Good day, ladies and gentlemen, and welcome to the AMERISAFE First Quarter Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now turn the call over to your host, Janelle Frost. Please go ahead.

Good morning, and welcome to the AMERISAFE first quarter 2013 investor call. If you have not received the earnings release, it’s available on our website at amerisafe.com. This call is being recorded. A replay of today’s call will be available. Details on how to access the replay are in the earnings release. During this call, we will be making forward-looking statements. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Actual results could materially differ because of factors discussed in today’s earnings release, in the comments made during this call and in the risk factors section of our Form 10-K, Form 10-Qs and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statements. With that, I will now turn the call over to Allen Bradley, AMERISAFE’s Chairman and CEO.

Thanks, Janelle. Good morning, ladies and gentlemen. Thank you for joining us for our first quarter 2013 earnings call. As usual, I’ll make a few remarks and then turn the call over to Geoff Banta and Janelle Frost for more details on the operational and financial aspects of the company. Since our earnings call in the fourth quarter of 2010, we have commented on positive changes in the workers’ compensation marketplace. During that period of time, there has been an improving environment in terms both of pricing, as well as the demand for the product. The intense irrational competition which began during the depths of the soft market had began to fade around that time. Through 2011 and 2012, the marketplace improved at a gradual, but a steady pace. The first quarter of 2013 has continued on that path. While competition has not completely disappeared, it is greatly diminished. As a general observation, those competitors remaining in the market today are pricing at more rational levels. According to the Council of Insurance Agents and Brokers First Quarter 2013 Pricing Survey, 89% of respondents reported rate increases on workers’ compensation policies written during the first quarter. Notably, 45% of total respondents indicated that rate increases were coming in at 10% or greater on their workers’ compensation accounts. According to that report, and I quote, "Workers’ compensation continued to be a hard line to place." end quote. Additionally, we have noted improvement on another front and that is the frequency of claims. We expect claims frequency in the workers’ compensation line nationally to improve over 2011, when the 2012 results are released by the NCCI 2 weeks from today. We cannot definitively identify the driver of the lower frequency of claims. However we suspect that the average experience level of employees in the workplace is risen. Additionally, it appears that the average hours worked by employees has expanded during the recovery, thereby muting the impact of inexperienced new workers on the job. Regardless of the cause for the decline in the frequency of work-related claims, we are encouraged. With those comments, let me turn the call over to Geoff to talk about operational metrics of the company.

Thank you, Allen, and good morning, everyone. I’ll make a few comments about our operational performance and trends relative to premiums and losses before turning things over to Janelle to present a summary of our consolidated financials. I’ll begin by discussing our top line. Gross premiums written were up nicely in the first quarter by 16.7% year-over-year, an increase of $14.2 million. This is the 10th straight quarter in which our top line has grown, and notably our gross premiums written of $99.1 million constituted the highest quarterly total in our history. The first quarter increase in gross premiums written was due mainly to growth in what we refer to as our debt sheet premium, which is the premium we record at the time the policy is bound. Our debt premium in the first quarter was up $12.7 million or 16.1% and represented almost 90% of our total top line increase. We have now had 9 straight quarters of growth in debt premium, all while increasing our prices, a very positive development for our company. The other factor in our increased top line was audit and other premium related adjustments which rose by $606,000 over the year-ago quarter. Focusing on our renewal business, our first quarter premium retention was a very strong 99.7% versus 97.2% in the first quarter of 2012. This increase was due mainly to a rise in average premium per policy from $37,200 in the first quarter of 2012 to $43,400 in the 2013 first quarter. We also saw a modest rise in policy retention in the first quarter to 92.4% from 91.4% in the year-ago quarter. In terms of pricing, our effective loss cost multiplier for voluntary work comp premium written in the first quarter was 1.72 or 172% of the approved loss cost in the states that use this mechanism for pricing. This pricing represents another healthy year-over-year increase over our first quarter 2012 ELCM, which stood at 1.59. Relative to losses, our 2013 accident year has begun favorably with reported claims decreasing year-over-year by 8.1% to 1,260 claims from 1,371. This decrease has led to lower year-over-year claims frequency for Q1 ‘13, and that accident year has also had lower average severities than experienced in the year-ago quarter for accident year 2012. Based upon these and other claim related factors, we have projected a 73.2% loss in LAE ratio for the 2013 accident year, which is 3.3 percentage points lower than our current projection for the 2012 accident year. Even though 2013 has just begun, we are pleased with the favorable loss trends we are seeing early on in this accident year. Regarding prior accident years, operational claim trends, as well as actual case development in the first quarter, let us to lower our ultimate projection for those accident years by $2.4 million versus $1.6 million in the year-ago quarter. With that, I will turn to Janelle to present our first quarter financials.

