##### Table of Contents



UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-K
 ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
 Commission File Number: 000-51520
 AMERISAFE, INC.
  Texas
(State of Incorporation)
    
    75-2069407
(I.R.S. Employer Identification Number)2301 Highway 190 West, DeRidder, Louisiana
(Address of Principal Executive Offices)
    
    70634
(Zip Code)
 (337) 463-9052
 None
 Common Stock, par value $.01 per share
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 PageNo.PART IForward-Looking Statements
    
    
    3Item 1
    
    Business
    
    
    4Item 1A
    
    Risk Factors
    
    
    31Item 1B
    
    Unresolved Staff Comments
    
    
    42Item 2
    
    Properties
    
    
    42Item 3
    
    Legal Proceedings
    
    
    42Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    43PART IIItem 5
    
    Market for Registrants Common Equity, Related Stockholder Matters And Issuer
Purchases of Equity Securities
    
    
    44Item 6
    
    Selected Financial Data
    
    
    49Item 7
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    51Item 7A
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    66Item 8
    
    Financial Statements and Supplementary Data
    
    
    68Item 9
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    106Item 9A
    
    Controls and Procedures
    
    
    106Item 9B
    
    Other Information
    
    
    106PART IIIItem 10
    
    Directors and Executive Officers of the Registrant
    
    
    107Item 11
    
    Executive Compensation
    
    
    107Item 12
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    107Item 13
    
    Certain Relationships and Related Transactions
    
    
    107Item 14
    
    Principal Accountant Fees and Services
    
    
    107PART IVItem 15
    
    Exhibits and Financial Statement Schedules
    
    
    108Form of First Casualty Excess of Loss Reinsurance ContractForm of Second Casualty Excess of Loss Reinsurance ContractForm of Third Casualty Excess of Loss Reinsurance ContractForm of Per Person Excess of Loss Reinsurance ContractForm of Casualty Catastrophe Excess of Loss ReinsuranceConsent of Ernst & Young LLPPowers of AttorneyCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906
  2




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FORWARD-LOOKING STATEMENTS
  
    
    greater frequency or severity of claims and loss activity, including as a result of
natural or man-made catastrophic events, than our underwriting, reserving or investment
practices anticipate based on historical experience or industry data;
    
    changes in rating agency policies or practices;
    
    the cyclical nature of the workers compensation insurance industry;
    
    changes in the availability, cost or quality of reinsurance and the failure of our
reinsurers to pay claims in a timely manner or at all;
    
    negative developments in the workers compensation insurance industry;
    
    decreased level of business activity of our policyholders;
    
    decreased demand for our insurance;
    
    increased competition on the basis of coverage availability, claims management, safety
services, payment terms, premium rates, policy terms, types of insurance offered, overall
financial strength, financial ratings and reputation;
    
    changes in regulations or laws applicable to us, our policyholders or the agencies that
sell our insurance;
    
    changes in legal theories of liability under our insurance policies;
    
    developments in capital markets that adversely affect the performance of our investments;
    
    loss of the services of any of our senior management or other key employees;
    
    the effects of U.S. involvement in hostilities with other countries and large-scale
acts of terrorism, or the threat of hostilities or terrorist acts; and
    
    changes in general economic conditions, including interest rates, inflation and other
factors.
  3




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##### Table of Contents



PART I
 
 Item 1. Business.
 Overview
       4




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##### Table of Contents



Competitive Advantages
  Focus on Hazardous Industries.
 Focus on Small to Mid-Sized Employers.
 Specialized Underwriting Expertise.
 Comprehensive Safety Services.
 Proactive Claims Management.
 Strategy
  Expand in our Existing Markets.
 Prudent and Opportunistic Geographic Expansion.
 Focus on Underwriting Profitability.
 5




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##### Table of Contents



Leverage Investments in Information Technology.
 Maintain Capital Strength.
 Industry
 Overview
   6




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##### Table of Contents



Outlook
 Policyholders
   Targeted Industries
  Construction.
 Trucking.
 Logging.
 Agriculture.
 7




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##### Table of Contents



Oil and Gas.
 Maritime.
 Sawmills.
  
    
    Direct Premiums.Includes premiums from workers compensation and general liability
insurance policies that we issue to:
 
    
    employers who seek to purchase insurance directly from us and who we voluntarily
agree to insure, which we refer to as our voluntary business; and
    
    employers assigned to us under residual market programs implemented by some of the
states in which we operate, which we refer to as our assigned risk business.
 
    
    Assumed Premiums.Includes premiums from our participation in mandatory pooling
arrangements under residual market programs implemented by some of the states in which we
operate.
   Percentage ofGross Premiums Written
    
    
    Gross Premiums Written2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003(In thousands)Voluntary business:Construction
    
    $
    117,134
    
    
    $
    101,298
    
    
    $
    80,693
    
    
    
    40.3
    %
    
    
    38.3
    %
    
    
    36.1
    %Trucking
    
    
    59,348
    
    
    
    57,822
    
    
    
    47,104
    
    
    
    20.4
    %
    
    
    21.8
    %
    
    
    21.1
    %Logging
    
    
    26,324
    
    
    
    30,340
    
    
    
    32,008
    
    
    
    9.0
    %
    
    
    11.5
    %
    
    
    14.3
    %Agriculture
    
    
    13,119
    
    
    
    11,203
    
    
    
    8,502
    
    
    
    4.5
    %
    
    
    4.2
    %
    
    
    3.8
    %Oil and Gas
    
    
    8,035
    
    
    
    7,226
    
    
    
    7,221
    
    
    
    2.8
    %
    
    
    2.7
    %
    
    
    3.2
    %Maritime
    
    
    7,262
    
    
    
    5,909
    
    
    
    6,076
    
    
    
    2.5
    %
    
    
    2.2
    %
    
    
    2.7
    %Sawmills
    
    
    4,441
    
    
    
    5,566
    
    
    
    4,009
    
    
    
    1.5
    %
    
    
    2.1
    %
    
    
    1.8
    %Other
    
    
    34,382
    
    
    
    28,117
    
    
    
    24,239
    
    
    
    11.8
    %
    
    
    10.6
    %
    
    
    10.8
    %Total voluntary business
    
    
    270,045
    
    
    
    247,481
    
    
    
    209,852
    
    
    
    92.8
    %
    
    
    93.4
    %
    
    
    93.9
    %Assigned risk business
    
    
    13,924
    
    
    
    9,431
    
    
    
    9,216
    
    
    
    4.8
    %
    
    
    3.6
    %
    
    
    4.1
    %Assumed premiums
    
    
    6,922
    
    
    
    8,050
    
    
    
    4,522
    
    
    
    2.4
    %
    
    
    3.0
    %
    
    
    2.0
    %Total
    
    $
    290,891
    
    
    $
    264,962
    
    
    $
    223,590
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 8




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Geographic Distribution
  Percentage of Gross Premiums WrittenYear Ended December 31,State
    
    2005
    
    2004
    
    2003Georgia
    
    
    10.5
    %
    
    
    9.5
    %
    
    
    9.4
    %Louisiana
    
    
    8.3
    %
    
    
    10.6
    %
    
    
    11.8
    %North Carolina
    
    
    6.7
    %
    
    
    6.3
    %
    
    
    5.9
    %Florida
    
    
    5.9
    %
    
    
    4.9
    %
    
    
    4.6
    %Illinois
    
    
    5.4
    %
    
    
    6.4
    %
    
    
    5.7
    %Virginia
    
    
    5.3
    %
    
    
    5.2
    %
    
    
    5.2
    %Pennsylvania
    
    
    5.3
    %
    
    
    4.5
    %
    
    
    3.9
    %Alaska
    
    
    5.3
    %
    
    
    4.4
    %
    
    
    3.3
    %Texas
    
    
    5.0
    %
    
    
    6.5
    %
    
    
    7.9
    %South Carolina
    
    
    4.9
    %
    
    
    4.6
    %
    
    
    3.9
    %Minnesota
    
    
    4.2
    %
    
    
    3.6
    %
    
    
    3.9
    %Tennessee
    
    
    4.2
    %
    
    
    3.9
    %
    
    
    3.5
    %Oklahoma
    
    
    4.1
    %
    
    
    3.3
    %
    
    
    3.9
    %Arkansas
    
    
    3.9
    %
    
    
    4.7
    %
    
    
    5.2
    %Mississippi
    
    
    3.5
    %
    
    
    3.9
    %
    
    
    3.6
    %Wisconsin
    
    
    3.5
    %
    
    
    3.3
    %
    
    
    2.3
    %Alabama
    
    
    2.7
    %
    
    
    2.7
    %
    
    
    3.2
    %
 Sales and Marketing
   Underwriting
  9




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Pricing
   Safety
  10




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Claims
      11




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Premium Audits
  Loss Reserves
   
    
    type of loss;
    
    severity of the injury or damage;
    
    age and occupation of the injured employee;
    
    estimated length of temporary disability;
    
    anticipated permanent disability;
    
    expected medical procedures, costs and duration;
    
    our knowledge of the circumstances surrounding the claim;
    
    insurance policy provisions, including coverage, related to the claim;
    
    jurisdiction of the occurrence; and
    
    other benefits defined by applicable statute.
  12




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
    
    Paid Development Method  uses historical, cumulative paid losses by accident year and
develops those actual losses to estimated ultimate losses based upon the assumption that
each accident year will develop to estimated ultimate cost in a manner that is analogous
to prior years.
    
    Paid Cape Cod Method  multiplies estimated ultimate claims for each accident year by a
weighted average, trended severity. The estimated ultimate claims used in this method are
based on paid claim count development. The selected severity for a given accident year is
then derived by giving some weight to all of the accident years in the experience history
rather than treating each accident year independently.
    
    Paid Bornhuetter-Ferguson (BF) Method  a combination of the Paid Development Method
and the Paid Cape Cod Method, the Paid BF Method estimates ultimate losses by adding
actual paid losses and projected, future unpaid losses. The amounts produced are then
added to cumulative paid losses to produce the final estimates of ultimate incurred
losses.
    
    Incurred Development Method  uses historical, cumulative incurred losses by accident
year and develops those actual losses to estimated ultimate losses based upon the
assumption that each accident year will develop to estimated ultimate cost in a manner
that is analogous to prior years.
    
    Incurred Cape Cod Method  multiplies estimated ultimate claims for each accident year
by a weighted average, trended severity. The estimated ultimate claims used in this
method are based on incurred claim count development. The selected severity for a given
accident year is then derived by giving some weight to all of the accident years in the
experience history rather than treating each accident year independently.
 13




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
    
    Incurred Bornhuetter-Ferguson Method  a combination of the Incurred Development Method
and the Incurred Cape Cod Method, the Incurred BF Method estimates ultimate losses by
adding actual incurred losses and projected, future unreported losses. The amounts
produced are then added to cumulative incurred losses to produce an estimate of ultimate
incurred losses.
   
    
    open and closed claim counts;
    
    statistics related to open and closed claim count percentages;
    
    claim closure rates;
    
    changes in average case reserves and average loss and loss adjustment expenses incurred
on open claims;
    
    reported and ultimate average case incurred changes;
    
    reported and projected ultimate loss ratios; and
    
    loss payment patterns.
      14




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As of December 31, 2005MandatoryLoss and
    
    
    
    
    
    PoolingDCC Expenses
    
    AO
    
    Arrangements
    
    Total(In thousands)Low end of range
    
    $
    310,400
    
    
    $
    16,533
    
    
    $
    9,513
    
    
    $
    336,446Net reserve
    
    
    338,207
    
    
    
    16,533
    
    
    
    9,513
    
    
    
    364,253High end of range
    
    
    350,191
    
    
    
    16,533
    
    
    
    9,513
    
    
    
    376,237
   15




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Reconciliation of Loss Reserves
  Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Balance, beginning of period
    
    $
    432,880
    
    
    $
    377,559
    
    
    $
    346,542Less amounts recoverable from reinsurers on
unpaid loss and loss adjustment expenses
    
    
    189,624
    
    
    
    194,558
    
    
    
    193,634Net balance, beginning of period
    
    
    243,256
    
    
    
    183,001
    
    
    
    152,908Add incurred related to:Current year
    
    
    182,174
    
    
    
    160,773
    
    
    
    126,977Prior years
    
    
    8,673
    
    
    
    13,413
    
    
    
    2,273Loss on Converium commutation
    
    
    13,209
    
    
    
    
    
    
    
    Total incurred
    
    
    204,056
    
    
    
    174,186
    
    
    
    129,250Less paid related to:Current year
    
    
    42,545
    
    
    
    40,312
    
    
    
    32,649Prior years
    
    
    96,620
    
    
    
    73,619
    
    
    
    66,508Total paid
    
    
    139,165
    
    
    
    113,931
    
    
    
    99,157Add effect of Converium commutation (1)
    
    
    56,106
    
    
    
    
    
    
    
    Net balance, end of period
    
    
    364,253
    
    
    
    243,256
    
    
    
    183,001Add amounts recoverable from reinsurers on
unpaid loss and loss adjustment
expenses
    
    
    120,232
    
    
    
    189,624
    
    
    
    194,558Balance, end of period
    
    $
    484,485
    
    
    $
    432,880
    
    
    $
    377,559
 
 (1)
    
    The total payment from Converium was $61.3 million, of which $56.1 million was for ceded
reserves and $5.2 million was for paid recoverables as of June 30, 2005.    16




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Loss Development
    Analysis of Loss and Loss Adjustment Expense Reserve Development
 Year Ended December 31,1995
    
    
    1996
    
    
    1997
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(In thousands)Reserve for loss and loss
adjustment expenses, net of
reinsurance recoverables
    
    $
    43,299
    
    
    $
    43,952
    
    
    $
    55,096
    
    
    $
    43,625
    
    
    $
    72,599
    
    
    $
    86,192
    
    
    $
    119,020
    
    
    $
    152,908
    
    
    $
    183,001
    
    
    $
    243,256
    
    
    $
    364,253Net reserve estimated as of:One year later
    
    
    36,613
    
    
    
    35,447
    
    
    
    54,036
    
    
    
    49,098
    
    
    
    75,588
    
    
    
    96,801
    
    
    
    123,413
    
    
    
    155,683
    
    
    
    196,955
    
    
    
    265,138Two years later
    
    
    29,332
    
    
    
    34,082
    
    
    
    60,800
    
    
    
    50,764
    
    
    
    82,633
    
    
    
    98,871
    
    
    
    116,291
    
    
    
    168,410
    
    
    
    217,836Three years later
    
    
    28,439
    
    
    
    34,252
    
    
    
    63,583
    
    
    
    57,750
    
    
    
    86,336
    
    
    
    92,740
    
    
    
    119,814
    
    
    
    187,225Four years later
    
    
    28,700
    
    
    
    35,193
    
    
    
    68,754
    
    
    
    59,800
    
    
    
    86,829
    
    
    
    93,328
    
    
    
    132,332Five years later
    
    
    29,647
    
    
    
    38,318
    
    
    
    69,610
    
    
    
    60,074
    
    
    
    87,088
    
    
    
    101,417Six years later
    
    
    31,524
    
    
    
    38,339
    
    
    
    70,865
    
    
    
    61,297
    
    
    
    90,156Seven years later
    
    
    31,185
    
    
    
    39,459
    
    
    
    70,684
    
    
    
    61,578Eight years later
    
    
    32,161
    
    
    
    38,888
    
    
    
    70,577Nine years later
    
    
    31,627
    
    
    
    39,249Ten years later
    
    
    31,957Net cumulative redundancy
(deficiency)
    
    $
    11,342
    
    
    $
    4,703
    
    
    $
    (15,481
    )
    
    $
    (17,953
    )
    
    $
    (17,557
    )
    
    $
    (15,225
    )
    
    $
    (13,312
    )
    
    $
    (34,317
    )
    
    $
    (34,835
    )
    
    $
    (21,882
    )
 17




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##### Table of Contents



Year Ended December 31,1995
    
    
    1996
    
    
    1997
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(In thousands)Cumulative amount of
reserve paid, net of
reserve recoveries,
through:One year later
    
    
    17,716
    
    
    
    19,143
    
    
    
    35,005
    
    
    
    26,140
    
    
    
    45,095
    
    
    
    51,470
    
    
    
    51,114
    
    
    
    66,545
    
    
    
    73,783
    
    
    $
    40,514Two years later
    
    
    23,158
    
    
    
