AMERISAFE INC, S-1/A, 1996-10-10

AMERISAFE INC
S-1/A, 1996-10-10
FIRE, MARINE & CASUALTY INSURANCE

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1996

REGISTRATION NO. 333-10099
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2

TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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AMERISAFE, INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
TEXAS 6331 75-2069407
(State of incorporation) (Primary Standard (I.R.S. Employer
Industrial Classification Identification No.)
Code Number)
</TABLE>

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<TABLE>
<S> <C>
2301 HIGHWAY 190 WEST MARK R. ANDERSON
DERIDDER, LOUISIANA 70634 PRESIDENT
318-463-9052 2301 HIGHWAY 190 WEST
(Address and telephone number of DERIDDER, LOUISIANA 70634
Registrant's principal executive offices) 318-463-9052
(Name, address and telephone number
of agent for service)
</TABLE>

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Copies to:

<TABLE>
<S> <C>
JAMES E. O'BANNON FREDERICK W. KANNER
JONES, DAY, REAVIS & POGUE DEWEY BALLANTINE
2300 TRAMMELL CROW CENTER 1301 AVENUE OF THE AMERICAS
2001 ROSS AVENUE NEW YORK, NEW YORK 10019
DALLAS, TEXAS 75201 212-259-8000
214-220-3939
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED OCTOBER 10, 1996

PROSPECTUS

<TABLE>
<S> <C> <C>
11,000,000 SHARES
LOGO AMERISAFE, INC.
CLASS A COMMON STOCK
</TABLE>

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All of the shares of Class A Common Stock offered hereby (the "Offering")
are being sold by AMERISAFE, Inc. ("AMERISAFE" or the "Company"). Prior to this
Offering, there has not been a public market for the Class A Common Stock of the
Company. It is currently estimated that the initial public offering price will
be between $13.00 and $15.00 per share. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price.

The Class A Common Stock has been approved for listing on the New York
Stock Exchange, upon notice of issuance, under the symbol "ASF." Each share of
Class A Common Stock has one vote and each share of the Company's Class B Common
Stock has ten votes on all matters that may be submitted to a vote or consent of
the shareholders of the Company. Following the Offering, Millard E. Morris, the
Company's Chairman of the Board of Directors and Chief Executive Officer, will,
through his ownership of Class B Common Stock, control approximately 92.6% of
the voting power of the Company's outstanding voting stock (91.8% if the
Underwriters' over-allotment option is exercised in full). See "Principal
Shareholders" and "Description of Capital Stock."

------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF
THE CLASS A COMMON STOCK OFFERED HEREBY.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
=================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share......................... $ $ $
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Total(3).......................... $ $ $
=================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses of the Offering estimated at $1.1 million payable
by the Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
1,650,000 additional shares of Class A Common Stock on the same terms as set
forth above solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."

------------------

The shares of Class A Common Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for
shares of Class A Common Stock offered hereby will be available for delivery on
or about , 1996, at the offices of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001.

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SMITH BARNEY INC. PIPER JAFFRAY INC.

, 1996.
<PAGE> 3

AMERISAFE
THE MANAGED RESULTS COMPANY(SM)

AMERISAFE seeks hazardous industries -- the toughest workers' compensation
challenges.

AMERISAFE applies comprehensive on-site safety services to minimize workplace
accidents.

AMERISAFE utilizes personalized claims management and proactive health care to
speed recovery and return to work.

MANAGED SAFETY
+ MANAGED CLAIMS
MANAGED CARE

- ------------------------------------
= MANAGED RESULTS(SM)

[COLLAGE OF PHOTOS]

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NOTICE TO NORTH CAROLINA PURCHASERS: THE COMMISSIONER OF INSURANCE OF THE
STATE OF NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING NOR HAS
THE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

THE MANAGED RESULTS COMPANY(SM) IS A SERVICE MARK OF THE COMPANY. AN
APPLICATION HAS BEEN FILED TO REGISTER THIS MARK WITH THE UNITED STATES PATENT
AND TRADEMARK OFFICE; HOWEVER, NO ASSURANCE CAN BE GIVEN THAT SUCH APPLICATION
WILL BE ACCEPTED.

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<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes appearing elsewhere
in this Prospectus. Unless otherwise indicated, information in this Prospectus
(i) assumes no exercise of the Underwriters' option to purchase up to 1,650,000
additional shares of Class A Common Stock to cover over-allotments, if any, and
(ii) reflects a reorganization of the Company (the "Reorganization") to be
effected prior to the completion of this Offering. See "Recent Reorganization."
Unless the context otherwise requires, references in this Prospectus to
"AMERISAFE" or the "Company" refer to AMERISAFE, Inc. and its subsidiaries.

THE COMPANY

AMERISAFE provides managed care workers' compensation products and services
primarily to employers in hazardous occupation industries. The Company offers
its client-employers a fully integrated program designed to lower the overall
costs of workers' compensation claims by: (i) implementing and applying
workplace safety programs designed to prevent occupational injuries; (ii)
providing immediate, efficient and appropriate managed medical care to injured
workers; and (iii) using intensive personal claims management practices to guide
and encourage injured workers through the recovery and rehabilitation process
with the primary goal of returning the injured worker to work as promptly as
practicable. From 1991 through 1995, the Company has increased its revenues from
$20.3 million to $68.7 million, or a compound annual growth rate of 35.6%. In
this same period, the Company's annual growth rate in revenues ranged from 14.5%
to 63.8%. From 1991 through 1995, the Company's net income (before cumulative
effect of accounting change) increased from $1.8 million to $8.3 million, or a
compound annual growth rate of 46.9%. In this same period, the Company's annual
growth rate in net income (before cumulative effect of accounting change) ranged
from an increase of 182.2% to a decrease of 23.5%. For the six months ended June
30, 1996 compared to the same period of 1995, the Company's revenues increased
from $27.4 million to $38.2 million, or 39.1%, and the Company's net income
increased from $3.4 million to $4.3 million, or 24.7%. See "Selected
Consolidated Financial Data." There can be no assurance that these growth rates
will continue. As of June 30, 1996, the Company was licensed to provide workers'
compensation coverage and services in 25 states and the U.S. Virgin Islands and
provided its products and services to approximately 2,900 employers in 18
states, primarily in the southeastern United States.

The Company integrates proactive safety services with intensive claims
management practices and quality managed care to produce "managed results." The
Company's managed results approach focuses on creating and maintaining direct,
personal relationships with employers, employees and health care providers in
order to design and promote services which are intended to produce lower overall
occupational injury costs. The Company designates service teams for each client
in order to foster personal relationships, provide continuity of services and
implement specific solutions for individual client workers' compensation needs.

Since it began operations in 1986, the Company has focused on providing its
managed results products and services to employers whose employees are engaged
in hazardous occupations, primarily the logging industry. Beginning in 1994, the
Company began expanding its client base by targeting employers in other
hazardous occupation industries, including general contracting, trucking, and
oil and gas exploration. Employers engaged in hazardous occupation industries
pay substantially higher than average workers' compensation rates. For example,
the Company's logging clients pay generally an amount equal to 20% to 50% of
their payroll to obtain workers' compensation coverage for their employees,
compared to employers of clerical workers who pay generally less than 1% of
their payroll to obtain such coverage. The Company believes that the high
severity injuries typically suffered by employees engaged in hazardous
occupations and the resulting high cost typically incurred by employers in
providing the mandatory workers' compensation coverage for such employees
provide the greatest opportunity to lower costs by applying the Company's
managed results approach. By focusing on developing and implementing
client-specific workplace safety techniques and intensive claims management
practices involving the personal presence of the Company's claims
representative, the Company believes that substantial cost savings can be
achieved when compared to the traditional workers' compensation approach to
hazardous occupation industries. By reducing the overall

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<PAGE> 5

cost of providing workers' compensation coverage to its employer-clients, the
Company believes its managed results approach permits it to price its products
and services competitively. As of June 30, 1996, more than two-thirds of
AMERISAFE's client-employers were involved in hazardous occupation industries.

The cost to employers of providing workers' compensation benefits in the
United States totaled approximately $58 billion in 1994. From 1984 to 1990,
workers' compensation costs increased an average of 13.3% per year and, from
1990 to 1992, workers' compensation costs increased an average of 6.3% per year.
The substantial growth in the workers' compensation market is primarily
attributable to the increased costs of medical treatment and an increase in
workers' compensation litigation, which affects both medical benefits and
indemnity payments. The Company believes that successful containment of these
expenses depends largely upon early intervention in the claims process by
assisting the injured employee in receiving appropriate medical treatment and,
as a result, enabling an injured employee to return to work as promptly as
possible. The Company also believes that traditional insurers have focused on
high premium volume and generally maintain minimal staffing. As a result, the
Company believes that the workers' compensation industry is generally
characterized by limited safety services, inefficient claims adjustment
processes and ineffective medical cost management.

The Company's strategy is to utilize its managed results approach in an
effort to prevent workplace injuries, and, when an injury does occur, to arrange
for timely, high quality and cost-effective managed care. The key elements of
the Company's strategy are to (i) focus on hazardous occupation employers, (ii)
improve workplace safety to reduce workplace accidents, (iii) manage care
through personal, direct contact, (iv) direct injured workers to appropriate
health care providers, and (v) pursue growth both internally and through
acquisitions (although the Company presently has no plans, agreements or
understandings with respect to any proposed acquisitions). See
"Business -- Strategy."

BENEFITS TO EXISTING SHAREHOLDERS

The Company will use a portion of the net proceeds of the Offering to repay
indebtedness under the Company's existing credit facility. This credit facility
is secured by a pledge of the Company's outstanding Class B Common Stock held by
Millard E. Morris, the Company's Chairman of the Board of Directors and Chief
Executive Officer, and the stock of certain of the Company's subsidiaries. Upon
this repayment, the credit facility will be cancelled and the pledge of such
stock will be released. Further, in connection with a reorganization of the
Company effected prior to the completion of the Offering, the Company
distributed (i) all of the outstanding capital stock of Auto One Acceptance
Corporation ("AOAC") to Mr. Morris and Mark R. Anderson, the Company's
President, and (ii) shares of two of the Company's former subsidiaries to Mr.
Morris. Prior to such distribution, the Company contributed to AOAC additional
capital in the form of a note in the amount of $50 million. This note will be
repaid with the proceeds of the Offering. See "Recent Reorganization" and "Use
of Proceeds."

RISK FACTORS

Prospective purchasers of the Class A Common Stock should consider certain
factors affecting the Company and an investment in the Class A Common Stock. See
"Risk Factors."

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<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Class A Common Stock Offered by the Company(1)...... 11,000,000 shares
Common Stock to be Outstanding after the Offering:
Class A Common Stock(1)(2)........................ 11,000,000 shares
Class B Common Stock(3)........................... 17,400,000 shares
Total..................................... 28,400,000 shares
Use of Proceeds by the Company...................... To repay existing indebtedness
(including the indebtedness incurred in
connection with the Reorganization), to
increase capital and surplus and for
other general corporate purposes.
Proposed NYSE Symbol................................ ASF
</TABLE>

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(1) Does not include an additional 1,650,000 shares of Class A Common Stock that
may be sold pursuant to the Underwriters' over-allotment option. See
"Underwriting."

(2) Excludes (i) 600,000 shares of Class A Common Stock issuable pursuant to
outstanding stock options having an exercise price of $12.00 per share
granted under the AMERISAFE, Inc. 1996 Stock Incentive Plan (the "Stock
Incentive Plan"), and (ii) 6,000 shares of Class A Common Stock to be issued
to non-employee directors upon completion of the Offering pursuant to the
Stock Incentive Plan. See "Management -- Stock Incentive Plan" and
"Management -- Director Compensation."

(3) See "Description of Capital Stock -- Class A Common Stock and Class B Common
Stock" regarding the conversion rights of the Class B Common Stock.

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<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Premiums earned.................................... $17,599 $28,640 $35,902 $40,461 $58,167 $23,134 $30,678
Service fee income................................. 578 800 987 2,468 4,110 1,446 3,605
Investment income.................................. 1,745 1,818 2,146 2,484 4,519 1,842 2,743
Fees and other from affiliates..................... 371 1,985 2,154 1,732 1,854 1,004 1,125
------- ------- ------- ------- ------- ------- -------
Total revenues............................... 20,293 33,243 41,189 47,145 68,650 27,426 38,151
Expenses:
Claim and claim settlement expenses................ 12,136 17,622 20,262 25,250 32,924 13,545 18,356
Commission and other underwriting expenses......... 4,577 5,561 7,555 8,507 13,524 6,101 8,377
General and administrative......................... 570 1,910 2,798 4,406 6,810 2,157 4,093
Interest........................................... 442 642 850 726 845 420 632
Depreciation and amortization...................... 4 93 240 703 1,006 364 758
------- ------- ------- ------- ------- ------- -------
Total expenses............................... 17,729 25,828 31,705 39,592 55,109 22,587 32,216
------- ------- ------- ------- ------- ------- -------
Income before federal income taxes................... 2,564 7,415 9,484 7,553 13,541 4,839 5,935
Federal income taxes................................. 778 2,375 2,768 2,414 5,234 1,430 1,683
------- ------- ------- ------- ------- ------- -------
Net income before cumulative effect of change in
accounting for income taxes........................ 1,786 5,040 6,716 5,139 8,307 3,409 4,252
Cumulative effect of change in accounting for income
taxes.............................................. 334 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income................................... $ 2,120 $ 5,040 $ 6,716 $ 5,139 $ 8,307 $ 3,409 $ 4,252
======= ======= ======= ======= ======= ======= =======
Pro forma net income per share............... $ 0.38 $ 0.19
======= =======
Pro forma weighted average shares outstanding........ 22,061 22,061
Loss Ratio........................................... 69.0% 61.5% 56.4% 62.4% 56.6% 58.6% 59.8%
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------
ACTUAL AS ADJUSTED(1)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and investments.................................................................... $ 90,582 $157,362
Total assets............................................................................ 133,905 200,685
Notes payable........................................................................... 12,425 1,525
Stockholders' equity.................................................................... 36,442 114,591
</TABLE>

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(1) Adjusted to give effect to (i) the Reorganization, (ii) the sale of
11,000,000 shares of Class A Common Stock in the Offering at an assumed
public offering price of $14 per share less the estimated underwriting
discounts and Offering expenses, and (iii) the application of the net
proceeds of the Offering as described herein. See "Use of Proceeds" and
"Recent Reorganization."

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THE COMPANY

The Company was incorporated as a Texas corporation in 1985 and is
principally engaged through its subsidiaries in providing workers' compensation
products and services. The Company's principal executive offices are located at
2301 Highway 190 West, DeRidder, Louisiana 70634 (telephone: 318-463-9052) and
at 5550 LBJ Freeway, Suite 901, Dallas, Texas 75240 (telephone: 214-448-7414).
The Company's principal operating subsidiary is American Interstate Insurance
Company, a Louisiana corporation ("American Interstate"). See "Business."

RISK FACTORS

In addition to other information contained in this Prospectus, prospective
investors should consider carefully the following factors in evaluating an
investment in the shares of the Class A Common Stock offered hereby.

GOVERNMENT REGULATION

The Company is subject to substantial regulation by the governmental
agencies in the states in which it operates, and will be subject to such
regulation in any state in which the Company provides workers' compensation
coverage and services in the future. These regulations are primarily intended to
protect covered employees and policyholders rather than insurance companies or
their shareholders. State regulatory agencies have broad administrative power
with respect to all aspects of the Company's business, including premium rates,
capital and surplus requirements, reserve requirements, transactions with
affiliates, changes in control, investment criteria and policy forms. Under
Louisiana law, an insurance company may not, without regulatory approval, pay to
its shareholders within a 12-month period dividends or other distributions of
cash or property the total fair market value of which exceeds the lesser of (i)
ten percent of surplus as to policyholders at the end of the prior calendar year
or (ii) the prior calendar year's net income (less any realized capital gains).
This requirement would limit American Interstate's ability to make distributions
to AMERISAFE in 1996 to approximately $2.7 million. There is no assurance that
the Company will seek approval from state regulatory authorities to permit its
insurance subsidiaries to pay dividends or make distributions or that, if
sought, such approval will be obtained. This approval requirement may limit the
amount of distributions which may be made by such subsidiaries and may decrease
the amount of capital available to the Company for expansion opportunities and
other purposes.

Workers' compensation coverage is a creation of state law, is subject to
change by the applicable state legislature and is influenced by the political
process in each state. Several states have mandated that employers receive
coverage only from funds operated by the state. The Company is not aware of any
pending or proposed legislation or regulations which could adversely affect the
Company. However, there can be no assurance that new workers'
compensation-related legislation or regulations will not be adopted in states
where the Company presently operates or may operate in the future, which could
have a materially adverse effect on the demand for the Company's services and
programs in such states, as well as on the Company's business, financial
condition or results of operations.

From time to time, Congress has also considered federal regulation of the
health insurance industry. In 1993, the Clinton administration proposed
legislation that would have put into effect substantial changes in the health
care industry. Such legislation has not been adopted. Any legislation relating
to a comprehensive health care program could adversely affect the Company. See
"Business -- Regulation."

CONTROL BY A SINGLE SHAREHOLDER

The Company's equity currently consists of Class A Common Stock and Class B
Common Stock (collectively, the "Common Stock"), which vote together as a single
class on all issues, except as otherwise required by law. Following the
Offering, Millard E. Morris, the Chairman of the Board of Directors and Chief
Executive Officer of the Company, will beneficially own 17,126,521 shares of the
Company's Class B Common Stock, each share of which has ten times the voting
power of a share of Class A Common Stock. As

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<PAGE> 9

a result, Mr. Morris will control approximately 92.6% of the voting power of the
Common Stock (91.8% if the Underwriters' over-allotment option is exercised in
full) and will control the outcome of all shareholder votes, including those
relating to amending the Company's Amended and Restated Articles of
Incorporation (the "Articles") or Restated Bylaws (the "Bylaws"), election of
directors and certain mergers and other significant corporate transactions. This
could have the effect of delaying, deferring or preventing a change in control
of the Company. See "Principal Shareholders" and "Description of Capital
Stock -- Class A Common Stock and Class B Common Stock."

TRANSACTIONS WITH CONTROLLING SHAREHOLDER

After the consummation of the Offering, the Company will have business
relationships with certain entities controlled by Millard E. Morris, the
principal shareholder, Chairman of the Board of Directors and Chief Executive
Officer of the Company. Some of these entities will receive services (e.g.,
administrative services and aviation services) from the Company for a fee. The
Company also shares office space with one of these entities. In addition, the
Company has entered into a Tax Matters Agreement in connection with the
Reorganization. See "Certain Transactions and Relationships" and "Recent
Reorganization."

HOLDING COMPANY STRUCTURE

The Company is a holding company, the primary assets of which are the
capital stock of its subsidiaries. Accordingly, the Company is dependent on the
cash flow from its subsidiaries, received through dividends or other
intercompany transfers of funds, to meet its obligations. Although the Company
does not intend to pay dividends for the foreseeable future, the Company will be
dependent on such sources to pay, if and when declared by the Company's Board of
Directors, dividends on the Common Stock or any outstanding shares of the
Company's preferred stock, $.01 par value per share ("Preferred Stock"). See
"Dividend Policy." Dividends and other payments received from the Company's
subsidiaries, together with any net proceeds from the Offering retained by the
Company for general corporate purposes, are expected, for the foreseeable
future, to be the Company's major source of liquidity. None of the Company's
subsidiaries will be obligated to declare or pay dividends or make other capital
distributions to the Company. In addition, the payment of dividends by the
Company's subsidiaries may be restricted under applicable law. See
"-- Government Regulation" above. Limitations on the ability of the Company's
subsidiaries to make such payments could adversely impact the Company's
liquidity.

Under Louisiana law applicable to insurance holding companies, the
Company's insurance subsidiaries may not enter into certain transactions,
including certain reinsurance agreements, management agreements, service
contracts and cost sharing arrangements, with members of their insurance holding
company system unless they have notified the Commissioner of Insurance of their
intention to enter into such a transaction at least 30 days in advance and the
Commissioner of Insurance has not disapproved the transaction within such
period. Among other things, such transactions are subject to the requirements
that their terms be fair and reasonable, that charges or fees for services
performed must be reasonable and that the interests of policyholders not be
adversely affected.

NEED FOR CAPITAL

The Company may from time to time need additional capital and surplus to
meet certain state regulatory requirements. In particular, the Company
anticipates that its insurance subsidiaries will require capital to meet current
statutory surplus needs and any additional funding requirements that may
periodically arise. From time to time, the Company may be required to increase
the capital and surplus of its insurance subsidiaries to remain in compliance
with state regulatory requirements. The Company intends to use a portion of the
net proceeds from this Offering for this purpose. The Company expects that
additional capital will be required by regulatory authorities for the Company to
further expand into additional states. If the Company is unable to generate
sufficient capital, either internally or from outside sources, it could be
required to reduce its growth or to delay or abandon plans to expand into
additional states. Although the Company has met its capital needs in the past,
there can be no assurance that capital will continue to be available when needed
or, if available, will be on terms acceptable to the Company. Additionally, if
such capital is not available, there can be no

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<PAGE> 10

assurance that the Company will be able to maintain its current rating of "A"
(Excellent) from A.M. Best Company, Inc. A.M. Best's ratings are based on
factors of concern to insureds and are not directed towards the protection of
investors and should not be relied upon by an investor making a decision with
respect to an investment in the Company's Class A Common Stock. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Business -- A.M.
Best Rating."

The National Association of Insurance Commissioners ("NAIC") has adopted a
system of assessing minimum capital adequacy, which system is applicable to the
Company's insurance subsidiaries. This system, known as risk-based capital
("RBC"), is used to identify companies that merit further regulatory action by
comparing adjusted surplus to the required surplus, which reflects the risk
profile of the insurer. Insurers having less statutory surplus than that
required by the RBC model formula are subject to regulatory action depending on
the level of capital inadequacy. At December 31, 1995, the RBC ratios of the
Company's insurance subsidiaries were in excess of statutory minimums. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

MANAGEMENT OF GROWTH; EXPANSION STRATEGY

Since it began operations in 1986, the Company has experienced significant
growth in its revenues, the number of its employees and the scope of its
operations. This growth has and will require the Company to obtain additional
capital. See "-- Need for Capital" above. This growth has also resulted in, and
is expected to continue to create, new and increased responsibilities for
management personnel, as well as additional demands on the Company's operating
and financial systems. The Company's business and future growth will depend on
the efforts of key management personnel and the Company's ability to attract and
retain qualified management personnel. The Company's continued growth also will
require it to recruit qualified persons, to enhance managerial systems for its
operations, and to successfully integrate new employees and systems into its
existing operations. If the Company is unable to continue to manage growth
effectively, the Company's business, financial condition or results of
operations could be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business --
Strategy -- Pursue Growth Opportunities."

The Company intends to pursue growth opportunities through both greater
market penetration in existing markets and expansion into new markets, targeting
employers in industries and geographic areas in which the Company does not
presently conduct business. In addition, the Company intends to pursue
acquisitions of other workers' compensation insurers or books of indemnity
business. To date, the Company has never acquired another workers' compensation
insurer and is unable to predict whether or when any prospective acquisition
candidate will become available or the likelihood that any acquisition will be
completed. The Company will compete for acquisition and expansion opportunities
with many entities that have substantially greater resources. In addition,
acquisitions may involve difficulties in the retention of personnel, diversion
of management's attention, unexpected legal liabilities and tax and accounting
issues. There can be no assurance that the Company will be able to successfully
identify suitable acquisition candidates, complete acquisitions, integrate
acquired businesses into its operations or expand into new markets. Once
integrated, acquisitions may not achieve levels of revenues, profitability or
productivity comparable to the existing business of the Company or otherwise
perform as expected. The occurrence of any of these events could have a
materially adverse effect on the Company's business, financial condition or
results of operations. See "Business -- Strategy."

Future growth of the Company's operations depends, in part, on its ability
to enter markets in additional states. To achieve this objective, the Company
must obtain regulatory approval, win acceptance in the local market, adapt its
procedures to each state's regulatory system (which differs materially from
state to state) and expand its network of agents. The time required to obtain
regulatory approval varies from state to state, and there can be no assurance
that the Company will obtain such approval in each state it may seek to enter.
See "Business -- Regulation."

9
<PAGE> 11

The Company plans to manage its growth in a manner intended to maintain its
"A" (Excellent) rating from A.M. Best Company, Inc., although there can be no
assurances in this regard. A.M. Best's ratings are based on factors of concern
to insureds and are not directed towards the protection of investors and should
not be relied upon by an investor making a decision with respect to an
investment in the Company's Class A Common Stock. See "Business -- A.M. Best
Rating."

TAX-FREE REORGANIZATION

Immediately prior to the completion of the Offering, the Company
distributed the stock of certain subsidiary corporations to existing
shareholders of the Company in transactions intended to qualify as tax-free
distributions for federal income tax purposes under section 355 of the Internal
Revenue Code of 1986, as amended (the "Code"). Prior to such distributions, the
Board of Directors of the Company received an opinion of counsel to the effect
that such distributions should so qualify for federal income tax purposes. The
opinion of counsel received by the Board of Directors of the Company is not
binding on the Internal Revenue Service (the "IRS"), and there can be no
assurance that the IRS will agree with the opinion. No ruling with respect to
such distributions has been requested from the IRS, and there can be no
assurance that the IRS will not take the position that such distributions do not
qualify as tax-free. If the distributions were not to qualify for tax-free
treatment under section 355 of the Code, the Company would recognize taxable
gain on the distributions equal to the difference on such date between (i) the
fair market value of the distributed stock and (ii) the Company's adjusted basis
in such stock. Based on its estimate of the fair market value of the distributed
stock, the Company believes that, if the distributions fail to qualify for
tax-free treatment, any taxable gain would not exceed approximately $20 million,
although there can be no assurance in this regard. The tax resulting from
realization of such gain could have a materially adverse effect on the Company's
business, financial condition or results of operations. See "Recent
Reorganization."

FOCUS ON HAZARDOUS OCCUPATION INDUSTRIES

Since it began operations in 1986, the Company has focused on providing
workers' compensation products and services to employers whose employees are
engaged in hazardous occupations and, as a result, are susceptible to serious
injuries. Such injuries typically result in substantial costs for both medical
treatment and indemnity payments, as well as the costs of managing the delivery
of care to injured employees. To limit its exposure, the Company has "excess of
loss" reinsurance in effect with a number of reinsurance carriers. The failure
of any such reinsurer to meet its obligations to the Company could have a
materially adverse effect on the Company's business, financial condition or
results of operations. See "-- Reliance on Reinsurance."

RELIANCE ON REINSURANCE

Due to the Company's exposure to significant claims resulting from injuries
suffered by the employees of its clients, the Company has "excess of loss"
reinsurance in effect with a number of reinsurance carriers. This reinsurance,
in the aggregate, currently provides coverage for each claim occurrence up to
$50,000,000 in excess of the Company's retention of $200,000. The Company
presently intends to increase its retention level under these policies upon
their expiration in July 1997. The Company regularly performs internal reviews
of the financial strength of its reinsurers. However, if a reinsurer is unable
to meet any of its obligations to the Company under the reinsurance agreements,
whether due to the incurrence of multiple large claims by the Company's clients
or otherwise, the Company would be responsible for the payment of all claims and
claim settlement expenses which the Company has ceded to such reinsurer. Any
such failure on the part of the Company's reinsurers could have a materially
adverse effect on the Company's business, financial condition or results of
operations. See "Business -- Reinsurance."

NEED FOR RESERVES

The Company establishes reserves to cover its estimated liability for
claims and claim settlement expenses with respect to reported claims and claims
incurred but not yet reported as of the end of each accounting period. The
reserves are estimated using individual case-basis valuations, statistical
analyses and estimates based upon experience for unreported claims and claim
settlement expenses. The process of

10
<PAGE> 12

establishing reserves involves many factors and is inherently uncertain and such
estimates may be more or less than the amounts ultimately paid when the claims
are settled. Further, the estimates are subject to the effects of trends in loss
severity and frequency. Although considerable variability is inherent in such
estimates, management believes that the reserves for claims and claim settlement
expenses are adequate. The Company's results of operations may fluctuate on a
quarterly basis due in part to the seasonal nature of the businesses conducted
by its clients and also as a result of changes in the Company's reserve
estimates, as well as other factors. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Reserves for Claims and
Claim Settlement Expense."

CONCENTRATION IN LOGGING INDUSTRY

Since it began operations in 1986, the Company has focused on providing its
workers' compensation products and services to employers in the logging
industry, primarily in the southeastern United States. See "-- Geographic
Concentration" and "Business -- Overview." In 1994, the Company began a program
of providing its services to businesses in other hazardous occupation
industries. For the year ended December 31, 1995 and the six months ended June
30, 1996, approximately 59.6% and 47.7%, respectively, of the Company's gross
premiums earned were derived from its clients in the logging industry. Because
premiums are, in general, determined as a percentage of its clients' payroll
expense (or, in the case of its logging clients, the clients' production of wood
products), premiums fluctuate depending upon the level of business activity of
its clients. As a result, the Company's gross premiums earned are dependent upon
economic conditions generally and, in particular, the demand for the wood
products harvested by its logging clients. Further, due to the concentration of
the Company's clients in the logging industry, the Company's gross premiums
earned tend to be lower during periods of inclement weather when logging
activity is reduced. See "-- Need for Reserves" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview."

GEOGRAPHIC CONCENTRATION

As of June 30, 1996, the Company provided its products and services in 18
states, primarily in the southeastern United States. Although the Company
intends to expand its operations into new geographic areas, approximately 83.7%
of the gross premiums earned for the six months ended June 30, 1996 were derived
from clients in the states of Georgia (19.8%), Louisiana (19.6%), Mississippi
(14.9%), Arkansas (13.3%), Alabama (9.8%) and Virginia (6.3%). No other state
accounted for more than 5.0% of gross premiums earned for the six months ended
June 30, 1996. As a result of this geographic concentration, unfavorable changes
in economic conditions affecting the southeastern United States could have a
materially adverse effect on the Company's business, financial condition or
results of operations. See "Business -- Clients."

RELIANCE ON INDEPENDENT AGENTS

The Company markets a portion of its workers' compensation products and
services through independent agents. For the year ended December 31, 1995 and
the six months ended June 30, 1996, independent agents accounted for
approximately 39.1% and 49.1%, respectively, of the Company's gross premiums
earned. No independent agent accounted for 5.0% or more of the Company's gross
premiums earned for either period. These agents are not obligated to promote the
Company's products and services and may sell competitors' insurance products. As
a result, the Company's business depends in part on the marketing effort of
these agents and on the Company's ability to continue to offer workers'
compensation products and services that meet the requirements of these agents
and their customers. In addition, as the Company expands into additional states
and industries, it may elect to establish additional independent agents to
market its products. Failure of these independent insurance agents to market
successfully the Company's products and services could have a materially adverse
effect on the Company's business, financial condition or results of operations.
See "Business -- Sales and Marketing."

DEPENDENCE ON KEY PERSONNEL

The Company's success is largely dependent on the efforts of Millard E.
Morris, its Chairman of the Board of Directors and Chief Executive Officer, and
Mark R. Anderson, its President. The loss of the services

11
<PAGE> 13

of either of these individuals could have a materially adverse effect on the
Company. The Company maintains a $1.0 million key-man life insurance policy on
Mr. Anderson. The Company presently does not maintain similar insurance with
respect to any of its other executive officers. The Company has entered into
employment agreements with an initial three-year term with each of its executive
officers. The employment agreement between the Company and Mr. Morris does not
provide for him to devote full time to the business of the Company. Although Mr.
Morris has historically devoted approximately two-thirds of his time to the
Company's affairs, his employment agreement provides that he devote such time to
the Company's affairs as he and the Company's Board of Directors mutually agree
is necessary and appropriate under the circumstances. See
"Management -- Employment Agreements."

ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Class A
Common Stock and there can be no assurance that an active trading market for the
Class A Common Stock will develop or be sustained after the Offering. The
initial public offering price of the Class A Common Stock will be determined
through negotiations between the Company and representatives of the
Underwriters, and may not be indicative of the market price. Additionally, the
market price of the Class A Common Stock could be subject to significant
fluctuations in response to period-to-period variations in operating results of
the Company, changes in general conditions in the economy or the financial
markets, developments in the health care or insurance industries or other
developments affecting the Company, its customers or its competitors, some of
which may be unrelated to the Company's performance. See "Underwriting."

IMPORTANCE OF MAINTAINING A.M. BEST RATING

When assigning a rating, an area of concern to A.M. Best is rapid growth of
written premiums without sufficient capital. Following the Offering, the Company
believes that it will be able to maintain adequate capital to permit it to
implement its growth strategy in a manner that allows the Company to maintain
its rating. However, there can be no assurance that the Company will be able to
maintain its "A" rating. See "Business -- A.M. Best Rating."

UNALLOCATED OFFERING PROCEEDS

The Company intends to retain $66.8 million ($88.3 million if the
Underwriters' over-allotment option is exercised in full) of the net proceeds of
the Offering to increase its capital and surplus and for other general corporate
purposes. These funds have not been allocated for a specific use, and the Board
of Directors of the Company will have the sole authority to determine the use of
such funds. See "Use of Proceeds."

HIGHLY COMPETITIVE BUSINESS

The workers' compensation industry is highly competitive. The Company's
competitors include, among others, insurance companies, specialized provider
groups, in-house benefits administrators, state insurance pools and other
significant providers of health care and insurance services. A number of the
Company's

12
<PAGE> 14

current and potential competitors are significantly larger, with greater
financial and operating resources than the Company and can offer their services
nationwide. Additionally, the Company does not offer the full line of insurance
products which is offered by some of its competitors. There can be no assurance
that the Company will be able to compete effectively in the future. See
"Business -- Competition."

SHARES ELIGIBLE FOR FUTURE SALE

After completion of the Offering, the Company will have outstanding
11,000,000 shares of Class A Common Stock (12,650,000 shares if the
Underwriters' over-allotment option is exercised in full) and 17,400,000 shares
of Class B Common Stock. Of those shares, 11,000,000 shares of Class A Common
Stock offered hereby (12,650,000 if the Underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless purchased by "affiliates" of the Company, as that term is defined
in Rule 144 under the Securities Act ("Rule 144"). All of the shares of Class B
Common Stock were issued by the Company in private transactions prior to the
Offering and are "restricted securities" as that term is defined in Rule 144 and
are tradable subject to compliance with Rule 144. The Company and its existing
shareholders, who upon completion of the Offering will own 17,400,000 shares of
Class B Common Stock, have agreed not to dispose of any shares of Class A Common
Stock or any securities convertible into or exchangeable for such Class A Common
Stock (other than shares and stock options to be granted pursuant to the Stock
Incentive Plan) for a period of 180 days from the date of this Prospectus,
without the prior written consent of Smith Barney Inc., on behalf of the
Underwriters. Neither the Company nor either of its existing shareholders has
any present intention to request a waiver of the 180-day period. If any such
waiver is requested, Smith Barney Inc. has the sole discretion whether to grant
any such waiver. Sales of substantial amounts of Class A Common Stock or Class B
Common Stock, or the perception that such sales could occur, could adversely
affect market prices for the Class A Common Stock and could impair the Company's
future ability to obtain capital through an offering of equity securities. See
"Shares Eligible for Future Sale." In addition, Messrs. Morris and Anderson are
entitled to certain registration rights with respect to the shares of the Class
A Common Stock. See "Description of Capital Stock -- Class A Common Stock and
Class B Common Stock -- Registration Rights Agreement."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of Class A Common Stock in the Offering will experience
immediate and substantial dilution, approximately $9.97 per share, in the net
tangible book value per share of Class A Common Stock and may incur additional
dilution upon the exercise of outstanding stock options. See "Dilution" and
"Management -- Stock Incentive Plan -- Awards."

ANTI-TAKEOVER PROVISIONS

The Board of Directors of the Company is authorized to issue up to
25,000,000 shares of Preferred Stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the shareholders of the Company. The rights and
preferences of any such Preferred Stock may be superior to those of the Class A
Common Stock and may adversely affect the rights of the holders of the Class A
Common Stock. The Company has no present intention to issue any shares of
Preferred Stock. The voting structure of the Common Stock and other provisions
of the Articles are intended to encourage a person interested in acquiring the
Company to negotiate with, and to obtain the approval of, the Board of Directors
of the Company in connection with any such transaction. However, certain of
these provisions may discourage a future acquisition of the Company, including
an acquisition in which shareholders might otherwise receive a premium for their
shares. As a result, shareholders who might desire to participate in such a
transaction may not have the opportunity to do so. Moreover, the existence of
these provisions may have a depressive effect on the market price of the Class A
Common Stock. In addition, the Company is subject to the provisions of Louisiana
law applicable to insurance holding companies that prohibit a merger or change
in control of the Company without the approval of the Louisiana Department of
Insurance. See "Description of Capital Stock -- Anti-Takeover Provisions."

13
<PAGE> 15

USE OF PROCEEDS

Assuming a public offering price of $14 per share, the net proceeds to the
Company from the sale of the 11,000,000 shares of Class A Common Stock offered
hereby, after deducting the estimated underwriting discounts and commissions and
Offering expenses, are estimated to be approximately $142.1 million ($163.6
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use the net proceeds from the Offering as follows:

(i) $50.0 million to repay a note issued as a capital contribution to
Auto One Acceptance Corporation in connection with the Reorganization,
which note bears interest at 8.0% per annum and matures on the fifth
business day following the completion of the Offering (immediately prior to
the Reorganization AOAC was a wholly owned subsidiary of the Company;
immediately following the Reorganization AOAC will be owned by Messrs.
Morris and Anderson);

(ii) $13.97 million to repay notes issued to a former shareholder and
former subsidiaries in connection with the Reorganization, which notes bear
interest at 8.0% per annum and mature on the fifth business day following
the completion of the Offering;

(iii) $10.0 million to repay in full indebtedness to Banc One Capital
Partners II, Ltd., which matures in January 2002 and bears interest at a
rate equal to the London Interbank Offered Rate plus 6.0% (11.5% at August
31, 1996);

(iv) $900,000 to repay in full indebtedness to certain individuals
incurred by the Company in September 1995 in connection with the
acquisition of Hammerman & Gainer, Inc., a subsidiary of the Company. Such
indebtedness bears interest at 2.667% per annum and is repayable in four
equal installments with the last such payment due in September 1999; and

(v) to repay all intercompany balances owed to AOAC and the MorTem
Corporations (as defined under "Recent Reorganization" below) ($469,000 as
of June 30, 1996).

The balance of the estimated net proceeds from the Offering (approximately $66.8
million, or $88.3 million if the Underwriters' over-allotment option is
exercised in full) will be retained by the Company and used to increase its
capital and surplus and for other general corporate purposes. Pending such use,
the Company intends to invest such proceeds in investment-grade debt securities.
For information relating to the Reorganization, see "Recent Reorganization"
below.

