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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

or

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number:

001-12251

AMERISAFE, INC.

(Exact Name of Registrant as Specified in Its Charter)

Texas |  | 75-2069407
(State of Incorporation) |  | (I.R.S. Employer Identification Number)
2301 Highway 190 West, DeRidder, Louisiana |  | 70634
(Address of Principal Executive Offices) |  | (Zip Code)

Registrant’s telephone number, including area code: (337) 463-9052

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common |  | AMSF |  | NASDAQ

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer |  | ☒ |  | Accelerated filer |  | ☐
Non-accelerated filer |  | ☐ |  | Smaller reporting company |  | ☐
|  |  |  | Emerging growth company |  | ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 26, 2020, there were 19,331,059 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.

T ABLE OF CONTENTS

|  |  | Page
|  |  | No.
FORWARD-LOOKING STATEMENTS | 3
PART I - FINANCIAL INFORMATION |
Item 1 |  | Financial Statements | 4
Item 2 |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24
Item 3 |  | Quantitative and Qualitative Disclosures About Market Risk | 30
Item 4 |  | Controls and Procedures | 30
PART II - OTHER INFORMATION |
Item 2 |  | Unregistered Sales of Equity Securities and Use of Proceeds | 31
Item 6 |  | Exhibits | 31

2

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and the insurance industry in general. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the following:

| • | the impact of epidemics, pandemics and public health outbreaks, including the ongoing COVID-19 pandemic, could adversely affect our business operations;

| • | the cyclical nature of the workers’ compensation insurance industry;

| • | increased competition on the basis of types of insurance offered, premium rates, coverage availability, payment terms, claims management, safety services, policy terms, overall financial strength, financial ratings and reputation;

| • | changes in relationships with independent agencies;

| • | general economic conditions, including recession, inflation, performance of financial markets, interest rates, unemployment rates and fluctuating asset values;

| • | developments in capital markets that adversely affect the performance of our investments;

| • | technology breaches or failures, including those resulting from a malicious cyber attack on the Company or its policyholders and medical providers;

| • | decreased level of business activity of our policyholders caused by decreased business activity generally, and in particular in the industries we target;

| • | greater frequency or severity of claims and loss activity than our underwriting, reserving or investment practices anticipate based on historical experience or industry data;

| • | adverse developments in economic, competitive, judicial or regulatory conditions within the workers’ compensation insurance industry;

| • | loss of the services of any of our senior management or other key employees;

| • | changes in regulations, laws, rates, rating factors, or taxes applicable to the Company, its policyholders or the agencies that sell its insurance;

| • | changes in current accounting standards or new accounting standards;

| • | changes in legal theories of liability under our insurance policies;

| • | changes in rating agency policies, practices or ratings;

| • | changes in the availability, cost or quality of reinsurance and the failure of our reinsurers to pay claims in a timely manner or at all;

| • | the effects of U.S. involvement in hostilities with other countries and large-scale acts of terrorism, or the threat of hostilities or terrorist acts; and

| • | other risks and uncertainties described from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”).

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements in this report, and under the caption “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019. Actual results may differ materially from the results expressed or implied in these statements if the underlying assumptions prove to be incorrect or as the results of risks, uncertainties and other factors including the impact of the COVID-19 pandemic on the business and operations of the Company and our policyholders and the market value of the securities in our investment portfolio.

3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

|  | September 30, 2020 |  |  | December 31, 2019 |
|  | (unaudited) |  |  |  |  |
Assets |  |  |  |  |  |  |  |
Investments: |  |  |  |  |  |  |  |
Fixed maturity securities—held-to-maturity, at amortized cost net of allowance for credit losses of $288 and $0 in 2020 and 2019, respectively, (fair value $607,339 and $621,343 in 2020 and 2019, respectively) |  | $ | 572,508 |  |  | $ | 599,421 |
Fixed maturity securities—available-for-sale, at fair value (amortized cost $401,063, allowance for credit losses of $0 in 2020 and amortized cost $425,698, allowance for credit losses of $0 in 2019) |  |  | 426,237 |  |  |  | 441,146 |
Equity securities, at fair value (cost $34,725 and $24,457 in 2020 and 2019, respectively) |  |  | 35,822 |  |  |  | 27,903 |
Short-term investments |  |  | 90,826 |  |  |  | 56,548 |
Total investments |  |  | 1,125,393 |  |  |  | 1,125,018 |
Cash and cash equivalents |  |  | 88,168 |  |  |  | 43,813 |
Amounts recoverable from reinsurers (net of allowance for credit losses of $379 and $0 in 2020 and 2019, respectively) |  |  | 97,955 |  |  |  | 95,913 |
Premiums receivable (net of allowance for credit losses of $5,264 and $5,112 in 2020 and 2019, respectively) |  |  | 171,128 |  |  |  | 157,953 |
Deferred income taxes |  |  | 17,014 |  |  |  | 17,513 |
Accrued interest receivable |  |  | 9,495 |  |  |  | 9,730 |
Property and equipment, net |  |  | 6,227 |  |  |  | 6,331 |
Deferred policy acquisition costs |  |  | 19,237 |  |  |  | 19,048 |
Other assets |  |  | 12,204 |  |  |  | 17,587 |
Total assets |  | $ | 1,546,821 |  |  | $ | 1,492,906 |
Liabilities and shareholders’ equity |  |  |  |  |  |  |  |
Liabilities: |  |  |  |  |  |  |  |
Reserves for loss and loss adjustment expenses |  | $ | 759,912 |  |  | $ | 772,887 |
Unearned premiums |  |  | 143,228 |  |  |  | 140,873 |
Amounts held for others |  |  | 42,749 |  |  |  | 37,937 |
Policyholder deposits |  |  | 41,960 |  |  |  | 44,718 |
Insurance-related assessments |  |  | 20,902 |  |  |  | 22,967 |
Federal income tax payable |  |  | 4,785 |  |  |  | 3,220 |
Accounts payable and other liabilities |  |  | 41,105 |  |  |  | 40,089 |
Payable for investments purchased |  |  | 10,270 |  |  |  | — |
Total liabilities |  |  | 1,064,911 |  |  |  | 1,062,691 |
Shareholders’ equity: |  |  |  |  |  |  |  |
Common stock: voting—$0.01 par value authorized shares—50,000,000 in 2020 and 2019; 20,589,309 and 20,560,833 shares issued and 19,331,059 and 19,302,583 shares outstanding in 2020 and 2019, respectively |  |  | 206 |  |  |  | 205 |
Additional paid-in capital |  |  | 215,140 |  |  |  | 213,004 |
Treasury stock, at cost (1,258,250 shares in 2020 and 2019) |  |  | (22,370 | ) |  |  | (22,370 | )
Accumulated earnings |  |  | 269,022 |  |  |  | 227,165 |
Accumulated other comprehensive income, net |  |  | 19,912 |  |  |  | 12,211 |
Total shareholders’ equity |  |  | 481,910 |  |  |  | 430,215 |
Total liabilities and shareholders’ equity |  | $ | 1,546,821 |  |  | $ | 1,492,906 |

See accompanying notes.

4

AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share data)

(unaudited)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross premiums written |  | $ | 72,648 |  |  | $ | 82,629 |  |  | $ | 240,008 |  |  | $ | 262,754 |
Ceded premiums written |  |  | (2,473 | ) |  |  | (2,170 | ) |  |  | (7,928 | ) |  |  | (6,804 | )
Net premiums written |  | $ | 70,175 |  |  | $ | 80,459 |  |  | $ | 232,080 |  |  | $ | 255,950 |
Net premiums earned |  | $ | 74,771 |  |  | $ | 82,712 |  |  | $ | 229,725 |  |  | $ | 250,611 |
Net investment income |  |  | 7,063 |  |  |  | 8,264 |  |  |  | 22,136 |  |  |  | 24,448 |
Net realized gains (losses) on investments |  |  | 309 |  |  |  | (4 | ) |  |  | 1,464 |  |  |  | (27 | )
Net unrealized gains (losses) on equity securities |  |  | 844 |  |  |  | 365 |  |  |  | (2,349 | ) |  |  | 3,165 |
Loss on disposal of assets |  |  | — |  |  |  | (2 | ) |  |  | (29 | ) |  |  | (2 | )
Fee and other income |  |  | 18 |  |  |  | 153 |  |  |  | 309 |  |  |  | 236 |
Total revenues |  |  | 83,005 |  |  |  | 91,488 |  |  |  | 251,256 |  |  |  | 278,431 |
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loss and loss adjustment expenses incurred |  |  | 39,789 |  |  |  | 44,325 |  |  |  | 120,966 |  |  |  | 142,807 |
Underwriting and certain other operating costs |  |  | 1,334 |  |  |  | 6,736 |  |  |  | 17,337 |  |  |  | 21,704 |
Commissions |  |  | 5,608 |  |  |  | 6,153 |  |  |  | 17,475 |  |  |  | 18,764 |
Salaries and benefits |  |  | 6,960 |  |  |  | 6,396 |  |  |  | 21,505 |  |  |  | 19,202 |
Policyholder dividends |  |  | 714 |  |  |  | 1,265 |  |  |  | 2,685 |  |  |  | 3,363 |
Provision for investment related credit loss benefit |  |  | (69 | ) |  |  | — |  |  |  | (13 | ) |  |  | — |
Total expenses |  |  | 54,336 |  |  |  | 64,875 |  |  |  | 179,955 |  |  |  | 205,840 |
Income before income taxes |  |  | 28,669 |  |  |  | 26,613 |  |  |  | 71,301 |  |  |  | 72,591 |
Income tax expense |  |  | 5,316 |  |  |  | 5,227 |  |  |  | 13,200 |  |  |  | 13,915 |
Net income |  | $ | 23,353 |  |  | $ | 21,386 |  |  | $ | 58,101 |  |  | $ | 58,676 |
Earnings per share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 1.21 |  |  | $ | 1.11 |  |  | $ | 3.01 |  |  | $ | 3.05 |
Diluted |  | $ | 1.21 |  |  | $ | 1.11 |  |  | $ | 3.00 |  |  | $ | 3.04 |
Shares used in computing earnings per share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 19,299,921 |  |  |  | 19,256,069 |  |  |  | 19,282,263 |  |  |  | 19,243,689 |
Diluted |  |  | 19,358,682 |  |  |  | 19,302,551 |  |  |  | 19,345,952 |  |  |  | 19,320,199 |
Cash dividends declared per common share |  | $ | 0.27 |  |  | $ | 0.25 |  |  | $ | 0.81 |  |  | $ | 0.75 |

See accompanying notes.