    27,843
    
    
    
    46,735
    
    
    
    37,835
    
    
    
    62,141
    
    
    
    62,969
    
    
    
    71,582
    
    
    
    101,907
    
    
    
    65,752Three years later
    
    
    26,058
    
    
    
    30,766
    
    
    
    54,969
    
    
    
    45,404
    
    
    
    67,267
    
    
    
    70,036
    
    
    
    84,341
    
    
    
    73,391Four years later
    
    
    27,039
    
    
    
    32,576
    
    
    
    60,249
    
    
    
    48,184
    
    
    
    70,894
    
    
    
    73,680
    
    
    
    42,919Five years later
    
    
    28,007
    
    
    
    34,765
    
    
    
    62,361
    
    
    
    50,045
    
    
    
    72,744
    
    
    
    38,939Six years later
    
    
    29,394
    
    
    
    35,313
    
    
    
    64,296
    
    
    
    50,831
    
    
    
    58,809Seven years later
    
    
    29,603
    
    
    
    36,367
    
    
    
    64,659
    
    
    
    51,863Eight years later
    
    
    30,331
    
    
    
    36,379
    
    
    
    64,289Nine years later
    
    
    30,242
    
    
    
    35,870Ten years later
    
    
    29,745Net reserve  December 31
    
    $
    43,299
    
    
    $
    43,952
    
    
    $
    55,096
    
    
    $
    43,625
    
    
    $
    72,599
    
    
    $
    86,192
    
    
    $
    119,020
    
    
    $
    152,908
    
    
    $
    183,001
    
    
    $
    243,256
    
    
    $
    364,253Reinsurance recoverables
    
    
    12,127
    
    
    
    9,525
    
    
    
    12,463
    
    
    
    37,086
    
    
    
    183,818
    
    
    
    293,632
    
    
    
    264,013
    
    
    
    193,634
    
    
    
    194,558
    
    
    
    189,624
    
    
    
    120,232Gross reserve  December 31
    
    $
    55,426
    
    
    $
    53,477
    
    
    $
    67,559
    
    
    $
    80,711
    
    
    $
    256,417
    
    
    $
    379,824
    
    
    $
    383,033
    
    
    $
    346,542
    
    
    $
    377,559
    
    
    $
    432,880
    
    
    $
    484,485Net re-estimated reserve
    
    $
    31,957
    
    
    $
    39,249
    
    
    $
    70,577
    
    
    $
    61,578
    
    
    $
    90,156
    
    
    $
    101,417
    
    
    $
    132,332
    
    
    $
    187,225
    
    
    $
    217,836
    
    
    $
    265,138Re-estimated reinsurance
recoverables
    
    
    18,641
    
    
    
    26,966
    
    
    
    35,219
    
    
    
    123,604
    
    
    
    281,481
    
    
    
    384,447
    
    
    
    346,555
    
    
    
    271,446
    
    
    
    217,593
    
    
    
    179,585Gross re-estimated reserve
    
    $
    50,598
    
    
    $
    66,215
    
    
    $
    105,796
    
    
    $
    185,182
    
    
    $
    371,637
    
    
    $
    485,864
    
    
    $
    478,887
    
    
    $
    458,671
    
    
    $
    435,429
    
    
    $
    444,723Gross cumulative redundancy
(deficiency)
    
    $
    4,828
    
    
    $
    (12,738
    )
    
    $
    (38,237
    )
    
    $
    (104,471
    )
    
    $
    (115,220
    )
    
    $
    (106,040
    )
    
    $
    (95,854
    )
    
    $
    (112,129
    )
    
    $
    (57,870
    )
    
    $
    (11,843
    )
  Investments
    18




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##### Table of Contents



AnnualizedPercentage
    
    
    Tax-EquivalentCarrying Value
    
    
    of Portfolio
    
    
    Yield(In thousands)Fixed maturity securities:State and political subdivisions
    
    $
    255,598
    
    
    
    43.8
    %
    
    
    5.7
    %Mortgage-backed securities
    
    
    108,897
    
    
    
    18.7
    %
    
    
    5.4
    %U.S. Treasury securities and obligations
of U.S. Government agencies
    
    
    71,548
    
    
    
    12.3
    %
    
    
    4.9
    %Corporate bonds
    
    
    22,992
    
    
    
    3.9
    %
    
    
    5.4
    %Asset-backed securities
    
    
    6,613
    
    
    
    1.1
    %
    
    
    5.4
    %Redeemable preferred stocks
    
    
    1,695
    
    
    
    0.3
    %
    
    
    6.1
    %Total fixed maturity securities
    
    
    467,343
    
    
    
    80.1
    %
    
    
    5.5
    %Equity securities:Common stocks
    
    
    62,679
    
    
    
    10.8
    %
    
    
    2.0
    %Nonredeemable preferred stocks
    
    
    3,596
    
    
    
    0.6
    %
    
    
    6.0
    %Total equity securities
    
    
    66,275
    
    
    
    11.4
    %
    
    
    2.2
    %Cash and cash equivalents
    
    
    49,286
    
    
    
    8.5
    %
    
    
    2.5
    %Total investments, including cash and cash
equivalents
    
    $
    582,904
    
    
    
    100.0
    %
    
    
    4.8
    %
  Percentageof TotalCredit Rating
    
    Carrying ValueAAA
    
    
    86.1
    %AA
    
    
    8.8
    %A
    
    
    2.8
    %BBB
    
    
    2.3
    %Total
    
    
    100.0
    %
 19




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##### Table of Contents



As of December 31, 2005Remaining Time to Maturity
    
    Carrying Value
    
    
    Percentage(In thousands)Less than one year
    
    $
    6,214
    
    
    
    1.3
    %One to five years
    
    
    178,489
    
    
    
    38.2
    %Five to ten years
    
    
    102,771
    
    
    
    22.0
    %More than ten years
    
    
    62,664
    
    
    
    13.4
    %Mortgage-backed securities
    
    
    108,897
    
    
    
    23.3
    %Asset-backed securities
    
    
    6,613
    
    
    
    1.4
    %Redeemable preferred stocks
    
    
    1,695
    
    
    
    0.4
    %Total
    
    $
    467,343
    
    
    
    100.0
    %
 Reinsurance
   2006 Excess of Loss Reinsurance Treaty Program
  20




---



##### Table of Contents




    
    First Layer. Affords coverage for the first $2.0 million of each loss occurrence. We
retain the first $1.0 million of each loss and are subject to an annual aggregate
deductible of approximately $10.8 million for losses between $1.0 million and $2.0 million
before our reinsurers are obligated to reimburse us. After the deductible is satisfied,
we retain 25.0% of each loss between $1.0 million and $2.0 million. The aggregate limit
for all claims under this layer is approximately $5.4 million. The annual aggregate
deductible and aggregate limit are calculated as a percentage of subject premium.
    
    Second Layer. Affords coverage up to $3.0 million for each loss occurrence in excess of
$2.0 million. We are subject to an annual aggregate deductible of approximately $7.3
million for losses between $2.0 million and $5.0 million before our reinsurers are
obligated to reimburse us. The annual aggregate deductible is calculated as a percentage
of subject premium. This layer also affords coverage for up to an aggregate of $3.0
million for certain losses caused by terrorism. The aggregate limit to all claims under
this layer is $39.0 million.
    
    Third Layer A. Affords coverage up to $5.0 million for each loss occurrence in excess
of $5.0 million, with a limit of $5.0 million for any one person. The aggregate limit for
all claims under this layer is $10.0 million.
    
    Third Layer B. Affords coverage up to $5.0 million for any one person for each loss
occurrence in excess of $5.0 million. We retain 20.0% of each loss between $5.0 million
and $10.0 million. The aggregate limit for all claims under this layer is $10.0 million.
    
    Fourth Layer.Affords coverage up to $10.0 million for each loss occurrence in excess
of $10.0 million. The aggregate limit for all claims under this layer is $20.0 million.
    
    Fifth Layer.Affords coverage up to $10.0 million for each loss occurrence in excess
of $20.0 million. The aggregate limit for all claims under this layer is $20.0 million.
   A.M. BestReinsurer
    
    RatingAmlin Underwriting
    
    
    AAspen Insurance UK
    
    
    AAXA Re
    
    
    ABrit Syndicates
    
    
    AChubb Re/Federal Insurance Company
    
    
    A++Hannover Re
    
    
    AIOA Re/Catlin Insurance Company
    
    
    ALiberty Syndicate
    
    
    AM.J. Harrington
    
    
    APartner Reinsurance Company
    
    
    A+Platinum Underwriters Reinsurance
    
    
    A
 21




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##### Table of Contents



A.M. Best
    
    
    Amount Recoverable asReinsurer
    
    Rating
    
    
    of December 31, 2005(In thousands)American Reinsurance Company
    
    
    A
    
    
    $
    27,024Odyssey America Reinsurance Company
    
    
    A
    
    
    
    21,571St. Paul Fire and Marine Insurance Company
    
    
    A+
    
    
    
    11,973Clearwater Insurance Company
    
    
    A
    
    
    
    11,205SCOR Reinsurance Company
    
    
    B++
    
    
    
    8,145Hannover Re (1)
    
    
    A
    
    
    
    7,229Converium Reinsurance (North America)
    
    
    B
    
    
    
    6,629Aspen Insurance UK (1)
    
    
    A
    
    
    
    5,734Partner Reinsurance Company (1)
    
    
    A+
    
    
    
    4,211American National Insurance Company
    
    
    A+
    
    
    
    2,723Connecticut General Life Insurance Company
    
    
    A
    
    
    
    2,404Other (20 reinsurers)
    
    
    
    
    
    
    13,714Total
    
    
    
    
    
    $
    122,562
 
 (1)
    
    Current participant in our 2006 reinsurance program. Terrorism Reinsurance
    22




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##### Table of Contents



Technology
  Core Systems
 ICAMS.
 RealSafe.
 Document Management System.
 Freedom Enterprise.
 Visual Audit.
 Information Warehouse. fnet.
 fnet. fnet fnet
 Operating Systems
  23




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##### Table of Contents



Business Continuity/Disaster Recovery
  Competition
    Ratings
   Employees
  24




---



##### Table of Contents



Regulation
 Holding Company Regulation
  Change of Control
   State Insurance Regulation
    25




---



##### Table of Contents



State Insurance Department Examinations
  Guaranty Fund Assessments
   Residual Market Programs
   Second Injury Funds
  26




---



##### Table of Contents



Dividend Limitations
  Federal Law and Regulations
    Privacy Regulations
  Federal and State Legislative and Regulatory Changes
  27




---



##### Table of Contents



The National Association of Insurance Commissioners
 Accounting
Practices and Procedures
  28




---



##### Table of Contents



Statutory Accounting Practices
    29




---



##### Table of Contents



Executive Officers of the Registrant
  Name
    
    Age
    
    PositionExecutive OfficersC. Allen Bradley, Jr.
    
    
    54
    
    
    Chairman, President and Chief Executive OfficerGeoffrey R. Banta
    
    
    56
    
    
    Executive Vice President and Chief Financial OfficerArthur L. Hunt
    
    
    61
    
    
    Executive Vice President, General Counsel and SecretaryCraig P. Leach
    
    
    56
    
    
    Executive Vice President, Sales and MarketingKey EmployeesAllan E. Farr
    
    
    47
    
    
    Senior Vice President, Enterprise Risk ManagementKelly R. Goins
    
    
    39
    
    
    Senior Vice President, Underwriting OperationsCynthia P. Harris
    
    
    51
    
    
    Senior Vice President, Human Resources/Client ServicesLeon J. Lagneaux
    
    
    54
    
    
    Senior Vice President, Safety OperationsHenry O. Lestage, IV
    
    
    44
    
    
    Senior Vice President, Claims OperationsEdwin R. Longanacre
    
    
    48
    
    
    Senior Vice President, Information TechnologyLasa L. Simmons
    
    
    48
    
    
    Senior Vice President, Premium AuditAngela S. Lannen
    
    
    60
    
    
    Vice President, TreasurerG. Janelle Frost
    
    
    35
    
    
    Assistant Vice President, Controller
 C. Allen Bradley, Jr.
 Geoffrey R. Banta
 Arthur L. Hunt
 Craig P. Leach
 Allan E. Farr
 30




---



##### Table of Contents



Kelly R. Goins
 Cynthia P. Harris
 Leon J. Lagneaux
 Henry O. Lestage, IV
 Edward R. Longanacre
 Lasa L. Simmons
 Angela S. Lannen
 G. Janelle Frost
 
 Item 1A. Risk Factors.
  Risks Related to Our Business
 Our loss reserves are based on estimates and may be inadequate to cover our actual losses.
   31




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##### Table of Contents



If we do not accurately establish our premium rates, our results of operations will be adversely
affected.
  
    
    collect and properly analyze a substantial volume of data;
    
    develop, test and apply appropriate rating formulae;
    
    closely monitor and timely recognize changes in trends; and
    
    project both frequency and severity of losses with reasonable accuracy.
  
    
    insufficient reliable data;
    
    incorrect or incomplete analysis of available data;
    
    uncertainties generally inherent in estimates and assumptions;
    
    our inability to implement appropriate rating formulae or other pricing methodologies;
    
    costs of ongoing medical treatment;
    
    our inability to accurately estimate retention, investment yields and the duration of
our liability for loss and loss adjustment expenses; and
    
    unanticipated court decisions, legislation or regulatory action.
  A downgrade in our A.M. Best rating would likely reduce the amount of business we are able to
write.
  32




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##### Table of Contents



The workers compensation insurance industry is cyclical in nature, which may affect our overall
financial performance.
  If we are unable to obtain reinsurance on favorable terms, our ability to write policies could be
adversely affected.
   If any of our current reinsurers were to terminate participation in our 2006 reinsurance treaty
program, we could be exposed to an increased risk of loss.
  33




---



##### Table of Contents



We may not be able to recover amounts due from our reinsurers, which would adversely affect our
financial condition.
    Negative developments in the workers compensation insurance industry would adversely affect our
financial condition and results of operations.
  A decline in the level of business activity of our policyholders, particularly those engaged in the
construction, trucking and logging industries, could negatively affect our earnings and
profitability.
  34




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##### Table of Contents



Unfavorable changes in economic conditions affecting the states in which we operate could adversely
affect our financial condition or results of operations.
  Our revenues and results of operations may fluctuate as a result of factors beyond our control,
which fluctuation may cause the price of our common stock to be volatile.
  
    
    rising levels of claims costs, including medical and prescription drug costs, that we
cannot anticipate at the time we establish our premium rates;
    
    fluctuations in interest rates, inflationary pressures and other changes in the
investment environment that affect returns on invested assets;
    
    changes in the frequency or severity of claims;
    
    the financial stability of our reinsurers and changes in the level of reinsurance
capacity and our capital capacity;
    
    new types of claims and new or changing judicial interpretations relating to the scope
of liabilities of insurance companies;
    
    volatile and unpredictable developments, including man-made, weather-related and other
natural catastrophes or terrorist attacks; and
    
    price competition.
  We operate in a highly competitive industry and may lack the financial resources to compete
effectively.
  35




---



##### Table of Contents



If we cannot sustain our relationships with independent agencies, we may be unable to operate
profitably.
  An inability to effectively manage the growth of our operations could make it difficult for us to
compete and affect our ability to operate profitably.
  
    
    identify profitable new geographic markets for entry;
    
    attract and retain qualified personnel for expanded operations;
    
    identify, recruit and integrate new independent agencies; and
    
    augment our internal monitoring and control systems as we expand our business.
 Because we are subject to extensive state and federal regulation, legislative changes may
negatively impact our business.
  
    
    standards of solvency, including risk-based capital measurements;
    
    restrictions on the nature, quality and concentration of our investments;
    
    restrictions on the terms of the insurance policies we offer;
    
    restrictions on the way our premium rates are established and the premium rates we may charge;
    
    required reserves for unearned premiums and loss and loss adjustment expenses;
    
    standards for appointing general agencies;
    
    limitations on transactions with affiliates;
    
    restrictions on mergers and acquisitions;
    
    restrictions on the ability of our insurance company subsidiaries to pay dividends to AMERISAFE;
    
    certain required methods of accounting; and
    
    potential assessments for state guaranty funds, second injury funds and other mandatory
pooling arrangements.
  36




