Employers Holdings, Inc. Reports First Quarter Earnings and Announces Second Quarter Dividend
RENO, Nev., May 5, 2010 /PRNewswire via COMTEX/ --Key Highlights
(Q 1, 2010 compared to Q 1, 2009 except where noted)
- Decreased underwriting and other operating expense $4.2 million or 11.6%
- Continued positive net rate in California - California represents 49.6% of in-force premium at March 31, 2010
- Continued favorable prior accident year development of $11.1 million
- Generated book value per share growth of 1.2% from $20.67 at December 31, 2009 to $20.91 at March 31, 2010
Employers Holdings, Inc. ("EHI" or the "Company") (NYSE: EIG) today reported first quarter 2010 net income of $16.1 million or $0.38 per share compared with $20.9 million or $0.43 per share in the first quarter of 2009, a decrease of $4.8 million or $0.05 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 $11.7 million or $0.27 per share in the first quarter of 2010 compared with $16.5 million or $0.34 per share in the first quarter of 2009.
Douglas D. Dirks, President and Chief Executive Officer of EHI, commented: "Declines in net premium earned continued in the first quarter stemming primarily from trends in employment and payrolls, rate decreases in some states, competition, and our continued underwriting discipline with a focus on the loss ratio. At March 31, 2010, our total payroll exposure declined approximately 17% year over year and 7% since December 31, 2009. At the end of the first quarter, our net rate, which is defined as total premium in-force divided by total insured payroll, declined 5% since March 31, 2009. However, net rate declined less than one percent from December 31, 2009 to March 31, 2010 largely as a result of positive net rate in California. We grew book value per share 1.2% since year-end 2009."
Dirks continued: "As you know, the Board of Directors has authorized up to $50 million in share repurchases during 2010. The Board of Directors declared a quarterly stock dividend of six cents per share. We are pleased to continue our demonstrated record of returning capital to shareholders."
As of March 31, 2010, the Company had a combined ratio of 105.9% (111.3% before the LPT), an increase of 6.1 percentage points from the first quarter of 2009 combined ratio of 99.8% (103.6% before the LPT).
Dirks further remarked: "Our increased combined ratio was largely the result of decreased premiums earned that were 29.0% lower than the first quarter of 2009. Our first quarter of 2010 underwriting and other operating expense ratio increased to 40.7% compared to 32.7% in the prior year's quarter. However, underwriting and other operating expenses were 11.6% lower than the first quarter of last year as a result of our integration, restructuring and cost control efforts. Non-recurring costs related to staff reductions in this year's first quarter added 1.2 percentage points to the combined ratio compared with 3.4 percentage points of integration and restructuring costs in last year's first quarter, largely related to the integration of AmCOMP Incorporated."
Looking ahead to the remainder of 2010, Dirks concluded: "It appears to us that declines in national employment and payroll may have leveled off, but we do not know when new business formations will increase or how soon our small business customers will add jobs and increase payrolls. We expect that premium and our expense ratio will continue to be pressured, partially mitigated by positive net rate in California which represents half of our business at the end of the first quarter. As the economy improves and as increases in payrolls and job creation occur, we believe we are well positioned to meet the needs of the marketplace and to benefit from our restructured cost base."
First quarter net premiums earned decreased $32.3 million or 29.0% to $79.3 million in 2010 from $111.6 million in 2009.
First quarter net investment income of $21.3 million decreased $2.1 million or 8.8% due to a 2.2% decrease in invested assets compared to March 31, 2009. The small decrease in invested assets was driven by a $50 million reduction in debt in the fourth quarter of 2009 and the return of capital to shareholders through share repurchases and dividends. In the first quarter of 2010, the Company repurchased 319,719 shares of common stock at an average price of $13.70 per share for a total of $4.4 million.
The fair market value of invested assets was $2.0 billion at March 31, 2010 with an average pre-tax yield of 4.3%, a tax equivalent yield of 5.5% and a duration of 5.00. A list of portfolio securities by CUSIP as of March 31, 2010 will be included in the "Investors" section of our web site at www.employers.com.
Realized gains on investments in the first quarter of 2010 were $0.5 million compared with $2.1 million in realized losses in the first quarter of 2009 due to other-than-temporary impairments on equity securities.
