AMERISAFE INC – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations.

The financial and business analysis below provides information which the Company
believes is relevant to an assessment and understanding of its consolidated
financial position, results of operations and cash flows. 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 2023
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, 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, 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 15.5% in 2022, 15.7% in 2021 and 19.9% in 2020. We
calculate book value per share by dividing ending shareholders' equity by the
number of common shares outstanding. Our book value per share was $16.57 at
December 31, 2022, $20.62 at December 31, 2021 and $22.70 at December 31, 2020.
We paid cash dividends of $5.24 per share in 2022, $5.16 per share in 2021 and
$4.58 per share in 2020.

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,
2022, our investment portfolio, including cash and cash equivalents, was $950.5
million and produced net investment income of $27.2 million in 2022, $25.4
million in 2021 and $29.4 million in 2020.

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 2023 includes
24 reinsurers that provide coverage to us in excess of a certain specified loss
amount, or retention level. Our 2023 reinsurance program provides us with
reinsurance coverage for each loss occurrence up to $100.0 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 $20.0 million, 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. 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

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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, 2022 we had recorded 81
severe claims, or an average of 16 severe claims per year for accident years
2018 through 2022. The number of severe claims in any one accident year in this
five-year period ranged from a low of 13 in 2022 and 2018 to a high of 20 in
2021. The average reported case severity for these claims ranged from $1.96
million for the 2022 accident year to $3.6 million for the 2021 accident year.
For the five accident years, the case incurred for these severe claims accounted
for an average of 14.5 percentage points of our overall loss and loss adjustment
expense (LAE) ratio measured at December 31, 2022.

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, 2022,
2021 and 2020 were $696.0 million, $745.3 million and $760.6 million,
respectively. As a percentage of gross reserves at year end, IBNR represented
17.1% in 2022, 16.1% in 2021 and 16.8% in 2020.

In 2022, we decreased our estimates for prior year loss reserves by $40.6
million. In 2021, we decreased our estimates for prior year loss reserves by
$61.9 million. In 2020, we decreased our estimates for prior year loss reserves
by $63.5 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.

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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, 2022 for an employer
with constant payroll during the term of the policy, we would earn half of the
premiums in 2022 and the other half in 2023. 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. 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.

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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.

Critical Accounting Policies and Estimates

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, credit losses on 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 (DCC) and adjusting and other (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 (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 37 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.

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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 net of an
allowance for credit losses 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 an
allowance for credit losses 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.

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Credit Losses on Investment Securities. Investment securities are recorded on
the balance sheet as assets net of an allowance for credit losses. For
held-to-maturity fixed income securities, the allowance is based on historical
default and recovery rates as published by Moody's analytics for corporate
bonds, municipal bonds, and other types of fixed income securities. For
available-for-sale fixed income securities, a credit allowance is established if
the expected discounted future cash flows no longer exceed the book value of the
security. In determining the amount of the credit loss to establish, the Company
considers the following factors:

•

The extent to which the fair value is less than the amortized cost basis

•

Adverse conditions in the security, industry, or geography, including:

•

Changes in technology

•

Discontinuation of a segment of business that may affect future earnings

•

Changes in the quality of the credit enhancement, if any

•

Changes in the payment structure of debt security

•

Failure of the issuer to make scheduled interest or principal payments

•

Any changes to the rating of the security by a rating agency

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.

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Results of Operations

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

                                                         Year Ended December 31,
                                                   2022            2021            2020
                                                              (in thousands)
Income Statement Data
Gross premiums written                          $  276,110      $  278,294      $  303,090
Ceded premiums written                             (10,527 )       (10,469 )       (10,276 )
Net premiums written                            $  265,583      $  267,825      $  292,814
Net premiums earned                             $  271,698      $  275,993      $  304,427
Net investment income                               27,223          25,435          29,364
Net realized gains on investments                    3,440           1,695  

1,132

Net unrealized gains (losses) on equity
securities                                          (8,092 )        12,315           4,204
Fee and other income                                   468             496             350
Total revenues                                     294,737         315,934         339,477

