Employers Holdings, Inc. Reports Second Quarter Earnings and Declares Third Quarter Dividend
Key Highlights
- Added to the
S & P 600 Small Cap Index - Grew direct written premium 41% since
June 30, 2008 and diversified direct written premium as follows: -
California 45%,Florida 9%,Wisconsin 7%,Nevada 5% - Decreased underwriting and other operating expenses, excluding acquired operations and non-recurring restructuring charges
- Continued favorable prior accident year development of
$15.7 million in the quarter and$29.2 million in the first six months of this year - Stable portfolio fair market value of
$2.1 billion with a tax equivalent yield of 5.6% atJune 30, 2009 - Generated three month book value per share growth of 3.9% to
$18.97 atJune 30, 2009 from$18.26 atMarch 31, 2009 and six month book value per share growth of 8.8% sinceDecember 31, 2008
Net income for the six months ended
President and Chief Executive Officer
The second quarter 2009 combined ratio was 97.4% (101.6% before the LPT), an increase from the second quarter 2008 combined ratio of 77.0% (83.2% before the LPT). Acquired operations contributed 12.1 percentage points of the increase. For the first six months in 2009, the combined ratio was 98.6% (102.6% before the LPT), an increase of 18.6 percentage points from 80.0% (86.3% before the LPT) for the same period in 2008, with acquired operations contributing 11.8 percentage points of the increase. Lower premiums earned, prior rate reductions, competitive pressures, and overall economic conditions also contributed to the higher combined ratios.
Dirks continued: "While improved from the first quarter, our combined
ratio is not yet optimal. We are seeing benefits from expense controls and
integration activities as our expenses excluding acquired operations and
integration/restructuring charges are declining -
Commenting on the second half of 2009, Dirks concluded: "While we do not know when the economy will improve, we feel confident that given our strong balance sheet and disciplined underwriting, we can continue to reinvest capital in our business, satisfy our debt obligations, and provide high quality service to our customers while growing shareholder value in the long term."
Second quarter net premiums earned increased
Second quarter net investment income increased
Second quarter losses and LAE increased to
Year-to-date losses and LAE at
In the second quarter of 2009, commission expense was
Second quarter underwriting and other operating expense was
Second quarter income tax expense was
Total invested assets were
As of
Through the 2008 Stock Repurchase Program, 1,445,100 shares of common
stock were repurchased in the second quarter of 2009 at an average price of
Book value per share increased 3.9% to
The Board of Directors declared a third quarter dividend of
Conference Call and Web Cast, Form 10-Q
The Company will host a conference call
EHI will file its Form 10-Q for the period ended
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. 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 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.
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 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 LPT. 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. 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 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 news 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 continued volatility and further 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, the integration of acquired operations (including the failure to realize anticipated benefits of such acquisitions and potential disruption from the acquisitions making it more difficult to maintain relationships with customers, employees, agents or producers), as well as management's response to these factors, 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 2009 EMPLOYERS. All rights reserved. EMPLOYERS and America's
small business insurance specialist. are registered trademarks of
Employers Holdings, Inc.
Consolidated Statements of Income
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
(unaudited)
Revenues
Gross premiums written $90,968 $73,152 $219,057 $154,826
======= ======= ======== ========
Net premiums written $88,327 $70,389 $212,999 $149,493
======= ======= ======== ========
Net premiums earned $104,381 $73,815 $215,981 $149,711
Net investment income 23,064 18,538 46,370 37,441
Realized losses on
