Amerisafe Inc (AMSF) 2009 Q4 法說會逐字稿

Good morning ladies and gentlemen and thank you for standing by and welcome to the Amerisafe fourth quarter earnings conference call. (Operator Instructions) This conference is being recorded today, Tuesday, March 2, 2010. I would now like to turn the conference over to Mr. Ken Dennard with DRG&E. Go ahead, sir.

Thank you Joan. Good morning everyone. We appreciate you joining us for Amerisafe's conference call to review 2009 fourth quarter and year end results. We'd also like to welcome our Internet participants as this call is being simulcast 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 e-mail of the earnings release yesterday afternoon but occasionally there are technical difficulties so if you did not receive your e-mail with the release or if you'd 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 web site and, of course that address is www amerisafe.com. There will also be a telephonic recorded replay available for seven days, 24 hours per day. The details and the codes on how to access that are in yesterday's press release.

Please note that information on this call speaks only as of today, March 2, 2010 and therefore you are advised that any time sensitive information may no longer be accurate as of the time of 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 at 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 a result of risks and 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, 2009, 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 Securities and Exchange Commission.

Now with that behind us I would 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 for our fourth quarter and year end 2009 conference call. As usual I'll make a few comments about the quarter before turning it over to Geoff Banta, our Chief Operating Officer who will then in turn introduce Janelle Frost, our Chief Financial Officer for more details. From a loss perspective, the fourth quarter of accident year 2009 was quite surprising. We experienced a significant number of large losses during the last quarter. We had five loss occurrences which occurred or were reserved in the fourth quarter that totaled case losses of almost $16 million.

The most significant of which involved multiple workers who were severely burned in the explosion of a service station gasoline tank that was being refurbished. Two of those losses were extremely severe burn injuries. The fourth quarter of 2009 serves as a reminder that our business is severity driven and it can be lumpy. Since going public in November of 2005 this quarter is the first truly lumpy quarter we've had since then. It is nonetheless the nature of our business. Occasionally we will have a disappointing loss quarter. Statistically it is a certainty. Our lower premium base has exacerbated the impact of these large losses.

With respect to our reserves for prior year, however, we are reassured by the continued favorable development of those reserves and we recognized $8.7 billion of favorable development in the fourth quarter. As our field case managers continue to manage the outside claim inventory, they have boosted reserves on our newer claims to levels that we believe to be very prudent. We maintain our confidence in our business plan and will continue to strive mightily to apply stringent reselection criteria, appropriate pricing discipline, aggressive claims administration and prudent expense management in carrying out our business plan. The marketplace continues to be highly competitive on lower loss cost, when coupled with lower work activity, that puts an additional strain on premium volume which in turn impacts both earnings per share and return on equity.

Since going public in November of 2005, Amerisafe has grown book value from $7.24 per share to $16 per share. That growth of book value and the declining premium volumes occasioned by the factors mentioned above have reduced our operational leverage as measured by net premiums written divided by capital and surplus to a historic low of 0.86 to one. On December 31, 2009, Amerisafe retired our series C and D redeemable preferred shares. The redemption of these shares will be accretive to both return on shareholder equity and earnings per share in 2010. These shares were legacy securities first issued in 1998 and they contained provisions that prohibited the Company from either paying a common shareholder dividend or initiating a common share repurchase program. The redemption of these shares now allows us greater flexibility in managing our capital.

As you read in our earnings release, our Board of Directors has approved the repurchase of up to $25 million of our common stock. In exercising this authorization we intend to exercise this capital management tool when conditions warrant. At the same time we will maintain adequate capital and surplus to support our ratings and to provide us an appropriate platform for writing additional premiums when the market conditions are more favorable. At this time I'm going to turn it over to Geoff to talk about operational issues.

Thank you, Allen, and good morning everyone. I'll make a few comments about overall company performance and trends before turning things over to Janelle to present a summary of our financials. The fourth quarter of 2009 was a disappointing one for us in terms of our underwriting results. Mainly because of large losses we experienced. During the fourth quarter, incurred losses in excess of $500,000 grew by an unprecedented 7.6% of earned premium. This surprising increase included five losses in excess of $1 million that occurred or developed during the quarter. These five losses alone totaled $15.8 million, or fully 27.7% of fourth quarter net premiums earned and 6.3% of total 2009 premiums earned. The average reserve for these losses was $3.2 million.