Loss and loss adjustment expenses incurred 152,316 160,798

157,226

Underwriting and certain other operating
costs (1)                                           24,039          24,813          20,834
Commissions                                         21,483          21,284          23,147
Salaries and benefits                               26,510          25,954          27,925
Policyholder dividends                               2,699           3,715           3,453
Provision for investment related credit loss
expense (benefit)                                       44             (79 )           (27 )
Total expenses                                     227,091         236,485         232,558
Income before taxes                                 67,646          79,449         106,919
Income tax expense                                  12,044          13,693          20,317
Net income                                      $   55,602      $   65,756      $   86,602
Selected Insurance Ratios
Current accident year loss ratio (2)                  71.0 %          80.7 %          72.5 %
Prior accident year loss ratio (3)                   (14.9 )%        (22.4 )%        (20.9 )%
Net loss ratio                                        56.1 %          58.3 %          51.6 %
Net underwriting expense ratio (4)                    26.5 %          26.1 %          23.6 %
Net dividend ratio (5)                                 1.0 %           1.3 %           1.1 %
Net combined ratio (6)                                83.6 %          85.7 %          76.3 %



                                                             As of December 31,
                                                    2022            2021            2020
                                                               (in thousands)
Balance Sheet Data
Cash and cash equivalents                        $    61,469     $    70,722     $    61,757
Investments                                          888,987       1,012,571       1,088,744
Amounts recoverable from reinsurers                  125,677         120,561         105,803
Premiums receivable, net                             121,713         135,100         156,760
Deferred income taxes                                 22,794          14,384          13,665
Deferred policy acquisition costs                     17,401          17,059          17,810
Total assets                                       1,269,279       1,402,724       1,470,855
Reserves for loss and loss adjustment expenses       696,037         745,278         760,561
Unearned premiums                                    114,976         121,092         129,260
Insurance-related assessments                         17,653          16,850          17,995
Shareholders' equity                                 317,432         399,323         438,816



(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.

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(2)

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.
(3)
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.
(4)
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.
(5)
The net dividend ratio is calculated by dividing policyholder dividends by the
current year's net premiums earned.
(6)
The net combined ratio is the sum of the net loss ratio, the net underwriting
expense ratio and the net dividend ratio.

Overview of Operating Results

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Gross Premiums Written. Gross premiums written for 2022 were $276.1 million,
compared to $278.3 million for 2021, a decrease of 0.8%. The decrease was
attributable to a $16.0 million decrease in annual premiums on voluntary
policies written during the period primarily driven by continued declines in
state approved loss costs. Assumed premium from mandatory pooling arrangements
decreased $1.7 million. The decreases were partially offset by a $15.2 million
increase in premiums resulting from payroll audits and related premium
adjustments for policies written in previous quarters.

Net Premiums Written. Net premiums written for 2022 were $265.6 million,
compared to $267.8 million for 2021, a decrease of 0.8%. The decrease was
primarily attributable to the decrease in gross premiums written. As a
percentage of gross premiums earned, ceded premiums were 3.7% for 2022 and 2021,
respectively. For additional information, see Item 1, "Business-Reinsurance."

Net Premiums Earned. Net premiums earned for 2022 were $271.7 million, compared
to $276.0 million for 2021, a decrease of 1.6%. The decrease was attributable to
the decrease in net premiums written during the period.

Net Investment Income. Net investment income in 2022 was $27.2 million, an
increase of 7.0% from the $25.4 million reported in 2021. The increase was due
to higher interest rates on cash and fixed income securities in 2022 compared
with 2021. The average pre-tax investment yield on our investment portfolio was
2.7% per annum for 2022 versus 2.3% per annum for 2021. The year-end
tax-equivalent yield on our investment portfolio was 3.4% per annum for 2022,
compared to 2.7% per annum for 2021. 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, decreased 8.7%, from an
average of $1,151.8 million for 2021 to an average of $1,051.2 million for 2022.

Net Realized Gains (Losses) on Investments. Net realized gains on investments in
2022 totaled $3.4 million, compared to gains of $1.7 million in 2021. In 2022,
net realized gains resulted primarily from the sale of equity securities. In
2021, net realized gains of $1.7 million resulted from the sale of fixed
maturity securities classified as available-for-sale.

Net Unrealized Gains (Losses) on Equity Securities. Net unrealized losses on
equity securities in 2022 were $8.1 million compared to net unrealized gains of
$12.3 million in 2021 due to declines in the equity markets.

Loss and Loss Adjustment Expenses Incurred. Loss and LAE incurred totaled $152.3
million for 2022, compared to $160.8 million for 2021, a decrease of $8.5
million, or 5.3%. The current accident year losses and LAE incurred were $192.9
million, or 71.0% of net premiums earned, compared to $222.7 million, or 80.7%
of net premiums earned for 2021. We recorded favorable prior accident year
development of $40.6 million in 2022, compared to $61.9 million in 2021. This is
discussed in more detail below in "Prior Year Development." Our net loss ratio
was 56.1% for 2022 and 58.3% for 2021.

