Employers Holdings, Inc. Reports Third Quarter 2016 Net Income of $0.69, Net Income Excluding the Impact of the LPT of $0.59, and Operating Income of $0.57 per Diluted Share
Return on Equity of 10.7% and Operating Return on Equity of 8.2%
-
Third quarter net income, net income excluding the impact of the LPT
and operating income of
$22.6 million ,$19.6 million and$18.7 million , respectively. - Third quarter combined ratio and combined ratio excluding the impact of the LPT of 93.5% and 95.2%, respectively, an improvement of 0.6 and 0.4 percentage points, year over year, respectively.
-
Third quarter net written premiums of
$163.0 million , a decrease of$3.5 million year-over-year. -
GAAP book value per share of
$26.47 , book value per share of$32.01 and adjusted book value per share of$28.35 increased 17%, 12% and 8%, respectively, year-over-year. -
Board of Directors approved quarterly dividend per share of
$0.09 . -
In-force payroll exposure increased 1.7% overall and 0.8% in
California year-over-year. -
In-force policies were flat overall, while policy count declined 5.5%
in
California year-over-year. - Net rate decreased 2.1% overall year-over-year.
- Net earned premiums decreased 3.2% in the quarter, driven primarily by lower final audit premiums year-over-year.
-
Net investment income decreased
$0.6 million in the quarter, year-over-year.
|
Highlights(1) |
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| (in millions, except per share amounts and percentages) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2016 | 2015 | Change | 2016 | 2015 | Change | |||||||||||||||||||
| Net written premiums | $ | 163.0 | $ | 166.5 | (2 | )% | $ | 540.4 | $ | 526.7 | 3 | % | ||||||||||||
| Total revenues | $ | 192.8 | $ | 199.5 | (3 | )% | $ | 586.6 | $ | 567.6 | 3 | % | ||||||||||||
| Operating income | $ | 18.7 | $ | 20.6 | (9 | )% | $ | 51.9 | $ | 47.2 | 10 | % | ||||||||||||
| Operating income per diluted share | $ | 0.57 | $ | 0.63 | (10 | )% | $ | 1.57 | $ | 1.45 | 8 | % | ||||||||||||
| Net income | $ | 22.6 | $ | 24.5 | (8 | )% | $ | 71.2 | $ | 67.7 | 5 | % | ||||||||||||
| Net income per diluted share | $ | 0.69 | $ | 0.75 | (8 | )% | $ | 2.16 | $ | 2.08 | 4 | % | ||||||||||||
| Net income before the impact of the LPT(2) | $ | 19.6 | $ | 21.8 | (10 | )% | $ | 57.6 | $ | 50.2 | 15 | % | ||||||||||||
| Net income before the impact of the LPT per diluted share(2) | $ | 0.59 | $ | 0.67 | (12 | )% | $ | 1.74 | $ | 1.54 | 13 | % | ||||||||||||
| Diluted weighted average shares outstanding | 32,948,962 | 32,524,340 | 1 | % | 33,015,873 | 32,498,093 | 2 | % | ||||||||||||||||
| Combined ratio | 93.5 | % | 94.1 | % | (0.6 | ) | pts | 94.3 | % | 95.1 | % | (0.8 | ) | pts | ||||||||||
| Combined ratio before the impact of the LPT | 95.2 | % | 95.6 | % | (0.4 | ) | pts | 96.9 | % | 98.5 | % | (1.6 | ) | pts | ||||||||||
| Operating return on equity | 8.2 | % | 9.9 | % | (1.7 | ) | pts | 7.8 | % | 7.7 | % | 0.1 | pts | |||||||||||
| Return on equity | 10.7 | % | 13.6 | % | (2.9 | ) | pts | 11.8 | % | 12.8 | % | (1.0 | ) | pts | ||||||||||
| Change from | ||||||||||||||||||
| September 30, | December 31, | September 30, | December 31, | September 30, | ||||||||||||||
| 2016 | 2015 | 2015 | 2015 | 2015 | ||||||||||||||
| GAAP book value per share | $ | 26.47 | $ | 23.62 | $ | 22.63 | 12 | % | 17 | % | ||||||||
| Book value per share(3) | $ | 32.01 | $ | 29.50 | $ | 28.63 | 9 | % | 12 | % | ||||||||
| Adjusted book value per share(4) | $ | 28.35 | $ | 26.90 | $ | 26.23 | 5 | % | 8 | % | ||||||||
|
(1) |
See Glossary of Financial Measures and Reconciliation of Non-GAAP Financial Measures to GAAP for additional definitions and calculations. |
|
|
(2) |
The Loss Portfolio Transfer (“LPT”) Agreement was a non-recurring transaction that does not result in ongoing cash benefits. |
|
|
(3) |
Book value per share is stockholders' equity including the Deferred Gain divided by the number of common shares outstanding. |
|
|
(4) |
Adjusted book value per share is book value less accumulated other comprehensive income, net, divided by the number of common shares outstanding. |
|
Chief Executive Officer
“Our third quarter combined ratio before the impact of the LPT of 95.2%
is one of the best combined ratios in the Company’s history. We
delivered strong results in the quarter which reflect improved
underwriting performance, strong policy retention and an increase in
premium from new business written. Gross and net premium written
declined due to a
We continue to expand our distribution channel of partners and agents
focused on small business as we entered the state of
Throughout this year and into next year, we have experienced and expect we will continue to experience competitive markets and increasing pressure on rates in line with improvements in loss costs in most of the states in which we operate. In light of these continuing issues, we are very pleased with our strong performance in the third quarter.”
