AMERISAFE INC

Previous wording

Forward-looking statements are all statements other than statements of historical facts. You should not place undue reliance on these statements. We undertake no obligation to update any forward-looking statements, which speak only as of the date made. We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements are included below.

Current wording

Forward-looking statements are all statements other than statements of historical facts. You should not place undue reliance on these statements. We undertake no obligation to update any forward-looking statements, which speak only as of the date made. We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements are included below. See "Cautionary Statement Regarding Forward-Looking Statements" at the beginning of this annual report.

Previous wording

increase of costs of ongoing medical treatment;

Current wording

increase of costs of ongoing medical treatment, including the impact of medical advances on the cost and duration of bodily injury claims;

Previous wording

Investment income is an important component of our net income. As of December 31, 2024, our investment portfolio, including cash and cash equivalents, had a carrying value of $832.8 million. For the year ended December 31, 2024, we had $29.2 million of net investment income. Our investment portfolio is managed under investment guidelines approved by our board of directors and is made up predominately of fixed maturity securities and cash and cash equivalents. Although our investment guidelines emphasize capital preservation and liquidity, our investments are subject to a variety of risks, including risks related to general economic conditions, interest rate fluctuations, market illiquidity and market volatility. General economic conditions may be adversely affected by many things out of our control, including global health pandemics, U.S. involvement in hostilities with other countries and large-scale acts of terrorism, or the threat of hostilities or terrorist acts.

Current wording

Investment income is an important component of our net income. As of December 31, 2025, our investment portfolio, including cash and cash equivalents, had a carrying value of $796.8 million. For the year ended December 31, 2025, we had $27.0 million of net investment income. Our investment portfolio is managed under investment guidelines approved by our board of directors and is made up predominately of fixed maturity securities and cash and cash equivalents. Although our investment guidelines emphasize capital preservation and liquidity, our investments are subject to a variety of risks, including risks related to general economic conditions, interest rate fluctuations, market illiquidity and market volatility. General economic and political conditions may be adversely affected by many things out of our control, including inflation, interest rates, trade and tax policy (including tariffs), strength of the U.S. dollar, global health pandemics, U.S. involvement in political or geopolitical tensions and conflicts, and large-scale acts of terrorism, or the threat of hostilities or terrorist acts.

Previous wording

Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. Increased interest rates could have an adverse effect on the market value of our investment portfolio. Decreased interest rates could have an adverse effect on our investment income, in addition to increased prepayment risk on callable securities included in our investment portfolio.

Current wording

Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions and other factors beyond our control. Increased interest rates could have an adverse effect on the market value of our investment portfolio. Decreased interest rates could have an adverse effect on our investment income, in addition to increased prepayment risk on callable securities included in our investment portfolio.

Previous wording

A decline in the level of business activity of our policyholders, particularly those engaged in the construction, trucking, logging and lumber, agriculture, manufacturing, maritime, and telecommunications industries, could negatively affect our earnings and profitability.

Current wording

A decline in the level of business activity of our policyholders, particularly those engaged in the construction, trucking, logging and lumber, agriculture, services, manufacturing, and maritime industries, could negatively affect our earnings and profitability.

Previous wording

In 2024, 85.4% of our gross premiums written were derived from policyholders in the construction, trucking, logging and lumber, agriculture, manufacturing, maritime, and telecommunications industries. Because premium rates are calculated, in general, as a percentage of a policyholder’s payroll expense, premiums fluctuate depending upon the level of business activity and number of employees of our policyholders. As a result, our gross premiums written are primarily dependent upon economic conditions in these industries and upon economic conditions generally.

Current wording

In 2025, 89.6% of our gross premiums written were derived from policyholders in the construction, trucking, logging and lumber, agriculture, services, manufacturing, and maritime industries. Because premium rates are calculated, in general, as a percentage of a policyholder’s payroll expense, premiums fluctuate depending upon the level of business activity and number of employees of our policyholders. As a result, our gross premiums written are primarily dependent upon economic conditions in these industries, particularly construction, and upon economic conditions generally, including, among other things, inflation, tariffs, interest rates, labor supply conditions and labor market disruption due to changes in the rules and enforcement around immigration. A decline in the level of business activity of our policyholders due to unfavorable economic conditions or otherwise could adversely affect our results of operations.

