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, 2022.

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 months ended March 31, 2023 and 2022. 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, 2022.

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Results of Operations

The following table summarizes our consolidated financial results for the three
months ended March 31, 2023 and 2022.

                                                                Three Months Ended
                                                                    March 31,
                                                         2023                          2022
                                                  (dollars in thousands, except per share data)
                                                                   (unaudited)
Gross premiums written                         $                 82,487         $            77,791
Net premiums earned                                              69,181                      67,556
Net investment income                                             7,433                       6,113
Total revenues                                                   78,438                      75,560
Total expenses                                                   56,903                      54,138
Net income                                                       17,339                      17,331
Diluted earnings per common share              $                   0.90         $              0.89
Other Key Measures
Net combined ratio (1)                                             82.2 %                      80.1 %
Return on average equity (2)                                       21.3 %                      17.4 %
Book value per share (3)                       $                  17.38         $             20.46



(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 March 31, 2023
Compared to March 31, 2022

Gross Premiums Written. Gross premiums written for the quarter ended March 31,
2023 were $82.5 million, compared to $77.8 million for the same period in 2022,
an increase of 6.0%. The increase was attributable to a $6.1 million increase in
premiums resulting from payroll audits and related premium adjustments for
policies written in previous quarters. This increase was offset by a $0.8
million decrease in annual premiums on voluntary policies written during the
period. The effective loss cost multiplier, or ELCM, for our voluntary business
was 1.48 and 1.54 for the quarters ended March 31, 2023 and 2022, respectively.

Net Premiums Written. Net premiums written for the quarter ended March 31, 2023
were $78.3 million, compared to $75.2 million for the same period in 2022, an
increase of 4.1%. The increase was primarily attributable to the increase in
gross premiums written. As a percentage of gross premiums earned, ceded premiums
were 5.7% for the first quarter of 2023 compared to 3.6% for the first quarter
of 2022. Ceded premiums increased as we purchased higher levels of reinsurance
coverage at generally higher prices in 2023. For additional information, see
Item 1, "Business-Reinsurance" in our Annual Report on Form 10-K for the year
ended December 31, 2022.

Net Premiums Earned. Net premiums earned for the first quarter of 2023 were
$69.2 million, compared to $67.6 million for the same period in 2022, an
increase of 2.4%. The increase was primarily attributable to the increase in net
premiums written during the period.

Net Investment Income. Net investment income for the quarter ended March 31,
2023 was $7.4 million, compared to $6.1 million for the same period in 2022, an
increase of 21.6%. The increase was due to higher investment yields on fixed
income securities and cash balances compared to prior year. As a result of
increased market interest rates, new money yields on a tax-equivalent basis
averaged 5.39% in the quareter ended March 31, 2023 compared to 2.26% in the
quarter ended March 31, 2022. Average invested assets, including cash and cash
equivalents, were $960.7 million in the quarter ended March 31, 2023 compared to
an average of $1,076.4 million for the same period in 2022, a decrease of 10.7%.
The pre-tax investment yield on our investment portfolio was 3.1% per annum
during the quarter ended March 31, 2023 compared to 2.3% per annum during the
same period in 2022. The tax-equivalent yield on our investment portfolio was
3.5% per annum for the quarter ended March 31, 2023 and 2.7% for the same period
in 2022. The tax-equivalent yield is calculated using the effective interest
rate and the appropriate marginal tax rate.

Net Realized Gains (Losses) on Investments. Net realized gains on investments
for the three months ended March 31, 2023 were $0.3 million compared to $0.7
million net realized gains for the same period in 2022. Net realized gains in
the first quarter of 2023

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were mostly attributable to the sale of equity securities. Net realized gains in
the first quarter of 2022 were from the sale of equity and fixed maturity
securities classified as available-for-sale.

Net Unrealized Gains (Losses) on Equity Securities. The market value of our
equity securities increased by $1.4 million for the three months ended March 31,
2023 compared to an increase of $1.0 million for the same period in 2022.

Loss and Loss Adjustment Expenses Incurred. Loss and loss adjustment expenses
(LAE) incurred totaled $39.0 million for the three months ended March 31, 2023,
compared to $37.7 million for the same period in 2022, an increase of $1.3
million, or 3.4%. The current accident year loss and LAE incurred were $49.1
million compared to $48.0 million for the same period in 2022. Our loss and LAE
ratio for accident year 2023 is estimated at 71.0% of net premiums earned,
consistent with the estimate initially set for accident year 2022, and is based
on long-term claim frequency and severity trends, as well as medical inflation.
We recorded favorable prior accident year development of $10.1 million in the
first quarter of 2023, compared to favorable prior accident year development of
$10.2 million in the same period of 2022, as further discussed below in "Prior
Year Development." Our net loss ratio was 56.4% in the first quarter of 2023,
compared to 55.9% for the same period of 2022.