Third Quarter 2016 Results
(All comparisons vs. third quarter 2015, unless noted otherwise).
Net income of
Underwriting results
- The combined ratio before the impact of the LPT remained strong at 95.2%, representing one of the best combined ratios in the Company’s history.
- The loss ratio before the LPT of 64.6% decreased 1.6 percentage points primarily due to the decline in the loss provision rate.
- The commission expense ratio of 12.3% increased 0.6 percentage points.
- The underwriting and other expense ratio of 18.3% also increased 0.6 percentage points.
Gross written premiums of
Net rate (total in-force premiums divided by total insured payroll exposure) decreased 2.1%.
Net investment income of
Stockholders’ Equity including the Deferred Gain
Stockholders’ equity plus Deferred reinsurance gain - LPT Agreement was
The Board of Directors declared a fourth quarter 2016 dividend of
Conference Call and Web Cast; Form 10-Q; Supplemental Information
The Company will host a conference call on Thursday, October 27, 2016,
at
EHI expects to file its Form 10-Q for the quarter ended September 30,
2016, 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.
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 of, among
other things, the Company's expansion plans and expectations regarding
competitive markets, rate pressure and improvements in loss costs.
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 © 2016 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 | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in thousands) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Revenues | (unaudited) | (unaudited) | ||||||||||||||
| Gross premiums written | $ | 164,400 | $ | 168,500 | $ | 545,700 | $ | 533,100 | ||||||||
| Net premiums written | $ | 163,000 | $ | 166,500 | $ | 540,400 | $ | 526,700 | ||||||||
| Net premiums earned | $ | 173,300 | $ | 179,000 | $ | 522,800 | $ | 508,600 | ||||||||
| Net investment income | 17,900 | 18,500 | 54,100 | 53,800 | ||||||||||||
| Net realized gains on investments | 1,600 | 2,000 | 9,100 | 5,100 | ||||||||||||
| Other income | — | — | 600 | 100 | ||||||||||||
| Total revenues | 192,800 | 199,500 | 586,600 | 567,600 | ||||||||||||
| Expenses | ||||||||||||||||
| Losses and loss adjustment expenses | 109,000 | 115,800 | 328,000 | 323,500 | ||||||||||||
| Commission expense | 21,300 | 21,000 | 63,500 | 62,600 | ||||||||||||
| Underwriting and other operating expenses | 31,700 | 31,600 | 101,600 | 97,600 | ||||||||||||
| Interest expense | 400 | 700 | 1,200 | 2,100 | ||||||||||||
| Total expenses | 162,400 | 169,100 | 494,300 | 485,800 | ||||||||||||
| Net income before income taxes | 30,400 | 30,400 | 92,300 | 81,800 | ||||||||||||
| Income tax expense | 7,800 | 5,900 | 21,100 | 14,100 | ||||||||||||
| Net income | $ | 22,600 | $ | 24,500 | $ | 71,200 | $ | 67,700 | ||||||||
| Comprehensive income | ||||||||||||||||
| Unrealized (losses) gains during the period (net of tax (benefit) expense of $(2,300) and $(5,900) for the three months ended September 30, 2016 and 2015, respectively, and $21,500 and $(14,200) for the nine months ended September 30, 2016 and 2015, respectively) | $ | (4,200 | ) | $ | (11,100 | ) | $ | 39,900 | $ | (26,500 | ) | |||||
| Reclassification adjustment for realized gains in net income (net of taxes of $600 and $700 for the three months ended September 30, 2016 and 2015, respectively, and $3,200 and $1,800 for the nine months ended September 30, 2016 and 2015, respectively) | (1,000 | ) | (1,300 | ) | (5,900 | ) | (3,300 | ) | ||||||||
| Other comprehensive (loss) income, net of tax | (5,200 | ) | (12,400 | ) | 34,000 | (29,800 | ) | |||||||||
