Form 8-K

 

 

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 23, 2011

 

 

EMPLOYERS HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

NEVADA   001-33245   04-3850065

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

 

10375 Professional Circle

Reno, Nevada

  89521
(Address of Principal Executive Offices)   (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:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ 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 23, 2011, Employers Holdings, Inc. (the “Company”) issued a press release announcing results for the fourth quarter and fiscal year ended December 31, 2010. 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 23, 2011, the Company announced that its Board of Directors has declared a first quarter 2011 cash dividend of six cents per share on the Company’s common stock. The dividend is payable on March 23, 2011 to stockholders of record as of March 9, 2011. 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 23, 2011.


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.

 

EMPLOYERS HOLDINGS, INC.
By:  

/s/     Lenard T. Ormsby

Name:   Lenard T. Ormsby
Title:  

Executive Vice President, Chief

Legal Officer and General Counsel

Dated: February 23, 2011


Exhibit Index

 

Exhibit No.

 

Exhibit

99.1     Employers Holdings, Inc. press release, dated February 23, 2011.
Employers Holdings, Inc. press release

Exhibit 99.1

LOGO

 

February 23, 2011   For Immediate Release

Employers Holdings, Inc. Reports Fourth Quarter and Full Year 2010 Earnings and Declares First Quarter 2011 Dividend

Key Highlights

 

 

Increased fourth quarter net income 25 cents per share or by 78.9% and net income before the LPT 24 cents per share or by 132.6% year over year

 

 

Increased fourth quarter written premium $6.1 million or 8.4% year over year

 

 

Decreased underwriting and other operating expenses 36.5% year over year in the fourth quarter and 23.6% in the full year

 

 

Increased California policy count 5.1% and overall policy count 1% year over year

 

 

Continued positive, but flattening net rate in California in the fourth quarter

 

 

Filed to increase rates in California an additional 2.5% effective March 15, 2011 and received a 7.8% rate increase in the administered pricing state of Florida effective January 1, 2011

 

 

Maintained fair market value of $2.1 billion portfolio with a tax equivalent yield of 5.3% and a pre-tax yield of 4.2%

 

 

Increased book value per share 6.8% to $22.08 since December 31, 2009

 

 

Completed $50 million share repurchase program and authorized a new $100 million share repurchase program through June 2012; total repurchases of $64.4 million in 2010

Reno, Nevada—February 23, 2011—Employers Holdings, Inc. (“EHI” or the “Company”) (NYSE:EIG) today reported fourth quarter net income of $20.1 million or $0.51 per diluted share compared with $11.3 million or $0.26 per diluted share in the fourth quarter of 2009, an increase of $8.9 million in net income or $0.25 per share. Net income in the fourth quarter of 2010 was driven largely by expense reductions, realized gains from equity sales in the quarter and increased written premium. Written premium was impacted by a $2.8 million favorable adjustment in the final audit accrual rate in the fourth quarter of 2010 relative to the fourth quarter of 2009 and a $1.6 million reinsurance reinstatement premium paid that lowered written premium in the fourth quarter of 2009. In force premium of $321.1 million at December 31, 2010 declined $63.9 million or 16.6% relative to year-end 2009 and just 2.2% since September 30, 2010.

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 $15.4 million or $0.39 per share in the fourth quarter of 2010 and $6.6 million or $0.15 per share in the fourth quarter of 2009.


Net income for the full year of 2010 was $62.8 million or $1.51 per diluted share compared with $83.0 million or $1.80 per diluted share for the full year 2009. Net income before the impact of the LPT deferred reinsurance gain was $44.6 million or $1.07 per diluted share in 2010 compared with $65.0 million or $1.41 per diluted share in 2009.

At December 31, 2010, the Company’s year over year change in net rate was -5% compared with -7% in 2009 while the Company’s year over year change in total payroll exposure was -12% compared with -11% in 2009.

