Quarterly Report for Quarter Ending SEPTEMBER 30, 2026 (Form 10-Q)

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 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2025. This discussion includes forward-looking statements that are not guarantees of future performance and are not necessarily indicative of future operating results. See "Cautionary Statement Regarding Forward-Looking Statements" in Part I above for further discussion.

The terms "AMERISAFE," the "Company," "we," "us" or "our" refer to AMERISAFE, Inc. and its consolidated subsidiaries, as the context requires.

Business Overview

We are 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, services, manufacturing, and maritime. Employers engaged in hazardous industries typically pay substantially higher than average rates for workers' compensation insurance compared to employers in other industries, as measured per payroll dollar. These higher premium rates are due to the nature of the work performed and the inherent workplace danger of our target policyholders. 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 most employers' workplaces. These safety reviews are a vital component of our underwriting process and are aimed at promoting safer workplaces. We utilize proactive claims management practices that we believe permit us to effectively manage the overall cost of our claims. In addition, our premium audit services calculate the appropriate premiums for our policyholders 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, safety, claims, and audit services, provide us with the opportunity to earn attractive returns on equity.

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, Amerisafe General Agency, Inc. We are also licensed in an additional 20 states, the District of Columbia, and the U.S. Virgin Islands.

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. 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, 2025. We have not changed any of these policies from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.

Results of Operations

The following table summarizes our consolidated financial results for the three and nine months ended September 30, 2026 and 2025.

Consolidated Results of Operations for Three Months Ended September 30, 2026 Compared to September 30, 2025

Gross Premiums Written. Gross premiums written for the quarter ended September 30, 2026 were $76.7 million, compared to $80.3 million for the same period in 2025, a decrease of 4.5%. The decrease was attributable to a $4.1 million decrease in premiums resulting from payroll audits and related premium adjustments for policies written in previous quarters, partially offset by a $0.6 million increase in voluntary premiums on policies written during the period.

Net Premiums Written. Net premiums written for the quarter ended September 30, 2026 were $72.7 million, compared to $76.0 million for the same period in 2025, a decrease of 4.3%. The decrease was primarily attributable to the decrease in gross premiums written. As a percentage of gross premiums earned, ceded premiums were 5.1% for the third quarter of 2026 compared to 5.7% for the third quarter of 2025. The decrease in ceded premiums as a percentage of gross premiums earned is a result of a change in our 2026 reinsurance treaties. For additional information, see Item 1, "Business-Reinsurance" in our Annual Report on Form 10-K for the year ended December 31, 2025.

Net Premiums Earned. Net premiums earned for the third quarter of 2026 were $73.3 million, compared to $71.2 million for the same period in 2025, an increase of 3.0%. The increase was primarily attributable to the increase in premiums earned on policies written in previous quarters.

Net Investment Income. Net investment income for the quarter ended September 30, 2026 and 2025 was $6.6 million. Average invested assets, including cash and cash equivalents, were $766.1 million in the quarter ended September 30, 2026 compared to average invested assets of $811.2 million for the same period in 2025, a decrease of 5.6%. The pre-tax investment yield on our investment portfolio was 3.5% per annum during the quarter ended September 30, 2026 compared to 3.2% per annum for the same period in 2025. The tax-equivalent yield on our investment portfolio was 4.0% per annum for the quarter ended September 30, 2026 compared to 3.9% per annum for the same period in 2025. The tax-equivalent yield is calculated using the effective interest rate and the appropriate marginal tax rate.

Net Realized Gains (Losses) on Investments. Net realized losses on investments in the quarter ended September 30, 2026 were $0.1 million compared to immaterial net realized gains for the same period in 2025. The net realized losses in the third quarter of 2026 were mostly attributable to the redemption of fixed maturity securities.

Net Unrealized Gains (Losses) on Equity Securities. The market value of our equity securities decreased by $0.2 million for the three months ended September 30, 2026 compared to an increase of $4.1 million for the same period in 2025.

Loss and Loss Adjustment Expenses Incurred. Loss and loss adjustment expenses (LAE) incurred totaled $45.9 million for the three months ended September 30, 2026, compared to $41.7 million for the same period in 2025, an increase of $4.2 million, or 10.2%. The current accident year loss and LAE incurred totaled $52.8 million for the three months ended September 30, 2026, compared to $50.6 million for the same period in 2025. As of September 30, 2026, our estimate for loss and LAE for accident year 2026 continues to be 72.0% of net premiums earned, reflective of pressure from continued rate decreases and long-term claim frequency and severity trends, as well as medical inflation. Our initial estimate for loss and LAE for accident year 2025 of 71.0% of net premiums earned was increased to 72.0% in the fourth quarter of 2025 largely due to the frequency of severity observed in that accident year. For the third quarter of 2026, we are maintaining our 72.0% loss and LAE ratio estimate for accident year 2025. We recorded favorable prior accident year development of $6.9 million in the third quarter of 2026, compared to favorable prior accident year development of $8.9 million in the same period of 2025, as further discussed below in "Prior Year Development." Our net loss ratio was 62.6% in the third quarter of 2026, compared to 58.5% for the same period of 2025.