Thank you, Geoff. For the first quarter of 2013, AMERISAFE reported net income of $8.9 million or $0.47 per share, compared to $9.6 million or $0.52 per share in the first quarter of 2012. We had minimal realized gains on our investment portfolio this quarter compared to $1.8 million in the first quarter of 2012 which significantly impacted net income. On an operating basis, operating net income was $8.9 million or $0.47 per share in the first quarter of 2013, compared to $8.4 million or $0.45 per share in the first quarter of 2012. As Geoff discussed, gross premiums written rose 16.7% from the year-ago quarter, attributable to $12.9 million of growth in policies written in the quarter and $0.6 million increase in audit and related adjustments. Net premiums earnings increased 14.2% from the year-ago quarter. Our net investment income totaled $6.7 million in the first quarter of 2013, a decrease of 3.5% from the first quarter of 2012. Average invested assets were $912 million in the quarter ended March 31, 2013 compared to an average of $863 million for the same period in 2012, an increase of 5.7%. The tax equivalent yield on our investment portfolio was 4.2% compared to 4.5% in the first quarter of 2012. In total, revenue for the first quarter of 2013, was $86.5 million, up 10% from the year ago period. Our current accident year loss ratio for the quarter was 73.2% compared to 76.5% a year ago. Our incurred loss from loss adjustment expenses totaled $56 million for the quarter which included $2.4 million of favorable prior year developments. This compares to loss and loss adjustment expenses of $51.8 million in last year’s first quarter, which included $1.6 million of favorable prior-year developments. In total, our net calendar year loss ratio for the…

Thanks, Janelle. The first quarter was a good quarter for AMERISAFE. We experienced, on a year-over-year basis, the following changes: First, strong growth in gross written premium. Second, an increase in pricing on that business written during the quarter. Third, reduction in the current accident year loss ratio. Fourth, an increase in favorable prior-year claims development over the prior -- same quarter a year ago, and improved calendar year combined ratio, and an increase in operating earnings per share. Additionally, we expect that our expense ratio will trend down over the next 3 quarters adding additional momentum to our financial performance. AMERISAFE continues to grow its premium base. As we have discussed in the past, we believe that this is the appropriate time in the market cycle to expand our market share. However, make no mistake, AMERISAFE will first focus on improving our underwriting margins and profitability during this period of premium growth. As the old saying goes, volume is vanity, but profit is sanity. With that, let’s open it up for questions.

[Operator Instructions] Our first question comes from Matt Carletti with JMP Securities.

Just had a few questions. First one, on the accident year loss ratio improvement year-over-year, could you just give us a little color around that, and specifically I’m thinking on the lines of are you trying to pick a -- say, a level for the year that kind of carries through to book the year? Or are you trying to ease into it in the sense that if the current trends you’re seeing persist, we should see a -- let’s call it a step-down function as we kind of work through the year? Is there any color you can provide there?

That’s a fair question. The selection was our best selection based on the information we have right now looking at the last 3 years. That -- those years weigh more heavily in our decision than the current year because it’s just too green to tell anything about. If the trends in frequency persist, those are good signs. But it’s just -- it's very easy to pick a low number and then look really good. You really want to make sure that your number is put into proper historical perspective at the time that you make that selection, realizing that we are in somewhat of a lumpy business and things can change. The changes in frequency had been going on now for several quarters. Will that persist? Will the claims severity not increase at such a level to outstrip the gains and frequency? We’re not seeing that change in the severity part right now, but -- so we’ve made this selection more with a view to ‘10, ‘11, ‘12 and without getting overly confident on some of the really positive things we see out there in the marketplace.