5

AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Net income |  | $ | 23,353 |  |  | $ | 21,386 |  |  | $ | 58,101 |  |  | $ | 58,676 |
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain on debt securities, net of tax |  |  | 734 |  |  |  | 2,475 |  |  |  | 7,701 |  |  |  | 13,447 |
Comprehensive income |  | $ | 24,087 |  |  | $ | 23,861 |  |  | $ | 65,802 |  |  | $ | 72,123 |

See accompanying notes.

6

AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Three Months Ended September 30, 2020 and 2019

(in thousands, except share data)

(unaudited)

|  | Common Stock |  |  | Additional Paid-In |  |  | Treasury Stock |  |  | Accumulated |  |  | Accumulated Other Comprehensive |  |  |  |  |
|  | Shares |  |  | Amounts |  |  | Capital |  |  | Shares |  |  | Amounts |  |  | Earnings |  |  | Income |  |  | Total |
Balance at June 30, 2020 |  |  | 20,589,309 |  |  | $ | 206 |  |  | $ | 214,894 |  |  |  | (1,258,250 | ) |  | $ | (22,370 | ) |  | $ | 250,888 |  |  | $ | 19,178 |  |  | $ | 462,796 |
Comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 23,353 |  |  |  | — |  |  |  | 23,353 |
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Change in unrealized gains, net of tax |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 734 |  |  |  | 734 |
Comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 24,087 |
Share-based compensation |  |  | — |  |  |  | — |  |  |  | 246 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 246 |
Dividends to shareholders |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (5,219 | ) |  |  | — |  |  |  | (5,219 | )
Balance at September 30, 2020 |  |  | 20,589,309 |  |  | $ | 206 |  |  | $ | 215,140 |  |  |  | (1,258,250 | ) |  | $ | (22,370 | ) |  | $ | 269,022 |  |  | $ | 19,912 |  |  | $ | 481,910 |
|  | Common Stock |  |  | Additional Paid-In |  |  | Treasury Stock |  |  | Accumulated |  |  | Accumulated Other Comprehensive |  |  |  |  |
|  | Shares |  |  | Amounts |  |  | Capital |  |  | Shares |  |  | Amounts |  |  | Earnings |  |  | Income |  |  | Total |
Balance at June 30, 2019 |  |  | 20,556,511 |  |  | $ | 205 |  |  | $ | 212,493 |  |  |  | (1,258,250 | ) |  | $ | (22,370 | ) |  | $ | 248,975 |  |  | $ | 10,140 |  |  | $ | 449,443 |
Comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 21,386 |  |  |  | — |  |  |  | 21,386 |
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Change in unrealized gains, net of tax |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,475 |  |  |  | 2,475 |
Comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 23,861 |
Common stock issued |  |  | 2,048 |  |  |  | — |  |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1 | )
Share-based compensation |  |  | — |  |  |  | — |  |  |  | 251 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 251 |
Dividends to shareholders |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4,825 | ) |  |  | — |  |  |  | (4,825 | )
Balance at September 30, 2019 |  |  | 20,558,559 |  |  | $ | 205 |  |  | $ | 212,743 |  |  |  | (1,258,250 | ) |  | $ | (22,370 | ) |  | $ | 265,536 |  |  | $ | 12,615 |  |  | $ | 468,729 |

See accompanying notes.

7

AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Nine Months Ended September 30, 2020 and 2019

(in thousands, except share data)

(unaudited)

|  | Common Stock |  |  | Additional Paid-In |  |  | Treasury Stock |  |  | Accumulated |  |  | Accumulated Other Comprehensive |  |  |  |  |
|  | Shares |  |  | Amounts |  |  | Capital |  |  | Shares |  |  | Amounts |  |  | Earnings |  |  | Income |  |  | Total |
Balance at December 31, 2019 |  |  | 20,560,833 |  |  | $ | 205 |  |  | $ | 213,004 |  |  |  | (1,258,250 | ) |  | $ | (22,370 | ) |  | $ | 227,165 |  |  | $ | 12,211 |  |  | $ | 430,215 |
Impact of adoption of ASU 2016-13 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (594 | ) |  |  | — |  |  |  | (594 | )
Comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 58,101 |  |  |  | — |  |  |  | 58,101 |
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Change in unrealized gains, net of tax |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 7,701 |  |  |  | 7,701 |
Comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 65,802 |
Common stock issued |  |  | 28,476 |  |  |  | 1 |  |  |  | 1,359 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,360 |
Share-based compensation |  |  | — |  |  |  | — |  |  |  | 777 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 777 |
Dividends to shareholders |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (15,650 | ) |  |  | — |  |  |  | (15,650 | )
Balance at September 30, 2020 |  |  | 20,589,309 |  |  | $ | 206 |  |  | $ | 215,140 |  |  |  | (1,258,250 | ) |  | $ | (22,370 | ) |  | $ | 269,022 |  |  | $ | 19,912 |  |  | $ | 481,910 |
|  | Common Stock |  |  | Additional Paid-In |  |  | Treasury Stock |  |  | Accumulated |  |  | Accumulated Other Comprehensive |  |  |  |  |
|  | Shares |  |  | Amounts |  |  | Capital |  |  | Shares |  |  | Amounts |  |  | Earnings |  |  | Income (Loss) |  |  | Total |
Balance at December 31, 2018 |  |  | 20,528,230 |  |  | $ | 205 |  |  | $ | 211,431 |  |  |  | (1,258,250 | ) |  | $ | (22,370 | ) |  | $ | 221,328 |  |  | $ | (832 | ) |  | $ | 409,762 |
Impact of adoption of ASU 2016-02 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1 | ) |  |  | — |  |  |  | (1 | )
Comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 58,676 |  |  |  | — |  |  |  | 58,676 |
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Change in unrealized losses, net of tax |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 13,447 |  |  |  | 13,447 |
Comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 72,123 |
Common stock issued upon exercise of options |  |  | 5,000 |  |  |  | — |  |  |  | 20 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 20 |
Common stock issued |  |  | 25,329 |  |  |  | — |  |  |  | 559 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 559 |
Share-based compensation |  |  | — |  |  |  | — |  |  |  | 733 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 733 |
Dividends to shareholders |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (14,467 | ) |  |  | — |  |  |  | (14,467 | )
Balance at September 30, 2019 |  |  | 20,558,559 |  |  | $ | 205 |  |  | $ | 212,743 |  |  |  | (1,258,250 | ) |  | $ | (22,370 | ) |  | $ | 265,536 |  |  | $ | 12,615 |  |  | $ | 468,729 |

See accompanying notes.

8

AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

|  | Nine Months Ended September 30, |
|  | 2020 |  |  | 2019 |
Operating activities |  |  |  |  |  |  |  |
Net income |  | $ | 58,101 |  |  | $ | 58,676 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Depreciation |  |  | 738 |  |  |  | 684 |
Net amortization of investments |  |  | 6,206 |  |  |  | 6,520 |
Change in investment related allowance for credit losses |  |  | (13 | ) |  |  | — |
Deferred income taxes |  |  | (1,398 | ) |  |  | (203 | )
Net realized (gains) losses on investments |  |  | (1,464 | ) |  |  | 27 |
Net unrealized (gains) losses on equity securities |  |  | 2,349 |  |  |  | (3,165 | )
Net realized losses on disposal of assets |  |  | 29 |  |  |  | 2 |
Share-based compensation |  |  | 2,594 |  |  |  | 882 |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Premiums receivable, net |  |  | (13,175 | ) |  |  | (8,171 | )
Accrued interest receivable |  |  | 235 |  |  |  | (207 | )
Deferred policy acquisition costs |  |  | (189 | ) |  |  | (607 | )
Amounts held by others |  |  | 7,855 |  |  |  | — |
Other assets |  |  | (387 | ) |  |  | (949 | )
Reserves for loss and loss adjustment expenses |  |  | (12,975 | ) |  |  | (7,597 | )
Unearned premiums |  |  | 2,355 |  |  |  | 5,339 |
Reinsurance balances |  |  | (2,485 | ) |  |  | 9,140 |
Amounts held for others and policyholder deposits |  |  | 2,054 |  |  |  | 2,416 |
Federal income taxes payable |  |  | 1,565 |  |  |  | (1,863 | )
Accounts payable and other liabilities |  |  | (1,127 | ) |  |  | 1,554 |
Net cash provided by operating activities |  |  | 50,868 |  |  |  | 62,478 |
Investing activities |  |  |  |  |  |  |  |
Purchases of investments held-to-maturity |  |  | (62,190 | ) |  |  | (115,712 | )
Purchases of investments available-for-sale |  |  | (61,023 | ) |  |  | (46,104 | )
Purchases of equity securities |  |  | (10,267 | ) |  |  | (4,120 | )
Purchases of short-term investments |  |  | (96,484 | ) |  |  | (79,224 | )
Proceeds from maturities of investments held-to-maturity |  |  | 86,153 |  |  |  | 120,498 |
Proceeds from sales and maturities of investments available-for-sale |  |  | 91,493 |  |  |  | 90,244 |
Proceeds from sales and maturities of short-term investments |  |  | 62,387 |  |  |  | 73,039 |
Purchases of property and equipment |  |  | (663 | ) |  |  | (858 | )
Net cash provided by investing activities |  |  | 9,406 |  |  |  | 37,763 |
Financing activities |  |  |  |  |  |  |  |
Proceeds from stock option exercises |  |  | — |  |  |  | 20 |
Finance lease purchases |  |  | (37 | ) |  |  | (35 | )
Dividends to shareholders |  |  | (15,882 | ) |  |  | (14,700 | )
Net cash used in financing activities |  |  | (15,919 | ) |  |  | (14,715 | )
Change in cash and cash equivalents |  |  | 44,355 |  |  |  | 85,526 |
Cash and cash equivalents at beginning of period |  |  | 43,813 |  |  |  | 40,344 |
Cash and cash equivalents at end of period |  | $ | 88,168 |  |  | $ | 125,870 |

See accompanying notes.

