AMERISAFE INC

Previous wording

The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of its consolidated financial position, results of operations and cash flows. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8 of this report. This discussion includes forward-looking statements that are not guarantees of future performance and are not necessarily indicative of future operating results. See “Forward-Looking Statements” in Part I above for further discussion.

Current wording

The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of its consolidated financial position, results of operations and cash flows. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8 of this report. This discussion includes forward-looking statements that are not guarantees of future performance and are not necessarily indicative of future operating results. See “Cautionary Statement Regarding Forward-Looking Statements” in Part I above for further discussion.

Previous wording

We are a holding company that markets and underwrites workers’ compensation insurance through its insurance subsidiaries. Workers’ compensation insurance covers statutorily prescribed benefits that employers are obligated to provide to their employees who are injured in the course and scope of their employment. Our business strategy is focused on providing this coverage to small to mid-sized employers engaged in hazardous industries, principally construction, trucking, logging and lumber, agriculture, manufacturing, maritime, and telecommunications. 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 most 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 effectively manage 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.

Current wording

We are a holding company that markets and underwrites workers’ compensation insurance through its insurance subsidiaries. Workers’ compensation insurance covers statutorily prescribed benefits that employers are obligated to provide to their employees who are injured in the course and scope of their employment. Our business strategy is focused on providing this coverage to small to mid-sized employers engaged in hazardous industries, principally construction, trucking, logging and lumber, agriculture, services, manufacturing, and maritime. Employers engaged in hazardous industries 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 most employers’ workplaces. These safety reviews are a vital component of our underwriting process and also promote safer workplaces. We utilize proactive claims management practices that we believe permit us to effectively manage the overall cost of our claims. In addition, our 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.

Previous wording

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.

Current wording

We actively market our insurance in 27 states through independent agencies, as well as through our wholly-owned insurance agency subsidiary, Amerisafe General Agency, Inc. We are also licensed in an additional 20 states, the District of Columbia and the U.S. Virgin Islands.

Previous wording

Two of the key financial measures that we use to evaluate our performance are return on average equity and growth in book value per share adjusted for dividends paid to shareholders. We calculate return on average equity by dividing annual net income by the average of annual shareholders’ equity. Our return on average equity was 20.2% in 2024, 20.4% in 2023 and 15.5% in 2022. We calculate book value per share by dividing ending shareholders’ equity by the number of common shares outstanding. Our book value per share was $13.51 at December 31, 2024, $15.28 at December 31, 2023 and $16.57 at December 31, 2022. We paid cash dividends of $4.48 per share in 2024, $4.86 per share in 2023 and $5.24 per share in 2022.

Current wording

Two of the key financial measures that we use to evaluate our performance are return on average equity and growth in book value per share adjusted for dividends paid to shareholders. We calculate return on average equity by dividing annual net income by the average of annual shareholders’ equity. Our return on average equity was 18.5% in 2025, 20.2% in 2024 and 20.4% in 2023. We calculate book value per share by dividing ending shareholders’ equity by the number of common shares outstanding. Our book value per share was $13.39 at December 31, 2025, $13.51 at December 31, 2024 and $15.28 at December 31, 2023. We paid cash dividends of $2.56 per share in 2025, $4.48 per share in 2024 and $4.86 per share in 2023.

Previous wording

Investment income is an important element of our net income. Because the period of time between our receipt of premiums and the ultimate settlement of claims is often several years or longer, we are able to invest cash from premiums for significant periods of time. As a result, we are able to generate more investment income from our premiums as compared to insurance companies that operate in other lines of business that pay claims more quickly. At December 31, 2024, our investment portfolio, including cash and cash equivalents, was $832.8 million and produced net investment income of $29.2 million in 2024, $31.3 million in 2023 and $27.2 million in 2022.

Current wording

Investment income is an important element of our net income. Because the period of time between our receipt of premiums and the ultimate settlement of claims is often several years or longer, we are able to invest cash from premiums for significant periods of time. As a result, we are able to generate more investment income from our premiums as compared to insurance companies that operate in other lines of business that pay claims more quickly. At December 31, 2025, our investment portfolio, including cash and cash equivalents, was $796.8 million and produced net investment income of $27.0 million in 2025, $29.2 million in 2024 and $31.3 million in 2023.

Previous wording

The use of reinsurance is an important component of our business strategy. We purchase reinsurance to reduce our net liability on individual risks and to protect against catastrophic losses. Our reinsurance program for 2025 includes 26 reinsurers that provide coverage to us in excess of a certain specified loss amount, or retention level. Our 2025 reinsurance program provides us with reinsurance coverage for each loss occurrence up to $100.0 million, subject to applicable limitations, deductibles, retentions and aggregate limits. However, for any loss occurrence involving only one claimant, our reinsurance coverage is limited to $20.0 million, subject to applicable deductibles, retentions and aggregate limits. Losses in the layer between $2.0 million and $10.0 million are ceded to a multi-year reinsurance treaty. As losses are incurred and recorded, we record amounts recoverable from reinsurers for the portion of the losses ceded to our reinsurers.

