Earnings Call: Q2 2010

Aug 5, 2010

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the AMERISAFE second quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. If you have a question, please press the star followed by the one on your touch-tone phone. If you'd like to withdraw your question, please press the star followed by the two, and if you're using speaker equipment, please lift the handset before making your selection. This conference is being recorded today, Thursday, August 5, 2010. I would now like to turn the conference over to Mr. Steve Gray with DRG&E. Please go ahead, sir. Thank you, operator, and good morning, everyone. We appreciate you joining us for AMERISAFE's conference call to review 2010 second 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 over to management, I have the normal housekeeping details to run through. You could have received an email of the earnings release yesterday afternoon. Occasionally, there are technical difficulties. If you did not receive your 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. There will be a replay of today's call. It will be available via webcast by going to amerisafe's company website. Of course, that address is www.amerisafe.com. There will also be a telephonically recorded replay available for seven days, 24 hours a day. Details on how to access that feature is in the earnings release. Please note that information on this call speaks only as of today, August 5, 2010. Therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening. 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 meanings 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, uncertainties, and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, including AMERISAFE's 10-K for the year ended December 31st, 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 that with that behind us, I'd like to turn the call over to Alan Bradley, the company's Chairman and Chief Executive Officer. Alan? Thanks, Steve, good morning, ladies and gentlemen. Thank you for joining us for our second quarter 2010 conference call. As usual, I'm going to make a few comments about the quarter before turning it over to Jeff Banta, our President and Chief Operating Officer, who will then, in turn, introduce Janelle Frost, our Chief Financial Officer, for more details. Before I begin my comments about the quarter, I hope all of you have seen our announcement yesterday, where we announced that Jeff Banta has been promoted to the title of President and Chief Operating Officer here at AMERISAFE. This promotion comes in recognition of his dedication, diligence, and performance since joining AMERISAFE almost seven years ago. For the last two years, Jeff has operated as the company's Chief Operating Officer and has acquitted himself very well in that position. In addition to being an outstanding insurance professional and leader, he is, by the way, a wonderful person to work with. Now, on to the results of the quarter. According to the National Council on Compensation Insurance, the NCCI, the workers' compensation industry in this country produced a calendar year combined ratio of 110% in 2009. Certain major markets produced results significantly worse. Lower payrolls due to the national economic environment compressed workers' compensation premiums. Further, the impact of multiple year reductions in approved loss costs and rates and increased competition further suppressed premiums as well. According to the NCCI, the net workers' compensation premiums in this country dropped 23% from December 31st, 2007, to year-end 2009. Yet in this environment, AMERISAFE continues to perform solidly despite all of the challenges. In order to produce these results and these returns, we have had to remain steadfastly dedicated to maintaining our risk selection and pricing. This focus and dedication has cost us in terms of premiums written, but we remain steadfast in our belief that such a focus is in the best interest of our shareholders, who will be rewarded when the marketplace improves. As I mentioned last quarter, there are signs of change within the marketplace. Those signs are still not pervasive enough to herald a significant market transition. There remains an oversupply of capital to meet a weakened demand for the product. However, we have noted improvement in the competitive landscape in various markets across our service area. Some examples. Certain national carriers have retreated from pricing and risk selection strategies of 2009. Alternative risk transfer entities have shown signs of financial distress during an extended soft market. We have noted that several of our pricing initiatives gained traction during the quarter and produced an increase in new business for the quarter over new business written in the same quarter last year. It is interesting to me that just six months ago, such initiatives could not produce any appreciable increase in new business. While these pricing initiatives lowered our effective ELCM to 1.41 or 141% of the approved loss cost, they produced targeted business upon which we fully expect to produce an underwriting profit in the future. With these comments, I'm going to turn it over to our new president, Jeff Banta. Thank you, Alan, and thank you for your kind remarks. I should say that as president, I am looking forward to spending a little more time in Hawaii every year with other presidents that I'm familiar with. I'll make a few comments about overall operating performance and trends before turning things over to Janelle. I'll begin with premiums. In the second quarter, our gross premiums written totaled $63 million, a 13.2% decrease from the second quarter of 2009. There were two major contributors