UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_____________________
FORM
8-K
_____________________
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of report (Date of earliest event reported): February 24, 2010
EMPLOYERS
HOLDINGS, INC.
(Exact
Name of Registrant as Specified in its Charter)
_____________________
|
NEVADA
(State
or Other Jurisdiction of
Incorporation)
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001-33245
(Commission
File Number)
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04-3850065
(I.R.S.
Employer Identification No.)
|
|
10375
Professional Circle
Reno,
Nevada
(Address
of Principal Executive Offices)
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89521
(Zip
Code)
|
|
|
Registrant's
telephone number including area code: (888)
682-6671
|
||
|
No
change since last report
(Former
Name or Address, if Changed Since Last
Report)
|
||
_____________________
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Section
2 – Financial Information
Item
2.02. Results of Operations and Financial Condition.
On
February 24, 2010, Employers Holdings, Inc. (the "Company") issued a press
release announcing results for the fourth quarter and fiscal year ended December
31, 2009. The press release is attached hereto as Exhibit 99.1 and is
incorporated herein by reference, and is being furnished, not filed, under Item
2.02 to this Current Report on Form 8-K.
Section
8 – Other Information
Item
8.01. Other Events.
On
February 24, 2010, the Company announced that its Board of Directors has
declared a first quarter cash dividend of six cents per share on the Company's
common stock. The dividend is payable on March 24, 2010 to
stockholders of record as of March 10, 2010. Furnished as Exhibit
99.1 and incorporated herein by reference is the press release issued by the
Company.
Section
9 – Financial Statements and Exhibits
Item
9.01. Financial Statements and Exhibits.
99.1 Employers
Holdings, Inc. press release, dated February 24, 2010.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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EMPLOYERS
HOLDINGS, INC.
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|||
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By:
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/s/
Lenard T. Ormsby
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||
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Name:
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Lenard
T. Ormsby
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||
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Title:
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Executive
Vice President, Chief
Legal
Officer and General Counsel
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||
Dated: February
24, 2010
Exhibit
Index
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Exhibit
No.
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Exhibit
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|
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99.1
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Employers
Holdings, Inc. press release, dated February 24,
2010.
|
Exhibit
99.1
 |
|
|
news
release
|
|
|
February
24, 2010
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For
Immediate Release
|
Employers
Holdings, Inc. Reports Fourth Quarter and Full
Year
Earnings and Declares First Quarter Dividend
Key
Highlights
|
•
|
Increased
net premiums earned by 22.9% in the full year with a decline of 15.2% in
the fourth quarter as unemployment and competitive pressures
continued
|
|
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•
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Continued
positive net rate trend in California in the fourth quarter with little
change in policy count
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•
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Filed
to increase rates in California an additional 3% effective March 15,
2010
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•
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Increased
fourth quarter pre-tax income 8.4% over the prior year’s
quarter
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•
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Completed
integration of AmCOMP with claims and underwriting systems combined in
January, 2010
|
|
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•
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Continued
to consolidate operations where cost-effective
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|
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•
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Released
prior accident year reserves of $11.8 million in the fourth quarter and
$51.4 million in the full year
|
|
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•
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Maintained
fair market value of $2.0 billion portfolio with a tax equivalent yield of
5.6% and a pre-tax yield of 4.5%
|
|
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•
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Increased
book value per share 18.6% to $20.67 since December 31,
2008
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Reno, Nevada—February 24,
2010—Employers Holdings, Inc. (“EHI” or the “Company”) (NYSE:EIG) today reported
fourth quarter net income of $11.3 million or $0.26 per share compared with
$15.9 million or $0.32 per share in the fourth quarter of 2008, a decrease of
$4.6 million in net income or $0.06 per share. Pre-tax income in the fourth
quarter increased to $13.8 million in 2009 compared to $12.8 million in 2008.
Tax benefits related to the favorable development of pre-privatization reserves
drove the resulting higher net income after tax in the fourth quarter of
2008.
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 $6.6 million or $0.15 per share in the fourth quarter of
2009 and $11.3 million or $0.23 per share in the fourth quarter of
2008.
Net
income for the full year 2009 was $83.0 million or $1.80 per diluted share
compared with $101.8 million or $2.07 per share for the full year
2008. Net income before the impact of the LPT deferred reinsurance
gain was $65.0 million in 2009 or $1.41 per diluted share compared to $83.4
million or $1.69 per share in 2008.
