EMPLOYERS HOLDINGS, INC. – 10-K – Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements, the accompanying notes thereto, and the financial statement
schedules included in Item 8 and Item 15 of this report. In addition to
historical information, the following discussion contains forward-looking
statements that are subject to risks and uncertainties and other factors
described in Item 1A of this report. Our actual results in future periods may
differ from those referred to herein due to a number of factors, including the
risks described in the sections entitled "Risk Factors" and "Forward-Looking
Statements" elsewhere in this report.

Overview

We are a Nevada holding company. Through our insurance subsidiaries, we provide
workers' compensation insurance coverage to select, small businesses primarily
in low-to-medium hazard industries. Workers' compensation insurance is provided
under a statutory system wherein most employers are required to provide coverage
for their employees' medical, disability, vocational rehabilitation, and/or
death benefit costs for work-related injuries or illnesses. We provide workers'
compensation insurance throughout the United States, with a concentration in
California, where 45% of our in-force premiums are generated. Our revenues are
primarily comprised of net premiums earned, net investment income, and net
realized and unrealized gains and losses on investments.

We target small businesses, as we believe that this market is traditionally
characterized by more attractive pricing, and stronger persistency when compared
to the U.S. workers' compensation insurance industry in general. We believe we
are able to price our policies at levels that are competitive and profitable
over the long-term given our expertise in underwriting and claims handling in
this market segment. Our underwriting approach is to consistently underwrite
small business accounts at appropriate and competitive prices without
sacrificing long-term profitability and stability for short-term top-line
revenue growth.

The insurance industry is highly competitive, and there is significant
competition in the national workers' compensation industry that is based on
price and quality of services. We compete with other specialty workers'
compensation carriers, state agencies, multi-line insurance companies,
professional employer organizations, self-insurance funds, and state insurance
pools.

The effects of supply chain interruptions, lingering U.S labor market shortages
impacting certain employer classifications that we insure, inflationary
pressures, monetary and fiscal policy measures, overall general economic
instability and the COVID-19 pandemic have continued to cause disruptions in
business activity. All states, including California, where we generated 45% of
our in-force premiums as of December 31, 2022, have experienced adverse economic
impacts. Certain classes of business that we insure continue to be adversely and
disproportionately affected by these challenges.

Our premium growth in 2022 is the result of higher new and renewal business
premiums and final audit premiums. The growth in new business premiums we
experienced in 2022 was largely driven by our expansion in the classes of
business we offer and our growing number of collaborations with strategic
business partners. As a result of these initiatives, we closed the year with a
record number of policies in-force. As U.S. labor market shortages improve and
wage inflation continues, we expect that rising payrolls will continue to bring
further improvement to our top line.

We continually review and adjust to changes in our policyholders' payrolls,
economic conditions, and seasonality, as experience develops or new information
becomes known. Any such adjustments are included in our current operations and
are made periodically through mid-term endorsements and/or premium audits. We
increased our final audit premium accruals by $24.6 million and recognized $34.8
million of audit premium pick-up in 2022, as our payroll exposure improved with
U.S. labor market strengthening and rising wages.

Recent increases in market interest rates have negatively impacted the fair
value of our fixed maturity investments in 2022. In addition, economic and
market disruptions caused by inflationary pressures and geo-political conditions
have negatively impacted the fair value of our equity securities in 2022. The
negative impacts to our investment portfolio experienced in 2022 have consisted
primarily of unrealized investment losses. Conversely, the recent increases in
market interest rates have favorably impacted our net investment income
throughout 2022.

While we have no international operations, the geo-political uncertainties
associated with the ongoing Russia and Ukraine conflict have indirectly impacted
the value of our investment portfolio.

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Results of Operations

Our results of operations for the three year period ending December 31, 2022 are
as follows:

                                                                      Years Ended December 31,
                                                             2022                 2021               2020
                                                                            (in millions)
Gross premiums written                                  $    714.2            $   589.7          $   580.1
Net premiums written                                    $    707.2            $   583.1          $   574.9

Net premiums earned                                     $    675.2            $   574.4          $   615.3
Net investment income                                         89.8                 72.7               76.3
Net realized and unrealized (losses) gains on
investments                                                  (51.8)                54.6               19.0

Other income                                                   0.3                  1.4                0.8
Total revenues                                               713.5                703.1              711.4

Losses and LAE                                               391.0                315.2              302.4
Commission expense                                            95.9                 76.1               78.8

Underwriting and general and administrative expenses 167.3

       160.2              181.3
Interest and financing expenses                                3.5                  0.5                0.4
Other expenses                                                   -                  4.1                0.8
Total expenses                                               657.7                556.1              563.7

Net income before income taxes                                55.8                147.0              147.7
Income tax expense                                             7.4                 27.7               27.9
Net income                                              $     48.4            $   119.3          $   119.8


Overview

Our net income was $48.4 million, $119.3 million, and $119.8 million in 2022,
2021, and 2020, respectively. The key factors that affected our financial
performance during those years included:

•Net premiums earned increased 17.5% in 2022 and decreased 6.6% in 2021, each
compared to the previous year;

•Losses and LAE increased 24.0% in 2022 and 4.2% in 2021, each compared to the
previous year;

•Underwriting and general and administrative expenses increased 4.4% in 2022 and
decreased 11.6% in 2021, each compared to the previous year;

•Underwriting income was $21.0 million, $22.9 million and $52.8 million in 2022,
2021, and 2020, respectively;

•Net investment income increased 23.5% in 2022 and decreased 4.7% in 2021, each
compared to the previous year; and

•Net realized and unrealized (losses) gains on investments were $(51.8) million,
$54.6 million, and $19.0 million in 2022, 2021, and 2020, respectively.

Summary of Consolidated Financial Results

Gross Premiums Written

Gross premiums written were $714.2 million, $589.7 million, and $580.1 million
for the years ended December 31, 2022, 2021, and 2020, respectively. The period
over period changes in gross premiums earned during 2022, 2021, and 2020 were
primarily related to our Employers segment. See -Summary of Financial Results by
Segment -Employers.

Net Premiums Written

Net premiums written are gross premiums written less reinsurance premiums ceded.

Net Premiums Earned

Net premiums earned are primarily a function of the amount and timing of net
premiums previously written.

Net Investment Income and Net Realized and Unrealized Gains and Losses on
Investments

We invest in fixed maturity securities, equity securities, other invested
assets, short-term investments, and cash equivalents. Net investment income
includes interest and dividends earned on our invested assets and amortization
of premiums and discounts on our fixed maturity securities, less bank service
charges and custodial and portfolio management fees.

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Net investment income was $89.8 million, $72.7 million, and $76.3 million for
the years ended December 31, 2022, 2021, and 2020, respectively. The increase in
2022 was primarily due to higher market interest rates impacting bond yields and
higher invested balances of fixed maturity securities, short-term investments,
and cash and cash equivalents, as measured by amortized cost. The decrease in
2021 was primarily due to lower interest rates impacting bond yields. The
average pre-tax ending book yield on our invested assets was 3.9%, 3.0%, and
3.0% at December 31, 2022, 2021, and 2020, respectively.

Realized and unrealized gains and losses on our investments are reported
separately from our net investment income. Realized gains and losses on
investments include the gain or loss on a security at the time of sale compared
to its original or adjusted cost (equity securities) or amortized cost (fixed
maturity securities). Realized losses are also recognized for changes in our
CECL allowance or when securities are written down as a result of an
other-than-temporary impairment. Changes in fair value of equity securities and
other invested assets are also included in Net realized and unrealized gains and
losses on investments on our Consolidated Statements of Comprehensive (Loss)
Income.

Net realized and unrealized (losses) gains on investments were $(51.8) million,
$54.6 million, and $19.0 million for the years ended December 31, 2022, 2021,
and 2020, respectively.

Net realized and unrealized (losses) gains on investments in 2022 included
$(49.2) million of net realized and unrealized losses on equity securities,
$(3.6) million of net realized losses on fixed maturity securities, and $1.0
million of unrealized gains on other invested assets. The net investment losses
on our equity securities were largely consistent with the performance of U.S.
equity markets. The net investment losses on our fixed maturity securities were
primarily the result of rising market interest rates. The net realized losses on
our fixed maturity securities we experienced in 2022 included a $4.3 million net
increase in our allowance for CECL.

Net realized and unrealized gains on investments in 2021 included $45.6 million
of net realized and unrealized gains on equity securities, $4.1 million of net
realized gains on fixed maturity securities, and $4.9 million of unrealized
gains on other invested assets. The net investments gains on our equity
securities were largely consistent with the performance of U.S. equity markets.
The net investment gains on our fixed maturity securities were primarily the
result of decreases in market interest rates. The net investment gains on our
fixed maturity securities we experienced in 2021 included a $0.5 million net
decrease in our allowance for CECL.

