Amerisafe Inc (AMSF) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the AMERISAFE third quarter 2008 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Friday, November 7, 2008.

I would now like to turn the conference over to Ms. Karen Roan of DRG&E. Please go ahead, ma'am.

Thank you, Nicole, and good morning, everyone. We appreciate your joining us for AMERISAFE's conference call to review 2008 third quarter results. We would also like to welcome our Internet participants, as this call is being simulcast live over the web.

Before I turn the call over to management, I have the normal details to cover. You could have received an e-mail of the earnings release yesterday afternoon, but occasionally, there are technical difficulties. So if you did not receive your release, or you would like to be placed on the e-mail distribution list, please call our offices at DRG&E, and that number is 713-529-6600.

Also, there will be a replay of today's call, and it will be available via webcast by going to the Company's website, and that address is www.AMERISAFE.com. There will be a telephonic recorded replay available for seven days until November 14. Details on how to access that feature are in yesterday's press release.

Please note that information on this call speaks only as of today, November 7, 2008, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening.

Also, statements made in the press release or in this conference call that are not historical facts, including statements accompanied by words such as "will," "believe," "anticipate," "expect," "estimate," or similar words are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding AMERISAFE's plans and performance. These statements are based upon management's estimates, assumptions, and projections as of the date of this call, and are not guarantees of future performance.

Actual results may differ from the results expressed or implied in these statements as the result of risks, uncertainties, and other factors including, but not limited to, the factors set forth in the Company's filings with the Securities and Exchange Commission, including AMERISAFE's 10-K for the year ended December 31, 2007, and future and other filings. AMERISAFE cautions that you do not place undue reliance upon forward-looking statements contained in the release or in this conference call.

AMERISAFE does not undertake any obligation to update or publicly revise any forward-looking information or statements to reflect future events, information or circumstances that may arise after the date of the release and call. For further information, please see the Company's filings with the SEC.

Now, I will turn over the call to Allen Bradley, the Company's Chairman, President, and Chief Executive Officer.

Thanks, Karen, and good morning, ladies and gentlemen. Thank you for joining us for our quarterly investor conference call. Before I begin today's few comments, I have the distinct pleasure of starting off our call by introducing our new Chief Operating Officer, Geoff Banta, and new Chief Financial Officer, Janelle Frost, who are, of course, joining me today. I'd like to congratulate Geoff and Janelle on their promotions. Both have been invaluable to AMERISAFE over the last several years, and will now be able to make even great contributions to the success of AMERISAFE.

In this extraordinary environment of asset deterioration, eroding loss ratios and rising expense ratios, AMERISAFE's third quarter results are excellent. Through focus on disciplined risk selection and pricing, cautious investing and careful reserve estimation and claims handling, AMERISAFE has continued to generate superior returns.

During the soft market cycle of the past few years, many carriers have strived to support and maintain top-line growth by aggressively pricing their business and establishing an expensive infrastructure. That behavior has resulted in higher accident year combined ratios and the potential in the future for adverse prior year development.

Predominantly as a result of losses on investment portfolios and natural catastrophes, the U.S. property and casualty industries estimated excess capital of 60 to 70 billion in January of 2008 has now pretty much evaporated. For that reason alone, I believe the marketplace is transitioning to a period of firmer pricing.

While the industry's attention has been concentrated on the financial market crisis, and the resulting impact on their capacity, prudent underwriters have begun to firm pricing because they understand that that action is necessary to provide reasonable and consistent shareholder returns. We are beginning to see signs that that attitude is becoming more prevalent in the marketplace.

In support of that position, consider the following with respect to AMERISAFE. For the first time since the first quarter of 2007, we had a sequential quarter increase in our effective LCM. That increase went from 1.45, or 145%, of the anticipated losses, to 1.46, not much of a move, but it is significant because of its direction.

Number two, at the same time our voluntary Worker's Compensation business written during the quarter without considering audit adjustments increased slightly over the same quarter last year. Thirdly, new business submissions are up without a geographical expansion. We bound new policies in the quarter at a rate of 8.9% by policy count and 18.7% by premium volume over the third quarter of 2007. Our renewal retention remains high at 92% by policy count and 81% by premium dollars.

