Amerisafe Inc (AMSF) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the AMERISAFE second 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, the 6th of August, 2009.

I would now like to turn the conference over to Ken Dennard, DRG&E. Please go ahead.

Thank you, Luke, and good morning, everyone. We appreciate you joining us for AMERISAFE's conference call to review 2009 second quarter results. We would also like to welcome our internet participants, as the call is being simulcast live over the web.

Before I turn the call over to management, I have the normal housekeeping details to run through. You could have received an email 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 email distribution list, please call our offices at DRG&E. That number is 713.529.6600.

Also, there will be a replay of today's call. It will be available via webcast by going to the company's website, and that address is www.amerisafe.com. There will also be a telephonic recorded replay available for seven days, until August 13th. And details on how to access that feature are in the earnings release yesterday afternoon.

Please note that information on this call speaks only as of today, August 6th, 2009; 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" or "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 31st, 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 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, with that behind me, I'd like to now turn the call over to Allen Bradley, the Company's Chairman, President, and Chief Executive Officer. Allen.

Thanks, Ken, 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, in turn, will introduce Janelle Frost, our Chief Financial Officer, for additional details.

We were pleased with our second quarter results, which were achieved in a difficult economic environment, as well as one that was extremely competitive. The national economy and lower loss costs and rates have combined to create a bit of a headwind for our business. With respect to the competitive landscape, we have witnessed certain large, national writers aggressively pursue business with very competitive pricing, especially on larger accounts. Regional carriers and single-state writers have also been quite competitive, but to a lesser degree, in my estimation.

Despite these conditions, AMERISAFE has performed remarkably well during the second quarter. Consider the following achievements. We produced a net combined ratio of 83.3% and a return on average shareholder equity of 18.6%. While gross premiums written were down 15.6% compared to the second quarter of last year, our net income and earnings per share increased in a year-over-year basis.

The drop in gross premiums written is due predominantly to our decision to maintain our pricing. And I am very proud of the job accomplished by our underwriters, who maintained pricing discipline and risk selection, and produced an effective loss cost multiplier in the quarter of 1.45 or 145% of the anticipated losses.

Another notable achievement was the continued decline, of 10.2% in a year-over-year basis, in our open workers' compensation claims inventory. Accordingly, for the seventh consecutive quarter, we experienced favorable reserve development. And finally, and certainly not least, through our effective expense management program, we continue to manage our underwriting expense ratio at a remarkably low level.

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

Thank you, Allen, and good morning, everyone. I will provide some details regarding our operating performance before turning to Janelle to review our financials.

As Allen indicated, we had a successful second quarter, especially when one considers the economic and marketing conditions we've had to deal with. Our top line as measured by gross premiums written was down by 15.6% when compared to the second quarter of 2008. Our voluntary workers' comp business showed a decrease of 9.8% from the second quarter of 2008.

The majority of that decline was in larger accounts, defined by us as accounts with annual premiums greater than $100,000. We have seen, by far, the most competitive pricing for these larger accounts. As a result of payroll audits and related premium adjustments, which usually track with the economy, we experienced an additional decline of $4.6 million in premiums written in the quarter. We also experienced a decrease in our assigned risk business.

With regard to new business, we actually had a 13.2% increase in the number of new business submissions, and an increase of 2.3% in the number of bound accounts. However, gross premiums written on new accounts declined 15.9% from the second quarter last year in spite of the increase in the raw material from our marketing folks.

With respect to renewal business, we retained 91.7% of our quoted renewal accounts, a slight decrease from that rate last year; and we retained 84.3% of the eligible renewable premium, which was a nice improvement over the 75.5% rate during the second quarter of 2008. And as Allen mentioned and in line with our overall approach to the business, we maintained our pricing at an aggregate effective loss cost multiplier of 1.45.

In terms of in-force business, our voluntary workers' comp insured payrolls decreased by 0.4%. Total voluntary work comp in-force premium was down by 2.7%, and average premium was $35,000, compared to $37,000 at June 30, 2008.