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 March 31, 2023 were $17.0 million,
compared to $15.1 million for the same period in 2022. This increase was
primarily due to an increase in insurance related assessments of $3.8 million, a
$0.6 million increase in commission expense and a $0.5 million increase in
professional fees. The increase in insurance related assessments was
attributable to a benefit of $3.8 million in 2022 due to a return of assessments
from the Minnesota Workers' Compensation Reinsurance Association. Offsetting
these amounts was an increase of $3.3 million in profit sharing reinsurance
commission. Our expense ratio was 24.5% in the first quarter of 2023 compared to
22.4% in the first quarter of 2022.

Income Tax Expense. Income tax expense for the three months ended March 31, 2023
was $4.2 million, compared to $4.1 million for the same period in 2022. The
effective tax rate for the Company was 19.5% in the quarter ended March 31, 2023
and 19.1% for the same period in 2022. The increase in the effective tax rate
was due to a lower proportion of tax-exempt income to underwriting income
compared to the same period of 2022.

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 $13.5 million for the three months
ended March 31, 2023, which represented a $6.3 million increase from $7.1
million in net cash provided by operating activities for the three months ended
March 31, 2022. This increase in operating cash flow was due to a $11.9 million
increase in reinsurance recoveries, a $1.0 million increase in net investment
income and a decrease in loss and loss adjustment expenses paid of $0.6 million.
Offsetting these amounts were a $6.8 million decrease in premium collections and
a $0.5 million increase in underwriting and other operating expenses paid.

Net cash used in investing activities was $27.2 million for the three months
ended March 31, 2023, compared to net cash used in investment activities of
$39.0 million for the same period in 2022. Cash provided by sales and maturities
of investments totaled $24.1 million for the three months ended March 31, 2023,
compared to $34.1 million for the same period in 2022. A total of $51.2 million
in cash was used to purchase investments in the three months ended March 31,
2023, compared to $72.8 million in purchases for the same period in 2022.

Net cash used in financing activities in the three months ended March 31, 2023
was $6.5 million compared to net cash used in financing activities of $8.1
million for the same period in 2022. In the three months ended March 31, 2023,
$6.5 million of cash was used for dividends paid to shareholders compared to
$6.0 million in the same period of 2022. In the three months ended March 31,
2023, there were no repurchases of outstanding shares of our common stock
compared to $2.1 million in repurchases for the same period in 2022.

Investment Portfolio

Our investment portfolio, including cash and cash equivalents, totaled $961.1
million at March 31, 2023, an increase of 1.1% from December 31, 2022. 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 are
reported at fair value.

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The composition of our investment portfolio, including cash and cash
equivalents, as of March 31, 2023, is shown in the following table:

                                                           Carrying        Percentage of
                                                            Amount           Portfolio
                                                                  (in thousands)
Fixed maturity securities-held-to-maturity:
States and political subdivisions                        $    411,998                42.9 %
Corporate bonds                                                53,350                 5.5 %
U.S. agency-based mortgage-backed securities                    3,606                 0.4 %
U.S. Treasury securities and obligations of
  U.S. government agencies                                     11,125                 1.2 %
Asset-backed securities                                            63                   -
Total fixed maturity securities-held-to-maturity              480,142                50.0 %
Fixed maturity securities-available-for-sale:
States and political subdivisions                             153,434                16.0 %
Corporate bonds                                               171,814                17.9 %
U.S. agency-based mortgage-backed securities                    5,335                 0.5 %
U.S. Treasury securities and obligations of
  U.S. government agencies                                     14,505                 1.5 %
Total fixed maturity securities-available-for-sale            345,088                35.9 %
Equity securities                                              63,357                 6.6 %
Short-term investments                                         31,269                 3.2 %
Cash and cash equivalents                                      41,210                 4.3 %
Total investments, including cash and cash equivalents   $    961,066               100.0 %




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

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

Prior Year Development

The Company recorded favorable prior accident year development of $10.1 million
in the three months ended March 31, 2023. The table below sets forth the
favorable development for the three months ended March 31, 2023 and 2022 for
accident years 2018 through 2022 and, collectively, for all accident years prior
to 2018.

                          Three Months Ended
                               March 31,
                          2023           2022
                             (in millions)
Accident Year
2022                    $       -       $     -
2021                            -             -
2020                          1.5             -
2019                          2.5           3.8
2018                          0.1           2.8
Prior to 2018                 6.0           3.6
Total net development   $    10.1       $  10.2




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The table below sets forth the number of open claims as of March 31, 2023 and
2022, and the number of claims reported and closed during the three months then
ended.
                                       Three Months Ended
                                            March 31,
                                       2023           2022
Open claims at beginning of period       4,275         4,594
Claims reported                            984           993
Claims closed                             (952 )      (1,178 )
Open claims at end of period             4,307         4,409




The number of open claims at March 31, 2023 decreased by 102 claims as compared
to the number of open claims at March 31, 2022. At March 31, 2023, our incurred
amounts for certain accident years, particularly 2013, 2016, 2019, and 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 March 31, 2023, 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, 2022.