DIVIDEND POLICY

The Company does not currently intend to pay cash dividends to its
shareholders. Any determination to pay cash dividends in the future and their
amounts, however, will be at the discretion of the Board of Directors and will
depend upon the Company's earnings, financial condition, capital requirements,
plans for expansion, contractual restrictions, restrictions imposed by
applicable law and regulations and other factors deemed relevant by the Board of
Directors. The principal source for cash from which to make dividend payments
will be dividends and other distributions from the Company's subsidiaries. The
Company has not paid any dividends and has made no other distributions to its
shareholders in the past two years except for the distributions described below
under "Recent Reorganization." See "Risk Factors -- Government Regulation" and
"Management's Discussion and Analysis of Results of Operations -- Liquidity and
Capital Resources."

14
<PAGE> 16

RECENT REORGANIZATION

Prior to completion of the Offering, the Company effected certain
transactions to separate certain non-workers' compensation related businesses
from its workers' compensation businesses and otherwise facilitate the Offering
(the "Reorganization"). The Reorganization principally consisted of the
following steps:

(i) The Company distributed all of the stock of certain corporations
conducting insurance agency and other unrelated businesses (the "MorTem
Corporations") and 51% of the capital stock of two other
subsidiaries -- Southern Underwriters, Inc. ("SU"), and Morris, Temple &
Trent Financial Services, Inc. ("MTTFS") -- to a former shareholder of the
Company in exchange for all shares of Class B Common Stock then owned by
such shareholder. In addition, the Company paid such shareholder $8.0
million and contributed additional capital to the MorTem Corporations in
the amount of $5.97 million, in each case, in the form of notes bearing
interest at 8.0%. Such notes will be paid with the proceeds of the
Offering.

(ii) The Company distributed all of the capital stock of Auto One
Acceptance Corporation ("AOAC") to Messrs. Morris and Anderson on a pro
rata basis and the remaining 49% of the capital stock of SU and MTTFS to
Mr. Morris. Prior to such distribution, the Company contributed to AOAC
additional capital in the amount of $50 million, in the form of a note
bearing interest at 8.0%. Such note will be paid with proceeds of the
Offering.

The Board of Directors of the Company, in reliance upon the advice of
counsel to the Company, believes that the distributions of the stock of the
MorTem Corporations, AOAC, SU and MTTFS (the "Distributed Subsidiaries")
described in steps (i) and (ii) above (the "Distributions") should qualify as
tax-free under section 355 of the Code. In general, if the Distributions so
qualify as tax-free under section 355 of the Code, (i) the Company will not be
taxed on any unrealized appreciation on the value of the stock of the
Distributed Subsidiaries, and (ii) the shareholders receiving such Distributions
will not be taxed on the value of the stock received.

The Board of Directors of the Company received an opinion of Jones, Day,
Reavis & Pogue, counsel to the Company, to the effect that for federal income
tax purposes the Distributions should qualify as tax-free under section 355 of
the Code. Such opinion of counsel was based upon and subject to certain
assumptions, facts and representations provided by the Company and certain of
the Company's shareholders. The Company is not aware of any present facts or
circumstances which should make such assumptions, facts, representations and
advice unobtainable or untrue. However, certain future events not within the
control of the Company, including, for example, certain dispositions of stock of
the Company or the Distributed Subsidiaries or certain dispositions of assets or
dividends from the Distributed Subsidiaries after the Distributions, could
provide a basis for the IRS to argue that the assumptions, facts, and
representations relied upon by counsel are untrue and that the Distributions do
not qualify as tax-free. Pursuant to written agreements entered into in
connection with the Distributions (the "Distribution Agreements"), the
corporations whose stock was distributed in the Distributions and the
shareholders receiving the Distributions have agreed not to take those actions
which the Company, on the advice of counsel, has determined could provide the
basis for an IRS challenge to the tax-free status of the Distributions.

The opinion of counsel received by the Board of Directors of the Company
has no binding effect on the IRS and there can be no assurance that the IRS will
agree with the opinion. A ruling has not been sought from the IRS with respect
to the federal income tax consequences of the Reorganization, and it is possible
that the IRS may take the position that some or all of the Distributions do not
qualify as tax-free, whether or not the assumptions, facts, representations and
advice referred to above are received and are true at the time of the
Reorganization, and such position may ultimately be upheld. If a Distribution
were not to qualify for tax-free treatment under section 355 of the Code, the
Company would recognize taxable gain on the Distribution equal to the difference
on such date between (i) the fair market value of the distributed stock and (ii)
the Company's adjusted basis in such stock. Based on its estimate of the fair
market value of the Distributed Subsidiaries, the Company believes that, if the
Distributions fail to qualify for tax-free treatment, any taxable gain would not
exceed approximately $20 million. The tax resulting from the realization of such
gain could

15
<PAGE> 17

have a materially adverse effect on the Company's business, financial condition
or results of operations. Further, no assurance can be given that the IRS could
not successfully contend that the fair market value of the distributed stock,
and thus the amount of the recognized gain, exceeded that estimated by the
Company.

The foregoing summary of the anticipated principal federal income tax
consequences of the Reorganization under current law is for general information
only and does not purport to cover all federal income tax consequences or any
tax consequences that may arise under the tax laws of other jurisdictions. The
Company has not requested, and its counsel will not be rendering, any opinion
with respect to the tax consequences of the Reorganization under the laws of any
state, local or foreign government.

16
<PAGE> 18

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at June 30, 1996, as adjusted to reflect the transactions consummated in
connection with the Reorganization (see "Recent Reorganization") and as further
adjusted to reflect the sale of the 11,000,000 shares of Class A Common Stock
offered hereby and the application of the net proceeds therefrom as described
under "Use of Proceeds," assuming a public offering price of $14 per share for
the Class A Common Stock and no exercise of the Underwriters' over-allotment
option. This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the Notes thereto, included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------------------
AS ADJUSTED AS FURTHER ADJUSTED
ACTUAL FOR THE REORGANIZATION FOR THE OFFERING
------- ---------------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable.................................. $12,425 $ 26,396(2) $ 1,525(7)
Notes payable to shareholder and affiliates.... 513 50,513(3) 44(3)
------- -------- --------
Total notes payable.................. 12,938 76,909 1,569
------- -------- --------
Stockholders' equity (deficit):(1)
Preferred Stock, par value $.01 per share,
25,000,000 shares authorized:
Series B Convertible Preferred Stock;
510.167 shares issued and
outstanding; no shares issued and
outstanding, as adjusted and as
further adjusted..................... -- -- --
Class A Common Stock, par value $.01 per
share, 100,000,000 shares authorized; no
shares issued and outstanding and as
adjusted; 11,000,000 shares issued and
outstanding, as further adjusted.......... -- -- 110(8)
Class B Common Stock, par value $.01 per
share, 100,000,000 shares authorized;
11,884,647 shares issued and outstanding;
17,400,000 shares issued and outstanding,
as adjusted and as further adjusted....... 119 174(4) 174
Additional paid-in capital..................... 2,389 --(5) 142,010(8)
Retained earnings (deficit).................... 33,618 (28,019)(6) (28,019)
Unrealized gain on available-for-sale
securities, net of taxes.................. 316 316 316
------- -------- --------
Total stockholders' equity (deficit).... 36,442 (27,529) 114,591
------- -------- --------
Total capitalization................. $49,380 $ 49,380 $116,160
======= ======== ========
</TABLE>

- ---------------

(1) Reflects a 3,603.63-for-one common stock split, the reclassification of the
Company's then existing common stock to Class B Common Stock, the
authorization of the Class A Common Stock, a change in the par value of the
Preferred Stock from $1.00 per share to $.01 per share, and an increase in
the number of authorized shares of Class A Common Stock, Class B Common
Stock and Preferred Stock to 100,000,000 shares, 100,000,000 shares and
25,000,000 shares, respectively, effected by an amendment to the Company's
Articles on August 8, 1996.

(footnotes continued on following page)

17
<PAGE> 19

<TABLE>
<S> <C>
(2) Notes payable prior to Reorganization............................... $ 12,425
Note payable to former shareholder.................................. 8,000
Note payable to former subsidiary................................... 5,971
--------
Notes payable after Reorganization.................................. $ 26,396
========
(3) Notes to affiliates prior to Reorganization......................... $ 513
Note issued to AOAC................................................. 50,000
--------
Notes to affiliates after Reorganization............................ 50,513
Payment of AOAC note................................................ (50,000)
Payment of amounts owed to former subsidiary........................ (469)
--------
Notes to affiliates after Offering.................................. $ 44
========
(4) Class B Common Stock prior to conversion of Series B Convertible 8%
Preferred Stock.................................................... $ 119
Conversion of Series B Convertible 8% Preferred Stock subsequent to
June 30, 1996...................................................... 55
--------
Class B Common Stock prior to Reorganization........................ $ 174
========
(5) Additional paid-in-capital prior to Reorganization.................. $ 2,389
Conversion of Series B Convertible 8% Preferred Stock subsequent to
June 30, 1996...................................................... (55)
Distributions to former shareholder and affiliates (see note 6)..... (2,334)
--------
Additional paid-in capital after Reorganization..................... $ --
========
(6) Total distributions in connection with Reorganization............... $(63,971)
Less amount paid from additional paid-in-capital (see note 5)....... 2,334
--------
Distributions to come from retained earnings........................ (61,637)
Retained earnings prior to Reorganization........................... 33,618
--------
Deficit earnings from Reorganization................................ $(28,019)
========
(7) Post-Reorganization notes payable................................... $ 26,396
Banc One Capital Partners II, Ltd................................... (10,000)
Hammerman & Gainer noteholders...................................... (900)
Note payable to former shareholder.................................. (8,000)
Note payable to former subsidiary................................... (5,971)
--------
Notes payable after Offering........................................ $ 1,525
========
(8) Gross proceeds at $14 per share of Class A Common Stock............. $154,000
Underwriting discount............................................... (10,780)
Estimated offering expenses......................................... (1,100)
Net proceeds to Company............................................. 142,120
--------
Par value of Class A Common Stock................................... (110)
Additional paid-in-capital after Offering........................... $142,010
========
</TABLE>

18
<PAGE> 20

DILUTION

At June 30, 1996, the pro forma net tangible book value of the Company was
a deficit of $27.5 million, or $(1.58) per share of Common Stock. Pro forma net
tangible book value is determined by deducting from net tangible book value
amounts to be paid in connection with the Reorganization from the proceeds of
the Offering. Pro forma net tangible book value per share is determined by
dividing the Company's pro forma net tangible book value (total tangible assets
less total liabilities) by the total number of shares of Common Stock
outstanding, giving effect to the conversion of all outstanding shares of the
Company's Series B Cumulative Preferred Stock and the 3,603.63-for-one stock
split both of which occurred subsequent to June 30, 1996. After giving effect to
the sale of the 11,000,000 shares of Class A Common Stock offered hereby at an
assumed public offering price of $14 per share and after deducting the estimated
underwriting discounts and commissions and Offering expenses, the adjusted net
tangible book value at June 30, 1996 would have been approximately $114.6
million, or $4.03 per share of the Company's Common Stock. This amount
represents an immediate increase in net tangible book value of $5.61 per share
to the existing shareholders and an immediate dilution in net tangible book
value of $9.97 per share to new investors purchasing shares of Class A Common
Stock in the Offering. The following table illustrates this dilution on a per
share basis:

<TABLE>
<S> <C> <C>
Assumed public offering price per share of Class A Common Stock.... $14.00
Pro forma net tangible book value per share of Common Stock
before the Offering(1)........................................ $(1.58)
Increase per share of Common Stock attributable to new
investors..................................................... 5.61
------
Net tangible book value per share of Common Stock after the
Offering......................................................... 4.03
------
Dilution in net tangible book value per share of Class A Common
Stock to new investors........................................... $ 9.97
======
</TABLE>

- ---------------

(1) Adjusted to give effect to the Reorganization.

The following table compares the number of shares of Common Stock acquired
from the Company, the total consideration paid and the average consideration per
share of Common Stock paid by (i) existing shareholders and (ii) new investors
purchasing shares of Class A Common Stock in the Offering, based upon an assumed
public offering price of $14 per share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 17,400,000 61.3% $ 1,481,000 1.0% $ 0.09
New investors............... 11,000,000 38.7 154,000,000 99.0 $ 14.00
---------- ----- ------------ -----
Total............. 28,400,000 100.0% $155,481,000 100.0%
========== ===== ============ =====
</TABLE>

The foregoing information assumes (i) no exercise of the Underwriters'
over-allotment option and (ii) no exercise of outstanding stock options to
purchase 600,000 shares of Class A Common Stock granted pursuant to the Stock
Incentive Plan. Such stock options have an exercise price of $12.00 per share.
To the extent that these stock options are exercised, there would be further
dilution per share to new investors. See "Management -- Stock Incentive Plan."

19
<PAGE> 21

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data of the
Company as of and for each of the five fiscal years ended December 31, 1995, and
as of and for the six months ended June 30, 1995 and 1996. The statements of
income and balance sheet data for each of the three fiscal years ended December
31, 1995 have been derived from the Company's consolidated financial statements,
which were audited by Ernst & Young LLP, independent certified public
accountants. The statements of income and balance sheet data for the years ended
December 31, 1991 and 1992 and for the six months ended June 30, 1995 and 1996
are unaudited, but include, in the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of such data. The results for the six months ended June 30, 1996
are not necessarily indicative of the results expected for the entire year. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's Consolidated Financial Statements and the Notes thereto and other
financial information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Premiums earned............................... $17,599 $28,640 $35,902 $40,461 $58,167 $23,134 $30,678
Service fee income............................ 578 800 987 2,468 4,110 1,446 3,605
Investment income............................. 1,745 1,818 2,146 2,484 4,519 1,842 2,743
Fees and other from affiliates................ 371 1,985 2,154 1,732 1,854 1,004 1,125
------- ------- ------- ------- ------- ------- -------
Total revenues.......................... 20,293 33,243 41,189 47,145 68,650 27,426 38,151
Expenses:
Claims and claim settlement expenses.......... 12,136 17,622 20,262 25,250 32,924 13,545 18,356
Commission and other underwriting expenses.... 4,577 5,561 7,555 8,507 13,524 6,101 8,377
General and administrative.................... 570 1,910 2,798 4,406 6,810 2,157 4,093
Interest...................................... 442 642 850 726 845 420 632
Depreciation and amortization................. 4 93 240 703 1,006 364 758
------- ------- ------- ------- ------- ------- -------
Total expenses.......................... 17,729 25,828 31,705 39,592 55,109 22,587 32,216
------- ------- ------- ------- ------- ------- -------
Income before federal income taxes.............. 2,564 7,415 9,484 7,553 13,541 4,839 5,935
Federal income taxes............................ 778 2,375 2,768 2,414 5,234 1,430 1,683
------- ------- ------- ------- ------- ------- -------
Net income before cumulative effect of change in
accounting.................................... 1,786 5,040 6,716 5,139 8,307 3,409 4,252
Cumulative effect of change in accounting for
income taxes.................................. 334 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income.............................. $ 2,120 $ 5,040 $ 6,716 $ 5,139 $ 8,307 $ 3,409 $ 4,252
======= ======= ======= ======= ======= ======= =======
Pro forma net income per share.......... $ 0.38 $ 0.19
======= =======
Pro forma weighted average shares outstanding... 22,061 22,061
Loss Ratio...................................... 69.0% 61.5% 56.4% 62.4% 56.6% 58.6% 59.8%
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and investments................................... $24,910 $35,249 $45,293 $56,260 $ 81,693 $ 90,582
Total assets........................................... 35,402 53,178 71,972 88,091 120,440 133,905
Reserves for claims and claim settlement expenses...... 19,884 26,038 34,421 40,939 55,427 62,345
Notes payable.......................................... 0 2,787 3,288 7,479 8,232 12,425
Stockholders' equity................................... 4,289 9,260 17,397 22,476 32,138 36,442
</TABLE>

20
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company provides managed care workers' compensation products and
services designed to lower the overall costs to its employer-clients of
providing workers' compensation benefits to their employees. Since it began
operations in 1986, the Company has focused on providing its managed results
services to employers whose employees are engaged in hazardous occupations,
primarily in the logging industry. Beginning in 1994, the Company began
expanding its client base by targeting employers in other hazardous occupation
industries, including general contracting, trucking, and oil and gas
exploration.

In the southeastern United States, where the Company's existing logging
clients are concentrated, trees are harvested primarily for pulp and paper
products, for both domestic use and for export. The Company believes that demand
for these paper products produces a more stable market for the timber generally
produced in this region of the country as compared to regions that harvest trees
to supply lumber for the construction industry. Although supply and demand
imbalances have occurred from time to time, the Company believes that the market
for these paper products, and as a result the demand for its workers'
compensation products and services, has experienced modest growth over the past
three years. Because the Company expects continued demand for these paper
products, and because reforestation coupled with a relatively short growth cycle
for timber in this region make raw materials readily available, the Company
believes that the market for its workers' compensation services directed at the
logging industry will continue to experience growth over the foreseeable future.

The Company's revenues consist primarily of premiums earned from workers'
compensation coverage, service fee income and investment income. Premiums earned
during a period are the direct premiums earned by the Company on in-force
policies, net of premiums ceded to reinsurers. Premiums earned primarily
represent workers' compensation products, although the Company has historically
provided other insurance products, including general liability and automobile
coverage. Service fee income represents fees the Company earns for providing
claims management and other services to self-insured businesses, other insurance
companies, trade associations and governmental entities. Net investment income
represents net earnings on the Company's investment portfolio, less investment
expenses. Fees and other from affiliates represent various administrative and
management services provided to affiliates for a fee.

The Company's expenses consist primarily of claims and claim settlement
expenses, commissions and other underwriting expenses and general and
administrative expenses. Claims and claim settlement expenses include (i)
payments and reserves for current and future medical care and rehabilitation
costs, (ii) indemnity payments for lost wages and third-party claim settlement
expenses such as independent medical examinations, surveillance costs and legal
expenses, and (iii) staff and related expenses incurred to administer and settle
claims. Certain claims and claim settlement expenses paid are offset by
estimated recoveries from reinsurers under specific excess of loss reinsurance
agreements. Commissions and other underwriting expenses consist of agencies'
commissions, state premium taxes, fees and other expenses directly related to
the production of premiums. General and administrative expenses include the
costs of providing executive, administrative and support services.

21
<PAGE> 23

The following table identifies the markets in which the Company's premiums
were earned and the percentage of the gross premiums earned in those markets to
total gross premiums earned for the periods indicated.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- ---------------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums earned:
Workers' compensation:
Logging related............. $39,026 89% $38,482 80% $39,828 60% $17,791 63% $16,466 48%
Other industries............ 297 1 2,332 5 21,381 32 7,270 26 15,942 46
Other insurance products...... 4,672 10 7,448 15 5,623 8 3,264 11 2,126 6
------- --- ------- --- ------- --- ------- --- ------- ---
Gross premiums earned......... 43,995 100% 48,262 100% 66,832 100% 28,325 100% 34,534 100%
=== === === === ===
Ceded reinsurance............. (8,093) (7,801) (8,665) (5,191) (3,856)
------- ------- ------- ------- -------
Total premiums earned, net...... $35,902 $40,461 $58,167 $23,134 $30,678
======= ======= ======= ======= =======
</TABLE>

The decrease in gross premiums earned from the Company's logging clients in
1994 and the first six months of 1996 compared to the prior periods is
attributable primarily to supply and demand imbalances for wood products during
those periods. Inclement weather in certain of the Company's markets was also a
contributing factor for the decrease in the first six months of 1996. See "Risk
Factors -- Concentration in Logging Industry." Since 1994, the Company has
become less dependent on logging clients as a source of its earned premiums. As
shown in the table above, for the six months ended June 30, 1996, Other
Industries accounted for approximately 46% of the Company's gross premiums
earned. For this period, the principal industries in which the Company's Other
Industries clients were engaged were construction (12%), transportation (11%),
manufacturing (9%) and oil and gas/mining (3%). See "Business -- Strategy."

The following table sets forth, on a statutory accounting basis, the loss
ratio, expense ratio, dividend ratio and combined ratio for the Company for each
of the last three years and the workers' compensation industry for 1993 and
1994.

<TABLE>
<CAPTION>
LOSS RATIO EXPENSE RATIO DIVIDEND RATIO COMBINED RATIO(1)
------------------------ --------------------- ----------------------- ---------------------
COMPANY(2) INDUSTRY(3) COMPANY INDUSTRY(3) COMPANY INDUSTRY(3) COMPANY INDUSTRY(3)
---------- ----------- ------- ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993......... 57.8% 84.0% 25.0% 20.4% 0.0%(4) 4.7% 82.9% 109.1%
1994......... 63.7 73.4 25.0 21.7 0.3 6.3 88.9 101.4%
1995......... 57.6 N/A 27.3 N/A 0.2 N/A 85.1 N/A
</TABLE>

- ---------------

(1) A combined ratio in excess of 100 indicates that the sum of claims and claim
settlement expenses, underwriting expenses and policyholder dividends
exceeded the net premium earned.

(2) The Company's Loss Ratios shown in the tables under the captions "Prospectus
Summary -- Summary Consolidated Financial Information" and "Selected
Consolidated Financial Data" were derived from the Company's financial
statements prepared on the basis of generally accepted accounting principles
and, as a result, differ from the Loss Ratios shown in the table above.

(3) Source: A.M. Best Industry data not available for 1995. The industry ratios
are computed by A.M. Best from publicly available statutory statements filed
by insurance carriers with regulatory authorities.

(4) Less than 0.1%.

22
<PAGE> 24

RESULTS OF OPERATIONS

The following table sets forth income statement information expressed as a
percentage of total revenues for the periods indicated.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- ----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums earned.............................. 87.2% 85.8% 84.7% 84.4% 80.4%
Service fee income........................... 2.4 5.2 6.0 5.3 9.4
Investment income............................ 5.2 5.3 6.6 6.7 7.2
Fees and other from affiliates............... 5.2 3.7 2.7 3.6 3.0
----- ----- ----- ----- -----
Total revenues................................. 100.0 100.0 100.0 100.0 100.0
Expenses:
Claims and claim settlement expenses......... 49.2 53.6 48.0 49.4 48.1
Commissions and other underwriting
expenses.................................. 18.3 18.0 19.7 22.3 21.9
General and administrative................... 6.8 9.4 9.9 7.9 10.7
Interest..................................... 2.1 1.5 1.2 1.5 1.7
Depreciation and amortization................ 0.6 1.5 1.5 1.3 2.0
----- ----- ----- ----- -----
Total expenses................................. 77.0 84.0 80.3 82.4 84.4
----- ----- ----- ----- -----
Income before federal income taxes............. 23.0 16.0 19.7 17.6 15.6
Federal income taxes........................... 6.7 5.1 7.6 5.2 4.4
----- ----- ----- ----- -----
Net income..................................... 16.3% 10.9% 12.1% 12.4% 11.2%
===== ===== ===== ===== =====
</TABLE>

Six Months Ended June 30, 1996 Compared To Six Months Ended June 30, 1995

Total Revenue. Total revenue increased from $27.4 million for the six
months ended June 30, 1995 to $38.2 million for the six months ended June 30,
1996, an increase of approximately 39.4%. Net premiums earned increased from
$23.1 million for the six months ended June 30, 1995 to $30.7 million for the
six months ended June 30, 1996. This $7.6 million increase was due to an
increase of $8.2 million in net workers' compensation premiums earned from other
industries, partially offset by a decrease of $769,000 in net premiums earned
from other insurance products, primarily automobile coverage. The Company
discontinued writing automobile policies effective September 30, 1996. Service
fee income increased approximately $2.2 million in the 1996 period compared to
the 1995 period. This increase was primarily due to the acquisition of Hammerman
& Gainer, Inc. ("H&G") on September 1, 1995, which contributed $2.0 million to
service fee income in the six months ended June 30, 1996. Investment income
increased by approximately $901,000 in the 1996 period compared to the 1995
period, primarily due to an increase in invested assets from $66.2 million at
June 30, 1995 to $90.6 million at June 30, 1996. Fees and other from affiliates
remained essentially unchanged.

Claims and Claim Settlement Expenses. Claims and claim settlement expenses
increased from $13.5 million for the six months ended June 30, 1995 to $18.4
million for the six months ended June 30, 1996, an increase of approximately
36.3%. This increase was commensurate with the increase in premiums earned. The
loss ratios for these six month periods were higher than the loss ratio for the
year ended December 31, 1995 due to seasonality. Claims are more frequently
incurred in the first six months of the year as a result of lower activity in
the logging industry during which period workers have historically reported
claims more frequently. See "-- Seasonality."

Commissions and Other Underwriting Expenses. Commissions and other
underwriting expenses increased from $6.1 million for the six months ended June
30, 1995 to $8.4 million for the six months ended June 30, 1996, an increase of
approximately 37.7%. This increase is commensurate with the increase in premiums
earned. Commissions and other underwriting expenses as a percentage of premiums
earned were 26.4% and 27.3% for the 1995 and 1996 periods, respectively.

Other Expenses. General and administrative expenses increased from $2.2
million for the six months ended June 30, 1995 to $4.1 million for the six
months ended June 30, 1996, an increase of 86.4%. This increase was primarily
due to the acquisition of H&G on September 1, 1995 which added approximately

23
<PAGE> 25

$1.8 million in the six months ended June 30, 1996. Depreciation and
amortization increased by approximately $394,000 in the 1996 period compared to
the 1995 period due to an increase in depreciable assets, primarily furniture,
equipment and automobiles. Interest expense increased by approximately $212,000
in the 1996 period compared to the 1995 period due to increases in both total
borrowings and the weighted average cost of funds.

Federal Income Taxes. Federal income taxes increased from $1.4 million for
the six months ended June 30, 1995 to $1.7 million for the six months ended June
30, 1996, an increase of 21.4%. This increase is commensurate with the increase
in income before federal income taxes. The effective federal income tax rate was
29.6% and 28.4% for the 1995 and 1996 periods, respectively.

Year Ended December 31, 1995 Compared To Year Ended December 31, 1994

Total Revenue. Total revenue increased from $47.1 million for the year
ended December 31, 1994 to $68.7 million for the year ended December 31, 1995,
an increase of approximately 45.9%. Net premiums earned increased from $40.5
million for the year ended December 31, 1994 to $58.2 million for the year ended
December 31, 1995. This increase of $17.7 million was due to an increase of
$16.7 million in net workers' compensation premiums earned from other industries
and a $2.7 million increase in net logging-related workers' compensation
premiums, partially offset by a decrease of $1.7 million in net premiums earned
from other insurance products, primarily automobile coverage. Service fee income
increased approximately $1.6 million from 1994 to 1995 primarily as a result of
the acquisition of H&G on September 1, 1995. Investment income increased
approximately $2.0 million, or 81.9%, in 1995 as a result of an increase in
invested assets. Invested assets, including cash, increased by approximately
$25.4 million in the 1995 period compared to the 1994 period.

Claims and Claim Settlement Expenses. Claims and claim settlement expenses
increased from $25.3 million for the year ended December 31, 1994 to $32.9
million for the year ended December 31, 1995, an increase of approximately
30.0%. However, the loss ratio (i.e., the ratio of claims and claim settlement
expenses to premiums earned) decreased from 62.4% in 1994 to 56.6% in 1995. The
improvement in the loss ratio resulted primarily from settling claims related to
losses from prior periods for amounts less than originally estimated.

Commissions and Other Underwriting Expenses. Commissions and other
underwriting expenses increased from $8.5 million for the year ended December
31, 1994 to $13.5 million for the year ended December 31, 1995, an increase of
approximately 58.8%, primarily due to increases in premiums earned. Commissions
and other underwriting expenses as a percentage of insurance premiums earned
increased from 21.0% in 1994 to 23.3% in 1995 as the result of the Company's use
of independent agents to produce workers' compensation premiums in industries
outside the logging industry.

Other Expenses. General and administrative expenses increased from $4.4
million for the year ended December 31, 1994 to $6.8 million for the year ended
December 31, 1995, an increase of approximately 54.5%. This increase was
primarily due to the acquisition of H&G on September 1, 1995 (which added
approximately $1.1 million in 1995) and the build-up of staff and facilities.
Depreciation and amortization increased by approximately $303,000 in the 1995
period compared to the 1994 period due to an increase in depreciable assets,
primarily furniture, equipment and automobiles. Interest expense increased
$119,000, or 16.4%, during 1995 due to increases in both total borrowings and
the weighted average cost of funds.

Federal Income Taxes. Federal income taxes increased from $2.4 million for
the year ended December 31, 1994 to $5.2 million for the year ended December 31,
1995, an increase of approximately 116.7%. This increase is primarily
attributable to the increase in income before federal income taxes of 79.3% from
the 1994 period to the 1995 period. The remainder of the increase is due to the
Company's establishment in the third quarter of 1995 of a $700,000 provision for
interest (net of applicable tax benefit) on the payment of taxes which may be
required to resolve matters raised in an examination of the Company's 1992
consolidated tax return by the Internal Revenue Service. See Note 4 of the Notes
to the Consolidated Financial Statements. This provision increased the effective
federal income tax rate to the Company from 33.5% to 38.7% for the year ended
December 31, 1995. The effective income tax rate without regard to the provision
for interest is comparable to the effective federal income tax rates for 1993
and 1994.

24
<PAGE> 26

Year Ended December 31, 1994 Compared To Year Ended December 31, 1993

Total Revenue. Total revenue increased from $41.2 million for the year
ended December 31, 1993 to $47.1 million for the year ended December 31, 1994,
an increase of approximately 14.3%. Net premiums earned increased from $35.9
million for the year ended December 31, 1993 to $40.5 million for the year ended
December 31, 1994. This increase of $4.6 million was primarily attributable to
an increase in net premiums earned on other insurance products, primarily
automobile coverage of $2.8 million and an increase in net workers' compensation
premiums earned from other industries of $1.5 million. Service fee income
increased approximately $1.5 million in the 1994 period compared to the 1993
period, primarily from expansion of the range of services offered to include
claim settlement services. Fees and other from affiliates decreased from $2.2
million to $1.7 million or as a percentage of revenue from 5.2% in 1993 to 3.7%
in 1994.

Claims and Claim Settlement Expenses. Claims and claim settlement expenses
increased from $20.3 million for the year ended December 31, 1993 to $25.3
million for the year ended December 31, 1994, an increase of approximately
24.6%. This increase was greater than the 12.7% increase in net premiums earned,
primarily due to losses outside the Company's core workers' compensation
products. Losses from automobile coverage increased $3.4 million, from $1.2
million to $4.6 million, on increased premiums earned of $1.9 million to $5.0
million for the 1993 and 1994 periods, respectively.

Commissions and Other Underwriting Expenses. Commissions and other
underwriting expenses increased from $7.6 million for the year ended December
31, 1993 to $8.5 million for the year ended December 31, 1994, an increase of
approximately 11.8%. The increase in commissions and other underwriting expenses
was commensurate with the increase in premiums earned. Commissions and other
underwriting expenses as a percentage of premiums earned was 21.0% for each of
the years ended December 31, 1993 and 1994.

Other Expenses. General and administrative expenses increased from $2.8
million for the year ended December 31, 1993 to $4.4 million for the year ended
December 31, 1994, an increase of approximately 57.1%. This was primarily due to
the expansion of the range of services offered to include claim settlement
services. Depreciation and amortization increased by approximately $463,000 in
the 1994 period compared to the 1993 period due to an increase in depreciable
assets, primarily furniture, equipment and automobiles. Interest expense
decreased $124,000, or 14.6%, during 1994 because the Company refinanced its
debt at a lower average interest rate.

Federal Income Taxes. Federal income taxes decreased from $2.8 million for
the year ended December 31, 1993 to $2.4 million for the year ended December 31,
1994, a decrease of approximately 14.3%. This decrease was commensurate with the
decrease in income before federal income taxes. The effective federal income tax
rate was 29.2% and 32.0% for the 1993 and 1994 periods, respectively.

RESERVES FOR CLAIMS AND CLAIM SETTLEMENT EXPENSE

The Company's consolidated financial statements include estimated reserves
for unpaid claims and claim settlement expenses. The reserves for these expenses
are estimated using individual case-basis valuations and statistical analyses
and represent estimates of the ultimate gross and net costs of all unpaid claims
and claim settlement expenses incurred through the balance sheet date of each
period presented. Those estimates are subject to the effects of trends in claim
severity and frequency. The Company's estimates are continually reviewed and, as
experience develops and new information becomes known, the reserves are adjusted
as necessary. Adjustments, including increases and decreases, are included in
current operations net of reinsurance, and in the estimate of reserves for
insured events of prior periods.

25
<PAGE> 27

The following table shows changes in historical claims and claim settlement
expense reserves, net of reinsurance recoverables, for the Company from 1986
through 1995. The top line of the table indicates the estimated reserves for
unpaid claims and claim settlement expenses recorded at each year end date. Each
amount in the top line represents the estimated amount of claims and claim
settlement expenses for the claims incurred in that year as well as future
payments on claims occurring in prior years. The upper portion (net reserve
re-estimated) shows the year-by-year development of the previously recorded
reserves based on experience as of the end of each succeeding year. The
estimates change as more information becomes known about the actual claims on
which the initial reserves were carried. Any adjustments to the carrying value
of unpaid claims for a prior year will also be reflected in the adjustments for
each subsequent year. For example, an adjustment in 1995 for 1993 loss reserves
will be reflected in the re-estimated net reserve for 1993 and 1994. The net
cumulative redundancy (deficiency) line represents the cumulative changes in
estimates since the initial reserves were established. It is equal to the
difference between the initial reserve and the latest re-estimated net reserve
amount. The lower portion of the table (cumulative amount of reserve paid)
presents the amounts paid as of the end of subsequent years on those claims for
which reserves were carried as of the end of each specific year.

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------------------
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve for Unpaid Claims and
Claim Settlement Expenses, Net
of Reinsurance Recoverables... $1,387 $ 4,491 $ 7,262 $10,318 $12,872 $14,741 $19,772 $24,882 $31,242 $43,304
Net Reserve Re-estimated as of:
One Year Later................ 1,423 4,738 7,534 10,010 11,273 13,568 17,861 23,495 28,092
Two Years Later............... 1,363 4,915 7,961 9,712 11,844 13,820 16,984 21,805
Three Years Later............. 1,400 5,156 8,035 9,815 12,228 12,606 14,928
Four Years Later.............. 1,392 5,238 8,439 9,648 12,011 12,410
Five Years Later.............. 1,390 5,630 8,307 9,477 11,817
Six Years Later............... 1,389 5,609 8,403 9,453
Seven Years Later............. 1,388 5,616 8,365
Eight Years Later............. 1,387 5,521
Nine Years Later.............. 1,357
Net Cumulative Redundancy
(Deficiency).................. $ 30 $(1,030) $(1,103) $ 865 $ 1,055 $ 2,331 $ 4,844 $ 3,077 $ 3,150
Cumulative Amount of Reserve
Paid, Net of Reinsurance
Recoveries, Through:
One Year Later.............. $ 677 $ 2,927 $ 3,879 $ 5,664 $ 5,857 $ 6,961 $ 7,757 $11,095 $10,643
Two Years Later............. 1,142 3,481 6,308 7,760 9,234 9,833 11,290 14,729
Three Years Later........... 1,369 4,665 7,185 8,668 10,256 11,033 12,502
Four Years Later............ 1,390 4,989 7,726 8,889 10,919 11,570
Five Years Later............ 1,390 5,282 7,916 9,119 11,239
Six Years Later............. 1,389 5,395 8,078 9,201
Seven Years Later........... 1,388 5,432 8,147
Eight Years Later........... 1,387 5,455
Nine Years Later............ 1,357
Net Reserve at December 31...... $24,882 $31,242 $43,304
Reinsurance Recoverables........ 9,539 9,697 12,123
------- ------- -------
Gross Reserve at December 31.... $34,421 $40,939 $55,427
======= ======= =======
Net Re-estimated Reserve........ $21,805 $28,092
Re-estimated Reinsurance
Recoverables.................. 10,614 10,197
------- -------
Gross Re-estimated Reserve...... $32,419 $38,289
======= =======
Gross Cumulative Redundancy..... $ 2,002 $ 2,650
======= =======
</TABLE>

The foregoing table indicates that reserves for claims and claim settlement
expenses, net of related reinsurance recoverables, at December 31, 1989 through
1994 were decreased from their original amounts. These decreases resulted
primarily from settling claims related to losses prior to those dates for
amounts less than originally estimated. Most of the favorable development has
resulted from the Company's managed results approach and claims management
process.

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<PAGE> 28

The following table provides a reconciliation of the beginning and ending
reserve balances, net of reinsurance recoverables for 1993, 1994 and 1995:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Reserve for claims and claim settlement expenses, net
of related reinsurance recoverables, at beginning
of year............................................ $ 19,772 $ 24,882 $ 31,242
Add:
Provision for claims and claim settlement expenses
for claims occurring in the current year, net
of reinsurance.................................. 22,173 26,637 36,074
Decrease in estimated claims and claim settlement
expenses for claims occurring in prior years,
net of reinsurance.............................. (1,911) (1,387) (3,150)
-------- -------- --------
Incurred claims and claim settlement expenses
during the current year, net of reinsurance..... 20,262 25,250 32,924
Deduct claims and claim settlement expenses payments
for claims, net of reinsurance, occurring during:
Current year.................................... (7,395) (7,795) (10,219)
Prior years..................................... (7,757) (11,095) (10,643)
-------- -------- --------
(15,152) (18,890) (20,862)
-------- -------- --------
Reserve for claims and claim settlement expenses, net
of related reinsurance recoverables, at end of
year............................................... 24,882 31,242 43,304
Recoverable ceded reserves for unpaid claims and
claim settlement expenses.......................... 9,539 9,697 12,123
-------- -------- --------
Reserves for claims and claim settlement expenses.... $ 34,421 $ 40,939 $ 55,427
======== ======== ========
</TABLE>

The Company's reserves for claims and claim settlement expenses, net of
related reinsurance recoverables, at December 31, 1992, 1993 and 1994, were
decreased in 1993, 1994 and 1995, by $1,911,000, $1,387,000 and $3,150,000,
respectively, for claims that had occurred on or prior to those balance sheet
dates. The decreases were due to settling case-basis liabilities related to
claims in those periods for less than originally estimated. Most of the
favorable development has resulted from the Company's managed results approach
and claims management process. No return premiums are due as a result of
prior-year effects.