Regarding losses, our claim counts continued to decline. At the end of the second quarter, our open workers' comp claim inventory was 4,548, a decrease of 10.2% year over year. Our claims frequency was also down modestly when compared to the second quarter of 2008. Even in this environment in which claim frequency continues to fall, our claims professionals remain focused on settling claims as quickly as possible.

Related to expenses, we continue to focus on all aspects of expense management. We generated an exceptionally low expense ratio of 22%, especially considering that our second quarter expenses included $541,000 related to the corporate governance review and $310,000 incurred to update our forfeiture assumptions on certain stock options.

On another operational front, the implementation of our new underwriting management system continues at a robust pace. The insurance industry is driving to adapt to customer expectations for the delivery of products through web-based technologies. For some products, such as personal lines auto, the industry's push has resulted in the commoditization of the products.

AMERISAFE's market niche requires a more significant level of assessment, service, and advice-driven solutions. Our underwriting management system, called GEAUX, which in Louisiana syntax is spelled G-E-A-U-X, is designed to streamline our underwriting process by providing our agents with an advanced level of point-of-submission technology, process transparency, and real-time underwriter collaboration, while not compromising the risk selection and evaluation process. We have very high hopes for this new technology.

Overall, we are very pleased with our second quarter combined ratio of 83.3% and our return on average equity of 18.6%. We remain focused on providing superior returns for our shareholders throughout all market cycles.

And with that, I will turn the presentation over to Janelle.

Thank you, Geoff, and good morning, everyone.

In the second quarter of 2009, AMERISAFE reported net income of $13.7 million, compared to $12.8 million in the second quarter of 2008, a 6.8% increase. Gross premiums written in the second quarter of 2009 were $72.5 million, compared to $86 million in the second quarter of 2008, a 15.6% decrease.

Net premiums earned decreased 8.8% from the year-ago quarter. Earnings always lag writing, and our low earned premium in the second quarter was the result of decreases in written premium from previous quarters.

Our net investment income totaled $7 million, which was 5.7% lower than the same revenue component in the second quarter of 2008. We recognized $17,000 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.

During the second quarter of 2009, we did not have any other than temporary impairment. Unrealized losses on that portion of our portfolio totaled $7.6 million as of June 30th, 2009, compared to $16.2 million at year-end 2008.

In total, revenue in the second quarter of 2009 was 7.9% lower than the same period in 2008, totaling $73.5 million. Our incurred loss and loss adjustment expenses were $40.2 million, compared to $47.3 million in last year's second quarter, a decrease of 15%. Our net loss ratio was 61.1% in the second quarter of 2009, compared to 65.6% in the second quarter of 2008. For the second quarter of 2009, that includes a current accident year loss ratio of 69% and favorable prior year development of $5.2 million, or 7.9 percentage points.

In the second quarter, total underwriting and other expenses increased 2.3% to $14.5 million, from $14.1 million in the second quarter of last year. The three components of total expenses were underwriting and certain operating expenses, which increased $1.6 million. The two primary drivers for this increase were $541,000 in legal and professional fees related to the corporate governance review and a $2 million decrease in income from commutation of certain reinsurance contracts. Secondly, commissions, which decreased $1.8 million. And third, salary and benefits, which increased $516,000, primarily from $310,000 of expense related to updated forfeiture assumptions.

Combined with our lower earned premiums, the expense ratio rose to 22% from 19.6% in the same period a year ago. I would also like to note, while the expense in the quarter for the corporate governance review was $541,000, the total cost for the six-months-ended was $709,000. In total, our combined ratio was 83.3% in the second quarter of 2009, versus 86% in the same period in 2008.

In terms of earnings per share, our reported second quarter 2009 diluted earnings per share applicable to common shareholders was $0.67, compared to $0.63 for the second quarter of 2008. Reported ROE for the second quarter of 2009 was 18.6%, compared to 20.6% for the second quarter of 2008.