Then lastly, we have seen some increases in new business submissions on accounts with expiring AIG policies, as well as from carriers whose recent entry into the hazardous industry workplace is apparently being reconsidered.

My point is that the marketplace is changing. While it's unclear at this point as to the speed and degree of change, I believe improvement in pricing is probable. This pricing improvement in the marketplace must be measured against the slowdown in the national economy that will impact payrolls, and consequently, Worker's Compensation premium.

Nevertheless, I am cautiously optimistic about the underwriting environment as it impacts AMERISAFE in the near term.

At this point, I am going to turn it over to our new Chief Operations Officer, Geoff Banta, for some operational metrics.

Thank you, Allen, and good morning, everyone. I'll make several comments about our overall Company performance and trends before turning the presentation over to Janelle. I join Allen in stating that we are pleased with our third quarter results, especially given the current state of the economy and of the Worker's Compensation market.

We believe that our focus on risk selection and adequate pricing and our experience in the high hazard subsegment of the market has enabled us to continue to generate superior returns, even in the face of the current soft market cycle. Maintaining this focus has resulted in lower written premiums, but decrease in those writings has begun to slow.

In the first and second quarters of this year, our gross premiums written declined 10.5% and 8.8% respectively, while that same metric declined only 6.6% in the third quarter. As Allen mentioned in his opening comments, in the third quarter, our pricing, as measured by our effective LCM, was 1.46 or 146% of the approved loss cost in the states that use that mechanism for pricing. This is the first time in six quarters that we have seen our effective LCM increase over a preceding quarter.

At the same time, we saw this rise in pricing, we also wrote 1.2% more in voluntary Worker's Comp premium in the third quarter, which could be a signal that pricing is beginning to firm in the industry as a whole, if not at AMERISAFE.

Regarding business on the books, in force payroll by up by 5.1% and policies in force increased 3.7% as of September 30th, while in force premiums showed a decrease of 2.4%. This is mostly the result of the countrywide trend toward decreasing loss costs. While most of the state mandated rate decreases have been justified by regulatory reforms and decreasing loss frequency, we believe that increasing medical costs, which show no signs of abating, as well as a flattening of downward frequency trends, will soon bring an end to this period of decreasing loss costs.

Regarding losses, the third quarter was the fourth consecutive quarter in which we took down reserves for prior accident years. For the third quarter, our favorable development totaled $6.6 million. This favorable development reflects the continual improvement of our claims management and adjudication process, and we continue to see favorable trends in claim closing patterns and case incurred development, especially in the more recent accident years. These trends may indicate that further favorable prior year development will occur.

However, we are still in a soft market where pricing is under pressure and we are in the business of insuring hazardous occupations. Average severities in our market niche tend to be both high and volatile, so we will always exercise caution in reducing prior year reserves and do so only when we feel such action is prudent and appropriate.

In addition to favorable reserve development, our expense management efforts continue to produce benefits. Even as our net premiums earned dropped 10.5% in the third quarter versus the prior year's third quarter, our expense ratio increased by only .4 percentage points to 20.3% from 19.9%. Actual expenses quarter-over-quarter decreased 8.7%. Our competitively low expense ratio reflects the impact of our aggressive focus on expenses, as well as our 2008 working layer reinsurance treaty, which acts as an offset to overall expenses.

Janelle will talk in more detail about the performance of our invested assets, but I will tell you that we incurred $2.9 million in net realized losses in the third quarter, most of that the result of other than temporary impairments. Our pretax investment yield was a respectable 4% per annum as of September 30th and we believe that the left side of our balance sheet is well under control, even in this period of unprecedented asset deterioration within the financial services industry.

Overall, and in spite of numerous external challenges for the third quarter of 2008, the insurance professionals of AMERISAFE produced net income growth of 13%, a stellar return on average equity of 20.5% and a combined ratio of 79.4%. We are extremely proud of these results.

And with that, I'll turn the presentation over to Janelle Frost.

Thank you, Geoff, and good morning, everyone. Let me begin by saying we are pleased to report net income for the third quarter of 2008 was $13.4 million. This was a 13% increase over the third quarter of 2007.

