Employers Holdings, Inc. Reports Second Quarter 2013 Earnings and Declares Third Quarter 2013 Dividend Key Highlights (Q2, 2013 compared to Q2, 2012 except where noted) *Net income before the LPT of $9.9 million; up $0.29 per diluted share *Overall net rate up 10.1% *Net written premiums of $187.0 million; up 24% *Net earned premiums of $160.0 million; up 34% *Revenues of $181.6 million; up 31% *Combined ratio before the LPT improved 10.8 percentage points Business Wire RENO, Nev. -- August 7, 2013 Employers Holdings, Inc. (“EHI” or the “Company”) (NYSE:EIG) today reported second quarter 2013 net income of $14.6 million or $0.46 per diluted share. Net income in the second quarter of 2012 was $5.0 million or $0.16 per diluted share. Net income includes amortization of the deferred reinsurance gain related to the Loss Portfolio Transfer (“LPT”) Agreement. Consolidated net income before the impact of the LPT deferred reinsurance gain (the Company's non-GAAP measure described below) was $9.9 million or $0.31 per diluted share in the second quarter of 2013 and $0.7 million or $0.02 per diluted share in the second quarter of 2012. The second quarter 2013 combined ratio was 103.2% and 106.1% before the impact of the LPT deferred reinsurance gain, compared with 113.3% and 116.9% before the impact of the LPT deferred reinsurance gain for the second quarter of 2012. Year over year, the combined ratio improved 10.1 percentage points on a GAAP basis and 10.8 percentage points before the impact of the LPT. Adjusted for the LPT, book value per share was $25.68 at the end of the second quarter compared with $26.66 at year-end 2012, a decline of $0.98. Rising interest rates in the second quarter of 2013 resulted in decreased unrealized gains on fixed maturity investments reducing stockholders' equity. Approximately $0.79 of the decline in adjusted book value per share was attributable to reduced stockholders' equity and the remaining $0.19 of the change was attributable to an increase in shares outstanding as the result of routine exercises of employee equity awards. Under the Company’s long-term incentive compensation plan, the first options granted are due to expire in 2014. The Company expects officers to be exercising these options prior to their expiration in August of 2014. President and Chief Executive Officer Douglas D. Dirks commented on the results: “We are pleased with the substantial improvements in financial and operating performance that we achieved in the second quarter of this year relative to last year. Net income before the LPT increased nearly $10 million or $0.29 per diluted share. Our underwriting, commission and loss expenses as a percentage of earned premium all improved relative to the second quarter of 2012, driving a significant improvement of nearly eleven points in our combined ratio before the LPT." Dirks continued: "As expected, we lowered our provision rate for losses for the second time this year, by four points in the three months ended June 30 compared with the same period last year. Pricing improvement continued as the total change in net rate increased 10.1% year over year. As in the first quarter of this year, the net rate change at the end of the second quarter in our top five states, in terms of in-force premium, was positive relative to the end of last year's second quarter. The change in net rate in the second quarter was highest in Illinois at 17%, followed by California at 14% and Nevada at 13%." Dirks concluded: "We believe that the pricing, targeted growth and cost containment initiatives we implemented in recent years will continue to be major drivers of our reported results throughout 2013." Third Quarter Dividend The Board of Directors declared a third quarter 2013 dividend of six cents per share. The dividend is payable on September4, 2013 to stockholders of record as of August21, 2013. Conference Call and Web Cast; Form 10-Q; Supplemental Portfolio Listing The Company will host a conference call on Thursday, August8, 2013, at 8:30 a.m. Pacific Daylight