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

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, 2021.

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, 2022 and 2021.
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."

Business 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
(including retail and wholesale brokers and agents), 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.

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, 2021.

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Results of Operations

The following table summarizes our consolidated financial results for the three
and nine months ended September 30, 2022 and 2021.

                                           Three Months Ended                 Nine Months Ended
                                              September 30,                     September 30,
                                        2022                2021             2022           2021
                                             (dollars in thousands, except per share data)
                                                              (unaudited)
Gross premiums written              $      68,212       $      67,185     $  220,463     $   222,423
Net premiums earned                        67,790              67,626        205,625         208,260
Net investment income                       6,983               6,049         19,581          19,362
Total revenues                             71,380              73,045        214,976         237,553
Total expenses                             57,929              48,324        172,980         160,036
Net income                                 11,361              19,136         34,824          62,215
Diluted earnings per common share   $        0.59       $        0.99     $     1.80     $      3.21
Other Key Measures
Net combined ratio (1)                       85.4 %              71.5 %         84.1 %          76.9 %
Return on average equity (2)                 12.0 %              16.1 %         12.0 %          18.1 %
Book value per share (3)            $       19.47       $       24.80     $    19.47     $     24.80



(1)
The net combined ratio is calculated by dividing the sum of loss and loss
adjustment expenses incurred, underwriting and certain other operating costs,
commissions, salaries and benefits, and policyholder dividends by net premiums
earned in the current period.

(2)

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 shareholders' equity by total
outstanding shares, as of the end of the period.

Consolidated Results of Operations for Three Months Ended September 30, 2022
Compared to September 30, 2021

Gross Premiums Written. Gross premiums written for the quarter ended September
30, 2022 were $68.2 million, compared to $67.2 million for the same period in
2021, an increase of 1.5%. The increase was attributable to a $5.5 million
increase in premiums resulting from payroll audits and related premium
adjustments for policies written in previous quarters. This increase was offset
by a $3.7 million decrease in annual premiums on voluntary policies written
during the period and a $0.7 million decrease in assumed premium from mandatory
pooling arrangements. The effective loss cost multiplier, or ELCM, for our
voluntary business was 1.53 and 1.53 for the quarter ended September 30, 2022
and 2021, respectively.

Net Premiums Written. Net premiums written for the quarter ended September 30,
2022 were $65.7 million, compared to $64.8 million for the same period in 2021,
an increase of 1.4%. The increase was primarily attributable to the increase in
gross premiums written. As a percentage of gross premiums earned, ceded premiums
were 3.6% for the third quarter of 2022 compared to 3.4% for the third quarter
of 2021. For additional information, see Item 1, "Business-Reinsurance" in our
Annual Report on Form 10-K for the year ended December 31, 2021.

Net Premiums Earned. Net premiums earned for the third quarter of 2022 were
$67.8 million, compared to $67.6 million for the same period in 2021, an
increase of 0.2%. The increase was primarily attributable to the increase in net
premiums written during the period.

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Net Investment Income. Net investment income for the quarter ended September 30,
2022 was $7.0 million, compared to $6.0 million for the same period in 2021, an
increase of 15.4%. The increase was due to higher investment yields on fixed
income securities and cash balances compared to prior year. Average invested
assets, including cash and cash equivalents, were $1.0 billion in the quarter
ended September 30, 2022 compared to an average of $1.2 billion for the same
period in 2021, a decrease of 9.9%. The pre-tax investment yield on our
investment portfolio was 2.7% per annum during the quarter ended September 30,
2022 compared to 2.1% per annum during the same period in 2021. The
tax-equivalent yield on our investment portfolio was 3.2% per annum for the
quarter ended September 30, 2022 and 2.5% for the same period in 2021. The
tax-equivalent yield is calculated using the effective interest rate and the
appropriate marginal tax rate. Due to the increase in interest rates, the market
value of our bond portfolio decreased during the quarter.

