Amerisafe Inc (AMSF) 2010 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. (Operator Instructions) I would now like to turn the conference over to Ken Dennard of DRG&E. Please go ahead, sir.

Thank you, Britney. Good morning, everyone. We appreciate you joining us for Amerisafe's conference call to review 2010 first quarter results. We'd also like to welcome our internet participants as this call is being simulcast over the web.

Before I turn the call to management, I have the normal housekeeping details to run through. You could've received an email of the earnings release yesterday afternoon, but occasionally there are technical difficulties. So, if you didn't receive the email with the release or if you would like to be placed on the email 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 available via web cast by going to the Company's website and of course that address is www.Amerisafe.com. There will also be a telephonic recorded replay available for seven days 24 hours a day and details on how to access that feature are in yesterday's earnings release.

Please note that information on this call speaks only as of today, May 4, 2010 and therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay listening. Also, statements made in the press release or in this conference call that are not historical facts, including statements accompanied by words such as "will", "believe", "anticipate", "expect", "estimate" or similar words are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding Amerisafe's plans and performance.

These statements are based upon management's estimates, assumptions, and projections 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 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 10K 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 SEC.

Now, with that behind me, let me 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 first quarter 2010 conference call. As usual, I'll make a few remarks about the quarter and then turn it over to Geoff Banta, our Chief Operating Officer who will then introduce Janelle Frost, our Chief Financial Officer for more financial details.

Gross premiums written during the first quarter continued to contract due to a combination of lower loss cost, lower than anticipated payrolls resulting from the national recession, and a competitive marketplace where our pricing discipline restrains top line growth. We have seen some changes in the marketplace and I'll comment more on those during my closing remarks.

In terms of losses, we experienced a more normalized quarter as compared to the fourth quarter of 2009. Loss frequencies have flattened on an earned premium basis, reversing a multiyear declining trend. For prior accident years, we continue to enjoy favorable development and the open claims inventories continued to decline.

Our common stock repurchase program which started in the first quarter, netted 70,000 shares repurchased at an average price of $16.20 including commissions. At this time, I'm going to kick it over to Geoff to talk about operational metrics.

Thank you, Allen. Good morning, everyone. I'll make a few comments about overall operating performance and trends before turning things over to Janelle. I'm sure I sound like a broken record, but it is a fact that intensive competition, high unemployment, and low loss cost continues to stress our top line results. In the first quarter of 2010, our top line is measured by gross premiums written was $61.1 million, a 23.1% decrease from the first quarter of 2009. There were three major components making up this decrease.

First of all, first quarter premiums for voluntary workers comp which we refer to as deck sheet premium decreased by 14.3% from $79.9 million to $68.5 million. This is a direct result of our competition being able to write business at lower rates than we can justify. The second component of our decreasing top line is premium adjustments which totaled negative $7.4 million versus negative $2 million in the first quarter of 2009.

The majority of these premium adjustments resulted from payroll audits on previously written policies which are the direct result of lower than planned work activity in our targeted industries. The third and final component of our top line decrease was the change in our estimate for earned but unbilled premium, or EBUP, which totaled a negative $1.5 million versus a negative $269,000 in the first quarter of 2009. New business premium was down 16.6% in the first quarter of 2010 as compared to the first quarter of 2009 which was entirely due to the decrease in business activity and rate levels.

The good news was that our new business policy count was not down in the first quarter of 2010. We continue to attract new customers but at reduced exposures and rates. We are also continuing to analyze our book of business for new or whole performing market segments and as a result have made several targeted changes in pricing, geography, and industry focus. Relative to pricing we continued to hold the line on our pricing in the first quarter of 2010. Our effective LCM for voluntary work comp in the first quarter was 1.45 or 145% of the approved lost cost in the states that use that mechanism for pricing. This compared to 1.45 for Q4 '09 and 1.46 for the year ago quarter in 2009. As we have said before, we don't intend to sacrifice pricing and profitability in order to generate premium in the current and continuing soft market.

In terms of renewal business, our results have been very healthy. In the first quarter our policy retention was 87.1% versus 86.8% for the first quarter of 2009. As a result of the strength of our policy retention and our new business, our in force policy count has increased 4.4% since 3-31-09. We believe that our high retention will position us well for a turn in the market cycle.

