RENO, Nevada, Aug. 14 /PRNewswire-FirstCall/ -- 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.

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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, http://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 http://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.

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. 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, http://www.employers.com, or through the SEC's EDGAR Database at http://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 (C) 2007 EMPLOYERS. All rights reserved. EMPLOYERS is a registered trademark of Employers Insurance Company of Nevada and the marketing brand for a group of companies providing workers' compensation insurance and services. Insurance is offered through Employers Compensation Insurance Company, except in Nevada, where insurance is offered through Employers Insurance Company of Nevada. Employers Compensation Insurance Company does not do business in all jurisdictions. Please contact your local EMPLOYERS Sales Executive or visit http://www.employers.com.

                           Employers Holdings, Inc.
                      Consolidated Statements of Income
               (in thousands, except share and per share data)

                            Three Months Ended         Six Months Ended
                                 June 30,                  June 30,
                            2007          2006         2007         2006
                                             (unaudited)
    Revenues
    Gross premiums
     written               $84,596      $99,257     $181,046     $216,387
    Net premiums written   $81,502      $95,613     $174,713     $209,030
    Net premiums earned    $84,117     $100,877     $173,909     $204,147
    Net investment income   19,305       16,777       40,140       32,478
    Realized (losses)
     gains on investments,
     net                     (658)        3,134        (468)        2,902
    Other income             1,046        1,052        2,186        2,243
    Total revenues         103,810      121,840      215,767      241,770

    Expenses
    Losses and loss
     adjustment expenses    28,802       64,308       70,469      130,498
    Commission expense      11,665       12,552       23,386       24,884
    Underwriting and
     other operating
     expense                22,752       17,246       46,052       36,514
    Total expenses          63,219       94,106      139,907      191,896

    Net income before
     income taxes           40,591       27,734       75,860       49,874
    Income taxes             9,818        6,347       17,221       10,378
    Net income             $30,773      $21,387      $58,639      $39,496

    Net income after
     date of conversion
     through June 30,
     2007                                            $52,168

    Earnings per common
     share-basic and
     diluted-for the
     three months ended
     June 30, 2007 and
     the period
     February 5 through
     June 30, 2007           $0.58                     $0.97
    Earnings per common
     share-basic and
     diluted-for the
     three months ended
     June 30, 2006 and
     the six months
     ended June 30,
     pro forma                            $0.43        $11.1        $0.79
    Cash dividends
     declared per
     common share            $0.06          $--        $0.06          $--

    Reconciliation of
     net income and
     EPS to net income
     and EPS before
     impact of LPT
     Agreement

    Net income             $30,773      $21,387      $58,639      $39,496
     Less: Impact of
      LPT Agreement:
     Amortization of
      deferred reinsurance
      gain - LPT             4,550        4,892        9,137        9,642
    Net income before
     impact of LPT
     Agreement             $26,223      $16,495      $49,502      $29,854
    Earnings per common
     share-basic and
     diluted-for the
     three months ended
     June 30, 2007 and
     the period February 5
     through June 30, 2007   $0.58                     $0.97
    Earnings per common
     share-basic and
     diluted-for the three
     months ended June 30,
     2006 and the six
     months ended
     June 30, pro forma                   $0.43        $1.11        $0.79
    Earnings per common
     share attributable
     to amortization of
     deferred reinsurance
     gain - LPT (1)          $0.09        $0.10        $0.17        $0.19

    Pro forma earnings
     per common share
     data-basic and
     diluted-before
     impact of LPT           $0.49        $0.33        $0.94        $0.60


    (1)   Earnings per share before the impact of the LPT for the period
          February 5 through June 30, 2007 has not been calculated.



                           Employers Holdings, Inc.
                         Consolidated Balance Sheets
                      (in thousands, except share data)

                                                   June 30,    December 31,
                                                     2007           2006
    Assets                                        (unaudited)
     Available for Sale:
      Fixed maturity investments at fair
       value (amortized cost $1,611,836 at
       June 30, 2007 and $1,599,321 at
       December 31, 2006)                         $1,587,281     $1,605,395
      Equity securities at fair value (cost
       $62,364 at June 30, 2007 and $63,478
       at December 31, 2006)                         107,959        102,289
      Short-term investments (at cost or
       amortized cost, which approximates
       fair value)                                        --          7,989
     Total investments                             1,695,240      1,715,673

     Cash and cash equivalents                       149,274         79,984
     Accrued investment income                        19,133         18,431
     Premiums receivable, less bad debt allowance
      of $7,766 at June 30, 2007 and $6,911 at
      December 31, 2006                               47,537         51,311
     Reinsurance recoverable for:
      Paid losses                                     10,761         11,073
      Unpaid losses, less allowance of $1,276
       at each period                              1,080,682      1,096,827
     Funds held by or deposited with reinsureds       99,290        102,955
     Deferred policy acquisition costs                15,181         13,767
     Deferred income taxes, net                       77,783         73,849
     Property and equipment, net                      15,621         15,598
     Other assets                                     10,685         16,257
     Total assets                                 $3,221,187     $3,195,725

    Liabilities and stockholders' equity
     Claims and policy liabilities:
      Unpaid losses and loss adjustment
       expenses                                   $2,294,252     $2,307,755
      Unearned premiums                               73,474         73,255
      Policyholders' dividends accrued                   304            506
     Total claims and policy liabilities           2,368,030      2,381,516

     Commissions and premium taxes payable             8,525          6,776
     Federal income taxes payable                     14,610         24,262
     Accounts payable and accrued expenses            20,051         22,178
     Deferred reinsurance gain-LPT Agreement         433,899        443,036
     Other liabilities                                14,484         14,180
     Total liabilities                             2,859,599      2,891,948