The fourth quarter 2010 combined ratio was 107.6% (113.3% before the impact of the LPT deferred reinsurance gain), compared with 106.5% (111.7% before the impact of the LPT deferred reinsurance gain) for the fourth quarter of 2009, an increase of 1.1 percentage points in the GAAP combined ratio. For the full year of 2010, the combined ratio was 106.8% (112.4% before the impact of the LPT deferred reinsurance gain), an increase of 8.8 percentage points from 98.0% (102.5% before the impact of the LPT deferred reinsurance gain) for the same period in 2009.

President and Chief Executive Officer Douglas D. Dirks commented on the results: “Reflecting on this past year, we are pleased that our growth initiatives, implemented in late July, are beginning to yield results. In the last six months of 2010, we added 1,228 policies, despite the fact that unemployment rates in three of our largest states – California, Florida and Nevada – were at or near their thirty-five year peaks.”

Dirks continued: “Net income before the LPT doubled in the fourth quarter, bolstered by expense reductions and realized gains on the sale of equities. By actively managing our operations, in the fourth quarter of 2010 we have made substantial progress in improving our underwriting and other operating expense ratio of 27.4%, which declined 12.7 percentage points year over year. Our fourth quarter loss ratio increased 14.7 percentage points year over year, with the difference in prior accident year reserve releases – none in the fourth quarter of 2010 compared with $11.8 million in the fourth quarter of 2009 – contributing 14.1 percentage points of the increase. We increased our loss provision rate, to 73.0% compared to 71.5% in the fourth quarter of 2009, to reflect increased severity trends in California. Net rate in California was positive in the fourth quarter and we are raising pure premium rates an additional 2.5% in California effective March 15, 2011. California continues to represent approximately half of our book of business.”

Commenting on the balance sheet, Dirks added: “Book value per share increased 6.8% since December 31, 2009. At the same time, we returned $74.3 million to stockholders through share repurchases and dividends during 2010. Our invested assets of $2.1 billion yielded 5.3% on a tax equivalent basis at December 31, 2010 with a pre-tax net unrealized gain of $129.4 million in 2010. We broadened equity investments slightly, to 3.9% of total invested assets and shifted $20 million of equity securities to a high-yield dividend portfolio. New investments are high quality, large cap equities that combined have a higher dividend rate than the equities previously held. We believe these investments will yield additional income while further diversifying our equity holdings across industries and issuers.”

 

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Looking ahead, Dirks concluded: “While economic recovery may be a lengthy process, there are signs of stability and growth returning to some areas of our geographic footprint. We have scaled our operations in line with our current book of business and continue to invest in the products and services that support our agents, partners and policyholders. In 2011, we will focus on further increasing the numbers of new policies and agents, and deploying our rapid quote capability which is now available in 22 of our 30 states. As we add new agents and policies, we will focus on the retention of our best accounts. In the face of competitive and sometimes irrational pricing, we will not buy new business.”

Fourth Quarter 2010 Comparison to Fourth Quarter 2009

Net premiums earned were $83.6 million, a decrease of $6.5 million or 7.2% from the fourth quarter of 2009. Policy count is discussed in the full year review which follows the fourth quarter discussion.

Net investment income was $20.4 million compared with net investment income of $21.8 million in the fourth quarter of 2009. The decrease in the fourth quarter of 2010 was primarily due to a decrease in invested assets resulting from the return of capital to stockholders through common stock repurchases and dividends in 2010.

Realized gains on investments increased to $9.2 million compared with realized losses of $0.3 million in the fourth quarter of 2009. The increase in 2010 was largely attributable to the shift of $20 million of equity securities into a high dividend yield portfolio.

Losses and loss adjustment expenses were $56.7 million compared with $47.8 million in the fourth quarter of 2009 primarily as a result of no favorable prior accident year development in this year’s fourth quarter compared with $11.8 million in 2009. Before the impact of the LPT deferred reinsurance gain, loss and LAE expense was $61.4 million in the fourth quarter of 2010 and $52.4 million in the fourth quarter of 2009. Additionally, in the fourth quarter of 2010, the Company recorded a $0.9 million expense related to the write-off of reinsurance recoverables.

