talk about accident year 2019. Our expectation for accident year 2019 is that medical inflation will be mid-single-digit in turn, and I think NCCI was closer to a low single digit. I think they were maybe at 2%. I don't have it in front of me. So that's one difference that we see in terms of medical.

In terms of frequency, for AMERISAFE, frequency has been within our expectations. And I think NCCI had frequency down, and they continue to have frequency down for quite -- it's been that way for quite some time. And I said this many times before, for us, we just feel like at some point, that level is off to slightly uptick simply because we're collecting less premium. So that -- I don't know if that answers your question specifically.

As far as severity, again, our severity has been in line. I mean I joked about the large losses. I just wanted my "I told you so" moment. But for just overall case severity, it's within our expectations.

But like I said, I really want to draw attention to the fact that even though NCCI put out some really good data and painted a good picture for the industry, there was deterioration in the loss ratio by 2 percentage points from '17 to '18. And if you think about, okay, '17 to '18 deterioration and they're expecting loss costs -- approved loss costs to go down another 10%, I mean I think that in and of itself says there should be some deterioration for the industry as a whole in terms of losses.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [15]

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Understood. On the loss cost multiplier, where does that bottom out for you? Is there some level where you say this is as far as we go and we'll -- we're going to hold the line on pricing until it comes back to us? Is 1.61...

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [16]

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Yes, I wish I could give you a number. It really does -- there's a lot of things that factor into that because we are trying to be responsive to the market where we are in the market. Obviously, we individually underwrite every account, so we try to make sure at that point that we are being -- we're writing profitable accounts, no question.

But I'll use the loss cost as my example, just for loss costs that were effective in the second quarter of this year. So those were loss costs that had been approved. We had to use those for our clients. It was a decrease of 8%, just for the ones that were effective in the quarters, so policies that we wrote in the quarter.

It's hard to figure out where I -- in other words, if I'm trying to say, "Well, where is my LCM going to factor into that?" It's a moving target, for a lack of a better term. So I know that doesn't directly answer your question, but it is a moving target.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [17]

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Right. So the underlying loss costs -- the effective loss costs were down 8% on your book in the quarter, is what you're saying?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [18]

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The approved -- for the -- on average -- I'm sorry, that should -- I should clarify. That was on average. There were some states. I think the highest was 15, if I'm not mistaken. But yes, but on average. Of course, that's...

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [19]

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Was that for last year, out of curiosity, roughly?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [20]

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For the...

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [21]

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For the full year last year?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [22]

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Full year. It was a double digit. I don't know the number exactly, Mark, I apologize.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [23]

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It was a double digit?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [24]

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Yes.

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Neal Andrew Fuller, Amerisafe, Inc. - Executive VP & CFO [25]

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Yes, but low double.

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [26]

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Okay. So it doesn't sound like you're seeing any kind of -- I know one of your peers talked about the -- in the California market, they got to the point where they're going to hold the line and not take any more price cuts. In fact, they're talking about price increases. Is the industry approaching that point? You certainly said there is plenty of competition in the -- I didn't hear you backing off of that comment. But we've been at that for a while or the industry has been. Is there any sense of maybe at least the pressure easing up a little bit?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [27]

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Carriers backing away, I guess, is what you're asking me?

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Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [28]

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Correct.

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [29]

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I'm going to say no, but I'm going to caveat that with -- and I've said this before. In prior soft cycles, I could name carriers that are consistently doing crazy things that we don't understand. That's not really been the case this soft cycle. I mean we see it anecdotally. We see it on an account here and account there. But it hasn't been prolific throughout the competitive landscape. I think carriers are picking and choosing where they want to be, what I consider, irrational.

Now when I see someone offering 20% commission and that's almost my entire expense ratio, obviously, I don't think they think that's sustainable. I don't think it's sustainable. But I mean I guess they're picking and choosing their market as they think they can get the -- if the rate's adequate enough, then they can offer that kind of commission. But again, those are very one-off illustrations. It's not something that we see from a lot of carriers in all of our states. Because again, to the point earlier, it really does matter by state. It's a different landscape. It's different competitors by state.

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Operator [30]

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And our next question comes from Freddie Sleiffer.