Book value per share for the second quarter of 2009 was $15.10, compared to $13.86 at December 31st, 2008, an increase of 8.9%. Keep in mind our reported metrics for earnings per share, ROE, and book value are on a as-if-converted basis, including our C and D preferred shares.

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

Thanks, Janelle. And please allow me to offer a few closing thoughts before opening this conference for questions.

After three years of premium reductions, the workers' compensation industry has transitioned to an underwriting loss in both 2007 and 2008. Total direct premiums written in workers' compensation declined 9.5% in 2008 over 2007. Due to medical cost inflation and other factors, I believe that incurred losses are rising, while premium is declining. In my opinion, the declining loss frequency will not be sufficient to offset these trends.

AMERISAFE believes that commitment to an organic growth strategy in the current environment necessarily requires a compromising of pricing and risk selection standards or expense management, resulting in the sacrifice of long-term profitability in exchange for near-term premium growth.

According to a recent Ernst & Young report on risk in the insurance industry, mismanagement of the cycle is arguably the number one cause of insolvency in the non-life industry, and the number one contributor to losses in stakeholder value. That is particularly true in the workers' comp industry. Workers' compensation is a long tail line of business. Policies written today may result in claims that will last for many years to come. Therefore, it is incumbent upon us to act wisely during this part of the market cycle. I can assure you that the Board, management, and employees of AMERISAFE are managing our business for the long term.

In my prior professional career, I used to try cases as an attorney. If I was trying to get a point across to a country jury, I learned to follow the advice of one of my trusted colleagues. That would be David Burton, our local District Attorney, who, by the way, was an excellent trial lawyer. He would advise me, "Always remember, you've got to put the grass down where the cows can eat it." Well, I know that this audience today is far more sophisticated than a country jury. However, if you were a country jury, I would suggest to you that AMERISAFE is acting prudently, because our monthly calendar contains more than three pages.

Thank you for your attention. And with those comments, I'll try to open it up for questions and see if we can make appropriate comments.

We will now begin the question and answer session. (Operator instructions.)

Our first question is from the line of Beth Malone, with Wunderlich Securities. Please go ahead.

Okay. Thank you. Good morning.

Good morning, Beth.

Just -- I know you've probably pretty answered this in your prepared remarks. But I just would like to understand a little bit better the strategy in the pricing. In your circumstances, you're achieving a return on equity that exceeds your target. Your combined ratio, even if you adjust for the reserve development, is still in the low 90s. And you're -- it would appear that you're, maybe, losing market share because of pricing environment.

So how do you balance those issues with your decisions about being very conservative on the pricing? I mean, it would seem that there was some argument that you could be a little bit more aggressive on the pricing or underwriting and still achieve your goals.

That's a very good question, Beth. This is Allen. Let me take a stab at it.

First of all, our pricing has come down. It has fallen from 1.56, I want to say, in the aggregate for 2005 or '6 -- I can't remember which -- to where we are today. And you can probably anticipate some further decline in that pricing in the upcoming quarters.

I will tell you, though, that the pricing that we're seeing on larger accounts is at or near the loss costs themselves. And it's even carried over into smaller accounts. Anecdotally, I will tell you, we recently lost a renewal -- one of the few we lost -- and our quote, which we reduced the price from 1.51 effective LCM to 1.43 reduced price, so this is a smaller account, to $31,200. A competitor wrote that account at $22,200, which is exactly 1.001 of the loss cost in that state.

So while you can expect some further decline in the pricing, and that may or may not alleve the question of gross premiums written or the level of decline of gross premiums written, do not look for us to chase the premium to that degree. Certainly, we may be giving up market share. But it's been our experience as we watched the experience through the late '90s and early 2000 that if you're writing business below the anticipated cost of writing and servicing that business, you don't need more volume.