to this decrease. First, our second quarter dec sheet premium for voluntary workers' comp decreased by 6.7%, from $75.8 million to $70.7 million. Although this decline represents the fifth straight quarter in which we have experienced year-over-year decreases in dec sheet premium, the rate of decrease in the second quarter is the lowest we have had during that five-quarter period. The second component of the decrease in overall gross premiums written is premium adjustments, which totaled negative $8.6 million versus negative $5.9 million in the second 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. Such audit premium has been a significant drag on our top line since the first quarter of 2009. In terms of new business dec sheet premium, we actually grew in the second quarter year-over-year by 4.4%. Additionally, we bound more new policies than any second quarter period since 2005. We continue to attract new customers, but at reduced exposures and rates, which translates to lower average premiums. We are constantly analyzing our book of business for reasonably priced market segments. We have had success with this approach, even in the current very competitive environment. In the second quarter, we reduced our pricing slightly to an ELCM of 1.41 or 140% of the approved loss cost in the states that use that mechanism for pricing. This compared to an ELCM of 1.44 for the year-ago quarter. We study our pricing and underwriting every single day, looking for opportunities to write new business in states and industries where our performance has been good. We also increase pricing if we find states and industries that are not performing well. We made several such competitive moves during the second quarter, which resulted in the net reduction in our aggregate ELCM. In terms of renewal business, our results continue to be stellar. In the second quarter, our policy retention was 92.5%, near our all-time high, versus 91.7% for the second quarter of 2009. As a result of the strength of our policy retention and our new business improvement, our in-force policy count has increased 5.9% over the last 12 months. We are very proud of the fact that we are retaining the great majority of our customers in the current very challenging market environment. During the first quarter call, I mentioned that our workers' comp claims frequency on an earned premium basis had flattened in that quarter. I stated that it was too early to call this a trend. In the second quarter, in fact, our open claims inventory was basically flat. Our claims frequency increased in every month during that second quarter. It is clear to me that industry-wide loss costs, which have decreased a cumulative 26.7% since 2004, are the reason that our long run of decreasing frequency at AMERISAFE has come to an end. We have also seen an increase in the average duration of our indemnity claims. This is a trend that was addressed by the NCCI at their annual issues symposium in May. The fact is that the industry is seeing an elongation of temporary total disability payments, principally due to difficulties in returning claimants to work in the current high unemployment economy. This increased duration has in turn caused our average claims severity to increase. Because of the trends we are seeing in frequency and severity, we have increased our 2010 accident year loss ratio estimate in the second quarter. Janelle will discuss the magnitude of this increase in her comments. On a positive note, reported claims in the second quarter of 2010 were up only slightly from the second quarter of 2009, by less than 1%. In terms of severe loss experience, there was more good news, as we had only two claims with estimated incurred. Of more than $1 million during the second quarter of 2010. One of those claims was subsequently reduced by more than $2 million in July. The total incurred on those two claims currently stands at approximately $3.6 million, a far cry from the $15.5 million in severe claims during last year's fourth quarter. As a result of the increase in our claims duration, our claims closure rate was down slightly in the second quarter, year-over-year. On the other hand, our paid to incurred ratios for the three most recent accident years continue to look strong, which we view as an indicator of case reserving adequacy. With that, I will turn the discussion to Janelle for details regarding our financial performance. Thank you, Mr. President. Good morning, everyone. In the second quarter of 2010, AMERISAFE reported net income of $10.4 million, compared to $13.7 million in the second quarter of 2009, a 23.9% decrease. Gross premiums written in the second quarter of 2010 were $63 million, compared to $72.5 million in the prior year period, a 13.2% decrease. As Jeff discussed, there was a decline of 6.7% in voluntary premiums for policies written in the quarter, as well as a downward pressure from audit adjustments for policies written in previous quarters. Net premiums earned decreased 19.5% from the year ago quarter as a result of declines in gross premiums written over the last year. Our net investment income totaled $6.7 million, a 4.4% decrease from the prior year period. Average invested assets declined 1% from the year ago period, to $800.4 million, and the tax equivalent yield on our investment portfolio declined to 4.7%, compared to 5% in the second quarter of 2009. In total, revenue in the second quarter of 2010 was $60.1 million, down 18.2% from $73.5 million last year. Our current accident year loss ratio was 75.5% for the quarter and 74% for the six months ended June 30th, 2010, compared to 69% in the second quarter of last year and 73.8% for the full year of 2009. Our incurred