Executive Summary / Key Takeaways

• AMERISAFE maintains a highly specialized and profitable niche in the workers' compensation insurance market, focusing on small to mid-sized employers in hazardous industries.
• The company has achieved six consecutive quarters of top-line growth, driven by disciplined underwriting, robust new business production, and strong renewal retention, reflecting the effectiveness of its specialized operational model.
• Underwriting excellence is a hallmark, with a healthy 90.6% combined ratio and an impressive 20.5% return on average equity in Q3 2025, supported by consistent favorable reserve development.
• AMERISAFE's capital deployment strategy balances shareholder returns through regular and special dividends with strategic investments in organic growth opportunities.
• The outlook points to continued profitable growth, a stable accident year loss ratio of 71% for 2025, and positive, albeit moderating, audit premiums, despite a competitive market and economic uncertainties.

AMERISAFE's Enduring Niche and Operational Edge

AMERISAFE, Inc., incorporated in Texas in 1985, has carved out a distinct and enduring niche within the U.S. insurance landscape. The company operates as a monoline insurer, specializing exclusively in workers' compensation coverage for small to mid-sized employers engaged in high-hazard industries. This includes sectors such as construction, trucking, logging and lumber, agriculture, manufacturing, maritime, and telecommunications. This focused strategy, consistently applied since at least 1986, allows AMERISAFE to develop deep expertise in understanding and pricing complex risks that many broader carriers may shy away from.

The company's competitive edge is deeply rooted in its specialized operational model, which is continuously enhanced by strategic investments in technology. This includes sophisticated systems that underpin its proactive safety reviews, a vital component of its underwriting process aimed at promoting safer workplaces. These technological enablers also support intensive claims management practices, allowing the company to effectively manage overall claim costs. The efficiency of this claims handling is evident in the consistent favorable reserve development, such as the $8.9 million recorded in the third quarter of 2025, primarily from older accident years. Furthermore, technology facilitates robust audit services, ensuring accurate premium collection and monitoring payroll patterns for underwriting integrity. The company's focus on "ease of doing business" and "speed to market" for its agents is also supported by digital platforms, fostering stronger relationships and contributing to new business production and high renewal retention rates. These operational "technologies" collectively form a significant competitive moat, translating directly into superior underwriting profitability and a differentiated service offering for its specialized clientele.

Competitive Landscape: A Specialized Player in a Crowded Field

AMERISAFE operates in a workers' compensation market that remains highly competitive, often attracting larger, more diversified property and casualty insurers. Key direct competitors include industry giants like The Travelers Companies, Inc. (TRV), The Hartford Financial Services Group, Inc. (HIG), Chubb Limited (CB), and American International Group, Inc. (AIG). These larger players offer broad risk solutions and possess extensive distribution networks and significant resources for innovation.

AMERISAFE's market positioning is distinct. While larger competitors like TRV and CB leverage their scale and diversified portfolios to capture a wide array of clients and revenue streams, AMERISAFE's strategy is to be the expert in high-hazard workers' compensation. This specialization allows AMERISAFE to offer tailored policies and potentially more efficient claims processing for its niche clients, a strength that can lead to stronger customer loyalty and retention in these specific sectors. For instance, AMERISAFE's intensive claims management, characterized by low caseloads per adjuster (below 50 claims on average), enables quicker claim closures and better outcomes for injured workers, a level of personalized attention that larger, more generalized insurers may struggle to replicate.

However, AMERISAFE's smaller scale and sector dependence present vulnerabilities. While its niche expertise provides an advantage, it may lag larger competitors in overall revenue growth, R&D investment for broad technological advancements, and adaptability if demand in hazardous industries weakens significantly. Indirect competitors, such as insurtech firms offering digital-first solutions or self-insurance programs, also pose a potential threat by offering alternative, potentially faster or lower-cost options for certain employers. Nevertheless, the high barriers to entry in workers' compensation insurance, including stringent regulatory approvals and substantial capital requirements, help AMERISAFE defend its established position against new entrants.

Financial Performance: Sustained Profitability Amidst Market Shifts

AMERISAFE's financial performance reflects the success of its disciplined strategy, particularly evident in its recent top-line growth and consistent underwriting profitability. The company has achieved its sixth consecutive quarter of top-line growth, a testament to its robust new business production and strong renewal performance. In the third quarter of 2025, gross premiums written increased by 7.2% to $80.3 million, while net earned premiums grew by 6.2% to $71.2 million compared to the same period in 2024. Voluntary premiums on policies written in Q3 2025 surged by 10.6%, building on a 12.8% growth in Q2 2025 and 7.1% in Q1 2025. This growth is further underscored by an approximate 11% year-over-year increase in policy count by Q3 2025 and a strong renewal retention rate of 93.6% for policies offered renewal.