Regarding losses, we continue to focus our efforts on closing claims as quickly as practical. Our open claims inventory dropped 1.4% in the first quarter of 2010 and is at its lowest point since 1996. On the other hand, work comp claims frequency on an earned premium basis flattened out during the first quarter. It is too early to call this a trend but we may be coming to the point at Amerisafe and in the industry as a whole where the multiyear decrease in premium based frequency is at or near its end.

Reported claims in the first quarter of 2010 were down just slightly from the first quarter of 2009 and the severe loss experience we suffered in the fourth quarter of 2009 was thankfully not repeated, "severe" in this context indicating that the loss is estimated to cost over $1 million. We had two such claims in the first quarter that we reserved for more than $1 million. The total incurred on those two claims as of 3-31-2010 was $4.5 million.

Claims closure rates and paid to incurred ratios looked strong for the first accident quarter of 2010 and for the latest quarters for accident years 2007 through 2009. In the current high employment environment where return to work becomes a more problematic issue, we continue to apply a conservative approach to setting indemnity reserves.

With that, I will turn the discussion to Janelle for details regarding our financial performance.

Thank you, Geoff, and good morning, everyone.

In the first quarter of 2010, Amerisafe reported net income of $11.3 million compared to $11.1 million in the first quarter of 2009, a 1.9% increase. During the first quarter of 2010, we reported pre-tax realized gains of $2.5 million associated with the sale of our remaining ETF. Those securities were impaired in the fourth quarter of 2008 and at that time, a valuation allowance was established which increased tax expense. With the sale of the ETF in the first quarter of 2010, tax expense decreased approximately $900,000 or the change in the valuation allowance. This was a one-time adjustment to tax expense and did not impact operating net income for the quarter.

Gross premiums written in the first quarter of 2010 were $61.1 million compared to $79.4 million in the prior year period, a 23.1% 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 21.3% from the year ago quarter as a result of declines in gross premiums written over the last year.

Our net investment income totaled $6.5 million, an 11.3% decrease from the prior year period. Invested assets were $799.5 million at the end of the quarter and the pre-tax investment yield on our investment portfolio declined to 3.3% from 3.7% in the first quarter of 2009. In total, revenue in the first quarter of 2010 was $64.4 million, down 17% from $77.5 million last year.

Our current accident year loss ratio was 72.5%, compared to 69% in the first quarter of last year and 73.8% for the accident year 2009 at the end of 2009. Our incurred loss and loss adjustment expenses totaled $37.6 million which included $2.3 million of prior year favorable development, primarily from accident years 2004, 2006, and 2007. This compares to $47.1 million in last year's first quarter which included $1.2 million of favorable prior year development. In total, our net loss ratio for the first quarter of 2010 was 68.3% compared to 67.2% in the first quarter of 2009.

Total underwriting and other expenses decreased 15.4% to $12.5 million from $14.8 million in the first quarter of last year. The expense components for 2010 for underwriting and other operating costs of $3.3 million, commissions of $4.1 million and salaries and benefits of $5.2 million. With lower earned premium, the expense ratio rose to 22.7% from 21.1% in the same period a year ago. In total, our combined ratio was 91.5% in the first quarter of 2010 versus 88.6% in the same period in 2009.

Our report diluted earnings per share were $0.58 compared to $0.54 in the first quarter of 2009. Operating earnings per share was $0.45 in the first quarter of 2010 compared to $0.54 in the same year ago period. Return on average equity for the first quarter of 2010 was 14.7% compared to 15.7% in the first quarter of 2009. Book value per share at March 31, 2010 was $16.49 compared with $14.30 at March 31, 2009, an increase of 15.3%.

Net unrealized gains on our fixed maturity investment portfolio which were not reflected in our income or book value totaled $17.9 million. As an added note, beginning April 1, the Company began classifying some new purchases of fixed maturity securities as available for sale. No classifications were changed for securities already held for maturity. Finally, statutory surplus at March 31, 2010 was approximately $308 million.