investments, net (392) (219) (2,504) (1,707)
Other income 59 422 205 860
-- --- --- ---
Total revenues 127,112 92,556 260,052 186,305
Expenses
Losses and loss
adjustment expenses 54,100 24,142 113,262 54,756
Commission expense 13,229 9,721 26,887 20,344
Dividends to
policyholders 1,861 71 3,879 86
Underwriting and other
operating expense 32,452 22,910 68,936 44,621
Interest expense 1,825 - 3,784 -
----- - ----- -
Total expenses 103,467 56,844 216,748 119,807
------- ------ ------- -------
Net income before
income taxes 23,645 35,712 43,304 66,498
Income taxes 3,300 8,346 2,104 13,638
----- ----- ----- ------
Net income $20,345 $27,366 $41,200 $52,860
======= ======= ======= =======
Reconciliation of net
income to net income
before impact of LPT
Agreement
Net income $20,345 $27,366 $41,200 $52,860
Less: Impact of LPT
Agreement
Amortization of
deferred reinsurance
gain - LPT
Agreement 4,361 4,567 8,709 9,359
----- ----- ----- -----
Net income before LPT
Agreement $15,984 $22,799 $32,491 $43,501
======= ======= ======= =======
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,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
(unaudited)
Net Income $20,345 $27,366 $41,200 $52,860
Earnings per common
share
Basic $0.44 $0.55 $0.87 $1.07
Diluted $0.44 $0.55 $0.87 $1.07
Weighted average shares
outstanding
Basic 46,465,611 49,407,135 47,515,302 49,509,173
Diluted 46,505,735 49,457,781 47,549,966 49,545,264
Three months ended Six months ended
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
(unaudited)
Earnings per common share
Basic $0.44 $0.55 $0.87 $1.07
Diluted $0.44 $0.55 $0.87 $1.07
Earnings per common share
attributable to the LPT
Agreement
Basic $0.10 $0.09 $0.19 $0.19
Diluted $0.10 $0.09 $0.19 $0.19
Earnings per common share
before the LPT Agreement
Basic $0.34 $0.46 $0.68 $0.88
Diluted $0.34 $0.46 $0.68 $0.88
Employers Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
June 30, December 31,
2009 2008
---- ----
Assets (unaudited)
Available for Sale:
Fixed maturity investments at fair value
(amortized cost $1,923,547 at June 30,
2009 and $1,870,227 at December 31, 2008) $1,989,627 $1,909,391
Equity securities at fair value
(cost of $41,107 at June 30, 2009 and
$43,014 at December 31, 2008) 60,805 58,526
Short-term investments at fair value
(amortized cost $8,449 at June 30, 2009 and
$74,952 at December 31, 2008) 8,562 75,024
----- ------
Total investments 2,058,994 2,042,941
Cash and cash equivalents 217,031 202,893
Accrued investment income 24,019 24,201
Premiums receivable, less bad debt
allowance of $9,325 at June 30, 2009 and
$7,911 at December 31, 2008 89,181 91,273
Reinsurance recoverable for:
Paid losses 11,370 12,723
Unpaid losses, less allowance of $1,335
at each period 1,056,535 1,075,015
Funds held by or deposited with reinsureds 85,585 88,163
Deferred policy acquisition costs 30,674 32,365
Federal income taxes recoverable 6,000 11,042
Deferred income taxes, net 65,852 80,968
Property and equipment, net 12,789 14,098
Intangible assets, net 16,684 18,218
Goodwill 36,192 36,192
Other assets 17,945 26,621
------ ------
Total assets $3,728,851 $3,756,713
========== ==========
Liabilities and stockholders' equity
Claims and policy liabilities:
Unpaid losses and loss adjustment
expenses $2,470,447 $2,506,478
Unearned premiums 133,862 139,310
Policyholders' dividends accrued 8,926 8,737
----- -----
Total claims and policy liabilities 2,613,235 2,654,525
Commissions and premium taxes payable 12,653 12,691
Accounts payable and accrued expenses 20,844 24,192
Deferred reinsurance gain-LPT Agreement 397,872 406,581
Notes payable 182,000 182,000
Other liabilities 31,181 31,996
------ ------
Total liabilities $3,257,785 $3,311,985
Employers Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(continued)
June 30, December 31,
2009 2008
---- ----
(unaudited)
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value;
150,000,000 shares authorized;
53,563,299 and 53,528,207 shares
issued and 45,795,937 and
48,830,140 shares outstanding at,
June 30, 2009 and December 31,
2008 respectively 536 535
Preferred stock, $0.01 par value;
25,000,000 shares authorized; none
issued - -
Additional paid-in capital 307,949 306,032
Retained earnings 230,005 194,509
Accumulated other comprehensive
income, net 53,837 32,804
Treasury stock, at cost (7,767,362
shares at June 30, 2009 and
4,698,067 shares at December 31,
2008) (121,261) (89,152)
--------- -------
Total stockholders' equity 471,066 444,728
