Employers Holdings, Inc. Reports Fourth Quarter and Full Year 2012 Earnings and Declares First Quarter 2013 Dividend
Key Highlights
(Q4, 2012
compared to Q4, 2011 except where noted)
-
Favorable development in the Loss Portfolio Transfer (LPT)
Agreement ceded reserves reduced losses and loss adjustment expense
(LAE) that increased net income by
$73.3 million or$2.35 per diluted share in the fourth quarter and$2.31 per diluted share in the full year 2012 -
Increase to estimated contingent commission receivable under the LPT
-
Reduced losses and LAE by
$8.6 million and increased net income by$8.2 million or$0.26 per diluted share in the fourth quarter 2012 -
Reduced losses and LAE and increased net income by
$9.6 million or$0.30 per diluted share in the full year 2012
-
Reduced losses and LAE by
- Overall net rate up 8.3%
-
Net written premiums of
$134.6 million ; up 34% -
Net earned premiums of
$140.8 million ; up 40% -
Revenues of
$159.6 million ; up 15% - Combined ratio before LPT improved 2.9 percentage points
-
Book value of
$26.66 up 6% sinceDecember 31, 2011
Reported results in the fourth quarter and the full year 2012 include
two factors related to the LPT Agreement. First, we recognized
President and Chief Executive Officer
Dirks continued: "In terms of the favorable adjustment to LPT-related reserves, we last booked a favorable adjustment to the LPT reserves in 2005, prior to our initial public offering. Recent claim patterns over several quarters indicated a favorable adjustment in the fourth quarter was warranted. The higher LPT contingent profit commission was also driven by these favorable LPT loss trends."
In closing, Dirks stated: “You may have noticed our new EMPLOYERS logo.
I note with pleasure and pride that the year 2013 is a major milestone
for EMPLOYERS. As of this year, with our history as the state fund, we
have been doing business as a workers' compensation specialist for one
hundred years. While we have only been a public company since early
2007, in that time and during one of the most challenging operating
environments for our industry, we have succeeded in growing our adjusted
book value (including the LPT Agreement deferred reinsurance gain) more
than 75% since year-end 2006 and 6% in the twelve months ended
Revision of Previously Issued Financial Statements
Please note that the information presented in this release has been
restated for prior periods as a result of a revision to the manner in
which we account for the contingent profit commission to which we are
entitled under the LPT Agreement, which was a non-recurring transaction
that does not affect our ongoing operations. This revision resulted in
an increase to the contingent commission receivable–LPT Agreement on our
consolidated balance sheets, which impacts the Deferred reinsurance
gain–LPT Agreement (Deferred Gain) and is reflected in losses and LAE
incurred in our consolidated statements of income and comprehensive
income over the life of the contingent profit commission. Historically,
any adjustment to the contingent profit commission was reflected in
commission expense in the period that the estimate was revised. We
assessed the impact of these revisions and concluded that they were not
material to any of our financial statements for each of the three
quarters within the nine months ended
The effect of the revisions to the previously issued consolidated
statements of income and comprehensive income for the years ended
The following table presents the summary impacts of the restatement
adjustments on our previously reported losses and LAE, commission
expense, and net income for the fourth quarter and year ended
| Quarter Ended | Year Ended | |||||||||||||
| (in thousands, except per share data) |
December 31, 2011 |
December 31, 2011 |
||||||||||||
| Losses and LAE (previously reported) | $ | 73,654 | $ | 264,663 | ||||||||||
| Adjustment | (623 | ) | (2,152 | ) | ||||||||||
| Losses and LAE (as restated) | $ | 73,031 | $ | 262,511 | ||||||||||
| Commission expense (previously reported) | $ | 13,134 | $ | 45,502 | ||||||||||
| Adjustment | 595 | 1,842 | ||||||||||||
| Commission expense (as restated) | $ | 13,729 | $ | 47,344 | ||||||||||
| Net income (previously reported) | $ | 19,934 | $ | 48,313 | ||||||||||
| Adjustment | 28 | 310 | ||||||||||||
| Net income (as restated) | $ | 19,962 | $ | 48,623 | ||||||||||
| Earnings per common share: | ||||||||||||||
| Basic (previously reported) | $ | 0.58 | $ | 1.30 | ||||||||||
| Adjustment | — | — | ||||||||||||
| Basic (as restated) | $ | 0.58 | $ | 1.30 | ||||||||||
| Diluted (previously reported) | $ | 0.58 | $ | 1.29 | ||||||||||
| Adjustment | — | 0.01 | ||||||||||||
| Diluted (as restated) | $ | 0.58 | $ | 1.30 | ||||||||||
| Total stockholders' equity (previously reported) | $ | 474,186 | ||||||||||||
| Adjustment | (12,203 | ) | ||||||||||||
| Total stockholders' equity (as restated) | $ | 461,983 | ||||||||||||
For more information regarding the impact on our financial results,
please refer to the notes to our consolidated financial statements
included in our Annual Report on Form 10-K, which will be filed with the
President and Chief Executive Officer
The following table shows the reconciliations of net income, earnings per diluted share and the combined ratio to these measures adjusted for the impact of the LPT Agreement (the Company's non-GAAP measures described in the definitions below), as redefined.