9

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Basis of Presentation

AMERISAFE, Inc. (the “Company”) is an insurance holding company incorporated in the state of Texas. The accompanying unaudited consolidated financial statements include the accounts of AMERISAFE and its subsidiaries: American Interstate Insurance Company (“AIIC”) and its insurance subsidiaries, Silver Oak Casualty, Inc. (“SOCI”) and American Interstate Insurance Company of Texas (“AIICTX”), Amerisafe Risk Services, Inc. (“RISK”) and Amerisafe General Agency, Inc. (“AGAI”). AIIC and SOCI are property and casualty insurance companies organized under the laws of the state of Nebraska. AIICTX is a property and casualty insurance company organized under the laws of the state of Texas. RISK, a wholly owned subsidiary of the Company, is a claims and safety service company currently servicing only affiliated insurance companies. AGAI, a wholly owned subsidiary of the Company, is a general agent for the Company. AGAI sells insurance, which is underwritten by AIIC, SOCI and AIICTX, as well as by nonaffiliated insurance carriers. The assets and operations of AGAI are not significant to that of the Company and its consolidated subsidiaries.

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

The Company provides workers’ compensation insurance for small to mid-sized employers engaged in hazardous industries, principally construction, trucking, logging and lumber, manufacturing, agriculture, maritime, and oil and gas. Assets and revenues of AIIC and its subsidiaries represent at least 95% of comparable consolidated amounts of the Company for each of the nine months ended September 30, 2020 and 2019.

In the opinion of management of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, the results of operations and cash flows for the periods presented. The unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q under the Securities Exchange Act of 1934 and therefore do not include all information and footnotes to be in conformity with accounting principles generally accepted in the United States (“GAAP”). The results for the interim periods are not necessarily indicative of the results of operations that may be expected for the year. The unaudited consolidated financial statements contained herein should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that 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.

Adopted Accounting Guidance

On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses (“CECL”). The prior guidance delays the recognition of credit losses until a probable loss has occurred. The new guidance requires credit losses for securities measured at amortized cost to be determined using current expected credit loss estimates. These estimates are derived from historical, current and reasonable supporting forecasts, including prepayments and estimates, and are recorded through a valuation account. The same method is used for available-for-sale securities, but the valuation account is limited to the amount by which the fair value is below amortized cost.

The Company implemented the new standard using the modified retrospective approach. Results for reporting periods beginning after January 1, 2020 are presented under the new guidance while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to Retained Earnings of $594 thousand as of January 1, 2020, for the cumulative effect of adopting ASU 2016-13. The transition adjustment includes a $243 thousand impact to establish a credit loss allowance for held-to-maturity securities. The remaining $351 thousand of the transition adjustment was due to the creation of the reinsurance recoverable credit allowance.

The Company believes that under the standard there is no current expected credit allowance necessary for U.S. Government Securities in its judgment as: 1) Treasury securities typically are the most highly rated securities among rating agencies; 2) Treasury securities have a long history of no credit losses; 3) Treasury securities are guaranteed by a sovereign entity (the U.S. Government) that can print its own money and whose currency (the U.S. dollar) is the reserve currency.

The Company believes that under the standard there is no current expected credit allowance necessary for GNMA Securities in its judgment as: 1) GNMA securities typically are the most highly rated securities among rating agencies; 2) GNMA securities have a long history of no credit losses and payments are explicitly guaranteed by the United States; 3) Underlying mortgage loans for GNMA securities are insured by the Federal Housing Administration or guaranteed by the U.S. Department of Veteran Affairs; 4) the U.S. Government can print its own money to retire GNMA obligations.

10

The Company believes that under the standard there is no current expected credit allowance necessary for FNMA or Freddie Mac (FHLMC) Securities in its judgment as: 1) These securities typically are among the most highly rated securities among rating agencies; 2) There is a long history of no credit losses; 3) Principal and interest payments are guaranteed by the issuing agency; 4) There is an explicit guarantee by the U.S. Government that can print its own money and whose currency (the U.S. dollar) is the reserve currency.

The Company researched various options and methodologies and has chosen to use Moody’s default rates and recovery rates for our held-to-maturity fixed income securities based on the current credit rating of the security and the time period to the stated maturity date. This is a probability of default (PD) and loss given default (LGD) methodology.

The credit rating used for held-to-maturity fixed income securities is the rating for each security as published by Moody’s, S&P, and Fitch to determine the probability of default. If there are two ratings, the lower rating is used. If there are three ratings, the median rating is used. If there is one rating, that rating is used. This methodology provides additional conservatism in determining the credit loss allowance needed.

For corporate fixed income securities, the probability of default (given a rating) comes from Moody’s annual study of Corporate Bond defaults published each February. This study also contains the average recovery rates based on the historical defaults in the Moody’s study. We have chosen to use the 1983-2018 data as more reflective of the current historical pattern of defaults (the study goes back to 1920). The maximum maturity using the default rate is 20 years (any maturity greater than 20 years will use the 20-year rate).

For municipal fixed income securities the probability of default (given a rating) comes from Moody’s annual study of Municipal Bond defaults published each July/August. This study also contains the average recovery rates based on the historical defaults in the Moody’s study. This study covers 1970-2018 data, which we believe is reflective of the current historical pattern of defaults. The maximum maturity using the default rate is 20 years (any maturity greater than 20 years will use the 20-year rate).

The Company did not record a credit allowance for available-for-sale securities. The available-for-sale portfolio is composed of highly rated securities, which carry a low risk of default. The Company’s concentrations in municipal bonds have helped lower default risk, as the historical default rates and recovery rates for municipal bonds has been much better than corporate bonds rated at the same level. The Company creates a watch list of available-for-sale securities that are below book value at the end of each quarter. This watch list excludes US Treasury securities, GNMA Securities, and government agency securities (FNMA, etc.) as none of those securities will have an expected credit loss. The watch list will also exclude those securities that are trading at least at $95 or above (par value $100) as the Company believes any slight difference between $95 and par likely reflect interest rate changes and liquidity only and are not a sign of credit impairment or market expectations for any current expected credit loss.

The list is reviewed by the Management Investment Committee to evaluate any security where the discounted cash flows expected no longer exceed the book value of the security. If the Company intends to sell the security (or more likely than not be required to sell the security before recovery of the loss) the Company will write down the security to fair value through earnings. If the Company intends to hold the security, the Company will establish a credit loss allowance for the security through earnings, and adjust the allowance each quarter through earnings, as the security changes in value.

In determining the amount of the credit loss allowance, the Company will consider all of the following factors:

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

2. | Adverse conditions in the security, industry, or geography, including:

| a.) | Changes in technology

| b.) | Discontinuation of a segment of business that may affect future earnings

| c.) | Changes in the quality of the credit enhancement, if any

3. | Changes in the payment structure of the debt security

4. | Failure of the issuer to make scheduled interest or principal payments

5. | Any changes to the rating of the security by a rating agency

The calculation of the credit loss allowance will not take into account the amount of time the security has been below book value or when the security might be expected to recover in value.

11

The Company has researched various options and methodologies and has chosen to use Moody’s default rates and recovery rates for our unsecured reinsurance recoverables based on the current credit rating of the reinsurer and a time period of ten years. This is a probability of default (PD) and loss given default (LGD) methodology. The ten-year period is consistent with our current working layer reinsurance treaty where we have a three-year treaty, which must be commuted by the end of the tenth year. We believe this is an appropriate approach to our reinsurance recoverables.

The credit rating used for reinsurance recoverables uses the average rating for each reinsurer as published by Moody’s, S&P, Fitch and A.M. Best to determine the probability of default. The median rating is used if there are three ratings. The probability of default (given a rating) comes from Moody’s annual study of Corporate Bond defaults published each February. This study also contains the average recovery rates based on the historical defaults in the Moody’s study. We have chosen to use the 1983-2018 data as more reflective of the current historical pattern of defaults (the study goes back to 1920).

The Company does not hold any debt securities for which an other-than-temporary impairment has been recognized. Additionally, the Company does not hold any financial assets purchased with credit deterioration.

The Company’s internal working group evaluated the existing allowance for doubtful accounts reserving methodology for premiums receivable and determined the calculation was consistent with the new credit loss guidance. There was no impact to the premiums receivable balance as a result of the adoption of the new standard.

The Company has elected not to establish a credit allowance for investment interest receivable. The Company plans to continue use of the current policy for writing off investment related interest receivable balances over ninety days old.

Prospective Accounting Guidance

All issued but not yet effective accounting and reporting standards as of September 30, 2020 are either not applicable to the Company or are not expected to have a material impact on the Company.

Note 2. Stock Options and Restricted Stock

As of September 30, 2020, the Company has two equity incentive plans: the AMERISAFE Non-Employee Director Restricted Stock Plan (the “Restricted Stock Plan”) and the AMERISAFE 2012 Equity and Incentive Compensation Plan (the “2012 Incentive Plan”). See Note 12 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information regarding the Company’s incentive plans.

During the nine months ended September 30, 2020, the Company issued 23,207 shares of common stock pursuant to vested performance awards and 5,269 shares of restricted common stock to non-employee directors. The market value of these shares totaled $1.8 million. During the nine months ended September 30, 2019, the Company issued 9,391 shares of common stock pursuant to vested performance awards and 11,048 shares of restricted common stock to executive officers. During the nine months ended September 30, 2019, the Company issued 4,890 shares of restricted common stock to non-employee directors. The market value of these shares totaled $1.5 million.

During the nine months ended September 30, 2020, there were no exercises of options to purchase common stock. During the nine months ended September 30, 2019, options to purchase 5,000 shares of common stock were exercised. In connection with these exercises, the Company received $20 thousand of stock option proceeds. The Company had no stock options outstanding as of September 30, 2020.

The Company recognized share-based compensation expense of $0.8 million in the quarter ended September 30, 2020 and $0.4 million for the same period in 2019. The Company recognized share-based compensation expense of $2.6 million in the nine months ended September 30, 2020 and $0.9 million for the same period in 2019.

Note 3. Earnings Per Share

The Company computes earnings per share (“EPS”) in accordance with FASB Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share. The Company has no participating unvested common shares which contain nonforfeitable rights to dividends and applies the treasury stock method in computing basic and diluted earnings per share.

Basic EPS is calculated by dividing net income by the weighted-average number of common shares outstanding during the period.