Yes. Matt, that was really great question, and the second part -- the second scenario you presented there, which Allen pretty much addressed, you know that we’re always going to be influenced by the volatility of the business we’re in, in high hazard. And so that’s going to color our estimate, but the signs, as Allen pointed out, are quite good as we start this year.

One thing I want to point out. Geoff mentioned it in his numbers, but just to clearly state it point blank, the absolute claims count went down. The in-force premium is up markedly. That’s something we haven’t seen in a long time. This is not shifted material.

Right. Kind of building on your comments, Allen, on kind of the now is the time to build market share, and given the opportunities you’re seeing, are there any new tangential high-hazard-type lines and maybe you haven’t had a big presence in or that you’re looking to grow specifically? Or are there new geographies out there that are very attractive now that the market is turning and we might see you grow some market share that way?

Some place where the sun shines a light -- a lot?

Exactly.

Matt, the numbers that you see do not reflect the expansion of either class codes or geographies. And they represent rather a greater penetration in existing service areas. There are some areas that appear to be turning, and I, obviously, think everyone, keeps an eye on California because it’s such a very large part of the market. It’s not something that we are considering launching into at this particular point. We have not seen a prolonged enough stability there to justify it, although they do appear to be getting rather healthy rate increases. So I would tell you right now in the immediate term, we are going to stay in the geographies where we are. We’re going to stay in the class codes, generally that we’re writing. We are seeing a lot more opportunity there. We’re still seeing some people that, from time to time, will do something that we can’t follow but the pervasiveness of that is not the same now that it was 12 or certainly not 24 months ago.

And Matt, we are in the enviable position right now in terms of the market as a whole of being able to increase market share just because the supply is decreasing, the supply of high-hazard out there, as pretty big companies pull out of segments that we historically write and do well in.

In fact, Matt, that’s a good point Geoff makes there. Let me read another one from the CIAB first quarter pricing trend. In the same paragraph that I quoted earlier, they quoted another broker that says, and I quote, "Another broker that said workers’ compensation was driving a lot of underwriting decisions, forcing business into mono-line or alternative markets." As a mono-line period that’s not bad news for us.

Yes, music to your ears. That's great. And then a quick numbers one, and I’ll get out of the way. Geoff, I apologize, I know you mentioned the LCM, I didn’t catch it. What was it in the quarter?

1.72. 1.72, up from 1.59, Matt.

Our next question comes from Mark Hughes with SunTrust.

Geoff, how are you doing on the large losses that -- from time to time you’ve mentioned some of the more expensive losses and how they’ve been trending. How have you seen that lately?

Amazingly positive so far in 2013, Mark. We have seen -- as of the first quarter, we have no incurred losses over $500,000 in 2013. We’ve only seen that 3 times in our history -- in our public history. So large losses look good. I certainly wouldn’t expect that to continue, given the history and the volatility in the markets we’re in, but very good results in terms of the large -- the severe -- what we call the severe claims, very surprising to me actually for the first quarter.

Just to clarify, Mark. When he says it’s only happened 3 times in our history, he is talking about it's only 3 times where we have not had the claim over $500,000.

Right. And presumably you are larger size now than in those other cases?

The -- yes. I would say we -- on a premium basis, we will probably be larger this year. Well, we are far larger on -- not far larger, we are larger on the in-force places now than we have ever been in our history.

Allen, you had given the numbers for the increase in average premium per policy is the 17% increase, how much of that would you say is pricing versus volume or extra people, however you want to measure it?

Yes, it -- I wouldn’t want to get to a specific number overall. I would tell you that it’s 40% to 50% rate and 40% to 50% -- 50% to 60% exposures. What’s happening with rates, let me mention that real quick. In the last filling cycle with the NCCI and others, there were -- the filing cycles across the country, there were 39 rate changes or LCM changes, depending on what the state uses. Of those 39, 27 were increases, 12 were decreases. So -- but the increases aren’t coming up as fast as they have. They are not as volatile as they once were. But with investment yields down and you’re seeing more and more insurers reporting lower investment income, I think that's going to give more of a steady upward movement in the pricing as well as in the rates as the losses have -- the results in the workers’ comp line have been particularly unpleasant.