loss and loss adjustment expenses totaled $33.7 million, which included $6.3 million of favorable prior year development. This compares to $40.2 million in last year's second quarter, which included $5.2 million of favorable prior year development. In total, our net loss ratio for the second quarter of 2010 was 63.6%, compared to 61.1% in the second quarter of 2009. In the second quarter, total underwriting and other expenses decreased 14.7% to $12.3 million from $14.5 million in the second quarter of last year. Expenses included $5 million of salaries and benefits, $4 million of commissions, and $3.4 million of underwriting and other costs. With lower earned premiums, the expense ratio rose to 23.3%, from 22% in the same period a year ago. In total, our combined ratio was 87.3% in the second quarter of 2010 versus 83.3% in the same period in 2009. Diluted earnings per share for the quarter were $0.54, compared to $0.67 for the second quarter of 2009. We reported minimal after-tax capital gains and losses in both periods, operating net income was not materially different from net income. In the second quarter, we repurchased 329,109 shares at an average price of $16.72. As of June 30th, 2010, we spent $6.6 million of the $25 million authorized for our share repurchase program. Return on average equity for the second quarter of 2010 was 13.3%, compared to 18.6% for the second quarter of 2009. Book value per share at June 30th, 2010 was $17.01 compared to $15.10 at June 30th, 2009, an increase of 12.6%. Net unrealized gains on our investment portfolio classified as held to maturity totaled $25.6 million. These unrealized gains were not reflected in our income or book value. Finally, statutory surplus at June 30th was $317.1 million. That concludes my prepared remarks on the financials. I'll now turn the discussion back to Allen. Thanks, Janelle and Geoff. As you can see, AMERISAFE has stayed the course and remained focused on our objective of being a growth company. At least that's the way we describe it because we intend to continue to grow book value for our shareholders. With that, we'll open the call for questions. Thank you, sir. We will now begin the question and answer session. As a reminder, if you have a question, please press the star followed by the one on your touch tone phone. If you would like to withdraw your question, please press star followed by the two, and if you're using speaker equipment, you will need to lift the handset before making your selection. Please ask one question and one follow-up and re-queue for additional questions. Our first question is from the line of Matthew Carletti with Piper Jaffray. Please go ahead. Good morning, everyone. Congratulations on the quarter. I guess also congratulations, Jeff, on the promotion there to President. Thank you, Michael. The question, Jeff, I want to take you back to your comments around going with the higher accident year loss ratio. I guess the question is, how do you peg it? With severity seemingly going higher and higher, we just don't know sort of when that ends, that combined with the higher frequency of claim. Can you talk a little bit more about that? Sure. Obviously, Michael, we spend a lot of time with this, especially as metrics are turning in terms of inflection points, which is the case with frequency and duration of claims. We look at things like closure rates, reported severity, open severity, paid to incurred ratios, percentage of indemnity to non-indemnity claims in our open population. We try to determine what that means in terms of the big picture, in terms of the movement of ultimate losses. What I would say happens, and you realize that the end selections we make accident year by accident year involve quantitative information behind those selections, but in the ultimate, a qualitative final determination on what seems to be the most likely loss ratio. We have looked very specifically at the frequency and severity changes, which we indicated are up, but not up appreciably. That gives us all the more reason to say these claims, we are going to get more claims as a function of earned premium, which is going to cause us to be more conservative on the reserves for those claims or for the book of business, the accident year we're talking about, and the duration, which is going to cause us to be paying out longer and putting higher severities on that. Our ratio at the end of the first quarter was 72.8%, I believe. 72.5. 72.5%. We saw enough movement in the severity and frequency to say it behooves us at this point in time, early on in the accident year 2010, still very green, to increase that by a point and a half. We're talking about a process that takes probably a good month, right to the end of the subsequent month after the quarter to sort through all of the detailed metrics and then get to an aggregate ratio. I hope that answers your question. That's very helpful in addressing it and understanding it much better. I guess the one thing I didn't hear there was sort of how do you think about any new policyholders that maybe you have in your books? Any change there in driving, I guess, the change in frequency? New policyholders driving the change in frequency. I don't believe we're seeing that. I don't believe that's going to bear out in terms of business uptick in frequency. We're still doing the same underwriting, Mike. If there's any change, it's in the way and the detail in which the frequency and the detail in which we're segmenting the marketplace, looking at pricing literally every day and at least once a week saying, okay, now what do we have state by state, industry by industry, and does that mean we increase prices in certain segments or we decrease