Previous wording

We record reserves for estimated losses under insurance policies we write and for loss adjustment expenses related to the investigation and settlement of claims. Reserves are based on estimates of the most likely ultimate cost of individual 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 at any given point in time based on known facts and circumstances. These estimates are inherently uncertain.

Current wording

We record reserves for estimated losses under insurance policies we write and for loss adjustment expenses related to the investigation and settlement of claims. Loss reserves are based on estimates of the most likely ultimate cost of individual claims. Our loss reserves for loss and loss adjustment expenses represent the estimated cost of all reported and unreported loss and loss adjustment expenses incurred and unpaid at any given point in time based on known facts and circumstances. These estimates are inherently uncertain.

Previous wording

Our pre-tax income for any period is impacted by establishing reserves for new claims as well as changes in estimates for previously reported losses. Our focus on writing workers’ compensation insurance for employers engaged in hazardous industries results in our experiencing fewer, but more severe, claims. The ultimate cost of resolving severe claims is difficult to predict, particularly in the period shortly after the injury occurs. Substantial judgment is required to determine the relevance of our historical experience and industry information under current facts and circumstances. The interpretation of this historical data can be impacted by external forces, principally frequency and severity of unreported claims, length of time to achieve ultimate settlement of claims, inflation in medical costs and wages, insurance policy coverage interpretations, jury determinations, and legislative changes. Accordingly, our reserves may prove to be inadequate to cover our actual losses. If there are unfavorable changes affecting our assumptions, our reserves may need to be increased. When a reserve estimate is increased, the change decreases pre-tax income by a corresponding amount.

Current wording

Our pre-tax income for any period is impacted by establishing loss reserves for new claims as well as changes in estimates for previously reported losses. Our focus on writing workers’ compensation insurance for employers engaged in hazardous industries results in our experiencing fewer, but more severe, claims. The ultimate cost of resolving severe claims is difficult to predict, particularly in the period shortly after the injury occurs. Substantial judgment is required to determine the relevance of our historical experience and industry information under current facts and circumstances. The interpretation of this historical data can be impacted by external forces, principally frequency and severity of unreported claims, length of time to achieve ultimate settlement of claims, inflation in medical costs and wages, insurance policy coverage interpretations, jury determinations, and legislative changes.

Previous wording

We are a holding company that transacts business through our operating subsidiaries, including AIIC. Our primary assets are the capital stock of these operating subsidiaries. Our ability to pay dividends to our shareholders and repurchase shares 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, and could be subject to contractual restrictions in the future, including those imposed by indebtedness we may incur in the future. As a result, we may not be able to receive dividends from our insurance subsidiaries or may not receive dividends in amounts necessary to pay dividends on our capital stock or repurchase shares.

Current wording

We are a holding company that transacts business through our insurance subsidiaries, including AIIC, SOCI, and AIICTX. Our primary assets are the capital stock of these insurance subsidiaries. Our ability to pay dividends to our shareholders and repurchase shares depends upon the surplus and earnings of our insurance 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, and could be subject to contractual restrictions in the future, including those imposed by indebtedness we may incur in the future. As a result, we may not be able to receive dividends from our insurance subsidiaries or may not receive dividends in amounts necessary to pay dividends to our shareholders or repurchase shares.

Previous wording

In addition to the ability of our operating subsidiaries to pay dividends to us, the timing and amount of dividends, and any share repurchases is at the discretion of our board of directors and management, respectively. Repurchases of our common stock under our repurchase program are discretionary up to the limit approved by our board of directors, and our share repurchase program may be modified, increased, suspended or terminated at any time at the discretion of our board of directors. Our dividend payments and share repurchases may change, and there can be no assurance that we will continue to declare dividends or repurchase shares at all or in any particular amounts.

Current wording

In addition to the ability of our insurance subsidiaries to pay dividends to us, the timing and amount of dividends, and any share repurchases is at the discretion of our board of directors and management, respectively. Repurchases of our common stock under our repurchase program are discretionary up to the limit approved by our board of directors, and our share repurchase program may be modified, increased, suspended or terminated at any time at the discretion of our board of directors. Our dividend payments and share repurchases may change, and there can be no assurance that we will continue to declare dividends or repurchase shares at all or in any particular amounts.

