RENO, Nev., Feb. 23, 2011 /PRNewswire/ --
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
Employers Holdings, Inc. ("EHI" or the "Company") 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."
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.
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.
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 http://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 http://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.
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, http://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.
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, 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.
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, http://www.employers.com/, or through the SEC's EDGAR Database at http://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 (C) 2011 EMPLOYERS. All rights reserved. EMPLOYERS(R) and America's small business insurance specialist. (R) 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/.
Employers Holdings, Inc. Consolidated Statements of Income (in thousands) Three months ended December 31, 2010 2009 (unaudited) Revenues Gross premiums written $80,214 $75,746 ======= ======= Net premiums written $78,286 $72,198 ======= ======= Net premiums earned $83,565 $90,026 Net investment income 20,440 21,780 Realized gains (losses) on investments, net 9,237 (269) Other income 49 25 --- --- Total revenues 113,291 111,562 Expenses Losses and loss adjustment expenses 56,682 47,804 Commission expense 9,416 10,539 Dividends to policyholders 930 1,512 Underwriting and other operating expense 22,894 36,063 Interest expense 861 1,801 --- ----- Total expenses 90,783 97,719 ------ ------ Net income before income taxes 22,508 13,843 Income taxes 2,359 2,579 ----- ----- Net income $20,149 $11,264 ======= ======= Reconciliation of net income to net income before impact of deferred reinsurance gain -LPT Agreement Net income $20,149 $11,264 Less: Impact of LPT Agreement Amortization of deferred reinsurance gain - LPT Agreement 4,719 4,630 ----- ----- Net income before impact of deferred reinsurance gain - LPT Agreement $15,430 $6,634 Years ended December 31, 2010 2009 Revenues Gross premiums written $322,277 $379,949 ======== ======== Net premiums written $313,098 $368,290 ======== ======== Net premiums earned $321,786 $404,247 Net investment income 83,032 90,484 Realized gains (losses) on investments, net 10,137 791 Other income 649 413 --- --- Total revenues 415,604 495,935 Expenses Losses and loss adjustment expenses 194,779 214,461 Commission expense 38,468 36,150 Dividends to policyholders 4,316 6,930 Underwriting and other operating expense 106,026 138,687 Interest expense 5,693 7,409 ----- ----- Total expenses 349,282 403,637 ------- ------- Net income before income taxes 66,322 92,298 Income taxes 3,523 9,277 ----- ----- Net income $62,799 $83,021 ======= ======= Reconciliation of net income to net income before impact of deferred reinsurance gain -LPT Agreement Net income $62,799 $83,021 Less: Impact of LPT Agreement Amortization of deferred reinsurance gain - LPT Agreement 18,233 18,007 ------ ------ Net income before impact of deferred reinsurance gain - LPT Agreement $44,566 $65,014 Employers Holdings, Inc Consolidated Statements of Income (in thousands, except share and per share data) Three months ended December 31, 2010 2009 (unaudited) Net Income $20,149 $11,264 Earnings per common share Basic $0.51 $0.26 Diluted $0.51 $0.26 Weighted average shares outstanding Basic 39,610,351 43,721,812 Diluted 39,842,481 43,998,083 Three months ended December 31, 2010 2009 ---- ---- (unaudited) Earnings per common share Basic $0.51 $0.26 Diluted $0.51 $0.26 Earnings per common share attributable to the deferred reinsurance gain - LPT Agreement Basic $0.12 $0.11 Diluted $0.12 $0.11 Earnings per common share before the deferred reinsurance gain - LPT Agreement Basic $0.39 $0.15 Diluted $0.39 $0.15 Years ended December 31, 2010 2009 Net Income $62,799 $83,021 Earnings per common share