Net realized and unrealized gains on investments in 2020 included $15.8 million
of net realized and unrealized gains on equity securities, $4.5 million of net
realized gains on fixed maturity securities and short-term investments, and
$(1.3) million of unrealized losses on other invested assets. The net investment
gains on our equity securities were largely consistent with the performance of
U.S. equity markets. The net investment gains on our fixed maturity securities
were primarily the result of decreases in market interest rates. The net
investment gains on our fixed maturity securities we experienced in 2020
included a $0.7 million net increase in our allowance for CECL.

Additional information regarding our Investments is set forth under "-Liquidity
and Capital Resources-Investments" and Note 5 in the Notes to our Consolidated
Financial Statements.

Other Income

Other income consists of net gains and losses on fixed assets, non-investment
interest, installment fee revenue, and other miscellaneous income. Beginning in
2022, installment fee revenue is included within our net investment income.

Losses and LAE

Losses and LAE represents our largest expense item and includes claim payments
made, amortization of the Deferred Gain, LPT Reserve Adjustments, LPT Contingent
Commission Adjustments, estimates for future claim payments and changes in those
estimates for current and prior periods, and costs associated with
investigating, defending, and adjusting claims. The quality of our financial
reporting depends in large part on accurately predicting our losses and LAE,
which are inherently uncertain as they are estimates of the ultimate cost of
individual claims based on actuarial estimation techniques.

Our current accident year loss estimate continues to consider, and benefit from,
overall declines in the on-leveled frequency of compensable indemnity claims.
Total claims costs have also been reduced by cost savings associated with our
continued focus on accelerating claims settlements. We believe that our current
accident year loss estimate is adequate; however, ultimate losses will not be
known with any certainty for many years

Additional information regarding our reserves for losses and LAE is set forth
under "-Critical Accounting Estimates -Reserves for Losses and LAE." See also,
"-Summary of Financial Results by Segment -Employers."

Commission Expenses

Commission expenses include direct commissions to our agents and brokers,
including our partnerships and alliances, for the premiums that they produce for
us, as well as incentive payments, other marketing costs, and fees. See
"-Summary of Financial Results by Segment -Employers."

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Underwriting and General and Administrative Expenses

Underwriting expenses represent those costs that we incur to underwrite and
maintain the insurance policies we issue, excluding commissions. Direct
underwriting expenses, such as premium taxes, policyholder dividends, and those
expenses that vary directly with the production of new or renewal business, are
recognized as the associated premiums are earned. Indirect underwriting
expenses, such as the operating expenses of each of the Company's subsidiaries,
do not vary directly with the production of new or renewal business and are
recognized as incurred.

General and administrative expenses of the holding company are excluded from the
underwriting expense ratios of our reportable segments.

Interest and Financing Expenses

Interest and financing expenses include fees and interest associated with our
$75.0 million three-year revolving credit facility, fees and interest associated
with our various credit arrangements with the Federal Home Loan Bank of San
Francisco (FHLB), finance lease interest, and other financing fees.

Other Expenses

In 2021, we recorded $3.1 million of employee severance costs resulting from a
reduction-in-force, which was undertaken to better align our expenses with
current revenues. We also wrote off $1.0 million of previously capitalized costs
relating to information technologies identified as no longer being utilized. In
2020, as a result of the effectiveness of our work-from-home transition, we
reduced our real estate footprint and closed and vacated various office
locations and, accordingly, we recorded charges of $0.8 million related to the
abandonment of certain operating leases.

Income Tax Expense

Income tax expense was $7.4 million, $27.7 million, and $27.9 million for the
years ended December 31, 2022, 2021, and 2020, respectively, representing
effective tax rates of 13.3%, 18.8%, and 18.9% for the years ended December 31,
2022, 2021, and 2020, respectively.

On January 1, 2000, EICN assumed the assets, liabilities, and operations of the
Fund pursuant to legislation passed in the 1999 Nevada Legislature (the
Privatization). Prior to the Privatization, the Fund was part of the State of
Nevada and therefore was not subject to federal income tax. Accordingly, any
pre-Privatization loss and LAE reserve adjustments, LPT Reserve Adjustments and
Deferred Gain amortization impact our net income but do not change our taxable
income.

Tax-advantaged investment income, pre-Privatization loss and LAE reserve
adjustments, LPT Reserve Adjustments, LPT Contingent Commission Adjustments,
Deferred Gain amortization and certain other adjustments reduced our income tax
expense computed at a statutory rate of 21% by $4.3 million, $3.3 million, and
$3.1 million for the years ended December 31, 2022, 2021, and 2020,
respectively.

In addition to the adjustments described above, our effective tax rate in 2022
was further reduced by a $1.4 million non-recurring Federal income tax benefit
attributable to the repeal of Internal Revenue Code section 847.

Additionally, we recognize deferred tax assets when we determine that such
assets are more-likely-than-not to be realized in future periods. In making such
a determination, we consider all available evidence, including future reversals
of existing taxable temporary differences, tax-planning strategies, projected
future taxable income, projected future tax rates, and results of recent
operations. If it is determined that it is not more-likely-than-not that we
could fully realize our deferred tax assets in future periods, we would
establish a deferred tax asset valuation allowance that would increase our
provision for income taxes.

In assessing the need for a deferred tax asset valuation allowance, we are
required to make certain judgments and assumptions about our future operations
based on historical experience and information regarding reversals of existing
temporary differences, carryback capacity, future taxable income and tax
planning strategies. Recent events, including changes in market interest rates
and significant financial market volatility, have caused us to recognize a net
capital deferred tax asset in the amount of $24.7 million at December 31, 2022,
as compared to a net capital deferred tax liability of $43.5 million at December
31, 2021. We are currently utilizing tax planning strategies in our assessment
of the realizability of a portion of our net capital deferred tax asset at
December 31, 2022. These tax planning strategies include the potential sale of
selected securities that are currently in a net unrealized gain position for tax
purposes to offset future expiring capital loss carryforwards, as well as the
holding fixed maturity securities that are currently in a net unrealized loss
position for tax purposes until recovery or maturity, if needed, to avoid future
expiring capital loss carryforwards. As of December 31, 2022, we did not require
a deferred tax asset valuation allowance.

For additional information regarding our income tax expense see Note 8 in the
Notes to our Consolidated Financial Statements.

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Summary of Financial Results by Segment

EMPLOYERS

The components of net income before income taxes for our Employers segment are
set forth in the following table:

                                                                    Years Ended December 31,
                                                           2022               2021               2020
                                                                        ($ in millions)
Gross premiums written                                 $   707.5          $   588.2          $   579.8
Net premiums written                                   $   700.5          $   581.6          $   574.6

Net premiums earned                                    $   672.1          $   573.7          $   615.1
Net investment income                                       82.1               69.3               72.1
Net realized and unrealized (losses) gains on
investments                                                (44.0)              54.5               20.9

Other income                                                 0.3                1.4                0.8
Total revenues                                             710.5              698.9              708.9

Losses and LAE                                             397.5              326.2              314.2
Commission expense                                          95.8               76.1               78.8
Underwriting expenses                                      138.9              131.2              151.1
Interest and financing expenses                              3.0                  -                0.1
Other expenses                                                 -                4.1                0.7
Total expenses                                             635.2              537.6              544.9

Net income before income taxes                         $    75.3          $ 

161.3 $ 164.0

Underwriting income                                    $    39.9          $    40.2          $    71.0

Combined ratio                                              94.1  %            93.1  %            88.5  %


Underwriting Results

Gross Premiums Written

Gross premiums written were $707.5 million, $588.2 million, and $579.8 million
for the years ended December 31, 2022, 2021, and 2020, respectively.

The strong growth in Employers' premiums written in 2022 was the result of
higher new and renewal business premiums and final audit premiums. The growth in
new business premiums experienced was the result of increases in new business
submissions, quotes and binds in the majority of the states in which we operate,
which is being largely driven by our expansion in the classes of business that
Employers offers. We also increased our final audit premium accruals by
$24.6 million and recognized $34.8 million of audit premium pick-up, as our
payroll exposure increased with U.S. labor market strengthening and rising
wages. In addition, renewal premium benefited from continued strong retention
rates throughout the year.

The modest growth in Employers' premiums written in 2021 was the result of
higher new business premiums and final audit premiums, partially offset by lower
renewal premium. The growth in new business premiums experienced was the result
of increases in new business submissions, quotes and binds in the majority of
the states in which we operate, particularly in California. We also increased
our final audit accruals by $12.3 million, as payroll exposure improved with
U.S. labor market strengthening during the second half of the year, although we
returned $11.5 million to policyholders throughout the year as a result of lower
final audits. Decreases in average rates and policy sizes in many of the states
in which we do business negatively impacted our renewal premium in 2021, despite
our retention rate remaining strong.

Net Premiums Written

Net premiums written were $700.5 million, $581.6 million, and $574.6 million for
the years ended December 31, 2022, 2021, and 2020, respectively, which included
$7.0 million, $6.6 million, and $5.2 million of reinsurance premiums ceded,
respectively.

