AMERISAFE INC – 10-Q – Management report and analysis of the financial position and operating results.

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The following discussion should be read in conjunction with the accompanying
unaudited consolidated financial statements and the related notes included in
Item 1 of Part I of this Quarterly Report on Form 10-Q, together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our Annual Report on Form 10-K for the year ended
December 31, 2020.

We begin our discussion with an overview of our Company to give you an
understanding of our business and the markets we serve. We then discuss our
critical accounting policies. This is followed with a discussion of our results
of operations for the three and nine months ended September 30, 2021 and 2020.
This discussion includes an analysis of certain significant period-to-period
variances in our consolidated statements of operations. Our cash flows and
financial condition are discussed under the caption "Liquidity and Capital
Resources."

Company presentation

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, agriculture, manufacturing,
telecommunications, and maritime. 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
(including retail and wholesale brokers and agents), as well as through our
100% subsidiary of the insurance agency. We are also authorized in another
20 states, District of Colombia and the US Virgin Islands.

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 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, credit losses on investment
securities and share-based compensation. These critical accounting policies are
more fully described in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of our Annual Report on Form 10-K
for the year ended December 31, 2020.

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Results of operations

The following table summarizes our consolidated financial results for the
three and nine months completed September 30, 2021 and 2020.

                                      Three Months Ended September 30,            Nine Months Ended September 30,
                                         2021                  2020                 2021                   2020
                                                      (dollars in

thousands, except per share data)

                                                                       (unaudited)
Gross premiums written              $        67,185       $        72,648     $        222,423       $        240,008
Net premiums earned                          67,626                74,771              208,260                229,725
Net investment income                         6,049                 7,063               19,362                 22,136
Total revenues                               73,045                83,005              237,553                251,256
Total expenses                               48,324                54,336              160,036                179,955
Net income                                   19,136                23,353               62,215                 58,101

Diluted earnings per common share $ 0.99 $ 1.21

   $           3.21       $           3.00
Other Key Measures
Net combined ratio (1)                         71.5 %                72.8 %               76.9 %                 78.4 %
Return on average equity (2)                   16.1 %                19.8 %               18.1 %                 17.0 %
Book value per share (3)            $         24.80       $         24.93     $          24.80       $          24.93



(1) The net combined ratio is calculated by dividing the sum of losses and losses

adjustment costs incurred, underwriting and certain other operating costs,

commissions, salaries and benefits and net policyholder dividends

premiums earned during the current period.

(2) The return on average equity is calculated by dividing the annualized net income

by the average shareholders’ equity for the applicable period.

(3) Book value per share is calculated by dividing equity by the total

outstanding shares at the end of the period.

Consolidated operating results for the three months ended September 30, 2021
Compared to September 30, 2020

Gross Premiums Written. Gross premiums written for the quarter ended
September 30, 2021 were $67.2 million, compared to $72.6 million for the same
period in 2020, a decrease of 7.5%. The decrease was attributable to a $3.2
million decrease in annual premiums on voluntary policies written during the
period and a $3.2 million decrease in premiums resulting from payroll audits and
related premium adjustments for policies written in previous quarters. This
decrease was offset by a $1.0 million increase in assumed premium from mandatory
pooling arrangements. Payroll audits completed this quarter included periods of
activity impacted by COVID-19. The effective loss cost multiplier, or ELCM, for
our voluntary business was 1.53 for the quarter ended September 30, 2021
compared to 1.59 for the same period in 2020.

Net Premiums Written. Net premiums written for the quarter ended September 30,
2021 were $64.8 million, compared to $70.2 million for the same period in 2020,
a decrease of 7.7%. The decrease was primarily attributable to the decrease in
gross premiums written. As a percentage of gross premiums earned, ceded premiums
were 3.4% for the third quarter of 2021 compared to 3.2% for the third quarter
of 2020. For additional information, see Item 1, "Business-Reinsurance" in our
Annual Report on Form 10-K for the year ended December 31, 2020.

