Employers Holdings, Inc. Reports First Quarter 2018 Results

Managed Care Weekly Digest

By a News Reporter-Staff News Editor at Managed Care Weekly Digest -- Employers Holdings, Inc. ("EHI" or the "Company") (NYSE:EIG) reported the following for the first quarter of 2018: (i) net income of $25.6 million ($0.77 per diluted share); (ii) net income before the impact of the LPT of $23.0 million ($0.69 per diluted share); and (iii) adjusted net income of $29.3 million ($0.88 per diluted share) (see also Employers Holdings Inc.).

The Company's adjusted net income for the first quarter of 2018 increased $10.4 million year-over-year. This increase primarily reflects: (i) strong underwriting results highlighted by a 62.5% current accident year loss ratio before the impact of the LPT and $12.4 million of favorable prior year loss reserve development, and (ii) a reduction in our effective income tax rate from 21.4% to 12.9%, primarily reflecting the favorable impact of the December 2017 Tax Cuts and Job Act.

The Company's net income and net income before the impact of the LPT for the first quarter of 2018 increased by $2.4 million and $2.7 million, respectively, year-over-year. These first quarter 2018 net income measures were each adversely impacted by $10.2 million of after tax unrealized investment losses relating to the Company's equity investments. Prior to January 1, 2018, the Company's unrealized gains and losses on equity securities were not a component of net income or net income before the impact of the LPT.

The Company's book value per share of $28.40 and book value per share including the Deferred Gain of $33.32 decreased by 1.6% and 1.7% during the first quarter of 2018, respectively, each computed after taking into account dividends declared. These first quarter 2018 book value measures were each adversely impacted by $35.8 million of after tax unrealized losses relating to the Company's fixed maturity investments caused by an increase in market interest rates.

Chief Executive Officer Douglas Dirks commented on the results: "The first quarter marked a strong beginning to 2018 for EMPLOYERS. During the quarter we grew written premiums by 7% year-over-year, lowered our current accident year loss provision and recognized favorable development on our prior year loss reserves.

As a result of the addition of new writing states, an enhanced sales force and greater leveraging of our partnerships and alliances, we were able to increase our business writings. Loss costs and frequency trends continue to be favorable, despite highly competitive market conditions.

Our underwriting and other operating expense ratio increased by 1.8 percentage points in the quarter, in-line with our expectations as we develop and implement new digital capabilities." Summary of First Quarter 2018 Operating Results(All comparisons vs. first quarter 2017, unless noted otherwise).

Gross premiums written were $211.6 million, an increase of 7% year-over-year. The increase was due primarily to new business writings, partially offset by declines in renewal business. Net earned premiums were $176.6 million, an increase of 1% year-over-year.

The loss and LAE ratio before the impact of the LPT of 55.5% decreased 8.3 percentage points year-over-year reflecting the continued impacts of key business initiatives including: an emphasis on settling open claims; diversifying our risk exposure across geographic markets; and leveraging data-driven strategies to target, underwrite and price profitable classes of business across all of our markets. Favorable prior year loss reserve development represented 7.0 percentage points of the decline.

The commission expense ratio of 13.4% increased 1.1 percentage points year-over-year due mainly to increases in agency incentives and in the amount of business produced by our partnerships and alliances.

The underwriting and other operating expense ratio of 22.2% increased 1.8 percentage points year-over-year due largely to expenses associated with the development and implementation of new technologies and capabilities.

Net investment income of $19.4 million, an increase of 3% year-over-year. The increase is due to a higher pre-tax book yield on invested assets.

Income tax expense was $3.8 million, a decrease of 40% year-over-year. The decrease is due to a reduction in the statutory Federal income tax rate from 35% to 21% as a result of the Tax Cuts and Job Act. Stockholders' Equity including the Deferred Gain, First Quarter 2018 Dividend Declaration Stockholders' equity including the Deferred Gain was $1,091.3 million, a decrease of 2% from December 31, 2017 as a result of unrealized losses relating to the Company's fixed maturity investments.

On April 25, 2018, the Board of Directors declared a second quarter 2018 dividend of $0.20 per share. The dividend is payable on May 23, 2018 to stockholders of record as of May 9, 2018. Conference Call and Webcast, Reports Filed With The Securities and Exchange Commission (the "SEC") and Supplemental Materials The information in this press release should be read in conjunction with the Financial Supplement that is attached to this press release and is available on our website. Reconciliation of Non-GAAP Financial Measures to GAAP Within this earnings release we present various financial measures, some of which are a "non-GAAP financial measure" as defined in Regulation G pursuant to Section 401 of the Sarbanes - Oxley Act of 2002. A description of these non-GAAP financial measures, as well as a reconciliation of such non-GAAP measures to the Company's most directly comparable GAAP financial measures is included in the attached Financial Supplement. Management believes that these non-GAAP measures are meaningful to the Company's investors, analysts and other interested parties who benefit from having an objective and consistent basis for comparison with other companies within our industry. These non-GAAP measures are not a substitute for GAAP measures and investors should be careful when comparing the Company's non-GAAP financial measures to similarly titled measures used by other companies. Other companies may calculate these measures differently, and, therefore, these measures may not be comparable.

The Company will host a conference call on Thursday, April 26, 2018, at 8:30 a.m. Pacific Daylight Time. The conference call will be available via a live web cast on the Company's web site at www.employers.com. An archived version will be available several hours after the call. The conference call replay number is (404) 537-3406 or (855) 859-2056 with a pass code of 2449837.

Keywords for this news article include: Business, Economics, Income Tax, Employers Holdings Inc..