Employers Holdings (EIG) Misses Q1 EPS by 18c

Employers Holdings (NYSE: EIG) reported Q1 EPS of $0.35, $0.18 worse than the analyst estimate of $0.53.

Financial Highlights

• Net loss of $34.9 million ($1.14 per share);
• Adjusted net income of $11.0 million ($0.35 per diluted share);
• Net realized and unrealized losses on investments of $61.1 million, largely driven by unrealized losses in the fair value of equity securities and other investments;
• Net investment income of $19.9 million, down 9% year-over-year;
• Net premiums earned of $167.9 million, down 4% year-over-year;
• Favorable prior year loss reserve development of $3.5 million, compared to $22.2 million a year ago;
• The Company repurchased 1,143,581 shares of its common stock at an average price of $37.17 per share ($42.5 million);
• Book value per share including the Deferred Gain of $39.21, down 5% from year-end including dividends declared.

Management Commentary

Chief Executive Officer Douglas Dirks commented: “During the first quarter we delivered a 3.7% annualized return on adjusted equity, which is satisfying given the chaos and disruption currently being experienced throughout the world attributable to the COVID-19 pandemic. Although our underwriting results were solid for the majority of the first quarter, reflecting the strength of our business model, our financial results were adversely impacted by unrealized net investment losses. The Company has invested significantly in the last several years in an operating model that drives superior customer experiences and enhanced efficiencies. Not only has it met those goals, but it added a critical resiliency to our business. The Company has been fully functional since we closed all of our buildings to employees and the general public on March 20, 2020. We have taken the necessary precautions to protect the safety and well-being of our employees and their families while continuing to provide uninterrupted service to our policyholders and claimants. We were able to successfully transition 99% of our employees to a work-from-home environment in a five day period of time without any business interruption.

Both our income statement and balance sheet were negatively impacted in the quarter by the dramatic value declines across nearly all investment asset classes. We were favorably impacted by a higher allocation to cash, the result of sound decision making and swift action by our investment team. Notwithstanding the negative impact of investment valuations, our balance sheet and our capital position remain strong and supportive of aggressive business objectives.”

Mr. Dirks continued, “In the most recent periods, we experienced strong new business opportunities, as evidenced by record numbers of submissions, quotes, and binds, as well as steady renewal business. In fact, that strong performance continued for the first quarter of 2020. However, our levels of submissions, quotes, and binds have decreased significantly since the onset of business interruption created by the pandemic and we expect our new business opportunities and writings to be impacted until such time as our insureds and targeted businesses can reopen and resume their operations.

As a workers’ compensation writer, we continually review and adjust to changes in policyholders\' payrolls, economic conditions, and seasonality, as experience develops or new information becomes known. Any such adjustments are included in our current operations. Approximately 25% of our current payroll exposure, including payroll exposure associated with policies generated by our largest payroll partners, is considered to be “pay as you go,” where the associated premium charged to the underlying policyholder is adjusted in real-time based on changes in the underlying payroll. Consequently, economic disruptions are observed in real-time for these policies. For all other policyholders, payroll adjustments are made periodically through midterm endorsements and/or premium audits. As a result of the COVID-19 pandemic, we have experienced a significant increase in mid- term endorsement requests that alter estimated payroll for the policy period downward. Endorsements processed in the month of March 2020 served to reduce policyholder premiums by $5.3 million, compared to $3.8 million for January and February combined. Endorsements processed in April (through April 17) served to reduce policyholder premiums by $6.0 million and we expect this to continue for an indeterminable period of time.

Finally, I thank all of our 700 employees nationwide for their unwavering dedication, flexibility and patience as we continue to seamlessly operate our business and execute our strategy despite being in work-from-home status.”

For earnings history and earnings-related data on Employers Holdings (EIG) click here.

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