Reconciliation of Net income to Net income before impact of the LPT Agreement, Earnings per diluted common share to Earnings per diluted common share before impact of the LPT Agreement and Combined ratio to Combined ratio before impact of the LPT Agreement
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Three Months |
Three Months |
Twelve Months |
Twelve Months |
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Ended December 31, |
Ended December 31, |
Ended December 31, |
Ended December 31, |
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| (in thousands except per share data) | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||||
|
(As Restated) |
(As Restated) |
||||||||||||||||||||||||
| Net income | $ | 87,769 | $ | 19,962 | $ | 106,891 | $ | 48,623 | |||||||||||||||||
| Less amortization of the Deferred Gain | 4,033 | 4,470 | 16,976 | 18,249 | |||||||||||||||||||||
| Less impact of LPT Agreement Reserve Adjustment | 73,349 | — | 73,349 | — | |||||||||||||||||||||
| Less impact of LPT Contingent Commission Adjustment | 8,601 | 316 | 9,609 | 1,050 | |||||||||||||||||||||
| Net income before impact of the LPT Agreement | $ | 1,786 | $ | 15,176 | $ | 6,957 | $ | 29,324 | |||||||||||||||||
| Earnings per diluted common share | $ | 2.82 | $ | 0.58 | $ | 3.37 | $ | 1.30 | |||||||||||||||||
| Less amortization of the Deferred Gain | 0.13 | 0.13 | 0.54 | 0.49 | |||||||||||||||||||||
| Less impact of LPT Agreement Reserve Adjustment | 2.35 | — | 2.31 | — | |||||||||||||||||||||
| Less impact of LPT Contingent Commission Adjustment | 0.28 | 0.01 | 0.30 | 0.03 | |||||||||||||||||||||
| Earnings per diluted common share before impact of the LPT Agreement | $ | 0.06 | $ | 0.44 | $ | 0.22 | $ | 0.78 | |||||||||||||||||
| Combined ratio | 51.4 | % | 110.6 | % | 95.3 | % | 113.9 | % | |||||||||||||||||
| Plus amortization of the Deferred Gain in losses & LAE | 2.9 | % | 4.5 | % | 3.5 | % | 4.8 | % | |||||||||||||||||
| Plus impact of LPT Agreement Reserve Adjustment | 52.1 | % | — | 14.6 | % | — | |||||||||||||||||||
| Plus impact of LPT Contingent Commission Adjustment | 6.1 | % | 0.3 | % | 1.9 | % | 0.5 | % | |||||||||||||||||
| Combined ratio before impact of the LPT | 112.5 | % | 115.4 | % | 115.3 | % | 119.2 | % | |||||||||||||||||
As we have previously disclosed, implementation of the new accounting
guidance related to the definition of acquisition costs which may be
capitalized, effective in
Net premiums written increased 33.5% to
Net premiums earned were
Net investment income was
Realized gains on investments were
Losses and LAE were
Fourth quarter commission expense was
Our Underwriting and other operating expenses ratio declined 1.8
percentage points in the fourth quarter year over year as we continued
to increase premium and scale. Overall, underwriting and other operating
expenses were
An income tax benefit of
At the end of the fourth quarter of 2012, the year over year change in
net rate was a positive 8.3%, continuing the positive trend in net rate
begun in the fourth quarter of 2011. The net rate change in
The fourth quarter 2012 combined ratio was 51.4% (112.5% before the impact of the LPT), compared with 110.6% (115.4% before the impact of the LPT) for the fourth quarter of 2011. Year over year, the combined ratio before the LPT improved 2.9 percentage points.
Full Year 2012
Net premiums written increased 38.9% to
Net premiums earned were
Net investment income was
Realized gains on investments were
Losses and LAE were
Commission expense was
Dividends to policyholders were
Underwriting and other operating expenses were
An income tax benefit of
The 2012 combined ratio was 95.3% (115.3% before the impact of the LPT), compared with 113.9% (119.2% before the impact of the LPT) in 2011. The year over year combined ratio improved 18.6 percentage points on a GAAP basis and 3.9 percentage points before the impact of the LPT.
Debt, Capital Structure
Total outstanding debt at
In September of 2012, the Company made a cash capital contribution of
Investments
Total invested assets were approximately
The Company provides a list of portfolio securities by CUSIP in the
Calendar of Events,
Common Stock Repurchases and
The Company repurchased 22,824 shares of common stock during the fourth
quarter of 2012 at an average price of
Since the Company's initial public offering in
The Board of Directors declared a first quarter 2013 dividend of
Conference Call and Web Cast; Form 10-K
The Company will host a conference call on
EHI expects to file its Form 10-K for the year 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 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 LPT Agreement. Net income before (i) amortization of deferred reinsurance gain-LPT Agreement (ii) adjustments to LPT Agreement ceded reserves and (iii) adjustments to the contingent profit commission.