12

The diluted EPS calculation includes potential common shares assumed issued under the treasury stock method, which reflects the potential dilution that would occur if any outstanding options were exercised or restricted stock becomes vested.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
|  | (in thousands, except share and per share amounts) |
Basic EPS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 23,353 |  |  | $ | 21,386 |  |  | $ | 58,101 |  |  | $ | 58,676 |
Basic weighted average common shares |  |  | 19,299,921 |  |  |  | 19,256,069 |  |  |  | 19,282,263 |  |  |  | 19,243,689 |
Basic earnings per common share |  | $ | 1.21 |  |  | $ | 1.11 |  |  | $ | 3.01 |  |  | $ | 3.05 |
Diluted EPS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 23,353 |  |  | $ | 21,386 |  |  | $ | 58,101 |  |  | $ | 58,676 |
Diluted weighted average common shares: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted average common shares |  |  | 19,299,921 |  |  |  | 19,256,069 |  |  |  | 19,282,263 |  |  |  | 19,243,689 |
Stock options and restricted stock |  |  | 58,761 |  |  |  | 46,482 |  |  |  | 63,689 |  |  |  | 76,510 |
Diluted weighted average common shares |  |  | 19,358,682 |  |  |  | 19,302,551 |  |  |  | 19,345,952 |  |  |  | 19,320,199 |
Diluted earnings per common share |  | $ | 1.21 |  |  | $ | 1.11 |  |  | $ | 3.00 |  |  | $ | 3.04 |

Note 4. Investments

The gross unrecognized gains and losses on, amortized cost, allowance for credit losses, carrying amount, and fair value of, those investments classified as held-to-maturity at September 30, 2020 are summarized as follows:

|  | Amortized Cost |  |  | Allowance for Credit Losses |  |  | Carrying Amount |  |  | Gross Unrecognized Gains |  |  | Gross Unrecognized Losses |  |  | Fair Value |
|  | (in thousands) |
States and political subdivisions |  | $ | 471,913 |  |  | $ | (38 | ) |  | $ | 471,875 |  |  | $ | 30,756 |  |  | $ | (8 | ) |  | $ | 502,623 |
Corporate bonds |  |  | 70,721 |  |  |  | (242 | ) |  |  | 70,479 |  |  |  | 3,106 |  |  |  | — |  |  |  | 73,585 |
U.S. agency-based mortgage-backed securities |  |  | 8,070 |  |  |  | — |  |  |  | 8,070 |  |  |  | 644 |  |  |  | — |  |  |  | 8,714 |
U.S. Treasury securities and obligations of U.S. government agencies |  |  | 21,914 |  |  |  | — |  |  |  | 21,914 |  |  |  | 326 |  |  |  | — |  |  |  | 22,240 |
Asset-backed securities |  |  | 178 |  |  |  | (8 | ) |  |  | 170 |  |  |  | 7 |  |  |  | — |  |  |  | 177 |
Totals |  | $ | 572,796 |  |  | $ | (288 | ) |  | $ | 572,508 |  |  | $ | 34,839 |  |  | $ | (8 | ) |  | $ | 607,339 |

The gross unrealized gains and losses on, and the amortized cost, allowance for credit losses, and fair value of, those investments classified as available-for-sale at September 30, 2020 are summarized as follows:

|  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |  |  | Allowance for Credit Losses |
|  | (in thousands) |
States and political subdivisions |  | $ | 257,169 |  |  | $ | 18,235 |  |  | $ | (33 | ) |  | $ | 275,371 |  |  | $ | — |
Corporate bonds |  |  | 91,162 |  |  |  | 5,492 |  |  |  | (25 | ) |  |  | 96,629 |  |  |  | — |
U.S. agency-based mortgage-backed securities |  |  | 23,850 |  |  |  | 460 |  |  |  | — |  |  |  | 24,310 |  |  |  | — |
U.S. Treasury securities and obligations of U.S. government agencies |  |  | 28,882 |  |  |  | 1,045 |  |  |  | — |  |  |  | 29,927 |  |  |  | — |
Totals |  | $ | 401,063 |  |  | $ | 25,232 |  |  | $ | (58 | ) |  | $ | 426,237 |  |  | $ | — |

The gross unrealized gains and losses on, and the cost of equity securities at September 30, 2020 are summarized as follows:

|  | Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |
|  | (in thousands) |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic common stock |  | $ | 34,725 |  |  | $ | 2,232 |  |  | $ | (1,135 | ) |  | $ | 35,822 |
Total equity securities |  | $ | 34,725 |  |  | $ | 2,232 |  |  | $ | (1,135 | ) |  | $ | 35,822 |

13

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as held-to-maturity at December 31, 2019 are summarized as follows:

|  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |
|  | (in thousands) |
States and political subdivisions |  | $ | 466,270 |  |  | $ | 19,570 |  |  | $ | (193 | ) |  | $ | 485,647 |
Corporate bonds |  |  | 109,241 |  |  |  | 1,684 |  |  |  | — |  |  |  | 110,925 |
U.S. agency-based mortgage-backed securities |  |  | 10,967 |  |  |  | 544 |  |  |  | — |  |  |  | 11,511 |
U.S. Treasury securities and obligations of U.S. government agencies |  |  | 12,723 |  |  |  | 330 |  |  |  | (12 | ) |  |  | 13,041 |
Asset-backed securities |  |  | 220 |  |  |  | — |  |  |  | (1 | ) |  |  | 219 |
Totals |  | $ | 599,421 |  |  | $ | 22,128 |  |  | $ | (206 | ) |  | $ | 621,343 |

The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as available-for-sale at December 31, 2019 are summarized as follows:

|  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |
|  | (in thousands) |
States and political subdivisions |  | $ | 225,895 |  |  | $ | 11,906 |  |  | $ | (26 | ) |  | $ | 237,775 |
Corporate bonds |  |  | 130,453 |  |  |  | 3,326 |  |  |  | (1 | ) |  |  | 133,778 |
U.S. agency-based mortgage-backed securities |  |  | 29,499 |  |  |  | 64 |  |  |  | (96 | ) |  |  | 29,467 |
U.S. Treasury securities and obligations of U.S. government agencies |  |  | 39,851 |  |  |  | 317 |  |  |  | (42 | ) |  |  | 40,126 |
Totals |  | $ | 425,698 |  |  | $ | 15,613 |  |  | $ | (165 | ) |  | $ | 441,146 |

The gross unrealized gains and losses on, and the cost of equity securities at December 31, 2019 are summarized as follows:

|  | Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |
|  | (in thousands) |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic common stock |  | $ | 24,457 |  |  | $ | 3,446 |  |  | $ | — |  |  | $ | 27,903 |
Total equity securities |  | $ | 24,457 |  |  | $ | 3,446 |  |  | $ | — |  |  | $ | 27,903 |

A summary of the carrying amounts and fair value of investments in fixed maturity securities, classified as held-to-maturity, by contractual maturity, is as follows:

|  | September 30, 2020 |  |  | December 31, 2019 |
|  | Carrying Amount |  |  | Fair Value |  |  | Carrying Amount |  |  | Fair Value |
|  | (in thousands) |
Maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Within one year |  | $ | 63,982 |  |  | $ | 64,630 |  |  | $ | 49,967 |  |  | $ | 50,348 |
After one year through five years |  |  | 182,355 |  |  |  | 190,897 |  |  |  | 198,025 |  |  |  | 202,109 |
After five years through ten years |  |  | 94,035 |  |  |  | 99,644 |  |  |  | 110,460 |  |  |  | 113,877 |
After ten years |  |  | 223,896 |  |  |  | 243,277 |  |  |  | 229,782 |  |  |  | 243,279 |
U.S. agency-based mortgage-backed securities |  |  | 8,070 |  |  |  | 8,714 |  |  |  | 10,967 |  |  |  | 11,511 |
Asset-backed securities |  |  | 170 |  |  |  | 177 |  |  |  | 220 |  |  |  | 219 |
Totals |  | $ | 572,508 |  |  | $ | 607,339 |  |  | $ | 599,421 |  |  | $ | 621,343 |

14

A summary of the amortized cost and fair value of investments in fixed maturity securities, classified as available-for-sale, by contractual maturity, is as follows:

|  | September 30, 2020 |  |  | December 31, 2019 |
|  | Amortized Cost |  |  | Fair Value |  |  | Amortized Cost |  |  | Fair Value |
|  | (in thousands) |
Maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Within one year |  | $ | 61,469 |  |  | $ | 62,203 |  |  | $ | 27,160 |  |  | $ | 27,194 |
After one year through five years |  |  | 90,936 |  |  |  | 96,406 |  |  |  | 144,142 |  |  |  | 146,469 |
After five years through ten years |  |  | 56,622 |  |  |  | 60,484 |  |  |  | 47,175 |  |  |  | 49,419 |
After ten years |  |  | 168,186 |  |  |  | 182,834 |  |  |  | 177,722 |  |  |  | 188,597 |
U.S. agency-based mortgage-backed securities |  |  | 23,850 |  |  |  | 24,310 |  |  |  | 29,499 |  |  |  | 29,467 |
Totals |  | $ | 401,063 |  |  | $ | 426,237 |  |  | $ | 425,698 |  |  | $ | 441,146 |

The following table summarizes the fair value and gross unrealized losses on securities classified as available-for-sale, aggregated by major investment category and length of time that the individual securities have been in a continuous unrealized loss position as of September 30, 2020:

|  | Less Than 12 Months |  |  | 12 Months or Greater |  |  | Total |
|  | Fair Value of Investments with Unrealized Losses |  |  | Gross Unrealized Losses |  |  | Fair Value of Investments with Unrealized Losses |  |  | Gross Unrealized Losses |  |  | Fair Value of Investments with Unrealized Losses |  |  | Gross Unrealized Losses |
|  | (in thousands) |
September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-Sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions |  | $ | 4,329 |  |  | $ | 33 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,329 |  |  | $ | 33 |
Corporate bonds |  |  | 2,511 |  |  |  | 25 |  |  |  | — |  |  |  | — |  |  |  | 2,511 |  |  |  | 25 |
Total available-for-sale securities |  | $ | 6,840 |  |  | $ | 58 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,840 |  |  | $ | 58 |

At September 30, 2020, we held 8 individual fixed maturity securities classified as available-for-sale that were in an unrealized loss position, of which none were in a continuous unrealized loss position for longer than 12 months.