Net Premiums Earned

Net premiums earned were $672.1 million, $573.7 million, and $615.1 million for
the years ended December 31, 2022, 2021, and 2020, respectively.

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The following table shows the percentage change in Employers' in-force premiums,
excluding estimated final audit premium, policy count, average policy size, and
payroll exposure upon which our premiums are based as of December 31, 2022 and
2021, respectively, overall, for California, where 45% of our premiums were
generated, and for all other states, excluding California:

                                                       Percentage Change                                                 Percentage Change
                                                        2022 Over 2021                                                    2021 Over 2020
                                                                                  All Other                                                         All Other
                                      Overall              California              States               Overall              California              States
In-force premiums                          8.3  %                  8.2  %              8.4  %               (1.3) %                 (1.4) %             (1.3) %
In-force policy count                      7.6                     5.3                 8.9                   6.7                     2.8                 9.1
Average in-force policy size               0.7                     2.8                (0.4)                 (7.5)                   (4.0)               (9.5)
In-force payroll exposure                 11.2                     9.2                12.2                   7.4                    10.6                 5.8

Losses and LAE, Commission Expenses, and Underwriting Expenses

The following table presents calendar year combined ratios for our Employers
segment.

                                                   Years Ended December 31,
                                                 2022                2021        2020
          Loss and LAE ratio                            59.1  %     56.9  %     51.1  %
          Commission expense ratio                      14.3        13.3        12.8
          Underwriting expense ratio                    20.7        22.9        24.6
          Combined ratio                                94.1  %     93.1  %     88.5  %

Loss and LAE Ratio. We analyze our loss and LAE ratios on both a calendar year
and accident year basis.

The calendar year loss and LAE ratio is calculated by dividing the losses and
LAE recorded during the calendar year, regardless of when the underlying insured
event occurred, by the net premiums earned during that calendar year. The
calendar year loss and LAE ratio includes changes made during the calendar year
in reserves for losses and LAE established for insured events occurring in the
current and prior years. The calendar year loss and LAE ratio for a particular
year will not change in future periods.

The accident year loss and LAE ratio is calculated by dividing cumulative losses
and LAE for reported events that occurred during a particular year by the net
premiums earned for that year. The accident year loss and LAE ratio for a
particular year can decrease or increase when recalculated in subsequent periods
as the reserves established for insured events occurring during that year
develop favorably or unfavorably. The accident year loss and LAE ratio is based
on our statutory financial statements and is not derived from our GAAP financial
information.

Our calendar year loss and LAE ratio is analyzed to measure profitability in a
particular year and to evaluate the adequacy of premium rates charged in a
particular year to cover expected losses and LAE from all periods, including
development (whether favorable or unfavorable) of reserves established in prior
periods. In contrast, our accident year loss and LAE ratios are analyzed to
evaluate underwriting performance and the adequacy of the premium rates charged
in a particular year in relation to ultimate losses and LAE from insured events
occurring during that year. The loss and LAE ratios provided in this report are
on a calendar year basis, except where they are expressly identified as accident
year loss and LAE ratios.

The table below reflects Employers' prior accident year loss and LAE reserve
adjustments and the impact to loss ratio.

                                                          Years Ended December 31,
                                                      2022          2021          2020
                                                              ($ in millions)
Net premiums earned                                $ 672.1       $ 573.7       $ 615.1

Losses and LAE                                     $ 397.5       $ 326.2       $ 314.2
Prior accident year favorable development, net        33.4          39.8    

81.6

Current accident year losses and LAE               $ 430.9       $ 366.0    

$ 395.8

Current accident year loss and LAE ratio              64.1  %       63.8  % 

64.3 %

The increase in Employers' total losses and LAE from 2021 to 2022 was primarily
due to higher earned premium, a higher current accident year estimate and less
net favorable prior year loss reserve development. Net favorable prior year loss
reserve development in 2022 was $33.4 million versus $39.8 million in 2021. The
increase in Employers' total losses and LAE from

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2020 to 2021 was primarily due to less favorable prior year loss reserve
development. Net favorable prior year loss reserve development recognized in
2021 was $39.8 million versus $81.6 million recognized in 2020.

The net favorable development recognized in 2022 was primarily the result of
observed favorable paid loss cost trends predominantly related to accident years
2017 and prior, due primarily to decreasing medical and indemnity costs.

The net favorable development recognized in 2021 was primarily the result of
observed favorable paid loss cost trends predominantly related to accident years
2017 and prior, due primarily to decreasing medical costs and defense and cost
containment, partially offset by: (i) $10.0 million of unfavorable development
related to accident year 2019, which is reflective of more weight being placed
on now sufficiently seasoned loss trends and patterns originating in part from
business written in our newer territories; and (ii) $8.0 million of unfavorable
loss development associated with two catastrophic non-COVID claims in accident
year 2020.

The net favorable development recognized in 2020 was primarily the result of
observed favorable paid loss cost trends predominantly related to accident years
2018 and prior, due primarily to decreasing medical costs, partially offset by
$13.3 million of adverse development on accident year 2019 due, in part, to an
inability to fully execute our claims initiatives to reduce loss costs as a
result of the COVID-19 pandemic.

Employers' current accident year loss and LAE ratios from 2020 to 2022 have
remained largely consistent due to continued low indemnity claim frequency. In
addition, Employers' current accident year loss and LAE ratios continue to
reflect the impact of key business initiatives: an emphasis on accelerated
settlements of open claims; further diversifying its risk exposure across
geographic markets, when appropriate; and leveraging data-driven strategies to
target, underwrite, and price profitable classes of business across all of its
markets.

Commission Expense Ratio. Employers' commission expense ratio was 14.3%, 13.3%,
and 12.8%, and its commission expenses were $95.8 million, $76.1 million, and
$78.8 million for the years ended December 31, 2022, 2021, and 2020,
respectively. The increase in Employers' commission expense ratio from 2021 to
2022 was primarily the result of an increase in agency incentive accruals, an
increase in new business writings, which are subject to higher commission rates,
and a reversal of commissions relating to non-compliant and uncollectible
premium recorded in 2021. The increase in Employers' commission expense ratio
from 2020 to 2021 was primarily the result of increased commissions on new
business writings, which were subject to a higher commission rate.

Underwriting Expense Ratio. Employers' underwriting expense ratio was 20.7%,
22.9%, and 24.6%, and its underwriting expenses were $138.9 million, $131.2
million, and $151.1 million for the years ended December 31, 2022, 2021, and
2020, respectively.

The improvement in Employers' underwriting expense ratio from 2021 to 2022 was
primarily the result of higher earned premiums and active fixed expense
management. During 2022, Employers' fixed expenses (payroll, information
technology costs, professional fees, facilities and other) decreased $1.2
million in the aggregate, to $96.8 million, and its variable expenses (premium
taxes, assessments, policyholder dividends and bad debt expense) increased $8.9
million in the aggregate, to $42.1 million, as a result of the increase in
earned premium.

The reduction in Employers' underwriting expenses and the improvement in its
underwriting expense ratio from 2020 to 2021 was primarily the result of
employee reductions and departures, as well as other planned fixed expense
reductions such as professional fees.

Underwriting Income

Employers' underwriting income was $39.9 million, $40.2 million, and $71.0
million for the years ended December 31, 2022, 2021, and 2020, respectively.
Underwriting income or loss is determined by deducting losses and LAE,
commission expense, and underwriting expenses from net premiums earned.

Non-Underwriting Income and Expenses

For a further discussion of non-underwriting related income and expenses,
including Net Investment Income and Net Realized and Unrealized Gains and Losses
on Investments, Other Income, Interest and Financing Expenses, and Other
Expenses, see "-Results of Operations -Summary of Consolidated Financial
Results."

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CERITY

The components of net loss before income taxes for our Cerity segment are set
forth in the following table:

                                                                     Years Ended December 31,
                                                            2022                 2021               2020
                                                                           (in millions)
Gross premiums written                                 $      6.7            $     1.5          $     0.3
Net premiums written                                   $      6.7            $     1.5          $     0.3

Net premiums earned                                    $      3.1            $     0.7          $     0.2
Net investment income                                         4.1                  2.8                3.1
Net realized and unrealized (losses) gains on
investments                                                  (1.3)                 0.3                  -

Total revenues                                                5.9                  3.8                3.3

Losses and LAE                                                1.8                  0.5                0.1
Commission expense                                            0.1                    -                  -
Underwriting expenses                                        13.9                 12.9               16.6

Other expenses                                                  -                    -                0.1
Total expenses                                               15.8                 13.4               16.8

Net loss before income taxes                           $     (9.9)           $    (9.6)         $   (13.5)

Underwriting loss                                      $    (12.7)           $   (12.7)         $   (16.5)

Combined ratio                                                     n/m                n/m                n/m
n/m - not meaningful


Underwriting Results

Gross Premiums Written and Net Premiums Written

Cerity's gross and net premiums written were $6.7 million, $1.5 million and $0.3
million for the years ended December 31, 2022, 2021, and 2020, respectively.
Cerity's growth in premiums written in 2022 was largely the result of an
expansion in the classes of business that it offers, as well as an increase in
the growing number of collaborations that it has developed with strategic
digital partners.