Deferred reinsurance gain-LPT Agreement. Deferred reinsurance gain–LPT Agreement reflects the unamortized gain from our LPT Agreement. Under GAAP, this gain is deferred and is being amortized using the recovery method. Amortization is determined by the proportion of actual reinsurance recoveries to total estimated recoveries over the life of the LPT Agreement, except for the contingent profit commission, which is amortized through June30, 2024. The amortization is reflected in losses and LAE. We periodically reevaluate the remaining direct reserves subject to the LPT Agreement and the expected losses and LAE subject to the contingent profit commission under the LPT Agreement. Our reevaluations result in corresponding adjustments, if needed, to reserves, ceded reserves, contingent commission receivable, and the Deferred Gain, with the net effect being an increase or decrease, as the case may be, to net income.
| (a) | Any adjustment to the contingent profit commission under the LPT Agreement results in a cumulative adjustment to the Deferred Gain, which is also recognized in losses and LAE incurred in the consolidated statement of income and comprehensive income, so that the Deferred Gain reflects the balance that would have existed had the revised contingent profit commission been recognized at the inception of the LPT Agreement. (LPT Contingent Commission Adjustment). | |
| (b) | Any adjustment to the estimated reserves ceded under the LPT Agreement results in a cumulative adjustment to the Deferred Gain, which is also included in losses and LAE incurred in the consolidated statement of income and comprehensive income, so that the Deferred Gain reflects the balance that would have existed had the revised reserves been recognized at the inception of the LPT Agreement (LPT Reserve Adjustment). | |
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 LPT Agreement. Losses and LAE includes (i) amortization of deferred reinsurance gain-LPT Agreement (ii) adjustments to LPT Agreement ceded reserves and (iii) adjustments to the contingent profit commission.
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 LPT Agreement. Combined ratio before impacts of LPT is the GAAP combined ratio before (i) amortization of deferred reinsurance gain-LPT Agreement (ii) adjustments to LPT Agreement ceded reserves and (iii) adjustments to the contingent profit commission.
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.
Net rate. Net rate, defined as total premium in-force divided by total insured payroll exposure, is a function of a variety of factors, including rate changes, underwriting risk profiles and pricing, and changes in business mix related to economic and competitive pressures.
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 EHI's public
filings with the
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
and results 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
including increased loss costs nationally and in
The
Copyright © 2013 EMPLOYERS. All rights reserved. EMPLOYERS® and
America's small business insurance specialist. ® are
registered trademarks of
| Employers Holdings, Inc. | ||||||||||||||||||||||||||
| Consolidated Statements of Income and Comprehensive Income | ||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||||
| 2011 | 2011 | |||||||||||||||||||||||||
| 2012 | As Restated | 2012 | As Restated | |||||||||||||||||||||||
| Revenues | (unaudited) | |||||||||||||||||||||||||
| Gross premiums written | $ | 137,407 | $ | 102,941 | $ | 580,327 | $ | 418,512 | ||||||||||||||||||
| Net premiums written | $ | 134,595 | $ | 100,789 | $ | 569,676 | $ | 410,038 | ||||||||||||||||||
| Net premiums earned | $ | 140,843 | $ | 100,268 | $ | 501,464 | $ | 363,424 | ||||||||||||||||||
| Net investment income | 18,175 | 19,734 | 72,363 | 80,117 | ||||||||||||||||||||||
| Realized gains on investments, net | 487 | 18,178 | 5,048 | 20,161 | ||||||||||||||||||||||
| Other income | 82 | 247 | 307 | 452 | ||||||||||||||||||||||
| Total revenues | 159,587 | 138,427 | 579,182 | 464,154 | ||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 22,760 | 73,031 | 287,910 | 262,511 | ||||||||||||||||||||||
| Commission expense | 18,462 | 13,729 | 65,580 | 47,344 | ||||||||||||||||||||||
| Dividends to policyholders | 687 | 657 | 3,204 | 3,423 | ||||||||||||||||||||||
| Underwriting and other operating expense | 30,505 | 23,505 | 121,440 | 100,717 | ||||||||||||||||||||||
| Interest expense | 848 | 911 | 3,504 | 3,642 | ||||||||||||||||||||||
| Total expenses | 73,262 | 111,833 | 481,638 | 417,637 | ||||||||||||||||||||||
| Net income before income taxes | 86,325 | 26,594 | 97,544 | 46,517 | ||||||||||||||||||||||
