Community Forum
August 3, 2011
Employers Holdings, Inc. Reports Second Quarter Earnings and Announces Third Quarter Dividend
Reno, NV—August 3, 2011—Employers Holdings, Inc. (“EHI” or the “Company”) (NYSE:EIG) today reported second quarter 2011 net income of $8.3 million or $0.21 per diluted share compared with $16.5 million or $0.39 per diluted share in the second quarter of 2010, a decrease of $8.2 million or $0.18 per 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 (the Company’s non-GAAP measure described below) was $4.0 million or $0.10 per diluted share in the second quarter of 2011 compared with $12.1 million or $0.29 per diluted share in the second quarter of 2010.
In the second quarter of 2011, the Company had a calendar year combined ratio of 116.2% (121.0% before the LPT), an increase of 14.3 percentage points from the second quarter of 2010 combined ratio of 101.9% (107.4% before the LPT). On an accident quarter basis, the Company had a combined ratio before the LPT of 121.4% in the second quarter of 2011 compared to 114.4% in the second quarter of 2010.
Douglas D. Dirks, President and Chief Executive Officer of EHI, commented: “Positives in the quarter include substantive year-over-year increases of 43.2% in written premium and 12.6% in earned premium, both resulting from the implementation of our strategies to grow agents and policies. We added 8,705 policies since June 30, 2010 for a twelve-month policy count increase of 20.1%. We have also added over 730 producers in the last year.”
“Another positive note is that our total payroll exposure increased 5.6% since June 30, 2010 and 9.3% since December 31, 2010. This represents the first year-over-year increase in our payroll exposure since the acquisition of AmCOMP, Inc. in 2008. Our net rate, which is defined as total premium in-force divided by total insured payroll, declined 4% since June 30, 2010. Net rate decreased just one percent year to date in 2011, largely as a result of the positive net rate increase in California.”
Dirks continued: “Loss trends in the second quarter were largely unchanged from the first quarter of this year with the slight increase in the second quarter current accident year loss provision rate primarily attributable to assigned risk experience and continuing loss cost trends in California. Overall losses for prior periods on a cumulative basis were stable. Our calendar year combined ratio for the second quarter was approximately 14 points higher than for the second quarter of 2010. Nearly half of the difference in the combined ratio is attributable to a difference in favorable prior period reserve development – the combined ratio in the second quarter of 2011 included no prior period favorable reserve development for voluntary business – compared with $5.5 million of favorable development in the second quarter of 2010. The remainder of the difference was attributable to an increase in our provision rate for current accident year losses relative to the second quarter of 2010. Underwriting and other operating expenses were generally stable relative to last year’s second quarter, but these expenses as a percentage of net premiums earned declined 2.3 percentage points in this year’s second quarter, only partially offsetting the increased loss ratios.”
Dirks concluded: “As I have said in past quarters, the current workers’ compensation market is characterized by a unique set of challenges – a slow but stabilizing economy, historically low yields on investments, and continuing price competition. Given these operating conditions, we have made difficult decisions to reduce staffing and have successfully reduced underwriting and other operating costs. We have improved and expanded service delivery through technology, increased our number of agents, and expanded unique strategic alliances and programs. We have responded to increasing loss cost trends in California and nationally by providing for current accident year losses at rates higher than historic norms. We continue to focus on loss trends in California as we recently received approval for an average pure premium rate increase of 3.9% effective September 15th of this year. In the second quarter, our strong capital base enabled us to repurchase 763,300 common shares at a cost of $12.5 million. We grew adjusted book value per share 2.9% since year-end 2010 largely because of accretive share repurchases. Our growth initiatives are yielding the results we anticipated. Looking forward, we see opportunities for the Company to continue to expand its presence in the 30 states in which we operate.”
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