Amerisafe Inc (AMSF) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the AMERISAFE first-quarter 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, Thursday, April 30, 2009. I would now like to turn the conference over to Ben Burnham. Please go ahead, sir.

Thank you, Brandy, and good morning, everyone. We appreciate you joining us for AMERISAFE's conference call to review 2009 first-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 should have received an e-mail of the earnings the lease 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 May 7. Details on how to access that feature are in yesterday's earnings release.

Please note that information provided on this call speaks only as of today, April 30, 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 other 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, 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, 2008 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 the call over to Allen Bradley, the Company's Chairman, President and Chief Executive Officer.

Thanks, Ben, and good morning, ladies and gentlemen. Thank you for joining us on our quarterly conference call. I'm going to make a few comments about the quarter before turning it over to Geoff Banta, our Chief Operating Officer, and then he will in turn introduce Janelle Frost, our Chief Financial Officer for more details.

We were very pleased with the first-quarter results, which were achieved during some difficult economic times. There are several notable achievements during the first quarter. Number one, we reported a net combined ratio of 88.6% and a return on average shareholder equity of 15.7%. Gross premiums written were essentially flat from the first quarter last year, down only 1.9%.

The pricing environment remained stable. Our effective LCM in the first quarter of 2009 was 1.46 or 146% of the anticipated losses, which is the same level that we have experienced in both the third and the fourth quarter of 2008.

For the third consecutive quarter, we achieved an increase in our voluntary workers' compensation business written during the quarter. We experienced increased new business submissions, an increase of the new-bound policies, an increase of new-bound premium over the same quarter last year. We also improved our premium retention levels during the quarter for our voluntary business.

Another remarkable accomplishment was the continued sharp decline in our open claims accounts. For the sixth consecutive quarter, we have experienced favorable reserve development, and, through an effective expense management program, we have kept our operating and underwriting expenses well below industry averages.

All of these achievements have worked together to produce the excellent results that we will discuss today.

With this point, I'm going to turn the call over to our Chief Operating Officer, Geoff Banta, for some further perspective on our operational performance. Geoff?

Thank you, Allen, and good morning, everyone. As Allen indicated, we had a successful first quarter especially given the current recessionary environment, continuing decreasing state lost costs and a competitive market climate. We are really very proud of our results. I'm going to provide more details relative to our operating performance before turning to Janelle to review our financials.

Allen mentioned that our top line as measured by gross premiums written was down slightly by 1.9% when compared to the first quarter of 2008. However, our voluntary workers' comp business actually showed an increase of 1.2% over the first quarter of 2008. Additionally, we saw an increase in new business submissions of 4.3%, an increase in new-bound policies of almost 12% and a 15% increase in new written workers' compensation premium. And yet, we maintained our pricing at an aggregate effective loss cost multiplier of 1.46.

Offsetting our voluntary business increase was decreased assigned risk business and decreased premium adjustments, mostly made up of downward audit adjustments. On a voluntary basis, audit adjustments decreased by $1.4 million year over year, accounting for almost all of the drop in our top line. Relative to renewal business, voluntary work comp count retention was just slightly down, but premium retention was up by 7 percentage points. We believe this latter metric may signal the emergence of a less competitive environment, but stay tuned.

In terms of inforce business, our insured payrolls increased by 0.8% in the first quarter. Total inforce premium on the other hand decreased, but only by 0.2%. Additionally, our average premium also decreased in the first quarter by 1.1% to $36,300. All of these inforce changes in the first quarter of 2009 are consistent with a competitive market and the country-wide trend toward decreasing loss costs.

Regarding losses, the first quarter was the sixth consecutive quarter in which we have experienced favorable loss development for prior accident years. Additionally, our claim counts continue to fall, as Allen mentioned. At the end of the first quarter, our total open claim inventory was $4,601, a decrease of 11.5% year over year and the lowest quarter-end count since 1998. Our claim frequency was also down when compared to the first quarter of 2008.

Even in an environment in which claim frequency continues to fall, our claims professionals are focused on settling claims as quickly as possible to mitigate the impact of litigation costs and medical inflation.

Relative to expenses, we continue to be focused on all aspects of expense management from commissions and other acquisition costs to infrastructure and regulatory costs. Even in the face of decreased earned premium, we generated an expense ratio of 21.1%, which we believe is one of the lowest in the industry. Janelle will provide more detail on the performance of our invested assets, but suffice it to say that in an environment of decreased interest rates, credit downgrades and defaults and market illiquidity, we are very pleased that our net investment income is down only 5.7% from the first quarter of 2008.