The Company continually attempts to improve its claims estimation process
by refining its ability to analyze claims development and settlement patterns,
claims payments and other information. However, there are uncertainties inherent
in the claims estimation process and claims estimates have become increasingly
subject to changes in social and legal trends that may expand the liability of
insurers, establish new liabilities and interpret contracts to provide
unanticipated coverage long after the related policies were written. In
management's judgment, information currently available has been appropriately
considered in estimating the Company's claims and claim settlement expense
reserves. However, there can be no assurance that future events will not cause
incurred claims to exceed estimated reserves. Accordingly, it may not be
appropriate to extrapolate future redundancies or deficiencies based on the
above reserve tables.

Loss reserve development without the effects of reinsurance would not be
significantly different than that presented above.

LIQUIDITY AND CAPITAL RESOURCES

The Company's operations historically have provided substantial positive
cash flow. Net cash provided by operating activities was $10.2 million, $13.0
million and $29.1 million in 1993, 1994 and 1995, respectively, and $11.1
million and $7.6 million for the six months ended June 30, 1995 and 1996,
respectively. Net cash

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<PAGE> 29

provided by operations primarily consists of premiums collected, investment
income, service fee income and reinsurance recoverable balances collected, less
claims and claim settlement expenses paid, premiums paid for reinsurance
protection and operating expenses. Generally, premiums are collected months or
years before claims are paid. Premiums are used first to pay current claims and
expenses. The balance, if any, is invested in marketable securities to generate
investment income.

Cash flow from operating activities was $29.1 million for the year ended
December 31, 1995. Cash flow from operating activities during this period was
principally affected by net income, which increased by approximately $3.2
million, and changes in reserves for claims and claim settlement expenses, which
increased by $8.0 million in 1995 compared to 1994. The increase in reserves for
claims and claim settlement expenses represents the recognition of expenses for
which cash payment has not yet been made. Cash flow from operating activities
for the six months ended June 30, 1996 was $7.6 million. The increase in
reserves in the 1996 period for claims and claim settlement expenses was
approximately $1.2 million greater than the increase in the six months ended
June 30, 1995. However, cash flow from operating activities decreased by
approximately $4.6 million in the six months ended June 30, 1996 as a result of
the payment of expenses accrued in 1995 and the prepayment of certain other
expenses.

The Company follows an investment strategy which is based on many factors,
including underwriting results and the Company's resulting tax position,
fluctuations in interest rates and regulatory requirements. The majority of the
Company's investment assets are in fixed maturity securities. The following
table shows the quality composition of the Company's investment portfolio
(percentages determined on the basis of amortized cost) by rating, as assigned
by Standard & Poor's, Inc. or Moody's Investor's Services, Inc. at June 30,
1996.

<TABLE>
<CAPTION>
S&P RATING/ PORTFOLIO
MOODY'S RATING PERCENTAGE
------------------------------------------------ ----------
<S> <C>
AAA/Aaa......................................... 90.7%
AA/Aa........................................... 6.5%
A/A............................................. 2.5%
Less than A/A................................... 0.3%
</TABLE>

The Company historically has held its investments in these securities to
maturity. Management of the Company believes substantially all of the Company's
investment assets are readily marketable. However, because of the Company's
strategy of generally holding fixed maturity securities to maturity, the Company
has classified the majority of these securities as held-to-maturity for
financial accounting purposes. See Note 1 of the Notes to Consolidated Financial
Statements. Management currently intends to classify a portion of fixed maturity
securities purchased with the proceeds from the Offering as available-for-sale.
Cash proceeds from the sales and maturities of fixed income securities in 1995
were $10.2 million compared to $12.1 million in 1994, and $4.4 million in 1993
and $9.2 million for the six months ended June 30, 1996. The Company purchased
approximately $14.6 million, $30.3 million and $30.6 million in fixed maturity
and equity securities in 1993, 1994 and 1995, respectively, and $7.8 million and
$12.6 million in fixed maturity and equity securities in the six months ended
June 30, 1995 and 1996, respectively. The purchase of securities, partially
offset by the sale or maturity of securities, was the primary factor
contributing to net use of cash in investing activities of $9.5 million, $22.2
million and $23.3 million in 1993, 1994 and 1995, respectively, and $6.4 million
and $5.9 million in the six months ended June 30, 1995 and 1996, respectively.
These net purchases were consistent with the Company's practice of investing the
balance of cash provided by operations in marketable securities to generate
investment income. See Note 2 of the Notes to Consolidated Financial Statements
for additional information regarding the Company's investment portfolio.

Aggregate invested assets, including cash, were $56.3 million and $81.7
million at December 31, 1994 and 1995, respectively, and $90.6 million at June
30, 1996. The increases were primarily due to the investment of cash provided by
operating activities.

The Company has historically relied on private debt and equity financing to
support its growth. In 1993, the Company borrowed approximately $1.1 million
from an unaffiliated bank for the purchase of an aircraft.

28
<PAGE> 30

These borrowings, and borrowings from prior years, were reduced by aggregate
cash payments of approximately $1.2 million resulting in net cash used in
financing activities of $26,000. Notes payable to shareholders and affiliates
were also reduced in 1993 by the exchange of a $1.5 million note payable to a
shareholder for shares of the Company's redeemable cumulative preferred stock.
In 1994, the Company borrowed $6.0 million from an unaffiliated bank to repay
outstanding notes payable to affiliates and non-affiliates and to repay bank
debt of $1.9 million. Additionally, approximately $2.8 million was borrowed from
an affiliate to repay outstanding notes payable to other affiliates and to
finance the acquisition of equipment and general corporate purposes. These
borrowings and repayments resulted in net cash provided by financing activities
of $2.9 million in 1994. In 1995, the Company borrowed approximately $1.5
million from an unaffiliated financial institution and approximately $528,000
from affiliates for general corporate purposes, including to purchase
automobiles for approximately $855,000. These borrowings were partially offset
by principal repayments to affiliates and non-affiliates to result in net cash
used in financing activities of $916,000 in 1995. In the first six months of
1996, the Company borrowed approximately $10.0 million from an unaffiliated
financial institution to repay outstanding debt of $6.1 million to an
unaffiliated bank and outstanding borrowings from affiliates and non-affiliates,
to purchase property and equipment and for general corporate purposes. Net cash
provided by financing activities was approximately $2.8 million in the six
months ended June 30, 1996.

The Company's principal need for capital is to fund growth of its core
managed results workers' compensation business. The Company is restricted by
statute in the amount of net premiums it can write on the basis of certain
leverage guidelines established by insurance regulators. Exceeding these factors
limits a company's ability to generate premium income. A common measurement of
leverage is the ratio of net premiums written to statutory surplus. American
Interstate's leverage factors are within the maximum factors specified by the
states in which it operates. However, private rating agencies generally have
stricter leverage standards, and management believes the Company must stay well
within these industry leverage guidelines to maintain its favorable ratings from
these agencies. Additionally, beginning in 1994, the Company was required to
calculate the Risk-Based Capital (RBC) ratio for each of its insurance
subsidiaries, which measures the adequacy of statutory capital and surplus in
relation to investment and insurance risks and other business factors. The RBC
formula is used by state insurance regulators to identify, for the purpose of
initiating regulatory action, insurance companies that potentially are
inadequately capitalized. The RBC ratio of each of the Company's insurance
subsidiaries exceeds the minimum required ratio. The National Association of
Insurance Commissioners has proposed a new Model Investment Law that, if adopted
by the State of Louisiana (American Interstate's state of domicile), may affect
the statutory carrying values of certain investments; however, the final outcome
of that proposal is not certain, nor is it possible to predict what impact the
proposal will have on the Company or whether the proposal will be adopted in the
foreseeable future. The Company intends to use a portion of the net proceeds
from the Offering to expand its insurance business into additional markets and,
if necessary, to increase the capital and surplus of its insurance subsidiaries
to remain in compliance with regulatory requirements.

The Company is a holding company and, accordingly, the primary source of
the Company's liquidity will be from dividends and management fees paid by one
of its subsidiaries, American Interstate. The Company provides management
services to American Interstate in exchange for these management fees.
Additionally, American Interstate and its insurance subsidiary are limited by
statute in their ability to pay dividends and fees to the Company. See Note 8 of
the Notes to Consolidated Financial Statements and "Risk Factors -- Holding
Company Structure." Additionally, management currently expects to invest a
portion of the Offering proceeds in marketable securities, using the income to
provide liquidity.

AMERISAFE has historically received fees from various affiliated entities
for the costs of providing certain executive, administrative and support
services to those affiliates. Fees received from affiliated entities were $2.2
million, $1.7 million and $1.9 million in 1993, 1994 and 1995, respectively, and
$1.1 million for the six months ended June 30, 1996. The Company expects to
continue to provide a certain level of these services to certain of these
affiliates and will enter into annually renewable agreements with such
affiliates. However, management expects the level of fees and other revenues
received from affiliates to decline following the Offering. See "Certain
Transactions and Relationships -- Services Agreement," and "-- Aircraft
Agreement."

29
<PAGE> 31

IMPACT OF INFLATION

Inflation can have a significant impact on the Company because premium
rates are established before the amount of claims and claim settlement expenses
is known. The Company attempts to anticipate increases in inflation when
establishing rates, subject to limitations imposed by competitive pricing.

The Company also considers inflation when estimating liabilities for claims
and claim settlement expenses, particularly for claims having a long period
between occurrence and settlement. The liabilities for claims and claim
settlement expenses are management's estimates of the ultimate net cost of the
underlying claims and expenses and are not discounted for the time value of
money. In times of high inflation, the normally higher yields on investments may
partially offset potentially higher claims and expenses.

SEASONALITY

The Company's operations are affected by general trends and business cycles
affecting the logging industry. Generally, the Company experiences higher
premium volume in the late summer and early fall when dryer weather allows the
harvesting and processing of trees and higher claims volume in the winter and
spring when inclement weather prevents the harvesting of trees and workers in
the logging industry have historically reported claims more frequently. During
periods of low activity, employees work reduced hours or are laid off. Most
states allow a worker one to two years to report a workers' compensation injury.
The Company believes that, in slow times, a worker may report an injury that
occurred earlier. This allows the worker to receive indemnity payments from his
employer's workers' compensation provider when he is not otherwise earning
wages, or is earning less than full wages, from his employer. The Company
believes that these "late reported" claims generally involve less serious
injuries and continues to believe that prompt reporting of injuries affects the
ultimate cost of claims by allowing the Company to apply its personal claims
management practices.

EFFECTS OF OFFERING AND RELATED TRANSACTIONS

The Company will receive net proceeds of approximately $142.1 million from
the Offering (approximately $163.6 million if the Underwriters' over-allotment
option is exercised in full). Approximately $75.3 million will be used for the
repayment of indebtedness, including the indebtedness incurred in connection
with the Reorganization. See "Use of Proceeds" and "Recent Reorganization."

30
<PAGE> 32

BUSINESS

OVERVIEW

Since it began operations in 1986, the Company has focused on providing its
managed results products and services to employers whose employees are engaged
in hazardous occupations, primarily the logging industry. Beginning in 1994, the
Company began expanding its client base by targeting employers in other
hazardous occupation industries, including general contracting, trucking,
manufacturing, and oil and gas exploration. The Company believes that the high
severity injuries typically suffered by employees engaged in hazardous
occupations and the resulting high cost typically incurred by employers in
providing the mandatory workers' compensation coverage for such employees
provide the greatest opportunity to lower costs by applying the Company's
managed results approach. By focusing on developing and implementing client-
specific workplace safety techniques and intensive claims management, the
Company believes that substantial cost savings can be achieved when compared to
the traditional workers' compensation approach to hazardous occupation
industries. By reducing the overall cost of providing workers' compensation
coverage to its employer-clients, the Company believes its managed results
approach permits it to price its products and services competitively.

From 1991 through 1995, the Company has increased its revenues from $20.3
million to $68.7 million, or a compound annual growth rate of 35.6%. In this
same period, the Company's annual growth rate in revenues ranged from 14.5% to
63.8%. From 1991 through 1995, the Company's net income (before cumulative
effect of accounting change) increased from $1.8 million to $8.3 million, or a
compound annual growth rate of 46.9%. In this same period, the Company's annual
growth rate in net income (before cumulative effect of accounting changes)
ranged from an increase of 182.2% to a decrease of 23.5%. For the six months
ended June 30, 1996 compared to the same period of 1995, the Company's revenues
increased from $27.4 million to $38.2 million or 39.1% and the Company's net
income increased from $3.4 million to $4.3 million or 24.7%. See "Selected
Consolidated Financial Data." There can be no assurance that these growth rates
will continue. As of June 30, 1996, the Company was licensed to provide workers'
compensation coverage and services in 25 states and the U.S. Virgin Islands and
provided its products and services to approximately 2,900 employers in 18
states, primarily in the southeastern United States. See "-- Clients." As of
that date, more than two-thirds of AMERISAFE's employer-clients were involved in
hazardous occupation industries.

INDUSTRY

Workers' compensation benefits are state-mandated and regulated programs,
which generally require employers to provide medical benefits and wage
replacement to employees injured at work, regardless of fault. In the event an
employee suffers a work-related injury, the employee's workers' compensation
coverage will pay the medical benefits associated with such injury, regardless
of whether the injured employee participates in any other health or medical
benefits program. Each individual state has a regulatory and adjudicatory system
which quantifies the level of wage replacement to be paid, determines the level
of medical care required to be provided and the cost of permanent impairment,
and provides whether the injured employee or

31
<PAGE> 33

the employer has certain options in selecting health care providers. State laws
generally require two types of benefits for injured employees: (i) medical
benefits that include expenses related to diagnosis and treatment of the injury,
as well as rehabilitation, if necessary, and (ii) indemnity payments that
consist of temporary wage replacement, permanent disability payments or death
benefits to surviving family members. Based on an industry report as well as the
Company's claims experience, the Company believes that medical benefits
presently account for approximately 40% to 50% of all workers' compensation
benefits paid, with the remainder paid for lost wages and death benefits. To
fulfill this mandated financial obligation, virtually all employers are required
either to purchase workers' compensation insurance from a private insurance
carrier, a state-sanctioned assigned risk pool or a self-insured fund (an entity
that allows employers to pool their liabilities for obtaining workers'
compensation coverage, but typically subjects each employer to joint and several
liability for the entire fund), or, if permitted by their state, to self-insure.

The cost to employers of providing workers' compensation benefits in the
United States totaled approximately $58 billion in 1994. From 1984 to 1990,
workers' compensation costs increased an average of 13.3% per year and, from
1990 to 1992, workers' compensation costs increased an average of 6.3% per year.
The substantial growth in the workers' compensation market is primarily
attributable to the increased costs of medical treatment and an increase in
workers' compensation litigation, which affects both medical benefits and
indemnity payments. The Company believes that successful containment of these
expenses depends largely upon early intervention in the claims process and
promptly enabling an injured employee to return to work. The Company also
believes that, to date, traditional insurers have focused on high premium volume
and generally maintain minimal staffing. As a result, the Company believes that
the workers' compensation industry is generally characterized by limited safety
services, inefficient claims adjustment processes and ineffective medical cost
management. While the Company's practices result in higher expenses, the Company
believes that its managed results approach results in lower overall costs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."

Employers engaged in hazardous occupation industries pay substantially
higher than average workers' compensation rates. While these rates vary
significantly across industries and from state to state and are dependent upon
the individual employer's loss history, workers' compensation costs are
typically a significant component of these hazardous occupation employers'
overall operating expenses. For example, the Company's logging clients typically
pay an amount equal to 20% to 50% of payroll to obtain workers' compensation
benefits for their employees, compared to employers of clerical workers who
generally pay an amount less than 1% of their payroll to obtain such benefits.
This cost disparity results from the substantial expenses associated with high
severity injuries occurring within hazardous occupation industries. The Company
believes that the difficulties associated with controlling catastrophic injury
costs have historically caused a number of insurance companies to withdraw from
the higher-risk market segments. As a result, the Company believes that
hazardous occupation industries offer a significant opportunity to workers'
compensation providers.

STRATEGY

The Company's strategy is to utilize its managed results approach in an
effort to prevent workplace injury, and, when an injury does occur, to arrange
for timely, high quality and cost-effective managed care, thereby lowering the
overall costs to its employer-clients of providing workers' compensation
benefits to their employees. The Company's strategy includes the following
principal elements:

- Focus on Hazardous Occupation Employers. The Company targets those
employers who, due to the nature of their businesses and the
susceptibility of their employees to serious injury, pay substantially
higher than average workers' compensation rates. Because the Company
focuses its efforts on clients in selected industries, the Company
believes that it has developed expertise in assessing not only the risks
associated with those industries, but also the operating practices of
individual employers. As a result, the Company believes it can more
accurately determine the profit opportunity of providing its managed
results services. The Company also believes that less competition exists
in providing workers' compensation services to hazardous occupation
employers because of the potential for severe injuries to their
employees and due to the fact that many hazardous occupation employers
operate in rural areas, a market not pursued by many traditional
insurers. The Company believes that its

32
<PAGE> 34

commitment to working with its client-employers to implement a program
designed to benefit both parties results in cost savings for its
client-employers and the establishment of long-term relationships with
them.

- Improve Workplace Safety. The Company believes that implementing
comprehensive safety services to reduce workplace accidents is the key
element to effect significant reductions in workers' compensation costs
for employers in hazardous occupation industries. The Company presently
employs a staff of 27 safety professionals. Many of these individuals
were previously employed in hazardous occupation industries and use
their personal experience and expertise in these industries to assist
employer-clients in designing safety and injury prevention programs and
to assist in the Company's underwriting process. In most cases, before
offering the Company's managed results products and services to a
potential new client, a Company safety professional will visit the
potential client's place of business to assess the existing safety
programs and workplace practices. In certain circumstances, the Company
will agree to provide workers' compensation products and services only
if the employer agrees to implement and maintain specific safety
recommendations. Once an employer becomes a client, the Company
continues to emphasize safety by periodic workplace visits, assisting
the client in designing and implementing enhanced safety management
programs, providing current safety-related information and conducting
rigorous post-accident management.

- Manage Care Through Personal, Direct Contact. The Company believes that
its personal, direct contact approach reduces the overall cost of
medical care, results in the injured worker returning to work more
quickly and lessens the likelihood of litigation and fraudulent claims.
The Company encourages its employer-clients to immediately notify the
Company of a workplace injury. Following notification, a claims
representative contacts the employer, the injured employee and/or the
treating physician to determine the nature and severity of the injury.
In the case of a serious injury, the employer's pre-designated claims
representative will promptly visit the injured employee or the
employee's family members to discuss the benefits provided and will
visit the treating physician to discuss the proposed treatment plan.
Although the Company's claims representative does not recommend or
otherwise direct the injured workers' treatment plan, the claims
representative acts as a facilitator to assist the injured employee in
receiving appropriate medical treatment and to encourage the use of
Company-recommended health care providers and facilities. For example, a
Company representative may suggest that a treating physician refer an
injured worker to a specific orthopedic surgeon who has treated other
injured workers of its client-employers or recommend a particular
rehabilitation facility which the Company believes has had positive
outcomes for other workers with similar injuries. The Company monitors
the number of active cases handled by a single claims representative in
order to permit the claims representative to better focus on the
services best suited for the specific injured employee. The medical
records of injured workers received by the Company are confidential and
the Company believes that it has appropriate policies and procedures in
place to maintain the confidentiality of such records.

- Direct Injured Workers to Appropriate Health Care Providers. The Company
believes that directing injured workers to appropriate health care
providers is a vital part of its workers' compensation managed care
program. The Company believes that it is able to arrange for high
quality, cost-effective health care services to injured workers due to
its experience with managing claims involving severe injuries of the
types most often suffered by its clients' employees and its
relationships with health care providers within the regional and local
markets it serves. Certain states (Arkansas, Florida, Georgia, Kentucky,
Missouri, New Mexico, Oregon and Tennessee), which collectively
accounted for approximately 36.0% and 41.8% of the Company's gross
premiums earned in 1995 and the six months ended June 30, 1996,
respectively, permit the Company or the employer to require injured
workers to utilize Company-recommended health care providers and
facilities. Even in states in which the injured employee is permitted to
choose a health care provider, the Company believes that it is generally
successful in encouraging injured workers to use Company-recommended
providers and facilities, allowing the Company to more effectively
manage health care.

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<PAGE> 35

- Pursue Growth Opportunities. The Company intends to grow internally and
through acquisitions. Internal growth is expected to result from both
greater penetration of existing markets and expansion into new markets
primarily through targeting employers in geographic areas in markets in
which it is licensed but presently conducts little or no business and
other hazardous occupation industries, primarily construction,
transportation, manufacturing and oil and gas, which industries the
Company began pursuing in 1994. Non-logging related clients accounted
for approximately 46% of the Company's gross premiums earned for the six
months ended June 30, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview." The Company
currently provides products and services in 18 states and expects to
target its expansion to additional states in which it is authorized to
provide workers' compensation products and services. The Company's
expansion plans are in the preliminary stages; however, the Company
presently intends to target its expansion efforts in the states of
Minnesota, Oklahoma, Pennsylvania, Tennessee, Texas and Wisconsin
because of, among other reasons, the existing logging industry and other
hazardous occupation industries in those states. In addition, due to the
fragmented nature of the workers' compensation market, the Company
believes that there are a significant number of smaller, traditional
workers' compensation insurers or books of indemnity business that the
Company could acquire and convert to its managed results approach. The
Company's proceeds from this Offering will provide substantial
additional capital that will allow the Company to more rapidly expand
its business. However, while there can be no assurances, the Company
plans to manage its growth in a manner intended to maintain its "A"
(Excellent) rating from A.M. Best Company, Inc. See "-- A.M. Best
Rating" below.

OPERATIONS

The Company's managed results approach employs an operating process
designed to improve workplace safety and thereby reduce work-related injuries,
and, when an injury does occur, to provide for prompt medical intervention,
integrated claims management and effective medical care management. The
Company's managed care approach directs injured workers to appropriate health
care providers and facilities. The Company is divided into multidisciplinary
geographic service teams which concentrate on providing managed workers'
compensation services and products within assigned regions of the Company's
market territory. These teams actively enlist employers, employees and health
care providers in the common goal of rapid return-to-work in as care-effective
and cost-efficient a manner as possible.

The components of the Company's managed results approach include:

Improve Workplace Safety. Preventing work-related injuries is a key element
of the Company's managed results approach. In most cases, before offering the
Company's managed results products and services to a potential new client, a
Company safety professional will visit the potential client's place of business
to assess the existing safety programs and workplace practices. Company
representatives also assess the employer's attitude toward workplace safety and
toward creating, improving and maintaining a safe work environment. The safety
professional will prepare a written report to assist the underwriter in
evaluating the risk and pricing it appropriately. In certain circumstances, the
Company will agree to provide workers' compensation products and services only
if the employer agrees to implement and maintain specific safety
recommendations.

The Company employs 27 safety professionals throughout its market
territory. Many of these individuals were previously employed in logging or
other hazardous occupation industries and use their personal experience and
expertise in these industries to better assess the safety risks associated with
a client's operations. These individuals also use their knowledge of the
specific hazards associated with these hazardous occupation industries to assist
employers in designing safety and injury prevention programs and to provide
information about the industries to assist in the Company's underwriting
process. After identifying a client's specific safety risks, the Company's
safety professionals work with the client to minimize these risks and reduce
accidents through monitoring the client's safety programs. The Company requires
each of its safety professionals to pursue professional development programs
leading to specific certifications or designations, and to participate in
Company-sponsored periodic training in the regulations and guidelines of the
Occupational Safety and Health Administration and the Department of
Transportation in order to assist the Company

34
<PAGE> 36

in assessing the adequacy of its clients' safety programs. The Company also
publishes a periodic logging-specific safety and industry newsletter titled "The
Timberleaf" which is distributed to more than 3,000 clients, potential clients,
facilitators, mill managers and paper and lumber industry executives. Company
safety professionals also participate in state forestry association sponsored
logging safety councils, write safety articles published in industry
periodicals, and work as members of the American Pulpwood Association's various
safety committees.

After accepting a client, the Company continues to emphasize workplace
safety by making periodic, and sometimes unannounced, visits to the
client-employer's workplace. All serious injuries are investigated by a Company
representative to determine whether steps can be taken to avoid similar
accidents. The Company monitors the activity of its safety professionals in
order to assure that appropriate safety services are available to each
client-employer.

Prompt Medical Intervention. Managing a claim from the earliest possible
time is critical in minimizing its ultimate cost. A 1994 industry study
indicates that claims reported between 11 and 20 days after the date of injury
cost an average of 29% more than claims reported 1 to 10 days after the date of
injury, and that the difference escalated to an average of an additional 39% if
the claim was reported between 21 and 30 days after the injury occurred. To
ensure early intervention in the claims process, the Company encourages
immediate notification from the employer of all injuries and provides the
employer with 24-hour toll-free assistance or direct contact with the Company's
designated service representative.

Promptly upon receiving notification of an injury, a claims representative
contacts the employer, the injured employee and/or the treating physician to
determine the nature and severity of the injury. The claims representative acts
as a facilitator to assure that the injured employee receives an appropriate
medical treatment plan and to encourage the use of Company-recommended health
care providers and facilities. The Company believes that this personal, direct
contact approach reduces the overall cost of medical care, results in the
injured worker returning to work more quickly and lessens the likelihood of
litigation and fraudulent claims. In cases involving a serious or complex
injury, the Company provides comprehensive field case management to address both
the ongoing medical needs of the injured employee as well as the economic and
social issues facing the employee and the employee's family. These professionals
establish ongoing communication with an injured employee, often at the initial
treatment, help coordinate care with the attending physicians and the health
care facilities, assist with paperwork and provide ongoing advice to both the
injured worker and the employee's family, with the goal of increasing
satisfaction through prompt, responsive service and a demonstrated concern for
the injured employee's well-being.

Because the Company's managed results approach emphasizes direct, personal
contact between the designated claims representative and the injured employee
and his employer, the Company monitors the number of active cases for which any
single claims representative is responsible. The average case load of a claims
representative is between 60 and 70 claims, although this number may vary based
on the severity of the injury and the type of claim involved. With a lower case
load, each claims representative can better focus on the injured employee and
access the medical, rehabilitative and social services that are best suited for
the specific individual.

The Company's claims representatives are located in the geographic area in
which their designated employer-clients are based. By locating its claims
representatives in the field, the Company derives additional benefits from the
fact that its representatives build professional relationships with local health
care providers. When expanding into a new geographic market, the Company seeks
to hire experienced claims representatives who have established professional
contacts with local health care providers and who demonstrate the attitude and
ability to enhance the Company's managed results approach.

Direct Injured Workers to Appropriate Health Care Providers. The Company
believes effective managed care depends largely upon the selection of
appropriate health care providers and ongoing review to ensure that medical care
is being delivered in a cost-effective manner. The Company seeks to select and
develop relationships with health care providers in each of the regional and
local markets in which the Company's employer-clients operate. Emphasis is
placed on implementing the most expeditious and cost-effective

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<PAGE> 37

managed care treatment programs for each employer rather than imposing a single
standardized system on all employers and their employees.

The Company has established relationships with local and regional health
care providers and facilities ranging from individual physicians to fully
integrated occupational health care networks. In certain circumstances, these
relationships are evidenced by formal contracts; in many cases the arrangements
are more informal. The Company believes that its personal approach to managed
care depends upon selecting a well-qualified, local source of medical care,
regardless of any affiliation with existing networks. When entering a market,
the Company seeks to enter into strategic relationships with local and regional
medical care providers. In selecting its medical care providers, the Company
relies, in part, on the recommendations of its claims representatives who have
developed professional relationships within their geographic areas. The Company
also seeks input from the employers and other contacts in the market in which it
intends to provide services. While cost factors are considered in selecting
health care providers, the Company considers the ability of the health care
provider to achieve a "quality outcome" -- defined as rapid, conclusive recovery
and return to sustained, full capacity employment by the injured worker -- as
the most important factor in the selection process.

Because workers' compensation coverage provides injured workers with
statutory health care and indemnity benefits, the coverage provided by the
Company does not provide for incentives for the use of its recommended health
care providers (i.e., unlike HMO or PPO programs, there are no lower deductibles
or similar cost savings to an injured worker for using the services of specific
providers). Company representatives may recommend a health care provider based
on the Company's prior experience with such provider in treating the needs
associated with a specific type of injury. Due to the Company's knowledge of the
health care providers in a geographic region, the Company believes it often has
the ability to recommend qualified providers to injured employees, who often
lack knowledge of the qualifications of health care providers in their area who
specialize in treating specific types of injuries.

The Company's claims representatives maintain primary responsibility for
managing the entire claim from occurrence through resolution and are given
significant responsibility and authority to ensure the most effective,
cost-efficient resolution of claims that will enable the employee to return to
work as promptly as practicable. Each claims representative has the authority to
retain at the Company's expense independent nurse case managers, independent
medical examiners, vocational and rehabilitation specialists or other specialty
providers of medical services necessary to achieve the quality outcome desired
by the Company. In addition to retaining independent service providers required
for a particular injured worker, the claims representative works to reinforce
the Company's managed results approach by utilizing existing arrangements that
have been established by the Company to meet the needs of employer-clients
within a particular geographic market. The Company provides its claims
representatives with cars or car allowances, personal computers, cellular
phones, facsimile machines, pagers and a full range of additional administrative
and technical support to assist them with the prompt, efficient resolution of
employee claims.

The Company generally requires pre-certification to determine the medical
necessity and appropriateness of non-acute medical treatment before it is
provided to an injured worker. The Company also conducts fee schedule and
medical bill reviews to ensure that it has been billed appropriately for the
approved services, to prevent over-utilization of medical services and to detect
variances from agreed-upon fee schedules, unbundling of charges and unnecessary
or unrelated charges. Because of the variance in regulatory schemes in the
states in which the Company provides managed care products and services, the
Company also contracts with medical bill review specialists in certain of the
markets in which it operates.

Dispute and Litigation Management. Through early intervention and its
personal claims management approach, the Company seeks to limit the number of
disputes with injured workers. The Company's primary goal is rapid, conclusive
recovery and return to sustained, full capacity employment by the injured
worker. Each claim is evaluated and acted upon by the assigned claims
representative. The personal presence of the Company's claims representative
throughout this process permits an evaluation of the injured employee's
psychological propensity to return to work, to retain counsel and litigate, or,
as an alternative, to reasonably settle any disputes with the Company without
litigation. The Company believes that the personal presence of

36
<PAGE> 38

the claims representative also enhances the Company's ability to guide the
injured employee to the appropriate conclusion in a friendly, dignified,
supportive manner and diminishes the injured employee's desire to seek larger
settlement amounts than would be the case if the Company was perceived by the
injured employee to be adversarial or hostile toward the employee's individual
situation. The Company seeks to promptly settle valid claims; however, it
aggressively defends against what it considers to be non-meritorious claims.
Litigation expenses, which are included in the Company's claims and claim
settlement expenses, accounted for less than 4.0% of such expenses in 1995 and
for the six months ended June 30, 1996. As of June 30, 1996, the Company had
closed approximately 98.6% of its pre-1995 reported claims and 88.8% of its 1995
reported claims, thereby substantially reducing the risk of future adverse
claims development.

Over the last several years, certain states have adopted regulations better
enabling workers' compensation providers to actively investigate and pursue
allegedly fraudulent claims. The Company believes that its claim
representatives' physical presence, and direct face-to-face contact with its
employer-clients and injured workers, better enables it to uncover fraudulent
claims.

PRODUCTS AND SERVICES

Workers' Compensation Managed Care Products. The Company's products and
rating plans encompass a continuum of options designed to fit the needs of its
client-employers. The most basic product, accounting for approximately 99.6% of
the Company's premiums in force at June 30, 1996, is a guaranteed cost contract,
in which the premium is set in advance and changes only based upon changes in
the client's operations or payroll. In return, the Company agrees to assume
statutorily imposed obligations of the client-employer to provide workers'
compensation benefits to its employees. The premium for these policies varies
depending upon the type of work performed by each employee and the general
business of the insured. An employer large enough to qualify, typically those
paying more than $5,000 in annual premium, will have its premium based on its
loss experience relative to its peers as determined over a three-year period.
This loss experience is adjusted by the type of business and associated risks. A
client who desires to assume a certain amount of financial risk may elect a
deductible which makes the client responsible for the first portion of any
claim. In exchange for the deductible election, the employer receives a premium
reduction. The Company also offers several loss sensitive plans (retrospective
rating plans and dividend plans) which determine the final premium paid for the
current policy period based on the insured's losses during that same period.

TPA and Claims Adjustment Services. The Company has historically provided
both independent claims adjusting services and third party administration
("TPA") services in Louisiana and Texas. These services include independent
adjusting in multiple lines of coverage. Additionally, the Company provides
third-party administration services. The Company expanded its TPA services
through the acquisition of Hammerman and Gainer, Inc. in September 1995. Current
plans involve the expansion of existing services as well as the delivery of
workers' compensation and employee benefits, third-party administration,
provider networks, medical case management, medical bill review, loss prevention
programs, occupational health programs, risk management consulting, alternative
dispute resolution and risk financing consulting. The Company presently offers
its services on a negotiated fee-for-service basis. These services are typically
rendered to self-insured businesses, other insurance companies, trade
associations and governmental entities.

Other Products. In addition to providing workers' compensation products and
services, the Company presently offers certain of its workers' compensation
clients general liability coverage. In addition, one of the Company's
subsidiaries has traditionally provided automobile liability and property
insurance coverage in two states. The Company also utilizes this subsidiary to
file alternative workers' compensation rate structures in certain states in
order to permit the Company to offer its workers' compensation products and
services to a broader range of potential clients. For the six months ended June
30, 1996, general liability and automobile coverage respectively accounted for
3.2% and 2.6% of the Company's gross premiums earned. In 1995, general liability
and automobile coverage respectively accounted for 3.7% and 4.7% of the
Company's gross premiums earned.

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<PAGE> 39

CLIENTS

Since it began operations in 1986, the Company has marketed its workers'
compensation products and services to employers whose employees are engaged in
hazardous occupations, and as a result, pay substantially higher than average
workers' compensation rates. From 1986 through 1993, substantially all of the
Company's clients were employers engaged in the logging industry. Beginning in
1994, the Company began to expand its client base by employers in other
hazardous occupation industries, such as general contracting, trucking, and oil
and gas. As a result of the Company's expansion efforts, gross premiums earned
from these other industries increased from approximately $550,000 in 1994 to
approximately $16.9 million in 1995, accounting for approximately 1.1% and 25.3%
of the Company's earned premiums in 1994 and 1995, respectively. Gross premiums
earned from these other industries for the period ended June 30, 1996 were
approximately $13.9 million, accounting for approximately 38.9% of the Company's
earned premiums.

Because the Company focuses on potential clients in selected industries, it
believes it has developed expertise in assessing not only the risks associated
with those industries, but also the operating practices of individual employers.
A substantial majority of the Company's safety professionals and claims
representatives have educational backgrounds and/or prior work experience in
safety-related fields or in the businesses in which the Company's clients
operate. The Company believes that this knowledge of its clients' businesses
provides it with the ability to better evaluate the profit opportunities of
providing its managed results services. In addition, the Company's employees
evaluate the employer's attitude toward maintaining and improving workplace
safety as well as the employer's willingness to partner with the Company in its
managed results approach to providing solutions to the employer's workers'
compensation needs.

The Company provided workers' compensation services and products to
approximately 2,900 employers as of June 30, 1996. For the six months ended June
30, 1996, approximately 6.0% of the Company's gross premiums earned were derived
from state residual market programs and clients assigned to the Company through
assigned risk pools. See "-- Regulation -- Participation in State Residual
Market Programs" below. The average client, excluding clients in assigned-risk
pools, has an average annual premium of approximately $30,000. During the year
ended December 31, 1995, the Company's ten largest clients accounted for
approximately 5.1% of its premiums in force. Approximately 90.0% of the policies
scheduled to expire in 1995 were renewed by the Company's clients, while
approximately 84.0% of the policies scheduled to expire in 1994 were renewed by
the Company's clients.

The following table identifies, for the year ended December 31, 1995 and
for the six months ended June 30, 1996, the states in which the percentage of
the Company's gross premiums earned exceeded 1.0%, for the periods presented.

<TABLE>
<CAPTION>
% OF GROSS PREMIUMS EARNED
-----------------------------------
SIX MONTHS
YEAR ENDED ENDED
STATE DECEMBER 31, 1995 JUNE 30, 1996
----------------------------------------------- ----------------- -------------
<S> <C> <C>
Georgia........................................ 16.9% 19.8%
Louisiana...................................... 29.3 19.6
Arkansas....................................... 16.5 14.9
Mississippi.................................... 9.4 13.3
Alabama........................................ 12.0 9.8
Virginia....................................... 1.3 6.3
Tennessee...................................... 1.3 3.5
Texas.......................................... 2.9 3.1
Oklahoma....................................... 3.1 3.0
Kentucky....................................... * 2.9
North Carolina................................. 2.3 2.2
Florida........................................ 1.3 *
</TABLE>

- ---------------

* Less than 1.0%

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<PAGE> 40

Additional states in which the Company is licensed to provide workers'
compensation products and services, but which do not individually account for
more than 1.0% of the Company's gross premiums earned, include Pennsylvania,
South Carolina, Missouri, New Mexico, Indiana and Maryland. As of June 30, 1996,
the Company was also licensed to provide workers' compensation products and
services in the states of Oregon, Wisconsin, Maine, South Dakota, Wyoming,
Minnesota, North Dakota and in the U.S. Virgin Islands.

SALES AND MARKETING

As of June 30, 1996, the Company's workers' compensation products and
services were sold both through 20 direct agents employed by the Company and 285
independent agents. Most of the Company's direct agents either have degrees in
forestry or have worked extensively in the forestry industry. Similar to the
Company's safety professionals and claims representatives, direct agents live in
their assigned territories throughout the United States. The Company's direct
agents receive competitive salaries, commissions and a bonus based on the
profitability to the Company of their assigned client-employers. Although most
of the Company's products and services are sold through direct agents,
independent agents are also utilized in some areas, and are selected based upon
their proven expertise in industries targeted by the Company.

For the year ended December 31, 1995 and for the six months ended June 30,
1996, independent agents, including the Company's former subsidiaries, Southern
Underwriters, Inc. and MT & Co., Inc., accounted for approximately 39.1% and
47.1%, respectively, of the Company's gross premiums earned. No independent
agent accounted for more than 5.0% of the Company's gross premiums earned in
either period. See "Recent Reorganization" and Note 9 of the Notes to
Consolidated Financial Statements. In Mississippi, the Company has a contract
with an independent general agent who, in turn, has contractual arrangements
with approximately 105 additional independent agents in that state. For the six
months ended June 30, 1996, approximately 3.0% of the Company's gross earned
premiums were generated by independent agents retained by this general agent.
Although the Company expects this contract to continue for the foreseeable
future, the loss of this general agent contract would require the Company to
enter into an arrangement with another general agent or enter into arrangements
with individual independent agents in Mississippi.