Right. Well, this will be a comment more than a question, but you’ve got a 8% decline in claims on an absolute basis. Your pricing is up, call it, roughly 8%, 9%. Your severity, it sounds like it’s down, and that doesn’t seem to translate into 300 basis points of losses, I guess it's how long it endorses is the question but…

That’s a question. We can -- I mean sometimes these large claims seem to come in a brash of them. It’s just like I said in my earlier comments, it’s more with a view to ‘10, ‘11, ‘12 and how claims behaved then, rather than being -- betting so much on what we don’t know, we thought we would trend more toward what we do know.

Right. How about the -- in the employment in your construction end-market, are you seeing payrolls pick up there?

As a matter of fact, Mark, in what we call governing class groups of which there are 9 major groups, construction is showing the largest growth.

Okay. And then, Janelle, on the next conference call you’re going to have to get Grasher to read the Safe Harbor language.

That’s correct. Looking forward to it.

Our next question comes from Randy Binner with FBR Capital Markets.

So I wanted to start just on the expense ratio and understand the dynamic there a little bit better. It sounded like there were some assessments. Could you just explain a little bit more kind of what drove those and why, Allen, you think that would moderate down as we go through ‘13?

I’ll let Janelle address that. She is probably better source.

Sure. Yes, our assessment expense for the quarter did increase. I think quarter-over-quarter it is 2.5 percentage points to the underwriting ratio. In dollar terms, I think it was somewhere around $2.3 million. I’m sorry? Okay, sorry. It sounded like you asked a question. So that was indeed in this quarter. If you look back over our history, we've had quarters where we’ve had some -- a little bit of lumpiness in the assessment expense. As a workers’ compensation company, we are highly assessed on those premiums and losses for that matter, so it really depends on which state those -- like for example, on the loss base assessments which states those reserve increases or decreases fall in. The other things that was positive on the expense ratio this quarter was actually our -- what we call internally call controllable expense, or fixed costs. We’re staying relatively level and so as the earn premium grows, we are seeing efficiencies there, which I think leans to Allen’s comments about we don’t think the 23% loss or 23.7% loss expense ratio is a true run rate because we do see that we’re gaining expense -- efficiencies on the controllable expenses.

So just to be clear, these are assessments from state pools that are having trouble. They’re becoming -- there is more companies in their pool that are under pressure from the market?

The assessments are a wide range of things. I think what you’re referring to are probably the second injury funds. And yes, I mean those are large dollars as far as the loss base assessment, so we have a large number of premium based assessments as well.

Okay. Yes, I’m just trying to -- just to kind of sort out that. I mean you’re seeing a lot of market opportunity, because other folks are feeling pain, right? So I wouldn’t want -- I’m just trying to figure out if that pain is articulating itself through a higher assessment, and therefore a higher expense ratio.

We anticipate that you will see -- well, you’ve already seen an uptick in insolvencies which make demand on things like guarantee [ph] associations, guarantee funds and other things. So there is clearly stress. As you look at the historical performance of the workers’ comp industry, it does appear that we are in the latter stages of a sustained period of underwriting losses, and that money is going to go somewhere. It’s going to just to disappear, it’s going to go somewhere and it usually ends up reducing capacity and for some people radically so, such that they are out of business.

Right, okay. Well, we’ll keep watching that one. And just speaking of kind of historical patterns, have you ever -- is a LCM of 1.72, that seems like kind of historically high to me. Was it that high in the last cycle for you?

No, it was -- Allen, you correct me if I’m wrong. I think it was less than 1.6. I think it was in the high 1.5s.

1.54, 1.56, something like that. And let me address that a little bit. The effective LCM is an index that's applied against the loss cost. And it's -- as Geoff said, it’s 172% of the approved loss cost in those states that use loss cost as a basis for creating rates. The loss cost have not reacted, we think, as much to the losses. It tends to be trailing because they are retrospectively made. So to a certain extent, our growth in the effective LCM reflects our utilization of discretionary pricing because we are looking for a number for a rate per hundred, which we think will support and produce an underwriting profit. So yes, it is a higher rate. As the loss cost rise, Randy, over the next couple of years, you can expect that number, the effective LCM, to trend back down, but the rate that we’re charging, which we don’t discuss, will become -- will either remain steady or trend up or trend slightly down, depending on what our loss experience is in that governing class.