Previous wording

Our future capital requirements will depend on many factors, including state regulatory requirements, the financial stability of our reinsurers and our ability to write new business and establish premium rates sufficient to cover our estimated claims. We may need to raise additional capital or curtail our growth if the capital of our insurance subsidiaries is insufficient to support future operating requirements and/or cover claims. If we had to raise additional capital, equity or debt financing might not be available to us or might be available only on terms that are unfavorable to us. Future equity offerings could be dilutive to our shareholders and the equity securities issued in any offering may have rights, preferences and privileges senior to our common stock.

Current wording

Our future capital requirements will depend on many factors, including, among other things, state regulatory requirements, the financial stability of our reinsurers, our ability to write new business and establish premium rates sufficient to cover our estimated claims and changes to our business strategy (including initiatives to expand our business). We may need to raise additional capital or curtail our growth if the capital of our insurance subsidiaries is insufficient to support future operating requirements and/or cover claims. If we are required to raise additional capital, equity or debt financing might not be available to us on favorable terms, or at all. Future equity offerings could be dilutive to our shareholders and the equity securities issued in any offering may have rights, preferences and privileges senior to our common stock.

Previous wording

The financial performance of the workers’ compensation insurance industry has historically fluctuated, with periods of lower premium rates and excess underwriting capacity resulting from increased competition followed by periods of higher premium rates and reduced underwriting capacity resulting from decreased competition. Although the financial performance of an individual insurance company is dependent on its own specific business characteristics, the profitability of most workers’ compensation insurance companies generally tends to follow this cyclical market pattern. Because this market cyclicality is due in large part to the actions of our competitors and general economic factors, we cannot predict the timing or duration of changes in the market cycle. We expect these cyclical patterns will cause our revenues and net income to fluctuate, which may cause the price of our common stock to be more volatile.

Current wording

The workers’ compensation insurance industry is cyclical in nature and influenced by many factors, some of which may be out of our control, including among other things, price competition, medical cost increases, natural and man-made disasters, changes in interest rates, changes in state laws and regulations and general economic conditions. A soft market is characterized by periods of lower premium rates and excess underwriting capacity resulting from increased competition. In contrast, a hard market is characterized by periods of higher premium rates and reduced underwriting capacity resulting from decreased competition. Although the financial performance of an individual insurance company is dependent on its own specific business characteristics, the profitability of most workers’ compensation insurance companies, including AMERISAFE, generally tends to follow this cyclical market pattern. Because this market cyclicality is due in large part to the actions of our competitors and general economic factors, we cannot predict the timing or duration of changes in the market cycle. These cyclical patterns have in the past, and could in the future, cause our revenues and net income to fluctuate, which may adversely affect our financial condition and results of operation and could cause the price of our common stock to be more volatile.

Previous wording

We operate in a highly competitive industry and may lack the financial resources to compete effectively.

Current wording

We operate in a highly competitive industry, only offer a single line of insurance and our competitors may have greater financial resources than we do, each of which may affect our ability to compete effectively.

Previous wording

There is significant competition in the workers’ compensation insurance industry. We believe that our competition in the hazardous industries we target is fragmented and not dominated by one or more competitors. We compete with other insurance companies, state insurance pools and self-insurance funds. Many of our existing and potential competitors are significantly larger and possess greater financial, marketing and management resources than we do. Moreover, a number of these competitors offer other types of insurance in addition to workers’ compensation and can provide insurance nationwide.

Current wording

There is significant competition in the workers’ compensation insurance industry. We believe that our competition in the hazardous industries we target is fragmented and not dominated by one or more competitors. Instead, we compete with various insurance companies, state insurance pools and self-insurance funds. Many of our existing and potential competitors are, or may be, significantly larger and may possess greater financial, marketing and management resources than we do. Moreover, a number of these competitors offer other types of insurance in addition to workers’ compensation and can provide insurance nationwide.

Previous wording

We only offer workers’ compensation insurance, and we have no current plans to focus our efforts on offering other types of insurance. As a result, negative developments in the economic, competitive or regulatory conditions affecting the workers’ compensation insurance industry could have an adverse effect on our financial condition and results of operations. Negative developments in the workers’ compensation insurance industry could have a greater impact on our Company because we do not sell other types of insurance.

Current wording

We only offer workers’ compensation insurance, and we currently have no plans to focus our efforts on offering other types of insurance. As a result, negative developments in the economic, competitive or regulatory conditions affecting the workers’ compensation insurance industry are likely to have a disproportionately adverse effect on our financial condition and results of operations. Negative developments in the workers’ compensation insurance industry could have a greater impact on our business than our competitors' businesses because we do not sell other types of insurance.