| Income tax (benefit) expense | (1,444 | ) | 6,632 | (9,347 | ) | (2,106 | ) | |||||||||||||||||||
| Net income | $ | 87,769 | $ | 19,962 | $ | 106,891 | $ | 48,623 | ||||||||||||||||||
| Comprehensive income | ||||||||||||||||||||||||||
|
Unrealized gains during the period (net of taxes of $8,675 and $24,602 for the periods ended December 31, 2012 and 2011, respectively) |
$ | (9,822 | ) | $ | 12,734 | $ | 16,111 | $ | 45,691 | |||||||||||||||||
|
Less: reclassification adjustment for realized gains in net income (net of taxes of $1,767 and $7,056 for the period ended December 31, 2012 and 2011) |
316 | 11,816 | 3,281 | 13,105 | ||||||||||||||||||||||
| Other comprehensive income, net of tax | (10,138 | ) | 918 | 12,830 | 32,586 | |||||||||||||||||||||
| Total comprehensive income | $ | 77,631 | $ | 20,880 | $ | 119,721 | $ | 81,209 | ||||||||||||||||||
|
Reconciliation of net income to net income before impact of LPT Agreement |
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| Net income | $ | 87,769 | $ | 19,962 | $ | 106,891 | $ | 48,623 | ||||||||||||||||||
| Impact of the LPT Agreement: | ||||||||||||||||||||||||||
| Less amortization of deferred reinsurance gain - LPT Agreement | 4,033 | 4,470 | 16,976 | 18,249 | ||||||||||||||||||||||
| Less impact of the LPT Reserve Adjustment(1) | 73,349 | — | 73,349 | — | ||||||||||||||||||||||
| Less impact of the LPT Contingent Commission Adjustment(2) | 8,601 | 316 | 9,609 | 1,050 | ||||||||||||||||||||||
| Net income before impact of the LPT Agreement | $ | 1,786 | $ | 15,176 | $ | 6,957 | $ | 29,324 | ||||||||||||||||||
| (1) | Any adjustment to the estimated reserves ceded under the LPT Agreement results in a cumulative adjustment to the Deferred Gain, which is also included in losses and LAE incurred in the consolidated statement of income and comprehensive income such that the Deferred Gain reflects the balance that would have existed had the revised reserves been recognized at the inception of the LPT Agreement. (See Note 3 to the financial statements included in the Company's Form 10-K for the fiscal year ended December 31, 2012 to be filed with the Securities and Exchange Commission.) | |
| (2) | Any adjustment to the contingent profit commission under the LPT Agreement results in a cumulative adjustment to the Deferred Gain, which is also recognized in losses and LAE incurred in the consolidated statement of income and comprehensive income such that the Deferred Gain reflects the balance that would have existed had the revised contingent profit commission been recognized at the inception of the LPT Agreement. (LPT Contingent Commission Adjustment). (See Note 3 to the financial statements included in the Company's Form 10-K for the fiscal year ended December 31, 2012 to be filed with the Securities and Exchange Commission.) | |
| Employers Holdings, Inc. | |||||||||||||||||||||||||
| Consolidated Statements of Comprehensive Income | |||||||||||||||||||||||||
| (in thousands, except share and per share data) | |||||||||||||||||||||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||||||
| 2011 | 2011 | ||||||||||||||||||||||||
| 2012 | As Restated | 2012 | As Restated | ||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||
| Net Income | $ | 87,769 | $ | 19,962 | $ | 106,891 | $ | 48,623 | |||||||||||||||||
| Earnings per common share | |||||||||||||||||||||||||
| Basic | $ | 2.85 | $ | 0.58 | $ | 3.40 | $ | 1.30 | |||||||||||||||||
| Diluted | $ | 2.82 | $ | 0.58 | $ | 3.37 | $ | 1.30 | |||||||||||||||||
| Weighted average shares outstanding | |||||||||||||||||||||||||
| Basic | 30,839,338 | 34,388,151 | 31,476,056 | 37,284,425 | |||||||||||||||||||||
| Diluted | 31,152,831 | 34,522,369 | 31,703,426 | 37,424,065 | |||||||||||||||||||||
| Reconciliation of EPS to EPS before impact of the LPT Agreement | |||||||||||||||||||||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||||||
| 2011 | 2011 | ||||||||||||||||||||||||
| 2012 | As Restated | 2012 | As Restated | ||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||
| Earnings per common share | |||||||||||||||||||||||||
| Basic | $ | 2.85 | $ | 0.58 | $ | 3.40 | $ | 1.30 | |||||||||||||||||
| Diluted | $ | 2.82 | $ | 0.58 | $ | 3.37 | $ | 1.30 | |||||||||||||||||
| Earnings per common share attributable to the LPT Agreement | |||||||||||||||||||||||||
| Basic | $ | 2.79 | $ | 0.14 | $ | 3.17 | $ | 0.52 | |||||||||||||||||
| Diluted | $ | 2.76 | $ | 0.14 | $ | 3.15 | $ | 0.52 | |||||||||||||||||
| Earnings per common share before the LPT Agreement | |||||||||||||||||||||||||
| Basic | $ | 0.06 | $ | 0.44 | $ | 0.22 | $ | 0.79 | |||||||||||||||||
