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Employers Holdings, Inc. Reports Fourth Quarter 2019 and Year End Financial Results Highlighted by Record Annual Net Income; Increases Regular Quarterly Cash Dividend to $0.25 per Share

Employers Holdings, Inc. (the “Company”) (NYSE:EIG), a holding company with subsidiaries that are specialty providers of workers' compensation insurance and services focused on select, small businesses engaged in low-to-medium hazard industries, today reported financial results for its fourth quarter and year ended December 31, 2019.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20200219005989/en/

2019 Highlights

  • Net income of $157.1 million ($4.83 per diluted share), adjusted net income of $104.0 million ($3.20 per diluted share).
  • Net investment income of $88.1 million, up 8% year-over-year.
  • Net premiums earned of $695.8 million, down 5% year-over-year.
  • Favorable prior year loss reserve development of $77.5 million, compared to $66.2 million a year ago.
  • The Company repurchased 1,619,109 shares of its common stock at an average price of $41.43 per share ($67.1 million).
  • Book value per share including the Deferred Gain of $41.55, up 19.1% year-over-year including dividends declared.
  • Nationwide platform now complete with five insurance companies covering all eligible states.
  • Diversification strategy continued as California business now represents less than 50% of in-force premium and policies.
  • Strong new business opportunities, as evidenced by record levels of submissions, quotes and binds.

Fourth Quarter 2019 Highlights

  • Net income of $31.8 million ($0.99 per diluted share), adjusted net income of $15.5 million ($0.48 per diluted share).
  • Net investment income of $22.6 million, up 6% year-over-year.
  • Net premiums earned of $169.7 million, down 8% year-over-year.
  • Favorable prior year loss reserve development of $11.4 million, compared to $25.4 million a year ago.
  • The Company repurchased 465,350 shares of its common stock at an average price of $42.32 per share ($19.7 million).

Management Commentary

Chief Executive Officer Douglas Dirks commented on the results: “We delivered an 8.6% return on adjusted equity for the year while continuing to successfully execute our plan of aggressive development and implementation of new technologies and capabilities that we believe will fundamentally transform and enhance the digital experience of our customers. In addition, we remain focused on our other key business initiatives, including: achieving internal and customer-facing business process excellence to provide greater support and ease of use to our independent agents, brokers and policyholders; further diversifying our risk exposure across geographic markets; and utilizing a multi-company pricing platform and employing territory-specific pricing.”

Mr. Dirks continued, “These initiatives are already providing us with significant new business opportunities, as measured by the record levels of submissions we received and quotes we provided during 2019. Despite the sharp increase in new business opportunities, we are continuing to maintain pricing discipline, which has limited policy binds. Our renewal premiums continue to be very strong both in terms of price and unit retention.

During the current market cycle, we intend to remain committed to exercising pricing discipline while attempting to remain competitive. In the short-run, this will mean increasing pressure on the expense ratio to protect the loss ratio. We believe this disciplined approach will ultimately produce superior performance over time. Throughout the past several quarters, we have experienced favorable prior year loss reserve development for nearly every accident year through the utilization of advanced claims analytics as well as a continuation of our accelerated claims settlement initiatives.

We are also pleased with the development of our new digital insurance platform, Cerity, which we launched just a year ago. Cerity is now able to offer direct-to-customer worker’s compensation insurance in 34 states and the District of Columbia and is expanding rapidly to cover more states and businesses every month. For the first time this quarter, we are breaking out our financial results to separate Cerity’s operations from Employers’ operations, and believe that a balanced approach toward digitized product offerings coupled with agent support properly positions the Company to adapt to a rapidly changing marketplace.”

Summary of Consolidated Fourth Quarter 2019 Results
(All comparisons vs. fourth quarter 2018, unless noted otherwise).

Gross premiums written were $143.8 million, a decrease of 11%. The decrease was primarily due to declines in new business premiums written in California, where the Company continued to act as a price leader in achieving rate adequacy, as well as an overall reduction in final audit premiums, partially offset by an increase in overall renewal premiums. Net earned premiums were $169.7 million, a decrease of 8% year-over-year.

Losses and loss adjustment expenses were $97.6 million, an increase of 12%. The Company recognized $11.4 million of favorable prior year loss reserve development during the current period versus $25.4 million of favorable prior year loss reserve development a year ago.

Commission expenses were $20.4 million, a decrease of 4%. The decrease was primarily due to a decrease in 2019 agency incentive commissions, which were directly impacted by the decrease in premiums written.

Underwriting and general and administrative expenses were $50.9 million, an increase of 26%. The increase was largely the result of our aggressive development and implementation of new digital technologies and capabilities, as well as a $1.8 million increase in bad debt expense associated with 2018 policy year final audit premiums.

