Reno, NV – Employers Holdings, Inc. (NYSE:EIG) recently reported the following for the first quarter of 2019: (i) net income of $51.8 million ($1.57 per diluted share); (ii) net income before the impact of the LPT of $49.3 million ($1.50 per diluted share); and (iii) adjusted net income of $30.9 million ($0.94 per diluted share).
The Company’s adjusted net income for the first quarter of 2019 increased $1.6 million year-over-year. This increase primarily reflects the after-tax impact of the following items: (i) $22.0 million of favorable prior year loss reserve development on voluntary business versus $12.0 million of favorable development a year ago, (ii) $21.8 million of net investment income versus $19.4 million a year ago; partially offset by (iii) $47.5 million of underwriting and other operating expenses versus $39.2 million a year ago.
The Company’s net income and net income before the impact of the LPT for the first quarter of 2019 increased by $26.2 million and $26.3 million, respectively, year-over-year. These first quarter 2019 net income measures were each favorably impacted by the after-tax impact of the items previously mentioned, as well as the after-tax impact of $21.2 million of unrealized investment gains relating to the Company’s equity investments versus $12.9 of unrealized investment losses recognized a year ago.
The Company’s book value per share of $33.22, book value per share including the Deferred Gain of $37.78 and adjusted book value per share of $37.04 increased by 7.6%, 6.6%, and 3.3% during the first three months of 2019, respectively, each computed after taking into account dividends declared. Book value per share and book value per share including the Deferred Gain at March 31, 2019 were each favorably impacted by $37.3 million of net after tax unrealized gains from the Company’s portfolio of fixed maturity securities.
Chief Executive Officer Douglas Dirks commented on the results: “Our first quarter results were highly satisfying and largely consistent with our expectations. During the quarter, we delivered a 10.4% annualized return on adjusted equity, nearly maintained our top line despite pricing headwinds, actively bought back our stock and executed well on our previously announced plan of aggressive development and implementation of new technologies and capabilities to transform and enhance the digital experience of our customers.”
Summary of First Quarter 2019 Operating Results
(All comparisons vs. first quarter 2018, unless noted otherwise).
Gross premiums written were $210.0 million, a decrease of 1%. The decrease was due primarily to a decrease in final audit premiums as well as a decrease in average premium rates. Net earned premiums were $174.8 million, a decrease of 1% year-over-year.
The loss and LAE ratio before the impact of the LPT of 52.1% decreased 3.4 percentage points reflecting observed favorable paid loss trends, including those resulting from our 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. During the quarter, the Company: (i) increased its current accident year loss and LAE ratio on its voluntary business to 64.5%, versus 62.5% a year ago; and (ii) recognized 12.7 percentage points of favorable prior year loss reserve development versus 7.0 percentage points a year ago.
The commission expense ratio of 12.6% decreased 0.8 percentage points, primarily as a result of a decrease in projected 2019 agency incentive commissions.
The underwriting and other operating expense ratio of 27.1% increased 4.9 percentage points. Expenses associated with our aggressive development and implementation of new digital technologies and capabilities contributed 3.9 percentage points to the increase. The remaining 1.0 percentage point increase resulted from significantly higher than anticipated recoveries of bad debts a year ago than those experienced in the current quarter.
Net investment income of $21.8 million increased 12%, primarily as a result of the Company’s strong operating cash flows, as well as higher pre-tax book yields.
Income tax expense was $10.0 million (a 16.2% effective rate) versus $3.8 million (a 12.9% effective rate). The increase in the effective rate is due primarily to having a higher proportion of fully taxable income in the current quarter than a year ago.
Share Repurchases and Second Quarter Dividend Declaration
During the first quarter of 2019, the Company repurchased 670,837 shares of its common stock at an average price of $40.90 per share. During the period from April 1, 2019 through April 23, 2019, the Company repurchased a further 241,264 shares of its common shares at an average price of $40.77 per share.
On April 24, 2019, the Board of Directors authorized a $50 million expansion to its existing share repurchase program and extended the repurchase authority pursuant to the expanded program through June 30, 2020. As a result of this action, the Company currently has a remaining share repurchase authorization of $58.1 million.
On April 24, 2019, the Board of Directors also declared a second quarter 2019 dividend of $0.22 per share. The dividend is payable on May 22, 2019 to stockholders of record as of May 8, 2019.
The complete results release is available here: Employers Holdings, Inc. First Quarter 2019 Results