Net Premiums Earned. Net premiums earned for the third quarter of 2021 were
$67.6 million, compared to $74.8 million for the same period in 2020, a decrease
of 9.6%. The decrease was primarily attributable to the decrease in net premiums
written during the period.

Net Investment Income. Net investment income for the quarter ended September 30,
2021 was $6.0 million, compared to $7.1 million for the same period in 2020, a
decrease of 14.4%. The decrease was due to lower investment yields on fixed
income securities and cash balances. Average invested assets, including cash and
cash equivalents, were $1.2 billion in the quarter ended September 30, 2021 and
2020. The pre-tax investment yield on our investment portfolio was 2.1% per
annum during the quarter ended September 30, 2021 compared to 2.3% per annum
during the same period in 2020. The tax-equivalent yield on our investment
portfolio was 2.5% per annum for the quarter ended September 30, 2021 and 2.8%
for the same period in 2020. The tax-equivalent yield is calculated using the
effective interest rate and the appropriate marginal tax rate.

Net Realized Gains (Losses) on Investments. Net realized losses on investments
for the three months ended September 30, 2021 were immaterial compared to net
realized gains of $0.3 million for the same period in 2020. Net realized gains
in the third quarter of 2020 were attributable to the call of fixed maturity
securities.

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Net Unrealized Gains (Losses) on Equity Securities. Net unrealized losses on
equity securities for the three months ended September 30, 2021 were $0.8
million compared to net unrealized gains of $0.8 million for the same period in
2020.

Loss and Loss Adjustment Expenses Incurred. Loss and loss adjustment expenses
("LAE") incurred totaled $29.7 million for the three months ended September 30,
2021, compared to $39.8 million for the same period in 2020, a decrease of $10.1
million, or 25.5%. The current accident year loss and LAE incurred were $48.7
million compared to $54.2 million for the same period in 2020. Our loss and LAE
ratio for accident year 2021 is estimated at 72.0% of net premiums earned, down
from 72.5% for accident year 2020, and is based on long-term claim frequency and
severity trends, as well as medical inflation. We recorded favorable prior
accident year development of $19.0 million in the third quarter of 2021,
compared to favorable prior accident year development of $14.4 million in the
same period of 2020, as further discussed below in "Prior Year Development." Our
net loss ratio was 43.9% in the third quarter of 2021, compared to 53.2% for the
same period of 2020.

Underwriting and Certain Other Operating Costs, Commissions and Salaries and
Benefits. Underwriting and certain other operating costs, commissions and
salaries and benefits for the quarter ended September 30, 2021 were $17.9
million, compared to $13.9 million for the same period in 2020. This increase
was primarily due to an increase in insurance related assessments of $5.3
million and a $0.6 million increase in accounts receivable write-offs mostly on
assumed premium from mandatory pooling arrangements. The increase in insurance
related assessments included a benefit of $5.7 million in 2020 due to the early
termination of an assessment related to a state multiple injury fund. Offsetting
these amounts were an increase of $1.0 million in profit sharing reinsurance
commission, a $0.7 million decrease in compensation expense and a $0.4 million
decrease in commission expense. Our expense ratio was 26.5% in the third quarter
of 2021 compared to 18.6% in the third quarter of 2020.

Income Tax Expense. Income tax expense for the three months ended September 30,
2021 was $5.6 million, compared to $5.3 million for the same period in 2020. The
effective tax rate for the Company was 22.6% in the quarter ended September 30,
2021 and 18.5% for the same period in 2020. The increase in the effective tax
rate was due to a higher proportion of income from underwriting and taxable
investment income compared to the same period of 2020.