Commission expense was $9.4 million compared with $10.5 million, or $1.1 million lower than in the fourth quarter of 2009. Commission expense declined in the fourth quarter of 2010 due to lower net premiums earned and a $3.0 million reduction in the estimate (accrual) of certain administrative fees due Anthem Blue Cross under our joint marketing agreement. The decrease was partially offset by a $1.8 million commission fee to re-negotiate the terms of a reinsurance agreement with Clarendon National Insurance Company (Clarendon). Additionally, in the fourth quarter of 2009, the Company recorded a favorable adjustment of $0.9 million to the LPT contingent profit commission.

Dividends to policyholders were $0.9 million compared with $1.5 million in the fourth quarter of 2009 largely due to fewer policies eligible for dividends in the fourth quarter of 2010 and lower premiums on eligible policies.

Underwriting and other operating expenses were $22.9 million compared with $36.1 million in the fourth quarter of 2009, a decrease of $13.2 million or 36.5% primarily as a result of savings in salaries and benefits from cost control actions undertaken by management. Underwriting and other operating expenses include a restructuring charge of $0.9 million in 2010 compared with $0.7 million in the fourth quarter of 2009.

 

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Interest expense was $0.9 million compared with $1.8 million in the fourth quarter of 2009. The decrease was primarily attributable to debt reduction of $50 million in the fourth quarter of 2009.

Income tax expense decreased to $2.4 million compared to $2.6 million in the fourth quarter of 2009. The effective tax rate declined to 10.5% in the quarter compared to 18.6% in the prior year’s quarter.

Full Year 2010 Comparison to Full Year 2009

Net premiums earned of $321.8 million decreased 20.4% from $404.2 million in the prior year.

Overall policy count increased one percent to 44,561 at December 31, 2010 from 44,154 at December 31, 2009. For the Company’s five largest states, unit count grew by an aggregate of 1,563 policies in California and Illinois with most of that policy count growth in California, and unit count declined by an aggregate of 1,348 policies in Nevada, Florida and Wisconsin. Average in-force policy size decreased 17.4% to $7,200 at December 31, 2010 compared with $8,700 at December 31, 2009.

Net investment income in 2010 decreased $7.5 million or 8.2% to $83.0 million from $90.5 million in 2009 largely due to a decrease in invested assets resulting from common share repurchases and dividends paid to stockholders and the repayment of $50 million in debt in 2009. The average pre-tax and tax equivalent yields on invested assets were 4.2% and 5.3%, respectively, at December 31, 2010 with these yields stable relative to 2009. Realized gains on investments were $10.1 million for the year compared with realized gains of $0.8 million in 2009. Realized gains occurred largely in the fourth quarter of 2010 in connection with the sale of equities (see fourth quarter discussion above).

Losses and LAE decreased to $194.8 million from $214.5 million in 2009 primarily as a result of lower payroll exposures. Additionally, favorable prior accident year loss development decreased $34.8 million in 2010 to $16.6 million. Before the impact of the LPT deferred reinsurance gain, losses and LAE were $213.0 million and $232.5 million in 2010 and 2009, respectively. Current accident year loss estimates were 70.9% in 2010 and 70.2% in 2009.

Commission expense in 2010 increased to $38.5 million from $36.2 million in 2009 largely due to a favorable $15.0 million increase in the LPT contingent profit commission in 2009 and the re-negotiation of the terms of a reinsurance agreement resulting in an additional $1.8 million in commission expense in the fourth quarter of 2010.

Dividends to policyholders were $4.3 million compared with $6.9 million in 2009. The decrease was the result of lower premium levels on dividend policies in Florida and Wisconsin and fewer policies eligible for dividend payments in 2010.