| Total comprehensive income | $ | 17,400 | $ | 12,100 | $ | 105,200 | $ | 37,900 | ||||||||
| Employers Holdings, Inc. and Subsidiaries | ||||||||
| Consolidated Balance Sheets | ||||||||
| As of | As of | |||||||
| (in thousands, except share data) |
September 30, 2016 |
December 31, 2015 |
||||||
| Assets | (unaudited) | |||||||
| Available for sale: | ||||||||
| Fixed maturity securities at fair value (amortized cost $2,273,100 at September 30, 2016 and $2,221,100 at December 31, 2015) | $ | 2,383,900 | $ | 2,288,500 | ||||
| Equity securities at fair value (cost $114,400 at September 30, 2016 and $137,500 at December 31, 2015) | 184,500 | 198,700 | ||||||
| Short-term investments at fair value (amortized cost $14,000 at September 30, 2016) | 14,000 | — | ||||||
| Total investments | 2,582,400 | 2,487,200 | ||||||
| Cash and cash equivalents | 84,100 | 56,600 | ||||||
| Restricted cash and cash equivalents | 2,700 | 2,500 | ||||||
| Accrued investment income | 20,300 | 20,600 | ||||||
| Premiums receivable (less bad debt allowance of $10,700 at September 30, 2016 and $12,200 at December 31, 2015) | 317,100 | 301,100 | ||||||
| Reinsurance recoverable for: | ||||||||
| Paid losses | 8,300 | 7,700 | ||||||
| Unpaid losses | 591,500 | 628,200 | ||||||
| Deferred policy acquisition costs | 46,800 | 44,300 | ||||||
| Deferred income taxes, net | 41,100 | 67,900 | ||||||
| Property and equipment, net | 22,600 | 24,900 | ||||||
| Intangible assets, net | 8,300 | 8,500 | ||||||
| Goodwill | 36,200 | 36,200 | ||||||
| Contingent commission receivable—LPT Agreement | 31,100 | 29,200 | ||||||
| Other assets | 31,800 | 40,900 | ||||||
| Total assets | $ | 3,824,300 | $ | 3,755,800 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Claims and policy liabilities: | ||||||||
| Unpaid losses and loss adjustment expenses | $ | 2,330,000 | $ | 2,347,500 | ||||
| Unearned premiums | 325,600 | 308,900 | ||||||
| Total claims and policy liabilities | 2,655,600 | 2,656,400 | ||||||
| Commissions and premium taxes payable | 50,500 | 52,500 | ||||||
| Accounts payable and accrued expenses | 17,500 | 24,100 | ||||||
| Deferred reinsurance gain—LPT Agreement | 177,800 | 189,500 | ||||||
| Notes payable | 32,000 | 32,000 | ||||||
| Other liabilities | 40,800 | 40,500 | ||||||
| Total liabilities | $ | 2,974,200 | $ | 2,995,000 | ||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $0.01 par value; 150,000,000 shares authorized; 56,124,974 and 55,589,454 shares issued and 32,109,976 and 32,216,480 shares outstanding at September 30, 2016 and December 31, 2015, respectively | $ | 600 | $ | 600 | ||||
| Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued | — | — | ||||||
| Additional paid-in capital | 368,600 | 357,200 | ||||||
| Retained earnings | 744,500 | 682,000 | ||||||
| Accumulated other comprehensive income, net | 117,600 | 83,600 | ||||||
| Treasury stock, at cost (24,014,998 shares at September 30, 2016 and 23,372,974 shares at December 31, 2015) | (381,200 | ) | (362,600 | ) | ||||
| Total stockholders’ equity | 850,100 | 760,800 | ||||||
| Total liabilities and stockholders’ equity | $ | 3,824,300 | $ | 3,755,800 | ||||
| Employers Holdings, Inc. and Subsidiaries | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| (in thousands) | 2016 | 2015 | ||||||
| Operating activities | (unaudited) | |||||||
| Net income | $ | 71,200 | $ | 67,700 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 6,400 | 5,900 | ||||||
| Stock-based compensation | 4,300 | 3,200 | ||||||
| Amortization of premium on investments, net | 11,400 | 9,500 | ||||||
| Allowance for doubtful accounts | (1,500 | ) | 3,700 | |||||
| Deferred income tax expense | 8,500 | 4,500 | ||||||
