Ameri Safe Equity Analysis

7/31/2019 Ameri Safe Equity Analysis

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April 2, 2008

AMERISAFE INC.AMSF/NASDAQ

Initiating Coverage: Hazardous Isnt Unsafe

Investment Rating: Market OutperformPRICE: $ 13.54 S&P 500: 1,367.53 DJIA: 12,608.92 RUSSELL 2000: 712.27

A recession may adversely affect smaller policyholders. Amerisafe is potential takeover target. Amerisafe has diversified its written policies. Our 12-month target price is $17.52.Valuation 2007 A 2008 E 2009 E

EPS $ 2.47 $ 2.28 $ 2.32

P/E 5.5x 5.9x 5.8xCFPS $ 3.09 $ 2.51 $ 2.46P/CFPS 4.4x 5.4x 5.5x

\

Market Capitalization Stock DataEquity Market Cap (MM): $ 254.85 52-Week Range: $12.10 - $21.25

Enterprise Value (MM): $ 196.56 12-Month Stock Performance: -26.01%

Shares Outstanding (MM): 18.82 Dividend Yield: Nil

Estimated Float (MM): 18.53 Book Value Per Share: $ 11.08

6-Mo. Avg. Daily Volume: 166,944 Beta: 0.76

Company Quick View:Location: DeRidder, LouisianaIndustry: Property & Casualty InsuranceDescription: Amerisafe provides workers compensation insurance for companiesoperating in hazardous industries.

Key Products & Services: Workers compensation for construction, trucking, logging,agriculture, oil and gas, maritime, and sawmillsCompany Web site:www.amerisafe.com

Analysts: Investment Research Manager:Eric Arbor Colin StenstromMinh Quang Le
http://www.amerisafe.com/http://www.amerisafe.com/


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Amerisafe Inc. (AMSF) BURKENROAD REPORTS (www.burkenroad.org) April 2, 2008

STOCK PRICEPERFORMANCE

Figure 1:

5-year Stock Price

Performance

INVESTMENTSUMMARY

Following our initiating coverage research, we have given Amerisafe aMarket Outperform rating based on our projections regarding theCompanys growth potential over the next year. We project that the stockwill increase 25.7% from $13.54 as of April 2, 2008 to $17.52 by the endof the first quarter of 2009. Amerisafe focuses on growth by increasingmarket share in its states, expanding into new states, and by creatinginternal efficiencies. We used the following valuation methods to compute

our price estimate: enterprise value to EBITDA, price to earnings, price tobook value, discounted cash flow, price to earnings growth, and a series ofmetrics developed by Benjamin Graham.

Ben Graham

Analysis

One of our methods includes the Ben Graham method. Ben Graham iswidely considered to be the father of value investing and modern securityanalysis. He taught at Colombia University where he became mentor tomany investment experts such as Warren Buffet. Ben Graham used a

variety of measurements to discover undervalued companies. In ourreport, we call these measurements hurdles.

The Benjamin Graham analysis includes eight hurdles. The more hurdlesa company passes, the more likely it is to be a good buy. The first fivehurdles tell an investor whether or not a company is undervalued, and the


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INVESTMENTTHESIS

Amerisafe offers workers compensation insurance policies to small tomid-sized employers involved in hazardous industries throughout theUnited States. The Company focuses primarily on construction, trucking,logging, agriculture, oil and gas, maritime, and sawmills, because theseare hazardous industries; therefore, insured employers in these industriespay higher premiums. The Company is interested in maintainingsustainable growth by insuring companies that have a lower-than-averagefrequency of claims for their industries. Amerisafe prefers to focus on

frequency of claims rather than loss ratio when evaluating clients.Amerisafe functions within Jim Collins hedgehog concept in that theCompany strives for excellence in insuring companies operating only inhazardous industries, and it has not expanded into industries that itsmanagement and employees do not understand.

A recession may

adversely affect

smaller

policyholders.

