Employers Holdings, Inc. Reports Second Quarter 2014 Earnings and Declares Third Quarter 2014 Dividend
Key Highlights
(Q2, 2014
compared to Q2, 2013 except where noted)
-
Net income before the LPT of
$14.6 million ; up$0.15 per diluted share - Overall net rate up 5.8%
-
Net written premiums of
$190.8 million ; up 2.1% -
Net earned premiums of
$172.7 million ; up 7.9% -
Revenues of
$200.3 million ; up 10.3% -
Realized gains of
$9.2 million - Combined ratio before the LPT down 0.1 percentage point
-
Adjusted book value per common share of
$27.58 ; up 5.5% since12/31/13
Net income includes the following items related to the Loss Portfolio
Transfer ("LPT") Agreement: reserve adjustments, adjustments to the
contingent profit commission, and amortization of the deferred
reinsurance gain. In the second quarter of 2014, favorable development
in the estimated reserves ceded under the LPT Agreement resulted in a
In addition to the LPT adjustments, there was a reallocation of
Collectively, the LPT adjustments and the reallocation of reserves
increased net income by
The second quarter 2014 combined ratio was 88.0% and 106.0% before the impact of the LPT, compared with 103.2% and 106.1% before the impact of the LPT for the second quarter of 2013. Year over year, the combined ratio improved 15.2 percentage points on a GAAP basis and 0.1 percentage points before the impact of the LPT.
President and Chief Executive Officer
Dirks continued: "Importantly, litigated indemnity claims as a
percentage of total indemnity claims in southern
Dirks concluded: "Our balance sheet is strong. Despite one large
accident in 2013 which pierced our reinsurance layer in the second
quarter of 2014, our overall reserves were not strengthened. The market
value of our investment portfolio is at a record high of
Third Quarter Dividend
The Board of Directors declared a third quarter 2014 dividend of
Conference Call and Web Cast; Form 10-Q; Supplemental Information
The Company will host a conference call on Thursday, July 31, 2014, at
EHI expects to file its Form 10-Q for the quarter ended June 30, 2014,
with the
The Company provides a list of portfolio securities in the Calendar of Events, “Investors” section of its website at www.employers.com. The Company also provides investor presentations on its website.
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. The 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
financial and operating performance, as well as trends in loss
experience and litigated indemnity claims, and the strength of the
Company’s balance sheet. 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 © 2014 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 | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (in thousands, except per share data) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Revenues | (unaudited) | (unaudited) | ||||||||||||||
| Gross premiums written | $ | 193,717 | $ | 190,068 | $ | 379,735 | $ | 365,031 | ||||||||
| Net premiums written | $ | 190,849 | $ | 186,996 | $ | 374,099 | $ | 359,022 | ||||||||
| Net premiums earned | $ | 172,659 | $ | 159,953 | $ | 339,813 | $ | 307,928 | ||||||||
| Net investment income | 18,285 | 17,645 | 36,298 | 35,050 | ||||||||||||
| Net realized gains on investments | 9,167 | 3,866 | 12,426 | 4,660 | ||||||||||||
| Other income | 171 | 144 | 226 | 247 | ||||||||||||
| Total revenues | 200,282 | 181,608 | 388,763 | 347,885 | ||||||||||||
| Expenses | ||||||||||||||||
| Losses and loss adjustment expenses | 98,524 | 112,638 | 220,780 | 220,910 | ||||||||||||
| Commission expense | 20,301 | 20,127 | 40,376 | 38,520 | ||||||||||||
| Underwriting and other operating expenses | 33,156 | 32,249 | 66,457 | 63,789 | ||||||||||||
| Interest expense | 753 | 797 | 1,531 | 1,605 | ||||||||||||
| Total expenses | 152,734 | 165,811 | 329,144 | 324,824 | ||||||||||||