Net Realized Gains (Losses) on Investments. Net realized gains on investments
for the three months ended September 30, 2022 were $0.6 million compared to
immaterial net realized losses for the same period in 2021. Net realized gains
in the third quarter of 2022 were mostly attributable to the sale of equity
securities.

Net Unrealized Gains (Losses) on Equity Securities. Due to declines in the
equity markets, the market value of our equity securities decreased by $4.1
million for the three months ended September 30, 2022 compared to a decline of
$0.8 million for the same period in 2021.

Loss and Loss Adjustment Expenses Incurred. Loss and loss adjustment expenses
(LAE) incurred totaled $37.7 million for the three months ended September 30,
2022, compared to $29.7 million for the same period in 2021, an increase of $8.1
million, or 27.2%. The current accident year loss and LAE incurred were $48.1
million compared to $48.7 million for the same period in 2021. Our loss and LAE
ratio for accident year 2022 is estimated at 71.0% of net premiums earned, down
from 72.0% initially set for accident year 2021, and is based on long-term claim
frequency and severity trends, as well as medical inflation. We recorded
favorable prior accident year development of $10.4 million in the third quarter
of 2022, compared to favorable prior accident year development of $19.0 million
in the same period of 2021, as further discussed below in "Prior Year
Development." Our net loss ratio was 55.6% in the third quarter of 2022,
compared to 43.9% for the same period of 2021.

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, 2022 were $19.6
million, compared to $17.9 million for the same period in 2021. This increase
was primarily due to a contingent profit sharing commission benefit of $1.0
million in last year's third quarter, a $0.5 million increase in compensation
expense, and a $0.3 million increase in commission expense. Offsetting these
amounts were a decrease of $0.3 million in mandatory pooling arrangement fees
and a decrease of $0.3 million in accounts receivable write-offs mostly on
assumed premium from mandatory pooling arrangements. Our expense ratio was 28.9%
in the third quarter of 2022 compared to 26.5% in the third quarter of 2021.

Income Tax Expense. Income tax expense for the three months ended September 30,
2022 was $2.1 million, compared to $5.6 million for the same period in 2021. The
effective tax rate for the Company was 15.5% in the quarter ended September 30,
2022 and 22.6% for the same period in 2021. The decrease in the effective tax
rate was due to a higher proportion of income from tax-exempt investments
compared to the same period of 2021.

Consolidated Results of Operations for Nine Months Ended September 30, 2022
Compared to September 30, 2021

Gross Premiums Written. Gross premiums written for the nine months ended
September 30, 2022 were $220.5 million, compared to $222.4 million for the same
period in 2021, a decrease of 0.9%. The decrease was attributable to a $13.6
million decrease in annual premiums on voluntary policies written during the
period and a $1.6 million decrease in assumed premium from mandatory pooling
arrangements. These decreases were partially offset by a $12.9 million increase
in premiums resulting from payroll audits and related premium adjustments for
policies written in previous quarters. The ELCM for our voluntary business was
1.52 and 1.53 for the nine months ended September 30, 2022 and 2021,
respectively.

Net Premiums Written. Net premiums written for the nine months ended September
30, 2022 were $212.6 million, compared to $215.0 million for the same period in
2021, a decrease of 1.1%. 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 the first nine months of 2022 compared to 3.4% in
the same period of 2021. The increase in ceded premiums as a percentage of gross
premiums earned is a result of a change in our 2022 reinsurance treaties. For
additional information, see Item 1, "Business-Reinsurance" in our Annual Report
on Form 10-K for the year ended December 31, 2021.

Net Premiums Earned. Net premiums earned for the nine months ended September 30,
2022 were $205.6 million, compared to $208.3 million for the same period in
2021, a decrease of 1.3%. The decrease was primarily attributable to the
decrease in net premiums written during the period.