prices in certain segments? Okay. Our aim is not to, from the standpoint of claims frequency and experience, to get better and better at this from a segmentation standpoint. There is still a huge issue with loss costs, which are driving that denominator down and which is part of the frequency equation. It is our intent to keep the frequency as low as possible. I don't right now, the way we are pricing, the way we are underwriting, the way we do our safety, I do not expect frequency to go up appreciably unless we have another year of loss cost decreases countrywide. Okay. Basically, the approach, Mike, has been fairly direct. We want to reward those things that have produced good results and not reward those things that have produced bad results. Right. In the sub-segmentation, just basically what we've done is go in and say, these particular units in these states of these sort of characteristics have not performed well. We don't want to do those. These have performed exceptionally well, and we want to reward those, and we want more of those and less of the other. Okay. Thanks for those comments. I guess just one other question around the competitive landscape. Then I'll get back in the queue. It's just any change. It continues to be challenging, as you say, but any change in terms of the various buckets from large to small to mid-size accounts in terms of the competitors? Thank you. I would say that the change in the competitive landscape with respect to policy size, as we have seen some large national carriers who had dropped down in some areas of interest in writing smaller policies have actually stepped back away from those. We have seen some of those, Jeff, when you say avoid certain classes in totality in some states. Right In the severity-driven business. We've also seen, as I've commented earlier, alternative market mechanisms, such as self-insurance funds, find themselves increasingly under stress as the market's been soft for a long time, and those are really hard market alternatives for risk transfer. We've seen some of those. Those have been in states where we do business as well as in states where we don't do business. That seems to be a phenomenon that. That happens every time the market goes into an extended soft cycle. Mike, I'll follow up on Allen's comments by telling you that as we increase our premium band, we call it, we band premiums like $10,000-$15,000, $100,000-$200,000, et cetera. We have about 10 bands that we track. As you might well imagine, as we go up that band to higher premiums, our hit ratio starts decreasing, and it decreases appreciably by the time we get to the large premiums because the competition, especially for good accounts that we may want to compete for, becomes unbelievably fierce. I'll give you just an anecdote. We recently quoted a policy for a large policy for trucking risk for around $650,000, and we were beaten by $200,000 on that account. That was close, huh? Yeah, pretty close. It's extremely fierce and it is not getting any better in the high policies, although, as C. Allen said, where there may be some movement, we're hearing the right things. We're still pretty good at converting that business in our sweet spot around $25,000-$50,000. Thank you. Thank you. Our next question is from the line of Mark Hughes with SunTrust. Please go ahead. Yeah, thank you. Congratulations, Jeff. The audit premium for the third quarter, any way to bracket that at this point? Well, that's a great question, and you probably remember Alan and I being a little bit sanguine about what was going to happen and when audit premium was going to turn, which is sort of saying, when do we get to the point where the estimate that our insureds and our agents and our underwriters make of the coming 12 months gets to the point where it's more accurate and maybe even turns positive. I have to tell you, I was disappointed in seeing that it didn't turn during the second quarter. As a matter of fact, I'll tell you, it didn't turn during July as well. Audit premium is a very tough issue right now. I still am going to expect it to turn this year, but I started by saying the second quarter and the third quarter is not looking like it's yet making that turn. Just to put some dollars around it, Mark, the total premium adjustments number for the quarter was a negative $9.2 million. Last June, just the quarter, was $5.4 million. Right. At least in July, the pace is similar, and maybe we'd anticipate that it might drop in subsequent months, but we can't say for sure yet. Is that fair? Yeah, let me clarify a little bit. July audit premium was down from June, and June was down from May. Okay. I had really hoped that it would be to the point where we saw a possibility of it turning positive, not lowering the negative, but actually turning positive late in the third quarter. I can't say I think that's going to happen now. We generally don't like to give the specific monthly numbers. It did improve by about 33% July 2010 versus July 2009. It did. Right. Okay, good. That's helpful. It was not positive. Right, less negative. Yes. Less negative positive. Yeah, the frequency, it was up relative to earned premium, correct? Just up slightly on an absolute basis? Well, claim count was up slightly on an absolute basis, yes. It was up relative to earned premium was the point I think you were making. Is that right? Right. Yes. I guess the other point of that, just to clarify, is that severity was up less than expected. Right. Okay. We did not have as many large claims. We pushed it out because of this elongation we see. I think the other important point that Jeff made was it paid to incurred ratios are stronger significantly than they were at this point