Cerity's net premiums earned were $3.1 million, $0.7 million and $0.2 million
for the years ended December 31, 2022, 2021, and 2020, respectively.

Losses and LAE and Underwriting Expenses

Cerity's current accident year loss and LAE ratios in 2022, 2021, and 2020 were
highly consistent with those of the Employers' segment. During 2022, Cerity
recognized $0.1 million of net favorable prior year loss reserve development,
which was the result of observed favorable paid loss cost trends related to
accident years 2020 and prior. Cerity did not recognize any prior year loss
reserve development in 2021 or 2020.

Cerity's underwriting expenses were $13.9 million, $12.9 million, and $16.6
million for the years ended December 31, 2022, 2021, and 2020, respectively. The
increase in Cerity's underwriting expenses from 2021 to 2022 related primarily
to its variable expenses (premium taxes, assessments and bad debt expense),
which increased in the aggregate by $0.7 million as a result of the increase in
its earned premium. The decrease in Cerity's underwriting expenses from 2020 to
2021 were primarily the result of employee reductions and departures.

Underwriting Loss

Cerity's underwriting losses were $12.7 million, $12.7 million, and $16.5
million for the years ended December 31, 2022, 2021, and 2020, respectively.
Underwriting income or loss is determined by deducting losses and LAE,
commission expense, and underwriting expenses from net premiums earned.

Non-Underwriting Income and Expenses

For a further discussion of non-underwriting related income and expenses,
including Net Investment Income and Net Realized and Unrealized Gains and Losses
on Investments, Other Income, and Other Expenses, see "-Results of Operations
-Summary of Consolidated Financial Results Consolidated."

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CORPORATE AND OTHER

The components of net income (loss) before income taxes for Corporate and Other
are set forth in the following table:

                                                               Years Ended December 31,
                                                             2022             2021        2020
                                                                     (in millions)
 Net investment income                                 $     3.6            $  0.6      $  1.1

Net realized and unrealized losses on investments (6.5)

  (0.2)       (1.9)

 Total revenues                                             (2.9)              0.4        (0.8)

 Losses and LAE - LPT                                       (8.3)            (11.5)      (11.9)

 General and administrative expenses                        14.5            

16.1 13.6

 Interest and financing expenses                             0.5               0.5         0.3

 Total expenses                                              6.7               5.1         2.0

 Net loss before income taxes                          $    (9.6)           $ (4.7)     $ (2.8)


Losses and LAE - LPT

The table below reflects the impact of the LPT on Losses and LAE, which are
recorded as a reduction to Losses and LAE incurred on our Consolidated
Statements of Comprehensive Income.

                                                                     Years Ended December 31,
                                                             2022              2021              2020
                                                                          (in millions)
Amortization of the Deferred Gain related to losses      $     6.8          $    6.7          $    8.7
Amortization of the Deferred Gain related to contingent
commission                                                     1.5               1.7               1.8
Impact of LPT Reserve Adjustments(1)                             -               2.6               1.2
Impact of LPT Contingent Commission Adjustments(2)               -               0.5               0.2
Total impact of the LPT                                  $     8.3          $   11.5          $   11.9


(1)LPT Reserve Adjustments result in a cumulative adjustment to the Deferred
Gain, which is recognized in losses and LAE incurred on our Consolidated
Statements of Comprehensive Income, such that the Deferred Gain reflects the
balance that would have existed had the revised reserves been recognized at the
inception of the LPT Agreement. (See Note 2 in the Notes to our Consolidated
Financial Statements.)

(2)LPT Contingent Commission Adjustments result in a cumulative adjustment to
the Deferred Gain, which is recognized in losses and LAE incurred on our
Consolidated Statements of Comprehensive Income, such that the Deferred Gain
reflects the balance that would have existed had the revised contingent profit
commission been recognized at the inception of the LPT Agreement. (See Note 2 in
the Notes to our Consolidated Financial Statements.)

General and Administrative Expenses

Corporate and Other's general and administrative expenses, which consist
primarily of compensation-related expenses, professional fees, and other holding
company expenses, were $14.5 million, $16.1 million, and $13.6 million for the
years ended December 31, 2022, 2021, and 2020, respectively. Corporate and
Other's compensation-related expenses decreased $2.3 million in 2022 as compared
to 2021. The decrease related primarily to the acceleration of share-based
awards in connection with the retirement of our former President and Chief
Executive Officer in 2021, which served to increase Corporate and Other's
compensation-related expenses in that year.

Non-Underwriting Income and Expenses

For a further discussion of non-underwriting related income and expenses,
including Net Investment Income, Net Realized and Unrealized Gains and Losses on
Investments, and Interest and Financing Expenses, see "-Results of Operations
-Summary of Consolidated Financial Results."

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Liquidity and Capital Resources

Despite the unrealized investment losses that we sustained in 2022 as a result
of increases in market interest rates, economic and market disruptions caused by
inflationary pressures and geo-political conditions, we believe that our capital
position remains strong and that the liquidity available to our holding company
and its operating subsidiaries remains adequate. As a result, we do not
currently foresee a need to: (i) suspend dividends at either the holding company
or our insurance subsidiaries; (ii) forgo repurchases of our common stock; (iii)
seek additional capital; or (iv) seek any material non-investment asset sales.

Holding Company Liquidity

We are a holding company and our ability to fund our operations is contingent
upon our existing capital and the ability of our subsidiaries to pay dividends
up to the holding company. Payment of dividends by our insurance subsidiaries is
restricted by state insurance laws and regulations, including laws establishing
minimum solvency and liquidity thresholds. We require cash to pay stockholder
dividends, repurchase common stock, provide additional surplus to our insurance
subsidiaries, and fund our operating expenses.

Total cash and investments at the holding company were $98.9 million at
December 31, 2022, consisting of $37.3 million of cash and cash equivalents,
$7.9 million of fixed maturity securities, $33.0 million of equity securities,
and $20.7 million of short-term investments.

On December 15, 2020, EHI entered into a Credit Agreement (the Credit Agreement)
with a syndicate of financial institutions. The Credit Agreement provides EHI
with a $75.0 million three-year revolving credit facility. Borrowings under the
Credit Agreement may be used for working capital and general corporate purposes.
Pursuant to the Credit Agreement, EHI has the option to request an increase of
the credit available under the facility, up to a maximum facility amount of
$125.0 million, subject to the consent of lenders and the satisfaction of
certain conditions. EHI borrowed and subsequently repaid $10.0 million and $27.0
million under the Credit Agreement during the years ended December 31, 2022 and
2021, respectively. EHI had no outstanding advances under the Credit Agreement
as of December 31, 2022 and 2021.

The interest rates applicable to loans under the Credit Agreement are generally
based on a base rate plus a specified margin, ranging from 0.25% to 1.25%, or
the Eurodollar rate (which will convert to an alternative reference rate once
LIBOR is discontinued) plus a specified margin, ranging from 1.25% to 2.25%.
Total interest paid during each of the years ended December 31, 2022 and 2021
was $0.3 million.

The Credit Agreement contains covenants that require us to maintain: (i) a
minimum consolidated net worth of no less than 70% of our stockholders' equity
as of September 30, 2020, plus 50% of our aggregate net income thereafter; and
(ii) a debt to total capitalization ratio of no more than 35%, in each case as
determined in accordance with the Credit Agreement. As of December 31, 2022 and
2021, EHI was in compliance with each of these requirements.

Our insurance subsidiaries' ability to pay dividends to their parent is based on
reported capital, surplus, and dividends paid within the prior 12 months. For
2023, EICN cannot pay any dividends through March 23, 2023 and can pay $9.8
million thereafter, without prior regulatory approval; EPIC cannot pay any
dividends through July 1, 2023, and can pay $22.9 million thereafter, without
prior regulatory approval; EAC cannot pay any dividends through July 1, 2023,
and can pay $21.0 million thereafter, without prior regulatory approval; and CIC
cannot pay dividends through September 9, 2023, without prior regulatory
approval, and $4.0 million thereafter.

On January 14, 2022, ECIC received regulatory approval from the California DOI
to pay an extraordinary distribution, in the amount of $120.0 million, to its
parent company, EGI. This distribution was approved by ECIC's Board of Directors
on November 12, 2021 and it was paid to EGI on February 15, 2022. As a result of
this distribution, ECIC cannot pay dividends through February 15, 2023, without
prior regulatory approval and can pay $21.0 million thereafter, without prior
regulatory approval.

Operating Subsidiaries' Liquidity

The primary sources of cash for our operating subsidiaries, which include our
insurance and other operating subsidiaries, are premium collections, investment
income, sales and maturities of investments, proceeds from FHLB advances, and
reinsurance recoveries. The primary uses of cash for our operating subsidiaries
are payments of losses and LAE, commission expenses, underwriting and general
and administrative expenses, ceded reinsurance, repayments of FHLB advances,
investment purchases and dividends paid to their parent.