If I could add, Allen, Beth, we're seeing especially intense competition in the large accounts, as I think I mentioned. Fully 80% of the decrease in our premium in the quarter was due to the loss of accounts over $100,000. And the -- some of the deltas between what we've quoted and what the competitor who won the bid quoted are quite astounding, going up to as much as 40%. And as Allen said, we're just not going to chase that.

But as you get -- and we've talked to many investors about this. As the premium gets higher, the competition gets more intense. And the big writers are really, really out there going after business in what some of us think is a bit of an irresponsible manner. But we're not going to chase it.

Okay. And then my follow-up question is on the economy and demand. Are you seeing -- are there any green shoots that you might be seeing in the smaller side that give you some encouragement that demand may be starting to improve from an economic standpoint?

The main indicator you can look for on that one, Beth, is when we report the impact of audit premium, which includes audits, a reconciliation of estimated premium against actual premium, cancellations, and endorsements. And with respect to our construction business, I cannot tell you that there are any green shoots to any significant degree.

There are pockets of our market areas. There are some states where the environment is better, where the competitive landscape is different, and where there's less impact than others. For example, in some of the southern states along the Gulf Coast, the economy is not as bad as it may be in other parts of the country.

But to tell you that we've seen any impact from the stimulus program or any green shoots, as it's euphemistically referred today, I would tell you we have not seen much of that at all.

Okay. Thank you.

Yes, sir -- yes, ma'am.

Thank you.

Our next question comes from the line of Michael Nannizzi, with Oppenheimer. Please go ahead.

Thanks.

Just a couple questions, Allen or Geoff, maybe, on net earned versus net written premiums, the divergence between those two. Is it multi-year contracts or is it just timing of those items?

Mike, it's not multi-year contracts. We don't write multi-year contracts. It's just the fact that we write predominantly -- well, I'll say I think it's around 55% to 45% business in the first half of the year versus the second half of the year. And in the second half of the year, the earned starts overtaking the written.

Okay.

And especially, as you can understand, in a period of written contraction, that washover, if I can call it that, of earned is going to be even faster. So when we're decreasing in written, you're going to see earned converge on written at a faster rate.

And Mike, Allen alluded to the negative (technical difficulty). Keep in mind the audit premium that --

Audit premiums. Right.

(Inaudible - multiple speakers) -- as written and earned in the same period.

Oh, good point. Good point.

Got it. Excellent, excellent.

And then, Janelle, maybe just a couple of numbers questions. On the -- what was the impact of the reinsurance contract on expenses in the quarter?

In the quarter itself?

Mm hmm.

$2.8 million.

$2.8 million. Okay.

And if I could, just one really quick last one. On the investment portfolio, what -- on that CMBS book, in particular, can you talk about what the value versus cost on those securities is right now?

Sure. The book value for the CMBS is still 51.6.

Okay.

(Technical difficulty) -- value is 39.6.

39.6. Okay. Great. Okay. Great. Thank you very much.

Thanks, Mike.

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

Good morning, everyone. Congratulations on the quarter.

Thank you.

Thanks, Mike.

Thanks, Mike.

Hey, you mentioned a couple things around claims, the claim count down about 10%, seeing continued lower frequency. Just curious as to how many claims you actually settled in the quarter.

Oh, I don't know that I have that. I will tell you this. The open claims inventory -- workers' comp claims inventory at the end of the first quarter was 4,532, so there was an increase of 16 open claims, which means that of all the claims reported in the three months which -- and of course, those three months are active, full employment months in the type of industries we insured -- we had a net increase quarter-over-quarter --

Right.

-- or sequential quarters of 16 claims.

Yes. The closed number was 1,341. Now, that's all in, GL, workers' comp. And typically, we just discuss workers' comp, but that includes a few GL claims, as well.

1,341?

Yes.

Okay. And then curious, also, if you've ever disclosed or taken a look at -- so you have this big pool of claims of 4,548. How many of those actually end up being resolved or maybe settled, with no payment at all?