Among the losses were three burn cases, two falls and one motor vehicle accident. Two of the severe burns occurred in a single accident that occurred on November 28 and which involved four claimants in total. As of 12/31/09 we had reserved $5.7 million just for this single claim occurrence. All of these losses were unfortunate but they are also a reminder that our high hazard niche can occasionally result in unpredictable loss volatility. On the positive side our reported claims for 2009 were down 17% from 2008. And our open workers compensation claims as of 12/31/09 totaled only 4,467. The lowest level since 1996. Our declining claim inventory is mainly the result of a multi year trend of decreasing claim frequency.

Our claims closure rate has also remained strong at over 50% in the first year although that rate was down slightly from our 2008 loss year as a result of a lower percentage of medical only claims, those claims that close most quickly being reported during the year. Relative to premiums, the fourth quarter saw our gross premiums written decline by $15.7 million or 24.2% year over year. This fourth quarter decrease was slightly lower than the 27.3% decrease we experienced in the third quarter. There are two major components making up our fourth quarter decrease. First for policies written during the fourth quarter, our voluntary work comp growth premiums written decreased by 11.8% from $63.6 million to $56.2 million. Secondly, adjustments to premium from audits, endorsements and cancellations totaled negative $7.5 million versus negative $520,000 in Q4 '08.

As we have stated previously our premiums have decreased largely as a result of three factors, three macro factors-- the sluggish economy, the multiyear trend of decreasing state loss costs and the continuing soft market in which too much capital is chasing too little premium. In the fourth quarter as we have done in the past we maintained our strong pricing. Our effective LCM for voluntary work comp in the fourth quarter was 1.45, or 145% of the approved loss costs of the states that use that mechanism for pricing. This compared to 1.46 for the fourth quarter of 2008 and 1.45 for the previous quarter in 2009. As we have said before, we don't intend to sacrifice pricing in order to chase premium in this continuing soft market. While our overall topline continues to decrease, our renewal business has shown remarkable strength and resiliency. In the fourth quarter our policy retention was 91.7% versus 91.2% for the fourth quarter of 2008. And most significantly our voluntary work comp in force policy count continues to grow from 7,716 policies at 12/31/08 to 8,091 policies at 12/31/09, an increase of almost 5%. We believe that these exceptional retention results are a testament to our strong reputation for expertise and service in the market niches we serve.

On the new business front writing new policies has continued to be a challenge. We are seeing intense competition in all of our industries and states especially for large policies. We are losing business in many cases to competitors who are pricing business at or below loss cost. While we don't believe such pricing is sustainable, it will continue to pose a serious challenge to our business until the inevitable losses begin to show themselves in our competitors' results.

That concludes my remarks and I will now turn the discussion over to Janelle for a summary of our financials.

Thank you Geoff, and good morning everyone. In the fourth quarter of 2009 Amerisafe reported net income of $6.6 million compared to $5.7 million in the fourth quarter of 2008; a 15% increase. Gross premiums written in the fourth quarter of 2009 were $49.4 million, compared to $65.1 million in the fourth quarter of 2008; a 24.2% decrease. As Geoff discussed, there was a decline in voluntary premiums for policies written in the quarter as well as decreased audit premiums for policies written in previous quarters. Net premiums earned decreased 20.6% from the year ago quarter as a result of declines in gross premiums written over the last year.

Our net investment income totaled $6.8 million which was 15.9% lower than the same revenue component in the fourth quarter of 2008. Average invested assets including cash and cash equivalents were $182 million, compared to $778 million in the prior year period. The pretax investment yield on our investment portfolio was 3.3% for the fourth quarter of 2009 compared to 4.1% for the fourth quarter of 2008. In total, revenue for the fourth quarter of 2009 was $64 million, essentially equal to the fourth quarter of 2008.

As Geoff discussed, our fourth quarter was impacted by a number of severe claims that occurred or developed during the quarter. We adjusted the current accident year loss ratio for the full year of 2009 to 73.8% from 69% to reflect the severe claims that occurred late in the fourth quarter. The change in the current accident year loss ratio resulted in $12.1 million of additional loss and loss adjustment expense and caused the quarter's current accident year loss ratio to be 90.2%. Offsetting this increase was favorable prior year development of $8.7 million. Our incurred loss and loss adjustment expenses were $42.7 million compared to $37.2 million in last year's fourth quarter; an increase of 14.8%. Total underwriting and other expenses in the fourth quarter decreased 4.8% to $12.2 million.