Total cash and investments held by our operating subsidiaries was $2,559.3
million at December 31, 2022, consisting of $52.1 million of cash, cash
equivalents, and restricted cash, $2,178.4 million of fixed maturity securities,
$170.7 million of equity securities, $98.4 million of short-term investments,
and $59.7 million of other invested assets. Sources of immediate and
unencumbered liquidity at our operating subsidiaries as of December 31, 2022
consisted of $51.9 million of cash and cash equivalents, $164.1 million of
publicly-traded equity securities whose proceeds are available within three
business days, $616.0 million of highly liquid fixed maturity securities whose
proceeds are available within three business days, and $98.4 million of

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short-term investments whose proceeds are available within three business days.
We believe that our subsidiaries' liquidity needs over the next 24 months will
be met with cash from operations, investment income, and maturing investments.

All of our insurance subsidiaries are members of the FHLB. Membership allows our
subsidiaries access to collateralized advances, which may be used to support and
enhance liquidity management. The amount of advances that may be taken is
dependent on statutory admitted assets on a per company basis.

During 2022, our insurance subsidiaries, with the exception of CIC, received
aggregate advances of $182.5 million from the FHLB under their Standard Credit
Program, all of which remained outstanding at December 31, 2022. The proceeds
from these advances were used to purchase an equivalent amount of high-quality
collateralized loan obligation securities. The annualized weighted average
interest rate on these advances was 2.65% in 2022. Interest incurred and paid
during the year ended December 31, 2022 totaled $3.0 million and $2.3 million,
respectively. These advances can be repaid at any time without penalty and are
collateralized by eligible investment securities.

In 2020, the FHLB launched its Recovery Advance Program. The Recovery Advance
Program is a zero percent interest, six-month or one-year credit product that
members could use to provide immediate relief to property owners, businesses,
and other customers struggling with the financial impacts of the COVID-19
pandemic. Each FHLB member was allocated up to $10.0 million in advances under
the Recovery Advance Program.

On May 11, 2020, our insurance subsidiaries, with the exception of CIC, received
a total of $35.0 million of advances from the FHLB under the Recovery Advance
Program. The advances were secured by collateral previously pledged to the FHLB
by our insurance subsidiaries in support of their existing collateralized
advance facility, which was reduced by the amount of these outstanding advances.
Our insurance subsidiaries repaid $15.0 million of such advances on November 4,
2020, $5.0 million on March 31, 2021, and $15.0 million on May 4, 2021.

FHLB membership also allows our insurance subsidiaries access to Letter of
Credit Agreements and on March 9, 2018, ECIC, EPIC, and EAC entered into Letter
of Credit Agreements with the FHLB. On January 26, 2021, we chose to amend our
existing Letter of Credit Agreements among the FHLB and EPIC to decrease its
respective credit amount. On August 13, 2021, we chose to amend our existing
Letter of Credit Agreements among the FHLB, ECIC and EAC to decrease their
respective credit amounts. The amended Letter of Credit Agreements are between
the FHLB and each of EAC, in the amount of $25.0 million, ECIC, in the amount of
$35.0 million, and EPIC, in the amount of $10.0 million. The amended Letter of
Credit Agreements will expire March 31, 2023. The Letter of Credit Agreements
may only be used to satisfy, in whole or in part, insurance deposit requirements
with the State of California and are fully secured with eligible collateral at
all times (See Note 11 in the Notes to our Consolidated Financial Statements).

We purchase reinsurance to protect us against the costs of severe claims and
catastrophic events, including pandemics. On July 1, 2022, we entered into a new
reinsurance program that is effective through June 30, 2023. The reinsurance
program consists of one treaty covering excess of loss and catastrophic loss
events in four layers of coverage. Our reinsurance coverage is $190.0 million in
excess of our $10.0 million retention on a per occurrence basis, subject to
certain exclusions. We believe that our reinsurance program meets our needs and
that we are sufficiently capitalized.

Our insurance subsidiaries are required by law to maintain a certain minimum
level of surplus on a statutory basis. Surplus is calculated by subtracting
total liabilities from total admitted assets. The amount of capital in our
insurance subsidiaries is maintained relative to standardized capital adequacy
measures such as risk-based capital (RBC), as established by the National
Association of Insurance Commissioners. The RBC standard was designed to provide
a measure by which regulators can assess the adequacy of an insurance company's
capital and surplus relative to its operations. An insurance company must
maintain capital and surplus of at least 200% of RBC. Each of our insurance
subsidiaries had total adjusted capital in excess of the minimum RBC
requirements that correspond to any level of regulatory action at December 31,
2022.

Various state laws and regulations require us to hold investment securities or
letters of credit on deposit with certain states in which we do business.
Securities having a fair value of $745.9 million and $861.4 million were on
deposit at each of December 31, 2022 and 2021, respectively. These laws and
regulations govern both the amount and types of investment securities that are
eligible for deposit. Additionally, standby letters of credit from the FHLB have
been issued in lieu of $70.0 million of securities on deposit at December 31,
2022 and 2021.

Certain reinsurance contracts require company funds to be held in trust for the
benefit of the ceding reinsurer to secure the outstanding liabilities we have
assumed. The fair value of fixed maturity securities held in trust for the
benefit of our ceding reinsurers was $2.7 million and $3.1 million at
December 31, 2022 and 2021, respectively.

Sources of Liquidity

We monitor the cash flows of each of our subsidiaries individually, as well as
collectively as a consolidated group. We use trend and variance analyses to
project future cash needs, making adjustments to our forecasts as appropriate.

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The table below shows our net cash flows. For additional information regarding
our cash flows, see Item 8, Consolidated Statements of Cash Flows.

                                                                      Years 

Ended December 31,

                                                            2022                  2021               2020
Cash, cash equivalents, and restricted cash provided
by (used in):                                                              (in millions)
Operating activities                                  $     99.8              $    10.8          $     33.0
Investing activities                                      (146.1)                  (1.7)               84.3
Financing activities                                        60.4                  (94.4)             (111.9)
Increase (decrease) in cash, cash equivalents, and
restricted cash                                       $     14.1              $   (85.3)         $      5.4


Operating Activities

Net cash provided by operating activities in 2022 included net premiums received
of $646.2 million and investment income received of $88.3 million. These
operating cash inflows were partially offset by net claims payments of $387.7
million, underwriting and general and administrative expenses paid of $145.8
million, commissions paid of $82.6 million, interest and financing fees paid of
$3.5 million, and federal income taxes paid of $15.1 million.

Net cash provided by operating activities in 2021 included net premiums received
of $568.0 million and investment income received of $82.0 million. These
operating cash inflows were partially offset by net claims payments of $394.6
million, underwriting and general and administrative expenses paid of $141.0
million, commissions paid of $74.8 million, and federal income taxes paid of
$28.2 million.

Net cash provided by operating activities in 2020 included net premiums received
of $624.6 million and investment income received of $87.2 million. These
operating cash inflows were partially offset by net claims payments of $402.6
million, underwriting and general and administrative expenses paid of $171.3
million, commissions paid of $85.7 million, and federal income taxes paid of
$18.5 million.

Investing Activities

Net cash used in investing activities in 2022 primarily related to FHLB advances
received, and reinvestment of funds from investment sales, maturities,
redemptions, and interest income. These investing cash outflows were partially
offset by investment sales, maturities and redemptions whose proceeds were used
to fund claims payments, underwriting and general and administrative expenses,
stockholder dividend payments, and common stock repurchases.

Net cash used in investing activities in 2021 primarily related to the
investment of premiums received and reinvestment of funds from investment sales,
maturities, redemptions, and interest income. These investing cash outflows were
largely offset by sales, maturities, and redemptions of investments whose
proceeds were used to fund claims payments, underwriting and general and
administrative expenses, stockholder dividend payments, and common stock
repurchases.

Net cash provided by investing activities in 2020 primarily related to sales,
maturities, and redemptions of investments whose proceeds were used to fund
claims payments, underwriting and general and administrative expenses,
stockholder dividend payments, and common stock repurchases, partially offset by
the investment of premiums received and reinvestment of funds from investment
sales, maturities, redemptions, and interest income.

Financing Activities

Net cash provided by financing activities in 2022 was primarily related to FHLB
advances received partially offset by common stock repurchases and stockholder
dividend payments. During the year ended December 31, 2022, we borrowed and
subsequently repaid $10.0 million under the Credit Agreement.

Net cash used in financing activities in 2021 included common stock repurchases
and stockholder dividend payments and repayments of FHLB advances. During the
year ended December 31, 2021, we borrowed and subsequently repaid $27.0 million
under the Credit Agreement.

Net cash used in financing activities in 2020 included common stock repurchases
and stockholder dividend payments, partially offset by net cash received from
the FHLB Recovery Advance Program.