Underwriting and Certain Other Operating Costs, Commissions and Salaries and
Benefits. Underwriting and certain other operating costs, commissions and
salaries and benefits for 2022 were $72.0 million, compared to $72.1 million for
2021. The Company experienced a $1.7 million decrease in insurance related
assessments and a $1.4 million decrease in accounts receivable write-offs mostly
on assumed premium from mandatory pooling arrangements. The decrease in
insurance related assessments included a benefit of $3.8 million in 2022 due to
the return of assessments from the Minnesota Workers' Compensation Reinsurance
Association. Offsetting these amounts were a $0.9 million decrease in profit
sharing reinsurance commission, an increase of $0.6 million in systems cost, and
an increase of $0.6 million in compensation expense. Our underwriting expense
ratio increased to 26.5% in 2022 from 26.1% in 2021.

Income Tax Expense. Income tax expense for 2022 was $12.0 million, compared to
$13.7 million for 2021. The effective tax rate also increased to 17.8% for 2022,
compared to 17.2% for 2021. The increase in the effective tax rate is due to a
lower proportion of tax-exempt income to underwriting income in 2022 relative to
2021.

                                       46
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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Gross Premiums Written. Gross premiums written for 2021 were $278.3 million,
compared to $303.1 million for 2020, a decrease of 8.2%. The decrease was
attributable to a $18.0 million decrease in annual premiums on voluntary
policies written during the period primarily driven by continued declines in
state approved loss costs. Premiums resulting from payroll audits and related
premium adjustments for policies written in previous periods decreased by $7.7
million. The decreases were offset by a $0.8 million increase in assumed premium
from mandatory pooling arrangements. Payroll audits completed this year included
periods of activity impacted by COVID-19. Related premium adjustments in 2021
include a $1.6 million increase in "earned but unbilled," or EBUB, premium.

Net Premiums Written. Net premiums written for 2021 were $267.8 million,
compared to $292.8 million for 2020, a decrease of 8.5%. The decrease was
primarily attributable to the decrease in gross premiums written. As a
percentage of gross premiums earned, ceded premiums were 3.7% for 2021 compared
to 3.3% for 2020. The increase in ceded premiums as a percentage of gross
premiums earned reflects additional ceded premium of $0.6 million resulting from
excess ceded losses. For additional information, see Item 1,
"Business-Reinsurance."

Net Premiums Earned. Net premiums earned for 2021 were $276.0 million, compared
to $304.4 million for 2020, a decrease of 9.3%. The decrease was attributable to
the decrease in net premiums written during the period.

Net Investment Income. Net investment income in 2021 was $25.4 million, a
decrease of 13.4% from the $29.4 million reported in 2020. The decrease was due
to lower interest rates on fixed income securities in 2021 compared with 2020.
The pre-tax investment yield on our investment portfolio was 2.3% per annum for
2021 versus 2.5% per annum for 2020. The tax-equivalent yield on our investment
portfolio was 2.7% per annum for 2021, compared to 2.9% per annum for 2020. 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, decreased 3.3%, from an average of $1,191.7 million for 2020 to an
average of $1,151.8 million for 2021.

Net Realized Gains (Losses) on Investments. Net realized gains on investments in
2021 totaled $1.7 million, compared to $1.1 million in 2020. In 2021, net
realized gains of $1.7 million resulted from the sale of fixed maturity
securities classified as available-for-sale. In 2020, net realized gains of $1.0
million resulted from the sale of fixed maturity securities classified as
available-for-sale and $0.1 million from redemptions of fixed maturity
securities.

Net Unrealized Gains (Losses) on Equity Securities. Net unrealized gains on
equity securities in 2021 were $12.3 million compared to net unrealized gains of
$4.2 million in 2020 due to strong appreciation of our common stock investments
in 2021.

Loss and Loss Adjustment Expenses Incurred. Loss and LAE incurred totaled $160.8
million for 2021, compared to $157.2 million for 2020, an increase of $3.6
million, or 2.3%. The current accident year losses and LAE incurred were $222.7
million, or 80.7% of net premiums earned, compared to $220.7 million, or 72.5%
of net premiums earned for 2020. We recorded favorable prior accident year
development of $61.9 million in 2021, compared to $63.5 million in 2020. Our net
loss ratio was 58.3% for 2021 and 51.6% for 2020. The increase in the 2021
accident year loss and loss adjustment expenses incurred and net loss ratios
resulted from a catastrophic claim reported in the year.