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##### Table of Contents



The effects of emerging claim and coverage issues on our business are uncertain.
  Additional capital that we may require in the future may not be available to us or may be available
to us only on unfavorable terms.
  If we are unable to realize our investment objectives, our financial condition and results of
operations may be adversely affected.
   37




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##### Table of Contents



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.
  AMERISAFE is an insurance holding company and does not have any direct operations.
   Assessments and premium surcharges for state guaranty funds, second injury funds and other
mandatory pooling arrangements may reduce our profitability.
  38




---



##### Table of Contents



The outcome of recent insurance industry investigations and regulatory proposals could adversely
affect our financial condition and results of operations and cause the price of our common stock to
be volatile.
  We may have exposure to losses from terrorism for which we are required by law to provide coverage.
  Risks Related to Our Common Stock
 The trading price of our common stock may decline.
  
    
    our results of operations;
    
    changes in expectations as to our future results of operations, including financial
estimates and projections by securities analysts and investors;
    
    results of operations that vary from those expected by securities analysts and investors;
    
    developments in the healthcare or insurance industries;
 39




---



##### Table of Contents




    
    changes in laws and regulations;
    
    announcements of claims against us by third parties; and
    
    future issuances or sales of our common stock, including issuances upon conversion of
our outstanding convertible preferred stock.
  Securities analysts may not continue coverage of our common stock or may issue negative reports,
which may adversely affect the trading price of our common stock.
  Our principal shareholders have the ability to significantly influence our business, which may be
disadvantageous to other shareholders and adversely affect the trading price of our common stock.
   Being a public company will increase our expenses and administrative workload.
  
    
    design, establish, evaluate and maintain a system of internal controls over financial
reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and
the related rules and regulations of the SEC and the Public Company Accounting Oversight
Board;
 40




---



##### Table of Contents




    
    prepare and distribute periodic reports in compliance with our obligations under the
federal securities laws;
    
    establish new internal policies, principally those relating to disclosure controls and
procedures and corporate governance;
    
    institute a more comprehensive compliance function; and
    
    involve to a greater degree our outside legal counsel and accountants in the above activities.
  We will be exposed to risks relating to evaluations of our internal controls over financial
reporting required by Section 404 of the Sarbanes-Oxley Act of 2002.
  The terms of our convertible preferred stock could adversely affect the value of our common stock.
    41




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##### Table of Contents



Provisions of our articles of incorporation and bylaws and under the laws of the states of
Louisiana and Texas could impede an attempt to replace or remove our directors or otherwise effect
a change of control of our company, which could diminish the value of our common stock.
  
    
    election of our directors is classified, meaning that the members of only one of three
classes of our directors are elected each year;
    
    shareholders have limited ability to call shareholder meetings and to bring business
before a meeting of shareholders;
    
    shareholders may not act by written consent, unless the consent is unanimous; and
    
    our board of directors may authorize the issuance of junior preferred stock with such
rights, preferences and privileges as the board deems appropriate.
   
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties.
  
 Item 3. Legal Proceedings.
  42




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
  
    
    approve our amended and restated articles of incorporation and amended and restated bylaws;
    
    approve a 72-for-one reverse split of our common stock;
    
    approve our 2005 Equity Incentive Plan and 2005 Non-Employee Director Restricted Stock Plan;
    
    elect Paul B. Queally as a director for a term expiring at the Companys annual meeting
of shareholders in 2006;
    
    elect Jared A. Morris and Sean M. Traynor as directors for a term expiring at the
Companys annual meeting of shareholders in 2007;
    
    elect C. Allen Bradley, Jr. as a director for a term expiring at the Companys annual
meeting of shareholders in 2008; and
    
    elect Austin P. Young III as a director for a term beginning upon the closing of our
initial public offering and expiring at the Companys annual meeting of shareholders in
2008.
   43




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##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters And Issuer
Purchases of Equity Securities.
 Market Information and Holders
   High
    
    LowNovember 18, 2005 through December 31, 2005
    
    $
    10.45
    
    
    $
    9.00
 Dividend Policy
    Summary of Recent Capital Stock Transactions
 Initial Public Offering
  44




---



##### Table of Contents



Series A Preferred Stock Redemption and Exchange
  Series E Preferred Stock Redemption
  Description of Capital Stock
  
    
    3,000,000 shares of preferred stock, par value $0.01 per share, of which:
 
    
    1,500,000 shares are designated as Series A preferred stock, of which 862,924
shares have been canceled and retired and cannot be reissued; and
    
    1,500,000 shares are designated as Series B preferred stock;
 
    
    500,000 shares of convertible preferred stock, par value $0.01 per share, of which:
 
    
    300,000 shares are designated as Series C convertible deferred pay preferred stock; and
 
    
    200,000 shares are designated as Series D non-voting convertible deferred pay preferred stock;
 
    
    500,000 shares of Series E preferred stock, par value $0.01 per share, of which 317,744
shares have been canceled and retired and cannot be reissued;
    
    10,000,000 shares of junior preferred stock, par value $0.01 per share;
    
    50,000,000 shares of common stock, par value $0.01 per share; and
 45




---



##### Table of Contents




    
    5,000,000 shares of convertible non-voting common stock, par value $0.01 per share.
 As of March 15, 2006, the following shares of our capital stock were outstanding:
 
    
    300,000 shares of Series C convertible preferred stock;
    
    200,000 shares of Series D convertible preferred stock; and
    
    17,440,000 shares of common stock.
   Common Stock and Non-Voting Common Stock
 Voting.
 Dividends.
 Stock Repurchases.
 Liquidation.
 Issuance and Conversion of Non-Voting Common Stock.
 Convertible Preferred Stock
 Voting.
 46




---



##### Table of Contents



Dividends.
 Liquidation Rights.
 
    
    $100 for each share of convertible preferred stock outstanding, plus the cash value,
calculated at $100 per share, of all accrued and unpaid dividends; and
 
    
    the amount distributable to the holders of our convertible preferred stock upon
liquidation, dissolution or winding up had the holders converted their shares into common
stock or non-voting common stock, as the case may be, in accordance with the terms of the
convertible preferred stock immediately prior to liquidation, dissolution or winding up.
  Conversion.
 
    
    at any time at the option of the holder;
 
    
    at our option at any time following the consummation of any public offering of our
equity securities or a change of control of our company if the closing price for our
common stock for the prior 20 trading days is, or the proceeds from the change of control
results in a value for our outstanding common stock of, at least $651.60 per share; and
 
    
    automatically upon consummation of a public offering of our common stock with gross
proceeds to us of at least $40 million at a price to public of at least $651.60 per share,
subject to adjustment to reflect stock splits, combinations and stock dividends.
 47




---



##### Table of Contents



Conversion Price Adjustments.
 
    
    an amount equal to the sum of:
 
    
    the number of shares of common stock and non-voting common stock outstanding
immediately prior to the issuance or sale (including as outstanding all shares of
common stock and non-voting common stock issuable upon conversion of outstanding
convertible preferred stock) multiplied by the then-existing market price of our
common stock; plus
 
    
    the consideration, if any, received by us upon the issuance or sale; by
 
    
    the total number of shares of common stock and non-voting common stock outstanding
immediately after such issuance or sale (including as outstanding all shares of common
stock and non-voting common stock issuable upon conversion of outstanding convertible
preferred stock, without giving effect to any adjustment in the number of shares issuable
by reason of such issue and sale).
   Redemption.
 
    
    the sale, lease or transfer of all or substantially all of our assets in one or a
series of related transactions to any person; or
 
    
    the acquisition of beneficial ownership by any person, other than Welsh Carson, in one
or a series of related transactions, of our voting stock representing more than 50% of the
voting power of all outstanding shares of our voting stock, whether by merger,
consolidation or otherwise, other than by way of a public offering of our equity
securities.
  48




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##### Table of Contents



Item 6. Selected Financial Data.
  Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(In thousands, except share and per share data)Income Statement DataGross premiums written
    
    $
    290,891
    
    
    $
    264,962
    
    
    $
    223,590
    
    
    $
    185,093
    
    
    $
    204,752Ceded premiums written
    
    
    (21,541
    )
    
    
    (21,951
    )
    
    
    (27,600
    )
    
    
    (26,563
    )
    
    
    (49,342
    )Net premiums written
    
    $
    269,350
    
    
    $
    243,011
    
    
    $
    195,990
    
    
    $
    158,530
    
    
    $
    155,410Net premiums earned
    
    $
    256,568
    
    
    $
    234,733
    
    
    $
    179,847
    
    
    $
    163,257
    
    
    $
    170,782Net investment income
    
    
    16,882
    
    
    
    12,217
    
    
    
    10,106
    
    
    
    9,419
    
    
    
    9,935Net realized gains (losses) on
investments
    
    
    2,272
    
    
    
    1,421
    
    
    
    316
    
    
    
    (895
    )
    
    
    491Fee and other income
    
    
    561
    
    
    
    589
    
    
    
    462
    
    
    
    2,082
    
    
    
    1,367Total revenues
    
    
    276,283
    
    
    
    248,960
    
    
    
    190,731
    
    
    
    173,863
    
    
    
    182,575Loss and loss adjustment expenses
incurred
    
    
    204,056
    
    
    
    174,186
    
    
    
    129,250
    
    
    
    121,062
    
    
    
    123,386Underwriting and certain other
operating costs (1)
    
    
    33,008
    
    
    
    28,987
    
    
    
    23,062
    
    
    
    22,674
    
    
    
    23,364Commissions
    
    
    16,226
    
    
    
    14,160
    
    
    
    11,003
    
    
    
    9,189
    
    
    
    14,351Salaries and benefits
    
    
    14,150
    
    
    
    15,034
    
    
    
    15,037
    
    
    
    16,541
    
    
    
    17,148Interest expense
    
    
    2,844
    
    
    
    1,799
    
    
    
    203
    
    
    
    498
    
    
    
    735Policyholder dividends
    
    
    4
    
    
    
    1,108
    
    
    
    736
    
    
    
    156
    
    
    
    2,717Total expenses
    
    
    270,288
    
    
    
    235,274
    
    
    
    179,291
    
    
    
    170,120
    
    
    
    181,701Income before taxes
    
    
    5,995
    
    
    
    13,686
    
    
    
    11,440
    
    
    
    3,743
    
    
    
    874Income tax expense (benefit)
    
    
    65
    
    
    
    3,129
    
    
    
    2,846
    
    
    
    (1,438
    )
    
    
    (395
    )Net income
    
    
    5,930
    
    
    
    10,557
    
    
    
    8,594
    
    
    
    5,181
    
    
    
    1,269Payment-in-kind preferred dividends
    
    
    (8,593
    )
    
    
    (9,781
    )
    
    
    (10,133
    )
    
    
    (9,453
    )
    
    
    (8,820
    )Net income (loss) available to
common shareholders
    
    $
    (2,663
    )
    
    $
    776
    
    
    $
    (1,539
    )
    
    $
    (4,272
    )
    
    $
    (7,551
    )Portion allocable to common
shareholders (2)
    
    
    100.0
    %
    
    
    70.2
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Net income (loss) allocable to
common shareholders
    
    $
    (2,663
    )
    
    $
    545
    
    
    $
    (1,539
    )
    
    $
    (4,272
    )
    
    $
    (7,551
    )Diluted earnings per common share
equivalent
    
    $
    (1.25
    )
    
    $
    2.14
    
    
    $
    (8.55
    )
    
    $
    (23.72
    )
    
    $
    (41.93
    )Diluted weighted average of common
share equivalents outstanding
    
    
    2,129,492
    
    
    
    255,280
    
    
    
    180,125
    
    
    
    180,125
    
    
    
    180,125Selected Insurance RatiosCurrent accident year loss ratio (3)
    
    
    71.0
    %
    
    
    68.5
    %
    
    
    70.6
    %
    
    
    71.8
    %
    
    
    66.9
    %Prior accident year loss ratio (4)
    
    
    8.5
    %
    
    
    5.7
    %
    
    
    1.3
    %
    
    
    2.4
    %
    
    
    5.3
    %Net loss ratio
    
    
    79.5
    %
    
    
    74.2
    %
    
    
    71.9
    %
    
    
    74.2
    %
    
    
    72.2
    %Net underwriting expense ratio (5)
    
    
    24.7
    %
    
    
    24.8
    %
    
    
    27.3
    %
    
    
    29.7
    %
    
    
    32.1
    %Net dividend ratio (6)
    
    
    0.0
    %
    
    
    0.5
    %
    
    
    0.4
    %
    
    
    0.1
    %
    
    
    1.6
    %Net combined ratio (7)
    
    
    104.2
    %
    
    
    99.5
    %
    
    
    99.6
    %
    
    
    104.0
    %
    
    
    105.9
    %
 49




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As of December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(In thousands)Balance Sheet DataCash and cash equivalents
    
    $
    49,286
    
    
    $
    25,421
    
    
    $
    49,815
    
    
    $
    44,677
    
    
    $
    44,270Investments
    
    
    533,618
    
    
    
    364,868
    
    
    
    257,729
    
    
    
    205,315
    
    
    
    148,305Amounts recoverable from reinsurers
    
    
    122,562
    
    
    
    198,977
    
    
    
    211,774
    
    
    
    214,342
    
    
    
    298,451Premiums receivable, net
    
    
    123,934
    
    
    
    114,141
    
    
    
    108,380
    
    
    
    95,291
    
    
    
    104,907Deferred income taxes
    
    
    22,413
    
    
    
    15,624
    
    
    
    12,713
    
    
    
    11,372
    
    
    
    14,716Deferred policy acquisition costs
    
    
    16,973
    
    
    
    12,044
    
    
    
    11,820
    
    
    
    9,505
    
    
    
    11,077Deferred charges
    
    
    3,182
    
    
    
    3,054
    
    
    
    2,987
    
    
    
    1,997
    
    
    
    2,588Total assets
    
    
    892,320
    
    
    
    754,187
    
    
    
    678,608
    
    
    
    603,801
    
    
    
    645,474Reserves for loss and loss
adjustment expenses
    
    
    484,485
    
    
    
    432,880
    
    
    
    377,559
    
    
    
    346,542
    
    
    
    383,032Unearned premiums
    
    
    124,524
    
    
    
    111,741
    
    
    
    103,462
    
    
    
    87,319
    
    
    
    92,047Insurance-related assessments
    
    
    35,135
    
    
    
    29,876
    
    
    
    26,133
    
    
    
    23,743
    
    
    
    25,964Debt
    
    
    36,090
    
    
    
    36,090
    
    
    
    16,310
    
    
    
    8,000
    
    
    
    9,000Redeemable preferred stock (8)
    
    
    50,000
    
    
    
    131,916
    
    
    
    126,424
    
    
    
    121,300
    
    
    
    116,520Shareholders equity (deficit) (9)
    
    
    97,346
    
    
    
    (42,862
    )
    
    
    (20,652
    )
    
    
    (25,100
    )
    
    
    (10,980
    )
 
 (1)
    
    Includes policy acquisition expenses, such as assessments, premium taxes and other general
and administrative expenses, excluding commissions and salaries and benefits, related to
insurance operations and corporate operating expenses.(2)
    
    Reflects the participation rights of our convertible preferred stock. See Note 12 to our
audited financial statements.(3)
    
    The current accident year loss ratio is calculated by dividing loss and loss adjustment
expenses incurred for the current accident year by the current years net premiums earned.(4)
    
    The prior accident year loss ratio is calculated by dividing the change in loss and loss
adjustment expenses incurred for prior accident years by the current years net premiums
earned.(5)
    
    The net underwriting expense ratio is calculated by dividing underwriting and certain other
operating costs, commissions and salaries and benefits by the current years net premiums
earned.(6)
    
    The net dividend ratio is calculated by dividing policyholder dividends by the current years
net premiums earned.(7)
    
    The net combined ratio is the sum of the net loss ratio, the net underwriting expense ratio
and the net dividend ratio.(8)
    
    Includes our Series A preferred stock (a portion of which was redeemed for cash and the
balance of which was exchanged for shares of our common stock upon the completion of our
initial public offering in November 2005) and Series C and Series D convertible preferred
stock, each of which is mandatorily redeemable upon the occurrence of certain events that are
deemed to be outside the control of our company.(9)
    
    In 1997, we entered into a recapitalization transaction with Welsh Carson that resulted in a
$164.2 million charge to retained earnings. 50