15

The following table summarizes the fair value and gross unrealized losses on securities, aggregated by major investment category and length of time that the individual securities have been in a continuous unrealized loss position as of December 31, 2019:

|  | Less Than 12 Months |  |  | 12 Months or Greater |  |  | Total |
|  | Fair Value of Investments with Unrealized Losses |  |  | Gross Unrealized Losses |  |  | Fair Value of Investments with Unrealized Losses |  |  | Gross Unrealized Losses |  |  | Fair Value of Investments with Unrealized Losses |  |  | Gross Unrealized Losses |
|  | (in thousands) |
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Held-to-Maturity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions |  | $ | 21,074 |  |  | $ | 193 |  |  | $ | — |  |  | $ | — |  |  | $ | 21,074 |  |  | $ | 193 |
U.S. Treasury securities and obligations of U.S. government agencies |  |  | — |  |  |  | — |  |  |  | 3,243 |  |  |  | 12 |  |  |  | 3,243 |  |  |  | 12 |
Asset-backed securities |  |  | — |  |  |  | — |  |  |  | 68 |  |  |  | 1 |  |  |  | 68 |  |  |  | 1 |
Total held-to-maturity securities |  |  | 21,074 |  |  |  | 193 |  |  |  | 3,311 |  |  |  | 13 |  |  |  | 24,385 |  |  |  | 206 |
Available-for-Sale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions |  | $ | 4,140 |  |  | $ | 26 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,140 |  |  | $ | 26 |
Corporate bonds |  |  | 6,426 |  |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | 6,426 |  |  |  | 1 |
U.S. agency-based mortgage-backed securities |  |  | 13,007 |  |  |  | 95 |  |  |  | 1,152 |  |  |  | 1 |  |  |  | 14,159 |  |  |  | 96 |
U.S. Treasury securities and obligations of U.S. government agencies |  |  | — |  |  |  | — |  |  |  | 17,068 |  |  |  | 42 |  |  |  | 17,068 |  |  |  | 42 |
Total available-for-sale securities |  |  | 23,573 |  |  |  | 122 |  |  |  | 18,220 |  |  |  | 43 |  |  |  | 41,793 |  |  |  | 165 |
Total |  | $ | 44,647 |  |  | $ | 315 |  |  | $ | 21,531 |  |  | $ | 56 |  |  | $ | 66,178 |  |  | $ | 371 |

The following table illustrates the changes in the allowance for credit losses by major security type of the investments classified as held-to-maturity for the quarter ended September 30, 2020.

|  | States and Political Subdivisions |  |  | Corporate Bonds |  |  | U.S. Agency-Based Mortgage-Backed Securities |  |  | U.S. Treasury Securities and Obligations of U.S. Government Agencies |  |  | Asset-Backed Securities |  |  | Totals |
|  | (in thousands) |
Balance at June 30, 2020 |  | $ | 49 |  |  | $ | 299 |  |  | $ | — |  |  | $ | — |  |  | $ | 9 |  |  | $ | 357 |
Provision for credit loss benefit |  |  | (11 | ) |  |  | (57 | ) |  |  | — |  |  |  | — |  |  |  | (1 | ) |  |  | (69 | )
Allowance for securities purchased with credit deterioration |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Securities charged off |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Recoveries |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance at September 30, 2020 |  | $ | 38 |  |  | $ | 242 |  |  | $ | — |  |  | $ | — |  |  | $ | 8 |  |  | $ | 288 |

16

The following table illustrates the changes in the allowance for credit losses by major security type of the investments classified as held-to-maturity for the nine months ended September 30, 2020.

|  | States and Political Subdivisions |  |  | Corporate Bonds |  |  | U.S. Agency-Based Mortgage-Backed Securities |  |  | U.S. Treasury Securities and Obligations of U.S. Government Agencies |  |  | Asset-Backed Securities |  |  | Totals |
|  | (in thousands) |
Balance at January 1, 2020 |  | $ | 45 |  |  | $ | 245 |  |  | $ | — |  |  | $ | — |  |  | $ | 11 |  |  | $ | 301 |
Provision for credit loss benefit |  |  | (7 | ) |  |  | (3 | ) |  |  | — |  |  |  | — |  |  |  | (3 | ) |  |  | (13 | )
Allowance for securities purchased with credit deterioration |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Securities charged off |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Recoveries |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance at September 30, 2020 |  | $ | 38 |  |  | $ | 242 |  |  | $ | — |  |  | $ | — |  |  | $ | 8 |  |  | $ | 288 |

The Company has established an allowance for credit losses on 400 held-to-maturity securities totaling $0.3 million. The majority of those securities were states and political subdivisions and corporate bonds at 369 and 28, respectively.

The Company has no allowance for credit losses on investments classified as available-for-sale for the period ended September 30, 2020.

The credit rating used for held-to-maturity fixed income securities is the rating for each security as published by Moody’s, S&P, and Fitch to determine the probability of default. If there are two ratings, the lower rating is used. If there are three ratings, the median rating is used. If there is one rating, that rating is used. For corporate fixed income securities the probability of default (given a rating) comes from Moody’s annual study of corporate bond defaults published each February. The maximum maturity using the default rate is 20 years (any maturity greater than 20 years will use the 20-year rate). For municipal fixed income securities the probability of default (given a rating) comes from Moody’s annual study of municipal bond defaults published each July/August.

The calculation of the credit loss allowance takes the amortized cost of the fixed income security and assumes default and recovery based on the average recovery rates from the Moody’s default studies. The amortized cost of the security, minus the amount recovered, is the estimated full amount the Company could lose in a default scenario. Then this amount is multiplied by the probability of default to determine the allowance for credit loss. The lower the security is rated, the higher likelihood of default, and therefore a higher allowance for credit loss. The longer to the maturity date of a security, the higher the default risk.

The table below presents the amortized cost of held-to-maturity securities aggregated by credit quality indicator as of September 30, 2020.

|  | States and Political Subdivisions |  |  | Corporate Bonds |  |  | U.S. Agency-Based Mortgage-Backed Securities |  |  | U.S. Treasury Securities and Obligations of U.S. Government Agencies |  |  | Asset-Backed Securities |  |  | Totals |
|  | Amortized cost |
|  | (in thousands) |
AAA/AA/A ratings |  | $ | 469,485 |  |  | $ | 30,085 |  |  | $ | 8,070 |  |  | $ | 21,914 |  |  | $ | 124 |  |  | $ | 529,678 |
Baa/BBB ratings |  |  | 2,428 |  |  |  | 40,636 |  |  |  | — |  |  |  | — |  |  |  | 18 |  |  |  | 43,082 |
B ratings |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 36 |  |  |  | 36 |
Total |  | $ | 471,913 |  |  | $ | 70,721 |  |  | $ | 8,070 |  |  | $ | 21,914 |  |  | $ | 178 |  |  | $ | 572,796 |

Net realized gains in the quarter ended September 30, 2020 were $0.3 million resulting from the call of fixed maturity securities. Net realized losses in the quarter ended September 30, 2019 were immaterial.

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Net realized gains in the nine months ended September 30, 2020 were $1.5 million resulting primarily from the sale of fixed maturity securities classified as available-for-sale and from called fixed maturity securities. Net realized losses in the nine months ended September 30, 2019 were immaterial.

During the third quarter of 2020, we recognized through income $0.8 million of net unrealized gains on equity securities held as of September 30, 2020. During the third quarter of 2019, we recognized through income $0.4 million of net unrealized gains on equity securities held as of September 30, 2019.

During the nine months ended September 30, 2020, we recognized through income $2.3 million of net unrealized losses on equity securities held as of September 30, 2020. During the nine months ended September 30, 2019, we recognized through income $3.2 million of net unrealized gains on equity securities held as of September 30, 2019.

Investment income is recognized as it is earned. The discount or premium on fixed maturity securities is amortized using the “constant yield” method. Anticipated prepayments, where applicable, are considered when determining the amortization of premiums or discounts. Realized investment gains and losses are determined using the specific identification method.

Note 5. Income Taxes

In accordance with FASB ASC Topic 740, “Income Taxes,” we provide for the recognition and measurement of deferred income tax benefits based on the likelihood of their realization in future years. The Company had a valuation allowance of $2.1 million and $0.2 million against its deferred income tax benefits as of September 30, 2020 and 2019, respectively.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions for the periods ended September 30, 2020 and 2019.

Tax years 2017 through 2020 are subject to examination by the federal and state taxing authorities.

Note 6. Loss Reserves

We record reserves for estimated losses under insurance policies that we write and for loss adjustment 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 as of a given point in time. The reserves for loss and loss adjustment expenses are estimated using individual case-basis valuations, statistical analyses and estimates based upon experience for unreported claims and their associated loss and loss adjustment expenses. Such estimates may be more or less than the amounts ultimately paid when the claims are settled. The estimates are subject to the effects of trends in loss severity and frequency. Although considerable variability is inherent in these estimates, management believes that the reserves for loss and loss adjustment expenses are adequate. The estimates are continually reviewed internally and periodically evaluated with our independent actuary. Adjustments are made as experience develops and new information becomes known. Any such adjustments are included in income from current operations. See Note 9 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information regarding the Company’s loss and loss adjustment expense development.

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The following table provides the Company’s liability for unpaid loss and loss adjustment expenses, net of related amounts recoverable from reinsurers, for the nine months ended September 30, 2020 and 2019:

|  | Nine Months Ended September 30, |
|  | 2020 |  |  | 2019 |
|  | (in thousands) |
Balance, beginning of period |  | $ | 772,887 |  |  | $ | 798,409 |
Less amounts recoverable from reinsurers on unpaid loss and loss adjustment expenses |  |  | 95,343 |  |  |  | 107,216 |
Net balance, beginning of period |  |  | 677,544 |  |  |  | 691,193 |
Add incurred related to: |  |  |  |  |  |  |  |
Current accident year |  |  | 166,551 |  |  |  | 181,693 |
Prior accident years |  |  | (45,585 | ) |  |  | (38,886 | )
Total incurred |  |  | 120,966 |  |  |  | 142,807 |
Less paid related to: |  |  |  |  |  |  |  |
Current accident year |  |  | 27,986 |  |  |  | 35,512 |
Prior accident years |  |  | 105,832 |  |  |  | 105,590 |
Total paid |  |  | 133,818 |  |  |  | 141,102 |
Net balance, end of period |  |  | 664,692 |  |  |  | 692,898 |
Add amounts recoverable from reinsurers on unpaid loss and loss adjustment expenses |  |  | 95,220 |  |  |  | 97,914 |
Balance, end of period |  | $ | 759,912 |  |  | $ | 790,812 |

The foregoing reconciliation reflects favorable development of the net reserves at September 30, 2020 and September 30, 2019. The favorable development reduced loss and loss adjustment expenses incurred by $45.6 million and $38.9 million in 2020 and 2019, respectively. 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 loss development both unfavorable and favorable. 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 table below presents the change in the allowance for credit losses on amounts recoverable from reinsurers for the three and nine months ended September 30, 2020.

|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2020 |  |  | 2020 |
|  | (in thousands) |
Balance, beginning of period |  | $ | 388 |  |  | $ | 444 |
Provision for credit loss benefit |  |  | (9 | ) |  |  | (65 | )
Balance, end of period |  | $ | 379 |  |  | $ | 379 |

Note 7. Comprehensive Income and Accumulated Other Comprehensive Income

Comprehensive income was $24.1 million for the three months ended September 30, 2020, compared to $23.9 million for the three months ended September 30, 2019. Comprehensive income was $65.8 million for the nine months ended September 30, 2020, compared to $72.1 million for the same period in 2019. The difference between net income as reported and comprehensive income was due primarily to changes in unrealized gains and losses, net of tax on available-for-sale debt securities.