in time last year. Okay. Jeff, you can vacation in Hawaii, just don't follow the example on the balance sheet. It's okay, Mark, he's driving. Thank you. Our next question is from the line of Bijan Moazami with FBR Capital Markets. Please go ahead. Good afternoon. I guess you guys had reserve releases from 2006 and 2007 accident year, and you mentioned that paid to incurred is performing relatively well for the last three accident years. Does it mean that the 2008 and 2009 initial loss pick that you assumed is not likely to be changed anytime soon? In this quarter, we did not change our loss pick for 2008 or 2009 as far as ALAE is concerned. Obviously, ALAE. There was a little bit of change in ULAE, but that was it. Okay. You'll see that on our Q. Okay. They're awfully green years still, Bijan, we'd like a little more time behind us, the metrics are promising. Okay, that's it. In terms of the premium audits, I was a little bit surprised that it is still coming out to be quite negative. What do you see in your crystal ball on that front? That's a very tough question. I guess I'll say again that what we look at month in, month out is estimated annual premium versus reported premium. We continue to look for a reported premium as sort of a barometer of future audit premium. We haven't seen enough change in what our insureds are reporting every month in the way of payroll and premium to indicate yet that there's a big change. As Allen rightly pointed out, the negative is shrinking. At one time, as you know, Bijan, in our early public company life, we were generating very significant positive audit premium every single quarter. Those days are not upon us yet. We look forward to them, we've got to see more market turn. Realistically, I don't know if I want to do a crystal ball thing, I had predicted earlier in the year that it would turn in the third quarter, I'm much less optimistic about that prospect. Okay. You guys also mentioned that the duration of indemnity claims is increasing. Is there also high medical utilization rate associated with that? As people stay longer out of a job, they use more of the different kind of services? Bijan, this is Allen. Returning folks to work and to limited duty is one of the principal tools available to workers' comp insurers to close claims. High unemployment levels, employers that have had to scale back the workforce, does not bode well for trying to return someone back to a light-duty job. Anytime they stay out for a longer period of time in order to remain on that temporary total disability, there has to be medical support for the condition. There's more doctor visits, there's more prescription drugs, there's more of those sort of things. You see that elongation of claims, and that's a bit of concern. That, by the way, as Geoff correctly pointed out, was commented on by the NCCI in May at their conference, and I think you've probably heard other insurers talking about elongation or duration of claims. The other thing that's related to what Allen just said, Bijan, is that as you're nearing a point where maybe in the past, temporary total disability would have run its course and the employee would be ready to return to work, where that's not the case now, and it makes sense for us to begin a process of vocational rehabilitation, and those costs are also going up. If that claimant can't return to light duty at their same company, we deploy voc rehab folks to try to get them into some other field at which their disability allows them to perform. Right. One last question relating to California. Some of your competitors obviously had tremendous amount of losses there, and they are getting a lot of rate increases. In your opinion, are those rate increases enough to turn around that market? Bijan, we don't consider ourselves experts on the California market. I'll make one general comment that I think applies to California, Georgia, and any other state. When the actuaries, when the statistical agents come in and say the losses, these are non-political parties that come in and say the loss trends are X point and you need to move rates up 20%, sticking your head in the sand is not an appropriate response. If you recall in California, the rating bureau there has been recommending more than 20% rate increases for several years. Matters neither created nor destroyed. It just changes form. The impact, the pressures on loss drivers do not go away. Sure, you can underwrite around it and try to sub-segment and try to offset some of that. Medical cost inflation, wage cost inflation, and the cost of doing business continues to rise. I promise you a broken leg this year will cost more than a broken leg last year. That's the reality of all markets, not just California. California, because of the dynamics of their reforms and the way the reforms work their way through the system, is clearly leading the rest of the nation in a change in the needed premium in the state. Interesting. Thank you. Okay. Thank you. Our next question is from the line of Matt Carletti with JMP Securities. Please go ahead. All right, thanks. Good morning, and congratulations, Jeff. Thank you, Matt. Just a quick question. I wanted to go back to the frequency issue. I heard you mention, Jeff, and I think I recall this from the past, that when you quote frequency, you're basing it on an earned premium base versus most statistical agencies and a lot of peers that base it off of number of insured workers. I think the earned premium base makes more sense because that's what you get paid in, for apples-to-apples comparison, if you were to base it on workers, what would that trend have looked like? Well, Matt, I actually have that. On a payroll basis, it's flat, on