Employers (US:EIG)2023-07-27 16:00PART I – FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements and accompanying notes for Employers Holdings, Inc. and its subsidiaries Consolidated Balance Sheets | Metric | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $3,615.6 | $3,716.7 | | Total Liabilities | $2,663.9 | $2,772.5 | | Total Stockholders' Equity | $951.7 | $944.2 | - Total assets decreased by $101.1 million from December 31, 2022, to June 30, 2023, primarily due to decreases in investments and cash and cash equivalents. Total liabilities decreased by $108.6 million, mainly driven by a reduction in FHLB advances and unpaid losses and loss adjustment expenses. Total stockholders' equity slightly increased by $7.5 million1012 Consolidated Statements of Comprehensive Income (Loss) | Metric | Three Months Ended June 30, 2023 (in millions) | Three Months Ended June 30, 2022 (in millions) | Six Months Ended June 30, 2023 (in millions) | Six Months Ended June 30, 2022 (in millions) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Total Revenues | $215.2 | $135.3 | $421.7 | $287.3 | | Total Expenses | $171.4 | $156.7 | $348.9 | $311.1 | | Net Income (Loss) | $34.9 | $(15.6) | $58.5 | $(17.8) | | Basic Earnings (Loss) Per Common Share | $1.31 | $(0.56) | $2.17 | $(0.65) | | Diluted Earnings (Loss) Per Common Share | $1.30 | $(0.56) | $2.16 | $(0.65) | | Total Comprehensive Income (Loss) | $19.5 | $(82.7) | $66.9 | $(173.1) | - The Company reported a significant turnaround from net losses in Q2 2022 and H1 2022 to net income in Q2 2023 and H1 2023. This improvement was primarily driven by a substantial increase in total revenues, particularly net realized and unrealized gains on investments, which shifted from significant losses in 2022 to gains in 202315 Consolidated Statements of Stockholders' Equity | Metric | April 1, 2023 (in millions) | June 30, 2023 (in millions) | January 1, 2023 (in millions) | | :------------------------------------ | :-------------------------- | :-------------------------- | :---------------------------- | | Total Stockholders' Equity (Q2 2023) | $974.1 | $951.7 | N/A | | Total Stockholders' Equity (H1 2023) | N/A | $951.7 | $944.2 | | Net Income for the period (Q2 2023) | N/A | $34.9 | N/A | | Net Income for the period (H1 2023) | N/A | $58.5 | N/A | | Acquisition of common stock (Q2 2023) | N/A | $(35.8) | N/A | | Acquisition of common stock (H1 2023) | N/A | $(47.2) | N/A | | Dividends declared (Q2 2023) | N/A | $(7.6) | N/A | | Dividends declared (H1 2023) | N/A | $(14.7) | N/A | - Stockholders' equity decreased from $974.1 million on April 1, 2023, to $951.7 million on June 30, 2023, primarily due to common stock acquisitions and dividends declared, partially offset by net income. For the six months ended June 30, 2023, stockholders' equity increased from $944.2 million to $951.7 million, driven by net income and changes in unrealized gains on AFS investments, despite share repurchases and dividends1821 Consolidated Statements of Cash Flows | Cash Flow Activity | Six Months Ended June 30, 2023 (in millions) | Six Months Ended June 30, 2022 (in millions) | | :--------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash (used in) provided by operating activities | $(3.5) | $37.9 | | Net cash provided by (used in) investing activities | $119.4 | $(44.3) | | Net cash (used in) provided by financing activities | $(138.9) | $61.4 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(23.0) | $55.0 | | Cash, cash equivalents and restricted cash at end of period | $66.4 | $130.3 | - Net cash used in operating activities for H1 2023 was $3.5 million, a significant decrease from $37.9 million provided in H1 2022. Investing activities shifted from using $44.3 million in H1 2022 to providing $119.4 million in H1 2023. Financing activities used $138.9 million in H1 2023, compared to providing $61.4 million in H1 2022, primarily due to common stock repurchases and FHLB advance repayments24 Notes to Consolidated Financial Statements 1. Basis of Presentation and Summary of Operations - Employers Holdings, Inc. (EHI) is a Nevada holding company specializing in workers' compensation products and services through its insurance subsidiaries. The Company operates through two reportable segments: Employers (traditional business) and Cerity (direct-to-customer business)2832 - The Company accounts for a retroactive 100% quota share reinsurance agreement (LPT Agreement) as retroactive reinsurance, recording a deferred reinsurance gain as a liability and a contingent profit commission as an asset2930 2. New Accounting Standards - The Company adopted ASU 2020-04, Reference Rate Reform (Topic 848), which provided optional transition guidance for transitioning away from LIBOR, but determined there was no impact on its existing contracts and investments35 3. Valuation of Financial Instruments | Financial Instrument | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :-------------------------------- | :-------------------------- | :------------------------------ | | Total investments at fair value | $2,382.4 | $2,502.4 | | Cash and cash equivalents | $66.2 | $89.2 | | Restricted cash and cash equivalents | $0.2 | $0.2 | - The Company categorizes financial instruments at fair value into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs). As of June 30, 2023, $25.4 million of fixed maturity securities were designated Level 3 due to limited observable market information3640 - Investments in private equity limited partnerships are carried at Net Asset Value (NAV) and are excluded from the fair value hierarchy, totaling $83.4 million at June 30, 2023. The Company had unfunded commitments to these partnerships totaling $35.1 million44 4. Investments | Investment Category | Amortized Cost (June 30, 2023, in millions) | Estimated Fair Value (June 30, 2023, in millions) | Gross Unrealized Losses (June 30, 2023, in millions) | | :--------------------------------