Net investment income of $22.6 million increased 6%, primarily as a result of an increase in the average yield and size of the investment portfolio.

Income tax expense was $9.6 million (23.2% effective rate) versus $4.9 million (16.1% effective rate). The increase in the effective rate is due primarily to having a higher proportion of fully taxable income in the current period versus that of a year ago as well as the impact of state income taxes.

The Company’s book value per share of $37.18, book value per share including the Deferred Gain of $41.55 and adjusted book value per share of $39.47 increased by 22.5%, 19.1%, and 11.9% during 2019, respectively, each computed after taking into account dividends declared. During 2019, the Company’s book value per share and book value per share including the Deferred Gain were favorably impacted by $79.0 million of net after tax unrealized gains from its portfolio of fixed maturity securities.

Summary of Fourth Quarter 2019 Results by Segment
(see page 16 of the Financial Supplement for a description of our reportable segments. All comparisons vs. fourth quarter 2018, unless noted otherwise).

Beginning with this earnings release, the Company has separated its operations into two distinct reporting segments, Employers and Cerity, and will continue to do so in its future earnings releases and filings with the U.S. Securities and Exchange Commission (the “SEC”).

Employers Segment

The Employers segment reported net income before income taxes of $46.9 million versus $35.5 million.

Highlights included the following:

- Underwriting income of $7.6 million versus $39.9 million;
- Combined ratio of 95.5% versus 78.2%;
- Current accident year loss and LAE ratio of 65.6% versus 62.5%;
- Favorable prior year loss reserve development of 9.1 percentage points versus 13.8 percentage points;
- Underwriting expense ratio of 24.6% versus 18.0%;
- Net investment income of $21.8 million versus $20.4 million; and
- Net realized and unrealized gains (losses) on investments of $17.4 million versus $(25.1) million.

Cerity Segment

The Cerity segment reported a net loss before income tax of $4.2 million versus $2.0 million, and an underwriting loss of $4.3 million versus $2.2 million.

Corporate and Other

Corporate and Other activities reported a net loss before income taxes of $1.3 million versus $3.0 million. Highlights included the following:

- LPT amortization, which served to reduce losses and LAE, of $2.3 million versus $2.5 million;
- Net investment income of $0.7 million versus $0.9 million;
- Net realized and unrealized gains (losses) on investments of $0.4 million versus $(1.3) million; and
- General and administrative expenses of $4.8 million versus $5.1 million.

Increase in Regular Quarterly Dividend

On February 14, 2020, the Board of Directors declared a first quarter 2020 dividend of $0.25 per share, an increase of 14% from the previous quarterly dividend of $0.22 per share. The dividend is payable on March 18, 2020 to stockholders of record as of March 4, 2020.

Earnings Conference Call and Webcast / Availability of Financial Supplement and Investor Presentation

The Company will host a conference call on Thursday, February 20, 2020 at 11:30 a.m. Eastern Standard Time / 8:30 a.m. Pacific Standard Time.

To participate in the live conference call by telephone, dial +1 (888) 364-8443 or +1 (484) 747-6630 and use the conference call access code 9370517.

The webcast will be accessible on the Company’s web site at www.employers.com through the “Investors” link. An archived version of the webcast will remain on the Company’s web site for up to seven days following the live webcast. To listen to a recording of the call by telephone, dial +1 (855) 859-2056 or +1 (404) 537-3406 and use the conference call access code 9370517.

Reconciliation of Non-GAAP Financial Measures to GAAP

The information in this press release should be read in conjunction with the Financial Supplement and the 2019 Annual Review that are attached to this press release and available on our website.

Within this earnings release we present various financial measures, some of which are “non-GAAP financial measures” as defined in Regulation G pursuant to Section 401 of the Sarbanes - Oxley Act of 2002. A description of these non-GAAP financial measures, as well as a reconciliation of such non-GAAP measures to our most directly comparable GAAP financial measures is included in the attached Financial Supplement. Management believes that these non-GAAP measures are important to the Company's investors, analysts and other interested parties who benefit from having an objective and consistent basis for comparison with other companies within our industry. Management further believes that these measures are more relevant than comparable GAAP measures in evaluating our financial performance.

Forward-Looking Statements

In this press release, the Company and its management discuss and make statements based on currently available information regarding their intentions, beliefs, current expectations, and projections of, among other things, the Company's future performance, business growth, retention rates, loss costs, claim trends and the impact of key business initiatives, future technologies and planned investments. Certain of these statements may constitute “forward-looking” statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and are often identified by words such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “target,” “project,” “intend,” “believe,” “estimate,” “predict,” “potential,” “pro forma,” “seek,” “likely,” or “continue,” or other comparable terminology and their negatives. The Company and its management caution investors that such forward-looking statements are not guarantees of future performance. Risks and uncertainties are inherent in the Company’s future performance. Factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements include, among other things, those discussed or identified from time to time in the Company’s public filings with the SEC, including the risks detailed in the Company's Quarterly Reports on Form 10-Q and the Company's Annual Reports on Form 10-K. Except as required by applicable securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Filings with the SEC

The Company’s filings with the SEC and its quarterly investor presentations can be accessed through the “Investors” link on the Company's website, www.employers.com. The Company’s filings with the SEC can also be accessed through the SEC's EDGAR Database at www.sec.gov (EDGAR CIK No. 0001379041).