Current wording

The use of reinsurance is an important component of our business strategy. We purchase reinsurance to reduce our net liability on individual risks and to protect against catastrophic losses. For more information about our 2026 reinsurance program, see “Business—Reinsurance” in Item 1 of this report. As losses are incurred and recorded, we record amounts recoverable from reinsurers for the portion of the losses ceded to our reinsurers.

Previous wording

For example, for the five-year period ended December 31, 2024 we recorded 86 severe claims, representing an average of 17 severe claims per year for accident years 2020 through 2024. The number of severe claims in any one accident year in this five-year period ranged from a low of 14 in 2023 to a high of 20 in 2021. The average reported case severity for these claims ranged from $2.28 million for the 2023 accident year to $3.96 million for the 2021 accident year. For the five accident years, the case incurred for these severe claims accounted for an average of 18.2 percentage points of our overall loss and loss adjustment expense (LAE) ratio, measured at December 31, 2024.

Current wording

For example, for the five-year period ended December 31, 2025 we recorded 91 severe claims, representing an average of 18 severe claims per year for accident years 2021 through 2025. The number of severe claims in any one accident year in this five-year period ranged from a low of 12 in 2023 to a high of 25 in 2025. The average reported case severity for these claims ranged from $2.0 million for the 2025 accident year to $3.8 million for the 2021 accident year. For the five accident years, the case incurred for these severe claims accounted for an average of 18.6 percentage points of our overall loss and loss adjustment expense (LAE) ratio, measured at December 31, 2025.

Previous wording

Our gross reserves for loss and loss adjustment expenses at December 31, 2024, 2023 and 2022 were $651.3 million, $674.0 million and $696.0 million, respectively. As a percentage of gross reserves at year end, IBNR represented 16.5% in 2024, 17.8% in 2023 and 17.1% in 2022.

Current wording

Our gross reserves for loss and loss adjustment expenses at December 31, 2025, 2024 and 2023 were $613.6 million, $651.3 million and $674.0 million, respectively. As a percentage of gross reserves at year end, reserves for expenses incurred but not reported (IBNR) represented 10.5% in 2025, 16.5% in 2024 and 17.8% in 2023.

Previous wording

In 2024, we decreased our estimates for prior year loss reserves by $34.9 million. In 2023, we decreased our estimates for prior year loss reserves by $41.4 million. In 2022, we decreased our estimates for prior year loss reserves by $40.6 million.

Current wording

In 2025, we decreased our estimates for prior year loss reserves by $33.9 million. In 2024, we decreased our estimates for prior year loss reserves by $34.9 million. In 2023, we decreased our estimates for prior year loss reserves by $41.4 million.

Previous wording

Net Investment Income and Net Realized Gains and Losses on Investments. We invest our statutory surplus funds and the funds supporting our insurance liabilities in fixed maturity securities, equity securities and alternative investments. In addition, a portion of these funds are held in cash and cash equivalents to pay current claims. Our net investment income includes interest and dividends earned on our invested assets and amortization of premiums and discounts on our fixed maturity securities. We assess the performance of our investment portfolio using a standard tax equivalent yield metric. Investment income that is tax-exempt is increased by our marginal federal tax rate to express yield on tax-exempt securities on the same basis as taxable securities. Net realized gains and losses on our investments are reported separately from our net investment income. Net realized gains occur when our investment securities are sold for more than their cost or amortized cost, as applicable. Net realized losses occur when our investment securities are sold for less than their cost or amortized cost, as applicable. We classify the majority of our fixed maturity securities as held-to-maturity. The remainder of our fixed maturity securities are classified as available-for-sale. Net unrealized gains or losses on our securities classified as available-for-sale are reported separately within accumulated other comprehensive income (loss) on our balance sheet. Changes in net unrealized gains or losses on our equity securities are recognized in net income.