The lower earned premiums the expense ratios rose 21.4% from 17.8% in the same period a year ago. In total, our combined ratio was 96.7% for the fourth quarter of 2009 versus 73.7% in the same period in 2008. In terms of earnings per share our reported fourth quarter 2009 diluted earnings per share applicable to common shareholders was $0.28 for both the fourth quarter of 2009 and the fourth quarter of 2008. The calculation of earnings per share for the fourth quarter of 2009 and the full year was affected by $875,000 of redemption premiums paid to our series C and D shareholders.

For purposes of our earnings per share calculation the excess paid over the carrying value of $25 million was deducted from net income allocable to common shareholders. Return on average equity for the fourth quarter of 2009 was 8.5% compared to 8.4% for the fourth quarter of 2008. At the end of the fourth quarter of 2009 Amerisafe redeemed its series C and D preferred shares for $25.9 million. The average equity calculation for both the fourth quarter and the full year included redeemable preferred stock at $25 million in the beginning equity. For the full year of 2009 we reported net income of $46.4 million compared to $43.8 million in 2008.

Our gross premiums written in 2009 decreased 16.7% to $256.4 million. Net premiums earned for 2009 decreased 13.3% to $250.9 million. Net investment income for 2009 was $28 million compared to $31 million in 2008, a decrease of 9.6%. We had $2 million of realized gains in 2009 primarily from the sale of equity securities. If you recall in 2008, we had net realized losses which consisted of $1.6 million of realized losses on the sale of equity securities and $17.3 million of other than temporary impairment. There were no other than temporary impairments in 2009. In total revenue in 2009 was $282.2 million versus $302.4 million in 2008, a decline of 6.7%. Our incurred loss and loss adjustment expenses declined 7.4% for the year.

Our 2009 net loss ratio increased to 65.1% from 60.9% in 2008. Our 2009 overall loss ratio of 65.1% includes a current accident year loss ratio of 73.8% and favorable prior year development of 8.7%. Underwriting expenses decreased 3.5% in 2009 to $54 million from $55.9 million in 2008. The component of expenses were salaries and benefits of $21.4 million, commissions of $18.4 million, and underwriting and other operating expenses of $14.1 million. While in terms of dollars expenses decreased, our underwriting expense ratio increased to 21.5%. In total our combined ratio was 86.9% in 2009 versus 81.4% for 2008. Our reported 2009 diluted earnings per share applicable to common shareholders was $2.22 compared to $2.15 for 2008. Return on average equity for 2009 was 16% compared to 17.1% for 2008. Book value per share at December 31, 2009, was $16, compared to $13.86 at December 31, 2008, an increase of 15.4%.

Additionally since our fixed maturity portfolio is held to maturity, our book value growth this year does not include the impact of market gains on that portion of our portfolio. Net unrealized gains on our held to maturity investment portfolio totaled $12.5 million at the end of 2009. Finally our statutory surplus at the end of the year was $323.5 million.

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

Thanks, Janelle. Earlier in my comments I used the term lumpy. That term is used by mariners among others to say describe rough or choppy waters. That's exactly the meaning that I intended when I used that term. Let me give you another example. Last year on the fourth quarter call, we indicated that we had adverse development in the 2007 accident year driven in large measure by one very severe claim that had gone quite badly. That single claim increase was $3.7 million. During the fourth quarter of 2009 that tragically injured worker passed away. As a result, that loss reserve was reduced between $2 million and $3 million. My point being that this business can be volatile in both directions. As managers, we have to exercise our best judgment in establishing these loss estimates based upon the information available at that time.

During 2009 our claims department continued to close claims and to reduce our open inventory to 4,467 open Workers' Comp claims as Geoff mentioned earlier. With this lower inventory our field case managers are spending more time with each new claim and we believe the case reserves on these newer claims are even more precise than in prior years. We acknowledge this increase in case reserves and we have noted that the paid to incurred ratios are now at historic lows. Therefore we have placed lower IB&R reserves on these more recent cases in our recent filings.

Just to comment on the marketplace. It's clear that the Workers' Compensation market is shrinking. The combined impact of lower lost cost, lower work activity and increased competition have resulted in a smaller market. According to AM Best the Workers' Compensation net premium written in the United States in the first nine months of 2009 was 12.8% less than the same period in 2008. According to both the NCCI, and AM Best, 2009 will mark the third consecutive year in which a Workers' Compensation market has contracted.