First quarter losses and LAE decreased 31.9% to $40.3 million in 2010 from $59.2 million in 2009. First quarter losses and LAE before the LPT decreased 29.7% to $44.6 million from $63.5 million in the first quarter of 2009. Favorable prior accident year development in the first quarter of 2010 was $11.1 million compared with $13.5 million in the first quarter of 2009. Current accident year loss estimates were 70.3% and 69.0% in the first quarters of 2010 and 2009, respectively.
In the first quarter of 2010, commission expense of $9.9 million decreased from $13.7 million in the first quarter of 2009.
First quarter of 2010 underwriting and other operating expenses decreased to $32.3 million from $36.5 million in the first quarter of 2009 largely as a result of cost control efforts, staff reductions in the first quarters of 2009 and 2010, and other cost savings related to the 2008 acquisition of AmCOMP Incorporated. Non-recurring costs associated with restructuring and, in the case of 2009, restructuring and integration, were $0.9 million in the first quarter of 2010 and $3.8 million in the first quarter of 2009.
The first quarter 2010 income tax benefit of $0.5 million decreased $0.7 million compared to the benefit of $1.2 million for the first quarter of 2009. The Company's effective tax rate was higher in this year's first quarter - (3.4%) compared to (6.1%) in last year's first quarter.
As of March 31, 2010, book value (total stockholders' equity including the deferred reinsurance gain - LPT agreement) per share, increased 1.2% to $20.91 from $20.67 at December 31, 2009.
This week, the Board of Directors declared a second quarter cash dividend of six cents per share. The dividend is payable on June 2, 2010 to stockholders of record as of May 19, 2010.
Conference Call and Web Cast, Form 10-Q
The Company will host a conference call on Thursday, May 6, 2010 at 10:30 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 following the call. The conference call replay number is (888) 286-8010 with a passcode of 11788182. International callers may dial (617) 801-6888.
EHI will file its Form 10-Q for the quarterly period ended March 31, 2010, with the Securities and Exchange Commission ("SEC") on Thursday, May 6, 2010. 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 web site, www.employers.com, and is accessible through the "Investors" link.
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 deferred reinsurance gain - LPT Agreement. 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.
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 deferred reinsurance gain - LPT Agreement. Losses and LAE less (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.
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, the policyholder dividends ratio and the underwriting and other operating expense ratio.
Combined Ratio before impacts of the deferred reinsurance gain - LPT Agreement. Combined ratio before impacts 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 Agreement. Equity including deferred reinsurance gain--LPT is total equity plus the deferred reinsurance gain--LPT Agreement.
Book value per share. Equity including deferred reinsurance gain--LPT Agreement divided by number of shares outstanding.
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 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.
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 Quarterly Reports on Form 10-Q and the Company's Annual Reports on Form 10-K.
All forward-looking statements made in this press release reflect EHI's current views with respect to future events, business transactions and business performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. The business of EHI could be affected by, among other things, competition, pricing and policy term trends, the levels of new and renewal business achieved, market acceptance, changes in demand, the frequency and severity of catastrophic events, actual loss experience, uncertainties in the loss reserving and claims settlement process, new theories of liability, judicial, legislative, regulatory and other governmental developments, litigation tactics and developments, investigation developments, the amount and timing of reinsurance recoverables, credit developments among reinsurers, changes in the cost or availability of reinsurance, market developments (including adverse developments in financial markets as a result of, among other things, changes in local, regional or national economic conditions and volatility and deterioration of financial markets), credit and other risks associated with EHI's investment activities, significant changes in investment yield rates, rating agency action, possible terrorism or the outbreak and effects of war and economic, political, regulatory, insurance and reinsurance business conditions, relations with and performance of employees and agents, and other factors identified in EHI's filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.
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.
Copyright © 2010 EMPLOYERS. All rights reserved. EMPLOYERS(R) and America's small business insurance specialist. (R) 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.
