AMERISAFE, Inc. Annual Report 2019

FY2019 Annual Report · AMERISAFE, Inc.

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Dear Shareholders,

Since our beginning in 1985, AMERISAFE prides itself on our distinguishing service and approach to
workers’ compensation. Our pillars of distinction are recurring topics with shareholders; high hazard niche focus,
small to mid-size employer focus, high hazard underwriting expertise, comprehensive safety services, and
intensive claims management.

These pillars are also dependent on execution by our experienced and dedicated employees. The current

environment resulting from the coronavirus pandemic highlights our employees’ strongest attributes.

We, like most companies, transitioned to work-from-home and virtual customer contact in mid-March 2020.

Throughout the transition and the ongoing isolation environment, AMERISAFE remains open for business,
serving policyholders, claimants and agents. This was only possible because of the tremendous effort and
commitment of our employees. AMERISAFE put employee health and safety first, and they in turn served one
another and our customers. Dedication at its finest.

The annual report accompanying this letter features AMERISAFE’s operations and financial results. Our

pillars of distinction, coupled with our dedicated employees, have provided returns to our shareholders,
protection to our policyholders and care for injured workers over many successful years. In 2019 we reported a
return of average equity of 22.1% and book value per share of $22.29, after paying $4.50 in cash dividends.
Additionally, the Company had $1.2 billion in cash and invested assets and no debt as of December 31, 2019. We
are financially stable, adequately capitalized, and fulfilling our mission of providing quality insurance services.

On behalf of the AMERISAFE employees, thank you for your investment in AMERISAFE.

With gratitude,

G. Janelle Frost
President and Chief Executive Officer

2301 Hwy 190 West, DeRidder, LA 70634 O 337.463.9052 F 888.331.8870

amerisafe.com

American Interstate Insurance Company - Amerisafe Risk Services, Inc. - American Interstate Insurance Company of Texas - Silver Oak Casualty

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019
or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM

Commission File Number: 001-12251

AMERISAFE, INC.

(Exact Name of Registrant as Specified in Its Charter)

Texas
(State of Incorporation)

2301 Highway 190 West,
DeRidder, Louisiana
(Address of Principal Executive Offices)

75-2069407
(I.R.S. Employer
Identification Number)

70634
(Zip Code)

Registrant’s telephone number, including area code: (337) 463-9052
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common

Trading Symbol(s)
AMSF

Name of each exchange on which registered
NASDAQ

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such
files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Non-accelerated filer

☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Accelerated filer
Smaller reporting company
Emerging growth company

☒
☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of June 30, 2019 the last business day of the
Registrant’s most recently completed second fiscal quarter was approximately $1,219.4 million, based upon the closing price of the shares on the
NASDAQ Global Select Market on that date.

As of February 14, 2020, there were 19,302,583 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.

Portions of the Registrant’s Proxy Statement relating to the 2020 Annual Meeting of Shareholders are incorporated by reference in Items 10, 11, 12,
13 and 14 of Part III of this report.

DOCUMENTS INCORPORATED BY REFERENCE

TABLE OF CONTENTS

PART I

Forward-Looking Statements ......................................................................................................................................

Item 1

Business.......................................................................................................................................................................

Item 1A

Risk Factors .................................................................................................................................................................

Item 1B

Unresolved Staff Comments........................................................................................................................................

Item 2

Item 3

Item 4

PART II

Item 5

Item 6

Item 7

Properties.....................................................................................................................................................................

Legal Proceedings........................................................................................................................................................

Mine Safety Disclosures ..............................................................................................................................................

Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities ......

Selected Financial Data ...............................................................................................................................................

Management’s Discussion and Analysis of Financial Condition and Results of Operations ......................................

Item 7A

Quantitative and Qualitative Disclosures About Market Risk.....................................................................................

Item 8

Item 9

Financial Statements and Supplementary Data............................................................................................................

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................................

Item 9A

Controls and Procedures ..............................................................................................................................................

Item 9B

Other Information ........................................................................................................................................................

PART III

Item 10

Directors, Executive Officers and Corporate Governance...........................................................................................

Item 11

Executive Compensation .............................................................................................................................................

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ....................

Item 13

Certain Relationships and Related Transactions, and Director Independence.............................................................

Item 14

Principal Accountant Fees and Services......................................................................................................................

PART IV

Page
No.

Item 15

Exhibits and Financial Statement Schedules ...............................................................................................................

100

Item 16

Form 10-K Summary...................................................................................................................................................

102

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 21E of the
Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements include
statements that reflect the current views of our senior management with respect to our financial performance and future events with
respect to our business and the insurance industry in general. Statements that include the words “expect,” “intend,” “plan,” “believe,”
“project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify
forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or
will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe
that these factors include, but are not limited to, the following:

(cid:220)

the cyclical nature of the workers’ compensation insurance industry;

increased competition on the basis of types of insurance offered, premium rates, coverage availability, payment terms,
claims management, safety services, policy terms, overall financial strength, financial ratings and reputation;

changes in relationships with independent agencies;

general economic conditions, including recession, inflation, performance of financial markets, interest rates,
unemployment rates and fluctuating asset values;

developments in capital markets that adversely affect the performance of our investments;

technology breaches or failures, including those resulting from a malicious cyber attack on the Company or its
policyholders and medical providers;

decreased level of business activity of our policyholders caused by decreased business activity generally, and in particular
in the industries we target;

greater frequency or severity of claims and loss activity than our underwriting, reserving or investment practices anticipate
based on historical experience or industry data;

adverse developments in economic, competitive, judicial or regulatory conditions within the workers’ compensation
insurance industry;

loss of the services of any of our senior management or other key employees;

changes in regulations, laws, rates, rating factors, or taxes applicable to the Company, its policyholders or the agencies
that sell its insurance;

changes in current accounting standards or new accounting standards;

changes in legal theories of liability under our insurance policies;

changes in rating agency policies, practices or ratings;

changes in the availability, cost or quality of reinsurance and the failure of our reinsurers to pay claims in a timely manner
or at all;

the effects of U.S. involvement in hostilities with other countries and large-scale acts of terrorism, or the threat of
hostilities or terrorist acts; and

other risks and uncertainties described from time to time in the Company’s filings with the Securities and Exchange
Commission (“SEC”).

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements in
this report, including under the caption “Risk Factors” in Item 1A of this report. If one or more events related to these or other risks or
uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we
anticipate.

Item 1.

Business.

Overview

PART I

We are a specialty provider of workers’ compensation insurance focused on small to mid-sized employers engaged in hazardous

industries, principally construction, trucking, logging and lumber, manufacturing, agriculture, maritime, and oil and gas. Since
commencing operations in 1986, we have gained significant experience underwriting the complex workers’ compensation exposures
inherent in these industries. We provide coverage to employers under state and federal workers’ compensation laws. These laws
prescribe wage replacement and medical care benefits that employers are obligated to provide to their employees who are injured in
the course and scope of their employment. Our workers’ compensation insurance policies provide benefits to injured employees for,
among other things, temporary or permanent disability, death and medical and hospital expenses. The benefits payable and the
duration of those benefits are set by state or federal law. The benefits vary by jurisdiction, the nature and severity of the injury and the
wages of the employee. The employer, who is the policyholder, pays the premiums for coverage.

Hazardous industry employers tend to have less frequent but more severe claims as compared to employers in other industries

due to the nature of their businesses. Injuries that occur are often severe in nature including death, dismemberment, paraplegia and
quadriplegia. As a result, employers engaged in hazardous industries pay substantially higher than average rates for workers’
compensation insurance compared to employers in other industries, as measured per payroll dollar. The higher premium rates are due
to the nature of the work performed and the inherent workplace danger of our target policyholders. For example, our construction
employers on average paid premium rates equal to $5.57 per $100 of payroll to obtain workers’ compensation coverage for all of their
employees in 2019.

We employ a proactive, disciplined approach to underwriting employers and providing comprehensive services intended to
lessen the overall incidence and cost of workplace injuries. We provide safety services at employers’ workplaces as a vital component
of our underwriting process and to promote safer workplaces. We utilize intensive claims management practices that we believe
permit us to reduce the overall cost of our claims. In addition, our premium audit services ensure that our policyholders pay the
appropriate premiums required under the terms of their policies and enable us to monitor payroll patterns that cause underwriting,
safety or fraud concerns.

We believe that the higher premiums typically paid by our policyholders, together with our disciplined underwriting and safety,

claims and audit services, provide us with the opportunity to earn attractive returns on equity.

AMERISAFE, Inc. is an insurance holding company, incorporated in Texas in 1985. We began operations in 1986 by focusing

on workers’ compensation insurance for logging contractors in the southeast United States. Beginning in 1994, we expanded our focus
to include the other hazardous industries we serve today. Two of our three insurance subsidiaries, American Interstate Insurance
Company (“AIIC”) and Silver Oak Casualty, Inc. (“SOCI”), are domiciled in Nebraska. Our other insurance subsidiary, American
Interstate Insurance Company of Texas (“AIICTX”), is domiciled in Texas. All three insurance subsidiaries carry an A.M. Best rating
of “A” (Excellent).

Competitive Advantages

We believe we have the following competitive advantages:

Focus on Hazardous Industries. We have extensive experience insuring employers engaged in hazardous industries and have a
history of profitably underwriting these industries. Our specialized knowledge of these hazardous industries helps us better serve our
policyholders, which leads to greater employer loyalty and policy retention. Our policy renewal rate on voluntary business that we
elected to quote for renewal was 93.1% in 2019.

Focus on Small to Mid-Sized. We believe large insurance companies generally do not target small to mid-sized employers in

hazardous industries due to their smaller premium sizes, types of operations, mobile workforces and extensive service needs. We
provide these employers enhanced services, including premium payment plans to better match premium payments with our
policyholders’ payroll costs and cash flow.

Knowledgeable, Dedicated Employees. We deliver an exceptional product with integrity through professional, knowledgeable

and dedicated employees. Service is a distinguishing factor for the Company and the level of that service is dependent on the
expertise and caring culture of our employees.

Specialized Underwriting Expertise. Based on our 34-year history of insuring employers engaged in hazardous industries, we

have developed industry specific risk analysis and rating tools that support our underwriters in risk selection and pricing. We are
highly disciplined when quoting and binding new and renewal business. We do not delegate underwriting authority to agencies,
marketers or to any other third parties that sell our insurance.

Comprehensive Safety Services. We provide proactive safety reviews of employers’ worksites, which are often located in rural

areas. These safety reviews are a vital component of our underwriting process and also assist our policyholders in loss prevention, and
encourage safer workplaces by deploying experienced field safety professionals, or FSPs, to our policyholders’ worksites. In 2019,
90.9% of our new voluntary business policyholders were subject to pre-quotation safety inspections. Additionally, we perform
periodic on-site safety surveys of all of our voluntary business policyholders.

Proactive Claims Management. Our employees manage substantially all of our open claims in-house, utilizing intensive claims

management practices that emphasize a personalized approach, as well as quality, cost-effective medical treatment. As of
December 31, 2019, open indemnity claims per field case manager, or FCM, averaged 48 claims, which we believe is significantly
less than the industry average. We also believe our claims management practices allow us to achieve a more favorable claim outcome,
accelerate an employee’s return to work, lessen the likelihood of litigation and more rapidly close claims, all of which ultimately lead
to lower overall claim costs.

Efficient Operating Platform. Through extensive cost management initiatives, we maintain one of the most efficient operations
in the workers’ compensation industry. In 2019, our expense ratio was 22.3%. We believe that our expense ratio is substantially lower
than that of our competitors, which gives us a greater opportunity to generate an underwriting profit.

Strategy

We intend to produce favorable returns on equity and increase our book value per share adjusted for dividends paid to

shareholders using the following strategies:

Focus on Underwriting Profitability. We intend to maintain our underwriting discipline throughout market cycles with the

objective of remaining profitable. Our strategy is to focus on underwriting workers’ compensation insurance in hazardous industries
and to maintain adequate rate levels commensurate with the risks we underwrite. We will also continue to strive for improved risk
selection and pricing, as well as reduced frequency and severity of claims through comprehensive workplace safety reviews, effective
medical cost containment measures and rapid closing of claims through personal, direct contact with our policyholders and their
employees.

Increase Market Penetration. Based on data received from the National Association of Insurance Commissioners, the NAIC, we

do not have more than 4.2% of the market share in any state we serve. As a result, we believe we have the opportunity to increase
market penetration in each of the states in which we currently operate. Competition in our target markets is fragmented by state,
employer size and industry. We believe that our specialized underwriting expertise, use of data, and safety, claims and audit services
position us to profitably increase our market share in our existing principal markets, with minimal increase in field service employees.

Prudent and Opportunistic Geographic Expansion. While we actively market our insurance in 27 states, 49.9% of our voluntary

in-force premiums were generated in the six states where we derived 5.0% or more of our gross premiums written in 2019. We are
licensed in an additional 20 states, the District of Columbia and the U.S. Virgin Islands. Our existing licenses and rate filings will
expedite our ability to write policies in these markets when we decide it is prudent to do so.

Capitalize on Development of Information Technology Systems. We believe our underwriting and agency management system,
GEAUX, along with our customized operational system, ICAMS, and the analytical data warehouse that ICAMS feeds, significantly
enhance our ability to select risk, write profitable business and cost-effectively administer our billing, claims and audit functions.

Maintain Capital Strength. We plan to manage our capital to achieve our profitability goals while striving for optimal operating

leverage for our insurance company subsidiaries. To accomplish this objective, we intend to maintain underwriting profitability
throughout market cycles, optimize our use of reinsurance, deploy appropriate capital management tools, including paying dividends
to shareholders, and produce an appropriate risk adjusted return on our investment portfolio.

Industry

Overview. Workers’ compensation is a statutory system under which an employer is required to pay for its employees’ medical,

disability, vocational rehabilitation and death benefit costs for work-related injuries or illnesses. Most employers satisfy this
requirement by purchasing workers’ compensation insurance. The principal concept underlying workers’ compensation laws is that
employees injured in the course and scope of their employment have only the legal remedies available under workers’ compensation
laws and do not have any other recourse against their employer. An employer’s obligation to pay workers’ compensation does not
depend on any negligence or wrongdoing on the part of the employer and exists even for injuries that result from the negligence or
fault of another person, a co-employee, or, in most instances, the injured employee.

Workers’ compensation insurance policies generally provide that the insurance carrier will pay all benefits that the insured

employer may become obligated to pay under applicable workers’ compensation laws. Each state has a regulatory and adjudicatory
system that quantifies the level of wage replacement to be paid, determines the level of medical care required to be provided and the
cost of temporary or permanent impairment and specifies the options in selecting medical providers available to the injured employee
or the employer. These state laws generally require two types of benefits for injured employees: (1) medical benefits, which include
expenses related to the diagnosis and treatment of the injury, as well as any required rehabilitation, and (2) indemnity payments, which
consist of temporary wage replacement, permanent disability payments and death benefits to surviving family members. To fulfill
these mandated financial obligations, virtually all employers are required to purchase workers’ compensation insurance or, if
permitted by state law or approved by the U.S. Department of Labor, to self-insure. The employers may purchase workers’
compensation insurance from a private insurance carrier, a state-sanctioned assigned risk pool, or a self-insurance fund, which is an
entity that allows employers to obtain workers’ compensation coverage on a pooled basis, typically subjecting each employer to joint
and several liability for the entire fund.

Workers’ compensation was the fourth-largest property and casualty insurance line in the United States in 2018, according to
the National Council on Compensation Insurance, Inc., the NCCI. Direct premiums written in 2018 for the workers’ compensation
insurance industry were $58 billion, and direct premiums written for the property and casualty industry as a whole were $678 billion.
According to the most recent market data reported by the NCCI, which is the official rating bureau in the majority of states in which
we are licensed, total premiums reported for the specific occupational class codes for which we underwrite business were $18.1
billion.

Policyholders

As of December 31, 2019, we had more than 8,000 voluntary business policyholders with an average annual workers’

compensation policy written premium of $35,400. As of December 31, 2019, our ten largest voluntary business policyholders
accounted for 2.3% of our in-force premiums. Our policy renewal rate on voluntary business that we elected to quote for renewal was
93.1% in 2019, 93.6% in 2018, and 93.0% in 2017.

In addition to our voluntary workers’ compensation business, we underwrite workers’ compensation policies for employers

assigned to us and assume reinsurance premiums from mandatory pooling arrangements, in each case to fulfill our obligations under
residual market programs implemented by the states in which we operate. Our assigned risk business fulfills our statutory obligation to
participate in residual market plans in four states. See “—Regulation—Residual Market Programs” below. For the year ended
December 31, 2019, our assigned risk business accounted for 0.9% of our gross premiums written, and our assumed premiums from
mandatory pooling arrangements accounted for 2.3% of our gross premiums written.

Targeted Industries

We provide workers’ compensation insurance primarily to employers in the following targeted hazardous industries:

Construction. Includes a broad range of operations such as highway and bridge construction, building and maintenance of
pipeline and powerline networks, excavation, commercial construction, roofing, iron and steel erection, tower erection and numerous
other specialized construction operations. In 2019, our average policy premium for voluntary workers’ compensation within the
construction industry was $36,987, or $5.57 per $100 of payroll.

Trucking. Includes a broad spectrum of diverse operations including contract haulers, regional and local freight carriers, special

equipment transporters and other trucking companies that conduct a variety of short- and long-haul operations. In 2019, our average
policy premium for voluntary workers’ compensation within the trucking industry was $37,366, or $7.00 per $100 of payroll.

Logging and Lumber. Includes tree harvesting, tree trimming, sawmills, and other operations associated with lumber and wood

products. In 2019, our average policy premium for voluntary workers’ compensation within logging and lumber was $21,576, or
$10.12 per $100 of payroll.

Manufacturing. Includes a diverse group of businesses such as the production of goods for use or sale using labor and
machines, tools, chemical and biological processing or formulation. In 2019, our average policy premium for voluntary workers’
compensation within the manufacturing industry was $30,394, or $3.53 per $100 of payroll.

Agriculture. Includes crop maintenance and harvesting, grain and produce operations, nursery operations, meat processing, and

livestock feed and transportation. In 2019, our average policy premium for voluntary workers’ compensation within the agriculture
industry was $28,425, or $5.23 per $100 of payroll.

Maritime. Includes ship building and repair, pier and marine construction, inter-coastal construction, and stevedoring. In 2019,

our average policy premium for voluntary workers’ compensation within the maritime industry was $42,572, or $4.78 per $100 of
payroll.

Oil and Gas. Includes various oil and gas activities including gathering, transportation, processing, production, and field service
operations. In 2019, our average policy premium for voluntary workers’ compensation within the oil and gas industry was $39,944, or
$2.82 per $100 of payroll.

Other. Includes a wide variety of high-hazard businesses such as cell phone tower service and repair, window washers, metal

and scrap iron dealers, and other businesses.

Our gross premiums are derived from:

(cid:220)

Voluntary Business. Includes direct premiums from workers’ compensation insurance policies that we issue to employers
who seek to purchase insurance directly from us and who we voluntarily agree to insure.

Assigned Risk Business. Includes direct premiums from workers’ compensation insurance policies that we issue to
employers assigned to us under residual market programs implemented by some of the states in which we operate.

Assumed Premiums. Includes premiums from our participation in mandatory pooling arrangements under residual market
programs implemented by some of the states in which we operate.

Gross premiums written during the years ended December 31, 2019, 2018 and 2017, and the allocation of those premiums

among the hazardous industries we target are presented in the table below.

Voluntary business:
Construction
Trucking
Logging and Lumber
Manufacturing
Agriculture
Maritime
Oil and Gas
Other

Total voluntary business

Assigned risk business
Assumed premiums
Total

2019

Gross Premiums Written
2018
(in thousands)

2017

2019

Percentage of
Gross Premiums Written
2018

2017

$ 147,453
58,845
26,083
17,432
15,668
7,906
6,516
42,722
322,625
3,081
7,754
$ 333,460

$ 156,964
60,192
30,991
18,239
15,948
7,908
6,220
43,829
340,291
3,546
7,859
$ 351,696

$ 154,629
65,731
30,488
20,005
16,309
7,606
5,892
38,272
338,932
3,452
7,883
$ 350,267

44.2%
17.7%
7.8%
5.2%
4.7%
2.4%
2.0%
12.8%
96.8%
0.9%
2.3%
100.0%

44.6%
17.1%
8.8%
5.2%
4.5%
2.3%
1.8%
12.5%
96.8%
1.0%
2.2%
100.0%

44.1%
18.8%
8.7%
5.7%
4.7%
2.2%
1.7%
10.9%
96.8%
1.0%
2.2%
100.0%

Geographic Distribution

We are licensed to provide workers’ compensation insurance in 47 states, the District of Columbia and the U.S. Virgin Islands.

We operate on a geographically diverse basis with 12.2% or less of our gross premiums written in 2019 derived from any one state.
The table below identifies, for the years ended December 31, 2019, 2018 and 2017, the states in which the percentage of our gross
premiums written exceeded 3.0% for any of the three years presented.

State
Florida
Georgia
Pennsylvania
Louisiana
North Carolina
Illinois
Virginia
Minnesota
Wisconsin
South Carolina
Alaska
Total

Percentage of Gross Premiums Written
Year Ended December 31,
2018

2017

2019

12.2%
11.5%
8.0%
7.4%
5.7%
4.9%
4.7%
4.2%
4.0%
3.7%
3.1%
69.4%

11.4%
11.2%
8.9%
7.4%
5.5%
5.4%
4.3%
3.9%
4.2%
4.0%
2.9%
69.1%

11.2%
12.2%
9.2%
7.1%
5.5%
5.9%
4.6%
4.0%
4.1%
4.1%
2.7%
70.6%

Sales and Marketing

We sell our workers’ compensation insurance through agencies. As of December 31, 2019, our insurance was sold through more
than 2,400 independent agencies and our wholly-owned insurance agency subsidiary, Amerisafe General Agency, which is licensed in
29 states. We are selective in establishing and maintaining relationships with independent agencies. We seek to do business with
those agencies that provide quality application flow from companies operating in our target industries and classes that are reasonably
likely to accept our quotes. We compensate these agencies by paying a commission based on the premium collected from the
policyholder. Our average commission rate for our independent agencies was 7.7% for the year ended December 31, 2019. We pay
our insurance agency subsidiary an average commission rate of 8.2%. Neither our independent agencies nor our insurance agency
subsidiary has authority to underwrite or bind coverage. We do not pay contingent commissions.

As of December 31, 2019, independent agencies accounted for 96.4% of our voluntary in-force premiums. No single

independent agency accounted for more than 1.2% of our voluntary in-force premiums at that date.

Underwriting

Our underwriting strategy is to focus on employers in certain hazardous industries that operate in those states where our

underwriting efforts are the most profitable and efficient. We analyze each prospective policyholder on its own merits relative to
known industry trends and statistical data. Our underwriting guidelines specify that we do not write workers’ compensation insurance
for certain hazardous activities, including sub-surface mining and manufacturing of ammunition or fireworks.

Underwriting is a multi-step process that begins with the receipt of an application from one of our agencies. We initially review

the application to confirm that the prospective policyholder meets certain established criteria, including that the prospective
policyholder is engaged in one of our targeted hazardous industries and industry classes and operates in the states we target. If the
application satisfies these criteria, the application is forwarded to our underwriting department for further review.

Our underwriting department reviews the application to determine if the application meets our underwriting criteria and whether

all required information has been provided. If additional information is required, the underwriting department requests additional
information from the agency submitting the application. Once this initial review process is complete, our underwriting department
requests that a pre-quotation safety inspection be performed in most cases. In 2019, 90.9% of our new voluntary business
policyholders were inspected prior to our offering a premium quote.

After the pre-quotation safety inspection has been completed, our underwriting professionals review the results of the inspection

to determine if a quote should be made and, if so, prepare the quote. The quote must be reviewed and approved by our underwriting
department before the quote is delivered to the agency.

Our underwriting professionals participate in an incentive compensation program under which bonuses are paid quarterly based
upon achieving premium underwriting volume and loss ratio targets. The determination of whether targets have been satisfied is made
30 months after the beginning of the relevant incentive compensation period.

Pricing

In the majority of states, workers’ compensation insurance rates are based upon published “loss costs.” Loss costs are derived

from wage and loss data reported by insurers to the state’s statistical agent, which in most states is the NCCI. The state agent then
promulgates loss costs for specific job descriptions or class codes. Insurers file requests for adoption of a loss cost multiplier, or LCM,
to be applied to the loss costs to support operating expenses and profit margins. In addition, most states allow pricing flexibility above
and below the filed LCM, within certain limits.

We obtain approval of our rates, including our LCMs, from state regulatory authorities. To maintain rates at profitable levels,

we regularly monitor and adjust our LCMs. The effective LCM for our voluntary business was 1.60 for policy year 2019, 1.64 for
policy year 2018, and 1.67 for policy year 2017. If we are unable to charge rates in a particular state or industry to produce satisfactory
results, we seek to control and reduce our premium volume in that state or industry and redeploy our capital in other states or
industries that offer greater opportunity to earn an underwriting profit.

Safety

Our safety inspection process begins with a request from our underwriting department to perform a pre-quotation safety

inspection. Our safety inspections focus on a prospective policyholder’s operations, loss exposures and existing safety controls to
prevent potential losses. The factors considered in our inspection include employee experience, turnover, training, previous loss
history and corrective actions, and workplace conditions, including equipment condition and, where appropriate, use of fall protection,
respiratory protection or other safety devices. Our FSPs travel to employers’ worksites to perform these safety inspections. These
initial inspections allow our underwriting professionals to make decisions on both insurability and pricing. In certain circumstances,
we will agree to provide workers’ compensation insurance only if the employer agrees to implement and maintain the safety
management practices that we recommend. In 2019, 90.9% of our new voluntary business policyholders were inspected prior to our
offering a premium quote. The remaining voluntary business policies were not pre-quote inspected for a variety of reasons, including
instances where the prospective policyholder was previously insured by us or previously inspected by us.

After an employer becomes a policyholder, we continue to emphasize workplace safety through periodic workplace visits,
assisting the policyholder in designing and implementing enhanced safety management programs, providing safety-related information
and conducting rigorous post-accident management. Generally, we may cancel or decline to renew an insurance policy if the
policyholder does not implement or maintain reasonable safety management practices that we recommend.

Our FSPs participate in an incentive compensation program under which bonuses are paid semi-annually based upon an FSP’s
production and their policyholders’ aggregate loss ratios. The results are measured 33 months after the inception of the subject policy period.

Claims

We have structured our claims operation to provide immediate, intensive and personal management of claims to guide injured

employees through medical treatment, rehabilitation and recovery, with the primary goal of returning the injured employee to work as
promptly as practicable and at maximum medical improvement. We seek to limit the number of claim disputes with injured employees
through early intervention in the claims process. Where possible, we purchase annuities on longer life claims to close these claims,
while still providing an appropriate level of benefits to injured employees. While we seek to promptly settle valid claims, we also
aggressively defend against claims we consider to be non-meritorious.

Our FCMs are located in the geographic areas where our policyholders are based. We believe the presence of our FCMs in the
field enhances our ability to guide an injured employee to the appropriate conclusion in a friendly, dignified and supportive manner.
Our FCMs have broad authority to manage claims from occurrence of a workplace injury through resolution, including authority to
retain many different medical providers at our expense. Such providers comprise not only our recommended medical providers, but
also nurse case managers, independent medical examiners, vocational specialists, rehabilitation specialists and other specialty
providers of medical services necessary to achieve a quality outcome.

Following notification of a workplace injury, an FCM will contact the policyholder, the injured employee and/or the treating

physician to determine the nature and severity of the injury. If a serious injury occurs, the FCM will promptly visit the injured
employee or the employee’s family members to discuss the benefits provided. The FCM will also visit the treating physician to
discuss the proposed treatment plan. Our FCM assists the injured employee in receiving appropriate medical treatment and encourages
the use of our recommended medical providers and facilities. For example, our FCM may suggest that a treating physician refer an
injured worker to another physician or treatment facility that we believe has had positive outcomes for other workers with similar
injuries. We actively monitor the number of open cases handled by a single FCM in order to maintain focus on each specific injured
employee. As of December 31, 2019, we averaged 48 open indemnity claims per FCM, which we believe is significantly less than the
industry average.

Locating our FCMs in the field also allows us to build professional relationships with local medical providers. In selecting
medical providers, we rely, in part, on the recommendations of our FCMs who have developed professional relationships within their
geographic areas. We also seek input from our policyholders and other contacts in the markets that we serve. While cost factors are
considered in selecting medical providers, we consider the most important factor in the selection process to be the medical provider’s
ability to achieve a quality outcome. We define quality outcome as the injured worker’s rapid, conclusive recovery and return to
sustained, full capacity employment.

Premium Audits

We conduct premium audits on all of our voluntary business policyholders annually upon the expiration of each policy,

including when the policy is renewed. The purpose of these audits is to verify that policyholders have accurately reported their payroll
expenses and employee job classifications, and therefore, have paid us the premium required under the terms of their policies. In
addition to annual audits, we selectively perform interim audits on new business and on certain classes of business if significant or
unusual claims are filed or if the monthly reports submitted by a policyholder reflect a payroll pattern or other aberrations that cause
underwriting, safety or fraud concerns. We also mitigate potential losses from under-reporting of premium or delinquent premium
payment by collecting a deposit from the policyholder at the inception of the policy, typically representing 15% of the total estimated
annual premium, which deposit can be utilized to offset losses from non-payment of premium.

Loss Reserves

We record reserves for estimated losses under insurance policies that we write and for loss adjustment expenses related to the
investigation and settlement of policy claims. Our reserves for loss and loss adjustment expenses represent the estimated cost of all
reported and unreported loss and loss adjustment expenses incurred and unpaid as of a given point in time.

In establishing our reserves, we review the results of analyses using actuarial methodologies that utilize historical loss data from
our more than 34 years of underwriting workers’ compensation insurance. In evaluating the results of those analyses, our management
also uses substantial judgment in considering other factors that are not considered in these actuarial analyses. These actuarial
methodologies and subjective factors are described in more detail below. Our process and methodology for estimating reserves applies
to both our voluntary and assigned risk business, but does not include our reserves for mandatory pooling arrangements. We record
reserves for mandatory pooling arrangements as those reserves are reported to us by the pool administrators. We do not use loss
discounting when we determine our reserves, which would involve recognizing the time value of money and offsetting estimates of
future payments by future expected investment income.

When a claim is reported, we establish an initial case reserve for the estimated amount of our loss based on our estimate of the
most likely outcome of the claim at that time. Generally, that case reserve is established within 14 days after the claim is reported and
consists of anticipated medical costs, indemnity costs and specific adjustment expenses, which we refer to as defense and cost
containment expenses, or DCC expenses. The most complex claims, involving severe injuries, may take a considerable period of time
for us to establish a more precise estimate of the most likely outcome of the claim. At any point in time, the amount paid on a claim,
plus the reserve for future amounts to be paid, represents the estimated total cost of the claim, or the case incurred amount. The
estimated amount of loss for a reported claim is based upon various factors, including:

(cid:220)

type of loss;

severity of the injury or damage;

age and occupation of the injured employee;

estimated length of temporary disability;

anticipated permanent disability;

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expected medical procedures, costs and duration;

our knowledge of the circumstances surrounding the claim;

insurance policy provisions related to the claim, including coverage;

jurisdiction of the occurrence; and

other benefits defined by applicable statute.

The case incurred amount varies over time due to uncertainties with respect to medical treatment and outcome, length and
degree of disability, recurrence of injury, employment availability and wage levels and judicial determinations. As changes occur, the
case incurred amount is adjusted. The initial estimate of the case incurred amount can vary significantly from the amount ultimately
paid, especially in circumstances involving severe injuries with comprehensive medical treatment. Changes in case incurred amounts
is an important component of our historical claim data.

In addition to case reserves, we establish reserves on an aggregate basis for loss and DCC expenses that have been incurred but
not reported, or IBNR. Our IBNR reserves are also intended to provide for aggregate changes in case incurred amounts as well as the
unpaid cost of recently reported claims for which an initial case reserve has not been established.

The third component of our reserves for loss and loss adjustment expenses is our adjusting and other reserve, or AO reserve.

Our AO reserve covers primarily the estimated cost of administering claims and is established for the costs of future unallocated loss
adjustment expenses for all reported and unreported claims.

The final component of our reserves for loss and loss adjustment expenses is the reserve for mandatory pooling arrangements.

The mandatory pooling arrangement reserve includes the amount reported to us by the pool administrators.

In establishing reserves, we rely on the analysis of the more than 222,000 claims in our 34-year history. Using statistical

analyses and actuarial methods, we estimate reserves based on historical patterns of case development, payment patterns, mix of
business, premium rates charged, case reserving adequacy, operational changes, adjustment philosophy and severity and duration
trends.

We review our reserves by accident year and state on a quarterly basis. Individual open claims are reviewed more frequently and

adjustments to case incurred amounts are made based on expected outcomes. The number of claims reported or occurring during a
period, combined with a calculation of average case incurred amounts, and measured over time, provide the foundation for our reserve
estimates. In establishing our reserve estimates, we use historical trends in claim reporting timeliness, frequency of claims in relation
to earned premium or covered payroll, premium rate levels charged and case development patterns. However, the number of variables
and judgments involved in establishing reserve estimates, combined with some random variation in loss development patterns, results
in uncertainty regarding projected ultimate losses. As a result, our ultimate liability for loss and loss adjustment expenses may be more
or less than our reserve estimate.