At the same time the industry remains very well capitalized and, as a result, competition remains fairly intense. Although we have seen some anecdotal instances of changes in underwriting appetite I don't think it would be accurate to characterize these instances as a trend. We do believe that lower interest rates, lower investment income and margin compression caused by the soft market will lead to firming rates. In a recently published report, Fitch opined that the P&C industry needed a combined ratio of 95% to return to underwriting profitability. While I do not believe the Workers' Compensation market will come anywhere close to a combined ratio of 95% for 2009 or 2010, in fact, I expect the Workers' Compensation market combined ratio will rise from the 101% it reported in 2008. However, until demand for our product increases as a result of an economic and employment recovery or, conversely, until the occurrence of a cataclysmic capital consuming event reduces the available supply of capital, the industry combined ratio is not going to improve. Therefore it's incumbent upon individual insurers and specific Amerisafe's management team to remain focused on maintaining profitability and discipline.

We at Amerisafe are proud of our 2009 results. Our combined ratio of 86.9% and return on shareholder equity of 16% are truly outstanding results. While we can't guarantee these results will continue, we can promise and guarantee that we will remain committed to perform and to execute our business model in the superior fashion relative to the remaining part of the industry. With that we will open it up for questions.

(Operator Instructions) Our first question is from the line of Mark Hughes with SunTrust. Go ahead, sir.

What's your assessment of where we are in terms of this trend of audit premium? Obviously you've had meaningful impacts in Q3 and Q4. What's your sense going forward?

Mark, the audit premium has been negative for the past three years. It's a reflection of an estimate that insureds and agents make as they look forward to the next 12 months. As you know, we book estimated premium and then we adjust that at the end of the audit term.

I believe we are getting close to the end of a cycle where such premium is negative simply due to the fact that the economy has gotten to the point where I think our insureds and the folks who estimate what that premium is going to be over the next 12 months have gotten, I hate to say more pessimistic, maybe realistic is the best way to term it. So I see that actually coming I don't know if Allen agrees, I see that coming to, that trend reversing itself, not necessarily turning extremely positive but coming to an inflection point in mid 2010.

Mark, I agree with Geoff. In fact, we measure this particular phenomena on a daily basis. But the last three, and we look at it on a sequential basis because that's the only way to measure this. You really couldn't do it on a year over year basis. But the last three data points that we have seen, monthly data points for this metric, include-- indicate that it is an improving metric. So I would not be surprised if it does not some time in the middle of the year swing to the other side.

Okay. Great. Then the underwriting and other expenses $12.4 million in the quarter, is that a decent run rate going forward for that category?

The 21.5% of earned premium or the $12.4 million of the actual dollars.

Either way would you like to handle it. I was thinking in terms of absolute dollars.

Yes, the only thing, there were a few anomalies in the fourth quarter one of which we'll talk about briefly is the profit commission. We mentioned the severe claims that we had in the quarter, Mark. Those did penetrate into our $5 million-- excess of $5 million layer which we were accruing profit commissions throughout the year so that actually reversed in the fourth quarter. That was about $1.3 million of expense in the fourth quarter just by reducing that profit commission accrual.

But don't be confused on that there is a larger profit commission

$4 million excess of $1 million is still intact. (multiple speakers) the $5 million.

And that one was not impacted by the losses.

[Let's say] expenses would have been lower before that?

Yes.

So is that even lower number, is that a good run rate going forward.

I would say going forward. Depending on how premium goes. The premium obviously put the pressure on the expense ratio. If I were planning I would say no higher than a 25.

Okay. Thank you.

Our next question comes from the line of Mike Grasher with Piper Jaffray. Go ahead, please.

Thank you and good morning everyone. A couple questions here. Geoff or Allen with the severity as it was this quarter, any hints that some of these injured were maybe over worked over maybe another way to think about it, companies maybe laid off too many folks and are demanding more of existing employees?

I wouldn't say so, Mike. These were all by the strict definition of the words terrible accidents. There were, as we said, three burns, two severe falls and an accident that ended up with a truck exploding. The ages were actually probably average around 40 and there's going to be some long-term pay out on these losses.

We didn't see anything that told us that there's something common in terms of the nature of the workforce. They certainly weren't on average older folks which some people have predicted. They've predicted that the-- in the layoffs, the younger folks have been laid off, the less experienced workers, and older folks are causing in the workforce are causing some of the frequency to go down. That certainly wasn't the case in these losses. I can't chalk this up to anything but unusual and unfortunate circumstance.

And that would follow then with, in terms of the safety procedures, the managers, they remain in place?

We don't see that. Hopefully we don't see that sort of a situation arising. One thing, and this is just kind of the nature of how these things happen. One of these cases involved an account which we had was an incumbent account that we issued a nonrenewal on because we were concerned about some safety issues.

Good point, yes.

And that nonrenewal was five days away from being effective.