Profitability remains a core strength. AMERISAFE reported a healthy net combined ratio of 90.6% for Q3 2025 and 90.5% for the nine months ended September 30, 2025, indicating profitable underwriting results. The return on average equity stood at an impressive 20.5% for Q3 2025 and 18.4% for the nine-month period. The accident year loss ratio has been consistently maintained at 71% for 2025, reflecting management's confidence in its risk selection and claims handling. Favorable reserve development from prior accident years continues to bolster results, with $8.9 million recognized in Q3 2025, primarily from accident years 2020 and earlier.

While audit premiums, which contributed $2.5 million in Q3 2025 compared to $4 million in Q3 2024, have moderated due to changes in wage inflation, the strong voluntary premium growth has largely offset this headwind. Net investment income decreased by 12.3% to $6.6 million in Q3 2025, primarily due to lower average invested asset balances following a special dividend payment in Q4 2024. However, the investment portfolio remains high quality with an average AA- credit rating and a tax-equivalent book yield of 3.9% in Q3 2025. The company's liquidity position is solid, with net cash provided by operating activities at $0.4 million for the nine months ended September 30, 2025, and a statutory surplus of $259 million, up from $235.1 million at year-end 2024. Book value per share increased to $14.47, up 7.1% year-to-date.

Strategic Initiatives and Capital Deployment: Investing in Longevity

AMERISAFE's strategic initiatives are centered on deepening its market penetration and enhancing operational efficiencies within its existing footprint, rather than expanding into new class codes or geographies. This involves a continuous focus on improving agent relationships, emphasizing "ease of doing business" and "speed to market." The company's seasoned sales staff and integrated safety services are critical value-adds for both underwriters and policyholders, fostering strong relationships that drive renewals.

Capital management is a key aspect of AMERISAFE's strategy, guided by the philosophy that "profitability drives capital and capital is deployed with discipline." Over the past 13 years, the company has returned nearly $50 per share in total dividends to shareholders. The Board's declaration of a $1 special cash dividend alongside a regular quarterly dividend of $0.39 per share in October 2025, following the reauthorization of a $25 million share repurchase program in July 2025, signals a balanced approach. This decision also infers management's confidence in the longevity of its current growth strategy, indicating a willingness to deploy capital towards internal organic growth opportunities now yielding tangible results. This balanced strategy aims to reward shareholders while maintaining flexibility to invest in the business and support long-term value creation.

Outlook and Risks: Balancing Opportunity with Prudence

AMERISAFE's outlook for 2025 remains positive, grounded in its consistent operational execution and specialized market focus. Management anticipates holding its accident year loss ratio steady at 71% for 2025, based on long-term claim frequency and severity trends and medical inflation. Frequency is expected to remain favorable, with severity trends relatively modest. While audit premiums are projected to moderate, they are expected to remain positive, supported by ongoing wage growth (approximately 6.7% in Q3 2025) and new employee counts (2% increase in Q3 2025). The construction end market, a significant segment for AMERISAFE, is also seen as having a "bright future for 2025," supported by strong payrolls. The full-year expense ratio for 2025 is anticipated to be in line with previous years, reflecting ongoing investments in growth.

However, the company acknowledges several pertinent risks. The workers' compensation industry faces ongoing competition and declining approved loss costs, which are generally trending in the mid-single digits. Medical inflation remains a concern, particularly regarding the utilization of services like home health and physician assistant visits, which could drive up costs despite the mitigating effects of fee schedules. The company also monitors the "lumpy" nature of large losses, having experienced 17 claims over $1 million year-to-date in Q3 2025. Economic uncertainties, including inflation, potential tariffs impacting construction costs or medical supplies, and broader employment trends, could influence payrolls and, consequently, premium generation. The inherent uncertainty in loss reserves, particularly for higher-severity, lower-frequency claims in hazardous industries, also presents a potential for volatility.

Conclusion

AMERISAFE's compelling investment thesis rests on its unwavering commitment to a specialized, high-hazard workers' compensation niche, underpinned by a highly effective operational model. The company's consistent track record of profitable growth, demonstrated by six consecutive quarters of top-line expansion and industry-leading underwriting margins, highlights the strength of its value proposition. Strategic investments in its people and technology, particularly in proactive safety, intensive claims management, and agent engagement, serve as powerful differentiators in a competitive market. While external factors like declining industry rates and medical inflation present ongoing challenges, AMERISAFE's disciplined approach to risk selection and capital deployment positions it for continued success. The company's outlook for stable profitability and sustained, albeit incremental, growth, coupled with a balanced approach to shareholder returns and organic investment, underscores its potential for long-term value creation.