Our analysis of our historical data provides the factors we use in our statistical and actuarial analysis in estimating our loss and

DCC expense reserve. These factors are primarily measures over time of claims reported, average case incurred amounts, case
development, duration, severity and payment patterns. However, these factors cannot be solely used as these factors do not take into
consideration changes in business mix, claims management, regulatory issues, medical trends, medical inflation, employment and
wage patterns, and other subjective factors. We use this combination of factors and subjective assumptions and the use of six well-
accepted actuarial methods, as follows:

(cid:220)

Paid Development Method—uses historical, cumulative paid loss patterns to derive estimated ultimate losses by accident
year based upon the assumption that each accident year will develop to estimated ultimate cost in a manner that is
analogous to prior years.

Paid Weighted Severity Method—multiplies estimated ultimate claims for each accident year by a weighted average,
trended and developed severity. The ultimate claims estimate is based on paid claim count development. The selected
severity for a given accident year is derived by giving some weight to all of the accident years in the experience history
rather than treating each accident year independently.

Paid Loss Ratio Cape Cod Method—similar to the paid weighted severity method, except that on-level premiums replace
estimated ultimate claims, based upon paid claim count development, and loss ratios replace selected severities. The
selected ultimate loss ratio for a given accident year is derived by giving some weight to all of the accident years in the
experience history rather than treating each accident year independently.

(cid:220)

Incurred Development Method—uses historical, cumulative incurred loss patterns to derive estimated ultimate losses by
accident year based upon the assumption that each accident year will develop to estimated ultimate cost in a manner that is
analogous to prior years.

Incurred Weighted Severity Method—multiplies estimated ultimate claims for each accident year by a weighted average,
trended and developed severity. The ultimate claims estimate is based on incurred claim count development. The selected
severity for a given accident year is derived by giving some weight to all of the accident years in the experience history
rather than treating each accident year independently.

Incurred Loss Ratio Cape Cod Method—similar to the incurred weighted severity method, except that on-level premiums
replace estimated ultimate claims, based upon incurred claim count development, and loss ratios replace selected
severities. The selected ultimate loss ratio for a given accident year is derived by giving some weight to all of the accident
years in the experience history rather than treating each accident year independently.

These six methods are applied to both gross and net claims data. We then analyze the results and may emphasize or de-
emphasize some or all of the outcomes to reflect our judgment of reasonableness in relation to supplementary information and
operational and industry changes. These outcomes are then aggregated to produce a single weighted average point estimate that is the
base estimate for loss and DCC expense reserves.

In determining the level of emphasis that may be placed on some or all of the methods, we review statistical information as to
which methods are most appropriate, whether adjustments are appropriate within the particular methods, and if results produced by
each method include inherent bias reflecting operational and industry changes. This supplementary information may include:

(cid:220)

open and closed claim counts;

statistics related to open and closed claim count percentages;

claim closure rates;

changes in average case reserves and average loss and DCC expenses incurred on open claims;

reported and ultimate average case incurred changes;

reported and projected ultimate loss ratios; and

loss payment patterns.

In establishing our AO reserves, we review our past adjustment expenses in relation to paid claims as well as estimated future

costs based on expected claims activity and duration.

The sum of our net loss and DCC expense reserve, our AO reserve and our reserve for mandatory pooling arrangements is our

total net reserve for loss and loss adjustment expenses.

As of December 31, 2019, our best estimate of our ultimate liability for loss and loss adjustment expenses, net of amounts

recoverable from reinsurers, was $677.5 million, which includes $15.2 million in reserves for mandatory pooling arrangements as
reported by the pool administrators. The estimate of our ultimate liability was derived from the process and methodology described
above, which relies on substantial judgment. There is inherent uncertainty in estimating our reserves for loss and loss adjustment
expenses. It is possible that our actual loss and loss adjustment expenses incurred may vary significantly from our estimates. We view our
estimate of loss and DCC expenses as the most significant component of our reserve for loss and loss adjustment expenses.

Additional information regarding our reserve for unpaid loss and loss adjustment expenses (“LAE”) as of December 31, 2019,

2018, and 2017 is set forth below:

Gross case loss and DCC reserves
AO reserves
Gross IBNR reserves
Gross unpaid loss, DCC and AO reserves
Reinsurance recoverables on unpaid loss and LAE
Net unpaid loss, DCC and AO reserves

2019

614,556
22,387
135,944
772,887
(95,343)
677,544

2018
(in thousands)
616,012
$
21,782
160,615
798,409
(107,216)
691,193

2017

620,309
21,979
129,557
771,845
(84,889)
686,956

We performed sensitivity analyses to show how our net loss and DCC expense reserve, including IBNR, would be impacted by

changes in certain critical assumptions. For our paid and incurred development methods, we varied both the cumulative paid and
incurred loss development factors (LDFs) by an increase and decrease of 30%, both individually and in combination with one another.
The results of this sensitivity analysis, using December 31, 2019 data, are summarized below.

Change in Paid LDFs

Change in Incurred LDFs

30% increase
30% increase
30% increase
No change
No change
30% decrease
30% decrease
30% decrease

30% increase
No change
30% decrease
30% increase
30% decrease
30% increase
No change
30% decrease

Resultant Change in
Net Loss and DCC Reserve

Amount ($)
(in thousands)

Percentage

49,567
200
(48,654)
49,658
(48,979)
52,135
(336)
(49,107)

7.7%
0.0%
(7.6)%
7.8%
(7.7)%
8.1%
(0.1)%
(7.7)%

For our paid and incurred weighted severity methods, we varied our year-end selected trend factor (for medical costs, defense

costs, wage inflation, etc.) by an increase and decrease of 300 basis points. The results of this sensitivity analysis, using December 31,
2019 data, are summarized below.

Change in Severity Trend

300 basis point increase
300 basis point decrease

Reconciliation of Loss Reserves

Resultant Change in
Net Loss and DCC Reserve
Percentage
Amount ($)
(in thousands)
(401)
306

(0.1)%
0.0%

The table below shows the reconciliation of loss reserves on a gross and net basis for the years ended December 31, 2019, 2018

and 2017, reflecting changes in losses incurred and paid losses.

Balance, beginning of period
Less amounts recoverable from reinsurers

on unpaid loss and loss adjustment expenses

Net balance, beginning of period
Add incurred related to:
Current accident year
Prior accident years
Total incurred
Less paid related to:

Current accident year
Prior accident years

Total paid

Net balance, end of period
Add amounts recoverable from reinsurers

on unpaid loss and loss adjustment expenses

Balance, end of period

Year Ended December 31,
2018
(in thousands)
771,845
$

2019

798,409

107,216
691,193

241,344
(65,002)
176,342

58,883
131,108
189,991
677,544

84,889
686,956

250,487
(45,596)
204,891

62,061
138,593
200,654
691,193

2017

742,776

78,256
664,520

244,094
(34,770)
209,324

56,951
129,937
186,888
686,956

95,343
772,887

107,216
798,409

84,889
771,845

Our gross reserves for loss and loss adjustment expenses of $772.9 million as of December 31, 2019 are expected to cover all

unpaid loss and loss adjustment expenses as of that date. As of December 31, 2019, we had 5,053 open claims, with an average of
$152,956 in unpaid loss and loss adjustment expenses per open claim. During the year ended December 31, 2019, 5,452 new claims
were reported, and 5,589 claims were closed.

In 2019, our gross reserves decreased to $772.9 million from $798.4 million at December 31, 2018. The decrease in reserves

was attributable primarily to favorable development from prior accident years. In 2019, we recognized $65.0 million of favorable
development for prior accident years. As of December 31, 2018, we had 5,190 open claims, with an average of $153,836 in unpaid
loss and loss adjustment expenses per open claim. During the year ended December 31, 2018, 5,440 new claims were reported, and
5,232 claims were closed.

In 2018, our gross reserves increased to $798.4 million from $771.8 million at December 31, 2017. The increase in reserves was

attributable primarily to the 2018 accident year. In 2018, there was also $45.6 million of favorable development for prior accident
years. As of December 31, 2017, we had 4,982 open claims, with an average of $154,927 in unpaid loss and loss adjustment expenses
per open claim. During the year ended December 31, 2017, 5,155 new claims were reported, and 5,368 claims were closed.

Loss Development

The table below shows the net loss development for business written each year from 2009 through 2019. The table reflects the
changes in our loss and loss adjustment expense reserves in subsequent years from the prior loss estimates based on experience as of
the end of each succeeding year on a generally accepted accounting principles basis, or GAAP basis.

The first line of the table shows, for the years indicated, our liability including the incurred but not reported loss and loss
adjustment expenses as originally estimated, net of amounts recoverable from reinsurers. For example, as of December 31, 2009, it
was estimated that $474.2 million would be sufficient to settle all claims not already settled that had occurred on or prior to
December 31, 2009, whether reported or unreported. The next section of the table sets forth the re-estimates in later years of incurred
losses, including payments, for the years indicated. The next section of the table shows, by year, the cumulative amounts of loss and
loss adjustment expense payments, net of amounts recoverable from reinsurers, as of the end of each succeeding year. For example,
with respect to the net loss reserves of $474.2 million as of December 31, 2009, by December 31, 2019 (ten years later) $291.8 million
had actually been paid in settlement of the claims that relate to liabilities as of December 31, 2009.

The “gross cumulative redundancy (deficiency)” represents, as of December 31, 2019, the difference between the latest re-
estimated liability and the amounts as originally estimated. A redundancy means that the original estimate was higher than the current
estimate. A deficiency means that the current estimate is higher than the original estimate.

Analysis of Loss and Loss Adjustment Expense Reserve Development

Reserve for loss and loss adjustment

expenses, net of reinsurance recoverables $474,220 $466,668 $477,277 $515,260 $565,858 $628,268 $653,175 $664,520 $ 686,956 $691,193 $677,544

2009

2010

2011

2012

Year Ended December 31,
2015
2014
2013
(in thousands)

2016

2017

2018

2019

Net reserve estimated as of:
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Net cumulative redundancy (deficiency)
Cumulative amount of reserve paid, net

of reserve recoveries, through:

One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Net reserve— December 31
Reinsurance recoverables
Gross reserve—December 31

Net re-estimated reserve
Re-estimated reinsurance recoverables
Gross re-estimated reserve

452,587
422,697
411,516
402,003
395,479
383,827
378,825
378,968
376,369
372,583

460,105
454,479
442,700
429,269
411,785
404,753
403,299
400,337
395,608

474,787
462,650
448,269
427,835
418,528
415,213
410,452
404,621

502,648
478,931
439,272
420,913
415,996
408,762
401,130

542,141
494,327
462,770
452,097
440,750
431,715

580,454
529,149
504,437
484,964
467,382

601,868
567,098
530,582
498,494

629,750
584,149
528,659

641,360
576,358

626,191

$101,637 $ 71,060 $ 72,656 $114,130 $134,143 $160,886 $154,681 $135,861 $ 110,598 $ 65,002

117,555
182,242
223,726
248,294
261,653
272,903
279,275
285,580
289,952
291,751

125,884
199,682
240,196
262,415
277,396
286,629
295,527
301,543
304,010

131,497
201,814
237,170
259,823
273,383
284,071
292,324
295,582

127,205
188,752
226,907
245,860
259,202
270,055
274,520

129,658
198,610
233,254
253,081
269,179
276,534

135,711
203,855
240,098
267,143
279,944

135,601
202,063
247,751
272,144

129,937
202,928
241,165

138,593
205,705

131,108

$474,220 $466,668 $477,277 $515,260 $565,858 $628,268 $653,175 $664,520 $ 686,956 $691,193 $677,544
95,343
$534,655 $532,204 $538,214 $570,450 $614,557 $687,602 $718,033 $742,776 $ 771,845 $798,409 $772,887

107,216

60,435

84,889

60,937

78,256

55,190

65,536

59,334

48,699

64,858

$372,583 $395,608 $404,621 $401,130 $431,715 $467,382 $498,494 $528,659 $ 576,358 $626,192
82,290
$426,547 $447,206 $453,760 $445,798 $479,298 $525,091 $556,844 $595,149 $ 653,130 $708,482

53,964

51,598

49,139

66,490

58,350

57,709

47,583

44,668

76,772

Gross cumulative redundancy (deficiency)

$108,108 $ 84,998 $ 84,454 $124,652 $135,259 $162,511 $161,189 $147,627 $ 118,715 $ 89,927

Investments

We derive net investment income from our invested assets. As of December 31, 2019, the carrying value of our investment

portfolio, including cash and cash equivalents, was $1.2 billion and the fair value of the portfolio was $1.2 billion.

Our Board of Directors has established an investment policy governing our investments, which is reviewed at least annually.

The principal objectives of our investment portfolio are to preserve capital and surplus and to maintain appropriate liquidity for
corporate requirements. Additional objectives are to support our A.M. Best rating and to maximize after-tax income and total return.
Our investment policy establishes limitations and guidelines relating to, for example, asset allocation, diversification, credit ratings
and duration. We periodically review our investment portfolio with the risk committee of our Board of Directors for compliance with
the policy. Our investment portfolio is managed internally.

We classify the majority of our fixed maturity securities as “held-to-maturity.” We do not reflect any changes in fair value for
these securities in our financial statements, unless such changes are deemed to be “other than temporary impairments,” in which case
such impairments flow through our income statement within the category, “Net realized gains (losses) on investments.” The remainder
of our fixed maturity securities are classified as “available-for-sale.” These investments are valued at fair value at the end of each
period, with changes in fair value flowing through other comprehensive income. Equity securities are valued at fair value with
changes in the fair value recognized in net income. We generally seek to limit our holdings in equity securities to the lesser of 10% of
the investment portfolio or 30% of shareholders’ equity, on a fair value basis.

See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investment Portfolio”

for further information on the composition and results of our investment portfolio.

The table below shows the carrying values of various categories of securities held in our investment portfolio, the percentage of

the total carrying value of our investment portfolio represented by each category and the effective interest rate for the year ended
December 31, 2019 based on the carrying value of each category as of December 31, 2019:

Carrying
Value
(in thousands)

Percentage
of Portfolio

Effective
Interest Rate

Fixed maturity securities—held-to-maturity:

State and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities and obligations of U.S.

Government agencies
Asset-backed securities

Total fixed maturity securities—held-to-maturity

Fixed maturity securities—available-for-sale:

State and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities and obligations of U.S.

Government agencies

Total fixed maturity securities—available-for-sale

Equity securities
Short-term investments
Cash and cash equivalents
Total investments, including cash and cash equivalents

466,270
109,241
10,967

12,723
220
599,421

237,775
133,778
29,467

40,126
441,146
27,903
56,548
43,813
$ 1,168,831

39.9%
9.4%
0.9%

1.1%
0.0%
51.3%

20.3%
11.5%
2.5%

3.4%
37.7%
2.4%
4.8%
3.8%
100.0%

2.8%
3.0%
3.9%

3.4%
2.8%
2.9%

3.1%
3.1%
2.9%

1.7%
3.0%
2.3%
1.7%
1.4%
2.8%

As of December 31, 2019, our fixed maturity securities had a carrying value of $1,040.6 million, which represented 89.0% of

the carrying value of our investments, including cash and cash equivalents. For the twelve months ended December 31, 2019, the pre-
tax investment yield of our investment portfolio was 2.8% per annum.

The gross unrealized gains and losses on, and the cost or amortized cost and fair value of, our investment portfolio as of

December 31, 2019 are summarized as follows:

Fixed maturity securities, held-to-maturity
Fixed maturity securities, available-for-sale
Equity securities

Totals

Cost or
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

(in thousands)

Fair
Value

599,421
425,698
24,457
$ 1,049,576

22,128
15,613
3,446
41,187

(206) $
(165)
—

621,343
441,146
27,903
(371) $ 1,090,392

As of December 31, 2019, municipal bonds with maturities greater than one year made up 60.2% of our investment portfolio,

including cash and cash equivalents. The investments in Louisiana result from companies being allowed an investment credit against
Louisiana premium taxes for varying levels of Louisiana assets. The table below summarizes the top five geographic exposures as of
December 31, 2019.

Texas
Louisiana
Arkansas
Florida
Washington
Other

Carrying
Value
(in thousands)
113,756
$
80,634
57,248
49,687
43,537
359,183
704,045

Percentage
of Municipal
Portfolio

Percentage
of Total
Portfolio

16.2%
11.4%
8.1%
7.1%
6.2%
51.0%
100.0%

9.7%
6.9%
4.9%
4.3%
3.7%
30.7%
60.2%

The table below summarizes the credit quality of our investment portfolio, excluding our equity holdings, as of December 31,

2019, as determined by the middle rating of Moody’s, Standard and Poor’s, and Fitch.

Credit Rating
“AAA”
“AA”
“A”
“BBB”
“BB and below”
“Unrated securities”

Total

Percentage
of Total
Carrying Value

32.5%
44.1%
12.0%
11.4%
0.0%
0.0%
100.0%

As of December 31, 2019, the average composite rating of our investment portfolio, excluding our equity holdings, was “AA.”

The table below shows the composition of our fixed maturity securities by remaining time to maturity as of December 31, 2019.

Maturity:

Within one year
After one year through five years
After five years through ten years
After ten years
U.S. agency-based mortgage-backed securities
Asset-backed securities

Total

As of December 31, 2019

Carrying Value
(in thousands)
77,161
$
344,494
159,879
418,379
40,434
220
1,040,567

Percentage

7.4%
33.1%
15.4%
40.2%
3.9%
0.0%
100.0%

Reinsurance

We purchase reinsurance to reduce our net liability on individual risks and to protect against catastrophic losses. Reinsurance

involves an insurance company transferring to, or ceding, a portion of the exposure on a risk to a reinsurer. The reinsurer assumes the
exposure in return for a portion of our premium. The cost and limits of reinsurance we purchase can vary from year to year based upon
the availability of quality reinsurance at an acceptable price and our desired level of retention. Retention refers to the amount of risk
that we retain for our own account. Under excess of loss reinsurance, covered losses in excess of the retention level up to the limit of
the program are paid by the reinsurer. Our excess of loss reinsurance is written in layers, in which our reinsurers accept a band of
coverage up to a specified amount. Any liability exceeding the limit of the program reverts to us as the ceding company. Reinsurance
does not legally discharge us from primary liability for the full amount due under our policies. However, our reinsurers are obligated
to indemnify us to the extent of the coverage provided in our reinsurance agreements.

We believe reinsurance is critical to our business. Our reinsurance purchasing strategy is to protect against unforeseen and/or
catastrophic loss activity that would adversely impact our income and capital base. We generally select financially strong reinsurers
with an A.M. Best rating of “A–” (Excellent) or better at the time we enter into a reinsurance contract. In addition, to minimize our
exposure to significant losses from reinsurer insolvencies, we evaluate the financial condition of our reinsurers and monitor
concentrations of credit risk on a continual basis.

2020 Excess of Loss Reinsurance Treaty Program

Effective January 1, 2020, we renewed our excess of loss reinsurance treaty program related to our voluntary and assigned risk
business. The program consists of two layers of coverage. The first layer is a multi-year treaty that applies to losses incurred through
December 31, 2022. The second layer must be renewed annually. Our reinsurance treaty program provides us with reinsurance
coverage for each loss occurrence up to $70.0 million, subject to applicable limitations, deductibles, retentions and aggregate limits.
In a multi-claimant loss occurrence, the reinsurance coverage for any one individual claimant is limited to a maximum of $10.0
million, subject to applicable deductibles, retentions and aggregate limits.

We have 16 reinsurers participating in our reinsurance treaty program in 2020. Under certain circumstances, including a

downgrade of a reinsurer’s A.M. Best rating to “B++” (Very Good) or below, such reinsurer may be required to provide us with
security for amounts due under the terms of our reinsurance program. This security may take the form of, among other things, cash
advances or letters of credit. If security is required because of a ratings downgrade, the form of security must be mutually agreed to
between the reinsurer and us.

In 2020, our first layer of reinsurance provides coverage for losses up to $10.0 million for each loss occurrence in excess of $2.0
million. This layer provides coverage in two parts. Before our reinsurers are obligated to reimburse us under this layer, we are subject
to an annual aggregate deductible of 3.0% of subject earned premium under the first part of this coverage and 9.0% of subject earned
premium under the second part of this coverage. The limit under the first part of this coverage is 6.0% of subject earned premium in
any one year and 4.0% of subject earned premium in the aggregate for all three years covered by this layer. The limit under the
second part of this coverage is 3.0% of subject earned premium for any one year and 1.0% of subject earned premium in the aggregate
for all three years covered by this layer.

At our option, we have the right to commute the reinsurers’ obligations under the agreement at any time after the end of the
applicable term of the agreement. If we commute the reinsurers’ obligations, we are entitled to receive a portion of the premiums that
were paid to the reinsurers prior to the effective dates of the applicable commutations, subject to certain adjustments provided in the
agreement.

Our second layer of reinsurance (catastrophe reinsurance) provides $60.0 million in coverage for each loss occurrence in excess

of $10.0 million. This layer includes coverage for terrorism including the use and/or dispersal of nuclear, biological, chemical and
radiological agents with an annual aggregate limit of $60.0 million. The aggregate limit for all claims under this layer is $120.0
million. This layer provides coverage through December 31, 2020.

The table below sets forth the reinsurers participating in our 2020 reinsurance program:

Reinsurer
Arch Reinsurance Company
Hannover Reinsurance (Ireland) Limited
Houston Casualty Company
Lloyd’s Syndicate 0623 AFB
Lloyd’s Syndicate 1414 ACS
Lloyd’s Syndicate 1955 BAR
Lloyd’s Syndicate 2623 AFB
Lloyd’s Syndicate 2987 BRT
Lloyd’s Syndicate 3000 MKL
Lloyd’s Syndicate 4444 CNP
Lloyd’s Syndicate 4472 LIB
Lloyd’s Syndicate 609
Markel Global Reinsurance Company
Minnesota Workers' Compensation Reinsurance Association
Munich Reinsurance America, Inc.
The Cincinnati Insurance Company

A.M. Best
Rating
A+
A+
A++
A
A
A
A
A
A
A
A
A
A
NR
A+
A+

Due to the nature of reinsurance, we have recoverables from reinsurers that apply to prior accident years. The Company generally
secures large reinsurance recoverable balances with various forms of collateral, including funds withheld accounts, irrevocable letters of
credit and secured trusts. The table below summarizes our amounts recoverable from reinsurers as of December 31, 2019.

Reinsurer

Hannover Reinsurance (Ireland) Limited (1)
Allianz Risk Transfer AG (Bermuda)
Odyssey America Reinsurance Corporation
Minnesota Workers' Compensation Reinsurance Association (1)
Clearwater Insurance (2)
Finial Reinsurance
SCOR Reinsurance
Tokio Millennium Re Limited
St. Paul Fire and Marine Insurance Company
Other reinsurers
Total amounts recoverable from reinsurers
Funds withheld and letters of credit related to the above
recoverables
Total unsecured amounts recoverable from reinsurers

A.M. Best
Rating

A+
A+
A
NR
NR
A-
A+
A+
A++
—

Amounts
Recoverable as
of December 31,
2019
(in thousands)
43,543
$
11,484
11,273
6,293
4,984
4,558
4,005
3,034
2,574
4,165
95,913

(58,246)
37,667

(1) Current participant in our 2020 reinsurance program.
(2)

Subsidiary of Fairfax Financial Holdings Limited.

In December 2019, the Company commuted reinsurance agreements with Hannover Reinsurance (Ireland) Limited

(“Hannover”) covering portions of accident years 2009 through 2011. The Company received an $8.5 million payment effectuated
solely through offset against the balance of the funds withheld and recoverable from reinsurers accounts under the reinsurance
agreements in exchange for releasing Hannover from their reinsurance obligations under the commuted agreements. Hannover
remains obligated to the subsidiaries of the Company under other reinsurance agreements. There was no effect on the Company’s net
income in the year ended December 31, 2019 as a result of the commutation.

Terrorism Reinsurance

The Terrorism Risk Insurance Act of 2002 (the “2002 Act”) was enacted in response to the events of September 11, 2001. The

2002 Act has been extended periodically, most recently by the Terrorism Risk Insurance Program Reauthorization Act of 2019 (the
“2019 Act”). This legislation was designed to ensure the availability of insurance coverage for losses resulting from certain acts of
terrorism in the United States. The 2019 Act reauthorized a federal program until 2027 that provides federal reimbursement to
insurance companies for a portion of their losses arising from certain acts of terrorism and requires insurance companies to offer
coverage for these acts. The program applies to insured losses arising out of acts that are certified as “acts of terrorism” by the
Secretary of the Treasury in concurrence with the Secretary of Homeland Security and the Attorney General of the United States. In
addition, the program does not provide any reimbursement for any portion of aggregate industry-wide insured losses from certified
acts of terrorism that exceed $100.0 billion in any one year and is subject to certain other limitations and restrictions.

For insured losses in 2020, each insurance group is responsible for a statutory deductible under the 2019 Act that is equal to
20% of its direct earned property and casualty insurance premiums. For losses occurring in 2020, the U.S. federal government will
reimburse 80% of an insurance group’s covered losses over the statutory deductible. In addition, no federal reimbursement is
available unless the aggregate insurance industry-wide losses from a certified act of terrorism exceeds $200.0 million for any act of
terrorism. However, there is no relief from the requirement under the 2019 Act that insurance companies offer coverage for certified
acts of terrorism if those acts do not cause losses exceeding these threshold amounts and thus do not result in any federal
reimbursement payments.

Under the 2019 Act, insurance companies must offer coverage for losses due to certified acts of terrorism in their workers’
compensation policies. Moreover, the workers’ compensation laws of the various states generally do not permit the exclusion of
coverage for losses arising from acts of terrorism, including terrorism that involves the use of nuclear, biological, chemical or
radiological agents. In addition, state law prohibits us from limiting our workers’ compensation insurance losses arising from any one
catastrophe or any one claimant. We have reinsurance protection in our current reinsurance treaty program that provides coverage of
up to $70 million for losses arising from acts of terrorism. This coverage is effective through December 31, 2020. The Company’s
2020 catastrophe excess of loss layer for loss occurrences greater than $10 million includes coverage for losses caused by nuclear,
biological, chemical and radiological attacks, subject to the deductibles, retentions, definitions and aggregate limits.

Technology

We view our information systems as an integral part of our operations. We make substantial investments in improving our
systems on an ongoing basis. We provide our field premium auditors, field safety professionals and field case managers with computer
and communication equipment to efficiently complete services. We also deploy online solutions for our policyholders to enable timely
and efficient premium payments and for our agents to improve collaboration and exchange of data in the underwriting process. Our
information technology employees perform end-user support, systems development, and infrastructure operation and maintenance
with limited assistance from outside vendors.

Competition

The insurance industry, in general, is highly competitive and there is significant competition in the workers’ compensation
segment of the industry. Competition in the insurance business is based on many factors, including premium rates, policy terms,
coverage availability, claims management, safety services, payment terms, types of insurance offered, overall financial strength and
financial ratings assigned by independent rating organizations, such as A.M. Best. Some of the insurers with which we compete have
significantly greater financial, marketing and management resources than we do. We may also compete with new market entrants in
the future.

We believe the workers’ compensation market for the hazardous industries we target is more fragmented and to some degree

less competitive than other segments of the workers’ compensation market. Our competitors include other insurance companies, state
insurance pools and self-insurance funds. Overall, we estimate that more than 300 insurance companies participate in the workers’
compensation market. The insurance companies with which we compete vary by state and by the industries we target. Market
conditions are also impacted by lower estimated loss costs adopted by a number of states in which we do business.

Our competitive advantages include our underwriting expertise, safety services and claims management practices, our A.M.
Best rating and our ability to reduce claims through implementation of our work safety programs. In addition, we believe that our
insurance is competitively priced and our premium rates are typically lower than those for policyholders assigned to the state
insurance pools, allowing us to provide a viable alternative for policyholders in those pools.

Employees

As of December 31, 2019, we had 431 full-time employees and three part-time employees. None of our employees are subject

to collective bargaining agreements. We believe that our employee relations are good.

Regulation

Holding Company Regulation

Nearly all states have enacted legislation that regulates insurance holding company systems. Each insurance company in a
holding company system is required to register with the insurance supervisory agency of its state of domicile and furnish information
concerning the operations of companies within the holding company system that may materially affect the operations, management or
financial condition of the insurers within the system. Under these laws, the respective state insurance departments may examine us at
any time, require disclosure of material transactions and require prior notice of or approval for certain transactions. All transactions
within a holding company system affecting an insurer must have fair and reasonable terms and are subject to other standards and
requirements established by law and regulation.

Change of Control

The insurance holding company laws of nearly all states require advance approval by the respective state insurance departments

of any change of control of an insurer. “Control” is generally presumed to exist through the direct or indirect ownership of 10% or
more of the voting securities of a domestic insurance company or any entity that controls a domestic insurance company. In addition,
insurance laws in many states contain provisions that require pre-notification to the insurance commissioners of a change of control of
a non-domestic insurance company licensed in those states. Any future transactions that would constitute a change of control of AIIC,
SOCI or AIICTX, including a change of control of AMERISAFE, would generally require the party acquiring control to obtain the
prior approval of the department of insurance in the state in which the insurance company being acquired is incorporated and may
require pre-notification in the states where pre-notification provisions have been adopted. Obtaining these approvals may result in the
material delay of, or deter, any such transaction.

These laws may discourage potential acquisition proposals and may delay, deter or prevent a change of control of
AMERISAFE, including through transactions, and in particular unsolicited transactions, that some or all of the shareholders of
AMERISAFE might consider to be desirable.

State Insurance Regulation

Insurance companies are subject to regulation and supervision by the department of insurance in the state in which they are

domiciled and, to a lesser extent, other states in which they conduct business. AIIC and SOCI are primarily subject to regulation and
supervision by the Nebraska Department of Insurance. AIICTX is primarily subject to regulation and supervision by the Texas
Department of Insurance and Workers’ Compensation Commission. These state agencies have broad regulatory, supervisory and
administrative powers, including the power to grant and revoke licenses to transact business, license agencies, set the standards of
solvency to be met and maintained, determine the nature of, and limitations on, investments and dividends, approve policy forms and
rates in some states, periodically examine financial statements, determine the form and content of required financial statements and
periodically examine market conduct.

Detailed annual and quarterly financial statements and other reports are required to be filed with the state insurance departments
in all states in which we are licensed to transact business. The financial statements of AIIC, SOCI and AIICTX are subject to periodic
examination by the department of insurance in each state in which they are licensed to do business.

In addition, many states have laws and regulations that limit an insurer’s ability to withdraw from a particular market. For
example, states may limit an insurer’s ability to cancel or not renew policies. Furthermore, certain states prohibit an insurer from
withdrawing one or more lines of business from the state, except pursuant to a plan that is approved by the state insurance department.
The state insurance department may disapprove a plan that may lead to market disruption. Laws and regulations that limit cancellation
and non-renewal and that subject program withdrawals to prior approval requirements may restrict our ability to exit unprofitable
markets.

Insurance agencies are also subject to regulation and supervision by the state insurance departments in the states in which they
are licensed. Our wholly owned subsidiary, Amerisafe General Agency, Inc., is licensed as an insurance agent in 29 states. Amerisafe
General Agency is domiciled in Louisiana and is primarily subject to regulation and supervision by the Louisiana Department of
Insurance, which regulates the solicitation of insurance and the qualification and licensing of agents and agencies that may desire to
conduct business in Louisiana.

State Insurance Department Examinations

We are subject to periodic examinations by the Nebraska and Texas insurance departments.

AIIC and SOCI underwent an examination by the Nebraska Department of Insurance in 2018 which covered calendar years

2014 through 2017. AIICTX underwent an examination by the Texas Department of Insurance in 2018 which covered calendar years
2014 through 2017.

Guaranty Fund Assessments

In most of the states where we are licensed to transact business, there is a requirement that property and casualty insurers doing

business in that state participate in a guaranty association, which is organized to pay contractual benefits owed under insurance
policies issued by impaired, insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all member
insurers in a particular state on the basis of the proportionate share of the premium written by member insurers in the lines of business
in which the impaired, insolvent or failed insurer is engaged. Some states permit member insurers to recover assessments paid through
full or partial premium tax offsets.

Property and casualty insurance company insolvencies or failures may result in us paying assessments at some future date. At

this time, we are unable to determine the impact, if any, such assessments may have on our financial position or results of operations.
We have established liabilities for potential state guaranty fund assessments with respect to insurers becoming insolvent.

Residual Market Programs

Many of the states in which we conduct business or intend to conduct business require that all licensed insurers participate in a
program to provide workers’ compensation insurance to those employers who have not or cannot obtain coverage from a carrier on a
negotiated basis. The level of required participation in such programs is generally determined by calculating the volume of our
voluntary business in that state as a percentage of all voluntary business in that state by all insurers. The resulting factor is the
proportion of premium we must accept as a percentage of all of premiums in policies included in that state’s residual market program.

Companies generally can fulfill their residual market obligations by either issuing insurance policies to employers assigned to
them, or participating in a reinsurance pool where the results of all policies provided through the pool are shared by the participating
companies. We utilize both methods, depending on management’s evaluation of the most cost-efficient method to adopt in each state
that allows a choice of assigned risk or participation in a pooling arrangement. In 2019, we had assigned risks in four states: Alabama,
Alaska, North Carolina and Virginia.

Second Injury Funds

A number of states operate trust funds that reimburse insurers and employers for claims paid to injured employees for
aggravation of prior conditions or injuries. The state-managed trust funds are funded through assessments against insurers and self-
insurers providing workers’ compensation coverage in the applicable state. Our recoveries from state-managed trust funds for the
years ended December 31, 2019, 2018 and 2017 were $4.8 million, $4.8 million and $4.3 million, respectively. Our cash paid for
assessments to state-managed trust funds for the years ended December 31, 2019, 2018 and 2017 was $1.8 million, $2.1 million and
$2.5 million, respectively. We accrue for second injury funds relative to historical paid amounts.

