—A—
2024 EMPLOYERS ANNUAL REPORT
Employers Holdings, Inc. is the only nationwide
insurance company exclusively focused on protecting
America’s small and mid-sized businesses by provid-
ing cost-effective workers’ compensation insurance.
Having been in the workers’ compensation business
for more than 100 years, we believe our deep expertise
and commitment to this line of insurance is a signif-
icant competitive advantage.
Our overall strategy is to pursue profitable growth
opportunities across workers’ compensation insurance
market cycles, leverage technology to provide seam-
less end-to-end customer experience, maximize our
investment returns within the constraints of prudent
portfolio management, maintain a strong equity
capital position, and consistently deliver value to our
shareholders.
Our significant customers include agents, policyholders
and injured workers, and we utilize technology to
provide a quality experience tailored to their
individual needs. Across the country, producers
rely on our sophisticated systems to connect with
EMPLOYERS®—and to connect us to our small
business customers and their injured workers. Our
policyholders can purchase our product at their
convenience through an array of distribution channels,
including traditional independent agents and brokers,
payroll providers, aggregators, digital agents, partner
insurance companies, affinity groups and directly from
us via our website.
Company Summary
—B—
2024 EMPLOYERS ANNUAL REPORT
2024 was a very successful year for EMPLOYERS.
Our strategic ‘North Star of Ease’ served as a guide
to making our internal operations more seamless
and scalable and our external systems more
customer friendly.
Workplace injuries can have a significant impact
on workers and their families. A series of digital
improvements made in 2024 are helping support
injured workers when they need us most. Early in
the year we implemented our AI-empowered digital
first notice of loss tool which simplified the process
for injured workers to report a claim. By the end of
the year, two-thirds of our agents and policyholders
were utilizing the online tool to submit claims. The
delivery of an enhanced claims payment processing
system expanded the options and modernized the
platform through which our injured workers receive
benefits. As a result of this successful collaboration
with payment processing provider One Inc, employees
injured on the job can now receive financial assistance
faster than ever before and in the method most
convenient to them.
We successfully broadened our underwriting appetite
to provide coverage to more classes of business and
support our growth strategy. Our appetite expansion
has produced underwriting results that are highly
consistent with our historical book of business, and
we look to leverage our learnings to offer workers
compensation to more industry segments in 2025.
2024 Overview
2024 Overview
Continued
—C—
2024 EMPLOYERS ANNUAL REPORT
2024 was also a year of recognition for
EMPLOYERS. AM Best upgraded the Financial
Strength Rating of each of our insurance companies
from A- to A and their Long-Term Credit Rating
from a- to a (Excellent). The upgrade reflects our
unwavering commitment to financial strength and
operational excellence and reinforces our ability
to provide reliable, trusted, high-quality coverage
to small businesses. In addition, we were honored
to have been named to U.S. News & World Report’s
“Best Places to Work” list in three categories, Best
Place to Work, Best in the West, and Best in
Insurance. Finally, we were proud to receive high
honors on Newsweek’s 2024 Most Trustworthy
Companies lists, earning third place nationally
and seventh place globally in the insurance
category.
Our charitable giving program provided much
needed support from coast to coast in 2024 as we
gave over $350,000 in grants and contributions,
including significant donations to directly support
worker relief efforts in the restaurant and
hospitality sectors after a series of natural disasters.
We continued our ongoing support of Kids Chance
of America, an organization that awards scholar-
ships directly to the children of injured workers.
This partnership highlights the strong connection
between our work and Kids Chance’s mission,
making an important difference in the lives of
families affected by workplace injuries.
Other key accomplishments and metrics in 2024
included the following:
• Our ending policies in-force were 130,767, the
highest in our history.
• We wrote $770 million of net written premium
and generated $750 million of net earned
premium, each the highest in our history.
• Our underwriting and general and admin-
istrative expense ratio was 23.5%, a significant
improvement from 24.9% a year ago.
• We achieved a combined ratio of 97.9%, or 98.6%
excluding the effects of our 1999 loss portfolio
transfer (LPT).
• We earned $107 million of net investment
income, the highest in our history.
• Our net income was highly consistent with that
of a year ago, and our net income per diluted
share increased by 6% due to our active capital
management.
• Our ending adjusted book value per share was
$50.71, the highest in our history.
• We returned $72 million to stockholders through
a combination of share repurchases and regular
quarterly dividends.
—D—
2024 EMPLOYERS ANNUAL REPORT
($ in millions, except share and per share amounts)
2024
2023
CHANGE
Net premiums written
$769.5
$760.6
1%
Net premiums earned
$749.5
$721.9
4%
Combined ratio
97.9%
95.0%
2.9 pts
Combined ratio excluding the effects of the LPT
98.6%
96.0%
2.6 pts
Net investment income
$107.0
$106.5
-%
Net realized and urealized gains on investments
$24.1
$22.7
6%
Net income
$118.6
$118.1
-%
Net income per diluted share
$4.71
$4.45
6%
Adjusted net income
$94.0
$101.7
-8%
Adjusted net income per diluted share
$3.73
$3.83
-3%
Adjusted return on equity
7.7%
8.5%
-0.8 pts
Ending adjusted stockholders’ equity
$1,245.2
$1,199.1
4%
Ending common shares outstanding
24,556,706 sh
25,369,753 sh
(813,047) sh
1 A Glossary of Financial
Measures and reconciliation
tables of GAAP to non-GAAP
measures follow this letter.