| Realized gains on investments, net | (9,100 | ) | (5,100 | ) | ||||
| Excess tax benefits from stock-based compensation | — | (800 | ) | |||||
| Other | (200 | ) | (100 | ) | ||||
| Change in operating assets and liabilities: | ||||||||
| Premiums receivable | (14,500 | ) | (14,300 | ) | ||||
| Reinsurance recoverable for paid and unpaid losses | 36,100 | 38,000 | ||||||
| Federal income taxes | 3,000 | 2,200 | ||||||
| Unpaid losses and loss adjustment expenses | (17,500 | ) | (11,800 | ) | ||||
| Unearned premiums | 16,700 | 16,300 | ||||||
| Accounts payable, accrued expenses and other liabilities | (6,200 | ) | 2,400 | |||||
| Deferred reinsurance gain—LPT Agreement | (11,700 | ) | (14,600 | ) | ||||
| Contingent commission receivable—LPT Agreement | (1,900 | ) | (2,800 | ) | ||||
| Other | 2,000 | (9,900 | ) | |||||
| Net cash provided by operating activities | 97,000 | 94,000 | ||||||
| Investing activities | ||||||||
| Purchase of fixed maturity securities | (325,200 | ) | (365,600 | ) | ||||
| Purchase of equity securities | (38,800 | ) | (77,700 | ) | ||||
| Purchase of short-term investments | (8,000 | ) | (18,500 | ) | ||||
| Proceeds from sale of fixed maturity securities | 111,700 | 87,000 | ||||||
| Proceeds from sale of equity securities | 70,200 | 21,400 | ||||||
| Proceeds from maturities and redemptions of investments | 145,100 | 214,000 | ||||||
| Capital expenditures | (3,900 | ) | (7,400 | ) | ||||
| Change in restricted cash and cash equivalents | (200 | ) | 7,700 | |||||
| Net cash used in investing activities | (49,100 | ) | (139,100 | ) | ||||
| Financing activities | ||||||||
| Acquisition of treasury stock | (18,600 | ) | — | |||||
| Cash transactions related to stock-based compensation | 7,100 | 3,100 | ||||||
| Dividends paid to stockholders | (8,800 | ) | (5,800 | ) | ||||
| Payments on notes payable and capital leases | (100 | ) | (400 | ) | ||||
| Excess tax benefits from stock-based compensation | — | 800 | ||||||
| Net cash used in financing activities | (20,400 | ) | (2,300 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 27,500 | (47,400 | ) | |||||
| Cash and cash equivalents at the beginning of the period | 56,600 | 103,600 | ||||||
| Cash and cash equivalents at the end of the period | $ | 84,100 | $ | 56,200 | ||||
Glossary of Financial Measures and Reconciliation of Non-GAAP Financial Measures to GAAP
The Company uses the following measures to evaluate its financial
performance for the periods presented. Certain measures are considered
non-GAAP financial measures under applicable
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. Some of these measures also exclude net realized gains, net of taxes, and/or accumulated other comprehensive income, net of taxes, and amortization of intangibles, net of taxes. Management believes these are important indicators of how well the Company creates value for its stockholders through its operating activities and capital management. 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 or can be impacted by both discretionary and other economic factors and may not represent operating trends.
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. Other companies may calculate these measures differently, and, therefore, these measures may not be comparable. Reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures are provided in the following discussion.
Net Income before impact of the LPT Agreement is 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.
Operating income is net income before the impact of the LPT excluding net realized gains on investments, net of taxes, and amortization of intangibles, net of taxes.