If a recession does occur, Amerisafe may be adversely affected because itspolicyholders are small to mid-sized companies, and such companies are

traditionally affected the most. The premiums on the workerscompensation policies are linked to the amount a company spends onpayroll. With the prospect of an official recession an accepted possibilityand with the recent results of negative job creation, payrolls across manyindustries can be expected to decline. A decrease in payrolls would meanlower premiums for Amerisafe. Nevertheless, the workers compensationindustry is generally considered to be recession resistant because statesrequire that companies maintain adequate insurance coverage. Smallercompanies, however, lack the financial resources of larger rivals and arethe first ones banks call in during a credit crunch.

Amerisafe is also vulnerable to a downturn because some of the industriesit covers are linked: construction, logging, and sawmills, as an example.Amerisafe has carefully chosen the companies for which it writes policies,and these firms may be better prepared for a recession than other small

companies may be. A weaker economic situation may help Amerisafe bydiscouraging new entrants into the workers compensation industry,although a weaker economic situation may increase the competitionbetween existing firms. Amerisafes management has demonstratedrestraint in the past by limiting the leverage of the Company. This lowamount of long-term debt will help Amerisafe prosper during difficult

i diti


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Another place investors can turn their eyes is to the enterprise

value/EBITDA ratio. On the top of the ratio, a company's enterprise valueis what investors are paying for it, plus the value of its debt. On thebottom of our ratio, EBITDA is a company's operating cash flow. Hence,the ratio measures a company's takeout value relative to its cash flow. Alow ratio indicates that a company might be undervalued by the marketamid a rough earnings patch.

The final method used in this report is the Price/Book Value. Given

reasonably consistent accounting standards across firms, price-book valueratios can be compared across similar firms for signs of undervaluation orovervaluation. Table 1 outlines the methods and respective weights thatwe used to arrive at Amerisafes target price of $17.52 for next 12months.

Table 1: Weighted Valuation MethodsMethods Weight Price

Enterprise Value/EBITDA 20% $18.22

Price/earning 20% $18.29

Price/book value 20% $14.87

Discounted cash flows 20% $20.67

Price/earnings growth 20% $15.54

Target Price 100% $17.52

INDUSTRYANALYSIS

Workers compensation is a statutory system under which an employer isrequired to pay for its employees medical, disability, vocationalrehabilitation, and death benefit workrelated injuries or illness.

Threat of Entry Entering the hazardous industries insurance business requires aconsiderable amount of capital because losses are completely based onestimates. As a result, high-barriers to entry exist in this industry.

Bargaining Powerof Suppliers

Suppliers do not have much bargaining power in the hazardous industriesinsurance business because the industry is fragmented and because ofgovernment regulations. Workers compensation insurance policiesgenerally state that the carrier will pay all benefits that the insuredemployer may become compelled to pay under pertinent workerscompensation laws Each state has different laws and systems that


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Bargaining Power

of Buyers

Buyers, on the other hand, have bargaining power in the hazardous

insurance industry. The industry is competitive and some workerscompensation insurance companies may lack the financial resources tocompete effectively. Many insurance firms in the industry aresignificantly larger and possess more financial, marketing, andmanagement resources than Amerisafe. Some firms offer other types ofinsurance in addition to workers compensation and can provide insurancenationwide. Consequently, the purchaser may bargain coverage liability,claims management, safety services, payment terms, premium rates,

policy terms, financial ratings, and reputation.

Availability of

Substitutes

Consumers have options for purchasing workers compensation insurance.Companies may choose to be self-insured, or they may opt for stateinsurance pools and self-insurance funds.

Competitive Rivalry The workers compensation industry is extremely competitive. Amerisafe

focuses on small to mid-sized companies that can be analyzed thoroughlyto determine if the potential policyholder meets the stringent coveragecriteria. Competition is based on multiple factors, including premiumrates, policy terms, coverage availability, claims management, safetyservices, payment terms, types of insurance offered, the financial strengthof a firm, and financial ratings. Currently, more than 350 insurancecompanies offer workers compensation; however, the market forworkers compensation for hazardous industries is fragmented and is not

dominated by a single company.