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

Thank you, Janelle. You know, if Geoff sounded like a broken record, my comments about market outlook are going to represent a new tune. While we have yet to see a broad based change in the workers compensation marketplace, we are seeing some anecdotal signs of change. These changes should not be surprising considering the operating environment in the workers compensation market today.

Recently an insurance pricing survey conducted by MarketScout, a Dallas based electronic insurance exchange reported workers compensation premiums fell only 2% in March 2010, the smallest drop in price in quite some time. Richard Kerr, the CEO of MarketScout commented that the 2% decline in March following a 5% February drop was significant. This remains to be seen, whether this trend continues.

However, initial estimates of the 2009 combined ratio in the workers compensation insurance industry, by the estimate being made by the Insurance Information Institute is 109%. Later this week, the National Council on Compensation Insurance will release their state of the line report outlining the performance of the workers compensation industry which I believe will document the deterioration of the financial performance of the industry and identify an increase in the industry's loss reserve efficiencies from the $6 billion reported in last year's report.

With higher combined ratios, lower investment yields, and the increasing probability of adverse reserve development, insurers must necessarily focus on underwriting margins. Typically at this point in the cycle, hazardous employers are the first to be jettisoned by underwriters. Through various internal and external channels, we have for some months received reports of multiple carriers restricting underwriting authority in hazardous class codes. We are not surprised at this development.

These reports come from several jurisdictions, several carriers, and involve multiple industry groups. Interestingly, these reports coincide with an uptick in the number of new business applications submitted to Amerisafe during the first quarter of 2010, an increase of 13.2% as compared to the first quarter of 2009. There are indeed signs of change within the marketplace.

To be sure, these signs of change within the marketplace are not pervasive enough to clearly delineate a significant market transition to a firmer market. In all probability, any market improvement will be gradual as the national economy begins the long road to recovery; however, any improvement, gradual or otherwise, will be very welcome by us at Amerisafe.

With that, I'm going to open the call for questions.

(Operator Instructions) Our first question comes from the line of Matt Carletti with JMP Securities. Please, go ahead.

Hi, good morning.

Good morning, Matt.

I've just got a couple questions. The first one's for Geoff. You mentioned that you've been able to make some changes to geography and product mix. Are you able to elaborate at all on that?

Sure. I'll do my best, Matt. We have entered a new state, made a full thrust into Nebraska, for example. We are looking at another fairly large state. We've increased our reach in some territories of states in which we had historically not written in all counties or parishes. We have made some changes in some of the things that impact pricing and we have targeted some new class codes that we haven't previously targeted before. Those are still class codes that we would classify as hazardous in terms of premium per $100 of payroll and the activity that the workers perform, but for reasons that Allen was given in terms of some market dislocations out there among our competitors, they appear to us to have open up more than in the past. I will say, Matt, though that these things do take time. It takes time for us to make the move, to put all the pieces in place, and to get the tracking mechanisms in place so we can determine if it's a success or otherwise. We are constantly tweaking our pricing and our geography, our class code focus, and actually in some cases the way we structure the product and the final premium to see where we can still make some in roads in this terribly soft market. I will also tell you that that same kind of analysis sometimes yields us pulling back on some levers as we study a certain segment we find it's not being profitable for us. We have to temper the kind of optimism we have in getting into these new markets and submarkets with the fact that other markets are not doing as well. I hope -- that's the long version but that's how we approach this.

That's very helpful. Kind of following on that, I saw that Arizona kind of passed -- I guess the legislature passed that the -- they're going to privatize the state fund. I know you guys aren't in Arizona. Is that something that could make that state more attractive to you and maybe once that happens, see you enter there?

Matt, Arizona has historically had one of the highest industry loss ratios in the United States and there would have to be a marked change in that marketplace for us to pursue the Arizona market. I think there are a lot more attractive areas in other locations rather than Arizona.

Another way to think of it is that Arizona wasn't as much a pricing issue as they would need some broader reform?

I think that's exactly right. There are apparently structural issues that are a problem in Arizona. There are always - at least the last three or four years that I can think of, looking at the results by state, they're in the top five in terms of loss ratio. That's not a good place to be.

Got you.

They're also one of the most difficult states, Matt, to get off a risk if you're having bad experience. It's almost that it's only for non-payment that you can get off a risk.