Time. The conference call will be available via a live web cast on the Company's web site at www.employers.com. An archived version will be available several hours after the call. The conference call replay number is (888) 286-8010 with a pass code of 21661548. International callers may dial (617) 801-6888. EHI expects to file its Form 10-Q for the quarter ended June30, 2013, with the Securities and Exchange Commission (“SEC”) on or about Thursday, August8, 2013. The Form 10-Q will be available without charge through the EDGAR system at the SEC's web site and will also be posted on the Company's website, www.employers.com, through the “Investors” link. The Company provides a list of portfolio securities by CUSIP in the Calendar of Events, Second Quarter “Investors” section of its web site at www.employers.com. Discussion of Non-GAAP Financial Measures This earnings release includes non-GAAP financial measures used to analyze the Company's operating performance for the periods presented. These non-GAAP financial measures exclude impacts related to the LPT Agreement deferred reinsurance gain. The 1999 LPT Agreement was a non-recurring transaction that does not result in ongoing cash benefits and, consequently, the Company believes these non-GAAP measures are useful in providing stockholders and management a meaningful understanding of the Company's operating performance. In addition, these measures, as defined, are helpful to management in identifying trends in the Company's performance because the items excluded have limited significance in current and ongoing operations. The Company strongly urges stockholders and other interested persons not to rely on any single financial measure to evaluate its business. The non-GAAP measures are not a substitute for GAAP measures and investors should be careful when comparing the Company's non-GAAP financial measures to similarly titled measures used by other companies. Net Income before impact of the LPT Agreement. Net income less (a) amortization of deferred reinsurance gain–LPT Agreement; (b) adjustments to LPT Agreement ceded reserves; and (c) adjustments to contingent commission receivable–LPT Agreement. Deferred reinsurance gain–LPT Agreement (Deferred Gain). This reflects the unamortized gain from the LPT Agreement. Under GAAP, this gain is deferred and 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 amortized through June 30, 2024. The amortization is reflected in losses and LAE. Gross Premiums Written. Gross premiums written is the sum of both direct premiums written and assumed premiums written before the effect of ceded reinsurance. Direct premiums written represents the premiums on all policies the Company's insurance subsidiaries have issued during the year. Assumed premiums written represents the premiums that the insurance subsidiaries have received from an authorized state-mandated pool. Net Premiums Written. Net premiums written is the sum of direct premiums written and assumed premiums written less ceded premiums written. Ceded premiums written is the portion of direct premiums written that are ceded to reinsurers under reinsurance contracts. The Company uses net premiums written, primarily in relation to gross premiums written, to measure the amount of business retained after cession to reinsurers. Losses and LAE before impact of the LPT Agreement. Losses and LAE less (a) amortization of Deferred Gain; (b) adjustments to LPT Agreement ceded reserves; and (c) adjustments to contingent commission receivable–LPT Agreement. Losses and LAE Ratio. The losses and LAE ratio is a measure of underwriting profitability. Expressed as a percentage, it is the ratio of losses and LAE to net premiums earned. Commission Expense Ratio. Commission expense ratio is the ratio (expressed as a percentage) of commission expense to net premiums earned. Underwriting and Other Operating Expense Ratio. The underwriting and other operating expense ratio is the ratio (expressed as a percentage) of underwriting and other operating expense to net premiums