Employers Holdings, Inc. Reports Strong Second Quarter Earnings

Reno, Nevada — August 14, 2007 — Employers Holdings, Inc. (“EHI” or the “Company”) (NYSE:EIG) today reported consolidated net income of $30.8 million for the second quarter of 2007, an increase of 43.9% from $21.4 million in the second quarter of 2006. Net income includes amortization of the deferred reinsurance gain related to the Loss Portfolio Transfer (“LPT”) Agreement of $4.6 million and $4.9 million for the second quarter in 2007 and 2006, respectively. Excluding these amounts, consolidated net income before the impact of the LPT (the Company’s non-GAAP measure described below) increased 59.0% to $26.2 million from $16.5 million in the second quarter of 2006.

Net income for the six months ended June 30, 2007 was $58.6 million, an increase of 48.5% from $39.5 million for the six months ended June 30, 2006. For the first six months of 2007, net income before the impact of the LPT was $49.5 million, an increase of 65.8% from $29.9 million for the same period in 2006.

For the second quarter and first six months of 2007, the improvement in net income was largely due to a decrease in net losses and loss adjustment expense (“LAE”), primarily in California, and favorable reserve development related to prior accident years. Favorable prior accident year reserve development was $20.4 million in the second quarter of 2007 compared to $6.6 million in the second quarter of 2006. For the six months ended June 30, 2007, favorable prior accident year reserve development totaled $36.0 million compared to $12.8 million for the six months ended June 30, 2006.

Net income for the second quarter of 2007 included a realized loss of $0.7 million compared to a realized gain of $3.1 million in the second quarter of 2006. Realized losses for the six months ended June 30, 2007 totaled $0.5 million compared to a gain of $2.9 million for the same period in 2006. Losses in 2007 resulted from a sale of $55.0 million in fixed maturity securities in connection with the Company’s share repurchase program. Realized gains in 2006 were primarily attributable to the sale of equity security holdings.

Commenting on the Company’s performance, President and Chief Executive Officer Douglas D. Dirks said, “In the second quarter, the Company continued the solid performance evidenced in the first quarter. We remain financially strong as profitability climbs. We also see continuing benefits from declining loss trends in California.”

Second quarter net premiums earned declined 16.6% to $84.1 million in 2007 from $100.9 million in 2006. Net premiums earned for the six months ended June 30, 2007, were $173.9 million compared to $204.1 million for the same period in 2006, a decrease of 14.8%. The declines were largely due to rate decreases resulting from previously enacted reforms in California. The impact of these rate decreases was partially offset by an overall in-force policy count increase of 12.8% since June 30, 2006.

Net investment income increased 15.1% to $19.3 million in the second quarter of 2007 from $16.8 million for the same period in 2006. Net investment income for the six months ended June 30, 2007 increased 23.6% to $40.1 million from $32.4 million for the same period in 2006. The increase was primarily attributable to three factors: (1) an increase in fixed maturity securities in the fourth quarter of 2006, which increased portfolio yield; (2) an increase in invested assets; and (3) interest income generated from the invested net proceeds from the issuance of the Company’s common stock as part of the Company’s conversion from a mutual insurance holding company.

Losses and LAE of $28.8 million decreased 55.2% in the second quarter of 2007 from $64.3 million in the second quarter of 2006, the result of a downward adjustment in the Company’s current accident year loss estimate to 63.9% from 75.1%. Additionally, favorable prior accident year reserve development was $20.4 million in the second quarter of 2007 compared to $6.6 million in the second quarter of 2006. Before the impact of the LPT, losses and LAE would have been $33.4 million in the second quarter of 2007 and $69.2 million in the second quarter of 2006. Losses and LAE for the six months ended June 30, 2007 decreased 46.0% to $70.5 million from $130.5 million in the six months ended June 30, 2006. The decrease was due to an 8.4 percentage point downward adjustment in the current accident year loss estimate, to 66.5% from 74.9% for the six months ended June 30, 2007 and 2006, respectively. For the six months ended June 30, 2007, favorable prior accident year reserve development totaled $36.0 million compared to $12.8 million for the six months ended June 30, 2006.

In the second quarter of 2007, commission expense of $11.7 million decreased 7.1% from $12.6 million in the second quarter of 2006. Commission expense for the first six months of 2007 decreased 6.0% to $23.4 million from $24.9 million for the same period in 2006. Decreases were largely due to the decrease in net earned premiums.

