Employers Holdings, Inc. (NYSE:EIG) - A Steady Performer in the Workers' Compensation Insurance Market

Published on September 24, 2024 | Ticker: EIG

Employers Holdings, Inc. (NYSE:EIG) is a leading provider of workers' compensation insurance solutions, specializing in serving small and select businesses across the United States. The company has demonstrated consistent financial performance, reporting annual net income of $118.1 million, annual revenue of $850.9 million, annual operating cash flow of $49.4 million, and annual free cash flow of $47.2 million in its latest fiscal year.

Recent Developments

In the first quarter of 2024, Employers Holdings reported a 7.1% increase in net premiums earned to $184.9 million, compared to $172.7 million in the same period of the prior year. This growth was driven by a 38% increase in new business premiums and a 6% increase in renewal premiums, as well as continued strong audit premium recognition. Excluding the impact of audit premiums, the company's gross written premiums increased by 14% year-over-year, with contributions from all major distribution channels.

Financials

The company's investment performance also contributed to its strong financial results, with net investment income of $26.8 million in the first quarter of 2024, compared to $27.6 million in the same period of 2023. This slight decrease was primarily due to the unwinding of the company's former Federal Home Loan Bank leveraged investment strategy, which was in effect from the first quarter of 2022 to the fourth quarter of 2023. When considering the interest expense associated with that former strategy, the company's net investment income actually increased by 6% year-over-year.

Employers Holdings' current accident year loss and loss adjustment expense (LAE) ratio on its voluntary business was 64% in the first quarter of 2024, slightly higher than the 63.3% ratio maintained throughout 2023 and consistent with 2022 levels. The company believes this accident year loss ratio, along with its existing provision for potential increases in medical inflation, positions it well from a reserving standpoint. The company did not recognize any prior year loss reserve development on its voluntary business during the first quarter, as the full actuarial study was not performed and the amount of indicated net prior year loss development was consistent with its expectations.

The company's commission expense ratio increased to 13.8% in the first quarter of 2024, up from 13.5% in the same period of the prior year. This increase was primarily due to the strong growth in new business premiums, which are typically subject to higher initial commission rates, as well as anticipated 2024 agency incentives. The company's underwriting and general and administrative expense ratio improved to 24.8% in the first quarter of 2024, down from 25.7% in the same period of 2023, primarily due to savings associated with the integration of its Cerity operations into the Employers business.

While Employers Holdings' first quarter 2024 GAAP combined ratio of 101.6% was similar to its first quarter 2023 results, the company expects meaningful improvements in its combined ratio for the balance of the year as the underlying enhancements, efficiencies, and economies of scale from its recent initiatives are more fully reflected.

Liquidity

The company's strong capital position, with stockholders' equity of $1.02 billion as of March 31, 2024, supports its growth and technology initiatives. Employers Holdings repurchased $5 million of its common stock during the first quarter of 2024 and recently declared a second quarter 2024 regular dividend of $0.30 per share, an increase of 7% from the prior quarterly dividend.

Geographic Distribution

Geographically, Employers Holdings continues to generate a significant portion of its in-force premiums from California, which accounted for 45% of the total as of March 31, 2024. The company also has a strong presence in Florida, New York, and various other states, with each contributing to its diversified premium base.

Revenue Breakdown

In terms of revenue breakdowns, the company's Insurance Operations segment, which represents its traditional business offered through agents, including business originated from strategic partnerships and alliances, as well as direct-to-customer business, generated $223.1 million in total revenues during the first quarter of 2024, an increase of 8.0% compared to the same period in the prior year.

Outlook

Looking ahead, Employers Holdings expects to see further improvements in its combined ratio and adjusted book value per share for the remainder of 2024, driven by the continued execution of its strategic initiatives, including achieving internal and customer-facing business process excellence, further diversifying its risk exposure across geographic markets and economic sectors, expanding its appetite, and utilizing a multi-company pricing platform and territory-specific pricing.

Conclusion

Overall, Employers Holdings' consistent financial performance, strong capital position, and strategic initiatives position the company well to navigate the competitive workers' compensation insurance market and deliver value to its shareholders.

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