The
fourth quarter 2009 combined ratio was 106.5% (111.7% before the impact of the
LPT deferred reinsurance gain), compared with 99.1% (103.4% before the impact of
the LPT deferred reinsurance gain) for the fourth quarter of 2008, an increase
of 7.4 percentage points. For the full year 2009, the combined ratio was 98.0%
(102.5% before the impact of the LPT deferred reinsurance gain), an increase of
12.1 percentage points from 85.9% (91.5% before the impact of the LPT deferred
reinsurance gain) for the same period in 2008.
President
and Chief Executive Officer Douglas D. Dirks commented on the past year:
“Reflecting on this past year, we are pleased that, despite these difficult
times, we have benefitted from our now fully integrated acquired operations in
terms of geographically diversified premium and increased human capital. Unlike
some of our peers, we have continued to invest in the drivers of growth in our
business, while returning 131.7%
of 2009 earnings before the LPT to shareholders through share
repurchases and dividends. In fact, since our IPO in early 2007, we have
returned $195.8 million to shareholders through a combination of share
repurchases and dividends, which represents approximately 80% of our post-IPO
earnings before the LPT while growing GAAP stockholders’ equity by more than
60%.”
Dirks
further commented on the results: “We generated earnings before the LPT of $6.6
million in the fourth quarter and $65.0 million in the year with a combined
ratio before the LPT of 111.7% in the fourth quarter and 102.5% for the year. We
recognize that our performance is short of our expectations for this business
and we intend to actively manage our operations to improve these results. Growth
in our top line continues to be pressured by higher levels of unemployment,
declines in payrolls, competitive market conditions, and the impacts of our
continued disciplined underwriting. On the bright side, in California, which at
year-end represented nearly half of our business, we saw positive net rate in
the last half of the year with little change in policy count. We will raise
rates an additional 3% in California effective March 15, 2010.”
Dirks
further remarked: “Our expense ratio in the quarter was pressured by declining
premium. Our expenses, excluding integration costs of approximately $800,000,
were generally flat in the fourth quarter. Although prior accident year reserve
releases were lower in the fourth quarter of 2009 compared to 2008, our loss
ratio continued to be better than historical industry averages.”
Commenting
on the balance sheet, Dirks added: “We grew stockholders’ equity including the
deferred reinsurance gain 4.2% since December 31, 2008 while returning $85.6
million to our shareholders through share repurchases and dividends during the
year. We grew book value per share 18.6% since December 31, 2008. Our invested
assets of $2.0 billion yielded 5.6% on a tax equivalent basis at December 31,
2009 with a pre-tax net unrealized gain of $130.6 million at year-end 2009, an
increase of $75.8 million over the prior year.”
Dirks
concluded: “The pace of economic recovery still remains uncertain and we believe
that employment will continue to be negatively impacted in the near-term. The
Obama administration has renewed efforts to improve access to credit for small
businesses and this may be an important step in supporting economic recovery and
job creation. No matter what the pace of recovery, our strong capital position
and earnings power will enable us to continue to invest in our business while
maintaining a strong rating of A- from A.M. Best.”
Page
2 of 13
Fourth Quarter 2009
Comparison to Fourth Quarter 2008
(Comparisons
of fourth quarter financials for the year 2008 include two months – November and
December – of reported data for acquired operations since the acquisition of
AmCOMP Incorporated closed on October 31, 2008)
Net
premiums earned were $90.0 million for the fourth quarter of 2009, a decrease of
$16.1 million or 15.2% from the prior year’s fourth quarter.
Net
investment income of $21.8 million for the fourth quarter of 2009 was stable
relative to net investment income of $22.1 million in the fourth quarter of
2008. Realized losses on investments totaled $0.3 million compared with realized
losses of $8.3 million in the fourth quarter of 2008 largely attributable to
other-than-temporary impairments of $7.2 million in the fourth quarter of
2008.
Losses
and LAE expense was $47.8 million, compared with $56.2 million in the fourth
quarter of 2008 primarily as a result of lower premium. Before the impact of the
LPT deferred reinsurance gain, loss and LAE expense was $52.4 million in the
fourth quarter of 2009 and $60.7 million in the fourth quarter of 2008. Fourth
quarter favorable prior accident year loss development was $11.8 million in 2009
compared with $18.4 million in 2008.
Commission
expense was $10.5 million, $2.6 million lower than the same period in 2008. An
LPT contingent profit commission of $0.9 million was recorded in the quarter.
The ultimate contingent profit commission is estimated each quarter through June
30, 2024 and changes are included in commission expense in the period that the
estimate is revised.
Dividends
to policyholders were $1.5 million compared with $1.2 million in last year’s
fourth quarter.
