Reno, NV – Employers Holdings, Inc. (NYSE:EIG) recently reported second quarter 2014 net income of $45.6 million or $1.42 per diluted share.
Net income includes the following items related to the Loss Portfolio Transfer (“LPT”) Agreement: reserve adjustments, adjustments to the contingent profit commission, and amortization of the deferred reinsurance gain. In the second quarter of 2014, favorable development in the estimated reserves ceded under the LPT Agreement resulted in a $20.1 million cumulative adjustment to the deferred reinsurance gain, which reduced losses and loss adjustment expense (LAE). Also, an increase in the contingent commission receivable under the LPT Agreement resulted in a $7.3 million cumulative adjustment, which reduced losses and LAE. Consolidated net income before the impact of the LPT (the Company’s non-GAAP measure described below) was $14.6 million or $0.46 per diluted share in the second quarter of 2014 and $9.9 million or $0.31 per diluted share in the second quarter of 2013.
In addition to the LPT adjustments, there was a reallocation of $12.0 million of reserves from non-taxable periods prior to January 1, 2000, to more recent taxable years. This reduced our effective tax rate by 3.7 percentage points and increased net income by $2.2 million or $0.07 per diluted share for the second quarter of 2014.
Collectively, the LPT adjustments and the reallocation of reserves increased net income by $29.6 million or $0.93 per diluted share during the second quarter of 2014.
The second quarter 2014 combined ratio was 88.0% and 106.0% before the impact of the LPT, compared with 103.2% and 106.1% before the impact of the LPT for the second quarter of 2013. Year over year, the combined ratio improved 15.2 percentage points on a GAAP basis and 0.1 percentage points before the impact of the LPT.
President and Chief Executive Officer Douglas D. Dirks commented on the results: “We are pleased with our second quarter results. Earnings before the LPT increased $0.15 per diluted share year-over-year. Revenues increased 10%, driven by pricing improvements, organic growth, realized gains associated with the sale of equities and modestly higher investment income. We achieved record high levels of premium and policies. As in the first quarter, our overall indemnity claims frequency decreased year-over-year. Our loss experience indicated upward trends in medical and indemnity costs per claim, partially driven by an increase in the number of cumulative trauma claims. These loss trends are reflected in our current accident year loss estimate. As our net rate continued to increase, we lowered our current accident year loss estimate 0.6 percentage points relative to the first quarter.”
Dirks continued: “Importantly, litigated indemnity claims as a percentage of total indemnity claims in southern California were flat compared with year-end 2013 and the first quarter of 2014. While litigation adds costs to claims for all companies writing business in California, at year-end 2013, our average paid cost per open indemnity and medical claim was significantly — approximately 37% — less than the California industry average, according to data from the California Workers Compensation Institute.”
Dirks concluded: “Our balance sheet is strong. Despite one large accident in 2013 which pierced our reinsurance layer in the second quarter of 2014, our overall reserves were not strengthened. The market value of our investment portfolio is at a record high of $2.5 billion and our adjusted book value per outstanding share of common stock increased over 5% since the end of last year.”
Third Quarter Dividend
The Board of Directors declared a third quarter 2014 dividend of six cents per share. The dividend is payable on August 27, 2014 to stockholders of record as of August 13, 2014.
The complete earnings release is available here: Employers Holdings, Inc. Second Quarter 2014 Earnings
Source: Employers