Now, onto the components of earnings. As Geoff mentioned, in the third quarter of 2008, we experienced a 6.6% decline in gross premiums written. Net premiums earned decreased by 10.5% from the year-ago quarter. As all of you know, earnings always lag writings, and our decreased earned premium in the third quarter was the result of written premium decreases from the prior four quarters.

Our net investment income was 2.7% lower than the same revenue component in the third quarter of 2007 mainly due to decreased yields on our invested assets. Additionally, we had net realized losses of 2.9 million resulting from the sale of equity securities and other than temporary impairment of securities and asset-backed securities.

In total, revenue in the third quarter of 2008 was 13.6% lower than the same period in 2007.

Offsetting these revenue decreases were decreases in losses and underwriting expenses. Our incurred loss and loss adjustment expenses decreased 23.6% from last year's third quarter. Our net loss ratio declined to 58.9% from 69% in the third quarter of 2007. Our 58.9% overall loss ratio includes a current accident year loss ratio of 68.1% and favorable prior year development of 9.2%.

The favorable prior year loss development was primarily from more recent accident years, including 2006 and '07. In those recent years, we have seen marked decreases in open claims, as well as favorable case incurred development.

Underwriting expenses also decreased in the third quarter of 2008 to 14.5 million from 15.9 million in the third quarter of 2007. However, due to our lower premium earnings in the third quarter of 2008, our underwriting expense ratio actually increased from the same year-ago period to 20.3% from 19.9%. As has been the case throughout 2008, our total underwriting expense has benefited from the effects of experienced rated commissions for certain of our 2008 reinsurance agreements. Such commissions act as offsets to our expenses. In total, our combined ratio was 79.4% in the third quarter of 2008 versus 89.2% for the same period in 2007.

In terms of earnings per share, our third quarter 2008 diluted earnings per share allocable to common shareholders was $0.65 compared to $0.58 for the third quarter in 2007. Excluding net realized gains and losses, our operating earnings per share were $0.75 in the third quarter of 2008, compared to $0.58 in the third quarter of 2007.

Book value per share was $13.31 at the end of the third quarter, representing a growth of 14.2% in book value per share through September 30th of 2008. This book value calculation includes the after-tax effects of unrealized losses incurred in our equity portfolio during the quarter.

That concludes my prepared remarks on the financials. I'll now turn the discussion back over to Allen.

Thanks, Janelle. Last quarter, I noted that of the $126 billion the property and casualty industry had added to surplus from 2005 to 2007, 81% of that -- those contributions to surplus came from investment earnings. Now, the industry is giving back much of those investment gains as a result of writedowns on investments.

Natural disasters have taken a shear of the industry surplus that had been accumulated, but I don't believe that's the complete story. [Poorly] priced and underwritten business of the past few years is beginning to manifest itself and I predict will erode more capital in the coming quarters. Many believe that political rate suppression in the Worker's Compensation industry will exacerbate those market problems. The industry has gone from a discussion of excess capital to one of required capital. At best, it's an unsettling environment.

If you followed AMERISAFE for very long, you know how we approach underwriting and risk selection. To try to illustrate these points, I've referred to low tides, dead fish and tattoos to illustrate our attitude. In keeping with the political season, I'll end my prepared remarks today with this thought. The sign read, "It's the economy, stupid." It was reportedly hung over the desk of the acerbic political strategist, James Carville, in the Little Rock headquarters of the 1992 Clinton presidential campaign. The purpose of the sign was to keep workers focused and as is said in that business, on message as to the principal concern of the voters. Apparently, it was very effective.

Well, without reference to the lack of intelligence, perhaps the appropriate sign for those of us in the insurance industry should be, "It's the underwriting that counts." That message -- that's a message -- I'm sorry. That's a message that the employees and management of AMERISAFE understand very clearly.

We'll be happy to try to answer your questions.

Thank you, sir. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS). Our first question comes from the line of Matt Carletti with Fox-Pitt Kelton. Please go ahead.

Good morning, guys.

Hey, Matt.

Good morning.

Good morning.

