Vincent Gagliano - Chief Risk Officer Janelle Frost - President and Chief Executive Officer Neal Fuller - Chief Financial Officer

Mark Hughes - SunTrust Weston Bloomer - FBR Capital Markets Matthew Carletti - JMP

Good morning. Welcome to the AMERISAFE 2016 first 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 is the result 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, Vincent, and good morning everyone. Thank you for joining the call today.

We are pleased with this quarter's financial results. An 86.6% combined ratio demonstrates AMERISAFE's commitment to providing quality insurance services to our customers and returns to our shareholders.

Before I get to the operational metrics, I would like to make a few remarks regarding the worker's compensation market in which we operate. My description of the market as increasingly competitive has not changed.

We continue to receive pressure from multi-line carriers on accounts with premium over $100,000. However I would say pricing pressure has intensified.

Loss cost continued to decline and carriers are cutting prices to retain account. This combination could lead to underpriced books as the softening market continues.

For AMERISAFE this means we must maintain our underwriting discipline and not let the market dictate our approach. So let me review the operational metrics for the quarter.

In the first quarter premium on voluntary policies written in the quarter declined 0.6%. Our average ELCM decreased from 1.76 in the first quarter last year to 1.65 this quarter.

We feel pricing flexibility can best we measured on those accounts for which we offer renewal. As I mentioned earlier, we felt the most competition on accounts over $100,000 in premium.

For those large accounts, we saw a decrease in policy account retention even though our overall policy account retention increased from 91.6% to 92.7% this quarter. In all, we grew voluntary policy count by 4.5%.

Both new and renewal accounts were up, yet renewal premium was down 0.9%. Top line however was down 5.3% primarily driven by audit premium and related adjustments.

Payroll audits and related premium adjustments increased premiums written this quarter by $2.2 million. However last year's first quarter the adjustment added $6.6 million to premiums written.

First quarter last year was our largest quarter for audit premium and related adjustments since 2012. This year's first quarter is more in line with what we saw at the end of last year.

Relative to losses, the quarter's loss ratio was 61.8%. The current accident year is estimated at 69%, which is 1.1 percentage points higher than active in year 2016.

I believe this increase in the expected ultimate loss ratio clearly reflects the declining rate environment. We also experienced $6.5 million of favorable development this quarter primarily the result of favorable case development.

As was the circumstance with audit premium. The year-over-year comparison speaks to our lumpy business.

The timing of case reserved changes is random. In last year's first quarter we experienced significant case development.

In fact, it was the largest quarter of 2016 for favorable development and not in line with the company's historical quarterly pattern. Simply put [ph] we're in a lumpy business.

But this has not changed our reserving philosophy as we believe, our reserves are prudent. I will now turn the call over to Neal Fuller, our CFO to discuss the financials.

Thank you, Janelle and good morning, everyone. For the first quarter of 2017, AMERISAFE reported net income of $13.5 million or $0.70 per diluted share compared with $24.3 million or $1.27 per diluted share in last year's first quarter, a decrease of 44.2%.

For those following AMERISAFE closely, you will recall that in last year's first quarter we saw record favorable reserve development and very high levels of audit premium. Operating net income in the first quarter of 2017 was $13.6 million or $0.71 per diluted share down from the record levels of last year's first quarter.

Revenues in the quarter decreased 4.7% to $97.5 million compared with last year's first quarter. Net premiums earned decreased 5.3% to $90.9 million when compared to the first quarter of 2016.

Net investment income was $6.7 million in the first quarter of 2017, an increase of 11% when compared with last year's first quarter. The significant driver of this increase was the decline in the value of a limited partner hedge fund investment in last year's first quarter.

This limited partnership is mark-to-market through net income each quarter. Without the hedge fund, net investment income was up 3.1% compared to the first quarter of 2016.

The tax equivalent yield on our investment portfolio at the end of the quarter was 3.4% up slightly from 3.3% at the end of the first quarter of 2016. There were no impairments or significant realized gains or losses during the quarter.

The investment portfolio continues to be high quality carrying an average AA minus rating with an average duration of 3.82% and with 50% in municipal securities, 27% in corporate bonds and the remainder in cash and other investments. Over the past year, our allocation to municipal bonds has increased slightly and our allocation to corporate bonds has decreased slightly.

Approximately 52% of our investment portfolio is classified as held to maturity which is in a net unrealized gain position of $8.5 million. These gains are not reflected in our book value as these bonds are carried and amortized costs.

With regard to operating expenses our total underwriting and other expenses increased 5.4% in the quarter to $21.2 million compared with the $20.1 million in the same quarter last year. We saw slight increases in compensation costs, insurance assessment and premium taxes offset by a decrease in commissions during the quarter compared with last year's first quarter.

By category, the first quarter of 2017 expenses included $6.3 million of salaries and benefits, $6.4 million of commissions and $8.5 million of underwriting and other costs. Our expense ratio for the first quarter was 23.3% compared with 21% in the first quarter of last year.

The ratio increased 1.1 points due to lower net premiums earned and 1.2 points due to the expenses in the quarter. Our tax rate decreased to 27.8% in the quarter down from 29.5% in the first quarter last year.

The increase reflects the larger amount of tax exempt income compared with taxable income during the quarter. Return on equity for the first quarter of 2017 was 11.7% compared to 20.8% for the first quarter of 2016.

Operating ROE for the quarter was 11.8%. On April 25, 2017 the company's Board of Directors declared a regular quarterly cash dividend of $0.20 per share payable on June 23, 2017 to shareholders of record as of June 9, 2017.

And finally a few other items to know. Book value per share at March 31, 2017 was $24.29 up 2.4% from year end.