When the accident occurred?

When the accident occurred. So. We had identified the safety problem at that particular point in time, chose not to be on the policy for the renewal. And before the policy expired we suffered a multimillion dollar claim.

It's quite the bad luck quarter here.

We used to have, we had an underwriter here, Mike, for years who had the belief that these things come in bunches. And today I'm thinking she's more brilliant than before. It did seem to come in bunches. Just to give you another statistic, of our claims over $500,000 in 2009, 41% of those happened in the fourth quarter. And normally that's a lower work activity quarter. So it was disappointing.

Okay. Final question and I'll get back in the queue, I missed some of your comments around reserving and was wondering, are you sensing a need to take your accident year loss ratio up moving ahead through 2010 given the environment? I mean, I certainly respect that this is the nature of the beast but just in terms of the business you do or underwrite, just curious about the accident year loss ratios going forward?

The, we haven't decided that with respect to the first quarter of 2010, of course. But there are some things that we are looking at. And part of the things-- one of the issues that Geoff and I watch very closely is being able to return people to work to cut off temporary total disability, or TTD. And one of the main tools that companies use to do that is to return the worker to light duty. Well, during slower economic times there are no light duty jobs or there are fewer light duty jobs available out there.

That has the impact of elongating and you and I and we've talked about this on other calls, we get concerned about the duration of our claim, thereby driving up severity. So we are monitoring that. I don't think as we start to the first of 2010 we are going to take an aggressive, overly optimistic, low ball selection on our loss ratio. We'd rather be more cautious about that but I don't know exactly where that number comes out. We'll just have to look at the losses once we get to that point.

And, of course, the premium.

And the premium, of course.

Would you see it match--, of course the premium, but would you see it matching the year end number, the 73.8%.

I don't think it would be that bad. I would hope not. That would have to be that we had a bad quarter sequentially. But I don't know what that number would be. I would think it would probably be somewhere between those two numbers.

Okay. Thank you.

Thanks.

Our next question comes from the line of Ms. Beth Malone with Wunderlich Securities. Go ahead, please

Thank you, good morning. Could you talk just update us a little bit on some of the expansion opportunities? And then the development that you saw in the fourth quarter, in terms of losses or market conditions, change your ideas or attitude about expansion efforts?

Great question, Beth. We've been conservative about expansion opportunities for some time. It is very tough to go into a new state, establish infrastructure and gain market share without under pricing the competition. It's hard to get a toe hold. We constantly look at geographic territories this year. We have gone into western Kansas, Nebraska and western Iowa which we had not been in previously. Those were kind of, I'll say those were a little bit of baby steps.

We've been in Colorado for some time but we have not really gotten aggressive in that state because Pinnacle has just a strangle hold on that market and we do not see that changing in the near term. We have looked this year at at least three other geographic territories and are still thinking about those, but I would say your point is well taken. We are a little more conservative, maybe a little more-- well, a little more conservative and have to have a very good reason to think that we can go into a new territory, geographic territory in this market and do well right off the bat.

And, Beth, having said that with respect to geographic territories I agree completely with Geoff. With respect to new classes of work, that takes a much different sort of tact. Because you have an infrastructure in place. You have an agency force in place, claims adjusters, a knowledge of the marketplace. So you may see us a bit more aggressive in those sort of activities as opposed to the geographic expansion, you understand.

But still within our hazardous.

Still within the hazardous group, yes.

And my next question is one of the issues you pointed to in this market is that getting people back to work quicker has an impact on your, the duration of your losses. And I'm just wondering from the employer's perspective if they don't have jobs available because of market conditions what incentivises them to try and work with to you get these people back to work so that your duration is shortened and they get their employees back to work if they don't have a job for them? What's the downside for the employer? What's his, I guess he shares in those losses on his unemployment costs but is there, are you kind of at opposed issues with them?

No, there's an economic impact to the employer through the experience rating modifier. The longer that case stays open, the more problems the case the more money the case costs. It then goes into the experience rating modifier which in its just basic format, Beth, basically compares that particular employer to the average employer in that type of business. If that employer is then worse than the average employer for the next three years they will pay a penalty as part of their premium for being less safe than other employers. So there's an incentive there to, for them to bring the matter to closure. But that's not to say that it's always just in their prerogative to do that.

Their economic circumstances may be such that they just have to forebear that. And it is a difficult time but we try to work with these employers. We try to get the claimant to maximum medical improvement as quickly as possible so we can get them back into the work place. Some of these conditions, however, are such that they are not able to return to their traditional job and that is when it becomes a bit more complicated.