Underwriting and other operating expenses of $106.0 million decreased $32.7 million or 23.6% compared with 2009. Excluding restructuring charges of $6.1 million in 2010 and $5.7 million in 2009, underwriting and other operating expenses decreased $33.1 million or 24.9% in 2010 compared to 2009. Active cost management resulted in decreases in total compensation and technology of $16.5 million and $3.5 million, respectively, year over year. Additionally, there was a $5.8 million decrease in premium taxes.

 

Page 4 of 14


Interest expense of $5.7 million decreased $1.7 million from $7.4 million in 2009, primarily due to debt reduction and the expiration of an interest rate swap agreement associated with the Wells Fargo Credit Facility.

Income taxes in 2010 were $3.5 million compared with $9.3 million in 2009 with an effective tax rate of 5.3% in 2010 and 10.1% in 2009. Tax exempt income as a percentage of pre-tax income was 53.5% in 2010 and 36.8% in 2009, with the increase in 2010 largely the result of lower pre-tax income in 2010 relative to 2009.

Total outstanding debt at December 31, 2010, was $132 million with a debt to total capitalization ratio, including the deferred reinsurance gain – LPT Agreement, of 13.3%.

In December, the Company entered into an amendment to the Wells Fargo Credit Facility. Pursuant to the Credit Facility, the Company has a $100 million line of credit through December 31, 2011, a $90 million line of credit in 2012, an $80 million line of credit in 2013, a $70 million line of credit in 2014, and a $60 million line of credit in 2015. The Credit Facility was secured by $131 million in fixed maturity securities, cash and cash equivalents at December 31, 2010, based on fair market value. The Credit Facility requires the Company to maintain $5 million of cash and cash equivalents at the holding company at all times.

In the fourth quarter of 2010, the terms of a reinsurance agreement were re-negotiated with Clarendon, resulting in the release of the funds held by Clarendon in the amount of $74.6 million, of which $47.1 million was placed in trust for the benefit of Clarendon to support liabilities under the reinsurance agreement and the remaining $27.5 million was invested.

Total invested assets were $2.1 billion at December 31, 2010. The Company’s investment portfolio, which is classified as available-for-sale, consisted of 96.1% fixed maturity securities and 3.9% equity securities at year-end 2010. The Company evaluated its portfolio allocation during the fourth quarter of 2010 and elected to shift $20.0 million of equity securities into a high-yield dividend portfolio. The Company is including a list of portfolio securities by CUSIP in the Calendar of Events, Fourth Quarter “Investors” section of its web site at www.employers.com.

As of December 31, 2010, total stockholders’ equity decreased to $490.1 million from $498.4 million at December 31, 2009. Stockholders’ equity, including the deferred reinsurance gain related to the LPT, decreased 3.0% to $860.5 million from $887.0 million at December 31, 2009. Book value per share increased 6.8% to $22.08 at December 31, 2010 from $20.67 at December 31, 2009, as outstanding share count declined from 42,908,165 to 38,965,126 year over year due to stock repurchases.

Through the Company’s $100 million Stock Repurchase Program, 867,149 shares of common stock were repurchased in the fourth quarter of 2010 at an average price of $16.59 per share. Through its stock repurchase programs, in 2010, the Company repurchased an aggregate of 4,158,858 shares of common stock at an average cost of $15.48 per share.

The Board of Directors declared a first quarter 2011 dividend of six cents per share. The dividend is payable on March 23, 2011 to stockholders of record as of March 9, 2011.

Conference Call and Web Cast; Form 10-K

The Company will host a conference call on Thursday, February 24, 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 81095670. International callers may dial (617) 801-6888.

 

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EHI expects to file its Form 10-K for the fiscal year ended December 31, 2010, with the Securities and Exchange Commission (“SEC”) on Thursday, February 24, 2011. The Form 10-K will be available without charge through the EDGAR system at the SEC’s web site 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.

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.

 

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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 gainLPT 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, including, but not limited to, management’s views regarding economic stability and growth in the Company’s geographic footprint and expectations regarding investment income. 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 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.