A.M. BEST RATING

The Company is currently assigned a group letter rating of "A" (Excellent)
from A.M. Best Company, Inc. ("A.M. Best"), the leading national insurance
rating agency. This rating is assigned to companies that, in the opinion of A.M.
Best, have demonstrated an excellent overall performance when compared to the
standards established by A.M. Best. The Company was awarded an "A-" rating in
1991, its first year of eligibility. The rating was raised to "A" in 1993. A.M.
Best ratings are based on a comparative analysis of the financial condition and
operating performance of insurance companies as determined by their publicly
available reports and meetings with the entities' officers. A.M. Best's ratings
are based on factors considered to be of concern to insureds and are not
directed toward the protection of investors and should not be relied upon by an
investor in making a decision to invest in the Company's Class A Common Stock.
Furthermore, A.M. Best ratings are not ratings of any of the Company's
securities nor are such ratings a warranty of the Company's current or future
ability to meet its contractual obligations. A.M. Best ratings include Secure
Ratings, which consist of Superior (A++, A+), Excellent (A, A-) and Very Good
(B++, B+). A.M. Best also provides Vulnerable Ratings, which range from Adequate
(B, B-) to In Liquidation (F). The Company believes that its current A.M. Best
rating provides it with a competitive advantage over certain competitors because
certain potential clients will not purchase coverage from unrated or lower rated
companies and certain independent insurance agencies will not place coverage
with such companies. The Company presently intends to expand its business
through internal growth and acquisitions. However, while there can be no
assurances, the Company plans to manage its growth in a manner intended to
maintain its "A" (Excellent) rating. See "-- Strategy -- Pursue Growth
Opportunities" above.

REINSURANCE

Through reinsurance, the Company is able to transfer certain of the
financial risks of severe and catastrophic injury suffered by a client's
employee. The Company's reinsurance program includes a number of

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<PAGE> 41

reinsurance carriers, all of which have A.M. Best ratings of "A-" or better. The
Company has in effect specific "excess of loss" reinsurance agreements under
which it pays its reinsurers a percentage of gross premiums earned and whereby
the reinsurers agree to assume their allocated portion of the risks relating to
claims over $200,000 on a per occurrence basis up to their limit of liability.

The Company carries multiple reinsurance agreements, each with a specific
limit of liability that, in the aggregate, provide protection for each claims
occurrence up to $50,000,000 in excess of the Company's retention of $200,000.
As a result of the Company's increased capitalization following the Offering,
the Company intends to increase its retention under these agreements upon their
renewal in July 1997. The Company historically has not encountered difficulties
collecting from its reinsurers. The Company monitors ratings of its reinsurers
and periodically consults with its reinsurer broker who also monitors the
solvency of its reinsurers.

The following table sets forth as of June 30, 1996 the names of the
Company's primary reinsurance carriers (those which provide coverage in excess
of $200,000 up to $5,000,000 per occurrence), their A.M. Best ratings, and the
amount of reinsurance premiums ceded to each for the six months ended June 30,
1996. The A.M. Best ratings of the reinsurance carriers listed represent the two
highest of nine ratings provided by A.M. Best.

<TABLE>
<CAPTION>
REINSURANCE
PREMIUMS
REINSURANCE CARRIER RATING CEDED
-------------------------------------------------------- ------ -----------
<S> <C> <C>
Reliance Insurance Company.............................. A- $ 2,344,000
Skandia America Reinsurance Corporation................. A- 1,938,000
TIG Reinsurance Corporation............................. A 1,175,000
St. Paul Fire & Marine Insurance Company................ A+ 801,000
TransAmerica Occidental Life Insurance Co............... A+ 381,000
</TABLE>

Exclusions relative to the Company's managed workers' compensation products
and services are generally limited to occupational disease exposures such as
asbestosis, silicosis, brown lung and black lung. The Company reviews each
prospective client-employer to assess the potential exposure to these types of
excluded diseases before the Company's products and services are offered.

INFORMATION TECHNOLOGY AND COMMUNICATIONS SYSTEMS

The Company uses its proprietary and other management information systems
as an integral part of its operations and makes a substantial ongoing investment
in improving its systems. The Company believes that the services it provides to
its clients and their employees are enhanced by integrating its information
systems to utilize more effectively the information it obtains in its
underwriting processes in conjunction with information regarding claims, billing
and claims management.

The Company's direct agents, safety professionals and claims
representatives are provided with laptop computers and other communication
equipment in order to more timely and efficiently complete the underwriting
process, to facilitate communication and to report and monitor claims. For
example, the Company's safety professionals have the ability to prepare survey
reports on-site and immediately assist potential clients with the design of
workplace safety programs by providing examples of safety plans implemented by
other employers in similar businesses.

COMPETITION

The market to provide managed care workers' compensation insurance and
services is highly competitive. The Company's competitors include, among others,
insurance companies, specialized provider groups, in-house benefits
administrators, state insurance pools and other significant providers of health
care and insurance services. A number of the Company's current and potential
competitors are significantly larger, with greater financial and operating
resources than those of the Company, and can offer their services nationwide.
After a period of absence from the market, traditional national insurance
companies have recently re-entered the workers' compensation insurance market,
thereby increasing competition.

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<PAGE> 42

Competitive factors in the workers' compensation insurance field include
premium rates (in some states), levels of service, A.M. Best ratings, levels of
capitalization, quality of managed care services, the ability to reduce loss
ratios and the ability to reduce claims expense. The Company believes that its
products and services are competitively priced. In addition, the Company
believes its premium rates are typically lower than those for clients assigned
to the state-sponsored risk pools, allowing the Company to provide a viable
alternative for employers in such pools. The Company also believes that its
level of service, its "A" (Excellent) A.M. Best rating and its ability to reduce
claims are strong competitive factors that have enabled it to retain existing
clients and attract new clients. Competitive factors relating to the Company's
TPA products are primarily based upon pricing, service and reputation.

REGULATION

General. Managed health care programs are subject to various laws and
regulations. Both the nature and degree of applicable government regulation vary
greatly depending upon the specific activities involved. Generally parties that
actually provide or arrange for the provision of managed care workers'
compensation programs, assume financial risk related to the provision of those
programs or undertake direct responsibility for making payment or payment
decisions for those services are subject to a number of complex regulatory
schemes that govern many aspects of their conduct and operations. The managed
health care field is a rapidly expanding and changing industry; it is possible
that the applicable regulatory frameworks will expand to have an even greater
impact upon the conduct and operation of the Company's business.

The Company's business is subject to state-by-state regulation of workers'
compensation insurance and workers' compensation insurance management services.
Under the workers' compensation system, employer insurance or self-funded
coverage is governed by individual laws in each of the fifty states and by
certain federal laws. Changes in individual state regulation of workers'
compensation or managed health care may create a greater or lesser demand for
some or all of the Company's services or may require the Company to develop new
or modified services in order to meet the needs of the marketplace and compete
effectively in that marketplace. Under Louisiana law, an insurance company may
not, without regulatory approval, pay to its shareholders within a 12-month
period dividends or other distributions of cash or property the total fair
market value of which exceeds the lesser of (i) ten percent of surplus as to
policyholders at the end of the prior calendar year or (ii) the prior calendar
year's net income (less any realized capital gains). This requirement would
limit American Interstate's ability to make distributions to AMERISAFE in 1996
to approximately $2.7 million.

Premium Rate Restrictions. State regulations governing the workers'
compensation system and insurance business in general impose restrictions and
limitations on the Company's business operations that are not imposed on
unregulated businesses. Among other matters, state laws regulate not only what
workers' compensation benefits must be paid to injured workers, but also the
premium rates that may be charged by the Company to insure employers for those
liabilities. As a consequence, the Company's ability to pay insured workers'
compensation claims out of the premium revenue generated from the Company's sale
of such insurance is dependent on the level of premium rates permitted by state
laws. In this regard it is significant that the state regulatory agency that
regulates workers' compensation benefits may not be the same agency that
regulates workers' compensation insurance premium rates.

Financial and Investment Restrictions. Insurance company operations also
are subject to financial restrictions that are not imposed on other businesses.
State laws require insurance companies to maintain minimum surplus balances and
place limits on the amount of insurance a company may write based on the amount
of the company's surplus. These limitations restrict the rate at which the
Company's insurance operations can grow. The Company currently meets applicable
state capital and surplus requirements.

State laws also require insurance companies to establish reserves for
payment of policyholder liabilities and impose restrictions on the kinds of
assets in which insurance companies may invest. These restrictions may require
the Company to invest its assets more conservatively than it would if it were
not subject to the state law restrictions and may prevent the Company from
obtaining as high a return on its assets as it might otherwise be able to
realize.

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<PAGE> 43

Insurance Regulatory Information System. The National Association of
Insurance Commissioners ("NAIC") has developed a set of financial relationships
or "tests" called the Insurance Regulatory Information System ("IRIS") that were
designed for early identification of companies that may require special
attention by insurance regulatory authorities. These tests were developed
primarily to assist state insurance departments in executing their statutory
mandate to oversee the financial condition of insurance companies. Insurance
companies submit data on an annual basis to the NAIC, which in turn analyzes the
date using ratios covering twelve categories of financial data with defined
"usual ranges" for each category.

Falling outside the usual range of IRIS ratios is not considered a failing
result; rather, unusual values are viewed as part of the regulatory early
monitoring system. Furthermore, in some years, it may not be unusual for
financially sound companies to have several ratios with results outside the
usual ranges. An insurance company may fall out of the usual range for one or
more ratios because of specific transactions that are in themselves immaterial
or eliminated at the consolidated level. Generally, an insurance company will
become subject to regulatory scrutiny if it falls outside the usual ranges of
four or more of the ratios. In the three-year period ended December 31, 1995,
American Interstate had IRIS ratios outside the usual ranges for the change in
writings ratio in 1995 and the change in surplus ratio in 1993. The change in
writings ratio was outside the usual range in 1995 due to the increase in
premiums written. The change in surplus ratio was outside the usual range in
1993 due to the Company's increase in earnings and the acquisition of Silver Oak
Casualty, Inc., which resulted in an increase in surplus.

Participation in State Guaranty Funds. Every state has established one or
more insurance guaranty funds or associations which are charged by state law to
pay claims of policyholders insured by a company that becomes insolvent. All
insurance companies must participate in the guaranty associations in the states
where they do business and are assessable for the associations' operating costs,
including the cost of paying policyholder claims against an insolvent insurer.
The Company's financial performance could be adversely affected by guaranty
association assessments as a consequence of the insolvency of other insurers
over which the Company has no control.

Participation in State Residual Market Programs. Many of the states in
which the Company is licensed, or intends to become licensed, to provide its
managed workers' compensation products and services require that all licensed
insurers participate in a program to provide workers' compensation insurance to
those employers who have not or cannot procure coverage from a carrier on a
negotiated basis. The level of required participation in such programs is
generally determined by calculating the volume of the Company's voluntarily
written business in that state as a percentage of all voluntarily written
business in that state by all insurers. The resulting factor is the proportion
of premium the Company must accept as a percentage of all of the premiums in
policies residing in that state's residual market program.

Companies generally have two methods of fulfilling their residual market
obligations: (i) they may join a reinsurance pool in which the results of all
policies provided through the pool are shared by the participating companies, or
(ii) they may accept directly assigned policies for which they are obligated to
provide all services and assume the underwriting results. Currently, the Company
utilizes both methods, depending on management's evaluation of the most
efficient method to adopt in each state. Generally, the Company believes that
the direct-assignment method produces better results as the Company applies its
managed results approach to these involuntary client-employers. In 1995 and for
the three months ended June 30, 1996, approximately 6.7% and 7.7% of the
Company's gross premiums earned, respectively, were from direct assignment
residual market obligations.

Statutory Accounting and Solvency Regulation. State regulation of insurance
company financial transactions and financial condition is based on statutory
accounting principles ("SAP"). SAP differs in a number of ways from generally
accepted accounting principles ("GAAP") which govern the financial reporting of
most other businesses. In general, SAP financial reports are more conservative
than GAAP financial reports.

State insurance regulators closely monitor the financial condition of
insurance companies reflected in SAP financial statements and can impose
significant financial and operating restrictions on an insurance company that
becomes financially impaired. Regulators generally have the power to impose
restrictions or conditions on the following kinds of activities of a financially
impaired insurance company: the transfer or

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<PAGE> 44

disposition of assets; the withdrawal of funds from bank accounts; the extension
of credit or making of loans; and the investment of funds.

State Subsequent Injury Funds. A number of states operate trust funds that
reimburse employers and carriers for excess workers' compensation benefits paid
to employees when an employee is injured on the job and the injury to the
physically disabled worker merges with, aggravates or accelerates a preexisting
work-related impairment. The state-managed trust funds are funded through
assessments against insurers and self-insurers providing workers' compensation
coverage in a specific state. At June 30, 1996, the Company carried receivables
on its books from state subsequent injury funds of less than $500,000.

State Insurance Department Examinations. The Company's insurance
subsidiaries are subject to periodic examinations by state insurance departments
in the states in which they operate. American Interstate was examined jointly by
the Georgia and Louisiana Insurance Commissioners on December 31, 1992. Silver
Oak Casualty, Inc., another subsidiary of the Company, was examined by the
Louisiana Insurance Commissioner in 1993. Neither of these examinations produced
any material adverse findings. The Company has not been notified that any future
examinations have been scheduled.

Possible Future Regulation. State legislatures and the federal government
have considered and are considering a number of cost containment and health care
reform proposals. The Company believes it may benefit from some proposals that
favor the growth of managed care. However, no assurance can be given that the
state or federal government will not adopt future health care reforms that would
adversely affect the Company.

In recent years the state insurance regulatory framework has come under
increased federal scrutiny, and certain state legislatures have considered or
enacted laws that altered and, in many cases, increased state authority to
regulate insurance companies and insurance holding companies. Further, the NAIC
and state insurance regulators are re-examining existing laws and regulations,
specifically focusing on investment laws for insurers, modifications to holding
company regulations, codification of statutory accounting practices, risk-based
capital guidelines, interpretations of existing laws and the development of new
laws. In addition, Congress and certain federal agencies are investigating the
current condition of the insurance industry in the United States to determine
whether to impose federal regulation. The Company cannot predict with certainty
the effect any proposed or future legislation or NAIC initiatives may have on
the conduct of the Company's business or the financial condition or results of
operations of the Company.

PROPERTIES

The Company owns its 43,000 square foot executive offices in DeRidder,
Louisiana and leases its executive offices in Dallas, Texas. The Company also
leases space at other locations for its service offices and claims
representative offices. See "Certain Transactions and Relationships -- Office
Sharing Agreement."

EMPLOYEES

The Company had 319 full-time employees at August 31, 1996. Of the
Company's employees, approximately 54 perform administrative and financial
functions and 265 serve on service and marketing teams providing its managed
results services to its employer-clients. None of the Company's employees is
subject to collective bargaining agreements. The Company believes that its
employee relations are good.

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<PAGE> 45

LEGAL PROCEEDINGS

In the ordinary course of administering its workers' compensation managed
results program, the Company is routinely involved in the adjudication of claims
resulting from workplace injuries. Except as described below, the Company is not
involved in any legal or administrative claims that it believes are likely to
have a materially adverse effect on the Company's business, financial condition
or results of operations.

In connection with an audit of the Company's federal income tax return with
respect to its 1992 tax year, the IRS proposed certain adjustments on June 22,
1996. The principal issues with respect to which the IRS has proposed
adjustments relate to (i) whether the Company should have included in income at
the time of receipt certain deposits it received from its clients to secure the
payment of premiums, (ii) the timing of inclusion in income of certain unearned
premiums and (iii) whether the Company's reserves for future claims were
excessive. The aggregate amount of additional tax which would be owed by the
Company if the proposed adjustments were sustained is approximately $3.3
million, plus accrued interest. Because the proposed adjustments relate to the
timing of the receipt of income, they would not, if sustained, be expected to
have an impact on the Company's results of operations, but would impact the
Company's cash flow. The Company believes that it has meritorious defenses to
the proposed adjustments and intends to contest them vigorously. The Company's
discussions with the IRS are ongoing and the Company cannot predict when a final
resolution will be reached with respect to the audit. See Note 4 of the Notes to
Consolidated Financial Statements.

The federal income tax returns filed by a former subsidiary of the Company
with respect to its 1990 and 1991 tax years are also presently subject to an
audit by the IRS. During the years in question the corporation was not a
subsidiary of the Company. The principal issue in this audit relates to the
reasonableness of compensation paid by such corporation to Mr. Morris and
another former officer-shareholder of the Company during such years. On
September 30, 1996, the IRS proposed that a portion of the compensation paid to
these individuals during such years is not deductible for federal income tax
purposes, and that as a result the former subsidiary owes additional tax in the
amount of approximately $1.0 million, plus accrued interest (approximately
$520,000 as of September 30, 1996). No penalties have been asserted by the IRS.
The former subsidiary believes that it has meritorious defenses to the proposed
adjustments and is contesting them vigorously. Discussions with the IRS are
ongoing and the Company cannot predict when a final resolution will be reached
with respect to the audit. In connection with the Reorganization, the MorTem
Corporations have agreed to indemnify the Company and its affiliates for any
liability they may have with respect to this tax audit. See Note 4 of the Notes
to Consolidated Financial Statements.

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<PAGE> 46

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The names of the directors and executive officers of the Company and their
ages and positions are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- -------------------------------------
<S> <C> <C>
Millard E. Morris....................... 51 Chairman of the Board of Directors
and Chief Executive Officer
Mark R. Anderson........................ 44 President, Chief Operating Officer
and Director
John R. Buck............................ 35 Vice President, Chief Financial
Officer, Treasurer and Director
Arthur L. Hunt.......................... 51 Vice President -- Risk Group and
Director
C. Allen Bradley, Jr. .................. 45 Vice President -- Risk Services Group
and General Counsel
Andre Comeaux........................... 35 Vice President -- Product Development
Zonie A. Harris......................... 61 Vice President -- Claims Services
Craig P. Leach.......................... 46 Vice President -- Business
Development
Daniel J. Jessee........................ 43 Director
N. David Spence......................... 61 Director
</TABLE>

Millard E. Morris has been Chairman of the Board, Chief Executive Officer,
and principal shareholder of the Company since its inception in 1985. Mr. Morris
began his insurance career in 1972, and has owned and managed many diverse
financial services operations. He is currently the Chairman of the Board and
principal shareholder of Auto One Acceptance Corporation, a Dallas based
financial services company. Mr. Morris has a Bachelor of Business Administration
in Accounting and a Master of Science in Economics, both from Baylor University,
and is a Certified Public Accountant. Mr. Morris serves in the class of
Directors whose terms expire at the Company's 1999 annual meeting of
shareholders.

Mark R. Anderson began his insurance career in 1979 and joined the Company
in 1986 as Vice President, Chief Operating Officer and Director. He was elected
President in 1996, and has served as President of American Interstate since
1987. Mr. Anderson has served on various legislative insurance advisory
committees in Louisiana, and has served as a workers' compensation rate and
reform consultant to several southern Insurance Commissioners. He holds a
Bachelor of Science degree from Louisiana State University and a Master of
Science degree in Business Administration from Boston University. Mr. Anderson
serves in the class of directors whose terms expire at the Company's 1998 annual
meeting of shareholders.

John R. Buck has been Vice President and Chief Financial Officer of the
Company since 1989 and a Director since 1994. He served in various accounting
positions with Zale Corporation's Insurance Group from 1983 to 1988 and joined
American Interstate as Controller in 1988. Mr. Buck has Bachelor of Science
degrees in Accounting and Business Administration from Illinois State
University, and became a Certified Public Accountant in 1985. Mr. Buck serves in
the class of directors whose terms expire at the Company's 1997 annual meeting
of shareholders.

Arthur L. Hunt has served as Secretary of the Company since 1991, was
elected Vice President -- Risk Group in August 1996, and has been a Director
since 1994. Prior to joining the Company, Mr. Hunt served twenty years in the
United States Army. He served as a Judge Advocate General officer and retired
after attaining the rank of Colonel. Mr. Hunt has a Bachelor of Science degree
in Psychology from Loyola University and a law degree from the Loyola University
School of Law, Chicago. Mr. Hunt serves in the class of directors whose terms
expire at the Company's 1997 annual meeting of shareholders.

45
<PAGE> 47

C. Allen Bradley, Jr. was elected Vice President -- Risk Services Group and
General Counsel in August 1996. He joined a subsidiary of the Company in 1994 as
an executive officer, and prior to that time was engaged in the private practice
of law. Mr. Bradley also served as a Louisiana State Representative from 1984 to
1992. He holds a Bachelor of Arts degree from Southeastern Louisiana University
and a law degree from Louisiana State University.

Andre Comeaux has been Vice President -- Product Development since August
1996 and has been Industries Manager of American Interstate since April 1995.
Mr. Comeaux began his career in the insurance industry in 1987 with AEtna
Casualty & Surety Co., serving as an Engineering Consultant and Commercial
Account Representative. In 1993, he joined American International Group as an
Account Executive, Loss Control Services, and served in that capacity until he
joined American Interstate. Mr. Comeaux holds a Bachelor of Science degree in
Mechanical Engineering from the University of Southwestern Louisiana and is a
Chartered Property Casualty Underwriter, a Certified Safety Professional and is
licensed as a Professional Engineer by the state of California. He is recognized
as a Qualified Field Safety Representative by the states of Texas and Arkansas
and is recognized as an Associate in Loss Control Management by the Insurance
Institute of America.

Zonie A. Harris was elected Vice President -- Claims Services in August
1996. Since 1986 he has also served as Vice President, Claims for American
Interstate. Mr. Harris has served with various affiliates of the Company and
other insurance firms in claims management since 1972. Prior to his insurance
career, Mr. Harris spent twenty years in the U.S. Air Force as a communications
specialist.

Craig P. Leach was elected Vice President -- Business Development in August
1996. He has served since 1994 as Senior Vice President of American Interstate,
and has served in similar roles with affiliated firms since beginning his
insurance career in 1980. Prior to 1980 Mr. Leach held various management
positions with companies engaged in the paper and lumber industries. He holds
both a Bachelor of Science degree and a Master of Science degree in Forestry
from Louisiana State University. Mr. Leach currently serves on the board of
directors of the Louisiana Forestry Association, and has served in an advisory
capacity for the Southern Forest Insurance Coalition and various wood product
companies throughout the country.

Daniel J. Jessee has been a Director of the Company since August 1996.
Since January 1995, Mr. Jessee has been Vice Chairman of Banc One Capital
Corporation ("BOCC"), an investment banking firm and a subsidiary of Banc One
Corporation. Prior to becoming Vice Chairman, he was a Managing Director of BOCC
since August 1990. Mr. Jessee serves in the class of directors whose terms
expire at the Company's 1999 annual meeting of shareholders. Mr. Jessee is also
a director of RAC Financial Group, Inc.

N. David Spence has been a Director of the Company since August 1996. Mr.
Spence is a Senior Vice President and General Manager -- Paper Division of Boise
Cascade Corporation ("BCC"). Mr. Spence joined BCC in 1969 and has served in
various management positions since that time. Mr. Spence serves in the class of
directors whose terms expire at the Company's 1998 annual meeting of
shareholders. Mr. Spence is also a director of the American Forest & Paper
Association and the Pacific Coast Association of Pulp & Paper Manufacturers.

COMMITTEES

The Bylaws provide that the Board of Directors may elect such directorate
committees as it may from time to time determine. Two committees of the Board of
Directors have been established: the Audit Committee and the Compensation
Committee.

The Audit Committee of the Board of Directors (the "Audit Committee") will
review the professional services provided by the Company's independent
accountants and the independence of such accountants from management of the
Company. The Audit Committee will also review the scope of the audit coverage
and annual financial statements of the Company and such other matters with
respect to accounting, auditing practices and procedures of the Company as it
may find appropriate or as may have been brought to its attention. The members
of the Audit Committee are Messrs. Jessee and Spence.

46
<PAGE> 48

The Compensation Committee of the Board of Directors (the "Compensation
Committee") will review and approve executive salaries and administer bonus,
stock option and incentive compensation plans of the Company. It will advise and
consult with management regarding significant employee benefit policies and
practices and significant compensation policies and practices of the Company.
The members of the Compensation Committee are Messrs. Jessee and Spence.

LIMITATION OF LIABILITY AND INDEMNIFICATION

As authorized by the Texas Miscellaneous Corporation Laws (the "TMCL"), the
Company's Articles provide that, to the full extent permitted by the TMCL or any
other applicable laws as presently or hereafter in effect, no director of the
Company shall be personally liable to the Company for an act or omission in his
capacity as a director of the Company. The TMCL does not permit limitation of
liability of any director (i) for a breach of the director's duty of loyalty to
the Company or its shareholders, (ii) for acts or omissions not in good faith
that constitute a breach of duty of the director or an act or omission that
involves intentional misconduct or a knowing violation of the law, (iii) a
transaction from which the director received an improper personal benefit, or
(iv) an act or omission for which liability of a director is expressly provided
by an applicable statute. The principal effect of the limitation of liability
provision is that a shareholder is unable to prosecute an action for monetary
damages against a director of the Company unless the shareholder can demonstrate
one of the specified bases of liability.

Additionally, the Company's Articles and Bylaws provide that the Company
shall indemnify all directors, officers, agents or employees of the Company to
the fullest extent permitted by the Texas Business Corporation Act ("TBCA"). The
TBCA establishes the standard which permits a corporation to provide
indemnification, except when shareholder approval for the indemnification has
been obtained. The TBCA provides that a director may be indemnified for
liabilities and expenses in respect to actions brought against him by reason of
his serving as a director if he conducted himself in good faith and reasonably
believed that (i) in the case of conduct in his official capacity as a director,
his conduct was in the Company's best interests, and (ii) in all other cases,
that his conduct was at least not opposed to the best interests of the Company.
Indemnification for criminal actions also requires the director to have no
reason to believe his conduct was unlawful. In addition, if the director is
found liable to the Company or on the basis that a personal benefit was
improperly received by him, indemnification will be limited to expenses actually
incurred and will not be available if the director is found liable for willful
or intentional misconduct in the performance of his duty to the Company.

The Company has entered into certain agreements ("Indemnification
Agreements") with each of its directors and executive officers designed to give
effect to the foregoing provisions of the Articles and Bylaws and to provide
certain additional assurances against the possibility of uninsured liability.
The effect of these provisions and the Indemnification Agreements will be to
eliminate the right of the Company and its shareholders (through shareholders'
derivative suits on behalf of the Company) to recover monetary damages against a
director for breach of fiduciary duty as a director except as described therein.
The provisions of the Articles and Bylaws and the Indemnification Agreements
will not alter the liability of directors of the Company under federal
securities laws.

47
<PAGE> 49

EXECUTIVE COMPENSATION

The following table provides information concerning the annual and
long-term compensation for services paid or accrued by the Company for the
fiscal year ended December 31, 1995 to (i) the Company's chief executive officer
and (ii) each other executive officer of the Company whose total annual salary
and bonus exceeded $100,000, based on salary and bonuses earned during 1995
(collectively, the "Named Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION(2) COMPENSATION
- ------------------------------------------- -------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Millard E. Morris.......................... $268,750 $750,000 -- $1,185(3)
Chairman of the Board of Directors and
Chief Executive Officer
Mark R. Anderson........................... 150,000 265,000 -- 16,845(4)
President and Chief Operating Officer
Craig P. Leach............................. 122,248 92,139 -- 27,285(5)
Vice President -- Business Development
C. Allen Bradley, Jr....................... 120,010 50,000 -- 600(6)
Vice President -- Risk Services Group and
General Counsel
John R. Buck............................... 85,000 35,000 -- 6,100(7)
Vice President, Chief Financial Officer
and Treasurer
</TABLE>

- ---------------

(1) Reflects bonus earned during the 1995 fiscal year. In all cases, the bonus
has been or will be paid during the 1996 fiscal year and was accrued in the
Company's balance sheet as of December 31, 1995.

(2) None of the Named Officers received personal benefits, securities or
property in excess of the lesser of $50,000 or 10% of such individual's
reported salary and bonus.

(3) Consists of Company contributions to the Company's 401(k) Plan (the "401(k)
Plan").

(4) Consists of $1,185 of Company contributions to the 401(k) Plan and $15,660
in premiums on a life insurance policy for Mr. Anderson's benefit.

(5) Consists of $1,185 of Company contributions to the 401(k) Plan and $26,100
in premiums on a life insurance policy for Mr. Leach's benefit.

(6) Consists of Company contributions to the 401(k) Plan.

(7) Consists of $880 of Company contributions to the 401(k) Plan and $5,220 in
premiums on a life insurance policy for Mr. Buck's benefit.

EMPLOYMENT AGREEMENTS

In connection with the Offering, the Company entered into an employment
agreement (the "Employment Agreement") with each of Messrs. Morris, Anderson,
Buck, Leach and Bradley (each, an "Executive Officer") that expires on the third
anniversary of the Offering. Pursuant to the Employment Agreements, Mr. Morris
serves as Chairman of the Board of Directors and Chief Executive Officer of the
Company and is paid an annual base salary of $450,000, Mr. Anderson serves as
President and Chief Operating Officer of the Company and is paid an annual base
salary of $275,000, Mr. Buck serves as Vice President, Chief Financial Officer
and Treasurer of the Company and is paid an annual base salary of $120,000, Mr.
Leach serves as Vice President -- Business Development of the Company and is
paid an annual base salary of $125,000, and Mr. Bradley serves as Vice
President -- Risk Services Group and General Counsel of the Company and is

48
<PAGE> 50

paid an annual base salary of $120,000. In addition to their annual base
salaries, each of the Executive Officers is entitled to receive an annual bonus
at the discretion of the Board of Directors. The Employment Agreements provide
for salary adjustments at the discretion of the Board of Directors and further
provide that the Executive Officers will be entitled to participate in
Company-sponsored employee benefit plans or arrangements and other benefits
generally available to employees of the Company. Each Employment Agreement
provides that if the Executive Officer's employment is involuntarily terminated
by the Company other than for "cause" (as defined in the Employment Agreement),
the Executive Officer, subject to certain conditions, shall receive termination
payments calculated in accordance with the Employment Agreement and the
continuation of all welfare benefits for a period of one year after the date of
termination. Subject to certain exceptions, each Executive Officer's Employment
Agreement prohibits him from competing with or working for a competitor of the
Company or any of its subsidiaries for a period of one year after the
termination of his employment with the Company, if his employment is
involuntarily terminated by the Company other than for "cause". Upon the
expiration of the initial three-year term and on each subsequent anniversary
thereof, each Employment Agreement automatically renews for an additional
one-year period unless earlier terminated by either party upon 90 day's notice
given prior to the end of the initial term or any extension. Mr. Morris'
Employment Agreement does not provide for him to devote his full time to the
business and affairs of the Company.

STOCK INCENTIVE PLAN

General. The Board of Directors of the Company adopted the AMERISAFE, Inc.
1996 Stock Incentive Plan (the "Stock Incentive Plan") on August 5, 1996,
subject to approval by the shareholders of the Company. A majority of the
holders of the Common Stock of the Company approved the Stock Incentive Plan on
August 5, 1996.

The purpose of the Stock Incentive Plan is to enable the Company to attract
and retain directors, officers and other key employees and to provide them with
appropriate incentives and rewards for superior performance. The Stock Incentive
Plan is to be administered by the Board of Directors of the Company (the
"Board") or a duly authorized committee thereof. The Board has delegated
administrative authority with respect to the Plan to the Compensation Committee.
The Stock Incentive Plan affords the Compensation Committee the flexibility to
respond to changes in the competitive and legal environments, thereby protecting
and enhancing the Company's current and future ability to attract and retain
officers and other key employees and consultants.

The Stock Incentive Plan authorizes the granting of options to purchase
shares of Class A Common Stock ("Option Rights"), stock appreciation rights
("Appreciation Rights") and restricted shares ("Restricted Shares"). The terms
applicable to these various types of awards, including those terms that may be
established by the Compensation Committee when making or administering
particular awards, are set forth in detail in the Stock Incentive Plan.

Summary of Stock Incentive Plan.

Shares Available Under the Stock Incentive Plan. Subject to adjustment as
provided in the Stock Incentive Plan, the number of shares of Class A Common
Stock that may be issued or transferred, plus the number of shares of Class A
Common Stock covered by outstanding awards granted under the Stock Incentive
Plan, shall not in the aggregate exceed 3,000,000.

Eligibility. Directors, officers and other salaried employees of the
Company or its subsidiaries may be selected by the Compensation Committee to
receive benefits under the Stock Incentive Plan. The Stock Incentive Plan
provides that, in the event the Board of Directors of the Company authorizes a
committee thereof to administer the Stock Incentive Plan, grants awarded to
members of such committee will require the approval of the Board of Directors of
the Company.

Option Rights. The Compensation Committee may grant Option Rights that
entitle the optionee to purchase shares of Class A Common Stock. The option
price is payable at the time of exercise (i) in cash or cash equivalents, (ii)
by the transfer to the Company of shares of Class A Common Stock that are
already

49
<PAGE> 51

owned by the optionee and have a value at the time of exercise equal to the
option price, (iii) with any other legal consideration the Compensation
Committee may deem appropriate, or (iv) by any combination of the foregoing
methods of payment. Any grant may provide for deferred payment of the option
price from the proceeds of sale through a broker of some or all of the shares of
Class A Common Stock to which the exercise relates.

Option Rights granted under the Stock Incentive Plan may be Option Rights
that are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
Option Rights that are not intended to so qualify. At or after the date of grant
of any nonqualified Option Rights, the Compensation Committee may provide for
the payment of dividend equivalents to the optionee on a current, deferred or
contingent basis or may provide that dividend equivalents be credited against
the option price. The Compensation Committee has the authority to specify at the
time Option Rights are granted that shares of Class A Common Stock will not be
accepted in payment of the option price until they have been owned by the
optionee for a specified period; however, the Stock Incentive Plan does not
require any such holding period and would permit immediate sequential exchanges
of shares of Class A Common Stock at the time of exercise of Option Rights.

No Option Right may be exercised more than 10 years from the date of grant.
Each grant must specify the conditions, including as and to the extent
determined by the Compensation Committee, the period of continuous employment or
continuous engagement of consulting services by the Company that are necessary
before the Option Rights will become exercisable, and may provide for the
earlier exercise of the Option Rights, including, without limitation, in the
event of a change in control of the Company or other similar transaction or
event. Successive grants may be made to the same optionee regardless of whether
Option Rights previously granted to him or her remain unexercised.

Appreciation Rights. Appreciation Rights granted under the Stock Incentive
Plan may be either free-standing or granted in tandem with Option Rights. An
Appreciation Right represents the right to receive from the Company the
difference (the "Spread"), or a percentage thereof not in excess of 100 percent,
between the base price per share of Class A Common Stock in the case of a
free-standing Appreciation Right, or the option price of the related Option
Right in the case of a tandem Appreciation Right, and the market value of the
Class A Common Stock on the date of exercise of the Appreciation Right. Tandem
Appreciation Rights may only be exercised at a time when the related Option
Right is exercisable and the Spread is positive, and the exercise of a tandem
Appreciation Right requires the surrender of the related Option Right for
cancellation. A free-standing Appreciation Right must have a base price that is
at least equal to the fair market value of a share of Class A Common Stock on
the date of grant, must specify the conditions, including as and to the extent
determined by the Compensation Committee, the period of continuous employment or
continuous engagement of consulting services and may not be exercised more than
10 years from the date of grant. Any grant of Appreciation Rights may specify
that the amount payable by the Company upon exercise may be paid in cash, shares
of Class A Common Stock or combination thereof and the Compensation Committee
may either reserve or grant to the recipient the right to elect among those
alternatives. The Compensation Committee may provide with respect to any grant
of Appreciation Rights for the payment of dividend equivalents thereon in cash
or Class A Common Stock on a current, deferred or contingent basis and for the
exercise of the Appreciation Rights upon a change in control.

Restricted Shares. An award of Restricted Shares involves the immediate
transfer by the Company to a participant of ownership of a specific number of
shares of Class A Common Stock in consideration of the performance of services.
The participant is entitled immediately to voting, dividend and other ownership
rights in the shares of Class A Common Stock. The transfer may be made without
additional consideration or for consideration in an amount that is less than the
market value of the shares on the date of grant, as the Compensation Committee
may determine.

Restricted Shares may be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined by
the Compensation Committee. An example would be a provision that the Restricted
Shares would be forfeited if the participant ceased to serve the Company as a
director, officer or other salaried employee during a specified period of years.
In order to enforce these forfeiture

50
<PAGE> 52

provisions, the transferability of Restricted Shares will be prohibited or
restricted in a manner and to the extent prescribed by the Compensation
Committee for the period during which the forfeiture provisions are to continue.
The Compensation Committee may provide for a shorter period during which the
forfeiture provisions are to apply, including, without limitation, in the event
of a change in control of the Company any or other similar transaction or event.

Transferability. Unless the agreement evidencing such grant provides
otherwise, no Option Right, or other "derivative security" within the meaning of
Rule 16b-3 under the Exchange Act will be transferable by a participant except
by will or the laws of descent and distribution. Option Rights may not be
exercised during a participant's lifetime except by the participant or, in the
event of his or her incapacity, by his or her guardian or legal representative
acting in a fiduciary capacity on behalf of the participant under the state law
and court supervision.

Adjustments. The maximum number of shares of Class A Common Stock that may
be issued or transferred under the Stock Incentive Plan, the number of shares
covered by outstanding awards and the option prices per share applicable
thereto, are subject to adjustment in the event of stock dividends, stock
splits, combinations of shares, recapitalizations, mergers, consolidations,
spin-offs, reorganizations, liquidations, issuances of rights or warranties, and
similar transactions or events. In the event of any such transaction or event,
the Compensation Committee may in its discretion provide in substitution for any
or all outstanding awards under the Stock Incentive Plan such alternative
consideration as it may in good faith determine to be equitable in the
circumstances and may require the surrender of all awards so replaced.

Administration. The Stock Incentive Plan is administered by the
Compensation Committee. In connection with its administration of the Stock
Incentive Plan, the Compensation Committee is authorized to interpret the Stock
Incentive Plan and related agreements and other documents. The Compensation
Committee may make grants to participants under any or a combination of all of
the various categories of awards that are authorized under the Stock Incentive
Plan and may provide for special terms for awards to participants who are
foreign nationals, as the Compensation Committee may consider necessary or
appropriate to accommodate differences in local law, tax policy or custom.

Amendments. The Stock Incentive Plan may be amended from time to time by
the Compensation Committee, but without further approval by the shareholders of
the Company no such amendment (unless expressly allowed pursuant to the
adjustment provisions described above) may cause Rule 16b-3 under the Exchange
Act to cease to be applicable to the Stock Incentive Plan.