Additionally, we experienced a small amount of realized gains and no other-than-temporary impairments. Overall, we are very pleased with our first-quarter combined ratio of 88.6%, and our return on average equity of 15.7%. We remain focused on providing competitively superior returns for our shareholders, even in the face of significant economic and market challenges. And with that, I will turn the presentation over to Janelle.

Thank you, Geoff and good morning, everyone.

In the first quarter of 2009, AMERISAFE reported net income of $11.1 million compared to $11.9 million in the first quarter of 2008, a 7.2% decrease. Gross premiums written in the first quarter of 2009 were $79.4 million compared to $81 million in the first quarter of 2008, a 1.9% decrease.

Net premiums earned decreased 5.8% from the year-ago quarter. Earnings always lag writings, and our low earned premium in the first quarter was the result of decreases in written premium from previous quarters.

Our net investment income totaled $7.4 million, which was 5.7% lower than the same revenue component in the first quarter of 2008. We recognized $26,000 of net realized gains in the quarter, resulting from called fixed maturity securities. Keep in mind our fixed maturity portfolio is classified as held for maturity and is not marked to market unless losses are determined to be other than temporary, which we did not have in the first quarter of 2009.

Unrealized losses on that portion of our portfolio totalled $12.1 million as of March 31, an improvement compared to $16.2 million at year end 2008. In total, revenue in the first quarter of 2009 was number 5.8% lower than the same period in 2008, totaling $77.5 million.

Our incurred loss and loss adjustment expenses were $47.1 million compared to $49.9 in the last last year's first quarter,a decrease of 5.7%.

Our net loss ratio was 67.2% in both quarters. For the first quarter of 2009, that includes a current accident year loss ratio of 69% and prior-year payroll development of 1.8%.

Underwriting and other expenses increased 1.8% in the first quarter of 2009 to $14.8 million from $14.5 million in the first quarter of 2008.

In terms of dollars, expenses were relatively flat. However, with low earned premium, the expense ratio rose. Our expense ratio increased to 21.1% from 19.5% in the same period a year ago.

For the first quarter, commissions were $5.4 million, salaries and benefits were $5 million and underwriting and other operating expenses were $4.3 million.

One noteworthy offset to underwriting expenses this quarter was $438,000 of experience rated commission from our 2009 $5 million excess of $5 million reinsurance treaty. If you recall, in each quarter of 2008, we discussed $2.4 million positive impact on expenses from experience rated commissions related to our ForEx of [$1 million] reinsurance layer. This was a three-year treaty impacting 2008, '09, and '10.

This year, in addition to that treaty, we signed a similar three-year agreement for our $5 million excess of $5 million layer. Beginning in 2009 and continuing through 2011, the additional positive impact to expenses will be approximately $438,000 per quarter of experience rated commissions. That is unless we penetrate the layer, then the positive impact moves from expenses to see the losses.

Our policyholder dividend ratio was 0.3% compared to 0.4% in the first quarter of 2008. In total, our combined ratio was 88.6% in the first quarter of 2009 versus 87.1% for the same period in 2008.

In terms of earnings per share, our reported first-quarter 2009 diluted earnings per share applicable to common shareholders was $0.54 compared to $0.59 for the first quarter of 2008. First-quarter 2009 book value per share was $14.30 compared to $13.86 at December 31, 2008.

That concludes my prepared remarks on the financials. I will now turn the call back to Allen.

Thanks, Janelle. I know that many of you will have questions relative to the marketplace and I will make some general comments and then be happy to try to answer any questions you may have.

With respect to the marketplace, there is clearly an element of market disruption. As mentioned before, we continue to see more applications for new business on accounts we've never seen before. These applications of course represent an opportunity for AMERISAFE.

Countervailing that opportunity is a competitive environment which I believe is occasioned by a slowing economy that has dampened the demand for insurance. We've talked about this in the past. There remains a significant amount of competition in the marketplace with some insurers being very competitive on both rates and terms.

As for AMERISAFE, we choose to maintain our underwriting discipline and to compete on agency relationships, industry expertise, high-touch customer services and financial strength rather than price alone. We'll have to see how this plays out.

In today's market, financial stability is extremely important. For that reason, we were very excited when, on April 20, A.M. Best affirmed our rating and upgraded our outlook to positive. We appreciate the confidence that A.M. Best expressed in that change. Our management, employees and agents understand that this accomplishment is no mean feat, considering the current state of the industry.