And Randy, I may get too much into the weeds here but one of the things I don’t think a lot of people understand is, let’s say a state like Georgia issues a loss costs increase, let’s say for sake of argument, 5%. Well that’s an aggregate loss cost increase. And when we look at some of the class codes we write, oftentimes we find those decreased. And so a state-wide aggregate loss cost increase doesn’t always mean good news for us. So as, Allen, stated, we try to keep our eye on the premium per 100 when all this washes through.

Okay. That is helpful. Let me ask one more, I’m going to -- at the risk of over-parsing your words, Allen, in response to Matt Carletti’s question about the -- about California. It sounded like you’re kind of -- you’re not saying it’s too late to get into California. Is that right? Is that a fair way of reading it? Has the ship left the port? Or is that still something that reasonable people could look at?

No, I don’t -- I certainly don’t think it’s too late. I think one of the things we look for in states is some stability. Volatility is bad, and -- because we write the only policy in America that you can buy, Randy, that doesn’t have a limit on it. There is no limit of payment. There is one on the employer liability portion of work comp policy, but not on the part-1. And so it’s built upon rates and assumptions of what you’re liable for, and if the state changes the rules as to what you have to pay for and then changes the rate, that’s a really bad thing to happen. And we’ve seen that in California. And we haven’t seen a sustained period, we have not. We’re not as familiar with that market as many more, but we haven’t seen a sustained period of that. So we are bit hesitant. That -- it clearly is an improving marketplace, there is no question about that. But -- and I wouldn’t expect to opined as to whether it’s at the end of the cycle or somewhere in the middle. I still think it’s probably got a ways to go. And it may go in terms of rate going up, or it may go in terms of changes in the law so that the rates currently charged are adequate. But either one is a positive development from those people that write there. It’s just not on a priority list for us.

Got you. Yes. Well, they’ve got that Senate Bill 863 out there, so we’ll see -- I guess we’ll see how that plays out.

Our next question Bob Farnam with KBW.

I just have one follow-up on Randy’s question on the expense ratio. So I’m trying to get -- I’m still trying to get a feeling for what to expect from assessments going forward. So in this type of market conditions, should we expect year-over-year increases in the assessments that would still kind of negatively impact the expense ratio?

We -- I would just say this, we expect the expense ratio to improve over the remainder part of the year. You are going to have earned premium growing, you’re going to have written premium growing. Those assessments, some are based on losses, some are based on premium. Whether or not they actually go up or down remains to be seen, but the impact on a given -- on the expense ratio of the company through the year will, In my opinion, decline over the next 3 quarters. And we’ve managed expenses closely at this company for a long time, and nothing has changed about that. And we’ve had a little bit of this lumpiness in the past. I'm just -- I'm not that concerned about the 23.7% for the first quarter.

[Operator Instructions] Our next question comes from Jeff Bernstein with AH Lisanti.

Just a quick question on kind of the macro impact to your business. You were talking about claim frequency declining and average hours worked increasing, experience levels of workers increasing, and we’ve heard a lot about companies being a little shy about adding permanent heads here but now starting to get some visibility, and in particular in construction, contractors, after seeing a year of work ramping up starting to hire, how will the hiring of new workers to your existing clients impact the business. Could you just kind of walk us through how that flows through?

That is -- that’s a great question and I am very happy to answer it. With respect to -- just all things being equal, let’s don’t talk about AMERISAFE or -- just talk about the construction industry or for that matter, any industry. When you are talking about hazardous occupations and you bring new workers onto the job site, the risk of a new worker being introduced is much, much higher than an experienced worker. And new people on the job site need orientation, they need training, they need safety devices, they need those sorts of things. And that’s something that we should look at, we do look at, prior to making a decision about, particularly if somebody is expanding. One of the reasons, quite frankly, Jeff, we don’t write new business that have a non-calculated experience rating modifier, now I know I’m really in the weeds -- but basically a new venture is because if it’s a new venture, there is new employees, there may be new management and you’re going to pay for the OJT. Now so to answer your question directly, normally increasing employment, improving employment picture is going to increase frequency, okay? So what you try to do as an underwriter is you try to go out and identify those trends within your perspective accounts and see what they do in order to try to mitigate against that risk. We are not perfect in that, Jeff, and I remember that because what was it, Jeff, we had last 2 or 3 weeks we had a gentlemen severely injured on his very first day at the job. And it’s obvious that he did not have the appropriate instruction on how to operate the high pressure hose. So I mean it’s not a perfect world, but that is a risk and we’ve identified that risk and we pay attention to it. And it’s something to be concerned about.