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
      51




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52




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##### Table of Contents



Principal Revenue and Expense Items
  Net Premiums Earned.
  Net Investment Income and Net Realized Gains and Losses on Investments
 Fee and Other Income
  Loss and Loss Adjustment Expenses Incurred
 Underwriting and Certain Other Operating Costs
 53




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##### Table of Contents



Commissions
 Salaries and Benefits
 Policyholder Dividends
 Interest Expense
 Income Tax Expense
 Critical Accounting Policies
    Reserves for Loss and Loss Adjustment Expenses
  Amounts Recoverable from Reinsurers
 54




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##### Table of Contents



Assessments
 Deferred Policy Acquisition Costs
 Deferred Income Taxes
  Impairment of Investment Securities
 
    
    how long and by how much the fair value of the security has been below its cost;
    
    the financial condition and near-term prospects of the issuer of the security,
including any specific events that may affect its operations or earnings;
    
    our intent and ability to keep the security for a sufficient time period for it to recover its value;
    
    any downgrades of the security by a rating agency; and
    
    any reduction or elimination of dividends, or nonpayment of scheduled interest payments.
 55




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##### Table of Contents



Share-Based Compensation Share-Based Payment
 Results of Operations
  Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Income Statement DataGross premiums written
    
    $
    290,891
    
    
    $
    264,962
    
    
    $
    223,590Ceded premiums written
    
    
    (21,541
    )
    
    
    (21,951
    )
    
    
    (27,600
    )Net premiums written
    
    $
    269,350
    
    
    $
    243,011
    
    
    $
    195,990Net premiums earned
    
    $
    256,568
    
    
    $
    234,733
    
    
    $
    179,847Net investment income
    
    
    16,882
    
    
    
    12,217
    
    
    
    10,106Net realized gains on investments
    
    
    2,272
    
    
    
    1,421
    
    
    
    316Fee and other income
    
    
    561
    
    
    
    589
    
    
    
    462Total revenues
    
    
    276,283
    
    
    
    248,960
    
    
    
    190,731Loss and loss adjustment expenses incurred
    
    
    204,056
    
    
    
    174,186
    
    
    
    129,250Underwriting and certain other operating costs (1)
    
    
    33,008
    
    
    
    28,987
    
    
    
    23,062Commissions
    
    
    16,226
    
    
    
    14,160
    
    
    
    11,003Salaries and benefits
    
    
    14,150
    
    
    
    15,034
    
    
    
    15,037Interest expense
    
    
    2,844
    
    
    
    1,799
    
    
    
    203Policyholder dividends
    
    
    4
    
    
    
    1,108
    
    
    
    736Total expenses
    
    
    270,288
    
    
    
    235,274
    
    
    
    179,291Income before taxes
    
    
    5,995
    
    
    
    13,686
    
    
    
    11,440Income tax expense
    
    
    65
    
    
    
    3,129
    
    
    
    2,846Net income
    
    $
    5,930
    
    
    $
    10,557
    
    
    $
    8,594Selected Insurance RatiosCurrent accident year loss ratio (2)
    
    
    71.0
    %
    
    
    68.5
    %
    
    
    70.6
    %Prior accident year loss ratio (3)
    
    
    8.5
    %
    
    
    5.7
    %
    
    
    1.3
    %Net loss ratio
    
    
    79.5
    %
    
    
    74.2
    %
    
    
    71.9
    %Net underwriting expense ratio (4)
    
    
    24.7
    %
    
    
    24.8
    %
    
    
    27.3
    %Net dividend ratio (5)
    
    
    0.0
    %
    
    
    0.5
    %
    
    
    0.4
    %Net combined ratio (6)
    
    
    104.2
    %
    
    
    99.5
    %
    
    
    99.6
    %
 56




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As of December 31,2005
    
    
    2004
    
    
    2003(In thousands)Balance Sheet DataCash and cash equivalents
    
    $
    49,286
    
    
    $
    25,421
    
    
    $
    49,815Investments
    
    
    533,618
    
    
    
    364,868
    
    
    
    257,729Amounts recoverable from reinsurers
    
    
    122,562
    
    
    
    198,977
    
    
    
    211,774Premiums receivable, net
    
    
    123,934
    
    
    
    114,141
    
    
    
    108,380Deferred income taxes
    
    
    22,413
    
    
    
    15,624
    
    
    
    12,713Deferred policy acquisition costs
    
    
    16,973
    
    
    
    12,044
    
    
    
    11,820Deferred charges
    
    
    3,182
    
    
    
    3,054
    
    
    
    2,987Total assets
    
    
    892,320
    
    
    
    754,187
    
    
    
    678,608Reserves for loss and loss adjustment expenses
    
    
    484,485
    
    
    
    432,880
    
    
    
    377,559Unearned premiums
    
    
    124,524
    
    
    
    111,741
    
    
    
    103,462Insurance-related assessments
    
    
    35,135
    
    
    
    29,876
    
    
    
    26,133Debt
    
    
    36,090
    
    
    
    36,090
    
    
    
    16,310Redeemable preferred stock (7)
    
    
    50,000
    
    
    
    131,916
    
    
    
    126,424Shareholders equity (deficit) (8)
    
    
    97,346
    
    
    
    (42,862
    )
    
    
    (20,652
    )
 
 (1)
    
    Includes policy acquisition expenses, such as assessments, premium taxes and other general
and administrative expenses, excluding commissions and salaries and benefits, related to
insurance operations and corporate operating expenses.(2)
    
    The current accident year loss ratio is calculated by dividing loss and loss adjustment
expenses incurred for the current accident year by the current years net premiums earned.(3)
    
    The prior accident year loss ratio is calculated by dividing the change in loss and loss
adjustment expenses incurred for prior accident years by the current years net premiums
earned.(4)
    
    The net underwriting expense ratio is calculated by dividing underwriting and certain other
operating costs, commissions and salaries and benefits by the current years net premiums
earned.(5)
    
    The net dividend ratio is calculated by dividing policyholder dividends by the current years
net premiums earned.(6)
    
    The net combined ratio is the sum of the net loss ratio, the net underwriting expense ratio
and the net dividend ratio.(7)
    
    Includes our Series A preferred stock (all of which was redeemed for cash or exchanged for
shares of our common stock upon the completion of our initial public offering in November
2005) and Series C and Series D convertible preferred stock. The Series C and Series D
convertible preferred stock is mandatorily redeemable upon the occurrence of certain events
that are deemed to be outside the control of our company.(8)
    
    In 1997, we entered into a recapitalization transaction with Welsh Carson that resulted in a
$164.2 million charge to retained earnings. Overview of Operating Results
 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Gross Premiums Written
 57




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Net Premiums Written
 Net Premiums Earned
 Net Investment Income
 Net Realized Gains on Investments
 Loss and Loss Adjustment Expenses Incurred
 Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits
 Interest expense
 Income tax expense
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
 Gross Premiums Written
 58




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Net Premiums Written
 Net Premiums Earned
 Net Investment Income
 Net Realized Gains on Investments
 Loss and Loss Adjustment Expenses Incurred
 Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits
 Interest Expense
 Income Tax Expense
 59




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##### Table of Contents



Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
 Gross Premiums Written
 Net Premiums Written
 Net Premiums Earned
 Net Investment Income
 Net Realized Gains (Losses) on Investments
 Loss and Loss Adjustment Expenses Incurred
 Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits
 Interest Expense
 Income Tax Expense
 Liquidity and Capital Resources
  60




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61




---



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Investment Portfolio
   62




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PercentageCarrying Value
    
    
    of Portfolio(In thousands)Fixed maturity securities:State and political subdivisions
    
    $
    255,598
    
    
    
    43.8
    %Mortgage-backed securities
    
    
    108,897
    
    
    
    18.7
    %U.S. Treasury securities and obligations of
U.S. Government agencies
    
    
    71,548
    
    
    
    12.3
    %Corporate bonds
    
    
    22,892
    
    
    
    3.9
    %Asset-backed securities
    
    
    6,613
    
    
    
    1.1
    %Redeemable preferred stocks
    
    
    1,695
    
    
    
    0.3
    %Total fixed maturity securities
    
    
    467,343
    
    
    
    80.1
    %Equity securities:Common stocks
    
    
    62,679
    
    
    
    10.8
    %Nonredeemable preferred stocks
    
    
    3,596
    
    
    
    0.6
    %Total equity securities
    
    
    66,275
    
    
    
    11.4
    %Cash and cash equivalents
    
    
    49,286
    
    
    
    8.5
    %Total investments, including cash and cash equivalents
    
    $
    582,904
    
    
    
    100.0
    %
  
    
    how long and by how much the fair value of the security has been below its cost;
    
    the financial condition and near-term prospects of the issuer of the security,
including any specific events that may affect its operations or earnings;
    
    our intent and ability to keep the security for a sufficient time period for it to recover its value;
    
    any downgrades of the security by a rating agency; and
    
    any reduction or elimination of dividends, or nonpayment of scheduled interest payments.
  63




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Contractual Obligations and Commitments
   Future MinimumYear
    
    Lease Payments(In thousands)2006
    
    $
    9582007
    
    
    6772008
    
    
    5222009
    
    
    4632010
    
    
    8$
    2,628
  64




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Payment Due By PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years(In thousands)Subordinated notes (1)
    
    $
    36,090
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    36,090Loss and loss adjustment expenses (2)
    
    
    484,485
    
    
    
    121,121
    
    
    
    123,059
    
    
    
    62,983
    
    
    
    177,322Loss-based insurance assessments (3)
    
    
    17,684
    
    
    
    4,421
    
    
    
    4,492
    
    
    
    2,299
    
    
    
    6,472Capital lease obligations
    
    
    1,162
    
    
    
    567
    
    
    
    595
    
    
    
    0
    
    
    
    0Operating lease obligations
    
    
    2,628
    
    
    
    958
    
    
    
    1,199
    
    
    
    471
    
    
    
    0Purchase obligations
    
    
    372
    
    
    
    271
    
    
    
    101
    
    
    
    0
    
    
    
    0Total
    
    $
    542,421
    
    
    $
    127,338
    
    
    $
    129,446
    
    
    $
    65,753
    
    
    $
    219,884
 
 (1)
    
    Amounts do not include interest payments associated with these obligations. Interest rates
on our subordinated notes are variable and may change on a quarterly basis. See Liquidity
and Capital Resources above for further discussion of our subordinated notes.(2)
    
    The loss and loss adjustment expense payments due by period in the table above are based upon
the loss and loss adjustment expense estimates as of December 31, 2005 and actuarial estimates
of expected payout patterns and are not contractual liabilities as to a time certain. Our
contractual liability is to provide benefits under the policy. As a result, our calculation
of loss and loss adjustment expense payments due by period is subject to the same
uncertainties associated with determining the level of loss and loss adjustment expenses
generally and to the additional uncertainties arising from the difficulty of predicting when
claims (including claims that have not yet been reported to us) will be paid. For a
discussion of our loss and loss adjustment expense process, see BusinessLoss Reserves in
Item 1 of this report. Actual payments of loss and loss adjustment expenses by period will
vary, perhaps materially, from the table above to the extent that current estimates of loss
and loss adjustment expenses vary from actual ultimate claims amounts and as a result of
variations between expected and actual payout patterns. See Risk FactorsRisks Related to
Our BusinessOur loss reserves are based on estimates and may be inadequate to cover our
actual losses in Item 1 of this report for a discussion of the uncertainties associated with
estimating loss and loss adjustment expenses.(3)
    
    We are subject to various annual assessments imposed by certain of the states in which we
write insurance policies. These assessments are generally based upon the amount of premiums
written or losses paid during the applicable year. Assessments based on premiums are
generally paid within one year after the calendar year in which the policies are written,
while assessments based on losses are generally paid within one year after the loss is paid.
When we establish a reserve for loss and loss adjustment expenses for a reported claim, we
accrue our obligation to pay any applicable assessments. If settlement of the claim is to be
paid out over more than one year, our obligation to pay any related loss-based assessments
extends for the same period of time. Because our reserves for loss and loss adjustment
expenses are based on estimates, our accruals for loss-based insurance assessments are also
based on estimates. Actual payments of loss and loss adjustment expenses may differ, perhaps
materially, from our reserves. Accordingly, our actual loss-based insurance assessments may
vary, perhaps materially, from our accruals. Off-Balance Sheet Arrangements
  65




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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  Credit Risk
   Interest Rate Risk
   66




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HypotheticalPercentageEstimated
    
    IncreaseEstimated
    
    
    
    
    
    Change in
    
    (Decrease) inHypothetical Change
    
    
    
    
    
    Change in
    
    Carrying
    
    Carrying
    
    Shareholdersin Interest Rates
    
    Fair Value
    
    Fair Value
    
    Value
    
    Value
    
    Equity200 basis point increase
    
    $
    418,314
    
    
    $
    (42,200
    )
    
    $
    467,182
    
    
    $
    (161
    )
    
    
    (0.07
    )%100 basis point increase
    
    
    438,426
    
    
    
    (22,088
    )
    
    
    467,256
    
    
    
    (87
    )
    
    
    (0.04
    )%No change
    
    
    460,514
    
    
    
    
    
    
    
    467,343
    
    
    
    
    
    
    
    100 basis point decrease
    
    
    484,897
    
    
    
    24,383
    
    
    
    467,583
    
    
    
    240
    
    
    
    0.11
    %200 basis point decrease
    
    
    511,965
    
    
    
    51,451
    
    
    
    467,711
    
    
    
    368
    
    
    
    0.16
    %
 Equity Price Risk
  67




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Item 8. Financial Statements and Supplementary Data.
 PageAudited Financial Statements as of December 31, 2005 and 2004 and for the three years
in the period ended December 31, 2005:Report of Independent Registered Public Accounting Firm
    
    
    69Consolidated Balance Sheets
    
    
    70Consolidated Statements of Income
    
    
    71Consolidated Statements of Changes in Shareholders Equity
    
    
    72Consolidated Statements of Cash Flows
    
    
    73Notes to Consolidated Financial Statements
    
    
    74Financial Statement Schedules:Schedule II. Condensed Financial Information of Registrant
    
    
    102Schedule VI. Supplemental Information Concerning Property-Casualty Insurance Operations
    
    
    105(Schedules I, III, IV and V are not applicable and have been omitted.)
 68




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Report of Independent Registered Public Accounting Firm
 
    /s/ Ernst & Young LLP
  69




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 December 31,2005
    
    
    2004AssetsInvestments:Fixed maturity securitiesheld-to-maturity, at amortized cost (fair value $458,819 and
$328,948 in 2005 and 2004, respectively)
    
    $
    465,648
    
    
    $
    329,653Fixed maturity securitiesavailable-for-sale, at fair value (cost $1,729 in 2005 and
2004, respectively)
    
    
    1,695
    
    
    
    1,755Equity securitiesavailable-for-sale, at fair value (cost $62,855 and $30,926 in 2005
and 2004, respectively)
    
    
    66,275
    
    
    
    33,460Total investments
    
    
    533,618
    
    
    
    364,868Cash and cash equivalents
    
    
    49,286
    
    
    
    25,421Amounts recoverable from reinsurers
    
    
    122,562
    
    
    
    198,977Premiums receivable, net
    
    
    123,934
    
    
    
    114,141Deferred income taxes
    
    
    22,413
    
    
    
    15,624Federal income tax recoverable
    
    
    
    
    
    
    1,292Accrued interest receivable
    
    
    4,597
    
    
    
    3,123Property and equipment, net
    
    
    6,321
    
    
    
    7,077Deferred policy acquisition costs
    
    
    16,973
    
    
    
    12,044Deferred charges
    
    
    3,182
    
    
    
    3,054Other assets
    
    
    9,434
    
    
    
    8,566$
    892,320
    
    
    $
    754,187Liabilities, redeemable preferred stock and shareholders equityLiabilities:Reserves for loss and loss adjustment expenses
    
    $
    484,485
    
    
    $
    432,880Unearned premiums
    
    
    124,524
    
    
    
    111,741Reinsurance premiums payable
    
    
    694
    
    
    
    861Amounts held for others
    
    
    1,484
    
    
    
    1,214Policyholder deposits
    
    
    38,033
    
    
    
    33,746Insurance-related assessments
    
    
    35,135
    
    
    
    29,876Federal income tax payable
    
    
    1,677
    
    
    
