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): May 14, 2007
EMPLOYERS HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
_____________________
NEVADA (State or Other Jurisdiction of Incorporation) |
001-33245 (Commission File Number) |
04-3850065 (I.R.S. Employer Identification No.) |
9790 Gateway Drive (Address of Principal Executive Offices) |
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89521 (Zip Code) |
Registrants 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 May 14, 2007, Employers Holdings, Inc. issued a press release announcing results for the first quarter ended March 31, 2007. The press release is attached hereto as Exhibit 99.1 and is being furnished, not filed, under Item 2.02 to this Report on Form 8-K.
Section 9 Financial Statements and Exhibits
Item 9.01. Financial Statements and Exhibits.
99.1 |
Employers Holdings, Inc. press release, dated May 14, 2007. |
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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By: |
/s/ Lenard T. Ormsby | |
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Name: |
Lenard T. Ormsby | |
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Title: |
Executive Vice President, Chief Legal Officer and General Counsel | |
Dated: |
May 14, 2007 |
Exhibit Index
Exhibit No. |
Exhibit |
99.1 |
Employers Holdings, Inc. press release, dated May 14, 2007. |
Exhibit 99.1
May 14, 2007 |
For Immediate Release |
Employers Holdings, Inc. Reports Solid First Quarter Earnings
Reno, NevadaMay 14, 2007Employers Holdings, Inc. (EHI or the Company) (NYSE:EIG) today reported that consolidated net income in the first quarter of 2007 increased 53.9% to $27.9 million from $18.1 million in the first quarter of 2006. Consolidated net income before the impact of the Loss Portfolio Transfer Agreement (LPT), the Companys non-GAAP measure described below, increased 74.2% to $23.3 million from $13.4 million for the same periods.
The improvement in net income was largely due to a decrease in net losses and LAE, primarily in California, and favorable prior year pre-tax reserve development of $15.6 million in the first quarter of 2007 compared to $6.3 million in the first quarter of 2006.
Commenting on the Companys performance, President and Chief Executive Officer Douglas D. Dirks said, The quarter was in line with our expectations. While gross premiums written declined 17.7% quarter over quarter primarily due to rate decreases in California, this measure increased 5.5% from the fourth quarter of 2006. At the same time, losses have also continued to decline, reflecting our strong underwriting results and contributing to our solid increase in net income.
Total first quarter net premiums earned declined 13.1% to $89.8 million in 2007 from $103.3 million in 2006, largely due to rate decreases resulting from previously enacted reforms in California. These rate decreases were somewhat offset by an in-force policy count increase of 10.7% compared to the first quarter of 2006.
Net investment income increased 32.7% to $20.8 million in the first quarter of 2007 from $15.7 million for the same period in 2006. The increase was attributable to three factors: (1) an increase in fixed maturity securities in the fourth quarter of 2006; (2) an increase in the Companys tax-equivalent investment yield to 5.3%; and (3) interest income generated from the invested net proceeds from the issuance of the Companys common stock as part of the Companys conversion from a mutual insurance holding company.
Losses and LAE of $41.7 million decreased 37% from $66.2 million in the first quarter of 2006, the result of a downward adjustment in the Companys current accident year loss estimate to 68.9% in the first quarter of 2007 from 74.8% for the same period in 2006. Additionally, as previously mentioned, there was a $9.3 million increase in prior year favorable development for the three months ended March 31, 2007 over the three months ended March 31, 2006. Before the impact of the LPT, losses and LAE would have been $46.3 million in the first quarter of 2007 and $70.9 million in the first quarter of 2006.
Commission expense of $11.7 million decreased 5.0% due to the decrease in net earned premiums partially offset by an increase in commission rates mid-year 2006.
Underwriting and other operating expenses increased 20.9% to $23.3 million in the first quarter of 2007 from $19.3 million in the first quarter of 2006. The $4.0 million increase included increases in staffing attributable to the Companys conversion to a public company, technology maintenance and depreciation, consulting expense and $0.9 million in conversion costs.
The combined ratio decreased 9.3 percentage points to 85.4% in the first quarter of 2007 from 94.7% in the first quarter of 2006. This decrease was primarily due to a decline in the losses and LAE ratio.