 

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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 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 © 2011 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.

 

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Employers Holdings, Inc.

Consolidated Statements of Income

(in thousands)

 

     Three months ended
December 31,
    Years ended
December 31,
 
     2010      2009     2010      2009  
     (unaudited)               

Revenues

          

Gross premiums written

   $ 80,214       $ 75,746      $ 322,277       $ 379,949   
                                  

Net premiums written

   $ 78,286       $ 72,198      $ 313,098       $ 368,290   
                                  

Net premiums earned

   $ 83,565       $ 90,026      $ 321,786       $ 404,247   

Net investment income

     20,440         21,780        83,032         90,484   

Realized gains (losses) on investments, net

     9,237         (269     10,137         791   

Other income

     49         25        649         413   
                                  

Total revenues

     113,291         111,562        415,604         495,935   

Expenses

          

Losses and loss adjustment expenses

     56,682         47,804        194,779         214,461   

Commission expense

     9,416         10,539        38,468         36,150   

Dividends to policyholders

     930         1,512        4,316         6,930   

Underwriting and other operating expense

     22,894         36,063        106,026         138,687   

Interest expense

     861         1,801        5,693         7,409   
                                  

Total expenses

     90,783         97,719        349,282         403,637   
                                  

Net income before income taxes

     22,508         13,843        66,322         92,298   

Income taxes

     2,359         2,579        3,523         9,277   
                                  

Net income

   $ 20,149       $ 11,264      $ 62,799       $ 83,021   
                                  

Reconciliation of net income to net income before impact of deferred reinsurance gain - LPT Agreement

          

Net income

   $ 20,149       $ 11,264      $ 62,799       $ 83,021   

Less: Impact of LPT Agreement

          

Amortization of deferred reinsurance gain – LPT Agreement

     4,719         4,630        18,233         18,007   
                                  

Net income before impact of deferred reinsurance gain – LPT Agreement

   $ 15,430       $ 6,634      $ 44,566       $ 65,014   
                                  

 

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Employers Holdings, Inc

Consolidated Statements of Income

(in thousands, except share and per share data)

 

     Three months ended
December 31,
     Years ended
December 31,
 
     2010      2009      2010      2009  
     (unaudited)                

Net Income

   $ 20,149 $         11,264       $ 62,799       $ 83,021   

Earnings per common share

           

Basic

   $ 0.51 $         0.26       $ 1.52       $ 1.81   

Diluted

   $ 0.51 $         0.26       $ 1.51       $ 1.80   

Weighted average shares outstanding

           

Basic

     39,610,351         43,721,812         41,390,984         45,953,868   

Diluted

     39,842,481         43,998,083         41,520,319         46,090,832   
     Three months ended
December 31,
     Years ended
December 31,
 
     2010      2009      2010      2009  
     (unaudited)                

Earnings per common share

           

Basic

   $ 0.51       $ 0.26       $ 1.52       $ 1.81   

Diluted

   $ 0.51       $ 0.26       $ 1.51       $ 1.80   

Earnings per common share

attributable to the deferred reinsurance gain – LPT Agreement

           

Basic

   $ 0.12       $ 0.11       $ 0.44       $ 0.39   

Diluted

   $ 0.12       $ 0.11       $ 0.44       $ 0.39   

Earnings per common share

before the deferred reinsurance gain – LPT Agreement

           

Basic

   $ 0.39       $ 0.15       $ 1.08       $ 1.42   

Diluted

   $ 0.39       $ 0.15       $ 1.07       $ 1.41   

 

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Employers Holdings, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

 

     At December 31,
2010
     At December 31,
2009
 

Assets

     

Available for sale:

     

Fixed maturity securities at fair value (amortized cost $1,901,778 at December 31, 2010 and $1,859,074 at December 31, 2009)

   $ 2,000,364       $ 1,960,292   

Equity securities at fair value (cost of $49,281 at December 31, 2010 and $39,936 at December 31, 2009)