Underwriting
and other operating expenses were $36.1 million in 2009 compared with $34.6
million in 2008, an increase of $1.5 million primarily as a result of
non-recurring integration costs of $0.8 million.
Interest
expense was $1.8 million in the fourth quarter of 2009. In the fourth quarter of
2009, we paid down $50 million of the Credit Facility with Wells
Fargo.
Income
tax expense increased to $2.6 million in 2009 compared to a tax benefit of $3.1
million in 2008. The tax benefit was related to the favorable development of
non-taxable pre-privatization reserves. The effective tax rate in the quarter
was 18.6%.
Full Year 2009 Comparison to
Full Year 2008
(Comparisons
of full year financials for the year 2008 include two months – November and
December – of reported data for acquired operations since the acquisition of
AmCOMP Incorporated closed on October 31, 2008)
Net
premiums earned of $404.2 million increased 22.9% from $328.9 million in the
prior year.
Overall
policy count decreased 3.2% to 44,154 at December 31, 2009 from 45,599 at
December 31, 2008 with the largest decreases in Nevada and Florida. Nevada
policy count decreased 21.1% to 4,119 from 5,221 at December 31, 2008. Florida
policy count decreased 15.6% to 2,630 from 3,115 at December 31, 2008. In-force
policy count grew in some states, partially offsetting the declines in Nevada
and Florida. Policy count in
Page
3 of 13
California
was 27,812 at December 31, 2009 compared with 27,942 at December 31,
2008.
Net
investment income in 2009 increased 15.9% to $90.5 million from $78.1 million in
2008. The average pre-tax and tax equivalent yields on invested assets were 4.5%
and 5.6%, respectively, at December 31, 2009. Realized
gains on investments were $0.8 million for the year compared with realized
losses of $11.5 million in 2008. Realized gains were partially offset by
other-than-temporary impairments of $1.9 million in the first two quarters of
2009.
Losses
and LAE increased to $214.5 million from $136.5 million in 2008 primarily as a
result of acquired operations. Before the impact of the LPT deferred reinsurance
gain, losses and LAE were $232.5 million and $154.9 million in 2009 and 2008,
respectively. Current accident year loss estimates were 70.2% in 2009 and 68.9%
in 2008. Favorable prior accident year loss development was $51.4 million in
2009 compared with $71.7 million in 2008.
Commission
expense in 2009 decreased to $36.2 million from $43.6 million in 2008 largely
due to a favorable $15.0 million increase in the LPT contingent profit
commission.
Dividends
to policyholders totaled $6.9 million in 2009.
Underwriting
and other operating expenses in 2009 were $138.7 million compared with $101.2
million in 2008. The increase was largely due to one-time integration and
restructuring expenses of $5.7 million and acquired operations. The Company
achieved cost savings of approximately $12.0 million in 2009 as the result of
the restructuring plan.
Interest
expense on the Company’s Credit Facility with Wells Fargo and acquired surplus
notes was $7.4 million in 2009.
Income
taxes in 2009 were $9.3 million compared with $10.3 million in 2008, as a result
of lower pre-tax income and the impact of non-taxable investment income. The
effective tax rate was 10.1% in 2009.
Total
invested assets were $2.0 billion at December 31, 2009. Our portfolio after-tax
yield remained stable in 2009 at 5.6% as did our duration which at December 31,
2009 was 5.02. We are including a list of portfolio securities by CUSIP in the
Calendar of Events, Fourth Quarter “Investors” section of our web site at
www.employers.com.
As of
December 31, 2009, total stockholders’ equity increased to $498.4 million from
$444.7 million at December 31, 2008. Stockholders’ equity, including the
deferred reinsurance gain related to the LPT, increased 4.2% to $887.0 million
from $851.3 million at December 31, 2008.
Through
the Company’s Stock Repurchase Program, 1,340,666 shares of common stock were
repurchased in the fourth quarter of 2009 at an average price of $15.03 per
share. In 2009, the Company repurchased an aggregate of 5,957,067 shares of
common stock at an average cost of $12.52 per share. As of December 31, 2009,
the Company has repurchased a total of 10,655,134 shares of common stock at an
average price of $15.37 per share since the initial public offering in early
2007.
Book
value per share increased 18.6% to $20.67 at December 31, 2009 from $17.43 at
December 31, 2008.
Page
4 of 13
The
Board of Directors declared a first quarter 2010 dividend of six cents per
share. The dividend is payable on March 24, 2010 to stockholders of record as of
March 10, 2010.