| Net income before income taxes | 47,548 | 15,797 | 59,619 | 23,061 | ||||||||||||
| Income tax expense | 1,951 | 1,209 | 3,269 | 983 | ||||||||||||
| Net income | $ | 45,597 | $ | 14,588 | $ | 56,350 | $ | 22,078 | ||||||||
| Less impact of LPT Agreement: | ||||||||||||||||
| Amortization of the Deferred Gain related to losses | 3,024 | 3,275 | 5,910 | 6,580 | ||||||||||||
| Amortization of the Deferred Gain related to contingent commission | 532 | 406 | 932 | 788 | ||||||||||||
| Impact of LPT Reserve Adjustment | 20,142 | — | 20,821 | — | ||||||||||||
| Impact of LPT Contingent Commission Adjustments | 7,305 | 1,024 | 7,639 | 1,299 | ||||||||||||
| Net income before impact of the LPT Agreement | $ | 14,594 | $ | 9,883 | $ | 21,048 | $ | 13,411 | ||||||||
| Comprehensive income | ||||||||||||||||
| Unrealized gains (losses) during the period (net of tax expense (benefit) of $8,641 and $(20,886) for the three months ended June 30, 2014 and 2013, respectively, and $14,144 and $(20,870) for the six months ended June 30, 2014 and 2013, respectively) | $ | 16,050 | $ | (38,787 | ) | $ | 26,268 | $ | (38,761 | ) | ||||||
| Reclassification adjustment for realized gains in net income (net of taxes of $3,208 and $1,353 for the three months ended June 30, 2014 and 2013, respectively, and $4,349 and $1,631 for the six months ended June 30, 2014 and 2013, respectively) | (5,959 | ) | (2,513 | ) | (8,077 | ) | (3,029 | ) | ||||||||
| Other comprehensive income (loss), net of tax | 10,091 | (41,300 | ) | 18,191 | (41,790 | ) | ||||||||||
| Total comprehensive income (loss) | $ | 55,688 | $ | (26,712 | ) | $ | 74,541 | $ | (19,712 | ) | ||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | 31,518,473 | 31,079,713 | 31,464,198 | 30,997,552 | ||||||||||||
| Diluted | 32,030,954 | 31,656,916 | 32,030,194 | 31,583,057 | ||||||||||||
| Earnings per common share | ||||||||||||||||
| Basic | $ | 1.45 | $ | 0.47 | $ | 1.79 | $ | 0.71 | ||||||||
| Diluted | 1.42 | 0.46 | 1.76 | 0.70 | ||||||||||||
| Earnings per common share attributable to the LPT Agreement | ||||||||||||||||
| Basic | $ | 0.99 | $ | 0.15 | $ | 1.12 | $ | 0.28 | ||||||||
| Diluted | 0.96 | 0.15 | 1.10 | 0.28 | ||||||||||||
| Earnings per common share before the LPT Agreement | ||||||||||||||||
| Basic | $ | 0.46 | $ | 0.32 | $ | 0.67 | $ | 0.43 | ||||||||
| Diluted | 0.46 | 0.31 | 0.66 | 0.42 | ||||||||||||
| Employers Holdings, Inc. and Subsidiaries | ||||||||
| Consolidated Balance Sheets | ||||||||
| As of | As of | |||||||
|
June 30, |
December 31, |
|||||||
| (in thousands, except share data) |
2014 |
2013 |
||||||
| Assets | (unaudited) | |||||||
| Available for sale: | ||||||||
| Fixed maturity securities at fair value (amortized cost $2,189,306 at June 30, 2014 and $2,116,064 at December 31, 2013) | $ | 2,287,127 | $ | 2,182,546 | ||||
| Equity securities at fair value (cost $94,187 at June 30, 2014 and $89,689 at December 31, 2013) | 163,457 | 162,312 | ||||||
| Total investments | 2,450,584 | 2,344,858 | ||||||
| Cash and cash equivalents | 36,956 | 34,503 | ||||||
| Restricted cash and cash equivalents | 8,454 | 6,564 | ||||||
| Accrued investment income | 20,557 | 20,255 | ||||||
| Premiums receivable (less bad debt allowance of $7,609 at June 30, 2014 and $7,064 at December 31, 2013) | 321,576 | 279,080 | ||||||
| Reinsurance recoverable for: | ||||||||
| Paid losses | 9,062 | 8,412 | ||||||
| Unpaid losses, including bad debt allowance of $389 at December 31, 2013 | 699,200 | 742,666 | ||||||
| Deferred policy acquisition costs | 48,951 | 43,532 | ||||||
| Deferred income taxes, net | 47,907 | 58,062 | ||||||
| Property and equipment, net | 15,675 | 16,616 | ||||||
| Intangible assets, net | 9,349 | 9,685 | ||||||
| Goodwill | 36,192 | 36,192 | ||||||
| Contingent commission receivable—LPT Agreement | 34,415 | 25,104 | ||||||
| Other assets | 25,699 | 17,920 | ||||||