COMPANYDESCRIPTION

Amerisafe was incorporated in 1985 and is based in DeRidder, Louisiana.The Company began operations in 1986 as an insurance holding firm,concentrating on workers compensation insurance for logging contractorsin the southeastern United States. In 1994, Amerisafe expanded its focusto include other hazardous industries such as construction, trucking,

agriculture, oil and gas, maritime, and sawmills. Amerisafe is a holdingcompany composed of three insurance subsidiaries: American InterstateInsurance Company, Silver Oak Casualty, and American InterstateInsurance Company of Texas. Amerisafe completed its initial publicoffering in November 2005, issuing 8 million shares on the NASDAQunder the symbol AMSF


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maritime, and sawmills. For the year ended December 31, 2006, grosspremiums written totaled $332.5 million, a 14.3% increase over gross

premiums written of $290.9 million in 2005.

Figure 2: Allocation of Premiums Written By Amerisafe AmongHazardous Industries in 2007

Amerisafe operates in 30 states and the District of Columbia. To coverthis geographically diverse area, the Company has not only established itswholly owned insurance agency subsidiary, Amerisafe General Agency,which is licensed in 24 states, but has also developed and maintainedrelationships with more than 2,400 qualified independent agencies bypaying commissions based on the collected premiums.

Figure 3: Amerisafes Sixteen Largest Markets by State


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Strategy Amerisafes current long-term strategy is heavily based on growth. The

Company plans to grow both in current markets and expand into newones. Amerisafes management believes in the specialized underwritingexpertise of insuring employers engaged in hazardous industries. Its safetyand audit services position the Company to maximize market share withincovered areas, with a minimal increase in field service employees.Although Amerisafe actively markets workers compensation insurance in30 states and the District of Colombia, almost half of the premiums weregenerated through only six states, which leaves room for expansion.

Furthermore, the Company is licensed in an additional 14 states and theU.S. Virgin Islands. This will expedite its ability to write policies in thosemarkets when Company management decides it is prudent to do so.

Amerisafes business relies heavily on the competence of those workingin the field. Amerisafe wants to insure companies in high-risk industries,but it does not want to insure companies with frequent safety violations

and minimal controls. The field employees work diligently to observe,often from a distance, the safety practices and conditions of a potentialclient. Amerisafes business model is designed to absorb a small numberof large claims, rather than a multitude of miniscule claims. Health carecosts are expected to have much higher growth than indemnity costs in thefuture. In a risky environment, everyone is concerned with safety,whereas, in an office few even give it a thought. The workercompensation premiums that Amerisafe collects on policies is calculated

based on payroll. For logging it is $17.02 per $100 of payroll, but fordivers it is over $100 per $100 of payroll. The typical office worker paysunder $0.50 per $100.

Amerisafe has a two-pronged attack for increasing underwritingprofitability: first, continue to strive for improved risk selection andpricing, and second, plan to reduce the frequency and severity of claimsthrough comprehensive workplace safety reviews, effective medical cost

containment measures, and rapidly closing claims through direct contactwith policyholders and their employees.

Management at Amerisafe believes that using information technology tothe Companys advantage will allow for productive growth. Amerisafe


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stored offsite. Using the ICAMS enables the Company to accommodateanticipated transaction growth at current staffing levels without a

significant increase in cost. This should have a positive effect onAmerisafes expense ratio over time as the Company grows.

Market Share The hazardous industries that Amerisafe provides workers compensationfor is a fragmented market that is not dominated by an individual firm.Amerisafes external competition varies by state and industry. However,SeaBright, Employers Holdings, and Zenith National are consideredAmerisafes principal competitors. New market entrants may provide

further competition in this segment, which is considered underserved.Based on data from the National Association of Insurance Commissioners,the current market share of Amerisafe is less than 5% of the workerscompensation market in each of its six largest markets, as measured bypremiums collected within a given state.