Conference Call and Web
Cast, Form 10-K
The
Company will host a conference call Thursday, February 25, at 10:30 a.m. Pacific
Time. The conference call will be available via a live web cast on the Company’s
Web site at www.employers.com. An archived version will be available following
the call. The conference call replay number is (888) 286-8010 with a pass code
of 53229583. International callers may dial (617) 801-6888.
EHI
expects to file its Form 10-K for the fiscal year ended December 31, 2009, with
the Securities and Exchange Commission (“SEC”) on Thursday, February 25, 2010.
The Form 10-K will be available without charge through the EDGAR system at the
SEC's website and will also be posted on the Company's website,
www.employers.com, through the “Investors” link.
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
deferred reinsurance gain – LPT Agreement. Net income less
(i) amortization of deferred reinsurance gain—LPT Agreement and (ii) adjustments
to LPT Agreement ceded reserves.
Deferred reinsurance gain—LPT
Agreement. This reflects the unamortized gain from the LPT
Agreement. Under GAAP, this gain is deferred and amortized using the recovery
method, whereby the amortization is determined by the proportion of actual
reinsurance recoveries to total estimated recoveries, and the amortization is
reflected in losses and LAE.
Gross Premiums
Written. Gross premiums written is the sum of both direct
premiums written and assumed premiums written before the effect of ceded
reinsurance. Direct premiums written represents the premiums on all policies the
Company’s insurance subsidiaries have issued during the year. Assumed premiums
written represents the premiums that the insurance subsidiaries have received
from an authorized state-mandated pool.
Page
5 of 13
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
deferred reinsurance gain – LPT Agreement. Losses and
LAE less (i) amortization of deferred reinsurance gain—LPT Agreement and (ii)
adjustments to LPT Agreement ceded reserves.
Losses and LAE
Ratio. The losses and LAE ratio is a measure of underwriting
profitability. Expressed as a percentage, it is the ratio of losses and LAE to
net premiums earned.
Commission Expense
Ratio. Commission
expense ratio is the ratio (expressed as a percentage) of commission expense to
net premiums earned.
Underwriting and Other Operating
Expense Ratio. The
underwriting and other operating expense ratio is the ratio (expressed as a
percentage) of underwriting and other operating expense to net premiums
earned.
Combined Ratio. The
combined ratio represents a summary percentage of claims and expenses to net
premiums earned. The combined ratio is the sum of the losses and LAE ratio, the
commission expense ratio, the policyholder dividends ratio and the underwriting
and other operating expense ratio.
Combined Ratio before impacts of the
deferred reinsurance gain – LPT Agreement. Combined ratio
before impacts of LPT is the GAAP combined ratio before (i) amortization of
deferred reinsurance gain—LPT Agreement and (ii) adjustments to LPT Agreement
ceded reserves.
Equity including deferred
reinsurance gain—LPT
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.
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
Page
6 of 13
from
those indicated by such forward-looking statements include, among other things,
those discussed or identified from time to time in our public filings with the
SEC, including the risks detailed in the Company's Quarterly Reports on Form
10-Q and the Company’s Annual Reports on Form 10-K.
All
forward-looking statements made in this 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 of EHI could be affected by, among
other things, competition, pricing and policy term trends, the levels of new and
renewal business achieved, market acceptance, changes in demand, the frequency
and severity of catastrophic events, actual loss experience, uncertainties in
the loss reserving and claims settlement process, new theories of liability,
judicial, legislative, regulatory and other governmental developments,
litigation tactics and developments, investigation developments, the amount and
timing of reinsurance recoverables, credit developments among reinsurers,
changes in the cost or availability of reinsurance, market developments
(including adverse developments in financial markets as a result of, among other
things, changes in local, regional or national economic conditions and
volatility and further deterioration of financial markets), credit and other
risks associated with EHI’s investment activities, significant changes in
investment yield rates, rating agency action, possible terrorism or the outbreak
and effects of war and economic, political, regulatory, insurance and
reinsurance business conditions, relations with and performance of employees and
agents, the integration of acquired operations (including the failure to realize
anticipated benefits of such acquisitions and potential disruption from the
acquisitions making it more difficult to maintain relationships with customers,
employees, agents or producers), as well as management’s response to these
factors, and other factors identified in EHI’s filings with the SEC. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which they are made.
The SEC
filings for EHI can be accessed through the “Investors” link on the Company’s
website, www.employers.com, or through the SEC's EDGAR Database at www.sec.gov
(EHI EDGAR CIK No. 0001379041). EHI assumes no obligation to update this release
or the information contained herein, which speaks as of the date
issued.