    Accounts payable and other liabilities
    
    
    22,852
    
    
    
    18,725Subordinated debt securities
    
    
    36,090
    
    
    
    36,090Total liabilities
    
    
    744,974
    
    
    
    665,133Redeemable preferred stock:Series A nonconvertible$0.01 par value, $100 per share redemption value:Authorized shares1,500,000; issued and outstanding sharesNone in 2005
and 819,161 in 2004
    
    
    
    
    
    
    81,916Series C convertible$0.01 par value, $100 per share redemption value:Authorized shares300,000; issued and outstanding shares300,000 in 2005 and 2004
    
    
    30,000
    
    
    
    30,000Series D convertible$0.01 par value, $100 per share redemption value:Authorized shares200,000; issued and outstanding shares200,000 in 2005 and 2004
    
    
    20,000
    
    
    
    20,00050,000
    
    
    
    131,916Shareholders equity:Preferred stock: Series E nonconvertible$0.01 par value, $100 per share redemption
value:Authorized500,000; issued and outstanding sharesNone in 2005 and 17,653 in 2004
    
    
    
    
    
    
    1,765Common stock:Voting$0.01 par value authorized shares50,000,000 in 2005 and 100,000,000
in 2004; issued and outstanding shares17,424,054 in 2005 and 299,774 in 2004
    
    
    174
    
    
    
    3Additional paid-in capital
    
    
    145,236
    
    
    
    Deferred stock-based compensation
    
    
    (30
    )
    
    
    Accumulated deficit
    
    
    (54,346
    )
    
    
    (51,683
    )Accumulated other comprehensive income
    
    
    6,312
    
    
    
    7,05397,346
    
    
    
    (42,862
    )$
    892,320
    
    
    $
    754,187
  70




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
 Year Ended December 31,2005
    
    
    2004
    
    
    2003RevenuesPremiums earned
    
    $
    256,568
    
    
    $
    234,733
    
    
    $
    179,847Net investment income
    
    
    16,882
    
    
    
    12,217
    
    
    
    10,106Net realized gains on investments
    
    
    2,272
    
    
    
    1,421
    
    
    
    316Fee and other income
    
    
    561
    
    
    
    589
    
    
    
    462Total revenues
    
    
    276,283
    
    
    
    248,960
    
    
    
    190,731ExpensesLoss and loss adjustment expenses incurred
    
    
    204,056
    
    
    
    174,186
    
    
    
    129,250Underwriting and certain other operating costs
    
    
    33,008
    
    
    
    28,987
    
    
    
    23,062Commissions
    
    
    16,226
    
    
    
    14,160
    
    
    
    11,003Salaries and benefits
    
    
    14,150
    
    
    
    15,034
    
    
    
    15,037Interest expense
    
    
    2,844
    
    
    
    1,799
    
    
    
    203Policyholder dividends
    
    
    4
    
    
    
    1,108
    
    
    
    736Total expenses
    
    
    270,288
    
    
    
    235,274
    
    
    
    179,291Income before income taxes
    
    
    5,995
    
    
    
    13,686
    
    
    
    11,440Income tax expense
    
    
    65
    
    
    
    3,129
    
    
    
    2,846Net income
    
    
    5,930
    
    
    
    10,557
    
    
    
    8,594Preferred stock dividends
    
    
    (8,593
    )
    
    
    (9,781
    )
    
    
    (10,133
    )Net income (loss) available to common
shareholders
    
    $
    (2,663
    )
    
    $
    776
    
    
    $
    (1,539
    )Earnings (loss) per shareBasic
    
    $
    (1.25
    )
    
    $
    2.42
    
    
    $
    (8.55
    )Diluted
    
    $
    (1.25
    )
    
    $
    2.14
    
    
    $
    (8.55
    )Shares used in computing earnings (loss) per shareBasic
    
    
    2,129,492
    
    
    
    225,367
    
    
    
    180,125Diluted
    
    
    2,129,492
    
    
    
    255,280
    
    
    
    180,125
  71




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(In thousands, except share data)
 AccumulatedSeries E
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    Deferred
    
    
    
    
    
    
    OtherPreferred Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Stock-Based
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    Income
    
    
    TotalBalance at January 1, 2003
    
    
    197,115
    
    
    $
    19,711
    
    
    
    180,125
    
    
    $
    2
    
    
    $
    5,424
    
    
    $
    
    
    
    $
    (56,429
    )
    
    $
    6,192
    
    
    $
    (25,100
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,594
    
    
    
    
    
    
    
    8,594Other comprehensive income,
net of tax:Unrealized gain on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    978
    
    
    
    978Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,572Dividends paid in Series A
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,124
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,124
    )Dividends paid in Series E
preferred stock
    
    
    50,094
    
    
    
    5,009
    
    
    
    
    
    
    
    
    
    
    
    (300
    )
    
    
    
    
    
    
    (4,709
    )
    
    
    
    
    
    
    Balance at December 31, 2003
    
    
    247,209
    
    
    
    24,720
    
    
    
    180,125
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (52,544
    )
    
    
    7,170
    
    
    
    (20,652
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,557
    
    
    
    
    
    
    
    10,557Other comprehensive income,Unrealized loss on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117
    )
    
    
    (117
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,440Conversion of warrants
    
    
    
    
    
    
    
    
    
    
    119,649
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    86Dividends paid in Series A
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,492
    )
    
    
    
    
    
    
    (5,492
    )Dividends paid in Series E
preferred stock
    
    
    42,880
    
    
    
    4,289
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,289
    )
    
    
    
    
    
    
    Redemption of Series E preferred
stock
    
    
    (272,436
    )
    
    
    (27,244
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,244
    )Balance at December 31, 2004
    
    
    17,653
    
    
    
    1,765
    
    
    
    299,774
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    (51,683
    )
    
    
    7,053
    
    
    
    (42,862
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,930
    
    
    
    
    
    
    
    5,930Other comprehensive income:Change in unrealized gains,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (741
    )
    
    
    (741
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,189Dividends paid in Series A
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,376
    )
    
    
    
    
    
    
    (4,376
    )Dividends paid in Series E
preferred stock
    
    
    27,655
    
    
    
    2,766
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,766
    )
    
    
    
    
    
    
    IPO  Common stock issued
    
    
    
    
    
    
    
    
    
    
    8,000,000
    
    
    
    80
    
    
    
    71,920
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,000IPO  Common stock issued
in exchange for Series A
preferred stock
    
    
    
    
    
    
    
    
    
    
    9,120,948
    
    
    
    91
    
    
    
    81,997
    
    
    
    
    
    
    
    (837
    )
    
    
    
    
    
    
    81,251IPO  Restricted common
stock issued
    
    
    
    
    
    
    
    
    
    
    3,332
    
    
    
    
    
    
    
    30
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    Deferred stock options granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53IPO  Series A preferred stock
redeemed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52
    )
    
    
    
    
    
    
    (52
    )IPO  Series E preferred stock
redeemed
    
    
    (45,308
    )
    
    
    (4,531
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (562
    )
    
    
    
    
    
    
    (5,093
    )IPO  Offering costs:Underwriting discount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,040
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,040
    )Other IPO expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,724
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,724
    )Balance at December 31, 2005
    
    
    
    
    
    $
    
    
    
    
    17,424,054
    
    
    $
    174
    
    
    $
    145,236
    
    
    $
    (30
    )
    
    $
    (54,346
    )
    
    $
    6,312
    
    
    $
    97,346
  72




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Operating activitiesNet income
    
    $
    5,930
    
    
    $
    10,557
    
    
    $
    8,594Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    2,159
    
    
    
    1,695
    
    
    
    2,019Provision for doubtful accounts
    
    
    446
    
    
    
    1,262
    
    
    
    19Net amortization/accretion of investments
    
    
    2,256
    
    
    
    1,673
    
    
    
    1,015Deferred income taxes
    
    
    (6,389
    )
    
    
    (2,849
    )
    
    
    (1,868
    )Net realized gains on investments
    
    
    (2,272
    )
    
    
    (1,421
    )
    
    
    (316
    )Gain on sale of asset
    
    
    2
    
    
    
    
    
    
    
    Changes in operating assets and liabilities:Premiums receivable
    
    
    (10,239
    )
    
    
    (7,023
    )
    
    
    (13,108
    )Accrued interest receivable
    
    
    (1,474
    )
    
    
    (464
    )
    
    
    (544
    )Deferred policy acquisition costs and deferred charges
    
    
    (5,057
    )
    
    
    (291
    )
    
    
    (3,305
    )Other assets
    
    
    424
    
    
    
    3,497
    
    
    
    (1,549
    )Reserve for loss and loss adjustment expenses
    
    
    51,605
    
    
    
    55,321
    
    
    
    31,017Unearned premiums
    
    
    12,783
    
    
    
    8,279
    
    
    
    16,143Reinsurance balances
    
    
    76,248
    
    
    
    13,173
    
    
    
    1,742Amounts held for others and policyholder deposits
    
    
    4,557
    
    
    
    4,975
    
    
    
    6,230Accounts payable and other liabilities
    
    
    11,063
    
    
    
    3,565
    
    
    
    4,360Net cash provided by operating activities
    
    
    142,042
    
    
    
    91,949
    
    
    
    50,449Investing activitiesPurchases of investments held-to-maturity
    
    
    (240,054
    )
    
    
    (113,461
    )
    
    
    (81,988
    )Purchases of investments available-for-sale
    
    
    (56,115
    )
    
    
    (31,795
    )
    
    
    (8,675
    )Proceeds from maturities of investments held-to-maturity
    
    
    99,953
    
    
    
    21,789
    
    
    
    Proceeds from sales and maturities of investments
available-for-sale
    
    
    26,342
    
    
    
    14,908
    
    
    
    37,548Repayments on mortgage loan
    
    
    
    
    
    
    2,370
    
    
    
    127Purchases of property and equipment
    
    
    (1,409
    )
    
    
    (2,778
    )
    
    
    (640
    )Proceeds from sales of property and equipment
    
    
    3
    
    
    
    2
    
    
    
    7Net cash used in investing activities
    
    
    (171,280
    )
    
    
    (108,965
    )
    
    
    (53,621
    )Financing activitiesNet proceeds from initial public offering
    
    
    63,236
    
    
    
    
    
    
    
    Series A preferred stock redemption
    
    
    (5,093
    )
    
    
    
    
    
    
    Series E preferred stock redemption
    
    
    (5,093
    )
    
    
    
    
    
    
    Stock-based compensation
    
    
    53
    
    
    
    
    
    
    
    Principal payments on note payable
    
    
    
    
    
    
    (6,000
    )
    
    
    (2,000
    )Warrants exercised
    
    
    
    
    
    
    86
    
    
    
    Proceeds from issuance of subordinated debt securities
    
    
    
    
    
    
    25,780
    
    
    
    10,310Series E preferred stock redemptions
    
    
    
    
    
    
    (27,244
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    53,103
    
    
    
    (7,378
    )
    
    
    8,310Change in cash and cash equivalents
    
    
    23,865
    
    
    
    (24,394
    )
    
    
    5,138Cash and cash equivalents at beginning of year
    
    
    25,421
    
    
    
    49,815
    
    
    
    44,677Cash and cash equivalents at end of year
    
    $
    49,286
    
    
    $
    25,421
    
    
    $
    49,815Supplemental disclosure of cash flow informationInterest paid
    
    $
    2,556
    
    
    $
    1,260
    
    
    $
    297Income taxes paid
    
    $
    3,650
    
    
    $
    8,434
    
    
    $
    8,574Pay-in-kind dividends
    
    $
    8,593
    
    
    $
    9,781
    
    
    $
    10,133
  73




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 1. Summary of Significant Accounting Policies
 Organization
      Basis of Presentation
  74




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
    Investments
       75




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Cash and Cash Equivalents
  Premiums Receivable
  Property and Equipment
  Deferred Policy Acquisition Costs
  Reserves for Loss and Loss Adjustment Expenses
   76




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  Premium Revenue
    Reinsurance
      Fee and Other Income
  77




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Advertising
  Income Taxes
   Insurance-Related Assessments
  Policyholder Dividends
  Variable Interest Entities
  78




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
   Earnings Per Share
   Stock-Based Compensation
    79




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 2. Investments
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)U.S. Treasury securities and obligations of
U.S. Government agencies
    
    $
    71,548
    
    
    $
    75
    
    
    $
    (934
    )
    
    $
    70,689States and political subdivisions
    
    
    255,598
    
    
    
    585
    
    
    
    (4,345
    )
    
    
    251,838Mortgage-backed and asset-backed
securities
    
    
    115,510
    
    
    
    217
    
    
    
    (1,950
    )
    
    
    113,777Long-term certificates of deposit
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Corporate bonds
    
    
    22,892
    
    
    
    17
    
    
    
    (494
    )
    
    
    22,415Totals
    
    $
    465,648
    
    
    $
    894
    
    
    $
    (7,723
    )
    
    $
    458,819
   Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Equity securities
    
    $
    62,875
    
    
    $
    5,355
    
    
    $
    (1,955
    )
    
    $
    66,275Fixed maturity securities
    
    
    1,709
    
    
    
    7
    
    
    
    (21
    )
    
    
    1,695Totals
    
    $
    64,584
    
    
    $
    5,362
    
    
    $
    (1,976
    )
    
    $
    67,970
 80




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)U.S. Treasury securities and obligations of
U.S. Government agencies
    
    $
    39,255
    
    
    $
    37
    
    
    $
    (80
    )
    
    $
    39,212States and political subdivisions
    
    
    173,103
    
    
    
    
    
    
    
    (553
    )
    
    
    172,550Mortgage-backed and asset-backed
securities
    
    
    91,836
    
    
    
    165
    
    
    
    (284
    )
    
    
    91,717Long-term certificates of deposit
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Corporate bonds
    
    
    25,359
    
    
    
    30
    
    
    
    (20
    )
    
    
    25,369Totals
    
    $
    329,653
    
    
    $
    232
    
    
    $
    (937
    )
    
    $
    328,948
  Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Equity securities
    
    $
    30,940
    
    
    $
    3,016
    
    
    $
    (496
    )
    
    $
    33,460Fixed maturity securities
    
    
    1,715
    
    
    
    40
    
    
    
    
    
    
    
    1,755Totals
    
    $
    32,655
    
    
    $
    3,056
    
    
    $
    (496
    )
    
    $
    35,215
  Cost orAmortizedCost
    
    
    Fair Value(In thousands)Maturity:Due in 2006
    
    $
    7,240
    
    
    $
    7,157In 2007 through 2010
    
    
    178,489
    
    
    
    175,280In 2011 through 2015
    
    
    102,771
    
    
    
    100,902After 2015
    
    
    63,367
    
    
    
    63,398Mortgage-backed and asset-backed securities
    
    
    115,510
    
    
    
    113,777Totals
    
    $
    467,377
    
    
    $
    460,514
   81




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  FixedMaturitySecuritiesAvailable
    
    
    Equityfor Sale
    
    
    Securities
    
    
    Other
    
    
    Total(In thousands)Year ended December 31, 2005Proceeds from sales
    
    $
    
    
    
    $
    26,342
    
    
    $
    
    
    
    $
    26,342Gross realized investment gains
    
    $
    
    
    
    $
    3,338
    
    
    $
    
    
    
    $
    3,338Gross realized investment losses
    
    
    
    
    
    
    (1,179
    )
    
    
    
    
    
    
    (1,179
    )Net realized investment gain
    
    
    
    
    
    
    2,159
    
    
    
    
    
    
    
    2,159Impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other, including gains on calls and redemptions
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    113Net realized investment gains
    
    $
    
    
    
    $
    2,159
    
    
    $
    113
    
    
    $
    2,272Year ended December 31, 2004Proceeds from sales
    
    $
    
    
    
    $
    13,529
    
    
    $
    
    
    
    $
    13,529Gross realized investment gains
    
    $
    
    
    
    $
    1,784
    
    
    $
    
    
    
    $
    1,784Gross realized investment losses
    
    
    
    
    
    
    (537
    )
    
    
    
    
    
    
    (537
    )Net realized investment gain
    
    
    
    
    
    
    1,247
    
    
    
    
    
    
    
    1,247Impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other, including gains on calls and redemptions
    
    
    
    
    
    
    
    
    
    
    174
    
    
    
    174Net realized investment gains
    
    $
    
    
    