Previous wording

We compete on the basis of many factors, including coverage availability, claims management, safety services, payment terms, premium rates, policy terms, types of insurance offered, overall financial strength, financial ratings and reputation. If any of our competitors offer premium rates, policy terms or types of insurance that are more competitive than ours, we could lose market share. No assurance can be given that we will maintain our current competitive position in the markets in which we currently operate or that we will establish a competitive position in new markets into which we may enter.

Current wording

We compete on the basis of many factors, including coverage availability, claims management, safety services, payment terms, premium rates, policy terms, types of insurance offered, overall financial strength, financial ratings and reputation. If any of our competitors are more competitive on any of these factors than us, we could lose market share. No assurance can be given that we will maintain our current competitive position in the markets in which we currently operate or that we will establish a competitive position in new markets into which we may enter.

Previous wording

We market a substantial portion of our workers’ compensation insurance through independent agencies. As of December 31, 2024, independent agencies produced 98.4% of our voluntary in-force premiums. No independent agency accounted for more than 2.0% of our voluntary in-force premiums at that date. Independent agencies are not obligated to promote our insurance and may sell insurance offered by our competitors. As a result, our continued profitability depends, in part, on the marketing efforts of our independent agencies and on our ability to offer workers’ compensation insurance and maintain financial strength ratings that meet the requirements of our independent agencies and their policyholders.

Current wording

We market a substantial portion of our workers’ compensation insurance through independent agencies. As of December 31, 2025, independent agencies produced 99.0% of our voluntary in-force premiums. No independent agency accounted for more than 2.0% of our voluntary in-force premiums at that date. Independent agencies are not obligated to promote our insurance and may sell insurance offered by our competitors. As a result, our continued profitability depends, in part, on the marketing efforts of our independent agencies and on our ability to offer workers’ compensation insurance and maintain financial strength ratings that meet the requirements of our independent agencies and their policyholders.

Previous wording

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become apparent until after we have issued insurance policies that are affected by the changes. As a result, the full extent of our liability under an insurance policy may not be known until many years after the policy is issued. For example, medical costs associated with permanent and partial disabilities may increase more rapidly or be higher than we currently expect. Changes of this nature may expose us to higher claims costs than we anticipated when we wrote the underlying policy.

Current wording

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become apparent until after we have issued insurance policies that are affected by the changes. As a result, the full extent of our potential liability under an insurance policy may not be known until many years after the policy is issued. For example, medical costs associated with permanent and partial disabilities may increase more rapidly or may be higher than we expect at the time we issue a policy. Changes of this nature may expose us to higher claims costs than we anticipated when we issued the underlying policy.

Previous wording

Rating agencies evaluate insurance companies based on their ability to pay claims. We are currently assigned a group letter rating of “A” (Excellent) from A.M. Best, which is the rating agency that we believe has the most influence on our business. This rating is assigned to companies that, in the opinion of A.M. Best, have demonstrated an excellent overall performance when compared to industry standards. A.M. Best considers “A” rated companies to have an excellent ability to meet their ongoing obligations to policyholders. The ratings of A.M. Best are subject to periodic review using, among other things, proprietary capital adequacy models, and are subject to revision or withdrawal at any time. A.M. Best ratings are directed toward the concerns of policyholders and insurance agencies and are not intended for the protection of investors or as a recommendation to buy, hold or sell securities. Our competitive position relative to other companies is determined in part by our A.M. Best rating. Any downgrade in our rating would likely adversely affect our business through the loss of certain existing and potential policyholders and the loss of relationships with certain independent agencies.

Current wording

Rating agencies evaluate insurance companies based on their ability to pay claims. We are currently assigned a group letter rating of “A” (Excellent) from A.M. Best, which is the rating agency that we believe has the most influence on our business. This rating is assigned to companies that, in the opinion of A.M. Best, have demonstrated an excellent overall performance when compared to industry standards, and have an excellent ability to meet their ongoing obligations to their policyholders. The ratings of A.M. Best are subject to periodic review using, among other things, proprietary capital adequacy models, and are subject to revision or withdrawal at any time. A.M. Best ratings are directed toward the concerns of policyholders and insurance agencies and are not intended for the protection of our shareholders or to serve as a recommendation to buy, hold or sell our securities. Our competitive position relative to other companies is determined in part by our A.M. Best rating. Any downgrade in our A.M. Best rating would likely adversely affect our business through the loss of certain existing and potential policyholders and the loss of relationships with certain independent agencies.