Okay. That's helpful. Thanks a lot.

Okay.

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

Thank you. Good morning.

Good morning, Beth.

Okay. First question is you had mentioned that there were two severe losses in the first quarter that amounted to $4.5 million and I just wondered is that because of the high severity rate of the kind of high hazard business you write, was that pretty much in line with expectations? Is that what you typically would record in the quarter or was that unusually high?

That's a great question, Beth. That's pretty typical. If you remember, we had in the fourth quarter of '09 it was atypically high. We had five severe losses worth -- that we incurred $15.8 million on. So, that compares to the first quarter where we had two losses that were $4.5 million. I'd say the first quarter was much more typical in terms of our history. By the way, they were both falls involving obviously catastrophic injuries. Those things do happen in our businesses.

Okay. Could you clarify what the loss cost multiplier was for the quarter?

It was 1.45.

Okay. So it really hasn't changed much from prior?

It hasn't changed. It has barely budged the last four quarters.

Okay. I'll re-queue. Thank you.

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

Thank you. Good morning.

Good morning, Mark.

The pace of the negative effect of the audits, I don't know if you touched on this earlier, but what's your sense on when that will be a little bit less of a headwind?

Another great question. The pace has continued unabated since about the second quarter of '09 and my projection -- this is just me talking, this is not Allen or the Company, but I really think that the lower projections that our employers are now making and the realization that this is an elongated period of high unemployment and depressed business activity has caused them, a new business, to project less premium or less payroll going forward which makes the initial estimate a little more realistic than in the past and in terms of how we estimate on renewal business, how we estimate premium, we've now had almost 12 straight months of down payroll, so those estimates are based on history and that should cause our estimates on the renewal business to also be more realistic. I think in the third quarter of this year we'll see that begin to plane out. But it has been a huge headwind for us the last three, four quarters.

Right. The current accident year loss ratio up year over year, your pricing is essentially the same. Is that your view of the flattening frequency that makes you more cautious there?

Mark, this is Allen. I would say "yes". Also, the very unpleasant experience in the fourth quarter of 2009 where we were hit with a number of large losses, we believe that a more cautious approach beginning to the year is important. One of the things we've noted and that Geoff mentioned in his prepared remarks, Mark, is that returning people to work has become a bit more of a challenge as employers have fewer light duty jobs they're able to return an injured worker back to work to acclimate them back into the workforce. So, that tends to impact. We want to be cautious about making the reserve selection in 2010 so we moved it to 72.5.

Got you. The final question, you talked about the anecdotes, multiple carriers restricting underwriting and the higher risk class code. On a scale of one to ten, how broad -- how widespread is that?

Let's put it like this. We've seen it from Georgia to Alaska to Texas to Illinois to Pennsylvania, multiple carriers including national carriers, regional carriers, and across multiple industry groups. If you think about it and you think about the length of this soft market cycle and you think about the things that happened in late 2008 and 2009 when there was an irrational level of competition in the market, those accounts are coming up for renewal now, some for the second time. With the industry's combined ratio moving up in the high categories and with the workers comp industry suffering through adverse development as a single line in 2009, underwriters are going to have to be more cautious and careful about it.

Now, having said that, I'll jump to what I hope or you're probably thinking at this point, Geoff said -- I said we had 13.2% more applications for new business, alright? In the first quarter. And Geoff said that we bound the same number of new accounts in the first quarter this year that we bound last year although the premium was down. The reconciliation of those different events is that there is still pricing resistance. Some of these people are coming off policies that were priced at loss cost or loss cost plus 10% or 20% and our pricing is at 145%.

So, there's still pricing resistance but one thing that's clear is that underwriters are beginning to get out of some of these hazardous class codes and some even are making decisions across a whole band of a class code. For example, we're getting out of the blank business -- whatever it may be. Roofing, for example. We're going to get out of the roofing business. It doesn't make any difference whether an individual account has no losses, they're non-renewing, that business. We have not seen that for several years. This is a little bit more of a forward-looking sort of projection than we normally make, but it was very noticeable in the latter part of the first quarter and it seems to be building.

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.

Good morning, Mike.

The change, going back to the change in the accident year loss ratio -- can we I guess expect the 72.5 to sort of flow through the rest of the year given what you see out there right now?