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, 2026 were $23.8 million, compared to $22.1 million for the same period in 2025, an increase of 7.9%. This increase was primarily due to a $0.7 million increase in compensation expense, a $0.5 million increase in insurance related assessments and a $0.3 million increase in commission expense. Our expense ratio was 32.5% in the third quarter of 2026 compared to 31.1% in the third quarter of 2025.

Income Tax Expense. Income tax expense for the three months ended September 30, 2026 was $1.8 million, compared to $3.7 million for the same period in 2025. The effective tax rate for the Company for the quarter ended September 30, 2026 was 20.0% compared to 21.0% in the third quarter of 2025. The decrease in the effective tax rate was due to a higher proportion of income from tax-exempt investments.

Consolidated Results of Operations for Nine Months Ended September 30, 2026 Compared to September 30, 2025

Gross Premiums Written. Gross premiums written for the nine months ended September 30, 2026 were $251.1 million, compared to $243.8 million for the same period in 2025, an increase of 3.0%. The increase was attributable to an $11.3 million increase in voluntary premiums on policies written during the period, partially offset by a $2.8 million decrease in premiums resulting from payroll audits and related premium adjustments for policies written in previous quarters and a $1.1 million decrease in residual market premium.

Net Premiums Written. Net premiums written for the nine months ended September 30, 2026 were $238.9 million, compared to $231.1 million for the same period in 2025, an increase of 3.4%. The increase was primarily attributable to an increase in gross premiums written. As a percentage of gross premiums earned, ceded premiums were 5.1% for the first nine months of 2026, compared to 5.7% in the same period of 2025. The decrease in ceded premiums as a percentage of gross premiums earned is a result of a change in our 2026 reinsurance treaties. For additional information, see Item 1, "Business-Reinsurance" in our Annual Report on Form 10-K for the year ended December 31, 2025.

Net Premiums Earned. Net premiums earned for the nine months ended September 30, 2026 were $225.7 million, compared to $209.5 million for the same period in 2025, an increase of 7.7%. The increase was primarily attributable to the increase in net premiums written.

Net Investment Income. Net investment income for the first nine months of 2026 was $19.7 million, compared to $19.9 million for the same period in 2025, a decrease of 0.9%. The decrease was due to lower average invested asset balances in the period compared to the same period in the prior year. The decrease in average invested assets was primarily attributable to capital returned to shareholders through dividend payments and share repurchases, which reduced cash and invested asset balances during the period. Average invested assets, including cash and cash equivalents, were $777.3 million in the nine months ended September 30, 2026, compared to average invested assets of $820.6 million in the same period in 2025, a decrease of 5.3%. The pre-tax investment yield on our investment portfolio was 3.4% per annum during the nine months ended September 30, 2026, compared to 3.2% per annum during the same period in 2025. The tax-equivalent yield on our investment portfolio was 4.0% per annum for the first nine months of 2026 compared to 3.9% per annum for the same period in 2025. The tax-equivalent yield is calculated using the effective interest rate and the appropriate marginal tax rate.

Net Realized Gains (Losses) on Investments. Net realized losses on investments for the nine months ended September 30, 2026 were $0.1 million compared to net realized gains of $3.1 million for the same period in 2025. The net realized losses in the first nine months of 2026 were mostly attributable to the redemption of fixed maturity securities. The net realized gains in the first nine months of 2025 were mostly attributable to the sales 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 $6.3 million for the nine months ended September 30, 2026 compared to an increase of $2.8 million for the same period in 2025.

Loss and Loss Adjustment Expenses Incurred. Loss and LAE incurred totaled $140.7 million for the nine months ended September 30, 2026, compared to $122.5 million for the same period in 2025, an increase of $18.2 million, or 14.9%. The current accident year loss and LAE incurred totaled $162.5 million for the nine months ended September 30, 2026, compared to $148.7 million for the same period in 2025. As of September 30, 2026, our estimate for loss and LAE for accident year 2026 continues to be 72.0% of net premiums earned, reflective of pressure from continued rate decreases and long-term claim frequency and severity trends, as well as medical inflation. Our initial estimate for loss and LAE for accident year 2025 of 71.0% of net premiums earned was increased to 72.0% in the fourth quarter of 2025 largely due to the frequency of severity observed in that accident year. For the nine months ended September 30, 2026, we are maintaining our 72.0% loss and LAE ratio estimate for accident year 2025. We recorded favorable prior accident year development of $21.8 million in the first nine months of 2026, compared to favorable prior accident year development of $26.2 million in the same period of 2025, as further discussed below in "Prior Year Development." Our net loss ratio was 62.3% in the first nine months of 2026, compared to 58.5% for the same period of 2025.