The Company also provides its quarterly Investor Presentations on its web site at www.employers.com.

About Employers Holdings, Inc.

EMPLOYERS® and America’s small business insurance specialist® are registered trademarks of EIG Services, Inc. Employers Holdings, Inc. is a holding company with subsidiaries that are specialty providers of workers' compensation insurance and services focused on select, small businesses engaged in low-to-medium hazard industries. The Company operates throughout the United States, with the exception of four states that are served exclusively by their state funds. Insurance is offered through Employers Insurance Company of Nevada, Employers Compensation Insurance Company, Employers Preferred Insurance Company, Employers Assurance Company and Cerity Insurance Company, all rated A- (Excellent) by the A.M. Best Company. Not all companies do business in all jurisdictions. See www.employers.com and www.cerity.com for coverage availability.

Employers Holdings, Inc.
Fourth Quarter and Full Year 2019
Financial Supplement

February 19, 2020

EMPLOYERS HOLDINGS, INC.

Table of Contents

Page

3

Consolidated Financial Highlights

4

Summary Consolidated Balance Sheets

5

Summary Consolidated Income Statements

6-9

Net Income Before Income Taxes by Segment

10

Return on Equity

11

Roll-forward of Unpaid Losses and LAE

12

Consolidated Investment Portfolio

13

Book Value Per Share

14

Earnings Per Share

15

Non-GAAP Financial Measures

16

Description of Reportable Segments

EMPLOYERS HOLDINGS, INC.

Consolidated Financial Highlights (unaudited)

$ in millions, except per share amounts

 

Three Months Ended

Years Ended

December 31,

December 31,

2019

2018

% change

2019

2018

% change

Selected financial highlights:

Gross premiums written

$

143.8

$

161.7

(11

)%

$

696.9

$

748.9

(7

)%

Net premiums written

142.4

160.4

(11

)

691.5

742.8

(7

)

Net premiums earned

169.7

183.6

(8

)

695.8

731.1

(5

)

Net investment income

22.6

21.3

6

88.1

81.2

8

Net income before impact of the LPT(1)

29.6

23.1

28

144.4

126.7

14

Adjusted net income(1)

15.5

43.6

(64

)

104.0

136.8

(24

)

Net income before income taxes

41.4

30.5

36

193.8

169.5

14

Net income

31.8

25.6

24

157.1

141.3

11

Comprehensive income

29.0

34.4

(16

)

236.1

94.2

151

Total assets

4,004.1

3,919.2

2

Stockholders' equity

1,165.8

1,018.2

14

Stockholders' equity including the Deferred Gain(2)

1,302.9

1,167.8

12

Adjusted stockholders' equity(2)

1,237.6

1,181.5

5

Annualized adjusted return on stockholders' equity(3)

5.0

%

14.9

%

(66

)%

8.6

%

12.5

%

(31

)

Amounts per share:

Cash dividends declared per share

$

0.22

$

0.20

10

%

$

0.88

$

0.80

10

%

Earnings per diluted share(4)

0.99

0.77

29

4.83

4.24

14

Earnings per diluted share before impact of the LPT(4)

0.92

0.69

33

4.44

3.80

17

Adjusted earnings per diluted share(4)

0.48

1.31

(63

)

3.20

4.11

(22

)

Book value per share(2)

37.18

31.08

20

Book value per share including the Deferred Gain(2)

41.55

35.64

17

Adjusted book value per share(2)

39.47

36.06

9

Financial information by Segment(5):

Net income (loss) before income taxes:

Employers

$

46.9

$

35.5

32

%

$

208.0

$

174.8

19

%

Cerity

(4.2

)

(2.0

)

(110

)

(15.6

)

(5.7

)

(174

)

Corporate and Other

(1.3

)

(3.0

)

57

1.4

0.4

250

(1) See Page 5 for calculations and Page 15 for information regarding our use of Non-GAAP Financial Measures.

(2) See Page 13 for calculations and Page 15 for information regarding our use of Non-GAAP Financial Measures.

(3) See Page 10 for calculations and Page 15 for information regarding our use of Non-GAAP Financial Measures.

(4) See Page 14 for calculations and Page 15 for information regarding our use of Non-GAAP Financial Measures.

(5) See Pages 6-9 for details and Page 16 for a description of our reportable segments.

