Employers Holdings, Inc. Reports First Quarter 2013 Earnings and Declares Second Quarter 2013 Dividend
Key Highlights
(Q1, 2013 compared to Q1, 2012 except where noted)
-
Net income before the LPT of
$3.5 million ; up$0.06 per diluted share - Overall net rate up 10.2%
-
Net written premiums of
$172.0 million ; up 23% -
Net earned premiums of
$148.0 million ; up 35% -
Revenues of
$166.3 million ; up 28% - Combined ratio before LPT improved 10.4 percentage points
Net income includes amortization of the deferred reinsurance gain
related to the Loss Portfolio Transfer (“LPT”) Agreement. Consolidated
net income before the impact of the LPT deferred reinsurance gain (the
Company's non-GAAP measure described below) was 3.5 million or
The first quarter 2013 combined ratio was 106.9% (109.6% before the impact of the LPT deferred reinsurance gain), compared with 115.9% (120.0% before the impact of the LPT deferred reinsurance gain) for the first quarter of 2012. Year over year, the combined ratio improved 9.0 percentage points on a GAAP basis and 10.4 percentage points before the impact of the LPT.
President and Chief Executive Officer
Dirks continued: "Pricing improvements which began in late 2011
accelerated as the overall net rate increased 10.2% year over year. The
net rate change at the end of the first quarter in our top (in terms of
in-force premium) five states was positive relative to the end of last
year's first quarter with double digit increases in four of those states
-
Dirks concluded: "We are optimistic at this point in the year. It appears that loss trends are consistent with prior quarters while pricing continues to strengthen. Our balance sheet is strong and we believe our overall reserves are adequate. Targeted growth, pricing and cost containment will continue to be areas of focus for us throughout 2013."
Second Quarter Dividend
The Board of Directors declared a second quarter 2013 dividend of
Conference Call and Web Cast; Form 10-Q; Supplemental Portfolio Listing
The Company will host a conference call on Thursday, May 9, 2013, at
EHI expects to file its Form 10-Q for the quarter ended March 31, 2013,
with the
The Company provides a list of portfolio securities by CUSIP in the
Calendar of Events,
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 less (a) amortization of deferred reinsurance gain–LPT Agreement; (b) adjustments to LPT Agreement ceded reserves; and (c) adjustments to contingent commission receivable–LPT Agreement.
Deferred reinsurance gain–LPT Agreement (Deferred Gain). 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, except for the contingent
profit commission, which is amortized through
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 less (a) amortization of Deferred Gain; (b) adjustments to LPT Agreement ceded reserves; and (c) adjustments to contingent commission receivable–LPT Agreement.
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, 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 (a) amortization of deferred reinsurance gain–LPT Agreement; (b) adjustments to LPT Agreement ceded reserves; and (c) adjustments to contingent commission receivable–LPT Agreement.
Equity including Deferred Gain. Equity including Deferred Gain is total equity plus the Deferred Gain.