CONTACT:
Media:
Ty Vukelich, (775) 327-2677, tvukelich@employers.com.
Analysts:
Vicki Erickson, (775) 327-2794, verickson@employers.com.
Copyright
© 2010 EMPLOYERS. All rights reserved. EMPLOYERS® and
America’s small business
insurance specialist. ® are
registered trademarks of Employers Insurance Company of Nevada. Employers
Holdings, Inc. is a holding company with subsidiaries that are specialty
providers of workers’ compensation insurance and services focused on select,
small businesses engaged in low to medium hazard industries. Insurance
subsidiaries include Employers Insurance Company of Nevada, Employers
Compensation Insurance Company, Employers Preferred Insurance Company, and
Employers Assurance Company, all rated A- (Excellent) by A.M. Best
Company. Additional information can be found at:
http://www.employers.com.
Page
7 of 13
Employers
Holdings, Inc.
Consolidated
Statements of Income
(in
thousands)
|
Three
months ended
|
Twelve
months ended
|
|||||||||||||||
|
December
31,
|
December
31,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
(unaudited)
|
||||||||||||||||
|
Revenues
|
||||||||||||||||
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Gross
premiums written
|
$ | 75,747 | $ | 90,988 | $ | 379,949 | $ | 318,392 | ||||||||
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Net
premiums written
|
$ | 72,198 | $ | 89,027 | $ | 368,290 | $ | 308,317 | ||||||||
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Net
premiums earned
|
$ | 90,026 | $ | 106,105 | $ | 404,247 | $ | 328,947 | ||||||||
|
Net
investment income
|
21,780 | 22,147 | 90,484 | 78,062 | ||||||||||||
|
Realized
(losses) gains on investments, net
|
(269 | ) | (8,313 | ) | 791 | (11,524 | ) | |||||||||
|
Other
income
|
25 | 138 | 413 | 1,293 | ||||||||||||
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Total
revenues
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111,562 | 120,077 | 495,935 | 396,778 | ||||||||||||
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Expenses
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||||||||||||||||
|
Losses
and loss adjustment expenses
|
47,804 | 56,171 | 214,461 | 136,515 | ||||||||||||
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Commission
expense
|
10,539 | 13,153 | 36,150 | 43,618 | ||||||||||||
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Dividends
to policyholders
|
1,512 | 1,217 | 6,930 | 1,295 | ||||||||||||
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Underwriting
and other operating expense
|
36,063 | 34,628 | 138,687 | 101,164 | ||||||||||||
|
Interest
expense
|
1,801 | 2,135 | 7,409 | 2,135 | ||||||||||||
|
Total
expenses
|
97,719 | 107,304 | 403,637 | 284,727 | ||||||||||||
|
Net
income before income taxes
|
13,843 | 12,773 | 92,298 | 112,051 | ||||||||||||
|
Income
taxes
|
2,579 | (3,083 | ) | 9,277 | 10,266 | |||||||||||
|
Net
income
|
$ | 11,264 | $ | 15,856 | $ | 83,021 | $ | 101,785 | ||||||||
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Reconciliation
of net income to net income before impact of deferred reinsurance gain -
LPT Agreement
|
||||||||||||||||
|
Net
income
|
$ | 11,264 | $ | 15,856 | $ | 83,021 | $ | 101,785 | ||||||||
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Less:
Impact of LPT Agreement
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||||||||||||||||
|
Amortization
of deferred reinsurance gain –
LPT Agreement
|
4,630 | 4,513 | 18,007 | 18,421 | ||||||||||||
|
Net
income before impact of deferred
reinsurance gain – LPT Agreement
|
$ | 6,634 | $ | 11,343 | $ | 65,014 | $ | 83,364 | ||||||||
Page
8 of 13
Employers
Holdings, Inc
Consolidated
Statements of Income
(in
thousands, except share and per share data)
|
Three
months ended
|
Twelve
months ended