Beth, there's less opportunity these days than in the past when the economy was doing much better for what we call light duty jobs. They just, they just aren't there in many cases.

Okay. So the only thing that's going to change this-- that dynamic is an economic recovery?

I would say that's true.

We would like to see a lot more people back at work.

Right. So would I. Thank you.

Thanks, Beth.

Our next question comes from the line of Michael Nannizzi with Oppenheimer. Go ahead, please

Thank you, a couple questions, Geoff, if you could talk a little bit about the claims that occurred in the fourth quarter and were these new employees, were they more tenured employees, age aside? And I know that there's been a lot of conversation that during employment upticks, if that's in fact what we are seeing, you have less experienced people on the job? Can you talk about that phenomenon and place as context for the fourth quarter events?

Sure, Mike, and it's a great point and as a matter of fact among these six claimants, three were new employees. Now I'll say the worst claim, while they were new employees they had a very experienced supervisor who had decided to leave the job site and the accident happened while that supervisor was away. But in fact three of the six were new employees. Now we do underwrite with that in mind.

We do safety inspections with an eye toward how experienced is the workforce as a whole. And the underwriter takes that into account. I'd say this is rather unusual to have three out of six being new employees. But it occasionally happens. And in all other cases except for the nonrenewal, the pending nonrenewal that Allen talked about, these five insured companies all had pretty good safety records. All had been rated good or excellent by the safety inspectors.

So, now extending past these claims is this phenomenon of people coming back, being on the job less time, is this something you've seen a pattern in other claims during the quarter or during the year? And then I guess my next question would be, now that this happens absent the nonrenewal what do you do, what is, what are your procedures to try and reduce the possibility for something like this happening in the future.

Well, I would be remiss if I didn't say that I've put pressure on safety and underwriting to make sure we are looking at the longevity of the employees. But like I said that's always been for-- when looking at an entire staff of employees for one of our insured employers, one of the things that's a criteria that we, that where we would rather see an, a more experienced workforce. I will also tell you that what's kind of paradoxical here, Mike, is that in this recession we are in I would say the average tenure of our employees in our book of business is longer because they've, the people who have been let go are the employees that have less experience. That's why this is so strange.

I also believe, I don't know if Allen would agree with me, but I believe that when the unemployment rate does go down and the economy improves and business activity improves, we are going to see a sudden end to the long-term trend of lowering frequency because new employees are going to come flooding into the work place, number one, and older employees, more experienced employees, who have foregone retirement because of the bad economy are going to leave and we are going to have a younger workforce and one more prone to injuries.

Mike, let me try this out. Let me just try to put a little color around that, I agree with what Geoff said. Two of these accidents, one of involved a 41 year old, one involved a 43 year old. Both experienced workers. One in Illinois and I think, I don't remember exactly where the other gentleman was from, North Carolina. Both of these accidents involved falls from heights, 30 feet, 20 feet, that sort of thing. Both occurred because they were not wearing the appropriate fall protection. So one of the things we would do in these cases is go in and look and see why they didn't have on fall protection.

Were they in a point-- in a transitional point in their work where they were moving from a secure sort of work position to an unsecure. So you really need to understand. If they fell because the company, while they had a policy of using fall protection but these people just weren't doing it, then you've got a reason not to stay on the account. But if, even in safe operations, this is inherently dangerous business, people can get hurt.

Or make mistakes.

And so you have to look at, and we do, when we have these kind of claims, a safety goes back out and does an assessment. Why did it happen. What happened. Could it have been prevented and why wasn't it prevented.

One of these gentlemen, not in the fall case but in another case was putting cable up, laying cable and it came into contact with a high power electrical line. He lost both of his arms in the burns. The question would be, why wasn't he wearing the protective equipment in that situation. What was it that caused him to come in contact with high-voltage lines. We need to go back and do an assessment of those accounts and see whether it was just individual bad behavior or ignoring of safety standards.

I'm sorry to keep hitting on this but I'm curious if you have a situation where an employee or an insured is clearly outside of the parameters of the safety measures that you've outlined for them or a case like this where someone is hurt because they did not follow whether the standards you laid out or that they are supposed to, is there a situation where the company should be liable or would be liable for the costs associated with something like that? Is there a precedent for that or is the kind of the teeth really just nonrenewal.

Our remedy is one of nonrenewal. If there is a reckless disregard for the safety of workers there is also the potential exposure of employer liability. Guess what, we are on that ticket, too. It doesn't help us any.