Recent

Developments

In November 2006, Amerisafe completed a secondary offering of9,071,576 shares that were previously held by shareholders; Amerisafe

did not receive any funds from this offering. On June 27, 2007, Amerisafewas added to the Russell 2000 Index.

PEER ANALYSIS Employers Holdings, SeaBright, and Zenith National Insurance arecomparables of Amerisafe because of similar operations and marketcapitalization. Table 2 shows the comparison between Amerisafe and theircompetitors of key operating and financial ratios.

Amerisafe and its competitors major business is providing workerscompensation insurance for hazardous industries. Amerisafe has thesecond highest ROE (23.48%) among its competitors, which means it hasinvested equity more effectively than the competitors have. Having such ahigh ROE informs Amerisafes common stockholders how successfullytheir equity is being employed.

Table 2: Peer ComparisonKey Ratios Comparing Amerisafe and Peers

Company Ticker Market Cap P/EP/

BVEV/

EBITDAD/E

Div.Yield

ROE

Amerisafe AMSF 254 82MM 5 50 1 22 3 30 0 17 N/A 24 07%


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Employers Holdings

(EIG/NYSE)

Founded in 1999 and headquartered in Reno, Nevada, Employers

Holdings, Inc. and its subsidiaries provide workers compensationinsurance and services to small American businesses engaged in low- tomedium-hazard industries, primarily focusing on physicians, dentists,restaurants, and retail stores. Through independent agencies and theirpartners, Employers Holdings underwriters use local market knowledge tochoose specific types of businesses and risks that allow them to providecompetitive rates. According to their Web site: Employers Holdingsfinancial strength and stability is recognized by A.M. Best. On June 6,

2007, A.M. Best Company reaffirmed the groups A- rating and positivefinancial outlook.

SeaBright

Insurance

Holdings

(SEAB/NASDAQ)

SeaBright Insurance Holdings Inc. provides workers compensationinsurance throughout the United States. SeaBright focuses on maritimeemployers and construction contractors. The Company is licensed in 45states and the District of Columbia to write workers compensationinsurance. SeaBright has an A- rating by A.M. Best. The company was

founded in 1986 and is headquartered in Seattle, Washington.

Zenith National

Insurance

(ZNT/NYSE)

Zenith National Insurance Corp. was incorporated in 1971 and is based inWoodland Hills, California, with net assets of $2.7 billion. Zenithprovides workers compensation insurance through its wholly ownedsubsidiaries in the United States. Zenith has roughly 1,400 independentagents and brokers who sell insurance in the six states in which theyoperate. Zeniths Web site describes the company as experts at managingclaims processes, helping injured workers return to work, and fightingfraud. The foundation of its principles revolves around strong corporategovernance. Of the two subsidiaries, Zenith Insurance Company islicensed in 45 states and the District of Columbia; ZNAT InsuranceCompany is licensed to carry out business in Arkansas, California, Iowa,Texas, and Utah. Both subsidiaries principal focal point is propertycasualty insurance.

MANAGEMENTBACKGROUNDANDPERFORMANCE

Only one of the current executives was involved with Amerisafesfounding in the 1980s, and was not involved in an executive capacity.This is the primary reason for current executives holding a smallpercentage of stock. The volume of shares held by insiders wassignificantly reduced by a reverse stock split (72 to 1) in October 2005


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Geoffrey R. Banta Chief Financial Officer (58)

Mr. Banta joined Amerisafe in 2003 as the chief financial officer. Hisprior experience is in actuarial and management consulting. He is acertified public accountant.

Craig P. Leach Executive Vice President, Sales and Marketing (58)Mr. Leach has served in this executive position since 2002. He has abackground in sales and marketing positions, beginning with a role at apredecessor to Amerisafe in 1980.