|
|||||||||||||
|
December
31,
|
December
31,
|
|||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||
|
(unaudited)
|
||||||||||||||
|
Net
Income
|
$
|
11,264
|
$
|
15,856
|
$
|
83,021
|
$
|
101,785
|
||||||
|
Earnings
per common share
|
||||||||||||||
|
Basic
|
$
|
0.26
|
$
|
0.32
|
$
|
1.81
|
$
|
2.07
|
||||||
|
Diluted
|
$
|
0.26
|
$
|
0.32
|
$
|
1.80
|
$
|
2.07
|
||||||
|
Weighted
average shares outstanding
|
||||||||||||||
|
Basic
|
43,721,812
|
48,854,073
|
45,953,868
|
49,217,829
|
||||||||||
|
Diluted
|
43,998,083
|
48,902,010
|
46,090,832
|
49,261,228
|
||||||||||
|
Three
months ended
|
Twelve
months ended
|
|||||||||||||
|
December
31,
|
December
31,
|
|||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||
|
(unaudited)
|
||||||||||||||
|
Earnings
per common share
|
||||||||||||||
|
Basic
|
$
|
0.26
|
$
|
0.32
|
$
|
1.81
|
$
|
2.07
|
||||||
|
Diluted
|
$
|
0.26
|
$
|
0.32
|
$
|
1.80
|
$
|
2.07
|
||||||
|
Earnings
per common share
attributable
to the deferred reinsurance gain – LPT Agreement
|
||||||||||||||
|
Basic
|
$
|
0.11
|
$
|
0.09
|
$
|
0.39
|
$
|
0.38
|
||||||
|
Diluted
|
$
|
0.11
|
$
|
0.09
|
$
|
0.39
|
$
|
0.38
|
||||||
|
Earnings
per common share
before
the deferred reinsurance gain – LPT Agreement
|
||||||||||||||
|
Basic
|
$
|
0.15
|
$
|
0.23
|
$
|
1.42
|
$
|
1.69
|
||||||
|
Diluted
|
$
|
0.15
|
$
|
0.23
|
$
|
1.41
|
$
|
1.69
|
||||||
Page
9 of 13
Employers
Holdings, Inc.
Consolidated
Balance Sheets
(in
thousands, except share data)
|
December
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Assets
|
||||||||
|
Available for sale:
|
||||||||
|
Fixed maturity securities at fair value (amortized cost $1,859,074
at December 31, 2009
and $1,870,227 at December 31, 2008)
|
$ | 1,960,292 | $ | 1,909,391 | ||||
|
Equity securities at fair value (cost of $39,936 at December 31,
2009 and $43,014 at
December 31, 2008)
|
69,268 | 58,526 | ||||||
|
Short-term investments at fair value (amortized cost of $74,952 at
December 31, 2008)
|
— | 75,024 | ||||||
|
Total investments
|
2,029,560 | 2,042,941 | ||||||
|
Cash and cash equivalents
|
191,572 | 202,893 | ||||||
|
Accrued investment income
|
23,055 | 24,201 | ||||||
|
Premiums receivable, less bad debt allowance of $9,879 at December
31, 2009 and $7,911
at December 31, 2008
|
119,976 | 150,502 | ||||||
|
Reinsurance recoverable for:
|
||||||||
|
Paid losses
|
13,673 | 12,723 | ||||||
|
Unpaid losses, less allowance of $1,335 at each
period
|
1,051,170 | 1,075,015 | ||||||
|
Funds held by or deposited with reinsureds
|
82,339 | 88,163 | ||||||
|
Deferred policy acquisition costs
|
33,695 | 41,521 | ||||||
|
Federal income taxes recoverable
|
4,092 | 11,042 | ||||||
|
Deferred income taxes, net
|
43,502 | 80,968 | ||||||
|
Property and equipment, net
|
13,059 | 14,098 | ||||||
|
Intangible assets, net
|
15,442 | 18,218 | ||||||
|
Goodwill
|
36,192 | 36,192 | ||||||
|
Other assets
|
19,326 | 26,621 | ||||||
|
Total assets
|
$ | 3,676,653 | $ | 3,825,098 | ||||
|
Liabilities
and stockholders’ equity
|
||||||||
|
Claims and policy liabilities:
|
||||||||
|
Unpaid losses and loss adjustment expenses
|
$ | 2,425,658 | $ | 2,506,478 | ||||
|
Unearned premiums
|
158,577 | 196,695 | ||||||
|
Policyholders’ dividends accrued
|
7,958 | 8,737 | ||||||
|
Total claims and policy liabilities
|
2,592,193 | 2,711,910 | ||||||
|
Commissions and premium taxes payable
|
20,763 | 21,847 | ||||||
|
Accounts payable and accrued expenses
|
19,033 | 24,192 | ||||||
|
Deferred reinsurance gain–LPT
Agreement
|
388,574 | 406,581 | ||||||
|
Notes payable
|
132,000 | 182,000 | ||||||
|
Other liabilities
|
25,691 | 33,840 | ||||||
|
Total liabilities
|
$ | 3,178,254 | $ | 3,380,370 | ||||
Page
10 of 13
Employers
Holdings, Inc.