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, 2026 were $70.7 million, compared to $64.5 million for the same period in 2025, an increase of 9.7%. This increase was primarily due to an increase in commission expense of $1.7 million, an increase in compensation expense of $1.6 million related to an incentive bonus true-up recorded in prior year, an increase in accounts receivable write-offs of $0.7 million, a $0.7 million decrease in profit sharing reinsurance commission, a $0.5 million increase in insurance related assessments and a $0.3 million increase in systems costs. Our expense ratio was 31.3% in the first nine months of 2026 compared to 30.8% for the same period of 2025.

Income Tax Expense. Income tax expense for the nine months ended September 30, 2026 was $7.5 million, compared to $9.4 million for the same period in 2025. The effective tax rate for the Company decreased to 20.0% for the nine months ended September 30, 2026 from 20.4% for the nine months ended September 30, 2025. The decrease in the effective tax rate reflected the impact of tax exempt investment income on the calculation of the Company's income tax provision for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025.

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 $1.9 million for the nine months ended September 30, 2026, which represented a $1.5 million increase from $0.4 million in net cash provided by operating activities for the nine months ended September 30, 2025. This increase in operating cash flow was due to a $14.0 million increase in premium collections, a $5.9 million decrease in federal taxes paid and a $1.6 million increase in reinsurance recoveries. Partially offsetting these impacts were a $13.6 million increase in losses paid, a $5.6 million increase in underwriting expenses paid, and a $0.5 million decrease in net investment income.

Net cash provided by investing activities was $9.5 million for the nine months ended September 30, 2026, compared to net cash provided by investment activities of $37.7 million for the same period in 2025. Cash provided by sales and maturities of investments totaled $95.5 million for the nine months ended September 30, 2026, compared to $79.7 million for the same period in 2025. A total of $86.0 million in cash was used to purchase investments in the nine months ended September 30, 2026, compared to $40.1 million in purchases for the same period in 2025. There were immaterial purchases of property and equipment in the nine months ended September 30, 2026, compared to $2.0 million for the same period in 2025.

Net cash used in financing activities in the nine months ended September 30, 2026 was $33.7 million, compared to net cash used in financing activities of $27.4 million for the same period in 2025. In the nine months ended September 30, 2026, $23.0 million of cash was used for dividends paid to shareholders compared to $22.4 million in the same period of 2025. In the nine months ended September 30, 2026, there were repurchases of outstanding shares of our common stock of $9.8 million compared to $4.1 million for the same period in 2025. Share-based compensation related payroll tax withholding was $0.8 million in the nine months ended September 30, 2026 and 2025.

Effective June 30, 2026, the Company entered into an agreement to commute its 2024 reinsurance treaty, which provided $10.0 million in coverage for each loss occurrence in excess of $10.0 million. As no losses were incurred subject to the treaty, the Company exercised its option to commute and receive the no claims bonus provided for under the reinsurance agreement. Pursuant to the commutation agreement, the Company received a cash settlement of $0.7 million. The Company previously recognized the amount due under the no claims bonus provision as a reinsurance recoverable.

Investment Portfolio

The carrying value of our investment portfolio, including cash and cash equivalents, totaled $753.3 million at September 30, 2026, compared to $796.8 million at December 31, 2025, a decrease of 5.5%. 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.

The composition of our investment portfolio, including cash and cash equivalents, as of September 30, 2026, is shown in the following table:

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 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.

We classify the majority of our debt fixed maturity securities as "held-to-maturity". We do not reflect any changes in non-credit related unrecognized gains and losses until realized. Upon the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), management is required to estimate expected credit related losses for these securities and recognize a credit loss allowance on the balance sheet with a corresponding adjustment to earnings. Subsequent adjustments to the estimated expected credit related losses are recognized through earnings within the category "provision for investment related credit loss benefit" and adjustments to the credit loss allowance. The remainder of our fixed maturity securities are classified as "available-for-sale". These investments are valued at fair value at the end of each period, with changes in fair value flowing through other comprehensive income. Equity securities are valued at fair value with changes in the fair value recognized in net income.

Prior Year Development

The Company recorded favorable prior accident year loss and LAE development of $6.9 million in the three months ended September 30, 2026. The table below sets forth the favorable development for the three and nine months ended September 30, 2026 and 2025 for accident years 2021 through 2025 and, collectively, for all accident years prior to 2021.

The table below sets forth the number of open claims as of September 30, 2026 and 2025, and the number of claims reported and closed during the three and nine months then ended.

The number of open claims at September 30, 2026 increased by 670 claims as compared to the number of open claims at September 30, 2025. The increase in the number of claims reported is directly correlated to the increase of our in-force policy count.

At September 30, 2026, our incurred amounts for certain accident years 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 Company's 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 for these accident years were based on our historical claims data. However, as of September 30, 2026, actual results for certain accident years have been better than our assumptions would have predicted. While we do not presently intend to modify our assumptions for establishing reserves in light of recent results, 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 LAE are inherently uncertain and our focus on providing workers' compensation insurance to employers engaged in hazardous industries generally results in us 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 LAE 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, 2025.