EMPLOYERS HOLDINGS, INC.

Summary Consolidated Balance Sheets (unaudited)

$ in millions, except per share amounts

 

December 31,
2019

December 31,
2018

ASSETS

Investments, cash and cash equivalents

$

2,933.6

$

2,829.7

Accrued investment income

16.4

18.0

Premiums receivable, net

285.7

333.1

Reinsurance recoverable on paid and unpaid losses

539.7

511.1

Deferred policy acquisition costs

47.9

48.2

Deferred income taxes, net

26.9

Contingent commission receivable—LPT Agreement

13.2

32.0

Other assets

167.6

120.2

Total assets

$

4,004.1

$

3,919.2

LIABILITIES

Unpaid losses and LAE

$

2,192.8

$

2,207.9

Unearned premiums

337.1

336.3

Commissions and premium taxes payable

48.6

57.3

Deferred Gain

137.1

149.6

Notes payable

20.0

Other liabilities

122.7

129.9

Total liabilities

$

2,838.3

$

2,901.0

STOCKHOLDERS' EQUITY

Common stock and additional paid-in capital

$

397.0

$

389.4

Retained earnings

1,158.8

1,030.7

Accumulated other comprehensive income (loss), net

65.3

(13.7

)

Treasury stock, at cost

(455.3

)

(388.2

)

Total stockholders’ equity

1,165.8

1,018.2

Total liabilities and stockholders’ equity

$

4,004.1

$

3,919.2

Stockholders' equity including the Deferred Gain (1)

$

1,302.9

$

1,167.8

Adjusted stockholders' equity (1)

1,237.6

1,181.5

Book value per share (1)

$

37.18

$

31.08

Book value per share including the Deferred Gain (1)

41.55

35.64

Adjusted book value per share (1)

39.47

36.06

(1) See Page 13 for calculations and Page 15 for information regarding our use of Non-GAAP Financial Measures.

EMPLOYERS HOLDINGS, INC.

Summary Consolidated Income Statements (unaudited)

$ in millions

 

Three Months Ended

Years Ended

December 31,

December 31,

2019

2018

2019

2018

Revenues:

Net premiums earned

$

169.7

$

183.6

$

695.8

$

731.1

Net investment income

22.6

21.3

88.1

81.2

Net realized and unrealized gains (losses) on investments(1)

17.8

(26.4

)

51.1

(13.1

)

Other income

0.2

0.9

0.9

1.2

Total revenues

210.3

179.4

835.9

800.4

Expenses:

Losses and LAE incurred

(97.6

)

(86.9

)

(365.9

)

(376.7

)

Commission expense

(20.4

)

(21.2

)

(88.1

)

(94.2

)

Underwriting and general and administrative expenses

(50.9

)

(40.4

)

(187.5

)

(158.5

)

Interest and financing expenses

(0.4

)

(0.6

)

(1.5

)

Total expenses

(168.9

)

(148.9

)

(642.1

)

(630.9

)

Net income before income taxes

41.4

30.5

193.8

169.5

Income tax expense

(9.6

)

(4.9

)

(36.7

)

(28.2

)

Net income

31.8

25.6

157.1

141.3

Unrealized AFS investment (losses) gains arising during the period, net of tax(2)

(2.0

)

7.8

82.1

(48.5

)

Reclassification adjustment for realized AFS investment losses (gains) in net income, net of tax(2)

(0.8

)

1.0

(3.1

)

1.4

Total Comprehensive income

$

29.0

$

34.4

$

236.1

$

94.2

Net income

$

31.8

$

25.6

$

157.1

$

141.3

Amortization of the Deferred Gain - losses

(1.8

)

(2.1

)

(8.9

)

(9.9

)

Amortization of the Deferred Gain - contingent commission

(0.4

)

(0.4

)

(1.8

)

(2.0

)

LPT reserve adjustment

(1.8

)

(2.2

)

LPT contingent commission adjustments

(0.2

)

(0.5

)

Net income before impact of the LPT Agreement (3)

$

29.6

$

23.1

$

144.4

$

126.7

Net realized and unrealized (gains) losses on investments

(17.8

)

26.4

(51.1

)

13.1

Amortization of intangibles

0.2

Income tax expense (benefit) related to items excluded from Net income

3.7

(5.5

)

10.7

(2.8

)

Net impact of Federal tax reform

(0.4

)

(0.4

)

Adjusted net income (1)

$

15.5

$

43.6

$

104.0

$

136.8

(1) Includes $16.3 million and $(27.4) million for the three months ended December 31 2019 and 2018, respectively, and $33.8 million and $(25.6) million of unrealized gains and losses on equity securities and other invested assets for the year ended December 31, 2019 and 2018, respectively.

(2) AFS = Available for Sale securities

(3) See Page 15 regarding our use of Non-GAAP Financial Measures.