Reconciliation of Net Income to Net Income Before Impact of the LPT and Operating Income
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||
| (in millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||
| Net income | $ | 22.6 | $ | 24.5 | $ | 71.2 | $ | 67.7 | ||||||||||||||
| Less: Impact of the LPT Agreement | 3.0 | 2.7 | 13.6 | 17.5 | ||||||||||||||||||
| Net income before impact of the LPT | 19.6 | 21.8 | 57.6 | 50.2 | ||||||||||||||||||
| Less: Net realized gains on investments, net of taxes | 1.0 | 1.3 | 5.9 | 3.3 | ||||||||||||||||||
| Plus: Amortization of intangibles, net of taxes | 0.1 | 0.1 | 0.2 | 0.3 | ||||||||||||||||||
| Operating income | $ | 18.7 | $ | 20.6 | $ | 51.9 | $ | 47.2 | ||||||||||||||
| Years Ended | ||||||||||||||||||||||
| December 31, | ||||||||||||||||||||||
| (in millions) | 2015 | 2014 | 2013 | |||||||||||||||||||
| Net income | $ | 94.4 | $ | 100.7 | $ | 63.8 | ||||||||||||||||
| Less: Impact of the LPT Agreement | 20.4 | 55.0 | 37.9 | |||||||||||||||||||
| Net income before impact of the LPT | 74.0 | 45.7 | 25.9 | |||||||||||||||||||
| Less: Net realized gains on investments, net of taxes | (7.0 | ) | 10.6 | 6.2 | ||||||||||||||||||
| Plus: Amortization of intangibles, net of taxes | 0.3 | 0.5 | 0.6 | |||||||||||||||||||
| Operating income | $ | 81.3 | $ | 35.6 | $ | 20.3 | ||||||||||||||||
Reconciliation of Net Income per Share to Operating Income per Share
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Weighted average shares outstanding | |||||||||||||||
| Basic | 32,449,617 | 32,184,143 | 32,497,478 | 32,000,142 | |||||||||||
| Diluted | 32,948,962 | 32,524,340 | 33,015,873 | 32,498,093 | |||||||||||
| Basic earnings per common share | |||||||||||||||
| Net income | $ | 0.70 | $ | 0.76 | $ | 2.19 | $ | 2.12 | |||||||
| Less: Impact of the LPT Agreement | 0.10 | 0.08 | 0.42 | 0.55 | |||||||||||
| Net income before the impact of the LPT | 0.60 | 0.68 | 1.77 | 1.57 | |||||||||||
| Less: Net realized gains on investments, net of taxes | 0.02 | 0.04 | 0.18 | 0.11 | |||||||||||
| Plus: Amortization of intangibles, net of taxes | — | — | 0.01 | 0.01 | |||||||||||
| Operating income per basic share | $ | 0.58 | $ | 0.64 | $ | 1.60 | $ | 1.47 | |||||||
| Diluted earnings per common share | |||||||||||||||
| Net income | $ | 0.69 | $ | 0.75 | $ | 2.16 | $ | 2.08 | |||||||
| Less: Impact of the LPT Agreement | 0.10 | 0.08 | 0.42 | 0.54 | |||||||||||
| Net income before the impact of the LPT | 0.59 | 0.67 | 1.74 | 1.54 | |||||||||||
| Less: Net realized gains on investments, net of taxes | 0.02 | 0.04 | 0.18 | 0.10 | |||||||||||
| Plus: Amortization of intangibles, net of taxes | — | — | 0.01 | 0.01 | |||||||||||
| Operating income per diluted share | $ | 0.57 | $ | 0.63 | $ | 1.57 | $ | 1.45 | |||||||
Deferred reinsurance gain–LPT Agreement (Deferred Gain) 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
Stockholders' Equity Including the Deferred Gain is stockholders' equity including the Deferred reinsurance gain–LPT Agreement.
Average Stockholders' Equity Including the Deferred Gain is the sum of stockholders' equity including the deferred gain at the beginning and end of each of the periods presented divided by two.
Average stockholders' equity is the sum of stockholders' equity at the beginning and end of each of the periods presented divided by two.
Adjusted stockholders' equity is stockholders' equity including the Deferred Gain, less accumulated other comprehensive income, net.
Average adjusted stockholders' equity is the average of stockholders' equity including the deferred reinsurance gain-LPT Agreement, less accumulated other comprehensive income, net, for all quarters included in the calculation.