Book value per share. Equity including Deferred Gain 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, growth and pricing strategies, and
performance as well as the impact of pricing improvements on the
Company, expectations regarding loss cost trends, and drivers of
combined ratio and expense ratio improvement. 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
The
Copyright © 2013 EMPLOYERS. All rights reserved. EMPLOYERS® and
America's small business insurance specialist. ® are
registered trademarks of
| Employers Holdings, Inc. and Subsidiaries | ||||||||
| Consolidated Statements of Comprehensive Income | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (in thousands, except per share data) | 2013 | 2012 | ||||||
| Revenues | (unaudited) | |||||||
| Gross premiums written | $ | 174,963 | $ | 142,794 | ||||
| Net premiums written | $ | 172,026 | $ | 140,364 | ||||
| Net premiums earned | $ | 147,975 | $ | 109,900 | ||||
| Net investment income | 17,405 | 18,385 | ||||||
| Realized gains on investments, net | 794 | 1,778 | ||||||
| Other income | 103 | 81 | ||||||
| Total revenues | 166,277 | 130,144 | ||||||
| Expenses | ||||||||
| Losses and loss adjustment expenses | 108,272 | 80,518 | ||||||
| Commission expense | 18,393 | 13,816 | ||||||
| Underwriting and other operating expenses | 31,540 | 32,989 | ||||||
| Interest expense | 808 | 902 | ||||||
| Total expenses | 159,013 | 128,225 | ||||||
| Net income before income taxes | 7,264 | 1,919 | ||||||
| Income tax benefit | (226 | ) | (4,421 | ) | ||||
| Net income | $ | 7,490 | $ | 6,340 | ||||
| Less impact of LPT Agreement: | ||||||||
| Amortization of the Deferred Gain related to losses | 3,305 | 4,156 | ||||||
| Amortization of the Deferred Gain related to contingent commission | 382 | 269 | ||||||
| Impact of LPT Contingent Commission Adjustments | 275 | 136 | ||||||
| Net income before LPT Agreement | $ | 3,528 | $ | 1,779 | ||||
| Comprehensive income | ||||||||
| Unrealized gains during the period (net of taxes of $14 and $3,255 for the three months ended March 31, 2013 and 2012, respectively) | $ | 25 | $ | 6,044 | ||||
| Reclassification adjustment for realized gains in net income (net of taxes of $278 and $622 for the three months ended March 31, 2013 and 2012, respectively) | (516 | ) | (1,156 | ) | ||||
| Other comprehensive income, net of tax | (491 | ) | 4,888 | |||||
| Total comprehensive income | $ | 6,999 | $ | 11,228 | ||||
| Weighted average shares outstanding | ||||||||
| Basic | 30,914,478 | 32,649,205 | ||||||
| Diluted | 31,389,637 | 32,826,091 | ||||||
| Earnings per common share | ||||||||
| Basic and Diluted | $ | 0.24 | $ | 0.19 | ||||
| Earnings per common share attributable to the LPT Agreement | ||||||||
| Basic and Diluted | $ | 0.13 | $ | 0.14 | ||||
| Earnings per common share before the LPT Agreement | ||||||||
| Basic and Diluted | $ | 0.11 | $ | 0.05 | ||||
| Employers Holdings, Inc. and Subsidiaries | ||||||||
| Consolidated Balance Sheets | ||||||||
| As of | As of | |||||||
| March 31, | December 31, | |||||||
| (in thousands, except share data) | 2013 | 2012 | ||||||
| Assets | (unaudited) | |||||||
| Available for sale: | ||||||||
| Fixed maturity securities at fair value (amortized cost $1,917,428 at March 31, 2013 and $1,869,142 at December 31, 2012) | $ | 2,060,483 | $ | 2,024,428 | ||||
| Equity securities at fair value (cost $81,905 at March 31, 2013 and $81,067 at December 31, 2012) | 137,401 | 125,086 | ||||||
| Total investments | 2,197,884 | 2,149,514 | ||||||
| Cash and cash equivalents | 130,889 | 140,661 | ||||||
| Restricted cash and cash equivalents | 4,694 | 5,353 | ||||||
| Accrued investment income | 19,096 | 19,356 | ||||||
| Premiums receivable (less bad debt allowance of $6,471 at March 31, 2013 and $5,957 at December 31, 2012) | 252,579 | 223,011 | ||||||