Consolidated Statements of Income
(In thousands)
Three Months Ended March
31,
-------------------------
2010 2009
---- ----
(unaudited)
Revenues
Gross written premiums $82,378 $126,846
Net written premiums $79,774 $123,429
Net premiums earned $79,291 $111,600
Net investment income 21,255 23,306
Realized gains (losses) on investments,
net 540 (2,112)
Other income - 146
--- ---
Total revenues 101,086 132,940
Expenses
Losses and loss adjustment expenses 40,288 59,162
Commission expense 9,905 13,658
Dividends to policyholders 1,479 2,018
Underwriting and other operating
expense 32,267 36,484
Interest expense 1,580 1,959
----- -----
Total expenses 85,519 113,281
Net income before income taxes 15,567 19,659
Income tax benefit (530) (1,196)
---- ------
Net income $16,097 $20,855
Reconciliation of net income to net
income
before the impacts of the LPT Agreement
Net income $16,097 $20,855
Less: Impact of LPT Agreement: 4,350 4,348
Amortization of deferred reinsurance
gain - ----- -----
LPT Agreement
Net Income before the impacts of LPT
Agreement $11,747 $16,507
Employers Holdings, Inc.
Consolidated Statements of Income
(In thousands, except share and per share data)
Earnings per common share
Three Months Ended March 31,
----------------------------
2010 2009
---- ----
(unaudited)
Net Income $16,097 $20,855
Earnings per common share
Basic $0.38 $0.43
Diluted $0.38 $0.43
Weighted average shares
outstanding
Basic 42,722,452 48,576,655
Diluted 42,829,514 48,612,853
Reconciliation of EPS to
EPS
before the impact of the
LPT Agreement
Earnings per common share
Basic $0.38 $0.43
Diluted $0.38 $0.43
Earnings per common share
attributable to the LPT
Agreement
Basic $0.11 $0.09
Diluted $0.11 $0.09
Earnings per common share
before the LPT Agreement
Basic $0.27 $0.34
Diluted $0.27 $0.34
Employers Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
As of As of
March 31, December 31,
--------- ------------
2010 2009
---- ----
Assets (unaudited)
Available for Sale:
Fixed maturity investments at fair value
(amortized cost $1,852,723 at March 31,
2010 and $1,859,074 at December 31, 2009) $1,955,110 $1,960,292
Equity securities at fair value (cost of
$40,103 at March 31, 2010 and $39,936 at
December 31, 2009) 72,314 69,268
------ ------
Total investments 2,027,424 2,029,560
Cash and cash equivalents 190,323 191,572
Accrued investment income 21,527 23,055
Premiums receivable, less bad debt allowance
of $10,310 at March 31, 2010 and $9,879 at
December 31, 2009 113,531 119,976
Reinsurance recoverable for:
Paid losses 12,546 13,673
Unpaid losses, less allowance of $1,269 at
March 31, 2010 and $1,335 at December 31,
2009 1,042,359 1,051,170
Funds held by or deposited with reinsureds 81,034 82,339
Deferred policy acquisition costs 33,606 33,695
Federal income taxes recoverable 10,419 4,092
Deferred income taxes, net 36,386 43,502
Property and equipment, net 13,660 13,059
Intangible assets, net 14,784 15,442
Goodwill 36,192 36,192
Other assets 17,758 19,326
------ ------
Total assets $3,651,549 $3,676,653
========== ==========
Liabilities and stockholders' equity
Claims and policy liabilities:
Unpaid losses and loss adjustment expenses $2,393,927 $2,425,658
Unearned premiums 158,889 158,577
Policyholders' dividends accrued 8,387 7,958
----- -----
Total claims and policy liabilities 2,561,203 2,592,193
Commissions and premium taxes payable 21,110 20,763
Accounts payable and accrued expenses 18,831 19,033
Deferred reinsurance gain - LPT Agreement 384,224 388,574
Notes Payable 132,000 132,000
Other liabilities 25,005 25,691
------ ------
Total liabilities $3,142,373 $3,178,254
========== ==========
Employers Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
(Continued)
As of As of
March 31, December 31,
--------- ------------
2010 2009
---- ----
(unaudited)
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value;
150,000,000 shares authorized;
53,700,379 and 53,563,299 shares
issued and 42,725,526 and 42,908,165
shares outstanding at March 31,
2010 and December 31, 2009,
respectively 537 536
Preferred stock, $0.01 par value;
25,000,000 shares authorized; none
issued - -