    $
    1,247
    
    
    $
    174
    
    
    $
    1,421Year ended December 31, 2003Proceeds from sales
    
    $
    27,469
    
    
    $
    4,923
    
    
    $
    
    
    
    $
    32,392Gross realized investment gains
    
    $
    2
    
    
    $
    357
    
    
    $
    
    
    
    $
    359Gross realized investment losses
    
    
    (5
    )
    
    
    (56
    )
    
    
    
    
    
    
    (61
    )Net realized investment loss
    
    
    (3
    )
    
    
    301
    
    
    
    
    
    
    
    298Impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other, including gains on calls and redemptions
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    18Net realized investment losses
    
    $
    15
    
    
    $
    301
    
    
    $
    
    
    
    $
    316
 82




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Gross investment income:Fixed maturity securities
    
    $
    15,515
    
    
    $
    11,294
    
    
    $
    9,358Equity securities
    
    
    1,333
    
    
    
    811
    
    
    
    611Cash and cash equivalents
    
    
    1,031
    
    
    
    693
    
    
    
    742Total gross investment income
    
    
    17,879
    
    
    
    12,798
    
    
    
    10,711Investment expenses
    
    
    (997
    )
    
    
    (581
    )
    
    
    (605
    )Net investment income
    
    $
    16,882
    
    
    $
    12,217
    
    
    $
    10,106
  Less Than
    
    Twelve MonthsTwelve Months
    
    or LongerFair
    
    Unrealized
    
    Fair
    
    UnrealizedValue
    
    Losses
    
    Value
    
    Losses(In thousands)December 31, 2005
    
    $
    74,556
    
    
    $
    3,949
    
    
    $
    275,178
    
    
    $
    5,750December 31, 2004
    
    
    94,003
    
    
    
    963
    
    
    
    16,284
    
    
    
    470
  3. Premiums Receivable
  December 31,2005
    
    
    2004(In thousands)Premiums receivable
    
    $
    126,148
    
    
    $
    117,057Allowance for doubtful accounts
    
    
    (2,214
    )
    
    
    (2,916
    )Premiums receivable, net
    
    $
    123,934
    
    
    $
    114,141
 83




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  December 31,2005
    
    
    2004
    
    
    2003(In thousands)Balance, beginning of year
    
    $
    2,916
    
    
    $
    3,229
    
    
    $
    4,339Provision for bad debts
    
    
    446
    
    
    
    1,262
    
    
    
    19Write-offs
    
    
    (1,148
    )
    
    
    (1,575
    )
    
    
    (1,129
    )Balance, end of year
    
    $
    2,214
    
    
    $
    2,916
    
    
    $
    3,229
 4. Deferred Policy Acquisition Costs
  December 31,2005
    
    
    2004(In thousands)Agents commissions
    
    $
    11,033
    
    
    $
    7,737Premium taxes
    
    
    3,088
    
    
    
    2,957Deferred underwriting expenses
    
    
    2,852
    
    
    
    1,350Total deferred policy acquisition costs
    
    $
    16,973
    
    
    $
    12,044
  Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Balance, beginning of year
    
    $
    12,044
    
    
    $
    11,820
    
    
    $
    9,505Policy acquisition costs deferred
    
    
    36,714
    
    
    
    26,193
    
    
    
    22,391Amortization expense during the year
    
    
    (31,785
    )
    
    
    (25,969
    )
    
    
    (20,076
    )Balance, end of year
    
    $
    16,973
    
    
    $
    12,044
    
    
    $
    11,820
 84




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 5. Property and Equipment
  December 31,2005
    
    
    2004(In thousands)Land and office building
    
    $
    4,383
    
    
    $
    4,334Furniture and equipment
    
    
    6,445
    
    
    
    6,914Software
    
    
    6,902
    
    
    
    6,022Automobiles
    
    
    79
    
    
    
    11017,809
    
    
    
    17,380Accumulated depreciation
    
    
    (11,488
    )
    
    
    (10,303
    )Real estate, furniture and equipment, net
    
    $
    6,321
    
    
    $
    7,077
   2006
    
    $
    5672007
    
    
    5542008
    
    
    41Total minimum lease payments
    
    
    1,162Less amount representing interest
    
    
    (35
    )Present value of net minimum lease payments
    
    $
    1,127
 6. Reinsurance
  85




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  2005 Premiums
    
    
    2004 Premiums
    
    
    2003 PremiumsWritten
    
    
    Earned
    
    
    Written
    
    
    Earned
    
    
    Written
    
    
    Earned(In thousands)Gross
    
    $
    290,891
    
    
    $
    278,109
    
    
    $
    264,962
    
    
    $
    256,684
    
    
    $
    223,590
    
    
    $
    207,447Ceded
    
    
    (21,541
    )
    
    
    (21,541
    )
    
    
    (21,951
    )
    
    
    (21,951
    )
    
    
    (27,600
    )
    
    
    (27,600
    )Net premiums
    
    $
    269,350
    
    
    $
    256,568
    
    
    $
    243,011
    
    
    $
    234,733
    
    
    $
    195,990
    
    
    $
    179,847
  December 31,2005
    
    
    2004(In thousands)Unpaid losses recoverable:Case basis
    
    $
    106,626
    
    
    $
    164,942Incurred but not reported
    
    
    13,606
    
    
    
    24,682Paid losses recoverable
    
    
    2,330
    
    
    
    9,353Total
    
    $
    122,562
    
    
    $
    198,977
    American Re-Insurance Company (A)
    
    $
    27,024Odyssey America Reinsurance Corporation (A)
    
    
    21,571St. Paul Fire & Marine Insurance Company (A+)
    
    
    11,973Clearwater Insurance Company (A)
    
    
    11,205Scor Reinsurance Company (B++)
    
    
    8,145Converium Reinsurance North America (B)
    
    
    6,629Other reinsurers
    
    
    36,015Total
    
    $
    122,562
 86




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 7. Income Taxes
  December 31,2005
    
    
    2004(In thousands)Deferred income tax assets:Discounting of net unpaid loss and loss adjustment expenses
    
    $
    16,047
    
    
    $
    8,836Unearned premiums
    
    
    10,738
    
    
    
    9,510Accrued expenses and other
    
    
    1,703
    
    
    
    1,702Accrued policyholder dividends
    
    
    271
    
    
    
    445Accrued insurance-related assessments
    
    
    6,189
    
    
    
    5,578Total deferred tax assets
    
    
    34,948
    
    
    
    26,071Deferred income tax liabilities:Deferred policy acquisition costs
    
    
    (7,749
    )
    
    
    (5,386
    )Deferred charges
    
    
    (998
    )
    
    
    (877
    )Unrealized gain on securities available-for-sale
    
    
    (3,399
    )
    
    
    (3,799
    )Property and equipment, primarily a result of differences in depreciation
    
    
    (372
    )
    
    
    (376
    )Other
    
    
    (17
    )
    
    
    (9
    )Total deferred tax liabilities
    
    
    (12,535
    )
    
    
    (10,447
    )Net deferred income tax asset
    
    $
    22,413
    
    
    $
    15,624
  Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Current:Federal
    
    $
    5,928
    
    
    $
    5,444
    
    
    $
    4,299State
    
    
    526
    
    
    
    534
    
    
    
    4156,454
    
    
    
    5,978
    
    
    
    4,714Deferred:Federal
    
    
    (6,389
    )
    
    
    (2,849
    )
    
    
    (1,868
    )Total
    
    $
    65
    
    
    $
    3,129
    
    
    $
    2,846
 87




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Income tax computed at federal statutory tax rate
    
    $
    2,098
    
    
    $
    4,790
    
    
    $
    4,004Tax-exempt interest, net
    
    
    (2,187
    )
    
    
    (1,737
    )
    
    
    (1,392
    )State income tax
    
    
    526
    
    
    
    534
    
    
    
    415Dividends received deduction
    
    
    (224
    )
    
    
    (135
    )
    
    
    (127
    )Tax method changes for prior year
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    (148
    )
    
    
    (323
    )
    
    
    (54
    )$
    65
    
    
    $
    3,129
    
    
    $
    2,846
 8. Note Payable
  9. Subordinated Debt Securities
   88




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 10. Loss and Loss Adjustment Expenses
  Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Reserves for loss and loss adjustment expenses (LAE)
    
    $
    432,880
    
    
    $
    377,559
    
    
    $
    346,542Less amounts recoverable from reinsurers on unpaid
loss and LAE
    
    
    189,624
    
    
    
    194,558
    
    
    
    193,634Reserves for loss and LAE, net of related amounts
recoverable from reinsurers, at beginning of year
    
    
    243,256
    
    
    
    183,001
    
    
    
    152,908Add:Provision for loss and LAE for claims occurring in
the current year, net of reinsurance
    
    
    182,174
    
    
    
    160,773
    
    
    
    126,977Change in estimated loss and LAE for claims
occurring in prior years, net of reinsurance
    
    
    7,899
    
    
    
    13,139
    
    
    
    973Loss on Converium commutation
    
    
    13,209
    
    
    
    
    
    
    
    203,282
    
    
    
    173,912
    
    
    
    127,950Uncollectible reinsurance adjustment for loss and
LAE occurring in prior years
    
    
    774
    
    
    
    274
    
    
    
    1,300Incurred losses during the current year, net of
reinsurance
    
    
    204,056
    
    
    
    174,186
    
    
    
    129,250Less loss and LAE payments for claims, net of
reinsurance, occurring during:Current year
    
    
    42,545
    
    
    
    40,312
    
    
    
    32,649Prior years
    
    
    96,620
    
    
    
    73,619
    
    
    
    66,508139,165
    
    
    
    113,931
    
    
    
    99,157Add effect of Converium commutation (1)
    
    
    56,106
    
    
    
    
    
    
    
    Reserves for loss and LAE, net of related amounts
recoverable from reinsurers, at end of year
    
    
    364,253
    
    
    
    243,256
    
    
    
    183,001Add amounts recoverable from reinsurers on unpaid
loss and LAE
    
    
    120,232
    
    
    
    189,624
    
    
    
    194,558Reserves for loss and LAE
    
    $
    484,485
    
    
    $
    432,880
    
    
    $
    377,559
 
 (1)
    
    The total payment from Converium was $61.3 million, of which $56.1 million was for ceded
reserves and $5.2 million was for paid recoverables as of June 30, 2005.  89




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
    11. Statutory Accounting and Regulatory Requirements
  2005
    
    2004
    
    2003Capital and surplus
    
    $
    157,740
    
    
    $
    112,334
    
    
    $
    96,905Net income (loss)
    
    
    (4,208
    )
    
    
    7,828
    
    
    
    2,598Realized investment gains
    
    
    2,272
    
    
    
    1,421
    
    
    
    316
   90




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##### Table of Contents



AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 12. Capital Stock
 Common Stock
   Non-Voting Common Stock
  Series A Preferred Stock
  RedemptionShares
    
    
    AmountBalance at January 1, 2003
    
    
    713,007
    
    
    $
    71,300Series A preferred stock dividends
    
    
    51,236
    
    
    
    5,124Balance at December 31, 2003
    
    
    764,243
    
    
    
    76,424Series A preferred stock dividends
    
    
    54,918
    
    
    
    5,492Balance at December 31, 2004
    
    
    819,161
    
    
    
    81,916Series A preferred stock dividends accrued
    
    
    43,763
    
    
    
    4,376Series A preferred stock dividends redeemed
    
    
    (50,410
    )
    
    
    (5,041
    )Series A preferred stock exchanged for common stock
    
    
    (812,514
    )
    
    
    (81,251
    )Balance at December 31, 2005
    
    
    
    
    
    $
    
   91




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
     Series B Preferred Stock
  Series C and Series D Convertible Preferred Stock
     92




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
       Series E Preferred Stock
    93




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Junior Preferred Stock
  Liquidation Provisions
  13. Stock Options and Restricted Stock
 2005 Incentive Plan
     94




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  Weighted-AverageNumber
    
    Remaining Contractual Life
    
    Weighted-AverageOutstanding
    
    (In Years)
    
    Exercise Price1,548,500
    
    
    10
    
    
    
    $9.00
  2005 Restricted Stock Plan
    1998 Plan
   95




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
   2005
    
    
    2004
    
    
    2003Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at the beginning of the year
    
    
    20,098
    
    
    $
    215.28
    
    
    
    20,140
    
    
    $
    216.72
    
    
    
    20,987
    
    
    $
    217.44Granted
    
    
    167
    
    
    
    360.00
    
    
    
    167
    
    
    
    360.00
    
    
    
    375
    
    
    
    298.80Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canceled, forfeited, or expired
    
    
    (20,265
    )
    
    
    216.72
    
    
    
    (209
    )
    
    
    360.00
    
    
    
    (1,222
    )
    
    
    251.28Outstanding at the end of the year
    
    
    
    
    
    
    
    
    
    
    20,098
    
    
    
    215.28
    
    
    
    20,140
    
    
    
    216.72Exercisable at the end of the year
    
    
    
    
    
    
    
    
    
    
    20,098
    
    
    
    215.28
    
    
    
    19,931
    
    
    
    215.28
  14. Warrants
  Exercise
    
    
    SharesNumber
    
    
    Price
    
    
    PurchasedWarrants outstanding at December 31, 2002
    
    
    119,849
    
    
    $
    0.72
    
    
    
    Issued
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    Warrants outstanding at December 31, 2003
    
    
    119,849
    
    
    
    0.72Issued
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    119,649
    
    
    
    0.72
    
    
    
    119,649Expired
    
    
    200
    
    
    
    0.72
    
    
    
    Warrants outstanding at December 31, 2004
    
    
    
 96




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 15. Earnings Per Share
  For the Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands, except per share amounts)Basic EPS:Net income
    
    $
    5,930
    
    
    $
    10,557
    
    
    $
    8,594Preferred stock dividends
    
    
    (8,593
    )
    
    
    (9,781
    )
    
    
    (10,133
    )Income (loss) available to common shareholders
    
    $
    (2,663
    )
    
    $
    776
    
    
    $
    (1,539
    )Amount allocable to common shareholders (1)
    
    
    100
    %
    
    
    70
    %
    
    
    100
    %Income (loss) allocable to common shareholders
    
    $
    (2,663
    )
    
    $
    545
    
    
    $
    (1,539
    )Weighted-average common shares outstanding
    
    
    2,129
    
    
    
    225
    
    
    
    180Basic earnings (loss) per share
    
    $
    (1.25
    )
    
    $
    2.42
    
    
    $
    (8.55
    )Diluted EPS:Income (loss) allocable to common shareholders
    
    $
    (2,663
    )
    
    $
    545
    
    
    $
    (1,539
    )Dividends on participating securities
    
    
    
    (2)
    
    
    
    (2)
    
    
    
    (2)Income (loss) allocable to common shareholders
after assumed conversions
    
    $
    (2,663
    )
    
    $
    545
    
    
    $
    (1,539
    )Weighted average common shares outstanding
    
    
    2,129
    
    
    
    225
    
    
    
    180Diluted effect:Stock options
    
    
    
    (2)
    
    
    
    (2)
    
    
    
    (2)Warrants
    
    
    
    
    
    
    30
    
    
    
    
    (2)Conversion of participating securities
    
    
    
    (2)
    
    
    
    (2)
    
    
    
    (2)Weighted average diluted shares outstanding
    
    
    2,129
    
    
    
    255
    
    
    
    180Diluted earnings (loss) per share
    
    $
    (1.25
    )
    
    $
    2.14
    
    
    $
    (8.55
    )
 
 (1)
    
    Computed under the two-class method by dividing the weighted-average common shares
outstanding (225 at December 31, 2004) by the sum of the weighted-average common shares
outstanding and shares issuable upon conversion of all convertible participating securities,
calculated on the if-converted method (such additional shares totaled 96 at December 31,
2004). In computing basic EPS using the two-class method, the Company has not allocated the
loss available to common shareholders for the years ended December 31, 2005 and 2003 between
common shareholders and participating security holders as the participating holders do not
have a contractual obligation to share in the loss.(2)
    
    Not applicable as impact is antidilutive. 97




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 16. Other Comprehensive Income
 Pre Tax
    
    
    
    
    
    
    Net-of-TaxAmount
    
    
    Tax Expense
    
    
    Amount(In thousands)December 31, 2005Unrealized gain on securities:Unrealized gain on available-for-sale securities
    