| Reinsurance recoverable for: | ||||||||
| Paid losses | 9,101 | 9,467 | ||||||
| Unpaid losses | 798,546 | 805,386 | ||||||
| Deferred policy acquisition costs | 42,583 | 38,852 | ||||||
| Deferred income taxes, net | 27,649 | 26,231 | ||||||
| Property and equipment, net | 14,825 | 14,680 | ||||||
| Intangible assets, net | 10,332 | 10,558 | ||||||
| Goodwill | 36,192 | 36,192 | ||||||
| Contingent commission receivable—LPT Agreement | 19,526 | 19,141 | ||||||
| Other assets | 9,987 | 12,937 | ||||||
| Total assets | $ | 3,573,883 | $ | 3,511,339 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Claims and policy liabilities: | ||||||||
| Unpaid losses and loss adjustment expenses | $ | 2,258,299 | $ | 2,231,540 | ||||
| Unearned premiums | 289,317 | 265,149 | ||||||
| Total claims and policy liabilities | 2,547,616 | 2,496,689 | ||||||
| Commissions and premium taxes payable | 42,939 | 40,825 | ||||||
| Accounts payable and accrued expenses | 15,669 | 19,522 | ||||||
| Deferred reinsurance gain—LPT Agreement | 277,466 | 281,043 | ||||||
| Notes payable | 112,000 | 112,000 | ||||||
| Other liabilities | 30,110 | 21,879 | ||||||
| Total liabilities | 3,025,800 | 2,971,958 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $0.01 par value; 150,000,000 shares authorized; 54,308,212 and 54,144,453 shares issued and 30,935,238 and 30,771,479 shares outstanding at March 31, 2013 and December 31, 2012, respectively | 543 | 541 | ||||||
| Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued | — | — | ||||||
| Additional paid-in capital | 329,549 | 325,991 | ||||||
| Retained earnings | 451,483 | 445,850 | ||||||
| Accumulated other comprehensive income, net | 129,058 | 129,549 | ||||||
| Treasury stock, at cost (23,372,974 shares at March 31, 2013 and December 31, 2012) | (362,550 | ) | (362,550 | ) | ||||
| Total stockholders’ equity | 548,083 | 539,381 | ||||||
| Total liabilities and stockholders’ equity | $ | 3,573,883 | $ | 3,511,339 | ||||
| Equity including deferred reinsurance gain - LPT | ||||||||
| Total stockholders’ equity | $ | 548,083 | $ | 539,381 | ||||
| Deferred reinsurance gain–LPT Agreement | 277,466 | 281,043 | ||||||
| Total equity including deferred reinsurance gain–LPT Agreement (A) | $ | 825,549 | $ | 820,424 | ||||
| Shares outstanding (B) | 30,935,238 | 30,771,479 | ||||||
| Book value per share (A * 1000) / B | $ | 26.69 | $ | 26.66 | ||||
| Employers Holdings, Inc. and Subsidiaries | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (in thousands) | 2013 | 2012 | ||||||
| Operating activities | (unaudited) | |||||||
| Net income | $ | 7,490 | $ | 6,340 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 1,393 | 1,414 | ||||||
| Stock-based compensation | 2,110 | 1,241 | ||||||
| Amortization of premium on investments, net | 2,020 | 1,533 | ||||||
| Deferred income tax expense | (1,154 | ) | (5,149 | ) | ||||
| Realized gains on investments, net | (794 | ) | (1,778 | ) | ||||
| Excess tax benefits from stock-based compensation | (170 | ) | — | |||||
| Other | 562 | 546 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Premiums receivable | (30,082 | ) | (26,133 | ) | ||||
| Reinsurance recoverable for paid and unpaid losses | 7,206 | 11,501 | ||||||
| Federal income taxes recoverable | 855 | 1,021 | ||||||
| Unpaid losses and loss adjustment expenses | 26,759 | (941 | ) | |||||
| Unearned premiums | 24,168 | 30,765 | ||||||
| Accounts payable, accrued expenses and other liabilities | 4,455 | 4,886 | ||||||
| Deferred reinsurance gain—LPT Agreement | (3,577 | ) | (4,338 | ) | ||||
| Contingent commission receivable—LPT Agreement | (385 | ) | (223 | ) | ||||
| Other | 731 | 3,740 | ||||||
| Net cash provided by operating activities | 41,587 | 24,425 | ||||||
