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Edited Transcript of AMSF.OQ earnings conference call or presentation 25-Feb-21 3:30pm GMT

·28 min read

Q4 2020 Amerisafe Inc Earnings Call DE RIDDER Feb 26, 2021 (Thomson StreetEvents) -- Edited Transcript of Amerisafe Inc earnings conference call or presentation Thursday, February 25, 2021 at 3:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Gerry Janelle Frost AMERISAFE, Inc. - President, CEO & Director * Kathryn Housh Shirley AMERISAFE, Inc. - Executive VP, Chief Administrative Officer & Secretary * Neal Andrew Fuller AMERISAFE, Inc. - Executive VP & CFO ================================================================================ Conference Call Participants ================================================================================ * Mark Douglas Hughes Truist Securities, Inc., Research Division - MD * Matthew John Carletti JMP Securities LLC, Research Division - MD & Equity Research Analyst * Randolph Binner B. Riley Securities, Inc., Research Division - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, everyone, and welcome to the AMERISAFE 2020 Fourth Quarter and Full Year Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kathryn Shirley, Chief Administrative Officer. Please go ahead. -------------------------------------------------------------------------------- Kathryn Housh Shirley, AMERISAFE, Inc. - Executive VP, Chief Administrative Officer & Secretary [2] -------------------------------------------------------------------------------- Good morning. Welcome to the AMERISAFE 2020 fourth 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 result of risks, uncertainties and other factors, including the impact of the COVID-19 pandemic on the business and operations of the company and our policyholders, and the market value of the securities in our investment portfolio. Other factors that may affect our results are 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. -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Kathryn, and good morning, everyone. It is my pleasure during this call to use the words looking back and I emphasis on back at 2020. The year presented us with a global health crisis, social unrest, political divisions, a competitive workers' compensation market, natural disasters and an economic shutdown. The strength of the human spirit was tested as we were forced to interact and work differently. Looking back at 2020 for the industry, approved loss costs continued to decline. The industry experienced a decline of insured payrolls as unemployment in certain sectors dramatically increased. At the same time, there was significant drop in non-COVID-19 reported claims. The analysis of the impact of COVID-19 on the industry has only just begun. Taking account the many factors of 2020, NCCI anticipated a 1 percentage point deterioration in the industry's combined ratio through the third quarter. If the estimate is accurate, then workers' compensation will remain a profitable property and casualty line. This will keep competition robust in 2021. Looking back at 2020 for AMERISAFE, we successfully met the year's challenges through our employees' dedication to service and the strong foundation built over years of discipline in underwriting and claims management. The sectors we focus on were less impacted during the pandemic, with our insurers high-hazard work deemed essential and much of the work taking place outdoors. As a result, the impact to the industry due to unemployment was less impactful to our book. For AMERISAFE, audit premium in the quarter remained positive, and this included positive periods impacted by the pandemic. However, audit premium in the fourth quarter of 2020 was less robust than prior year's fourth quarter. Thus, audit premium, combined with other adjustments, decreased top line $2.8 million by comparison. Looking forward into 2021, the economic recovery in sectors we insure will be impactful to this component of premium. Also, premium for policies written in the quarter was down 7.9%. This decrease aligned with loss cost decreases, averaging at 7.4%. Our ELCM for the quarter was a 1.57, down from 1.59 in the fourth quarter of 2019. I believe this drop in ELCM illustrates our commitment to remain competitive while remaining disciplined in a declining rate environment. Cost account was relatively flat, with strong retention of 94.4% for those policies for which we offered renewal. We continue to work with our agent network as pandemic-related disruptions hampered new business prospecting and policy count growth. During 2020, we implemented some county expansion and filed for additional pricing tiers in states to help achieve our goal of policy growth. Altogether, these various elements of premium resulted in gross premiums written decreasing 10.8% from the prior year quarter. Continuing to look back at 2020, AMERISAFE, like the industry, also saw fewer reported claims. However, our niche tends toward low frequency, high-severity claims. The ultimate impact to claim severity due to the pandemic and the strain on the healthcare system is far from being known. As a result, we did not change our current accident year loss ratio of 72.5% in the fourth quarter. We also had significant favorable case development from accident years 2014 through 2018, which resulted in $17.9 million, or 24 basis points of favorable prior year losses incurred. We continue to positively be surprised by the amount of favorable case reserve development we see across our accident years, including the more recent accident years. As we look forward to 2021, our initial pick for 2021 will be 72%, down 0.5 percentage point from accident year 2020. I'll now turn the call over to Neal to discuss expenses, investments, capital and other financial metrics. -------------------------------------------------------------------------------- Neal Andrew