Previous wording

Technology breaches or failures, including those resulting from a malicious cyber attack on us, or our policyholders or service providers, could disrupt or otherwise negatively impact our business.

Current wording

Technology breaches or failures, including those resulting from a malicious cyber attack on us, our policyholders, or service providers, could disrupt or otherwise negatively impact our business.

Previous wording

We have established and implemented security measures, controls and procedures in an effort to safeguard our information technology systems and to prevent unauthorized access to these systems and any data processed and/or stored in these systems. We evaluate the adequacy of our third-party service providers’ cybersecurity measures through periodic due diligence and contractual obligations. Despite these safeguards, disruptions to and breaches of our information technology systems or our providers’ are possible and may negatively impact our business.

Current wording

We have established and implemented security measures, controls and procedures in an effort to safeguard our information technology systems and to prevent unauthorized access to these systems and any data processed and/or stored in these systems. We evaluate the adequacy of our third-party service providers’ cybersecurity measures through periodic due diligence and contractual obligations. Despite these safeguards, disruptions to and breaches of our information technology systems or those of our providers’ are possible and may negatively impact our business.

Previous wording

Although we have experienced no known cases involving unauthorized access to our information technology systems and data or unauthorized appropriation of such data to date, we have no assurance that such technology breaches will not occur in the future.

Current wording

Although we have experienced no known material cases involving unauthorized access to our information technology systems and data or unauthorized appropriation of such data to date, we have no assurance that such technology breaches will not occur in the future.

Previous wording

Our success is dependent on the expertise, wellbeing and resiliency of our employees and our ongoing leadership development activities to attract and retain key employees that are knowledgeable about our business. Succession planning and employee education and development for key positions is essential. If we are unable to attract and retain key employees and provide them with opportunities to learn and grow, our operations may be adversely impacted.

Current wording

Our success is dependent on the expertise, wellbeing and resiliency of our employees and our ongoing leadership development activities to attract and retain key employees that are knowledgeable about our business. Succession planning and employee education and development for key positions are essential. If we are unable to attract and retain key employees and provide them with opportunities to learn and grow, our operations may be adversely impacted.

Previous wording

Our business is dependent on the efforts of our executive officers because of their industry expertise, knowledge of our markets and relationships with the independent agencies that sell our insurance.

Current wording

Our business is dependent on our executive officers because of their industry expertise, knowledge of our markets and relationships with the independent agencies that sell our insurance.

Previous wording

Our success is dependent on the efforts of our executive officers because of their industry expertise, knowledge of our markets and relationships with our independent agencies. We have entered into employment agreements with each of our executive officers. Should any of our executive officers cease working for us, we may be unable to find acceptable replacements with comparable skills and experience in the workers’ compensation insurance industry and the hazardous industries that we target. As a result, our operations may be disrupted and our business may be adversely affected.

Current wording

Our success is dependent on the efforts of our executive officers because of their industry expertise, knowledge of our markets and relationships with our independent agencies. We have entered into employment agreements with each of our executive officers. If and when any of our executive officers cease working for us, we may be unable to find acceptable replacements with comparable skills and experience in the workers’ compensation insurance industry and the hazardous industries that we target. As a result, our operations may be disrupted and our business may be adversely affected.

Previous wording

Because we are subject to extensive state and federal regulation, legislative changes may negatively impact our business.

Current wording

We are subject to extensive state and federal regulations, and legislation, and any changes in such regulations or laws may negatively impact our business.

Previous wording

We are subject to extensive regulation by the Nebraska and Texas Departments of Insurance and the insurance regulatory agencies of other states in which we are licensed and, to a lesser extent, federal regulation. State agencies have broad regulatory powers designed primarily to protect policyholders and their employees, and not our shareholders. Regulations vary from state to state, but typically address:

Current wording

We are subject to extensive regulation by the Nebraska and Texas Departments of Insurance, the insurance regulatory agencies of other states in which we are licensed to sell insurance and, to a lesser extent, the federal government. State agencies have broad regulatory powers designed primarily to protect policyholders and their employees, and not our shareholders. Regulations vary from state to state, but typically address:

Previous wording

certain required methods of accounting; and

Current wording

certain required methods of accounting;