------- -------
Total liabilities and stockholders'
equity $3,728,851 $3,756,713
========== ==========
June 30, March 31, December 31,
Book Value per Share 2009 2009 2008
---- ---- ----
(unaudited) (unaudited)
Equity including
deferred reinsurance gain - LPT
Total stockholders' equity $471,066 $459,942 $444,728
Deferred reinsurance gain -
LPT Agreement 397,872 402,233 406,581
------- ------- -------
Total equity including deferred
reinsurance gain - LPT
Agreement (A) $868,938 $862,175 $851,309
======== ======== ========
Shares outstanding (B) 45,795,937 47,205,945 48,830,140
Book value per share
(A * 1000) / B $18.97 $18.26 $17.43
Employers Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Six months ended June 30,
2009 2008
---- ----
(unaudited)
Operating activities
Net income $41,200 $52,860
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,710 3,317
Stock-based compensation 2,037 1,487
Amortization of premium on investments, net 2,200 3,226
Allowance for doubtful accounts -
premiums receivable 1,414 421
Deferred income tax expense 3,862 5,357
Realized losses on investments, net 2,504 1,707
Realized losses on retirement of assets 60 -
Change in operating assets and liabilities:
Accrued investment income 182 (420)
Premiums receivable 678 11,141
Reinsurance recoverable on paid and
unpaid losses 19,833 20,312
Funds held by or deposited with reinsureds 2,578 3,575
Federal income taxes payable 5,042 (3,497)
Unpaid losses and loss adjustment expenses (36,031) (38,463)
Unearned premiums (5,448) (4,025)
Accounts payable, accrued expenses and
other liabilities (3,738) (2,651)
Deferred reinsurance gain-LPT Agreement (8,709) (9,359)
Other 7,349 (2,106)
----- ------
Net cash provided by operating activities 40,723 42,882
Investing activities
Purchase of fixed maturities (129,101) (152,424)
Purchase of equity securities (154) (1,063)
Proceeds from sale of fixed maturities 38,024 111,917
Proceeds from sale of equity securities 3,276 2,135
Proceeds from maturities and redemptions
of investments 101,463 16,210
Cash paid for acquisition, net of cash
and cash equivalents acquired (100) (959)
Capital expenditures and other, net (2,880) (2,739)
------ ------
Net cash provided by (used in) investing
activities 10,528 (26,923)
Financing activities
Acquisition of treasury stock (31,290) (6,691)
Cash transactions related to stock
compensation (123) 2
Dividend paid to stockholders (5,700) (5,941)
Debt issuance costs - (375)
- ----
Net cash used in financing activities (37,113) (13,005)
------- -------
Net increase in cash and cash equivalents 14,138 2,954
Cash and cash equivalents at the
beginning of the period 202,893 149,703
------- -------
Cash and cash equivalents at the end of
the period $217,031 $152,657
======== ========
Employers Holdings, Inc.
Calculation of Combined Ratio before the Impact of the LPT Agreement
(in thousands, except for percentages)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
(unaudited)
Net Premiums Earned $104,381 $73,815 $215,981 $149,711
======== ======= ======== ========
Losses and Loss Adjustment
Expenses $54,100 $24,142 $113,262 $54,756
======= ======= ======== =======
Loss & LAE Ratio 51.8% 32.7% 52.4% 36.6%
==== ==== ==== ====
Amortization of deferred
reinsurance gain - LPT $4,361 $4,567 $8,709 $9,359
Impacts of LPT 4.2% 6.2% 4.0% 6.3%
--- --- --- ---
Loss & LAE before impact
of LPT $58,461 $28,709 $121,971 $64,115
======= ======= ======== =======
Loss & LAE Ratio before
impact of LPT 56.0% 38.9% 56.5% 42.8%
==== ==== ==== ====
Commission Expense $13,229 $9,721 $26,887 $20,344
======= ====== ======= =======
Commission Expense Ratio 12.7% 13.2% 12.5% 13.6%
==== ==== ==== ====
Dividends to Policyholders 1,861 71 3,879 86
===== == ===== ==
Policyholder Dividend
Ratio 1.8% 0.1% 1.8% 0.1%
=== === === ===
Underwriting & Other
Operating Expense $32,452 $22,910 $68,936 $44,621
======= ======= ======= =======
Underwriting & Other
Operating Expense
Ratio 31.1% 31.0% 31.9% 29.8%
==== ==== ==== ====
Total Expense $101,642 $56,844 $212,964 $119,807
======== ======= ======== ========
Combined Ratio 97.4% 77.0% 98.6% 80.0%
==== ==== ==== ====
Total Expense before
impact of the LPT $106,003 $61,411 $221,673 $129,166
======== ======= ======== ========
Combined Ratio before
the impact of the LPT 101.6% 83.2% 102.6% 86.3%
===== ==== ===== ====
SOURCE
CONTACT:
Media:
+1-775-327-2677,
tvukelich@employers.com;
or
Analysts:
+1-775-327-2794,
verickson@employers.com
Web Site: http://www.employers.com
