Reno, NV – Employers Holdings, Inc. (NYSE:EIG) recently reported third quarter net income of $15.2 million or $0.47 per diluted share in 2014 compared to $27.6 million or $0.86 per diluted share in 2013. Net income includes the impacts of the re-allocation of reserves from non-taxable to taxable periods and three items related to the Loss Portfolio Transfer (“LPT”) Agreement: reserve adjustments, adjustments to the contingent profit commission, and amortization of the deferred reinsurance gain. Higher net income in the third quarter of 2013 was primarily attributable to a $10.1 million favorable LPT reserve adjustment and a $5.0 million decrease in income taxes which was related to the re-allocation of non-taxable reserves to taxable periods during the third quarter of 2013.
Consolidated net income before the impact of the LPT (the Company’s non-GAAP measure described below) was $10.4 million or $0.32 per diluted share in the third quarter of 2014 and $13.6 million or $0.42 per diluted share in the third quarter of 2013. Lower net income before the LPT in the third quarter of 2014 reflects a higher loss provision rate than in the third quarter of 2013 and higher income taxes, primarily due to the impacts of the re-allocation of reserves in the third quarter of 2013.
The third quarter combined ratio before the LPT was 104.4% in 2014 compared with 104.7% in 2013. The third quarter GAAP combined ratio was 101.6% in 2014 compared with 96.2% in 2013. The lower GAAP combined ratio in the third quarter of 2013 was primarily attributable to the favorable $10.1 million LPT reserve adjustment that lowered losses and loss adjustment expense by that amount.
President and Chief Executive Officer Douglas D. Dirks commented on the results: “Our results in the third quarter demonstrate continuing improvement in underwriting expenses which drove improvement in the third quarter combined ratio before the LPT. Relative to year-end 2013, the loss provision rate has declined in the first, second and third quarters of this year as our net rate continued to increase. The third quarter 2014 loss provision rate of 73.5% was 0.6 percentage points lower than the prior quarter and 3.5 percentage points lower than the 2013 annual rate. Our loss provision rate in the third quarter of this year was 0.7 points higher than the same quarter last year which primarily drove a one point increase in the loss ratio. In 2013, the provision rate for the then current accident year losses was raised in the fourth quarter to an annual rate of 77.0% in response to a sudden spike in more costly litigated claims in southern California. Importantly, the spike in open litigated indemnity claims that we experienced in the fourth quarter of last year in southern California has not continued in the first, second, or third quarters of this year.”
Dirks continued: “In the third quarter, we saw a slight decline in net written premiums and a slightly lower policy retention rate largely related to specific California-related initiatives. Effective June 1 of this year, we began utilizing three operating companies in California with new rates and territorial multipliers which we expected would increase non-renewal rate, lower retention rate and increase our net rate. We have reduced our payroll exposure by 5.1% year-over-year in California while increasing net rate in California 10.7%. At the same time, we continue to target attractive classes of business inside and outside of California to, as much as possible, offset the loss of premium from any non-renewed business. Our Company-wide policy retention was 83% in the third quarter 2014, one percentage point lower than in the third quarter of 2013. Third quarter policy retention in our eastern states increased four percentage points year-over-year, to 87%. At September 30, 2014, California was 60% of our in-force premium and 56% of our policies. In-force policy count grew 0.4% in California year-over-year and 5.0% in all states excluding California.”
Dirks concluded: “We are managing the litigation issues in California. We are reducing our payroll exposure in California, particularly southern California. Our net rate continues to increase, our year-to-date loss provision rates continue to improve, and we are targeting customer classes with historically good loss ratio results both inside and outside of California. There has been no material unfavorable loss development related to our voluntary business and our adjusted book value per outstanding share of common stock increased 5.9% since the end of last year.”
Fourth Quarter Dividend
The Board of Directors declared a fourth quarter 2014 dividend of six cents per share. The dividend is payable on November 26, 2014 to stockholders of record as of November 12, 2014.
The complete earnings release is available here: Employers Holdings, Inc. Q3 2014 Earnings
Source: Employers