Our statutory surplus rose to $408.3 million at March 31, 2017 up $14.3 million from year end. And then finally, AMERISAFE expects to file both our Form 10-Q for the first quarter and our annual proxy statement with the SEC, this Friday April, 28.

That concludes my remarks and we would now like to open up the call to investors for our question-and-answer session. Operator?

Thank you very much, good morning. Any change in loss trends in the quarter, did you have any more large losses than you might have expected?

No, Mark. We had two, when we talk about large losses internally we typically talk about the claims over $1 million.

We had two of those this quarter. Last year in the first quarter we had zero, but at the end of the year, I think the end of the year was 17, so you know I hate to keep repeating myself, but it's my best way of phrasing it, we're in a lumpy business these things are rather random, we can't plan which quarter's they're going to fall in, but there was nothing about the large losses that I would cause me to say, it was unaffected.

How about in terms of just underlying frequencies severity?

Yes, a good question. We've seen declining frequency over the last I don't know how many years, my assumption and I've been saying I think I said this even on the year-end call.

My assumption coming into '17 is that we will see frequency flatten or slightly increased. Simply because if I had the same mix of business and the same number of claims I know I'm getting less premium for that, so the math would tell me, there should be pressure on the frequency numbers.

Is that would have borne out in Q1 or still waiting for that?

No, it was not but three months' worth of data does not [indiscernible].

Right. The case development, I think you had I heard you refer to maybe setting delay in settlements in the fourth quarter.

Maybe some of the legal professionals hoping for lower tax rate. Was there any kind of impact that you could see in Q1 from either factor like that or anything else that might have influenced the case development in the period?

No, you know the case developments that we experiencing period again was not unexpected. I think in comparison to last year, it certainly looks a lot smaller but there are couple things about last year that I just reiterate that I think we talked about, one was we had specific claims last year that were large claims that we were able to close or settle in the first quarter that typically wouldn't have happened.

I think that was unusual in the pattern and then plus if you recall, we actually adjusted accident year 2014 in the first quarter last year because of case development that we saw, typically that's not our pattern, we usually wait 30 to 36 months. So and I think that was somewhere around $3.9 million in the first quarter of 2016.

So I don't think there is anything unusual about the case development that we saw this year, just comparatively it, that looks smaller.

On the expense ratio, assuming relatively steady top line trends, would this be good level that we sustain in for modeling subsequent quarters or any outlook to change?

This is Neal. There is no outlook for to change.

I think we typically have seen the expense ratio run between 23 and 24 last year the first quarter, I think was unusually good and this is more normalized ratio I would say.

So to think about, one follow-up question on the favorable development you emphasized that it's largely case development. Is there some point at which you have more potential for IBNR to look at those numbers and make an updated adjustments, is that more likely in coming quarters or is it, it's always equally is likely.

I think it's always equally is, that's a great question. We do look at IBNR levels every quarter and I think before, for more recent accident years we try to get that 30 to 36-month window just because we feel like we have a better handle on the case reserve at that point there is a going to be a movement in a large claims that typically happens by that point, but we do look at it every quarter.

Understood. Thank you.

This is Weston Bloomer on for Randy. Thanks for all the commentary on the PUID [ph] lumpiness.

Could you possibly breakout the accident years for the $6.5 million of PUID [ph]. I think last year you called out there was development in 2012, does that start to dry up or is that still?

Great, question. So as per the years 2014 was $4 million, 2013 was $2.4 million and prior to 2012 was $0.1 million.

Okay, great.

I think that gives you to $6.5 million. And I think - like I said it was driven by case development and 2012 I certainly don't know about, what drying up would entail.

Last year in the first quarter our large movement was a 2012 case that we were able to settle. So it's random.

Okay, I appreciate that commentary and then jumping to the premium audit. Is this kind of new normal for the pace of premium audit that should we expect at this current pace and then was the exposure more concentrate or broad based?

I think in the past you called out oil and gas, is there anything else to call out there?

Yes, good question. So yes the audit premium, the audit premium and related adjustments this quarter were more in line with what we saw in the fourth quarter, so if that's normalizing then I would say yes that's the case compared to first quarter last year, it does look unusual but it's more in line with what we thought in the fourth quarter.

As far as audit premium itself this quarter, we continue to see negative audit coming from the oil and gas industry and actually this quarter we saw it coming, it was in our trucking book, it was also in our construction book.

Okay, great. I'll jump back in the queue.

If I have any more questions. Thanks for the color.

Two questions, one just kind of triangulating your comments on frequency with the one point addition to the accident year. so would I be correct, you mentioned kind of the declining rate environment which is kind of we all know about in terms of factor into bumping it up a point.

Are you also in there implicitly assuming that frequency does turn the corner and go up because it seems to be given where severity and frequency are currently being observed that those two items might largely cancel each other out, but you're looking forward and it just sounds like maybe, assuming the flat top.

Yes, I think you're right now. I think we're anticipating little increase.

Okay, all right. Perfect.

And then, go ahead. I thought, I was cutting you off.

The other question I have was more about the higher level one but you mentioned about the competition particularly in large accounts. If you guys look back over time in terms of dissecting out the profitability in your book, the underwriting profitability based on, how much of your profitability overtime has come from those large accounts versus small and medium size accounts.

That's a really good question. We have possibility of large accounts.

They tend to be profitable for us, maybe a couple of points here or there on the loss ratio perspective. Our issue with the large accounts is that, they're just not sticky.

They don't stay with us. They're extremely competitive.

So as the market changes, so those accounts.

That makes sense. Okay, great.

Thank you for the answers and best of luck for the rest of the year.

Thank you.

Thank you. I started the call stating we were pleased with our results this quarter and I will end reiterating the same.

An 86.6% combined ratio, our disciplined approach to the softening market and a clean balance sheet are a great way to start 2017. Thank you for joining us today.