Current wording

Net Investment Income and Net Realized Gains and Losses on Investments. We invest our statutory surplus funds and the funds supporting our insurance liabilities in fixed maturity securities, equity securities and alternative investments. In addition, a portion of these funds are held in cash and cash equivalents to pay current claims. Our net investment income includes interest and dividends earned on our invested assets and amortization of premiums and discounts on our fixed maturity securities. We assess the performance of our investment portfolio using a standard tax equivalent yield metric. Investment income that is tax-exempt is increased by our marginal federal tax rate to express yield on tax-exempt securities on the same basis as taxable securities. Net realized gains and losses on our investments are reported separately from our net investment income. Net realized gains occur when our investment securities are sold for more than their cost or amortized cost, as applicable. Net realized losses occur when our investment securities are sold for less than their cost or amortized cost, as applicable. We classify just over a majority of our fixed maturity securities as held-to-maturity. The remainder of our fixed maturity securities are classified as available-for-sale. Net unrealized gains or losses on our securities classified as available-for-sale are reported separately within accumulated other comprehensive income (loss) on our balance sheet. Changes in net unrealized gains or losses on our equity securities are recognized in net income.

Previous wording

Fee and Other Income. We recognize commission income earned on policies issued by other carriers that are sold by our wholly-owned insurance agency subsidiary as the related services are performed. We also recognize a small portion of interest income from mandatory pooling arrangements in which we participate.

Current wording

Fee and Other Income. We recognize commission income earned on policies issued by other carriers that are sold by our wholly-owned insurance agency subsidiary, Amerisafe General Agency, Inc., as the related services are performed. We also recognize a small portion of interest income from mandatory pooling arrangements in which we participate.

Previous wording

Commissions. We pay commissions to our subsidiary insurance agency and to the independent agencies that sell our insurance based on premiums collected from policyholders.

Current wording

Commissions. We pay commissions to our wholly-owned subsidiary insurance agency, Amerisafe General Agency, Inc., and to the independent agencies that sell our insurance based on premiums collected from policyholders.

Previous wording

In establishing our reserves, we review the results of analyses using actuarial methods that utilize historical loss data from our more than 39 years of underwriting workers’ compensation insurance. The actuarial analysis of our historical data provides the factors we use in estimating our loss reserves. These factors are primarily measures over time of the number of claims paid and reported, average paid and incurred claim amounts, claim closure rates and claim payment patterns. In evaluating the results of our analyses, management also uses substantial judgment in considering other factors that are not considered in these actuarial analyses, including changes in business mix, claims management, regulatory issues, medical trends, employment and wage patterns, insurance policy coverage interpretations, judicial determinations and other subjective factors. Due to the inherent uncertainty associated with these estimates, and the cost of incurred but unreported claims, our actual liabilities may vary significantly from our original estimates.

Current wording

In establishing our reserves, we review the results of analyses using actuarial methods that utilize historical loss data from our more than 40 years of underwriting workers’ compensation insurance. The actuarial analysis of our historical data provides the factors we use in estimating our loss reserves. These factors are primarily measures over time of the number of claims paid and reported, average paid and incurred claim amounts, claim closure rates and claim payment patterns. In evaluating the results of our analyses, management also uses substantial judgment in considering other factors that are not considered in these actuarial analyses, including changes in business mix, claims management, regulatory issues, medical trends, employment and wage patterns, insurance policy coverage interpretations, judicial determinations and other subjective factors. Due to the inherent uncertainty associated with these estimates, and the cost of incurred but unreported claims, our actual liabilities may vary significantly from our original estimates.

Previous wording

Premiums Receivable. Premiums receivable represents premium-related balances due from our policyholders based on annual premiums for policies written, including surcharges and deposits and adjustments for premium audits, endorsements, cancellations, cash transactions and charge offs. The balance is shown net of an allowance for credit losses and includes an estimate for EBUB. The EBUB estimate is subject to significant variability and can either increase or decrease premiums receivable and earned premiums based upon several factors, including changes in premium growth, industry mix and economic conditions. EBUB assumptions include historical development factors, current economic outlook and current trends in particular sectors of our business.

Current wording

Premiums Receivable. Premiums receivable represents premium-related balances due from our policyholders based on annual premiums for policies written, including surcharges and deposits and adjustments for premium audits, endorsements, cancellations, cash transactions and charge offs. The balance is shown net of an allowance for credit losses and includes an estimate for EBUB. The EBUB estimate is subject to significant variability and can either increase or decrease premiums receivable and earned premiums based upon several factors, including changes in premium growth, industry mix and economic conditions. EBUB assumptions include historical development factors, current economic outlook and current trends in particular sectors of our policyholders' business.

Previous wording

Gross Premiums Written. Gross premiums written for 2023 were $285.4 million, compared to $276.1 million for 2022, an increase of 3.3%. The increase was attributable to a $10.1 million increase in premiums resulting from payroll audits and related premium adjustments for policies written in previous periods, and a $0.8 million increase in annual premiums on voluntary policies written during the period. The increases were partially offset by a $1.6 million decrease in residual market premium.