We were also pleased that this week, the internal corporate governance review, announced in February, was completed. This review by our nominating and corporate governance committee along with their independent counsel, Vinson and Elkins, was conducted based on the stated concerns raised by a member of our Board of Directors. The committee did not identify any significant issues based upon the review of these concerns. Both the Board and senior management remain committed to a strong corporate governance and are continuously seeking to promote accountability, transparency and the highest ethical standards within our Company.

With those comments, we would open it up to try to answer any questions you have.

(Operator Instructions). Matt Carletti, Fox-Pitt Kelton.

Congrats on a very solid quarter. First a numbers question, maybe this is for you, Janelle. How much of the expenses in the quarter are related to the cost associated with the governance review?

I don't know the total cost of the governance review -- what the total cost of the entire review is going to be. For the quarter, it was $200,000 or less.

Okay, great. And then --

Most of those expenses, Matt, will come in the second quarter.

Okay. And then on the favorable developments, what years are those from, and where does it put the accident year loss ratios for those years?

Sure. For the favorable development, and I will start with accident year -- prior to 2004, it was unfavorable of $0.3 million -- that was prior to 2004. 2004 is $0.2 million unfavorable. 2005 was favorable $0.7 million. 2006, favorable, $2.6 million. 2007, favorable, $3.7 million. 2008, unfavorable, $5.3 million.

Okay. And what was it that drove the '08? Was it a particular high-value claim, or was it something more trend-like?

It was more a lumpiness of high-value claims. And it's not unusual to see that in the first quarter of the most recent [predominate] year.

Great. And then last question, maybe it's higher-level for you, Allen, is last quarter, you gave us some policy count and premium numbers that you have been tracking from AIG that you thought AMERISAFE had gathered since their troubles. Can you update us where that was at the end of the first quarter?

At the end of -- during the first quarter, Matt, we found an additional 88 policies which represented just over $4 million of new business that formerly was with AIG. Average policy size as I recall was about $45,500 or $45,600 per account. And while we don't normally comment on the most recent quarter, we have seen another marked uptick in April.

Okay.

So, it's still out there. It's obvious to us that on the larger accounts, there are other carriers that are very interested in taking those accounts away from AIG, and they are much more aggressive on the larger accounts than we are.

And Matt, anecdotally, we continue to hear from our underwriters that a big factor these days is perceived stability in the Company, and we think we are benefiting from that.

Great. Well, thanks a lot, and congrats again on a nice quarter.

Mark Hughes, SunTrust Robinson-Humphrey.

Thank you very much. In terms of that disruption, is it spread any wider than AIG? Or is it still the players you might have been referring to last quarter?

Well, it -- there does seem to be some perhaps while we don't compete that frequently with Hartford, we do hear some discussion by agents. And we also -- the changes with Liberty Mutual in terms of no longer having their middle-market direct distribution model in place, we've seen some accounts in those areas, and we've seen a number of accounts from C&A.

And seeing the Travelers results from this morning, we may see those in the future, but haven't as yet.

We do see the Travelers -- I'm not prepared to comment on that. We do not -- we do see that Travelers in Zurich have become very aggressive, particularly in the Gulf South.

Right. You had suggested that something made you or signaled the emergence of less competition. What was that you were referring to?

Our policy or our premium retention is up quite significantly for us in the quarter-over-quarter comparison, Mark. Now, that may be either the stability I talked about. That may be the AIG effect, because I will tell you that that skews the retention uptick, skews toward the higher policies, which is another reason why account retention is fairly flat, but premium retention is up.

Right.

Mark, just another comment, if I might, on that. In the first quarter of 2008, it was clear that we were in a very soft environment. And it is less soft now, and I think that's showing up on the retention side of the business. Even though loss costs are down, which affect your retention dollars, there's less aggression on trying to take accounts from other people because the way you take those accounts generally is you have to beat the price, and you have to beat it by a number large enough to make it reasonable for a person to want to move the account.

Right. Can you talk about the severity? Does California have any meaning for the rest of the country?

Well, I think that, as it is many times, California is sort of a predictor of where trends will go in the rest of the country. You've also seen some changes in the Florida market, Mark, with the [Amimurray] case there.

And so I do think that medical cost inflation is not going away. Next week, the NCCI will release their national findings on medical cost inflation for 2008. I don't know what they will be, but I anticipate they are not going to be consistent with the loss cost reductions that have been going on. I think you are going to see that we are coming to the end of loss cost reductions, and loss costs themselves will have to move back up.