Fuller, AMERISAFE, Inc. - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thank you, Janelle. Good morning, everyone. For the fourth quarter of 2020, AMERISAFE reported net income of $28.5 million, or $1.47 per diluted share compared with $34 million, or $1.76 per diluted share in last year's fourth quarter. Operating net income was $23.6 million for the quarter, or $1.22 per share. For the full year 2020, AMERISAFE produced net income of $86.6 million, or $4.47 per share. Operating net income for the full year 2020 was $82.4 million, or $4.25 per share, down just $6.6 million from last year despite the considerable and unique challenges of 2020. Revenues in the quarter were down 4% to $88.2 million compared with the fourth quarter of 2019. Net premiums earned decreased 9.2% to $74.7 million when compared to last year's fourth quarter. For the full year, net premiums earned were lower by 8.5%, totaling some $304.4 million. These premium trends were driven by the continued decline in workers' compensation loss costs in 2019 and 2020. Turning to investments. We saw a continuation of the impact of lower short-term yields, with net investment income down 10% in the fourth quarter to $7.2 million compared with $8 million in the fourth quarter of 2019. Net investment income for the full year was down 9.6% to $29.4 million compared with $32.5 million in 2019, again due to the lower interest rate environment. The tax equivalent yield on our investment portfolio was 2.85% at year-end. The pretax yield on the portfolio at year-end was 2.53%. These rates are almost identical to the rates on the portfolio at the end of 2017 before the Federal Reserve began raising rates. There were no significant credit losses on any of the securities held in the portfolio during the quarter or for the full year of 2020. There were no significant realized gains or losses during the quarter or full year. Unrealized gains on our equity securities contributed $6.5 million to net income in the quarter and $4.2 million for the full year 2020. The investment portfolio is high quality, carrying an average AA rating with a current duration of 3.96, and the portfolio is composed of 68% in municipal bonds, including 15% in taxable municipal bonds, 14% in corporate bonds, 9% in U.S. treasuries and agencies, 4% in equities, and 5% in cash and short-term investments. Approximately 60% of our bond portfolio is comprised of held-to-maturity securities, which were in an overall net unrealized gain position of $36.5 million at year-end. These gains are not reflected in our year-end book value as the bonds are carried at amortized cost. Moving now to operating expenses. Our total underwriting and other expenses were $15.6 million in the quarter compared with $14.7 million in the fourth quarter of 2019. The increase in operating expenses was primarily due to last year's $3.5 million expense benefit in the fourth quarter due to the end of a multiple injury fund assessment. By category, the 2020 fourth quarter expenses included $6.4 million of salaries and benefits, $5.7 million of commissions, and $3.5 million of underwriting and other costs. Our expense ratio for the quarter was 20.9% compared with 17.8% for the fourth quarter of 2019. For the full year 2020, operating expenses decreased $2.4 million, or 3.3%. Recall that, in the third quarter, we recognized a $5.6 million expense benefit as the result of a termination of a subsequent injury fund assessment. Our expense ratio for the full year, as a result, was 23.6%. Without the expense benefit mentioned previously, our expense ratio for the full year would have been 25.5%. Our tax rate for the fourth quarter was 20% and 19% for the full year, both lower than in 2019 as a result of a higher proportion of tax-exempt interest income on our investment portfolio. Return on average equity for the fourth quarter of 2020 was 24.8% compared to 30.3% for the fourth quarter of 2019. For the full year, ROE was 19.9% compared with 22.1% last year. Operating ROE for the quarter was 21.4% and for the full year was 19.7%. And now to capital management. During the fourth quarter, the company paid its regular quarterly cash dividend of $0.27 per share as well as an extraordinary dividend of $3.5 per share. This quarter, the Board of Directors declared a quarterly cash dividend of $0.29 per share payable on March 26, 2021, to shareholders of record as of March 12, 2021. This represents a 7.4% increase in the regular quarterly dividend. And finally, just a few other items. Book value per share at December 31, 2020, was $22.70, up slightly compared with last year's $22.29 per share, and we paid out $4.58 per share in dividends to shareholders during the year. Our statutory surplus was $366 million at December 31, 2020, compared with $360 million at the end of 2019. And finally, we will be filing our Form 10-K with the SEC tomorrow after market close. That concludes my remarks, and we would now like to open the call up for the question-and-answer session. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) We can go ahead and take our first question from Matt Carletti. -------------------------------------------------------------------------------- Matthew John Carletti, JMP Securities LLC, Research Division - MD & Equity Research Analyst [2] -------------------------------------------------------------------------------- Janelle, I was hoping you could maybe just jump in a little bit deeper into what you're seeing in the competitive landscape. When we look at some of the numbers out there, whether it be surveys and otherwise, while it's still certainly competitive, it looks like things are maybe normalizing a little bit in comp. What are you seeing in kind of your landscape? I mean -- and obviously, keeping in mind that that was -- very happy to see the guidance for the accident year loss ratio would at least imply to me that it's not getting