A quick couple of questions for you. First is, Allen, in your opening comments, you briefly made a comment about AIG and seeing a little bit of, I guess, increased business flow from them, given what's going on. Can you provide a little more color? Is there a certain geography? Is it a certain area that you focus in that you're seeing that, or is that more of an across the board kind of --

It's more of an across the board submission, although there have been some areas where AIG has been a bit more competitive than others. Let me just make these comments. AIG is probably the most ubiquitous competitor that we would have in terms of high hazard Worker's Compensation. They are underwriters that will assume risk in a lot of hazardous industries, in fact, essentially all of the hazardous industries. So it's not surprising that we would see an opportunity to look at some accounts.

Trucking is one area, construction, but also oil and gas and a number of the types of risk that we write. I will tell you we did not monitor, and do not monitor, the submissions that are exposures from -- that are expiring policies from AIG, but I can tell you that we did start monitoring the bound policies in the middle of September and it was not insignificant in terms of its impact on our September numbers.

Okay. That's helpful. And just one other question -- I apologize if I missed it in the commentary. Do you have the (inaudible) in force data for the quarter and how it changed year-over-year?

The payroll and the premium? Geoff, do you have --

Yes, yes. For the -- through 9/30, Matt?

Yes.

Okay. Through 9/30, the payroll was 4 billion and the in force premium was 282 million.

Okay.

The (inaudible) is voluntary.

The change, by the way, would be insured payroll went up 5.1% and in force premium was down [2.24]%.

Okay. Thanks very much and congrats again on a really nice quarter with a tough environment.

Thanks, Matt.

Thank you. Our next question comes from the line of Mark Hughes with SunTrust. Please go ahead.

Thank you very much. You had premium audits in the fourth quarter of last year had kind of a negative impact. What do you anticipate -- it seems like the job numbers today were pretty negative. Have you factored that into the income statement, do you think adequately?

Well, with respect to the audit premium in the third quarter, compared to last year -- do you have those numbers, Janelle?

It's down approximately 5.3 million.

It was a decrease of about 5.3 million. That's why -- and that actually is narrower than it was in the first quarter and the second quarter, so we're seeing a narrowing of that, and I think you can probably expect to see some of that narrow as we go forward as employers adjust their expectations of what their payroll is going to be going forward.

So perhaps less of an impact in the fourth quarter than the Q3?

That's what I would anticipate.

Me as well.

Okay. And how were the expenses? Aside from the reinsurance treaty, sort of the underlying expense level, and then part of that -- will that structure continue through 2009?

Yes, the experience rate of commission is part of a three-year program, so we will benefit from that each quarter until -- through 2010.

Right.

And without the -- without taking the multi-year reinsurance program into effect, or into account, Mark, you can -- we expect expense levels to be fairly the same.

Right, okay. Then one question, if I may, the -- Allen, you gave some numbers earlier regarding -- in 3Q, the run rate, 8.9% by policy count and then 18% by premium. Could you repeat that point, please?

Sure. That was -- that is -- those numbers are voluntary Worker's Comp new business and in the third quarter, we bound 8.9% more new policies and those new policies in that quarter constituted an 18.7% increase over the new business premium written in the third quarter of '07.

Okay. Thank you.

Um-hum.

Thank you. Our next question comes from the line of Mark Lane with William Blair & Company. Please go ahead.

Good morning.

Good morning, Mark.

Good morning.

Good morning.

I had a couple. Can you -- do you have any data that you could give us on what you think the '06 and'07 developed accident year loss ratios are for the end of the third quarter? You mentioned that some of the reduction this quarter, the favorable development, was '06 and '07. Where do we stand on accident year loss ratios right now for '06 and '07?

Sure, I'll give you that. I will tell you that our open claim inventory has decreased 12% from September of 2007, and that's saying that we had over 13,000 reported claims and I'm just using 2006 and '07 as an example, combined, 13,000 open claims and less than 1,500 of those are still open.

Okay.

And that is declining, Mark, at a rate faster than we would normally have expected and we attribute that to some initiatives in claims departments in making sure those claims are closed out. The other thing that, quite frankly, is driving that is that the incurred -- the settlements and the resolution of claims have been incurred or -- in a fashion that was lower than our established reserves.

Do you have -- can you tell us how much of the favorable development year-to-date is attached to the '07 accident year?

I can tell you that our ultimate ratio right now for accident year 2007, and this is loss in DCC without including the effects of AO, is 56.2% and 2006 would be 55.9.

Do you know what the original ones were?

(Inaudible).