    Commitments and Contingencies
    Stockholders' equity:
     Common stock, $0.01 par value; 150,000,000
      shares authorized; 53,527,907 and 0 shares
      issued and 53,392,191 and 0 shares outstanding
      at June 30, 2007 and December 31, 2006,
      respectively                                       535             --
     Preferred stock, $0.01 par value; 25,000,000
      shares authorized; none issued                      --             --
     Additional paid-in capital                      301,348             --
     Retained earnings                                48,956        274,602
     Accumulated other comprehensive income, net      13,636         29,175
     Treasury stock, at cost (135,716 shares
      at June 30, 2007)                              (2,887)             --
    Total stockholders' equity                       361,588        303,777
    Total liabilities and stockholders' equity    $3,221,187     $3,195,725

    Equity including deferred reinsurance gain - LPT
      Total stockholders' equity                    $361,588       $303,777
      Deferred reinsurance gain - LPT Agreement      433,899        443,036
      Total equity including deferred reinsurance
       gain - LPT Agreement                         $795,487       $746,813



                           Employers Holdings, Inc.
                    Consolidated Statements of Cash Flows
                                (in thousands)

                                                       Six Months Ended
                                                           June 30,
                                                      2007           2006
                                                         (unaudited)
    Operating activities
    Net income                                       $58,639        $39,496
    Adjustments to reconcile net income to net
     cash provided by operating activities:
     Depreciation                                      2,892          1,478
     Stock-based compensation                            206             --
     Amortization of premium on investments, net       3,301          2,721
     Allowance for doubtful accounts -
      premiums receivable                                855          1,270
     Deferred income tax expense (benefit)             4,372        (2,698)
     Realized losses (gains) on investments, net         468        (2,902)
     Change in operating assets and liabilities:
      Accrued investment income                        (702)        (1,819)
      Premiums receivable                              2,919             47
      Reinsurance recoverable on paid and unpaid
       losses                                         16,457         13,598
      Funds held by or deposited with reinsureds       3,665          6,871
      Unpaid losses and loss adjustment expenses    (13,503)         53,620
      Unearned premiums                                  219          2,861
      Federal income taxes payable                   (9,652)        (4,124)
      Accounts payable, accrued expenses and
       other liabilities                             (9,703)        (1,864)
      Deferred reinsurance gain-LPT Agreement        (9,137)        (9,642)
      Other                                            1,778       (14,755)
    Net cash provided by operating activities         53,074         84,158

    Investing activities
    Purchase of fixed maturities                   (135,033)      (280,692)
    Purchase of equity securities                      (833)        (8,161)
    Proceeds from sale of fixed maturities           114,572        139,592
    Proceeds from sale of equity securities            1,906         10,717
    Proceeds from maturities and redemptions
     of investments                                   20,049         48,900
    Capital expenditures and other, net              (2,915)        (2,914)
    Net cash used in investing activities            (2,254)       (92,558)

    Financing activities
    Issuance of common stock, net                    486,783             --
    Cash paid to eligible policyholders under
     plan of conversion                            (462,989)             --
    Acquisition of treasury stock                    (2,112)             --
    Dividend paid to stockholders                    (3,212)             --
    Net cash provided by financing activities         18,470             --

    Net increase (decrease) in cash and
     cash equivalents                                 69,290        (8,400)
    Cash and cash equivalents at the beginning
     of the period                                    79,984         61,083
    Cash and cash equivalents at the end of
     the period                                     $149,274        $52,683

    Schedule of noncash transactions
    Stock issued in exchange for membership
     interest                                       $281,073            $--



                           Employers Holdings, Inc.
    Calculation of Combined Ratio before the Impacts of the LPT Agreement
                    (in thousands, except for percentages)

                            Three Months Ended         Six Months Ended
                                 June 30,                  June 30,
                            2007         2006          2007         2006
                                             (unaudited)

    Net Premiums Earned    $84,117     $100,877     $173,909     $204,147

    Losses and Loss
     Adjustment Expenses   $28,802      $64,308      $70,469     $130,498
      Loss & LAE Ratio       34.2%        63.7%        40.5%        63.9%

    Losses and Loss
     Adjustment Expenses   $28,802      $64,308      $70,469     $130,498
    Impacts of LPT           4,550        4,892        9,137        9,642
      Loss & LAE before
       impacts of LPT      $33,352      $69,200      $79,606     $140,140
      Loss & LAE Ratio
       before impacts
       of LPT                39.6%        68.6%        45.8%        68.6%

    Commission Expense     $11,665      $12,552      $23,386      $24,884
      Commission Expense
       Ratio                 13.9%        12.4%        13.4%        12.2%

    Underwriting & Other
     Operating Expense     $22,752      $17,246      $46,052      $36,514
      Underwriting & Other
       Operating Expense
       Ratio                 27.0%        17.1%        26.5%        17.9%

    Total Expense          $63,219      $94,106     $139,907     $191,896
      Combined Ratio         75.2%        93.3%        80.4%        94.0%

    Total Expense before
     impacts of the LPT    $67,769      $98,998     $149,044     $201,538
      Combined Ratio
       before the impacts
       of the LPT            80.6%        98.1%        85.7%        98.7%

SOURCE Employers Holdings, Inc.

CONTACT:
Media,
Trish White,
Corporate Communications Director,
+1-775-327-2636,
twhite@employers.com,
or
Analysts,
Vicki Erickson,
Investor Relations Vice President,
+1-775-327-2794,
verickson@employers.com,
both of Employers Holdings, Inc.

Web site:
http://www.employers.com
http://www.eig.com