Federal Income Tax Consequences. The following is a brief summary of
certain of the federal income tax consequences of certain transactions under the
Stock Incentive Plan based on federal income tax laws in effect on the date of
this Prospectus. This summary is not intended to be exhaustive and does not
describe state or local tax consequences.

Nonqualified Option Rights. In general: (i) no income will be recognized by
an optionee at the time a nonqualified Option Right is granted; (ii) at the time
of exercise of a nonqualified Option Right, ordinary income will be recognized
by the optionee in an amount equal to the difference between the option price
paid for the shares of Class A Common Stock and the fair market value of such
shares if they are nonrestricted on the date of exercise; and (iii) at the time
of sale of shares acquired pursuant to the exercise of a nonqualified Option
Right, any appreciation (or depreciation) in the value of such shares after the
date of exercise will be treated as either short-term capital gain (or loss)
depending on how long the shares of Class A Common Stock have been held.

Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an incentive stock option. If shares of
Class A Common Stock are issued to an optionee pursuant to the exercise of an
incentive stock option and no disqualifying disposition of the shares is made by
the optionee within two years after the date of grant or within one year after
the transfer of the shares to the optionee, then upon the sale of the shares any
amount realized in excess of the option price will be taxed to the optionee as
long-term capital gain and any loss sustained will be long-term capital loss.

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<PAGE> 53

If shares of Class A Common Stock acquired upon the exercise of an
incentive stock option are disposed of prior to the expiration of either holding
period described above, the optionee generally will recognize ordinary income in
the year of disposition in an amount equal to any excess of the fair market
value of the shares of Class A Common Stock at the time of exercise (or, if
less, the amount realized on the disposition of the shares in a sale or
exchange) over the option price paid for the shares. Any further gain (or loss)
realized by the optionee generally will be taxed as short-term or long-term
capital gain (or loss) depending on the holding period.

Restricted Shares. A recipient of Restricted Shares generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Shares reduced by any amount paid by the recipient at such time as
the shares are no longer subject to a risk of forfeiture or restrictions on
transfer for purposes of Section 83 of the Code. However, a recipient who so
elects under Section 83(b) of the Code within 30 days of the date of transfer of
the shares will have taxable ordinary income on the date of transfer of the
shares equal to the excess of the fair market value of the shares (determined
without regard to the risk of forfeiture or restrictions on transfer) over any
purchase price paid for the shares. If a Section 83(b) election has not been
made, any non-restricted dividends received with respect to Restricted Shares
that are subject at that time to a risk of forfeiture or restrictions on
transfer generally will be treated as compensation that is taxable as ordinary
income to the recipient.

Special Rules Applicable to Officers and Directors. In limited
circumstances where the sale of shares of Class A Common Stock that are received
as the result of a grant of an award could subject an officer or director to
suit under Section 16(b) of the Exchange Act, the tax consequences to the
officer or director may differ from the tax consequences described above. In
these circumstances, unless a special election has been made, the principal
difference usually will be to postpone valuation and taxation of the shares of
Class A Common Stock received so long as the sale of shares of Class A Common
Stock received could subject the officer or director to suit under Section 16(b)
of the Exchange Act, but no longer than six months.

Tax Consequences to the Company. To the extent that a participant
recognized ordinary income in the circumstance described above, the Company or
subsidiary for which the participant performs services will be entitled to a
corresponding deduction provided that, among other things, the income meets the
test of reasonableness, is an ordinary and necessary business expense, is not
subject to the annual compensation limitation set forth in Section 162(m) of the
Code and is not an "excess parachute payment" within the meaning of Section 280G
of the Code.

Awards. Option Rights with respect to a total of 600,000 shares of Class A
Common Stock have been granted under the Stock Incentive Plan, including Option
Rights granted to executive officers of the Company as set forth in the table
below. The Option Rights are exercisable at a price equal to $12.00 per share
and vest in equal increments on each of the first five anniversaries of the date
of grant.

<TABLE>
<CAPTION>
OPTION RIGHTS
GRANTEE GRANTED
------------------------------------------------------ -------------
<S> <C>
Mark R. Anderson...................................... 120,000
Craig P. Leach........................................ 160,000
John R. Buck.......................................... 80,000
Zonie A. Harris....................................... 60,000
Arthur L. Hunt........................................ 60,000
C. Allen Bradley, Jr.................................. 40,000
Andre Comeaux......................................... 20,000
</TABLE>

In addition, an aggregate of 60,000 Option Rights have been granted to certain
non-executive employees of the Company on the same terms as the grants to
executive officers.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to August 1996, the Company did not have a Compensation Committee or
other committee of the Board of Directors performing similar functions.
Decisions concerning compensation of executive officers of

52
<PAGE> 54

the Company were made by the Company's Board of Directors. After the Offering,
compensation decisions will be made by the Compensation Committee, currently
consisting of Messrs. Jessee and Spence.

DIRECTOR COMPENSATION

Directors who are employees of the Company will not be paid any fees or
additional compensation for service as members of the Board of Directors or any
committee thereof. Each non-employee director will receive $3,500 for each
meeting of the Board of Directors attended. Upon completion of the Offering,
non-employee directors will also receive a grant of 3,000 Restricted Shares
under the Stock Incentive Plan. Such grant will vest ratably over a three-year
period with 1,000 shares vesting on the first anniversary of the date of grant
and 1,000 shares vesting on each of the next two succeeding anniversaries. If a
non-employee director's membership on the Board of Directors of the Company is
terminated for any reason (other than death or disability), the shares of
restricted Class A Common Stock that have not yet vested as of the date of such
termination will be forfeited. See "-- Stock Incentive Plan" above. All
directors will be reimbursed for travel and other related expenses incurred in
attending meetings of the Board of Directors or any committee thereof.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 30, 1996 by: (i) each of the
Company's directors and Named Officers; (ii) all executive officers and
directors of the Company as a group; and (iii) each person known by the Company
to be the beneficial owner of more than five percent of the outstanding Common
Stock. Except as otherwise noted, each of the holders listed below has sole
voting power and investment power over the shares beneficially owned.

<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON
STOCK BENEFICIALLY STOCK BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) OFFERING(1)
NAME OF --------------------- ---------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
------------------------------------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Millard E. Morris(2)....................... 17,126,521 98.4% 17,126,521 60.3%
Mark R. Anderson........................... 273,479 1.6 273,479 1.0
John R. Buck............................... -- 0 -- 0
Arthur L. Hunt............................. -- 0 -- 0
Daniel J. Jessee........................... -- 0 -- 0
N. David Spence............................ -- 0 -- 0
Craig P. Leach............................. -- 0 -- 0
C. Allen Bradley, Jr. ..................... -- 0 -- 0
All Directors and Executive Officers as a
Group (10 Persons)....................... 17,400,000 100.0% 17,400,000 61.3%
</TABLE>

- ---------------

(1) All shares of Common Stock beneficially owned by Messrs. Morris and
Anderson are shares of Class B Common Stock, representing respectively
98.4% and 1.6% of the outstanding Class B Common Stock both before and
after the Offering. Excludes 6,000 shares of Class A Common Stock to be
issued to non-employee directors of the Company upon completion of the
Offering pursuant to the Stock Incentive Plan.

(2) Mr. Morris' business address is 5550 LBJ Freeway, Suite 901, Dallas, Texas
75240.

53
<PAGE> 55

CERTAIN TRANSACTIONS AND RELATIONSHIPS

REGISTRATION RIGHTS AGREEMENT

In connection with the Offering, the Company granted certain registration
rights to Messrs. Morris and Anderson. See "Description of Capital
Stock -- Registration Rights."

TAX MATTERS AGREEMENT

The Company has entered into a Tax Matters Agreement with the Distributed
Subsidiaries to provide for (i) the allocation of payments of taxes for periods
during which the Company (or any of its affiliates other than the Distributed
Subsidiaries and the direct and indirect subsidiaries thereof) and any of the
Distributed Subsidiaries or the direct or indirect subsidiaries thereof are
included in the same consolidated group for federal income tax purposes, (ii)
the allocation of responsibility for the filing of tax returns, the conducting
of tax audits and the handling of tax controversies, and (iii) various related
matters.

SERVICES AGREEMENT

In connection with the Reorganization, the Company and Auto One Acceptance
Corporation ("AOAC"), which will be owned by Messrs. Morris and Anderson
following the Reorganization, entered into a services agreement (the "Services
Agreement"), pursuant to which the Company will continue to provide various
services to AOAC, including payroll, human resources, legal, internal audit,
benefits administration and similar administrative and management services that
the Company has historically provided to AOAC. For such services, AOAC will pay
the Company a fee of $40,000 per month, which the Company believes will cover
its costs to provide these services. The Services Agreement is terminable by
either the Company or AOAC on 90 days prior notice, provided however, that
neither party may terminate the Services Agreement prior to the first
anniversary date of the Offering. As a result of the Company's affiliation with
AOAC, the terms of the Services Agreement were not, and the terms of any future
amendments to the Services Agreement may not be, the result of arm's-length
negotiation.

OFFICE SHARING AGREEMENT

The Company has entered into an office sharing agreement with AOAC for its
2,500 square foot executive offices in Dallas, Texas. Under the terms of this
agreement, the Company will pay to AOAC $3,700 per month, which approximates the
Company's pro rata share of the cost to AOAC to lease the facilities. This
agreement may be terminated by either party upon 90 days' written notice.

AIRCRAFT AGREEMENT

The Company and AOAC have entered into an aircraft agreement (the "Aircraft
Agreement") pursuant to which AOAC may use the aircraft owned by the Company for
travel by AOAC's senior management in the course of AOAC's businesses. AOAC will
be charged a fee for the use of such aircraft at a rate of $5,000 per month plus
an additional amount based on the number of nautical miles traveled. The Company
believes that the amounts payable by AOAC under the Aircraft Agreement
approximate AOAC's pro rata share of the expenses related to the Company's
ownership and operation of the aircraft. The Aircraft Agreement has an initial
term of one year and may be terminated thereafter by either party on 90 days'
written notice.

TRANSACTIONS WITH BANC ONE CORPORATION

Daniel J. Jessee, a director of the Company, is a member of the investment
committee of Banc One Capital Partners II, Ltd., the lender under the Company's
existing credit agreement. Banc One Capital Corporation, a subsidiary of Banc
One Corporation and of which Mr. Jessee is Vice Chairman, received a fee of
$125,000 from the Company for its services in the arrangement and placement of
this credit agreement. Borrowings under this credit agreement will be repaid in
full with a portion of the proceeds of this Offering. See "Use of Proceeds."

54
<PAGE> 56

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, par value $.01 per share, 100,000,000 shares of Class B
Common Stock, par value $.01 per share, and 25,000,000 shares of Preferred
Stock, par value $.01 per share. As of the date of this Prospectus and without
giving effect to the shares of Class A Common Stock to be sold in the Offering,
there were no shares of Class A Common Stock, 17,400,000 shares of Class B
Common Stock and no shares of Preferred Stock issued and outstanding. All
outstanding shares of Class B Common Stock are, and the shares of Class A Common
Stock offered hereby will be, upon payment thereof, fully paid and
nonassessable. The Class A Common Stock and the Class B Common Stock are
referred to in this Prospectus collectively as the "Common Stock."

CLASS A COMMON STOCK AND CLASS B COMMON STOCK

Voting Rights. Each share of Class A Common Stock is entitled to one vote
and each share of Class B Common Stock is entitled to ten votes on all matters
submitted to a vote of the shareholders. Except as otherwise required by law,
the holders of the Class A Common Stock and the Class B Common Stock vote
together as a single class on all matters that may be submitted to a vote or
consent of the shareholders, including the election of directors. The Common
Stock does not have any cumulative voting rights. Accordingly, immediately after
the Offering, Mr. Morris will retain effective control of the Company through
holding approximately 92.6% of the combined voting power of the outstanding
Common Stock (91.8% if the Underwriters' over-allotment option is exercised in
full).

Conversion. Class A Common Stock has no conversion rights. Each share of
Class B Common Stock will be convertible at any time, at the option of and
without cost to the shareholder, into one share of Class A Common Stock upon
surrender to the Company's transfer agent of the certificate or certificates
evidencing the Class B Common Stock to be converted, together with a written
notice of the election of such shareholder to convert such shares into Class A
Common Stock. Shares of Class B Common Stock will also be automatically
converted into shares of Class A Common Stock upon the transfer of such shares
of Class B Common Stock, except as a result of (i) a transfer to a record
holder's spouse, (ii) a transfer to any lineal descendant of any grandparent of
a record holder, including adopted children and any such descendant's spouse,
(iii) a transfer by will or by the laws of descent and distribution, or (iv) a
transfer to a voting trust or other trust (including a distribution from such
trust to the trust beneficiaries), to a corporation, partnership or other entity
controlled by the beneficial owner of such shares, or to the individual
beneficial owner of such shares or to any such entity that will become
controlled by the beneficial owner of such shares immediately after the transfer
or series of transfers within any ten (10) day period. Once shares of Class B
Common Stock are converted into shares of Class A Common Stock, such shares may
not be converted back into Class B Common Stock.

Dividends and Liquidation Rights. The holders of Class A Common Stock and
Class B Common Stock are entitled to receive dividends out of assets legally
available therefor at such times and in such amounts as the Board of Directors
may from time to time determine, subject to any preferential dividend rights of
outstanding Preferred Stock, if any. Upon liquidation and dissolution of the
Company, the holders of Class A Common Stock and Class B Common Stock are
entitled to receive all assets available for distribution to shareholders,
subject to any preferential amounts payable to holders of Preferred Stock, if
any.

Other Rights. The holders of Class A Common Stock and Class B Common Stock
are not entitled to preemptive or subscription rights, and there are no
redemption or sinking fund provisions applicable to such Common Stock.

PREFERRED STOCK

Under the Articles, the Company has authority to issue 25,000,000 shares of
Preferred Stock. As of the date of this Prospectus, no shares of Preferred Stock
are outstanding and the Company has no present intention to issue any shares of
Preferred Stock.

55
<PAGE> 57

Preferred Stock may be issued, from time to time in one or more series, and
the Board of Directors, without further approval of the shareholders, is
authorized to fix the dividend rights and terms, redemption rights and terms,
liquidation preferences, conversion rights, voting rights and sinking fund
provisions applicable to each such series of Preferred Stock. If the Company
issues a series of Preferred Stock in the future that has voting rights or
preference over the Common Stock with respect to the payment of dividends and
upon the Company's liquidation, dissolution or winding up, the rights of the
holders of the Common Stock offered hereby may be adversely affected. The
issuance of shares of Preferred Stock could be utilized, under certain
circumstances, in an attempt to prevent an acquisition of the Company.

REGISTRATION RIGHTS

The Company and Millard E. Morris, the Company's Chairman of the Board and
Chief Executive Officer and Mark R. Anderson, the Company's President, have
entered into a Registration Rights Agreement which expires on June 30, 2007.
Under this Registration Rights Agreement, beginning after June 30, 1997, Mr.
Morris has the right to request the Company to effect four registrations of
Class A Common Stock, subject to the right of the other shareholders to be
included in such registrations and other conditions and limitations, provided
that the number of shares of Class A Common Stock to be included in each such
registration is not less than 1,000,000. The Registration Rights Agreement also
grants secondary offering rights ("piggy back" rights) to Messrs. Morris and
Anderson and, in certain cases, their transferees, subject to certain conditions
and limitations, in connection with any registration of Class A Common Stock by
the Company, which rights may be exercised beginning after June 30, 1997. As of
the date of this Prospectus, an aggregate of 17,400,000 shares of Class A Common
Stock are subject to the registration rights described above, assuming full
conversion by Messrs. Morris and Anderson of their Class B Common Stock into
Class A Common Stock. In all such registrations, the Company is required under
the Registration Rights Agreement to bear the expenses of registration. While
Messrs. Morris and Anderson have certain priority rights in such registrations,
the Company has retained the right to grant registration rights to other
persons, including its officers and directors.

ANTI-TAKEOVER PROVISIONS

The Articles contain provisions which provide for a classified board of
directors consisting of three classes with directors serving staggered
three-year terms. Therefore, only one-third of the directors are subject to
election by the shareholders each year. The Articles also include provisions
eliminating the personal liability of the Company's directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the TBCA. The Articles and Bylaws include provisions indemnifying the
Company's directors and officers to the full extent permitted by the TBCA,
including under certain circumstances in which indemnification is otherwise
discretionary. See "Management -- Limitation of Liability and Indemnification."

The Articles and Bylaws contain a number of provisions relating to
corporate governance and to the rights of shareholders. These provisions include
(i) a requirement that special meetings of shareholders may be called only by
the Chairman, the President, the Board of Directors or upon the request of
shareholders owning 50% or more of the shares entitled to vote at the meeting,
(ii) the authority of the Board of Directors to issue series of Preferred Stock
with such voting rights and other powers as the Board of Directors may
determine, and (iii) notice requirements in the Bylaws relating to nominations
to the Board of Directors and to the raising of business matters at shareholder
meetings.

The provisions of the TBCA and the Articles and Bylaws discussed above
would make more difficult or discourage a proxy contest or the acquisition of
control by a holder of a substantial block of the Company's stock or the removal
of the incumbent Board of Directors. Such provisions could also have the effect
of discouraging a third party from making a tender offer or otherwise attempting
to obtain control of the Company, even though such an attempt might be
beneficial to the Company and its shareholders. In addition, since these
provisions are designed to discourage accumulations of large blocks of the
Company's stock by purchasers whose objective is to have such stock repurchased
by the Company at a premium, such provisions could tend to reduce the temporary
fluctuations in the market price of the Class A Common Stock which are

56
<PAGE> 58

caused by such accumulations. Accordingly, shareholders could be deprived of
certain opportunities to sell their stock at a temporarily higher market price.

The Company is also subject to certain provisions of Louisiana law
applicable to insurance holding companies. Those laws prohibit the merger or
acquisition of control of a domestic insurer or any person controlling a
domestic insurer without the prior approval of the proposed transaction by the
Louisiana Department of Insurance.

TRANSFER AGENT AND REGISTRAR

American Stock Transfer & Trust Company is the transfer agent and registrar
for the Class A Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
11,000,000 shares of Class A Common Stock (assuming the Underwriters'
over-allotment option is not exercised) and 17,400,000 shares of Class B Common
Stock. The Class B Common Stock is convertible on a share-for-share basis into
Class A Common Stock and must be converted to effect any public sale of such
stock. Of these outstanding shares, the 11,000,000 shares of Class A Common
Stock sold in the Offering will be freely tradeable without restriction under
the Securities Act, except for any shares purchased by an "affiliate" of the
Company (as that term is defined in the Securities Act), which will be subject
to the resale limitations of Rule 144 adopted under the Securities Act.

The 17,400,000 outstanding shares of Class B Common Stock are "restricted"
securities within the meaning of Rule 144 and may not be resold in a public
distribution (before or upon conversion into Class A Common Stock) except in
compliance with the registration requirements of the Securities Act or pursuant
to Rule 144.

In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has beneficially
owned restricted shares for at least two years from the later of the date such
restricted shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, but less than three years, will be
entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Class A Common
Stock (approximately 110,000 shares immediately after the Offering) or (ii) the
average weekly trading volume in the public market during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. Affiliates may sell shares not constituting
restricted shares in accordance with the foregoing volume limitations and other
restrictions, but without regard to the two-year holding period. A person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days immediately preceding the sale and
who has beneficially owned his or her shares for at least three years from the
later of the date such restricted shares were acquired from the Company and (if
applicable) the date they were acquired from an affiliate is entitled to sell
such shares pursuant to Rule 144(k) without regard to the limitations described
above. As defined in Rule 144, an "affiliate" of an issuer is a person who
directly, or indirectly through the use of one or more intermediaries, controls,
or is controlled by, or is under common control with, such issuer. Rule 144A
under the Securities Act as currently in effect permits the immediate sale by
current holders of restricted shares of all or a portion of their shares to
certain qualified institutional buyers described in Rule 144A, subject to
certain conditions.

The Company and Messrs. Morris and Anderson, the Company's current
shareholders, who in the aggregate hold beneficially 17,400,000 shares of Class
B Common Stock, have agreed that they will not offer, sell, contract to sell,
grant any option to purchase, or otherwise dispose of any shares of Class A
Common Stock of the Company or any securities convertible into or exchangeable
for such Class A Common Stock (other than shares and stock options to be granted
pursuant to the Stock Incentive Plan), for a period of

57
<PAGE> 59

180 days from the date of this Prospectus without the prior written consent of
Smith Barney Inc. Neither the Company nor either of its existing shareholders
has any present intention to request a waiver of the 180-day period. If any such
waiver is requested, Smith Barney Inc. has the sole discretion whether to grant
any such waiver.

Under the Stock Incentive Plan, 3,000,000 shares of Class A Common Stock
are reserved for issuance thereunder, including 6,000 shares of Class A Common
Stock to be granted to non-employee directors. Options to purchase 600,000
shares of Class A Common Stock at an exercise price of $12.00 per share have
been granted. See "Management -- Stock Incentive Plan" and
"Management -- Director Compensation."

Prior to this Offering, there has been no public market for the Class A
Common Stock, and no predictions can be made as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the
prevailing market price of the Class A Common Stock. Sales of substantial
amounts of Class A Common Stock in the public market could have an adverse
effect on prevailing market prices.

58
<PAGE> 60

UNDERWRITING

Upon the terms and conditions stated in the Underwriting Agreement, each
Underwriter named below has severally agreed to purchase, and the Company has
agreed to sell to such Underwriter, the shares of Class A Common Stock which
equal the number of shares set forth opposite the name of such Underwriter:

<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITER OF SHARES
------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc. .......................................................
Piper Jaffray Inc. ......................................................

----------
Total.......................................................... 11,000,000
==========
</TABLE>

The Underwriters, for whom Smith Barney Inc. and Piper Jaffray Inc. are
acting as the Representatives, have advised the Company that they propose to
offer part of the shares directly to the public at the public offering price set
forth on the cover page of this Prospectus and part of the shares to certain
dealers at a price that represents a concession not in excess of $ per
share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial public offering, the offering price and
other selling terms may be changed by the Representatives. The Underwriters do
not intend to confirm sales of the Class A Common Stock offered hereby to
accounts over which they exercise discretionary authority.

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all shares of
Class A Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are purchased.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
1,650,000 additional shares of Class A Common Stock at the price to the public
set forth on the cover page of this Prospectus minus the underwriting discounts
and commissions. The Underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with the Offering of
the shares hereby. To the extent such option is exercised, each Underwriter will
be obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares listed in such table.

The Class A Common Stock has been approved for listing on the New York
Stock Exchange, upon notice of issuance, under the symbol "ASF." In order to
meet one of the requirements for listing of the Class A Common Stock on the New
York Stock Exchange, the Underwriters will undertake to sell lots of 100 or more
shares to a minimum of 2,000 beneficial owners.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including certain liabilities under the Securities
Act, or to contribute to payments that the Underwriters may be required to make
in respect thereof.

The Company and its existing shareholders have agreed not to offer, sell,
contract to sell, grant any option to purchase, or otherwise dispose of any
shares of Class A Common Stock of the Company or any securities convertible into
or exercisable or exchangeable for such Class A Common Stock (other than shares
and stock options to be granted pursuant to the Stock Incentive Plan), except to
the Underwriters pursuant to the

59
<PAGE> 61

Underwriting Agreement, for a period of 180 days after the date of this
Prospectus, without the prior written consent of Smith Barney Inc.

Prior to the Offering, there has been no public market for the Class A
Common Stock. Consequently, the public offering price for the shares offered
hereby was determined by negotiations between the Company and the
Representatives. Among the factors considered in determining the public offering
price were the history of, and the prospects for, the Company's business and the
industry in which it competes, an assessment of the Company's management, its
past and present operations, its past and present revenues and earnings, and the
trend of such revenues and earnings, the prospects for growth of the Company's
revenues and earnings, the present state of the Company's development, the
general condition of the securities market at the time of the Offering and the
market prices and earnings of similar securities of comparable companies at the
time of the Offering, the current state of the economy in the United States and
the current level of economic activity in the industry in which the Company
competes and in related or comparable industries.

LEGAL MATTERS

The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Jones, Day, Reavis & Pogue, Dallas, Texas.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriters by Dewey Ballantine, New York, New York. As to matters of Texas
law, Dewey Ballantine will rely on the opinion of Jones, Day, Reavis & Pogue.

EXPERTS

The consolidated financial statements of AMERISAFE, Inc. and subsidiaries
at December 31, 1994 and 1995 and for each of the three years in the period
ended December 31, 1995, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the shares of Class A Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the shares of Class A Common Stock offered hereby, reference is made
to the Registration Statement, including the exhibits filed as a part thereof.
Statements made in this Prospectus as to the contents of any contract or any
other document are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description of the matter
involved, and each such statement herein shall be deemed qualified in its
entirety by such reference. Copies of such materials may be examined without
charge at, or obtained upon payment of prescribed fees from, the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7
World Trade Center, New York, New York 10048.

The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission and that is located at http://www.sec.gov.

60
<PAGE> 62

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and at June 30, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1995 and 1996 (unaudited)......................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996
(unaudited)......................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 and 1996 (unaudited).................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 63

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
AMERISAFE, Inc.

We have audited the accompanying consolidated balance sheets of AMERISAFE,
Inc. and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
AMERISAFE, Inc. and subsidiaries at December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the
Company effected a reorganization on , 1996, resulting in a change in
the reporting entity.

Dallas, Texas
, 1996

The foregoing report is in the form that will be signed upon completion of
transactions described in the first paragraph of Note 1 to the consolidated
financial statements.

ERNST & YOUNG LLP

Dallas, Texas

October 10, 1996

F-2
<PAGE> 64

AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
LIABILITIES AND
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------- JUNE 30, (NOTES 1 AND 8)
1994 1995 1996 JUNE 30, 1996
------- -------- -------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Investments:
Investments held-to-maturity -- fixed maturities at amortized cost
(fair value: 1994 -- $48,324; 1995 -- $66,840;
1996 -- $68,434)................................................ $49,618 $ 65,052 $ 68,795
Investments available-for-sale, at fair value:
Equity securities (cost: 1994 -- $1,317; 1995 -- $2,748;
1996 -- $3,641)............................................... 1,253 3,076 4,083
Fixed maturities (cost: 1994 -- $125; 1995 -- $3,291;
1996 -- $3,000)............................................... 125 3,363 3,016
------- -------- --------
Total investments........................................... 50,996 71,491 75,894
Cash and cash equivalents........................................... 5,264 10,202 14,688
Receivable for securities sold or matured........................... 312 868 --
Recoverable from reinsurers......................................... 10,941 13,360 14,330
Recoverable from state funds........................................ 405 401 470
Agents balances in course of collection............................. 8,815 9,654 10,043
Accrued interest receivable......................................... 811 1,105 1,303
Notes receivable from affiliates.................................... 2,176 2,387 2,993
Real estate, furniture and equipment, net........................... 4,269 5,906 7,150
Deferred federal income taxes....................................... 2,303 1,891 2,323
Other assets........................................................ 1,799 3,175 4,711
------- -------- --------
Total assets................................................ $88,091 $120,440 $133,905
======= ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Reserves for claims and claim settlement expenses................. $40,939 $ 55,427 $ 62,345 $ 62,345
Unearned premiums................................................. 4,229 3,581 4,460 4,460
Funds held under reinsurance treaties............................. 164 166 428 428
Reinsurance premiums payable...................................... 113 1,426 1,589 1,589
Amounts held for others........................................... 5,923 10,299 11,014 11,014
Accounts payable and accrued liabilities.......................... 3,391 7,290 4,689 4,689
Notes payable..................................................... 7,479 8,232 12,425 26,396
Notes payable to shareholder and affiliates....................... 3,377 1,881 513 50,513
------- -------- -------- --------
Total liabilities........................................... 65,615 88,302 97,463 161,434

Commitments and contingencies

Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 25,000,000 shares authorized:
Series B -- cumulative convertible 8% preferred stock, issued
and outstanding shares -- 510.167............................. -- -- -- --
Class A common stock, $0.01 par value, Authorized
shares -- 100,000,000
Issued and outstanding shares -- None........................... -- -- -- --
Class B common stock, $0.01 par value:
Authorized shares -- 100,000,000
Issued and outstanding shares -- 11,884,647..................... 119 119 119 174
Additional paid-in capital........................................ 1,362 2,389 2,389 --
Retained earnings (deficit)....................................... 21,059 29,366 33,618 (28,019)
Unrealized gain (loss) on securities available-for-sale, net of
taxes........................................................... (64) 264 316 316
------- -------- -------- --------
Total stockholders' equity (deficit)........................ 22,476 32,138 36,442 (27,529)
------- -------- -------- --------
Total liabilities and stockholders' equity.................. $88,091 $120,440 $133,905 $133,905
======= ======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 65

AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums earned............................ $35,902 $40,461 $58,167 $23,134 $30,678
Service fee income......................... 987 2,468 4,110 1,446 3,605
Investment income.......................... 2,146 2,484 4,519 1,842 2,743
Fees and other from affiliates............. 2,154 1,732 1,854 1,004 1,125
------- ------- ------- ------- -------
Total revenues..................... 41,189 47,145 68,650 27,426 38,151
Expenses:
Claims and claim settlement expenses....... 20,262 25,250 32,924 13,545 18,356
Commissions and other underwriting
expenses................................ 7,555 8,507 13,524 6,101 8,377
General and administrative................. 2,798 4,406 6,810 2,157 4,093
Interest................................... 850 726 845 420 632
Depreciation and amortization.............. 240 703 1,006 364 758
------- ------- ------- ------- -------
Total expenses..................... 31,705 39,592 55,109 22,587 32,216
------- ------- ------- ------- -------
Income before federal income taxes........... 9,484 7,553 13,541 4,839 5,935
Federal income taxes......................... 2,768 2,414 5,234 1,430 1,683
------- ------- ------- ------- -------
Net income................................... $ 6,716 $ 5,139 $ 8,307 $ 3,409 $ 4,252
======= ======= ======= ======= =======
Pro forma net income per share............... $ 0.38 $ 0.19
======= =======
Pro forma weighted average shares
outstanding................................ 22,061 22,061
======= =======
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 66

AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS)
ON
ADDITIONAL SECURITIES
PREFERRED COMMON PAID-IN RETAINED AVAILABLE-
STOCK STOCK CAPITAL EARNINGS FOR-SALE TOTAL
--------- ------ ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993........... $ -- $119 $ (118) $ 9,204 $ 55 $ 9,260
Net income......................... -- -- -- 6,716 -- 6,716
Change in unrealized gain/loss on
securities available-for-sale... -- -- -- -- (59) (59)
Issuance of redeemable cumulative
preferred stock................. -- -- 1,480 -- -- 1,480
---- ---- ------ ------- ---- -------
Balance at December 31, 1993......... -- 119 1,362 15,920 (4) 17,397
Net income......................... -- -- -- 5,139 -- 5,139
Change in unrealized gain/loss on
securities available-for-sale... -- -- -- -- (60) (60)
---- ---- ------ ------- ---- -------
Balance at December 31, 1994......... -- 119 1,362 21,059 (64) 22,476
Capital contribution from
affiliate....................... -- -- 1,027 -- -- 1,027
Net income......................... -- -- -- 8,307 -- 8,307
Change in unrealized gain/loss on
securities available-for-sale,
net of deferred income taxes.... -- -- -- -- 328 328
---- ---- ------ ------- ---- -------
Balance at December 31, 1995......... -- 119 2,389 29,366 264 32,138
Net income (unaudited)............. -- -- -- 4,252 -- 4,252
Change in unrealized gain/loss on
securities available-for-sale,
net of deferred income taxes
(unaudited)..................... -- -- -- -- 52 52
---- ---- ------ ------- ---- -------
Balance at June 30, 1996
(unaudited)........................ $ -- $119 $2,389 $33,618 $316 $36,442
==== ==== ====== ======= ==== =======
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 67

AMERISAFE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................... $ 6,716 $ 5,139 $ 8,307 $ 3,409 $ 4,252
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 240 703 1,006 364 758
Deferred income tax (benefit) expense..................... (772) (121) 203 (200) (432)
Investment (gains) losses, net............................ (176) 18 (133) (5) (7)
Changes in operating assets and liabilities:
Accounts receivable and recoverables.................... (3,278) (565) (200) 1,030 (389)
Reserves for unpaid claims and claim settlement
expenses.............................................. 8,383 6,518 14,489 5,729 6,918
Unearned premiums....................................... 1,580 2,638 (648) (1,775) 879
Reinsurance balances.................................... (2,607) (2,491) (1,103) (1,015) (545)
Amounts held for others................................. 512 1,565 4,376 2,769 715
Accounts payable and accrued liabilities................ (468) 111 3,846 (734) (2,601)
Other, net.............................................. 100 (560) (994) 1,513 (1,990)
-------- -------- -------- ------- --------
Net cash provided by operating activities....................... 10,230 12,955 29,149 11,085 7,558
INVESTING ACTIVITIES:
Purchases of investments held-to-maturity..................... (13,937) (29,770) (28,820) (7,317) (11,685)
Proceeds from maturity of investments held-to-maturity........ 2,158 11,713 8,386 1,494 8,608
Purchases of investments available-for-sale................... (645) (561) (1,777) (500) (891)
Sales and maturities of investments available-for-sale........ 2,284 384 1,805 847 555
Net decrease in other invested assets......................... 897 -- -- -- --
Purchase of subsidiary, net of cash acquired.................. -- -- (218) -- --
Purchases of real estate, furniture and equipment............. (1,702) (1,347) (2,460) (876) (1,878)
Decrease (increase) in loans to stockholders and affiliates... 1,470 (2,871) (211) -- (606)
Decrease in interest-bearing deposits in banks................ -- 265 -- -- --
-------- -------- -------- ------- --------
Net cash used in investing activities........................... (9,475) (22,187) (23,295) (6,352) (5,897)
FINANCING ACTIVITIES:
Proceeds from revolving and short-term notes payable.......... -- 6,000 -- -- 10,000
Proceeds from notes payable................................... 1,140 265 1,475 355 395
Principal payments on notes payable and capital lease
obligations................................................. (638) (2,075) (1,922) (891) (6,202)
Proceeds from loans from shareholder and affiliates........... -- 2,773 528 369 --
Principal payments on notes payable to shareholder and
affiliates.................................................. (528) (4,101) (997) -- (1,368)
-------- -------- -------- ------- --------
Net cash (used in) provided by financing activities............. (26) 2,862 (916) (167) 2,825
-------- -------- -------- ------- --------
Increase (decrease) in cash and cash equivalents................ 729 (6,370) 4,938 4,566 4,486
Cash and cash equivalents at beginning of period................ 10,905 11,634 5,264 5,264 10,202
-------- -------- -------- ------- --------
Cash and cash equivalents at end of period...................... $ 11,634 $ 5,264 $ 10,202 $ 9,830 $ 14,688
======== ======== ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................... $ 833 $ 743 $ 845 $ 420 $ 536
Income taxes paid........................................... $ 1,926 $ 2,570 $ 4,644 $ 1,800 $ 3,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Other assets acquired with the issuance of notes payable.... $ -- $ -- $ 1,200 $ -- $ --
Capital contribution from affiliate for note payable........ $ -- $ -- $ 1,027 $ -- $ --
Debt converted to redeemable cumulative preferred stock..... $ 1,480 $ -- $ -- $ -- $ --
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 68

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reorganization

AMERISAFE, Inc. (formerly Gulf Universal Holdings, Inc.) (AMERISAFE) was
reorganized on , 1996, resulting in a change in the reporting
entity. Prior to this reorganization the subsidiaries were American Interstate
Insurance Company and subsidiaries (American Interstate), Auto One Acceptance
Corporation and subsidiaries (Auto One), Gulf Universal Insurance, Ltd. (LTD),
Mor-Tem Systems, Inc. and subsidiaries (Mor-Tem), Systems Operations, Inc.
(d.b.a. Engineered Mechanical Services) (EMS) and Gulf Air, Inc. In connection
with this reorganization, the common stock of certain insurance agency
subsidiaries of Mor-Tem and EMS, and an $8.0 million note payable bearing
interest at 8.0% per annum were exchanged for the Class B Common Stock of
AMERISAFE held by a minority shareholder. Prior to the exchange, the Company
made a capital contribution of approximately $6.0 million to a subsidiary of
MorTem in the form of a note payable which bears interest at 8.0% per annum. The
Company realized a gain from discontinued operations of approximately $5.1
million on , 1996, (unaudited) in connection with the split-off of
these subsidiaries. The net assets and operations of these subsidiaries are not
separately disclosed in the accompanying financial statements as they are not
material. Following the split-off of the insurance agency subsidiaries of
Mor-Tem and EMS the Company distributed the common stock of Auto One and LTD to
the remaining shareholders on a pro rata basis. The distribution of Auto One and
LTD was accounted for as a reorganization of commonly controlled entities and
was accounted for in a manner similar to a "pooling of interests" (see Note 4).
Prior to these distributions, the Company made a capital contribution of $50.0
million to Auto One in the form of a note payable which bears interest at 8.0%
per annum. Accordingly, the historical consolidated financial statements of
AMERISAFE have been recast to include, at historical cost, only the individual
companies which were not spun off to the shareholders for all periods presented.
Management currently expects to repay the aforementioned notes payable issued in
connection with the reorganization with a portion of the proceeds of a planned
initial public offering of the Company's Class A Common Stock. Accordingly,
historical net income per share has been deleted and pro forma net income per
share, giving effect to the number of shares whose proceeds will be necessary to
repay the notes payable, has been calculated for the most recent annual and
interim periods. The effect of this change in the reporting entity was a
decrease in net income of $5,465,000 in 1993, $2,930,000 in 1994, $1,160,000 in
1995 and $837,000 and $601,000 in the six months ended June 30, 1995 and 1996,
respectively. The effect of the change in the reporting entity on pro forma net
income per share was a decrease of $0.05 in 1995 and $0.03 in the six months
ended June 30, 1996.

On August 8, 1996, AMERISAFE's Board of Directors approved a change in the
Company's capital structure for a 3,603.63-for-one stock split, the
reclassification of the Company's common stock to Class B Common Stock, the
authorization of the Class A Common Stock, a change in the par value of the
Preferred Stock from $1.00 per share to $.01 per share, and an increase in the
number of authorized shares of Class A Common Stock, Class B Common Stock and
Preferred Stock to 100,000,000 shares, 100,000,000 shares and 25,000,000 shares,
respectively, effected by amendment to the Company's articles of incorporation.
The accompanying consolidated financial statements reflect the above changes to
the Company's capital structure for all periods presented.

The characteristics of the Class B Common Stock are identical to those of
Class A Common Stock, except that each holder of the Class B Common Stock is
entitled to ten votes for each share held.