too out of hand, or at least consistent with favorable frequency severity trends you're seeing? -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Yes. I think your terminology of not getting too out of hand is probably a good way to summarize it, Matt. Competition hasn't really changed that much. It's still very competitive. But I would not say we're seeing irrational competition, either. I read the same things you've been reading about there's people hopeful, or maybe have seen some rate increases. I can say AMERISAFE's not seeing that. I do think it's very state-focused. I think it depends on the hazard groups that you're underwriting, if you're seeing more elasticity or less elasticity. But for AMERISAFE, it's still the same level of competition we've been experiencing for over a year. -------------------------------------------------------------------------------- Matthew John Carletti, JMP Securities LLC, Research Division - MD & Equity Research Analyst [4] -------------------------------------------------------------------------------- And then, the other area I wanted to focus on was just maybe if you could peel back the onion a little bit on the 8% decline in voluntary premiums. And really, I appreciate your comments about, hopefully, as the economy reopens, you should get a little bit of tailwind from that. Can you help us understand as we think about that top line, whether it be through payrolls or pricing or otherwise, is there any way that you can quantify, or even just throw a dart at what the kind of COVID-related exposure headwind impact might have been in 2020? I was thinking of that as something that could come back in '21, '22 as things normalize versus what might be more of the kind of competitive pricing impact on that number? -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [5] -------------------------------------------------------------------------------- So economic speculation by Janelle. I love it. That is something we think about. It's a great question, Matt. When you think about our major industries, I'll start with construction, for example, we were pleased early on in the pandemic that our insurers were working. They were reporting payrolls to us. But if you look at the construction industry as a whole and as part of the economy, certainly, commercial construction has met with delays in 2020. I still hear the word delay, not postponed. So that gives me some hope that there could be some -- I think your term was bounce-back -- some bounce-back in that line, no question. Residential construction, we all see residential construction is booming. And while that might not impact my construction book in and of itself, I do happen to insure logging and lumber. So we saw positive trends in 2020 from the logging and lumber industry. Matter of fact, when the 10-K is published, you'll see that actually grew as a percentage of our book, from 7.8% to 9.3%. So that's strictly based on things that were happening in the economy in '19 and '20. So those are positives for us. Oil and gas, we all know what's happening there. So I imagine that will continue to shrink as a percentage of our book. Agriculture I think will have some bounce-back. Certainly, there were some delays in the pandemic related to the agricultural fields. Let me think of another. Trucking is another great example. There's a lot of speculation about trucking because, obviously, there were a lot of goods being moved across this country in 2020. And it's funny, our trucking book doesn't seem to fluctuate as much as the other lines maybe in some regards. And so I have to remind myself of who we insure, small to mid-sized employers. So these national carriers that are moving these goods across the country; yes, they probably did see more of a boom in 2020 than we probably would have seen in our book. So again, if the economy picks up, I would hope to see an increase in even our trucking payrolls, because I don't think they were as resilient in 2020 as, say, national carriers or larger trucking carriers. Does that address your question? -------------------------------------------------------------------------------- Matthew John Carletti, JMP Securities LLC, Research Division - MD & Equity Research Analyst [6] -------------------------------------------------------------------------------- Yes. No, that helps. I mean I guess, in terms of -- I know it's a very rough kind of way to think about it, but numbers-wise, I mean if we think about kind of some of the change in audit premium full year '20 versus full year '19? I mean; A, do you have those numbers? I know you give them by quarter, I just don't have them all in front of me for the full year. And is that a reasonable way to think about maybe the magnitude of the impact? -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [7] -------------------------------------------------------------------------------- Yes. I think it is, Matt. It will be interesting to see, as we start comparing everything to '19 to '20 and 20 to '21 because '20 is just such an unusual year for a number of reasons, right? So it will be interesting to see. Here, the point is our audit premiums, even in 2020, remain positive. So in other words, the premium from what we originally estimated at the beginning of the policy period to what it was at the end of the policy period was positive. So that was tremendous. That's a good sign for us. It was not as robust as it was in '19, so, as you can imagine, we saw declines in construction. But we saw year-over-year increases in farm, logging lumber, even in the subset of roofing, even though that was -- no, not in roofing. But we saw declines in trucking. We saw declines in construction. And I guess that's why I was pointing to -- and again, economic outlooks according to Janelle -- pointing to we do think there's a capacity for some bounce-back in those lines. -------------------------------------------------------------------------------- Neal Andrew Fuller, AMERISAFE, Inc. - Executive VP & CFO [8] -------------------------------------------------------------------------------- Matt, this is Neal Fuller. Just to give you those full year numbers, this is audit and other adjustments, were positive $6.4 million in 2020, positive $12.3 million in 2019, and positive $7.3 million in 2018. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- (Operator Instructions) We'll go ahead and take our next question from Mark Hughes. -------------------------------------------------------------------------------- Mark Douglas Hughes, Truist Securities, Inc., Research Division - MD [10] -------------------------------------------------------------------------------- Janelle, when you think about the accident year 2020, I think historically, you've said you want to have about 36 months in the books before you start evaluating whether or not to take development. But with 2020, as I understand that it's a question of frequency, frequency is down meaningfully. And so if you don't have the case reserves, if you're sitting on a lot of IBNR, presumably, will you not know a little bit more quickly whether or not those losses are going to develop as you've reserved for? -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [11] -------------------------------------------------------------------------------- Mark, we write our industry type low frequency, high severity. So I don't want to say frequency is not important. Obviously, frequency is important. And there is no denying that we had fewer reported claims in 2020. Severity is where the question mark comes for us with 2020, in particular because of all the things that happened in calendar year 2020, with the pandemic and what that could mean on a go-forward basis. We have 18 severe claim, what we on these calls have been calling severe claims, claims over $1 million. We had 16 at the end of '19 for accident year '19. So from a severity standpoint, 2020 severity was slightly up, as we would have expected severity to be slightly up. So I don't know the unknown, the question mark for me. And to your point, do we know this sooner because of everything that happened in 2020 is what ultimately happens to the outcome of those claims, because I do think there was a strain on the healthcare industry and how that's going to impact our claims experience, going forward, I think we ended the year with 40% or so of the claims for 2020 were closed. So the other 60% still remaining open, how those are going to be impacted on a go-forward basis, because these are severe claims. They're not one-and-dones, couple of [dodgy] deployments of procedure, and I'm over with. These are the ones that have lasting effects over many years. So I'm cautious to say that, yes, we would be able to know sooner than in our prior experience based on the severity of our claims. -------------------------------------------------------------------------------- Mark Douglas Hughes, Truist Securities, Inc., Research Division - MD [12] -------------------------------------------------------------------------------- Is it possible, more likely for 2020 that, after 12 months, you may be able to look at it and draw some firmer conclusions? I assume that's possible. -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [13] -------------------------------------------------------------------------------- Well, yes. As any accident year ages, we know more and more, right? -------------------------------------------------------------------------------- Mark Douglas Hughes, Truist Securities, Inc., Research Division - MD [14] -------------------------------------------------------------------------------- And then, Neal, on the expense ratio, it seemed pretty low this quarter. Am I missing something? If the full year was at $25.5 million, excluding the one-timers in this quarter, was it $21 million? Were there any unusual items here, or is this the new normal? -------------------------------------------------------------------------------- Neal Andrew Fuller, AMERISAFE, Inc. - Executive VP & CFO [15] -------------------------------------------------------------------------------- No. I would say there were some unusual items. You may recall that, typically, our fourth quarter expense ratio is a little bit lower than other quarters just because we accrue for assessments throughout the year. And then, if the states are not going to assess us, those typically come down in the fourth quarter. But we did also see decreases in compensation expense, commission expense, and in professional fees in the quarter. But I would look to that run rate of $25.5 million for the full year as a guide, going forward, because most of these were one-time in nature. The $25.5 million, obviously, we also expect that, although we'll try to hold expenses in line with the decline in premiums, we would expect that the expense ratio would tend to trend upwards. -------------------------------------------------------------------------------- Mark Douglas Hughes, Truist Securities, Inc., Research Division - MD [16] -------------------------------------------------------------------------------- And then the dividends, have they been running about a point? I'm sorry, I don't have that right in front of me. -------------------------------------------------------------------------------- Neal Andrew Fuller, AMERISAFE, Inc. - Executive VP & CFO [17] -------------------------------------------------------------------------------- Yes, the dividends have been running about 1 point. They've reached a high of 1.5 in the third quarter of '19, so they've been between 1 point and 1.3 points over the last 5 quarters. -------------------------------------------------------------------------------- Mark Douglas Hughes, Truist Securities, Inc., Research Division - MD [18] -------------------------------------------------------------------------------- And then, Janelle, thank you for the, I think, 7.4% decline in loss costs. Was that the ones you got in Q4? Or was that for the year as a whole? In any case, could you comment on kind of what you've been seeing lately in terms of those loss cost numbers as they have been coming out from NCCI? -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [19] -------------------------------------------------------------------------------- Yes, the $7.4 million I quoted you was fourth quarter, the impact to fourth quarter of 2020. So to recap, first quarter was 8.9%, then 8.3%, 7.8% and 7.4%. And the loss costs that we've been seeing come through -- the approved costs we've been coming through are sort of mid-single-digit-ish. So I think we talked about this on the last call. We anticipated, and it looks like we're seeing a slowing of the decline, which we're happy to see. -------------------------------------------------------------------------------- Mark Douglas Hughes, Truist Securities, Inc., Research Division - MD [20] -------------------------------------------------------------------------------- And I think you pointed out that that's in the face of frequency, which was down meaningfully for you and for the industry as a whole? -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [21] -------------------------------------------------------------------------------- Yes. It will be interesting to see how that works its way, or if it works in its way into rates, this anomaly that happened in 2020 with frequency. It's going to be a great case study for someone. -------------------------------------------------------------------------------- Mark Douglas Hughes, Truist Securities, Inc., Research Division - MD [22] -------------------------------------------------------------------------------- I remember properly that they said they weren't going to pay much attention to 2020. -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [23] -------------------------------------------------------------------------------- That's my understanding. Yes, that's my understanding. But yes, I think there's just so many still things we don't know yet, right? We haven't had to think about all the different impacts of a pandemic yet. But you're right. Word is initial numbers that we're seeing, it doesn't seem to be -- they're just going to throw it out and not really have that influential. -------------------------------------------------------------------------------- Mark Douglas Hughes, Truist Securities, Inc., Research Division - MD [24] -------------------------------------------------------------------------------- And if this kind of notional infrastructure spending ramps up, I think that's always over the horizon. But in times past where you have had infrastructure pushes, has that been meaningful for your business? -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [25] -------------------------------------------------------------------------------- Yes, it can be, particularly if it's roads, bridges, those sort of things. But we believe it when we see it because it seems to come around every election cycle. -------------------------------------------------------------------------------- Mark Douglas Hughes, Truist Securities, Inc., Research Division - MD [26] -------------------------------------------------------------------------------- And then, I think you've addressed this, but you've used the formulation about your construction exposure, that it's the next job that is important. I think you said there haven't been cancellations. What do you feel about the next job? -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [27] -------------------------------------------------------------------------------- Yes. it all hinges on does the economy bounce back. The closer we get to vaccines being out there and people feeling better about the economic outlook and willing to commit those capital dollars to projects, the better. But I think there's an overall optimism about people feel like we should be able to bounce back because we were on the precipice, right, prepandemic. So I don't know if we go back to that level, but I think we're all hoping the opportunities are going to be there. -------------------------------------------------------------------------------- Mark Douglas Hughes, Truist Securities, Inc., Research Division - MD [28] -------------------------------------------------------------------------------- Yes, the precipice being the good precipice. -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [29] -------------------------------------------------------------------------------- Yes, you're exactly right. I should have clarified. Good point, Mark. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- We'll go ahead and take our next question from Randy Binner. -------------------------------------------------------------------------------- Randolph Binner, B. Riley Securities, Inc., Research Division - Analyst [31] -------------------------------------------------------------------------------- And I apologize because I came in late, so I have one just detail question, which is if you did share the ELCM. And then, I guess kind of putting together what Matt and Mark are talking about, and if you look at some of the bigger writers of work comp earlier this earnings season, everyone is kind of saying there's going to be this inflection in work comp pricing, right, because commercial lines has been firm, the workers' comp has been soft, and that's kind of reflected in the valuation and the performance of AMERISAFE. But frankly, when I listen to this whole conversation, I don't really see why I would think the rate environment is going to switch. So ELCM is just kind of the numbers question, but any commentary on this notion of price turn? I would love to