Dividends. We paid $28.8 million, $29.0 million, and $30.5 million in regular
quarterly dividends to our stockholders and eligible plan award holders in 2022,
2021, and 2020, respectively. We also paid $27.5 million and $34.0 million in
special dividends to our stockholders in June 2022 and December 2022. The
declaration and payment of future dividends to common stockholders will be at
the discretion of our Board of Directors and will depend upon many factors,
including our financial position, capital requirements of our operating
subsidiaries, legal and regulatory requirements, and any other factors our Board
of Directors deems relevant. On February 15, 2023, the Board of Directors
declared a $0.26 quarterly dividend per share, payable March 15, 2023, to
stockholders of record on March 1, 2023.

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Repurchases of Common Stock. We repurchased $30.4 million, $42.2 million and
$99.8 million of our common stock in 2022, 2021, and 2020, respectively. On July
21, 2021, our Board of Directors authorized a new share repurchase authorization
for repurchases of up to $50.0 million of our common stock from July 27, 2021
through December 31, 2022 (the 2021 Program). On April 27, 2022, the Board of
Directors authorized a $50.0 million expansion of the 2021 Program to $100.0
million, and extended the program's expiration to December 31, 2023. Future
repurchases of our common stock will be at the discretion of our Board of
Directors and will depend upon many factors, including our financial position,
capital requirements of our operating subsidiaries, general business and social
economic conditions, legal, tax, regulatory, and/or contractual restrictions,
and any other factors our Board of Directors deems relevant. As of December 31,
2022, we had a remaining common stock repurchase authorization of $47.4 million.
See Item 5, Issuer Purchases of Equity Securities.

Capital Resources

As of December 31, 2022, the capital resources available to us consisted of
$944.2 million of stockholders' equity and the $106.1 million Deferred Gain.

Stockholders' Equity. The following table summarizes our beginning and ending
stockholders' equity balance and the changes thereto for each of the years ended
December 31, 2022, 2021, and 2020:

                                                                         December 31,
                                                          2022               2021               2020
                                                                        (in millions)
Beginning Balance                                     $ 1,213.1          $ 1,212.8          $ 1,165.8
Stock-based obligations                                     5.1                9.1                9.7
Stock options exercised                                     1.1                1.1                0.9

Shares withheld to satisfy minimum tax withholdings
for certain stock-based obligations

                        (2.3)              (3.8)              (2.7)

Acquisition of common stock                               (30.4)             (42.2)             (99.8)
Dividends declared on common stock and eligible plan
awards                                                    (91.3)             (28.7)             (30.8)

Net income for the year                                    48.4              119.3              119.8

Change in net unrealized (losses) gains on
investments, net of taxes                                (199.5)             (54.5)              49.8
Ending Balance                                        $   944.2          $ 1,213.1          $ 1,212.8

Deferred Gain. The Deferred Gain, which totaled $106.1 million and $114.4
million as of December 31, 2022 and 2021, respectively, reflects the unamortized
gain from the LPT Agreement. See Note 2 in the Notes to our Consolidated
Financial Statements.

Contractual Obligations and Commitments

Other than operating expenses, current and long-term cash requirements include
the following contractual obligations and commitments as of December 31, 2022.

Leases

We have entered into lease arrangements for certain equipment and facilities. As
of December 31, 2022, we had lease payment obligations of $14.7 million, with
$3.5 million payable within 12 months.

Other Purchase Obligations

We have other purchase obligations that primarily consist of non-cancellable
obligations to acquire capital assets, commitments for information technology
and related services, software acquisition and license commitments and other
legally binding agreements to purchase services that are to be used in our
operations. As of December 31, 2022, we had other purchase obligations of $26.1
million, with $7.7 million payable within 12 months.

Unfunded Investment Commitments

We have investments in private equity limited partnerships that require capital
distributions to fund the investments and can be called at any time deemed
necessary. As of December 31, 2022, we had unfunded investment commitments of
$55.2 million.

Unpaid Losses and LAE reserves

We have developed unpaid losses and LAE reserves payment patterns that are
computed based on historical information. Our calculation of loss and LAE
reserve payments by period is subject to the same uncertainties associated with
determining the level of reserves and to the additional uncertainties arising
from the difficulty of predicting when claims (including claims that have not
yet been reported to us) will be paid. Actual payments of losses and LAE by
period will vary, perhaps materially, to the extent that current estimates of
losses and LAE reserves vary from actual ultimate claims amounts due to
variations between

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expected and actual payout patterns. As of December 31, 2022, we had unpaid
losses and LAE reserves of $1,960.7 million, with $315.6 million payable within
12 months. For a discussion of our reserving process, see ''-Critical Accounting
Estimates-Reserves for Losses and LAE.''

The unpaid losses and LAE expense payment patterns are gross of reinsurance
recoverables for unpaid losses. As of December 31, 2022, we had reinsurance
recoverables on unpaid losses and LAE of $445.4 million, of which $30.9 million
is currently expected to be received within 12 months.

Investments

Our investment portfolio is structured to support our need for: (i) optimizing
our risk-adjusted total return; (ii) providing adequate liquidity; (iii)
facilitating financial strength and stability; and (iv) ensuring regulatory and
legal compliance. These investments provide a steady source of income, which may
fluctuate with changes in interest rates and our current investment strategies.

Our Investment Managers follow our written investment guidelines, which are
approved by the Finance Committee of the Board of Directors. Our asset
allocation is reevaluated by management and reviewed by the Finance Committee of
the Board of Directors on a quarterly basis. We also utilize our Investment
Managers' investment advisory services to assist us in developing a tailored set
of portfolio targets and objectives.

As of December 31, 2022, our investment portfolio consisted of 85% fixed
maturity securities. We strive to limit the interest rate risk associated with
fixed maturity investments by managing the duration of these securities. Our
fixed maturity securities (excluding cash and cash equivalents) had a duration
of 3.9 at December 31, 2022. To minimize interest rate risk, our portfolio is
weighted toward short-term and intermediate-term bonds; however, our investment
strategy balances consideration of duration, yield, and credit risk. Our
investment guidelines require that the minimum weighted average quality of our
fixed maturity securities portfolio be "A," using ratings assigned by S&P or an
equivalent rating assigned by another nationally recognized statistical rating
agency. Our fixed maturity securities portfolio had a weighted average quality
of "A" as of December 31, 2022. Other securities within fixed maturity
securities consist of bank loans, which are classified as AFS and are reported
at fair value.

Our investment portfolio also contains equity securities. We strive to limit the
exposure to equity price risk associated with publicly traded equity securities
by diversifying our holdings across several industry sectors. These equity
securities had a fair value of $197.0 million at December 31, 2022, which
represented 8% of our investment portfolio at that time. We also have a $6.7
million investment in FHLB stock which we record at cost. We receive periodic
dividends from the FHLB for this investment, when declared, which can vary from
period to period.

Our other invested assets made up 2% of our investment portfolio at December 31,
2022 and include private equity limited partnerships. Our investments in private
equity limited partnerships totaled $59.7 million at December 31, 2022 and are
generally not redeemable by the investees and cannot be sold without prior
approval of the general partner. These investments have a fund term of 3 to 12
years, subject to two or three one-year extensions at the general partner's
discretion. We expect to receive distributions of proceeds from dividends and
interest from fund investments, as well as from the disposition of a fund
investment or portion thereof, from time-to-time during the full course of the
fund term. As of December 31, 2022, we had unfunded commitments to these private
equity limited partnerships totaling $55.2 million.

We believe that our current asset allocation meets our strategy to preserve
capital for claims and policy liabilities and to provide sufficient capital
resources to support and grow our ongoing insurance operations.

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The following table shows the estimated fair value, the percentage of the fair
value to total invested assets, and the average ending book yield (each based on
the book value of each category of invested assets) as of December 31, 2022.

                                                       Estimated Fair
Category                                                   Value              Percentage of Total               Book Yield
                                                                          (in millions, except percentages)
U.S. Treasuries                                       $        90.8                          3.6  %                       2.3  %
U.S. Agencies                                                   2.1                          0.1                          2.9
States and municipalities                                     317.6                         12.7                          3.1
Corporate securities                                          868.1                         34.7                          3.4
Residential mortgaged-backed securities                       360.2                         14.4                          3.1
Commercial mortgaged-backed securities                         55.1                          2.2                          3.2
Asset-backed securities                                        66.1                          2.6                          4.5
Collateralized loan obligations                               260.9                         10.4                          5.9
Foreign government securities                                  10.2                          0.4                          3.7
Other securities                                              155.2                          6.2                          8.0
Equity securities                                             197.0                          7.9                          3.2
Short-term investments                                        119.1                          4.8                          4.4
Total investments at fair value                       $     2,502.4                        100.0  %
Weighted average ending yield                                                                                             3.9  %


The following table shows the percentage of total estimated fair value of our
fixed maturity securities as of December 31, 2022 by credit rating category,
using the lower of the ratings assigned by Moody's Investors Service or S&P.