Basis of Presentation

The consolidated financial statements include the accounts of AMERISAFE and
its wholly-owned subsidiaries: American Interstate, Mor-Tem Risk Management,
Inc., Hammerman & Gainer, Inc. (H&G) and Gulf Air, Inc., collectively referred
to as the "Company."

F-7
<PAGE> 69

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

American Interstate is a property/casualty insurance company domiciled in
the state of Louisiana and conducts business primarily in the southeastern
United States. American Interstate writes primarily workers' compensation and
general liability coverage for the logging industry. It expanded its workers'
compensation business beyond the logging industry beginning in 1994, but that
industry group still accounts for approximately 60% of the Company's 1995
premiums earned. Assets and revenues of American Interstate represent
approximately 93% and 91%, respectively, of the 1995 consolidated amounts.

Mor-Tem Risk Management, Inc. is domiciled in the state of Louisiana and
provides safety engineering and claims settlement services. On September 1,
1995, the Company acquired H&G, a claims settlement company, for $1,500,000
(including notes payable of $1,200,000). The assets and liabilities of H&G at
September 1, 1995, have been recorded at their estimated fair values which,
except for certain intangible assets, were not significantly different from
their net carrying values. The unamortized balance of $1,035,000 of intangible
assets arising from this acquisition is included in other assets at December 31,
1995 and is being amortized on a straight-line basis generally over a 15 year
life. Risk management and claims settlement related assets and revenues
represent approximately 2% and 6%, respectively, of the 1995 consolidated
amounts.

Interim Financial Statements

The interim financial statements for the six months ended June 30, 1995 and
1996 are unaudited. In the opinion of management, such statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for fair
presentations of financial position, results of operations and cash flows.

Principles of Consolidation

All significant intercompany balances and transactions have been eliminated
in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.

Investments

The Company adopted Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (Statement No.
115), for its investments effective January 1, 1994. Pursuant to Statement No.
115, the Company determines the appropriate classification of investments in
debt and equity securities at the time of purchase. If the Company has the
intent and ability at the time of purchase to hold debt securities until
maturity, they are classified as investments held-to-maturity and carried at
amortized cost (unless a permanent impairment in value exists). At the date of
adoption of the new accounting standard, and at the end of 1994, the Company had
classified substantially all of its debt securities as held-to-maturity. Debt
securities for which management does not have the ability or intent to hold
until maturity are classified as available-for-sale and carried at market value;
temporary changes in market value are recognized in stockholders' equity as
unrealized gains or losses, net of deferred income tax. The Company has no
securities acquired for trading purposes.

Equity and certain other securities are considered available-for-sale and
are carried at market value. Temporary changes in the market value are reported
in stockholders' equity as unrealized gains or losses on securities
available-for-sale, net of deferred income tax. This method of reporting is
consistent with the manner in which investments in equity securities were
reported prior to adoption of Statement No. 115. No future income tax benefit
was recorded for the unrealized loss applicable to equity securities at December
31, 1993 and 1994, as the amounts were not material.

F-8
<PAGE> 70

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The discount or premium on debt securities is amortized using the interest
method. Anticipated prepayments are not considered when determining the
amortization of premiums or discounts as the unamortized amounts are not
material.

Real Estate, Furniture and Equipment

The Company's office building, furniture, and equipment are stated at cost,
less accumulated depreciation. Depreciation is calculated primarily by the
straight-line method over the estimated useful lives of the respective assets,
generally 39 years for the building, and three to seven years for furniture and
equipment.

Premium Revenue

Insurance premiums on workers' compensation and general liability coverages
are based on actual payroll costs or production during the policy term and are
generally billed monthly in arrears; accordingly, there are no significant
unearned premiums on these lines of business except assigned risk workers'
compensation policies. However, the Company requires a deposit of 5% to 25% of
the estimated annual premium at the inception of the policy; such deposits are
included in amounts held for others.

All other insurance premiums are reflected in earnings over periods covered
by the policies. Unearned premiums on these policies are computed on a daily pro
rata basis.

Reserves for Claims and Claim Settlement Expenses

Reserves for claims and claim settlement expenses represent the estimated
ultimate net cost of all reported and unreported claims incurred through the
respective balance sheet dates. The Company does not discount claims and claim
settlement expense reserves. The reserves for unpaid claims and claim settlement
expenses are estimated using individual case-basis valuations, statistical
analyses, and estimates based upon experience for unreported claims and claim
settlement expenses. Such estimates may be more or less than the amounts
ultimately paid when the claims are settled. The estimates are subject to the
effects of trends in loss severity and frequency. Although considerable
variability is inherent in such estimates, management believes that the reserves
for claims and claim settlement expenses are adequate. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes known; such adjustments are included in current operations.

Salvage and subrogation recoverables are estimated using the "case-basis"
method for large recoverables and historical statistics for smaller
recoverables. Such amounts deducted from the liability for claims and claim
settlement expenses were $237,000 and $250,000 at December 31, 1994 and 1995,
respectively, and $285,000 at June 30, 1996 (unaudited).

Federal Income Taxes

AMERISAFE, its subsidiaries and the former subsidiaries of AMERISAFE have
historically filed a consolidated federal income tax return. The consolidated
tax liability is allocated among the participants in accordance with the ratio
of each participant's taxable income to the consolidated taxable income of the
group.

Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
income tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company has not
established a valuation allowance for the

F-9
<PAGE> 71

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

deferred income tax asset at December 31, 1994 and 1995 or at June 30, 1996 as
management has concluded the entire deferred income tax asset will be realized.

Pro Forma Net Income per Share

Pro forma net income per share was computed based on the weighted average
number of common and common equivalent shares outstanding. The weighted average
shares outstanding for each period include common equivalent shares attributable
to convertible preferred stock (5,515,353 shares), outstanding stock options
(85,714 shares) using the treasury stock method, incremental shares from the
expected issuance of Class A Common Stock (6,000 shares) and pro forma shares
for the number of shares whose proceeds would be necessary to pay certain debts
originated in connection with the reorganization of AMERISAFE to be paid from
the proceeds of the Company's initial public offering of its Class A Common
Stock (4,569,357 shares) (See Note 8). Incremental shares resulting from the
issuance of convertible preferred stock and stock options issued prior to the
Company's initial public offering have been included in the weighted average
shares outstanding for all periods for which net income per share is presented.
All Class A common share and per share data have been restated to adjust for the
3,603.63-for-one stock split of the Company's Common Stock.

Reinsurance

Reinsurance premiums, claims, and claim settlement expenses are accounted
for on bases consistent with those used in accounting for the original policies
issued and the terms of the reinsurance contracts.

Stock-Based Compensation

The Company grants stock options for a fixed number of shares to employees
and non-employee directors with an exercise price equal to the fair value at
grant date. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and accordingly, recognizes no compensation expense for the stock
option grants. Pro forma information regarding net income and earnings per share
is required by Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (Statement No. 123), as if the Company had
accounted for its stock options under the fair value method of Statement No.
123. The Company will make the pro forma disclosures required by Statement No.
123 when stock options are granted.

Use of Estimates

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known which could impact the amounts reported and
disclosed herein.

F-10
<PAGE> 72

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. INVESTMENTS

The Company believes its investments do not pose unusual credit risk and
are widely diversified. In excess of 95% of the Company's investments in debt
securities at December 31, 1995 have investment agency ratings of AA or higher.
The remaining debt securities are investment grade or better.

A summary of net investment income is as follows (in thousands):

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Fixed maturities.......................... $1,510 $2,171 $3,199 $1,456 $2,136
Equity securities......................... 279 74 193 5 36
Other..................................... 373 255 1,150 389 598
------ ------ ------ ---- ------
Total investment income................... 2,162 2,500 4,542 1,850 2,770
Less investment expenses.................. 16 16 23 8 27
------ ------ ------ ---- ------
Net investment income..................... $2,146 $2,484 $4,519 $1,842 $2,743
====== ====== ====== ==== ======
</TABLE>

The cost or amortized cost and fair values of investments in debt
securities held-to-maturity at December 31, 1994 and 1995 and June 30, 1996, are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. Treasury securities and obligations of
U.S. Government agencies.................. $17,760 $ 7 $ 359 $17,408
Corporate securities........................ 2,119 10 48 2,081
Obligations of states and political
subdivisions.............................. 29,739 127 1,031 28,835
------- ------ ------ -------
Totals...................................... $49,618 $ 144 $1,438 $48,324
======= ====== ====== =======
DECEMBER 31, 1995
U.S. Treasury securities and obligations of
U.S. Government agencies.................. $28,530 $ 721 $ 4 $29,247
Corporate securities........................ 2,768 44 -- 2,812
Obligations of states and political
subdivisions.............................. 33,754 1,037 10 34,781
------- ------ ------ -------
Totals...................................... $65,052 $1,802 $ 14 $66,840
======= ====== ====== =======
JUNE 30, 1996 (UNAUDITED)
U.S. Treasury securities and obligations of
U.S. Government agencies.................. $34,170 $ 116 $ 786 $33,500
Corporate securities........................ 3,283 6 134 3,155
Obligations of states and political
subdivisions.............................. 31,342 543 106 31,779
------- ------ ------ -------
Totals...................................... $68,795 $ 665 $1,026 $68,434
======= ====== ====== =======
</TABLE>

F-11
<PAGE> 73

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Unrealized gains and losses on investments in securities available-for-sale
are reported directly in stockholders' equity (net of deferred income taxes) and
do not affect operations. The gross unrealized gains and losses on, and the cost
and fair value of, those investments at December 31, 1994 and 1995 and June 30,
1996 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
Common stocks................................ $1,317 $ -- $64 $1,253
Debt securities.............................. 125 -- -- 125
------ ---- --- ------
Totals....................................... $1,442 $ -- $64 $1,378
====== ==== === ======
DECEMBER 31, 1995
U.S. Treasury securities and obligations of
U.S. Government agencies................... $3,191 $ 72 $ 3 $3,260
Other debt securities........................ 100 3 -- 103
------ ---- --- ------
Total debt securities...................... 3,291 75 3 3,363
Common stocks (primarily mutual funds)....... 2,748 342 14 3,076
------ ---- --- ------
Totals....................................... $6,039 $417 $17 $6,439
====== ==== === ======
JUNE 30, 1996 (UNAUDITED)
U.S. Treasury securities and obligations of
U.S. Government agencies................... $2,900 $ 19 $ 5 $2,914
Other debt securities........................ 100 2 -- 102
------ ---- --- ------
Total debt securities...................... 3,000 21 5 3,016
Common stocks (primarily mutual funds)....... 3,641 491 49 4,083
------ ---- --- ------
Totals....................................... $6,641 $512 $54 $7,099
====== ==== === ======
</TABLE>

A summary of the cost or amortized cost and fair value of investments in
debt securities by contractual maturity at December 31, 1995 is as follows (in
thousands):

<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
----------------------- --------------------
COST OR COST OR
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Maturity
In 1996.................................... $ 8,912 $ 8,948 $1,196 $1,210
In 1997 through 2001....................... 29,244 30,017 2,095 2,153
In 2002 through 2006....................... 24,022 24,866 -- --
After 2006................................. 2,874 3,009 -- --
------- ------- ------ ------
$65,052 $66,840 $3,291 $3,363
======= ======= ====== ======
</TABLE>

The actual maturities of the debt securities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.

At December 31, 1995, there were $365,000 of short-term investments
(included in cash and cash equivalents) and $3,316,000 of held-to-maturity
investments on deposit, as required, with regulatory agencies of states in which
the Company does business.

F-12
<PAGE> 74

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Proceeds from sales or maturities of available-for-sale securities during
1993, 1994 and 1995 were approximately $2,284,000, $384,000 and $1,805,000,
respectively, and $847,000 and $1,774,000 for the six months ended June 30, 1995
and 1996, respectively. Gross gains of $147,000, $26,000, $174,000, $6,000 and
$7,000 and gross losses of $38,000, $4,000, $1,000 and $0 were realized on these
securities during 1993, 1994, 1995 and the six months ended June 30, 1995 and
1996 (unaudited), respectively. Realized gains and losses are determined on the
basis of the cost of the specific security sold.

During 1995, Silver Oak Casualty, Inc. (Silver Oak), a subsidiary of
American Interstate, disposed of two held-to-maturity debt securities prior to
their stated maturities to satisfy its liquidity needs. As a result, on the
basis of the likelihood that other sales may occur in the future, all of Silver
Oak's debt securities, with an aggregate amortized cost of approximately
$3,300,000 and an unrealized loss of approximately $25,000, were transferred to
the available-for-sale portfolio.

American Interstate sold a held-to-maturity debt security during 1995 prior
to its stated maturity. The security, which had a carrying value of $300,000,
was sold at a loss of $8,000. The sale was the result of a downgrade in the
investment rating of the security by Standard and Poor's rating agency and is
considered an isolated event. The Company's management intends to hold the
remaining held-to-maturity portfolio until maturity.

3. REINSURANCE

The Company cedes reinsurance to various unaffiliated reinsurers under
excess-of-loss policies. Those reinsurance arrangements allow management to
control exposure to potential losses arising from larger risks and provide
additional capacity for growth. Generally, the Company retains $200,000 per
occurrence.

The effect of reinsurance on premiums written and earned in 1993, 1994 and
1995 was as follows (in thousands):

<TABLE>
<CAPTION>
NET
DIRECT CEDED PREMIUMS
------- ------- --------
<S> <C> <C> <C>
1993 Premiums
Written............................................. $45,660 $(8,189) $37,471
Earned.............................................. 43,995 (8,093) 35,902
1994 Premiums
Written............................................. $50,900 $(8,033) $42,867
Earned.............................................. 48,262 (7,801) 40,461
1995 Premiums
Written............................................. $66,184 $(8,336) $57,848
Earned.............................................. 66,832 (8,665) 58,167
</TABLE>

Claims and claim settlement expenses were reduced by reinsurance recoveries
of $5,462,000, $3,906,000 and $5,398,000 in 1993, 1994 and 1995, respectively,
and $2,437,000 and $2,162,000 for the six months ended June 30, 1995 and 1996
(unaudited), respectively.

F-13
<PAGE> 75

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Amounts recoverable from reinsurers consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Recoverable ceded reserves for unpaid claims and claims
settlement expenses:
Case basis........................................ $ 8,321 $ 9,780 $10,261
Incurred but not reported......................... 1,376 2,343 3,073
------- ------- -------
9,697 12,123 13,334
Paid claims recoverable................................ 915 1,237 996
Ceded unearned premiums................................ 329 -- --
------- ------- -------
Total.................................................. $10,941 $13,360 $14,330
======= ======= =======
</TABLE>

The five largest unsecured reinsurance recoverables associated with
unaffiliated reinsurers at December 31, 1995, are shown below (in thousands).
The A.M. Best rating for the reinsurer is shown parenthetically.

<TABLE>
<S> <C>
General Reinsurance Corporation (A++)....................................... $2,710
Insurance Corporation of Hannover (A-)...................................... 1,256
Reliance Insurance Company (A-)............................................. 2,897
Skandia America Reinsurance Corporation (A-)................................ 2,655
TIG Reinsurance Corporation (A)............................................. 1,045
</TABLE>

Ceded reinsurance contracts do not relieve the Company from its obligations
to policyholders. The Company remains liable to its policyholders for the
portion reinsured to the extent that any reinsurer does not meet the obligations
assumed under the reinsurance agreements. To minimize its exposure to
significant losses from reinsurer insolvencies, the Company evaluates the
financial condition of its reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities, or economic characteristics
of the reinsurers.

F-14
<PAGE> 76

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. FEDERAL INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for federal income tax purposes. The Company's
deferred income tax assets and liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred income tax assets:
Discounting of unpaid claims.......................... $2,291 $2,350 $2,978
20% reduction of unearned premiums.................... 269 245 305
Other................................................. 149 202 --
------ ------ ------
2,709 2,797 3,283
Deferred income tax liabilities:
Commissions on deposit premiums....................... (82) (155) (155)
Deferred policy acquisition costs..................... (153) (108) (208)
Unrealized gain on securities available-for-sale...... -- (161) (148)
Conversion of acquired subsidiary from cash to accrual
basis of accounting................................ -- (193) (193)
Other................................................. (171) (289) (256)
------ ------ ------
(406) (906) (960)
------ ------ ------
Net deferred federal income tax asset................... $2,303 $1,891 $2,323
====== ====== ======
</TABLE>

The components of consolidated federal income tax expense are as follows
(in thousands):

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current................................... $3,540 $2,535 $4,822 $1,630 $2,113
Deferred.................................. (772) (121) 412 (200) (430)
------ ------ ------ ------ ------
Total..................................... $2,768 $2,414 $5,234 $1,430 $1,683
====== ====== ====== ====== ======
</TABLE>

Federal income tax expense is different from the amount computed by
applying the U.S. federal income tax statutory rate of 34% to income before
federal income taxes as follows (in thousands):

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------- JUNE 30,
1993 1994 1995 1996
------ ------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income tax computed at federal statutory tax
rate........................................ $3,225 $2,568 $4,604 $2,018
Tax exempt interest, net...................... (297) (404) (478) (236)
Dividends received deduction.................. (17) (22) (50) (9)
Change in accrual for prior taxes............. -- -- 700 --
Other......................................... (143) 272 458 (90)
------ ------ ------ ------
$2,768 $2,414 $5,234 $1,683
====== ====== ====== ======
</TABLE>

In connection with the reorganization (see Note 1), the Company distributed
the stock of certain subsidiaries to shareholders of the Company in a
transaction intended to qualify as tax-free distributions for

F-15
<PAGE> 77

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

federal income tax purposes under section 355 of the Internal Revenue Code of
1986, as amended (the "Code"). Prior to such distributions, the Board of
Directors of the Company received an opinion from its legal counsel to the
effect that such distributions should so qualify for federal income tax
purposes. No ruling with respect to such distributions was obtained from the
IRS; however, and there can be no assurance that the IRS will not take a
position that such distributions do not qualify as tax-free. If the
distributions were not to qualify for tax-free treatment under section 355 of
the Code, the Company would recognize taxable gains on the distributions of the
subsidiaries stock equal to the difference on such date between (i) the fair
market value of the distributed stock and (ii) the Company's adjusted basis in
such stock, at the transaction date.

The Company is in the process of resolving various issues with respect to
examinations by the Internal Revenue Service (IRS) of AMERISAFE's 1992
consolidated income tax return and of the 1990 and 1991 tax returns of a
subsidiary that was merged into AMERISAFE. The IRS has issued to the Company
notices of proposed adjustment for alleged tax deficiencies of approximately
$5.4 million as a result of these examinations, approximately $3.3 million of
which relate to temporary differences. The Company has filed a written protest
of the alleged deficiencies related to the examination of its 1992 consolidated
tax return. Management believes the alleged deficiencies are without merit and
intends to vigorously defend its position on these matters and litigate them if
necessary. In addition, the Company has entered into an agreement with certain
of its former subsidiaries that were split-off in connection with the
reorganization (see Note 1) whereby it will be indemnified for any liability
that might result from the 1990 and 1991 examinations. Management does not
believe the resolution of these matters will have a material effect on the
financial position or results of operations of the Company. Therefore, no
liability has been accrued in the accompanying financial statements for
additional taxes that may result from these alleged deficiencies. However, the
resolution of the temporary differences related to the 1992 examination may
result in an increase in deferred tax benefit and a significant cash payment of
income taxes by the Company if it does not prevail in its protest. Accordingly,
the Company included a $700,000 adjustment in the 1995 tax provision for
interest (net of tax benefit) on this cash payment of taxes.

The Company entered into a tax allocation agreement with the subsidiaries
distributed in connection with the reorganization (Distributed Subsidiaries) to
provide for (i) the allocation of payments of taxes for periods during which the
Company (or any of its affiliates other than the Distributed Subsidiaries and
the direct and indirect subsidiaries thereof) and any of the Distributed
Subsidiaries or any direct or indirect subsidiaries thereof are included in the
same consolidated group for federal income tax purposes, (ii) the allocation of
responsibility for the filing of tax returns, the conducting of tax audits and
the handling of tax controversies, and (iii) various related matters.

F-16
<PAGE> 78

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. NOTES PAYABLE

Notes payable consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable:
Revolving credit loan payable to bank; originally due June
1995 extended through January 31, 1996, interest payable
at prime (generally 8.09% and 8.89% in 1994 and 1995,
respectively); secured by stock of Auto One and
Mor-Tem.................................................. $ 6,000 $ 5,200 $ --
Capital equipment leases, bearing interest at approximately
8.6%..................................................... 207 141 106
Note payable to bank; principal and interest payments in
monthly installments through November 2, 1998; interest
at prime rate; secured by aircraft....................... 1,007 893 --
Note payable to bank; principal and interest in monthly
installments through March 1, 2001; interest at 8.125%;
secured by furniture and fixtures........................ -- -- 368
Note payable to bank; interest only until January 31, 1999,
after which principal and interest will be paid in
monthly installments through January 2, 2002; interest at
LIBOR plus 6%; secured by stock of AMERISAFE, Auto One,
and Mor-Tem.............................................. -- -- 10,000
Notes payable to financial institutions; principal and
interest in monthly installments through 1998; various
interest rates; secured by Company automobiles........... 265 798 751
Notes payable to former owners of acquired subsidiary, due
in annual installments through August 1, 1999, interest
payable at 2.667%........................................ -- 1,200 1,200
------- ------- -------
Total notes payable................................. 7,479 8,232 12,425
Notes payable to shareholders and affiliates:
Note payable to Auto One, interest payable at 8.0%.......... 2,200 1,203 --
Notes payable to LTD, interest payable at 6.5% and 8.0%..... 1,027 -- --
Notes payable to shareholder; due on demand; interest
payable at 9.0%.......................................... 150 150 --
Other borrowings from affiliates............................ -- 528 513
------- ------- -------
Total notes payable to shareholder and affiliates... 3,377 1,881 513
------- ------- -------
Total notes payable and notes payable to shareholder and
affiliates.................................................. $10,856 $10,113 $12,938
======= ======= =======
</TABLE>

During 1995, the Company received a dividend from a former subsidiary
consisting of a $1,027,000 note owed by the Company to the former subsidiary.
This dividend was accounted for as a capital contribution in the Company's 1995
financial statements because of the control exercised over the Company and the
former subsidiary by the companies' common shareholder.

F-17
<PAGE> 79

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The future maturities of the Company's outstanding notes payable at
December 31, 1995, without regards to the matter discussed in the following
paragraph, are summarized as follows (in thousands):

Subsequent to December 31, 1995, the Company replaced its existing
revolving credit facility due January 31, 1996 with a new credit facility. The
new facility bears an interest rate of LIBOR plus 6%, expires no earlier than
January 1999, and contains covenants restricting the payment of dividends and
requiring the Company, Auto One and American Interstate to maintain certain
financial ratios. The Company retired the $893,000 debt secured by aircraft with
the proceeds from this new credit facility.

Management currently expects to use a portion of the proceeds from a
planned initial public offering of the Company's Class A Common Stock (see Note
13) to repay the $10,000,000 note payable to bank and other indebtedness. The
repayment of debt is expected to result in prepayment penalties and other fees
of approximately $500,000 in the fourth quarter of 1996. Supplemental pro forma
net income per share reflecting (i) the issuance of a sufficient number of
shares of Class A Common Stock to repay debt outstanding at June 30, 1996 and
(ii) the elimination of interest expense related to those borrowings was $0.39
and $0.19 for the year ended December 31, 1995 and the six months ended June 30,
1996, respectively.

F-18
<PAGE> 80

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. CLAIMS AND CLAIM SETTLEMENT EXPENSES

The following table provides a reconciliation of the beginning and ending
reserve balances, net of reinsurance recoverables, for 1993, 1994 and 1995 and
the six months ended June 30, 1996 (in thousands):

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------- JUNE 30,
1993 1994 1995 1996
-------- -------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Reserves for claims and claim settlement
expenses, net of related reinsurance
recoverables, at beginning of period........... $ 19,772 $ 24,882 $ 31,242 $43,304
Add:
Provision for claims and claim settlement
expenses for claims occurring in the current
period, net of reinsurance.................. 22,173 26,637 36,074 18,973
Decrease in estimated claims and claim
settlement expenses for claims occurring in
prior periods, net of reinsurance........... (1,911) (1,387) (3,150) (617)
-------- -------- -------- -------
Incurred claims and claim settlement expenses,
net of reinsurance............................. 20,262 25,250 32,924 18,356
Deduct claims and claim settlement expense
payments for claims, net of reinsurance,
occurring during:
Current period................................. (7,395) (7,795) (10,219) (3,296)
Prior periods.................................. (7,757) (11,095) (10,643) (9,353)
-------- -------- -------- -------
(15,152) (18,890) (20,862) (12,649)
-------- -------- -------- -------
Reserve for claims and claim settlement expenses,
net of related reinsurance recoverables, at end
of period...................................... 24,882 31,242 43,304 49,011
Recoverable ceded reserves for unpaid claims and
claims settlement expenses..................... 9,539 9,697 12,123 13,334
-------- -------- -------- -------
Reserves for claims and claim settlement expenses
at end of period............................... $ 34,421 $ 40,939 $ 55,427 $62,345
======== ======== ======== =======
</TABLE>

The Company's reserves for claims and claim settlement expenses, net of
related reinsurance recoverables, at December 31, 1992, 1993, 1994, and 1995,
were decreased in 1993, 1994, 1995, and the six months ended June 30, 1996
(unaudited) by $1,911,000, $1,387,000, $3,150,000, and $617,000, respectively,
for claims that had occurred prior to those balance sheet dates. The decreases
were due to settling case-basis liabilities related to claims in those periods
for less than originally estimated. Most of the favorable development has
resulted from the Company's managed results approach and claims management
process. No return premiums are due as a result of prior-year effects.

The anticipated effect of inflation is considered when estimating
liabilities for claims and claim settlement expenses. While anticipated price
increases due to inflation are considered in estimating the ultimate claim
costs, the increase in average severities of claims is caused by a number of
factors that vary with the individual type of policy written. Future average
severities are projected based on historical trends adjusted for implemented
changes in underwriting standards, policy provisions, and general economic
trends. Those anticipated trends are monitored based on actual development and
are modified if necessary.

F-19
<PAGE> 81

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. REAL ESTATE, FURNITURE AND EQUIPMENT

Real estate, furniture and equipment consists of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Land and office building.............................. $1,202 $1,772 $2,810
Furniture and equipment............................... 1,730 2,745 3,500
Automobiles........................................... 321 1,176 1,329
Aircraft.............................................. 1,824 1,824 1,824
------ ------ ------
5,077 7,517 9,463
Accumulated depreciation.............................. 808 1,611 2,313
------ ------ ------
Real estate, furniture and equipment, net............. $4,269 $5,906 $7,150
====== ====== ======
</TABLE>

8. STOCKHOLDERS' EQUITY, REGULATORY REQUIREMENTS AND RESTRICTIONS

American Interstate and its insurance subsidiary are required to
periodically submit financial statements prepared in accordance with statutory
accounting practices to insurance regulatory authorities. Accounting practices
used to prepare these statutory-basis financial statements differ from generally
accepted accounting principles. American Interstate's statutory capital and
surplus, determined using statutory accounting practices, as of December 31,
1994 and 1995, was approximately $20,006,000 and $26,715,000, respectively; its
insurance subsidiary's statutory capital and surplus was approximately
$3,108,000 and $3,270,000 at December 31, 1994 and 1995, respectively. American
Interstate's statutory net income was approximately $5,177,000, $4,676,000, and
$7,888,000 for the years ended December 31, 1993, 1994, and 1995, respectively;
its insurance subsidiary reported net losses of approximately $156,000 and
$563,000 for the years ended December 31, 1993 and 1994, respectively, and net
income of approximately $88,000 for the year ended December 31, 1995.

Under Louisiana insurance regulations, American Interstate and its
insurance subsidiary are each required to maintain minimum capital and surplus
of $3 million at December 31, 1995.

Pursuant to routine regulatory requirements, American Interstate cannot pay
dividends in excess of the lesser of 10% of statutory surplus, or statutory net
income, less realized capital gains, for the preceding 12-month period without
prior approval of the Louisiana Commissioner of Insurance. American Interstate
cannot pay dividends in 1996 in excess of approximately $2.7 million without
prior regulatory approval.

The redeemable cumulative preferred stock pays dividends at a rate of 8%
per annum (applied to the stated value of $1,480,000), is nonvoting, and is
redeemable at any time at the option of the Company. The preferred stock was
issued in satisfaction of notes payable (bearing interest at 9% to 11%) to a
shareholder. Each share of preferred stock is convertible into three shares of
Class B common stock (10,810.88 shares after giving effect to the stock split)
at the option of the preferred shareholder. The liquidation preference is equal
to stated value plus all dividends in arrears and totaled $1,598,400 at December
31, 1994, $1,716,800 at December 31, 1995, and $1,776,000 at June 30, 1996. At
December 31, 1995 and June 30, 1996 (unaudited), cumulative dividends of
$236,800 and $296,000, respectively, were in arrears. Subsequent to June 30,
1996 (unaudited), the preferred stockholder exercised the option to convert the
preferred stock into common stock.

The Board of Directors adopted a stock incentive plan on August 5, 1996,
subject to approval by the shareholders of the Company (the Stock Incentive
Plan). The Stock Incentive Plan provides for the grant of restricted Class A
Common Stock and options on Class A Common Stock to officers, non-employee
directors and other individuals providing critical services to the Company. The
term of each stock option issued under the Stock Incentive Plan is ten years and
options generally vest evenly over a period of five years. Restricted

F-20
<PAGE> 82

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock issued under the Stock Incentive Plan generally vests evenly over a period
of three years. Stock options for 600,000 shares at an exercise price of $12 per
share were granted under the Stock Incentive Plan; none of these options have
been exercised. Six thousand shares of restricted stock have been approved for
issuance subject to completion of a planned initial public offering of the
Company's Class A common stock. The aggregate number of shares reserved for
issuance under the Stock Incentive Plan is 3,000,000.

Property/casualty insurance companies are subject to certain Risk-Based
Capital (RBC) requirements specified by the National Association of Insurance
Commissioners (NAIC). Under those requirements, the amount of capital and
surplus maintained by a property/casualty insurance company is to be determined
based on the various risk factors related to it. At December 31, 1994 and 1995
and June 30, 1996, American Interstate and its insurance subsidiary exceed the
minimum RBC requirements.

Unaudited pro forma liabilities and stockholders' equity at June 30, 1996
as set forth in the accompanying balance sheet reflects the assumed conversion
of preferred stock and debts incurred in connection with the reorganization of
AMERISAFE which are expected to be paid from the proceeds of a planned initial
public offering of the Company's Class A common stock. See Note 1.

9. RELATED PARTY TRANSACTIONS

Fees and other from affiliates includes fees from various affiliated
entities for the costs of providing certain executive, administrative and
support services to those affiliates.

During 1993, substantially all of the Company's gross premiums earned were
produced by MT & Co. and Southern Underwriters, Inc., two agencies under common
control by a former subsidiary of AMERISAFE. In January 1994, AMERISAFE
transferred to American Interstate a portion of the agency operations of these
affiliated agencies. The transfer had no effect on stockholders' equity but
established American Interstate as a direct writer of its core logging industry
related business. MT & Co. and Southern Underwriters, Inc. produced
approximately 8.0% and 5.0% of the Company's gross premiums earned in 1994 and
1995, respectively. At December 31, 1994 and 1995, approximately $607,000 and
$795,000, respectively, were included in agents balances in course of collection
related to business produced by these agencies. Management currently expects to
continue its business relationship with these agencies following the
reorganization.

During 1995 the Company received a dividend from a former subsidiary
consisting of a $1,027,000 note owed by the Company to the former subsidiary.
See Note 5.

In connection with the reorganization, the Company and Auto One entered
into a services agreement (Services Agreement), pursuant to which the Company
will continue to provide various services to Auto One, including payroll, human
resources, legal, internal audit, benefits administration and similar
administrative and management services that the Company has historically
provided to Auto One. For such services, Auto One will pay the Company a fee of
$40,000 per month. The Services Agreement is terminable by either the Company or
Auto One on 90 days' prior notice; provided however, that neither party may
terminate the Services Agreement prior to the first anniversary date of the
planned initial public offering of the Company's Class A Common Stock.

The Company has entered into an office sharing agreement with AOAC with
respect to its 2,500 square foot executive offices in Dallas, Texas. Under the
terms of the agreement, the Company will pay to AOAC $3,700 per month. The
agreement may be terminated by either party upon 90 days' written notice.

The Company and Auto One have entered into an aircraft agreement (Aircraft
Agreement) pursuant to which Auto One may use the aircraft owned by the Company
for travel by Auto One's senior management in the course of Auto One's business.
Auto One will be charged a fee for the use of such aircraft at a rate of $5,000
per month plus an additional amount based on the number of nautical miles
traveled. The Aircraft

F-21
<PAGE> 83

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Agreement has an initial term of one year and may be terminated thereafter by
either party on 90 days' written notice.

10. EMPLOYEE BENEFIT PLAN

The Company sponsors a 401(k) benefit program which is available to all
employees. The Company matches up to 1% of employee contributions limited to 4%
of employee compensation for participating employees. Employees vest immediately
in their contributions and become 100% vested in employer contributions to the
plan after five years. Contributions during 1993, 1994 and 1995 and the six
months ended June 30, 1996 were not material.

11. COMMITMENTS AND CONTINGENCIES

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.

The Company manages interest rate risk on pension-type claims by settling
these claims through the purchase of annuities from unaffiliated carriers. In
the event these carriers are unable to meet their obligations under these
contracts, the Company remains primarily liable to the claimants. Significant
carriers and the face amounts of the annuities at December 31, 1995, are as
follows (in thousands):

<TABLE>
<S> <C>
Confederation Life.......................................................... $ 936
Transamerica Occidental..................................................... 323
Others...................................................................... 1,098
------
$2,357
======
</TABLE>

The Company continuously monitors the financial condition of all carriers.
On August 11, 1994, Confederation Life's Canadian parent was placed into
receivership by Canadian insurance regulators. Management has monitored the
rehabilitation of Confederation Life since that date and, on the basis of
published reports, believes no loss will be incurred by the Company as a result
of the receivership of Confederation Life's Canadian parent. Accordingly, no
loss accrual is recorded in the accompanying consolidated financial statements.
Confederation Life is current in its annuity obligations at December 31, 1995
and June 30, 1996.

The increase in the number of insurance companies that are under regulatory
supervision has resulted, and is expected to continue to result, in increased
assessments by state guaranty funds to cover losses to policyholders of
insolvent or rehabilitated insurance companies. Those mandatory assessments may
be partially recovered through a reduction in future premium taxes in certain
states. The Company recognizes those assessments when notified by the State.
Assessments paid by the Company were approximately $353,000, $442,000 and
$477,000 in 1993, 1994 and 1995, respectively, and $427,000 for the six months
ended June 30, 1996 (unaudited).

The Company has entered into employment agreements with certain executives
in connection with a planned initial public offering of the Company's Class A
Common Stock (see Note 13). These agreements have initial terms of three years
and require aggregate annual salary payments of approximately $1,285,000.

F-22
<PAGE> 84

AMERISAFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in
estimating "fair value" disclosures for financial instruments in the
accompanying 1995 and 1996 consolidated financial statements and notes thereto:

Cash and Cash Equivalents

The carrying amounts reported in the accompanying 1995 and 1996
consolidated balance sheet for these financial instruments approximate their
fair values.

Investment Securities

The fair values disclosed in Note 2 for fixed maturity securities and
equity securities are based on market values prescribed by the Securities
Valuation Office of the NAIC (which approximates quoted market prices) or quoted
market prices, where available.

Notes Payable

The carrying value of notes payable (excluding capital lease obligations)
disclosed in Note 5 approximates the estimated fair value of the obligations as
the interest rates on substantially all the debt are comparable to rates which
the Company believes it presently would be charged on comparable borrowings.

Other Assets and Liabilities

The carrying amounts of recoverables from state funds and from reinsurers,
funds on deposit with reinsurers, notes receivable from shareholders and
affiliates, funds held under reinsurance treaties and amounts held for others
approximate those assets' and liabilities' carrying values because of the actual
or expected short-term maturity of those instruments.

13. SUBSEQUENT EVENT

On August 5, 1996, the Board of Directors authorized the registration of up
to 16,000,000 shares of the Company's Class A Common Stock to be offered in a
planned initial public offering of such stock.

14. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA (IN THOUSANDS)

<TABLE>
<CAPTION>
1995
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue................................................ $12,820 $14,606 $21,303 $19,921
======= ======= ======= =======
Claims and claims settlement expenses.................. $ 6,725 $ 6,820 $10,926 $ 8,453
======= ======= ======= =======
Net income............................................. $ 1,642 $ 1,767 $ 2,602 $ 2,296
======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
1994
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue................................................ $10,226 $10,580 $13,751 $12,588
======= ======= ======= =======
Claims and claims settlement expenses.................. $ 6,032 $ 5,566 $ 8,654 $ 4,998
======= ======= ======= =======
Net income............................................. $ 703 $ 1,178 $ 436 $ 2,822
======= ======= ======= =======
</TABLE>

F-23
<PAGE> 85

MANAGING YOUR
WORKERS' COMPENSATION NEEDS

Oil derricks, log skidders, cherry pickers, cranes, road graders,
bulldozers, dredges, "18 wheelers", chainsaws, shovels, pick axes, and sledge
hammers -- all tools, all heavy equipment. Skilled workers performing
back-breaking, muscle-wrenching work in every town, forest, oil patch, and
roadbed in America. Drilling, mining, and harvesting natural resources. Laying
power and transmission lines. Building bridges, stadiums, overpasses, office
buildings, homes, and hospitals.

America's builders of infrastructure -- hundreds of thousands of skilled
workers exposed to life-threatening work hazards. One slip from a ledge, one
wayward falling tree, one out-of-control bulldozer -- these can mean death,
quadriplegia, or amputation. They can mean pain, permanent disability, and
millions of dollars in lost wages and medical payments. They can mean a family's
dreams are crushed. They mean a good worker has to be replaced.

[A COLLAGE OF PHOTOS]

At AMERISAFE, the Managed Results Company(SM), we believe that prevention
is the best managed care. Prevention produces the best outcome: no injury, no
lost work, no medical bills, no pain, and no rehabilitation. We work on
prevention through training, safety programs, and behavior modification. Our
safety professionals live and work near our clients. They spend their days, and
sometimes nights, on job sites -- exploring new ways to prevent accidents.
They're appreciated because they're effective.

When accidents do occur, managed medical care is just the beginning. Our
case managers work with the injured employee, with the employee's family, his
boss, and his rehab team. They work together to get that employee back on the
job.

That's good management. That's a second beginning.