Underwriting and other operating expense increased 31.9% to $22.7 million in the second quarter of 2007 from $17.2 million in the second quarter of 2006. For the first six months of 2007, underwriting and other operating expense increased 26.1% to $46.0 million from $36.5 million in the same period of 2006. Increased expenses include staffing attributable to the Company’s conversion to a public company, technology maintenance and depreciation, and consulting expense. Additionally, there was a $1.2 million favorable credit in 2006 related to taxes paid in prior years.

Income taxes for the quarter and the first six months in 2007 increased due to increases in pre-tax income. The effective tax rate was 24.2% in the second quarter and 22.7% for the six months ended June 30, 2007.

The combined ratio decreased 18.1 percentage points to 75.2% in the second quarter of 2007 from 93.3% in the second quarter of 2006. For the first six months in 2007, the combined ratio decreased 13.6 percentage points to 80.4% from 94.0% for the same period in 2006. Decreases in the combined ratios were primarily due to declines in losses and LAE.

As of June 30, 2007, the Company had repurchased 135,716 shares of common stock, representing $2.9 million of the $75.0 million previously authorized by the Company’s Board of Directors for share repurchases during 2007.

As of June 30, 2007, total stockholders’ equity increased 19.0% to $361.6 million from $303.8 million at December 31, 2006. Equity, including the deferred reinsurance gain related to the LPT agreement, increased 6.5% to $795.5 million from $746.8 million at December 31, 2006.

Form 10-Q, Conference Call and Webcast

EHI filed its Form 10-Q for the period ended June 30, 2007, with the Securities and Exchange Commission (“SEC”) on August 14, 2007. The Form 10-Q is available without charge through the EDGAR system at the SEC’s website and is also posted on the Company’s website, www.employers.com, through the “Investors” link.

The Company will host a conference call Wednesday, August 15, 2007 at 10:30 a.m. Pacific Daylight Time. The conference call will be available via a live webcast on the Company’s website at www.employers.com. An archived version will be available for one month following the call. The conference call replay number is (888) 286-8010 with a passcode of 37883606. International callers may dial (617) 801-6888.

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.

A number of these non-GAAP financial measures exclude impacts related to the LPT Agreement. The 1999 LPT Agreement was a non-recurring transaction which does not result in ongoing cash benefits and, consequently, the Company believes these non-GAAP measures are useful in providing 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. These 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 LPT. Net income less (i) amortization of deferred reinsurance gain—LPT Agreement and (ii) adjustments to LPT Agreement ceded reserves.

Deferred reinsurance gain—LPT Agreement. 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, and 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 or under previous fronting facilities.

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 LPT. Losses and LAE before (i) amortization of deferred reinsurance gain—LPT Agreement and (ii) adjustments to LPT Agreement ceded reserves.

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 and measures the effectiveness of compensating agents and brokers for the business we have underwritten.

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 and measures an insurance company’s operational efficiency in producing, underwriting and administering its insurance business.

Combined Ratio. The combined ratio is a measure used in the property and casualty insurance business to show the profitability of an insurer’s underwriting, and it represents the percentage of each premium dollar spent on claims and expenses. 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 LPT. Combined ratio before impact of LPT is the GAAP combined ratio before (i) amortization of deferred reinsurance gain—LPT Agreement and (ii) adjustments to LPT Agreement ceded reserves.

Equity including deferred reinsurance gain—LPT. Equity including deferred reinsurance gain—LPT is total equity including the deferred reinsurance gain—LPT Agreement.


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 and performance. 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 assume no obligation to update these forward-looking statements, which speak as of the date of this press release.

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 our public filings with the SEC, including the risks detailed in the Company’s Forms 10-Q for the periods ended March 31, 2007 and June 30, 2007, and the Company’s 2006 Annual Report on Form 10-K.

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). EHI assumes no obligation to update this release or the information contained herein, which speaks as of the date issued.


Contact Information

Media Contact: Lauren Meckstroth, The Abbi Agency
(775) 446-4678 or lauren@theabbiagency.com

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

Investor Relations Contact: Adam Prior, The Equity Group, Inc.
(212) 836-9606 or aprior@equityny.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 employersstage.wpengine.com and www.cerity.com for coverage availability.