                                                 Percentage of Total
                  Rating                         Estimated Fair Value
                  "AAA"                                        13.6  %
                  "AA"                                         36.3
                  "A"                                          25.9
                  "BBB"                                        13.1
                  Below Investment Grade                       11.1
                  Total                                       100.0  %


Investments that we currently own could be subject to default by the issuer. We
regularly assess individual securities as part of our ongoing portfolio
management, including the identification of credit related losses. Our
assessment includes reviewing the extent of declines in fair value of
investments below amortized cost, historical and projected financial performance
and near-term prospects of the issuer, the outlook for industry sectors, credit
rating, and macro-economic changes. We also make a determination as to whether
it is more likely than not that we will be required to sell the security before
its fair value recovers to above cost, or maturity.

In addition to recognizing realized gains and losses upon the disposition of an
investment security, we also recognize realized gains or losses on AFS debt
securities for changes in CECL. We recognized $4.5 million, $0.2 million and
$0.7 million of CECL on AFS debt securities during the years ended December 31,
2022, 2021, and 2020, respectively. The increase of $4.3 million in 2022 was due
to significant volatility in the financial markets, which increased our current
provision. The remaining fixed maturity securities whose total fair value was
less than amortized cost at December 31, 2022, 2021, and 2020, were those in
which we had no intent, need or requirement to sell at an amount less than their
amortized cost.

For additional information regarding our investments, including the cost or
amortized cost, gross unrealized gains, gross unrealized losses, and estimated
fair value of our investments, the amortized cost and estimated fair value of
fixed maturity securities by contractual maturity, and net realized and
unrealized gains and losses on investments, see Note 5 in the Notes to our
Consolidated Financial Statements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires both
the use of estimates and judgment, relative to the application of appropriate
accounting policies, which include the recognition of premium revenue,
recoverability of deferred income taxes, and valuation of investments. Our
accounting policies are described in Note 2 to our Consolidated Financial
Statements, however, we believe that the following matters are particularly
important to understand our financial statements

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because changes in these estimates or changes in the assumptions used to make
them could have a material impact on our results of operations, financial
condition, and cash flows.

Reserves for Losses and LAE

Accounting for workers' compensation insurance requires us to estimate the
liability for the expected ultimate cost of unpaid losses and LAE (loss
reserves) as of a balance sheet date. Loss reserve estimates are inherently
uncertain because the ultimate amount we pay for many of the claims we have
incurred as of the balance sheet date will not be known for many years. Our
estimate of loss reserves is intended to equal the difference between the
expected ultimate losses and LAE of all claims that have occurred as of a
balance sheet date and amounts already paid. We establish loss reserves based on
our own analysis of emerging claims experience and environmental conditions in
our markets and review of the results of various actuarial projections. Our
aggregate carried loss reserves is the sum of our reserves for each accident
year and represents our best estimate of outstanding loss reserves.

The amount by which estimated losses in the aggregate differ from those
previously estimated for a specific time period is known as reserve
"development." Reserve development is unfavorable when losses ultimately settle
for more than the amount estimated or subsequent estimates indicate a basis for
reserve increases, causing the previously estimated loss reserves to be
''deficient.'' Reserve development is favorable when estimates of ultimate
losses indicate a decrease in established reserves, causing the previously
estimated loss reserves to be ''redundant.'' Development is reflected in our
operating results through an adjustment to incurred losses and LAE during the
period in which it is recognized.

Although claims for which reserves are established may not be paid for several
years or more, we do not discount loss reserves in our financial statements for
the time value of money, in accordance with GAAP.

The three main components of our loss reserves are case reserves, incurred but
not reported (IBNR) loss reserves, and LAE reserves.

When claims are reported to us, we establish individual estimates of the
ultimate cost of each claim (case reserves). These case reserves are continually
monitored and revised in response to new information and for amounts paid.

In addition to case reserves, we establish a provision for IBNR. IBNR is an
actuarial estimate comprised of the following: (a) future payments on claims
that are incurred but have not yet been reported to us; (b) a reserve for the
additional development on claims that have been reported to us; and (c) a
provision for additional payments on closed claims that might reopen. IBNR
reserves apply to the entire body of claims arising from a specific time period,
rather than a specific claim. Most of our IBNR reserves relate to estimated
future claim payments on recorded open claims.

LAE reserves are our estimate of future expense payments to manage, investigate,
administer, and settle claims that have occurred, and include legal expenses.
LAE reserves are established in the aggregate, rather than on a claim-by-claim
basis. LAE reserves are categorized between defense and cost containment, and
adjusting and other.

We cede a portion of our obligations for losses and LAE to unaffiliated
reinsurers. The amount of reinsurance that will be recoverable on our losses and
LAE includes both the reinsurance recoverable from our excess of loss
reinsurance contracts, as well as reinsurance recoverable under the terms of the
LPT Agreement.

Our loss reserves (gross and net of reinsurance), including the main components
of such reserves, were as follows:

                                                                       As of December 31,
                                                                     2022               2021
                                                                          (in millions)
Case reserves                                                    $   917.6          $   900.2
IBNR                                                                 771.7              818.7
LAE reserves                                                         271.4              262.3
Gross unpaid losses and LAE reserves                               1,960.7  

1,981.2

Less reinsurance recoverable on unpaid losses and LAE, excluding
CECL allowance

                                                       445.4              476.9
Net unpaid losses and LAE reserves                               $ 1,515.3  

$ 1,504.3

We use actuarial methods to analyze and estimate the aggregate amount of loss
reserves. Management considers the results of various actuarial methods and
their underlying assumptions, among other factors, in establishing loss
reserves.

Judgment is required in the actuarial estimation of loss reserves, including the
selection of various actuarial methodologies to project the ultimate cost of
claims. Specifically, judgment is required in the following areas: the selection
of parameters utilized in the various methodologies; the use of industry data
and other benchmarks; and the weighting of differing reserve indications
resulting from alternative methods and assumptions. The adequacy of our ultimate
loss reserves is inherently uncertain and

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represents a significant risk to our business. We attempt to mitigate this risk
through our claims management processes and by monitoring and reacting to
statistics relating to the cost and duration of claims.

We compile and aggregate our claims data by grouping the claims according to the
accident year in which the claim occurred when analyzing claim payment and
emergence patterns and trends over time. Additionally, we aggregate and analyze
claims data by claim type, benefits type, and by state, territory within state,
or groups of states in which we do business.

Our Internal Actuary prepared reserve estimates for all accident years using our
own historical claims data, industry data and many of the generally accepted
actuarial methodologies for estimating loss reserves, such as paid loss
development methods, incurred loss development methods, and Bornhuetter-Ferguson
methods. These methods vary in their responsiveness to different information,
characteristics, and dynamics in the data, and the results assist the actuary in
considering these characteristics and dynamics in the historical data. The
methods employed for each segment of claims data, and the relative weight
accorded to each method, vary depending on the nature of the claims segment and
on the age of the claims.

Each actuarial methodology requires the selection and application of various
parameters and assumptions. The key parameters and assumptions include: the
future payment and emergence patterns of our aggregate claims data; the
magnitude and changes in claim settlement activity; the effects of legislative
benefit changes and/or judicial decisions; and trends in the frequency and
severity of claims.

Management, along with our Internal Actuary, separately analyzed LAE and
estimated unpaid LAE. These analyses rely primarily on examining the
relationship between historical aggregate paid LAE and the volume of claims
activity for the corresponding periods. The portion of unpaid LAE that will be
recoverable from reinsurers is estimated based on the contractual reinsurance
terms.

The ranges of estimates of loss reserves produced by our Internal Actuary are
intended to represent the range in which it is most likely that the ultimate
losses will fall. These ranges are narrower than the range of indications
produced by the individual methods applied because it is not likely that the
high or low result will emerge for every claim segment and accident year. Each
actuary's point estimate of loss reserves for each claim segment is based on a
judgmental selection from within the range of results indicated by the different
actuarial methods.

Management formally establishes loss reserves for financial statement purposes
on a quarterly basis. In doing so, we make reference to the most current
analyses of our Internal Actuary, including a review of the assumptions and the
results of the various actuarial methods used. Our Internal Actuary conducted
comprehensive studies in the second and fourth quarters. On the alternate
quarters, our Internal Actuary updates the results of the preceding quarter's
studies for actual claim payment and case reserve activity.

The aggregate carried reserve calculated by management represents our best
estimate of our outstanding unpaid losses and LAE. In establishing management's
best estimate of unpaid losses and LAE at December 31 for the last three years,
management and our Internal Actuary reviewed and considered the following: (a)
our Internal Actuary's assumptions, point estimates, and ranges; and (b) the
inherent uncertainty of workers' compensation loss reserves. Management did not
quantify a specific loss reserve increment for each uncertainty, but rather
established an overall provision that represented management's best estimate of
loss reserves in light of the historical data, actuarial assumptions, point
estimate and range, and current facts and circumstances.

