Employers holdings, inc. reports fourth quarter and full year 2014
earnings and declares first quarter 2015 dividend
Reno, nev.--(business wire)--employers holdings, inc. (nyse:eig): key highlights(comparison of q4 and full year 2014 to q4 and full year of 2013) net premiums earned increased 1.5% in the quarter and 6.6% in the full year net premiums written declined 2.8% in the quarter and increased 1.4% in the full year total revenue was flat in the quarter and increased 6.9% in the full year in-force payroll exposure declined 2.1% overall and 9.3% in california year-over-year net rate (in-force premium divided by in-force payroll) increased 3.9% overall and 11.2% in california in the full year net realized gains declined 43.7% in the quarter and increased 71.5% in the full year the combined ratio before the lpt improved 16.0 percentage points in the quarter and 4.8 points for the full year, largely driven by a loss provision rate of 72.2% in the fourth quarter of 2014, a decline of 14.3 percentage points year-over-year, and an estimated loss provision rate of 73.6% in the full year, a decline of 3.4 percentage points year-over-year book value per share before the lpt increased 8.6% since december 31, 2013 in the full year, the reallocation of $13.1 million of reserves ($1.1 million in the fourth quarter) from non-taxable periods prior to january 1, 2000, reduced our effective tax rate by 3.4 percentage points, or $3.6 million. changes in lpt estimates lowered gaap losses and increased gaap net income (1) favorable development in the lpt ceded reserves reduced the deferred reinsurance gain, reduced losses and loss adjustment expenses (lae) and increased net income by: a. $8.8 million in the quarter, an increase of $0.27 per diluted share; and b. $31.1 million in the full year, an increase of $0.97 per diluted share. (2) increases in lpt contingent profit commission receivables reduced losses and lae and increased net income by: a. $2.9 million in the quarter, an increase of $0.09 per diluted share; and b. $10.8 million in the full year, an increase of $0.34 per diluted share. employers holdings, inc. (“ehi” or the “company”) (nyse:eig) today reported fourth quarter 2014 net income of $29.1 million or $0.91 per diluted share compared with net income of $14.2 million or $0.44 per diluted share in the fourth quarter of 2013. full year net income was $100.7 million or $3.14 per diluted share in 2014 compared with $63.8 million or $2.00 per diluted share in 2013. net income includes the impact of the loss portfolio transfer ("lpt") agreement. fourth quarter net income before impact of the lpt (the company's non-gaap measure described below) was $14.2 million or $0.44 per diluted share in the fourth quarter of 2014 and $(1.1) million or $(0.03) per diluted share in the fourth quarter of 2013. full year net income before impact of the lpt was $45.7 million or $1.42 per diluted share in 2014 compared with $25.9 million or $0.81 per diluted share in 2013. as indicated in the key highlights above, lpt reserves continued to develop favorably. management reiterates that given the continuing favorable adjustments to the lpt ceded reserves, it is important to review the company's results before impact of the lpt. calculations before the impact of the lpt exclude the favorable adjustments which may, in some reporting periods, mask underlying trends in the business. president and chief executive officer douglas d. dirks commented on the results: “our fourth quarter was a strong finish to a solid year. earnings before the lpt increased $0.47 per diluted share in the fourth quarter of 2014 and $0.61 per diluted share in the full year relative to the same periods in 2013. our combined ratio before the lpt improved 16.0 percentage points in the quarter and 4.8 percentage points in the year relative to 2013, largely attributable to improvements in our provision rate for current year losses relative to net premiums earned. as demonstrated in our improved financial and operating results, benefits from the underwriting and pricing initiatives we announced one year ago are beginning to be realized, and we believe these benefits will continue throughout 2015, given current conditions." dirks continued: "as a reminder, our initiatives include the following: centralizing the management of our underwriting and sales operations; slowing policy count growth in california; establishing a three-company pricing platform in california with newly approved rates and territorial multipliers; non-renewing poor performing business; increasing pricing for under-performing class codes; and targeting attractive classes of business in and outside of california. as a result of these initiatives, at december 31, 2014, our net rate in california increased 11.2% as our policy count declined 2.0% and payroll exposure decreased a substantial 9.3%. in all of our states, our net rate increased 3.9% as policy count grew 1.5% and our overall payroll exposure declined 2.1%. to further illustrate the impact of our initiatives, since june 2014, we have decided to non-renew 13.3% of our premium available to renew in southern california, where attorney involvement and cumulative trauma claims previously drove our loss and loss adjustment expense per open claim higher than in other parts of california and significantly higher than in the other states where we operate." dirks concluded: "while the spike in litigated claims in southern california that we experienced in the fourth quarter of 2013 was not repeated throughout 2014, nearly four out of five open claims in southern california continue to have attorney representation. however, we have experience in handling these claims, which has resulted in our average paid litigated claims in california being 40% below the california industry average in 2013, according to the california workers' compensation institute. our superior claims handling, in combination with benefits