Employers Holdings, Inc. Q1 FY2025 earnings call

• Net premium earned was relatively flat; record number of policies in force with a year-over-year growth rate of 4%.
• Net investment income was $32 million, an increase of 20%.
• Current accident year loss and LAE ratio on voluntary was 66%, up from 64% in 2024, consistent with conservative reserving philosophy.
• Underwriting expense ratio was 23.4% this quarter, down from 25% a year ago, with further improvement expected in 2025.
• Gross premiums written were $212 million, up 1%; net premiums earned were $183 million, down 1%.
• Net investment income increase due to returns from private equity limited partnerships and higher yields on fixed maturities securities; weighted average book yield was 4.5% at quarter end.
• Quarterly net income unfavorably impacted by unrealized investment losses, but adjusted net income was up 24%.
• Repurchased $21 million of common stock in Q1 and authorized a new $125 million stock repurchase program; declared a 7% increase in quarterly dividend to $0.32 per share.
• Valuing profitability over growth, refining underwriting and pricing approach, accelerating appetite expansion effort, monitoring tariff discussions and recession risks, focusing on expense management and capital management, with book value per share increasing and returning $27.5 million to shareholders.

Net premium earned was relatively flat compared to 2024, driven by higher renewal premium but lower new business and audit premium. Gross premiums written were $212 million, an increase of 1%, due to higher renewal business partially offset by lower new business and final audit premiums. Net premiums earned were $183 million, a decrease of 1%. Losses and loss adjustment expenses were $121 million versus $117 million a year ago. Commission expense was $23 million versus $25 million, with the commission expense ratio at 12.6% versus 13.6%. Underwriting expenses were $43 million versus $46 million, and the underwriting expense ratio was 23.4% versus 25%. Net investment income was $32 million, an increase of 20%. Quarterly net income was $12.8 million, unfavorably impacted by $9 million of net after-tax unrealized investment losses. Adjusted net income, excluding unrealized investment gains and losses, totaled $21.3 million, a 24% increase from the prior year.

• Board authorized a new stock repurchase program to repurchase up to $125 million of common stock over the twenty-month period from 05/06/2025 through 12/31/2026.
• Declared a 7% increase in the quarterly dividend to $0.32 per share.
• Intends to maintain underwriting discipline while returning to moderate new business growth levels, accelerate appetite expansion effort, closely monitor tariff discussions and cost of prescription drugs and medical services, and weather potential recessionary headwinds due to customer relationships, product/service value proposition, and diversification.

• Risks set forth in filings with the Securities and Exchange Commission could cause actual results to differ from expectations.
• Potential impact of recessionary headwinds on business.
• Monitoring cost of prescription drugs and medical services for potential changes related to tariff discussions.
• Capital market fluctuations could lead to material differences in unrealized investment gains/losses.

Q: Could you talk about any specifics regarding those loss trends, including geography and medical inflation?

A: The accident year loss and LAE ratio increase is due to competitive rate environment, pressure on accident years 2023 and 2024, rise in cumulative trauma claims in California, and decrease in favorable development. Lost time plan frequencies vary by state but generally trend downward, severity values held steady below pre-pandemic levels, and indemnity trends with wage inflation.

Q: How about cumulative trauma claims and macroeconomic contributions?

A: Cumulative trauma claims in California are attributable to state provisions allowing post-termination filing, no macroeconomic cause in 2024, and usually come with an attorney, aligning with social inflation.

Q: Thoughts on rate filings by WCRRB and NCCI's industry fundamentals?

A: WCRRB's 11.2% rate increase filing was called out for cumulative trauma claims; rate filings in California are advisory, and NCCI's industry fundamentals will be known soon, with carriers reducing reserve redundancies less and internal rates showing flat rolling twelve months but up 4-5% rolling six months.