    $
    3,057
    
    
    $
    1,070
    
    
    $
    1,987Less amortization of differences between fair value
and amortized cost for fixed maturity security transfer
    
    
    (1,969
    )
    
    
    (689
    )
    
    
    (1,280
    )Less reclassification adjustment for losses realized
in net income
    
    
    (2,228
    )
    
    
    (780
    )
    
    
    (1,448
    )Net unrealized loss
    
    
    (1,140
    )
    
    
    (399
    )
    
    
    (741
    )Other comprehensive income
    
    $
    (1,140
    )
    
    $
    (399
    )
    
    $
    (741
    )December 31, 2004Unrealized gain on securities:Unrealized gain on available-for-sale securities
    
    $
    1,993
    
    
    $
    698
    
    
    $
    1,295Less amortization of differences between fair value
and amortized cost for fixed maturity security transfer
    
    
    (2,413
    )
    
    
    (845
    )
    
    
    (1,568
    )Less reclassification adjustment for losses realized
in net income
    
    
    242
    
    
    
    86
    
    
    
    156Net unrealized loss
    
    
    (178
    )
    
    
    (61
    )
    
    
    (117
    )Other comprehensive income
    
    $
    (178
    )
    
    $
    (61
    )
    
    $
    (117
    )December 31, 2003Unrealized gain on securities:Unrealized gain on available-for-sale securities
    
    $
    1,484
    
    
    $
    519
    
    
    $
    965Less reclassification adjustment for losses realized
in net income
    
    
    20
    
    
    
    7
    
    
    
    13Net unrealized gain
    
    
    1,504
    
    
    
    526
    
    
    
    978Other comprehensive income
    
    $
    1,504
    
    
    $
    526
    
    
    $
    978
 17. Employee Benefit Plan
  18. Commitments and Contingencies
    98




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  Statement Valueof Annuities exceedingLife Insurance Company
    
    1% of SurplusAmerican General Life Insurance (A+)
    
    $
    23,390New York Life Insurance Company (A++)
    
    
    3,808First Colony Life Insurance Company (A+)
    
    
    3,659Monumental Life Insurance Company (A+)
    
    
    3,500John Hancock Life Insurance Company (A++)
    
    
    2,963Transamerica Life Insurance and Annuity (A+)
    
    
    2,635Liberty Life Assurance Company of Boston (A)
    
    
    2,573Pacific Life and Annuity Company (A++)
    
    
    2,396Genworth Life (A+)
    
    
    1,853Other
    
    
    7,962$
    54,739
   2006
    
    $
    9582007
    
    
    6772008
    
    
    5222009
    
    
    4632010
    
    
    8$
    2,628
  19. Concentration of Operations
  2005
    
    
    2004
    
    
    2003Dollars
    
    
    Percent
    
    
    Dollars
    
    
    Percent
    
    
    Dollars
    
    
    Percent(Dollars in thousands)Workers compensation
    
    $
    254,117
    
    
    
    99.0
    %
    
    $
    232,291
    
    
    
    99.0
    %
    
    $
    177,565
    
    
    
    98.7
    %General liability
    
    
    2,451
    
    
    
    1.0
    %
    
    
    2,442
    
    
    
    1.0
    %
    
    
    2,282
    
    
    
    1.3
    %Total net premiums earned
    
    $
    256,568
    
    
    
    100.0
    %
    
    $
    234,733
    
    
    
    100.0
    %
    
    $
    179,847
    
    
    
    100.0
    %
 99




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  2005
    
    
    2004
    
    
    2003Dollars
    
    
    Percent
    
    
    Dollars
    
    
    Percent
    
    
    Dollars
    
    
    Percent(Dollars in thousands)Georgia
    
    $
    26,198
    
    
    
    10.2
    %
    
    $
    22,313
    
    
    
    9.5
    %
    
    $
    17,233
    
    
    
    9.6
    %Louisiana
    
    
    23,441
    
    
    
    9.1
    
    
    
    26,422
    
    
    
    11.3
    
    
    
    20,809
    
    
    
    11.6North Carolina
    
    
    16,861
    
    
    
    6.6
    
    
    
    14,705
    
    
    
    6.3
    
    
    
    10,812
    
    
    
    6.0Texas
    
    
    15,159
    
    
    
    5.9
    
    
    
    17,150
    
    
    
    7.3
    
    
    
    14,407
    
    
    
    8.0Illinois
    
    
    14,198
    
    
    
    5.5
    
    
    
    14,186
    
    
    
    6.0
    
    
    
    8,423
    
    
    
    4.7Florida
    
    
    13,671
    
    
    
    5.3
    
    
    
    10,959
    
    
    
    4.7
    
    
    
    7,726
    
    
    
    4.3Pennsylvania
    
    
    13,066
    
    
    
    5.1
    
    
    
    9,812
    
    
    
    4.2
    
    
    
    7,338
    
    
    
    4.1Virginia
    
    
    12,935
    
    
    
    5.0
    
    
    
    12,395
    
    
    
    5.3
    
    
    
    9,984
    
    
    
    5.6Alaska
    
    
    12,841
    
    
    
    5.0
    
    
    
    9,366
    
    
    
    4.0
    
    
    
    4,841
    
    
    
    2.7South Carolina
    
    
    12,440
    
    
    
    4.8
    
    
    
    10,067
    
    
    
    4.3
    
    
    
    6,301
    
    
    
    3.5160,810
    
    
    
    62.5
    
    
    
    147,374
    
    
    
    62.9
    
    
    
    107,874
    
    
    
    60.1All others
    
    
    95,758
    
    
    
    37.5
    
    
    
    87,359
    
    
    
    37.1
    
    
    
    71,973
    
    
    
    39.9Total net premiums earned
    
    $
    256,568
    
    
    
    100.0
    %
    
    $
    234,733
    
    
    
    100.0
    %
    
    $
    179,847
    
    
    
    100.0
    %
 20. Fair Values of Financial Instruments
  Cash and Cash Equivalents
 Investments
 Subordinated Debt Securities
 100




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AMERISAFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  December 31,2005
    
    2004Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    Value(In thousands)Assets:Fixed maturity securities
    
    $
    467,343
    
    
    $
    460,514
    
    
    $
    331,408
    
    
    $
    330,703Equity securities
    
    
    66,275
    
    
    
    66,275
    
    
    
    33,460
    
    
    
    33,460Cash and cash equivalents
    
    
    49,286
    
    
    
    49,286
    
    
    
    25,421
    
    
    
    25,421Liabilities:Subordinated debt securities:ACT I
    
    
    10,310
    
    
    
    10,310
    
    
    
    10,310
    
    
    
    10,310ACT II
    
    
    25,780
    
    
    
    25,780
    
    
    
    25,780
    
    
    
    25,780
 21. Quarterly Financial Data (Unaudited)
  Three Months EndedMarch 31
    
    June 30
    
    September 30
    
    December 31(In thousands, except per share amounts)2005Premiums earned
    
    $
    61,917
    
    
    $
    63,115
    
    
    $
    64,338
    
    
    $
    67,198Net investment income
    
    
    3,718
    
    
    
    3,932
    
    
    
    4,335
    
    
    
    4,897Net realized gains on investments
    
    
    227
    
    
    
    547
    
    
    
    563
    
    
    
    935Total revenues
    
    
    66,024
    
    
    
    67,738
    
    
    
    69,356
    
    
    
    73,165Income before income taxes
    
    
    4,345
    
    
    
    (12,298
    )
    
    
    6,518
    
    
    
    7,430Net income
    
    
    3,237
    
    
    
    (7,521
    )
    
    
    4,809
    
    
    
    5,405Net income (loss) allocable to common
shareholders
    
    
    681
    
    
    
    (9,902
    )
    
    
    1,812
    
    
    
    2,992Earnings (loss) per share:Basic
    
    
    2.27
    
    
    
    (33.03
    )
    
    
    6.05
    
    
    
    0.40Diluted
    
    
    2.27
    
    
    
    (33.03
    )
    
    
    6.05
    
    
    
    0.39Comprehensive income
    
    
    2,892
    
    
    
    (7,592
    )
    
    
    4,966
    
    
    
    4,9212004Premiums earned
    
    $
    52,312
    
    
    $
    60,767
    
    
    $
    59,338
    
    
    $
    62,316Net investment income
    
    
    2,641
    
    
    
    2,765
    
    
    
    3,253
    
    
    
    3,558Net realized gains (losses) on
investments
    
    
    310
    
    
    
    308
    
    
    
    (75
    )
    
    
    878Total revenues
    
    
    55,406
    
    
    
    63,961
    
    
    
    62,643
    
    
    
    66,950Income before income taxes
    
    
    3,888
    
    
    
    582
    
    
    
    4,040
    
    
    
    5,176Net income
    
    
    2,891
    
    
    
    708
    
    
    
    3,147
    
    
    
    3,811Net income (loss) allocable to common
shareholders
    
    
    161
    
    
    
    (1,868
    )
    
    
    636
    
    
    
    1,147Earnings (loss) per share:Basic
    
    
    0.89
    
    
    
    (10.37
    )
    
    
    2.65
    
    
    
    3.83Diluted
    
    
    0.54
    
    
    
    (10.37
    )
    
    
    2.65
    
    
    
    3.83Comprehensive income
    
    
    2,664
    
    
    
    121
    
    
    
    2,769
    
    
    
    4,886
 101




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Schedule II. Condensed Financial Information of Registrant
 AMERISAFE, INC.
CONDENSED BALANCE SHEETS
 December 31,2005
    
    
    2004(In thousands)AssetsInvestments:Equity securitiesavailable-for-sale, at fair value
    
    $
    1,090
    
    
    $
    1,090Investment in subsidiaries
    
    
    178,429
    
    
    
    128,014Total investments
    
    
    179,519
    
    
    
    129,104Cash and cash equivalents
    
    
    11,149
    
    
    
    4,066Deferred income taxes
    
    
    29
    
    
    
    359Property and equipment, net
    
    
    2,923
    
    
    
    3,275Other assets
    
    
    1,442
    
    
    
    1,216$
    195,062
    
    
    $
    138,020Liabilities, redeemable preferred stock and shareholders equityLiabilities:Accounts payable and other liabilities
    
    $
    1,826
    
    
    $
    1,946Note payable to subsidiaries
    
    
    9,800
    
    
    
    10,930Subordinated debt securities
    
    
    36,090
    
    
    
    36,090Total liabilities
    
    
    47,716
    
    
    
    48,966Redeemable preferred stock:Series A nonconvertible$0.01 par value, $100 per share redemption
value:Authorized shares1,500,000; issued and outstanding sharesNone in
2005
    
    
    
    
    
    
    81,916Series C convertible$0.01 par value, $100 per share redemption value:Authorized shares300,000; issued and outstanding shares300,000 in
2005 and 2004
    
    
    30,000
    
    
    
    30,000Series D convertible$0.01 par value, $100 per share redemption value:Authorized shares200,000; issued and outstanding shares200,000 in
2005 and 2004
    
    
    20,000
    
    
    
    20,00050,000
    
    
    
    131,916Shareholders equity
    
    
    97,346
    
    
    
    (42,862
    )$
    195,062
    
    
    $
    138,020
 102




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Schedule II. Condensed Financial Information of Registrant  (Continued)
 AMERISAFE, INC.
CONDENSED STATEMENTS OF INCOME
 Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)RevenuesNet investment income
    
    $
    990
    
    
    $
    281
    
    
    $
    4Fee and other income
    
    
    5,813
    
    
    
    3,661
    
    
    
    1,791Total revenues
    
    
    6,803
    
    
    
    3,942
    
    
    
    1,795ExpensesOther operating costs
    
    
    3,567
    
    
    
    1,831
    
    
    
    1,276Interest expense
    
    
    3,160
    
    
    
    1,757
    
    
    
    264Total expenses
    
    
    6,727
    
    
    
    3,588
    
    
    
    1,540Income before income taxes and equity in
earnings of subsidiaries
    
    
    76
    
    
    
    354
    
    
    
    255Income tax expense
    
    
    302
    
    
    
    293
    
    
    
    246Income (loss) before equity in earnings
of subsidiaries
    
    
    (226
    )
    
    
    61
    
    
    
    9Equity in net income of subsidiaries
    
    
    6,156
    
    
    
    10,496
    
    
    
    8,585Net income
    
    $
    5,930
    
    
    $
    10,557
    
    
    $
    8,594
 103




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Schedule II. Condensed Financial Information of Registrant  (Continued)
 AMERISAFE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Operating activitiesNet cash provided by operating activities
    
    $
    359
    
    
    $
    8,351
    
    
    $
    1,066Investing activitiesPurchases of investments
    
    
    
    
    
    
    (780
    )
    
    
    (310
    )Purchases of property and equipment
    
    
    (1,379
    )
    
    
    (3,589
    )
    
    
    Capital contributions to subsidiary
    
    
    (45,000
    )
    
    
    (2,710
    )
    
    
    Net cash used in investing activities
    
    
    (46,379
    )
    
    
    (7,079
    )
    
    
    (310
    )Financing activitiesNet proceeds from initial public offering
    
    
    63,236
    
    
    
    
    
    
    
    Series A preferred stock redemption
    
    
    (5,093
    )
    
    
    
    
    
    
    Series E preferred stock redemption
    
    
    (5,093
    )
    
    
    
    
    
    
    Stock-based compensation
    
    
    53
    
    
    
    
    
    
    
    Principal payments on note payable
    
    
    
    
    
    
    (6,000
    )
    
    
    (2,000
    )Warrants exercised
    
    
    
    
    
    
    86
    
    
    
    Proceeds from issuance of subordinated debt securities
    
    
    
    
    
    
    25,780
    
    
    
    10,310Series E preferred stock redemptions
    
    
    
    
    
    
    (27,244
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    53,103
    
    
    
    (7,378
    )
    
    
    8,310Change in cash and cash equivalents
    
    
    7,083
    
    
    
    (6,106
    )
    
    
    9,066Cash and cash equivalents at beginning of year
    
    
    4,066
    
    
    
    10,172
    
    
    
    1,106Cash and cash equivalents at end of year
    
    $
    11,149
    
    
    $
    4,066
    
    
    $
    10,172
 104




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Schedule VI. Supplemental Information Concerning Property  Casualty Insurance Operations
 AMERISAFE, INC. AND SUBSIDIARIES
 Reserves for
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss and
    
    Loss and
    
    AmortizationDeferred
    
    Unpaid Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    LAE
    
    LAE
    
    of Deferred
    
    Paid ClaimsPolicy
    
    and Loss
    
    
    
    
    
    
    
    
    
    Net
    
    related to
    
    related to
    
    Policy
    
    and Claim
    
    NetAcquisition
    
    Adjustment
    
    Unearned
    
    Earned
    
    Investment
    
    Current
    
    Prior
    
    Acquisition
    
    Adjustment
    
    PremiumsCost
    
    Expense
    
    Premium
    
    Premium
    
    Income
    
    Period
    
    Periods
    
    Costs
    
    Expenses
    
    Written(In thousands)2005
    
    $
    16,973
    
    
    $
    484,485
    
    
    $
    124,524
    
    
    $
    256,568
    
    
    $
    16,882
    
    
    $
    182,174
    
    
    $
    8,673
    (1)
    
    $
    (31,785
    )
    
    $
    139,165
    (1)
    
    $
    269,3502004
    
    
    12,044
    
    
    
    432,880
    
    
    
    111,741
    
    
    
    234,733
    
    
    
    12,217
    
    
    
    160,773
    
    
    
    13,413
    
    
    
    (25,969
    )
    
    
    113,931
    
    
    
    243,0112003
    
    
    11,820
    
    
    
    377,559
    
    
    
    103,462
    
    
    
    179,847
    
    
    
    10,106
    
    
    
    126,977
    
    
    
    2,273
    
    
    
    (20,076
    )
    
    
    99,157
    
    
    
    195,990
 
 (1)
    
    In June 2005, we commuted three reinsurance agreements with
Converium Reinsurance North America (Converium). The
incurred loss of $13.2 million and cash received from Converium
for ceded reserves of $56.1 million are not reflected in these
amounts. 105




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
   
 Item 9B. Other Information.
  106




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PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
     www.amerisafe.com
 
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accountant Fees and Services.
  107




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PART IV





Item 15. Exhibits and Financial Statement Schedules.