Previous wording

We may be unable to comply fully with the wide variety of applicable laws and regulations that are periodically undergoing revision. In addition, we follow practices based on our interpretations of laws and regulations that we believe are generally followed by our industry. These practices may be different from interpretations of insurance regulatory agencies. As a result, insurance regulatory agencies could preclude us from conducting some or all of our activities or otherwise penalize us. For example, in order to enforce applicable laws and regulations or to protect policyholders, insurance regulatory agencies have relatively broad discretion to impose a variety of sanctions, including examinations, corrective orders, suspension, revocation or denial of licenses, and the takeover of one or more of our insurance subsidiaries. The extensive regulation of our business may increase our costs and may limit our ability to obtain premium rate increases or to take other actions to increase our profitability.

Current wording

We may be unable to comply fully with the wide variety of laws and regulations applicable to us and our business which periodically undergo revisions. In addition, we follow practices based on our interpretations of laws and regulations that we believe are generally followed by our industry. Our practices may be different from interpretations of insurance regulatory agencies, and as a result, insurance regulatory agencies could preclude us from conducting some or all of our activities or otherwise penalize us. For example, in order to enforce applicable laws and regulations or to protect policyholders, insurance regulatory agencies have relatively broad discretion to impose a variety of sanctions, including examinations, corrective orders, suspension, revocation or denial of licenses, and the takeover of one or more of our insurance subsidiaries. The extensive regulation of our business may increase our costs and may limit our ability to increase our premium rates or take other actions to increase our profitability.

Previous wording

The workers’ compensation system is largely regulated by state regulation. However in recent years, certain federal agencies and regulatory bodies have increased interest in more federal workers’ compensation oversight. Increased federal involvement has the potential to change the workers’ compensation structure impacting workers’ benefits and the method of administration. As a result, potential changes in the level of federal oversight of the workers’ compensation industry could adversely affect our operations.

Current wording

The workers’ compensation system is largely regulated by state governments. However, in the past, certain federal agencies and regulatory bodies have increased interest in more federal workers’ compensation oversight. Increased federal involvement has the potential to change the workers’ compensation structure, which could impact workers’ benefits and the method of workers' compensation administration. As a result, changes in the level of federal oversight of the workers’ compensation industry could adversely affect our operations.

Previous wording

Most states require insurance companies licensed to do business in their state to participate in guaranty funds, which require the insurance companies to bear a portion of the unfunded obligations of impaired, insolvent or failed insurance companies. These obligations are funded by assessments, most of which are expected to continue in the future. State guaranty associations levy assessments, up to prescribed limits, on all member insurance companies in the state based on their proportionate share of premiums written in the lines of business in which the impaired, insolvent or failed insurance companies are engaged. See “Business—Regulation” in Item 1 of this report. Accordingly, the assessments levied on us may increase as we increase our written premiums. Some states also have laws that establish second injury funds to reimburse insurers and employers for claims paid to injured employees for aggravation of prior conditions or injuries. These funds are supported either by assessments or premium surcharges based on case incurred losses.

Current wording

Most states require insurance companies licensed to do business in their state to participate in guaranty funds, which require the insurance companies to bear a portion of the unfunded obligations of impaired, insolvent or failed insurance companies. These obligations are funded by assessments, most of which are expected to continue in the future. State guaranty associations levy assessments, up to prescribed limits, on all member insurance companies in the state based on their proportionate share of premiums written in the lines of business in which the impaired, insolvent or failed insurance companies are engaged. See “Business—Regulation” in Item 1 of this report, for further discussion. Accordingly, the assessments levied on us may increase as we increase our written premiums. Some states also have laws that establish second injury funds to reimburse insurers and employers for claims paid to injured employees for aggravation of prior conditions or injuries. These funds are supported either by assessments or premium surcharges based on case incurred losses.

Previous wording

In addition, as a condition to conducting business in some states, insurance companies are required to participate in residual market programs to provide insurance to those employers who cannot procure coverage from an insurance carrier on a negotiated basis. Insurance companies generally can fulfill their residual market obligations by, among other things, participating in a reinsurance pool where the results of all policies provided through the pool are shared by the participating insurance companies. Although we price our insurance to account for obligations we may have under these pooling arrangements, we may not be successful in estimating our liability for these obligations. Accordingly, mandatory pooling arrangements may cause a decrease in our profits.