Financial Highlights
1
Year Ended December 31,
Underwriting Activities
Our net premiums written increased by 1% in 2024
versus those of a year ago. This growth resulted
from a 13% increase in new business and a 6%
increase in renewal business, offset by lower final
audit premiums and endorsements. The increase
in new business resulted in part from our continued
appetite expansion into new industries including
plumbing, painting, electrical and flooring. This
expansion was achieved by thoughtfully considering
industries that we previously excluded on a broad
basis and applying a finer approach to identify the
lower hazard opportunities within these classes.
This has provided meaningful and complementary
growth, as we have been able to identify and
partner with small businesses in expansion
classes that fit a desirable low-to-medium risk
profile. As of December 31, 2024, 91% of our
in-force premium was in the lower risk hazard
groups of A-E and 9% was in the higher risk
hazard groups of F-G.
We continued our underwriting discipline and
maintained our current accident year loss and loss
adjustment expense ratio on voluntary business
throughout 2024 at 64.0%. Additional inflationary
considerations were included in determining the
level and adequacy of our prior year loss and loss
adjustment expense reserves at December 31, 2024.
Explicit consideration was given to medical
and hospital inflation rates, as these rates have
historically exceeded general inflation rates.
During 2024 we reduced our loss and loss
adjustment expense reserves for prior accident
years by $18 million, which primarily related
to accident years 2020 and prior. 2024 was the
tenth straight year with net favorable prior-year
loss reserve development.
Our ongoing initiative to meaningfully reduce
our underwriting and general & administrative
expense ratio continued throughout the year and
resulted in a 1.5 percentage point decrease in the
ratio to 23.5% for 2024, the lowest expense ratio
experienced since 2018. The improvement was
primarily the result of cost savings achieved
through the Cerity integration plan that we
executed in late 2023, and we remain committed
to achieving further reductions to that ratio
going forward. In addition, our commission
expense ratio decreased from 13.9% in 2023
to 13.5% in 2024.
These actions contributed to a combined ratio
of 97.9%, or 98.6% excluding the LPT, which
represents our tenth straight year achieving
an underwriting profit in our long-tailed line
of business
—E—
2024 EMPLOYERS ANNUAL REPORT
Our investment portfolio is structured to support
our need for: (i) optimizing our risk-adjusted total
return; (ii) providing adequate liquidity; (iii) facili-
tating financial strength and stability; and (iv)
ensuring regulatory and legal compliance.
As of December 31, 2024, the fair value of our
investment portfolio, including cash and cash
equivalents, was more than $2.5 billion, or 2.2
times our ending stockholders’ equity. Our $2.1
billion portfolio of fixed income investments
provides us with a steady source of income and
liquidity and is managed by well-known and
established independent investment managers.
Our fixed maturity investments had a duration
of 4.5 at December 31, 2024. Our investment
strategy balances the consideration of duration,
yield and credit risk, and we continually monitor
changes in interest rates and their impact on our
liquidity and ability to meet our obligations. We
also had a $366 million portfolio of equity
securities and other investments at December
31, 2024. We strive to limit our exposure to equity
price risk by diversifying our public holdings
across several industry sectors and by investing
in private equity limited partnerships.
50%
Corporates
Govts & Munis
RMBS
Equities
CLOs
Bank Loans
CMBS & ABS
All Other
0%
10%
20%
30%
40%
12/31/2022
12/31/2023
12/31/2024
Investment Allocation
—F—
2024 EMPLOYERS ANNUAL REPORT
Investing Activities
Our net investment income in 2024 was highly consis-
tent with that of a year ago. This was the result of
higher investment yields being partially offset by
a lower average invested balance of fixed maturity
securities, short-term investments, and cash and
cash equivalents, as measured by amortized cost.
The lower average invested balances in 2024 resulted
primarily from the unwinding of our former Federal
Home Loan Bank of San Francisco (FHLB) leveraged
investment strategy.
Continued volatility in market interest rates and equity
markets in 2024 impacted the fair value of our invest-
ment securities. Specifically, our net income in 2024
benefited from $24 million of net unrealized gains
(after tax) arising from equity securities and other
investments, and our stockholders’ equity was
impacted by $4 million of net unrealized losses
(after tax) from fixed maturity securities.
—G—
2024 EMPLOYERS ANNUAL REPORT
Investing Activities
Continued
—H—
2024 EMPLOYERS ANNUAL REPORT
2 Represents the year-over-
year change in book value per
share after taking into account
dividends declared during
such periods.