     80,130         69,268   
                 

Total investments

     2,080,494         2,029,560   

Cash and cash equivalents

     119,825         188,833   

Restricted cash

     16,949         2,739   

Accrued investment income

     23,022         23,055   

Premiums receivable, less bad debt allowance of $7,603 at December 31, 2010 and $9,879 at December 31, 2009

     109,987         119,976   

Reinsurance recoverable for:

     

Paid losses

     14,415         13,673   

Unpaid losses, less allowance of $0 at December 31, 2010 and $1,335 at December 31, 2009

     956,043         1,051,170   

Funds held by or deposited with reinsureds

     3,701         82,339   

Deferred policy acquisition costs

     32,239         33,695   

Federal income taxes recoverable

     4,048         4,092   

Deferred income taxes, net

     38,078         43,502   

Property and equipment, net

     11,712         13,059   

Intangible assets, net

     13,279         15,442   

Goodwill

     36,192         36,192   

Other assets

     20,136         19,326   
                 

Total assets

   $ 3,480,120       $ 3,676,653   
                 

Liabilities and stockholders’ equity

     

Claims and policy liabilities:

     

Unpaid losses and loss adjustment expenses

   $ 2,279,729       $ 2,425,658   

Unearned premiums

     149,485         158,577   

Policyholders’ dividends accrued

     5,218         7,958   
                 

Total claims and policy liabilities

     2,434,432         2,592,193   

Commissions and premium taxes payable

     17,313         20,763   

Accounts payable and accrued expenses

     18,601         19,033   

Deferred reinsurance gain–LPT Agreement

     370,341         388,574   

Notes payable

     132,000         132,000   

Other liabilities

     17,317         25,691   
                 

Total liabilities

   $ 2,990,004       $ 3,178,254   

 

Page 11 of 14


Employers Holdings, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

(continued)

 

     At December 31,
2010
    At December 31,
2009
 

Commitments and contingencies

    

Stockholders’ equity:

    

Common stock, $0.01 par value; 150,000,000 shares authorized; 53,779,118 and 53,563,299 shares issued and 38,965,126 and 42,908,165 shares outstanding at December 31, 2010 and December 31, 2009, respectively

     538        536   

Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued

     —          —     

Additional paid-in capital

     314,212        311,282   

Retained earnings

     319,341        266,491   

Accumulated other comprehensive income, net

     84,133        83,812   

Treasury stock, at cost (14,813,992 shares at December 31, 2010 and 10,655,134 shares at December 31, 2009)

     (228,108     (163,722
                

Total stockholders’ equity

     490,116        498,399   
                

Total liabilities and stockholders’ equity

   $ 3,480,120      $ 3,676,653   
                
Book value per share    At December 31,
2010
    At December 31,
2009
 
     (unaudited  

Equity including deferred reinsurance gain – LPT

    

Total stockholders’ equity

   $ 490,116      $ 498,399   

Deferred reinsurance gain – LPT Agreement

     370,341        388,574   
                

Total equity including deferred reinsurance gain – LPT Agreement (A)

   $ 860,457      $ 886,973   
                

Shares outstanding (B)

     38,965,126        42,908,165   

Book value per share (A * 1000) / B

   $ 22.08      $ 20.67   

 

Page 12 of 14


Employers Holdings, Inc.