hear from you all; because, frankly, it just doesn't seem like there's -- it ought to happen, I guess, but there's no real evidence. -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [32] -------------------------------------------------------------------------------- Yes, that's a nice way to look at it. To answer your ELCM question, 1.57 for fourth quarter of 2020 versus 1.59 fourth quarter 2019. First, what I'll say about what we're all reading about what's going to happen with the rates, and is there going to be an inflection. We've been in this very prolonged soft market. And then, 2020 happens. It adds a lot of unknowns. It has an economic impact. It has a payroll impact. It has just the livelihood of some sectors impact, right? So I think the things we've been reading, we really have to think about workers' comp as a whole, which includes Main Street business, hospitality, services, and then working its way up to the more hazardous classes that we underwrite. It is not one size fits all. And I keep going back to -- and workers' comp is very much state regulated. So a rate environment, a pricing environment in one state does not mean same rate environment, pricing environment in another state. So I think, when you read these articles, and to your point, I think you said in these larger carriers, I think it's a very wide swath of a lot of different factors. I can only speak to AMERISAFE's classes business and AMERISAFE's book of business, and we're not seeing rate increases. Obviously, the approved loss costs that are coming in are still declines. But even in the competitive environment, those opportunity for rate increases are not there. It's still very, very competitive in the types of things that we underwrite. I can certainly see where another carrier whose businesses is hospitality maybe feeling differently about that because again [I write] -- and again, I write low frequency, high severity. If you write a business that is very frequency-oriented, and that's where your profit margin is coming from, and that's where your losses incurred are coming from, that's a totally different animal than what happens at AMERISAFE, right? And they had this tremendous drop in frequency in 2020, granted. Hopefully, it was an anomaly, and it's going to bounce back, and that's wonderful for them. But I think they think about the rate differently than I think about that rate. Does that make sense to you? -------------------------------------------------------------------------------- Randolph Binner, B. Riley Securities, Inc., Research Division - Analyst [33] -------------------------------------------------------------------------------- Yes. No, it does. But I guess, across that whole spectrum of worker's comp, there just seems to be a lack of pain on claims, and that's what turns cycles. And so you don't have so much excess capital, and these special dividends are great. But I mean would you ever take another look at how you're -- I mean, you're kind of waiting for an opportunity with all your capital that just keeps not happening in worker's comp, if you know what I mean, right? I mean you love to use the capital for a distressed book or buying the right business at the right price, but it keeps not happening. And is there any other way to kind of deploy more of your franchise from a capital perspective? -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [34] -------------------------------------------------------------------------------- Yes. I do think we are working diligently to -- and I kind of said this in our opening comments -- working diligently with our agent network to find ways, because let me tell you, they took a hit in 2020 as well, so find ways to get policy count growth. That's sort of been our mantra throughout the soft market in terms of, okay, loss costs are what loss costs are. We feel like we're disciplined underwriting. We can write profitable business, but really trying to maintain and grow that policy count I think is important for us. And I do think there are ways to make that happen even in this soft market because, of course, we have the ability now of hindsight. You look back, the industry has been profitable, and AMERISAFE has been profitable. So the opportunity is there. I agree with you about the industry hasn't seen the pain yet. I think 2020, it will be interesting to see what the impact to 2020 is, like are we going to see that pain, going forward? And I assume by pain, when I think of pain for the industry, I think of adverse development. I assume that's what you're talking about, as well. NCCI has already indicated, based on what they see, incrementally, the combined ratio is going up a percentage point. That's been happening over the last couple of years, right? So while it's not coming in the wow factor yet, it is incrementally getting there. So I can see where there's some optimism. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- It appears there are no further questions at this time. Ms. Frost, I'd like to turn the conference back to you for any additional or closing remarks. -------------------------------------------------------------------------------- Gerry Janelle Frost, AMERISAFE, Inc. - President, CEO & Director [36] -------------------------------------------------------------------------------- Thank you. I recognize some of the challenges from 2020 continued into 2021. The pandemic is not over. We're still in a soft workers' compensation market. The economy has not recovered. Nevertheless, we are looking forward in 2021. I can do so because I'm part of an organization with a foundation supported by remarkable people, strong financials, and now the lessons learned over an unprecedented year. Thank you for joining us today. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- This does conclude today's conference. Thank you all for your participation. You may now disconnect.