from our underwriting and pricing initiatives, have contributed to loss trends in our book of business which are improving. at year-end 2014, our total company indemnity claim frequency is down year-over-year while severity has remained stable relative to prior quarters in 2014. as a result, we dropped our current accident year provision rate for losses by 14.3 percentage points in the fourth quarter and 3.4 points for the full year compared to the same periods in 2013." first quarter 2015 dividend the board of directors declared a first quarter 2015 dividend of six cents per share. the dividend is payable on march 18, 2015 to stockholders of record as of march 4, 2015. conference call and web cast; form 10-k, supplemental materials the company will host a conference call on thursday, february 19, 2015, at 8:30 a.m. pacific standard time. the conference call will be available via a live web cast on the company's web site at www.employers.com. an archived version will be available following the call. the conference call replay number is (888) 286-8010 with a pass code of 83735585. international callers may dial (617) 801-6888. ehi expects to file its form 10-k for the year ended december 31, 2014, with the securities and exchange commission (“sec”) on or about thursday, february 19, 2015. the form 10-k will be available without charge through the edgar system at the sec's web site at www.sec.gov, and will also be posted on the company's website, www.employers.com, through the “investors” link. the company provides a list of portfolio securities in the calendar of events, fourth quarter “investors” section of its web site at www.employers.com. an investor presentation for the reporting period will be posted to the website. discussion of non-gaap financial measures this earnings release includes non-gaap financial measures used to analyze the company's operating performance for the periods presented. these non-gaap financial measures exclude impacts related to the lpt agreement deferred reinsurance gain. the 1999 lpt agreement was a non-recurring transaction that does not result in ongoing cash benefits and, consequently, the company believes these non-gaap measures are useful in providing stockholders and management a meaningful understanding of the company's operating performance. in addition, these measures, as defined, are helpful to management in identifying trends in the company's performance because the items excluded have limited significance in current and ongoing operations. the company strongly urges stockholders and other interested persons not to rely on any single financial measure to evaluate its business. the non-gaap measures are not a substitute for gaap measures and investors should be careful when comparing the company's non-gaap financial measures to similarly titled measures used by other companies. net income before impact of the lpt agreement. net income before (i) amortization of deferred reinsurance gain-lpt agreement (ii) adjustments to lpt agreement ceded reserves and (iii) adjustments to the contingent profit commission. deferred reinsurance gain-lpt agreement. deferred reinsurance gain–lpt agreement reflects the unamortized gain from our lpt agreement. under gaap, this gain is deferred and is being amortized using the recovery method. amortization is determined by the proportion of actual reinsurance recoveries to total estimated recoveries over the life of the lpt agreement, except for the contingent profit commission, which is amortized through june 30, 2024. the amortization is reflected in losses and lae. we periodically reevaluate the remaining direct reserves subject to the lpt agreement and the expected losses and lae subject to the contingent profit commission under the lpt agreement. our reevaluations result in corresponding adjustments, if needed, to reserves, ceded reserves, contingent commission receivable, and the deferred gain, with the net effect being an increase or decrease, as the case may be, to net income. (a) any adjustment to the contingent profit commission under the lpt agreement results in a cumulative adjustment to the deferred gain, which is also recognized in losses and lae incurred in the consolidated statement of income and comprehensive income, so that the deferred gain reflects the balance that would have existed had the revised contingent profit commission been recognized at the inception of the lpt agreement. (lpt contingent commission adjustments). (b) any adjustment to the estimated reserves ceded under the lpt agreement results in a cumulative adjustment to the deferred gain, which is also included in losses and lae incurred in the consolidated statement of income and comprehensive income, so that the deferred gain reflects the balance that would have existed had the revised reserves been recognized at the inception of the lpt agreement (lpt reserve adjustments). gross premiums written. gross premiums written is the sum of both direct premiums written and assumed premiums written before the effect of ceded reinsurance. direct premiums written represents the premiums on all policies the company's insurance subsidiaries have issued during the year. assumed premiums written represents the premiums that the insurance subsidiaries have received from an authorized state-mandated pool. net premiums written. net premiums written is the sum of direct premiums written and assumed premiums written less ceded premiums written. ceded premiums written is the portion of direct premiums written that are ceded to reinsurers under reinsurance contracts. the company uses net premiums written, primarily in relation to gross premiums written, to measure the amount of business retained after cession to reinsurers. losses and lae before impact of the lpt agreement. losses and lae includes (i) amortization of deferred reinsurance gain-lpt agreement (ii) adjustments to lpt agreement ceded reserves and (iii) adjustments to the