an FTE basis, it's flat to slightly down. We actually measure it on all three bases. The one that counts is premium. Right. As far as we're concerned. That's helpful. Thank you. Now, Matt, the disjoint sort of between the NCCI, whose actuaries obviously develop the loss cost. They develop loss cost based on purely an exposure base of payroll. If you think about in this market of decreasing premium, where from a financial perspective, our frequency is going up, and yet the actuaries who set the loss costs are seeing flattening, they're not going to react to our financial benefit as quickly as we would like. Right. Make sense? Makes a lot of sense. Great. Thanks a lot. Thank you. Our next question is from the line of Michael Nannizzi with Oppenheimer. Please go ahead. Thanks. Jeff, also congrats. It also coincides with your 70th birthday. Is that right? Next questioner. All right. Just a quick question for you on the buybacks, if I could, and maybe this is a Janelle question, but is the trajectory to get that done still kind of year-end? 6.6 out of 25 through about the halfway point, is that still kind of the expectation to exhaust that through year-end? Given our price in the market, Mike, I don't see that we could probably get through the $25 million by year-end. Okay. Got it. Jeff, you had mentioned in July the reduction in the severe loss, I think. Does that mean that we'll see that flow through the income statement in the third quarter? Well, in that particular case, in that particular claim, it definitely will. Okay. In the aggregate, I can't tell you. Let me give you a little of the detail there, Mike. Sure You understand. We had a very severe accident with a severe burn case in mid-June. By the end of June, our claims people were at the point of having to make a call on most likely outcome. Right. The individual had lost both legs, but had survived the first very severe period where they were kind of moving between life and death. We made the determination that this person was going to survive and applied the proper rated age and did the math and came up with $2.7 million. Tragically, that person died about two weeks later in July. We took that reserve down to basically paying the remainder of the outstanding medical costs and the death benefit. It's not frequent, but it does happen, and it goes along with, it's part and parcel of the way we approach reserving. Great. Thank you so much for answering the question, and sincerely congrats, Jeff. Thank you. Thank you. Ladies and gentlemen, if there are any additional questions, please press the star followed by the one at this time. As a reminder, if you are using speaker equipment, you will need to lift the handset before making your selection. Our next question is a follow-up question from Mark Hughes. Please go ahead. Thank you. On the new business that you have targeted, talked about those pricing initiatives, is it your expectation that those margins will be consistent with your historical norm? You talked about identifying certain pockets that were more attractive. Are we to think that you have priced it such that, is it that your returns will be similar? Yes, Mark, that is correct. I probably should mention that whereas in the first quarter, we mentioned some possible new geographies and territories, that was not the case in the second quarter. This was all segmentation analysis and using existing sub-segments that were quite profitable for us and making pricing adjustments on those. We did not expand in terms of territories or industries or states. Okay. Any comment on your non-residential construction policyholders or clients? How are they doing in terms of their payrolls? I don't think we have that number right here. I will tell you that we don't see any great improvement. We don't see great degradation as well. No, overall, payrolls are flat. Actually, a couple of the months in this quarter, payrolls were up. I don't have that answer for you, Mark. I didn't segment it by industry to prepare for this call. One of the reasons, and what Jeff's talking about is reported payrolls, that they were actually higher than anticipated. It's difficult to get terribly excited about that during the second quarter since it's a full employment quarter. The weather's good, people are working. It may be a trend. It may just be good weather. Right. At least flat rather than down. Yes. Yes. Yes. Okay, great. Thank you. Thank you. There are no further questions at this time. I would now like to turn the call back over to management for any closing statements. Thank you. Thank you, ladies and gentlemen, for joining us today. I'd like to kind of leave you with one last thought. Recently, Tom Bolt, Mr. Tom Bolt, who is the Director of Performance Management at Lloyd's of London, was asked to comment upon the timing or potential change in the market from its soft condition as far as the P&C market goes. His comment was, and I quote, "CEOs won't move prices until they see blood in the street and have the concern that some of it might be theirs." That's an interesting quote. I guess keeping with his analogy, one would have to say that AMERISAFE has been following the philosophy espoused by Virgil "The Turk" Sollozzo, who in the 1972 blockbuster movie, "The Godfather," reasoned with Tom Hagen, who was a consigliere, as you remember, of the Corleone family. His quote was, "I don't like violence, Tom. I'm a businessman. Blood is expensive." We are dedicated to trying to minimize any of our blood that we find in the street. Thank you for joining us today. Ladies and gentlemen, this concludes AMERISAFE's second quarter earnings conference call. You may now disconnect. Thank you for using ACT Teleconferencing.