One -- if I could add to Allen’s comments. And in our safety department, we do look very, very rigorously at training programs, but one of the things I think you'll -- one of the macro factors, I don’t know if Allen agrees with this, but my opinion is that with unemployment as high as it's been, a help to us might be when workers who have been in that industry come back to that industry, then maybe [indiscernible] need as much training. And we will see some of that, but training is one of the biggest issues we deal with when we go through our safety review with new accounts and renew accounts.

I definitely agree, and that’s when you want to know how much experience workers have. I will tell you this, Jeff, when we see expanding work week, that’s really good news. That’s really good news. That is not the same risk as a new employee coming on, even if the total hours are all the same.

So there really isn’t much that you can do in terms of differential pricing. I mean, obviously, you’re going to take the new worker coming on the payroll. Hey, that’s good for you too, right? That’s a new premium that you’re going to get. But you are not going to be able to do anything differentially on pricing until such time is that organization re-ups, and then if you’re looking at them and you say, "Hey by the way, you added about 20% headcount, new workers. We’ve got to do something on pricing." Is that how that works?

That’s fair. And there is also the question of turnover. If you have a place that constantly turns over people, that’s a higher risk than someone that has a stable workforce.

Got you. But there is no pricing opportunity on an incremental worker?

No, no. It’s just -- it’s a unit basis. And you can’t change the deal in the middle of the year.

That’s great. And then the -- you mentioned work week, but also just the wage increase, right? That’s a 100% incremental to you?

Yes.

Absolutely. Pressure on wages does rise. It also raises the benefits too.

Our next question is comes from Mark Hughes with SunTrust.

That discussion about the LCM and how the loss costs tend to lag when the state calculates them, is there some reason to think that they are lagging more this time around? Or when your LCM peaked last time, was it that reflected same sort of dynamic?

I can’t give you the actuarial calculations. I mean it’s way beyond me. I will tell you this, as an observer. We saw more volatility year-to-year in rate changes in the past than we are seeing now, significantly more. And most of the rating bureaus will cap a particular class code to say it cannot move more than 50% or plus or minus 25% from where it was. You don’t see as many times that ever coming into play now, and a lot of the rate increases are in the low-single digit range. I actually have a list of them here somewhere. But the -- we are not seeing the sort of volatility that we’ve seen before. Some of the rating bureaus say that’s because they’ve got better information. I think they are just more cautious in their trending and they are not as quick to react to it, but in that -- hence my comments that I think it will lead to a longer, slower sort of more gradual upward slope in the rates. The rates will go up over a period of time unless frequency and severity fall off the table. And so far the medical side of severity is not been very successful in being managed.

Is that to say that the loss costs may be lagging a little bit more because they’re smoothing it and not raising it up as fast as they might?

Yes, and I can’t prove that statistically, but I will tell you that is clearly my impression.

And Allen hates to talk about this, but sometimes there is a little politics involved as well.

Well, yes, it’s really funny. Of course you know I've had some experience with politics. I’ve noticed that regulators make press releases when they lower rates, but they don’t make them when they raise them. So there's what we refer to as political rate suppression. There is more resistance going up than there is coming down from a regulatory perspective.

I am showing no further questions. At this time, I would now turn the call back over to management for closing remarks.

Thank you, Stephanie. There is one additional remark I want to make today and that is -- and Mark Hughes has alluded to it. We have with us today Mr. Mike Grasher who has joined AMERISAFE on April 29. Currently he is an Executive Vice President. And on May 15, he will assume the role of Chief Financial Officer. Janelle Frost will be promoted to Chief Operational Officer. We are very excited to have Mike join us and very happy to see Janelle promoted. We think this portends great things for AMERISAFE as a company. So Mike, welcome, and as Mark said, you get to do the forward-looking statement disclaimer at the next earnings call. Thank you very much for your interest today, and please give us a call if you’re interested in talking some more. Take care.

Thank you, ladies and gentlemen. That does conclude today’s conference. You may all disconnect and have a wonderful day.