In the first quarter of 2007, total stockholders equity increased 15.9% to $352.0 million from $303.8 million at December 31, 2006. Equity, including the deferred reinsurance gain related to the LPT agreement, increased 5.8% to $790.4 million from $746.8 million at December 31, 2006.
Form 10-Q, Conference Call and Webcast
EHI filed its Form 10-Q for the three months ended March 31, 2007, with the U.S. Securities and Exchange Commission (SEC) on May 14, 2007. The Form 10-Q is available without charge through the EDGAR system at the SECs website and is also posted on the Companys website, www.employers.com, through the Investors link.
The Company will host a conference call Tuesday, May 15, 2007 at 10:30 a.m. Pacific Daylight Time. The conference call will be available via a live webcast on the Companys website at www.employers.com. An archived version will be available for one month following the call. The conference call replay number is (888) 286-8010 with a passcode of 96319739. International callers may dial (617) 801-6888.
Discussion of Non-GAAP Financial Measures
This earnings release includes non-GAAP financial measures used to analyze the Companys operating performance for the periods presented.
A number of these non-GAAP financial measures exclude impacts related to the LPT Agreement. The 1999 LPT Agreement was a non-recurring transaction which does not result in ongoing cash benefits and, consequently, the Company believes these non-GAAP measures are useful in providing a meaningful understanding of the Companys operating performance. In addition, these measures, as defined, are helpful to management in identifying trends in the Companys 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. These non-GAAP measures are not a substitute for GAAP measures and investors should be careful when comparing the Companys non-GAAP financial measures to similarly titled measures used by other companies.
Net Income before impact of LPT. Net income less (i) amortization of deferred reinsurance gainLPT Agreement and (ii) adjustments to LPT Agreement ceded reserves.
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Page 2 of 8 |
Deferred reinsurance gainLPT 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 Companys 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 or under previous fronting facilities.
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 LPT. Losses and LAE before (i) amortization of deferred reinsurance gainLPT 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 and measures the effectiveness of compensating agents and brokers for the business we have underwritten.
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 and measures an insurance companys operational efficiency in producing, underwriting and administering its insurance business.
Combined Ratio. The combined ratio is a measure used in the property and casualty insurance business to show the profitability of an insurers underwriting, and it represents the percentage of each premium dollar spent on claims and expenses. 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 LPT. Combined ratio before impact of LPT is the GAAP combined ratio before (i) amortization of deferred reinsurance gainLPT Agreement and (ii) adjustments to LPT Agreement ceded reserves.
Equity including deferred reinsurance gainLPT. Equity including deferred reinsurance gainLPT is total equity including the deferred reinsurance gainLPT Agreement.
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Page 3 of 8 |
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 Companys 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. The Company and its management assume no obligation to update these forward-looking statements, which speak as of the date of this press release.
EHI and its management caution investors that such forward-looking statements are not guarantees of future performance. Risks and uncertainties are inherent in EHIs future performance. Factors that could cause the Companys 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 our public filings with the SEC, including the risks detailed in the Companys Form 10-Q for the three month period ended March 31, 2007 and the Companys 2006 Annual Report on Form 10-K.
The SEC filings for EHI can be accessed through the Investors link on the Companys website, www.employers.com, or through the SECs 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.
______________________________________________________________________
Copyright © 2007 EMPLOYERS. All rights reserved. EMPLOYERS is a service mark and trade name for a group of companies that provide workers compensation insurance and services. Insurance is offered through Employers Compensation Insurance Company, except in Nevada, where insurance is offered through Employers Insurance Company of Nevada. Employers Compensation Insurance Company does not do business in all jurisdictions.
CONTACT:
Media
Trish White, Corporate Communications Director, twhite@employers.com, (775) 327-2636
Analysts
Vicki Erickson, Investor Relations Director, verickson@employers.com, (775) 327-2794
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Page 4 of 8 |
Employers Holdings, Inc.