But if you just see a company, we try to do this with the prequotation safety inspection and the vast majority of these people are doing this the very safe thing or acting as safely as they can in the circumstances. But when you find that people are not following through with it, then you have to be prepared to walk away from the account.

One more thing Mike. It's a standard procedure that when a severe loss occurs, our safety, the applicable field case or field safety professional is on that, is inspecting that site usually within two days to see what happened. To go back over the original safety report and to sometimes revise the safety report if as Allen said they found that this was more of a cultural or procedural or issue with the company that makes them not an attractive insured for us any more.

But they get right out there and then usually blast e-mails are sent to all the safety professionals around the country if there is some sort of a trend that they might be worried about. So that gets out there very quickly.

Got it. Thank you so much for, I actually if I could one quick question on an unrelated topic, just on the buybacks, is it a 10B- 51 plan you have in place or is it just a discretionary plan.

It's discretionary until we get a 10B-5 plan filed later this week.

Got it. So will the capacity be split between the two?

I don't think so. I think they will be sequential. In other words, we will have the discretionary plan until we get the 10B-5 plan in place.

I see. Okay. Okay. Great. And then, okay. Perfect. Thank you so much.

Thanks, Mike.

Our next question comes from the line of Mr. Eric Swergold with Gruber & McBaine. Go ahead, sir

Good morning, I think this question has been asked and you've answered it ten different ways but I guess the question is does the current economic environment create a scenario of adverse selection either within companies or within the base of business and it sounds like from the way you've answered the questions that you don't believe that to be the case.

Well, Eric, by the way good morning. You got up early this morning out on the west coast. If you compromise your underwriting standards then adverse selection is a possibility. We are striving very hard to maintain our underwriting standards and our pricing. There is a point at which every account is not worth writing. In terms of pricing.

But I do not believe if we continue with our business model, continue to write the best workers, the best employers in the toughest classes then adverse selection is going to be our problem. Having said that, I mean, and I've told you before, I am constantly amazed at the rather innovative ways where people find to injure themselves at work. They disregard things they know they should do in a safety situation and they get hurt. But we do believe very strongly in our business model and we don't,-- we believe that risk selection process and the pricing mechanism we have in place keeps us on the better side of that risk continuum.

Okay. Thank you. And then I guess one minor follow up to that is given that this was a difficult quarter, is there any possibility that the way you handle these events becomes part of your marketing per se to both current and new potential customers in that when they see that you stand by your companies in the event of these tragedies that becomes a selling point for you in getting future business?

Absolutely. First of all the fact that any one of these accounts nearly had a large loss does not mean that they will automatically be unrenewed. We are going to go in and look at the nature of the loss and look at what they were doing and see whether this was something that could be prevented. They may get a nonrenewal but I can remember one particular logging account here in Louisiana that suffered a I guess $5 million or $6 million loss not too terribly many years ago and he was quite surprised when we offered renewal.

We offered renewal because the facts of the accident were, while very regrettable, it is the business we are in, so we want to try to make sure we try to insure the better ones and realizing that sometimes very bad things happen to good people.

Thanks, Allen

Next question comes from the line of Bijan Moazami with FBR Capital Markets. Go ahead please.

Good morning. Actually, I have a number of questions. One of your major competitors large one yesterday said that one of the problems in this economic environment is that there was a lot of pressure to cut jobs so if the business dropped by 10%, jobs were lost by 20% so the pressure on individuals went up and that's why the accident numbers might be going up. Do you see any of that happening in your book of business.

I can't tell you that we have. Certainly we are writing and insuring people that are engaged in very basic industries. They are not as much frequency driven, they are more severity driven, Bijan. And the point I'm trying to say and I'm not saying it very well so let me take another stab at it.

If you have got a logging operation there's a limited number of people that you-- , there's a certain number of people that you'd have to have on that operation in order for it to work. You can't cut 20% of those. And remember our average insureds, our average policy sizes are relatively small. While we see staffing down they still have to have a number of people to perform the essential function. I think that's an interesting comment made by one of the other carriers and that may very well be true in their business. I can't say that we've noticed that at this point.

One of the things that I'm trying to understand and obviously you increased the loss ratio for the 2009 accident year quite significantly. How should we think about your accident year number going forward? I missed some of your prepared comments earlier on but it just seems to me that you might want to take additional conservatism on top of what you've already done and if you could give us a little bit of guidance to figure out how we should be projecting the results going forward?