Book value per share is stockholders' equity including the Deferred Gain divided by the number of common shares outstanding.
Adjusted book value per share is adjusted stockholders' equity divided by the number of common shares outstanding.
GAAP book value per share is stockholders' equity divided by the number of common shares outstanding.
Reconciliation of Stockholders' Equity to Stockholders' Equity Including the Deferred Gain and Adjusted Stockholders' Equity
| As of | Years Ended | ||||||||||||||||||
| September 30, | December 31, | ||||||||||||||||||
| (in millions, except share data) | 2016 | 2015 | 2015 | 2014 | 2013 | ||||||||||||||
| Stockholders' equity | $ | 850.1 | $ | 726.0 | $ | 760.8 | $ | 686.8 | $ | 568.7 | |||||||||
| Deferred reinsurance gain–LPT Agreement | 177.8 | 192.4 | 189.5 | 207.0 | 249.1 | ||||||||||||||
| Stockholders' equity including the Deferred Gain | 1,027.9 | 918.4 | 950.3 | 893.8 | 817.8 | ||||||||||||||
| Less: Accumulated other comprehensive income, net | 117.6 | 77.1 | 83.6 | 106.9 | 90.4 | ||||||||||||||
| Adjusted stockholders' equity | $ | 910.3 | $ | 841.3 | $ | 866.7 | $ | 786.9 | $ | 727.4 | |||||||||
| Common shares outstanding | 32,109,976 | 32,078,443 | 32,216,480 | 31,493,828 | 31,299,930 | ||||||||||||||
| Book value per share | $ | 32.01 | $ | 28.63 | $ | 29.50 | $ | 28.38 | $ | 26.13 | |||||||||
| Adjusted book value per share | 28.35 | 26.23 | 26.90 | 24.99 | 23.24 | ||||||||||||||
| GAAP book value per share | 26.47 | 22.63 | 23.62 | 21.81 | 18.17 | ||||||||||||||
Operating return on equity is the ratio of annualized operating income to adjusted average stockholders' equity for the periods presented.
Adjusted return on equity is the ratio of annualized net income before the LPT to average stockholders' equity including the Deferred Gain.
Return on equity is the ratio of annualized net income to average stockholders' equity for the periods presented.
Reconciliation of Operating Return on Equity and Adjusted Return on Equity to Return on Equity
| Three Months Ended | Nine Months Ended | Years Ended | ||||||||||||||||||||||
| September 30, | September 30, | December 31, | ||||||||||||||||||||||
| (in millions, except for percentages) | 2016 | 2015 | 2016 | 2015 | 2015 | 2014 | ||||||||||||||||||
| Annualized operating income | $ | 74.8 | $ | 82.4 | $ | 69.2 | $ | 62.9 | ||||||||||||||||
| Operating income | $ | 81.3 | $ | 35.6 | ||||||||||||||||||||
| Average adjusted stockholders' equity | 906.8 | 830.7 | 888.5 | 814.1 | 826.8 | 757.2 | ||||||||||||||||||
| Operating return on equity | 8.2 | % | 9.9 | % | 7.8 | % | 7.7 | % | 9.8 | % | 4.7 | % | ||||||||||||
| Annualized net income before impact of the LPT | $ | 78.4 | $ | 87.2 | $ | 76.8 | $ | 66.9 | ||||||||||||||||
| Net income before impact of the LPT | $ | 74.0 | $ | 45.7 | ||||||||||||||||||||
| Average stockholders' equity including the Deferred Gain | 1,027.0 | 914.0 | 989.1 | 906.1 | 922.1 | 855.8 | ||||||||||||||||||
| Adjusted return on equity | 7.6 | % | 9.5 | % | 7.8 | % | 7.4 | % | 8.0 | % | 5.3 | % | ||||||||||||
| Annualized net income | $ | 90.4 | $ | 98.0 | $ | 94.9 | $ | 90.3 | ||||||||||||||||
| Net income | $ | 94.4 | $ | 100.7 | ||||||||||||||||||||
| Average stockholders' equity | 847.7 | 720.3 | 805.5 | 706.4 | 723.8 | 627.8 | ||||||||||||||||||