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Comprehensive income includes net income plus unrealized gains (losses) on our available-for-sale investment securities, net of tax. In reporting comprehensive income on a net basis in the statements of comprehensive income, we used a 21 percent tax rate in 2020 and 2019 The following table illustrates the changes in the balance of each component of accumulated other comprehensive income for each period presented in the interim financial statements.

|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
|  | (in thousands) |
Balance, beginning of period |  | $ | 19,178 |  |  | $ | 10,140 |  |  | $ | 12,211 |  |  | $ | (832 | )
Other comprehensive income before reclassification |  |  | 1,316 |  |  |  | 2,467 |  |  |  | 8,317 |  |  |  | 12,844 |
Amounts reclassified from accumulated other comprehensive income |  |  | (582 | ) |  |  | 8 |  |  |  | (616 | ) |  |  | 603 |
Net current period other comprehensive income |  |  | 734 |  |  |  | 2,475 |  |  |  | 7,701 |  |  |  | 13,447 |
Balance, end of period |  | $ | 19,912 |  |  | $ | 12,615 |  |  | $ | 19,912 |  |  | $ | 12,615 |

The sale or other-than-temporary impairment of an available-for-sale security results in amounts being reclassified from accumulated other comprehensive income to current period net income. The effects of reclassifications out of accumulated other comprehensive income by the respective line items of net income are presented in the following table.

Component of Accumulated Other |  | Three Months Ended |  |  | Nine Months Ended |  |  | Affected line item in the
Comprehensive Income |  | September 30, |  |  | September 30, |  |  | statement of income
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |  |  |
|  | (in thousands) |  |  |
Unrealized gains (losses) on available-for-sale securities |  | $ | 737 |  |  | $ | (10 | ) |  | $ | 780 |  |  | $ | (764 | ) |  | Net realized gains (losses) on investments
|  |  | 737 |  |  |  | (10 | ) |  |  | 780 |  |  |  | (764 | ) |  | Income before income taxes
|  |  | (155 | ) |  |  | 2 |  |  |  | (164 | ) |  |  | 161 |  |  | Income tax expense
|  | $ | 582 |  |  | $ | (8 | ) |  | $ | 616 |  |  | $ | (603 | ) |  | Net income

Note 8. Fair Value Measurements

The Company carries available-for-sale securities at fair value in our consolidated financial statements and determines fair value measurements and disclosure in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures.

The Company determines the fair values of its financial instruments based on the fair value hierarchy established in ASC Topic 820, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard defines fair value, describes three levels of inputs that may be used to measure fair value, and expands disclosures about fair value measurements.

Fair value is defined in ASC Topic 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is the price to sell an asset or transfer a liability and, therefore, represents an exit price, not an entry price. Fair value is the exit price in the principal market (or, if lacking a principal market, the most advantageous market) in which the reporting entity would transact. Fair value is a market-based measurement, not an entity-specific measurement, and, as such, is determined based on the assumptions that market participants would use in pricing the asset or liability. The exit price objective of a fair value measurement applies regardless of the reporting entity’s intent and/or ability to sell the asset or transfer the liability at the measurement date.

ASC Topic 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present value amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset, also known as current replacement cost. Valuation techniques used to measure fair value are to be consistently applied.

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In ASC Topic 820, inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable:

| • | Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity.

| • | Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

Valuation techniques used to measure fair value are intended to maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into the following three levels:

| • | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

| • | Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data.

| • | Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are to be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.

The fair values of the Company’s investments are based upon prices provided by an independent pricing service. The Company has reviewed these prices for reasonableness and has not adjusted any prices received from the independent provider. Securities reported at fair value utilizing Level 1 inputs represent assets whose fair value is determined based upon observable unadjusted quoted market prices for identical assets in active markets. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar characteristics. There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2020.

At September 30, 2020, assets measured at fair value on a recurring basis are summarized below:

|  | September 30, 2020 |
|  | Level 1 Inputs |  |  | Level 2 Inputs |  |  | Level 3 Inputs |  |  | Total Fair Value |
|  | (in thousands) |
Financial instruments carried at fair value, classified as a part of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available-for-sale—fixed maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions |  | $ | — |  |  | $ | 275,371 |  |  | $ | — |  |  | $ | 275,371 |
Corporate bonds |  |  | — |  |  |  | 96,629 |  |  |  | — |  |  |  | 96,629 |
U.S. agency-based mortgage-backed securities |  |  | — |  |  |  | 24,310 |  |  |  | — |  |  |  | 24,310 |
U.S. Treasury securities |  |  | 29,927 |  |  |  | — |  |  |  | — |  |  |  | 29,927 |
Total securities available-for-sale—fixed maturity |  |  | 29,927 |  |  |  | 396,310 |  |  |  | — |  |  |  | 426,237 |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic common stock |  |  | 35,822 |  |  |  | — |  |  |  | — |  |  |  | 35,822 |
Total |  | $ | 65,749 |  |  | $ | 396,310 |  |  | $ | — |  |  | $ | 462,059 |

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At September 30, 2020, assets measured at amortized cost net of allowance for credit losses are summarized below:

|  | September 30, 2020 |
|  | Level 1 Inputs |  |  | Level 2 Inputs |  |  | Level 3 Inputs |  |  | Total Fair Value |
|  | (in thousands) |
Securities held-to-maturity—fixed maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions |  | $ | — |  |  | $ | 502,623 |  |  | $ | — |  |  | $ | 502,623 |
Corporate bonds |  |  | — |  |  |  | 73,585 |  |  |  | — |  |  |  | 73,585 |
U.S. agency-based mortgage-backed securities |  |  | — |  |  |  | 8,714 |  |  |  | — |  |  |  | 8,714 |
U.S. Treasury securities |  |  | 17,190 |  |  |  | — |  |  |  | — |  |  |  | 17,190 |
Obligations of U.S. government agencies |  |  | — |  |  |  | 5,050 |  |  |  | — |  |  |  | 5,050 |
Asset-backed securities |  |  | — |  |  |  | 177 |  |  |  | — |  |  |  | 177 |
Total held-to-maturity |  | $ | 17,190 |  |  | $ | 590,149 |  |  | $ | — |  |  | $ | 607,339 |

At December 31, 2019, assets measured at fair value on a recurring basis are summarized below:

|  | December 31, 2019 |
|  | Level 1 Inputs |  |  | Level 2 Inputs |  |  | Level 3 Inputs |  |  | Total Fair Value |
|  | (in thousands) |
Financial instruments carried at fair value, classified as a part of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available-for-sale—fixed maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions |  | $ | — |  |  | $ | 237,775 |  |  | $ | — |  |  | $ | 237,775 |
Corporate bonds |  |  | — |  |  |  | 133,778 |  |  |  | — |  |  |  | 133,778 |
U.S. agency-based mortgage-backed securities |  |  | — |  |  |  | 29,467 |  |  |  | — |  |  |  | 29,467 |
U.S. Treasury securities |  |  | 40,126 |  |  |  | — |  |  |  | — |  |  |  | 40,126 |
Total securities available-for-sale—fixed maturity |  | $ | 40,126 |  |  | $ | 401,020 |  |  | $ | — |  |  | $ | 441,146 |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic common stock |  |  | 27,903 |  |  |  | — |  |  |  | — |  |  |  | 27,903 |
Total |  | $ | 68,029 |  |  | $ | 401,020 |  |  | $ | — |  |  | $ | 469,049 |

At December 31, 2019, assets measured at amortized cost are summarized below:

|  | December 31, 2019 |
|  | Level 1 Inputs |  |  | Level 2 Inputs |  |  | Level 3 Inputs |  |  | Total Fair Value |
|  | (in thousands) |
Securities held-to-maturity—fixed maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
States and political subdivisions |  | $ | — |  |  | $ | 485,647 |  |  | $ | — |  |  | $ | 485,647 |
Corporate bonds |  |  | — |  |  |  | 110,925 |  |  |  | — |  |  |  | 110,925 |
U.S. agency-based mortgage-backed securities |  |  | — |  |  |  | 11,511 |  |  |  | — |  |  |  | 11,511 |
U.S. Treasury securities |  |  | 7,873 |  |  |  | — |  |  |  | — |  |  |  | 7,873 |
Obligations of U.S. government agencies |  |  | — |  |  |  | 5,168 |  |  |  | — |  |  |  | 5,168 |
Asset-backed securities |  |  | — |  |  |  | 219 |  |  |  | — |  |  |  | 219 |
Total held-to-maturity |  | $ | 7,873 |  |  | $ | 613,470 |  |  | $ | — |  |  | $ | 621,343 |

The Company determines fair value amounts for financial instruments using available third-party market information. When such information is not available, the Company determines the fair value amounts using appropriate valuation methodologies. Nonfinancial instruments such as real estate, property and equipment, deferred policy acquisition costs, deferred income taxes and loss and loss adjustment expense reserves are excluded from the fair value disclosure.

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Cash and Cash Equivalents —The carrying amounts reported in the accompanying consolidated balance sheets for these financial instruments approximate their fair values, which are characterized as Level 1 assets.