We do look at that. I do not have that number in front --

Is it a big number, though? I mean, is it 10%? 50%?

Our closed without pay is not a big number.

I will tell you, if you look at -- let me see if I can come up here with a number. Just -- this is not directly speaking to your question of closed without paid. But more than 91% of our reported claims from 2007 are closed today, and more than 75% of our reported claims in 2008. So the claims closures in our accounts are much faster than what you would normally expect to see --

Sure.

-- in a workers' comp company.

Okay. Maybe I can visit with you on that issue --

Sure.

-- a little bit later. The LCM, if you could, what would it look like if you broke it out by account size?

As accounts get larger, the LCM gets smaller. Less competition --

Sure.

-- on smaller accounts. One of the really, I think, important factors, important numbers in our report is the renewal retention, both by premium dollar, as well as by policy count. And both of those numbers are very high -- 91.7% by policy count, and 84.3% by premium dollar.

And that's in the face of declining loss costs and rates in a number of our states. For example, you know what has happened in Florida. Louisiana has reduced rates 17.4%. Other states have reduced rates. So that is a remarkable number, in light of those factors.

Okay. But in terms of the degree of difference between a large account, small account, or medium account, any -- how much difference is there? I understand that it's more competitive with a large account and the LCM much lower, but how much lower might it be?

Oh, gosh. Do you know, Geoff?

No. I don't have LCM by --

I don't -- we do look at it, and it is something we have. But I don' t have that number here. If I were to take a stab, I would tell you it would probably be in the 8% to 10% range of lower on larger accounts than it is on our reported LCM.

Having said that, though, Mike -- and I don't have this exact number, either -- but I can tell you that our hit ratio, the percentage of accounts we actually bind versus the submissions we get, is much, much lower with the large accounts than the smaller accounts. So even with a lower LCM, we're not really getting close to binding that business in a way we have historically, because of the intense competition with those large accounts.

And by the way, Mike, and just as a market commentary, the competition on those larger accounts was much sharper in the second quarter than it was in the first quarter --

Absolutely.

-- of 2009, or the fourth quarter of 2008. And it tended to be the same large national carriers that we would see in those accounts, regardless of state.

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

Thank you very much. Good morning.

Hey, Jack.

For the lar- -- you mentioned that the lower audit premiums shaved $4.6 million off of the gross line?

Yes.

More than last year.

Okay. And then just in terms of a market question for you. With the more competition coming in from the larger accounts this quarter, is that something that you'll typically see in the cycle as we enter near the end of it? And is there also any fear of those guys starting to move down to the smaller accounts, they just continue to get tougher?

That's a great question. Let me take a stab at it. And maybe Geoff wants to comment, as well.

It has been my experience that as you reach the bottom of the cycle, that there's a period of time in which there seems to be a rather overt struggling for premium, and you see prices that just defy logic. You also see large carriers writing accounts smaller than they would in the past. Number one, because they're lowering the price, therefore making the policy smaller. But just because they struggle to maintain some sort of market share.

And we're seeing that now. I think you can also note, by comment by some of the E&S writers, Jack, that are commenting that standard lines are invading territory that previously was more dominated by the excess and surplus writers. So yes, we are seeing that. That is typical of the softer part of the cycle.

Now, on the positive side, we have seen pressures that indicate that loss costs should begin to rise. Although the Commissioner in California did not approve an increase in the pure premium rates there, which, of course, is purely advisory, the recommendation from the actuaries was, I think, 23.7%. So there are clear indications that the prices will rise. And I particularly liked a quote I heard from Jack Charman, the CEO and President of Axis, who said that he was disappointed that the insurance market had failed to harden more broadly, when it is so blindingly obvious that the path it should and must take.

And I think that's quite appropriate, because there's very low investment income. A broken leg in 2009 will cost more than a broken leg in 2008. And while I think the frequency of claims will continue to decline, albeit at a lower pace, I am concerned that the duration of claims will extend, because it's hard to get somebody to return to a job that doesn't exist.