Consolidated Statements of Income
(in thousands, except share and per share data)
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Three Months Ended | |
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2007 |
2006 |
Revenues |
(unaudited) | |
Gross premiums written |
$ 96,450 |
$ 117,130 |
Net premiums written |
$ 93,211 |
$ 113,417 |
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Net premiums earned |
$ 89,792 |
$ 103,270 |
Net investment income |
20,835 |
15,701 |
Realized gains (losses) on investments, net |
190 |
(232) |
Other income |
1,140 |
1,191 |
Total revenues |
111,957 |
119,930 |
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Expenses |
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Losses and loss adjustment expenses |
41,667 |
66,190 |
Commission expense |
11,721 |
12,332 |
Underwriting and other operating expense |
23,300 |
19,268 |
Total expenses |
76,688 |
97,790 |
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Net income before income taxes |
35,269 |
22,140 |
Income taxes |
7,403 |
4,031 |
Net income |
$ 27,866 |
$ 18,109 |
Net income after date of conversion, February 5 through March 31, 2007 |
$ 21,395 |
N/A |
Earnings per common share-basic and diluted-for the period February 5 through March 31, 2007 |
$ .40 |
N/A |
Earnings per common share-basic and diluted-for the three months ended March 31, pro forma (1) |
$ .53 |
$ .36 |
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Reconciliation of net income and EPS to net income and EPS before impact of LPT Agreement |
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Net income |
$ 27,866 |
$ 18,109 |
Less: Impact of LPT Agreement: |
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Amortization of deferred reinsurance gain LPT Agreement |
4,587 |
4,749 |
Adjustment to LPT Agreement ceded reserves (2) |
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Net income before impact of LPT Agreement |
$ 23,279 |
$ 13,360 |
Earnings per common sharebasic and diluted for the three months ended March 31, pro forma (1) |
$ .53 |
$ .36 |
Earnings per common share attributable to amortization of deferred reinsurance gain LPT Agreement (1) |
.08 |
.09 |
Pro forma earnings per common share data-basic and diluted-before impact of LPT (1) |
$ .45 |
$ .27 |
Weighted average shares outstanding, pro forma (1) |
52,155,944 |
50,000,002 |
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Page 5 of 8 |
Employers Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
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March 31, |
December 31, |
Assets |
(unaudited) |
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Available for sale: |
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Fixed maturity investments at fair value (amortized cost $1,661,111 at March 31, 2007 and $1,599,321 at December 31, 2006) |
$ 1,666,564 |
$ 1,605,395 |
Equity securities at fair value (cost of $63,205 at March 31, 2007 and $63,478 at December 31, 2006) |
102,004 |
102,289 |
Short-term investments (at cost or amortized cost, which approximates fair value) |
-- |
7,989 |
Total investments |
1,768,568 |
1,715,673 |
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Cash and cash equivalents |
66,479 |
79,984 |
Accrued investment income |
18,504 |
18,431 |
Premiums receivable, less bad debt allowance of $7,315 at March 31, 2007 and $6,911 at December 31, 2006 |
50,100 |
51,311 |
Reinsurance recoverable for: |
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Paid losses |
10,775 |
11,073 |
Unpaid losses, less allowance of $1,276 at each period |
1,087,979 |
1,096,827 |
Funds held by or deposited with reinsureds |
101,244 |
102,955 |
Deferred policy acquisition costs |
14,663 |
13,767 |
Deferred income taxes, net |
70,842 |
73,849 |
Property and equipment, net |
14,496 |
15,598 |
Other assets |
17,538 |
16,257 |
Total assets |
$ 3,221,188 |
$ 3,195,725 |
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Liabilities and stockholders equity |
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Claims and policy liabilities: |
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Unpaid losses and loss adjustment expenses |
$ 2,307,184 |
$ 2,307,755 |
Unearned premiums |
75,512 |
73,255 |
Policyholders dividends accrued |
449 |
506 |
Total claims and policy liabilities |
2,383,145 |
2,381,516 |
Commissions and premium taxes payable |
7,591 |
6,776 |
Federal income taxes payable |
17,442 |
24,262 |
Accounts payable and accrued expenses |
9,112 |
22,178 |
Deferred reinsurance gain LPT Agreement |
438,449 |
443,036 |
Other liabilities |
13,473 |
14,180 |
Total liabilities |
2,869,212 |
2,891,948 |
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Commitments and contingencies |
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Common stock, $0.01 par value; 150,000,000 shares authorized; issued and outstanding 53,527,907 shares at March 31, 2007, 0 at December 31, 2006 |
535 |
-- |
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued |
-- |
-- |
Additional paid-in capital |
301,282 |
-- |
Retained earnings |
21,395 |
274,602 |
Accumulated other comprehensive income, net |
28,764 |
29,175 |
Total stockholders equity |
351,976 |
303,777 |
Total liabilities and stockholders equity |
$ 3,221,188 |
$ 3,195,725 |
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Equity including deferred reinsurance gain LPT |
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Total stockholders equity |
$ 351,976 |
$ 303,777 |
Deferred reinsurance gain LPT Agreement |
438,449 |
443,036 |
Total equity including deferred reinsurance gain LPT Agreement |
$ 790,425 |
$ 746,813 |
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Page 6 of 8 |