Dividend Limitations

Under Nebraska law, without the prior approval of the Nebraska Director of Insurance, AIIC and SOCI cannot pay dividends to

their shareholder that exceed the greater of (a) 10% of statutory surplus as of the previous year end or (b) or statutory net income,
excluding realized investment gains, for the preceding 12-month period. However, net income from the previous two calendar years
may be carried forward to the extent that it has not already been paid out as dividends. Further, under Texas law, without the prior
approval of the Texas Commissioner of Insurance, AIICTX cannot pay dividends to its shareholder in excess of the greater of 10% of
statutory surplus, or statutory net income, for the preceding 12-month period.

Federal Law and Regulations

For the year ended December 31, 2019, we derived 2.5% of our voluntary in-force premiums from employers engaged in the

maritime industry. As a provider of workers’ compensation insurance for employers engaged in the maritime industry, we are subject
to the United States Longshore and Harbor Workers’ Compensation Act, or the USL&H Act, and the Merchant Marine Act of 1920,
or Jones Act. We are also subject to regulations related to the USL&H Act and the Jones Act.

The USL&H Act, which is administered by the U.S. Department of Labor, generally covers exposures on the navigable waters

of the United States and in adjoining waterfront areas, including exposures resulting from stevedoring. The USL&H Act requires
employers to provide medical benefits, compensation for lost wages, and rehabilitation services to longshoremen, harbor workers and
other maritime workers who may suffer injury, disability or death during the course and scope of their employment. The Department
of Labor has the authority to require us to make deposits to serve as collateral for losses incurred under the USL&H Act.

The Jones Act is a federal law, the maritime employer provisions of which provide injured offshore workers, or seamen, with a

remedy against their employers for injuries arising from negligent acts of the employer or co-workers during the course of
employment on a ship or vessel.

Privacy Regulations

In 1999, Congress enacted the Gramm-Leach-Bliley Act, which, among other things, protects consumers from the unauthorized

dissemination of certain personal information. Subsequently, a majority of states have implemented additional regulations to address
privacy issues. These laws and regulations apply to all financial institutions, including insurance companies, and require us to
maintain appropriate policies and procedures for managing and protecting certain personal information of our policyholders and to
fully disclose our privacy practices to our policyholders. We may also be exposed to future privacy laws and regulations, which could
impose additional costs and impact our results of operations or financial condition. In 2000, the NAIC adopted the Privacy of
Consumer Financial and Health Information Model Regulation, which assisted states in promulgating regulations to comply with the
Gramm-Leach-Bliley Act. In 2002, to further facilitate the implementation of the Gramm-Leach-Bliley Act, the NAIC adopted the
Standards for Safeguarding Customer Information Model Regulation. Several states have now adopted similar provisions regarding
the safeguarding of policyholder information. We have established policies and procedures intended to ensure that we are in
compliance with the privacy requirement of the Gramm-Leach-Bliley Act.

Information Security Standards

In 2017, the National Association of Insurance Commissioners adopted the Insurance Data Security Model Law creating rules

for insurers, agents and other licensed entities covering data security, investigation and notification of breach. This includes
maintaining an information security program based on ongoing risk assessment, overseeing third-party service providers, investigating
data breaches and notifying regulators of a cybersecurity event. Some states have adopted similar versions of the Insurance Data
Security Model Law. Our policies and procedures regarding information security are intended to ensure that we are in compliance
with the model law.

Federal and State Legislative and Regulatory Changes

From time to time, various regulatory and legislative changes have been proposed in the insurance industry. Among the
proposals that have in the past been, or are at present, being considered are the possible introduction of federal regulation in addition
to, or in lieu of, the current system of state regulation of insurers and proposals in various state legislatures (some of which proposals
have been enacted) to conform portions of their insurance laws and regulations to various model acts adopted by the NAIC. We are
unable to predict whether any of these laws and regulations will be adopted, the form in which any such laws and regulations would be
adopted or the effect, if any, these developments would have on our operations and financial condition.

For information on the Terrorism Risk Act, see “—Reinsurance—Terrorism Reinsurance.”

The National Association of Insurance Commissioners

The NAIC is a group formed by state insurance commissioners to discuss issues and formulate policy with respect to regulation,

reporting and accounting of insurance companies. Although the NAIC has no legislative authority and insurance companies are at all
times subject to the laws of their respective domiciliary states and, to a lesser extent, other states in which they conduct business, the
NAIC is influential in determining the form in which such laws are enacted. Model insurance laws, regulations and guidelines, which
we refer to as the Model Laws, have been promulgated by the NAIC as a minimum standard by which state regulatory systems and
regulations are measured. Adoption of state laws that provide for substantially similar regulations to those described in the Model
Laws is a requirement for accreditation by the NAIC. The NAIC provides authoritative guidance to insurance regulators on statutory
accounting issues by promulgating and updating a codified set of statutory accounting practices in its Accounting Practices and
Procedures Manual. The Nebraska and Texas legislatures have adopted these codified statutory accounting practices.

Under Nebraska law, AIIC and SOCI are each required to maintain minimum capital and surplus of $2.0 million. Under Texas

law, AIICTX is required to maintain minimum capital and surplus of $5.0 million. Property and casualty insurance companies are also
subject to certain risk-based capital requirements by the NAIC. Under those requirements, the amount of capital and surplus
maintained by a property and casualty insurance company is determined based on the various risk factors related to it. As of
December 31, 2019, AIIC, SOCI and AIICTX exceeded the minimum risk-based capital requirements.

The key financial ratios of the NAIC’s Insurance Regulatory Information System, or IRIS, which ratios were developed to assist
insurance departments in overseeing the financial condition of insurance companies, are reviewed by experienced financial examiners
of the NAIC and state insurance departments to select those companies that merit highest priority in the allocation of the regulators’
resources. IRIS identifies 13 industry ratios and specifies “usual values” for each ratio. Departure from the usual values on four or
more of the ratios can lead to inquiries from individual state insurance commissioners as to certain aspects of an insurer’s business.
The 2019 IRIS results for AIIC, SOCI and AIICTX were within expected values for all 13 industry ratios.

Statutory Accounting Principles

Statutory accounting principles, or SAP, are a basis of accounting developed to assist insurance regulators in monitoring and

regulating the solvency of insurance companies. SAP is primarily concerned with measuring an insurer’s surplus as regards to
policyholders. Accordingly, statutory accounting focuses on valuing assets and liabilities of insurers at financial reporting dates in
accordance with appropriate insurance law and regulatory provisions applicable in each insurer’s domiciliary state.

Generally accepted accounting principles, or GAAP, are concerned with a company’s solvency, but are also concerned with

other financial measurements, principally income and cash flows. Accordingly, GAAP gives more consideration to appropriate
matching of revenue and expenses and accounting for management’s stewardship of assets than does SAP. As a direct result, different
assets and liabilities and different amounts of assets and liabilities will be reflected in financial statements prepared in accordance with
GAAP as compared to SAP.

Statutory accounting principles established by the NAIC and adopted in part by Nebraska and Texas insurance regulators,

determine, among other things, the amount of statutory surplus and statutory net income of AIIC, SOCI and AIICTX and thus
determine, in part, the amount of funds that are available to pay dividends to AMERISAFE.

Website Information

Our corporate website is located at www.amerisafe.com. Our annual report to shareholders, annual proxy statement and related
proxy card will be made available on our website at the same time they are mailed to shareholders. Our quarterly reports on Form 10-
Q, periodic reports on Form 8-K and amendments to those reports that we file or furnish pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 are available through our website, free of charge, as soon as reasonably practicable after they have
been electronically filed or furnished to the Securities and Exchange Commission, or the SEC. Our website also provides access to
reports filed by our directors, executive officers and certain significant shareholders pursuant to Section 16 of the Securities Exchange
Act of 1934. In addition, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Policy Regarding
Communications with the Board of Directors, Policy Regarding Shareholder Recommended Director Candidates, Majority Voting and
Director Resignation Policy, and charters for the standing committees of our Board of Directors are available on our website as well as
other shareholder communications. The information on our website is not incorporated by reference into this report. In addition, the
SEC maintains a website, www.sec.gov, which contains reports, proxy and information statements and other information that we file
electronically with the SEC.

Information About our Executive Officers

The table below sets forth information about our executive officers and key employees as of February 25, 2020.

Name
Executive Officers
G. Janelle Frost
Neal A. Fuller
Vincent J. Gagliano
Andrew B. McCray
Kathryn H. Shirley

Key Employees
Kelly R. Goins
Leon J. Lagneaux
Henry O. Lestage, IV
Garrett S. Little
Barbra E. McCrary
David R. Morton
Angela W. Pearson

Age

49
57
47
58
54

54
68
59
49
45
49
47

Position

President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Risk Officer
Executive Vice President and Chief Underwriting Officer
Executive Vice President, Chief Administrative Officer and Secretary

Senior Vice President, Underwriting Operations
Senior Vice President, Recruitment and Development
Senior Vice President, Claims Operations
Senior Vice President, Safety Operations
Senior Vice President, Policyholder Services
Senior Vice President, Sales and Marketing
Senior Vice President, Controller

G. Janelle Frost has served as our Chief Executive Officer since April 2015 and President since September 2013. She has
served as a Director of the Company since April 2016. Prior to becoming our Chief Executive Officer, Ms. Frost served as Chief
Operating Officer from May 2013 to April 2015. She served as our Executive Vice President and Chief Financial Officer from
November 2008 to April 2013, our Controller from May 2004 to November 2008 and Vice President from May 2006 to November
2008. She has been employed with our company since 1992 and served as Assistant Vice President from May 2004 to May 2006 and
Deputy Controller from 1998 to April 2004. Ms. Frost currently serves on the Board of Directors of the Federal Reserve Bank of
Atlanta’s New Orleans Branch.

Neal A. Fuller has served as our Executive Vice President and Chief Financial Officer since September 2015. Mr. Fuller served
in multiple leadership positions with Safeco Corporation from 1988 to 2009, ending as Senior Vice President – Finance and Treasurer.
Prior to joining our company, Mr. Fuller served as Senior Vice President and Chief Financial Officer of ICW Group from 2010 to
2011 and Senior Vice President and Chief Financial Officer of SeaBright Holdings, Inc. from 2011 to 2013.

Vincent J. Gagliano has served as our Executive Vice President and Chief Risk Officer since March 2016. He has been

employed with our company since 2001. He previously served as Executive Vice President and Chief Technology Officer from
January 2013 until February 2016, Senior Vice President of Information Technology from September 2009 to January 2013, Vice
President, Operations Analysis from January 2008 to September 2009, Assistant Vice President of Business Intelligence from July
2005 to December 2008, Director of Business Intelligence from April 2004 to July 2005 and Senior Business Analyst from July 2001
to April 2004.

Andrew B. McCray has served as Executive Vice President and Chief Underwriting Officer since May 2019. Prior to joining the
company, he was Senior Director – Global P&C Strategy and Product Innovation for Assurant from January 2017 through April 2019.
From 2015-2017, he served as business leader for commercial lines for Utica National Insurance Group and from 2011 to 2015 served
as vice president and director of regional underwriting operations for Utica National Insurance Group.

Kathryn H. Shirley has served as our Executive Vice President, Chief Administrative Officer and Secretary since February

2020. She previously served as Executive Vice President, General Counsel and Secretary from February 2016 until February 2020
and Senior Vice President, General Counsel and Secretary from May 2012 until February 2016. She has been employed with our
company since 2012. Prior to joining our company, she practiced law from 2009 through May 2012 at Christian & Small LLP. From
2000 until 2008 she was employed as an Insurance Regulatory Compliance Manager with United Investors Life Insurance Company
and Liberty National Life Insurance Company, subsidiaries of Torchmark Corporation.

Kelly R. Goins has served as our Senior Vice President, Underwriting Operations since March 2005. She has been employed

with our company since 1986 and served as Vice President, Underwriting Operations from 2000 until March 2005.

Leon J. Lagneaux has served as our Senior Vice President, Recruitment & Development since July 2019. He previously served
as Senior Vice President, Safety Operations from March 2005 until June 2019. He has been employed with our company since 1994
and served as Vice President, Safety Operations from 1999 until March 2005.

Henry O. Lestage, IV has served as our Senior Vice President, Claims Operations since September 2000. He has been employed

with our company since 1987 and served as Vice President, Claims Operations from 1998 until 2000.

Garrett S. Little has served as our Senior Vice President, Safety Operations since July 2019. He has been employed with our

company since 1995 and previously served as Vice President, Field Safety from April 2001 until June 2019.

Barbra E. McCrary, has served as our Senior Vice President, Policyholder Services since November 2017. She has been

employed with our company since 1997 and served as Vice President, Premium Audit from 2010 until 2017.

David R. Morton has served as our Senior Vice President, Sales and Marketing since April 2015. Prior to joining our company,
Mr. Morton served in various sales leadership roles with EMPLOYERS Services, Inc., a mono-line workers’ compensation insurance
carrier, including Director of Client Relations from 2007 to 2010, Vice President of Sales, Strategic Partnerships and Alliances from
2010 to 2014 and most recently as Vice President of Sales Excellence from September 2014 to April 2015.

Angela W. Pearson has served as our Senior Vice President and Controller since October 2019. She has been employed with our

company since 1996 and previously served as Vice President and Controller from 2012 until October 2019.

Item 1A.

Risk Factors.

In evaluating our Company, the factors described below should be considered carefully. The occurrence of one or more of these

events could significantly and adversely affect our business, prospects, financial condition, results of operations and cash flows.

Risks Related to Our Business

The workers’ compensation insurance industry is cyclical in nature, which may affect our overall financial performance.

The financial performance of the workers’ compensation insurance industry has historically fluctuated with periods of lower
premium rates and excess underwriting capacity resulting from increased competition followed by periods of higher premium rates
and reduced underwriting capacity resulting from decreased competition. Although the financial performance of an individual
insurance company is dependent on its own specific business characteristics, the profitability of most workers’ compensation
insurance companies generally tends to follow this cyclical market pattern. Because this market cyclicality is due in large part to the
actions of our competitors and general economic factors, we cannot predict the timing or duration of changes in the market cycle. We
expect these cyclical patterns will cause our revenues and net income to fluctuate, which may cause the price of our common stock to
be more volatile.

We operate in a highly competitive industry and may lack the financial resources to compete effectively.

There is significant competition in the workers’ compensation insurance industry. We believe that our competition in the
hazardous industries we target is fragmented and not dominated by one or more competitors. We compete with other insurance
companies, state insurance pools and self-insurance funds. Many of our existing and potential competitors are significantly larger and
possess greater financial, marketing and management resources than we do. Moreover, a number of these competitors offer other types
of insurance in addition to workers’ compensation and can provide insurance nationwide.

We only offer workers’ compensation insurance. We have no current plans to focus our efforts on offering other types of insurance.

As a result, negative developments in the economic, competitive or regulatory conditions affecting the workers’ compensation insurance
industry could have an adverse effect on our financial condition and results of operations. Negative developments in the workers’
compensation insurance industry could have a greater impact on our company because we do not sell other types of insurance.

We compete on the basis of many factors, including coverage availability, claims management, safety services, payment terms,

premium rates, policy terms, types of insurance offered, overall financial strength, financial ratings and reputation. If any of our
competitors offer premium rates, policy terms or types of insurance that are more competitive than ours, we could lose market share.
No assurance can be given that we will maintain our current competitive position in the markets in which we currently operate or that
we will establish a competitive position in new markets into which we may expand.

If we do not appropriately establish our premium rates, our results of operations will be adversely affected.

In general, the premium rates for our insurance policies are established when coverage is initiated and, therefore, before all of

the underlying costs are known. Like other workers’ compensation insurance companies, we rely on estimates and assumptions in
setting our premium rates. Establishing adequate rates is necessary to generate sufficient revenue to offset losses, loss adjustment
expenses and other underwriting expenses, and to earn an underwriting profit. If we fail to accurately assess the risks that we assume,
we may fail to charge adequate premium rates to cover our losses and expenses, which could reduce our net income and cause us to
become unprofitable. For example, when initiating coverage on a policyholder, we estimate future claims expense based, in part, on
prior claims information provided by the policyholder’s previous insurance carriers. If this prior claims information is not accurate, we
may underprice our policy by using claims estimates that are too low. As a result, our actual costs for providing insurance coverage to
our policyholders may be significantly higher than our premiums. In order to set premium rates appropriately, we must:

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collect and properly analyze a substantial volume of data;

develop, test and apply appropriate rating formulae;

closely monitor and timely recognize changes in trends; and

project both frequency and severity of losses with reasonable accuracy.

We must also implement our pricing accurately in accordance with our assumptions. Our ability to undertake these efforts

successfully, and as a result set premium rates accurately, is subject to a number of risks and uncertainties, principally:

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insufficient reliable data;

incorrect or incomplete analysis of available data;

uncertainties generally inherent in estimates and assumptions;

the complexity inherent in implementing appropriate rating formulae or other pricing methodologies;

costs of ongoing medical treatment;

uncertainties inherent in accurately estimating retention, investment yields, and the duration of our liability for loss and
loss adjustment expenses; and

unanticipated court decisions, legislation or regulatory action.

Consequently, we could set our premium rates too low, which would negatively affect our results of operations and our
profitability, or we could set our premium rates too high, which could reduce our competitiveness and lead to lower revenues.

If we cannot sustain our relationships with independent agencies, we may be unable to operate profitably.

We market a substantial portion of our workers’ compensation insurance through independent agencies. As of December 31,
2019, independent agencies produced 96.4% of our voluntary in-force premiums. No independent agency accounted for more than
1.2% of our voluntary in-force premiums at that date. Independent agencies are not obligated to promote our insurance and may sell
insurance offered by our competitors. As a result, our continued profitability depends, in part, on the marketing efforts of our
independent agencies and on our ability to offer workers’ compensation insurance and maintain financial strength ratings that meet the
requirements of our independent agencies and their policyholders.

An inability to effectively manage our operations could make it difficult for us to compete and could affect our ability to
operate profitably.

Our continuing strategic options include expanding in our existing markets, entering new geographic markets and further

developing our agency relationships. Our strategy is subject to various risks, including risks associated with our ability to:

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profitably increase our business in existing markets;

identify profitable new geographic markets for entry;

attract and retain qualified personnel for expanded operations;

identify, recruit and integrate new independent agencies; and

augment our internal operations and systems as we expand our business.

Economic conditions could adversely affect our financial condition and results of operations.

Negative trends in business investment, consumer confidence and spending, significant declines and volatility of the capital

markets, and availability of credit and the rate of unemployment can adversely affect our business. Although we continue to closely
monitor market conditions, we cannot predict future conditions or their impact on our premium volume, the value of our investment
portfolio and our financial performance. As a result of economic conditions, we could experience future decreases in business activity
and incur realized and unrealized losses in our investment portfolio, both of which could adversely affect our financial condition and
results of operations.

If we are unable to realize our investment objectives, our financial condition and results of operations may be adversely
affected.

Investment income is an important component of our net income. As of December 31, 2019, our investment portfolio, including

cash and cash equivalents, had a carrying value of $1.2 billion. For the year ended December 31, 2019 we had $32.5 million of net
investment income. Our investment portfolio is managed under investment guidelines approved by our Board of Directors, and is
made up predominately of fixed maturity securities and cash and cash equivalents. Although our investment guidelines emphasize
capital preservation and liquidity, our investments are subject to a variety of risks, including risks related to general economic
conditions, interest rate fluctuations, market illiquidity and market volatility. General economic conditions may be adversely affected
by U.S. involvement in hostilities with other countries and large-scale acts of terrorism, or the threat of hostilities or terrorist acts.

Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international
economic and political conditions. Increased interest rates could have an adverse effect on the value of our investment portfolio. Low
interest rates could continue to have an adverse effect on our investment income. Additionally, changes in interest rates can expose us
to prepayment risks on mortgage-backed securities included in our investment portfolio.

Similarly, during periods of market disruption, including periods of rapidly widening credit spreads or illiquidity, the fair values

of certain of our fixed maturity securities, such as asset-backed and commercial mortgage-backed securities, could be deemed to be
other-than-temporarily impaired, even though we have the intent not to sell these securities and it is not more likely than not that we
will be required to sell these securities. Further, rapidly changing and unprecedented equity market conditions could materially impact
the valuation of the equity securities as reported within our consolidated financial statements and the period-to-period changes in value
could vary significantly.

These and other factors affect the capital markets and, consequently, the value of our investment portfolio and our future

investment income. Any significant decline in our investment income would adversely affect our revenues and net income.

Technology breaches or failures, including those resulting from a malicious cyber attack on us, or our policyholders or
medical providers, could disrupt or otherwise negatively impact our business.

We rely on information technology systems to process, transmit, store and protect the electronic information, financial data and
proprietary models that are critical to our business. Furthermore, a significant portion of the communications between our employees,
our policyholders and medical providers depend on information technology and electronic information exchange. Like all companies,
our information technology systems are vulnerable to data breaches, interruptions or failures due to events that may be beyond our
control, including natural disasters, theft, terrorist attacks, computer viruses, hackers and general technology failures.

We have established and implemented security measures, controls and procedures in an effort to safeguard our information

technology systems and to prevent unauthorized access to these systems and any data processed and/or stored in these systems. We
evaluate the adequacy of our third-party service providers’ cybersecurity measures through periodic due diligence and contractual
obligations. Despite these safeguards, disruptions to and breaches of our information technology systems or providers’ are possible
and may negatively impact our business.

Although we have experienced no known cases involving unauthorized access to our information technology systems and data
or unauthorized appropriation of such data to date, we have no assurance that such technology breaches will not occur in the future.

A decline in the level of business activity of our policyholders, particularly those engaged in the construction, trucking, logging
and lumber, manufacturing, agriculture, maritime, and oil and gas industries, could negatively affect our earnings and
profitability.

In 2019, 84.0% of our gross premiums written were derived from policyholders in the construction, trucking, logging and
lumber, manufacturing, agriculture, maritime, and oil and gas industries. Because premium rates are calculated, in general, as a
percentage of a policyholder’s payroll expense, premiums fluctuate depending upon the level of business activity and number of
employees of our policyholders. As a result, our gross premiums written are primarily dependent upon economic conditions in these
industries and upon economic conditions generally.

Our loss reserves are based on estimates and may be inadequate to cover our actual losses.

We record reserves for estimated losses under insurance policies we write and for loss adjustment expenses related to the

investigation and settlement of claims. Our reserves for loss and loss adjustment expenses represent the estimated cost of all reported and
unreported loss and loss adjustment expenses incurred and unpaid at any given point in time based on known facts and circumstances.
Reserves are based on estimates of the most likely ultimate cost of individual claims. These estimates are inherently uncertain.

Our pre-tax income for any period is impacted by establishing reserves for new claims as well as changes in estimates for

previously reported losses. Our focus on writing workers’ compensation insurance for employers engaged in hazardous industries results
in our experiencing fewer, but more severe, claims. The ultimate cost of resolving severe claims is difficult to predict, particularly in the
period shortly after the injury occurs. Substantial judgment is required to determine the relevance of our historical experience and industry
information under current facts and circumstances. The interpretation of this historical data can be impacted by external forces,
principally frequency and severity of unreported claims, length of time to achieve ultimate settlement of claims, inflation in medical costs
and wages, insurance policy coverage interpretations, jury determinations, and legislative changes. Accordingly, our reserves may prove
to be inadequate to cover our actual losses. If there are unfavorable changes affecting our assumptions, our reserves may need to be
increased. When a reserve estimate is increased, the change decreases pre-tax income by a corresponding amount.

The effects of emerging claims and coverage issues on our business are uncertain.

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues

related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our
underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become apparent until
after we have issued insurance policies that are affected by the changes. As a result, the full extent of our liability under an insurance
policy may not be known until many years after the policy is issued. For example, medical costs associated with permanent and partial
disabilities may increase more rapidly or be higher than we currently expect. Changes of this nature may expose us to higher claims
than we anticipated when we wrote the underlying policy.

The expertise of our workforce is necessary to maintain our competitive advantages in the high hazard workers’ compensation
industry.

Our success is dependent on our workforce and our ongoing leadership development activities to attract and retain key
employees that are knowledgeable about our business. Succession planning for key positions is essential. If we are unable to attract
and retain key employees and provide them with opportunities to learn and grow, our operations may be adversely impacted.

Our business is dependent on the efforts of our executive officers because of their industry expertise, knowledge of our
markets and relationships with the independent agencies that sell our insurance.

Our success is dependent on the efforts of our executive officers because of their industry expertise, knowledge of our markets
and relationships with our independent agencies. We have entered into employment agreements with each of our executive officers.
Should any of our executive officers cease working for us, we may be unable to find acceptable replacements with comparable skills
and experience in the workers’ compensation insurance industry and the hazardous industries that we target. As a result, our
operations may be disrupted and our business may be adversely affected. We do not currently maintain life insurance policies with
respect to our executive officers.

Because we are subject to extensive state and federal regulation, legislative changes may negatively impact our business.

We are subject to extensive regulation by the Nebraska Department of Insurance and the insurance regulatory agencies of other

states in which we are licensed and, to a lesser extent, federal regulation. State agencies have broad regulatory powers designed
primarily to protect policyholders and their employees, and not our shareholders. Regulations vary from state to state, but typically
address:

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standards of solvency, including risk-based capital measurements;

restrictions on the nature, quality and concentration of our investments;

restrictions on the terms of the insurance policies we offer;

restrictions on the way our premium rates are established and the premium rates we may charge;

required reserves for unearned premiums and loss and loss adjustment expenses;

standards for appointing general agencies;

limitations on transactions with affiliates;

restrictions on mergers and acquisitions;

restrictions on the ability of our insurance company subsidiaries to pay dividends to AMERISAFE;

certain required methods of accounting; and

potential assessments for state guaranty funds, second injury funds and other mandatory pooling arrangements.

We may be unable to comply fully with the wide variety of applicable laws and regulations that are continually undergoing

revision. In addition, we follow practices based on our interpretations of laws and regulations that we believe are generally followed
by our industry. These practices may be different from interpretations of insurance regulatory agencies. As a result, insurance
regulatory agencies could preclude us from conducting some or all of our activities or otherwise penalize us. For example, in order to
enforce applicable laws and regulations or to protect policyholders, insurance regulatory agencies have relatively broad discretion to
impose a variety of sanctions, including examinations, corrective orders, suspension, revocation or denial of licenses, and the takeover
of one or more of our insurance subsidiaries. The extensive regulation of our business may increase the cost of our insurance and may
limit our ability to obtain premium rate increases or to take other actions to increase our profitability.

The workers’ compensation system is largely regulated by state regulation. However in recent years, certain federal agencies

and regulatory bodies have increased interest in more federal workers’ compensation oversight. Increased federal involvement has the
potential to change the workers’ compensation structure impacting workers’ benefits and the method of administration. As a result,
potential changes in the level of oversight to the workers’ compensation industry could adversely affect our operations.

Changes in accounting standards or new standards, as well as assumptions, estimates and judgments by management related
to complex accounting issues could have a material adverse effect on our capital levels and our results of operations.

Changes in GAAP accounting standards, guidelines and interpretations have the ability to impact our financial results especially
as it relates to our significant accounting policies which are described in Note 1 of our Consolidated Financial Statements. Changes in
these standards, issued and promulgated by the Financial Accounting Standards Board, or FASB, could impact the recognition of
revenues, expenses, taxes, investments, loss reserves and other aspects of the Company’s assets and liabilities. Such changes could
significantly impact our reported earnings or financial condition.

AMERISAFE is a holding company whose insurance subsidiaries are governed by SAP determined and promulgated by the

NAIC and state departments of insurance. New standards or changes in SAP accounting standards or interpretations, especially as it
relates to our significant revenues, assets, liabilities, statutory surplus, risk-based capital, or RBC, ratios and dividend paying ability
could have a material impact on our statutory earnings, dividend paying ability or financial condition.

Legal or other administrative proceedings could have a material adverse effect on our operations or results of operations.

In the ordinary course of our business, we are involved in various legal and other administrative proceedings involving claims

arising from our insurance operations. These claims involve issues such as eligibility for workers' compensation insurance coverage or
benefits, the extent of injuries, wage determinations, disability ratings, and bad faith and extra-contractual liability. We defend these
claims. A significant adverse result, or multiple adverse results involving similar issues, could require us to pay significant amounts or
to change the manner in which we administer claims, which could have a material adverse effect on our operations or results of
operations.

As an insurance holding company, AMERISAFE is dependent on the results of operations of its insurance subsidiaries, and
our Company’s ability to pay dividends depends on the regulatory and financial capacity of its subsidiaries to pay dividends to
AMERISAFE.

AMERISAFE is a holding company that transacts business through its operating subsidiaries, including AIIC. AMERISAFE’s
primary assets are the capital stock of these operating subsidiaries. The ability of AMERISAFE to pay dividends to our shareholders
depends upon the surplus and earnings of our subsidiaries and their ability to pay dividends to AMERISAFE. Payment of dividends by
our insurance subsidiaries is restricted by state insurance laws, including laws establishing minimum solvency and liquidity
thresholds, and could be subject to contractual restrictions in the future, including those imposed by indebtedness we may incur in the
future. As a result, AMERISAFE may not be able to receive dividends from its insurance subsidiaries and may not receive dividends
in amounts necessary to pay dividends on our capital stock.

A downgrade in our A.M. Best rating would likely reduce the amount of business we are able to write.

Rating agencies evaluate insurance companies based on their ability to pay claims. We are currently assigned a group letter
rating of “A” (Excellent) from A.M. Best, which is the rating agency that we believe has the most influence on our business. This
rating is assigned to companies that, in the opinion of A.M. Best, have demonstrated an excellent overall performance when compared
to industry standards. A.M. Best considers “A” rated companies to have an excellent ability to meet their ongoing obligations to
policyholders. The ratings of A.M. Best are subject to periodic review using, among other things, proprietary capital adequacy models,
and are subject to revision or withdrawal at any time. A.M. Best ratings are directed toward the concerns of policyholders and
insurance agencies and are not intended for the protection of investors or as a recommendation to buy, hold or sell securities. Our
competitive position relative to other companies is determined in part by our A.M. Best rating. Any downgrade in our rating would
likely adversely affect our business through the loss of certain existing and potential policyholders and the loss of relationships with
certain independent agencies.

A downgrade in the A.M. Best rating of one or more of our significant reinsurers could adversely affect our financial
condition.

Our financial condition could be adversely affected if the A.M. Best rating of one or more of our significant reinsurers is
downgraded. For example, our A.M. Best rating may be downgraded if our amounts recoverable from a reinsurer are significant and
the A.M. Best rating of that reinsurer is downgraded. If one of our reinsurers suffers a rating downgrade, we may consider various
options to lessen the impact on our financial condition, including commutation, novation and the use of letters of credit to secure
amounts recoverable from reinsurers. However, these options may result in losses to our company, and there can be no assurance that
we could implement any of these options.

If we are unable to obtain reinsurance on favorable terms, our ability to write policies could be adversely affected.

We purchase reinsurance to reduce our net liability on individual risks and to protect against catastrophic losses. Reinsurance is

an arrangement in which an insurance company, called the ceding company, transfers insurance risk by sharing premiums with
another insurance company, called the reinsurer. Conversely, the reinsurer receives or assumes reinsurance from the ceding company.
Our 2020 reinsurance program provides us with reinsurance coverage for each loss occurrence up to $70.0 million, subject to
applicable limitations, deductibles, retentions and aggregate limits. However, for any loss occurrence involving only one claimant, our
reinsurance coverage is limited to $10.0 million, subject to applicable deductibles, retentions and aggregate limits. Our retention is
$2.0 million for each loss occurrence. Losses in the layer between $2.0 million and $10.0 million are ceded to a multi-year
reinsurance treaty with an aggregate annual deductible of approximately $9.5 million and an aggregate limit of coverage of
approximately $28.6 million for 2020.

The availability, amount, and cost of reinsurance are subject to market conditions and our experience with insured losses. As a

result, any material changes in market conditions or our loss experience could adversely affect our financial performance.

If any of our current reinsurers were to terminate participation in our reinsurance treaty program, we could be exposed to an
increased risk of loss.

When our reinsurance treaty program is terminated and we enter into a new program, any decrease in the amount of reinsurance

at the time we enter into a new program, whether caused by the existence of more restrictive terms and conditions or decreased
availability, will also increase our risk of loss and, as a result, could adversely affect our business, financial condition and results of
operations. We currently have 16 reinsurers participating in our reinsurance treaty program, and we believe that this is a sufficient
number of reinsurers to provide us with the reinsurance coverage we require. However, it is possible that one or more of our current
reinsurers could terminate participation in our program. In addition, we may terminate the participation of one or more of our
reinsurers under certain circumstances as permitted by the terms of our reinsurance agreements. In any of these events, if our
reinsurance broker is unable to reallocate the terminated reinsurance among the remaining reinsurers in the program, it could take a
significant period of time to identify and negotiate agreements with one or more replacement reinsurers. During this period, we would
be exposed to an increased risk of loss, the extent of which would depend on the coverage previously provided by the terminated
reinsurance.

We may not be able to recover amounts due from our reinsurers, which would adversely affect our financial condition.

Reinsurance does not discharge our obligations under the insurance policies we write. We remain liable to our policyholders

even if we are unable to make recoveries that we are entitled to receive under our reinsurance contracts. As a result, we are subject to
credit risk with respect to our reinsurers. Losses are recovered from our reinsurers as claims are paid. In long-term workers’
compensation claims, the creditworthiness of our reinsurers may change before we recover amounts to which we are entitled.
Therefore, if a reinsurer is unable to meet any of its obligations to us, we would be responsible for all claims and claim settlement
expenses for which we would have otherwise received payment from the reinsurer.