EMPLOYERS HOLDINGS, INC.

Net Income Before Income Taxes by Segment(1) (unaudited)

$ in millions

 

Employers

Cerity

Corporate
and Other

Consolidated

Year Ended December 31, 2019

(in millions)

Gross premiums written

$

696.8

$

0.1

$

$

696.9

Net premiums written

691.4

0.1

691.5

Net premiums earned

A

695.8

695.8

Net investment income

84.1

0.3

3.7

88.1

Net realized and unrealized gains on investments

47.7

0.1

3.3

51.1

Other income

0.9

0.9

Total revenues

828.5

0.4

7.0

835.9

Losses and LAE incurred

B

(378.6

)

12.7

(365.9

)

Commission expense

C

(88.1

)

(88.1

)

Underwriting expenses

D

(153.2

)

(16.0

)

(169.2

)

General and administrative expenses

(18.3

)

(18.3

)

Interest and financing expenses

(0.6

)

(0.6

)

Total expenses

(620.5

)

(16.0

)

(5.6

)

(642.1

)

Net income (loss) before income taxes

$

208.0

$

(15.6

)

$

1.4

$

193.8

Underwriting income (loss)

A+B+C+D

$

75.9

$

(16.0

)

Loss and LAE expense ratio:

Current year

65.6

%

n/m

Prior years

(11.2

)

Loss and LAE ratio

54.4

n/m

Commission expense ratio

12.7

n/m

Underwriting expense ratio

22.0

n/m

Combined ratio

89.1

%

n/m

n/m - not meaningful

(1) See Page 16 for a description of our reportable segments.

EMPLOYERS HOLDINGS, INC.

Net Income Before Income Taxes by Segment(1) (unaudited)

$ in millions

 

Employers

Cerity

Corporate
and Other

Consolidated

Year Ended December 31, 2018

(in millions)

Gross premiums written

$

748.9

$

$

$

748.9

Net premiums written

742.8

742.8

Net premiums earned

A

731.1

731.1

Net investment income

78.6

2.6

81.2

Net realized and unrealized (losses) gains on investments

(13.9

)

0.8

(13.1

)

Other income

1.0

0.2

1.2

Total revenues

796.8

0.2

3.4

800.4

Losses and LAE incurred

B

(391.3

)

14.6

(376.7

)

Commission expense

C

(94.2

)

(94.2

)

Underwriting expenses

D

(135.0

)

(5.9

)

(140.9

)

General and administrative expenses

(17.6

)

(17.6

)

Interest and financing expenses

(1.5

)

(1.5

)

Total expenses

(622.0

)

(5.9

)

(3.0

)

(630.9

)

Net income (loss) before income taxes

$

174.8

$

(5.7

)

$

0.4

$

169.5

Underwriting income (loss)

A+B+C+D

$

110.6

$

(5.9

)

Loss and LAE expense ratio:

Current year

62.6

%

n/m

Prior years

(9.1

)

Loss and LAE ratio

53.5

n/m

Commission expense ratio

12.9

n/m

Underwriting expense ratio

18.5

n/m

Combined ratio

84.9

%

n/m

n/m - not meaningful

(1) See Page 16 for a description of our reportable segments.

 

EMPLOYERS HOLDINGS, INC.

Net Income Before Income Taxes by Segment(1) (unaudited)

$ in millions

 

Employers

Cerity

Corporate
and Other

Consolidated

Three Months Ended December 31, 2019

(in millions)

Gross premiums written

$

143.8

$

$

$

143.8

Net premiums written

142.4

142.4

Net premiums earned

A

169.7

169.7

Net investment income

21.8

0.1

0.7

22.6

Net realized and unrealized gains on investments

17.4

0.4

17.8

Other income

0.1

0.1

0.2

Total revenues

209.0

0.1

1.2

210.3

Losses and LAE incurred

B

(99.9

)

2.3

(97.6

)

Commission expense

C

(20.4

)

(20.4

)

Underwriting expenses

D

(41.8

)

(4.3

)

(46.1

)

General and administrative expenses

(4.8

)

(4.8

)

Total expenses

(162.1

)

(4.3

)

(2.5

)

(168.9

)

Net income (loss) before income taxes

$

46.9

$

(4.2

)

$

(1.3

)

$

41.4

Underwriting income (loss)

A+B+C+D

$

7.6

$

(4.3

)

Loss and LAE expense ratio:

Current year

65.6

%

n/m

Prior years

(6.7

)

Loss and LAE ratio

58.9

n/m

Commission expense ratio

12.0

n/m

Underwriting expense ratio

24.6

n/m

Combined ratio

95.5

%

n/m

n/m - not meaningful

(1) See Page 16 for a description of our reportable segments.

