Employers Holdings, Inc. Reports Fourth Quarter and Full Year 2012 Earnings and Declares First Quarter 2013 Dividend
(Q4, 2012 compared to Q4, 2011 except where noted)
• Favorable development in the Loss Portfolio Transfer (LPT) Agreement ceded reserves reduced losses and loss adjustment expense (LAE) that increased net income by $73.3 million or $2.35 per diluted share in the fourth quarter and $2.31 per diluted share in the full year 2012
• Increase to estimated contingent commission receivable under the LPT
◦ Reduced losses and LAE by $8.6 million and increased net income by $8.2 million or $0.26 per diluted share in the fourth quarter 2012
◦ Reduced losses and LAE and increased net income by $9.6 million or $0.30 per diluted share in the full year 2012
• Overall net rate up 8.3%
• Net written premiums of $134.6 million; up 34%
• Net earned premiums of $140.8 million; up 40%
• Revenues of $159.6 million; up 15%
• Combined ratio before LPT improved 2.9 percentage points
• Book value of $26.66 up 6% since December 31, 2011
Reno, Nevada-February 27, 2013-Employers Holdings, Inc. (“EHI” or the “Company”) (NYSE:EIG) today reported fourth quarter 2012 net income of $87.8 million or $2.82 per diluted share compared with net income of $20.0 million or $0.58 per diluted share in the fourth quarter of 2011. Full year net income was $106.9 million or $3.37 per diluted share in 2012 compared with $48.6 million or $1.30 per diluted share in 2011.
Reported results in the fourth quarter and the full year 2012 include two factors related to the LPT Agreement. First, we recognized $100 million of favorable development in the estimated reserves ceded under the LPT Agreement. This adjustment to the estimated reserves ceded resulted in a $73.3 million cumulative adjustment to the Deferred Gain, which reduced our losses and LAE by the same amount during the fourth quarter of 2012 (LPT Reserve Adjustment). Second, an increase in the estimate of contingent commission receivable and the related Deferred Gain under the LPT Agreement resulted in an $8.6 million cumulative adjustment and reduced our losses and LAE during the fourth quarter of 2012 (LPT Contingent Commission Adjustment). The full year 2012 impact of adjustments to our contingent commission under the LPT was to reduce our losses and LAE by $9.6 million.
President and Chief Executive Officer Douglas D. Dirks commented on the results: “We are pleased to report continued improvement in our operating performance during the fourth quarter of 2012. For the fourth consecutive quarter, we increased net earned premiums and net rate which, combined with other factors, yielded a year over year 2.9 percentage point improvement in our fourth quarter combined ratio excluding the impact of the LPT Agreement. Additionally, our loss provision rate remained in the high seventies in the fourth quarter. As we stated last quarter, if positive rate trends continue to exceed our loss trends, we will incrementally lower the loss provision rate throughout 2013, beginning in the first quarter."
Dirks continued: "In terms of the favorable adjustment to LPT-related reserves, we last booked a favorable adjustment to the LPT reserves in 2005, prior to our initial public offering. Recent claim patterns over several quarters indicated a favorable adjustment in the fourth quarter was warranted. The higher LPT contingent profit commission was also driven by these favorable LPT loss trends."
In closing, Dirks stated: “You may have noticed our new EMPLOYERS logo. I note with pleasure and pride that the year 2013 is a major milestone for EMPLOYERS. As of this year, with our history as the state fund, we have been doing business as a workers' compensation specialist for one hundred years. While we have only been a public company since early 2007, in that time and during one of the most challenging operating environments for our industry, we have succeeded in growing our adjusted book value (including the LPT Agreement deferred reinsurance gain) more than 75% since year-end 2006 and 6% in the twelve months ended December 31, 2012. We remain committed to providing long-term value to our shareholders and we look forward to continuing to provide high quality, competitively priced products to our policyholders for many more years to come."
Revision of Previously Issued Financial Statements
Please note that the information presented in this release has been restated for prior periods as a result of a revision to the manner in which we account for the contingent profit commission to which we are entitled under the LPT Agreement, which was a non-recurring transaction that does not affect our ongoing operations. This revision resulted in an increase to the contingent commission receivable–LPT Agreement on our consolidated balance sheets, which impacts the Deferred reinsurance gain–LPT Agreement (Deferred Gain) and is reflected in losses and LAE incurred in our consolidated statements of income and comprehensive income over the life of the contingent profit commission. Historically, any adjustment to the contingent profit commission was reflected in commission expense in the period that the estimate was revised. We assessed the impact of these revisions and concluded that they were not material to any of our financial statements for each of the three quarters within the nine months ended September 30, 2012, or fiscal years ended December 31, 2011, 2010, 2009, or 2008. As a result, we have not filed amendments to any of our previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q. Although the effect of these revisions was not material to those previously issued financial statements, the cumulative effect of reflecting these revisions in the current year would have been material for the fiscal year ended December 31, 2012. Since these revisions are treated as corrections to our prior period financial results, the revisions are considered to be a restatement under U.S. generally accepted accounting principles (GAAP). Accordingly, the revised financial information included in this release and our Annual Report on Form 10-K has been identified as “restated.”
The effect of the revisions to the previously issued consolidated statements of income and comprehensive income for the years ended December 31, 2011 and 2010 was to increase the commission expense and decrease the losses and LAE, with the net effect of increasing net income and earnings per share. Additionally, total stockholders' equity at December 31, 2011 decreased and there was an increase to the contingent commission receivable–LPT Agreement and the deferred reinsurance gain–LPT Agreement on the consolidated balance sheets as of December 31, 2011.
About Employers Holdings, Inc.
Employers Holdings, Inc. is headquartered in Reno, Nevada and listed on the New York Stock Exchange (NYSE: EIG). EMPLOYERS 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, through its subsidiaries, operates coast to coast. Insurance is offered by 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.
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