Good day everyone and welcome to Amerisafe's 2019 Third Quarter Earnings Conference. Today's call is being recorded. At this time, I'd like to turn the call over to Kathryn Shirley, Executive Vice President and General Counsel. Please go ahead.

Good morning. Welcome to the Amerisafe 2019 third quarter investor call. If you have not received the earnings release, it is available on our website at www.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 may differ materially from the results expressed or implied in these statements if the underlying assumptions prove to be incorrect or as the results of risks, uncertainties, and other factors, including 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 Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. I will now turn the call over to Janelle Frost, Amerisafe's President and CEO.

Thank you, Kathryn and good morning everyone. It has been interesting listening to and reading earnings comments thus far this quarter as insurance CEOs have discussed getting rate. Followed by the pause are apparent article except in workers compensation. The news workers compensation is that most states continue to improve loss cost declines. For Amerisafe, this meant voluntary premium for policies written in the quarter were down 8.6%, while on account basis we were down 1.3%. We continue to have strong policy retention of 93.4% as we maintain underwriting discipline, reflected in our 162 effective loss cost multiplier or ELC. I'll pause here to remind those of us who like to apply data points that ELCM is best compared quarter over prior year quarter not sequentially. Our second quarter ELCM was at 161. However the quarter -- this quarter's 162 was down from 2018 third quarter of 165. That being said, the primary driver for the declining premium was simply earning less premium per $100 of payroll. Offsetting the rate declines were stronger payrolls. Audit premium and other premium adjustments added $2 million to top line compared to a decrease of $2.1 [ph] million in last year's third quarter. In total gross premiums written for the quarter were down 3.2% from third quarter of 2018. While declining rates lowered premium and competition remain strong, we produced an attractive return on equity of 18.6% this quarter. Our ROE, our long-term capital adequacy along with our commitment to creating shareholder value led to the declaration of extraordinary dividend of $3.50. This quarter's ROE was supported by favorable loss ratios and expense management. Neal will provide color around expense management, but allow me to provide additional information about our losses. Our loss in LAE ratio for the quarter was 53.6%, down from 55.9% in the third quarter of 2018. The current accident year loss ratio remained unchanged from beginning of the year at 72.5%. Both frequency and severity trends were in line with our expectations for the full year. As for prior accident years we experienced significant favorable case development this quarter. Slightly higher claim closer rates were one of many factors influence in the case development and lead to $15.6 million a favorable development this quarter. Neal will now provide more details around expenses and remainder of the financials.

Thank you, Janelle and good morning everyone. For the third quarter of 2019, Amerisafe reported net income of $21.4 million or $1.11 per diluted share compared with $19.7 million or $1.02 per diluted share in last year's third quarter. Operating net income for the third quarter was $21.1 million or $1.09 per share compared with $19.5 million or $1.01 per share in the third quarter of 2018. Revenues in the quarter decreased 2.2% to $91.5 million compared with the third quarter of 2018. Net premiums earned decreased 2.9% to $82.7 million when compared to last year's third quarter. Now turning to earnings from our investment portfolio, net investment income increased 4.8% in the third quarter to $8.3 million compared with $7.9 million in the third quarter of 2018. The increase was driven by slightly higher interest rates on fixed income securities. The tax-equivalent yield on our investment portfolio was 3.10% at the end of the quarter. The pretax yield on the portfolio was 2.79% at the end of the quarter, up from 2.70% one year ago. There were no impairments on any of the securities held in the portfolio during the quarter, and there were no significant realized gains or losses during the quarter. The investment portfolio continues to be high quality carrying an average AA rating with a duration of 3.68 with 56% in municipal bonds, 21% in corporate bonds, 11% in U.S. treasuries and agencies, and the remainder in cash and other investments. Approximately 59% of our bond portfolio is comprised of held-to-maturity securities, which were in a net unrealized gain position of $22.4 million at quarter end. These unrealized gains which total approximately $0.92 per share after tax are not reflected in our book value as the bonds are carried at amortized cost. Moving now to operating…

[Operator Instructions] And we'll first hear from Matthew Carletti of JMP Securities.

Hey, good morning.

Good morning, Matt.

Good morning, Matt.

Congrats on yet another very nice quarter.

Thank you.

Just a couple of questions. Janelle, I was hoping maybe you could just give a little more color on two things. The first being the competitive environment. I mean we know it's a competitive market. We know what rates are doing. But it kind of more the nuances of -- in general what you're seeing amongst your competitive set if how the larger peers are acting at this point in the cycle. Whether you see kind of capital on the margin moving in or moving out? And then separately kind of the underlying economic impact and what you're seeing from the economy and where in your book you might be seeing better trends or worse trends?

Sure. So I'll start with competitive environment. As far as the third quarter that it was really unchanged. We had a healthy policy retention of 93.4%. We think that is response to our service level, where we're pricing our book of business. I mention the ELCM at 162, down from last year's third quarter. So I think we're being responsive to the market. We still haven't seen what I would call new capital or new carriers in this space. Still multiline carriers finding workers comp attractive. I'll put a little forward looking into that since Kathryn said, I was going to do that at the beginning of the call. I was sort of energized listening to the earnings release is coming out this quarter. Some multiline carriers out there talking about they were getting rate and their other lines of business. For me that was a little glimmer. Maybe they'll deploy that capital away from workers comp and get back to their core lines of business. Time will tell if that the case, if we see that in terms of larger carriers to your point – to your question, if we see some of the larger carriers starting to pull back a little bit out of workers compensation in the anticipation that it won't remain a profitable line for a longer period of time. Again, that's all speculation. We'll see what the market tell us going into the fourth quarter and I guess really the first quarter of 2020. As far as the economy, I think for our insurance, it's a pretty robust economy. Our payroll audits remain positive. We saw growth and again this is payroll growth and construction obviously being our largest class, but it was pretty robust this quarter. Less so in trucking but we saw pretty big increases in terms of Marine. Wholesale – what we call wholesale retailer, so that's like lumber yards and building materials, gas dealers, those type of things. Where we saw a little bit of slippage and again, the payrolls were positive, but not as positive as third quarter of 2018 was actually in our form book and a little bit in our lumber book.