Then is there a, in your experience, is there a typical lag between when it hits California and when it hits the rest of the country?

Yes, I don't know that it's susceptible to a precise calendar calculation, but I would say the signs are clearly out there now in terms of medical cost inflation.

There's also, Mark, a trend across many states of -- like Oklahoma and Florida and a couple of others, where regulatory reforms or workers' comp reforms are now beginning to be undone. And I think a lot of people think that once a reform is passed that that will result in a continuous reduction of the costs. But what happens is that you squeeze the reforms out of the system, and then the inflationary pressures begin to build.

And there's no more downward pressure.

It does not go linearly. It does not continue down 10% a year every year. Once you've gone through the savings of a reform, then there's a time period in which your loss costs begin to swing back the other way.

Of course, frequency has been a driver of a lot of the loss cost drops, and we do continue to see a drop-off in frequency. But as we talked about on the last quarter, we continue to be vigilant to watch duration of claims, particularly existing claims. Because it's hard to get somebody to go back to a job that doesn't exist.

Right.

And that's something that we're being very cautious about and trying to pay a lot of attention to.

Thank you.

Mike Grasher, Piper Jaffray.

Thank you. Good morning, everyone. Wanted to just I guess visit the trends or in the specific lines of business. Geoff, you mentioned the new submissions and policy counts going higher. Any particular line of business where one is an outlier over the others, or is it pretty much across the board? Or can you provide some details around that?

We specifically looked at that. When we saw the new business uptick, we specifically looked at that in the first quarter. And we don't see really any kind of a sea change at all in our industry spreads. Construction is still strong, still right around 41%, is it, Allen, 41%?

Something like that.

Followed by trucking, followed by agriculture and logging. And no, we did not see any big movement from one industry group to another.

Probably the only thing, Mike, that we have seen that is of any note, and it's in our K, so this would not be a change, that is that the logging industry is under significant pressure. As you may have noted in 2008, logging dropped from number three to number four in terms of our business. And that's obviously related to the housing industry. And in the south, a lot of the pulp and paper industries are having issues.

Okay. And Janelle, just to follow up, from a numbers perspective, did you happen to mention what stat capital was at the end of the quarter?

I did not. It's nearly $283 million.

Okay. Thanks very much.

Beth Malone, Wunderlich Securities.

Thank you. Good morning. This morning, I have a couple questions. On the A.M. Best change in the outlook, when will they review your rating again? When's -- did they just complete their formal review? Or is there another one for the fall?

No, they just completed their formal review. I would say that upgrade would have a 24 to 36-month sort of time frame on it.

Okay. Also, on the state regulation, the environment in the workers comp, I know you mentioned that there was some pressure to roll back some of the reforms. What's the -- can you be a little bit more specific? Are there certain states in which you have exposures that you are more concerned about than others? And is there any sign of some states becoming more favorable from a regulatory standpoint than where they are currently?

The answer to that in my opinion is yes on both points. So let's talk about those that are headed in a direction different from where we would like to see it go.

Florida, obviously. Oklahoma. According to the NCCI, Oklahoma has traditionally undone about 70% of the reforms. Past there, I think in 2005. Illinois is a state that has become a very difficult environment. You are seeing what I believe to be political rate suppression in some states, where I think we will see that in California. I know the rate hearings are going on now, and I know those are advisory. But you see the WCRV recommends a 24.4%. That's not going to occur, and I don't think there's anyone out there in the industry that thinks it will. While we are not exposed to California, I think that's indicative of some things you are seeing out there.

In terms of stable states and states that are improving, probably the most remarkable story is South Carolina in my opinion. You have a very stable state in North Carolina and Virginia. Tennessee so far has been very stable. Arkansas, is a stable state. Louisiana is reducing its loss cost 17.4% on May 1, which we've had excellent results in Louisiana. I'm a bit concerned that they may have over torqued it on the reduction side. Texas is a stable state but a highly competitive State. So that's kind of a picture around it.

One of the most stable states year in and year out is Wisconsin. It's just a very -- it's an administrative pricing state, but they don't have a great deal of fluctuation. They have a tremendous history of workers' comp in that state, and it's a stable state. So there's good places, there's better places and then there's places that are less good.

I guess, as you -- if you would rank what pricing pressure you may see going forward, is it -- it sounds like regulatory issues aren't necessarily where you might see it. It's more in just economic pressure from lack of demand?