| Total assets | $ | 3,764,577 | $ | 3,643,449 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Claims and policy liabilities: | ||||||||
| Unpaid losses and loss adjustment expenses | $ | 2,354,759 | $ | 2,330,491 | ||||
| Unearned premiums | 339,699 | 303,967 | ||||||
| Total claims and policy liabilities | 2,694,458 | 2,634,458 | ||||||
| Commissions and premium taxes payable | 46,920 | 45,314 | ||||||
| Accounts payable and accrued expenses | 17,276 | 18,711 | ||||||
| Deferred reinsurance gain—LPT Agreement | 223,080 | 249,072 | ||||||
| Notes payable | 102,000 | 102,000 | ||||||
| Other liabilities | 35,591 | 25,191 | ||||||
| Total liabilities | 3,119,325 | 3,074,746 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $0.01 par value; 150,000,000 shares authorized; 54,855,474 and 54,672,904 shares issued and 31,482,500 and 31,299,930 shares outstanding at June 30, 2014 and December 31, 2013, respectively | 549 | 547 | ||||||
| Additional paid-in capital | 343,869 | 338,090 | ||||||
| Retained earnings | 554,775 | 502,198 | ||||||
| Accumulated other comprehensive income, net | 108,609 | 90,418 | ||||||
| Treasury stock, at cost (23,372,974 shares at June 30, 2014 and December 31, 2013) | (362,550 | ) | (362,550 | ) | ||||
| Total stockholders’ equity | 645,252 | 568,703 | ||||||
| Total liabilities and stockholders’ equity | $ | 3,764,577 | $ | 3,643,449 | ||||
| Equity including deferred reinsurance gain - LPT | ||||||||
| Total stockholders’ equity | $ | 645,252 | $ | 568,703 | ||||
| Deferred reinsurance gain–LPT Agreement | 223,080 | 249,072 | ||||||
| Total equity including deferred reinsurance gain–LPT Agreement (A) | $ | 868,332 | $ | 817,775 | ||||
| Shares outstanding (B) | 31,482,500 | 31,299,930 | ||||||
| Book value per share (A * 1000) / B | $ | 27.58 | $ | 26.13 | ||||
| Employers Holdings, Inc. and Subsidiaries | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| Six Months Ended | ||||||||
| June 30, | ||||||||
| (in thousands) | 2014 | 2013 | ||||||
| Operating activities | (unaudited) | |||||||
| Net income | $ | 56,350 | $ | 22,078 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 3,508 | 2,800 | ||||||
| Stock-based compensation | 3,485 | 4,169 | ||||||
| Amortization of premium on investments, net | 5,140 | 4,310 | ||||||
| Deferred income tax expense | 360 | (2,558 | ) | |||||
| Net realized gains on investments | (12,426 | ) | (4,660 | ) | ||||
| Excess tax benefits from stock-based compensation | (1,152 | ) | (349 | ) | ||||
| Other | (1 | ) | 549 | |||||
| Change in operating assets and liabilities: | ||||||||
| Premiums receivable | (43,041 | ) | (63,091 | ) | ||||
| Reinsurance recoverable for paid and unpaid losses | 43,204 | 4,246 | ||||||
| Federal income taxes | 3,327 | 2,848 | ||||||
| Unpaid losses and loss adjustment expenses | 24,268 | 59,721 | ||||||
| Unearned premiums | 35,732 | 52,586 | ||||||
| Accounts payable, accrued expenses and other liabilities | 8,964 | 15,389 | ||||||
| Deferred reinsurance gain—LPT Agreement | (25,992 | ) | (6,860 | ) | ||||
| Contingent commission receivable—LPT Agreement | (9,311 | ) | (1,807 | ) | ||||
| Other | (14,304 | ) | (4,179 | ) | ||||
| Net cash provided by operating activities | 78,111 | 85,192 | ||||||
| Investing activities | ||||||||
| Purchase of fixed maturity securities | (215,885 | ) | (211,889 | ) | ||||
| Purchase of equity securities | (14,212 | ) | (18,190 | ) | ||||
| Proceeds from sale of fixed maturity securities | 38,028 | 706 | ||||||
| Proceeds from sale of equity securities | 21,288 | 18,357 | ||||||
| Proceeds from maturities and redemptions of investments | 100,700 | 86,326 | ||||||
| Proceeds from sale of fixed assets | — | 139 | ||||||
| Capital expenditures | (2,448 | ) | (3,206 | ) | ||||
| Restricted cash and cash equivalents (used in) provided by investing activities | (1,891 | ) | 751 | |||||