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Frederique Suzanne Sleiffer, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [31]

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So firstly, I was wondering if you could give us some color on how much of the $11.3 million of reserve release came from each accident year that you identified?

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Neal Andrew Fuller, Amerisafe, Inc. - Executive VP & CFO [32]

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Sure. This is Neal Fuller. The total was $11.3 million. $1.3 million from accident year '17, $3.3 million from '16, $2.9 million from '15, $2.3 million from '14 and $1.5 million from accident years prior to 2014.

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Frederique Suzanne Sleiffer, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [33]

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Okay. Great. And then just going back to the year-over-year drop in the payroll audit and related premiums this quarter, I think you said, Janelle, that payroll premiums were still positive across all your industries. But are there any where you're seeing significant declines or growth?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [34]

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It was positive throughout all the industries. I think in the quarter, we did see a slight downturn in trucking more so than we've seen in prior quarters. But if you recall, trucking has been one of those that had stayed pretty robust, more robust than all the other lines in terms of when the economy was recovering. We saw significant increases in trucking. And then of course, when the storms hit and states were storm-damaged, we saw upticks in trucking. So it was a decline for the quarter, but it's still positive, still healthy.

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Neal Andrew Fuller, Amerisafe, Inc. - Executive VP & CFO [35]

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And the comparative figure was $3.8 million. That was our highest -- second highest that we've had in the last 8 quarters, so it was pretty significant.

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Frederique Suzanne Sleiffer, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [36]

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Okay. And then just can you give us a little bit more color on the frequency, severity and emerging claims trends you're seeing in the book? Are you seeing a benefit from low prescription drug costs impacting severity?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [37]

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Yes. We've been pleased with -- particularly on the opioid front. We've been pleased to see declines in opioid prescriptions. The industry as a whole has seen a decline in the opioid prescriptions. I think -- and part of that's due to awareness. I mean obviously, it's on the news. It's in everyone's mind. People know when they are given these perceptions, what it ultimately could mean for their health. As well as I think states have done a really good job of trying to regulate that. So that's been very helpful to us. And certainly, I think full employment helps us in that regard as well. I think it brings down utilization.

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Frederique Suzanne Sleiffer, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [38]

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Okay. And then are there any other claims initiatives that you're sort of taking to reduce frequency?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [39]

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No. I would say no. I mean I like our approach to claims management. On average, my people out in the fields, our field case managers, on average have 50 or less claims that they're working, indemnity claims that they're working. And that's very intentional on our part because our initiative is to help -- maximum medical improvement, return the injured worker to work and close the claim. And when they keep -- we keep those low inventories. We've been able to do that in terms of managing the claim, not just triaging, not just paying bills, but really trying to get best outcomes for all those involved. And then of course, my safety department plays a huge role in that as well. Not only -- we often talk about our pre-quote safety inspections, but these are more than just safety visits and being the eyes and ears of my underwriting department. My safety professionals are really out there trying to help employers create safer work environment. Because at the end of the day, again, that's sort of a win-win for everyone. So that's a real critical part of what we are. It's a critical part of our model. I mean that hasn't changed because of the workers' comp environment.

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Operator [40]

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Your next question comes from the line of Bob Farnam.

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Robert Edward Farnam, Boenning and Scattergood, Inc., Research Division - MD and Analyst of Property & Casualty Insurance [41]

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Probably a quick question. So this is the first -- according to your plan, this is the first time you've been able to take down reserves of accident year '17.

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [42]

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It is.

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Robert Edward Farnam, Boenning and Scattergood, Inc., Research Division - MD and Analyst of Property & Casualty Insurance [43]

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You had $1.3 million of favorable development there. Was that -- are you seeing that's driven by lower frequency than expected or lower severity than expected?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [44]

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Well, because -- if you think about it, it's 30 -- we're at that 30- to 36-month window. At that point, I would say, it's severity because we've pretty much known the frequency for some time, but we've been able to close claims for higher -- or for lower than I originally anticipated. So that would be driven by severity more so than frequency.

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Robert Edward Farnam, Boenning and Scattergood, Inc., Research Division - MD and Analyst of Property & Casualty Insurance [45]

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Okay. So you don't get claims that come in years after the fact for the most part. It's pretty known upfront.