David O. Narigon Executive Vice President (55)Mr. Narigon is responsible for overseeing claims, informationtechnology, and premium audits at Amerisafe since joining the Companyin 2006. His previous experience includes claims management and expertwitness services for the insurance industry.

Todd Walker Executive Vice President, General Counsel, and Secretary (51)

Mr. Walker joined Amerisafe in 2006. His previous experience includesfulfilling various legal positions for a large public company.

An official management succession plan does not exist at this time.Management insists that the development of such a plan is currently apriority with the corporate board.

Board of Directors The board of directors at Amerisafe is composed of eight members. The

chairman of the board, Mr. Bradley, is the only director that is a currentexecutive with Amerisafe. The founder of Amerisafe, Millard E. Morris,is also a director. All seven non-employee directors are independent ofthe Company within the meaning of the NASDAQ listing requirements.

Return on

Investment Capital

Return on investment capital is a calculation that measures howprofitable management allocations of capital to operations are.

Table 3: Return of Invested CapitalAmerisafe ROIC Average Peer ROIC

2007 20.22% 22.89%

2006 13.05% 27.55%

2005 6.40% 20.29%


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SHAREHOLDERANALYSIS

As of March 6, 2008, Amerisafe has 18.81 million shares outstanding.The stocks float is 18.61 million shares. Generally, Amerisafesinvestors are institutional investors. The top 10 investors are allinstitutions. In Table 4, we list the top 10 investors, the percentage ofownership, and the number of shares owned. The institutional investorswho have invested recently in Amerisafe have had different investmentstrategies. For example, both growth (Numeric Investors) and value(Dimensional Fund Advisors) funds have invested in Amerisafe. As

Table 5 shows, approximately 3% of outstanding shares are owned byinsiders. Generally, Amerisafes investors are institutional investors. Thetop 10 investors are all institutions. Recent insider transactions asreported by Bloomberg for the past six months are shown in Table 6.

Table 4 :Top 10 Investors

Holder Name Source Shares Held% of shareoutstanding

Neuberger Berman LLC 13F 1,387,840 7.37%Wells Capital Management INC 13F 1,235,063 6.56%

Wellington Management Co. LLP 13F 1,080,583 5.74%

Golden Capital Management LLC 13F 714,777 3.80%

Putnam Investment Management 13F 690,241 3.67%

North Pointe Capital LLC 13F 630,965 3.35%

Barclays Global Investors UK 13F 618,749 3.29%

Deutsche Bank AG 13F 599,554 3.19%Dreman Value Management LLC 13F 594,250 3.16%

Ameriprise Financial INC 13F 513,590 2.73%

Table 5: Major Holders% of Shares Held by All Insiders: 3%

% of Shares Held by Institutional & Mutual Fund Owners: 95%

% of Float Held by Institutional & Mutual Fund Owners: 95%

Number of Institutions Holding Shares: 134

Table 6: Insider Transactions in the Last Six Months

Shares Trans

P h 56 685 13


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Only one member of the current management was with Amerisafe at the

Companys inception in 1986, and this is largely the reason for the topexecutives holding relatively small amounts of stock. This also meansthat there is not an insider controlling a massive block of shares. The lackof a dominant inside shareholder could lead to a difficult proxy fight inthe future. The articles of incorporation have several provisions thatprevent a shareholder-instigated change of management.

Amerisafe does not currently pay dividends to either common or

preferred shareholders. The lack of dividends is partly due to governmentregulation that restricts Amerisafe from receiving dividends from itsinsurance subsidiaries in an effort to maintain mandatory cash reservesand liquidity. Beyond these regulatory controls, Amerisafe is not able topay common stockholders dividends without the consent of two thirds ofthe outstanding preferred stockholders.

INVESTMENTRISKS

Amerisafe is subject to several outside risk factors that may influenceperformance. To determine Amerisafes risk exposure, we estimatedoperational risks, financial risks, and regulatory risks.