| Return on equity | 10.7 | % | 13.6 | % | 11.8 | % | 12.8 | % | 13.0 | % | 16.0 | % | ||||||||||||
Calculation of Combined Ratio before the Impact of the LPT Agreement and Reconciliation to Current Accident Period Combined Ratio
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (in millions, except for percentages) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
| (unaudited) | ||||||||||||||||
| Net premiums earned | $ | 173.3 | $ | 179.0 | $ | 522.8 | $ | 508.6 | ||||||||
| Losses and loss adjustment expenses | 109.0 | 115.8 | 328.0 | 323.5 | ||||||||||||
| Loss & LAE ratio | 62.9 | % | 64.7 | % | 62.7 | % | 63.6 | % | ||||||||
| Amortization of Deferred Gain related to losses | $ | 2.5 | $ | 2.3 | $ | 7.2 | $ | 7.1 | ||||||||
| Amortization of Deferred Gain related to contingent commission | 0.5 | 0.4 | 1.5 | 1.4 | ||||||||||||
| LPT Reserve Adjustment | — | — | 3.1 | 6.4 | ||||||||||||
| LPT Contingent Commission Adjustment | — | — | 1.8 | 2.6 | ||||||||||||
| Loss & LAE before impact of LPT | $ | 112.0 | $ | 118.5 | $ | 341.6 | $ | 341.0 | ||||||||
| Impact of LPT | 1.7 | % | 1.5 | % | 2.6 | % | 3.4 | % | ||||||||
| Loss & LAE ratio before impact of LPT | 64.6 | % | 66.2 | % | 65.3 | % | 67.0 | % | ||||||||
| Commission expense | $ | 21.3 | $ | 21.0 | $ | 63.5 | $ | 62.6 | ||||||||
| Commission expense ratio | 12.3 | % | 11.7 | % | 12.1 | % | 12.3 | % | ||||||||
| Underwriting & other operating expenses | $ | 31.7 | $ | 31.6 | $ | 101.6 | $ | 97.6 | ||||||||
| Underwriting & other operating expenses ratio | 18.3 | % | 17.7 | % | 19.5 | % | 19.2 | % | ||||||||
| Total expenses | $ | 162.0 | $ | 168.4 | $ | 493.1 | $ | 483.7 | ||||||||
| Combined ratio | 93.5 | % | 94.1 | % | 94.3 | % | 95.1 | % | ||||||||
| Total expense before impact of the LPT | $ | 165.0 | $ | 171.1 | $ | 506.7 | $ | 501.2 | ||||||||
| Combined ratio before the impact of the LPT | 95.2 | % | 95.6 | % | 96.9 | % | 98.5 | % | ||||||||
| Reconciliations to Current Accident Period Combined Ratio: | ||||||||||||||||
| Losses & LAE before impact of LPT | $ | 112.0 | $ | 118.5 | $ | 341.6 | $ | 341.0 | ||||||||
| Plus: Favorable (unfavorable) prior period reserve development | (0.8 | ) | 0.1 | 1.5 | (1.3 | ) | ||||||||||
| Accident period losses & LAE before impact of LPT | $ | 111.2 | $ | 118.6 | $ | 343.1 | $ | 339.7 | ||||||||
| Losses & LAE ratio before impact of LPT | 64.6 | % | 66.2 | % | 65.3 | % | 67.0 | % | ||||||||
| Plus: Favorable (unfavorable) prior period reserve development ratio | (0.5 | ) | 0.1 | 0.3 | (0.2 | ) | ||||||||||
| Accident period losses & LAE ratio before impact of LPT | 64.1 | % | 66.3 | % | 65.6 | % | 66.8 | % | ||||||||
| Combined ratio before impact of the LPT | 95.2 | % | 95.6 | % | 96.9 | % | 98.5 | % | ||||||||
| Plus: Favorable (unfavorable) prior period reserve development ratio | (0.5 | ) | 0.1 | 0.3 | (0.2 | ) | ||||||||||
| Accident period combined ratio before impact of LPT | 94.7 | % | 95.7 | % | 97.2 | % | 98.3 | % | ||||||||
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.
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.
View source version on businesswire.com: http://www.businesswire.com/news/home/20161026006657/en/
Source:
Employers Holdings, Inc.
Media:
Ty Vukelich, 775-327-2677
tvukelich@employers.com
Analysts:
Vicki
Erickson Mills, 775-327-2794
vericksonmills@employers.com