Underwriting and Certain Other Operating Costs, Commissions and Salaries and
Benefits. Underwriting and certain other operating costs, commissions and
salaries and benefits for 2021 were $72.1 million, compared to $71.9 million for
2020, an increase of $0.1 million, or 0.2%. This increase was primarily due to a
$2.7 million increase in insurance related assessments, a $1.7 million increase
in accounts receivable write-offs mostly on assumed premium from mandatory
pooling arrangements, and a $0.7 million increase in professional fees. 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. The increases above were partially
offset by a decrease of $2.0 million in compensation expense, a decrease of $1.9
million in commission expense, an increase of $1.0 million in profit sharing
reinsurance commission, and a decrease of 0.7 million in premium taxes. Our
underwriting expense ratio increased to 26.1% in 2021 from 23.6% in 2020.

Income Tax Expense. Income tax expense for 2021 was $13.7 million, compared to
$20.3 million for 2020. The effective tax rate also decreased to 17.2% for 2021,
compared to 19.0% for 2020. This decrease in the effective tax rate is due to a
higher proportion of tax-exempt income to underwriting income in 2021 relative
to 2020 and a reduction in a valuation allowance on deferred state tax assets.

                                       47
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Prior Year Development

The Company recorded favorable prior accident year loss and loss adjustment
expense development of $40.6 million in calendar year 2022, $61.9 million in
calendar year 2021 and $63.5 million in calendar year 2020. The table below sets
forth the favorable development for accident years 2017 through 2021 and,
collectively, all accident years prior to 2017.

                             Favorable/(Unfavorable) Development for Year
                                          Ended December 31,
                             2022                   2021                2020
                                            (in millions)
2021                    $            -         $            -         $      -
2020                               6.2                      -                -
2019                              13.1                   14.1                -
2018                               8.9                   18.3             14.8
2017                               3.6                    8.1             14.5
Prior to 2017                      8.8                   21.4             34.2
Total net development   $         40.6         $         61.9         $   63.5



The table below sets forth the number of open claims as of December 31, 2022,
2021 and 2020, and the numbers of claims reported and closed during the years
then ended.

                                          Twelve Months Ended December 31,
                                        2022              2021           2020
Open claims at beginning of period         4,594             4,758        5,053
Claims reported                            4,104             4,310        4,452
Claims closed                             (4,423 )          (4,474 )     (4,747 )
Open claims at end of period               4,275             4,594        4,758



At December 31, 2022, our incurred amounts for certain accident years,
particularly 2017 through 2020, 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: (1) lower than expected severity
of injuries in 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.

The assumptions we used in establishing our reserves for these accident years
were based on our historical claims data. However, as of December 31, 2022,
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, shareholder dividends and repurchases 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

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were $194.8 million in 2022, $189.6 million in 2021 and $179.9 million in 2020.
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, 2022 was $950.5 million.

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 2023 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.

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, 2022, the
present value of these annuities was $99.7 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 48 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.

Net cash provided by operating activities was $28.2 million in 2022, as compared
to $38.0 million in 2021, and $63.4 million in 2020. Major components of cash
provided by operating activities in 2022 were net premiums collected of $278.9
million and investment income collected of $33.6 million. These amounts were
offset in-part by claim payments of $206.3 million, $64.6 million of operating
expenditures, federal taxes paid of $7.8 million, and dividends to policyholders
paid of $3.4 million.

Major components of cash provided by operating activities in 2021 were net
premiums collected of $290.2 million and investment income collected of $35.5
million. These amounts were offset in-part by claim payments of $189.6 million,
$74.2 million of operating expenditures, federal taxes paid of $18.2 million,
and dividends to policyholders paid of $3.9 million.

Major components of cash provided by operating activities in 2020 were net
premiums collected of $294.4 million, investment income collected of $38.0
million, and a $7.9 million decrease in amounts held by others. These amounts
were offset in-part by claim payments of $179.1 million, $69.4 million of
operating expenditures, federal taxes paid of $20.6 million, and dividends to
policyholders paid of $4.9 million.

Net cash provided by investing activities was $75.4 million in 2022, as compared
to net cash provided by investing activities of $71.0 million in 2021 and net
cash provided by investing activities of $43.4 million in 2020. In 2022, major
components of net cash provided by investing activities included proceeds from
sales and maturities of investments of $293.0 million, offset by investment
purchases of $215.5 million.