Consolidated operating results for the nine-month period ended September 30, 2021
Compared to September 30, 2020

Gross Premiums Written. Gross premiums written for the nine months ended
September 30, 2021 were $222.4 million, compared to $240.0 million for the same
period in 2020, a decrease of 7.3%. The decrease was attributable to a $12.5
million decrease in annual premiums on voluntary policies written during the
period and a $6.5 million decrease in premiums resulting from payroll audits and
related premium adjustments for policies written in previous quarters. Premium
resulting from payroll audits and related premium adjustments in the current
year included a $1.3 million increase in anticipated future audit premiums
compared to a reduction of $2.1 million in the prior year. While payroll audits
completed this year resulted in positive audit premiums, amounts were lower than
the same period of 2020. This year's payroll audits included periods of activity
impacted by COVID-19. The ELCM for our voluntary business was 1.53 for the nine
months ended September 30, 2021 compared to 1.58 for the same period in 2020.

Net Premiums Written. Net premiums written for the nine months ended
September 30, 2021 were $215.0 million, compared to $232.1 million for the same
period in 2020, a decrease of 7.4%. The decrease was primarily attributable to
the decrease in gross premiums written. As a percentage of gross premiums
earned, ceded premiums were 3.4% for the first nine months of 2021 compared to
3.3% in the same period of 2020. For additional information, see Item 1,
"Business-Reinsurance" in our Annual Report on Form 10-K for the year ended
December 31, 2020.

Net premiums earned. Net premiums earned for the nine months ended September 30
2021
were $ 208.3 million, compared to $ 229.7 million for the same period in
2020, a decrease of 9.3%. The decrease is mainly attributable to the
decrease in net premiums written during the period.

Net Investment Income. Net investment income for the first nine months of 2021
was $19.4 million, compared to $22.1 million for the same period in 2020, a
decrease of 12.5%. The decrease was due to lower investment yields on fixed
income securities and cash balances. Average invested assets, including cash and
cash equivalents were $1.2 billion in the nine months ended September 30, 2021
and 2020. The pre-tax investment yield on our investment portfolio was 2.2% per
annum during the nine months ended September 30, 2021 compared to 2.5% per annum
for the same period in 2020. The tax-equivalent yield on our investment
portfolio was 2.5% per annum for the first nine months of 2021 compared to 2.8%
in the same period in 2020. The tax-equivalent yield is calculated using the
effective interest rate and the appropriate marginal tax rate.

Net Realized Gains (Losses) on Investments. Net realized gains on investments
for the nine months ended September 30, 2021 and 2020 were $1.5 million. Net
realized gains in the first nine months of 2021 were attributable to sales of
fixed maturity securities classified as available-for-sale. Net realized gains
in the first nine months of 2020 were attributable to sales of fixed maturity
securities classified as available-for-sale and calls of fixed maturity
securities.

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Net unrealized gains (losses) on Equity securities. Net unrealized capital gains on
equity securities for the nine months ended September 30, 2021 were $ 8.0 million
compared to the net unrealized losses of $ 2.3 million for the same period in 2020.

Loss and Loss Adjustment Expenses Incurred. Loss and LAE incurred totaled
$101.6 million for the nine months ended September 30, 2021, compared to $121.0
million for the same period in 2020, a decrease of $19.4 million, or 16.0%. The
current accident year loss and LAE incurred were $149.9 million compared to
$166.6 million for the same period in 2020. Our loss and LAE ratio for accident
year 2021 is estimated at 72.0% of net premiums earned, down from 72.5% for
accident year 2020, and is based on long-term claim frequency and severity
trends, as well as medical inflation. We recorded favorable prior accident year
development of $48.3 million in the first nine months of 2021, compared to
favorable prior accident year development of $45.6 million in the same period of
2020, as further discussed below in "Prior Year Development." Our net loss ratio
was 48.8% in the first nine months of 2021, compared to 52.7% for the same
period of 2020.

