Employers (US:EIG)2023-04-27 16:00PART I – FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This section presents unaudited consolidated financial statements for Employers Holdings, Inc., including Balance Sheets, Statements of Comprehensive Income, Stockholders' Equity, and Cash Flows for Q1 2023 and 2022 Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $3,744.0 | $3,716.7 | | Total Investments | $2,590.3 | $2,568.8 | | Cash and cash equivalents | $86.7 | $89.2 | | Total Liabilities | $2,769.9 | $2,772.5 | | Unpaid losses and loss adjustment expenses | $1,953.7 | $1,960.7 | | Total Stockholders' Equity | $974.1 | $944.2 | Consolidated Statement of Comprehensive Income (Loss) Highlights (in millions, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net premiums earned | $172.7 | $150.2 | | Total revenues | $206.5 | $152.0 | | Total expenses | $177.5 | $154.5 | | Net income (loss) | $23.6 | $(2.3) | | Diluted EPS | $0.86 | $(0.08) | | Total comprehensive income (loss) | $47.4 | $(90.5) | Consolidated Statement of Cash Flows Highlights (in millions) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4.3 | $16.8 | | Net cash provided by (used in) investing activities | $12.8 | $(6.1) | | Net cash (used in) provided by financing activities | $(19.6) | $44.7 | | Net (decrease) increase in cash | $(2.5) | $55.4 | Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations Management discusses Q1 2023 financial performance, highlighting a return to profitability driven by increased net premiums and favorable investment results, covering operations, segment performance, liquidity, and capital resources Results of Operations Net income reached $23.6 million in Q1 2023, a turnaround from a $2.3 million loss in Q1 2022, driven by increased net premiums and investment gains Consolidated Results of Operations (in millions) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net premiums earned | $172.7 | $150.2 | | Total revenues | $206.5 | $152.0 | | Losses and LAE | $107.4 | $94.2 | | Total expenses | $177.5 | $154.5 | | Net income (loss) | $23.6 | $(2.3) | - Key drivers for Q1 2023 performance compared to Q1 2022 include a 15.0% increase in net premiums earned, a 44.5% increase in net investment income, and a significant swing in investment results from a $17.3 million loss to a $6.4 million gain124 - Gross premiums written increased to $194.9 million in Q1 2023 from $172.4 million in Q1 2022, driven by growth in new and renewal business, and a $9.4 million audit premium pick-up due to a strengthening labor market and rising wages115120 Summary of Financial Results by Segment The 'Employers' segment improved underwriting income to $2.1 million with a 98.7% combined ratio, while the 'Cerity' segment continued to scale with a $4.1 million underwriting loss, and 'Corporate and Other' reversed to a $1.1 million net income before taxes Employers Segment Performance (in millions) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Gross premiums written | $194.2 | $171.2 | | Net premiums earned | $171.3 | $149.6 | | Underwriting income | $2.1 | $0.0 | | Net income before taxes | $30.1 | $2.0 | | Combined ratio | 98.7% | 100.0% | Cerity Segment Performance (in millions) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Gross premiums written | $0.7 | $1.2 | | Net premiums earned | $1.4 | $0.6 | | Underwriting loss | $(4.1) | $(3.0) | | Net loss before taxes | $(2.2) | $(2.7) | - The Employers segment's growth was driven by increased new business submissions, quotes, and binds, expansion in business classes offered, and a $9.4 million audit premium pick-up from a stronger labor market139 Liquidity and Capital Resources The company maintains strong capital and liquidity, with $98.3 million in holding company cash and investments, an undrawn $75.0 million credit facility, and $974.1 million in stockholders' equity - Total cash and investments at the holding company were $98.3 million at March 31, 2023172 - The company has a $75.0 million three-year revolving credit facility, amended in February 2023 to replace LIBOR with SOFR, with no outstanding borrowings during Q1 2023173174177 Q1 2023 Capital Actions (in millions) | Action | Amount | | :--- | :--- | | Share Repurchases | $11.3 | | Dividends Paid | $7.6 | - As of March 31, 2023, the company had outstanding FHLB advances of $182.5 million, taken in 2022, with a weighted average interest rate of 4.87%181199 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages primary market risks including credit, interest rate, and equity price risks through portfolio diversification and duration management - The company's primary market risks are credit risk, interest rate risk, and equity price risk213 Interest Rate Risk Sensitivity Analysis (Pre-tax change in Fair Value) | Hypothetical Change in Interest Rates | Estimated Decrease in Fair Value (in millions) | | :--- | :--- | | 100 basis point rise | $(92.4) | | 200 basis point rise | $(177.8) | | 300 basis point rise | $(257.6) | Equity Price Risk Sensitivity Analysis (Pre-tax impact) | Scenario | Impact on Total Equity Securities (in millions) | | :--- | :--- | | 10% Fair Value Decrease | $(20.4) | | 10% Fair Value Increase | $20.4 | - The fixed maturity investment portfolio had a duration of 3.8 years as of March 31, 2023, weighted toward short- and intermediate-term bonds to minimize interest rate risk217 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report226 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting227 PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine litigation, with no expected material effect on its financial condition or results of operations - The company states that any liability from pending or threatened litigation is not expected to have a material effect on its results of operations, liquidity, or financial position229 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K have occurred - As of the date of this report, there have been no material changes to the risk factors contained in the company's Annual Report230 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 267,883 shares for $11.3 million in Q1 2023, with $36.1 million remaining available under the program Share Repurchases in Q1 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | Total Cost (in millions) | | :--- | :--- | :--- | :--- | | Jan 2023 | 78,157 | $42.73 | ~$3.3 | | Feb 2023 | 30,474 | $42.87 | ~$1.3 | | Mar 2023 | 159,252 | $41.88 | ~$6.7 | | Total Q1 | 267,883 | $42.24 | ~$11.3 | - The share repurchase program was expanded to $100.0 million and extended to December 31, 2023, with $36.1 million remaining available for repurchase as of March 31, 2023231 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including management compensation plans, credit agreement amendments, and CEO/CFO certifications - Exhibits filed include management equity and incentive plan agreements, an amendment to the credit agreement dated February 16, 2023, and certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act236