Current wording

In addition, as a condition to conducting business in some states, insurance companies are required to participate in residual market programs to provide insurance to employers who cannot procure workers' compensation coverage from an insurance carrier on a negotiated basis. Insurance companies generally can fulfill their residual market obligations by, among other things, participating in a reinsurance pool where the results of all policies provided through the pool are shared by the participating insurance companies. Although we price our insurance to account for obligations we may have under these pooling arrangements, we may not be successful in estimating our liability for these obligations. Accordingly, mandatory pooling arrangements may cause a decrease in our profits.

Previous wording

At December 31, 2024, we participated in mandatory pooling arrangements in 26 states and the District of Columbia. As we write policies in new states that have mandatory pooling arrangements, we will be required to participate in additional pooling arrangements. Further, the impairment, insolvency or failure of other insurance companies in these pooling arrangements would likely increase the liability for other members in the pool. The effects of assessments and premium surcharges or changes in them could reduce our profitability in any given period or limit our ability to grow our business.

Current wording

At December 31, 2025, we participated in mandatory pooling arrangements in 25 states and the District of Columbia. If we write policies in new states that have mandatory pooling arrangements, we would be required to participate in additional pooling arrangements. Further, the impairment, insolvency or failure of other insurance companies in these pooling arrangements would likely increase the liability for other members in the pool, including us. The effects of assessments and premium surcharges or changes in them could reduce our profitability in any given period or limit our ability to grow our business.

Previous wording

In the ordinary course of our business, we are involved in various legal and other administrative proceedings involving claims arising from our insurance operations. These claims involve issues such as eligibility for workers' compensation insurance coverage or benefits, the extent of injuries, wage determinations, disability ratings, and bad faith and extra-contractual liability. A significant adverse result, or multiple adverse results involving similar issues, could require us to pay significant amounts or change the manner in which we administer claims, which could have a material adverse effect on our operations or results of operations.

Current wording

In the ordinary course of our business, we are involved in various legal and other administrative proceedings involving claims arising from our insurance operations. These claims involve issues such as eligibility for workers' compensation insurance coverage or benefits, the extent of injuries, wage determinations, disability ratings, and bad faith and extra-contractual liability. The outcome of any legal proceedings is inherently uncertain and a significant adverse result, or multiple adverse results involving similar issues, could require us to pay significant amounts or change the manner in which we administer claims, which could have a material adverse effect on our operations or results of operations. Regardless of the merit of particular claims, defending against legal proceedings or responding to investigations can be expensive, time-consuming, disruptive to our operations and distracting to management.

Previous wording

When writing workers’ compensation insurance policies, we are required by law to provide workers’ compensation benefits for losses arising from acts of terrorism. The impact of any terrorist act is unpredictable, and the ultimate impact on us would depend upon the nature, extent, location and timing of such an act. Our 2025 reinsurance treaty program affords limited coverage for up to $100.0 million for losses arising from terrorism, subject to applicable deductibles, retentions, definitions and aggregate limits.

Current wording

When writing workers’ compensation insurance policies, we are required by law to provide workers’ compensation coverage for losses arising from acts of terrorism. The impact of terrorist acts is unpredictable, and the ultimate impact of such acts on us would depend upon the nature, extent, location and timing of such an act. Our 2026 reinsurance treaty program affords limited coverage up to $100.0 million for losses arising from terrorism, subject to applicable deductibles, exclusions, retentions, and aggregate limits.

Previous wording

Notwithstanding the protection provided by reinsurance and the Terrorism Risk Insurance Program Reauthorization Act of 2019, the risk of severe losses to us from acts of terrorism has not been eliminated because our reinsurance treaty program includes various sub-limits and exclusions limiting our reinsurers’ obligation to cover losses caused by acts of terrorism. Accordingly, events constituting acts of terrorism may not be covered by, or may exceed the capacity of, our reinsurance and could adversely affect our business and financial condition.

Current wording

Notwithstanding the protection provided to us by reinsurance and the Terrorism Risk Insurance Program Reauthorization Act of 2019, the risk of us incurring severe losses from acts of terrorism is not eliminated because our reinsurance treaty program includes various sub-limits and exclusions limiting our reinsurers’ obligation to cover our losses caused by acts of terrorism. Accordingly, events constituting acts of terrorism may not be covered by, or may exceed the limits of, our reinsurance treaty program and could adversely affect our business and financial condition.