Current wording

Gross Premiums Written. Gross premiums written for 2025 were $313.9 million, compared to $294.1 million for 2024, an increase of 6.7%. The increase was attributable to a $27.1 million increase in annual premiums on voluntary policies written during the period, driven mostly by a 10.2% increase in in-force policy count. This increase was partially offset by a $7.6 million decrease in premiums resulting from payroll audits and related premium adjustments for policies written in previous periods.

Previous wording

Net Premiums Written. Net premiums written for 2023 were $268.7 million, compared to $265.6 million for 2022, an increase of 1.2%. The increase was primarily attributable to the increase in gross premiums written. As a percentage of gross premiums earned, ceded premiums were 5.9% for 2023 compared to 3.7% for 2022. Ceded premiums increased as we purchased higher levels of reinsurance coverage at generally higher prices in 2023. For additional information, see Item 1, “Business—Reinsurance.”

Current wording

Net Premiums Written. Net premiums written for 2025 were $296.6 million, compared to $276.0 million for 2024, an increase of 7.5%. The increase was primarily attributable to the increase in gross premiums written. As a percentage of gross premiums earned, ceded premiums were 5.7% for 2025 compared to 6.3% for 2024. Ceded premiums decreased as we purchased levels of reinsurance coverage at generally lower prices in 2025. For additional information, see Item 1, “Business—Reinsurance.”

Previous wording

Net Investment Income. Net investment income in 2023 was $31.3 million, an increase of 15.1% from the $27.2 million reported in 2022. The increase was due to higher fixed income reinvestment rates in relation to portfolio rolloff. The average pre-tax investment yield on our investment portfolio was 3.4% per annum for 2023 versus 2.7% per annum for 2022. The year-end tax-equivalent yield on our investment portfolio was 3.7% per annum for 2023, compared to 3.4% per annum for 2022. The tax-equivalent yield is calculated using the effective interest rate and the appropriate marginal tax rate. Average invested assets, including cash and cash equivalents, decreased 9.1%, from an average of $1,051.2 million for 2022 to an average of $955.8 million for 2023.

Current wording

Net Investment Income. Net investment income in 2025 was $27.0 million, a decrease of 7.6% from the $29.2 million reported in 2024. The decrease was due to lower average invested asset balances in the period compared to prior year. Average invested assets, including cash and cash equivalents, decreased 8.2%, from an average of $890.4 million for 2024 to an average of $817.2 million for 2025. The average pre-tax net investment yield on our investment portfolio was 3.3% per annum for 2025, compared to 3.4% per annum for 2024. The year-end tax-equivalent yield on our investment portfolio was 3.8% per annum for both 2025 and 2024. The tax-equivalent yield is calculated using the effective interest rate and the appropriate marginal tax rate.

Previous wording

Net Unrealized Gains (Losses) on Equity Securities. Net unrealized gains on equity securities in 2023 were $1.2 million compared to net unrealized losses of $8.1 million in 2022.

Current wording

Net Unrealized Gains on Equity Securities. Net unrealized gains on equity securities in 2025 were $3.7 million compared to net unrealized gains on equity securities of $9.5 million in 2024.

Previous wording

Loss and Loss Adjustment Expenses Incurred. Loss and LAE incurred totaled $148.3 million for 2023, compared to $152.3 million for 2022, a decrease of $4.1 million, or 2.7%. The current accident year losses and LAE incurred were $189.7 million, or 71.0% of net premiums earned, compared to $192.9 million, or 71.0% of net premiums earned for 2022. We recorded favorable prior accident year development of $41.4 million in 2023, compared to $40.6 million in 2022. This is discussed in more detail below in “Prior Year Development.” Our net loss ratio was 55.5% for 2023 and 56.1% for 2022.

Current wording

Loss and Loss Adjustment Expenses Incurred. Loss and LAE incurred totaled $169.9 million for 2025, compared to $157.3 million for 2024, an increase of $12.7 million, or 8.1%. The current accident year losses and LAE incurred were $203.8 million, or 72.0% of net premiums earned, compared to $192.2 million, or 71.0% of net premiums earned for 2024. The Company increased the 2025 accident year loss ratio from 71% to 72% largely due to the frequency of severity observed in accident year 2025 compared with prior accident years. We recorded favorable prior accident year development of $33.9 million in 2025, compared to $34.9 million in 2024. This is discussed in more detail below in “Prior Year Development.” Our net loss ratio was 60.0% for 2025 and 58.1% for 2024.

Previous wording

Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other operating costs, commissions and salaries and benefits for 2023 were $78.3 million, compared to $72.0 million for 2022. The Company experienced a $4.1 million increase in insurance related assessments, a $2.0 million increase in commission expense, a $1.5 million increase in professional fees, and a $0.8 million increase in compensation expense. The increase in insurance related assessments included a benefit of $3.8 million in 2022 due to the return of assessments from the Minnesota Workers' Compensation Reinsurance Association. Offsetting these amounts were a $1.6 million increase in profit sharing reinsurance commission, a decrease of $0.8 million in accounts receivable write-offs, a $0.6 million decrease in taxes, licenses and fees, and an increase of $0.5 million in ceding commission related to our current year reinsurance agreement. Our underwriting expense ratio increased to 29.3% in 2023 from 26.5% in 2022.