I don't have that information with me.

Okay. I can follow-up after. So, Allen, I don't -- the second question, I don't want to debate the state of the market or anything, but you and other executives have laid out this scenario as to why prices would go up, but if you look at year results, you've exceeded expectations for almost three years. You're going to have record results this year. Your balance sheet is in better shape than it's ever been. You're bringing down reserves from the most recent prior accident year. What motivation does AMERISAFE have to aggressively push on pricing?

We're not going to aggressively push on pricing. What we are seeing is that others who were aggressively pushing on pricing are backing away from it.

No, I mean moving rates up. What motivation do you have to move rates up? I mean, if the market moves that way, fine, but why would you be motivated to increase your prices given the results you've had the last two to three years?

Well, first of all, we believe that the underlying medical costs in claims is accelerating and I would think that with respect to the pricing of our business, we feel that pricing the accounts appropriately because of the risk charge necessary in the severity lines would be appropriate. I believe you're going to see the underlying cost of -- for Worker's Comp carriers, and I'm talking about reinsurance cost. And carriers -- over the last few years, primary carriers have been reducing their dependence on reinsurance and taking more of their balance sheet. I think that's going to reverse and reinsurers, as a result of investment losses, as well as natural catastrophes, are going to push up that price. So I think that's going to move the whole market up.

What about loss costs? You mentioned expectations about some actual reversal in loss cost at some point.

Yes, I think that needs to happen and I think it's going to happen. However, if California is any indication, where the actuaries indicate a 16% necessary increase in loss cost, and a 5% increase was approved, that would give me some concern that there may be political rate suppression of the loss cost as we flow through the marketplace.

Mark, let me ask you to consider the situation in Florida. The Commissioner approved an 18.6%, I believe, reduction in the administrative pricing in that state --

After the NCCI.

-- 4.5 points higher than the NCCI's recommendation and even after the Florida Supreme Court had declared unconstitutional the principal reform in the 2003 Worker's Compensation reform. I know the Commissioner asked the NCCI to go back and prepare a law-only filing, but at best, that wouldn't even be submitted until March of 2009 where there was lower premiums are going to be in place in January. So there's some disconnect there that makes us want to reconsider capital allocation in the State of Florida.

Yes.

I think there's some points, some moving around in the marketplace.

Okay. I'll follow-up on that loss development question.

Okay.

Thanks.

Thank you. Our next question comes from Michael Nannizzi with Oppenheimer. Please go ahead.

Sure, thanks. So one question I had was about -- just a little bit about the trucking business. Can you talk about the industry breakdown of that business? So what sort of lows are those insured truckers carrying for the most part?

I would love to give you the details. Don't have it at my hand. Let me give you what I can tell you off the top of my head, Mike.

That would be great.

The majority of our trucking business is long-haul trucking. Most trucking classes fall into two class codes in most states, 7229 and 7228. 7229 is long-haul trucking; 7228 is short-haul. There are other class codes that deal with parcel delivery and other things. We tend to focus on the long-haul and we tend to focus on whole loads, as opposed to less than whole loads. We like folks that are trying to price accounts appropriately by unaveraging the accounts into what do you haul, where do you haul it, how do you haul it, how do you get it on the truck, how do you get it off the truck, which means lowering our exposure to the flatbed operations and writing more in the dry box operations, refrigerated truckers, and in certain situations, tanking operations.

The trucking class code is an average based upon the number of miles driven and there are a whole bunch of exposure differences among the types of trucks that drive more than 300 miles in a day. And so we try to -- in terms of pricing and risk selection -- unaverage those and address the exposures that a particular account might have.

Okay. I guess I was thinking in terms of are you carrying a lot of construction materials? I know fuel or other liquids or refrigeration -- I was thinking in terms of (inaudible).

As far as the products?

Yes.

It's general freight largely, but obviously, tankers or all sorts of things --

Right.

-- including fuel oil and gasoline and hazardous substances, but I can't give you a breakdown by that.

Okay.

We have that sort of information, but don't have it at hand.

Got it, okay. That's all right.

But Mike, like -- and we've spoken to you about this and like just about all pieces of our marketing business model, the more we -- obviously, long-haul is only one class code, but the more we do -- the more variety of and types of these we insure, assuming we get the right rate, the more we're insulated from secular depression in the economics, let's say, for tank, for oil or for -- well, that's not a very good example. But you know what I'm getting at.