| Diluted | $ | 0.06 | $ | 0.44 | $ | 0.22 | $ | 0.78 | |||||||||||||||||
| Employers Holdings, Inc. | |||||||||||||
| Consolidated Balance Sheets | |||||||||||||
| (in thousands, except share and per share data) | |||||||||||||
| As of | |||||||||||||
| As of | December 31, 2011 | ||||||||||||
| December 31, 2012 | As Restated | ||||||||||||
| Assets | |||||||||||||
| Available for sale: | |||||||||||||
|
Fixed maturity securities at fair value (amortized cost $1,869,142 at December 31, 2012 and $1,706,216 at December 31, 2011) |
$ | 2,024,428 | $ | 1,852,699 | |||||||||
|
Equity securities at fair value (amortized cost $81,067 at December 31, 2012 and $64,962 at December 31, 2011) |
125,086 | 98,046 | |||||||||||
| Total investments | 2,149,514 | 1,950,745 | |||||||||||
| Cash and cash equivalents | 140,661 | 252,300 | |||||||||||
| Restricted cash and cash equivalents | 5,353 | 6,299 | |||||||||||
| Accrued investment income | 19,356 | 19,537 | |||||||||||
|
Premiums receivable, less bad debt allowance of $5,957 at December 31, 2012 and $5,546 at December 31, 2011 |
223,011 | 160,443 | |||||||||||
| Reinsurance recoverable for: | |||||||||||||
| Paid losses | 9,467 | 10,729 | |||||||||||
| Unpaid losses | 805,386 | 940,840 | |||||||||||
| Funds held by or deposited with reinsureds | 1,838 | 1,102 | |||||||||||
| Deferred policy acquisition costs | 38,852 | 37,524 | |||||||||||
| Federal income taxes recoverable | 1,893 | 1,993 | |||||||||||
| Deferred income taxes, net | 26,231 | 22,140 | |||||||||||
| Property and equipment, net | 14,680 | 11,360 | |||||||||||
| Intangible assets, net | 10,558 | 11,728 | |||||||||||
| Goodwill | 36,192 | 36,192 | |||||||||||
| Contingent commission receivable–LPT Agreement | 19,141 | 4,127 | |||||||||||
| Other assets | 9,206 | 15,251 | |||||||||||
| Total assets | $ | 3,511,339 | $ | 3,482,310 | |||||||||
| Liabilities and stockholders' equity | |||||||||||||
| Claims and policy liabilities: | |||||||||||||
| Unpaid losses and loss adjustment expenses | $ | 2,231,540 | $ | 2,272,363 | |||||||||
| Unearned premiums | 265,149 | 194,933 | |||||||||||
| Policyholders' dividends accrued | 2,942 | 3,838 | |||||||||||
| Total claims and policy liabilities | 2,499,631 | 2,471,134 | |||||||||||
| Commissions and premium taxes payable | 40,825 | 28,905 | |||||||||||
| Accounts payable and accrued expenses | 19,522 | 14,994 | |||||||||||
| Deferred reinsurance gain–LPT Agreement | 281,043 | 365,963 | |||||||||||
| Notes payable | 112,000 | 122,000 | |||||||||||
| Other liabilities | 18,937 | 17,331 | |||||||||||
| Total liabilities | $ | 2,971,958 | $ | 3,020,327 | |||||||||
| Employers Holdings, Inc. | ||||||||||||||
| Consolidated Balance Sheets | ||||||||||||||
| (in thousands, except share and per share data) | ||||||||||||||
| (Continued) | ||||||||||||||
| As of | ||||||||||||||
| As of | December 31, 2011 | |||||||||||||
| December 31, 2012 | As Restated | |||||||||||||
| Commitments and contingencies | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
|
Common stock, $0.01 par value; 150,000,000 shares authorized; 54,144,453 and 53,948,442 shares issued and 30,771,479 and 32,996,809 shares outstanding at December 31, 2012 and 2011, respectively |
$ | 542 | $ | 540 | ||||||||||
| Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued | — | — | ||||||||||||
| Additional paid-in capital | 325,990 | 318,989 | ||||||||||||
| Retained earnings | 445,850 | 346,490 | ||||||||||||
| Accumulated other comprehensive income, net | 129,549 | 116,719 | ||||||||||||
|
Treasury stock, at cost (23,372,974 shares at December 31, 2012 and 20,951,633 shares at December 31, 2011) |
(362,550 | ) | (320,755 | ) | ||||||||||
| Total stockholders’ equity | 539,381 | 461,983 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 3,511,339 | $ | 3,482,310 | ||||||||||
| Equity including deferred reinsurance gain - LPT | ||||||||||||||
| Total stockholders’ equity | $ | 539,381 | $ | 461,983 | ||||||||||
| Deferred reinsurance gain - LPT Agreement | 281,043 | 365,963 | ||||||||||||
| Total equity including deferred reinsurance gain - LPT Agreement (A) | $ | 820,424 | $ | 827,946 | ||||||||||
| Shares outstanding (B) | $ | 30,771,479 | $ | 32,996,809 | ||||||||||
| Book value per share (A * 1000) / B | $ | 26.66 | $ | 25.09 | ||||||||||
| Employers Holdings, Inc. | ||||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||||
| (in thousands) | ||||||||||||||
| Twelve Months Ended | ||||||||||||||
| December 31, | ||||||||||||||
| 2011 | ||||||||||||||
| 2012 | As Restated | |||||||||||||
| Operating activities | ||||||||||||||