That's our expectation at this point.

What would change to sort of take that back down, I guess, to a more normalized rate? I think you generally have run in the 68, 69 area.

An absence of severity.

It's fair to say that no one was more disappointed than we were in the fourth quarter when we had to take it up to 73.8.

Understood. I think we would all agree that there were sort of unusual events in that situation. But I was just wondering how much of the change -- and I think you were talking about it earlier just in terms of the return to work issue. How much is that driving this change?

I can't quantify it but I will tell you that it's something we're watching you watch the elongation of loss time claims. While we don't think that's alarming at this point, it is something that we think is an issue. Another point is -- I guess I can't say it more bluntly than this. We don't believe broken legs are going to cost more in 2010 than they cost in 2009. Medical cost inflation is alive and well. I believe -- and we'll find out later this week as to what the NCCI says, but what I believe is that the decline in loss cost which has modified in the last year is going to further modify in 2010 as medical cost inflation begins to push those loss costs up and the frequency issues begin to loosen their hold on loss cost. You know, premium is adjusted downward. The drop in frequencies on an FCE basis which is how it's normally reported don't reflect the frequency in claims on an earned premium basis. That's why, when we consider the drop in frequency, we look at it on an earned premium basis rather than a payroll basis or a fulltime equivalent basis.

Okay. And then a final question just to round the investment portfolio looks like an uptick in terms of cash, cash equivalents, what's your sense in terms of moving the needle on the investment yield for the remainder of the year?

As you know, Mike, the Board approved a share repurchase program. So, that cash is for share repurchases. Obviously we only repurchased 70,000 shares in the first quarter with the stock price it was currently at. That cash is there for share repurchases, so obviously not yielding very much. I think, what? Two basis points?

Okay.

Thank you. Our next question comes from the line of Bijan Moazami with FBR Capital Markets.

Good morning, everyone. A lot of my questions were asked and answered but, Janelle, if you could expand a little bit more on the investment portfolio? You probably saw that Pennsylvania kind of defaulted on their debt. Are you guys thinking about doing something about the heavy exposure to municipal bonds? I know a lot of insurance companies have been dumping munis.

Right. Keep in mind that our municipal portfolio that we have currently is held in maturity. We are not going to be able to sell those. But I will say our new purchases have been leaning more towards corporate. We still are buying munis that we think are solid. But our new purchases are more towards the corporate area.

I see. In terms of the duration of the bond portfolio, what was that this quarter versus last quarter?

I have that here. Let's see. Duration for just the bond portfolio?

Just the bond portfolio?

Was closer to four.

Four years. Okay. Wonderful. I just wanted to clarify again some of the stuff that Allen and others have mentioned about the premium audits and their correlation with the economic cycle. In the third quarter do you think there's going to be a reversal of that? At exactly what point of the economic cycle are we going to see a little bit of movement on that front? Because a lot of people in the construction business are basically saying that there is a pickup in new businesses and you've been seeing that also with some of the homebuilders.

I think that's right. There are clearly pickups. Remember these audit adjustments go back for policies written 12 to 16 months ago. Okay? So, that pickup, you may not yet see. I think you'll see a tapering of the audit adjustments. By the way, I agree with Geoff. I do think this is something that we'll start to see significantly in the third quarter. I'll also say that if you look at our EBUP adjustments, the balance on the EBUP estimate is $2.8 million, $2.7 million, something like that. And year ago, that was $10 million. So, I think we're going to see that level out as well. I think we'll start seeing some increased activity. But it's going to, I think, taper down starting in the third quarter.

I would agree with that.

Let me summarize a little bit, just to make sure that I'm getting that right because it's so important, the dynamic of the business. So, your new business application is up 13%. You've not been writing more, but obviously that means there's more in the pipeline. There is a little bit of a price increase that you're seeing out there. This economic reversal probably means that some of this negative premium outlook is going to be reversing to some extent. So, at what point, when you put it all together, we should start seeing a more stable top line at the Company? I know that many times you'll try to address that, but given that 20% plus shrinkage, it just makes a huge change in the outlook.