As of December 31, 2019, we had $95.9 million of recoverables from reinsurers. Of this amount, $37.7 million was unsecured.

As of December 31, 2019, our largest recoverable from reinsurers included $43.5 million from Hannover Reinsurance (Ireland)
Limited, $11.5 million from Allianz Risk Transfer AG and $11.3 million from Odyssey America Reinsurance Corporation. No
reinsurance recoverable due at December 31, 2019 was over 90 days old.
reinsurers, our financial condition would be adversely impacted.

If we are unable to collect amounts recoverable from our

Assessments and premium surcharges for state guaranty funds, second injury funds and other mandatory pooling
arrangements may reduce our profitability.

Most states require insurance companies licensed to do business in their state to participate in guaranty funds, which require the

insurance companies to bear a portion of the unfunded obligations of impaired, insolvent or failed insurance companies. These
obligations are funded by assessments, most of which are expected to continue in the future. State guaranty associations levy
assessments, up to prescribed limits, on all member insurance companies in the state based on their proportionate share of premiums
written in the lines of business in which the impaired, insolvent or failed insurance companies are engaged. See “Business—
Regulation” in Item 1 of this report. Accordingly, the assessments levied on us may increase as we increase our written premium.
Some states also have laws that establish second injury funds to reimburse insurers and employers for claims paid to injured
employees for aggravation of prior conditions or injuries. These funds are supported by either assessments or premium surcharges
based on case incurred losses.

In addition, as a condition to conducting business in some states, insurance companies are required to participate in residual
market programs to provide insurance to those employers who cannot procure coverage from an insurance carrier on a negotiated
basis. Insurance companies generally can fulfill their residual market obligations by, among other things, participating in a reinsurance
pool where the results of all policies provided through the pool are shared by the participating insurance companies. Although we
price our insurance to account for obligations we may have under these pooling arrangements, we may not be successful in estimating
our liability for these obligations. Accordingly, mandatory pooling arrangements may cause a decrease in our profits.

At December 31, 2019, we participated in mandatory pooling arrangements in 21 states and the District of Columbia. As we

write policies in new states that have mandatory pooling arrangements, we will be required to participate in additional pooling
arrangements. Further, the impairment, insolvency or failure of other insurance companies in these pooling arrangements would likely
increase the liability for other members in the pool. The effect of assessments and premium surcharges or changes in them could
reduce our profitability in any given period or limit our ability to grow our business.

We may require additional capital in the future, which may not be available to us or may be available only on unfavorable
terms.

Our future capital requirements will depend on many factors, including state regulatory requirements, the financial stability of

our reinsurers and our ability to write new business and establish premium rates sufficient to cover our estimated claims. We may need
to raise additional capital or curtail our growth if the capital of our insurance subsidiaries is insufficient to support future operating
requirements and/or cover claims. If we had to raise additional capital, equity or debt financing might not be available to us or might
be available only on terms that are not favorable. Future equity offerings could be dilutive to our shareholders and the equity securities
issued in any offering may have rights, preferences and privileges senior to our common stock.

If we cannot obtain adequate capital on favorable terms or at all, we may be unable to support future growth or operating

requirements and, as a result, our business, financial condition or results of operations could be adversely affected.

We may have exposure to losses from terrorism for which we are required by law to provide coverage.

When writing workers’ compensation insurance policies, we are required by law to provide workers’ compensation benefits for

losses arising from acts of terrorism. The impact of any terrorist act is unpredictable, and the ultimate impact on us would depend
upon the nature, extent, location and timing of such an act. Our 2020 reinsurance treaty program affords limited coverage for up to
$70.0 million for losses arising from terrorism, subject to applicable deductibles, retentions, definitions and aggregate limits.

Notwithstanding the protection provided by reinsurance and the Terrorism Risk Insurance Program Reauthorization Act of 2019

(TRIPRA of 2019), the risk of severe losses to us from acts of terrorism has not been eliminated because our reinsurance treaty
program includes various sub-limits and exclusions limiting our reinsurers’ obligation to cover losses caused by acts of terrorism.
Accordingly, events constituting acts of terrorism may not be covered by, or may exceed the capacity of, our reinsurance and could
adversely affect our business and financial condition.

Risks Related to Our Common Stock

Our revenues and results of operations may fluctuate as a result of factors beyond our control, which fluctuation may cause
the price of our common stock to be volatile.

The revenues and results of operations of our insurance subsidiaries historically have been subject to significant fluctuations and

uncertainties. Our profitability can be affected significantly by:

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rising levels of claims costs, including medical and prescription drug costs, that we cannot anticipate at the time we
establish our premium rates;

fluctuations in interest rates, inflationary or deflationary pressures and other changes in the investment environment that
affect returns on our invested assets;

changes in the frequency or severity of claims;

the financial stability of our reinsurers and changes in the level of reinsurance capacity and our capital capacity;

new types of claims and new or changing judicial interpretations relating to the scope of liabilities of insurance companies;

volatile and unpredictable developments, including man-made, weather-related and other natural catastrophes or terrorist
attacks; and

price competition.

If our revenues and results of operations fluctuate as a result of one or more of these factors, the price of our common stock may

become more volatile.

Provisions of our articles of incorporation and bylaws and the laws of the states of Texas and Nebraska could impede an
attempt to replace or remove our directors or otherwise effect a change of control of our company, which could diminish the
value of our common stock.

Our articles of incorporation and bylaws contain provisions that may make it more difficult for shareholders to replace or
remove directors even if the shareholders consider it beneficial to do so. In addition, these provisions could delay or prevent a change
of control of our company that shareholders might consider favorable. Our articles of incorporation and bylaws contain the following
provisions that could have an anti-takeover effect:

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election of our directors is classified, meaning that the members of only one of three classes of our directors are elected
each year;

shareholders have limited ability to call shareholder meetings and to bring business before a meeting of shareholders;

shareholders may not act by written consent, unless the consent is unanimous; and

our Board of Directors may authorize the issuance of preferred stock with such rights, preferences and privileges as the
Board deems appropriate.

These provisions may make it difficult for shareholders to replace management and could have the effect of discouraging a

future takeover attempt that is not approved by our Board of Directors, but which individual shareholders might consider favorable.

We are incorporated in Texas. Under the Texas Business Organizations Code, our ability to enter into a business combination

with an affiliated shareholder is limited.

In addition, two of our three insurance company subsidiaries, AIIC and SOCI, are incorporated in Nebraska and the other,
AIICTX, is incorporated in Texas. Under Nebraska and Texas insurance law, advance approval by the state insurance department is
required for any change of control of an insurer. “Control” is presumed to exist through the direct or indirect ownership of 10% or
more of the voting securities of a domestic insurance company or any entity that controls a domestic insurance company. Obtaining
these approvals may result in the material delay of, or deter, any transaction that would result in a change of control.

The trading price of our common stock may decline.

The trading price of our common stock may decline for many reasons, some of which are beyond our control, including, among

others:

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our results of operations;

changes in expectations as to our future results of operations, including financial estimates and projections by securities
analysts and investors;

results of operations that vary from those expected by securities analysts and investors;

developments in the insurance or healthcare industries;

current and expected economic conditions;

changes in laws and regulations;

announcements of claims against us by third parties; and

future issuances or sales of our common stock.

In addition, the stock market experiences significant volatility from time to time that is often unrelated to the operating

performance of companies whose shares are traded. These market fluctuations could adversely affect the trading price of our common
stock, regardless of our actual operating performance.

Securities analysts may discontinue coverage of our common stock or may issue negative reports, which may adversely affect
the trading price of our common stock.

There is no assurance that securities analysts will continue to cover our company. If securities analysts do not cover our

company, this lack of coverage may adversely affect the trading price of our common stock. The trading market for our common stock
relies in part on the research and reports that securities analysts publish about us or our business. If one or more of the analysts who
cover our company downgrades our common stock, the trading price of our common stock may decline rapidly. If one or more of
these analysts ceases to cover our company, we could lose visibility in the market, which, in turn, could also cause the trading price of
our common stock to decline.

Future sales of our common stock may affect the trading price of our common stock.

We cannot predict what effect, if any, future sales of our common stock, or the availability of shares for future sale, will have on

the trading price of our common stock. Sales of a substantial number of shares of our common stock in the public market, or the
perception that such sales could occur, may adversely affect the trading price of our common stock and may make it more difficult for
you to sell your shares at a time and price that you determine appropriate. As of February 14, 2020, there were 19,302,583 shares of
our common stock outstanding.

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

We own our principal business office which has approximately 60,000 square feet of office space together with a 3,200 square
foot warehouse facility located in DeRidder, Louisiana. AIIC and SOCI lease their corporate headquarters which has approximately
3,500 square feet of office space located in Omaha, Nebraska. The Company leases space at other locations for certain of our service
and claims representatives, none of which are material.

Item 3.

Legal Proceedings.

In the ordinary course of our business, we are involved in the adjudication of claims resulting from workplace injuries. We are
not involved presently in any legal or administrative proceedings that we believe are likely to have a materially adverse effect on our
business, financial condition or results of operations.

Item 4.

Mine Safety Disclosures

None.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities.

Market Information and Holders

Our common stock is traded on the NASDAQ Global Select Market under the symbol “AMSF.” As of February 14, 2020, there

were 22 holders of record of our common stock.

Dividend Policy

In 2019, 2018 and 2017, the Company paid regular quarterly cash dividends of $0.25, $0.22, and $0.20 per share, respectively.

In addition, the Company paid extraordinary cash dividends of $3.50 in 2019, $3.50 in 2018 and $3.50 per share in 2017.

On February 18, 2020 the Company declared a regular quarterly cash dividend of $0.27 per share payable on March 27, 2020 to

shareholders of record as of March 13, 2020.

The Board intends to continue to consider the payment of a regular cash dividend each calendar quarter. On an annualized

basis, the cash dividend is expected to be $1.08 per share in 2020.

AMERISAFE is a holding company and has no direct operations. Our ability to pay dividends in the future depends on the

ability of our operating subsidiaries to pay dividends to us. Our insurance company subsidiaries are regulated insurance companies
and therefore are subject to significant regulatory restrictions limiting their ability to declare and pay dividends. See “Business—
Regulation—Dividend Limitations” in Item 1 of this report.

Our existing revolving credit agreement contains covenants that restrict our ability to pay dividends on our common stock. For

more information on our credit agreement, see “Liquidity and Capital Resources” in Item 7 of this report.

Description of Capital Stock

AMERISAFE is authorized to issue 60,000,000 shares of capital stock, consisting of:

(cid:220)

10,000,000 shares of preferred stock, par value $0.01 per share; and

50,000,000 shares of common stock, par value $0.01 per share.

As of February 14, 2020, 19,302,583 shares of common stock were outstanding. As of that date, there were no other shares of

our capital stock outstanding.

Share Repurchases

The Company’s Board of Directors initiated a share repurchase program in February 2010. In October 2016, the Board

reauthorized this program with a limit of $25.0 million with no expiration date. There were no shares repurchased under this program
in 2019, 2018 or 2017. Since the beginning of this plan, the Company has repurchased a total of 1,258,250 shares for $22.4 million,
or an average price of $17.78, including commissions. The purchases may be affected from time to time depending upon market
conditions and subject to applicable regulatory considerations. It is anticipated that any future purchases will be funded from available
capital.

Item 6.

Selected Financial Data.

The following tables summarize certain selected financial data that should be read in conjunction with our audited financial
statements and accompanying notes thereto for the year ended December 31, 2019 included in this report and “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”

Income Statement Data
Gross premiums written
Ceded premiums written
Net premiums written

Net premiums earned
Net investment income
Net realized losses on investments
Net unrealized gains (losses) on equity securities
Loss on disposal of assets
Fee and other income
Total revenues

Loss and loss adjustment expenses incurred
Underwriting and certain other operating costs (1)
Commissions
Salaries and benefits
Policyholder dividends
Total expenses
Income before taxes
Income tax expense (2)
Net income
Diluted earnings per common share equivalent
Weighted average common shares
Stock options and restricted stock
Diluted weighted average of common share

equivalents outstanding
Selected Insurance Ratios
Current accident year loss ratio (3)
Prior accident year loss ratio (4)
Net loss ratio
Net underwriting expense ratio (5)
Net dividend ratio (6)
Net combined ratio (7)

2019

$
$

333,460
(8,995)
324,465
332,888
32,483
(80)
4,758
(3)
324
370,370
176,342
22,221
25,010
27,120
4,160
254,853
115,517
22,827
92,690
4.80
19,248,657
80,581

Year Ended December 31,
2017
(in thousands, except share and per share data)

2016

2018

$
$

351,696
(9,344)
342,352
350,326
30,452
(1,536)
(2,088)
—
599
377,753
204,891
28,981
26,160
25,992
4,148
290,172
87,581
15,949
71,632
3.71
19,208,978
84,104

$
$

350,267
(8,869)
341,398
346,156
29,281
(647)
—
(2)
420
375,208
209,324
28,333
24,812
25,631
4,868
292,968
82,240
36,009
46,231
2.40
19,165,489
80,377

$
$

373,055
(10,307)
362,748
368,704
28,106
(494)
—
(1)
347
396,662
199,031
29,470
26,243
24,881
4,216
283,841
112,821
34,956
77,865
4.05
19,105,806
97,844

2015

$
$

386,529
(11,228)
375,301
375,894
27,902
(2,494)
—
(664)
316
400,954
214,573
32,162
27,509
24,442
1,301
299,987
100,967
30,505
70,462
3.69
18,941,077
178,109

19,329,238

19,293,082

19,245,866

19,203,650

19,119,186

72.5%
(19.5)%
53.0%
22.3%
1.3%
76.6%

71.5%
(13.0)%
58.5%
23.2%
1.2%
82.9%

70.5%
(10.0)%
60.5%
22.8%
1.4%
84.7%

67.9%
(13.9)%
54.0%
21.9%
1.1%
77.0%

69.8%
(12.7)%
57.1%
22.4%
0.3%
79.8%

Balance Sheet Data
Cash and cash equivalents
Investments
Amounts recoverable from reinsurers
Premiums receivable, net
Deferred income taxes
Deferred policy acquisition costs
Total assets (8)
Reserves for loss and loss adjustment expenses
Unearned premiums
Insurance-related assessments
Shareholders’ equity

2019

2018

As of December 31,
2017
(in thousands)

2016

2015

43,813
1,125,018
95,913
157,953
17,513
19,048
1,492,906
772,887
140,873
22,967
430,215

40,344
1,125,490
112,006
162,478
21,852
19,734
1,515,931
798,409
149,296
28,258
409,762

55,559
1,130,314
90,133
174,234
19,262
20,251
1,518,236
771,845
157,270
28,246
425,423

58,936
1,084,474
83,666
183,005
33,811
19,300
1,518,856
742,776
162,028
31,742
456,150

69,481
1,045,152
91,077
185,364
29,905
20,412
1,502,045
718,033
167,983
32,329
453,981

(1)

Includes policy acquisition expenses and other general and administrative expenses, excluding commissions and salaries and
benefits, related to insurance operations and corporate operating expenses.

(2) On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. Changes

(4)

(3)

include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December
31, 2017. As a result, we recorded $12.6 million as additional income tax expense related to our net deferred tax assets revalued
at the new lower rate of 21% in the fourth quarter of 2017, the period in which the legislation was enacted.
The current accident year loss ratio is calculated by dividing loss and loss adjustment expenses incurred for the current accident
year by the current year’s net premiums earned.
The prior accident year loss ratio is calculated by dividing the change in loss and loss adjustment expenses incurred for prior
accident years by the current year’s net premiums earned.
The net underwriting expense ratio is calculated by dividing underwriting and certain other operating costs, commissions and
salaries, and benefits by the current year’s net premiums earned.
The net dividend ratio is calculated by dividing policyholder dividends by the current year’s net premiums earned.
(6)
(7)
The net combined ratio is the sum of the net loss ratio, the net underwriting expense ratio and the net dividend ratio.
(8) We adopted ASU 2016-02, Leases (Topic 842), in the first quarter of 2019. We elected the new transition method under the

(5)

transition guidance within the new standard. Therefore, prior comparative periods are not adjusted.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and the notes thereto included in Item 8 of this report. This discussion includes forward-looking
statements that are subject to risks, uncertainties and other factors described in Item 1A of this report. These factors could cause our
actual results in 2020 and beyond to differ materially from those expressed in, or implied by, those forward-looking statements.

Overview

AMERISAFE is a holding company that markets and underwrites workers’ compensation insurance through its insurance
subsidiaries. Workers’ compensation insurance covers statutorily prescribed benefits that employers are obligated to provide to their
employees who are injured in the course and scope of their employment. Our business strategy is focused on providing this coverage
to small to mid-sized employers engaged in hazardous industries, principally construction, trucking, logging and lumber,
manufacturing, agriculture, maritime, and oil and gas. Employers engaged in hazardous industries pay substantially higher than
average rates for workers’ compensation insurance compared to employers in other industries, as measured per payroll dollar. The
higher premium rates are due to the nature of the work performed and the inherent workplace danger of our target employers.
Hazardous industry employers also tend to have less frequent but more severe claims as compared to employers in other industries due
to the nature of their businesses. We provide proactive safety reviews of employers’ workplaces. These safety reviews are a vital
component of our underwriting process and also promote safer workplaces. We utilize intensive claims management practices that we
believe permit us to reduce the overall cost of our claims. In addition, our audit services ensure that our policyholders pay the
appropriate premiums required under the terms of their policies and enable us to monitor payroll patterns that cause underwriting,
safety or fraud concerns. We believe that the higher premiums typically paid by our policyholders, together with our disciplined
underwriting and safety, claims and audit services, provide us with the opportunity to earn attractive returns for our shareholders.

We actively market our insurance in 27 states through independent agencies, as well as through our wholly owned insurance

agency subsidiary. We are also licensed in an additional 20 states, the District of Columbia and the U.S. Virgin Islands.

Two of the key financial measures that we use to evaluate our performance are return on average equity and growth in book value

per share adjusted for dividends paid to shareholders. We calculate return on average equity by dividing annual net income by the average
of annual shareholders’ equity. Our return on average equity was 22.1% in 2019, 17.2% in 2018 and 10.5% in 2017. We calculate book
value per share by dividing ending shareholders’ equity by the number of common shares outstanding. Our book value per share was
$22.29 at December 31, 2019, $21.26 at December 31, 2018 and $22.10 at December 31, 2017. We paid cash dividends of $4.50 per
share in 2019, $4.38 per share in 2018 and $4.30 per share in 2017.

Investment income is an important element of our net income. Because the period of time between our receipt of premiums and
the ultimate settlement of claims is often several years or longer, we are able to invest cash from premiums for significant periods of
time. As a result, we are able to generate more investment income from our premiums as compared to insurance companies that
operate in other lines of business that pay claims more quickly. At December 31, 2019, our investment portfolio, including cash and
cash equivalents, was $1.2 billion and produced net investment income of $32.5 million in 2019, $30.5 million in 2018 and $29.3
million in 2017.

The use of reinsurance is an important component of our business strategy. We purchase reinsurance to reduce our net liability

on individual risks and to protect against catastrophic losses. Our reinsurance program for 2020 includes 16 reinsurers that provide
coverage to us in excess of a certain specified loss amount, or retention level. Our 2020 reinsurance program provides us with
reinsurance coverage for each loss occurrence up to $70.0 million, subject to applicable limitations, deductibles, retentions and
aggregate limits. However, for any loss occurrence involving only one claimant, our reinsurance coverage is limited to $10.0 million
for any single claimant, subject to applicable deductibles, retentions and aggregate limits. Losses in the layer between $2.0 million
and $10.0 million are ceded to a multi-year reinsurance treaty with an aggregate annual deductible of approximately $9.5 million and
an aggregate limit of coverage of approximately $28.6 million for 2020. As losses are incurred and recorded, we record amounts
recoverable from reinsurers for the portion of the losses ceded to our reinsurers.

Our most significant balance sheet liability is our reserve for loss and loss adjustment expenses. We record reserves for estimated
losses under insurance policies that we write and for loss adjustment expenses related to the investigation and settlement of claims. Our
reserves for loss and loss adjustment expenses represent the estimated cost of all reported and unreported loss and loss adjustment
expenses incurred and unpaid at any given point in time based on known facts and circumstances. Reserves are based on estimates of the
most likely ultimate cost of individual claims. These estimates are inherently uncertain. In addition, there are no policy limits on the
liability for workers’ compensation claims as there are for other forms of insurance. Therefore, estimating reserves for workers’
compensation claims may be more uncertain than estimating reserves for other types of insurance claims with shorter or more definite
periods between occurrence of the claim and final determination of the loss and with policy limits on liability for claim amounts.

Our focus on providing workers’ compensation insurance to employers engaged in hazardous industries results in our receiving

relatively fewer but more severe claims than many other workers’ compensation insurance companies. Severe claims, which we define
as claims having an estimated ultimate cost of more than $1.0 million, usually have a material effect on each accident year’s loss
reserves (and our reported results of operations) as a result of both the number of severe claims reported in any year and the timing of
claims in the year. As a result of our focus on higher severity, lower frequency business, our reserve for loss and loss adjustment
expenses may have greater volatility than other workers’ compensation insurance companies.

For example, for the five-year period ended December 31, 2019 we had recorded 70 severe claims, or an average of 14 severe

claims per year for accident years 2015 through 2019. The number of severe claims reported in any one accident year in this five-year
period ranged from a low of 9 in 2015 to a high of 16 in 2017 and 2019. The average reported case severity for these claims ranged
from $2.2 million for the 2015 accident year to $2.9 million for the 2019 accident year. For the five accident years, the case incurred
for these severe claims accounted for an average of 10.4 percentage points of our overall loss and loss adjustment expense, or LAE,
ratio, measured at December 31, 2019.

Further, the ultimate cost of severe claims is more difficult to estimate, principally due to uncertainties as to medical treatment
and outcome and the length and degree of disability. Because of these uncertainties, the estimate of the ultimate cost of severe claims
can vary significantly as more information becomes available. As a result, at year end, the case reserve for a severe claim reported
early in the year may be more accurate than the case reserve established for a severe claim reported late in the year.

A key assumption used by management in establishing loss reserves is that average per claim case incurred loss and loss

adjustment expenses will increase year over year. We believe this increase primarily reflects medical and wage inflation and
utilization. However, changes in per average claim case incurred loss and loss adjustment expenses can also be affected by frequency
of severe claims in the applicable accident years.

As more fully described in “Business—Loss Reserves” in Item 1 of this report, the estimate for loss and loss adjustment
expenses is established based upon management’s analysis of historical data, and factors and trends derived from that data, including
claims reported, average claim amount incurred, case development, duration, severity and payment patterns, as well as subjective
assumptions. This analysis includes reviews of case reserves for individual open severe claims in the current and prior years.
Management reviews the outcomes from actuarial analyses to confirm the reasonableness of its reserve estimate.

Substantial judgment is required to determine the relevance of our historical experience and industry information under current

facts and circumstances. The interpretation of this historical and industry data can be impacted by external forces, principally
frequency and severity of unreported claims, length of time to achieve ultimate settlement of claims, utilization, inflation in medical
costs and wages, insurance policy coverage interpretations, jury determinations and legislative changes. Accordingly, our reserves
may prove to be inadequate to cover our actual losses. If we change our estimates, these changes would be reflected in our results of
operations during the period in which the changes occurred, with increases in our reserves resulting in decreases in our earnings.
Additional information regarding our reserves for loss and loss adjustment expenses and the actuarial methods and other factors used
in establishing these reserves can be found under the caption “Business—Loss Reserves” in Item 1 of this report.

Our gross reserves for loss and loss adjustment expenses at December 31, 2019, 2018 and 2017 were $772.9 million, $798.4
million and $771.8 million, respectively. As a percentage of gross reserves at year end, IBNR represented 17.6% in 2019, 20.1% in
2018 and 16.8% in 2017.

In 2019, we decreased our estimates for prior year loss reserves by $65.0 million. In 2018, we decreased our estimates for prior

year loss reserves by $45.6 million. In 2017, we decreased our estimates for prior year loss reserves by $34.8 million.

The workers’ compensation insurance industry is cyclical in nature and influenced by many factors, including price competition,

medical cost increases, natural and man-made disasters, changes in interest rates, changes in state laws and regulations, and general
economic conditions. A hard market in our industry is characterized by decreased competition that results in higher premium rates,
more restrictive policy coverage terms, and lower commissions paid to agencies. In contrast, a soft market is characterized by
increased competition that results in lower premium rates, expanded policy coverage terms, and higher commissions paid to agencies.
Our strategy is to focus on maintaining underwriting profitability throughout the cycle.

For additional information regarding our loss reserves and the analyses and methodologies used by management to establish

these reserves, see the information under the caption “Business—Loss Reserves” in Item 1 of this report.

Principal Revenue and Expense Items

Our revenues consist primarily of the following:

Net Premiums Earned. Net premiums earned is the earned portion of our net premiums written. Net premiums written is equal to
gross premiums written less premiums ceded to reinsurers. Gross premiums written includes the estimated annual premiums from each
insurance policy we write in our voluntary and assigned risk businesses during a reporting period based on the policy effective date or
the date the policy is bound, whichever is later.

Premiums are earned on a daily pro rata basis over the term of the policy. At the end of each reporting period, premiums written

that are not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy.
Our insurance policies typically have a term of one year. Thus, for a one-year policy written on July 1, 2019 for an employer with
constant payroll during the term of the policy, we would earn half of the premiums in 2019 and the other half in 2020. On a monthly
basis, we also recognize net premiums earned from mandatory pooling arrangements.

We estimate the annual premiums to be paid by our policyholders when we issue the policies and record those amounts on our
balance sheet as premiums receivable. We conduct premium audits on all of our voluntary business policyholders annually, upon the
expiration of each policy, including when the policy is renewed. The purpose of these audits is to verify that policyholders have
accurately reported their payroll expenses and employee job classifications, and therefore have paid us the premium required under the
terms of the policies. The difference between the estimated premium and the ultimate premium is referred to as “earned but unbilled”
premium, or EBUB premium. EBUB premium is subject to significant variability and can either increase or decrease earned premium
based upon several factors, including changes in premium growth, industry mix and economic conditions. Due to the timing of audits
and other adjustments, the ultimate premium earned is generally not determined for several months after the expiration of the policy.

We review the estimate of EBUB premiums on a quarterly basis using historical data and applying various assumptions based
on the current market and economic conditions, and we record an adjustment to premium, related losses, and expenses as warranted.

Net Investment Income and Net Realized Gains and Losses on Investments. We invest our statutory surplus funds and the funds
supporting our insurance liabilities in fixed maturity securities, equity securities and alternative investments. In addition, a portion of
these funds are held in cash and cash equivalents to pay current claims. Our net investment income includes interest and dividends earned
on our invested assets and amortization of premiums and discounts on our fixed maturity securities. We assess the performance of our
investment portfolio using a standard tax equivalent yield metric. Investment income that is tax-exempt is increased by our marginal
federal tax rate to express yield on tax-exempt securities on the same basis as taxable securities. Net realized gains and losses on our
investments are reported separately from our net investment income. Net realized gains occur when our investment securities are sold for
more than their cost or amortized cost, as applicable. Net realized losses occur when our investment securities are sold for less than their
cost or amortized cost, as applicable, or are written down as a result of other-than-temporary impairment. We classify the majority of our
fixed maturity securities as held-to-maturity. The remainder of our fixed maturity securities are classified as available-for-sale. Net
unrealized gains or losses on our securities classified as available-for-sale are reported separately within accumulated other
comprehensive income on our balance sheet. Changes in net unrealized gains or losses on our equity securities are recognized in net
income.

Fee and Other Income. We recognize commission income earned on policies issued by other carriers that are sold by our wholly

owned insurance agency subsidiary as the related services are performed. We also recognize a small portion of interest income from
mandatory pooling arrangements in which we participate.

Our expenses consist primarily of the following:

Loss and Loss Adjustment Expenses Incurred. Loss and loss adjustment expenses incurred represents our largest expense item

and, for any given reporting period, includes estimates of future claim payments, changes in those estimates from prior reporting
periods and costs associated with investigating, defending, and administering claims. These expenses fluctuate based on the amount
and types of risks we insure. We record loss and loss adjustment expenses related to estimates of future claim payments based on case-
by-case valuations and statistical analyses. We seek to establish all reserves at the most likely ultimate exposure based on our
historical claims experience. It is typical for our more serious claims to take several years to settle and we revise our estimates as we
receive additional information about the condition of the injured employees. Our ability to estimate loss and loss adjustment expenses
accurately at the time of pricing our insurance policies is a critical factor in our profitability. Additional information regarding our
reserves for loss and loss adjustment expenses and the actuarial methods and other factors used in establishing these reserves can be
found under the caption “Business—Loss Reserves” in Item 1 of this report.

Underwriting and Certain Other Operating Costs. Underwriting and certain other operating costs are those expenses that we

incur to underwrite and maintain the insurance policies we issue. These expenses include state and local premium taxes and fees and
other operating costs, offset by commissions we receive from reinsurers under our reinsurance treaty programs. We pay state and local
taxes, licenses and fees, assessments, and contributions to state workers’ compensation security funds based on premiums. In addition,
other operating costs include general and administrative expenses, excluding commissions and salaries and benefits, incurred at both
the insurance company and corporate level.

Commissions. We pay commissions to our subsidiary insurance agency and to the independent agencies that sell our insurance

based on premiums collected from policyholders.

Salaries and Benefits. We pay salaries and provide benefits to our employees.

Policyholder Dividends. In limited circumstances, we pay dividends to policyholders in particular states as an underwriting

incentive.

Income Tax Expense. We incur federal, state, and local income tax expense. On December 22, 2017, the Tax Act was signed

into law making significant changes to the Internal Revenue Code. The reduction of the U.S. corporate tax rate from 35% to 21%
resulted in a non-cash charge related to a revaluation of our net deferred tax assets. This charge amounted to $12.6 million of
additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted.

Critical Accounting Policies

Understanding our accounting policies is key to understanding our financial statements. Management considers some of these

policies to be very important to the presentation of our financial results because they require us to make significant estimates and
assumptions. These estimates and assumptions affect the reported amounts of our assets, liabilities, revenues and expenses and related
disclosures. Some of the estimates result from judgments that can be subjective and complex and, consequently, actual results in future
periods might differ from these estimates.

Management believes that the most critical accounting policies relate to the reporting of reserves for loss and loss adjustment

expenses, including losses that have occurred but have not been reported prior to the reporting date, amounts recoverable from
reinsurers, premiums receivable, assessments, deferred policy acquisition costs, deferred income taxes, the impairment of investment
securities and share-based compensation.

The following is a description of our critical accounting policies.

Reserves for Loss and Loss Adjustment Expenses. We record reserves for estimated losses under insurance policies that we write

and for loss adjustment expenses, which include defense and cost containment, or DCC, and adjusting and other, or AO expenses,
related to the investigation and settlement of policy claims. Our reserves for loss and loss adjustment expenses represent the estimated
cost of all reported and unreported loss and loss adjustment expenses incurred and unpaid at any given point in time based on known
facts and circumstances.

Our reserves for loss and DCC expenses are estimated using case-by-case valuations based on our estimate of the most likely

outcome of the claim at that time. In addition to these case reserves, we establish reserves on an aggregate basis that have been
incurred but not reported, or IBNR. Our IBNR reserves are also intended to provide for aggregate changes in case incurred amounts as
well as for recently reported claims which an initial case reserve has not been established. The third component of our reserves for loss
and loss adjustment expenses is our AO reserve. Our AO reserve is established for those future claims administration costs that cannot
be allocated directly to individual claims. The final component of our reserves for loss and loss adjustment expenses is the reserve for
mandatory pooling arrangements.

In establishing our reserves, we review the results of analyses using actuarial methods that utilize historical loss data from our

more than 34 years of underwriting workers’ compensation insurance. The actuarial analysis of our historical data provides the factors
we use in estimating our loss reserves. These factors are primarily measures over time of the number of claims paid and reported,
average paid and incurred claim amounts, claim closure rates and claim payment patterns. In evaluating the results of our analyses,
management also uses substantial judgment in considering other factors that are not considered in these actuarial analyses, including
changes in business mix, claims management, regulatory issues, medical trends, employment and wage patterns, insurance policy
coverage interpretations, judicial determinations and other subjective factors. Due to the inherent uncertainty associated with these
estimates, and the cost of incurred but unreported claims, our actual liabilities may vary significantly from our original estimates.

On a quarterly basis, we review our reserves for loss and loss adjustment expenses to determine whether adjustments are
required. Any resulting adjustments are included in the results for the current period. In establishing our reserves, we do not use loss
discounting, which would involve recognizing the time value of money and offsetting estimates of future payments by future expected
investment income. Additional information regarding our reserves for loss and loss adjustment expenses and the actuarial methods and
other factors used in establishing these reserves can be found under the caption “Business—Loss Reserves” in Item 1 of this report.

Amounts Recoverable from Reinsurers. Amounts recoverable from reinsurers represent the portion of our paid and unpaid loss

and loss adjustment expenses that are assumed by reinsurers and related commissions due from reinsurers. These amounts are
separately reported on our balance sheet as assets and do not reduce our reserves for loss and loss adjustment expenses because
reinsurance does not relieve us of liability to our policyholders. We are required to pay claims even if a reinsurer fails to pay us under
the terms of a reinsurance contract. We calculate amounts recoverable from reinsurers based on our estimates of the underlying loss
and loss adjustment expenses, as well as the terms and conditions of our reinsurance contracts, which could be subject to
interpretation. In addition, we bear credit risk with respect to our reinsurers, which can be significant because some of the unpaid loss
and loss adjustment expenses for which we have reinsurance coverage remain outstanding for extended periods of time.