So I think the pressures are, obviously, there for the prices to begin the other way. That's why cycle management is critically important in terms of the management of an insurance company.

If I could make an additional comment, Allen --

Sure.

-- to Jack's question. We are seeing very little movement in the large accounts, as Allen indicated, besides Liberty's move out of the middle market direct business, which we really haven't seen a big move as a result of that. But there are -- I get reports from Craig Leach and his marketing folks every month, by state. And there are a considerable number of smaller to midsize carriers that are at least firming up their pricing or getting out of a certain class of business, a certain state.

And we look at that as a possible sign that things might be hardening up. But that's at the $35,000, $50,000, $20,000 level of annual premium. I'm certainly not seeing, and I don't think Craig is seeing, the large guys make a move yet.

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

Good morning. The last couple quarters, you've -- and since September, you've made mention that you've been specifically tracking business flow from AIG. Can you give us an update on what happened in the second quarter?

I can. I felt like someone would ask that. We took $4.1 million of new business during the quarter that was expiring from AIG.

Okay.

In the ten months since the middle of -- from middle of September through the end of June, that total is about $15.5 million.

And so has there been any change there then? Or what -- I mean, outside of just how you talked about competition more intense this quarter versus last quarter?

Actually, the new business coming in from AIG has been pretty consistent --

Yes.

-- with what we've seen in prior quarters. We have seen other large, national insurers being extremely aggressive with respect to -- on the larger side of the AIG accounts.

Yes. Okay. All right. Thank you.

Thanks, Mark.

Thank you. Our next question comes from the line of Jason Busell] with KBW. Please go ahead.

Hey, good morning. Thanks for taking my question.

Good morning, Jason.

Hey, Jason.

First question. Has there been a meaningful change in your industry exposures over the last 9 to 12 months?

No. Let me give you those numbers, Jason. On an in-force basis, 6/30/09 versus 6/30/08 in-force premium is down 2.7%. Payroll is down 0.4%. And in terms of policy count, there's been an increase of about -- oh, I can't do the math -- 144 counts. At the end of -- this is voluntary workers' comp, I'm talking about. At the end of June of this year, we had 7,860 voluntary accounts. And last year, we had 7,716.

And the split between industry classes like construction, trucking, logging, or other, has that changed?

I don't have those numbers, but my -- not in any material fashion.

Okay.

I wouldn't say it was -- it was 41.5% at the end of 2008. And I'd like to give you a specific price -- a specific figure at the end of June, but I can't do that. But I will just tell you that it's not --

It's not -- it's not really materially different.

No.

No, sir.

And the follow-up question. You had mentioned earlier you weren't chasing poorly priced business. And while there might be some indication that things are going to move, going forward, I look at your balance sheet, you're clearly well-reserved, you're clearly well-capitalized. What to do with the capital here? What options do you have? What are the steps the Company can take?

Well, capital management is certainly one of the essential tools that companies use to manage through the cycle. As you may recall, we have very little debt on our balance sheet. We have about $36 million of trust preferred securities that is the only debt on our balance sheet.

Certainly, we have the opportunity to make acquisitions, should an appropriate opportunity arise. In order to do common shareholder dividends or stock repurchases, we have some preferred stock which is existing and has a fixed conversion price of $20.58 and a -- plus a -- we can redeem that at $21.30.

$0.30.

Isn't that right, Geoff?

That's correct.

So we would have to go past that point in order to use either of those two mechanisms, such as a common shareholder dividend and common shareholder stock repurchase (inaudible).

And there's no update in terms of passing those milestones? Okay.

We've not had any conversations with them in the last quarter.

Okay. Great. Thanks a lot. Great quarter.

Thanks, Jason.

Thank you. (Operator instructions.) Our next question comes from the line of Beth Malone, with Wunderlich Securities. Please go ahead.

Okay. A couple more questions. What was the book value per share for the quarter?