earned. Combined Ratio. The combined ratio represents a summary percentage of claims and expenses to net premiums earned. The combined ratio is the sum of the losses and LAE ratio, the commission expense ratio, and the underwriting and other operating expense ratio. Combined Ratio before impacts of the LPT Agreement. Combined ratio before impacts of LPT is the GAAP combined ratio before (a) amortization of deferred reinsurance gain–LPT Agreement; (b) adjustments to LPT Agreement ceded reserves; and (c) adjustments to contingent commission receivable–LPT Agreement. Equity including Deferred Gain. Equity including Deferred Gain is total equity plus the Deferred Gain. Book value per share. Equity including Deferred Gain divided by number of shares outstanding. Net rate. Net rate, defined as total premium in-force divided by total insured payroll exposure, is a function of a variety of factors, including rate changes, underwriting risk profiles and pricing, and changes in business mix related to economic and competitive pressures. 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 regarding the Company's future operations, growth and pricing strategies, and financial and operating performance, as well as the impact of pricing improvements on the Company, expectations regarding provision rates for losses, drivers of combined ratio improvement, and the ongoing results, if any, of pricing, targeted growth, and cost containment initiatives implemented by the Company. 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. EHI and its management caution investors that such forward-looking statements are not guarantees of future performance. Risks and uncertainties are inherent in EHI'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 EHI'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. The SEC filings for EHI can be accessed through the “Investors” link on the Company's website, www.employers.com, or through the SEC's EDGAR Database at www.sec.gov (EHI EDGAR CIK No. 0001379041). Copyright © 2013 EMPLOYERS. All rights reserved. EMPLOYERS^® and America's small business insurance specialist. ^ ® are registered trademarks of Employers Insurance Company of Nevada. 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. Insurance subsidiaries include Employers Insurance Company of Nevada, Employers Compensation Insurance Company, Employers Preferred Insurance Company, and Employers Assurance Company, all rated A- (Excellent) by A.M. Best Company. Additional information can be found at: http://www.employers.com. Employers Holdings, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Three Months Ended Six Months Ended June 30, June 30, (in thousands, except per share 2013 2012 2013 2012 data) Revenues (unaudited) (unaudited) Gross premiums $ 190,068 $ 153,094 $ 365,031 $ 295,888 written Net premiums $ 186,996 $ 150,364 $ 359,022 $ 290,728 written Net premiums $ 159,953 $ 118,955 $ 307,928 $ 228,855 earned Net investment 17,645 18,297 35,050 36,682 income Realized gains on investments, 3,866 945 4,660 2,723 net Other income 144 114 247 195 Total revenues 181,608 138,311 347,885 268,455 Expenses Losses and loss adjustment 112,638 87,809 220,910 168,327 expenses Commission 20,127 16,621 38,520 30,437 expense Underwriting and other operating 32,249 30,316 63,789 63,305 expenses Interest expense 797 858 1,605 1,760 Total expenses 165,811 135,604 324,824 263,829 Net income before income 15,797 2,707 23,061 4,626 taxes Income tax expense 1,209 (2,309 ) 983 (6,730 ) (benefit) Net income $ 14,588 $ 5,016 $ 22,078 $ 11,356 Less impact of LPT Agreement: Amortization of the Deferred 3,275 3,828 6,580 7,984 Gain related to losses Amortization of the Deferred Gain related to 406 256 788 525 contingent commission Impact of LPT Contingent 1,024 227 1,299 363 Commission Adjustments Net income before LPT $ 9,883 $ 705 $ 13,411 $ 2,484 Agreement Comprehensive income Unrealized gains (losses) during the period (net of tax expense (benefit) of $(20,886) and $2,070 for the three months ended June 30, $ (38,787 ) $ 3,844 $ (38,761 ) $ 9,888 2013 and 2012, respectively, and $(20,870) and $5,324 for the six months ended June 30, 2013 and 2012, respectively) Reclassification adjustment for realized gains in net income (net of taxes of $1,353 and $331 for the three months ended June 30, (2,513 ) (614 ) (3,029 ) (1,771 ) 2013 and 2012, respectively, and $1,631 and $952 for the six months ended June 30, 2013 and 2012, respectively) Other comprehensive (41,300 ) 3,230 (41,790 ) 8,117 income (loss), net of tax Total comprehensive $ (26,712 ) $ 8,246 $ (19,712 ) $ 19,473 income (loss) Weighted average shares outstanding Basic 31,079,713 31,537,452 30,997,552 32,093,328 Diluted 31,641,616 31,685,636 31,515,744 32,242,591 Earnings per common share Basic $ 0.47 $ 0.16 $ 0.71 $ 0.35 Diluted 0.46 0.16 0.70 0.35 Earnings per common share attributable to the LPT Agreement Basic $ 0.15 $ 0.14 $ 0.28 $ 0.27 Diluted 0.15 0.14 0.27 0.27 Earnings per common share before the LPT Agreement Basic $ 0.32 $ 0.02 $ 0.43 $ 0.08 Diluted 0.31 0.02 0.43 0.08 Employers Holdings, Inc. and Subsidiaries Consolidated Balance Sheets As of As of (in thousands, except share data) June 30, December 31, 2013 2012 Assets (unaudited) Available for sale: Fixed maturity securities at fair value (amortized cost $1,989,823 at June 30, $ 2,070,027 $ 2,024,428 2013 and $1,869,142 at December 31, 2012) Equity securities at fair value (cost $85,559 at 140,369 125,086 June 30, 2013 and $81,067 at December 31, 2012) Total investments 2,210,396 2,149,514 Cash and cash equivalents 97,060 140,661 Restricted cash and cash equivalents 4,602 5,353 Accrued investment income 19,786 19,356 Premiums receivable (less bad debt allowance of $6,730 at June 30, 2013 285,329 223,011 and $5,957 at December 31, 2012) Reinsurance recoverable for: Paid losses 9,458 9,467 Unpaid losses 801,149 805,386 Deferred policy acquisition costs 45,608 38,852 Deferred income taxes, net 51,291 26,231 Property and equipment, net 15,489 14,680 Intangible assets, net 10,106 10,558 Goodwill 36,192 36,192 Contingent commission receivable—LPT 20,948 19,141 Agreement Other assets 10,061 12,937 Total assets $ 3,617,475 $ 3,511,339 Liabilities and stockholders’ equity Claims and policy liabilities: Unpaid losses and loss adjustment $ 2,291,261 $ 2,231,540 expenses Unearned premiums 317,735 265,149 Total claims and policy liabilities 2,608,996 2,496,689 Commissions and premium taxes payable 42,611 40,825 Accounts payable and accrued expenses 15,758 19,522 Deferred reinsurance gain—LPT 274,183 281,043 Agreement Notes payable 112,000 112,000 Other liabilities 41,987 21,879 Total liabilities 3,095,535 2,971,958 Commitments and contingencies Stockholders’ equity: Common stock, $0.01 par value; 150,000,000 shares authorized; 54,371,465 and 54,144,453 shares issued and 544 541 30,998,491 and 30,771,479 shares outstanding at June 30, 2013 and December 31, 2012, respectively Additional paid-in capital 331,977 325,991 Retained earnings 464,210 445,850 Accumulated other comprehensive 87,759 129,549 income, net Treasury stock, at cost (23,372,974 shares at June 30, 2013 and December (362,550 ) (362,550 ) 31, 2012) Total stockholders’ equity 521,940 539,381 Total liabilities and stockholders’ $ 3,617,475 $ 3,511,339 equity Equity including deferred reinsurance gain - LPT Total stockholders’ equity $ 521,940 $ 539,381 Deferred reinsurance gain–LPT 274,183 281,043 Agreement Total equity including deferred $ 796,123 $ 820,424 reinsurance gain–LPT Agreement (A) Shares outstanding (B) 30,998,491 30,771,479 Book value per share (A * 1000) / B $ 25.68 $ 26.66 Employers Holdings, Inc. and Subsidiaries Consolidated Statements of Cash Flows Six Months Ended June 30, (in thousands) 2013 2012 Operating activities (unaudited) Net income $ 22,078 $ 11,356 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,800 2,787 Stock-based compensation 4,169 2,542 Amortization of premium on investments, net 4,310 3,400 Deferred income tax expense (2,558 ) (7,675 ) Realized gains on investments, net (4,660 ) (2,723 ) Excess tax