| Net income | $ | 106,891 | $ | 48,623 | ||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization | 5,601 | 6,388 | ||||||||||||
| Stock-based compensation | 6,141 | 3,742 | ||||||||||||
| Amortization of premium on investments, net | 7,019 | 7,242 | ||||||||||||
| Allowance for doubtful accounts | 411 | (2,057 | ) | |||||||||||
| Deferred income tax (benefit) expense | (10,999 | ) | (1,608 | ) | ||||||||||
| Realized gains on investments, net | (5,048 | ) | (20,161 | ) | ||||||||||
| Realized losses (gains) on retirement of assets | 245 | (155 | ) | |||||||||||
| Change in operating assets and liabilities: | ||||||||||||||
| Accrued investment income | 181 | 3,485 | ||||||||||||
| Premiums receivable | (62,979 | ) | (48,399 | ) | ||||||||||
| Reinsurance recoverable for paid and unpaid losses | 136,716 | 18,889 | ||||||||||||
| Funds held by or deposited with reinsureds | (736 | ) | 2,599 | |||||||||||
| Federal income taxes recoverable | 100 | 2,055 | ||||||||||||
| Unpaid losses and loss adjustment expenses | (40,823 | ) | (7,366 | ) | ||||||||||
| Unearned premiums | 70,216 | 45,448 | ||||||||||||
| Accounts payable, accrued expenses and other liabilities | 3,028 | (4,265 | ) | |||||||||||
| Deferred reinsurance gain-LPT Agreement | (84,920 | ) | (17,436 | ) | ||||||||||
| Contingent commission receivable–LPT Agreement | (15,014 | ) | (1,863 | ) | ||||||||||
| Other | 15,741 | 8,054 | ||||||||||||
| Net cash provided by operating activities | 131,771 | 43,215 | ||||||||||||
| Investing activities | ||||||||||||||
| Purchase of fixed maturity securities | (455,221 | ) | (236,633 | ) | ||||||||||
| Purchase of equity securities | (31,478 | ) | (21,310 | ) | ||||||||||
| Proceeds from sale of fixed maturity securities | 139,792 | 317,365 | ||||||||||||
| Proceeds from sale of equity securities | 16,646 | 6,476 | ||||||||||||
| Proceeds from maturities and redemptions of investments | 149,259 | 126,902 | ||||||||||||
| Proceeds from sale of fixed assets | 226 | 396 | ||||||||||||
| Capital expenditures and other | (5,116 | ) | (4,687 | ) | ||||||||||
| Restricted cash and cash equivalents provided by investing activities | 946 | 10,650 | ||||||||||||
| Net cash (used in) provided by investing activities | (184,946 | ) | 199,159 | |||||||||||
| Financing activities | ||||||||||||||
| Acquisition of treasury stock | (41,795 | ) | (91,975 | ) | ||||||||||
| Cash transactions related to stock-based compensation | 839 | 1,019 | ||||||||||||
| Dividends paid to stockholders | (7,508 | ) | (8,943 | ) | ||||||||||
| Payments on notes payable | (10,000 | ) | (10,000 | ) | ||||||||||
| Net cash used in financing activities | (58,464 | ) | (109,899 | ) | ||||||||||
| Net (decrease) increase in cash and cash equivalents | (111,639 | ) | 132,475 | |||||||||||
| Cash and cash equivalents at the beginning of the period | 252,300 | 119,825 | ||||||||||||
| Cash and cash equivalents at the end of the period | $ | 140,661 | $ | 252,300 | ||||||||||
|
Employers Holdings, Inc. |
|||||||||||||||||||||
|
Reconciliation of GAAP to Non-GAAP Net Income before Taxes, Income Tax Benefit, Net Income before LPT, |
|||||||||||||||||||||
|
Earnings and Earnings before the LPT per Common Diluted Shares |
|||||||||||||||||||||
| Three Months Ended December 31, | |||||||||||||||||||||
| ($ thousands except per share data) | 2012 | 2011 | |||||||||||||||||||
|
Reported Results |
Adjustments (1)(2) |
Non-GAAP Results |
As Restated | ||||||||||||||||||
| Net income before taxes | $ | 86,325 | $ | 595 | $ | 86,920 | $ | 26,594 | |||||||||||||
| Income tax (benefit) expense | $ | (1,444 | ) | $ | 798 | $ | (646 | ) | $ | 6,632 | |||||||||||
| Net income | $ | 87,769 | $ | (203 | ) | $ | 87,566 | $ | 19,962 | ||||||||||||
| Less: Amortization of the LPT(3) | 4,033 | 4,033 | 4,470 | ||||||||||||||||||
| Less: LPT Reserve Adjustment(3) | 73,349 | 73,349 | — | ||||||||||||||||||
| Less: LPT Contingent Commission Adjustment(3) | 8,601 | 8,601 | 316 | ||||||||||||||||||
| Net income before LPT(3) | $ | 1,786 | $ | 1,583 | $ | 15,176 | |||||||||||||||
| Earnings per common diluted share | $ | 2.82 | $ | (0.01 | ) | $ | 2.81 | $ | 0.58 | ||||||||||||
| Earnings before the LPT per common diluted share(3) | 0.06 | (0.01 | ) | 0.05 | 0.44 | ||||||||||||||||
| Diluted shares used in per share calculations | 31,152,831 | 31,152,831 | 31,152,831 | 34,522,369 | |||||||||||||||||
| (1) | Adjustment to exclude the DAC accounting change which added $0.6 million to underwriting and other operating expense in the three months ended December 31, 2012. The $0.6 million was comprised of expenses related to acquiring new or renewal insurance contracts. | |