$15.10.

Okay. Thank you. And then, Allen, you mentioned that frequency was down or has been trending down. And could you talk about why you think that is and why it may continue?

Well, I think that it will continue -- I think it is -- to answer both parts of that question, if you look at the 80-plus-year history of the Bureau of Labor Statistics numbers and you superimpose on that economic recessions, you will see that there have been declines in work-related injuries during recessions. I think there are a couple of reasons for that.

Number one, you end up with a more experienced workforce. As employers trim down their workforce, they keep their most experienced and productive workers. Number two, I think, a very practical matter, is that jobs are more valuable when there are fewer of them. And so people tend to not report minor injuries. The frequency goes down. Also, employers trying to control their costs understand that the cost of a workers' comp injury is not 100% borne by the insurer; but ultimately, is borne by the business, as well, in terms of lower productivity, as well as the punitive costs of the impact on the experience rating modifier.

So I think those things continue. We have greater technology in the marketplace. You tend to see an uptick in frequency when the economy takes off. You end up with less experienced workers. You end up with employers that are spending less time providing orientation and training to workers, therefore, correlating and resulting in a higher frequency of claims.

My concern about -- I think the rate of decline is moderating. Wouldn't you agree with that, Geoff?

I would.

My concern is one of the tools insurance companies use to close claims is getting injured workers to return to work on a light duty. And during slower economic times, employers have fewer job positions which they can put those people in. So you may experience a duration expansion. We have not seen that of any significant degree yet, but it is something we monitor quite closely.

Okay. And then on the reserve development, should we anticipate that that trend will continue? And is it related to this decline in frequency, allowing a reassessment of your existing reserves from prior years?

Well, obviously, I can't predict whether or not we will have favorable reserve development in the next quarter or the next quarter. If we did, we'd take that in now. But I will tell you this. Number one, the trends that we have seen recently in terms of claims closures, in terms of the great job that our claims department has done in resolving these issues continues, number one.

Number two, we continue to move in terms of claims -- favorable claims development recognition at a pace that, I guess you would say, is -- we consider it prudent. We consider it appropriate. Some may say that we are less aggressive than we can be. But it's easy to take them down. It's hard to put them back up. And we're --

And we're in a volatile business.

We're in a severity-driven business, and so we don't want to be overly aggressive. The years in which we took down -- Janelle, do you want to talk about the years in which we took down the claims?

Sure. I could do that.

I know Beth was going to ask that next.

You knew that --(inaudible - multiple speakers)

I think it was --

2006.

-- 2002 or -- there it is. She's got it.

I [wrote] on it. 2008 was $464,000; 2007, $780,000; 2006, $1.9 million, (inaudible) around $2 million; 2005 was actually unfavorable at $541,000. And then the rest is 2004 and prior.

And how much was that?

$2.2 million.

$2.2 million for the 2004 and prior, favorable.

Favorable.

Okay. All right. One last question. On the AIG business that you've acquired recently, you've tracked it from September going forward. And that would coincide when AIG really started to struggle here. Prior to that, would you have received much business from AIG?

We certainly have always received some business. But I will tell you, to get $4 million in a quarter is well beyond what we had experienced prior to 2008. We started tracking it on September 16th, 2008, Beth, because that's when they made an announcement that was material in the marketplace.

Okay. And do you think that their influence on the other larger carriers is what's driving the price down, that these other larger carriers feel they have to compete with AIG's pricing? Or is their aggression unique to them?

Well, I'm not close enough to that to say which came first, was it AIG cutting the pricing or was it the other people trying to take their business. I don't know. I will tell you that if you look at the market share data, you will see that Liberty Mutual in 2008 passed AIG as the number one writer of workers' comp insurance in America. You'll also see that AIG dropped -- what was it? -- from $6.2 billion to -- I can't remember -- I think it's 4 point something -- under $5 billion in one year, in terms of premium. Not all of that's rate reduction, so there's been -- and most of that, of course, I'm sure, occurred after September 16th, 2008.