The table below provides the actuarial range of loss reserves, net of
reinsurance, that management considered when selecting its best estimate and our
carried reserves.

                                                   As of December 31,
                                                  2022           2021
                                                     (in millions)
                 Low end of actuarial range    $ 1,365.8      $ 1,351.3
                 Carried reserves                1,515.3        1,504.3
                 High end of actuarial range     1,687.3        1,687.1

As of December 31, 2022, California and Nevada loss reserves represented
approximately 67% of our total loss reserves on our Consolidated Balance Sheet.

In California, our recent loss experience from 2012 through 2019, indicates a
slight downward trend in medical severity and a slight upward trend in indemnity
severity. The reduction in medical severity can be attributed to a number of
factors including California Senate Bill 863 (SB 863), which was enacted in 2012
and largely became effective in 2013/2014. Among the more significant changes,
SB 863 introduced independent medical review (IMR) into the dispute resolution
process and filing fees for medical liens. On the indemnity side, various
provisions of SB 863 resulted in an overall increase in certain benefits. Our
indemnity claims frequency (the number of claims expressed as a percentage of
payroll) has decreased year-over-year for the

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past four years. Aside from the impact of recent regulatory changes, we believe
our continued emphasis on accelerating claims settlements, as well as our
various underwriting initiatives, have contributed to more favorable trends in
our California results.

In Nevada, we have compiled a lengthy history of workers' compensation claims
payment patterns based on the business of the Fund and EICN, but the emergence
and payment of claims in recent years has been more favorable than in the
long-term history in Nevada with the Fund. The expected patterns of claim
payments and emergence used in the projection of our ultimate claim payments are
based on both long and short-term historical data. In recent evaluations, claim
patterns have continued to emerge in a manner consistent with short-term
historical data. Consequently, our selection of claim projection patterns has
relied more heavily on patterns observed in recent years.

Our insurance subsidiaries have been operating in a period characterized by
changing environmental conditions in our major markets, entry into new markets,
and operational changes. During periods characterized by such changes, at each
evaluation, the actuaries and management must make judgments as to the relative
weight to accord to long-term historical company data, more recent company data,
and external data. We also consider the impact of environmental and operational
changes and other factors when selecting the methods used to project ultimate
losses and LAE, the parameters to incorporate in those methods, and the relative
weights applied to those methods.

An internal initiative that began in 2014 emphasizes the settlement of open
claims. This initiative has actively driven a significant increase in claims
settlement activity and has primarily affected accident years 2009 and forward.
However, this activity slowed down during the height of the COVID-19 pandemic in
2020 and 2021.

Approximately 55% of our claims payments during the three years ended
December 31, 2022 related to medical care for injured workers. The utilization
and cost of medical services in the future is a significant source of
uncertainty in the establishment of loss reserves for workers' compensation.
However, because medical care may be provided to an injured worker over many
years, and in some cases decades, the pace of medical claim cost inflation can
have a significant impact on our ultimate claim payments. For example, if the
rate of medical claim cost inflation increases by 1% above the inflation rate
that is implicitly included in the loss reserves at December 31, 2022, we
estimate that future medical costs over the lifetime of current claims would
increase by approximately $63.9 million on a net-of-reinsurance basis. Under the
current elevated inflationary environment, additional inflationary
considerations were included in determining the level and adequacy of our
reserves, and particular consideration was given to medical and hospital
inflation rates as these inflation rates have historically exceeded general
inflation rates.

Our reserve estimates reflect expected increases in the costs of contested
claims, but do not assume any losses resulting from significant new legal
liability theories. Our reserve estimates also assume that there will not be
significant future changes in the regulatory and legislative environment. In the
event of significant new legal liability theories or new regulation or
legislation, we will attempt to quantify its impact on our business.

If the actual loss reserves were at the high or the low end of the actuarial
range, the impact on our financial results would have been as follows:

December 31,

                                                                    2022    

2021

  Increase (decrease) in reserves (1)                                 (in millions)
  At low end of range                                            $ (149.5)     $ (153.0)
  At high end of range                                              172.0         182.8
  Increase (decrease) in stockholders' equity and net income
  At low end of range                                            $  118.1      $  120.9
  At high end of range                                             (135.9)       (144.4)

(1) The range of actuarial indications captures the range of reasonable
estimates and is asymmetrical (e.g. not based on a normal distribution).

Actual losses are affected by a more complex combination of forces and dynamics
than any one model or actuarial methodology can represent, and each methodology
is an approximation of these complex forces and dynamics. None of the methods
are designed or intended to produce an indication that is systematically higher
or lower than the other methods. At any given evaluation date, some of the
actuarial projection methods produce indications outside the actuary's selected
range. Accordingly, we believe that the range of potential outcomes is
considerably wider than the actuarially estimated range of the most likely
outcomes. We have no basis for anticipating whether actual future payments of
losses and LAE may be either greater than or less than the loss reserves
currently on our Consolidated Balance Sheets.

Additionally, any adjustment to the estimated ceded reserves under the LPT
Agreement results in a cumulative adjustment to the Deferred Gain, which is also
included in losses and LAE incurred in the Consolidated Statements of
Comprehensive Income, so that the Deferred Gain reflects the balance that would
have existed had the revised reserves been recognized at the
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inception of the LPT Agreement. The table below provides the actuarial range of
estimated liabilities for gross loss reserves under the LPT Agreement and our
carried reserves.

                                                As of December 31,
                                                       2022
                                                   (in millions)
                 Low end of actuarial range    $             285.1
                 LPT carried reserves                        308.6
                 High end of actuarial range                 349.7

Reinsurance Recoverables

Reinsurance recoverables represent: (a) amounts currently due from reinsurers on
paid losses and LAE; (b) amounts recoverable from reinsurers on estimates of
reported losses; and (c) amounts recoverable from reinsurers on actuarial
estimates of IBNR for losses and LAE. These recoverables are based on our
current estimates of the underlying loss reserves, and are reported on our
Consolidated Balance Sheets separately as assets, as reinsurance does not
relieve us of our legal liability to policyholders. We bear credit risk with
respect to the reinsurers, which could be significant in the future, considering
that some of the loss reserves remain outstanding for an extended period of
time. Reinsurers may refuse or fail to pay losses that we cede to them, or they
might delay payment. We are required to pay losses even if a reinsurer refuses
or fails to meet its obligations under the applicable reinsurance agreement. We
continually monitor the financial condition and financial strength ratings of
our reinsurers. No material amounts due from reinsurers have been written-off as
uncollectible since our inception in 2000, and in assessing future default, we
evaluate the allowance for CECL under the ratings based method using the A.M.
Best Average Cumulative Net Impairment Rates. Reinsurer ratings are also
assessed through this process.

Under the LPT Agreement, the Fund initially ceded $1.5 billion in liabilities
for the incurred but unpaid losses and LAE related to claims incurred prior to
July 1, 1995 for consideration of $775.0 million in cash. The estimated
remaining liabilities subject to the LPT Agreement were $308.6 million as of
December 31, 2022. Losses and LAE paid with respect to the LPT Agreement totaled
$858.9 million at December 31, 2022. We account for the LPT Agreement as
retroactive reinsurance. Entry into the LPT Agreement resulted in a deferred
reinsurance gain that was recorded on our Consolidated Balance Sheets as a
liability. The Deferred Gain is being amortized using the recovery method,
whereby the amortization is determined by the proportion of actual reinsurance
recoveries to total estimated recoveries through the life of the LPT Agreement,
and the amortization is reflected in losses and LAE. Changes in estimates of the
reserves ceded under the LPT Agreement may significantly impact the Deferred
Gain on our Consolidated Balance Sheets and losses and LAE on our Consolidated
Statements of Comprehensive Income.

Additionally, we are entitled to receive a contingent profit commission under
the LPT Agreement. The contingent profit commission is an amount based on the
favorable difference between actual paid losses and LAE and expected paid losses
and LAE as established in the LPT Agreement. The calculation of actual amounts
paid versus expected amounts is determined every five years beginning June 30,
2004 for the first twenty-five years of the agreement. We are paid 30% of the
favorable difference between the actual and expected losses and LAE paid at each
calculation point. Each quarter, management records its best estimate of the
estimated ultimate contingent profit commission through June 30, 2024, which is
impacted by estimates for ceded losses and LAE. The Deferred Gain related to the
contingent profit commission is amortized using the recovery method, whereby the
amortization is determined by the proportion of actual reinsurance recoveries to
total estimated recoveries over the life of the contingent profit commission, or
through June 30, 2024, and is recorded in losses and LAE incurred in the
accompanying Consolidated Statements of Comprehensive Income. Changes in
estimates of the reserves ceded under the LPT Agreement may significantly impact
the Contingent commission receivable-LPT Agreement and the Deferred Gain on our
Consolidated Balance Sheets and losses and LAE on our Consolidated Statements of
Comprehensive Income.

New Accounting Standards

See Note 3 in the Notes to our Consolidated Financial Statements for a summary
of all recently issued and recently adopted accounting standards.