MANAGED SAFETY

MANAGED CLAIMS

MANAGED CARE

[AMERISAFE LOGO]
<PAGE> 86

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR ANY OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH AN
OFFER IN ANY STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT THE INFORMATION HEREIN IS CURRENT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
The Company............................ 7
Risk Factors........................... 7
Use of Proceeds........................ 14
Dividend Policy........................ 14
Recent Reorganization.................. 15
Capitalization......................... 17
Dilution............................... 19
Selected Consolidated Financial Data... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 21
Business............................... 31
Management............................. 45
Principal Shareholders................. 53
Certain Transactions and
Relationships........................ 54
Description of Capital Stock........... 55
Shares Eligible for Future Sale........ 57
Underwriting........................... 59
Legal Matters.......................... 60
Experts................................ 60
Additional Information................. 60
Index to Financial Statements.......... F-1
</TABLE>

UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

11,000,000 SHARES

AMERISAFE, INC.

CLASS A COMMON STOCK

[LOGO]

------------

PROSPECTUS

, 1996

------------

SMITH BARNEY INC.

PIPER JAFFRAY INC.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 87

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth an estimate of those expenses to be incurred
by the Company in connection with the issuance and distribution of the
securities being registered.

<TABLE>
<S> <C>
Securities and Exchange Commission Fee................................... $ 65,432
NASD Fee................................................................. 19,475
New York Stock Exchange Listing Fee...................................... 190,000
Printing Expenses........................................................ 150,000
Legal Fees and Expenses.................................................. 400,000
Accounting Fees and Expenses............................................. 235,000
Transfer Agent Fees...................................................... 5,000
Blue Sky Fees and Expenses............................................... 15,000
Miscellaneous............................................................ 20,093
----------
Total.......................................................... $1,100,000
==========
</TABLE>

All these expenses, except the Securities and Exchange Commission
registration fee, the New York Stock Exchange listing fee and the NASD
registration fee, represent estimates only.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Articles 2.02A(16) and 2.02-1 of the Texas Business Corporation Act (the
"TBCA") permit a corporation to indemnify a person who was or is a director,
officer, employee or agent of a corporation or who serves at the corporation's
request as a director, officer, venturer, partner, proprietor, trustee, employee
or agent of another corporation, partnership, sole proprietorship, employee
benefit plan, trust, joint venture, or other enterprise (an "outside
enterprise"), who was, is or is threatened to be named a defendant in a legal
proceeding by virtue of such person's position in the corporation or in an
outside enterprise, but only if the person conducted himself in good faith and
reasonably believed, in the case of conduct in the person's official capacity,
that the conduct was in the corporation's best interest or, in the case of all
other conduct, that the conduct was not opposed to the corporation's best
interest, and, in the case of a criminal proceeding, the person had no
reasonable cause to believe the conduct was unlawful. A person may be
indemnified within the above limitations against judgments, penalties, fines,
settlements and reasonable expenses actually incurred.

Generally, an officer, director, agent or employee of a corporation or a
person who serves at the corporation's request as an officer, director, agent or
employee of an outside enterprise may not be indemnified against judgments,
fines and settlements incurred in a proceeding in which the person is found
liable to the corporation or is found to have improperly received a personal
benefit and may not be indemnified for expenses unless, and only to the extent
that, in view of all the circumstances, the person is fairly and reasonably
entitled to indemnification for such expenses. A corporation must indemnify a
director, officer, employee or agent against reasonable expenses incurred in
connection with a proceeding in which the person is a party because of the
person's corporate position, if the person was successful, on the merits or
otherwise, in the defense of the proceeding. Under certain circumstances, a
corporation may also advance expenses to such person.

Article 2.02-1 of the TBCA permits a corporation to purchase and maintain
insurance or to make other arrangements on behalf of any of the foregoing
persons against any liability asserted against and incurred by the person in
such capacity, or arising out of the person's status as such a person, whether
or not the corporation would have the powers to indemnify the person against the
liability under applicable law.

The Company's Articles of Incorporation, as amended (the "Articles"),
provide that the Company's directors will have no personal liability to the
Company or its shareholders for monetary damages for an act or omission in their
capacities as directors. This provision has no effect on director liability for
(i) a breach of the

II-1
<PAGE> 88

director's duty of loyalty to the Company or its shareholders, (ii) acts or
omissions not in good faith that constitute a breach of duty of a director or
involving intentional misconduct or knowing violations of law, (iii) approval of
any transaction from which a director derives an improper personal benefit, or
(iv) an act or omission for which the liability of a director is expressly
provided by an applicable statute. In addition, the Company's Articles provide
that any additional liability permitted to be eliminated by subsequent
legislation will automatically be eliminated without further shareholder vote,
unless additional shareholder approval is required by such legislation.

Article VI of the Company's Bylaws (the "Bylaws") also provides that the
Company will indemnify its directors, officers, employees and agents to the
fullest extent permitted by the TBCA. As described above, this means that the
Company is generally required to indemnify its directors, officers, employees,
and agents against all judgments, fines, settlements, legal fees, and other
expenses incurred in connection with pending or threatened legal proceedings
because of the person's position with the Company or another entity that the
person serves at the Company's request, subject to certain conditions, generally
described above, and to advance funds to enable them to defend against such
proceedings.

The Company has entered into certain agreements (the "Indemnification
Agreements") with each of its directors and executive officers (each, an
"Indemnitee") designed to give effect to the foregoing provisions of the
Articles and Bylaws. The Indemnification Agreements are intended to provide
certain additional assurances against the possibility of uninsured liability
primarily because the Indemnification Agreements (i) specify the extent to which
the Indemnitees shall be entitled to receive benefits not expressly set forth in
the TBCA and (ii) include a number of procedural provisions designed to provide
certainty in administration of the rights to indemnity. Pursuant to the
Indemnification Agreements, among other things, an Indemnitee will be entitled
to indemnification as provided by the TBCA. The right to receive indemnification
is not available under the Indemnification Agreements in connection with any
claim against the Indemnitee (i) for which payment is actually made to the
Indemnitee under a valid and collectible insurance policy or (ii) as to which
the Indemnitee shall have been adjudged to be liable for willful or intentional
misconduct in the performance of his duty to the Company, unless ordered by the
court in which the claim was brought in accordance with applicable law.

The Underwriting Agreement entered into by the Company and the Underwriters
in connection with this Offering provides that the Underwriters will indemnify
the directors and officers of the Company against certain liabilities relating
to information furnished by the Underwriters.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On December 31, 1993, the Company issued 3,229.34 shares of the Company's
common stock in exchange for all of the issued and outstanding common stock of
Mor-Tem Systems, Inc. ("Mor-Tem") owned by Messrs. Morris, Anderson and another
Mor-Tem shareholder. On the same date, the Company issued 510.167 shares of the
Company's Series B Cumulative Preferred Stock (the "Series B Stock") to Mr.
Morris in exchange for the cancellation of the Company's promissory notes
payable to Mr. Morris with outstanding principal balances totalling $1,480,000.
On July 29, 1996, Mr. Morris converted the Series B Stock into 1530.50 shares of
the Company's common stock. The above transactions were exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
pursuant to Section 4(2) thereof.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

a. Exhibits:

<TABLE>
<C> <S>
1.1* -- Form of Underwriting Agreement
2.1* -- Distribution Agreement between the Company and existing and former
shareholders
2.2 -- Form of First Amendment to Distribution Agreement among the Company,
existing and former shareholders and former subsidiaries
</TABLE>

II-2
<PAGE> 89

<TABLE>
<C> <S>
2.3 -- Form of Distribution Agreement among the Company, AOAC, Millard E.
Morris and Mark R. Anderson
3.1* -- Amended and Restated Articles of Incorporation of the Company
3.2* -- Amended and Restated Bylaws of the Company
4.1* -- Form of Class A Common Stock Certificate (temporary)
5.1* -- Opinion of Jones, Day, Reavis & Pogue
10.1* -- Form of Registration Rights Agreement among the Company, Millard E.
Morris and Mark R. Anderson
10.2* -- Stock Incentive Plan
10.3* -- Form of Indemnification Agreement
10.4* -- Form of Employment Agreement with certain executive officers of the
Company
10.5 -- Form of Tax Matters Agreement
10.6* -- Form of Services Agreement between the Company and Auto One
Acceptance Corporation
10.7+ -- First Casualty Excess Reinsurance Agreement between the Company,
Silver Oak Casualty, Inc. and the Reinsurers identified therein
10.8+ -- Second Casualty Excess Reinsurance Agreement between the Company,
Silver Oak Casualty, Inc. and the Reinsurers identified therein
10.9+ -- Third Casualty Excess Reinsurance Agreement between the Company,
Silver Oak Casualty, Inc. and the Reinsurers identified therein
10.10+ -- First Workers' Compensation Per Occurrence Excess Reinsurance
Agreement between the Company, Silver Oak Casualty, Inc. and the
Reinsurers identified therein
10.11+ -- Second Workers' Compensation Per Occurrence Excess Reinsurance
Agreement between the Company, Silver Oak Casualty, Inc. and the
Reinsurers identified therein
10.12+ -- First Per Claimant Workers' Compensation Excess Reinsurance Agreement
between the Company, Silver Oak Casualty, Inc. and the Reinsurers
identified therein
10.13+ -- Second Per Claimant Workers' Compensation Excess Reinsurance
Agreement between the Company, Silver Oak Casualty, Inc. and the
Reinsurers identified therein
11.1 -- Statement of Computation of Earnings Per Share
21.1* -- Subsidiaries of the Company
23.1 -- Consent of Ernst & Young LLP
23.2* -- Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
24.1* -- Powers of Attorney
27.1 -- Financial Data Schedule
</TABLE>

- ---------------

* Previously filed.

+ Previously filed with confidential portions omitted and filed separately.

b. Financial Statement Schedules:

Report of Ernst & Young LLP on Financial Statement Schedules

I. Summary of Investments -- Other Than Investments In Related Parties

II. Condensed Financial Information of Registrant

III. Supplementary Insurance Information

IV. Reinsurance

VI. Supplemental Information Concerning Property-Casualty Insurance
Operations

II-3
<PAGE> 90

All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 91

SIGNATURES

Pursuant to the requirement of the Securities Act, the Registrant has duly
caused this Amendment No. 2 to Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Dallas, State of Texas, on October 10, 1996.

AMERISAFE, INC.

By: /s/ ARTHUR L. HUNT

------------------------------------

Arthur L. Hunt

Vice President

Pursuant to the requirements of the Securities Act, this Amendment No. 2 to
Registration Statement on Form S-1 has been signed by the following persons in
the capacities indicated on October 10, 1996.

<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
MILLARD E. MORRIS* Chairman of the Board of Directors and Chief
- --------------------------------------------- Executive Officer (principal executive
Millard E. Morris officer)

MARK R. ANDERSON* President, Chief Operating Officer and
- --------------------------------------------- Director
Mark R. Anderson

/s/ ARTHUR L. HUNT Vice President and Director
- ---------------------------------------------
Arthur L. Hunt

JOHN R. BUCK* Vice President, Chief Financial Officer,
- --------------------------------------------- Treasurer and Director (Principal Financial
John R. Buck and Accounting Officer)

DANIEL J. JESSEE* Director
- ---------------------------------------------
Daniel J. Jessee

N. DAVID SPENCE* Director
- ---------------------------------------------
N. David Spence
</TABLE>

* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 2 to Registration Statement as of this 10th day of October,
1996, pursuant to the Powers of Attorney executed on behalf of the above-named
officers and directors and previously filed with the Securities and Exchange
Commission.

By: /s/ ARTHUR L. HUNT

------------------------------------

Arthur L. Hunt

Attorney-in-Fact

II-5
<PAGE> 92

REPORT OF INDEPENDENT AUDITORS

Board of Directors

AMERISAFE, Inc.

We have audited the consolidated financial statements of AMERISAFE, Inc.
and subsidiaries as of December 31, 1994 and 1995, and for each of the three
years in the period ended December 31, 1995, and have issued our report thereon
dated , 1996 (included elsewhere in this Registration Statement).
Our audits also included the financial statement schedules listed in Item 16(b)
of this Registration Statement. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the
Company effected a reorganization on , 1996, resulting in a
change in the reporting entity.

Dallas, Texas
, 1996

The foregoing report is in the form that will be signed upon completion of
transactions described in the first paragraph of Note 1 to the consolidated
financial statements.

ERNST & YOUNG LLP

Dallas, Texas

October 9, 1996

S-1
<PAGE> 93

AMERISAFE, INC. AND SUBSIDIARIES

SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS
IN RELATED PARTIES
DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- ---------------------------------------------------------- -------- -------- -------------
AMOUNT
AT WHICH
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- ---------------------------------------------------------- -------- -------- -------------
<S> <C> <C> <C>
Fixed Maturity Securities, available for sale:
Bonds:
U.S. Treasury obligations and U.S. Government agency
obligations........................................ $ 3,191 $ 3,260 $ 3,260
Other corporate bonds................................ 100 103 103
------- ------- -------
Total........................................... 3,291 3,363 3,363
------- ------- -------
Equity Securities, available for sale:
Common stocks........................................... 2,748 3,076 3,076
------- ------- -------
Fixed Maturity Securities, held to maturity:
Bonds:
U.S. Treasury obligations and U.S. Government agency
obligations........................................ 28,530 29,247 28,530
States, municipalities, and political subdivisions... 33,754 34,781 33,754
All other corporate bonds............................ 2,768 2,812 2,768
------- ------- -------
Total........................................... 65,052 $66,840 65,052
------- ======= -------
Total investments............................... $71,091 $71,491
======= =======
</TABLE>

S-2

<PAGE> 94

AMERISAFE, INC. (PARENT COMPANY)

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Assets:
Cash and cash equivalents.............................................. $ 150 $ 129
Investments in subsidiaries*........................................... 37,100 27,368
Notes receivable from subsidiaries and affiliates...................... 2,981 3,524
Property and equipment................................................. 1,371 1,889
Deferred income tax asset.............................................. 202 149
Other.................................................................. 124 79
------- -------
Total assets........................................................... $41,928 $33,138
======= =======
Liabilities and Stockholders' Equity:
Liabilities:
Accrued expenses and other liabilities................................. $ 805 $ 813
Notes payable.......................................................... 7,632 6,472
Notes payable to subsidiaries and affiliates........................... 1,353 3,377
------- -------
Total liabilities...................................................... 9,790 10,662
Shareholders' equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized:
Series B -- cumulative convertible 8% preferred stock, issued and
outstanding shares -- 510.167.................................... -- --
Class A common stock, $0.01 par value,
Authorized shares -- 100,000,000
Issued and outstanding shares -- None............................. -- --
Class B common stock, $0.01 par value:
Authorized shares -- 100,000,000
Issued and outstanding shares -- 11,884,647....................... 119 119
Additional paid-in capital............................................... 2,389 1,362
Unrealized gain (loss) on securities available-for-sale.................. 264 (64)
Retained earnings........................................................ 29,366 21,059
------- -------
Total stockholders' equity............................................... 32,138 22,476
------- -------
Total liabilities and stockholders' equity............................... $41,928 $33,138
======= =======
</TABLE>

- ---------------

* Eliminated in consolidation

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of AMERISAFE, Inc. and
subsidiaries.

S-3
<PAGE> 95

AMERISAFE, INC. (PARENT COMPANY)

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

STATEMENTS OF INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenues:
Fees and other from affiliates................................. $4,805 $4,227 $4,169
Investment income.............................................. 88 44 --
------ ------ ------
4,893 4,271 4,169
Expenses:
General and administrative..................................... 2,996 2,407 1,794
Depreciation................................................... 312 163 130
Interest....................................................... 843 668 835
------ ------ ------
4,151 3,238 2,759
------ ------ ------
Income before federal income taxes............................... 742 1,033 1,410
Federal income tax expense....................................... 340 395 489
Equity in undistributed earnings of subsidiaries................. 7,905 4,501 5,795
------ ------ ------
Net income....................................................... $8,307 $5,139 $6,716
====== ====== ======
</TABLE>

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of AMERISAFE, Inc. and
subsidiaries.

S-4
<PAGE> 96

AMERISAFE, INC. (PARENT COMPANY)

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Net cash provided by operating activities...................... $ 1,637 $ 560 $1,706
Investing activities:
Purchase of property and equipment........................... 206 (359) (84)
Loans to subsidiaries and affiliates......................... (41) (3,238) (764)
Repayment of loans to subsidiaries and affiliates............ 583 -- --
------- ------- ------
Net cash provided by (used in) investing activities.......... 748 (3,597) (848)
Financing activities:
Net proceeds from (repayment of) revolving notes payable..... (800) 4,100 --
Proceeds from (repayment of) notes payable................... 460 204 (620)
Proceeds from (repayment of) notes payable from affiliates... (2,024) (1,328) 26
------- ------- ------
Net cash (used in) provided by financing activities.......... (2,364) 2,976 (594)
Increase (decrease) in cash and cash equivalents............... 21 (61) 264
Cash and cash equivalents at beginning of year................. 129 190 (74)
------- ------- ------
Cash and cash equivalents at end of year....................... $ 150 $ 129 $ 190
======= ======= ======
</TABLE>

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of AMERISAFE, Inc. and
subsidiaries.

S-5
<PAGE> 97

AMERISAFE, INC. AND SUBSIDIARIES

SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------- -------- ----------------- -------- ------------
DEFERRED FUTURE POLICY
POLICY BENEFITS, LOSSES, OTHER
ACQUISITION CLAIMS, AND LOSS UNEARNED POLICYHOLDER
COSTS* EXPENSES* PREMIUMS* FUNDS
-------- ----------------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1995........................... $316 $55,427 $3,581 $ --
==== ======= ====== ======
December 31, 1994........................... $444 $40,939 $4,229 $ --
==== ======= ====== ======
December 31, 1993........................... $213 $34,421 $1,591 $ --
==== ======= ====== ======
</TABLE>

- ---------------
* Balances consist entirely of property/casualty insurance.

<TABLE>
<CAPTION>
COLUMN H COLUMN I
---------- ------------
COLUMN G BENEFITS, AMORTIZATION COLUMN J
COLUMN F ---------- CLAIMS, OF DEFERRED --------- COLUMN K
-------- NET LOSSES AND POLICY OTHER ---------
PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
REVENUE* INCOME* EXPENSES* COSTS* EXPENSES* WRITTEN*
-------- ---------- ---------- ------------ --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1995.................... $58,167 $4,519 $ 32,924 $245 $21,940 $57,848
======= ====== ======== ==== ======= =======
1994.................... $40,461 $2,484 $ 25,250 $230 $14,112 $42,867
======= ====== ======== ==== ======= =======
1993.................... $35,902 $2,146 $ 20,262 $212 $11,231 $37,471
======= ====== ======== ==== ======= =======
</TABLE>

- ---------------
* Balances consist entirely of property/casualty insurance.

S-6
<PAGE> 98

AMERISAFE, INC. AND SUBSIDIARIES

SCHEDULE IV -- REINSURANCE

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------------ -------- -------- -------- -------- --------
% OF
ASSUMED AMOUNT
CEDED TO FROM ASSUMED
GROSS OTHER OTHER NET TO
AMOUNT* COMPANIES* COMPANIES* AMOUNT* NET
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995.............. $66,832 $8,665 $ -- $58,167 0%
======= ====== ==== ======= ==
Year Ended December 31, 1994.............. $48,262 $7,801 $ -- $40,461 0%
======= ====== ==== ======= ==
Year Ended December 31, 1993.............. $43,995 $8,093 $ -- $35,902 0%
======= ====== ==== ======= ==
</TABLE>

- ---------------
* Balances consist entirely of property/casualty insurance.

S-7
<PAGE> 99

AMERISAFE, INC. AND SUBSIDIARIES

SCHEDULE VI -- SUPPLEMENTAL INFORMATION
CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------ --------------- ------------------- ---------- --------
DISCOUNT,
DEFERRED POLICY RESERVES FOR UNPAID IF ANY,
AFFILIATION WITH ACQUISITION CLAIMS AND CLAIM DEDUCTED UNEARNED
REGISTRANT COSTS ADJUSTMENT EXPENSES IN COLUMN C** PREMIUMS
--------------- ------------------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Registrant and consolidated
subsidiaries
1995.............................. $ 316 $55,427 $ -- $3,581
===== ======= ====== ======
1994.............................. $ 444 $40,939 $ -- $4,229
===== ======= ====== ======
1993.............................. $ 213 $34,421 $ -- $1,591
===== ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------------------
COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
-------- ---------- -------------------------- ------------ ---------- ---------
CLAIMS AND CLAIM
ADJUSTMENT EXPENSES AMORTIZATION PAID
INCURRED RELATED TO OF DEFERRED CLAIMS AND
NET -------------------------- POLICY CLAIM
EARNED INVESTMENT (1) (2) ACQUISITION ADJUSTMENT PREMIUMS
PREMIUMS INCOME CURRENT YEAR PRIOR YEAR COSTS EXPENSES WRITTEN
-------- ---------- ------------ ---------- ------------ ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1995............. $58,167 $4,519 $ 36,074 $ (3,150) $245 $ 20,862 $57,848
======= ====== ======== ======== ==== ======== =======
1994............. $40,461 $2,484 $ 26,637 $ (1,387) $230 $ 18,890 $42,867
======= ====== ======== ======== ==== ======== =======
1993............. $35,902 $2,146 $ 22,173 $ (1,911) $212 $ 15,152 $37,471
======= ====== ======== ======== ==== ======== =======
</TABLE>

S-8
<PAGE> 100

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ---------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
1.1* -- Form of Underwriting Agreement
2.1* -- Distribution Agreement between the Company and existing and former
shareholders
2.2 -- Form of First Amendment to Distribution Agreement among the Company,
existing and former shareholders and former subsidiaries
2.3 -- Form of Distribution Agreement among the Company, AOAC, Millard E.
Morris and Mark R. Anderson
3.1* -- Amended and Restated Articles of Incorporation of the Company
3.2* -- Amended and Restated Bylaws of the Company
4.1* -- Form of Class A Common Stock Certificate (temporary)
5.1* -- Opinion of Jones, Day, Reavis & Pogue
10.1* -- Form of Registration Rights Agreement among the Company, Millard E.
Morris and Mark R. Anderson
10.2* -- Stock Incentive Plan
10.3* -- Form of Indemnification Agreement
10.4* -- Form of Employment Agreement with certain executive officers of the
Company
10.5 -- Form of Tax Matters Agreement
10.6* -- Form of Services Agreement between the Company and Auto One
Acceptance Corporation
10.7+ -- First Casualty Excess Reinsurance Agreement between the Company,
Silver Oak Casualty, Inc. and the Reinsurers identified therein
10.8+ -- Second Casualty Excess Reinsurance Agreement between the Company,
Silver Oak Casualty, Inc. and the Reinsurers identified therein
10.9+ -- Third Casualty Excess Reinsurance Agreement between the Company,
Silver Oak Casualty, Inc. and the Reinsurers identified therein
10.10+ -- First Workers' Compensation Per Occurrence Excess Reinsurance
Agreement between the Company, Silver Oak Casualty, Inc. and the
Reinsurers identified therein
10.11+ -- Second Workers' Compensation Per Occurrence Excess Reinsurance
Agreement between the Company, Silver Oak Casualty, Inc. and the
Reinsurers identified therein
10.12+ -- First Per Claimant Workers' Compensation Excess Reinsurance Agreement
between the Company, Silver Oak Casualty, Inc. and the Reinsurers
identified therein
10.13+ -- Second Per Claimant Workers' Compensation Excess Reinsurance
Agreement between the Company, Silver Oak Casualty, Inc. and the
Reinsurers identified therein
11.1 -- Statement of Computation of Earnings Per Share
21.1* -- Subsidiaries of the Company
23.1 -- Consent of Ernst & Young LLP
23.2* -- Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
24.1* -- Powers of Attorney
27.1 -- Financial Data Schedule
</TABLE>

- ---------------

* Previously filed.

+ Previously filed with confidential portions omitted and filed separately.

<PAGE> 1
EXHIBIT 2.2

FIRST AMENDMENT
TO
DISTRIBUTION AGREEMENT

This First Amendment to Distribution Agreement (this "Amendment") is
made and entered into on October __, 1996, by and among AMERISAFE, Inc., a
Texas corporation (formerly Gulf Universal Holdings, Inc.) (the "Company"),
Millard E. Morris ("Morris"), Aubrey T. Temple ("Temple"), M.T. & Co., Inc., a
Louisiana corporation ("MTInc."), Southern Underwriters, Inc., a Louisiana
corporation ("SUI"), and Morris, Temple and Trent Financial Services, a
Louisiana corporation ("MTTFS").

RECITALS

A. The Company, Morris and Temple are parties to a Distribution
Agreement dated July 20, 1996 (the "Original Agreement").

B. The parties to the Original Agreement desire to (i) amend the
Original Agreement as set forth in this Amendment to, among other things,
adjust the distribution of the SUI and MTTFS capital stock and (ii) add MTInc.,
SUI and MTTFS as parties thereto.

NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties agree as follows:

1. Sections 1(a) and 1(b) of the Original Agreement are hereby
amended in their entirety to read as follows:

(a) Distribution to Temple. The Company hereby agrees
to distribute to Temple on the Distribution Date (as defined below in
Section 3) (i) 1,000 shares of Common Stock, no par value, of MTInc.
(the "MTInc. Shares"), representing all of the outstanding capital stock
of MTInc., (ii) 510 shares of Common Stock, par value $1.00 per share,
of SUI (the "Temple SUI Shares"), (iii) 51 shares of Common Stock, no
par value, of MTTFS (the "Temple MTTFS Shares"), and (iv) a promissory
note in the amount of $8,000,000 (the "Temple Note"). The Company also
hereby agrees to make, prior to such distribution, a capital
contribution to MTInc. by delivering a promissory note in the amount of
$5,971,872 (the "MTInc. Note"). Temple hereby agrees to accept the
MTInc. Shares, the Temple SUI Shares, the Temple MTTFS Shares and the
Temple Note. MTInc. hereby agrees to accept the MTInc. Note.

(b) Distribution to Morris. The Company hereby agrees
to distribute to Morris on the Distribution Date (i) 490 shares of
Common Stock, par value $1.00 per share, of SUI (the "Morris SUI
Shares") and (ii) 49 shares of Common Stock, no par value, of MTTFS (the
"Morris MTTFS Shares"). Morris hereby agrees to accept the Morris SUI
Shares and the Morris MTTFS Shares.
<PAGE> 2
2. A new Section 1(d) is added as follows:

(d) Reorganization of MorTem Corporations. Temple
acknowledges that prior to the Distribution Date, the MorTem
Corporations will be reorganized pursuant to the Plan of Reorganization
adopted by the Board of Directors of the Company on October __, 1996
(the "Plan of Reorganization") as follows: (i) M&T Aviation, Inc.,
Morris, Temple & Trent of Arkansas and Gulf Audit Services, Inc. will be
merged with and into MTInc., with MTInc. as the surviving corporation,
(ii) Morris, Temple & Company, Morris, Temple & Trent of Shreveport and
Systems Operations, Inc. (d/b/a Engineered Mechanical Systems) will
become wholly owned subsidiaries of MTInc., (iii) the assets and
liabilities of CHM, Inc. ("CHM"), other than any shares of Class B
Common Stock of the Company held by CHM, will be transferred to MTInc.,
(iv) the assets of Mor-Tem Systems, Inc. ("MOR-TEM"), other than the (a)
MTInc. Shares, (b) the shares of capital stock of SUI, MTTFS, Hammerman
& Gainer, Inc. and Morris Temple Risk Management, Inc. and (c) the
shares of Series A Preferred Stock of the Company held by MOR-TEM will
be transferred to MTInc. and (v) MTInc. will indemnify MOR-TEM and
assume the liabilities of MOR-TEM.

3. Section 3 of the Original Agreement is hereby amended in its
entirety to read as follows:

3. Distribution Date. For purposes of this Agreement,
"Distribution Date" means the date upon which the Company distributes
the Shares described in Sections 1(a) and 1(b) above to Morris and
Temple, which date shall be two business days prior to the date
requested by the Company for the acceleration of the effectiveness of
its Registration Statement on Form S-1 (File No. 333-10099) with respect
to the Company's registered public offering of the Company's Class A
Common Stock (the "Offering") or such earlier date as may be agreed upon
by the parties; provided that if the Distribution Date has not occurred
prior to October 31, 1996, the obligations of the parties hereto will
terminate.

4. New paragraphs (iii) and (iv) are added to subsection (a) of
Section 4 as follows:

(iii) As of the Distribution Date, he has not
transferred, agreed to transfer, or negotiated with any person
regarding a transfer of, any of his shares of the Company held as
of July 1, 1996.

(iv) Except as provided in this Agreement, he
currently has no plans or intentions to transfer any of his stock
in the Company, MTInc., SUI, or MTTFS on or after the
Distribution Date.

-2-
<PAGE> 3
5. A new subsection (c) is added to Section 4 as follows:

(i) It is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Louisiana and has all requisite corporate authority to execute
and deliver this Agreement and to perform all of the transactions
contemplated by this Agreement to be performed by it; and

(ii) The execution and delivery by it of this
Agreement, and the consummation of the transactions contemplated
by this Agreement to be performed by it, have been duly
authorized by all necessary corporate action on the part of such
corporation, and this Agreement will, when executed and delivered
by the parties and subject to Section 3, constitute its valid and
binding obligation, enforceable against it in accordance with its
terms.

6. Section 5 is hereby amended to extend the representations and
warranties of the Company contained in such section to MTInc., SUI and MTTFS as
well as Morris and Temple.

7. Section 7 is hereby amended in its entirety, to read as follows:

7. Tax Characterization. It is the express intention of the
parties that the distributions of stock contemplated by this Agreement
qualify for tax-free treatment under section 355 of the Internal Revenue
Code of 1986, as amended (the "Code"). In this regard, the parties
hereto covenant as follows:

(a) Each of Morris and Temple hereby covenants that:

(i) For the period commencing on the
Distribution Date and ending at the end of the second taxable
year ending after the Distribution Date (the "Post-Distribution
Period"), he will not transfer any of his Company, MTInc., SUI or
MTTFS stock to any other person, other than a transfer by Morris
of Company stock solely in exchange for stock, pursuant to a
transaction qualifying as a tax-free reorganization described in
section 368(a)(1) of the Code (a "Qualifying Transaction"). For
all purposes of this Agreement, a transaction shall be deemed to
be a Qualifying Transaction only if: (i) the IRS issues a ruling
letter so holding, or (ii) tax counsel to the Company renders an
opinion reasonably satisfactory in form and substance to the
Company and to both Morris and Temple that the transaction is a
Qualifying Transaction. Any stock received in such a transfer
pursuant to a Qualifying Transaction shall become subject to this
covenant.

-3-
<PAGE> 4
(ii) Following the Post-Distribution Period he
will not transfer stock of the Company, MTInc., SUI, or MTTFS to
any person pursuant to any agreements, arrangements or
negotiations entered into before the Distribution Date.

(iii) During the Post-Distribution Period Morris
will cause the Company, through its operating subsidiary, Temple
will cause MTInc., and Morris and Temple will cause SUI and
MTTFS, to continue the active conduct of their respective
businesses which they conduct on the Distribution Date, and not
to liquidate or to sell or otherwise dispose of any material part
of their assets (including stock of subsidiaries) other than in
the ordinary course of business or pursuant to a Qualifying
Transaction, if such sale or disposition would cause the
respective corporation not to continue to employ a substantial
portion of the assets held by it on the Distribution Date in the
conduct of businesses conducted by it on such date.

(iv) Temple will cause MTInc. to use the MTInc.
Note, or the proceeds thereof, solely in the ordinary conduct of
its existing business and/or to retire existing indebtedness. In
no event will he cause MTInc. to use such funds to invest in
assets of any business or activity other than MTInc.'s existing
lines of business.

(b) The Company, MTInc., SUI and MTTFS each covenants
that during the Post-Distribution Period it will not discontinue the
active conduct of the active business which it conducts on the
Distribution Date, liquidate, or sell or otherwise dispose of any
material part of its assets (including stock of subsidiaries) other than
in the ordinary course of business or pursuant to a Qualifying
Transaction, if such sale or disposition would cause the respective
corporation not to continue to employ a substantial portion of the
assets held by it on the Distribution Date in the conduct of businesses
conducted by it on such date.

(c) MTInc. covenants that it will use the MTInc. Note,
and proceeds thereof, solely in the ordinary conduct of its existing
business and/or to retire existing indebtedness. In no event will it
use such funds to invest in assets of any business or activity other
than its existing lines of business.

8. A new Section 11 is added as follows:

11. Pledge to Banc One.

(a) Morris Pledge. Morris hereby agrees to pledge the
Morris SUI Shares and the Morris MTTFS Shares to Banc One as security
for the loan agreement between Banc One and the Company (the "Loan
Agreement"), and further agrees to execute and deliver all such
agreements, instruments and documents, and to take any further action,
as may be requested by Banc One to evidence such pledge.

-4-
<PAGE> 5
(b) Temple Pledge. Temple hereby acknowledges that the
Temple Note will be payable only out of the net proceeds of the Offering
and will be subject to the prior repayment of all amounts owed to Banc
One in connection with the Loan Agreement. Temple hereby agrees to
pledge the Temple Note and the proceeds therefrom, the MorTem Shares,
the Temple SUI Shares and the Temple MTTFS Shares to Banc One as
security for the Loan Agreement, and further agrees to execute and
deliver all such agreements, instruments and documents, and to take any
further action, as may be requested by Banc One to evidence such pledge.

(c) MTInc. Pledge. MTInc. acknowledges that the MTInc.
Note will be payable only out of the net proceeds of the Offering and
shall be subject to the prior repayment of all amounts owed to Banc One
in connection with the Loan Agreement. MTInc. hereby agrees to pledge
the MTInc. Note and the proceeds therefrom to Banc One as security for
the Loan Agreement, and further agrees to execute and deliver all such
agreements, instruments or documents, and to take any further action, as
may be requested by Banc One to evidence such pledge.

9. A new Section 12 is added as follows:

12. Indemnity.

(a) MTInc., SUI and MTTFS. If, as a result of any
event within the control of MTInc., SUI or MTTFS occurring in the
24-month period commencing on the Distribution Date and involving either
the stock or assets (or any combination thereof) of MTInc., SUI or MTTFS
(including, but not limited to, a merger, consolidation, liquidation,
stock issuance, or sale or other disposition of assets by or involving
MTInc., SUI or MTTFS) any taxes are imposed on the Company or any of its
subsidiaries with respect to any action taken pursuant to the Plan of
Reorganization (or any amendment thereof), then the respective
corporation shall pay those taxes (and related interest and penalties,
if any) and shall indemnify and hold harmless the Company and its
subsidiaries from and against all such taxes, interest, and penalties,
including but not limited to any such taxes paid at any time by Company
or any subsidiary. The respective corporation shall make such payment
and indemnification no later than 15 days after written notice from the
Company or one of its subsidiaries of a final determination with respect
to such taxes, which notice shall be accompanied by a computation of the
amounts due.

(b) Morris. Morris agrees to indemnify the Company and
its subsidiaries and hold them harmless against and with respect to any
damages, claims, losses, taxes (including interest, penalties and
additions thereto), and costs and expenses arising from, in connection
with or with respect to (i) any misrepresentation or breach of warranty
by Morris under this Agreement, or (ii) any failure by Morris to fulfill
any agreement or covenant under this Agreement.

(c) Temple. Temple agrees to indemnify the Company and
its subsidiaries and hold them harmless against and with respect to any
damages, claims,

-5-
<PAGE> 6
losses, taxes (including interest, penalties and additions thereto), and
costs and expenses arising from, in connection with or with respect to
(i) any misrepresentation or breach of warranty by Temple under this
Agreement, or (ii) any failure by Anderson to fulfill any agreement or
covenant under this Agreement.

(d) Morris and Temple. Morris and Temple jointly and
severally agree to indemnify and hold harmless the Company against any
liability for tax, penalties, interest or other amounts which may be
asserted against the Company or any of its subsidiaries as a result of
alleged federal or state income tax deficiencies of MTInc. or any
corporation (other than Hammerman & Gainer, Inc.) which was at any time
a subsidiary of MTInc. with respect to any year in which such
corporation was not a member of the affiliated group (within the meaning
of section 1504 of the Internal Revenue Code of 1986) of which the
Company was the common parent, including without limitation deficiencies
attributable to the disallowance of compensation deductions for amounts
paid to Morris and/or Temple.

10. Schedule 1 to the Original Agreement is amended to delete Morris
Temple & Co. of Texas from the list of MorTem Corporations.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.

AMERISAFE, INC.

By:
--------------------------------
Mark R. Anderson, President

-------------------------------------
MILLARD E. MORRIS

-------------------------------------
AUBREY T. TEMPLE

M.T. & CO., INC.

By:
--------------------------------
Aubrey T. Temple, President

-6-
<PAGE> 7
SOUTHERN UNDERWRITERS, INC.

By:
--------------------------------
Aubrey T. Temple, President

MORRIS, TEMPLE & TRENT
FINANCIAL SERVICES, INC.

By:
--------------------------------
Craig P. Leach,
Vice President

-7-

<PAGE> 1
EXHIBIT 2.3

DISTRIBUTION AGREEMENT

This Distribution Agreement (this "Agreement") is made and entered into
on October __, 1996, by and among AMERISAFE, Inc., a Texas corporation (the
"Company"), Auto One Acceptance Corp., a Texas corporation ("AOAC"), Millard E.
Morris ("Morris") and Mark R. Anderson ("Anderson").

RECITALS

A. The Company is the owner of all issued and outstanding shares of
common stock (the "AOAC Stock") of AOAC.

B. Pursuant to the Plan of Reorganization adopted by the Board of
Directors of the Company on October __, 1996 (the "Plan of Reorganization"),
the Company desires to distribute 98.4% of the AOAC Stock to Morris and 1.6% of
the AOAC Stock to Anderson, and Morris and Anderson desire to accept such
distributions, subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties agree as follows:

1. Distribution.

(a) Distribution of Shares. The Company hereby agrees to
distribute on the Distribution Date (as defined below in Section 2) (i) 984
shares of AOAC Stock to Morris and (ii) 16 shares of AOAC Stock to Anderson.
The Company also hereby agrees to make, prior to such distribution, a capital
contribution to AOAC by delivering to AOAC a promissory note in the amount of
$50 million (the "Note"). Morris and Anderson hereby agree to accept their
respective distributions of AOAC Stock.

(b) Delivery of Certificates. On the Distribution Date, the
Company will deliver to each of Morris and Anderson properly endorsed stock
powers, with all applicable stock certificates attached, to evidence the
transfer of the shares contemplated in Section 1(a).