Current wording

Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other operating costs, commissions and salaries and benefits for 2025 were $86.0 million, compared to $80.1 million for 2024. The increase was primarily due to a $3.1 million increase in insurance related assessments, a $1.5 million increase in compensation expense, a $1.3 million increase in commission expense and a $0.5 million increase in accounts receivable write-offs. Partially offsetting these amounts were a $0.9 million decrease in professional fees and a $0.6 million decrease in taxes and fees. Our underwriting expense ratio increased to 30.4% in 2025 from 29.6% in 2024.

Previous wording

Net Investment Income. Net investment income in 2024 was $29.2 million, a decrease of 6.8% from the $31.3 million reported in 2023. The decrease was due to lower average invested asset balances in the period compared to prior year as well as lower investment yields on fixed income securities and cash compared to prior year. The average pre-tax investment yield on our investment portfolio was 3.4% per annum for 2024 and 2023. The year-end tax-equivalent yield on our investment portfolio was 3.8% per annum for 2024, compared to 3.7% per annum for 2023. The tax-equivalent yield is calculated using the effective interest rate and the appropriate marginal tax rate. Average invested assets, including cash and cash equivalents, decreased 6.9%, from an average of $955.8 million for 2023 to an average of $890.4 million for 2024.

Current wording

Net Investment Income. Net investment income in 2024 was $29.2 million, a decrease of 6.8% from the $31.3 million reported in 2023. The decrease was due to lower average invested asset balances in the period compared to prior year as well as lower investment yields on fixed income securities and cash compared to prior year. Average invested assets, including cash and cash equivalents, decreased 6.9%, from an average of $955.8 million for 2023 to an average of $890.4 million for 2024. The average pre-tax net investment yield on our investment portfolio was 3.4% per annum for 2024 and 2023. The year-end tax-equivalent yield on our investment portfolio was 3.8% per annum for 2024, compared to 3.7% per annum for 2023. The tax-equivalent yield is calculated using the effective interest rate and the appropriate marginal tax rate.

Previous wording

Net Realized Gains (Losses) on Investments. Net realized losses on investments in 2024 totaled $0.6 million compared to gains of $6.6 million in 2023. In 2024, net realized losses resulted primarily from the sale of equity and fixed maturity securities classified as available-for-sale as well as the redemption of fixed maturity securities. In 2023, net realized gains resulted primarily from the sale of equity securities.

Current wording

Net Realized Gains (Losses) on Investments. Net realized losses on investments in 2024 totaled $0.6 million compared to net realized gains on investments of $6.6 million in 2023. In 2024, net realized losses on investments resulted primarily from the sale of equity and fixed maturity securities classified as available-for-sale as well as the redemption of fixed maturity securities. In 2023, net realized gains on investments resulted primarily from the sale of equity securities.

Previous wording

Net Unrealized Gains (Losses) on Equity Securities. Net unrealized gains on equity securities in 2024 were $9.5 million compared to net unrealized gains of $1.2 million in 2023.

Current wording

Net Unrealized Gains on Equity Securities. Net unrealized gains on equity securities in 2024 were $9.5 million compared to net unrealized gains on equity securities of $1.2 million in 2023.

Previous wording

Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other operating costs, commissions and salaries and benefits for 2024 were $80.1 million, compared to $78.3 million for 2023. The Company experienced a $3.3 million increase in compensation expense, a $0.7 million decrease in profit sharing reinsurance commission, a $0.7 million increase in accounts receivable write-offs, a $0.4 million increase in travel and travel related items, and a $0.3 million increase in commission expense. Offsetting these amounts were a $2.2 million decrease in insurance related assessments, a $0.4 million increase in ceding commission related to our current year reinsurance agreement, a $0.4 million increase in deferred policy acquisition costs, and a $0.3 million decrease in systems costs. Our underwriting expense ratio increased to 29.6% in 2024 from 29.3% in 2023.

Current wording

Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other operating costs, commissions and salaries and benefits for 2024 were $80.1 million, compared to $78.3 million for 2023. The increase was primarily due to a $3.3 million increase in compensation expense, a $0.7 million decrease in profit sharing reinsurance commission, a $0.7 million increase in accounts receivable write-offs, a $0.4 million increase in travel and travel related items, and a $0.3 million increase in commission expense. Partially offsetting these amounts were a $2.2 million decrease in insurance related assessments, a $0.4 million increase in ceding commission related to our current year reinsurance agreement, a $0.4 million increase in deferred policy acquisition costs, and a $0.3 million decrease in systems costs. Our underwriting expense ratio increased to 29.6% in 2024 from 29.3% in 2023.