Underwriting and Certain Other Operating Costs, Commissions and Salaries and
Benefits. Underwriting and certain other operating costs, commissions and
salaries and benefits for the nine months ended September 30, 2021 were $55.3
million, compared to $56.3 million for the same period in 2020, a decrease of
1.7%. This decrease was primarily due to a decrease in compensation expense of
$1.9 million, a $1.5 million decrease in commission expense, a $1.0 million
increase in profit sharing reinsurance commission and a $0.6 million decrease in
premium taxes. Partially offsetting these decreases were a $2.5 million increase
in insurance related assessments, a $0.9 million increase in accounts receivable
write-offs, a $0.3 million increase in management information systems licensing
and a $0.3 million increase in travel and travel related items. The increase in
insurance related assessments resulted from a benefit of $5.7 million recorded
in the prior year due to the early termination of an assessment related to a
state multiple injury fund. Our expense ratio was 26.6% in the first nine months
of 2021 compared to 24.5% for the same period in 2020.

Income Tax Expense. Income tax expense for the nine months ended September 30,
2021 was $15.3 million, compared to $13.2 million for the same period in 2020.
The increase was attributable to an increase in pre-tax income to $77.5 million
in the first nine months of 2021 from $71.3 million in the first nine months of
2020. The effective tax rate for the Company increased to 19.7% for the nine
months ended September 30, 2021 from 18.5% for the nine months ended
September 30, 2020. The increase in the effective tax rate is due to a higher
proportion of income from underwriting and taxable investment income for the
nine months ended September 30, 2021 compared with the nine months ended
September 30, 2020.

Liquidity and capital resources

Our principal sources of operating funds are premiums, investment income and
proceeds from sales and maturities of investments. Our primary uses of operating
funds include payments of claims and operating expenses. Currently, we pay
claims using cash flow from operations and invest the remaining funds.

Net cash provided by operating activities was $29.4 million for the nine months
ended September 30, 2021, which represented a $21.4 million decrease from $50.9
million in net cash provided by operating activities for the nine months ended
September 30, 2020. This decrease in operating cash flow was due to a $10.3
million increase in losses paid, $7.8 million increase in amounts held by
others, a $4.8 million increase in underwriting expenses paid, a $2.0 million
decrease in investment income, and a $1.3 million decrease in premium
collections. Offsetting these amounts were a $3.7 million increase in
reinsurance recoveries, a $0.8 million decrease in dividends paid to
policyholders, and a $0.6 million decrease in federal taxes paid.

Net cash provided by investing activities was $48.9 million for the nine months
ended September 30, 2021, compared to net cash provided by investment activities
of $9.4 million for the same period in 2020. Cash provided by sales and
maturities of investments totaled $225.5 million for the nine months ended
September 30, 2021, compared to $240.0 million for the same period in 2020. A
total of $175.8 million in cash was used to purchase investments in the nine
months ended September 30, 2021, compared to $230.0 million in purchases for the
same period in 2020.

Net cash used in financing activities during the nine months ended September 30
2021
was $ 17.0 million compared to the net cash used in the financing activities of
$ 15.9 million for the same period in 2020. During the nine months ended
September 30, 2021, $ 16.9 million of cash was used for dividends paid to
shareholders compared to $ 15.9 million in the same period of 2020.

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Investment portfolio

Our investment portfolio, including cash and cash equivalents, totaled $1.2
billion at September 30, 2021 and December 31, 2020. Purchases of fixed maturity
securities are classified as available-for-sale or held-to-maturity at the time
of purchase based on the individual security. The Company has the ability and
positive intent to hold certain investments until maturity. Therefore, fixed
maturity securities classified as held-to-maturity, as defined by FASB ASC Topic
320, Investments-Debt and Equity Securities, are recorded at amortized cost net
of allowance for credit losses. Our equity securities and fixed maturity
securities classified as available-for-sale were reported at fair value.