I think we -- I don't want to try to tell you that we can assure you that there will be top line growth but I think you're going to see an improved top line in the second half of 2011. Certainly things can go awry between now and then. We thought the market was hardening in late 2008. The intervention by the government, of course, prolonged the soft market. But there is clearly a situation in which the combined ratio in the industry along with the lower investment yield means that underwriters must focus on underwriting margins in order to produce a reasonable rate of return or the cost of capital.

Okay. Then another question which again, it was asked a number of times today, you're suggesting that frequency is not going to continue to drop, is going to be flat. You're pointing out the severity going up to some extent. Does it mean that the pace of positive release of the reserve is kind of reversing itself but somewhat slowly?

First of all I think I need to correct something that I said just a minute ago, Bijan. I apologize. The improvement would be the second half of 2010.

I realize that.

Sorry. I misspoke. I think as an industry, clearly the reserve releases will abate and actually probably go the other direction. With respect to Amerisafe, we feel comfortable with the reserves we have set at this point in time. We have seen some continued favorable development in the years 2004, 2006, and 2007. We've not yet looked at 2008 of course with respect to any adjustments there. So, with respect to Amerisafe, we would that we've positioned ourselves appropriately at this point. It remains to be seen whether there will be favorable development further in the year. But we're doing our best to try to make sure that occurs.

You pointed it out, but frequency is going to be terribly important to watch over the next several months. I'm sure than the NCCI in their state of the line is going to indicate that it is still down on a payroll basis. It's still trending down. But when you think about a recovery and all these young workers going back into the marketplace and maybe at the same time older workers finally retiring if they can feel a little more secure with their financial situation, that's going to cause claims as a function of payroll and hours worked, FTs if you will, to reach an inflection point, we believe. And if frequency starts going up, it's going to be incumbent on the states to reflect that in their new loss cost. We'll have to see if that happens.

Wonderful. One last question. Last quarter you mentioned that there was a very important case that you reserved very heavily for it and that injured worker passed away. Was any of that $2.3 million reserve relate to that? If you refresh my memory, if you took that adjustment last quarter?

No. That was not -- the $2.3 million was not affected by that case. That was at the end of fourth quarter of 2009.

So, that was last year and all of that was taken last year?

Yes.

Okay. Perfect. Thank you very much.

Thank you, Bijan.

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

Thank you. Just a question, if I could, on the exposure in the Gulf, I don't know if you've mentioned it already but is that -- first of all, did you have any direct exposure? Second of all, can you just talk about that type of business and reconcile that to the business that you write?

Good morning, Mike. This is Allen.

Hi, Allen.

Answer to number one, no, we had no exposure that we're aware of. We feel certain we would've known by now if we did. Second of all, the terrible explosion and the resulting spill will generate, as do most disasters, a lot of economic activity to try to react to that. We are not an insurer in the fishing industry. It's not something that we're involved in, the fishing, shrimping, oystermen, those sort of folks. We do do some work in the oil and gas industry although typically we're not involved in operations aboard the large city-like drilling wells off the coast although we may have contractors from time to time that go on and off those rigs. I would anticipate there would be a great deal of economic activity in South Louisiana, South Mississippi and Alabama and perhaps the panhandle of Florida as there's a lot of effort put forward to abate the damage from the oil spill. That will create economic activity and we may very well see some uptick from that. But in terms of a major involvement in the tapping of the well, the stopping of the well, that sort of thing, I don't think we'll have a lot of exposure on that.

Great. Thank you so much, Allen. And then, Janelle, was there any development, pardon me, in the first quarter related to those large claims in the fourth quarter favorable or unfavorable?

No, there was not. We kept the loss ratio for 2009 the same. Obviously things were paid on the cases and reserves may have changed slightly, but as a whole, accident year 2009 there was no development.

There was some development on the Florida claim as we settled a portion of the case.

That was (inaudible) the accident year.

The accident year did not change.

Got it. Great. Thank you. And then just one question on the profile of your business, can you just talk a little bit about large premiums, small premium, any former customers coming back to you from other carriers? Maybe if you could just talk a little bit about that?