EMPLOYERS HOLDINGS, INC.

Net Income Before Income Taxes by Segment(1) (unaudited)

$ in millions

 

Employers

Cerity

Corporate
and Other

Consolidated

Three Months Ended December 31, 2018

(in millions)

Gross premiums written

$

161.7

$

$

$

161.7

Net premiums written

160.4

160.4

Net premiums earned

A

183.6

183.6

Net investment income

20.4

0.9

21.3

Net realized and unrealized losses on investments

(25.1

)

(1.3

)

(26.4

)

Other income

0.7

0.2

0.9

Total revenues

179.6

0.2

(0.4

)

179.4

Losses and LAE incurred

B

(89.4

)

2.5

(86.9

)

Commission expense

C

(21.2

)

(21.2

)

Underwriting expenses

D

(33.1

)

(2.2

)

(35.3

)

General and administrative expenses

(5.1

)

(5.1

)

Interest and financing expenses

(0.4

)

(0.4

)

Total expenses

(144.1

)

(2.2

)

(2.6

)

(148.9

)

Net income (loss) before income taxes

$

35.5

$

(2.0

)

$

(3.0

)

$

30.5

Underwriting income (loss)

A+B+C+D

$

39.9

$

(2.2

)

Loss and LAE expense ratio:

Current year

62.5

%

n/m

Prior years

(13.8

)

Loss and LAE ratio

48.7

n/m

Commission expense ratio

11.5

n/m

Underwriting expense ratio

18.0

n/m

Combined ratio

78.2

%

n/m

n/m - not meaningful

(1) See Page 16 for a description of our reportable segments.

 

EMPLOYERS HOLDINGS, INC.

Return on Equity (unaudited)

$ in millions

 

Three Months Ended

Years Ended

December 31,

December 31,

2019

2018

2019

2018

Net income

A

$

31.8

$

25.6

$

157.1

$

141.3

Impact of the LPT Agreement

(2.2

)

(2.5

)

(12.7

)

(14.6

)

Net realized and unrealized (gains) losses on investments

(17.8

)

26.4

(51.1

)

13.1

Amortization of intangibles

0.2

Income tax expense (benefit) related to items excluded from Net income

3.7

(5.5

)

10.7

(2.8

)

Net impact of Federal tax reform

(0.4

)

(0.4

)

Adjusted net income(1)

B

$

15.5

$

43.6

$

104.0

$

136.8

Stockholders' equity - end of period

$

1,165.8

$

1,018.2

$

1,165.8

$

1,018.2

Stockholders' equity - beginning of period

1,160.4

991.2

1,018.2

947.7

Average stockholders' equity

C

$

1,163.1

$

1,004.7

$

1,092.0

$

983.0

Stockholders' equity - end of period

$

1,165.8

$

1,018.2

$

1,165.8

$

1,018.2

Deferred Gain - end of period

137.1

149.6

137.1

149.6

Accumulated other comprehensive (income) loss, before taxes - end of period

(82.6

)

17.3

(82.6

)

17.3

Income tax related to accumulated other comprehensive income (loss) - end of period

17.3

(3.6

)

17.3

(3.6

)

Adjusted stockholders' equity - end of period

1,237.6

1,181.5

1,237.6

1,181.5

Adjusted stockholders' equity - beginning of period

1,231.7

1,165.8

1,181.5

1,003.9

Average adjusted stockholders' equity(1)

D

$

1,234.7

$

1,173.7

$

1,209.6

$

1,092.7

Return on stockholders' equity

A / C

2.7

%

2.5

%

14.4

%

14.4

%

Annualized return on stockholders' equity

10.9

10.2

Adjusted return on stockholders' equity(1)

B / D

1.3

3.7

8.6

12.5

Annualized adjusted return on stockholders' equity(1)

5.0

14.9

(1) See Page 15 for information regarding our use of Non-GAAP Financial Measures.

EMPLOYERS HOLDINGS, INC.

Roll-forward of Unpaid Losses and LAE (unaudited)

$ in millions

 

Three Months Ended

Years Ended

December 31,

December 31,

2019

2018

2019

2018

Unpaid losses and LAE at beginning of period

$

2,197.3

$

2,233.7

$

2,207.9

$

2,266.1

Less reinsurance recoverable on unpaid losses and LAE

527.1

511.8

504.4

537.0

Net unpaid losses and LAE at beginning of period

1,670.2

1,721.9

1,703.5

1,729.1

Losses and LAE incurred:

Current year

111.3

115.0

456.1

457.5

Prior years - voluntary business

(11.5

)

(25.0

)

(77.5

)

(65.5

)

Prior years - involuntary business

0.1

(0.4

)

(0.7

)

Total losses incurred

99.9

89.6

378.6

391.3

Losses and LAE paid:

Current year

43.1

36.1

106.6

93.0

Prior years

66.7

71.9

315.2

323.9

Total paid losses

109.8

108.0

421.8

416.9

Net unpaid losses and LAE at end of period

1,660.3

1,703.5

1,660.3

1,703.5

Reinsurance recoverable on unpaid losses and LAE

532.5

504.4

532.5

504.4

Unpaid losses and LAE at end of period

$

2,192.8

$

2,207.9

$

2,192.8

$

2,207.9

Total losses and LAE shown in the above table exclude amortization of the Deferred Gain, LPT Reserve Adjustments, and LPT Contingent Commission Adjustments, which totaled $2.2 million and $2.5 million for the three months ended December 31, 2019 and 2018, respectively, and $12.7 million and $14.6 million for the year ended December 31, 2019 and 2018, respectively.

EMPLOYERS HOLDINGS, INC.

Consolidated Investment Portfolio (unaudited)

$ in millions

 

December 31, 2019

December 31, 2018

Investment Positions:

Cost or Amortized

Cost

Net Unrealized
Gains

Fair Value

%

Fair Value

%

Fixed maturities

$

2,403.3

$

82.6

$

2,485.9

85

%

$

2,496.4

88

%

Equity securities

162.3

101.1

263.4

9

206.3

7

Other invested assets

28.4

0.7

29.1

1

Short-term investments

25.0

1

Cash and cash equivalents

154.9

154.9

5

101.4

4

Restricted cash and cash equivalents

0.3

0.3

0.6

Total investments and cash

$

2,749.2

$

184.4

$

2,933.6

100

%

$

2,829.7

100

%

Breakout of Fixed Maturities:

U.S. Treasuries and Agencies

$

86.5

$

2.0

$

88.5

4

%

$

117.8

5

%

States and Municipalities

458.2

26.3

484.5

19

528.0

21

Corporate Securities

1,038.6

40.4

1,079.0

43

1,090.4

44

Mortgage-Backed Securities

579.1

11.9

591.0

24

545.8

22

Asset-Backed Securities

60.4

0.8

61.2

2

64.5

3

Other

180.5

1.2

181.7

7

149.9

6

Total fixed maturities

$

2,403.3

$

82.6

$

2,485.9

100

%

$

2,496.4

100

%

 

Weighted average ending book yield

3.3

%

3.4

%

Average credit quality (S&P)

A+

AA-

 

Duration

3.3

4.1

 

EMPLOYERS HOLDINGS, INC.

Book Value Per Share (unaudited)

$ in millions, except per share amounts

 

December 31,
2019

December 31,
2018

Numerators:

Stockholders' equity

A

$

1,165.8

$

1,018.2

Plus: Deferred Gain

137.1

149.6

Stockholders' equity including the Deferred Gain(1)

B

1,302.9

1,167.8

Accumulated other comprehensive (income) loss, before taxes

(82.6

)

17.3

Income tax expense (benefit) related to accumulated other comprehensive (income) loss, before taxes

17.3

(3.6

)

Adjusted stockholders' equity(1)

C

$

1,237.6

$

1,181.5

Denominator (shares outstanding)

D

31,355,378

32,765,792

Book value per share(1)

A / D

$

37.18

$

31.08

Book value per share including the Deferred Gain(1)

B / D

41.55

35.64

Adjusted book value per share(1)

C / D

39.47

36.06

Cash dividends declared per share

$

0.88

$

0.80

YTD Change in:(2)

Book value per share

22.5

%

9.7

%

Book value per share including the Deferred Gain

19.1

6.9

Adjusted book value per share

11.9

19.7

(1) See Page 15 for information regarding our use of Non-GAAP Financial Measures.

(2) Reflects the change per share after taking into account dividends declared in the period.

EMPLOYERS HOLDINGS, INC.

Earnings Per Share (unaudited)

$ in millions, except per share amounts

 

Three Months Ended

Years Ended

December 31,

December 31,

2019

2018

2019

2018

Numerators:

Net income

A

$

31.8

$

25.6

$

157.1

$

141.3

Impact of the LPT Agreement

(2.2

)

(2.5

)

(12.7

)

(14.6

)

Net income before impact of the LPT (1)

B

$

29.6

$

23.1

$

144.4

$

126.7

Net realized and unrealized (gains) losses on investments

(17.8

)

26.4

(51.1

)

13.1

Amortization of intangibles

0.2

Income tax expense (benefit) related to items excluded from Net income

3.7

(5.5

)

10.7

(2.8

)

Net impact of Federal tax reform

(0.4

)

(0.4

)

Adjusted net income (1)

C

$

15.5

$

43.6

$

104.0

$

136.8

Denominators:

Average common shares outstanding (basic)

D

31,700,259

32,926,984

32,120,578

32,884,828

Average common shares outstanding (diluted)

E

32,120,929

33,390,486

32,539,718

33,311,337

Earnings per share:

Basic

A / D

$

1.00

$

0.78

$

4.89

$

4.30

Diluted

A / E

0.99

0.77

4.83

4.24

Earnings per share before impact of the LPT:(1)

Basic

B / D

$

0.93

$

0.70

$

4.50

$

3.85

Diluted

B / E

0.92

0.69

4.44

3.80

Adjusted earnings per share:(1)

Basic

C / D

$

0.49

$

1.32

$

3.24

$

4.16

Diluted

C / E

0.48

1.31

3.20

4.11

(1) See Page 15 for information regarding our use of Non-GAAP Financial Measures.