Consolidated
Balance Sheets
(in
thousands, except share data)
(continued)
|
December
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders’
equity:
|
||||||||
|
Common stock, $0.01 par value; 150,000,000 shares
authorized;
53,563,299 and 53,528,207 shares issued and 42,908,165
and
48,830,140 shares outstanding at December 31, 2009 and
December
31, 2008, respectively
|
536
|
535
|
||||||
|
Preferred stock, $0.01 par value; 25,000,000 shares authorized;
none
issued
|
—
|
—
|
||||||
|
Additional paid-in capital
|
311,282
|
306,032
|
||||||
|
Retained earnings
|
266,491
|
194,509
|
||||||
|
Accumulated other comprehensive income, net
|
83,812
|
32,804
|
||||||
|
Treasury stock, at cost (10,655,134 shares at December 31, 2009
and
4,698,067 shares at December 31, 2008)
|
(163,722
|
)
|
(89,152)
|
|||||
|
Total
stockholders’ equity
|
498,399
|
444,728
|
||||||
|
Total
liabilities and stockholders’ equity
|
$
|
3,676,653
|
$
|
3,825,098
|
||||
|
December
31,
|
December
31,
|
|||||||
|
Book
value per share
|
2009
|
2008
|
||||||
|
(unaudited)
|
||||||||
|
Equity
including deferred reinsurance gain – LPT
|
||||||||
|
Total stockholders’ equity
|
$
|
498,399
|
$
|
444,728
|
||||
|
Deferred reinsurance gain – LPT Agreement
|
388,574
|
406,581
|
||||||
|
Total equity including deferred reinsurance gain – LPT Agreement
(A)
|
$
|
886,973
|
$
|
851,309
|
||||
|
Shares
outstanding (B)
|
42,908,165
|
48,830,140
|
||||||
|
Book
value per share (A *
1000) / B
|
$
|
20.67
|
$
|
17.43
|
||||
Page
11 of 13
Employers
Holdings, Inc.
Consolidated
Statements of Cash Flows
(in
thousands)
|
Twelve
months ended
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Operating
activities
|
||||||||
|
Net
income
|
$ | 83,021 | $ | 101,785 | ||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
|
Depreciation and amortization
|
9,899 | 7,226 | ||||||
|
Stock-based compensation
|
5,366 | 3,161 | ||||||
|
Amortization of premium on investments, net
|
5,047 | 6,226 | ||||||
|
Allowance for doubtful accounts – premiums
receivable
|
1,968 | (705 | ) | |||||
|
Allowance for doubtful accounts – unpaid reinsurance
recoverable
|
— | 27 | ||||||
|
Deferred income tax expense
|
10,991 | 4,503 | ||||||
|
Realized (gains) losses on investments, net
|
(791 | ) | 11,524 | |||||
|
Realized losses on retirement of assets
|
69 | 22 | ||||||
|
Change in operating assets and liabilities, net of effect of
acquisition:
|
||||||||
|
Accrued investment income
|
1,146 | (469 | ) | |||||
|
Premiums receivable
|
28,558 | 27,341 | ||||||
|
Reinsurance recoverable on paid and unpaid losses
|
22,895 | 37,938 | ||||||
|
Funds held by or deposited with reinsureds
|
5,824 | 7,721 | ||||||
|
Federal income taxes
|
6,950 | (20,672 | ) | |||||
|
Unpaid losses and loss adjustment expenses
|
(80,820 | ) | (71,980 | ) | ||||
|
Unearned premiums
|
(38,118 | ) | (24,476 | ) | ||||
|
Accounts payable, accrued expenses and other
liabilities
|
(13,188 | ) | (3,660 | ) | ||||
|
Deferred reinsurance gain–LPT Agreement
|
(18,007 | ) | (18,421 | ) | ||||
|
Other
|
9,941 | 223 | ||||||
|
Net
cash provided by operating activities
|
40,751 | 67,314 | ||||||
|
Investing
activities
|
||||||||
|
Purchase of fixed maturities
|
(175,790 | ) | (113,587 | ) | ||||
|
Purchase of equity securities
|
(12,614 | ) | (558 | ) | ||||
|
Proceeds from sale of fixed maturities