| (2) | Adjustment to include the tax benefit related to the exclusion of the DAC accounting change in the three months ended December 31, 2012. | |
| (3) | The LPT adjustment is also a non-GAAP measure which is explained/reconciled in additional detail elsewhere in this release. This calculation is normally included in the Company's reports on financial and operating results. | |
|
Reconciliation of GAAP to Non-GAAP Underwriting and Other Operating Expenses and Underwriting and Other |
||||||||||||||||||||||
|
Operating Expense Ratio, Combined Ratio, and Combined Ratio before LPT |
||||||||||||||||||||||
| Three Months Ended December 31, | ||||||||||||||||||||||
| ($ thousands except for percentages) | 2012 | 2011 | ||||||||||||||||||||
|
Reported Results |
Adjustments(1) |
Non-GAAP Results |
As Restated | |||||||||||||||||||
| Underwriting & other operating expenses | $ | 30,505 | $ | 595 | $ | 29,910 | $ | 23,505 | ||||||||||||||
| Underwriting & other operating expenses ratio | 21.6 | % | 0.4 | % | 21.2 | % | 23.4 | % | ||||||||||||||
| Total expenses | $ | 72,414 | $ | 595 | $ | 71,819 | $ | 110,922 | ||||||||||||||
| Combined ratio | 51.4 | % | 0.4 | % | 51.0 | % | 110.6 | % | ||||||||||||||
| Total expenses before LPT(2) | $ | 158,397 | $ | 595 | $ | 157,802 | $ | 115,708 | ||||||||||||||
| Combined ratio before LPT(2) | 112.5 | % | 0.4 | % | 112.1 | % | 115.4 | % | ||||||||||||||
| (1) | Adjustment to exclude the DAC accounting change which added $0.6 million to underwriting and other operating expense in the three months ended December 31, 2012. The $0.6 million was comprised of expenses related to acquiring new or renewal insurance contracts. | |
| (2) | The LPT adjustment is also a non-GAAP measure which is explained/reconciled in additional detail elsewhere in this release. This calculation is normally included in the Company's reports on financial and operating results. | |
|
Employers Holdings, Inc. |
|||||||||||||||||||||||||
|
Reconciliation of GAAP to Non-GAAP Net Income before Taxes, Income Tax Benefit, Net Income before LPT, |
|||||||||||||||||||||||||
|
Earnings and Earnings before the LPT per Common Diluted Shares |
|||||||||||||||||||||||||
| Twelve Months Ended December 31, | |||||||||||||||||||||||||
| 2011 | |||||||||||||||||||||||||
| ($ thousands except per share data) | 2012 | As Restated | |||||||||||||||||||||||
|
Reported Results |
Adjustments (1)(2) |
Non-GAAP Results |
As Restated | ||||||||||||||||||||||
| Net income before taxes | $ | 97,544 | $ | 7,061 | $ | 104,605 | $ | 46,517 | |||||||||||||||||
| Income tax (benefit) expense | $ | (9,347 | ) | $ | 2,472 | $ | (6,875 | ) | $ | (2,106 | ) | ||||||||||||||
| Net income | $ | 106,891 | $ | 4,589 | $ | 111,480 | $ | 48,623 | |||||||||||||||||
| Less: Amortization of the LPT(3) | 16,976 | 16,976 | 18,249 | ||||||||||||||||||||||
| Less: LPT Reserve Adjustment(3) | 73,349 | 73,349 | — | ||||||||||||||||||||||
| Less: LPT Contingent Commission Adjustment(3) | 9,609 | 9,609 | 1,050 | ||||||||||||||||||||||
| Net income before LPT(3) | $ | 6,957 | $ | 11,546 | $ | 29,324 | |||||||||||||||||||
| Earnings per common diluted share | $ | 3.37 | $ | 0.14 | $ | 3.52 | $ | 1.30 | |||||||||||||||||
| Earnings before the LPT per common diluted share(3) | 0.22 | 0.14 | 0.36 | 0.78 | |||||||||||||||||||||
| Diluted shares used in per share calculations | 31,703,426 | 31,703,426 | 31,703,426 | 37,424,065 | |||||||||||||||||||||
| (1) | Adjustment to exclude the DAC accounting change which added $7.1 million to underwriting and other operating expense in the twelve months ended December 31, 2012. The $7.1 million was comprised of expenses related to acquiring new or renewal insurance contracts. | |
| (2) | Adjustment to include the tax benefit related to the exclusion of the DAC accounting change in the twelve months ended December 31, 2012. | |
| (3) | The LPT adjustment is also a non-GAAP measure which is explained/reconciled in additional detail elsewhere in this release. This calculation is normally included in the Company's reports on financial and operating results. | |
|
Reconciliation of GAAP to Non-GAAP Underwriting and Other Operating Expenses and Underwriting and Other |
||||||||||||||||||||||
|
Operating Expense Ratio, Combined Ratio, and Combined Ratio before LPT |
||||||||||||||||||||||
| Twelve Months Ended December 31, | ||||||||||||||||||||||
| 2011 | ||||||||||||||||||||||
| ($ thousands except for percentages) | 2012 | As Restated | ||||||||||||||||||||
|
Reported Results |
Adjustments(1) |
Non-GAAP Results |
As Restated | |||||||||||||||||||
| Underwriting & other operating expenses | $ | 121,440 | $ | 7,061 | $ | 114,379 | $ | 100,717 | ||||||||||||||