benefits from stock-based (349 ) — compensation Other 549 449 Change in operating assets and liabilities: Premiums receivable (63,091 ) (56,776 ) Reinsurance recoverable for paid and unpaid 4,246 21,868 losses Federal income taxes 2,848 876 Unpaid losses and loss adjustment expenses 59,721 9,426 Unearned premiums 52,586 62,846 Accounts payable, accrued expenses and 15,389 7,166 other liabilities Deferred reinsurance gain—LPT Agreement (6,860 ) (8,276 ) Contingent commission receivable—LPT (1,807 ) (597 ) Agreement Other (4,179 ) 7,306 Net cash provided by operating activities 85,192 53,975 Investing activities Purchase of fixed maturities (211,889 ) (181,836 ) Purchase of equity securities (18,190 ) (23,303 ) Proceeds from sale of fixed maturities 706 34,560 Proceeds from sale of equity securities 18,357 8,451 Proceeds from maturities and redemptions of 86,326 110,160 investments Proceeds from sale of fixed assets 139 75 Capital expenditures and other (3,206 ) (3,326 ) Restricted cash and cash equivalents 751 (842 ) provided by (used in) investing activities Net cash used in investing activities (127,006 ) (56,061 ) Financing activities Acquisition of treasury stock — (37,322 ) Cash transactions related to stock-based 1,572 (279 ) compensation Dividends paid to stockholders (3,708 ) (3,822 ) Excess tax benefits from stock-based 349 — compensation Net cash used in financing activities (1,787 ) (41,423 ) Net decrease in cash and cash equivalents (43,601 ) (43,509 ) Cash and cash equivalents at the beginning 140,661 252,300 of the period Cash and cash equivalents at the end of the $ 97,060 $ 208,791 period Employers Holdings, Inc. Calculation of Combined Ratio before the Impact of the LPT Agreement Three Months Ended Six Months Ended June 30, June 30, (in thousands, except for 2013 2012 2013 2012 percentages) (unaudited) Net premiums $ 159,953 $ 118,955 $ 307,928 $ 228,855 earned Losses and loss adjustment 112,638 87,809 220,910 168,327 expenses Loss & LAE 70.4 % 73.8 % 71.7 % 73.6 % ratio Amortization of Deferred Gain $ 3,275 $ 3,828 $ 6,580 $ 7,984 related to losses Amortization of Deferred Gain related to 406 256 788 525 contingent commission LPT Contingent Commission 1,024 227 1,299 363 Adjustments Impact of LPT 2.9 % 3.6 % 2.8 % 3.9 % Loss & LAE before impact $ 117,343 $ 92,120 $ 229,577 $ 177,199 of LPT Loss & LAE ratio before 73.4 % 77.4 % 74.6 % 77.4 % impact of LPT Commission $ 20,127 $ 16,621 $ 38,520 $ 30,437 expense Commission 12.6 % 14.0 % 12.5 % 13.3 % expense ratio Underwriting & other operating $ 32,249 $ 30,316 $ 63,789 $ 63,305 expenses Underwriting & other operating 20.2 % 25.5 % 20.8 % 27.6 % expenses ratio Total expenses $ 165,014 $ 134,746 $ 323,219 $ 262,069 Combined ratio 103.2 % 113.3 % 105.0 % 114.5 % Total expense before impact $ 169,719 $ 139,057 $ 331,886 $ 270,941 of the LPT Combined ratio before the 106.1 % 116.9 % 107.8 % 118.4 % impact of the LPT Reconciliations to Current Accident Period Combined Ratio: Losses & LAE before impact $ 117,343 $ 92,120 $ 229,577 $ 177,199 of LPT Plus: Favorable (unfavorable) prior period (522 ) (529 ) (1,651 ) (1,054 ) reserve development Accident period losses & LAE $ 116,821 $ 91,591 $ 227,926 $ 176,145 before impact of LPT Losses & LAE ratio before 73.4 % 77.4 % 74.6 % 77.4 % impact of LPT Plus: Favorable (unfavorable) prior period (0.4 ) (0.4 ) (0.6 ) (0.4 ) reserve development ratio Accident period losses & LAE 73.0 % 77.0 % 74.0 % 77.0 % ratio before impact of LPT Combined ratio before impact 106.1 % 116.9 % 107.8 % 118.4 % of the LPT Plus: Favorable (unfavorable) prior period (0.4 ) (0.4 ) (0.6 ) (0.4 ) reserve development ratio Accident period combined ratio 105.7 % 116.5 % 107.2 % 118.0 % before impact of LPT Contact: Employers Holdings, Inc. Media: Ty Vukelich, 775-327-2677 email@example.com or Analysts: Vicki Erickson Mills, 775-327-2794 firstname.lastname@example.org
Employers Holdings, Inc. Reports Second Quarter 2013 Earnings and Declares Third Quarter 2013 Dividend
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