contingent profit commission. losses and lae ratio. the losses and lae ratio is a measure of underwriting profitability. expressed as a percentage, it is the ratio of losses and lae to net premiums earned. commission expense ratio. commission expense ratio is the ratio (expressed as a percentage) of commission expense to net premiums earned. underwriting and other operating expense ratio. the underwriting and other operating expense ratio is the ratio (expressed as a percentage) of underwriting and other operating expense to net premiums earned. combined ratio. the combined ratio represents a summary percentage of claims and expenses to net premiums earned. the combined ratio is the sum of the losses and lae ratio, the commission expense ratio, the policyholder dividends ratio and the underwriting and other operating expense ratio. combined ratio before impact of the lpt agreement. combined ratio before impact of the lpt agreement is the gaap combined ratio before (i) amortization of deferred reinsurance gain-lpt agreement (ii) adjustments to lpt agreement ceded reserves and (iii) adjustments to the contingent profit commission. equity including deferred reinsurance gain-lpt agreement. equity including deferred reinsurance gain-lpt agreement is total equity plus the deferred reinsurance gain-lpt agreement. the deferred reinsurance gain-lpt is part of statutory capital against which we write business. book value per share. equity including deferred reinsurance gain-lpt agreement divided by number of shares outstanding. net rate. net rate, defined as total premium in-force divided by total insured payroll exposure, is a function of a variety of factors, including rate changes, underwriting risk profiles and pricing, and changes in business mix related to economic and competitive pressures. forward-looking statements in this press release, the company and its management discuss and make statements based on currently available information regarding their intentions, beliefs, current expectations, and projections regarding the company's future operations and performance. certain of these statements may constitute "forward-looking" statements as that term is defined in the private securities litigation reform act of 1995. forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and are often identified by words such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "target," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely," or "continue," or other comparable terminology and their negatives. ehi and its management caution investors that such forward-looking statements are not guarantees of future performance. risks and uncertainties are inherent in ehi's future performance. factors that could cause the company's actual results to differ materially from those indicated by such forward-looking statements include, among other things, those discussed or identified from time to time in ehi's public filings with the sec, including the risks detailed in the company's quarterly reports on form 10-q, the company's annual reports on form 10-k, the company's underwriting and pricing initiatives, expectations regarding these initiatives, the status of litigated claims in southern california, and improvements in loss trends. all forward-looking statements made in this press release reflect ehi's current views with respect to future events, business transactions and business performance and are made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. the business and results of ehi could be affected by, among other things, competition, pricing and policy term trends, the levels of new and renewal business achieved, market acceptance, changes in demand, the frequency and severity of catastrophic events, actual loss experience including increased loss costs nationally and in california, uncertainties in the loss reserving and claims settlement process, new theories of liability, judicial, legislative, regulatory and other governmental developments, litigation tactics and developments, investigation developments, accounting changes, the amount and timing of reinsurance recoverables, credit developments among reinsurers, changes in the cost or availability of reinsurance, market developments (including adverse developments in financial markets as a result of, among other things, changes in local, regional or national economic conditions and volatility and deterioration of financial markets), credit and other risks associated with ehi's investment activities, significant changes in investment yield rates, rating agency action, possible terrorism or the outbreak and effects of war, economic, political, regulatory, insurance and reinsurance business conditions (including pricing conditions), relations with and performance of employees and agents, observed market conditions (including trends in rates, losses and claim frequency), ehi's growth rate, capital needs at ehi's operating companies, strategic initiatives, and other factors identified in ehi's filings with the sec. readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. the sec filings for ehi can be accessed through the “investors” link on the company's website, www.employers.com, or through the sec's edgar database at www.sec.gov (ehi edgar cik no. 0001379041). ehi assumes no obligation to update this release or the information contained herein, which speaks as of the date issued. © 2015 employers. all rights reserved. employers® and america's small business insurance specialist® are registered trademarks of employers insurance company of nevada. insurance is offered through employers compensation insurance company, employers insurance company of nevada, employers preferred insurance company, and employers assurance company. not all insurers do business in all jurisdictions. unrealized gains (losses) during the period (net of taxes of $14,606 and $(17,734) for the periods ended december 31, 2014 and 2013, respectively)