Operational Risks Estimating Loss ReservesAs a provider of workers compensation insurance, Amerisafe has manyrisk factors that could affect the operations of the business. The lossreserves or estimated liabilities for losses are based on estimates.

Estimates used to pay off claims are uncertain and could be subject tochange by many external forces, such as legislative changes, economicinstability, and legal trends. Furthermore, workers compensation claimsare paid over a long period of time, which makes it more difficult toestimate reserves than for other types of insurance that maintain shorterand more definite periods between the time of the loss and the finalpayment.

Calculating Premium RatesEstimates are also tied to selecting premium rates for the employers. IfAmerisafe does not price premium rates high enough, the Company mayfail to cover losses, expenses, and profit margin. On the other hand, ifAmerisafe charges too high an amount for premiums, it could losebusiness to competition


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Downgrade in A.M. Best Rating

Rating agencies evaluate insurance companies based on the insurersability to pay out claims. Amerisafe currently has an A- rating fromA.M. Best, which is believed to be one of the most influential ratingagencies in the business. Any downgrade in this rating could result in theloss of existing policyholders and potential future policyholders.

Reinsurance ObstaclesIf Amerisafe is unable to obtain reinsurance on favorable terms, its ability

to write policies could be adversely affected. Agreements under the 2008reinsurance agreements may be terminated by reinsurers upon 90 daysnotice, effective at the start of each year. These issues add increased riskto the financial condition and operations of the business.

Cyclical Nature of the IndustryThe financial performance of the workers compensation insuranceindustry has historically fluctuated between soft and hard periods. The

soft periods consist of low premium rates and excess underwritingcapacity because of increased competition that is followed by hardperiods of high premium rates and shortages of underwriting capacityresulting from decreased competition. Because these cyclical movementsare largely due to the actions of competitors and general economicfactors, the timing or duration of the market cycle cannot be predicted.These trends could cause revenues and net incomes to fluctuate, whichmay cause the price of common stock to be extremely volatile.

Financial Risks Amerisafes financial risks are heavily based on the principal source ofoperating funds, which are premiums and investment income. Theprimary uses of the funds are the payment of claims and operatingexpenses. The Company only uses operating cash flow to pay for theseexpenses and uses excess cash for its investments. If the cash flows ofAmerisafe remain liquid, the Company is poised for growth. However, ifthe cash flows are not projected correctly, this could be detrimental to thegrowth of the Company. Amerisafe is also exposed to financial risks withrespect to fluctuations in the market value of investment portfolio. Theasset allocation of the portfolio is displayed in Figure 4.


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Figure 4:

Compared to peers in the industry, Amerisafes liquidity and leverageratios appear to be average. Amerisafe has a current ratio of 1.7,indicating it has good short-term financial strength and has no problemmeeting short-term obligations. Using the D/E ratio as the leverage ratio,Amerisafes D/E ratio is 0.166, which is slightly higher than the 0.146industry average. This indicates that Amerisafe has a strong capitalstructure within the industry.

Regulatory Risk Insurance for workers compensation has been mandatory in all 50 statessince 1949. In most states, workers compensation is provided by privatecompanies, and state-operated funds exist in 12 states. The U.S.government manages its own workers compensation program. Many ofthe state funds act as the option of last resort in order to allow privatecompanies to operate. States regulate, to some degree, what insurancecompanies can charge for workers compensation premiums. Each year,

states make a regulatory decision on the premiums for workerscompensation based on the rate of accidents within the given state. Ashazardous industries reduce the number of accidents by improving safety,states have reduced the pricing of workers compensation premiums.Some states have increased the allowable rates. One of the mostinfluential pieces of regulation within the workers compensation


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FINANCIALPERFORMANCEANDPROJECTIONS

We made several assumptions when forecasting Amerisafes futureperformance. Many of these assumptions are specific to the workerscompensation insurance industry. Our forecast values are under theassumption that the industry will continue its downturn through 2010before possible economic recovery. The financial projections forAmerisafes future revenues include the following assumptions:

Operating

Assumptions

Amerisafe will continue the growth strategy that focuses onexpanding market share.

