Reno, NV – Employers Holdings, Inc. (NYSE:EIG) recently reported financial results for its second quarter ended June 30, 2021.
- Record number of ending policies in-force (107,314), up 3.7% since year-end;
- Gross premiums written were $147.1 million, an increase of 5%;
- Net income of $26.4 million, or $0.92 per diluted share;
- Adjusted net income of $11.8 million, or $0.41 per diluted share;
- Net pretax realized and unrealized gains on investments recorded through the income statement of $16.0 million;
- Net investment income of $18.2 million, down 9% year-over-year;
- Net premiums earned of $137.0 million, down 10% year-over-year;
- Net favorable prior year loss reserve development on voluntary business of $1.6 million, vs. $23.5 million a year ago;
- The Company repurchased 250,336 shares of its common stock at an average price of $41.72 per share;
- Book value per share including the Deferred Gain of $46.83, up 2.3% for the quarter including dividends declared.
Chief Executive Officer Katherine Antonello commented: “With businesses reopening and restrictions lifted, we have begun to capture year-over-year increases in new business submissions, quotes and binds and are encouraged by the rebound we experienced during the second quarter of 2021. We closed the quarter with another record number of policies in-force and premium in-force has begun to increase, which demonstrates that our policyholders have endured the pandemic and small businesses are actively shopping for workers’ compensation coverage. Our year-over-year new business premium is down slightly, however, as both the labor-force participation rate and unemployment rate continue to improve, we remain confident that rising payrolls and new business opportunities will bring further growth to our top line.
During the second quarter, we delivered a 3.8% annualized return on adjusted equity and a combined ratio of 98.8% within our largest operating segment, Employers. While we continued to experience significant favorable loss reserve development in nearly all prior accident years, our second quarter results were tempered by $8 million of adverse loss reserve development associated with two catastrophic non-COVID claims that occurred in late 2020.
Last quarter we referred to our $46.6 million of underwriting and general and administrative expenses as the high-water mark for 2021 and, as expected, those expenses decreased by 21% during the second quarter. The decrease was primarily a result of targeted expense savings, employee departures and lower variable expenses that fluctuate directly with earned premium.”
Ms. Antonello continued, “Our Cerity operating segment, which offers digital workers’ compensation insurance solutions directly to consumers, continues to gather momentum and now has $1 million of in-force premium, all within our targeted low hazard groups A through D. While the low-to-medium hazard direct to consumer workers’ compensation market is relatively immature and Cerity is an early entrant in this space, we believe that its technological and intellectual capabilities will support our future growth initiatives and provide direct access to workers’ compensation insurance for businesses seeking an online experience.
In summary, we are diligently focused on capitalizing on emerging labor market improvements, while continuing to maintain underwriting discipline and actively managing our expenses. Our balance sheet and capital position are very strong and are highly supportive of these key initiatives.”
Summary of Second Quarter 2021 Results
(All comparisons vs. second quarter 2020, unless noted otherwise).
Gross premiums written were $147.1 million, an increase of 5%. The increase was primarily due to an increase in new policies written and average policy size. Net premiums earned were $137.0 million, a decrease of 10% year-over-year.
Losses and loss adjustment expenses were $83.7 million, an increase of 15%. The Company recognized $1.6 million of net favorable prior year loss reserve development on voluntary business during the current period, versus $23.5 million a year ago. The increase in losses and loss adjustment expenses was primarily due to $8.0 million of unfavorable development in accident year 2020 resulting from two catastrophic non-COVID claims, which was offset by favorable development of $9.6 million primarily in accident years 2017 and prior.
Commission expenses were $18.0 million, a decrease of 6%. The decrease was primarily due to the decrease in earned premiums.
Underwriting and general and administrative expenses were $37.0 million, a decrease of 17%. The decrease resulted from targeted expense savings and employee reductions and departures, which reduced our fixed expenses such as compensation and professional fees, as well as reductions in variable expenses, such as premium taxes and assessments and bad debt expenses, resulting from the decrease in earned premium.
Net investment income was $18.2 million, a decrease of 9%. The decrease was primarily due to lower interest rates year-over-year impacting bond yields.
Income tax expense was $6.0 million (19% effective rate) versus $14.7 million (20% effective rate). The effective rates during each of the periods presented included income tax benefits associated with tax-advantaged investment income, LPT adjustments, and deferred gain amortization.
The Company’s book value per share of $42.54 and book value per share including the Deferred Gain of $46.83 increased by 2.7% and 2.3% during the second quarter of 2021, respectively, computed after taking into account dividends declared. These measures were impacted during the current period by $10.4 million of after-tax unrealized gains arising from fixed maturity securities (which are reflected on the balance sheet) and $11.1 million of net after tax unrealized gains arising from equity securities and other investments (which are reflected on the income statement).
Share Repurchases and Third Quarter 2021 Dividend Declaration
During the second quarter of 2021, the Company repurchased 250,336 shares of its common stock at an average price of $41.72 per share.
On July 21, 2021, the Board of Directors authorized a new share repurchase program to allow for repurchases of up to $50.0 million of our common stock from July 27, 2021 through December 31, 2022. The new program replaces a similar program, which expired on June 30, 2021.
On July 21, 2021, the Board of Directors declared a third quarter 2021 dividend of $0.25 per share. The dividend is payable on August 18, 2021 to stockholders of record as of August 4, 2021.
The complete results release is available here: Employers Holdings, Inc. Second Quarter 2021 Results