The composition of our investment portfolio, including liquidity and liquidity
equivalent, from September 30, 2021, is shown in the following table:

                                                           Carrying        Percentage of
                                                            Amount           Portfolio
                                                                  (in thousands)
Fixed maturity securities-held-to-maturity:
States and political subdivisions                        $    469,400                40.6 %
Corporate bonds                                                51,851                 4.5 %
U.S. agency-based mortgage-backed securities                    5,060                 0.4 %
U.S. Treasury securities and obligations of
  U.S. government agencies                                     14,801                 1.3 %
Asset-backed securities                                           112                   -
Total fixed maturity securities-held-to-maturity              541,224                46.8 %
Fixed maturity securities-available-for-sale:
States and political subdivisions                             224,259                19.4 %
Corporate bonds                                                82,737                 7.1 %
U.S. agency-based mortgage-backed securities                    9,715                 0.8 %
U.S. Treasury securities and obligations of
  U.S. government agencies                                     25,127                 2.2 %
Total fixed maturity securities-available-for-sale            341,838                29.5 %
Equity securities                                              56,351                 4.9 %
Short-term investments                                         94,774                 8.2 %
Cash and cash equivalents                                     123,128                10.6 %
Total investments, including cash and cash equivalents   $  1,157,315               100.0 %




Our debt securities classified as available-for-sale are "marked to market" as
of the end of each calendar quarter. As of that date, unrealized gains and
losses that are not credit related are recorded to Accumulated Other
Comprehensive Income (Loss). Any available-for-sale credit related losses would
be recognized as a credit loss allowance on the balance sheet with a
corresponding adjustment to earnings, limited by the amount that the fair value
is less than the amortized cost basis. Both the credit loss allowance and
adjustment to net income can be reversed if conditions change.

For our debt securities classified as held-to-maturity, non-credit related
unrecognized gains and losses are not recorded in the financial statements until
realized. Effective upon the adoption of ASU 2016-13, Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses, management is required
to estimate held-to-maturity expected credit related losses and recognize a
credit loss allowance on the balance sheet with a corresponding adjustment to
earnings. Any adjustment to the estimated expected credit related losses are
recognized through earnings and adjustment to the credit loss allowance.

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Before Development of the year

The Company recorded favorable prior accident year development of $19.0 million
in the three months ended September 30, 2021. The table below sets forth the
favorable development for the three and nine months ended September 30, 2021 and
2020 for accident years 2016 through 2020 and, collectively, for all accident
years prior to 2016.





                                  Three Months Ended September 30,             Nine Months Ended September 30,
                                    2021                    2020                2021                    2020
                                                                  (in millions)
Accident Year
2020                           $             -         $             -     $             -         $             -
2019                                       6.3                       -                10.8                       -
2018                                       3.6                     2.6                12.1                     8.5
2017                                       0.8                     4.8                 7.7                    10.5
2016                                       2.3                     0.9                 6.1                     6.8
Prior to 2016                              6.0                     6.1                11.6                    19.8
Total net development          $          19.0         $          14.4     $          48.3         $          45.6



The table below shows the number of open complaints September 30, 2021
and 2020, and the number of claims declared and closed during the
three and nine months then ended.


                                 Three Months Ended September 30,           

Nine months ended September 30,

                                    2021                  2020                2021                  2020
Open claims at beginning of
period                                   4,573                 4,621               4,758                 5,053
Claims reported                          1,142                 1,252               3,269                 3,358
Claims closed                           (1,141 )              (1,112 )            (3,453 )              (3,650 )
Open claims at end of period             4,574                 4,761               4,574                 4,761




The number of open claims at September 30, 2021 decreased by 187 claims as
compared to the number of open claims at September 30, 2020. At September 30,
2021, our incurred amounts for certain accident years, particularly 2015 through
2019, developed more favorably than management previously expected. 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 both favorable and unfavorable loss
development. The favorable loss development we experienced across accident years
was largely due to favorable case reserve development from closed claims and
claims where the worker had reached maximum medical improvement.

The assumptions we used in establishing our reserves were based on our
historical claims data. However, as of September 30, 2021, actual results for
certain 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. For additional information, see Item 1,
"Business-Loss Reserves" in our Annual Report on Form 10-K for the year ended
December 31, 2020.
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