2. Distribution Date. For purposes of this Agreement, "Distribution
Date" means the date upon which the Company distributes the AOAC stock to
Morris and Anderson, which date shall be two business days prior to the date
requested by the Company for the acceleration of the effectiveness of its
Registration Statement on Form S-1 (File No. 333-10099) with respect to the
Company's registered public offering of the Company's Class A Common Stock (the
"Offering") or such earlier date as may be
<PAGE> 2
agreed upon by the parties; provided that if the Distribution Date has not
occurred prior to October 31, 1996, the obligations of each of the parties
hereto will terminate.

3. Representations of Morris, Anderson and AOAC.

(a) Each of Morris and Anderson hereby represents and warrants
that:

(i) He has all requisite power and authority to execute
and deliver this Agreement and to perform all of the transactions
contemplated by this Agreement to be performed by him.

(ii) Subject to Section 2, this Agreement will, when
executed and delivered by the parties, constitute his valid and binding
obligation, enforceable against him in accordance with its terms.

(iii) As of the Distribution Date, he has not
transferred, agreed to transfer, or negotiated with any person regarding
a transfer of, any of his shares of the Company or shares of AOAC.

(iv) He currently has no plans or intentions to transfer
any of his stock of the Company or AOAC on or after the Distribution
Date or to cause AOAC to make any distribution to stockholders other
than in the ordinary course of business.

(b) AOAC hereby represents and warrants that:

(i) AOAC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and
has all requisite corporate authority to execute and deliver this
Agreement and to perform all of the transactions contemplated by this
Agreement to be performed by it; and

(ii) The execution and delivery by the AOAC of this
Agreement, and the consummation of the transactions contemplated by this
Agreement to be performed by AOAC, have been duly authorized by all
necessary corporate action on the part of AOAC, and this Agreement will,
when executed and delivered by the parties and subject to Section 2,
constitute a valid and binding obligation of AOAC, enforceable against
AOAC in accordance with its terms.

4. Representations of the Company. The Company hereby represents
and warrants to each of Morris, Temple and AOAC that:

(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and has all
requisite corporate authority to execute and deliver this Agreement and to
perform all of the transactions contemplated by this Agreement to be performed
by it;

2
<PAGE> 3
(b) The execution and delivery by the Company of this
Agreement, and the consummation of the transactions contemplated by this
Agreement to be performed by the Company, have been duly authorized by all
necessary corporate action on the part of the Company, and this Agreement will,
when executed and delivered by the parties and subject to Section 2, constitute
a valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms; and

(c) Upon the distribution by the Company to each of Morris and
Anderson of the shares of AOAC Stock, each of Morris and Anderson will have
beneficial and record ownership of such shares, free and clear of any and all
liens and encumbrances, other than the pledge of such shares to Banc One
Capital Partners II, Ltd. ("Banc One") as security for the loan agreement
between the Company and Banc One (the "Loan Agreement").

5. Tax Characterization. It is the express intention of the parties
that the transactions contemplated by this Agreement qualify for tax-free
treatment under section 355 of the Internal Revenue Code of 1986, as amended
(the "Code.") In this regard, the parties hereto covenant as follows:

(a) Each of Morris and Anderson hereby covenants that:

(i) For the period commencing on the Distribution Date
and ending at the end of the second taxable year ending after the
Distribution Date (the "Post-Distribution Period"), he will not transfer
any of his Company or AOAC stock to any other person, other than a
transfer of Company stock solely in exchange for stock, pursuant to a
transaction qualifying as a tax-free reorganization described in section
368(a)(1) of the Code (a "Qualifying Transaction"). For all purposes of
this Agreement, a transaction shall be deemed to be a Qualifying
Transaction only if: (i) the IRS issues a ruling letter so holding, or
(ii) tax counsel to the Company renders an opinion reasonably
satisfactory in form and substance to the Company and to both Morris and
Anderson that the transaction is a Qualifying Transaction. Any stock
received in such a transfer pursuant to a Qualifying Transaction shall
become subject to this covenant.

(ii) Following the Post-Distribution Period he will not
transfer stock of the Company or AOAC to any person pursuant to any
agreements, arrangements or negotiations entered into before the
Distribution Date.

(iii) During the Post-Distribution Period he will cause
the Company, through its operating subsidiary, and AOAC to continue the
active conduct of their respective businesses which they conduct on the
Distribution Date, and not to liquidate or to sell or otherwise dispose
of any material part of their assets (including stock of subsidiaries)
other than in the ordinary course of business or pursuant to a
Qualifying Transaction, if such sale or disposition would cause the
respective corporation not to continue to employ a substantial portion

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of the assets held by it on the Distribution Date in the conduct of
businesses conducted by it on such date.

(iv) He will cause AOAC to use the Note, and the
proceeds from the repayment thereof, solely in the ordinary conduct of
its commercial and consumer finance business, in the enhancement and
expansion of such business and/or to retire existing indebtedness. In
no event will he cause AOAC to use such funds to invest in assets of any
business or activity other than AOAC's financing business.

(b) The Company and AOAC each covenants that during the
Post-Distribution Period it will not discontinue the active conduct of the
active business which it conducts on the Distribution Date, liquidate, or sell
or otherwise dispose of any material part of its assets (including stock of
subsidiaries) other than in the ordinary course of business or pursuant to a
Qualifying Transaction, if such sale or disposition would cause the respective
corporation not to continue to employ a substantial portion of the assets held
by it on the Distribution Date in the conduct of businesses conducted by it on
such date.

(c) AOAC covenants that it will use the Note, and proceeds
from the repayment thereof, solely in the ordinary conduct of its commercial
and consumer finance business, in the enhancement and expansion of such
business and/or to retire existing indebtedness. In no event will it use such
funds to invest in assets of any business or activity other than its existing
finance business.

(d) Each of Morris and Anderson covenants that during the
Post-Distribution Period he will not cause AOAC to make, and AOAC covenants
that during such period it will not make, any distribution to shareholders not
constituting a dividend within the meaning of section 316 of the Code.

6. Pledge. AOAC hereby acknowledges that the Note received pursuant
to Section 1 will be payable only out of the net proceeds of the Offering and
will be subject to the prior repayment of all amounts owed to Banc One in
connection with the Loan Agreement. AOAC hereby agrees to pledge the Note and
the proceeds therefrom to Banc One as security for the Loan Agreement, and
further agrees to execute and deliver all such agreements, instruments and
documents, and to take any further action, as may be requested by Banc One to
evidence such pledge. Each of Morris and Anderson acknowledges that the shares
of AOAC Stock to be received by him will remain pledged to Banc One as security
for the Loan Agreement and agrees to execute and deliver all such agreements,
instruments and documents, and to take any further action, as may be requested
by Banc One to evidence such pledge.

7. Further Assurances. Each of the parties agrees that he or it
will, at any time, upon the request of any other party hereto, take, or cause
to be taken, all actions and do, or cause to be done, all things (including
without limitation executing, acknowledging and delivering additional
agreements, instruments and documents) as may

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be necessary, appropriate or advisable in order to consummate or make effective
the transactions contemplated by this Agreement in a manner consistent with the
intentions and purposes of the parties including, without limitation, the
delivery of such certificates or undertakings as may reasonably be required by
counsel to the Company in connection with the rendering by such counsel of
opinions with respect to the federal income tax treatment of the distributions
contemplated herein.

8. Indemnification.

(a) AOAC. If, as a result of any event within the control of
AOAC occurring in the 24-month period commencing on the Distribution Date and
involving either the stock or assets (or any combination thereof) of AOAC
(including, but not limited to, a merger, consolidation, liquidation, stock
issuance, or sale or other disposition of assets by or involving AOAC) any
taxes are imposed on the Company or any of its subsidiaries with respect to any
action taken pursuant to the Plan of Reorganization (or any amendment thereof),
then AOAC shall pay those taxes (and related interest and penalties, if any)
and shall indemnify and hold harmless the Company and its subsidiaries from and
against all such taxes, interest and penalties, including but not limited to
any such taxes paid at any time by Company or any subsidiary. AOAC shall make
such payment and indemnification no later than 15 days after written notice
from the Company or one of its subsidiaries of a final determination with
respect to such taxes, which notice shall be accompanied by a computation of
the amounts due.

(b) Morris. Morris agrees to indemnify the Company and its
subsidiaries and hold them harmless against and with respect to any damages,
claims, losses, taxes (including interest, penalties and additions thereto),
and costs and expenses arising from, in connection with or with respect to (i)
any misrepresentation or breach of warranty by Morris under this Agreement, or
(ii) any failure by Morris to fulfill any agreement or covenant under this
Agreement.

(c) Anderson. Anderson agrees to indemnify the Company and
its subsidiaries and hold them harmless against and with respect to any
damages, claims, losses, taxes (including interest, penalties and additions
thereto), and costs and expenses arising from, in connection with or with
respect to (i) any misrepresentation or breach of warranty by Anderson under
this Agreement, or (ii) any failure by Anderson to fulfill any agreement or
covenant under this Agreement.

9. Miscellaneous.

(a) Successors and Assigns. This Agreement will be binding
upon, and will inure to the benefit of, the parties hereto and their respective
heirs, legal representatives, successors and assigns.

(b) Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof.

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(c) Amendment. This Agreement may not be amended except by an
instrument signed by the parties hereto.

(d) Headings. Section headings in this Agreement are included
herein for convenience of reference only and will not constitute a part of this
Agreement for any other purpose.

(e) Governing Law. This Agreement will be governed by, and
construed in accordance with, the substantive laws of the State of Texas,
without giving effect to the principles of conflict of laws of such State.

(f) Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute but one and the same agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

AMERISAFE, INC.

By:
--------------------------------
Mark R. Anderson,
President

AUTO ONE ACCEPTANCE CORPORATION

By:
--------------------------------
Millard E. Morris,
Chief Executive Officer

---------------------------------------
MILLARD E. MORRIS

---------------------------------------
MARK R. ANDERSON

<PAGE> 1
EXHIBIT 10.5

DRAFT 10/8/96

TAX MATTERS AGREEMENT

THIS TAX MATTERS AGREEMENT ("Agreement") is made this __ day
of ______________, 1996, by and among AMERISAFE, Inc., a Texas corporation
("AMERISAFE"), on its own behalf and on behalf of its direct and indirect
subsidiaries other than Auto One, the Auto One Companies, MTInc., the MTInc.
Companies, MTTFS and SUI (the "AMERISAFE Subsidiaries"); Auto One Acceptance
Corporation, a Texas corporation ("Auto One"), on its own behalf and on behalf
of its subsidiaries (the "Auto One Companies"); M.T. & Co., Inc., a Louisiana
corporation ("MTInc."), on its own behalf and on behalf of its predecessors and
subsidiaries (the "MTInc. Companies," which, for purposes of this agreement,
shall include MOR-TEM Systems, Inc., the former parent corporation of MTInc.),
Southern Underwriters, Inc., a Louisiana corporation ("SUI"), and Morris,
Temple and Trent Financial Services, a Louisiana corporation ("MTTFS") (Auto
One, the Auto One Companies, MTInc., the MTInc. Companies, SUI, and MTTFS
collectively referred to herein as the "Distributed Companies").

RECITALS

WHEREAS, Auto One, MTInc., SUI and MTTFS are wholly-owned
subsidiaries of AMERISAFE;

WHEREAS, AMERISAFE intends to distribute all of the common
stock of Auto One, MTInc., SUI and MTTFS to shareholders of AMERISAFE (the
"Distribution");
<PAGE> 2
WHEREAS, The Distributed Companies have been or will be
included in Consolidated Tax Returns filed or to be filed by AMERISAFE on
behalf of Parent's Group;

AND WHEREAS, the parties hereto desire to allocate
responsibility for the payment of federal, state, local, and foreign Taxes
attributable, allocable, or apportionable to AMERISAFE and/or the AMERISAFE
Subsidiaries, and to the Distributed Companies, for the Period in which the
Distribution occurs and for Periods prior and subsequent to such Period,
provide for the consequences of Distribution Date adjustments of such Taxes,
and agree as to related matters;

NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS

As used herein the following terms, when capitalized, shall
have the following meanings:

1.1 "Affiliated Group" shall mean an "affiliated group"
as defined in section 1504(a) of the Code.

1.2 "Code" shall mean the Internal Revenue Code of 1986,
as amended and as in effect from time to time, and any predecessor or successor
thereto. A reference to any section of

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the Code means such section as in effect from time to time and any comparable
provision of any predecessor or successor law.

1.3 "Consolidated Income Tax Returns" shall mean all
federal Tax Returns for Income Taxes which have been or will be filed by
AMERISAFE on behalf of Parent's Group, and "Consolidated Income Taxes" shall
mean the Taxes shown or required to be shown on such Tax Returns.

1.4 "Distribution Date" shall mean the date upon which
the Company distributes the stock of the Distributed Subsidiaries, which date
shall be two business days prior to the date requested by AMERISAFE for the
acceleration of the effectiveness of its Registration Statement on Form S-1
(File No. 333-10099) with respect to its registered public offering of its
Class A Common Stock (the "Offering") or such earlier date as may be agreed
upon by the parties; provided that if the Distribution Date has not occurred
prior to October 31, 1996, and the distributions of the stock of the
Distributed Subsidiaries do not occur, the obligations of the parties hereto
will terminate.

1.5 "Final Determination" shall mean, in the context of
federal Income Taxes, with respect to any issue or item for any Period, (i) a
final, unappealable decision by a court of competent jurisdiction, (ii) the
expiration of the time for assessment of Taxes or filing a claim for refund or,
if a refund claim has been timely filed, the expiration of the time for
instituting suit in respect of such refund claim, if no further adjustment to
the items of income, gain, deduction, loss, or

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credit for such Period may thereafter be made, (iii) the execution of a closing
agreement under section 7121 of the Code, (iv) the acceptance by the IRS or its
counsel of a tender pursuant to an offer in compromise pursuant to section 7122
of the Code, (v) the execution of a Form 870A or successor form or comparable
form, or (vi) any other final and irrevocable determination of Taxes for any
Period. In the context of other Taxes, "Final Determination" shall mean, with
respect to any issue or item for any Period, any final, unappealable, and
irrevocable determination of Taxes for such Period.

1.6 "IRS" shall mean the United States Internal Revenue
Service or any successor thereto.

1.7 "Parent's Group" shall mean any Affiliated Group
including AMERISAFE or any predecessor or successor thereof.

1.8 When used in the context of federal Income Taxes,
"Period" shall mean any taxable year (and any portion thereof) or other period
which is treated as a taxable year (including any Short Period) for purposes of
the Code. When used in the context of any other Taxes, "Period" shall mean any
taxable year (and any portion thereof) or other period with respect to which
any such Taxes may be imposed under any applicable statute, rule, or regulation
of any Taxing Authority.

1.9 "Regulations" shall mean the Treasury regulations in
effect from time to time under the Code.

1.10 "Short Period" shall mean, with respect to the
Distributed Companies, any Period beginning on January 1 of any

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year and ending at the end of the Distribution Date in the same year.

1.11 "State Income Taxes" shall mean all Taxes measured on
or by income imposed by any State of the United States of America or political
subdivision thereof and shall include State Taxes denominated or in the nature
of franchise Taxes.

1.12 "Tax" and "Taxes" shall mean all income taxes
(including federal income taxes, State income taxes, and foreign income taxes
imposed under Subtitle A of the Code or similar laws of any taxing authority
having effect prior to or on the Closing Date) (referred to herein as "Income
Taxes"), payroll and employee withholding taxes (imposed under Chapters 21
through 24 of the Code or any similar or comparable payroll and employee
withholding taxes (including disability withholding taxes imposed by the laws
of any Taxing Authority) having effect prior to or on the Distribution Date),
other domestic and foreign withholding taxes, sales and use taxes, excise
taxes, real and personal property taxes, and any other governmental imposition
generally referred to as or in the nature of a tax, whether arising before, on,
or after the Distribution Date. Except as may be otherwise provided in Section
3.1(b) below, any reference in this Agreement to a particular type of Tax (or
refund thereof) enumerated in this Section 1.12 shall also be deemed to refer
to any interest, additions to Tax, or penalties payable in respect thereof.

1.13 "Tax Returns" shall mean all reports, estimates,
information statements, and returns relating to, or required to

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<PAGE> 6
be filed in connection with, any Taxes pursuant to the statutes, rules and
regulations of any Taxing Authority.

1.14 "Taxing Authority" shall mean any federal, state,
local, national, municipal, governmental, foreign or other body or agency
having the power to impose or collect Taxes.

ARTICLE II

PREPARATION OF RETURNS, CONTROVERSIES

2.1 Returns and Controversies--Consolidated Income Tax
Returns and Estimates.

(a) Tax Returns and Payment. AMERISAFE shall have
exclusive authority to report for Consolidated Income Tax purposes the
operations of Parent's Group, including the operations of the Distributed
Companies, for any Period ending at the end of or before the Distribution Date.
Subject to the terms of this Agreement, AMERISAFE shall be responsible for the
timely filing of, and shall be liable and shall indemnify the Distributed
Companies for the full and timely payment of all amounts shown to be due on,
Consolidated Income Tax Returns and estimates of Parent's Group for such
Periods; provided, however, that Auto One shall be responsible for providing
AMERISAFE with all information reasonably required by AMERISAFE with respect to
the operations and assets of Auto One and the Auto One Companies, MTInc. shall
be responsible for providing AMERISAFE with all information reasonably required
by AMERISAFE with respect to the operations and assets of MTInc. and the MTInc.
Companies, and SUI

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and MTTFS shall each be responsible for providing AMERISAFE with all
information reasonably required by AMERISAFE with respect to their own
operations and assets, on or before the date that is 45 days prior to the due
date of any such filing or payment, so as to permit AMERISAFE to prepare and
file such Consolidated Income Tax Returns and estimates and to pay such
Consolidated Income Taxes and estimates on a timely basis. In calculating
amounts to be shown as due on the Consolidated Income Tax Return which includes
any Short Period, all items of each of the Distributed Companies (including
items of each corporation triggered by reason of the Distribution) shall be
taken into account in accordance with Regulations Section 1.1502-76(b) and no
election shall be made under Regulations Section 1.1502-76(b)(2)(ii) or
Regulations Section 1.1502-76(b)(2)(iii).

(b) Controversies. AMERISAFE shall have exclusive
authority to represent the Distributed Companies before the IRS or any other
governmental agency or authority or any court regarding Consolidated Income
Taxes and estimates for Periods covered by Consolidated Income Tax Returns and
estimates referred to in section 2.1(a) above, including, but not limited to,
(i) the exclusive control of any response to any examination by the IRS or any
other taxing authority and (ii) the exclusive control over any contest of any
issue through a Final Determination, including, but not limited to (A) whether
and in what forum to conduct such contest and (B) whether and on what basis to
settle such contest; provided, however, that if any such

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contest relates to an item of a Distributed Company, and such settlement would
result in the Distributed Company becoming liable for increases to Consolidated
Income Taxes allocable to it under Section 3.1(b), below, AMERISAFE shall not
settle such item without first obtaining the written consent of the affected
Distributed Company, which consent shall not be unreasonably withheld.

AMERISAFE shall timely notify Auto One, MTInc., SUI and/or
MTTFS, as appropriate, of any correspondence and Tax controversies with any
Taxing Authority relating to items of Auto One, any Auto One Company, MTInc.,
any MTInc. Company, SUI, and/or MTTFS, and will promptly provide such company
with copies of all such correspondence. Subject to AMERISAFE's exclusive
authority as provided for herein, Auto One, MTInc., SUI and MTTFS have the
right to consult with AMERISAFE with respect to the handling of any such
correspondence or controversies. Auto One, MTInc., SUI and MTTFS shall
exercise such right, if at all, on a timely basis.

2.2 Returns and Controversies--All other Taxes.

(a) Tax and Information Returns. Except as otherwise
provided herein or as the parties may otherwise agree, (i) Auto One shall have
exclusive authority with regard to all Taxes of Auto One and the Auto One
Companies, MTInc. shall have exclusive authority with respect to all Taxes of
MTInc. and the MTInc. Companies, SUI and MTTFS shall each have exclusive
authority with regard to all of its own Taxes, and (ii) Auto One, MTInc., SUI

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<PAGE> 9
and MTTFS shall be responsible for the correct and timely filing of, and shall
be liable for the full and timely payment of, all such Taxes. If AMERISAFE,
any AMERISAFE Subsidiary, or any Distributed Company should be determined to
have been required to file any State Income Tax Return or other Tax Return
computing the Taxes payable to the State or other Taxing Authority in respect
of the operations or assets of more than one corporation based on so-called
"combined or consolidated reporting" or apportionment of business income under
the so-called "unitary business" concept, such company (the "Unitary Filing
Company")shall be responsible for the correct and timely filing of any such Tax
Returns, and shall be liable for the full and timely payment of all such Taxes
(the "Unitary Taxes"); provided, however, that each other company whose
operations or assets were required to have been included in such Tax Returns
shall be liable for, and shall indemnify the Unitary Filing Company, for the
Unitary Taxes properly allocable to its business operations or assets under
applicable laws, rules, and regulations of the State or other relevant Taxing
Authority.

(b) Controversies. Except as otherwise provided herein
or as the parties may otherwise agree, Auto One, at its own expense, shall have
exclusive authority to represent itself and the Auto One Companies before the
IRS or any other taxing authority or any court regarding the Tax consequences
of the operations and assets of Auto One and the Auto One Companies with
respect to all Taxes covered by Section 2.2(a) above, MTInc., at

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<PAGE> 10
its own expense, shall have exclusive authority to represent itself and the
MTInc. Companies before the IRS or any other Taxing Authority or any court
regarding the Tax consequences of such companies with respect to all Taxes
covered by Section 2.2(a) above, and each of SUI and MTTFS, at its own expense,
shall have exclusive authority to represent itself before the IRS or any other
Taxing Authority or any court regarding the Tax consequences of its operations
and assets with respect to all Taxes covered by Section 2.2(a) above.

(c) Auto One, MTInc., SUI and MTTFS, as the case may be,
shall timely notify AMERISAFE of any correspondence and Tax controversies with
any Taxing Authority relating to adjustments or items that may affect
AMERISAFE's Tax liability or Tax treatment of related items in subsequent
Periods ("Related Adjustments"), and shall promptly provide AMERISAFE with
copies of all such correspondence. Subject to the exclusive authority of Auto
One, MTInc., SUI and MTTFS, as the case may be, as provided for herein,
AMERISAFE shall have the right to consult with Auto One, MTInc., SUI and MTTFS,
as the case may be, with respect to the handling of any such controversies
concerning Related Adjustments, and Auto One, MTInc., SUI and MTTFS, as the
case may be, shall not settle any Related Adjustment without first obtaining
AMERISAFE's written consent, which consent shall not be unreasonably withheld.

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ARTICLE III

COMPUTATIONS AND PAYMENTS OF TAXES; INDEMNIFICATIONS

3.1 Consolidated Income Taxes.

(a) Initial Computation. For each Period, including any
Short Period, for which any Distributed Company is included in a Consolidated
Income Tax Return of Parent's Group, the Tax liability of each such corporation
shall be calculated in accordance with Regulations Section 1.1552-1(a)(1) and,
using a percentage of 100%, Regulations 1.1502-33(d)(3); provided that a
different allocation is not required by law or any successor Regulation. See
Example (2) of Regulations Section 1.1502-33(d)(6). Any resulting positive
amount (i.e., an amount owed by a Distributed Company) is hereinafter referred
to as an "AMERISAFE Receivable." Any resulting negative amount (i.e., an
amount owed to a Distributed Company) is hereinafter referred to as an
"AMERISAFE Payable." The AMERISAFE Receivables and the AMERISAFE Payables for
Auto One and each Auto One Company for each such Period shall be aggregated,
and the resulting number, positive (i.e., AMERISAFE Receivables exceed
AMERISAFE Payables) or negative (i.e., AMERISAFE Payables exceed AMERISAFE
Receivables), is hereinafter referred to as the "Aggregate." If the Aggregate
is a positive number, Auto One shall pay the Aggregate to AMERISAFE to the
extent not previously paid by Auto One or an Auto One Company. If the
Aggregate is a negative number, AMERISAFE shall pay the Aggregate to Auto One
to the extent not

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previously paid to Auto One or an Auto One Company. The same procedures shall
be followed with respect to MTInc. and the MTInc. Companies, and, separately,
with respect to each of SUI and MTTFS.

(b) Subsequent Adjustments; Indemnifications. AMERISAFE
shall be responsible and liable and shall indemnify the Distributed Companies
for any and all increases in Consolidated Income Taxes, and shall be entitled
to any refund of any and all decreases in Consolidated Income Taxes which may
be determined pursuant to a Final Determination and which are allocable to
AMERISAFE or any AMERISAFE Subsidiary for all Periods ending before the
Distribution Date and for any Period which includes the Short Period. Auto
One, MTInc., SUI and MTTFS shall be responsible and liable, and shall indemnify
AMERISAFE and the AMERISAFE Subsidiaries, for any and all increases (including
any increase arising from a loss of foreign Tax credits due to any reduction in
foreign Taxes of Distributed Companies), and shall be entitled to any refunds,
of Consolidated Income Taxes which are allocable to the Distributed Companies
for all Periods ending before the Distribution Date and for any Period which
includes the Short Period. For purposes of determining the amount of any
Consolidated Income Tax increases or refunds that are allocable to Distributed
Companies, on the one hand, or to AMERISAFE or any AMERISAFE Subsidiary, on the
other hand, the amounts computed under Section 3.1(a) above shall be recomputed
to take into account all adjustments made in accordance with the Final

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Determination. Auto One, MTInc., SUI, and MTTFS shall also be responsible and
liable and shall indemnify AMERISAFE and the AMERISAFE Subsidiaries for any and
all interest, additions to Tax, and penalties with respect to any and all
increases which are allocable to the Distributed Companies, respectively.

3.2 All Other Taxes. Auto One, MTInc., SUI and MTTFS
shall be responsible and liable for, and shall indemnify and hold AMERISAFE and
the AMERISAFE Subsidiaries harmless from, any increases in, and shall be
entitled to any refund resulting from any decreases in, any and all Taxes of
Auto One or any Auto One Company, of MTInc. or any MTInc. Company, or of SUI or
MTTFS, respectively, described in Section 2.2(a) above.

3.3 Time of Payment. Any amounts to be paid pursuant to
Section 3.1(a) above shall be paid and made current not less than 5 days before
the applicable Tax Return is due. Amounts owed by either party hereto in
respect of Tax refunds received by such party to which the other party is
entitled hereunder shall be paid by the party receiving the refund to the other
party within 5 days after the receipt or credit of such refund, and amounts
owed by either party hereto in respect of Tax increases (including any Tax
increases under Section 3.1(b) or 3.2 above, or Section 5.2 below) shall be
paid by such party to the other party within 30 days after the Final
Determination with respect thereto.

3.4 Certain Disputes Regarding Tax Liabilities. In the
event of a dispute regarding the allocation of Tax liability

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pursuant to Section 3.1, AMERISAFE and the Distributed Companies shall employ
(and equally share the expense of) a nationally recognized public accounting
firm to determine the proper allocation of such liability. Any determination
of any such liability or payment by such accounting firm shall be made in
accordance with AMERISAFE's allocation of relevant Tax liabilities in prior
years.

ARTICLE IV

COOPERATION BY THE PARTIES

4.1 Record Retention. AMERISAFE, Auto One, MTInc., SUI
and MTTFS agree that all Tax records within the possession of any of them shall
be retained until the later of (y) the expiration of the applicable statute of
limitations (giving effect to any extension, waiver, or mitigation thereof) and
(z) in the event any claim has been made under this Agreement for which such
information is relevant, until a Final Determination with respect to such
claim.

4.2 Cooperation re Tax Return Filings and Controversies.

(a) In General. Each party hereto agrees that it will
cooperate with the others, and their representatives, in a prompt and timely
manner, in connection with (i) the preparation and filing of, and (ii) any
administrative or judicial proceeding involving, any Tax Return filed or
required to be filed hereunder

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by AMERISAFE or its delegee which includes any Distributed Company. Such
cooperation shall include, but not be limited to, (i) the execution and
delivery to AMERISAFE or its delegee by any of the Distributed Companies, as
applicable, of any power of attorney required to allow AMERISAFE and its
counsel to represent such Distributed Company in any controversy which
AMERISAFE shall have the right to control pursuant to Section 2.1(b) above,
(ii) making available to the other party, during normal business hours, all
books, records (including but not limited to work papers and schedules),
information, officers, and employees (without substantial interruption of
employment) reasonably requested and necessary or useful in connection with any
Tax inquiry, audit, investigation, dispute, litigation, or other matter, and
(iii) the use of the parties' reasonable best efforts to obtain any
documentation from a governmental authority or a third party that may be
necessary or helpful in connection with the foregoing. Notwithstanding the
foregoing, neither party shall be required to furnish to the other any federal
Income Tax Returns or drafts thereof (except as otherwise expressly provided
herein or as is reasonably necessary to implement the provisions of Section 5.2
below), for any Period, except that AMERISAFE or its delegee shall furnish to
Auto One, MTInc., SUI and MTTFS the portions of such Tax Returns reporting the
operations of Auto One and/or any Auto One Company, of MTInc. and/or any MTInc.
Company, of SUI, and/or of MTTFS, as applicable, and the related portions of
all reports relating to the examination by the IRS or any

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other governmental agency or taxing authority of such Tax Returns.

(b) Draft Consolidated Income Tax Return. In furtherance
of Section 2.1(a) above, AMERISAFE shall prepare and, not less than 15 days
before filing, furnish to Auto One, MTInc., SUI and MTTFS, as the case may be,
draft federal income Tax Returns reporting the operations and assets of the
Distributed Companies for any Short Period in 1996. Such draft Tax Returns
shall be prepared in such a manner as to reasonably indicate how AMERISAFE
calculated each such company's allocable share of the Consolidated Tax
liability for such Short Period in accordance with Section 3.1(a) above.
Except as AMERISAFE may otherwise determine after consulting with Auto One,
MTInc., SUI and MTTFS, as the case may be, all items of income, gain,
deduction, loss, and credit of each Distributed Company shall be reported on a
basis consistent with the reporting of such items (or substantially similar
items) of such Distributed Company for prior Periods, unless applicable law or
a change in factual circumstances requires otherwise.

ARTICLE V

MISCELLANEOUS

5.1 Prior Tax Sharing Agreements. This Agreement
terminates and supersedes any and all other Tax sharing or Tax allocation
agreements or practices in effect between AMERISAFE

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and/or any AMERISAFE Subsidiary, on the one hand, and any Distributed Company,
on the other hand, regardless of the Period for which such Taxes are imposed.

5.2 Carrybacks. Deductions, losses, or credits of any
Distributed Company arising in a Period in which the entity generating them is
not included in a Consolidated Income Tax Return pursuant to Section 2.1(a)
above may, under applicable law, be available for carryback to a Period in
which the entity generating them was so included. To the extent applicable law
allows such a carryback to be waived, Auto One, MTInc., SUI and/or MTTFS, as
applicable, shall have the exclusive authority to determine whether or not to
waive such carryback. To the extent the carryback is not waivable or not
waived, AMERISAFE shall be entitled to the benefits of such carryback but shall
pay to the applicable Distributed Company an amount equal to the net reduction
in Taxes of AMERISAFE or any AMERISAFE Subsidiary attributable to such
carryback. To the extent any such carryback causes AMERISAFE or any AMERISAFE
Subsidiary to incur any additional Tax, Auto One, MTInc., SUI and/or MTTFS, as
appropriate, shall pay to AMERISAFE an amount equal to such additional Tax.
AMERISAFE shall cooperate, as is reasonably necessary, in the implementation of
this Section 5.2.

5.3 Effectiveness of this Agreement; Survival of
Obligations. This Agreement shall be effective only from and after the
Distribution Date. With respect to any particular item of Tax liability, the
covenants and obligations contained in this

17
<PAGE> 18
Agreement shall not terminate until a Final Determination as to such item and
any payment required hereunder have been made.

5.4 Tax Indemnification. Auto One, MTInc., SUI and
MTTFS, as the case may be, shall indemnify and hold harmless AMERISAFE and the
AMERISAFE Subsidiaries from and against any liability, cost or expenses,
including, without limitation, any fine, penalty, interest, charge or
accountant's fee arising out of fraudulent or negligent information,
workpapers, documents and other items prepared by Auto One, MTInc., SUI and
MTTFS, as the case may be, or any of its subsidiaries, that are used in the
preparation of any Tax Return or claim for refund filed by AMERISAFE and/or the
Parent's Group for any period during which Auto One, MTInc., SUI and MTTFS, as
the case may be, (or any of its subsidiaries) was or has been a member of the
Parent's Group.

5.5 Breach.

(a) AMERISAFE shall indemnify and hold harmless
Auto One, MTInc., SUI and MTTFS (and their subsidiaries), as the case may be,
from and against any payment required to be made under this Agreement as a
result of a breach by AMERISAFE or an AMERISAFE Subsidiary of any obligation
under this Agreement.

(b) Auto One, MTInc., SUI and MTTFS (and their
subsidiaries), as the case may be, shall indemnify and hold harmless AMERISAFE
and the AMERISAFE Subsidiaries from and against any payment required to be made
under this Agreement as a result of a breach by Auto One, MTInc., SUI and MTTFS
(and their

18
<PAGE> 19
subsidiaries), as the case may be, of any obligation under this Agreement.

5.6 Complete Agreement. This Agreement and other
agreements and documents referred to herein shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
shall supersede all previous negotiations, commitments, and writings with
respect to such subject matter.

5.7 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas.

5.8 Notices. All notices and other communications
hereunder shall be in writing and shall be delivered by hand, mailed by
registered or certified mail (return receipt requested), or sent by courier or
other express delivery that provides for independent delivery verification to
the parties at the following addresses (or at such other addresses for a party
as shall be specified by like notice) and shall be deemed given on the date on
which such notice or communication is delivered to the addressees at the
address specified below:

(a) If to AMERISAFE:

if by hand:

if by mail:

19
<PAGE> 20

(b) If to Auto One:

if by hand:

if by mail:

if by hand:

if by mail:

(d) If to SUI:

if by hand:

if by mail:

(e) If to MTTFS:

if by hand:

if by mail:

5.9 Amendments. This Agreement may not be modified or
amended except by an agreement in writing signed by the parties hereto.

5.10 Successors and Assigns. This Agreement and all the
provisions hereof shall be binding upon and inure to the

20
<PAGE> 21
benefit of the parties and their respective successors and assigns; provided,
however, that, except as specifically provided herein, no party may assign or
delegate any of its rights or obligations under this Agreement without the
consent of the other party, which consent shall not be unreasonably withheld.

5.11 No Third-Party Beneficiaries. This Agreement is
solely for the benefit of the parties hereto and their Subsidiaries and shall
not be deemed to confer upon any third party any remedy, claim, liability,
reimbursement, claim of action, or other right in excess of those existing
without reference to this Agreement.

5.12 Titles and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be part of or to affect the meaning or interpretation of this Agreement.

5.13 Execution in Counterparts. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same agreement.

IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first above written.

AMERISAFE, Inc.

By:
-------------------------
Title:
-----------------------

21
<PAGE> 22

Auto One Acceptance Corporation

By:
-------------------------
Title:
-----------------------

M.T. & Co., Inc.

By:
-------------------------
Title:
-----------------------

Southern Underwriters, Inc.

By:
-------------------------
Title:
-----------------------

Morris, Temple & Trent Financial Services

By:
-------------------------
Title:
-----------------------

<PAGE> 1

EXHIBIT 11.1

COMPUTATION OF EARNINGS PER SHARE

<TABLE>
<CAPTION>
Year Six Months
Ended Ended
December 31, June 30,
1995 1996
---------------------------
<S> <C> <C>
PRIMARY:
Net income ............................................ $ 8,307,000 $ 4,252,000
============ ============

Shares as adjusted:
Weighted average common shares outstanding ......... 11,884,647 11,884,647
Assumed conversion of Series B cumulative
convertible preferred stock ...................... 5,515,353 5,515,353
Incremental shares from outstanding stock
options as determined under the treasury
stock method ..................................... 85,714 85,714
Incremental shares from issuance of Class A
Common Stock ..................................... 6,000 6,000
Pro forma shares whose proceeds would be necessary
to pay certain debts originated in connection with
the reorganization of AMERISAFE, Inc. ............ 4,569,357 4,569,357
------------ ------------
Shares as adjusted .................................... 22,061,071 22,061,071
============ ============
Pro forma net income per share ........................ $ 0.38 $ 0.19
============ ============

FULLY DILUTED:
Net income ............................................ $ 8,307,000 $ 4,252,000
============ ============

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data," and to the use of our reports
dated ______________________, 1996, in Amendment No. 2 to the Registration
Statement (Form S-1, No. 333-10099) and related Prospectus of AMERISAFE, Inc.
for the registration of 12,650,000 shares of its common stock.

Dallas, Texas
_______________, 1996

The foregoing consent is in the form that will be signed upon the completion of
the reorganization described in Note 1 to the financial statements.

/s/ ERNST & YOUNG LLP

Dallas, Texas
October 10, 1996

<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND ON PAGES
F-3 THROUGH F-5 OF THE COMPANY'S S-1 FILED ON SEPTEMBER 24, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<DEBT-HELD-FOR-SALE> 3,363 3,016
<DEBT-CARRYING-VALUE> 65,052 68,795
<DEBT-MARKET-VALUE> 66,840 68,434
<EQUITIES> 3,076 4,083
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 71,491 75,894
<CASH> 10,202 14,688
<RECOVER-REINSURE> 13,360 14,330
<DEFERRED-ACQUISITION> 316 607
<TOTAL-ASSETS> 120,440 133,905
<POLICY-LOSSES> 55,427 62,345
<UNEARNED-PREMIUMS> 3,581 4,460
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 10,299 11,014
<NOTES-PAYABLE> 10,113 12,938
<COMMON> 119 119
0 0
0 0
<OTHER-SE> 32,019 36,323
<TOTAL-LIABILITY-AND-EQUITY> 120,440 133,905
58,167 30,678
<INVESTMENT-INCOME> 4,519 2,743
<INVESTMENT-GAINS> 174 (7)
<OTHER-INCOME> 5,964 4,730
<BENEFITS> 32,924 18,356
<UNDERWRITING-AMORTIZATION> 245 250
<UNDERWRITING-OTHER> 13,279 8,127
<INCOME-PRETAX> 13,541 5,935
<INCOME-TAX> 5,234 1,683
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,307 4,252
<EPS-PRIMARY> 0.38 0.19
<EPS-DILUTED> 0.38 0.19
<RESERVE-OPEN> 31,242 43,304
<PROVISION-CURRENT> 36,074 18,973
<PROVISION-PRIOR> (3,150) (617)
<PAYMENTS-CURRENT> 10,219 3,296
<PAYMENTS-PRIOR> 10,643 9,353
<RESERVE-CLOSE> 43,304 49,011
<CUMULATIVE-DEFICIENCY> (3,150) (617)

</TABLE>