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Net Investment Income. Net investment income for the first nine months of 2022
was $19.6 million, compared to $19.4 million for the same period in 2021, an
increase of 1.1%. The increase was due to slightly higher investment yields on
fixed income securities and cash balances. Average invested assets, including
cash and cash equivalents were $1.1 billion in the nine months ended September
30, 2022 compared to an average of $1.2 billion in the same period in 2021, a
decrease of 8.6%. The pre-tax investment yield on our investment portfolio was
2.5% per annum during the nine months ended September 30, 2022 compared to 2.2%
per annum for the same period in 2021. The tax-equivalent yield on our
investment portfolio was 3.2% per annum for the first nine months of 2022
compared to 2.5% in the same period in 2021. The tax-equivalent yield is
calculated using the effective interest rate and the appropriate marginal tax
rate. Due to the rise in interest rates, the market value of our bond portfolio
decreased during the nine months ended September 30, 2022.

Net Realized Gains (Losses) on Investments. Net realized gains on investments
for the nine months ended September 30, 2022 were $2.4 million compared to net
realized gains of $1.5 million for the same period in 2021. Net realized gains
in the first nine months of 2022 were attributable to sales of equity and fixed
maturity securities classified as available-for-sale. Net realized gains in the
first nine months of 2021 were attributable to sales of fixed maturity
securities classified as available-for-sale.

Net Unrealized Gains (Losses) on Equity Securities. Due to declines in the
equity markets, the value of our equity securities declined by $13.0 million for
the nine months ended September 30, 2022 compared to an increase of $8.0 million
for the same period in 2021.

Loss and Loss Adjustment Expenses Incurred. Loss and LAE incurred totaled $115.8
million for the nine months ended September 30, 2022, compared to $101.6 million
for the same period in 2021, an increase of $14.2 million, or 14.0%. The current
accident year loss and LAE incurred were $146.0 million compared to $149.9
million for the same period in 2021. Our loss and LAE ratio for accident year
2022 is estimated at 71.0% of net premiums earned, down from 72.0% initially set
for accident year 2021, and is based on long-term claim frequency and severity
trends, as well as medical inflation. We recorded favorable prior accident year
development of $30.2 million in the first nine months of 2022, compared to
favorable prior accident year development of $48.3 million in the same period of
2021, as further discussed below in "Prior Year Development." Our net loss ratio
was 56.3% in the first nine months of 2022, compared to 48.8% for the same
period of 2021.

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, 2022 were $54.6
million, compared to $55.3 million for the same period in 2021, a decrease of
1.3%. This decrease was primarily due to a decrease in insurance related
assessments of $2.4 million and a $1.0 million decrease in accounts receivable
write-offs. The decrease in insurance related assessments included a benefit of
$3.8 million in 2022 due to a return of assessments from the Minnesota Workers'
Compensation Reinsurance Association. Partially offsetting these amounts were a
$0.9 million decrease in a contingent profit sharing commission benefit in 2021,
a $0.6 million increase in professional fees, a $0.4 million increase in systems
costs, and a $0.3 million increase in travel and travel related items. Our
expense ratio was 26.6% in the first nine months of 2022 and 2021.

Income Tax Expense. Income tax expense for the nine months ended September 30,
2022 was $7.2 million, compared to $15.3 million for the same period in 2021.
The effective tax rate for the Company decreased to 17.1% for the nine months
ended September 30, 2022 from 19.7% for the nine months ended September 30,
2021. The decrease in the effective tax rate is due to a higher proportion of
income from tax-exempt investments for the nine months ended September 30, 2022
compared with the nine months ended September 30, 2021.

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 $36.1 million for the nine months
ended September 30, 2022, which represented a $6.6 million increase from $29.4
million in net cash provided by operating activities for the nine months ended
September 30, 2021. This increase in operating cash flow was due to a a $8.8
million decrease in underwriting expenses paid, a $6.3 million decrease in
federal taxes paid, and a $4.8 million decrease in losses paid. Offsetting these
amounts were a $6.9 million decrease in premium collections, a $4.1 million
decrease in reinsurance recoveries, and a $2.3 million decrease in investment
income.