Previous wording

We purchase reinsurance to reduce our net liability on individual risks and to protect against catastrophic losses. Reinsurance is an arrangement in which an insurance company, called the ceding company, transfers insurance risk by sharing premiums with another insurance company, called the reinsurer. Conversely, the reinsurer receives or assumes risk from the ceding company. 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. Our retention is $2.0 million for each loss occurrence. Losses in the layer between $2.0 million and $10.0 million are ceded to a multi-year reinsurance treaty.

Current wording

We purchase reinsurance to reduce our net liability on individual risks and to protect against catastrophic losses. Reinsurance is an arrangement in which an insurance company, called the ceding company, transfers insurance risk by sharing premiums with another insurance company, called the reinsurer. Conversely, the reinsurer receives or assumes risk from the ceding company. Our 2026 reinsurance treaty program provides us with reinsurance coverage for each loss occurrence up to $100.0 million, subject to applicable limitations, deductibles, retentions and aggregate limits. Our retention is $2.0 million for each loss occurrence.

Previous wording

The availability, amount and cost of reinsurance are subject to market conditions and our experience with insured losses. As a result, any material changes in market conditions or our loss experience could adversely affect our financial performance.

Current wording

The availability, amount and cost of reinsurance are subject to market conditions and our experience with insured losses. As a result, any material changes in market conditions or our loss experience could adversely affect our ability to obtain reinsurance on favorable terms, or at all, which could adversely affect our financial performance.

Previous wording

Our financial condition could be adversely affected if the A.M. Best rating of one or more of our significant reinsurers is downgraded. For example, our A.M. Best rating may be downgraded if our amounts recoverable from a reinsurer are significant and the A.M. Best rating of that reinsurer is downgraded. If one of our reinsurers suffers a rating downgrade, we may consider various options to lessen the impact on our financial condition, including commutation, novation and the use of letters of credit to secure amounts recoverable from reinsurers. However, these options may result in losses to our Company, and there can be no assurance that we could implement any of these options.

Current wording

Our financial condition could be adversely affected if the A.M. Best rating of one or more of our significant reinsurers is downgraded. For example, our A.M. Best rating may be downgraded if our amounts recoverable from a reinsurer are significant and the A.M. Best rating of that reinsurer is downgraded. If one of our reinsurers suffers a rating downgrade, we may consider various options to lessen the impact on our financial condition, including commutation, novation and the use of letters of credit to secure amounts recoverable from reinsurers. However, these options may result in us incurring losses, and there can be no assurance that we could implement any of these options.

Previous wording

When our reinsurance treaty program is terminated and we enter into a new program, any decrease in the amount of reinsurance at the time we enter into a new program, whether caused by the existence of more restrictive terms and conditions or decreased availability, will also increase our risk of loss and, as a result, could adversely affect our business, financial condition and results of operations. We currently have 26 reinsurers participating in our reinsurance treaty program, and we believe that this is a sufficient number of reinsurers to provide us with the reinsurance coverage we require. However, it is possible that one or more of our current reinsurers could terminate participation in our program. In addition, we may terminate the participation of one or more of our reinsurers under certain circumstances as permitted by the terms of our reinsurance agreements. In any of these events, if our reinsurance broker is unable to reallocate the terminated reinsurance among the remaining reinsurers in the program, it could take a significant period of time to identify and negotiate agreements with one or more replacement reinsurers. During this period, we would be exposed to an increased risk of loss, the extent of which would depend on the coverage previously provided by the terminated reinsurance.

Current wording

When our reinsurance treaty program is terminated and we enter into a new program, any decrease in the amount of reinsurance at the time we enter into a new program, whether caused by the existence of more restrictive terms and conditions or decreased availability, will also increase our risk of loss and, as a result, could adversely affect our business, financial condition and results of operations. We currently have 24 reinsurers participating in our reinsurance treaty program, which we believe is a sufficient number of reinsurers to provide us with the reinsurance coverage we require. However, it is possible that one or more of our current reinsurers could terminate participation in our program. In addition, we may terminate the participation of one or more of our reinsurers under certain circumstances as permitted by the terms of our reinsurance agreements. In any of these events, if our reinsurance broker is unable to reallocate the terminated reinsurance among the remaining reinsurers in the reinsurance treaty program, it could take a significant period of time to identify and negotiate agreements with one or more replacement reinsurers. During this period, we would be exposed to an increased risk of loss, the extent of which would depend on the coverage previously provided by the terminated reinsurer.