Non-GAAP Financial Measures

Within this earnings release we present the following measures, each of which are "non-GAAP financial measures." A reconciliation of these measures to the Company's most directly comparable GAAP financial measures is included herein. Management believes that these non-GAAP measures are important to the Company's investors, analysts and other interested parties who benefit from having an objective and consistent basis for comparison with other companies within our industry. Management further believes that these measures are more relevant than comparable GAAP measures in evaluating our financial performance.

The LPT Agreement is a non-recurring transaction that does not result in ongoing cash benefits to the Company. Management believes that providing non-GAAP measures that exclude the effects of the LPT Agreement (amortization of deferred reinsurance gain, adjustments to LPT Agreement ceded reserves and adjustments to contingent commission receivable) is useful in providing investors, analysts and other interested parties a meaningful understanding of the Company's ongoing underwriting performance.

Deferred reinsurance gain (Deferred Gain) reflects the unamortized gain from the LPT Agreement. This gain has been deferred and is being amortized using the recovery method, whereby the amortization is determined by the proportion of actual reinsurance recoveries to total estimated recoveries, except for the contingent profit commission, which is being amortized through June 30, 2024. Amortization is reflected in losses and LAE incurred.

Adjusted net income (see Page 5 for calculations) is net income excluding the effects of the LPT Agreement, net realized and unrealized gains and losses on investments (net of tax), net impact of Federal tax reform, and amortization of intangible assets (net of tax). Management believes that providing this non-GAAP measures is helpful to investors, analysts and other interested parties in identifying trends in the Company's operating performance because such items have limited significance to its ongoing operations or can be impacted by both discretionary and other economic factors and may not represent operating trends.

Stockholders' equity including the Deferred Gain (see Page 13 for calculations) is stockholders' equity including the Deferred Gain. Management believes that providing this non-GAAP measure is useful in providing investors, analysts and other interested parties a meaningful measure of the Company's total underwriting capital.

Adjusted stockholders' equity (see Page 13 for calculations) is stockholders' equity including the Deferred Gain, less accumulated other comprehensive income (net of tax). Management believes that providing this non-GAAP measure is useful to investors, analysts and other interested parties since it serves as the denominator to the Company's adjusted return on stockholders' equity metric.

Return on stockholders' equity and Adjusted return on stockholders' equity (see Page 10 for calculations). Management believes that these profitability measures are widely used by our investors, analysts and other interested parties.

Book value per share, Book value per share including the Deferred Gain, and Adjusted book value per share (see Page 13 for calculations). Management believes that these valuation measures are widely used by our investors, analysts and other interested parties.

Net income before impact of the LPT (see Page 5 for calculations). Management believes that these performance and underwriting measures are widely used by our investors, analysts and other interested parties.

Description of Reportable Segments

The Company has recently made changes to its corporate structure, mainly involving the launch and further development of a new digital insurance platform offered under the Cerity brand name (Cerity), resulting in changes to its reportable segments. As of December 31, 2019, the Company has determined that it has two reportable segments: Employers and Cerity. Each of these segments represents a separate and distinct underwriting platform through which the Company conducts insurance business.

The nature and composition of each reportable segment and its Corporate and Other activities are as follows:

  • The Employers segment is defined as traditional business offered through the EMPLOYERS brand name (Employers) through its agents, including business originated from its strategic partnerships and alliances;
  • The Cerity segment is defined as business offered under the Cerity brand name, which includes the Company's direct-to-customer business; and
  • Corporate and Other activities consist of those holding company expenses that are not considered to be underwriting in nature, the financial impact of the LPT agreement and legacy (pre-acquisition) business assumed and ceded by Cerity Insurance Company. These expenses are not considered to be part of a reportable segment and are not otherwise allocated to a reportable segment.

Prior to December 31, 2019, the Company operated under a single reportable segment and presented its Combined Ratio on that basis. In light of its change in reporting segments, the Company now presents a separate Combined Ratio for each of its reporting segments.

All periods prior to December 31, 2019 have been conformed to the current presentation.

Contacts:

Company:
Mike Paquette (775) 327-2562 or mpaquette@employers.com

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