Amerisafe will maintain the current policy for coveringcorporations that offer low frequency high severity claims.

Investing

Assumptions Amerisafe will maintain its current reinvestment strategy with an

emphasis on increasing book value.

FinancingAssumptions

Amerisafe will maintain its current capital structure with nochange in the debt structure. Amerisafe will maintain the zero dividend policy.

SITE VISIT The Company headquarters for Amerisafe are in DeRidder, Louisiana.DeRidder is a small town near the western border of Louisiana. The

corporate offices are surprisingly modern compared to Main StreetDeRidder, which seems old-fashioned. We met with CEO Allen Bradley,CFO Geoffrey Banta, EVP Craig Leach, EVP David Narigon, and EVPTodd Walker. The corporate officers were very welcoming and provideda great deal of useful information. They explained the hallmarks of theCompanys business model. Amerisafes management said that theycontinually look at potential merger and acquisition targets, but no suchtargets are considered imminent or worthy of immediate disclosure.

SOURCES OFINFORMATION

Our information was acquired from Amerisafe financial statements andSEC filings. We spoke with corporate management and other analystscovering the insurance industry, and we used Bloomberg, GoogleFinance, Hoovers, Reuters, Standard & Poors, Yahoo! Finance, and Jim


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BEN GRAHAMANALYSIS

Earnings per share (ttm) 2.63$ Price: $13.54

Earnings to Price Yield 19.44%

10 Year Treasury (2X) 7.16%

P/E Ratio as of 12/31/03 -

P/E Ratio as of 12/31/04 N/AP/E Ratio as of 12/31/05 NM

P/E Ratio as of 12/31/06 NM

P/E Ratio as of 12/31/07 6.3

Current P/E Ratio 5.1

Dividends per share (ttm) -$ Price: 13.54$

Dividend Yield 0.00%

1/2 Yield on 10 Year Treasury 1.79%

Stock Price 13.54$

Book Value per share as of 12/31/07 11.09$

150% of book Value per share as of 12/31/07 16.63$

Interest-bearing debt as of 12/31/07 61,090$

Book value as of 12/31/07 208,570$

Current assets as of 12/31/07 302,812$

Current liabilities as of 12/31/07 28,946$

Current ratio as of 12/31/07 10.5

EPS for year ended 12/31/07 2.47$

EPS for year ended 12/31/06 (1.25)$

EPS for year ended 12/31/05 (1.25)$

EPS for year ended 12/31/04 2.14$

EPS for year ended 12/31/03 -$

EPS for year ended 12/31/07 2.47$ -298%

Hurdle # 4: A Stock Price less than 1.5 BV

YES

AMERISAFE INC. (AMSF)Table 7Hurdle # 1: An Earnings to Price Yield of 2X the Yield on 10 Year Treasury

YES

Hurdle # 3: A Dividend Yield of 1/2 the Yield on 10 Year Treasury

NO

NO

NO

Hurdle # 2: A P/E Ratio Down to 1/2 of the Stocks Highest in 5 Yrs

Hurdle # 8: Stability in Growth of Earnings

Hurdle # 5: Total Debt less than Book Value

YES

Hurdle # 6: Current Ratio of Two or More

YES

Hurdle # 7: Earnings Growth of 7% or Higher over past 5 years


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AMERISAFE INC. (AMSF)Ratios

For the period ended 2005 A 2006 A 2007 A 31-Mar E 30-Jun E 30-Sep E 31-Dec E 2008 E 31-Mar E 30-Jun E 30-Sep E 31-Dec E 2009 EProductivity Ratios