Net cash provided by investing activities was $14.4 million for the nine months
ended September 30, 2022, compared to net cash provided by investment activities
of $48.9 million for the same period in 2021. Cash provided by sales and
maturities of investments totaled $209.6 million for the nine months ended
September 30, 2022, compared to $225.5 million for the same period in 2021. A
total of $193.3 million in cash was used to purchase investments in the nine
months ended September 30, 2022, compared to $175.8 million in purchases for the
same period in 2021.

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Net cash used in financing activities in the nine months ended September 30,
2022 was $30.2 million compared to net cash used in financing activities of
$17.0 million for the same period in 2021. In the nine months ended September
30, 2022, $18.0 million of cash was used for dividends paid to shareholders
compared to $16.9 million in the same period of 2021. In the nine months ended
September 30, 2022, repurchases of outstanding shares of our common stock
totaled $12.2 million, compared to none for the same period in 2021.

Investment Portfolio

Our investment portfolio, including cash and cash equivalents, totaled $1.0
billion at September 30, 2022 and December 31, 2021. 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 cash and cash
equivalents, as of September 30, 2022, is shown in the following table:

                                                           Carrying        Percentage of
                                                            Amount           Portfolio
                                                                  (in thousands)
Fixed maturity securities-held-to-maturity:
States and political subdivisions                        $    434,894                42.4 %
Corporate bonds                                                62,182                 6.1 %
U.S. agency-based mortgage-backed securities                    3,812                 0.4 %
U.S. Treasury securities and obligations of
  U.S. government agencies                                     13,647                 1.3 %
Asset-backed securities                                            75                   -
Total fixed maturity securities-held-to-maturity              514,610                50.2 %
Fixed maturity securities-available-for-sale:
States and political subdivisions                             166,161                16.2 %
Corporate bonds                                               140,048                13.6 %
U.S. agency-based mortgage-backed securities                    5,579                 0.5 %
U.S. Treasury securities and obligations of
  U.S. government agencies                                     14,103                 1.4 %
Total fixed maturity securities-available-for-sale            325,891                31.7 %
Equity securities                                              57,375                 5.6 %
Short-term investments                                         36,927                 3.6 %
Cash and cash equivalents                                      90,952                 8.9 %
Total investments, including cash and cash equivalents   $  1,025,755               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 adjustments to the estimated expected credit related losses are
recognized through earnings and adjustments to the credit loss allowance.

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Prior Year Development

The Company recorded favorable prior accident year development of $10.4 million
in the three months ended September 30, 2022. The table below sets forth the
favorable development for the three and nine months ended September 30, 2022 and
2021 for accident years 2017 through 2021 and, collectively, for all accident
years prior to 2017.


                          Three Months Ended          Nine Months Ended
                             September 30,              September 30,
                          2022           2021         2022           2021
                                          (in millions)
Accident Year
2021                    $       -       $     -     $       -       $    -
2020                          1.4             -           3.5            -
2019                          2.6           6.3           8.8         10.8
2018                          3.5           3.6           7.7         12.1
2017                          1.2           0.8           3.4          7.7
Prior to 2017                 1.7           8.3           6.8         17.7
Total net development   $    10.4       $  19.0     $    30.2       $ 48.3




The table below sets forth the number of open claims as of September 30, 2022
and 2021, and the number of claims reported and closed during the three and nine
months then ended.

                                       Three Months Ended          Nine Months Ended
                                          September 30,              September 30,
                                        2022          2021         2022          2021

Open claims at beginning of period 4,435 4,573 4,594

      4,758
Claims reported                           1,156        1,142         3,150        3,269
Claims closed                            (1,112 )     (1,141 )      (3,265 )     (3,453 )
Open claims at end of period              4,479        4,574         4,479        4,574




The number of open claims at September 30, 2022 decreased by 95 claims as
compared to the number of open claims at September 30, 2021. At September 30,
2022, our incurred amounts for certain accident years, particularly 2017 through
2020, 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, 2022, 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, 2021.

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