I think regulatory pressures pale in comparison to the marketplace pressures and to the demand for insurance. The problem with regulatory pressures is that if you have a competitive environment or a slower demand for insurance, if regulators are then concerned about the impact of rising rates, regulatory suppression of those rates exacerbates an otherwise bad situation. Understand what I'm saying?

Yes.

(multiple speakers). But in terms of order of magnitude, clearly the slower economic environment is a far greater issue than the regulatory side of it.

Okay. All right. Thank you.

Mark Lane, William Blair.

I just have two quick follow-ups. One is regarding reserves. So you mentioned that the lumpiness of high-value claims is common in the first quarter. And you are looking at 2008, which was a decent adjustment. Why is it common?

Well, because those claims have just occurred, Mark. They may not even have been reported. They certainly may not have been investigated or reserved. And so you just do not know sometimes you don't get a fatality claim, although we usually get them pretty quickly, you may not get them for a week or two weeks. We've got them as long as six weeks. We don't have a lot of that. But with a large claim, it's something that you could see. And I think you would -- we see it frequently in the first quarter every year, and we try to anticipate that but never quite know just how much it's going to occur. It's not something we're terribly concerned about, by the way.

So was the positive development in '07 associated with the large claim that you saw develop adversely last year?

No.

Okay. And then the second follow-up is regarding new business submissions. Your setting it up as if you are seeing a big increase in new business submissions, but I'm still a little bit surprised. I think you said new business submissions were up 4% year over year?

That's correct. For voluntary work comp.

So I'm surprised that with new business submissions up 4% with pricing that's been down the last three or four years, that you seem to still be writing a lot of business relative to your new submission levels. The hit ratio seems to be pretty consistent.

The hit ratio is consistent.

And why --

The ratio is consistent.

So, which --

It may go back. We've still got a very competitive environment, but it may go back, Mark, to the stability factor and the fact that we've got a lot of competitors out there who aren't looked at as favorably as they used to be, and who used to win business from us that are not winning business from us anymore, even when we have a higher price. I hear that from our marketing guys quite frequently.

And Mark, I think that's right. I think you are seeing the impact of the disruption. We have -- just these metrics -- 4.3% more submissions, 11.9% more new policies bound and 15% more in premium. So that would indicate to you that there's -- the ones that are moved -- the more submissions you are getting in, that's why I said earlier, we are seeing business we have never seen before. These are not just accounts we've quoted on year after year after year. These are accounts we have never seen before, that agents, for whatever reason, have not been sharing with us. And they are larger accounts in some of the new business and ones we've seen moving.

So I think there's a couple of interesting things with this. You are seeing a few more accounts being submitted, but you are having a little better success with the accounts that you are working on. And at the same time, you have your retention, which was abysmal, quite frankly, in the first quarter of 2008 move up 7 percentage points this quarter over that quarter.

And then the offset, of course, is the increase in audit premium on a downward basis.

Okay. I appreciate the additional insight. Thanks.

Mike Nannizzi, Oppenheimer.

Thanks. Just a couple of quick ones. Can you -- is it possible to just calculate or express the expense ratio without the impact of the reinsurance contract, just to get an idea of what that looks like without the offset from reinsurance?

Sure. The experience rated commissions were $2.8 million for the quarter.

Okay.

And earned premium was $70 million, so.

So just back that out and -- okay. Okay, so that would be -- that would be a run rate without the reinsurance, if we wanted to think about it that way?

Right.

That's correct.

And then, is it possible to break down -- I know you mentioned the improvement in unrealized losses in the quarter. Is there a way to break that out, just by asset type, just to understand maybe just in broad categories the mortgage book, municipal book, corporates?

Sure, sure. The unrealized losses on the asset backs were $3.2 million at March, and they were $3 million at year end. The CMBSs were $16.2 million at March, and they were $11.7 million at year end. I'm trying to pick the big items here.

Mortgage-backeds were $3.3 million at March and $2.4 million at year end, and that was actually a gain. Municipals were $3 million at March, and they were at -- that was a gain. And they were actually at a loss of $5 million at year end.

And then the other big item was the equities. We didn't have impairments at the end of March, but we did have unrealized losses of $3.9 million.

Got it.

And it's greatly in the quarter. At one point in the quarter, they were actually at a gain.

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

Brian Rohman, Robeco Investment Management.

One quick numbers question. Janelle, what's the book value per share at the end of the quarter?

$14.30.