Investments —The fair values for fixed maturity and equity securities are based on prices obtained from an independent pricing service. Equity and treasury securities are characterized as Level 1 assets, as their fair values are based on quoted prices in active markets. Fixed maturity securities, other than treasury securities, are characterized as Level 2 assets, as their fair values are determined using observable market inputs.

Short Term Investments —The carrying amounts reported in the accompanying consolidated balance sheets for these financial instruments approximate their fair values. These securities are characterized as Level 2 assets in the fair value hierarchy.

The following table summarizes the carrying amounts and corresponding fair values for financial instruments:

|  | As of September 30, 2020 |  |  | As of December 31, 2019 |
|  | Carrying Amount |  |  | Fair Value |  |  | Carrying Amount |  |  | Fair Value |
|  | (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities—held-to-maturity |  | $ | 572,508 |  |  | $ | 607,339 |  |  | $ | 599,421 |  |  | $ | 621,343 |
Fixed maturity securities—available-for-sale |  |  | 426,237 |  |  |  | 426,237 |  |  |  | 441,146 |  |  |  | 441,146 |
Equity securities |  |  | 35,822 |  |  |  | 35,822 |  |  |  | 27,903 |  |  |  | 27,903 |
Short-term investments |  |  | 90,826 |  |  |  | 90,826 |  |  |  | 56,548 |  |  |  | 56,548 |
Cash and cash equivalents |  |  | 88,168 |  |  |  | 88,168 |  |  |  | 43,813 |  |  |  | 43,813 |

Note 9. Treasury Stock

The Company’s Board of Directors initiated a 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. There were no shares repurchased under this program in the nine months ended September 30, 2020 and 2019.

Note 10. Subsequent Events

On October 26, 2020, the Company’s Board of Directors declared an extraordinary dividend of $3.50 per share payable on November 18, 2020 to shareholders of record as of November 11, 2020.

On October 26, 2020, the Company’s Board of Directors declared a quarterly cash dividend of $0.27 per share payable on December 18, 2020 to shareholders of record as of December 4, 2020. The Board considers the payment of a regular cash dividend each calendar quarter.

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Item 2. 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, 2019.

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, 2020 and 2019. 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, manufacturing, agriculture, maritime, and oil and gas. 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.

Additional Risk Factor

The impact of COVID-19 could materially affect the business operations of our insurance subsidiaries and may adversely affect our revenues, results of operations, and cash flows.

Beginning in March 2020, the global pandemic began to impact the global economy creating disruptions in economic activity impacting our business and results of operations, as well as those of our policy holders. We cannot predict the direct or indirect ultimate impact that the economic and financial disruptions related to the COVID-19 pandemic will have on our business. We have identified ongoing risks related to the pandemic which include a decline in demand for insurance products, a reduction in hours worked by our policyholders, an inability to collect premium balances due, potential declines in the market value of our investments and the decline in interest rates on new investments. Additional risks include legislative, judicial and regulatory actions suspending cancellation of policies for non-payment of premiums, extension of grace periods for payment of premium balances, expansion of coverage to pay for losses not contemplated by our insurance policies, and an increase in frequency and severity related to COVID-19 compensable claims.

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.

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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, the impairment of 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, 2019.

Results of Operations

The following table summarizes our consolidated financial results for the three and nine months ended September 30, 2020 and 2019.

|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
|  | (dollars in thousands, except per share data) |
|  | (unaudited) |
Gross premiums written |  | $ | 72,648 |  |  | $ | 82,629 |  |  | $ | 240,008 |  |  | $ | 262,754 |
Net premiums earned |  |  | 74,771 |  |  |  | 82,712 |  |  |  | 229,725 |  |  |  | 250,611 |
Net investment income |  |  | 7,063 |  |  |  | 8,264 |  |  |  | 22,136 |  |  |  | 24,448 |
Total revenues |  |  | 83,005 |  |  |  | 91,488 |  |  |  | 251,256 |  |  |  | 278,431 |
Total expenses |  |  | 54,336 |  |  |  | 64,875 |  |  |  | 179,955 |  |  |  | 205,840 |
Net income |  |  | 23,353 |  |  |  | 21,386 |  |  |  | 58,101 |  |  |  | 58,676 |
Diluted earnings per common share |  | $ | 1.21 |  |  | $ | 1.11 |  |  | $ | 3.00 |  |  | $ | 3.04 |
Other Key Measures |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net combined ratio (1) |  |  | 72.8 | % |  |  | 78.4 | % |  |  | 78.4 | % |  |  | 82.1 | %
Return on average equity (2) |  |  | 19.8 | % |  |  | 18.6 | % |  |  | 17.0 | % |  |  | 17.8 | %
Book value per share (3) |  | $ | 24.93 |  |  | $ | 24.29 |  |  | $ | 24.93 |  |  | $ | 24.29 |

(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, 2020 Compared to September 30, 2019

Gross Premiums Written. Gross premiums written for the quarter ended September 30, 2020 were $72.6 million, compared to $82.6 million for the same period in 2019, a decrease of 12.1%. The decrease was attributable to an $8.3 million decrease in annual premiums on voluntary policies written during the period, a $0.9 million decrease in premiums resulting from payroll audits and related premium adjustments for policies written in previous quarters, and a $0.5 million decrease in assumed premium from mandatory pooling arrangements. The effective loss cost multiplier, or ELCM, for our voluntary business was 1.59 for the quarter ended September 30, 2020 compared to 1.62 for the same period in 2019.

Net Premiums Written. Net premiums written for the quarter ended September 30, 2020 were $70.2 million, compared to $80.5 million for the same period in 2019, a decrease of 12.8%. The decrease was primarily attributable to the decrease in gross premiums written. As a percentage of gross premiums earned, ceded premiums were 3.2% for the third quarter of 2020 compared to 2.6% for the third quarter of 2019. The increase in ceded premiums as a percentage of gross premiums earned is due to increased pricing for our 2020 reinsurance program. For additional information, see Item 1, “Business—Reinsurance” in our Annual Report on Form 10-K for the year ended December 31, 2019.

Net Premiums Earned. Net premiums earned for the third quarter of 2020 were $74.8 million, compared to $82.7 million for the same period in 2019, a decrease of 9.6%. 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 quarter ended September 30, 2020 was $7.1 million, compared to $8.3 million for the same period in 2019, a decrease of 14.5%. The decrease was due to lower investment yields on fixed income securitie s and cash balances. Average invested assets, including cash and cash equivalents, were $1.2 billion in the quarter s ended September 30, 2020 and 2019. The pre-tax investment yield on our investment portfolio was 2.3% per annum during the quarter ended September 30, 2020 compared to 2.7% per annum during the same period in 2019. The tax-equivalent yield on our investment portfolio was 2.8% per annum for the quarter ended September 30, 2020 and 3.1% for the same period in 2019. 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 September 30, 2020 totaled $0.3 million compared to immaterial net realized losses for the same period in 2019. Net realized gains in the third quarter of 2020 were attributable to the call of fixed maturity securities.

Net Unrealized Gains (Losses) on Equity Securities. Net unrealized gains on equity securities for the three months ended September 30, 2020 were $0.8 million compared to net unrealized gains of $0.4 million for the same period in 2019.

Loss and Loss Adjustment Expenses Incurred. Loss and loss adjustment expenses (“LAE”) incurred totaled $39.8 million for the three months ended September 30, 2020, compared to $44.3 million for the same period in 2019, a decrease of $4.5 million, or 10.2%. The current accident year loss and LAE incurred were $54.2 million, or 72.5% of net premiums earned, compared to $60.0 million, or 72.5% of net premiums earned for the same period in 2019. We recorded favorable prior accident year development of $14.4 million in the third quarter of 2020, compared to favorable prior accident year development of $15.6 million in the same period of 2019, as further discussed below in “Prior Year Development.” Our net loss ratio was 53.2% in the third quarter of 2020, compared to 53.6% for the same period of 2019.

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, 2020 were $13.9 million, compared to $19.3 million for the same period in 2019, a decrease of 27.9%. This decrease was primarily due to a decrease in insurance related assessments of $5.3 million and a $0.5 million decrease in commission expense. The decrease in insurance related assessments included an adjustment of $5.7 million due to the early termination of an assessment related to a state multiple injury fund. Offsetting these decreases was an increase of $0.6 million in compensation expense due to a decrease in the estimate of variable share price based incentive compensation recorded in last year’s third quarter. Our expense ratio was 18.6% in the third quarter of 2020 compared to 23.3% in the third quarter of 2019.

Income Tax Expense. Income tax expense for the three months ended September 30, 2020 was $5.3 million, compared to $5.2 million for the same period in 2019. The increase was attributable to an increase in the pre-tax income to $28.7 million in the quarter ended September 30, 2020 from $26.6 million in the same period in 2019. The effective tax rate for the Company decreased to 18.5% in the quarter ended September 30, 2020 from 19.6% in the same period in 2019. The decrease in the effective tax rate is due to a higher proportion of tax-exempt income to underwriting income in 2020 relative to 2019.

Consolidated Results of Operations for Nine Months Ended September 30, 2020 Compared to September 30, 2019

Gross Premiums Written. Gross premiums written for the nine months ended September 30, 2020 were $240.0 million, compared to $262.8 million for the same period in 2019, a decrease of 8.7%. The decrease was attributable to an $18.5 million decrease in annual premiums on voluntary policies written during the period and a $3.1 million decrease in premiums resulting from payroll audits and related premium adjustments for policies written in previous quarters. Premiums resulting from payroll audits and related premium adjustments in the current year included a $2.1 million reduction in anticipated future audit premiums. The ELCM for our voluntary business was 1.58 for the nine months ended September 30, 2020 compared to 1.61 for the same period in 2019.

Net Premiums Written. Net premiums written for the nine months ended September 30, 2020 were $232.1 million, compared to $256.0 million for the same period in 2019, a decrease of 9.3%. The decrease was primarily attributable to the decrease in gross premiums written. As a percentage of gross premiums earned, ceded premiums were 3.3% for the first nine months of 2020 compared to 2.6% for the same period in 2019. The increase in ceded premiums as a percentage of gross premiums earned is due to increased pricing for our 2020 reinsurance program. For additional information, see Item 1, “Business—Reinsurance” in our Annual Report on Form 10-K for the year ended December 31, 2019.