Well, our loss ratio selections are based during the first quarter on what we are seeing and what we can-- we feel like we can expect to see based on historical data. There are assumptions in those numbers that we will have some catastrophe losses, some large losses such as those that we've been talking about here. The assumption though was not that you are going to have that many of, 40% of them in one quarter like we had in this particular quarter. I would say, again, I don't know what the number will be. I really don't have a clue at this point but it would be likely to be somewhere between the 69% where we started the quarter and the 73%.8 where we ended the year.

Could you tell us what is the loss cost multiplier are you are charging right now.

145. The LCM for the year was 145.

And the latest quarter.

And the latest quarter ends by the way it was 145 for 2008.

And if I tried to figure out the topline number it would be helpful to know what the premium shrinkage would have been if you would exclude premium markets. I know somebody asked this question but I'm still not clear on (multiple speakers) --

11.8% Bijan in the fourth quarter.

11.8%. Okay. Great. Thank you so much.

Oh, thank you Bijan.

We have a follow-up question from Mike Grasher with Piper Jaffray. Go ahead, please

Thank you, a couple of quick follow-ups here. Tax rate was lower in the quarter, maybe for Janelle, with the tax rate lower I'm assuming that's due to less underwriting income and more from the investment portfolio.

That's correct, as well as, Mike, if you remember last year in the fourth quarter we put up an evaluation allowance for the impairments that we had and since we sold some of those securities and we have gains come back to us $700,000 of that change affected the tax rate as well.

Okay. And going forward 25, 26% is a good run rate.

I would say so.

Okay. And then maybe a question for Allen and the team here. Just, I think, Allen your comments on the share repurchase was something to the order of when conditions warrant. Just wondering if you could elaborate on that. Does that imply a certain risk to capital level? Does that imply a certain valuation level from a price to book standpoint? Any thoughts around that would be helpful.

Well, I knew this question was coming Mike, but I didn't know it was coming from you. We want to make our share repurchases when they are prudent to do so. Certainly we are not looking to do things that are very dilutive to our common shareholders.

Okay. Thanks very much.

Okay. Thanks, Mike.

And another follow-up question from Michael Nannizzi from Oppenheimer.

Hi, it's me again. So just one quick one. Infrastructure and stimulus, have you seen any, has there been any impact, discernible impact from stimulus measures in your business?

Not much.

Okay.

Not much. And that's a little hard to say. You have some build America bonds out there so you may have some local projects which were, and you can't connect the dots directly but I'll have to tell you that the commercial construction business right now is very slow. Now we do insure people like roofers who a portion of what they do is actually a maintenance portion. And we are continuing to see some work activity there but I would not call it robust.

Then also from you mentioned weather. Have weather events, have you seen any benefit from weather events causing some more work whether it be on the roofing side or any of these sorts of maintenance type activities?

I think we will in those parts of the Midwest and Pennsylvania and those areas but I think it's a little bit early just yet to diagnose that. We will not get the payroll reports until the 10th of March from the activity in February. So it will come out over a period of time. It won't look like a hurricane, let's put it like that. It's very discernible and very identifiable. But I think we will get some work out of that.

Just last more a big picture question, do you think the occurrence of events like these should or will give pause to the nonspecialists that are encroaching on the business? And is there a way to measure if that's happening.

I think the answer clearly is yes, not necessarily that they're going to look and say, Oh, Amerisafe had this claim that-- that could happen to us. But, I made comments in my opening remarks that we see some anecdotal sort of information that indicates some people are changing their risk appetite. There are two carriers that I know of that got into the trucking business both long haul, short haul and oil field that have now decided that that was not exactly what they had bargained for in particularly the oil fuel trucking which can be very dangerous.

It's a non-standard route, unfamiliar areas, a lot of loading and unloading associated with it. And so people that were former homeowner insurers, not homeowners but home construction, you get in the iron and steel erection will undoubtedly have some experiences that will cause them to rethink their positions. It's always worked that way in past cycles and I have no reason to think it won't be that way this time.

Thank you.

Thank you.

Sir, there are no further questions at this time so I will turn it back to management for any closing remarks.

Thank you, ladies and gentlemen, for joining us today. As we continue to work our way through this rather difficult market there is one thing you can remain sure of and that is that Amerisafe will stay true to its business model to try to select the best potential accounts, to price them appropriately, to handle them in a high touch service model and to deliver superior returns. Thanks for your participation today.

Ladies and gentlemen, this concludes the Amerisafe fourth quarter earnings conference call. If you would like to listen to a replay of today's conference, please dial (303) 590-3030 with access code 420-7007 and the pound sign. Thank you for your participation. You may now disconnect.