| Underwriting & other operating expenses ratio | 24.2 | % | 1.4 | % | 22.8 | % | 27.8 | % | ||||||||||||||
| Total expenses | $ | 478,134 | $ | 7,061 | $ | 471,073 | $ | 413,995 | ||||||||||||||
| Combined ratio | 95.3 | % | 1.4 | % | 93.9 | % | 113.9 | % | ||||||||||||||
| Total expenses before LPT(2) | $ | 578,068 | $ | 7,061 | $ | 571,007 | $ | 433,294 | ||||||||||||||
| Combined ratio before LPT(2) | 115.3 | % | 1.4 | % | 113.9 | % | 119.2 | % | ||||||||||||||
| (1) | Adjustment to exclude the DAC accounting change which added $7.1 million to underwriting and other operating expense in the twelve months ended December 31, 2012. The $7.1 million was comprised of expenses related to acquiring new or renewal insurance contracts. | |
| (2) | The LPT adjustment is also a non-GAAP measure which is explained/reconciled in additional detail elsewhere in this release. This calculation is normally included in the Company's reports on financial and operating results. | |
| Employers Holdings, Inc. | ||||||||||||||||||||||||||
| Calculation of Combined Ratio before the Impact of the LPT Agreement | ||||||||||||||||||||||||||
| (in thousands, except for percentages) | ||||||||||||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||||
| 2011 | 2011 | |||||||||||||||||||||||||
| 2012 | As Restated | 2012 | As Restated | |||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||||
| Net premiums earned | $ | 140,843 | $ | 100,268 | $ | 501,464 | $ | 363,424 | ||||||||||||||||||
| Losses and loss adjustment expenses | $ | 22,760 | $ | 73,031 | $ | 287,910 | $ | 262,511 | ||||||||||||||||||
| Loss & LAE ratio | 16.2 | % | 72.8 | % | 57.4 | % | 72.2 | % | ||||||||||||||||||
| Amortization of deferred reinsurance gain – LPT | $ | 4,033 | $ | 4,470 | $ | 16,976 | $ | 18,249 | ||||||||||||||||||
| LPT Reserve Adjustment | 73,349 | — | 73,349 | — | ||||||||||||||||||||||
| LPT Contingent Commission Adjustment | 8,601 | 316 | 9,609 | 1,050 | ||||||||||||||||||||||
| Impact of LPT | 61.0 | % | 4.8 | % | 19.9 | % | 5.3 | % | ||||||||||||||||||
| Loss & LAE before impact of LPT | $ | 108,743 | $ | 77,817 | $ | 387,844 | $ | 281,810 | ||||||||||||||||||
| Loss & LAE ratio before impact of LPT | 77.2 | % | 77.6 | % | 77.3 | % | 77.5 | % | ||||||||||||||||||
| Commission expense | $ | 18,462 | $ | 13,729 | $ | 65,580 | $ | 47,344 | ||||||||||||||||||
| Commission expense ratio | 13.1 | % | 13.7 | % | 13.1 | % | 13.0 | % | ||||||||||||||||||
| Dividends to policyholders | $ | 687 | $ | 657 | $ | 3,204 | $ | 3,423 | ||||||||||||||||||
| Policyholder dividend ratio | 0.5 | % | 0.7 | % | 0.6 | % | 0.9 | % | ||||||||||||||||||
| Underwriting & other operating expenses | $ | 30,505 | $ | 23,505 | $ | 121,440 | $ | 100,717 | ||||||||||||||||||
| Underwriting & other operating expenses ratio | 21.6 | % | 23.4 | % | 24.2 | % | 27.8 | % | ||||||||||||||||||
| Total expenses | $ | 72,414 | $ | 110,922 | $ | 478,134 | $ | 413,995 | ||||||||||||||||||
| Combined ratio | 51.4 | % | 110.6 | % | 95.3 | % | 113.9 | % | ||||||||||||||||||
| Total expense before impact of the LPT | $ | 158,397 | $ | 115,708 | $ | 578,068 | $ | 433,294 | ||||||||||||||||||
| Combined ratio before the impact of the LPT | 112.5 | % | 115.4 | % | 115.3 | % | 119.2 | % | ||||||||||||||||||
| Reconciliations to Current Accident Period Combined Ratio: | ||||||||||||||||||||||||||
| Losses & LAE before impact of LPT | $ | 108,743 | $ | 77,817 | $ | 387,844 | $ | 281,810 | ||||||||||||||||||
| Plus: Unfavorable prior period reserve development | (520 | ) | (496 | ) | (1,800 | ) | (1,127 | ) | ||||||||||||||||||
| Accident period losses & LAE before impact of LPT | $ | 108,223 | $ | 77,321 | $ | 386,044 | $ | 280,683 | ||||||||||||||||||
| Losses & LAE ratio before impact of LPT | 77.2 | % | 77.6 | % | 77.3 | % | 77.5 | % | ||||||||||||||||||
| Plus: Unfavorable prior period reserve development ratio | (0.4 | ) | (0.5 | ) | (0.3 | ) | (0.3 | ) | ||||||||||||||||||
| Accident period losses & LAE ratio before impact of LPT | 76.8 | % | 77.1 | % | 77.0 | % | 77.2 | % | ||||||||||||||||||
| Combined ratio before impact of the LPT | 112.5 | % | 115.4 | % | 115.3 | % | 119.2 | % | ||||||||||||||||||
| Plus: Unfavorable prior period reserve development ratio | (0.4 | ) | (0.5 | ) | (0.3 | ) | (0.3 | ) | ||||||||||||||||||
| Accident period combined ratio before impact of LPT | 112.1 | % | 114.9 | % | 115.0 | % | 118.9 | % | ||||||||||||||||||
Source:
Employers Holdings, Inc.
Media:
Ty Vukelich, 775-327-2677
tvukelich@employers.com
or
Analysts:
Vicki
Erickson Mills, 775-327-2794
vericksonmills@employers.com