Receivables turnover 2.32 2.40 2.04 0.58 0.56 0.50 0.52 2.16 0.58 0.58 0.53 0.53 2.22Working capital turnover 1.70 2.72 3.74 0.96 0.90 0.70 0.67 3.17 0.73 0.73 0.65 0.67 2.79Net fixed asset turnover 41.24 55.12 67.70 17.17 17.99 18.40 16.74 70.21 15.70 17.61 19.81 18.15 70.84Total asset turnover 0.34 0.35 0.32 0.08 0.08 0.07 0.07 0.30 0.07 0.07 0.07 0.07 0.28# of days Sales in A/R 155.51 158.50 169.44 161.37 172.00 197.72 173.00 159.97 161.37 172.00 197.72 173.00 173.42# of days Cash-based expenses in A/P and Accrued XP Payable 131.59 156.01 161.27 172.39 172.39 172.39 172.39 159.40 172.39 172.39 172.39 172.39 172.80

Liquidity MeasuresCurrent ratio 1.64 1.22 1.40 1.31 1.41 1.51 1.48 1.48 1.43 1.49 1.55 1.46 1.46Quick ratio 1.62 1.19 1.37 1.28 1.37 1.47 1.44 1.44 1.39 1.45 1.51 1.42 1.42

Cash ratio 1.32 1.10 1.08 1.06 1.15 1.25 1.22 1.22 1.17 1.23 1.29 1.20 1.20Cash flow from operations ratio 0.63 0.32 0.39 0.03 0.04 -0.01 0.14 0.21 0.09 0.03 -0.02 0.13 0.22Working capital 143,950 55,228 100,737 84,859 106,236 123,268 113,226 113,226 101,567 115,698 130,144 110,164 110,164

Financial Risk (Leverage) RatiosTotal debt/equity ratio 8.17 5.26 4.09 4.00 3.76 3.51 3.37 3.37 3.23 3.09 2.97 2.89 2.89Debt/equity ratio (excluding deferred taxes) 8.17 5.26 4.09 4.00 3.76 3.51 3.37 3.37 3.23 3.09 2.97 2.89 2.89Total LT debt/equity ratio 5.86 3.65 2.87 2.76 2.64 2.53 2.45 2.45 2.34 2.24 2.15 2.09 2.09LT debt/equity (excluding deferred taxes) 5.86 3.65 2.87 2.76 2.64 2.53 2.45 2.45 2.34 2.24 2.15 2.09 2.09Interest coverage ratio (Earnings = EBIT) 3.11 16.00 21.06 19.93 20.23 19.14 14.27 18.38 19.41 20.32 20.17 15.60 18.87Interest coverage ratio (Earnings = EBI) 3.09 11.69 15.17 14.42 14.63 13.86 10.41 13.32 14.05 14.70 14.59 11.35 13.67Total debt ratio 0.89 0.84 0.80 0.80 0.79 0.78 0.77 0.77 0.76 0.76 0.75 0.74 0.74Debt ratio (excuding deferred taxes) 0.89 0.84 0.80 0.80 0.79 0.78 0.77 0.77 0.76 0.76 0.75 0.74 0.74

Profitability/Valuation MeasuresOperating profit margin 3.20% 18.62% 21.95% 2 0.23% 21.06% 21.80% 22.06% 21.25% 22.29% 22.77% 22.86% 22.98% 22.73%Return on assets 0.72% 3.87% 4.72% 1.08% 1.09% 1.05% 0.77% 3.97% 1.03% 1.09% 1.09% 0.83% 3.95%Return on equity 21.77% 29.94% 26.82% 5.49% 5.33% 4.85% 3.40% 18.46% 4.42% 4.48% 4.31% 3.16% 15.96%EBITDA margin 3.98% 19.21% 22.46% 20.73% 21.60% 22.38% 22.66% 21.80% 22.92% 23.42% 23.51% 23.62% 23.37%EBITDA/Assets 1.34% 6.08% 7.27% 1.66% 1.66% 1.60% 1.20% 6.12% 1.58% 1.64% 1.63% 1.26% 6.10%

2009 E2008 E

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Ameri Safe Equity Analysis