Previous wording

The Company recorded favorable prior accident year loss and loss adjustment expense development of $34.9 million in calendar year 2024, $41.4 million in calendar year 2023 and $40.6 million in calendar year 2022. The table below sets forth the favorable development for accident years 2019 through 2023 and, collectively, all accident years prior to 2019.

Current wording

The Company recorded favorable prior accident year loss and loss adjustment expense development of $33.9 million in calendar year 2025, $34.9 million in calendar year 2024 and $41.4 million in calendar year 2023. The table below sets forth the favorable development for accident years 2020 through 2024 and, collectively, all accident years prior to 2020.

Previous wording

At December 31, 2024, our incurred amounts for certain accident years developed more favorably than management previously expected. Multiple factors can cause loss development both unfavorable and favorable. The favorable loss development we experienced across accident years was largely due to two factors: (1) lower than expected severity of injuries in these accident years compared to our original and revised estimates; and (2) favorable case reserve development from closed claims and claims where the worker had reached maximum medical improvement. We believe the favorable case reserve development resulted primarily from an intensive claims management focus with the Company actively seeking to settle claims, leading to favorable development.

Current wording

At December 31, 2025, our incurred amounts for certain accident years developed more favorably than management previously expected. Multiple factors can cause loss development both unfavorable and favorable. The favorable loss development we experienced across accident years was largely due to two factors: (1) lower than expected severity of injuries across prior accident years compared to our original and revised estimates; and (2) favorable case reserve development from closed claims and claims where the worker had reached maximum medical improvement. We believe the favorable case reserve development resulted primarily from a continued focus on our proactive claims management process with the Company actively seeking to settle claims, leading to favorable development.

Previous wording

Our principal sources of operating funds are premiums, investment income, and proceeds from maturities of investments. Our primary uses of operating funds include payments for claims and operating expenses. We pay claims, operating expenses, shareholder dividends and repurchases using cash flow from operations and invest our excess cash in fixed maturity and equity securities. We expect that our projected cash flow from operations will provide us sufficient liquidity to fund future operations, including payment of claims and operating expenses and other holding company expenses, for at least the next 12 months.

Current wording

Our principal sources of operating funds are premiums, investment income, and proceeds from maturities of investments. Our primary uses of operating funds include payments for claims and operating expenses. We pay claims, operating expenses, shareholder dividends and repurchase shares using cash flow from operations and invest our excess cash in fixed maturity and equity securities. We expect that our projected cash flow from operations will be sufficient to meet our short-term and long-term liquidity needs, including payment of claims and operating expenses and other holding company expenses.

Previous wording

We forecast claim payments based on our historical trends. We seek to manage the funding of claim payments by actively managing available cash and forecasting cash flows on a short- and long-term basis. Cash payments, net of reinsurance, for claims were $172.9 million in 2024, $177.5 million in 2023 and $194.8 million in 2022. We fund claim payments out of cash flow from operations, principally premiums, net of amounts ceded to our reinsurers, and net investment income. Our investment portfolio at December 31, 2024 was $832.8 million.

Current wording

We forecast claim payments based on our historical trends. We seek to manage the funding of claim payments by actively managing available cash and forecasting cash flows on a short- and long-term basis. Cash payments, net of reinsurance, for claims were $201.0 million in 2025, $172.9 million in 2024 and $177.5 million in 2023. We fund claim payments out of cash flow from operations, principally premiums, net of amounts ceded to our reinsurers, and net investment income. Our investment portfolio at December 31, 2025 was $796.8 million.

Previous wording

In December 2024, the Company commuted reinsurance agreements with Hannover Re and Tokio Millenium Re covering portions of accident years 2012-2014. The Company received a $6.3 million payment effectuated solely through offset against the balance of the funds withheld and recoverable from reinsurers' accounts under the reinsurance agreements in exchange for releasing Hannover Re and Tokio Millenium Re from their reinsurance obligations under the commuted agreements. Hannover Re and Tokio Millenium Re remain obligated to the subsidiaries of the Company under other reinsurance agreements. As a result of the commutation, we recorded a pre-tax loss of approximately $1.5 million.

Current wording

In December 2024, the Company commuted reinsurance agreements with Hannover Re and Tokio Millennium Re covering portions of accident years 2012-2014. The Company received a $6.3 million payment effectuated solely through offset against the balance of the funds withheld and recoverable from reinsurers' accounts under the reinsurance agreements in exchange for releasing Hannover Re and Tokio Millennium Re from their reinsurance obligations under the commuted agreements. Hannover Re and Tokio Millennium Re remain obligated to the subsidiaries of the Company under other reinsurance agreements. As a result of the commutation, we recorded a pre-tax loss of approximately $1.5 million.