Premiums Receivable. Premiums receivable represents premium-related balances due from our policyholders based on annual
premiums for policies written, including surcharges and deposits and adjustments for premium audits, endorsements, cancellations,
cash transactions and charge offs. The balance is shown net of the allowance for doubtful accounts and includes an estimate for
EBUB. The EBUB estimate is subject to significant variability and can either increase or decrease premiums receivable and earned
premiums based upon several factors, including changes in premium growth, industry mix and economic conditions. EBUB
assumptions include historical development factors, current economic outlook and current trends in particular sectors of our business.

Assessments. We are subject to various assessments and premium surcharges related to our insurance activities, including
assessments and premium surcharges for state guaranty funds and second injury funds. Our accrual is based on historical assessments
as well as updated assessment rates. Assessments based on premiums are recorded as an expense as premiums are earned and
generally paid one year after the calendar year in which the policies are written. Assessments based on losses are recorded as an
expense as losses are incurred and are generally paid within one year of the calendar year in which the claims are paid by us. State
guaranty fund assessments are used by state insurance oversight agencies to pay claims of policyholders of impaired, insolvent or
failed insurance companies and the operating expenses of those agencies. Second injury funds are used by states to reimburse insurers
and employers for claims paid to injured employees for aggravation of prior conditions or injuries. In some states, these assessments
and premium surcharges may be partially recovered through a reduction in future premium taxes.

Deferred Policy Acquisition Costs. We defer commission expenses, premium taxes and certain marketing, sales, underwriting

and safety costs that vary with and primarily relate to the successful acquisition of insurance policies. These acquisition costs are
capitalized and charged to expense ratably as premiums are earned. In calculating deferred policy acquisition costs, these costs are
limited to their estimated realizable value, which gives effect to the premiums to be earned, anticipated losses and settlement expenses
and certain other costs we expect to incur as the premiums are earned, less related net investment income. Judgments as to the ultimate
recoverability of these deferred policy acquisition costs are highly dependent upon estimated future profitability of unearned
premiums. If the unearned premiums were less than our expected claims and expenses after considering investment income, we would
reduce the deferred costs.

Deferred Income Taxes. We use the liability method of accounting for income taxes. Under this method, deferred income tax

assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities resulting from a tax rate change impacts our net income or loss in the reporting period that
includes the enactment date of the tax rate change.

In assessing whether our deferred tax assets will be realized, management considers whether it is more likely than not that we

will generate future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this
assessment. If necessary, we establish a valuation allowance to reduce the deferred tax assets to the amounts that are more likely than
not to be realized.

On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. The
reduction of the U.S. corporate tax rate from 35% to 21% caused us to adjust our deferred tax assets and liabilities to the lower federal
base rate of 21%. The impact resulted in a net deferred tax expense of $12.6 million in the fourth quarter of 2017, the period in which
the legislation was enacted.

Impairment of Investment Securities. Impairment of an investment security results in a reduction of the carrying value of the
security and the realization of a loss when the fair value of the security declines below our cost or amortized cost, as applicable, for the
security, and the impairment is deemed to be other-than-temporary. We regularly review our investment portfolio to evaluate the
necessity of recording impairment losses for other-than-temporary declines in the fair value of specific investments. We consider
various factors in determining if a decline in the fair value of an individual security is other-than-temporary. Some of the factors we
consider include:

(cid:220)

any reduction or elimination of preferred stock dividends, or nonpayment of scheduled principal or interest payments;

the financial condition and near-term prospects of the issuer of the applicable security, including any specific events that
may affect its operations or earnings;

how long and by how much the fair value of the security has been below its cost or amortized cost;

any downgrades of the security by a rating agency;

our intent not to sell the security for a sufficient time period for it to recover its value;

the likelihood of being forced to sell the security before the recovery of its value; and

an evaluation as to whether there are any credit losses on debt securities.

Share-Based Compensation. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards

Codification (ASC) Topic 718, Compensation-Stock Compensation, we recognize compensation costs for restricted stock,
performance-based stock and stock option awards over the applicable vesting periods.

Results of Operations

The table below summarizes certain operating results and key measures we use in monitoring and evaluating our operations.

Income Statement Data
Gross premiums written
Ceded premiums written
Net premiums written

Net premiums earned
Net investment income
Net realized losses on investments
Net unrealized gains (losses) on equity securities
Fee and other income
Total revenues

Net income

Selected Insurance Ratios
Current accident year loss ratio (3)
Prior accident year loss ratio (4)
Net loss ratio
Net underwriting expense ratio (5)
Net dividend ratio (6)
Net combined ratio (7)

2019

Year Ended December 31,
2018
(in thousands)

2017

$ 333,460
(8,995)
$ 324,465
$ 332,888
32,483
(80)
4,758
321
370,370
176,342
22,221
25,010
27,120
4,160
254,853
115,517
22,827
92,690

$ 351,696
(9,344)
$ 342,352
$ 350,326
30,452
(1,536)
(2,088)
599
377,753
204,891
28,981
26,160
25,992
4,148
290,172
87,581
15,949
71,632

$
$

350,267
(8,869)
341,398
346,156
29,281
(647)
—
418
375,208
209,324
28,333
24,812
25,631
4,868
292,968
82,240
36,009
46,231

72.5%
(19.5)%
53.0%
22.3%
1.3%
76.6%

71.5%
(13.0)%
58.5%
23.2%
1.2%
82.9%

70.5%
(10.0)%
60.5%
22.8%
1.4%
84.7%

2019

As of December 31,
2018
(in thousands)

2017

43,813
1,125,018
95,913
157,953
17,513
19,048
1,492,906
772,887
140,873
22,967
430,215

40,344
1,125,490
112,006
162,478
21,852
19,734
1,515,931
798,409
149,296
28,258
409,762

55,559
1,130,314
90,133
174,234
19,262
20,251
1,518,236
771,845
157,270
28,246
425,423

(1)

Includes policy acquisition expenses, and other general and administrative expenses, excluding commissions and salaries and
benefits, related to insurance operations and corporate operating expenses.

(2) On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. Changes

(3)

(4)

(5)

transition guidance within the new standard. Therefore, prior comparative periods are not adjusted.

Overview of Operating Results

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Gross Premiums Written. Gross premiums written for 2019 were $333.5 million, compared to $351.7 million for 2018, a
decrease of 5.2%. The decrease was attributable to a $22.9 million decrease in annual premiums on voluntary policies written during
the period which was offset by a $5.0 million increase in premiums resulting from payroll audits and related premium adjustments for
policies written in previous quarters. Related premium adjustments in 2019 include a $1.0 million increase in “earned but unbilled”,
or EBUB, premium.

Net Premiums Written. Net premiums written for 2019 were $324.5 million, compared to $342.4 million for 2018, a decrease of

5.2%. The decrease was primarily attributable to the decrease in gross premiums written. As a percentage of gross premiums earned,
ceded premiums were 2.6% for 2019 and 2018.

Net Premiums Earned. Net premiums earned for 2019 were $332.9 million, compared to $350.3 million for 2018, a decrease of

5.0%. The decrease was attributable to the decrease in net premiums written during the period.

Net Investment Income. Net investment income in 2019 was $32.5 million, an increase of 6.7% from the $30.5 million reported

in 2018. The pre-tax investment yield on our investment portfolio was 2.8% per annum for 2019 versus 2.6% per annum for 2018. The
tax-equivalent yield on our investment portfolio was 3.1% per annum for 2019, compared to 3.2% per annum for 2018. The tax-
equivalent yield is calculated using the effective interest rate and the appropriate marginal tax rate. Average invested assets, including
cash and cash equivalents, increased 0.5%, from an average of $1,195.1 million for 2018 to an average of $1,200.6 million for 2019.

Net Realized Gains (Losses) on Investments. Net realized losses on investments in 2019 totaled $0.1 million, compared to losses of

$1.5 million in 2018. In 2019, net realized losses of $0.2 million resulted from redemptions of fixed maturity securities offset by $0.1
million of realized gains on the sale of fixed maturity securities classified as available-for-sale. In 2018, net realized losses of $1.1
million resulted from the sale of equity securities and fixed maturity securities classified as available-for-sale.

Loss and Loss Adjustment Expenses Incurred. Loss and LAE incurred totaled $176.3 million for 2019, compared to $204.9

million for 2018, a decrease of $28.5 million, or 13.9%. The current accident year losses and LAE incurred were $241.3 million, or
72.5% of net premiums earned, compared to $250.5 million, or 71.5% of net premiums earned for 2018. We recorded favorable prior
accident year development of $65.0 million in 2019, compared to $45.6 million in 2018. This is discussed in more detail below in
“Prior Year Development.” Our net loss ratio was 53.0% for 2019 and 58.5% for 2018.

Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other
operating costs, commissions and salaries and benefits for 2019 were $74.4 million, compared to $81.1 million for 2018, a decrease of
$6.8 million, or 8.4%. This decrease was primarily due to a $6.8 million decrease in insurance related assessments, a $1.2 million
decrease in commission expense, and a $0.6 million decrease in premium taxes. The decrease in insurance related assessments
included a benefit of $3.5 million from the elimination of a state assessment for a multiple injury fund. The decreases above were
partially offset by an increase of $1.1 million in compensation expense and an increase of $0.4 million in accounts receivable write-
offs. Our underwriting expense ratio decreased to 22.3% in 2019 from 23.2% in 2018.

Income tax expense. Income tax expense for 2019 was $22.8 million, compared to $15.9 million for 2018. The effective tax rate

also increased to 19.8% for 2019, compared to 18.2% for 2018. This increase in the effective tax rate is due to a lower proportion of
tax-exempt income to underwriting income in 2019 relative to 2018.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Gross Premiums Written. Gross premiums written for 2018 were $351.7 million, compared to $350.3 million for 2017, an
increase of 0.4%. The increase was attributable to a $6.8 million increase in premiums resulting from payroll audits and related
premium adjustments which was offset by a $5.2 million decrease in annual premiums on voluntary policies written during the period.
Related premium adjustments in 2018 include a $1.2 million increase in “earned but unbilled”, or EBUB, premium.

Net Premiums Written. Net premiums written for 2018 were $342.4 million, compared to $341.4 million for 2017, an increase of

0.3%. The increase was primarily attributable to the increase in gross premiums written. As a percentage of gross premiums earned,
ceded premiums were 2.6% for 2018 compared to 2.5% for 2017.

Net Premiums Earned. Net premiums earned for 2018 were $350.3 million, compared to $346.2 million for 2017, an increase of

1.2%. The increase was attributable to the increase in net premiums written during the period.

Net Investment Income. Net investment income in 2018 was $30.5 million, an increase of 4.0% from the $29.3 million reported
in 2017. The pre-tax investment yield on our investment portfolio was 2.6%per annum for 2018 versus 2.5% per annum for 2017. The
tax-equivalent yield on our investment portfolio was 3.2% per annum for 2018, compared to 2.9% per annum for 2017. The tax-
equivalent yield is calculated using the effective interest rate and the appropriate marginal tax rate as of January 1, 2019. Average
invested assets, including cash and cash equivalents, increased 0.5%, from an average of $1,188.7 million for 2017 to an average of
$1,195.1 million for 2018.

Net Realized Gains (Losses) on Investments. Net realized losses on investments in 2018 totaled $1.5 million, compared to losses of

$0.6 million in 2017. In 2018, net realized losses of $1.1 million resulted from sale of equity and fixed maturity securities classified as
available-for-sale. The remaining $0.4 million of realized losses resulted from redemptions of fixed maturity securities. In 2017, net
realized losses of $1.1 million resulted from the redemption of fixed maturity securities. These losses were partially offset by realized
gains of $0.5 million on the sale of equity and fixed maturity securities classified as available-for-sale.

Loss and Loss Adjustment Expenses Incurred. Loss and LAE incurred totaled $204.9 million for 2018, compared to $209.3
million for 2017, a decrease of $4.4 million, or 2.1%. The current accident year losses and LAE incurred were $250.5 million, or
71.5% of net premiums earned, compared to $244.1 million, or 70.5% of net premiums earned for 2017. We recorded favorable prior
accident year development of $45.6 million in 2018, compared to $34.8 million in 2017. This is discussed in more detail below in
“Prior Year Development.” Our net loss ratio was 58.5%for 2018 and 60.5% for 2017.

Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other
operating costs, commissions and salaries and benefits for 2018 were $81.1 million, compared to $78.8 million for 2017, an increase
of $2.4 million, or 3.0%. This increase was primarily due to a $1.5 million increase in premium taxes, a $1.3 million increase in
commission expense, a $0.4 million increase in compensation expense and a $0.3 million increase in legal and professional fees.
These increases were partially offset by a decrease of $0.7 million in accounts receivable write-offs and a decrease of $0.6 million in
insurance related assessments. Our underwriting expense ratio increased to 23.2% in 2018 from 22.8% in 2017.

Income tax expense. Income tax expense for 2018 was $15.9 million, compared to $36.0 million for 2017. The effective tax rate

also decreased to 18.2% for 2018, compared to 43.8% for 2017. This decrease is mainly due to the impact of tax reform legislation
which reduced the U.S. corporate tax rate from 35% to 21% in 2018 and resulted in a revaluation of our net deferred tax assets in the
prior year. The impact resulted in a net deferred tax expense of $12.6 million in the fourth quarter of 2017, the period in which the
legislation was enacted.

Prior Year Development

The Company recorded favorable prior accident year loss and loss adjustment expense development of $65.0 million in calendar

year 2019, $45.6 million in calendar year 2018 and $34.8 million in calendar year 2017. The table below sets forth the favorable
development for accident years 2014 through 2018 and, collectively, all accident years prior to 2014.

Favorable/(Unfavorable) Development for Year
Ended December 31,
2018
(in millions)

2019

2017

2018
2017
2016
2015
2014
Prior to 2014
Total net development

— $
9.5
23.4
14.5
8.6
9.0
65.0

— $
—
9.1
17.0
8.1
11.4
45.6

—
—
—
10.1
14.0
10.7
34.8

The table below sets forth the number of open claims as of December 31, 2019, 2018 and 2017, and the numbers of claims

reported and closed during the years then ended.

Twelve Months Ended December 31,
2018

2017

2019

Open claims at beginning of period
Claims reported
Claims closed
Open claims at end of period

5,190
5,452
(5,589)
5,053

4,982
5,440
(5,232)
5,190

5,195
5,155
(5,368)
4,982

At December 31, 2019, our incurred amounts for certain accident years, particularly 2015 and 2016, developed more favorably

than management previously expected. Multiple factors can cause loss development both unfavorable and favorable. The favorable
loss development we experienced across accident years was largely due to two factors:
these accident years compared to our original and revised estimates; and (2) favorable case reserve development from closed claims
and claims where the worker had reached maximum medical improvement. We believe the favorable case reserve development
resulted primarily from an intensive claims management focus with the Company actively seeking to settle claims, leading to
favorable development.

(1) lower than expected severity of injuries in

The assumptions we used in establishing our reserves for these accident years were based on our historical claims data.
However, as of December 31, 2019, actual results for these accident years have been better than our assumptions would have
predicted. We do not presently intend to modify our assumptions for establishing reserves in light of recent results. However, if actual
results for current and future accident years are consistent with, or different than, our results in these recent accident years, our
historical claims data will reflect this change and, over time, will impact the reserves we establish for future claims.

Our reserves for loss and loss adjustment expenses are inherently uncertain and our focus on providing workers’ compensation

insurance to employers engaged in hazardous industries results in our receiving relatively fewer but more severe claims than many
other workers’ compensation insurance companies. As a result of this focus on higher severity, lower frequency business, our reserve
for loss and loss adjustment expenses may have greater volatility than other workers’ compensation insurance companies. Additional
information regarding our reserves for loss and loss adjustment expenses and the actuarial methods and other factors used in
establishing these reserves can be found under the caption “Business—Loss Reserves” in Item 1 of this report.

Liquidity and Capital Resources

Our principal sources of operating funds are premiums, investment income, and proceeds from maturities of investments. Our

primary uses of operating funds include payments for claims and operating expenses. We pay claims, operating expenses and
shareholder dividends using cash flow from operations and invest our excess cash in fixed maturity and equity securities. We expect
that our projected cash flow from operations will provide us sufficient liquidity to fund future operations, including payment of claims
and operating expenses and other holding company expenses, for at least the next 18 months.

We forecast claim payments based on our historical trends. We seek to manage the funding of claim payments by actively

managing available cash and forecasting cash flows on a short- and long-term basis. Cash payments, net of reinsurance, for claims
were $190.0 million in 2019, $200.7 million in 2018 and $186.9 million in 2017. We fund claim payments out of cash flow from
operations, principally premiums, net of amounts ceded to our reinsurers, and net investment income. Our investment portfolio at
December 31, 2019 was $1.2 billion.

As discussed above under “Overview,” We purchase reinsurance to reduce our net liability on individual risks and to protect

against catastrophic losses. Based on our estimates of future claims, we believe we are sufficiently capitalized to satisfy the
deductibles and retentions in our 2020 reinsurance program. We reevaluate our reinsurance program at least annually, taking into
consideration a number of factors, including cost of reinsurance, our liquidity requirements, operating leverage and coverage terms.

Even if we maintain our existing retention levels, if the cost of reinsurance increases, our cash flow from operations would

decrease as we would cede a greater portion of our written premiums to our reinsurers. Conversely, our cash flow from operations
would increase if the cost of reinsurance declined relative to our retention.

In December 2019, the Company commuted reinsurance agreements with Hannover Reinsurance (Ireland) Limited

Net cash provided by operating activities was $78.8 million in 2019, as compared to $98.3 million in 2018, and $130.8 million

in 2017. Major components of cash provided by operating activities in 2019 were net premiums collected of $329.0 million and
investment income collected of $41.6 million. These increases were offset in-part by claim payments of $189.8 million, $75.9 million
of operating expenditures, federal taxes paid of $20.9 million, and dividends to policyholders paid of $3.5 million.

Major components of cash provided by operating activities in 2018 were net premiums collected of $354.0 million and

investment income collected of $41.7 million. These increases were offset in-part by claim payments of $200.5 million, $74.2
millionof operating expenditures, federal taxes paid of $11.2 million, a $7.9 million increase in amounts held by others, and dividends
to policyholders paid of $2.9 million.

Major components of cash provided by operating activities in 2017 were net premiums collected of $349.6 million, investment
income collected of $44.0 million and a decrease of $27.8 million in amounts held by others. These increases were offset in-part by
claim payments of $188.1 million, $74.0 million of operating expenditures, federal taxes paid of $28.3 million and dividends to
policyholders paid of $1.5 million.

Net cash provided by investing activities was $11.7 million in 2019, as compared to net cash used in investing activities of $29.1

million in 2018 and $51.5 million in 2017. In 2019, major components of net cash provided by investing activities included proceeds
from sales and maturities of investments of $358.6 million, offset by investment purchases of $345.9 million.

In 2018, major components of net cash used in investing activities included investment purchases of $368.3 million and net

purchases of furniture, fixtures and equipment of $1.1 million, offset by proceeds from sales and maturities of investments of $340.2
million.

In 2017, major components of net cash used in investing activities included investment purchases of $401.8 million and net

purchases of furniture, fixtures and equipment of $0.5 million, offset by proceeds from sales and maturities of investment of
investments of $350.7 million.

Net cash used in financing activities was $87.0 million in 2019, as compared to $84.4 million in 2018 and $82.6 million in 2017.
Major components of cash used in financing activities in 2019 included cash used for dividends paid to shareholders of $87.0 million.

Major components of cash used in financing activities in 2018 and 2017 included cash used for dividends paid to shareholders of

$84.5 million and $82.6 million, respectively.

The Company has a line of credit agreement with Frost Bank for borrowings up to a maximum of $20.0 million. Under the

agreement, advances may be made either in the form of loans or letters of credit. Borrowings under the agreement accrue at interest
rates based upon prime rate or LIBOR (or equivalent) and are unsecured. Under the agreement, the Company pays a fee of 0.25% on
the unused portion of the loan in arrears quarterly, for a fee of $50,000 annually. At December 31, 2019, there were no outstanding
borrowings. Unless renewed, the agreement will expire in December 2022.

The Board of Directors initially authorized the Company’s share repurchase program in February 2010. In October 2016, the

Board reauthorized this program with no expiration date. As of December 31, 2019, we had repurchased a total of 1,258,250 shares of
our outstanding common stock for $22.4 million. The Company had $25.0 million available for future purchases at December 31,
2019 under this program. There were no share repurchases in 2019, 2018 or 2017. The purchases may be effected from time to time
depending upon market conditions and subject to applicable regulatory considerations. It is anticipated that future purchases will be
funded from available capital.

AMERISAFE is a holding company that transacts business through its operating subsidiaries, including AIIC, SOCI and
AIICTX. AMERISAFE’s primary assets are the capital stock of these insurance subsidiaries. The ability of AMERISAFE to fund its
operations depends upon the surplus and earnings of its subsidiaries and their ability to pay dividends to AMERISAFE. Payment of
dividends by our insurance subsidiaries is restricted by state insurance laws, including laws establishing minimum solvency and
liquidity thresholds. Based upon the prescribed calculation, the insurance subsidiaries could pay to AMERISAFE dividends of up to
$88.6 million in 2020 without seeking regulatory approval. See “Business—Regulation—Dividend Limitations” in Item 1 of this
report.

The Company paid regular quarterly cash dividends of $0.25, $0.22, $0.20 per share in 2019, 2018 and 2017, respectively. In

addition, the Company paid extraordinary cash dividends of $3.50 per share in 2019, 2018, and 2017.

On February 18, 2020, the Company declared a regular quarterly cash dividend of $0.27 per share payable on March 27, 2020 to

shareholders of record as of March 13, 2020. The Board intends to continue to consider the payment of a regular cash dividend each
calendar quarter. On an annualized basis, the cash dividend is expected to be $1.08 per share in 2020.

Investment Portfolio

The principal objectives of our investment portfolio are to preserve capital and surplus and to maintain appropriate liquidity for

corporate requirements. Additional objectives are to support our A.M. Best rating of “A” (Excellent) and to maximize after-tax
income and total return. We presently expect to maintain sufficient liquidity from funds generated by operations to meet our
anticipated insurance obligations and operating and capital expenditure needs. Excess funds from operations will be invested in
accordance with our investment policy and statutory requirements.

We allocate our portfolio into four categories: cash and cash equivalents, short-term investments, fixed maturity securities and

equity securities. Cash and cash equivalents include cash on deposit, money market funds and municipal securities, corporate
securities and certificates of deposit with an original maturity of less than 90 days. Short-term investments include municipal
securities, corporate securities and certificates of deposit with an original maturity greater than 90 days but less than one year. Our
fixed maturity securities include obligations of the U.S. Treasury or U.S. agencies, obligations of states and their subdivisions,
U.S. Dollar-denominated obligations of the U.S. or Canadian corporations, U.S. agency-based mortgage-backed securities,
commercial mortgage-backed securities and asset-backed securities.

Under Nebraska and Texas law, as applicable, each of AIIC, SOCI and AIICTX is required to invest only in securities that are
either interest-bearing, interest-accruing or eligible for dividends, and must limit its investment in the securities of any single issuer,
other than direct obligations of the United States, to five percent of the insurance company’s assets. As of December 31, 2019, we
were in compliance with these requirements.

We employ diversification policies and balance investment credit risk and related underwriting risks to minimize our total

potential exposure to any one business sector or security.

As of December 31, 2019, our investment portfolio, including cash and cash equivalents, totaled $1.2 billion, an increase of

0.3% from December 31, 2018. The majority of our fixed maturity securities are classified as held-to-maturity, as defined by FASB
ASC Topic 320, Investments-Debt and Equity Securities. As such, the reported value of those securities is equal to their amortized
cost, and is not impacted by changing interest rates. The remainder of our fixed maturity securities are classified as available-for-sale
and reported at fair value. Investments in equity securities are reported at fair value.

We follow FASB ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a fair value

hierarchy and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. As disclosed in Note 18 of the financial statements, our securities available-for-sale are classified using Level 1,
2 and 3 inputs. We did not elect the fair value option prescribed under FASB ASC Topic 825, Financial Instruments, for any financial
assets in 2018 or 2019.

The composition of our investment portfolio, including cash and cash equivalents, as of December 31, 2019 is shown in the

following table.

Carrying
Value
(in thousands)

Percentage
of Portfolio

Effective
Interest Rate

Fixed maturity securities—held-to-maturity:

State and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities and obligations of U.S.

Government agencies
Asset-backed securities

Total fixed maturity securities—held-to-maturity

Fixed maturity securities—available-for-sale:

State and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities and obligations of U.S.

Government agencies

Total fixed maturity securities—available-for-sale

Equity securities
Short-term investments
Cash and cash equivalents
Total Investments, including cash and cash equivalents

466,270
109,241
10,967

12,723
220
599,421

237,775
133,778
29,467

40,126
441,146
27,903
56,548
43,813
$ 1,168,831

39.9%
9.4%
0.9%

1.1%
0.0%
51.3%

20.3%
11.5%
2.5%

3.4%
37.7%
2.4%
4.8%
3.8%
100.0%

2.8%
3.0%
3.9%

3.4%
2.8%
2.9%

3.1%
3.1%
2.9%

1.7%
3.0%
2.3%
1.7%
1.4%
2.8%

For our fixed maturity securities classified as available-for-sale, the securities are “marked to market” as of the end of each
calendar quarter. As of that date, unrealized gains and losses are recorded in Other Comprehensive Income (Loss), except when such
securities are deemed to be other-than-temporarily impaired. For our fixed maturity securities classified as held-to-maturity,
unrealized gains and losses are not recorded in the financial statements until realized or until a decline in fair value, below amortized
cost, is deemed to be other-than-temporary. Equity securities are measured at fair value with changes in the fair value recognized in
net income.

We regularly review our investment portfolio to evaluate the necessity of recording impairment losses for other-than-temporary
declines in the fair value of our investments. We consider various factors in determining if a decline in the fair value of an individual
security is other-than-temporary. The key factors we consider are:

(cid:220)

any reduction or elimination of preferred stock dividends, or nonpayment of scheduled principal or interest payments;

the financial condition and near-term prospects of the issuer of the applicable security, including any specific events that
may affect its operations or earnings;

how long and by how much the fair value of the security has been below its cost or amortized cost;

any downgrades of the security by a rating agency;

our intent not to sell the security for a sufficient time period for it to recover its value;

the likelihood of being forced to sell the security before the recovery of its value; and

an evaluation as to whether there are any credit losses on debt securities.

The following table summarizes the gross unrealized losses and fair value of fixed income securities by the length of time that

individual securities have been in a continuous unrealized loss position.

December 31, 2019:

Fixed maturity securities

December 31, 2018:

Fixed maturity securities

Less Than Twelve Months
Unrealized
Losses

Fair
Value

Twelve Months or Longer

Fair
Value

Unrealized
Losses

(in thousands)

44,647

123,890

(315) $

21,531

(459) $

496,995

(56)

(7,307)

We reviewed all securities with unrealized losses in accordance with the impairment policy described above. We determined
that the unrealized losses in the fixed maturity securities portfolio related primarily to changes in market interest rates since the date of
purchase, current conditions in the capital markets and the impact of those conditions on market liquidity and prices. We expect to
recover the carrying value of these securities as it is not more likely than not that we will be required to sell the security before the
recovery of its amortized cost basis. In addition, none of the unrealized losses on debt securities are considered credit losses.

During 2019 and 2018, the Company had no impairment losses recognized for other-than-temporary declines in the fair value of

our investments.

The pre-tax investment yield on our investment portfolio was 2.8% and 2.6% per annum during the twelve months ended

December 31, 2019 and 2018, respectively.

Contractual Obligations and Commitments

We manage risk on certain long-duration claims by settling these claims through the purchase of annuities from unaffiliated life

insurance companies. In the event these companies are unable to meet their obligations under these annuity contracts, we could be
liable to the claimants, but our reinsurers remain obligated to indemnify us for all or part of these obligations in accordance with the
terms of our reinsurance contracts. As of December 31, 2019, the present value of these annuities was $100.3 million, as estimated by
our annuity providers. Substantially all of the annuities are issued or guaranteed by life insurance companies that have an A.M. Best
rating of “A” (Excellent) or better. For additional information, see Note 16 to our consolidated financial statements in Item 8 of this
report.

The Company has operating and finance leases for office space and equipment. Our leases have remaining lease terms of one

month to 49 months, some of which include options to extend the leases for up to five years. The Company, in determining the
present value of lease payments, utilizes either the rate implicit in the lease if that rate is readily determinable or the Company’s
incremental secured borrowing rate commensurate with the term of the underlying lease.

Supplemental balance sheet information related to leases is as follows:

December 31, 2019
(in thousands)

Balance Sheet Classification

Operating leases:

Operating lease right-of-use assets

Operating lease liabilities

Finance leases:

Finance lease right-of-use assets
Finance lease accumulated amortization

right-of-use assets

Property and equipment, net

Finance lease liabilities

430

Other assets

430

Accounts payable and other liabilities

185

(179)
6

Property and equipment, net

Accounts payable and other liabilities

Future minimum lease payments at December 31, 2019, were as follows:

Year

2020
2021
2022
2023
2024
Total lease payments
Less imputed interest
Total

Operating Leases

Finance Leases

(in thousands)
137
120
110
75
6
448
18
430

51
5
—
—
—
56
2
54

Rental expense was $0.2 million in 2019 and 2018, and $0.1 million in 2017.

The table below provides information with respect to our contractual obligations as of December 31, 2019.

Contractual Obligations

Loss and loss adjustment expenses (1)
Loss-based insurance assessments (2)
Operating lease obligations
Finance lease obligations
Purchase obligations

Total

Payment Due By Period

Total

772,887
12,724
430
54
7,373
793,468

Less Than 1
Year

235,978
3,885
130
49
2,896
242,938

1-3 Years
(in thousands)
299,532
$
4,931
294
5
4,477
309,239

3-5 Years

More Than 5
Years

86,757
1,428
6
—
—
88,191

150,620
2,480
—
—
—
153,100

(1)

The loss and loss adjustment expense payments due by period in the table above are based upon the loss and loss adjustment
expense estimates as of December 31, 2019 and actuarial estimates of expected payout patterns and are not contractual liabilities
as to a time certain. Our contractual liability is to provide benefits under the policy. As a result, our calculation of loss and loss
adjustment expense payments due by period is subject to the same uncertainties associated with determining the level of loss
and loss adjustment expenses generally and to the additional uncertainties arising from the difficulty of predicting when claims
(including claims that have not yet been reported to us) will be paid. For a discussion of our loss and loss adjustment expense
process, see “Business—Loss Reserves” in Item 1 of this report. Actual payments of loss and loss adjustment expenses by
period will vary, perhaps materially, from the amounts shown in the table above to the extent that current estimates of loss and
loss adjustment expenses vary from actual ultimate claims amounts and as a result of variations between expected and actual
payout patterns. See “Risk Factors— Risks Related to Our Business—Our loss reserves are based on estimates and may be
inadequate to cover our actual losses” in Item 1A of this report for a discussion of the uncertainties associated with estimating
loss and loss adjustment expenses.

(2) We are subject to various annual assessments imposed by certain of the states in which we write insurance policies. These

assessments are generally based upon the amount of premiums written or losses paid during the applicable year. Assessments
based on premiums are generally paid within one year after the calendar year in which the policies are written, while
assessments based on losses are generally paid within one year after calendar year in which the loss is paid. When we establish a
reserve for loss and loss adjustment expenses for a reported claim, we accrue our obligation to pay any applicable assessments.
If settlement of the claim is to be paid out over more than one year, our obligation to pay any related loss-based assessments
extends for the same period of time. Because our reserves for loss and loss adjustment expenses are based on estimates, our
accruals for loss-based insurance assessments are also based on estimates. Actual payments of loss and loss adjustment expenses
may differ, perhaps materially, from our reserves. Accordingly, our actual loss-based insurance assessments may vary, perhaps
materially, from our accruals.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial

condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital
resources.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the risk of potential economic loss principally arising from adverse changes in the fair value of financial
instruments. The major components of market risk affecting us are credit risk, interest rate risk, and equity price risk. We currently
have no exposure to foreign currency risk.

Credit Risk

Credit risk is the potential loss arising principally from adverse changes in the financial condition of the issuers of our fixed

maturity securities and the financial condition of our reinsurers.

We address the credit risk related to the issuers of our fixed maturity securities by primarily investing in fixed maturity
securities that are rated as investment grade by one or more of Moody’s, Standard & Poor’s or Fitch. We also independently monitor
the financial condition of all issuers of our fixed maturity securities. To limit our risk exposure, we employ diversification policies that
limit our credit exposure to any single issuer or business sector.

We are also subject to credit risk with respect to our reinsurers. Although our reinsurers are obligated to reimburse us to the extent

we cede risk to them, we are ultimately liable to our policyholders on all risks we have reinsured. As a result, reinsurance contracts do not
limit our ultimate obligations to pay claims and, in some cases, we might not be able to collect amounts recoverable from our reinsurers.
We address this credit risk by initially selecting reinsurers with an A.M. Best rating of “A-” (Excellent) or better and by performing, along
with our reinsurance broker, periodic credit reviews of our reinsurers. If one of our reinsurers suffers a credit downgrade, we may
consider various options to lessen the risk of asset impairment, including commutation, novation or letters of credit. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in Item 7 of this report.