Consolidated Statements of Cash Flows

(in thousands)

 

     Years ended December 31,  
     2010     2009  

Operating activities

    

Net income

   $ 62,799      $ 83,021   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     7,098        9,899   

Stock-based compensation

     4,053        5,366   

Amortization of premium on investments, net

     6,105        5,047   

Allowance for doubtful accounts

     (3,611     1,968   

Deferred income tax expense

     4,680        10,991   

Realized gains on investments, net

     (10,137     (791

Realized losses on retirement of assets

     420        69   

Change in operating assets and liabilities:

    

Accrued investment income

     33        1,146   

Premiums receivable

     12,265        28,558   

Reinsurance recoverable on paid and unpaid losses

     95,720        22,895   

Funds held by or deposited with reinsureds

     78,638        5,824   

Federal income taxes

     44        6,950   

Unpaid losses and loss adjustment expenses

     (145,929     (80,820

Unearned premiums

     (9,092     (38,118

Accounts payable, accrued expenses and other liabilities

     (10,455     (13,188

Deferred reinsurance gain–LPT Agreement

     (18,233     (18,007

Change in restricted cash

     (12,210     —     

Other

     (5,207     9,941   
                

Net cash provided by operating activities

     56,981        40,751   

Investing activities

    

Purchase of fixed maturities

     (273,833     (175,790

Purchase of equity securities

     (17,673     (12,614

Proceeds from sale of fixed maturities

     102,659        85,541   

Proceeds from sale of equity securities

     17,753        20,634   

Proceeds from maturities and redemptions of investments

     123,672        170,278   

Cash paid for acquisition, net of cash and cash equivalents acquired

     —          (100

Capital expenditures and other, net

     (1,905     (4,682

Restricted cash (used in) provided by investing activities

     (2,000     2,725   
                

Net cash (used in) provided by investing activities

     (51,327     85,992   

Financing activities

    

Acquisition of treasury stock

     (63,592     (74,185

Cash transactions related to stock-based compensation

     (1,135     (123

Dividends paid to stockholders

     (9,935     (11,031

Debt issuance costs

     —          —     

Proceeds from notes payable

     —          —     

Payments on notes payable

     —          (50,000

Other

     —          —     
                

Net cash used in financing activities

     (74,662     (135,339
                

Net decrease in cash and cash equivalents

     (69,008     (8,596

Cash and cash equivalents at the beginning of the period

     188,833        197,429   
                

Cash and cash equivalents at the end of the period

   $ 119,825      $ 188,833   
                

 

Page 13 of 14


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
December 31,
    Twelve Months Ended
December 31,
 
     2010     2009     2010     2009  
     (unaudited)              

Net premiums earned

   $ 83,565      $ 90,026      $ 321,786      $ 404,247   
                                

Losses and loss adjustment expenses

   $ 56,682      $ 47,804      $ 194,779      $ 214,461   
                                

Loss & LAE ratio

     67.8     53.1     60.5     53.1
                                

Amortization of deferred reinsurance gain – LPT

   $ 4,719      $ 4,630      $ 18,233      $ 18,007   

Impact of LPT

     5.6     5.1     5.7     4.5
                                

Loss & LAE before impact of the deferred reinsurance gain – LPT Agreement

   $ 61,401      $ 52,434      $ 213,012      $ 232,468   
                                

Loss & LAE ratio before impact of the deferred reinsurance gain – LPT Agreement

     73.5     58.2     66.2     57.5
                                

Commission expense

   $ 9,416      $ 10,539      $ 38,468      $ 36,150   
                                

Commission expense ratio

     11.3     11.7     12.0     8.9
                                

Dividends to policyholders

   $ 930      $ 1,512      $ 4,316      $ 6,930   
                                

Policyholder dividend ratio

     1.1     1.7     1.3     1.7
                                

Underwriting & other operating expense

   $ 22,894      $ 36,063      $ 106,026      $ 138,687   
                                

Underwriting & other operating expense ratio

     27.4     40.1     33.0     34.3
                                

Total expense

   $ 89,922      $ 95,918      $ 343,589      $ 396,228   
                                

Combined ratio

     107.6     106.5     106.8     98.0
                                

Total expense before impact of the deferred reinsurance gain – LPT Agreement

   $ 94,641      $ 100,548      $ 361,822      $ 414,235   
                                

Combined ratio before the impact of the deferred reinsurance gain – LPT Agreement

     113.3     111.7     112.4     102.5
                                

 

Page 14 of 14