Reno, NV – Employers Holdings, Inc. (NYSE:EIG) recently reported the following for the second quarter of 2019: (i) net income of $40.7 million ($1.25 per diluted share); (ii) net income before the impact of the LPT of $35.0 million ($1.08 per diluted share); and (iii) adjusted net income of $29.2 million ($0.90 per diluted share).
The Company’s adjusted net income for the second quarter of 2019 decreased $2.0 million year-over-year. This decrease primarily reflects the after-tax impact of the following items: (i) $21.1 million of underwriting income versus $25.6 million a year ago, partially offset by; (ii) $21.4 million of net investment income versus $20.3 million a year ago.
The Company’s net income and net income before the impact of the LPT for the second quarter of 2019 decreased by $1.8 million and $0.6 million, respectively, year-over-year. These second quarter 2019 net income measures were each impacted by the after-tax impact of the items previously mentioned, but also benefitted from a $1.3 million after-tax increase in net investment gains relating to the Company’s investments.
The Company’s book value per share of $35.15, book value per share including the Deferred Gain of $39.59, and adjusted book value per share of $37.92 increased by 14.5%, 12.3%, and 6.4% during the first six 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 June 30, 2019 were each favorably impacted by $67.0 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 second quarter and year-to-date results were very strong. During the quarter, we delivered a 9.7% annualized return on adjusted equity while continuing to execute well on our plan of aggressive development and implementation of digital IT initiatives and capabilities that will benefit and support our agency force as well as our direct (Cerity) customers.
Over the past several quarters, including the current period, we have experienced favorable loss reserve development throughout nearly every prior accident year which is due, in part, to our enhanced claims analytics capabilities as well as a continuation of our accelerated claims settlement initiatives.”
Summary of Second Quarter 2019 Operating Results
(All comparisons vs. second quarter 2018, unless noted otherwise).
Gross premiums written were $176.6 million, a decrease of 5%. The decrease was due primarily to a period-over-period reduction in average premium rate. Net earned premiums were $175.5 million, a decrease of 1% year-over-year.
The loss and LAE ratio before the impact of the LPT of 52.7% decreased 0.5 percentage points reflecting continued observed favorable paid loss trends. During the quarter, the Company increased its year-to-date current accident year loss and LAE ratio on its voluntary business to 65.5% (versus 64.5% in the first quarter, and 62.5% a year ago) and recognized $24.0 million of favorable prior year loss reserve development (versus $16.5 million of favorable prior year loss reserve development a year ago).
The commission expense ratio of 13.5% decreased 0.3 percentage points, primarily as a result of a decrease in projected 2019 agency incentive commissions.
The underwriting and other operating expense ratio of 25.0% increased 2.5 percentage points. Expenses associated with our aggressive development and implementation of new digital technologies and capabilities were the primary contributors to the increase.
Net investment income of $21.4 million increased 5%, primarily as a result of the Company’s strong operating cash flows, as well as a higher pre-tax book yield on the investment portfolio.
Income tax expense was $9.0 million (an 18.1% effective rate) versus $8.8 million (a 17.2% 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, Third Quarter Dividend Declaration and Pending Acquisition
During the second quarter of 2019, the Company repurchased 372,290 shares of its common stock at an average price of $41.05 per share.
On July 24, 2019, the Board of Directors also declared a third quarter 2019 dividend of $0.22 per share. The dividend is payable on August 21, 2019 to stockholders of record as of August 7, 2019.
On June 7, 2019, the Company received approval from the Department of Financial Services of the State of New York to acquire PartnerRe Insurance Company of New York (PRNY) from Partner Reinsurance Company of the U.S. The Company expects to close the transaction on July 31, 2019. The purchase price will be the sum of: (i) PRNY’s statutory capital and surplus at closing (which is currently estimated to be approximately $47.0 million); and (ii) $5.8 million. The Company intends to rename PRNY to be “Cerity Insurance Company” post-closing.
The complete results release is available here: Employers Holdings, Inc. Second Quarter 2019 Results