Okay, great. And then one other question just as we were getting closer to 2020 and just want to make sure I'm thinking about this right. Kind of as you – we've seen the accident year loss ratio small pickups kind of the past couple years. It seems that set of circumstances are still in place being pricing down, severity while manageable, still up and kind of probably not making the assumption that frequency will go down forever. Is it right to think about some small uptick in that accident year as we enter 2020?

Yes. The things that are factor into that, A, first 2019 is not over. We'll see what the rest of the year holds out in terms of – you're right about frequency of the question. We're turns in terms of severity. I think we'll see where accident year 2019 falls in, as well as loss cost filings that are still coming in. I think we're little over halfway there in terms of states that have approved their 2020 rates that'll be impacting those numbers for 2020, but as the loss cost filings come in we'll keep an eye on those as well and see -- the flipside of that we had significant case development this quarter, so in some more recent accident years I mentioned that we had -- in last quarter's earnings release we had favorable development in accident years 2017 we had it again this year. That also impact where we think in term of loss ratio.

Of course, that makes sense. Well, thank you for the color and congrats again.

Thank you, Matt.

Thanks Matt.

Next we'll hear from Mark Hughes of SunTrust.

Yes. Thank you. Good morning.

Good morning, Mark.

Good morning. You mentioned the 2020 loss cost coming into NCCI. What are you seeing in those state by state numbers?

Yes. We're still seeing decreases. Some of them had being single digits which I like to seed finally, so seeing some single digit decreases. For our major states, we're still seeing approved decreases. So there's been a couple of I think small maybe some long increases. I've heard a couple of jokes amongst just other people in the industry. well, Hawaii had an increase and I think everyone just sort of check about that. But yes, still no major increases at this point coming in.

Yes. But in aggregate is it kind of mid single digit decline, is it a low single digit or…?

I think NCCI anticipated 9% as I am looking at Neal, I think NCCI anticipated 9% for 2020, going 2019 and 2020 – going into 2020.

Right. That's our projection.

So I think that was their protection. And we'll see what pans out.

Yes. And then the large losses in the quarter, how many of those did you know?

We have 12 at the end of the third quarter compared to 18 at the end of third quarter in 2018.

Okay. Very good. Appreciate it. Thank you.

Thank you, Mark.

Thanks Mark.

[Operator Instructions] We'll now hear from Christopher Campbell of KBW.

Hi. Good morning.

Good morning, Chris.

Quick question on the expense ratio changes. I guess, can you unpack that a little bit and why were the assessments lower and where did they originally come from last year?

Yes, certainly. Now the expense ratio, we did see some familiar, I mean some favorable loss-based assessment activity in the quarter. And it really depends upon where we see favorable reserve development by state, because that will affect those loss-based assessments which are based upon our reserves in various states. So loss-based assessments in the quarter were down 637,000 from last year's third quarter. Premium-based assessments were down about 361,000 from last year. Again, that is more based upon some rate changes in some states where we actually are paying slightly lower premium taxes.

Okay. Got it. All right. And then I think one of Mark's question previously about like the rate changes. Is there -- when we see these like headline rate numbers like NCII [ph] is like 5% or something. I forget what number is this year. Is there like a spread that you guys typically do better then? So if the rate declines are 5% for the industry, Amerisafe typically does, I don't know, 200 bps better than that. Is there like you think about in terms of like how well you guys can recoup some of those rate decline?

Right. That's actually a very good question. As you know, you're right, when they see that line, let's use Texas as an example, how does they approved loss cost filing for 7.1 [ph] that was 12.4%. That was the headline. So what was that in terms of Amerisafe class codes. Well, in the Texas [ph] example, it was actually 12.4%. So, yes, it does vary sometimes by class codes, because I think the [Indiscernible]. I think their headline was 3.4% and Amerisafe was 5.4%. So it does vary by class codes. But I think it goes both ways. I still believe if you're looking at in the aggregate at that decreases I think that's a very good measure of where it is headed directionally, whether its high hazard or low hazard.

Okay, great. And then one last one on the policyholder dividends. Obviously if you guys keep having great reserve development those probably go up. What's a good way to think about modeling those. Is like a 150 bps on the combined ratio. Is that like a good way to think about it or…?

You know, that's a really good question. It does fluctuate from quarter-to-quarter and it's really driven by our performance in various states where we compete through policyholder dividends. So Florida, Virginia, Wisconsin. And so I think it was actually a little bit high this quarter at 1.5% than we've seen it running in prior quarters. And it really does depend again on what policies came up in that period and what dividends they earned. So I don't have a good way to model for you other than to expect that maybe it's can be between 1% and 2%.

Okay, great. Thanks for all the answers. Best of luck in the fourth quarter.

Thank you.

Thank you.

And it appears there are no further questions at this time. Now, I will turn the call back over to you for any additional or closing comments.

Thank you. Amerisafe has shown a strong commitment to creating shareholder value through our operational consistency and long-term capital adequacy. This quarter's combined ratio of 78.4% and return on average equity of 18.6% were just two measures to illustrate that commitment. We are pleased to share those rewards and of that commitment to our extraordinary dividend, while at the same time building a better Amerisafe for our shareholders, our policyholders and our employees. Thank you for joining us today.

That does concludes today's conference. Thank you all for your participation. You may now disconnect.