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [46]

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Yes. Yes, that's a valid point, Bob. We do obviously get some claims reported after year-end. But given the nature of our business and the severity of the claims, it's rare that we're -- it's not going to be enough to move the needle in terms of late-reported claims. That's a good point for the industry as a whole. That could certainly be a factor.

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Robert Edward Farnam, Boenning and Scattergood, Inc., Research Division - MD and Analyst of Property & Casualty Insurance [47]

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All right. And in terms of the favorable development you guys have been recognizing in the recent years, has there been any particular segment of the industry that's been driving a lot of that? Any changes in the types of claims you're getting in terms of size or body injury or whatnot?

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [48]

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Yes. Gravity is still present. And falls from high -- well, not even high elevations, falls are still the primary reason and, yes, motor vehicle accidents. So yes, we haven't really seen newer types of claims that I would say, oh, we didn't have -- we haven't seen that before in the past. So I don't think it's like some sort of safety issue that's out there that's causing a rash of claims. Like I said, I hate to make the joke, but it really is just gravity.

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Robert Edward Farnam, Boenning and Scattergood, Inc., Research Division - MD and Analyst of Property & Casualty Insurance [49]

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All right. And there's no -- all of your segments are kind of having the improvement in the loss trends?

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Neal Andrew Fuller, Amerisafe, Inc. - Executive VP & CFO [50]

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Yes, our favorable reserve and case reserve development has been across industries from the claims. Yes, we haven't seen any significant trends in one industry versus another in terms of that, and it's typically driven by lower case reserve development when we are able to settle and close a claim.

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Operator [51]

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And your last question comes from Randy Binner.

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Ryan William Aceto, B. Riley FBR, Inc., Research Division - Research Analyst [52]

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It's actually Ryan Aceto on for Randy. Neal, quick question, and I must have missed this on the call, did you give the statutory surplus number?

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Neal Andrew Fuller, Amerisafe, Inc. - Executive VP & CFO [53]

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I did, yes. At the end of the quarter, our statutory surplus was $408 million, up from $384 million at the end of the year.

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Ryan William Aceto, B. Riley FBR, Inc., Research Division - Research Analyst [54]

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Perfect. And I guess along those lines, the premiums-to-surplus ratio has kind of been dropping the last couple of quarters. What is, I guess, a comfortable level you guys are targeting in the future?

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Neal Andrew Fuller, Amerisafe, Inc. - Executive VP & CFO [55]

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Well, I think from a long-term standpoint, we think that the GAAP -- well, there's 2 measures that we look at, the GAAP operating ratio, GAAP leverage. We think we can get to 1:1 net written premiums to GAAP equity. And then long term, we think that our net written premium-to-surplus ratio could get as high as 1.4 without having any impact on our rating with A.M. Best.

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Ryan William Aceto, B. Riley FBR, Inc., Research Division - Research Analyst [56]

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Understood on that. And then just one more clarifying comment. The investment portfolio, you said, was going to be flat to slightly up in future periods. Is that on a yield or absolute dollar basis?

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Neal Andrew Fuller, Amerisafe, Inc. - Executive VP & CFO [57]

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We're just looking at the absolute dollars. The interest rates have sort of come back down. We saw a nice bump, particularly on yields on taxable securities and then also the amount of interest that you're getting even on your bank deposits and your very short-term securities. We expect that, that has -- that increase that's driving those double-digit increases in net investment income has run its course, so we're expecting more modest increases in the future.

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Operator [58]

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Thank you, and I'm showing that there are no further questions at this time. I would now like to turn the call over to Ms. Janelle Frost.

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Gerry Janelle Frost, Amerisafe, Inc. - President, CEO & Director [59]

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Throughout the workers' compensation industry's highs and lows, weather pun intended, AMERISAFE's appetite remains unchanged. Our response is to execute on our commitment to deliver an exceptional product to our policyholders through quality insurance services and risk assessment. In turn, remaining committed to our core discipline has allowed us to provide stable returns for our shareholders, a consistent market for our agent partners and aided business owners with mitigating risks.

I'd also want to congratulate the AMERISAFE employees on the honor of being named as one of Ward's Top 50 P&C companies. Your service and dedication to the AMERISAFE mission are appreciated. Thank you.

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Operator [60]

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And this concludes today's conference call. Thank you so much for participating, everyone. You may now disconnect.