Financial Statements:
    
    PageReport of Independent Registered Public Accounting Firm
    
    69Consolidated Balance Sheets
    
    70Consolidated Statements of Income
    
    71Consolidated Statements of Changes in Shareholders Equity
    
    72Consolidated Statements of Cash Flows
    
    73Notes to Consolidated Financial Statements
    
    74Financial Statement Schedules:Schedule II. Condensed Financial Information of Registrant
    
    102Schedule VI. Supplemental Information Concerning Property-Casualty Insurance Operations
    
    105(Schedules I, III, IV and V are not applicable and have been omitted.)


Exhibits:3.1
    
    Amended and Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit
3.1 to the Companys Registration Statement on Form S-1, Amendment No. 3 (File No. 333-127133), filed
October 31, 2005)3.2
    
    Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the
Companys Registration Statement on Form S-1 (File No. 333-127133), filed August 3, 2005)10.1*
    
    Employment Agreement, dated January 1, 2004, by and between the Registrant and C. Allen Bradley, Jr.,
as amended by Amendment No. 1 to Employment Agreement, dated June 17, 2005 (incorporated by reference
to Exhibit 10.2 to the Companys Registration Statement on Form S-1 (File No. 333-127133), filed August
3, 2005)10.2*
    
    Employment Agreement, dated January 1, 2004, by and between the Registrant and Geoffrey R. Banta, as
amended by Amendment No. 1 to Employment Agreement, dated June 17, 2005 (incorporated by reference to
Exhibit 10.3 to the Companys Registration Statement on Form S-1 (File No. 333-127133), filed August 3,
2005)10.3*
    
    Employment Agreement, dated January 1, 2004, by and between the Registrant and Arthur L. Hunt, as
amended by Amendment No. 1 to Employment Agreement, dated June 17, 2005 (incorporated by reference to
Exhibit 10.4 to the Companys Registration Statement on Form S-1 (File No. 333-127133), filed August 3,
2005)10.4*
    
    Employment Agreement, dated January 1, 2004, by and between the Registrant and Craig P. Leach, as
amended by Amendment No. 1 to Employment Agreement, dated June 17, 2005 (incorporated by reference to
Exhibit 10.5 to the Companys Registration Statement on Form S-1 (File No. 333-127133), filed August 3,
2005)10.5*
    
    Consulting Agreement, dated October 27, 2005, by and between the Registrant and Mark R. Anderson
(incorporated by reference to Exhibit 10.1 to the Companys Registration Statement on Form S-1,
Amendment No. 3 (File No. 333-127133), filed October 31, 2005)10.6*
    
    AMERISAFE, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the Companys
Registration Statement on Form S-1, Amendment No. 3 (File No. 333-127133), filed October 31, 2005)


108




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##### Table of Contents



Exhibits:10.7*
    
    Form of Incentive Stock Option Award Agreement for the AMERISAFE, Inc. 2005 Equity Incentive Plan
(incorporated by reference to Exhibit 10.7 to the Companys Registration Statement on Form S-1,
Amendment No. 3 (File No. 333-127133), filed October 31, 2005)10.8*
    
    Form of Non-Qualified Stock Option Award Agreement for the AMERISAFE, Inc. 2005 Equity Incentive Plan
(incorporated by reference to Exhibit 10.8 to the Companys Registration Statement on Form S-1,
Amendment No. 3 (File No. 333-127133), filed October 31, 2005)10.9*
    
    Form of Non-Qualified Stock Option Award Agreement for Mark R. Anderson under the AMERISAFE, Inc. 2005
Equity Incentive Plan (incorporated by reference to Exhibit 10.20 to the Companys Registration
Statement on Form S-1, Amendment No. 3 (File No. 333-127133), filed October 31, 2005)10.10*
    
    Form of Restricted Stock Award Agreement for the AMERISAFE, Inc. 2005 Equity Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K, filed March 15,
2006)10.11*
    
    AMERISAFE, Inc. 2005 Non-Employee Director Restricted Stock Plan (incorporated by reference to Exhibit
10.9 to the Companys Registration Statement on Form S-1, Amendment No. 3 (File No. 333-127133), filed
October 31, 2005)10.12*
    
    Form of Restricted Stock Award Agreement for the AMERISAFE, Inc. 2005 Non-Employee Director Restricted
Stock Plan (incorporated by reference to Exhibit 10.10 to the Companys Registration Statement on Form
S-1 (File No. 333-127133), filed August 3, 2005)10.13*
    
    Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.11 to
the Companys Registration Statement on Form S-1 (File No. 333-127133), filed August 3, 2005)10.14
    
    First Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2005, issued to the
Registrant by the reinsurers and named therein (incorporated by reference to Exhibit 10.12 to the
Companys Registration Statement on Form S-1 (File No. 333-127133), filed August 3, 2005)10.15
    
    Second Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2005, issued to the
Registrant by the reinsurers and named therein (incorporated by reference to Exhibit 10.13 to the
Companys Registration Statement on Form S-1 (File No. 333-127133), filed August 3, 2005)10.16
    
    Workers Compensation Catastrophe Excess of Loss Reinsurance Contract, effective as of January 1, 2005,
issued to the Registrant by the reinsurers named therein (incorporated by reference to Exhibit 10.14 to
the Companys Registration Statement on Form S-1 (File No. 333-127133), filed August 3, 2005)10.17
    
    Form of First Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2006, issued to
the Registrant by the reinsurers named therein10.18
    
    Form of Second Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2006, issued to
the Registrant by the reinsurers named therein10.19
    
    Form of Third Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2006, issued to
the Registrant by the reinsurers named therein10.20
    
    Form of Per Person Excess of Loss Reinsurance Contract, effective as of January 1, 2006, issued to the
Registrant by the reinsurers named therein
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##### Table of Contents



Exhibits:10.21
    
    Form of Casualty Catastrophe Excess of Loss Reinsurance Contract, effective as of January 1, 2006,
issued to the Registrant by the reinsurers named therein10.22
    
    Commutation and Release Agreement, effective as of June 30, 2005, between the Registrant and Converium
Reinsurance (North America) Inc. (incorporated by reference to Exhibit 10.15 to the Companys
Registration Statement on Form S-1 (File No. 333-127133), filed August 3, 2005)10.23
    
    Services Agreement, effective as of March 31, 2005, by and between Concentra Integrated Services, Inc.
and Amerisafe Risk Services, Inc. (incorporated by reference to Exhibit 10.16 to the Companys
Registration Statement on Form S-1, Amendment No. 1 (File No. 333-127133), filed September 9, 2005)10.24
    
    Agreement, effective as of March 31, 2005, by and between Amerisafe Risk Services, Inc. and MedRisk,
Inc. and its affiliates and subsidiaries (incorporated by reference to Exhibit 10.17 to the Companys
Registration Statement on Form S-1, Amendment No. 1 (File No. 333-127133), filed September 9, 2005)10.25
    
    Lease Agreement, effective as of January 1, 2005, by and between The Phoenix Hat Company, LLC and the
Registrant (incorporated by reference to Exhibit 10.18 to the Companys Registration Statement on Form
S-1, Amendment No. 1 (File No. 333-127133), filed September 9, 2005)10.26
    
    Amended and Restated Registration Rights Agreement, dated March 18, 1998, by and among the Registrant
and the shareholders of the Registrant named therein (incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement on Form S-1 (File No. 333-127133), filed August 3, 2005)21.1
    
    Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Companys Registration
Statement on Form S-1 (File No. 333-127133), filed August 3, 2005)23.1
    
    Consent of Ernst & Young LLP24.1
    
    Powers of Attorney of our directors and certain executive officers31.1
    
    Certification of C. Allen Bradley filed pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Geoffrey R. Banta filed pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of C. Allen Bradley and Geoffrey R. Banta filed pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Management contract, compensatory plan or arrangement 110




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##### Table of Contents



SIGNATURES
  AMERISAFE, INC.By:
    
    /s/ C. Allen Bradley, Jr.C. Allen Bradley, Jr.Chairman, President and Chief Executive Officer
  Chairman, President/s/ C. Allen Bradley, Jr.
    
    Chief Executive Officer and DirectorC. Allen Bradley, Jr.
    
    (Principal Executive Officer)Executive Vice President and/s/ Geoffrey R. Banta
    
    Chief Financial OfficerGeoffrey R. Banta
    
    (Principal Financial and Accounting Officer)*Jared A. Morris
    
    Director*Paul B. Queally
    
    Director*Sean M. Traynor
    
    Director*Austin P. Young III
    
    Director
 
 * By:
    
    /s/ Arthur L. Hunt

Arthur L. Hunt, Attorney-in-Fact
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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Articles of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Companys
Registration Statement on Form S-1, Amendment No. 3 (File No.
333-127133), filed October 31, 2005)3.2
    
    Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the
Companys Registration Statement on Form S-1 (File No. 333-127133), filed August 3, 2005)10.1*
    
    Employment Agreement, dated January 1, 2004, by and between the
Registrant and C. Allen Bradley, Jr., as amended by Amendment No.
1 to Employment Agreement, dated June 17, 2005 (incorporated by
reference to Exhibit 10.2 to the Companys Registration Statement
on Form S-1 (File No. 333-127133), filed August 3, 2005)10.2*
    
    Employment Agreement, dated January 1, 2004, by and between the
Registrant and Geoffrey R. Banta, as amended by Amendment No. 1
to Employment Agreement, dated June 17, 2005 (incorporated by
reference to Exhibit 10.3 to the Companys Registration Statement
on Form S-1 (File No. 333-127133), filed August 3, 2005)10.3*
    
    Employment Agreement, dated January 1, 2004, by and between the
Registrant and Arthur L. Hunt, as amended by Amendment No. 1 to
Employment Agreement, dated June 17, 2005 (incorporated by
reference to Exhibit 10.4 to the Companys Registration Statement
on Form S-1 (File No. 333-127133), filed August 3, 2005)10.4*
    
    Employment Agreement, dated January 1, 2004, by and between the
Registrant and Craig P. Leach, as amended by Amendment No. 1 to
Employment Agreement, dated June 17, 2005 (incorporated by
reference to Exhibit 10.5 to the Companys Registration Statement
on Form S-1 (File No. 333-127133), filed August 3, 2005)10.5*
    
    Consulting Agreement, dated October 27, 2005, by and between the
Registrant and Mark R. Anderson (incorporated by reference to
Exhibit 10.1 to the Companys Registration Statement on Form S-1,
Amendment No. 3 (File No. 333-127133), filed October 31, 2005)10.6*
    
    AMERISAFE, Inc. 2005 Equity Incentive Plan (incorporated by
reference to Exhibit 10.6 to the Companys Registration Statement
on Form S-1, Amendment No. 3 (File No. 333-127133), filed October
31, 2005)10.7*
    
    Form of Incentive Stock Option Award Agreement for the AMERISAFE,
Inc. 2005 Equity Incentive Plan (incorporated by reference to
Exhibit 10.7 to the Companys Registration Statement on Form S-1,
Amendment No. 3 (File No. 333-127133), filed October 31, 2005)10.8*
    
    Form of Non-Qualified Stock Option Award Agreement for the
AMERISAFE, Inc. 2005 Equity Incentive Plan (incorporated by
reference to Exhibit 10.8 to the Companys Registration Statement
on Form S-1, Amendment No. 3 (File No. 333-127133), filed October
31, 2005)10.9*
    
    Form of Non-Qualified Stock Option Award Agreement for Mark R.
Anderson under the AMERISAFE, Inc. 2005 Equity Incentive Plan
(incorporated by reference to Exhibit 10.20 to the Companys
Registration Statement on Form S-1, Amendment No. 3 (File No.
333-127133), filed October 31, 2005)10.10*
    
    Form of Restricted Stock Award Agreement for the AMERISAFE, Inc.
2005 Equity Incentive Plan (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K, filed March 15,
2006)
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##### Table of Contents



Exhibit No.
    
    Description10.11*
    
    AMERISAFE, Inc. 2005 Non-Employee Director Restricted Stock Plan
(incorporated by reference to Exhibit 10.9 to the Companys
Registration Statement on Form S-1, Amendment No. 3 (File No.
333-127133), filed October 31, 2005)10.12*
    
    Form of Restricted Stock Award Agreement for the AMERISAFE, Inc.
2005 Non-Employee Director Restricted Stock Plan (incorporated by
reference to Exhibit 10.10 to the Companys Registration
Statement on Form S-1 (File No. 333-127133), filed August 3,
2005)10.13*
    
    Form of Director and Officer Indemnification Agreement
(incorporated by reference to Exhibit 10.11 to the Companys
Registration Statement on Form S-1 (File No. 333-127133), filed
August 3, 2005)10.14
    
    First Casualty Excess of Loss Reinsurance Contract, effective as
of January 1, 2005, issued to the Registrant by the reinsurers
and named therein (incorporated by reference to Exhibit 10.12 to
the Companys Registration Statement on Form S-1 (File No.
333-127133), filed August 3, 2005)10.15
    
    Second Casualty Excess of Loss Reinsurance Contract, effective as
of January 1, 2005, issued to the Registrant by the reinsurers
and named therein (incorporated by reference to Exhibit 10.13 to
the Companys Registration Statement on Form S-1 (File No.
333-127133), filed August 3, 2005)10.16
    
    Workers Compensation Catastrophe Excess of Loss Reinsurance
Contract, effective as of January 1, 2005, issued to the
Registrant by the reinsurers named therein (incorporated by
reference to Exhibit 10.14 to the Companys Registration
Statement on Form S-1 (File No. 333-127133), filed August 3,
2005)10.17
    
    Form of First Casualty Excess of Loss Reinsurance Contract,
effective as of January 1, 2006, issued to the Registrant by the
reinsurers named therein10.18
    
    Form of Second Casualty Excess of Loss Reinsurance Contract,
effective as of January 1, 2006, issued to the Registrant by the
reinsurers named therein10.19
    
    Form of Third Casualty Excess of Loss Reinsurance Contract,
effective as of January 1, 2006, issued to the Registrant by the
reinsurers named therein10.20
    
    Form of Per Person Excess of Loss Reinsurance Contract, effective
as of January 1, 2006, issued to the Registrant by the reinsurers
named therein10.21
    
    Form of Casualty Catastrophe Excess of Loss Reinsurance Contract,
effective as of January 1, 2006, issued to the Registrant by the
reinsurers named therein10.22
    
    Commutation and Release Agreement, effective as of June 30, 2005,
between the Registrant and Converium Reinsurance (North America)
Inc. (incorporated by reference to Exhibit 10.15 to the Companys
Registration Statement on Form S-1 (File No. 333-127133), filed
August 3, 2005)10.23
    
    Services Agreement, effective as of March 31, 2005, by and
between Concentra Integrated Services, Inc. and Amerisafe Risk
Services, Inc. (incorporated by reference to Exhibit 10.16 to the
Companys Registration Statement on Form S-1, Amendment No. 1
(File No. 333-127133), filed September 9, 2005)
 113




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##### Table of Contents



Exhibit No.
    
    Description10.24
    
    Agreement, effective as of March 31, 2005, by and between
Amerisafe Risk Services, Inc. and MedRisk, Inc. and its
affiliates and subsidiaries (incorporated by reference to Exhibit
10.17 to the Companys Registration Statement on Form S-1,
Amendment No. 1 (File No. 333-127133), filed September 9, 2005)10.25
    
    Lease Agreement, effective as of January 1, 2005, by and between
The Phoenix Hat Company, LLC and the Registrant (incorporated by
reference to Exhibit 10.18 to the Companys Registration
Statement on Form S-1, Amendment No. 1 (File No. 333-127133),
filed September 9, 2005)10.26
    
    Amended and Restated Registration Rights Agreement, dated March
18, 1998, by and among the Registrant and the shareholders of the
Registrant named therein (incorporated by reference to Exhibit
4.1 to the Companys Registration Statement on Form S-1 (File No.
333-127133), filed August 3, 2005)21.1
    
    Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to the Companys Registration Statement on Form S-1
(File No. 333-127133), filed August 3, 2005)23.1
    
    Consent of Ernst & Young LLP24.1
    
    Powers of Attorney of our directors and certain executive officers31.1
    
    Certification of C. Allen Bradley filed pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Geoffrey R. Banta filed pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1
    
    Certification of C. Allen Bradley and Geoffrey R. Banta filed
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Management contract, compensatory plan or arrangement 114