Employers (US:EIG)2023-10-26 16:00PART I – FINANCIAL INFORMATION Consolidated Financial Statements The unaudited consolidated financial statements detail decreased assets and liabilities, and a significant increase in nine-month net income Consolidated Balance Sheets Total assets decreased to $3,527.0 million, liabilities also declined, and stockholders' equity slightly decreased from year-end 2022 Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $3,527.0 | $3,716.7 | | Total Investments | $2,333.9 | $2,568.8 | | Premiums Receivable | $363.3 | $305.9 | | Total Liabilities | $2,608.0 | $2,772.5 | | Unpaid Losses and LAE | $1,913.4 | $1,960.7 | | FHLB Advances | $40.4 | $182.5 | | Total Stockholders' Equity | $919.0 | $944.2 | Consolidated Statements of Comprehensive Income (Loss) Nine-month net income significantly increased to $72.5 million from $1.3 million, primarily due to a positive swing in investment gains Financial Performance Summary (in millions, except EPS) | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Premiums Earned | $184.6 | $178.7 | $534.4 | $494.1 | | Total Revenues | $203.5 | $204.4 | $625.2 | $491.7 | | Net Income | $14.0 | $19.1 | $72.5 | $1.3 | | Diluted EPS | $0.54 | $0.70 | $2.71 | $0.05 | | Total Comprehensive (Loss) Income | $(12.1) | $(45.1) | $54.8 | $(218.2) | Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased to $919.0 million, primarily due to stock repurchases and dividends, partially offset by net income - For the nine months ended September 30, 2023, the company acquired $61.6 million of its common stock and declared $22.0 million in dividends22 - Net income of $72.5 million for the nine-month period was a primary contributor to retained earnings, but was offset by stock repurchases, dividends, and a $17.7 million increase in net unrealized losses on AFS investments22 Consolidated Statements of Cash Flows Operating cash decreased, investing activities provided $225.0 million, and financing used $227.2 million for FHLB repayments and stock repurchases Net Cash Flow Summary (in millions) | Activity | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $21.8 | $67.5 | | Net Cash from (used in) Investing Activities | $225.0 | $(97.7) | | Net Cash (used in) from Financing Activities | $(227.2) | $103.2 | | Net Increase in Cash | $19.6 | $73.0 | - Financing activities in the first nine months of 2023 included $142.1 million in repayments of FHLB advances and $61.5 million for the acquisition of common stock25 Notes to Consolidated Financial Statements (Unaudited) Notes detail accounting policies, investment portfolio, CECL, segment operations (Employers and Cerity), and a $9.4 million lease termination charge - The company operates through two reportable segments: Employers (traditional agent-based business) and Cerity (direct-to-customer business)33110111 - During the nine months ended September 30, 2023, the company recorded a net charge of $9.4 million related to the early termination of the lease for its former corporate headquarters in Reno, Nevada81117 - As of September 30, 2023, the company had an allowance for current expected credit losses (CECL) of $3.2 million on AFS debt securities, $16.2 million on premiums receivable, and $0.9 million on reinsurance recoverables566568 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations Management discusses financial performance, highlighting record policies in-force, $72.5 million net income from investment results, segment performance, and strong liquidity - The company achieved a record number of policies in-force, with year-over-year increases in new and renewal business premiums driving top-line growth128 - Net income for the nine months ended September 30, 2023, was $72.5 million, compared to $1.3 million for the same period in 2022, primarily driven by a positive swing in net realized and unrealized investment gains/losses and higher net investment income134137 - A non-recurring charge of $9.4 million was incurred during the nine months ended September 30, 2023, related to the early lease termination of the former corporate headquarters137149 Results of Operations Gross premiums written increased to $589.5 million, net investment income rose, and investment gains contributed to $72.5 million net income Consolidated Results of Operations (in millions) | Metric | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | | Gross Premiums Written | $589.5 | $540.4 | | Net Premiums Earned | $534.4 | $494.1 | | Net Investment Income | $80.3 | $62.8 | | Net Realized/Unrealized Gains (Losses) | $10.7 | $(65.5) | | Total Revenues | $625.2 | $491.7 | | Total Expenses | $534.9 | $491.8 | | Net Income | $72.5 | $1.3 | Summary of Financial Results by Segment Employers segment underwriting income increased to $28.6 million with a 94.6% combined ratio, while Cerity reported a $5.7 million net loss Net Income (Loss) Before Income Taxes by Segment (9M 2023, in millions) | Segment | Net Income (Loss) Before Taxes | | :--- | :--- | | Employers | $97.5 | | Cerity | $(5.7) | | Corporate and Other | $(1.5) | | Total | $90.3 | - The Employers segment's combined ratio improved to 94.6% for the nine months ended Sep 30, 2023, from 96.8% in the prior year period, driven by a lower loss and LAE ratio151159 - The Cerity segment's gross premiums written grew to $5.1 million for the nine months of 2023 from $3.6 million in 2022, though it still recorded an underwriting loss of $10.5 million174180 Liquidity and Capital Resources The company maintains strong capital and liquidity, with $75.8 million in holding company cash, $61.1 million in stock repurchases, and $22.5 million in dividends - Total cash and investments at the holding company (EHI) were $75.8 million at September 30, 2023192 - The company repurchased 1,570,342 shares for $61.1 million during the nine months ended September 30, 2023214 - Dividends paid to stockholders totaled $22.5 million for the nine months ended September 30, 2023213 - As of September 30, 2023, the company had $40.4 million in FHLB advances outstanding, down from $182.5 million at the start of the year201220 Quantitative and Qualitative Disclosures About Market Risk The company manages credit, interest rate, and equity price risks, with a 4.4-year portfolio duration and a $76.4 million impact from a 100 basis point rate rise - The company's primary market risks are identified as credit risk, interest rate risk, and equity price risk233 - The duration of the fixed maturity investment portfolio was 4.4 years as of September 30, 2023237 Interest Rate Sensitivity Analysis (as of Sep 30, 2023) | Hypothetical Change in Interest Rates | Estimated Pre-tax (Decrease) in Fair Value | | :--- | :--- | | 100 basis point rise | $(76.4) million | | 200 basis point rise | $(155.1) million | | 300 basis point rise | $(228.3) million | Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2023, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report248 - 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 reporting249 PART II – OTHER INFORMATION Legal Proceedings The company is involved in routine litigation, with no expected material effect on financial condition or results of operations - Management states that any ultimate liability from pending or threatened litigation is not expected to have a material effect on the company's results of operations, liquidity, or financial position252 Risk Factors No material changes to previously disclosed risk factors have occurred since the Annual Report on Form 10-K - As of the date of this report, there have been no material changes to the risk factors contained in the company's Annual Report253 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 367,209 shares for $14.3 million in Q3 2023 and authorized a new $50.0 million stock repurchase program Q3 2023 Stock Repurchases | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2023 | 30,000 | $38.24 | | August 2023 | 260,216 | $39.04 | | September 2023 | 76,993 | $38.92 | | Total Q3 | 367,209 | $38.95 | - A new stock repurchase authorization for up to $50.0 million was approved on July 26, 2023, valid through December 31, 2024254 Defaults Upon Senior Securities No defaults upon senior securities were reported - The company reports no defaults upon senior securities255 Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable to the company256 Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the third quarter of 2023 - During the three months ended September 30, 2023, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement257 Exhibits This section lists all exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files