So I think there are people that see an opportunity. It's a sea change in the marketplace. AIG has been the leading writer in that line of business for many years. And I think certain people see that as an opportunity to change the marketplace.

All right. Thank you.

And, Beth?

Yes.

Last thing, though -- and this is strictly anecdotal. But in talking to some of our key underwriters, AIG was fairly consistent about their aggressiveness -- I'll say that -- coming up to and through the first quarter of 2009. We actually -- maybe Allen didn't agree with me, but I actually thought things would start hardening a little bit because they -- it didn't look like they were making any kind of a move.

And then beginning in the second quarter, my underwriters started telling me that they were getting almost -- from the change of one day to the next and continuing to the present, they got much more aggressive. And what caused that? Who knows? Is that true on an aggregate, quantitative basis? Who knows? But that's what I hear from the desks of our underwriters. And they're very tough to compete with now.

Mr. Bobman, from Capital Returns, please go ahead with your question.

Mr. Bobman's actually in Florida today.

I feel sorry for you, Ron.

His son Ron -- no. His son Ron is in New York. I had a question.

If this market, sort of the competitive state of the market. continues for the next, let's say, 24 months, this sort of competitive landscape for large accounts and then thus your, in some respects, loss of sort of -- I guess, shrinking retention, more so in larger accounts than it would be in smaller accounts. If we looked at your book 24 months from now, would the mix of account type, I guess, sort of by industry type -- you talk about loggers, truckers, etc. -- would there be a meaningful change in the account types by industry if this thing sort of continued for a couple years, or is your mix of business sort of similar across large account types and small account types? Thanks.

I think there's probably greater pressure -- let me take this stab at it, and I'll let Geoff give his thoughts. I think the greatest pressure is on our construction side of our business. So you might see that shrink somewhat. I think, probably, the logging business is -- will remain in a fairly small area. Trucking, quite frankly, we find is not quite as competitive as the other areas, because it is a difficult line to write. We've actually had excellent results in that. Roofing, part of the construction business, is another area we've had great results in.

And there are some other niches in there that I think would keep our book of business relatively the same. But if there were any shift, probably some shrinkage in the construction side.

I would make this other observation, Ron, that I think if that sort of marketplace were to exist for that time period, or even for the next year, look for our average policy size to come down. It is still true --

Oh, of course,

-- that as we write the smaller accounts, there is less competitive landscape, and the people that we are competing against do not have the balance sheet to withstand that sort of competitive pressures for any two-year time period.

And in large part, is the competition just on rate, or are any of these aggressive players doing it via commission and, I don't what the right word, but sort of co-opting the agent in some fashion, basically?

Well, let me -- I want to answer that, and I'll let Geoff speak some more to it. There is one large national writer who is currently offering 20% commission for the first year of a policy and 7% thereafter. There are a number that are offering 12%. Those are very high numbers and are significantly beyond -- so if you take that and you couple it with a 1.00 or 1.2 effective LCM, and then you strike that percentage off of it, that doesn't leave much margin for profit.

And aside from your boondoggles to Fiji with agents, are you just paying 10%?

What's our cost of our --?

Our average right now is somewhere around 7%

Around 7%.

Okay. Thanks a lot, and continued good luck.

You may see that rise some, Ron, in the year.

Got you. In response to what's going on and the good (inaudible - multiple speakers) --?

In response to what's going on. You have to offer the agents some incentive. And understanding that this price-cutting damages them, as well.

And there are no further questions in the queue. Mr. Bradley, please go ahead with any closing remarks.

Ladies and gentlemen, thank you so much for joining us today. Again, we are very pleased with the results. We are particularly pleased with the position that AMERISAFE finds itself in with respect to the market cycle. We will continue to act as prudent stewards of the moneys of our shareholders and strive to return superior returns for those folks that have invested in us.

Thank you so much today.