Basic $1.52 $1.81 Diluted $1.51 $1.80 Weighted average shares outstanding Basic 41,390,984 45,953,868 Diluted 41,520,319 46,090,832 Years ended ----------- December 31, ------------ 2010 2009 ---- ---- Earnings per common share Basic $1.52 $1.81 Diluted $1.51 $1.80 Earnings per common share attributable to the deferred reinsurance gain - LPT Agreement Basic $0.44 $0.39 Diluted $0.44 $0.39 Earnings per common share before the deferred reinsurance gain - LPT Agreement Basic $1.08 $1.42 Diluted $1.07 $1.41 Employers Holdings, Inc. Consolidated Balance Sheets (in thousands, except share data) At December At December 31, 31, 2010 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 Employers Holdings, Inc. Consolidated Balance Sheets (in thousands, except share data) (continued) At December At December 31, 31, 2010 2009 ---- ---- Commitments and contingencies Stockholders' equity: Common stock, $0.01 par value; 150,000,000 shares authorized; 538 536 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 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 (228,108) (163,722) 10,655,134 shares at December 31, 2009) Total stockholders' equity 490,116 498,399 ------- ------- Total liabilities and stockholders' equity $3,480,120 $3,676,653 ========== ========== At December At December 31, 31, Book value per share 2010 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 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 ======== ======== 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, ------------ 2010 2009 ---- ---- (unaudited) Net premiums earned $83,565 $90,026 ======= ======= Losses and loss adjustment expenses $56,682 $47,804 ======= ======= Loss & LAE ratio 67.8% 53.1% ==== ==== Amortization of deferred reinsurance gain - LPT $4,719 $4,630 Impact of LPT 5.6% 5.1% --- --- Loss & LAE before impact of the deferred reinsurance gain - LPT Agreement $ $ 61,401 52,434 ====== ====== Loss & LAE ratio before impact of the deferred reinsurance gain - LPT Agreement % % 73.5 58.2 ==== ==== Commission expense $9,416 $10,539 ====== ======= Commission expense ratio 11.3% 11.7% ==== ==== Dividends to policyholders $ $ 930 1,512 === ===== Policyholder dividend ratio 1.1% 1.7% === === Underwriting & other operating expense $22,894 $36,063 ======= ======= Underwriting & other operating expense ratio 27.4% 40.1% ==== ==== Total expense $89,922 $95,918 ======= ======= Combined ratio 107.6% 106.5% ===== ===== Total expense before impact of the deferred reinsurance gain - LPT Agreement $ $ 94,641 100,548 ====== ======= Combined ratio before the impact of the deferred reinsurance gain - LPT Agreement % % 113.3 111.7 ===== ===== Twelve Months Ended December 31, ------------ 2010 2009 ---- ---- Net premiums earned $321,786 $404,247 ======== ======== Losses and loss adjustment expenses $194,779 $214,461 ======== ======== Loss & LAE ratio 60.5% 53.1% ==== ==== Amortization of deferred reinsurance gain - LPT $18,233 $18,007 Impact of LPT 5.7% 4.5% --- --- Loss & LAE before impact of the deferred reinsurance gain - LPT Agreement $ $ 213,012 232,468 ======= ======= Loss & LAE ratio before impact of the deferred reinsurance gain - LPT Agreement % % 66.2 57.5 ==== ==== Commission expense $38,468 $36,150 ======= ======= Commission expense ratio 12.0% 8.9% ==== === Dividends to policyholders $ $ 4,316 6,930 ===== ===== Policyholder dividend ratio 1.3% 1.7% === === Underwriting & other operating expense $106,026 $138,687 ======== ======== Underwriting & other operating expense ratio 33.0% 34.3% ==== ==== Total expense $343,589 $396,228 ======== ======== Combined ratio 106.8% 98.0% ===== ==== Total expense before impact of the deferred reinsurance gain - LPT Agreement $ $ 361,822 414,235 ======= ======= Combined ratio before the impact of the deferred reinsurance gain - LPT Agreement % % 112.4 102.5 ===== =====
Employers Holdings, Inc.
CONTACT: Media, Ty Vukelich, +1-775-327-2677, tvukelich@employers.com;
or Analysts, Vicki Erickson, +1-775-327-2794, verickson@employers.com, both of
Employers Holdings, Inc.
Web Site: http://www.employers.com/