| Net cash used in investing activities | (74,420 | ) | (127,006 | ) | ||||
| Financing activities | ||||||||
| Cash transactions related to stock-based compensation | 1,372 | 1,572 | ||||||
| Dividends paid to stockholders | (3,762 | ) | (3,708 | ) | ||||
| Excess tax benefits from stock-based compensation | 1,152 | 349 | ||||||
| Net cash used in financing activities | (1,238 | ) | (1,787 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 2,453 | (43,601 | ) | |||||
| Cash and cash equivalents at the beginning of the period | 34,503 | 140,661 | ||||||
| Cash and cash equivalents at the end of the period | $ | 36,956 | $ | 97,060 | ||||
| Employers Holdings, Inc. | ||||||||||||||||
| Calculation of Combined Ratio before the Impact of the LPT Agreement | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (in thousands, except for percentages) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
| (unaudited) | ||||||||||||||||
| Net premiums earned | $ | 172,659 | $ | 159,953 | $ | 339,813 | $ | 307,928 | ||||||||
| Losses and loss adjustment expenses | 98,524 | 112,638 | 220,780 | 220,910 | ||||||||||||
| Loss & LAE ratio | 57.1 | % | 70.4 | % | 65.0 | % | 71.7 | % | ||||||||
| Amortization of Deferred Gain related to losses | $ | 3,024 | $ | 3,275 | $ | 5,910 | $ | 6,580 | ||||||||
| Amortization of Deferred Gain related to contingent commission | 532 | 406 | 932 | 788 | ||||||||||||
| LPT Reserve Adjustment | 20,142 | — | 20,821 | — | ||||||||||||
| LPT Contingent Commission Adjustment | 7,305 | 1,024 | 7,639 | 1,299 | ||||||||||||
| Loss & LAE before impact of LPT | $ | 129,527 | $ | 117,343 | $ | 256,082 | $ | 229,577 | ||||||||
| Impact of LPT | 17.9 | % | 3.0 | % | 10.4 | % | 2.9 | % | ||||||||
| Loss & LAE ratio before impact of LPT | 75.0 | % | 73.4 | % | 75.4 | % | 74.6 | % | ||||||||
| Commission expense | $ | 20,301 | $ | 20,127 | $ | 40,376 | $ | 38,520 | ||||||||
| Commission expense ratio | 11.8 | % | 12.6 | % | 11.9 | % | 12.5 | % | ||||||||
| Underwriting & other operating expenses | $ | 33,156 | $ | 32,249 | $ | 66,457 | $ | 63,789 | ||||||||
| Underwriting & other operating expenses ratio | 19.1 | % | 20.2 | % | 19.5 | % | 20.8 | % | ||||||||
| Total expenses | $ | 151,981 | $ | 165,014 | $ | 327,613 | $ | 323,219 | ||||||||
| Combined ratio | 88.0 | % | 103.2 | % | 96.4 | % | 105.0 | % | ||||||||
| Total expense before impact of the LPT | $ | 182,984 | $ | 169,719 | $ | 362,915 | $ | 331,886 | ||||||||
| Combined ratio before the impact of the LPT | 106.0 | % | 106.1 | % | 106.8 | % | 107.8 | % | ||||||||
| Reconciliations to Current Accident Period Combined Ratio: | ||||||||||||||||
| Losses & LAE before impact of LPT | $ | 129,527 | $ | 117,343 | $ | 256,082 | $ | 229,577 | ||||||||
| Plus: Favorable (unfavorable) prior period reserve development | (1,570 | ) | (521 | ) | (3,321 | ) | (1,651 | ) | ||||||||
| Accident period losses & LAE before impact of LPT | $ | 127,957 | $ | 116,822 | $ | 252,761 | $ | 227,926 | ||||||||
| Losses & LAE ratio before impact of LPT | 75.0 | % | 73.4 | % | 75.4 | % | 74.6 | % | ||||||||
| Plus: Favorable (unfavorable) prior period reserve development ratio | (0.9 | ) | (0.4 | ) | (1.0 | ) | (0.6 | ) | ||||||||
| Accident period losses & LAE ratio before impact of LPT | 74.1 | % | 73.0 | % | 74.4 | % | 74.0 | % | ||||||||
| Combined ratio before impact of the LPT | 106.0 | % | 106.1 | % | 106.8 | % | 107.8 | % | ||||||||
| Plus: Favorable (unfavorable) prior period reserve development ratio | (0.9 | ) | (0.4 | ) | (1.0 | ) | (0.6 | ) | ||||||||
| Accident period combined ratio before impact of LPT | 105.1 | % | 105.7 | % | 105.8 | % | 107.2 | % | ||||||||
Source:
Employers Holdings, Inc.
Media:
Ty Vukelich, 775-327-2677
tvukelich@employers.com
or
Analysts:
Vicki
Erickson Mills, 775-327-2794
vericksonmills@employers.com