No, I do. I understand, okay. That's fair. And also, do you have the -- on the investment portfolio, you said that there was OTTI and equity securities, so did you sell some of the equity funds that you hold, or did you just -- did you take -- or did you sell fixed income securities to generate --

We sold some of the individual equities that we were holding.

Okay. So not the funds?

No, sir.

No.

Okay. Okay. And then the remainder -- so was any of the impairment that you recorded (inaudible) that result from fixed income securities or was that also equities?

Of the 2.9 million?

Um-hum.

2.5 was our subprime exposure.

Okay.

We impaired a 2005 vintage subprime asset-backed.

Got it, okay, perfect. Okay, great. Thank you.

Thanks, Mike.

Thank you. Our next question comes from the line of Mike Grasher with Piper Jaffray. Please go ahead.

Thank you. Congratulations on the quarter.

Thank you.

Thanks, Mike.

A couple of follow-up questions. First of all, Allen, can you point to any states, or highlight any states, that maybe you're not experiencing the political suppression and that you do expect to see some rates moving up, and specifically, I guess, looking at some of your larger states, Georgia, North Carolina, Virginia.

North Carolina and Virginia -- North Carolina just approved -- I want to say it was a 4.4% decrease, but when you see states move in relatively small increments, that, to me, just reflects what's going on in the marketplace and is generally consistent with what the actuaries and the NCCI or the statistical agent will recommend to the states. Those make sense to me. I don't refer to that, even if it's going down, as political rate suppression. That would appear to be justified. So I think Virginia, North Carolina are two states that have been very good states to do business in. Alaska has been a good state to do business in. Minnesota, Wisconsin, those areas have been good states.

We've seen dramatic improvement in our book of business in the marketplace in Texas. Louisiana has been a stable state. I don't know just now who -- I don't have that information of who's considering moving [up] loss cost. I will tell you this, that medical cost inflation, according to all reporting groups, continues to increase.

Right.

And the process of making rates is a rearward looking mechanism that tries to address the frequency and severity, and I think there's an overreaction, quite frankly, in some of the rate decreases. So if the question is why do you want to push up your pricing, it is because we think the loss cost may be too aggressively trimmed. Do you understand?

Yes.

That they're not making allowances for the cost of the medical inflation, which includes utilization costs, as well as prescription medications, DMEs, physical therapy and chiropractic services, all of those of which -- which are showing pressure and according to the NCCI, is 6% in 2007 growth in those costs. 59% of the claims, according to the NCCI nationally, are dollars that go out for medical expenses. Only 41% is for wage replacement.

Right, okay. And then talking about the economy and the impact -- what we need to weight in terms of the change in the rate environment versus the state of the economy, can you give us an update in terms of your book of business from, I guess, the construction being the largest part. How much of your book is it -- I have the numbers from year end, but -- and then breaking it out in terms of the type of construction.

I don't have that here. I will tell you that the last time I saw those numbers, there was a slight decrease in the construction component and there were some other areas of increases that offset that. I don't think it was trucking; I think there was some in the logging, some in oil and gas, some in agriculture, some in the maritime -- was it maritime services? And then in the other area which involves fabrication and iron and steel work, which by the way, on this part of the world, on a large part of where we do business is related to the oil and gas industry.

Okay. No, that's helpful and that was my follow-up question was --

I wish I had those numbers, Mike. I'm sorry, I don't have those.

Okay. That was part of my follow-up was what if offsetting the predictable reduction in construction (inaudible)?

And the other thing that I think is important -- I want to make sure it's not lost on anyone here today -- is that we're seeing a shrinkage in the number of people that are participating in the hazardous area, hazardous Worker's Compensation area. And that is why I am cautiously optimistic that despite the job losses, that our piece of the pie may become bigger. We may increase our market penetration.

Interesting. Okay. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of Seth Weinstock with Times Square Capital. Please go ahead.

Thank you. First, congratulations on continuing to grow book value while most of the industry seems content to be destroying it. The first question I had for you was on -- I just want to follow-up on the competitive landscape. I was curious if you could please comment on any change in the recent behavior you may be witnessing in terms of some of the smaller single-state writers, and as well as maybe some of the state funds in geographies where those are competitors to AMERISAFE?