In 2021, major components of net cash provided by investing activities included
proceeds from sales and maturities of investments of $343.4 million, offset by
investment purchases of $271.2 million.

In 2020, major components of net cash provided by investing activities included
proceeds from sales and maturities of investments of $365.2 million, offset by
investment purchases of $320.9 million.

Net cash used in financing activities was $112.9 million in 2022, as compared to
$100.0 million in 2021 and $88.8 million in 2020. Major components of cash used
in financing activities in 2022 included cash used for dividends paid to
shareholders of $100.4 million and purchases of treasury stock of $12.4 million.

Major components of cash used in financing activities in 2021 and 2020 included
cash used for dividends paid to shareholders of $99.9 million and $88.8 million,
respectively.

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In December 2022, the Company renewed 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 one-month term
SOFR rate and are unsecured. At December 31, 2022, there were no outstanding
borrowings. Unless renewed, the agreement will expire in December 2023.

The Board of Directors initially authorized the Company's 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. As of December 31, 2022,
we had repurchased a total of 1,522,699 shares of our outstanding common stock
for $34.8 million. The Company had $12.6 million available for future purchases
at December 31, 2022 under this program. There were 264,449 shares repurchased
in 2022. There were no share repurchases in 2021 or 2020. 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 $56.0 million in 2023 without seeking regulatory approval.
See "Business-Regulation-Dividend Limitations" in Item 1 of this report.

The Company paid regular quarterly cash dividends of $0.31, $0.29, $0.27 per
share in 2022, 2021 and 2020, respectively. In addition, the Company paid
extraordinary cash dividends of $4.00 per share in both 2022 and 2021 and $3.50
per share in 2020.

On February 17, 2023, the Company declared a regular quarterly cash dividend of
$0.34 per share payable on March 24, 2023 to shareholders of record as of March
10, 2023. 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 $1.36 per share in 2023.

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 a maturity
date, at the time of purchase, of 90 days or less. 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 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,
2022, 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, 2022, our investment portfolio, including cash and cash
equivalents, totaled $950.5 million, a decrease of 12.3% from December 31, 2021.
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 book value of those securities is equal to
their amortized cost net of allowance for credit losses and does not fluctuate
based on changing interest rates. The remainder of our fixed maturity securities
are classified as available-for-sale and reported at fair market value, less an
allowance for credit losses, if any. Investments in equity securities are
reported at fair market 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

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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 2021 or 2022.

The composition of our investment portfolio, including cash and cash
equivalents, as of December 31, 2022 is shown in the following table.

                                                   Carrying          Percentage          Effective
                                                    Value           of Portfolio        Interest Rate
                                                (in thousands)
Fixed maturity securities-held-to-maturity:
State and political subdivisions               $        415,096              43.7 %                2.8 %
Corporate bonds                                          59,707               6.2 %                2.7 %
U.S. agency-based mortgage-backed securities              3,696               0.4 %                4.2 %
U.S. Treasury securities and obligations of
U.S. Government agencies                                 13,123               1.4 %                2.0 %
Asset-backed securities                                      66               0.0 %                5.0 %
Total fixed maturity
securities-held-to-maturity                             491,688              51.7 %                2.8 %
Fixed maturity
securities-available-for-sale:
State and political subdivisions                        156,656              16.5 %                3.0 %
Corporate bonds                                         144,788              15.2 %                4.0 %
U.S. agency-based mortgage-backed securities              5,446               0.6 %                2.7 %
U.S. Treasury securities and obligations of
U.S. Government agencies                                 14,231               1.5 %                1.7 %
Total fixed maturity
securities-available-for-sale                           321,121              33.8 %                3.4 %
Equity securities                                        62,058               6.5 %                2.6 %
Short-term investments                                   14,120               1.5 %                4.2 %
Cash and cash equivalents                                61,469               6.5 %                4.1 %
Total Investments, including cash and cash
equivalents                                    $        950,456             100.0 %                3.1 %




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.

                                       Less Than Twelve Months             Twelve Months or Longer
                                       Fair            Unrealized          Fair            Unrealized
                                      Value              Losses           Value              Losses
                                                              (in thousands)
December 31, 2022:
Fixed maturity
securities-available-for-sale      $    196,433       $    (10,625 )   $     63,424       $      (7,849 )
December 31, 2021:
Fixed maturity
securities-available-for-sale            67,825               (657 )              -                   -

The pre-tax investment yield on our investment portfolio was 2.7% and 2.3% per
annum during the twelve months ended December 31, 2022 and 2021, respectively.