Employers Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
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Three months ended |
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2007 |
2006 |
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(unaudited) | ||
Operating activities |
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Net income |
$27,866 |
$18,109 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation |
1,569 |
644 |
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Stock based compensation |
140 |
-- |
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Amortization of premium on investments, net |
1,646 |
1,395 |
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Allowance for doubtful accounts premiums receivable |
404 |
699 |
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Deferred income tax expense (benefit) |
3,229 |
(1,920) |
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Realized (gains) losses on investments, net |
(190) |
232 |
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Change in operating assets and liabilities: |
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Accrued investment income |
(73) |
(1,459) |
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Premiums receivable |
807 |
(4,480) |
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Reinsurance recoverable on paid and unpaid losses |
9,146 |
6,712 |
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Funds held by or deposited with reinsureds |
1,711 |
3,778 |
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Unpaid losses and loss adjustment expenses |
(571) |
28,030 |
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Unearned premiums |
2,257 |
9,783 |
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Federal income taxes payable |
(6,820) |
750 |
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Accounts payable, accrued expenses and other liabilities |
(13,156) |
(4,443) |
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Deferred reinsurance gain LPT Agreement |
(4,587) |
(4,749) |
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Other |
(5,346) |
(3,490) |
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Net cash provided by operating activities |
18,032 |
49,591 |
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Investing activities |
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Purchase of fixed maturities |
(102,784) |
(149,490) |
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Purchase of equity securities |
(701) |
(4,097) |
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Proceeds from sale of fixed maturities |
38,112 |
74,870 |
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Proceeds from sale of equity maturities |
1,165 |
4,613 |
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Proceeds from maturities and redemptions of investments |
9,224 |
15,326 |
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Capital expenditures and other, net |
(467) |
(1,168) |
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Net cash used in investing activities |
(55,451) |
(59,946) |
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Financing activities |
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Issuance of common stock, net |
486,903 |
-- |
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Cash paid to eligible members under plan of conversion |
(462,989) |
-- |
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Net cash provided by financing activities |
23,914 |
-- |
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Net decrease in cash and cash equivalents |
(13,505) |
(10,355) |
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Cash and cash equivalents at the beginning of the period |
79,984 |
61,083 |
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Cash and cash equivalents at the end of the period |
$66,479 |
$50,728 |
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Schedule of non-cash transactions |
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Stock issued in exchange for membership interest |
$281,073 |
$-- |
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Page 7 of 8 |
Employers Holdings, Inc.
Calculation of Combined Ratio before the Impact of the LPT Agreement
(in thousands, except for percentages)
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Three Months Ended | |
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2007 |
2006 |
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(unaudited) | |
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| |
Net Premiums Earned |
$89,792 |
$103,270 |
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Losses and LAE Expense |
$41,667 |
$66,190 |
Loss & LAE Ratio |
46.4% |
64.1% |
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Losses and LAE Expense |
$41,667 |
$66,190 |
Impacts of LPT |
4,587 |
4,749 |
Loss & LAE before impacts of LPT |
$46,254 |
$70,939 |
Loss & LAE Ratio before impacts of LPT |
51.5% |
68.7% |
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Commission Expense |
$11,721 |
12,332 |
Commission Expense Ratio |
13.1% |
11.9% |
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Underwriting & Other Operating Expense |
$23,300 |
$19,268 |
Underwriting & Other Operating Expense Ratio |
25.9% |
18.7% |
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Total Expense |
$76,688 |
$97,790 |
Combined Ratio |
85.4% |
94.7% |
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Total Expense before impacts of the LPT |
$81,275 |
$102,539 |
Combined Ratio before impacts of LPT |
90.5% |
99.3% |
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Page 8 of 8 |