|
85,541 | 42,467 | ||||||
|
Proceeds from sale of equity securities
|
20,634 | 4,010 | ||||||
|
Proceeds from maturities and redemptions of
investments
|
170,278 | 105,424 | ||||||
|
Cash paid for acquisition, net of cash and cash equivalents
acquired
|
(100 | ) | (168,903 | ) | ||||
|
Capital expenditures and other, net
|
(4,682 | ) | (3,926 | ) | ||||
|
Net
cash provided by (used in) investing activities
|
83,267 | (135,073 | ) | |||||
|
Financing
activities
|
||||||||
|
Acquisition of treasury stock
|
(74,185 | ) | (14,152 | ) | ||||
|
Cash transactions related to stock-based
compensation
|
(123 | ) | — | |||||
|
Dividends
paid to stockholders
|
(11,031 | ) | (11,808 | ) | ||||
|
Debt
issuance costs
|
— | (375 | ) | |||||
|
Proceeds
from notes payable
|
— | 150,000 | ||||||
|
Payments
on notes payable
|
(50,000 | ) | (2,678 | ) | ||||
|
Other
|
— | (38 | ) | |||||
|
Net
cash (used in) provided by financing activities
|
(135,339 | ) | 120,949 | |||||
|
Net
(decrease) increase in cash and cash equivalents
|
(11,321 | ) | 53,190 | |||||
|
Cash
and cash equivalents at the beginning of the period
|
202,893 | 149,703 | ||||||
|
Cash
and cash equivalents at the end of the period
|
$ | 191,572 | $ | 202,893 | ||||
Page
12 of 13
Employers
Holdings, Inc.
Calculation
of Combined Ratio before the Impact of the Deferred Reinsurance Gain – LPT
Agreement
(in
thousands, except for percentages)
|
Three
Months Ended
|
Twelve
Months Ended
|
|||||||||||||||
|
December
31,
|
December
31,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
| (unaudited) | ||||||||||||||||
|
Net
premiums earned
|
$
|
90,026
|
$
|
106,105
|
$
|
404,247
|
$
|
328,947
|
||||||||
|
Losses
and loss adjustment expenses
|
$
|
47,804
|
$
|
56,171
|
$
|
214,461
|
$
|
136,515
|
||||||||
|
Loss & LAE ratio
|
53.1
|
%
|
52.9
|
%
|
53.1
|
%
|
41.5
|
%
|
||||||||
|
Amortization
of deferred reinsurance gain – LPT
|
$
|
4,630
|
$
|
4,513
|
$
|
18,007
|
$
|
18,421
|
||||||||
|
Impact
of LPT
|
5.1
|
%
|
4.3
|
%
|
4.5
|
%
|
5.6
|
%
|
||||||||
|
Loss & LAE before impact of the deferred
reinsurance gain – LPT Agreement
|
$
|
52,434
|
$
|
60,684
|
$
|
232,468
|
$
|
154,936
|
||||||||
|
Loss & LAE ratio before impact of the deferred
reinsurance gain – LPT Agreement
|
58.2
|
%
|
57.2
|
%
|
57.5
|
%
|
47.1
|
%
|
||||||||
|
Commission
(benefit) expense
|
$
|
10,539
|
$
|
13,153
|
$
|
36,150
|
$
|
43,618
|
||||||||
|
Commission expense ratio
|
11.7
|
%
|
12.4
|
%
|
8.9
|
%
|
13.3
|
%
|
||||||||
|
Dividends
to policyholders
|
$
|
1,512
|
$
|
1,217
|
$
|
6,930
|
$
|
1,295
|
||||||||
|
Policyholder dividend ratio
|
1.7
|
%
|
1.1
|
%
|
1.7
|
%
|
0.4
|
%
|
||||||||
|
Underwriting
& other operating expense
|
$
|
36,063
|
$
|
34,628
|
$
|
138,687
|
$
|
101,164
|
||||||||
|
Underwriting & other operating expense ratio
|
40.1
|
%
|
32.6
|
%
|
34.3
|
%
|
30.7
|
%
|
||||||||
|
Total
expense
|
$
|
95,918
|
$
|
105,169
|
$
|
396,228
|
$
|
282,592
|
||||||||
|
Combined ratio
|
106.5
|
%
|
99.1
|
%
|
98.0
|
%
|
85.9
|
%
|
||||||||
|
Total
expense before impact of the deferred
reinsurance gain – LPT Agreement
|
$
|
100,548
|
$
|
109,682
|
$
|
414,235
|
$
|
301,013
|
||||||||
|
Combined
ratio before the impact of the deferred
reinsurance gain – LPT Agreement
|
111.7
|
%
|
103.4
|
%
|
102.5
|
%
|
91.5
|
%
|
||||||||
Page 13 of
13