Mike, in terms of the large premium, it's still a real fight out there. We are seeing an opportunity to quote on more large accounts and larger accounts in the large account space than I've seen in the last year at least. Maybe two years. In terms of winning those accounts, it's still very, very tough to take those away from a large carrier or maybe a multiline carrier. In the small and medium accounts, I really haven't seen anything that I would say is significant enough to mention on this call. In the small accounts, we're continuing to be pretty competitive and pretty successful in maintaining our hit ratios and our success in converting those from submissions to policies.

Mike, let me mention this one incident. This is anecdotal, but it is interesting. We recently had a block of businesses sent to us, not a huge premium volume, that involved -- I want to say 57 accounts. I won't say what state or what industry because I don't want anybody to look at them. 57 accounts. When we ran those through our system to see whether or not we received them from other agents, we'd only received three from other agents. These were accounts we haven't seen before. Ever. They're truly new business. That was something I found quite remarkable because this is a state we'd been in 24 years. We'd been in that business in that particular state for 16 years. Here, all of a sudden, a block of 54 accounts out of 57 that we've never seen. I found that remarkable in terms of the change. That's not something we've been seeing over the last few years.

That's true.

We do see some accounts we've lost coming back to us. But quite frankly, there's still sticker shock. Remember, these folks left for pricing that was at loss cost or 20% above loss cost and we just haven't comprised our pricing to that level.

Thank you so much for that anecdote. And then, Janelle, can you -- a numbers question on what kind of reinsurance impact on the expense line?

Sure. That's a very good question. If you recall the way our reinsurance structure is made, we accrue a profit commission for the $4 million excess of $1 million layer and then $5 million excess of $5 million. In the fourth quarter of 2009, because of those large losses that we had, we reversed what we had accrued for the $5 million excess of $5 million player. So, in comparing first quarter 2010 to first quarter 2009, there's a $438,000 difference in that profit commission. It was there in the first quarter of 2009, it is not there in the first quarter of 2010. But we did accrue and are continuing to accrue for the $4 million in excess of $1 million because we haven't penetrated that layer and that's $2.4 million a quarter.

Got it. Great. So, I mean, one maybe bigger picture if I could. You're operating in a niche that requires a lot of specialization because of the way you're -- where you're located and the way you structure your expense line. You have a much lower expense ratio than other peers that provide that service. At what point does that really start to grease the wheel as we move out of this recovery and allow you to see some of the premium that is naturally priced to move back in your direction? I realize it's a high level question. Are you starting to see some of that now? Or do you feel like that's still potentially to come?

I think we're at this point in the transition where there has to be, as I call it, sticker shock earlier. There has to come to that realization that, "Look, we're going to have to pay more because we have limited choices in the number of carriers that will offer this business, offer us coverage."

One of the things, as you (inaudible) a high hazard business, is there are not typically any insurers that will offer the coverage. You've probably heard me refer to it in the past as it's the last place people get in during a soft market and the first place they get out when the market changes. I think we're in the beginning stages of that market changing. And people beginning to pull back away from that.

Because of the economic situation, people are looking at the pricing and the difference between our pricing and what they have expiring and it's difficult for them to accept that. But I think that as the deterioration in the industry's performance accelerates, that's what I think you'll find this year is that carriers will pull back and that product won't be available and our pricing will be considered more acceptable.

We've also done reviews, Geoff has done extensive work along with our staff to look at opportunities for us to fine-tune our pricing in selected industries and selected marketplaces where we've had great experience and I think his judgment is right. It's now the time to put those initiatives into play because the market is in transition.

That's exactly right.

I think you'll see expansion of the payrolls as we go forward.

Thank you. (Operator Instructions) There are no further questions in the queue. I would like to turn the call back to management for any closing remarks at this time.

Thank you all very much for your interest today and for your interest in Amerisafe. I do encourage you to pay close attention to what information is going to be coming out of the National Council on Compensation and Insurance later this week because I think it will drive the direction of the market in the coming quarters. Thank you and good day.

Thank you. Ladies and gentlemen, this concludes this Amerisafe First Quarter Earnings Conference Call. This conference will be available for a replay after 12 noon Eastern Time today through May 11, 2010 at midnight Eastern Time. You may access the replay system at any time by dialing 303-590-3030 and entering the access code of 4282012 followed by the pound sign. Thank you for your participation. You may now disconnect.