Previous wording

We manage risk on certain long-duration claims by settling these claims through the purchase of annuities from unaffiliated life insurance companies. In the event these companies are unable to meet their obligations under these annuity contracts, we could be liable to the claimants, but our reinsurers remain obligated to indemnify us for all or part of these obligations in accordance with the terms of our reinsurance contracts. As of December 31, 2024, the present value of these annuities was $109.7 million, as estimated by our annuity providers. Substantially all of the annuities are issued or guaranteed by life insurance companies that have an A.M. Best rating of “A” (Excellent) or better. For additional information, see Note 16 to our consolidated financial statements in Item 8 of this report.

Current wording

We manage risk on certain long-duration claims by settling these claims through the purchase of annuities from unaffiliated life insurance companies. In the event these companies are unable to meet their obligations under these annuity contracts, we could be liable to the claimants, but our reinsurers remain obligated to indemnify us for all or part of these obligations in accordance with the terms of our reinsurance contracts. As of December 31, 2025, the present value of these annuities was $105.7 million, as estimated by our annuity providers. Substantially all of the annuities are issued or guaranteed by life insurance companies that have an A.M. Best rating of “A” (Excellent) or better. For additional information, see Note 16 to our consolidated financial statements in Item 8 of this report.

Previous wording

The Company has operating and finance leases for office space and equipment. Our leases have remaining lease terms of one month to 49 months, some of which include options to extend the leases for up to five years. The Company, in determining the present value of lease payments, utilizes either the rate implicit in the lease if that rate is readily determinable or the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.

Current wording

The Company has operating and finance leases for office space and equipment. Our leases have remaining lease terms of two months to 60 months, some of which include options to extend the leases for up to five years. The Company, in determining the present value of lease payments, utilizes either the rate implicit in the lease if that rate is readily determinable or the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.

Previous wording

Net cash provided by operating activities was $24.2 million in 2024, as compared to $29.8 million in 2023, and $28.2 million in 2022. Major components of cash provided by operating activities in 2024 were net premiums collected of $263.2 million, investment income collected of $31.6 million, and reinsurance recoveries collected of $0.3 million. These amounts were offset in part by claim payments of $182.4 million, $71.5 million of operating expenditures, federal taxes paid of $11.8 million, and dividends to policyholders paid of $4.2 million.

Current wording

Major components of cash provided by operating activities in 2024 were net premiums collected of $263.2 million, investment income collected of $31.6 million, and reinsurance recoveries collected of $0.3 million. These amounts were offset in part by claim payments of $182.4 million, $71.5 million of operating expenditures, federal taxes paid of $11.8 million, and dividends to policyholders paid of $4.2 million.

Previous wording

Net cash provided by investing activities was $72.4 million in 2024, as compared to net cash provided by investing activities of $43.9 million in 2023 and net cash provided by investing activities of $75.4 million in 2022. In 2024, major components of net cash provided by investing activities included proceeds from sales and maturities of investments of $183.9 million, offset by investment purchases of $110.7 million.

Current wording

Net cash provided by investing activities was $68.4 million in 2025, as compared to $72.4 million in 2024 and $43.9 million in 2023. In 2025, major components of net cash provided by investing activities included proceeds from sales and maturities of investments of $137.6 million, offset partially by investment purchases of $67.0 million, and purchases of property and equipment of $2.1 million.

Previous wording

In 2023, major components of net cash provided by investing activities included proceeds from sales and maturities of investments of $178.1 million, offset by investment purchases of $133.7 million.

Current wording

In 2023, major components of net cash provided by investing activities included proceeds from sales and maturities of investments of $178.1 million, offset partially by investment purchases of $133.7 million.

Previous wording

Net cash used in financing activities was $91.2 million in 2024, as compared to $96.5 million in 2023 and $112.9 million in 2022. Major components of cash used in financing activities in 2024 included cash used for dividends paid to shareholders of $85.4 million, purchases of treasury stock of $5.1 million, and share-based compensation related tax withholding of $0.6 million.

Current wording

Net cash used in financing activities was $61.6 million in 2025, as compared to $91.2 million in 2024 and $96.5 million in 2023. Major components of cash used in financing activities in 2025 included cash used for dividends paid to shareholders of $48.6 million, purchases of treasury stock of $12.1 million, and share-based compensation related tax withholding of $0.8 million.