Interest Rate Risk

Interest rate risk is the risk that we may incur losses due to adverse changes in interest rates. As of December 31, 2019, we had
fixed maturity securities with a fair value of $1,062.5 million and a carrying value of $1,040.6 million. These securities are all subject
to interest rate risk, but because we classify the majority of our fixed maturity securities as held-to-maturity, changes in fair values
have a small effect on the carrying value of our portfolio. We manage our exposure to interest rate risk with respect to these securities
by investing in a portfolio of securities with moderate effective duration. At December 31, 2019, the effective duration of the total
investment portfolio, including cash and short term investments, was 3.9 years. Given the current changing interest rate environment,
the risk to the market value of the portfolio from higher rates exceeds the potential benefit to the market value of the portfolio from
lower rates. Should we experience a large rise in interest rates, the effect on the carrying value of our portfolio could be substantial.

The table below summarizes the interest rate risk associated with our fixed maturity securities by illustrating the sensitivity of

the fair value and carrying value of our fixed maturity securities as of December 31, 2019 to selected hypothetical changes in interest
rates, and the associated impact on our shareholders’ equity. The change in carrying value is less than the change in fair value due to
our held-to-maturity portfolio.

Fair
Value

966,553
1,016,745
1,062,489
1,104,243
1,146,953

Estimated
Change in
Fair Value

(95,936) $
(45,745)
—
41,753
84,464

Carrying
Value
1,002,875
1,022,962
1,040,567
1,056,447
1,072,669

Estimated
Change in
Carrying Value
$

(37,692)
(17,605)
—
15,880
32,102

Hypothetical
Percentage
Increase
(Decrease) in
Shareholders’
Equity

(8.3)%
(3.9)%
—
3.5%
7.1%

Hypothetical Change in Interest Rates
200 basis point increase
100 basis point increase
No change
100 basis point decrease
200 basis point decrease

Equity Price Risk

Equity price risk is the risk that we may incur losses due to adverse changes in the market prices of the equity securities we hold in

our investment portfolio. Equity securities are carried at fair value with unrealized gains and losses recorded within net income in 2019
and 2018. Accordingly, adverse changes in the market prices of our equity securities result in a decrease in the value of our total assets,
shareholders’ equity, and net income. In order to minimize our exposure to equity price risk, we independently monitor the financial
condition of our equity securities, and diversify our investments. In addition, we limit the percentage of equity securities held in our
investment portfolio to the lesser of 10% of the investment portfolio or 30% of shareholders’ equity. As of December 31, 2019, the equity
securities in our investment portfolio had a fair value of $27.9 million, representing less than 6.5% of shareholders’ equity on that date.

Item 8.

Financial Statements and Supplementary Data.

Audited Financial Statements as of December 31, 2019 and 2018 and for the three years in the period ended

December 31, 2019:

Report of Independent Registered Public Accounting Firm ...........................................................................................................
Consolidated Balance Sheets ..........................................................................................................................................................
Consolidated Statements of Income................................................................................................................................................
Consolidated Statements of Comprehensive Income......................................................................................................................
Consolidated Statements of Changes in Shareholders’ Equity .......................................................................................................
Consolidated Statements of Cash Flows .........................................................................................................................................
Notes to Consolidated Financial Statements...................................................................................................................................

Financial Statement Schedules:
Schedule II. Condensed Financial Information of Registrant .........................................................................................................
Schedule VI. Supplemental Information Concerning Property-Casualty Insurance Operations.....................................................
Schedules I, III, IV and V are not applicable and have been omitted

Page

54
56
57
58
59
60
61

93
96

To the Shareholders and the Board of Directors of AMERISAFE, Inc. and subsidiaries

Report of Independent Registered Public Accounting Firm

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of AMERISAFE, Inc. and subsidiaries (the Company) as of
December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedules listed
in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S.
generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)
and our report dated February 25, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the
critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,
by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or
disclosure to which it relates.

Description of the
Matter

Valuation of Loss and Loss Adjustment Expense reserves

At December 31, 2019, the Company’s reserves for loss and loss adjustment expenses (LAE) was $773
million, which includes Incurred But Not Reported (IBNR) reserves of $136 million. As discussed in Notes
1 and 9 to the consolidated financial statements, the reserve for loss and LAE represents the estimated
ultimate costs of all reported and unreported losses incurred and unpaid as of the reporting date. There is
significant uncertainty inherent in determining the ultimate loss and LAE costs which are estimated using
individual case-base valuations and statistical and actuarial analysis based upon experience for previously
unreported claims and their ultimate loss and LAE costs. In particular, the estimates are sensitive to loss
severity and frequency trends, changes in customers, products mix, claims management, regulatory factors,
medical trends, employment and wage patterns, insurance policy coverage interpretations, and judicial
determinations, among other factors.

Auditing management’s IBNR reserve estimate required the involvement of our actuarial specialists and was
complex and highly judgmental due to the nature of significant assumptions used in the valuation process.
The IBNR reserve estimate was sensitive to the selection of actuarial methods and assumptions, including the
adjustment of historical loss severity experience for changes in products, policies, and customer base.

How We Addressed
the Matter in Our
Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company’s process for estimating loss and LAE reserves, including, among others controls over the
review and approval processes that the Company has in place for the methods and assumptions used in
estimating IBNR reserves.

To test the recorded IBNR reserves, with the assistance of our actuarial specialists, we evaluated the
Company’s selection of methods and assumptions, including loss severity, against those used in prior periods
and used in the industry for similar types of insurance. We also considered changes to employment and wage
patterns and the Company’s customers, product mix, and claims management. We involved our actuarial
specialist to independently calculated a range of reasonable loss and LAE reserve estimates and compared
this range to the Company’s recorded loss and LAE reserve. We also performed a review of the development
of prior years’ reserve estimates.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1993.

New Orleans, Louisiana

February 25, 2020

AMERISAFE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

Assets
Investments:

Fixed maturity securities—held-to-maturity, at amortized cost

(fair value $621,343 and $616,772 in 2019 and 2018, respectively)

Fixed maturity securities—available-for-sale, at fair value

599,421

613,878

(amortized cost $425,698 and $479,772 in 2019 and 2018, respectively)

441,146

478,730

December 31,

2019

2018

Equity securities, at fair value

(cost $24,457 and $19,962 in 2019 and 2018, respectively)

Short-term investments

Total investments
Cash and cash equivalents
Amounts recoverable from reinsurers
Premiums receivable, net of allowance
Deferred income taxes
Accrued interest receivable
Property and equipment, net
Deferred policy acquisition costs
Other assets

Total assets

Liabilities and shareholders’ equity
Liabilities:

Reserves for loss and loss adjustment expenses
Unearned premiums
Amounts held for others
Policyholder deposits
Insurance-related assessments
Federal income tax payable
Accounts payable and other liabilities

Total liabilities
Shareholders’ equity:

Common stock: voting—$0.01 par value authorized shares—50,000,000

in 2019 and 2018; 20,560,833 and 20,528,230 shares issued and 19,302,583
and 19,269,980 shares outstanding in 2019 and 2018, respectively

Additional paid-in capital
Treasury stock, at cost (1,258,250 shares in 2019 and 2018)
Accumulated earnings
Accumulated other comprehensive income (loss), net

Total shareholders’ equity
Total liabilities and shareholders’ equity

See accompanying notes.

27,903
56,548
1,125,018
43,813
95,913
157,953
17,513
9,730
6,331
19,048
17,587
1,492,906

772,887
140,873
37,937
44,718
22,967
3,220
40,089
1,062,691

205
213,004
(22,370)
227,165
12,211
430,215
1,492,906

18,651
14,231
1,125,490
40,344
112,006
162,478
21,852
10,197
6,258
19,734
17,572
1,515,931

798,409
149,296
41,388
46,795
28,258
3,412
38,611
1,106,169

205
211,431
(22,370)
221,328
(832)
409,762
1,515,931

AMERISAFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)

Revenues
Net premiums earned
Net investment income
Net realized losses on investments
Net unrealized gains (losses) on equity securities
Fee and other income
Total revenues
Expenses
Loss and loss adjustment expenses incurred
Underwriting and certain other operating costs
Commissions
Salaries and benefits
Policyholder dividends
Total expenses
Income before income taxes
Income tax expense
Net income
Earnings per share
Basic
Diluted
Shares used in computing earnings per share
Basic
Diluted
Extraordinary cash dividends declared per common share
Cash dividends declared per common share

2019

Year Ended December 31,
2018

2017

$
$

332,888
32,483
(80)
4,758
321
370,370

176,342
22,221
25,010
27,120
4,160
254,853
115,517
22,827
92,690

4.82
4.80

19,248,657
19,329,238
3.50
1.00

$
$

350,326
30,452
(1,536)
(2,088)
599
377,753

204,891
28,981
26,160
25,992
4,148
290,172
87,581
15,949
71,632

3.73
3.71

19,208,978
19,293,082
3.50
0.88

$
$

346,156
29,281
(647)
—
418
375,208

209,324
28,333
24,812
25,631
4,868
292,968
82,240
36,009
46,231

2.41
2.40

19,165,489
19,245,866
3.50
0.80

See accompanying notes.

AMERISAFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

Net income
Other comprehensive income:

Unrealized gain (loss) on securities, net of tax

Comprehensive income

2019

Year Ended December 31,
2018

2017

92,690

71,632

46,231

13,043
105,733

(4,243)
67,389

4,104
50,335

See accompanying notes.

AMERISAFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands, except share data)

Common Stock

Treasury Stock

Shares
20,488,385

Amount

204

Additional
Paid-In
Capital
$ 208,390

Amounts

Accumulated
Earnings

(1,258,250) $ (22,370) $

270,418

Accumulated
Other
Comprehensive
Income (Loss)
$

(492)

Total
456,150

—

46,231

—

46,231

—

—
—
15,780
—
—
20,504,165

—

—
—

15,000
9,065
—
—
20,528,230

—

—
—

5,000
27,603
—
—
20,560,833

—
—
—
—
—
204

—

—
—

—
1
—
—
205

—

—
—

—
—
—
—
205

—
—
396
1,295
—
$ 210,081

—

—
—

67
195
1,088
—
$ 211,431

—

—
—

20
560
993
—
$ 213,004

—

—
—
—
—
—

(1,258,250) $ (22,370) $

—

—
—

—
—
—
—

—

—
—

—
—
—
—

(1,258,250) $ (22,370) $

—

—
—

—
—
—
—

—

—
—

—
—
—
—

(1,258,250) $ (22,370) $

—
—
—
—
(82,753)
233,896

615

(414)

4,104
—
—
—
—
3,612

4,104
50,335
396
1,295
(82,753)
$ 425,423

(615)

414

—

71,632

—

71,632

—
—

(4,243)
—

(4,243)
67,389

—
—
—
(84,401)
221,328

(1)

92,690

—
—

—
—
—
(86,852)
227,165

—
—
—
—

67
196
1,088
(84,401)
(832) $ 409,762

—

(1)

92,690

13,043
—

—
—
—
—
12,211

13,043
105,733

20
560
993
(86,852)
$ 430,215

Balance at December 31, 2016
Comprehensive income:

Net income
Other comprehensive

income:

Change in unrealized
losses, net of tax

Comprehensive income
Common stock issued
Share-based compensation
Dividends to shareholders
Balance at December 31, 2017
Impact of adoption of ASU

2016-01

Impact of adoption of ASU

2018-02

Comprehensive income:

Net income
Other comprehensive

income:

Change in unrealized
gains, net of tax

Comprehensive income
Common stock issued

upon exercise of options

Common stock issued
Share-based compensation
Dividends to shareholders
Balance at December 31, 2018
Impact of adoption of ASU

2016-02

Comprehensive income:

Net income
Other comprehensive

income:

Change in unrealized
losses, net of tax

Comprehensive income
Common stock issued upon

exercise of options
Common stock issued
Share-based compensation
Dividends to shareholders
Balance at December 31, 2019

See accompanying notes.

AMERISAFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating

2019

Year Ended December 31,
2018

2017

92,690

71,632

46,231

activities:

Depreciation
Net amortization of investments
Deferred income taxes
Net realized losses on investments
Net unrealized (gains) losses on equity securities
Net realized losses on disposal of assets
Share-based compensation
Changes in operating assets and liabilities:

Premiums receivable, net
Accrued interest receivable
Deferred policy acquisition costs
Amounts held by others
Other assets
Reserves for loss and loss adjustment expenses
Unearned premiums
Reinsurance balances
Amounts held for others and policyholder deposits
Accounts payable and other liabilities

Net cash provided by operating activities
Investing activities

Purchases of investments held-to-maturity
Purchases of investments available-for-sale
Purchases of equity securities
Purchases of short-term investments
Proceeds from maturities of investments held-to-maturity
Proceeds from sales and maturities of investments available-for-sale
Proceeds from sales of equity securities
Proceeds from sales and maturities of short-term investments
Proceeds from redemptions of other investments
Purchases of property and equipment

Net cash provided by (used in) investing activities
Financing activities

Proceeds from stock option exercises
Finance lease purchases
Dividends to shareholders

Net cash used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information
Income taxes paid

See accompanying notes.

942
8,659
872
80
(4,758)
3
2,351

4,525
467
686
—
710
(25,522)
(8,423)
16,093
(5,528)
(5,023)
78,824

(152,133)
(63,513)
(4,495)
(125,763)
159,702
114,869
—
84,039
—
(1,018)
11,688

20
(47)
(87,016)
(87,043)
3,469
40,344
43,813

20,850

996
10,787
(1,462)
1,536
2,088
—
2,065

11,756
438
517
(7,855)
1,873
26,564
(7,974)
(21,873)
2,911
4,269
98,268

(99,330)
(124,128)
(11,459)
(133,355)
99,984
100,357
3
139,865
130
(1,126)
(29,059)

67
—
(84,491)
(84,424)
(15,215)
55,559
40,344

11,235

984
14,015
12,800
647
—
2
2,018

8,771
725
(951)
27,848
(1,882)
29,069
(4,758)
(6,495)
4,168
(2,382)
130,810

(222,104)
(108,517)
(8,503)
(62,687)
152,995
112,179
1
72,400
13,172
(478)
(51,542)

—
—
(82,645)
(82,645)
(3,377)
58,936
55,559

28,255

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TOCON SOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Summary of Significant Accounting Policies

Organization

AMERISAFE, Inc. is an insurance holding company incorporated in the state of Texas. The accompanying consolidated
financial statements include the accounts of AMERISAFE and its subsidiaries: American Interstate Insurance Company (“AIIC”) and
its insurance subsidiaries, Silver Oak Casualty, Inc. (“SOCI”) and American Interstate Insurance Company of Texas (“AIICTX”),
Amerisafe Risk Services, Inc. (“RISK”) and Amerisafe General Agency, Inc. (“AGAI”). AIIC and SOCI are property and casualty
insurance companies organized under the laws of the state of Nebraska. AIICTX is a property and casualty insurance company
organized under the laws of the state of Texas. RISK, a wholly owned subsidiary of the Company, is a claims and safety service
company currently servicing only affiliated insurance companies. AGAI, a wholly owned subsidiary of the Company, is a general
agent for the Company. AGAI sells insurance, which is underwritten by AIIC, SOCI and AIICTX, as well as by nonaffiliated
insurance carriers. The assets and operations of AGAI are not significant to that of the Company and its consolidated subsidiaries.

The terms “AMERISAFE,” the “Company,” “we,” “us” or “our” refer to AMERISAFE, Inc. and its consolidated subsidiaries,

as the context requires.

The Company provides workers’ compensation insurance for small to mid-sized employers engaged in hazardous industries,

principally construction, trucking, logging and lumber, manufacturing, agriculture, maritime, and oil and gas. Assets and revenues of
AIIC and its subsidiaries represent at least 95% of comparable consolidated amounts of the Company for each of 2019, 2018 and
2017.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of
financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Adopted Accounting Guidance

In January 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-01, Financial Instruments – Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance requires fair value
measurement for equity investments (not including those that result in consolidation of the investee or use the equity method of
accounting) and the recognition of changes in fair value to be presented as a component of net income. The guidance also revises the
disclosure requirements related to fair value changes of liabilities presented in comprehensive income, eliminates disclosure related to
the methods and assumptions underlying fair value for financial instruments measured at amortized cost, and simplifies impairment
assessments for equity investments without readily determinable fair values. The adoption of this new guidance in the first quarter of
2018 resulted in an immaterial decrease in net income of $390 thousand or a $0.02 decrease to our diluted earnings per common share.
At December 31, 2017, equity investments were classified as available-for-sale on the Company’s balance sheet. However, upon
adoption, the updated guidance eliminated the available-for-sale balance sheet classification for equity investments.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new guidance requires a lessee to recognize a lease

liability and a right of use asset for all leases extending beyond twelve months. This standard was effective for us beginning in the
first quarter of 2019. We elected the new transition method under the transition guidance within the new standard. Therefore, prior
comparative periods were not adjusted. We also elected the package of practical expedients, which among other things, allows us to
carryforward the historical lease classification. We made an accounting policy election not to recognize lease assets and lease
liabilities for short-term operating leases. Adoption of the new guidance resulted in the Company recognizing right-of-use assets of
$0.4 million and lease liabilities of $0.3 million. The cumulative effect adjustment to the opening balance of retained earnings was
minimal. Adoption of this new guidance did not have a material effect on the Company’s consolidated financial statements as the
Company does not have any significant leases.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Prospective Accounting Guidance

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit

Losses. The current guidance delays the recognition of credit losses until a probable loss has occurred. The new guidance requires
credit losses for securities measured at amortized cost to be determined using current expected credit loss estimates. These estimates
are to be derived from historical, current and reasonable supporting forecasts, including prepayments and estimates, and will be
recorded through a valuation account. The same method will be used for available-for-sale securities, but the valuation account will
be limited to the amount by which the fair value is below amortized cost. The standard is effective for us in the first quarter of 2020.
Implementation of the new guidance requires a modified retrospective approach without restatement, which means the first cumulative
adjustment required will be a charge to retained earnings of $593 thousand, with subsequent changes in the valuation account reported
in the income statement. The financial statement impact is determined by the nature of the portfolio held and the economic conditions
at the time of implementation.

In establishing a current expected credit allowance for held-to-maturity fixed income securities under the new accounting
standard, the Company will use a probability of default and loss given default methodology based on the securities credit rating and
maturity date of the specific security. The amount is currently estimated to be $308 thousand. This estimate is based on the
Company’s portfolio of held-to-maturity fixed income securities, the credit ratings and maturity dates of those securities, at December
31, 2019.

In establishing a current expected credit allowance for reinsurance recoverables under the new accounting standard, the

Company will use a probability of default and loss given default methodology based on the credit ratings of our reinsurers. The
amount is currently estimated to be $443 thousand. This estimate is based on the amount of reinsurance recoverables and the ratings
of our reinsurers at December 31, 2019.

The Company’s internal working group has evaluated the remainder of the balance sheet assets, including available-for-sale

securities and net premiums receivable, and determined the implementation of the new credit loss guidance in relation to those assets
will have an immaterial impact on the financial statements.

All other issued but not yet effective accounting and reporting standards as of December 31, 2019 are either not applicable to the

Company or are not expected to have a material impact on the Company.

Investments

The Company has the ability and positive intent to hold certain investments until maturity. Therefore, fixed maturity securities
classified as held-to-maturity are recorded at amortized cost. Fixed maturity securities classified as available-for-sale are recorded at
fair value. Temporary changes in the fair value of these securities are reported in shareholders’ equity as a component of other
comprehensive income, net of deferred income taxes. Changes in the fair value of equity securities are recorded in net income.

Investment income is recognized as it is earned. The discount or premium on fixed maturity securities is amortized using the

“constant yield” method. Anticipated prepayments, where applicable, are considered when determining the amortization of premiums
or discounts. Realized investment gains and losses are determined using the specific identification method.

The Company regularly reviews the fair value of its investments. Impairment of an investment security results in a reduction of the
carrying value of the security and the realization of a loss when the fair value of the security declines below the cost or amortized cost, as
applicable, for the security and the impairment is deemed to be other-than-temporary. The Company regularly reviews its investment
portfolio to evaluate the existence of other-than-temporary declines in the fair value of investments. The Company considers various
factors in determining if a decline in the fair value of an individual security is other-than-temporary, including but not limited to a
reduction or interruption in scheduled cash flows, the financial condition of the issuer, how long and by how much the fair value has been
below amortized cost, losses due to credit concerns, downgrades and the Company’s intent to sell or ability to hold the security.

Impairment losses on fixed maturities are recognized in the financial statements depending on the facts and circumstances
related to the specific security. If we intend to sell a security or it is more likely than not that we would be required to sell a security
before the recovery of its amortized cost, less any current period credit loss, an other-than-temporary impairment would be recognized
in net income for the difference between amortized cost and fair value. If we do not expect to recover the amortized cost basis, we do
not plan to sell the security and if it is not more likely than not that we would be required to sell a security before the recovery of its
amortized cost, less any current period credit loss, the recognition of the other-than-temporary impairment is bifurcated. The credit
loss portion would be recognized in net income and the noncredit loss portion in other comprehensive income.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Cash and Cash Equivalents

Cash equivalents include short-term money market funds with an original maturity of 90 days or less.

Short-Term Investments

Short-term investments include municipal securities and corporate bonds with an original maturity greater than 90 days but less

than one year.

Premiums Receivable

Premiums receivable consist primarily of premium-related balances due from policyholders. The Company considers premiums

receivable as past due based on the payment terms of the underlying policy. The balance is shown net of the allowance for doubtful
accounts. Receivables due from insureds are charged off when a determination has been made by management that a specific balance
will not be collected. An estimate of amounts that are likely to be charged off is established as an allowance for doubtful accounts as
of the balance sheet date. The estimate is primarily comprised of specific balances that are considered probable to be charged off after
all collection efforts have ceased, as well as historical trends and an analysis of the aging of the receivables.

Property and Equipment

The Company’s property and equipment, including certain costs incurred to develop or obtain software for internal use, are
stated at cost less accumulated depreciation. Depreciation is calculated primarily by the straight-line method over the estimated useful
lives of the respective assets, generally 39 years for buildings and three to seven years for all other fixed assets.

Deferred Policy Acquisition Costs

The direct costs of successfully acquiring and renewing business are capitalized to the extent recoverable and are amortized over

the effective period of the related insurance policies in proportion to premium revenue earned. These capitalized costs consist mainly
of sales commissions, premium taxes and other underwriting costs. The Company evaluates deferred policy acquisition costs for
recoverability by comparing the unearned premiums to the estimated total expected claim costs and related expenses, offset by
anticipated investment income. The Company would reduce the deferred costs if the unearned premiums were less than expected
claims and expenses after considering investment income, and report any adjustments in amortization of deferred policy acquisition
costs. There were no adjustments necessary in 2019, 2018 or 2017.

Reserves for Loss and Loss Adjustment Expenses

Reserves for loss and loss adjustment expenses represent the estimated ultimate cost of all reported and unreported losses
incurred through December 31. The Company does not discount loss and loss adjustment expense reserves. In establishing our
reserves for loss and loss adjustment expenses, we review the results of analyses using individual case-base valuations and statistical
and actuarial methods that utilize historical loss data from our more than 34 years of underwriting workers’ compensation insurance.
The actuarial analysis of our historical data provides the factors we use in estimating our loss reserves. These factors are primarily
measures over time of the number of claims paid and reported, average paid and incurred claim amounts, claim closure rates and claim
payment patterns. In evaluating the results of our analyses, management also uses substantial judgment in considering other factors
that are not considered in these actuarial analyses, including changes in business mix, claims management, regulatory issues, medical
trends, employment and wage patterns, insurance policy coverage interpretations, judicial determinations and other subjective factors.
Due to the inherent uncertainty associated with these estimates, and the cost of incurred but unreported claims, our actual liabilities
may vary significantly from our original estimates. Although considerable variability is inherent in these estimates, management
believes that the reserves for loss and loss adjustment expenses are adequate. The estimates are continually reviewed and adjusted as
necessary as experience develops or new information becomes known. Any such adjustments are included in income from current
operations.

Subrogation recoverables, as well as deductible recoverables from policyholders, are estimated using individual case-basis
valuations and aggregate estimates. Deductibles that are recoverable from policyholders and other recoverables from state funds
decrease the liability for loss and loss adjustment expenses.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

The Company funds its obligations under certain settled claims where the payment pattern and ultimate cost are fixed and
determinable on an individual claim basis through the purchase of annuities. These annuities are purchased from unaffiliated carriers
and name the claimant as payee. The cost of purchasing the annuity is recorded as paid loss and loss adjustment expenses. To the
extent the annuity funds estimated future claims, reserves for loss and loss adjustment expense are reduced.

Premium Revenue

Premiums on workers’ compensation insurance are based on actual payroll costs or production during the policy term and are

normally billed monthly in arrears or annually. However, the Company generally requires a deposit at the inception of a policy.

Premium revenue is earned on a pro rata basis over periods covered by the policies. The reserve for unearned premiums on these

policies is computed on a daily pro rata basis.

The Company estimates the annual premiums to be paid by its policyholders when the Company issues the policies and records

those amounts on the balance sheet as premiums receivable. The Company conducts premium audits on all of its voluntary business
policyholders annually, upon the expiration of each policy, including when the policy is renewed. The purpose of these audits is to
verify that policyholders have accurately reported their payroll expenses and employee job classifications, and therefore have paid the
Company the premium required under the terms of the policies. The difference between the estimated premium and the ultimate
premium is referred to as “earned but unbilled” premium, or EBUB premium. EBUB premium can be higher or lower than the
estimated premium. EBUB premium is subject to significant variability and can either increase or decrease earned premium based
upon several factors, including changes in premium growth, industry mix and economic conditions. Due to the timing of audits and
other adjustments, ultimate premium earned is generally not determined for several months after the expiration of the policy.

The Company estimates EBUB premiums on a quarterly basis using historical data and applying various assumptions based on

the current market and economic conditions, and records an adjustment to premium, related losses, and expenses as warranted.

Reinsurance

Reinsurance premiums, losses and allocated loss adjustment expenses are accounted for on a basis consistent with those used in

accounting for the original policies issued and the terms of the reinsurance contracts.

Amounts recoverable from reinsurers include balances currently owed to the Company for losses and allocated loss adjustment

expenses that have been paid to policyholders, amounts that are currently reserved for and will be recoverable once the related
expense has been paid and experience-rated commissions recoverable upon commutation.

Upon management’s determination that an amount due from a reinsurer is uncollectible due to the reinsurer’s insolvency or

other matters, the amount is written off.

Ceding commissions are earned from certain reinsurance companies and are intended to reimburse the Company for policy
acquisition costs related to those premiums ceded to the reinsurers. Ceding commission income is recognized over the effective period
of the related insurance policies in proportion to premium revenue earned and is reflected as a reduction in underwriting and certain
other operating costs.

Experience-rated commissions are earned from certain reinsurance companies based on the financial results of the applicable

risks ceded to the reinsurers. These commission revenues on reinsurance contracts are recognized during the related reinsurance treaty
period and are based on the same assumptions used for recording loss and allocated loss adjustment expenses. These commissions are
reflected as a reduction in underwriting and certain other operating costs and are adjusted as necessary as experience develops or new
information becomes known. Any such adjustments are included in income from current operations. Experience-rated commissions
had no impact on underwriting and certain other operating costs in 2019 and increased underwriting and certain other operating costs
by $0.2 million in 2018 and 2017.

In December 2019, the Company commuted reinsurance agreements with Hannover Reinsurance (Ireland) Limited

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Fee and Other Income

The Company recognizes income related to commissions earned by AGAI as the related services are performed.

Advertising

All advertising expenditures incurred by the Company are charged to expense in the period to which they relate and are included

in underwriting and certain other operating costs in the consolidated statements of income. Total advertising expenses incurred were
$0.4 million in 2019 and $0.5 million in 2018 and 2017.

Income Taxes

The Company accounts for income taxes using the liability method. The provision for income taxes has two components,
amounts currently payable or receivable and deferred amounts. Deferred income tax assets and liabilities are recognized for the
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
income tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date.

The Company considers deferred tax assets to be recoverable if it is probable that the related tax losses can be offset by future

taxable income. The Company includes reversal of existing temporary differences, tax planning strategies available and future
operating income in this assessment. To the extent the deferred tax assets exceed the amount expected to be recovered in future years,
the Company records a valuation allowance for the amount determined unrecoverable.

Insurance-Related Assessments

Insurance-related assessments are accrued in the period in which they have been incurred. The Company is subject to a variety

of assessments related to insurance commerce, including those by state guaranty funds and workers’ compensation second-injury
funds. State guaranty fund assessments are used by state insurance oversight agencies to cover losses of policyholders of insolvent or
rehabilitated insurance companies and for the operating expenses of such agencies. Assessments based on premiums are generally
paid one year after the calendar year in which the premium is written, while assessments based on losses are generally paid within one
year of the calendar year in which the loss is paid.

Policyholder Dividends

The Company writes certain policies for which the policyholder may participate in favorable claims experience through a
dividend. An estimated provision for workers’ compensation policyholders’ dividends is accrued as the related premiums are earned.
Dividends do not become a fixed liability unless and until declared by the respective Boards of Directors of AMERISAFE’s insurance
subsidiaries. The dividend to which a policyholder may be entitled is set forth in the policy and is related to the amount of losses
sustained under the policy. Dividends are calculated after the policy expiration. The Company is able to estimate the policyholder
dividend liability because the Company has information regarding the underlying loss experience of the policies written with dividend
provisions and can estimate future dividend payments from the policy terms.

Earnings Per Share

The Company computes earnings per share (“EPS”) in accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share. The Company applies the treasury stock method in
computing basic and diluted earnings per share.

Basic EPS is calculated by dividing income available to common shareholders by the weighted-average number of common
shares outstanding during the period. The diluted EPS calculation includes potential common shares assumed issued under the treasury
stock method, which reflects the potential dilution that would occur if any outstanding options or warrants were exercised or restricted
stock becomes vested.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Share-Based Compensation

The Company recognizes the impact of its share-based compensation in accordance with FASB ASC Topic 718, Compensation-

Stock Compensation. All share-based grants are recognized as compensation expense over the vesting period. The target value of
long-term incentive awards are recognized as compensation over the performance period.

Investments

Short-term investments held at December 31, 2019 include $54.6 million of U.S. Treasury securities and obligations of U.S.
government agencies and $1.9 million of obligations of states and political subdivisions. Short-term investments held at December
31, 2018 include $13.4 million of corporate bonds and $0.8 million of obligations of states and political subdivisions.

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-

maturity at December 31, 2019 are summarized as follows:

States and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities and obligations

of U.S. government agencies

Asset-backed securities

Totals

Amortized
Cost

466,270
109,241
10,967

12,723
220
599,421

Gross
Unrealized
Gains

Gross
Unrealized
Losses

(in thousands)

19,570
1,684
544

330
—
22,128

(193) $
—
—

(12)
(1)
(206) $

Fair
Value

485,647
110,925
11,511

13,041
219
621,343

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as available-for-

sale at December 31, 2019 are summarized as follows:

States and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities and obligations

of U.S. government agencies

Totals

Amortized
Cost

225,895
130,453
29,499

39,851
425,698

Gross
Unrealized
Gains

Gross
Unrealized
Losses

(in thousands)

Fair
Value

11,906
3,326
64

317
15,613

(26) $
(1)
(96)

237,775
133,778
29,467

(42)
(165) $

40,126
441,146

The gross unrealized gains and losses on, and the cost of equity securities at December 31, 2019 are summarized as follows:

Equity securities:

Domestic common stock
Total equity securities

Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

(in thousands)

Fair
Value

$
$

24,457
24,457

$
$

3,446
3,446

$
$

— $
— $

27,903
27,903

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-

maturity at December 31, 2018 are summarized as follows:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

States and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities and obligations

of U.S. government agencies

Asset-backed securities

Totals

445,922
91,762
8,102

67,042
1,050
613,878

(in thousands)
5,109
62
327

340
22
5,860

(2,084) $
(455)
(80)

(339)
(8)
(2,966) $

448,947
91,369
8,349

67,043
1,064
616,772

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as available-for-

sale at December 31, 2018 are summarized as follows:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

States and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities and obligations

of U.S. government agencies

Totals

231,848
173,904
12,835

61,185
479,772

(in thousands)
3,515
243
—

(2,118) $
(933)
(320)

233,245
173,214
12,515

—
3,758

(1,429)
(4,800) $

59,756
478,730

The gross unrealized gains and losses on, and the cost of equity securities at December 31, 2018 are summarized as follows:

Equity securities:

Domestic common stock
Total equity securities

Cost

Gross
Gains

Gross
Losses

(in thousands)

Fair
Value

$
$

19,962
19,962

$
$

30
30

$
$

(1,341) $
(1,341) $

18,651
18,651

A summary of the amortized cost and fair value of investments in fixed maturity securities classified as held-to-maturity by

contractual maturity is as follows:

Maturity:

Within one year
After one year through five years
After five years through ten years
After ten years
U.S. agency-based mortgage-backed securities
Asset-backed securities

Totals

December 31, 2019

December 31, 2018

Amortized
Cost

Fair
Value

Amortized
Cost

(in thousands)

Fair
Value

49,967
198,025
110,460
229,782
10,967
220
599,421

50,348
202,109
113,877
243,279
11,511
219
621,343

76,875
256,614
81,311
189,926
8,102
1,050
613,878

76,861
257,530
81,755
191,213
8,349
1,064
616,772

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

A summary of the amortized cost and fair value of investments in fixed maturity securities classified as available-for-sale by

contractual maturity is as follows:

Maturity:

Within one year
After one year through five years
After five years through ten years
After ten years
U.S. agency-based mortgage-backed
securities

Totals

December 31, 2019
Fair
Value

Amortized
Cost

December 31, 2018
Fair
Value

Amortized
Cost

(in thousands)

27,160 $

27,194 $

61,650 $

144,142
47,175
177,722

146,469
49,419
188,597

175,743
47,058
182,486

61,435
174,213
46,725
183,842

29,499

12,515
$ 425,698 $ 441,146 $ 479,772 $ 478,730

12,835

29,467

Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain

obligations with or without call or prepayment penalties.

