Credit Losses on Investment Securities. Investment securities are recorded on the balance sheet as assets net of an allowance for credit losses. For held-to-maturity fixed income securities, the allowance is based on historical default and recovery rates as published by Moody’s analytics for corporate bonds, municipal bonds, and other types of fixed income securities. For available-for-sale fixed income securities, a credit allowance is established if the expected discounted future cash flows no longer exceed the book value of the security. In determining the amount of the credit loss to establish, the Company considers the following factors:
decreases above were partially offset by an increase of $0.8 million in compensation expense due to changes in variable share price based incentive compensation and an increase of $0.7 million in accounts receivable write-offs. Our underwriting expense ratio increased to 23.6% in 2020 from 22.3% in 2019.
Net Premiums Earned. Net premiums earned for 2019 were $332.9 million, compared to $350.3 million for 2018, a decrease of 5.0%. The decrease was attributable to the decrease in net premiums written during the period.
At December 31, 2020, our incurred amounts for certain accident years, particularly 2014 through 2018, developed more favorably than management previously expected. Multiple factors can cause loss development both unfavorable and favorable. The favorable loss development we experienced across accident years was largely due to two factors: (1) lower than expected severity of injuries in these accident years compared to our original and revised estimates; and (2) favorable case reserve development from closed claims and claims where the worker had reached maximum medical improvement. We believe the favorable case reserve development resulted primarily from an intensive claims management focus with the Company actively seeking to settle claims, leading to favorable development.
During 2020 and 2019, the Company had no impairment losses recognized for other-than-temporary declines in the fair value of our investments.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
The Company researched various options and methodologies and has chosen to use Moody’s default rates and recovery rates for our held-to-maturity fixed income securities based on the current credit rating of the security and the time period to the stated maturity date. This is a probability of default (PD) and loss given default (LGD) methodology.
Reserves for loss and loss adjustment expenses represent the estimated ultimate cost of all reported and unreported losses incurred through December 31. The Company does not discount loss and loss adjustment expense reserves. In establishing our reserves for loss and loss adjustment expenses, we review the results of analyses using individual case-base valuations and statistical and actuarial methods that utilize historical loss data from our more than 35 years of underwriting workers’ compensation insurance. The actuarial analysis of our historical data provides the factors we use in estimating our loss reserves. These factors are primarily measures over time of the number of claims paid and reported, average paid and incurred claim amounts, claim closure rates and claim payment patterns. In evaluating the results of our analyses, management also uses substantial judgment in considering other factors that are not considered in these actuarial analyses, including changes in business mix, claims management, regulatory issues, medical trends, employment and wage patterns, insurance policy coverage interpretations, judicial determinations and other subjective factors. Due to the inherent uncertainty associated with these estimates, and the cost of incurred but unreported claims, our actual liabilities may vary significantly from our original estimates. Although considerable variability is inherent in these estimates, management believes that the reserves for loss and loss adjustment expenses are adequate. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known. Any such adjustments are included in income from current operations.
The gross unrealized gains and losses on, and the amortized cost and fair value of, those investments classified as available-for-sale at December 31, 2020 are summarized as follows:
A summary of the amortized cost and fair value of investments in fixed maturity securities classified as available-for-sale by contractual maturity is as follows:
The table below presents the change in the allowance for credit losses on amounts recoverable from reinsurers for the year ended December 31, 2020.
Income tax expense from operations is different from the amount computed by applying the U.S. federal income tax statutory rate of 21% to income before income taxes as follows:
The AMERISAFE Non-Employee Director Restricted Stock Plan (the “Restricted Stock Plan”) is administered by the Compensation Committee of the Board and provides for the automatic grant of restricted stock awards to non-employee directors of the Company. Awards to non-employee directors are generally subject to terms including non-transferability, immediate vesting upon death or total disability of a director, forfeiture of unvested shares upon termination of service by a director and acceleration of vesting upon a change of control of the Company. The maximum number of shares of common stock that may be issued pursuant to restricted stock awards under the Restricted Stock Plan is 150,000 shares, subject to the authority of the Board to adjust this amount in the event of a merger, consolidation, reorganization, stock split, combination of shares, recapitalization or similar transaction affecting the common stock. At December 31, 2020, there were 47,748 shares of common stock available for future awards under the Restricted Stock Plan.
At December 31, 2020 and 2019, the Company did not hold any securities measured at fair value on a nonrecurring basis due to impairment.