| Investing activities | ||||||||
| Purchase of fixed maturities | (90,117 | ) | (108,218 | ) | ||||
| Purchase of equity securities | (5,328 | ) | (18,443 | ) | ||||
| Proceeds from sale of fixed maturities | — | 13,412 | ||||||
| Proceeds from sale of equity securities | 5,284 | 3,420 | ||||||
| Proceeds from maturities and redemptions of investments | 39,693 | 61,884 | ||||||
| Proceeds from sale of fixed assets | 113 | 42 | ||||||
| Capital expenditures and other | (1,355 | ) | (2,138 | ) | ||||
| Restricted cash and cash equivalents provided by (used in) investing activities | 659 | (4,312 | ) | |||||
| Net cash used in investing activities | (51,051 | ) | (54,353 | ) | ||||
| Financing activities | ||||||||
| Acquisition of treasury stock | — | (18,730 | ) | |||||
| Cash transactions related to stock-based compensation | 1,374 | (148 | ) | |||||
| Dividends paid to stockholders | (1,852 | ) | (1,939 | ) | ||||
| Excess tax benefits from stock-based compensation | 170 | — | ||||||
| Net cash used in financing activities | (308 | ) | (20,817 | ) | ||||
| Net decrease in cash and cash equivalents | (9,772 | ) | (50,745 | ) | ||||
| Cash and cash equivalents at the beginning of the period | 140,661 | 252,300 | ||||||
| Cash and cash equivalents at the end of the period | $ | 130,889 | $ | 201,555 | ||||
| Employers Holdings, Inc. | ||||||||
| Calculation of Combined Ratio before the Impact of the LPT Agreement | ||||||||
|
|
Three Months Ended | |||||||
| March 31, | ||||||||
| (in thousands, except for percentages) | 2013 | 2012 | ||||||
| (unaudited) | ||||||||
| Net premiums earned | $ | 147,975 | $ | 109,900 | ||||
| Losses and loss adjustment expenses | 108,272 | 80,518 | ||||||
| Loss & LAE ratio | 73.2 | % | 73.3 | % | ||||
| Amortization of Deferred Gain related to losses | $ | 3,305 | $ | 4,156 | ||||
| Amortization of Deferred Gain related to contingent commission | 382 | 269 | ||||||
| LPT Contingent Commission Adjustments | 275 | 136 | ||||||
| Impact of LPT | 2.7 | % | 4.2 | % | ||||
| Loss & LAE before impact of LPT | $ | 112,234 | $ | 85,079 | ||||
| Loss & LAE ratio before impact of LPT | 75.8 | % | 77.4 | % | ||||
| Commission expense | $ | 18,393 | $ | 13,816 | ||||
| Commission expense ratio | 12.4 | % | 12.6 | % | ||||
| Underwriting & other operating expenses(1) | $ | 31,540 | $ | 32,989 | ||||
| Underwriting & other operating expenses ratio | 21.3 | % | 30.0 | % | ||||
| Total expenses | $ | 158,205 | $ | 127,323 | ||||
| Combined ratio | 106.9 | % | 115.9 | % | ||||
| Total expense before impact of the LPT | $ | 162,167 | $ | 131,884 | ||||
| Combined ratio before the impact of the LPT | 109.6 | % | 120.0 | % | ||||
| Reconciliations to Current Accident Period Combined Ratio: | ||||||||
| Losses & LAE before impact of LPT | $ | 112,234 | $ | 85,079 | ||||
| Plus: Favorable (unfavorable) prior period reserve development | (1,130 | ) | (525 | ) | ||||
| Accident period losses & LAE before impact of LPT | $ | 111,104 | $ | 84,554 | ||||
| Losses & LAE ratio before impact of LPT | 75.8 | % | 77.4 | % | ||||
| Plus: Favorable (unfavorable) prior period reserve development ratio | (0.7 | ) | (0.5 | ) | ||||
| Accident period losses & LAE ratio before impact of LPT | 75.1 | % | 76.9 | % | ||||
| Combined ratio before impact of the LPT | 109.6 | % | 120.0 | % | ||||
| Plus: Favorable (unfavorable) prior period reserve development ratio | (0.7 | ) | (0.5 | ) | ||||
| Accident period combined ratio before impact of LPT | 108.9 | % | 119.5 | % | ||||
(1) Policyholder dividends are now included in underwriting and other operating expenses.
Source:
Employers Holdings, Inc.
Media:
Ty Vukelich, 775-327-2677
tvukelich@employers.com
or
Analysts:
Vicki
Erickson Mills, 775-327-2794
vericksonmills@employers.com.