At December 31, 2019, there were $15.9 million of held-to-maturity investments and $2.5 million of available-for-sale

investments on deposit with regulatory agencies of states in which the Company does business.

A summary of the Company’s realized gains and losses on sales, calls or redemptions of investments for 2019, 2018 and 2017 is

as follows:

Fixed Maturity
Securities
Available for Sale

Equity
Securities

(in thousands)

Other

Total

Year ended December 31, 2019

Proceeds from sales
Gross realized investment gains
Gross realized investment losses
Net realized investment gains
Other, including gains (losses) on calls and redemptions
Net realized gains (losses) on investments

Year ended December 31, 2018

Proceeds from sales
Gross realized investment gains
Gross realized investment losses
Net realized investment gains (losses)
Other, including losses on calls and redemptions
Net realized gains (losses) on investments

Year ended December 31, 2017

Proceeds from sales
Gross realized investment gains
Gross realized investment losses
Net realized investment gains
Other, including losses on calls and redemptions
Net realized gains (losses) on investments

$
$

33,113 $
140 $
(68)
72
(196)
(124) $

15,025 $
238 $

(1,354)
(1,116)
(144)
(1,260) $

14,591 $
485 $
(5)
480
(520)
(40) $

— $
— $
—
—
—
— $

3 $
1 $

—
1
—

1 $

1 $
1 $

—
1
—

1 $

21,977 $
36 $
—
36
8
44 $

— $
— $
—
—
(277)
(277) $

13,172 $
— $
—
—
(608)
(608) $

55,090
176
(68)
108
(188)
(80)

15,028
239
(1,354)
(1,115)
(421)
(1,536)

27,764
486
(5)
481
(1,128)
(647)

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Major categories of the Company’s net investment income are summarized as follows:

Gross investment income:

Fixed maturity securities
Equity securities
Short-term investments and cash and cash equivalents
Other investments

Total gross investment income
Investment expenses
Net investment income

2019

Year Ended December 31,
2018
(in thousands)

2017

30,343
628
2,478
—
33,449
(966)
32,483

28,762
448
2,208
—
31,418
(966)
30,452

28,961
201
1,117
104
30,383
(1,102)
29,281

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

The following table summarizes the fair value and gross unrealized losses on securities, aggregated by major investment

category and length of time that the individual securities have been in a continuous unrealized loss position:

Less Than 12 Months

12 Months or Greater

Total

Fair Value of
Investments
with
Unrealized
Losses

Gross
Unrealized
Losses

Fair Value of
Investments
with
Unrealized
Losses

Gross
Unrealized
Losses

(in thousands)

December 31, 2019

Held-to-Maturity
Fixed maturity securities:

States and political subdivisions
U.S. Treasury securities and obligations

of U.S. government agencies

Asset-backed securities
Total held-to-maturity securities
Available-for-Sale
Fixed maturity securities:

States and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities and obligations

of U.S. government agencies
Total available-for-sale securities
Total

December 31, 2018

Held-to-Maturity
Fixed maturity securities:

States and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities and obligations

of U.S. government agencies

Asset-backed securities
Total held-to-maturity securities
Available-for-Sale
Fixed maturity securities:

States and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities and obligations

of U.S. government agencies
Total available-for-sale securities
Equity securities:

Domestic common stock

Total equity securities
Total

21,074

193

— $

21,074

—
—
21,074

4,140
6,426
13,007

—
23,573
44,647

28,369
17,448
—

2,865
—
48,682

16,109
59,099
—

—
75,208

—
—
193

26
1
95

—
122
315

59
36
—

4
—
99

81
279
—

—
360

18,651
18,651
$ 142,541

1,341
1,341
1,800

3,243
68
3,311

— $
—
1,152

17,068
18,220
21,531

12
1
13

— $
—
1

42
43
56

3,243
68
24,385

4,140
6,426
14,159

17,068
41,793
66,178

$ 180,550
48,315
2,287

46,486
525
278,163

76,255
70,306
12,515

59,756
218,832

2,025
419
80

335
8
2,867

2,037
654
320

1,429
4,440

$ 208,919
65,763
2,287

49,351
525
326,845

92,364
129,405
12,515

59,756
294,040

— $
—
$ 496,995

— $
—
7,307

18,651
18,651
$ 639,536

193

12
1
206

26
1
96

42
165
371

2,084
455
80

339
8
2,966

2,118
933
320

1,429
4,800

1,341
1,341
9,107

At December 31, 2019, the Company held 59 individual fixed maturity securities that were in an unrealized loss position, of

which 11 were in a continuous unrealized loss position for longer than 12 months.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

We regularly review our investment portfolio to evaluate the existence of other-than-temporary declines in the fair value of
investments. We consider various factors in determining if a decline in the fair value of an individual security is other-than-temporary.
The key factors we consider are:

(cid:220)

any reduction or elimination of preferred dividends, or nonpayment of scheduled principal or interest payments;

the financial condition and near-term prospects of the issuer of the applicable security, including any specific events that
may affect its operations or earnings;

how long and by how much the fair value of the security has been below its cost or amortized cost;

any downgrades of the security by a rating agency;

our intent not to sell the security for a sufficient time period for it to recover its value;

the likelihood of being forced to sell the security before the recovery of its value; and

an evaluation as to whether there are any credit losses on debt securities.

We reviewed all securities with unrealized losses in accordance with the impairment policy described above. We determined
that the unrealized losses in the fixed maturity securities portfolio related primarily to changes in market interest rates since the date of
purchase, current conditions in the capital markets and the impact of those conditions on market liquidity and prices generally. We
expect to recover the carrying value of these securities as it is not more likely than not that we will be required to sell the securities
before the recovery of its amortized cost basis.

In 2019, 2018 and 2017, there were no impairment losses recognized for other-than-temporary declines in the fair value of our

investments.

Premiums Receivable

Premiums receivable consist primarily of premium-related balances due from policyholders. The balance is shown net of the

allowance for doubtful accounts. The components of premiums receivable are shown below:

Premiums receivable
Allowance for doubtful accounts
Premiums receivable, net

The following summarizes the activity in the allowance for doubtful accounts:

Balance, beginning of year
Provision for bad debts
Write-offs
Balance, end of year

December 31,

2019

2018

(in thousands)

163,065 $
(5,112)
157,953 $

167,868
(5,390)
162,478

December 31,

2019

2018

(in thousands)
5,390 $
723
(1,001)
5,112 $

5,226
883
(719)
5,390

Included in premiums receivable at December 31, 2019, 2018 and 2017 is the Company’s estimate for EBUB premium of $8.5

million, $7.5 million and $6.3 million, respectively.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Deferred Policy Acquisition Costs

Deferred policy acquisition costs represent those costs that are incremental and directly related to the successful acquisition of

new or the renewal of existing insurance policies. We defer incremental costs that result directly from, and are essential to, the
acquisition or renewal of an insurance policy.

We also defer a portion of employee total compensation costs directly related to time spent performing specific acquisition or

renewal activities.

These costs are deferred and expensed over the life of the related policies. Major categories of the Company’s deferred policy

acquisition costs are summarized as follows:

Agents’ commissions
Premium taxes
Deferred underwriting expenses
Total deferred policy acquisition costs

December 31,

2019

2018

(in thousands)

14,290 $
2,960
1,798
19,048 $

14,953
3,161
1,620
19,734

The following summarizes the activity in the deferred policy acquisition costs:

2019

Balance, beginning of year
Policy acquisition costs deferred
Amortization expense during the year
Balance, end of year

Property and Equipment

Property and equipment consist of the following:

Year Ended December 31,
2018
(in thousands)
20,251
$
45,252
(45,769)
19,734

19,734
43,872
(44,558)
19,048

2017

19,300
43,960
(43,009)
20,251

Land and office building
Furniture and equipment
Software
Automobiles
Finance lease right-of-use assets

Accumulated depreciation and amortization
Property and equipment, net

December 31,

2019

2018

(in thousands)
7,819 $
6,097
7,366
74
185
21,541
(15,210)

6,331 $

7,798
6,150
7,339
74
—
21,361
(15,103)
6,258

Accumulated depreciation and amortization includes $179,000 that is related to equipment held under finance leases at
December 31, 2019. Furniture and equipment included property held under capital leases of $184,000 at December 31, 2018.
Accumulated depreciation includes $120,000 that is related to these properties at December 31, 2018. The lease liabilities related to
these properties are included in accounts payable and other liabilities.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Reinsurance

The Company cedes certain premiums and losses to various reinsurers under excess-of-loss treaties. These reinsurance
arrangements provide for greater diversification of business, allow management to control exposure to potential losses arising from
large risks, and provide additional capacity for growth. Ceded reinsurance contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet
the obligations assumed under the reinsurance agreements. To minimize its exposure to significant losses from reinsurer insolvencies,
the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers on a continual basis. The effect of reinsurance on
premiums written and earned in 2019, 2018 and 2017 was as follows:

Gross
Ceded
Net premiums

2019 Premiums

2018 Premiums

2017 Premiums

Written

Earned

Written

Earned

Written

Earned

(in thousands)

$ 333,460
(8,995)
$ 324,465

$ 341,883
(8,995)
$ 332,888

$ 351,696
(9,344)
$ 342,352

$ 359,670
(9,344)
$ 350,326

$ 350,267
(8,869)
$ 341,398

$ 355,025
(8,869)
$ 346,156

The amounts recoverable from reinsurers consist of the following:

Unpaid losses recoverable:

Case basis
Incurred but not reported

Paid losses recoverable
Experience-rated commissions recoverable
Total

December 31,

2019

2018

(in thousands)

82,252 $
13,090
571
—
95,913 $

76,525
30,691
325
4,465
112,006

Amounts recoverable from reinsurers consists of ceded case reserves, ceded incurred but not reported (“IBNR”) reserves, paid

losses recoverable and experience-rated commissions recoverable. Ceded case and ceded IBNR reserves represent the portion of gross
loss and loss adjustment expense liabilities that are recoverable under reinsurance agreements, but are not yet due from reinsurers.
Paid losses recoverable are receivables currently due from reinsurers for ceded paid losses. The Company considers paid losses
recoverable outstanding for more than 90 days to be past due. At December 31, 2019, there were no paid losses recoverable past due.

Experience-rated commissions recoverable represents earned commission from reinsurance companies based on the financial

results of the applicable risks ceded to the reinsurers. These amounts declined during 2019 as a result of the December 2019
commutation of the 2009 - 2011 reinsurance agreement with Hannover.

The Company received reinsurance recoveries of $2.0 million in 2019, $1.3 million in 2018 and $1.6 million in 2017.

The Company generally secures large reinsurance recoverable balances with various forms of collateral, including funds
withheld accounts, irrevocable letters of credit and secured trusts. At December 31, 2019, reinsurance recoverables from reinsurers
that exceeded 1.5% of statutory surplus of the Company’s insurance subsidiaries are shown below.

Reinsurer

Hannover Reinsurance (Ireland) Limited (1)
Allianz Risk Transfer AG (Bermuda)
Odyssey America Reinsurance Corporation
Minnesota Workers' Compensation Reinsurance Association (1)
Other reinsurers

Total amounts recoverable from reinsurers

Funds withheld and letters of credit related to the above recoverables

Total unsecured amounts recoverable from reinsurers

(1) Current participant in our 2020 reinsurance program.

A.M. Best
Rating

Amounts Recoverable as
of December 31, 2019

(in thousands)

A+
A+
A
NR

43,543
11,484
11,273
6,293
23,320
95,913
(58,246)
37,667

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Income Taxes

The Company’s deferred income tax assets and liabilities are as follows:

Deferred income tax assets:

Discounting of net unpaid loss and loss adjustment

expenses

Unearned premiums
Accrued expenses and other
State income tax
Accrued policyholder dividends
Impaired securities
Capital loss carryforward
Accrued insurance-related assessments
Net unrealized loss on securities

Total deferred tax assets
Less: Valuation allowance
Net deferred tax assets

Deferred income tax liabilities:

Deferred policy acquisition costs
Callable bond amortization
Unrealized gain on securities available-for-sale
Property and equipment and other
Salvage and subrogation
Loss reserves adjustment due to the Tax Act

Total deferred income tax liabilities
Net deferred income taxes

December 31,

2019

2018

(in thousands)

19,985
7,638
2,612
2,484
2,330
—
20
2,672
—
37,741
(2,025)
35,716

21,377
8,069
2,636
855
2,188
21
—
3,139
496
38,781
—
38,781

(4,838)
(2)
(3,970)
(271)
(636)
(8,486)
(18,203)
17,513

(5,207)
(5)
—
(178)
(719)
(10,820)
(16,929)
21,852

The components of consolidated income tax expense (benefit) are as follows:

Current:

Federal
State

Deferred:

Federal
State

Total

2019

Year Ended December 31,
2018
(in thousands)

2017

20,658
1,297
21,955

732
140
872
22,827

16,407
1,004
17,411

(1,389)
(73)
(1,462)
15,949

22,477
732
23,209

12,965
(165)
12,800
36,009

As of December 31, 2019, the Company had a valuation allowance of $2.0 million against its deferred income tax benefits.

During 2018 and 2017, there was no valuation allowance on the Company’s deferred income tax assets and liabilities.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Income tax expense from operations is different from the amount computed by applying the U.S. federal income tax statutory

rate of 21% in 2019 and 2018, and 35% in 2017 to income before income taxes as follows:

Income tax computed at federal statutory tax rate
Tax-exempt interest, net
State income tax
Dividends received deduction
Revaluation of net deferred income tax assets
Other

2019

Year Ended December 31,
2018
(in thousands)
18,392
$
(2,965)
720
(44)
—
(154)
15,949

24,258
(2,999)
1,178
(59)
—
449
22,827

2017

28,784
(5,707)
311
(48)
12,620
49
36,009

On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. Changes
include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31,
2017. As a result, we recorded $12.6 million as additional income tax expense related to our net deferred tax assets revalued at the
new lower rate of 21% in the fourth quarter of 2017, the period in which the legislation was enacted.

In December 2018, the IRS released its guidance for determining the Tax Act transition adjustment related to the discounting of

loss reserves. During the period ended December 31, 2018, the Company recorded an increase in its deferred tax assets and a
corresponding increase in its deferred tax liabilities as a result of the transition adjustment, which had no impact on tax expense
recognized in 2018.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There were no

uncertain tax positions as of December 31, 2019, 2018 and 2017.

Tax years 2016 through 2019 are subject to examination by the federal and state taxing authorities.

Line of Credit

The Company has an agreement providing for a line of credit in the maximum amount of $20.0 million with Frost Bank. The

agreement expires in December 2022. Under the agreement, advances may be made either in the form of loans or letters of credit.
Borrowings under the agreement accrue at interest rates based upon prime rate, LIBOR or equivalent. Under the agreement, the
Company pays a fee of 0.25% on the unused portion of the loan in arrears quarterly, or a fee of $50,000 annually, assuming the line of
credit is not used during the calendar year. The line of credit is unsecured. No borrowings or letters of credit were outstanding under
the line of credit arrangement at December 31, 2019 or 2018.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Loss and Loss Adjustment Expenses

The following development tables provide the incurred and paid losses and allocated loss adjustment expenses, net of
reinsurance, for workers’ compensation and general liability for accident years 2010 through 2019. The incurred but not reported
(“IBNR”) losses and claims frequency is included for each accident year presented.

Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Dollars in thousands)

Accident
Year
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2017

2018

2013

2010

2012

2011

2015

2016

Unaudited (1)
2014
$179,156 $202,479 $208,035 $205,769 $198,861 $193,029 $191,000 $189,403 $ 189,040
189,327
180,387
210,588
226,933
235,471
241,406
244,098
— 250,487
—
—
Total

— 196,384 199,522 199,163 198,213 195,262 192,988 191,126
— 222,549 222,075 212,738 193,515 184,460 182,859
—
— 241,810 241,811 233,656 220,457 214,701
—
—
— 268,846 268,846 249,097 235,058
—
—
—
— 262,573 262,573 252,514
—
—
—
—
— 250,491 250,491
—
—
—
—
—
— 244,094
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

As of
December 31, 2019

Total IBNR
Plus
Expected

Cumulative
Development Number of
on Reported
Claims

2019

$ 188,096 $
188,226
178,586
209,184
218,386
220,965
218,005
234,587
250,487
241,344
$2,147,866 $

5,093
6,008
6,834
8,803
6,534
12,488
11,377
14,636
13,900
18,973
104,646

Claims
Reported
5,971
6,044
5,749
5,766
5,838
5,515
5,390
5,199
5,451
4,959

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(Dollars in thousands)

Accident

Unaudited (1)

Year
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2010

2011

2012

2013

2014

2015

2016

2017

2018

111,029
— 50,579
—
—
—
—
—
—
—

— 53,329
—
—
—
—
—
—
—
—

$ 47,520 $108,714 $141,029 $156,974 $165,834 $169,565 $172,426 $175,019 $ 176,663
169,994
153,968
159,807
133,658
177,724
119,507
180,683
— 53,060
170,461
—
143,016
—
122,552
—
62,061
—
—
—
Total
All outstanding liabilities before 2010, net of reinsurance
Liabilities for loss and loss adjustment expenses, net of reinsurance

167,757
157,207
172,479
169,736
151,818
115,713
— 56,951
—
—
—
—

165,967
154,553
165,994
153,320
121,599
— 52,238
—
—
—

140,831
107,467
— 51,396
—
—
—
—
—
—

161,639
149,161
150,304
119,820
— 54,141
—
—
—
—

Claim
Frequency
(2)

24.94
22.82
18.73
16.55
14.99
14.25
14.22
14.64
15.16
14.50

2019
$ 177,331
170,785
161,014
180,614
186,129
182,053
156,861
151,427
126,057
58,883
1,551,154
80,832
677,544

(1) Data presented for these calendar years is required supplementary information, which is unaudited.
Frequency, as calculated above, refers to reported claims divided by gross premium earned.
(2)

The average annual percentage payout of incurred losses by age, net of reinsurance, for workers’ compensation and general
liability as of December 31, 2019 is summarized below. Since workers’ compensation has long payout periods, the table below shows
less than 100% in the years disclosed. This is required supplementary information, which is unaudited.

Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance (Unaudited)

Year 1
25.3%

Year 2
30.1%

Year 3
14.5%

Year 4
7.7%

Year 5
4.2%

Year 6
2.2%

Year 7
1.3%

Year 8
1.1%

Year 9
0.6%

Year 10
0.4%

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

The following table provides a reconciliation of the beginning and ending reserve balances, net of related amounts recoverable

from reinsurers, for 2019, 2018 and 2017:

Balance, beginning of period
Less amounts recoverable from reinsurers

on unpaid loss and loss adjustment expenses

Net balance, beginning of period
Add incurred related to:
Current accident year
Prior accident years
Total incurred
Less paid related to:

Current accident year
Prior accident years

Total paid

Net balance, end of period
Add amounts recoverable from reinsurers

on unpaid loss and loss adjustment expenses

Balance, end of period

Year Ended December 31,
2018
(in thousands)
771,845
$

2019

798,409

107,216
691,193

241,344
(65,002)
176,342

58,883
131,108
189,991
677,544

84,889
686,956

250,487
(45,596)
204,891

62,061
138,593
200,654
691,193

2017

742,776

78,256
664,520

244,094
(34,770)
209,324

56,951
129,937
186,888
686,956

95,343
772,887

107,216
798,409

84,889
771,845

The foregoing reconciliation reflects favorable development of the net reserves at December 31, 2019, 2018 and 2017. The
favorable development reduced loss and loss adjustment expenses incurred by $65.0 million in 2019, driven primarily by accident
years 2016 and 2015 of $23.4 million and $14.5 million, respectively. In 2018 and 2017, the Company recorded favorable
development of $45.6 million and $34.8 million, respectively. The revisions to the Company’s reserves reflect new information gained
by claims adjusters in the normal course of adjusting claims and is reflected in the financial statements when the information becomes
available. It is typical for more serious claims to take several years or longer to settle and the Company continually revises estimates
as more information about claimants’ medical conditions and potential disability becomes known and the claims get closer to being
settled. Multiple factors can cause loss development both unfavorable and favorable. The favorable loss development we experienced
across accident years was largely due to favorable case reserve development and continued favorable severity trends compared to
those originally estimated.

Reserves established for workers’ compensation insurance includes the exposure to occupational disease or accidents related to
asbestos or environmental claims. The exposure to asbestos claims emanate from the direct sale of workers’ compensation insurance.
These claims resulted from industry workers who were exposed to tremolite asbestos dust and electricians and carpenters who were
exposed to products that contained asbestos. There has been no known exposure to asbestos claims arising from assumed business.
The emergence of these claims is slow and highly unpredictable. The Company estimates full impact of the asbestos exposure by
establishing full case basis reserves on all known losses. Reserves for losses incurred but not reported (IBNR) include a provision for
development of reserves on reported losses. Reserves are established for loss adjustment expenses (LAE) associated with these case
and IBNR loss reserves.

The following table details our exposures to various asbestos related claims:

Reserves for loss and LAE at beginning of year
Incurred losses and LAE during the current year
Loss and LAE payments
Reserves for loss and LAE at end of year

2019

Year Ended December 31,
2018
(in thousands)
1,748
$
108
(301)
1,555

1,555
(183)
(49)
1,323

2017

1,487
556
(295)
1,748

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

The Company has historically written general liability coverages that are reported in other liability lines of business. These
coverages may be associated with the property and casualty industry’s exposure to environmental claims. However, the Company has
not been notified by any insured for which exposure exists due to these types of claims. Company management believes potential
exposure to environmental claims to be remote. Therefore, the Company has no loss or loss adjustment expense reserves for such
liabilities.

The anticipated effect of inflation is implicitly considered when estimating liabilities for loss and loss adjustment expenses. In

establishing our reserves for loss and loss adjustment expenses, we review the results of analyses using individual case-base valuations
and statistical and actuarial methods that utilize historical loss data from our more than 34 years of underwriting workers’
compensation insurance. The actuarial analysis of our historical data provides the factors we use in estimating our loss reserves. These
factors are primarily measures over time of the number of claims paid and reported, average paid and incurred claim amounts, claim
closure rates and claim payment patterns. In evaluating the results of our analyses, management also uses substantial judgment in
considering other factors that are not considered in these actuarial analyses, including changes in business mix, claims management,
regulatory issues, medical trends, employment and wage patterns, insurance policy coverage interpretations, judicial determinations
and other subjective factors. Due to the inherent uncertainty associated with these estimates, and the cost of incurred but unreported
claims, our actual liabilities may vary significantly from our original estimates. These anticipated trends are monitored based on actual
development and are modified if necessary.

10.

Statutory Accounting and Regulatory Requirements

The Company’s insurance subsidiaries file financial statements prepared in accordance with statutory accounting principles

prescribed or permitted by the insurance regulatory authorities of the states in which the subsidiaries are domiciled. Statutory-basis
shareholders’ capital and surplus at December 31, 2019, 2018 and 2017 of the directly owned insurance subsidiary, AIIC, and the
combined statutory-basis net income and realized investment gains for all AMERISAFE’s insurance subsidiaries for the three years in
the period ended December 31, 2019, were as follows:

Capital and surplus
Net income
Net realized losses on investments

2019

359,952
92,301
(80)

2018
(in thousands)
383,575
$
72,979
(1,536)

2017

382,062
61,628
(647)

Property and casualty insurance companies are subject to certain risk-based capital requirements, or RBC requirements,
specified by the National Association of Insurance Commissioners. Under these requirements, a target minimum amount of capital
and surplus maintained by a property/casualty insurance company is determined based on the various risk factors related to it. At
December 31, 2019, the capital and surplus of AIIC and its subsidiaries exceeded the minimum RBC requirement.

Pursuant to regulatory requirements, AIIC cannot pay dividends to the Company in excess of the greater of 10% of statutory
surplus, or statutory net income, excluding realized investment gains, for the preceding 12-month period, without the prior approval of
the Nebraska Director of Insurance. However, for purposes of this dividend calculation, net income from the previous two calendar
years may be carried forward to the extent that it has not already been paid out as dividends. AIIC paid $115.9 million in dividends to
the Company in 2019, $65.4 million in 2018 and $78.9 million in 2017. Based upon the dividend limitation described above, AIIC
could pay to the Company dividends of up to $88.6 million in 2020 without seeking regulatory approval.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

11. Capital Stock

Common Stock

The Company is authorized to issue 50,000,000 shares of common stock, par value $0.01 per share. At December 31, 2019,

there were 20,560,833 shares of common stock issued and 19,302,583 shares outstanding.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.01 per share. At December 31, 2019,

there were no shares of preferred stock outstanding.

12.

Stock Options and Restricted Stock

2005 Incentive Plan

The AMERISAFE 2005 Equity Incentive Plan (the “2005 Incentive Plan”) is administered by the Compensation Committee of
the Board and was designed to provide incentive compensation to executive officers and other key management personnel. The 2005
Incentive Plan permitted awards in the form of incentive stock options, as defined in Section 422(b) of the Internal Revenue Code of
1986, non-qualified stock options, restricted shares of common stock and restricted stock units. In connection with the approval of the
2012 Equity and Incentive Compensation Plan by the Company’s shareholders, no further grants were made under the 2005 Incentive
Plan. As of December 31, 2019, there are no outstanding options or restricted stock awards under the 2005 Incentive Plan.

Stock options granted under the 2005 Incentive Plan were exercisable, subject to vesting requirements determined by the
Compensation Committee, for periods of up to ten years from the date of grant. Stock options generally expire 90 days after the
cessation of an optionee’s service as an employee. However, in the case of an optionee’s death or disability, the unexercised portion of
a stock option remains exercisable for up to one year after the optionee’s death or disability. Stock options granted under the 2005
Incentive Plan are not transferable, except by will or the laws of descent and distribution.

The Company used the Black-Scholes-Merton option pricing model to estimate the fair value of each option on the date of
grant. The expected terms of options were developed by considering the Company’s historical attrition rate for those employees at the
officer level, who were eligible to receive options. Further, the Company aggregated individual awards into homogenous groups based
upon grant date. Expected volatility was estimated using daily historical volatility for six companies within the property and casualty
insurance sector. The Company believes that historical volatility of this peer group was the best estimate of expected volatility of the
market price of the Company’s common shares. The dividend yield was assumed to be zero as the Company did not pay cash
dividends until 2013. The risk-free interest rate is the yield on the grant date of U.S. Treasury zero coupon securities with a maturity
comparable to the expected term of the options.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

The following table summarizes information about the stock option activity under the 2005 Incentive Plan:

Outstanding at January 1, 2017
Granted
Exercised
Canceled, forfeited, or expired
Outstanding at December 31, 2017
Exercisable at December 31, 2017
Outstanding at January 1, 2018
Granted
Exercised
Canceled, forfeited, or expired
Outstanding at December 31, 2018
Exercisable at December 31, 2018
Outstanding at January 1, 2019
Granted
Exercised
Canceled, forfeited, or expired
Outstanding at December 31, 2019
Exercisable at December 31, 2019

Weighted-
Average
Exercise Price
8.71
—
—
—
5.21
5.21
5.21
—
4.46
—
3.95
3.95
3.95
—
3.95
—
—
—

20,000
—
—
—
20,000
20,000
20,000
—
(15,000)
—
5,000
5,000
5,000
—
(5,000)
—
—
—

Weighted-
Average
Remaining
Contractual
Life (in years)
3.1
—
—
—
2.1
2.1
2.1
—
0.9
—
1.9
1.9
1.9
—
0.9
—
—
—

Cash received from option exercises
Total intrinsic value of options exercised
Aggregate intrinsic value of vested options outstanding

2019

2018
(in thousands)
67
$
766
264

20
287
—

2017

—
—
1,128

The following table summarizes information about the restricted stock activity under the 2005 Incentive Plan:

Nonvested balance at January 1, 2017
Granted
Vested
Forfeited
Nonvested balance at December 31, 2017
Granted
Vested
Forfeited
Nonvested balance at December 31, 2018
Granted
Vested
Forfeited
Nonvested balance at December 31, 2019

Weighted-
Average Grant-
Date Fair Value
per Share

800
—
(800)
—
—
—
—
—
—
—
—
—
—

27.35
—
27.35
—
—
—
—
—
—
—
—
—
—

The Company recognized no compensation expense in 2019 and $12,000 in 2018 and $56,000 in 2017, related to awards made

under the 2005 Incentive Plan.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

2012 Equity and Incentive Compensation Plan

In 2012, the Company’s shareholders approved the AMERISAFE 2012 Equity and Incentive Compensation Plan (the “2012
Incentive Plan”). The 2012 Incentive Plan is administered by the Compensation Committee of the Board and is designed to attract,
retain and motivate non-employee directors, officers, key employees and consultants by providing incentives for superior
performance. The 2012 Incentive Plan authorizes the grant of equity-based compensation in the form of option rights, appreciation
rights, restricted shares, restricted stock units, cash incentive awards, performance shares and units, and other types of awards.

A maximum of 500,000 shares of common stock may be issued or transferred upon the exercise of option rights or appreciation

rights, as restricted shares and released from substantial risk of forfeiture, in payment of restricted stock units, in payment of
performance shares or performance units that have been earned, as awards of shares of common stock, as other awards granted under
the 2012 Incentive Plan, or in payment of dividend equivalents paid with respect to awards made under the plan subject to adjustment
in the event of a merger, stock dividend, stock split or similar event, which may be original issue shares or treasury shares or a
combination of the two.

In 2019, 9,391 shares of common stock and 13,322 shares of restricted stock were granted under the 2012 Incentive Plan, which
will vest through 2024. In 2018, 3,304 shares of common stock were granted under the 2012 Incentive Plan. At December 31, 2019,
there were 320,434 shares of common stock available for future awards under the 2012 Incentive Plan.

The following table summarizes information about the common and restricted stock activity under the 2012 Incentive Plan:

Weighted-
AverageGrant-
Date Fair Value
per Share

43.91
55.58
43.89
—
45.71
59.16
44.31
—
48.93
61.08
51.86
—
54.02

76,392
9,326
(24,839)
—
60,879
3,304
(24,608)
—
39,575
22,713
(29,760)
—
32,528

The Company recognized compensation expense of $676,000, $726,000 and $884,000 in 2019, 2018 and 2017, respectively,

related to share-based grants. The Company recognized compensation expense of $1,359,000, $976,000 and $724,000 in 2019, 2018
and 2017, respectively, related to long-term incentive awards under the 2012 Incentive Plan. The long-term incentive award is a
liability award.

Non-Employee Director Restricted Stock Plan

The AMERISAFE Non-Employee Director Restricted Stock Plan (the “Restricted Stock Plan”) is administered by the
Compensation Committee of the Board and provides for the automatic grant of restricted stock awards to non-employee directors of
the Company. Awards to non-employee directors are generally subject to terms including non-transferability, immediate vesting upon
death or total disability of a director, forfeiture of unvested shares upon termination of service by a director and acceleration of vesting
upon a change of control of the Company. The maximum number of shares of common stock that may be issued pursuant to restricted
stock awards under the Restricted Stock Plan is 150,000 shares, subject to the authority of the Board to adjust this amount in the event
of a merger, consolidation, reorganization, stock split, combination of shares, recapitalization or similar transaction affecting the
common stock. At December 31, 2019, there were 53,017 shares of common stock available for future awards under the Restricted
Stock Plan.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Under the Restricted Stock Plan, each non-employee director is automatically granted a restricted stock award for a number of

shares equal to $50,000 divided by the closing price of the Company’s common stock on the date of the annual meeting of
shareholders at which the non-employee director is elected or is continuing as a member of the Board. Each restricted stock award
vests on the date of the next annual meeting of shareholders following the date of grant, subject to the continued service of the non-
employee director. Under the terms of the Restricted Stock Plan, the Company’s Board of Directors may increase the dollar amount
of the annual award to an amount up to $75,000 without further shareholder approval.

As of December 31, 2019, there were 4,890 shares of restricted stock outstanding under the Non-Employee Director Restricted

Stock Plan, all of which will vest on the date of the annual meeting of shareholders in 2020.

The following table summarizes information about the restricted stock activity under the Non-Employee Director Restricted

Stock Plan:

Weighted-
Average Grant-
Date Fair Value
per Share

5,576
6,454
(5,576)
—
6,454
5,761
(6,454)
—
5,761
4,890
(5,761)
—
4,890

64.50
54.20
64.50
—
54.20
60.75
54.20
—
60.75
61.34
60.75
—
61.34

The Company recognized compensation expense of $317,000 in 2019, $351,000 in 2018 and $355,000 in 2017 related to the

Non-Employee Director Restricted Stock Plan.

13. Earnings Per Share

The Company computes earnings per share (“EPS”) in accordance with FASB Accounting Standards Codification (“ASC”)

Topic 260, Earnings Per Share. The Company has no participating unvested common shares which contain nonforfeitable rights to
dividends and applies the treasury stock method in computing basic and diluted earnings per share.

Basic EPS is calculated by dividing net income by the weighted-average number of common shares outstanding during the

period.

The diluted EPS calculation includes potential common shares assumed issued under the treasury stock method, which reflects

the potential dilution that would occur if any outstanding options were exercised or restricted stock becomes vested.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

The calculation of basic and diluted EPS for the years ended December 31, 2019, 2018 and 2017 are presented below.