What was that versus -- just the number for me versus year end?

$13.86.

$13.86, okay. Now, I want to ask you a question. I think a bunch of people have asked this question a different way. But I've listened to a number of workers' comp companies report earnings in the last couple of days, and they cite trucking and construction as particularly weak areas where they are seeing less employment, less need for coverage. And you are -- you guys are doing a great job of sort of holding your own. Aren't you seeing any -- are you seeing weakness in these businesses? And is it offset by the AIG and the retention issues?

We are seeing -- we are seeing weakness. There's no question that the economic impact is hitting some of our insureds. We see it in terms of the zero payroll reports increase. But at the same time, what we are seeing is kind of interesting. We are seeing a decrease in the number of late payment notices or cancellation requests that are going out. I don't know, Brian, if I can define for you what is unique about our book of business that it doesn't seem to be as widespread, but I've got some thoughts for you.

Let me preempt there for a second. Is it -- obviously acumen on your part, but is it just good fortune that you are not in California, Arizona, Nevada and only in a small way in Florida?

You preempted my answer. One is that we tend to be more rural than urban. Number two, we look a lot at the operating history of companies we try to insure and we do not -- we do not do a lot of startup companies. And we have found from, particularly from our assigned risk businesses, that the startup companies are ones that are highly susceptible to closure. We are not in California. We are not in Arizona. We are not in any big way in Florida, particularly not South Florida.

And we don't -- we are not big in residential construction. We are in commercial construction. And a lot of those things that we are engaged in are infrastructure builders. And so, we have felt it.

Now, on the trucking side, I did a little digging, anticipating someone would ask a question in this area. And we do see more weakness in flatbed type operations as opposed to dry box tanker and specialty haulers. And by that, I mean the sort of loads that are steel and pipe and those sort of items have seemed to have fallen off more.

The other thing that drives I think our trucking business that has not been maybe as noticeable as some other companies have had, because first of all we are only writing comp, but we do not write owner-operators. And owner-operators in the trucking industry represent the marginal workforce. So the first time a trucking company has to reduce its size, it reduces its owner-operators first and its employees second. So we've not seen that much of an impact there. But we have seen an impact. I mean that's (multiple speakers).

The owner-operators would obviously be smaller premium per policy?

Correct. And there's some people include them on their comp policy.

And certainly less stable financially.

Okay.

We did do that in the past, and that's why we don't do it today, Brian. A little slow on the uptick of that, but we figured it out.

Seems to be working today. Then, just by state, am I just -- following up -- I think it was Beth's question that you answered. Oklahoma and Florida are the most I will put it in bracketed "most difficult states" right now?

Well, I wouldn't --

Pricing and regulatory-wise.

And I wouldn't put Illinois far behind.

Okay.

I would say those are probably the top three in terms of challenges in those areas. And we don't have a huge -- we have probably more business in Illinois than we do in Florida and Oklahoma.

Yes.

One nice surprise we've had has been the state of Pennsylvania, where we think there's been a lot of market dislocation. And that's always been an extremely competitive state. We are getting a bigger toehold there.

That is probably as a result of the state fund, who recently took a significant rate increase there.

Great. Thank you, guys.

(Operator Instructions). Mike Grasher, Piper Jaffray.

My question was actually addressed. Thank you.

(Operator Instructions). At this time there are no further questions. I would like to turn the call back over to management for any closing remarks.

Thank you very much, and thank you, ladies and gentlemen, for joining us today. We appreciate your interest in AMERISAFE. We appreciate the fact that you have followed us and been supportive of this Company as we go forward -- in the past and as we go forward.

I tried to think of something really unique to tell you at the close today. And I really don't have that great statement, except to tell you that have been around the outdoors pretty much all my life. And as I've tried to compare various companies in the context of outdoor living, it strikes me that AMERISAFE is not, in terms of an analogy to horses, it's not a racehorse and it's not a show horse. This company is a work horse. We block and we tackle and we go straightforward, and we try to maintain our business in a surefooted fashion. So, for the coming years and the coming difficult economic times we are in, we are going to concentrate on keeping our balance to remain surefooted and to move forward in all aspects of our business. And we think by doing that we will be able to produce superior shareholder returns in the coming years. So thank you for your support and we appreciate your participation today.

Thank you, ladies and gentlemen. This concludes our AMERISAFE first-quarter earnings conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3000 or 1-800-405-2236 followed by pass code 11130529. ACT would like to thank you for your participation, and you may now disconnect.