Previous wording

Our board of directors initially authorized the Company’s share repurchase program in February 2010. In October 2016, the Board reauthorized this program with a limit of $25.0 million with no expiration date. As of December 31, 2024, we had repurchased a total of 1,682,851 shares of our outstanding common stock for $42.1 million. The Company had $5.3 million available for future repurchases at December 31, 2024 under this program. There were 113,411 and 46,741 shares repurchased in 2024 and 2023, respectively. The repurchases may be effected from time to time depending upon market conditions and subject to applicable regulatory considerations. It is anticipated that future repurchases will be funded from available capital.

Current wording

Our board of directors initially authorized the Company’s share repurchase program in February 2010. In July 2025, our board of directors reauthorized this program with a limit of $25.0 million with no expiration date. As of December 31, 2025, $16.9 million was available for future repurchases under the share repurchase program. The repurchases may be effected from time to time pursuant to trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act. The share repurchase program does not obligate the Company to repurchase any shares of the Company's common stock and may be modified, increased, suspended or terminated at the discretion of our board of directors. The board of directors' determination will depend on a variety of factors, including, but not limited to, market conditions and applicable regulatory considerations. It is anticipated that future repurchases will be funded from available capital. There were 291,289 and 113,411 shares repurchased in 2025 and 2024, respectively.

Previous wording

We are a holding company that transacts business through its operating subsidiaries, including AIIC, SOCI and AIICTX. Our primary assets are the capital stock of these insurance subsidiaries. Our ability to fund our operations depends upon the surplus and earnings of our subsidiaries and their ability to pay dividends to us. Payment of dividends by our insurance subsidiaries is restricted by state insurance laws, including laws establishing minimum solvency and liquidity thresholds. Based upon the prescribed calculation, the insurance subsidiaries could pay us dividends of up to $50.8 million in 2025 without seeking regulatory approval. See “Business—Regulation—Dividend Limitations” in Item 1 of this report.

Current wording

We are a holding company that transacts business through its operating subsidiaries, including AIIC, SOCI and AIICTX. Our primary assets are the capital stock of these insurance subsidiaries. Our ability to fund our operations depends upon the surplus and earnings of our subsidiaries and their ability to pay dividends to us. Payment of dividends by our insurance subsidiaries is restricted by state insurance laws, including laws establishing minimum solvency and liquidity thresholds. Based upon the prescribed calculation, the insurance subsidiaries could pay us dividends of up to $40.1 million in 2026 without seeking regulatory approval. See “Business—Regulation—Dividend Limitations” in Item 1 of this report.

Previous wording

We paid regular quarterly cash dividends of $0.37, $0.34, and $0.31 per share in 2024, 2023 and 2022, respectively. In addition, the Company paid extraordinary cash dividends of $3.00 in 2024, $3.50 per share in 2023, and $4.00 in 2022.

Current wording

We paid regular quarterly cash dividends of $0.39, $0.37, and $0.34 per share in 2025, 2024 and 2023, respectively. In addition, the Company paid special cash dividends of $1.00, $3.00, and $3.50 per share in 2025, 2024 and 2023, respectively.

Previous wording

On February 25, 2025, we declared a regular quarterly cash dividend of $0.39 per share payable on March 21, 2025 to shareholders of record as of March 7, 2025. Our board of directors intends to continue to consider the payment of a regular cash dividend each calendar quarter. On an annualized basis, the cash dividend is expected to be $1.56 per share in 2025.

Current wording

On February 24, 2026, we declared a regular quarterly cash dividend of $0.41 per share payable on March 20, 2026 to shareholders of record as of March 13, 2026. Our board of directors intends to continue to consider the payment of a regular cash dividend each calendar quarter.

Previous wording

As of December 31, 2024, our investment portfolio, including cash and cash equivalents, totaled $832.8 million, a decrease of 7.1% from December 31, 2023. The majority of our fixed maturity securities are classified as held-to-maturity, as defined by FASB ASC Topic 320, Investments-Debt and Equity Securities. As such, the reported book value of those securities is equal to their amortized cost net of allowance for credit losses and does not fluctuate based on changing interest rates. The remainder of our fixed maturity securities are classified as available-for-sale and reported at fair market value, less an allowance for credit losses, if any. Investments in equity securities are reported at fair market value.

Current wording

As of December 31, 2025, our investment portfolio, including cash and cash equivalents, totaled $796.8 million, a decrease of 4.3% from December 31, 2024. The majority of our fixed maturity securities are classified as held-to-maturity, as defined by FASB ASC Topic 320, Investments-Debt and Equity Securities. As such, the reported book value of those securities is equal to their amortized cost net of allowance for credit losses and does not fluctuate based on changing interest rates. The remainder of our fixed maturity securities are classified as available-for-sale and reported at fair market value, less an allowance for credit losses, if any. Investments in equity securities are reported at fair market value.