For the Year Ended December 31,
2018
(in thousands, except earnings per share amounts)

2017

2019

Basic EPS:

Net income – basic
Basic weighted-average common shares
Basic earnings per share

Diluted EPS:

Net income - diluted
Diluted weighted average common shares:
Weighted average common shares
Stock options and restricted stock
Diluted weighted average common shares

Diluted earnings per common share

92,690
19,249
4.82

92,690

19,249
80
19,329
4.80

71,632
19,209
3.73

71,632

19,209
84
19,293
3.71

46,231
19,165
2.41

46,231

19,165
81
19,246
2.40

The table below sets forth the reconciliation of the weighted average shares used for the basic and diluted EPS calculation.

Basic weighted average common shares
Add: Other common shares eligible for common dividends:

2019
19,248,657

Years Ended
2018
19,208,978

2017
19,165,489

Stock options and restricted stock
Diluted weighted average common shares

80,581
19,329,238

84,104
19,293,082

80,377
19,245,866

14. Comprehensive Income and Accumulated Other Comprehensive Income

Comprehensive income includes net income plus unrealized gains/losses on our available-for-sale investment securities, net of
tax. The following table illustrates the changes in the balance of each component of accumulated other comprehensive income (loss)
for each period presented in the financial statements.

2019

Year Ended December 31,
2018
(in thousands)
3,612
(615)
414
3,411

(832) $
—
—
(832)

2017

(492)
—
—
(492)

12,379

(4,551)

4,823

664
13,043
12,211

308
(4,243)

(832) $

(719)
4,104
3,612

Balance, beginning of period

Impact of adoption of ASU 2016-01
Impact of adoption of ASU 2018-02

Adjusted beginning balance

Other comprehensive income (loss) before

reclassification

Amounts reclassified from accumulated other

comprehensive income (loss)

Net current period other comprehensive income (loss)

Balance, end of period

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

The sale or other-than-temporary impairment (“OTTI”) of an available-for-sale security results in amounts being reclassified
from accumulated other comprehensive income to current period net income. The effects of reclassifications out of accumulated other
comprehensive income by the respective line items of net income are presented in the following table.

Component of Accumulated Other Comprehensive
Income (Loss)

Unrealized gains (losses) on available-for-

sale securities

2019

Year Ended December 31,
2018
(in thousands)

2017

Affected line item in the statement
of income

Net realized losses on

(841) $
(841)
177
(664) $

(390) $
(390)
82
(308) $

investments

1,106
1,106
(387)
719 Net income

Income before income taxes
Income tax expense

December 31, 2019
Unrealized gain on securities:

Unrealized gain on available-for-sale securities
Reclassification adjustment for gains realized

in net income
Net unrealized gain
Other comprehensive income
December 31, 2018
Unrealized loss on securities:

Unrealized loss on available-for-sale securities
Reclassification adjustment for losses realized

in net income
Net unrealized loss
Other comprehensive loss
December 31, 2017
Unrealized gain on securities:

Unrealized gain on available-for-sale securities
Reclassification adjustment for gains realized

in net income
Net unrealized gain
Other comprehensive income

Pre-Tax
Amount

Tax Expense
(Benefit)
(in thousands)

Net-of-Tax
Amount

15,670

3,291

12,379

841
16,511
16,511

177
3,468
3,468

664
13,043
13,043

(5,760) $

(1,209) $

(4,551)

390
(5,370)
(5,370) $

82
(1,127)
(1,127) $

308
(4,243)
(4,243)

6,960

2,137

4,823

(1,106)
5,854
5,854

(387)
1,750
1,750

(719)
4,104
4,104

15. Employee Benefit Plan

The Company’s 401(k) benefit plan is available to all employees. The Company matches up to 3% of employee compensation
for participating employees, subject to certain limitations. Employees are fully vested in employer contributions to this plan after five
years. Company contributions to this plan were $0.7 million in 2019 and 2018, and $0.6 million in 2017.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

16. Commitments and Contingencies

The Company is a party to various legal actions arising principally from claims made under insurance policies and contracts.

Those actions are considered by the Company in estimating reserves for loss and loss adjustment expenses. In the opinion of
management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial
position or results of operations.

The Company provides workers’ compensation insurance in several states that maintain second-injury funds. Incurred losses on
qualifying claims that exceed certain amounts may be recovered from these state funds. There is no assurance that the applicable states
will continue to provide funding under these programs.

The Company manages risk on certain long-duration claims by settling these claims through the purchase of annuities from
unaffiliated carriers. In the event these carriers are unable to meet their obligations under these contracts, the Company could be liable
to the claimants. The following table summarizes the fair value of the annuities at December 31, 2019, that the Company has
purchased to satisfy its obligations.

Life Insurance Company

Pacific Life and Annuity Company
American General Life Insurance Company
New York Life Insurance Company
Travelers Life and Annuity Insurance Company
Metropolitan Life Insurance Company
John Hancock Life Insurance Company
Athene Annuity and Life Company
United of Omaha Life Insurance Company
Lincoln Life Assurance Company of Boston
Other

A.M. Best
Rating

Statement Value
of Annuities
Exceeding 1% of
Statutory Surplus
(in thousands)

A+
A
A++
A
A+
A+
A
A+
A

19,003
14,736
9,655
10,018
6,812
6,795
4,536
5,268
3,666
19,848
100,337

Substantially all of the annuities are issued or guaranteed by life insurance companies that have an A.M. Best Company rating of

“A” (Excellent) or better.

The Company has operating and finance leases for office space and equipment. Our leases have remaining lease terms of one

month to 49 months, some of which include options to extend the leases for up to five years.

The components of lease expense were as follows:

Operating lease cost
Finance lease cost:

Amortization of right-of-use assets
Interest on lease liabilities

Total finance lease cost

Year Ended
December 31,
2019
(in thousands)

164

62
4
66

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Supplemental cash flow information related to leases was as follows:

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases

Right-of-use assets obtained in the exchange for the lease obligations were as follows:

Operating leases
Finance leases

Supplemental balance sheet information related to leases was as follows:

Year Ended
December 31,
2019
(in thousands)

430
46
47

December 31,
2019
(in thousands)

369
—

December 31, 2019
(in thousands)

Balance Sheet Classification

Operating leases:

Operating lease right-of-use assets

Operating lease liabilities

Finance leases:

Finance lease right-of-use assets
Finance lease accumulated amortization

right-of-use assets

Property and equipment, net

Finance lease liabilities

430

Other assets

430

Accounts payable and other liabilities

185

(179)
6

Property and equipment, net

Accounts payable and other liabilities

Weighted average remaining lease term:

Operating leases
Finance leases

Weighted average discount rate:

Operating leases
Finance leases

December 31,
2019

3.6 years
1.1 years

5.25%
5.21%

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

The following is a maturity analysis of the annual undiscounted cash flows of the operating and finance lease liabilities as of

December 31, 2019:

2020
2021
2022
2023
2024
Total lease payments
Less imputed interest
Total

Operating Leases Finance Leases
(in thousands)
137 $
120
110
75
6
448
18
430 $

51
5
—
—
—
56
2
54

Rental expense was $0.2 million in 2019 and 2018, and $0.1 million in 2017.

17. Concentration of Operations

The Company derives its premium revenues from its operations in the workers’ compensation insurance line of business.

Net premiums earned during 2019, 2018 and 2017 for the top ten states in 2019 and all others are shown below:

Florida
Georgia
Pennsylvania
Louisiana
North Carolina
Illinois
Virginia
Minnesota
Wisconsin
South Carolina
All others
Total net premiums earned

2019

Dollars

Percent

2018

Dollars
Percent
(Dollars in thousands)

2017

Dollars

Percent

$ 39,936
38,090
27,519
24,782
18,800
16,929
15,249
13,399
13,388
13,020
111,776
$ 332,888

12.0% $ 39,672
40,351
11.4%
31,708
8.3%
25,810
7.4%
19,537
5.7%
19,710
5.1%
15,228
4.6%
12,900
4.0%
14,101
4.0%
13,924
3.9%
33.6% 117,385
100.0% $ 350,326

11.3% $ 34,615
40,801
11.5%
32,931
9.1%
25,422
7.4%
18,388
5.6%
22,169
5.6%
16,298
4.3%
13,968
3.7%
13,790
4.0%
13,327
4.0%
33.5% 114,447
100.0% $ 346,156

10.0%
11.8%
9.5%
7.3%
5.3%
6.4%
4.7%
4.0%
4.0%
3.9%
33.1%
100.0%

18. Fair Values of Financial Instruments

The Company determines fair value amounts for financial instruments using available third-party market information. When

such information is not available, the Company determines the fair value amounts using appropriate valuation methodologies.
Nonfinancial instruments such as real estate, property and equipment, deferred policy acquisition costs, deferred income taxes and loss
and loss adjustment expense reserves are excluded from the fair value disclosure.

Cash and Cash Equivalents—The carrying amounts reported in the accompanying consolidated balance sheets for these

financial instruments approximate their fair values.

Investments—The Company’s fixed maturity securities are priced by an independent pricing service. The prices provided by the

independent pricing service are estimated based on observable market data in active markets utilizing pricing models and processes,
which may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, sector
groupings, matrix pricing and reference data. The Company reviews the prices provided by pricing services for reasonableness and
compares them to prices provided by the Company’s custodian which uses different pricing services.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Short Term Investments—The carrying amounts reported in the accompanying consolidated balance sheets for these financial

instruments approximate their fair value.

The following table summarizes the carrying or reported values and corresponding fair values for financial instruments:

Assets:

Fixed maturity securities—held to maturity
Fixed maturity securities—available-for-sale
Equity securities
Short-term investments
Cash and cash equivalents

2019

Carrying
Amount

December 31,

Fair
Value

Carrying
Amount

(in thousands)

2018

Fair
Value

599,421
441,146
27,903
56,548
43,813

621,343
441,146
27,903
56,548
43,813

613,878
478,730
18,651
14,231
40,344

616,772
478,730
18,651
14,231
40,344

The Company carries available-for-sale securities and equity securities at fair value in our consolidated financial statements and

determines fair value measurements and disclosure in accordance with FASB ASC Topic 820, Fair Value Measurements and
Disclosures.

The Company determines the fair values of its financial instruments based on the fair value hierarchy established in ASC Topic
820, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard defines fair value, describes three levels of inputs that may be used to measure fair value, and expands
disclosures about fair value measurements.

Fair value is defined in ASC Topic 820 as the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date. Fair value is the price to sell an asset or transfer a liability
and, therefore, represents an exit price, not an entry price. Fair value is the exit price in the principal market (or, if lacking a principal
market, the most advantageous market) in which the reporting entity would transact. Fair value is a market-based measurement, not an
entity-specific measurement, and, as such, is determined based on the assumptions that market participants would use in pricing the
asset or liability. The exit price objective of a fair value measurement applies regardless of the reporting entity’s intent and/or ability
to sell the asset or transfer the liability at the measurement date.

ASC Topic 820 requires the use of valuation techniques that are consistent with the market approach, the income approach
and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving
identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash
flows or earnings, to a single present value amount on a discounted basis. The cost approach is based on the amount that currently
would be required to replace the service capacity of an asset, also known as current replacement cost. Valuation techniques used to
measure fair value are to be consistently applied.

In ASC Topic 820, inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability,

including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value (such as
a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable:

(cid:220)

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability
developed based on market data obtained from sources independent of the reporting entity.

Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market
participants would use in pricing the asset or liability developed based on the best information available in the
circumstances.

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Valuation techniques used to measure fair value are intended to maximize the use of observable inputs and minimize the use of

unobservable inputs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation techniques
into the following three levels:

(cid:220)

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity
has the ability to access at the measurement date.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted
prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are
observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data.

Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are to be used to measure fair value
to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market
activity for the asset or liability at the measurement date.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair

value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.

The fair values of the Company’s investments are based upon prices provided by an independent pricing service. The Company

has reviewed these prices for reasonableness and has not adjusted any prices received from the independent provider. Securities
reported at fair value utilizing Level 1 inputs represent assets whose fair value is determined based upon observable unadjusted quoted
market prices for identical assets in active markets. Level 2 securities represent assets whose fair value is determined using observable
market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar
characteristics. There were no transfers between Level 1 and Level 2 during the year ended December 31, 2019.

Assets measured at fair value on a recurring basis as of December 31, 2019 and 2018 are as follows:

Financial instruments carried at fair value,

classified as part of:

Securities available-for-sale—fixed maturity:

States and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities

Total securities available-for-sale—fixed maturity
Equity securities:

Domestic common stock

Total

December 31, 2019

Level 1
Inputs

Level 2
Inputs

Level 3
Inputs

Total Fair
Value

(in thousands)

— $
—
—
40,126
40,126

237,775
133,778
29,467
—
401,020

— $
—
—
—
—

237,775
133,778
29,467
40,126
441,146

27,903
68,029

—
401,020

—
— $

27,903
469,049

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

Financial instruments carried at fair value,

classified as part of:

Securities available-for-sale—fixed maturity:

States and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities

Total securities available-for-sale—fixed maturity
Equity securities:

Domestic common stock

Total

December 31, 2018

Level 1
Inputs

Level 2
Inputs

Level 3
Inputs

Total Fair
Value

(in thousands)

— $
—
—
59,756
59,756

233,245
173,214
12,515
—
418,974

— $
—
—
—
—

233,245
173,214
12,515
59,756
478,730

18,651
78,407

—
418,974

—
— $

18,651
497,381

Assets measured at amortized cost as of December 31, 2019 and 2018 are as follows:

Securities held-to-maturity—fixed maturity:

States and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities
Obligations of U.S. government agencies
Asset-backed securities

Total held-to-maturity

Securities held-to-maturity—fixed maturity:

States and political subdivisions
Corporate bonds
U.S. agency-based mortgage-backed securities
U.S. Treasury securities
Obligations of U.S. government agencies
Asset-backed securities

Total held-to-maturity

December 31, 2019

Level 1
Inputs

Level 2
Inputs

Level 3
Inputs

Total Fair
Value

(in thousands)

— $
—
—
7,873
—
—
7,873

485,647
110,925
11,511
—
5,168
219
613,470

— $
—
—
—
—
—
— $

485,647
110,925
11,511
7,873
5,168
219
621,343

December 31, 2018

Level 1
Inputs

Level 2
Inputs

Level 3
Inputs

Total Fair
Value

(in thousands)

— $
—
—
7,111
—
—
7,111

448,947
91,369
8,349
—
59,932
1,064
609,661

— $
—
—
—
—
—
— $

448,947
91,369
8,349
7,111
59,932
1,064
616,772

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

The following table presents summary information regarding changes in the fair value of assets measured at fair value using

Level 3 input.

Balance, beginning of period
Transfer into Level 3
Unrealized loss on equity security
Sale of equity security
Balance, end of period

Year Ended December 31,

2019

2018

(in thousands)
— $
—
—
—
— $

34
—
(32)
(2)
—

At December 31, 2019 and 2018, the Company did not hold any securities measured at fair value on a nonrecurring basis due to

impairment.

19. Quarterly Financial Data (Unaudited)

The following table represents unaudited quarterly financial data for the years ended December 31, 2019 and 2018.

2019
Net premiums earned
Net investment income
Net realized gains (losses) on investments
Total revenues
Income before income taxes
Net income
Earnings per share:

Basic
Diluted

Comprehensive income
Extraordinary cash dividends declared per common share
Cash dividends declared per common share

2018
Net premiums earned
Net investment income
Net realized losses on investments
Total revenues
Income before income taxes
Net income
Earnings per share:

Basic
Diluted

Comprehensive income
Extraordinary cash dividends declared per common share
Cash dividends declared per common share

Three Months Ended

March 31

June 30

September 30

December 31

(in thousands, except per share amounts)

84,948
8,015
59
95,190
23,809
19,400

1.01
1.01
25,193

$
$

82,951
8,169
(82)
91,753
22,169
17,890

0.93
0.93
23,068

$
$

82,712
8,264
(4)
91,488
26,613
21,386

1.11
1.11
23,862

$
$

— $
$

0.25

— $
$

0.25

— $
$

0.25

87,310
7,209
(31)
94,175
19,414
16,169

0.84
0.84
10,321

$
$

88,995
7,303
(1,111)
95,380
20,930
16,956

0.88
0.88
17,109

$
$

85,184
7,884
(329)
93,529
24,460
19,701

1.03
1.02
17,582

$
$

— $
$

0.22

— $
$

0.22

— $
$

0.22

82,277
8,035
(53)
91,939
42,926
34,014

1.77
1.76
33,610
3.50
0.25

88,837
8,056
(65)
94,669
22,777
18,806

0.98
0.98
22,176
3.50
0.22

$
$

AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

20. Capital Management

The Company’s Board of Directors initiated a share repurchase program in February 2010. In October 2016, the Board
reauthorized this program with a limit of $25.0 million with no expiration date. There were no shares repurchased under this program
in 2019. Since the beginning of this plan, the Company has repurchased a total of 1,258,250 shares for $22.4 million, or an average
price of $17.78, including commissions.

In 2013, the Company’s Board of Directors initiated a regular quarterly dividend. During 2019, the Company’s Board of

Directors declared a quarterly dividend of $0.25 per share compared to $0.22 per share in 2018, $0.20 per share in 2017, $0.18 per
share in 2016, and $0.15 per share in 2015. The Company declared extraordinary dividends totaling $3.50 per share in 2019, 2018
and 2017, $3.25 per share in 2016, and $3.00 per share in 2015.

21.

Subsequent Events

On February 18, 2020 the Company declared a regular quarterly cash dividend of $0.27 per share payable on March 27, 2020 to

shareholders of record as of March 13, 2020. The Board considers the payment of a regular cash dividend each calendar quarter.

Schedule II. Condensed Financial Information of Registrant

AMERISAFE, INC.
CONDENSED BALANCE SHEETS

Assets:
Investments:

Fixed maturity securities—available-for-sale, at fair value

(amortized cost $7,210 and $0, in 2019 and 2018, respectively)

Equity securities, at fair value (cost $10,007 in 2019 and 2018)
Short-term investments
Investment in subsidiaries

Total investments
Cash and cash equivalents
Deferred income taxes
Notes receivable from subsidiaries
Property and equipment, net
Federal income tax recoverable
Other assets

Total assets

Liabilities and shareholders’ equity
Liabilities:

Accounts payable and other liabilities
Deferred income taxes

Total liabilities

Shareholders' equity (net of Treasury stock of $22,370 at December 31, 2019 and 2018)
Total liabilities and shareholders' equity

December 31,

2019

2018

(in thousands)

7,216
11,779
17,967
379,001
415,963
10,551
—
2,781
1,720
2,798
804
434,617

4,230
172
4,402
430,215
434,617

—
9,803
—
388,797
398,600
5,509
509
3,270
1,536
2,995
800
413,219

3,457
—
3,457
409,762
413,219

Schedule II. Condensed Financial Information of Registrant – (Continued)

AMERISAFE, INC.
CONDENSED STATEMENTS OF INCOME

Revenues
Net investment income
Net unrealized gains (losses) on equity securities
Fee and other income
Total revenues
Expenses
Other operating costs
Total expenses
Income (loss) before income taxes and equity in earnings of subsidiaries
Income tax expense (benefit)
Gain (loss) before equity in earnings of subsidiaries
Equity in net income of subsidiaries
Net income

2019

Year Ended December 31,
2018
(in thousands)

2017

915
1,977
5,352
8,244

8,244
8,244
—
376
(376)
93,066
92,690

1,089
(948)
7,389
7,530

7,530
7,530
—
(36)
36
71,596
71,632

679
—
6,890
7,569

7,569
7,569
—
125
(125)
46,356
46,231

Schedule II. Condensed Financial Information of Registrant – (Continued)

AMERISAFE, INC.
CONDENSED STATEMENTS OF CASH FLOWS

Operating activities
Net cash provided by operating activities
Investing activities
Purchases of investments
Proceeds from sales of investments
Purchases of property and equipment
Dividends from subsidiary
Net cash provided by investing activities
Financing activities
Proceeds from stock option exercises
Finance lease purchases
Dividends to shareholders
Net cash used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

2019

Year Ended December 31,
2018
(in thousands)

2017

2,333

2,448

15,138

(27,140)
1,987
(995)
115,900
89,752

20
(47)
(87,016)
(87,043)
5,042
5,509
10,551

(47,825)
54,600
(1,041)
65,400
71,134

67
—
(84,491)
(84,424)
(10,842)
16,351
5,509

(37,361)
33,000
(277)
78,900
74,262

—
—
(82,645)
(82,645)
6,755
9,596
16,351

Schedule VI. Supplemental Information Concerning Property—Casualty Insurance Operations

AMERISAFE, INC. AND SUBSIDIARIES

Deferred
Policy
Acquisition
Costs

Reserves
for Unpaid
Loss and Loss
Adjustment
Expense

Unearned
Premium

Net
Premiums
Earned

Net
Investment
Income

Loss and
LAE
Related to
Current
Period

Loss and
LAE
Related to
Prior
Periods

Amortization
of Deferred
Policy
Acquisition
Costs

Paid Claims
and Claim
Adjustment
Expenses

Net
Premiums
Written

2019
2018
2017

19,048 $
19,734
20,251

772,887 $140,873 $ 332,888 $
798,409
771,845

350,326
346,156

149,296
157,270

(in thousands)
32,483 $ 241,344 $ (65,002) $
30,452
29,281

(45,596)
(34,770)

250,487
244,094

(44,558) $ 189,991 $ 324,465
342,352
200,654
(45,769)
341,398
186,888
(43,009)

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial

Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report to provide reasonable assurance that information we are required to disclose
in reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms specified by the SEC. We note that the design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated
goals under all potential future conditions.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in

Rule 13a-15(f) under the Securities and Exchange Act of 1934. Our internal control over financial reporting is a process designed
under the supervision of our Chief Executive Officer and our Chief Financial Officer, and effected by our Board of Directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
the financial statements for external purposes in accordance with generally accepted accounting principles.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019.

In making this assessment, management used the criteria described in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on management’s assessment under
the framework in Internal Control—Integrated Framework, our management has concluded that our internal control over financial
reporting was effective as of December 31, 2019.

Our independent registered public accounting firm, Ernst & Young LLP, has audited the effectiveness of internal controls over

financial reporting, as stated in their report included herein.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting during the fourth quarter of the period covered
by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Controls

Because of its inherent limitations, management does not expect that our disclosure controls and procedures and our internal

controls over financial reporting will prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance
with policies and procedures may deteriorate. Any control system, no matter how well designed and operated, is based upon certain
assumptions and can only provide reasonable, not absolute assurance that its objectives will be met. Further, no evaluation of controls
can provide absolute assurance that misstatements due to errors or fraud will not occur or that all control issues and instances of fraud,
if any within the Company, have been detected.

To the Shareholders and the Board of Directors of AMERISAFE, Inc. and subsidiaries

Report of Independent Registered Public Accounting Firm

Opinion on Internal Control over Financial Reporting

We have audited AMERISAFE, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2019, based

on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, AMERISAFE, Inc. and subsidiaries (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO
criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)

(PCAOB), the 2019 consolidated financial statements of the Company and our report dated February 25, 2020 expressed an
unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the

audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the

reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

New Orleans, Louisiana
February 25, 2020

Item 9B.

Other Information.

None.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

The information required by Item 10 with respect to our executive officers is included in Part I of this report.

The information required by Item 10 with respect to our directors is incorporated by reference to the information included under

the caption “Election of Directors” in our Proxy Statement for the 2020 Annual Meeting of Shareholders. We plan to file our Proxy
Statement within 120 days after December 31, 2019, the end of our fiscal year.

The information required by Item 10 with respect to our audit committee and our audit committee financial expert is
incorporated by reference to the information included under the caption “The Board, Its Committees and Its Compensation—Audit
Committee” in our Proxy Statement for the 2020 Annual Meeting of Shareholders.

The information required by Item 10 with respect to our code of business conduct and ethics for executive and financial officers

and directors is posted on our website at www.amerisafe.com in the Investor Relations section under “Corporate Governance—
Governance Documents—Code of Business Conduct and Ethics.” We will post information regarding any amendment to, or waiver
from, our code of business conduct and ethics on our website in the Investor Relations section under Corporate Governance.

Item 11.

Executive Compensation.

The information required by Item 11 is incorporated by reference to the information included under the captions “Executive
Compensation,” “The Board, Its Committees, and Its Compensation—Director Compensation,” “Compensation Committee Interlocks
and Insider Participation,” “Compensation Discussion and Analysis” and “Compensation Committee Report” in our Proxy Statement
for the 2020 Annual Meeting of Shareholders.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by Item 12 is incorporated by reference to the information included under the captions “Security
Ownership of Management and Certain Beneficial Holders” and “Equity Compensation Plan Information” in our Proxy Statement for
the 2020 Annual Meeting of Shareholders.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information required by Item 13 with respect to certain relationships and related transactions is incorporated by reference to
the information included under the caption “Executive Compensation—Certain Relationships and Related Transactions” in our Proxy
Statement for the 2020 Annual Meeting of Shareholders.

The information required by Item 13 with respect to director independence is incorporated by reference to the information

included under the caption “The Board, Its Committees and Its Compensation—Director Independence” in our Proxy Statement for
the 2020 Annual Meeting of Shareholders.

Item 14.

Principal Accountant Fees and Services.

The information required by Item 14 with respect to the fees and services of Ernst & Young LLP, our independent registered

public accounting firm, and the audit committee’s pre-approved policies and procedures, are incorporated by reference to the
information included under the caption “Independent Public Accountants” in our Proxy Statement for the 2020 Annual Meeting of
Shareholders.

PART IV

Item 15.

Exhibits and Financial Statement Schedules.

The following consolidated financial statements and schedules are filed in Item 8 of Part II of this report:

Financial Statements:
Report of Independent Registered Public Accounting Firm ...........................................................................................................
Consolidated Balance Sheets ..........................................................................................................................................................
Consolidated Statements of Income................................................................................................................................................
Consolidated Statements of Comprehensive Income......................................................................................................................
Consolidated Statements of Changes in Shareholders’ Equity .......................................................................................................
Consolidated Statements of Cash Flows .........................................................................................................................................
Notes to Consolidated Financial Statements...................................................................................................................................

Page

54
56
57
58
59
60
61

93
96

(Schedules I, III, IV and V are not applicable and have been omitted.)

100

EXHIBIT INDEX

Exhibits:

3.1

3.2

4.1

10.1*

10.2*

10.3*

10.4*

10.5*

10.6*

10.7*

10.8*

10.9*

10.10*

10.11*

10.12*

10.13*

10.14

10.15

10.16

Amended and Restated Certificate of Formation of AMERISAFE, Inc. (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q filed August 6, 2010)

Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K filed August 6, 2010)

Description of the Registrant’s Securities Registered

Amended and Restated Employment Agreement, dated March 4, 2015 by and between the Company and G. Janelle Frost
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 5, 2015)

Employment Agreement, dated January 15, 2013 by and between the Company and Vincent J. Gagliano (incorporated by
reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K filed March 6, 2013)

Employment Agreement effective as of September 15, 2015 by and between the Company and Neal Fuller (incorporated
by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 31, 2015)

Employment Agreement effective as of March 1, 2016 by and between the Company and Kathryn H. Shirley
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed April 29, 2016)

Employment Agreement effective as of May 20, 2019 by and between the Company and Andrew McCray (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed August 3, 2019)

AMERISAFE, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1, Amendment No. 3 (File No. 333-127133), filed October 31, 2005)

Form of Non-Qualified Stock Option Award Agreement for the AMERISAFE, Inc. 2005 Equity Incentive Plan
(incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, Amendment No. 3 (File
No. 333-127133), filed October 31, 2005)

AMERISAFE, Inc. 2012 Equity and Incentive Compensation Plan (incorporated by reference to Annex A to the
Company's Proxy Statement on Schedule 14A filed April 28, 2017)

Form of 2012 Equity and Incentive Compensation Plan Long-Term Incentive Award Agreement (incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K filed February 27, 2015)

AMERISAFE, Inc. 2018 Non-Employee Director Restricted Stock Plan (incorporated by reference to Appendix A to the
Company’s Proxy Statement on Schedule 14A filed April 27, 2018)

Form of 2012 Equity and Incentive Compensation Plan Restricted Stock Award Agreement (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K filed February 28, 2014)

Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed August 6, 2010)

Form of Annual Incentive Compensation Agreement (incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K filed February 26, 2016)

Second Casualty Excess of Loss Reinsurance Agreement, effective as of January 1, 2012 issued to the Company by the
reinsurers named therein (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K filed
March 9, 2012)

Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2014, issued to the Company by the reinsurers
named therein (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K filed
February 27, 2015)

Casualty Catastrophe Excess of Loss Reinsurance Contract, effective as of January 1, 2016, issued to the Company by the
reinsurers named therein (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K filed
February 26, 2016)

101

Exhibits:

10.17

10.18

10.19

10.20

10.21

10.22

21.1

23.1

24.1

31.1

31.2

32.1

Casualty Catastrophe Excess of Loss Reinsurance Contract effective as of January 1, 2017, issued to the Company by the
reinsurers named therein (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K filed
February 24, 2017)

Casualty Excess of Loss Reinsurance Contract effective as of January 1, 2017, issued to the Company by the reinsurers
named therein (incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K filed February
24, 2017)

Casualty Catastrophe Excess of Loss Reinsurance Contract effective as of January 1, 2018, issued to the Company by the
reinsurers named herein (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K filed
February 28, 2018)

Casualty Catastrophe Excess of Loss Reinsurance Contract effective as of January 1, 2019, issued to the Company by the
reinsurers named herein (incorporated by reference to Exhibit 10.20 to the Company’s annual Report on Form 10-K filed
February 28, 2019)

Casualty Excess of Loss Reinsurance Contract effective as of January 1, 2020, issued to the Company by the reinsurers
named herein

Casualty Catastrophe Excess of Loss Reinsurance Contract effective as of January 1, 2020, issued to the Company by the
reinsurers named herein

Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K
filed February 26, 2016)

Consent of Ernst & Young LLP

Powers of Attorney for our directors and certain executive officers

Certification of G. Janelle Frost filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Neal A. Fuller filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of G. Janelle Frost and Neal A. Fuller filed pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are
embedded within the Inline XBRL document

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Management contract, compensatory plan or arrangement

Item 16.

Form 10-K Summary.

Not applicable.

102

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this

report to be signed on its behalf by the undersigned, thereunto duly authorized on February 25, 2020.

SIGNATURES

AMERISAFE, INC.

By:

/s/ G. Janelle Frost
G. Janelle Frost
President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons

on behalf of the Registrant and in the capacities indicated on February 25, 2020.

/s/ G. Janelle Frost
G. Janelle Frost

/s/ Neal A. Fuller
Neal A. Fuller

*
Jared A. Morris

*
Michael J. Brown

*
Teri G. Fontenot

*
Philip A. Garcia

*
Millard E. Morris

*
Randall Roach

President, Chief Executive Officer and Director
(Principal Executive Officer)

Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)

Chairman and Director

Director

Kathryn H. Shirley, by signing her name hereto, does hereby sign this Annual Report on Form 10-K on behalf of the above-

named directors of AMERISAFE, Inc. on this 25th day of February 2020, pursuant to powers of attorney executed on behalf of such
directors and contemporaneously filed with the Securities and Exchange Commission.

*By:

/s/ Kathryn H. Shirley
Kathryn H. Shirley, Attorney-in-Fact

103

SHAREHOLDER RETURN PERFORMANCE GRAPH

The following performance graph compares the cumulative total shareholder return on

AMERISAFE’s common stock with the S&P Small Cap 600 Index and the S&P Property & Casualty
Insurance Index, assuming an initial investment of $100 on December 31, 2014, and the reinvestment
of all dividends, if any.

AMERISAFE, Inc.

Total Return Performance

AMERISAFE, Inc.

S&P SmallCap 600 Index

S&P 600 Property & Casualty Insurance Index

250

200

150

100

e
u
a
V
x
e
d
n

50
12/31/14

12/31/15

12/31/16

12/31/17

12/31/18

12/31/19

Index

12/31/14

12/31/15

12/31/16

12/31/17

12/31/18

12/31/19

AMERISAFE, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 100.00 129.14 168.45 178.30 176.20 219.27
98.03 124.06 140.48 128.56 157.85
S&P SmallCap 600 Index . . . . . . . . . . . . . . . . . . 100.00
S&P 600 Property & Casualty Insurance

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.00 114.90 143.83 156.94 167.98 184.76

Period Ending

Executive Officers

G. Janelle Frost
President, Chief Executive
Officer and Director

Neal A. Fuller
Executive Vice President and
Chief Financial Officer

Vincent J. Gagliano
Executive Vice President and
Chief Risk Officer

Andrew B. McCray
Executive Vice President and
Chief Underwriting Officer

Kathryn H. Shirley
Executive Vice President,
Chief Administrative Officer and
Secretary

Securities Traded
NASDAQ Global Select Market
Symbol: AMSF

Corporate Headquarters
2301 Highway 190 West
DeRidder, LA 70634
(337) 463-9052
www.amerisafe.com

Independent Accountants
Ernst & Young LLP

Directors

Jared A. Morris (1)(2)(3)(4)

Michael J. Brown (1)(2)(4)

Teri G. Fontenot (1)(3)(4)

G. Janelle Frost (4)

Philip A. Garcia (1)(2)(4)

Millard E. Morris (4)

Randall E. Roach (2)(3)(4)

Sean M. Traynor (4)

(1) Audit Committee member
(2) Compensation Committee member
(3) Nominating and Corporate Governance

Committee member
(4) Risk Committee member

Annual Meeting
The Annual Meeting will be held on
June 5, 2020 at 9:00 a.m. at
AMERISAFE’s corporate headquarters.
A proxy statement will be sent to
shareholders on or about May 4, 2020.

Registrar and Transfer Agent
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
(800) 962-4284