Additional paid-in capital 311,278 311,282
Retained earnings 280,030 266,491
Accumulated other comprehensive
income, net 85,434 83,812
Treasury stock, at cost (10,974,853
shares at March 31, 2010 and
10,655,134 shares at December 31,
2009) (168,103) (163,722)
-------- --------
Total stockholders' equity 509,176 498,399
------- -------
Total liabilities and stockholders'
equity $3,651,549 $3,676,653
========== ==========
Equity including deferred reinsurance
gain - LPT
Total stockholders' equity $509,176 $498,399
Deferred reinsurance gain - LPT
Agreement 384,224 388,574
------- -------
Total equity including deferred
reinsurance gain - LPT Agreement (A) $893,400 $886,973
======== ========
Shares outstanding (B) 42,725,526 42,908,165
Book value per share (A * 1000 / B) $20.91 $20.67
------ ------
Increase in book value per share for
the three months ended March 31,
2010 1.2%
===
Employers Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Three months ended
March 31,
2010 2009
---- ----
(unaudited)
Operating activities
Net income $16,097 $20,855
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 1,982 3,006
Stock-based compensation 865 821
Amortization of premium on
investments, net 1,413 1,218
Allowance for doubtful accounts 365 695
Deferred income tax expense 4,070 4,355
Realized (gains) losses on
investments, net (540) 2,112
Realized losses on retirement of
assets 63 26
Change in operating assets and
liabilities:
Accrued investment income 1,528 1,534
Premiums receivable 6,014 (12,694)
Reinsurance recoverable on paid
and unpaid losses 10,004 10,891
Funds held by or deposited with
reinsureds 1,305 1,076
Federal income taxes (6,327) 1,370
Unpaid losses and loss
adjustment expenses (31,731) (11,924)
Unearned premiums 312 10,832
Accounts payable, accrued
expenses and other liabilities (1,468) (6,421)
Deferred reinsurance gain-LPT
Agreement (4,350) (4,348)
Other 2,515 7,372
----- -----
Net cash provided by operating
activities 2,117 30,776
Investing activities
Purchase of fixed maturities (36,433) (110,512)
Purchase of equity securities (455) (150)
Proceeds from sale of fixed
maturities 21,171 21,890
Proceeds from sale of equity
securities 568 3,276
Proceeds from maturities and
redemptions of investments 20,354 59,883
Cash paid of acquisition, net of
cash and cash equivalents
acquired - (100)
Capital expenditures and other,
net (764) (1,261)
---- ------
Net cash provided by (used in)
investing activities 4,441 (26,974)
Financing activities
Acquisition of treasury stock (4,381) (13,355)
Cash transactions related to
stock-based compensation (871) -
Dividend paid to stockholders (2,555) (2,909)
------ ------
Net cash used in financing
activities (7,807) (16,264)
------ -------
Net decrease in cash and cash
equivalents (1,249) (12,462)
Cash and cash equivalents at the
beginning of the period 191,572 202,893
------- -------
Cash and cash equivalents at the
end of the period $190,323 $190,431
======== ========
Employers Holdings, Inc.
Calculation of Combined Ratio before the Impact of the LPT Agreement
(In thousands, except for percentages)
Three months ended March
31,
-------------------------
2010 2009
---- ----
(unaudited)
Net Premiums Earned $79,291 $111,600
======= ========
Losses and Loss Adjustment Expenses
(LAE) $40,288 $59,162
======= =======
Losses & LAE Ratio 50.8% 53.1%
==== ====
Amortization of deferred reinsurance
gain - LPT $4,350 $4,348
Impacts of LPT 5.5% 3.9%
--- ---
Losses & LAE before impact of LPT $44,638 $63,510
======= =======
Losses & LAE Ratio before impact of
LPT 56.3% 56.9%
==== ====
Commission Expense $9,905 $13,658
====== =======
Commission Expense Ratio 12.5% 12.2%
==== ====
Dividends to Policyholders $1,479 $2,018
====== ======
Dividend Expense Ratio 1.9% 1.8%
=== ===
Underwriting & Other Operating
Expense $32,267 $36,484
======= =======
Underwriting & Other Operating
Expense Ratio 40.7% 32.7%
==== ====
Total Expense $83,939 $111,322
======= ========
Combined Ratio 105.9% 99.8%
===== ====
Total Expense before impact of the
LPT $88,289 $115,670
======= ========
Combined Ratio before impact of the
LPT 111.3% 103.6%
===== =====
SOURCE Employers Holdings, Inc.