Net Premiums Earned. Net premiums earned for the nine months ended September 30, 2020 were $229.7 million, compared to $250.6 million for the same period in 2019, a decrease of 8.3%. 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 2020 was $22.1 million, compared to $24.4 million for the same period in 2019, a decrease of 9.5%. The decrease was due to lower investment yields on fixed income securities and cash balances. A verage invested assets, including cash and cash equivalents were $1.2 billion in the nine months ended September 30, 2020 and 2019. The pre-tax investment yield on our investment portfolio was 2.5% per annum during the nine months ended September 30, 2020 compared to 2.7% per annum for the same period in 2019. The tax-equivalent yield on our investment portfolio was 2.8% per annum for the first nine months of 2020 compared to 3.1% in the same period in 2019. The tax-equivalent yield is calculated using the effective interest rate and the appropriate marginal tax rate.

Net Realized Gains (Losses) on Investments. Net realized gains on investments for the nine months ended September 30, 2020 were $1.5 million compared to immaterial net realized losses for the same period in 2019. Net realized gains in the first nine months of 2020 were attributable to sales and calls of fixed maturity securities classified as available-for-sale.

Net Unrealized Gains (Losses) on Equity Securities. Net unrealized losses on equity securities for the nine months ended September 30, 2020 were $2.3 million compared to net unrealized gains of $3.2 million for the same period in 2019.

Loss and Loss Adjustment Expenses Incurred. Loss and LAE incurred totaled $121.0 million for the nine months ended September 30, 2020, compared to $142.8 million for the same period in 2019, a decrease of $21.8 million, or 15.3%. The current accident year loss and LAE incurred were $166.6 million, or 72.5% of net premiums earned, compared to $181.7 million, or 72.5% of net premiums earned, for the same period in 2019. We recorded favorable prior accident year development of $45.6 million in the first nine months of 2020, compared to favorable prior accident year development of $38.9 million in the same period of 2019, as further discussed below in “Prior Year Development.” Our net loss ratio was 52.7% in the first nine months of 2020, compared to 57.0% for the same period of 2019.

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, 2020 were $56.3 million, compared to $59.7 million for the same period in 2019, a decrease of 5.6%. This decrease was primarily due to a decrease in insurance related assessments of $4.1 million, a $1.3 million decrease in commission expense, and a $0.8 million decrease in travel and travel related items. The decrease in insurance related assessments included an adjustment of $5.7 million due to the early termination of an assessment related to a state multiple injury fund. Partially offsetting these decreases were a $2.3 million increase in compensation expense due to a lower estimate of variable share price based incentive compensation costs recorded in the prior year and an increase of $0.6 in accounts receivable write-offs. Our expense ratio was 24.5% in the first nine months of 2020 compared to 23.8% for the same period in 2019 partially as a result of lower earned premium.

Income Tax Expense. Income tax expense for the nine months ended September 30, 2020 was $13.2 million, compared to $13.9 million for the same period in 2019. The decrease was attributable to a decrease in pre-tax income to $71.3 million in the first nine months of 2020 from $72.6 million in the first nine months of 2019. The effective tax rate for the Company decreased to 18.5% for the nine months ended September 30, 2020 from 19.2% for the nine months ended September 30, 2019. The decrease in the effective tax rate is due to a higher proportion of tax-exempt income to underwriting income for the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019.

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 $50.9 million for the nine months ended September 30, 2020, which represented an $11.6 million decrease from $62.5 million in net cash provided by operating activities for the nine months ended September 30, 2019. This decrease in operating cash flow was due to a $29.1 million decrease in premium collections as a result of lower written premium in prior periods, and a $2.2 million decrease in investment income. Offsetting these amounts were a $7.9 million decrease in amounts held by others, a $4.5 million decrease in underwriting expenses paid a $4.3 million decrease in losses paid, and a $2.7 million decrease in federal taxes paid.

Net cash provided by investing activities was $9.4 million for the nine months ended September 30, 2020, compared to net cash provided by investment activities of $37.8 million for the same period in 2019. Cash provided by sales and maturities of investments totaled $240.0 million for the nine months ended September 30, 2020, compared to $283.8 million for the same period in 2019. A total of $230.0 million in cash was used to purchase investments in the nine months ended September 30, 2020, compared to $245.2 million in purchases for the same period in 2019.

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Net cash used in financing activities in the nine months ended September 30, 2020 was $15.9 million compared to net cash used in financing activities of $14.7 million for the same period in 2019. In the nine months ended September 30, 2020, $15.9 million of cash was used for dividends paid to shareholders compared to $14.7 million in the same period of 2019.

Investment Portfolio

Our investment portfolio, including cash and cash equivalents, totaled $1.2 billion at September 30, 2020 and December 31, 2019. 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, 2020, is shown in the following table:

|  | Carrying Amount |  |  | Percentage of Portfolio |
|  | (in thousands) |
Fixed maturity securities—held-to-maturity: |  |  |  |  |  |  |  |
States and political subdivisions |  | $ | 471,875 |  |  |  | 38.9 | %
Corporate bonds |  |  | 70,479 |  |  |  | 5.8 | %
U.S. agency-based mortgage-backed securities |  |  | 8,070 |  |  |  | 0.7 | %
U.S. Treasury securities and obligations of U.S. government agencies |  |  | 21,914 |  |  |  | 1.8 | %
Asset-backed securities |  |  | 170 |  |  |  | — |
Total fixed maturity securities—held-to-maturity |  |  | 572,508 |  |  |  | 47.2 | %
Fixed maturity securities—available-for-sale: |  |  |  |  |  |  |  |
States and political subdivisions |  |  | 275,371 |  |  |  | 22.7 | %
Corporate bonds |  |  | 96,629 |  |  |  | 7.9 | %
U.S. agency-based mortgage-backed securities |  |  | 24,310 |  |  |  | 2.0 | %
U.S. Treasury securities and obligations of U.S. government agencies |  |  | 29,927 |  |  |  | 2.5 | %
Total fixed maturity securities—available-for-sale |  |  | 426,237 |  |  |  | 35.1 | %
Equity securities |  |  | 35,822 |  |  |  | 2.9 | %
Short-term investments |  |  | 90,826 |  |  |  | 7.5 | %
Cash and cash equivalents |  |  | 88,168 |  |  |  | 7.3 | %
Total investments, including cash and cash equivalents |  | $ | 1,213,561 |  |  |  | 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 CECL, management is required to estimate held-to-maturity expected credit related losses and recognize a credit loss allowance on the balance sheet with a corresponding adjustment to earnings. Any adjustment to the estimated expected credit related losses are recognized through earnings and adjustment to the credit loss allowance.

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Prior Year Development

The Company recorded favorable prior accident year development of $14.4 million in the three months ended September 30, 2020. The table below sets forth the favorable development for the three and nine months ended September 30, 2020 and 2019 for accident years 2015 through 2019 and, collectively, for all accident years prior to 2015.

|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
|  | (in millions) |
Accident Year |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2019 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
2018 |  |  | 2.6 |  |  |  | — |  |  |  | 8.5 |  |  |  | — |
2017 |  |  | 4.8 |  |  |  | 1.9 |  |  |  | 10.5 |  |  |  | 3.2 |
2016 |  |  | 0.9 |  |  |  | 6.5 |  |  |  | 6.8 |  |  |  | 15.9 |
2015 |  |  | 1.3 |  |  |  | 3.3 |  |  |  | 8.0 |  |  |  | 8.3 |
Prior to 2015 |  |  | 4.8 |  |  |  | 3.9 |  |  |  | 11.8 |  |  |  | 11.5 |
Total net development |  | $ | 14.4 |  |  | $ | 15.6 |  |  | $ | 45.6 |  |  | $ | 38.9 |

The table below sets forth the number of open claims as of September 30, 2020 and 2019, and the number of claims reported and closed during the three and nine months then ended.

|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Open claims at beginning of period |  |  | 4,621 |  |  |  | 4,978 |  |  |  | 5,053 |  |  |  | 5,190 |
Claims reported |  |  | 1,252 |  |  |  | 1,472 |  |  |  | 3,358 |  |  |  | 4,032 |
Claims closed |  |  | (1,112 | ) |  |  | (1,414 | ) |  |  | (3,650 | ) |  |  | (4,186 | )
Open claims at end of period |  |  | 4,761 |  |  |  | 5,036 |  |  |  | 4,761 |  |  |  | 5,036 |

The number of open claims at September 30, 2020 decreased by 275 claims as compared to the number of open claims at September 30, 2019. At September 30, 2020, our incurred amounts for certain accident years, particularly 2014 through 2018, 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, 2020, 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, 2019.

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Item 3. Quantitative and Qualitati ve Disclosures About Market Risk.

Market risk is the risk of potential economic loss principally arising from adverse changes in the fair value of financial instruments. The major components of market risk affecting us are credit risk, interest rate risk, and equity price risk. We currently have no exposure to foreign currency risk.

Since December 31, 2019, there have been no material changes in the quantitative or qualitative aspect of our market risk profile. For additional information regarding the Company’s exposure to certain market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2019.

Item 4. Controls and Procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that information we are required to disclose in reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms specified by the SEC. We note that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated goals under all potential future conditions.

Because of its inherent limitations, management does not expect that our disclosure controls and procedures and our internal controls over financial reporting will prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate. Any control system, no matter how well designed and operated, is based upon certain assumptions and can only provide reasonable, not absolute assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to errors or fraud will not occur or that all control issues and instances of fraud, if any within the Company, have been detected.

There have not been any changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The Board of Directors initially authorized the Company’s share repurchase program in February 2010. In October 2016, the Board reauthorized this program with no expiration date. As of September 30, 2020, we had repurchased a total of 1,258,250 shares of our outstanding common stock for $22.4 million. The Company had $25.0 million available for future purchases at September 30, 2020 under this program. There were no shares repurchased during the three months ended September 30, 2020 and 2019. 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.

Item 6. Exhibits.

Exhibit No. |  | Description
31.1 |  | Certification of G. Janelle Frost filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 |  | Certification of Neal A. Fuller filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 |  | Certification of G. Janelle Frost and Neal A. Fuller filed pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS |  | XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
104 |  | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | AMERISAFE, INC.
October 30, 2020 |  | /s/ G. Janelle Frost
|  | G. Janelle Frost
|  | President, Chief Executive Officer and Director
|  | (Principal Executive Officer)
October 30, 2020 |  | /s/ Neal A. Fuller
|  | Neal A. Fuller
|  | Executive Vice President and Chief Financial Officer
|  | (Principal Financial and Accounting Officer)

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