That's a very good question, Seth, and let me just start off by answering it. They didn't get the email that the capital has been destroyed.

Right.

I will have to say that with respect to our public competitors, we see a divergence in the responsibility, the prudence and the activity of public competitors, versus the single-state writers, self-insurance funds and the like of private carriers. They are much more aggressive and that is something that is continuing on. At this point, you are beginning to see at least some anecdotal comments in the marketplace that some of those people that thought they liked long-haul trucking, or thought they liked forestry or explosives or oil and gas business, have indicated that it's not proceeding well with them. So we are seeing a bit of slowing in that, but I can tell you, they're not nearly as cautious as the public companies.

Okay. That's helpful. Another question was on the investment portfolio. I was curious if you could share roughly what average (inaudible) investment yield you're obtaining on new money as it's being put to work?

New money, oh, gosh, we're getting 4% on average. New money is below that, of course, and I don't know the average, Seth, on the new money, sorry.

Okay. But it sounds like that's slightly below maybe what the current (inaudible) average portfolio, but not materially.

(Inaudible). Yes, I don't think materially, no.

Super. Well, thanks so much and keep up the great work.

Thanks, Seth.

Thank you. Our next question comes from the line of Albert Unger with Sidoti. Please go ahead.

Hi, good morning.

Good morning, Albert.

Good morning.

Good morning.

Allen, you guys recently revised your ROE target for '08, 17 to 21 from 15. Is this the new long-term ROE target going forward?

That's for 2008.

So for '09, should we assume actually low or the midpoint of that?

Well, we will give guidance for 2008 at the end of -- I mean, for 2009 at the end of 2008.

Okay. All right. Thanks so much.

All right. Thank you, Albert.

Thank you. (OPERATOR INSTRUCTIONS). Our next question comes from the line of Ron [Bobbin] with Capital Returns. Please go ahead.

Hi, good morning, everybody, and congrats.

Thank you.

Thanks, Ron.

I'm sure on the next call, we'll have that new money yield at our fingertips with our new team of promoted execs.

Oh, thank you.

Congrats on that.

It's very important now, Ron.

I just had another investment question. Any appetite for putting new money to work, or I guess for that matter, sort of maturing money to work at some of these widening spread levels, or is it sort of -- I think your historic prices that we make our money underwriting and we're going stay short and safe?

Well, we're always -- there are some good opportunities out there, Ron, and we're definitely partial, especially in this crazy environment, toward municipals, but there are some good spreads there too, and we're constantly looking for opportunities that we think are safe and yet are giving some, one would say, abnormally high yields at the current time, especially in the secondary market.

But the bias will remain toward the short duration.

It will, it will.

And of course, not to hold you to it, but if we were to look at 12 or 24 months and compare sort of the pie chart of where invested assets are spread amongst, would we -- where might we see the mix change on invested assets, if you were to go that path and make some changes, or is it really probably not likely to change materially?

I don't know that it would change materially. Of course, at this point, equities are not very attractive in terms of what our objective is in terms of return, but that would -- gosh, that's a tough one to answer, Ron, to look out that far and to have some idea of what it would look like.

Okay. Thanks a lot and best of luck. Hope it continues.

But Ron, if you know the answer, will you call us?

It'll be (inaudible) in 24 months, but thanks a lot.

It's been hard to judge it 24 hours in advance.

Thank you. Ladies and gentlemen, that does conclude the question-and-answer session. I would like to turn the call back over to management for concluding remarks.

Well, thank you very much for joining us today. I think that it's clear that the marketplace -- we believe the marketplace is changing and that there's opportunity in the marketplace. And we will continue to concentrate on underwriting and worry about improving the margins and maintaining the margins that we've been able to experience for the last few years. Thank you very much.

Thank you, ladies and gentlemen. That does conclude the AMERISAFE third quarter 2008 earnings conference call. This call is available for replay and if you have -- would like to access the replay system, you may do so by dialing 303-590-3000 and entering the passcode number of 11121238. That number again is 303-590-3000 and 11121238. Thank you again for your participation. You may now disconnect.