Per Share Amounts
December 31,
Percent Change 2
2024
2023
2022
2024
2023
Book value per share
$43.52
$39.96
$34.76
12%
18%
Book value per share
including the Deferred Gain
$47.35
$43.88
$38.67
11%
16%
Adjusted book value per share
$50.71
$47.26
$43.78
10%
10%
The following illustrates the net changes in our
book value per share metrics in recent years:
Our book value per share and book value per share
including the Deferred Gain increased by 12% and
11%, respectively, during 2024. These increases
primarily resulted from our solid operating results
and the net unrealized investment gains previously
mentioned. Our adjusted book value per share,
which excludes unrealized gains and losses arising
from our fixed maturity securities, increased by
10% during 2024.
We believe that we have a strong equity capital
position. Our equity capital strategy is focused
on supporting our business operations by main-
taining equity capital levels commensurate with
our desired ratings from independent rating
agencies, satisfying regulatory constraints and
legal requirements, and sustaining a level of
financial flexibility to prudently manage our
business through insurance and economic cycles
while allowing us to take advantage of investment
opportunities, including acquisitions of insurance
and insurance-related entities, as and when
they arise.
We also believe in returning equity capital not
needed for these purposes to our stockholders
through regular quarterly dividends and,
when appropriate, special dividends, and share
repurchases. During the three-year period ended
December 31, 2024, we declared $151 million of
regular and special dividends on our common
stock, and we repurchased $149 million of our
common stock.
With regard to inflation, the workers’ compen-
sation industry is better prepared than in the past
to combat the impact of medical inflation should
it arise. Over the last decade, states have imple-
mented physician fee schedules, hospital inpatient
and outpatient fee schedules, prescription drug
formularies and other protections to control
medical costs. These measures have continued to
be highly effective.
Nonetheless, in the current elevated inflationary
environment, additional inflationary consider-
ations were included in determining the level and
adequacy of our loss and loss adjustment expense
reserves at December 31, 2024, and particular
consideration was given to medical and hospital
inflation rates, as these rates have historically
exceeded general inflation rates.
Financial Strength and
Equity Capital Management
2024 EMPLOYERS ANNUAL REPORT
—I—
James Kroner retired from the Board
on March 3, 2025, after serving as a
Director of the Company since 2013.
We are extremely grateful for Jim’s
distinguished service to our Company
and its stockholders.
Michael McSally retired from the
Board on March 3, 2025, after serving
as a Director of the Company since 2013
and as Board chair from May 2020 to
March 2024. We are profoundly grateful
for Mike’s distinguished service to our
Company and its stockholders
Board of Director Changes
Marvin Pestcoe joined the Board on
March 3, 2025. Marvin brings over
40 years of experience in insurance,
reinsurance and investments, including
a range of executive roles and leadership
positions that focused on profit center
management, investments, corporate
strategy, data analytics and risk manage-
ment. We will benefit greatly from
Marvin’s insights and look forward
to his contributions to our Board.
—J—
2024 EMPLOYERS ANNUAL REPORT
EMPLOYERS remains well-positioned and well-
capitalized to benefit from favorable trends and
opportunities. With competitive pricing and a
profitable line, we are poised for growth. Key
focus areas for 2025 and beyond include:
Technology Advancements
We will continue our plan to transform how we
connect, serve, and empower our customers by
creating an intelligent, agile, and seamlessly
integrated ecosystem. We are investing in a
modernized customer relationship management
platform (CRM) which we expect to be the
foundation of a data-driven, customer-centric
organization. By harnessing AI, automation, and
real-time data insights, we believe we can enhance
efficiency and redefine the way we build trust and
loyalty in a dynamic insurance environment.
Empowering Our Agency Partners
Simultaneously, we’re revolutionizing our agency
management approach through a robust system
that is intended to simplify the onboarding process
and provide current licensing information while
empowering agents through education. We believe
this technology will enable us to cultivate and
maintain even stronger, long-term relationships
with traditional and specialty insurance agencies.
Strategic Growth Initiatives
We will continue to pursue profitable growth
opportunities by maintaining our focus on
disciplined underwriting and claims manage-
ment, thoughtfully expanding our appetite to
new risk segments, further developing important
alternative distribution channels, offering direct
insurance solutions to customers, and leveraging
data analytics for more precise risk assessment
and pricing.
Building a Resilient Future
We remain committed to innovation, customer
satisfaction, and adapting quickly to changing
market conditions in an evolving insurance
landscape. With a clear strategy in place,
we are poised for sustainable growth and
continued leadership in the workers’
compensation insurance industry.
Jeanne L. Mockard
Chair of the Board
Looking Forward
Respectfully submitted,
Katherine H. Antonello
President and CEO
—I—
2024 EMPLOYERS ANNUAL REPORT
1
Consolidated Financial Highlights
2
Summary Consolidated Balance Sheets
3
Summary Consolidated Income Statements
4
Return on Equity
5
Combined Ratios
6
Roll-forward of Unpaid Losses and LAE
7
Consolidated Investment Portfolio
8
Book Value Per Share
9
Earnings Per Share
10
Non-GAAP Financial Measures
TABLE OF CONTENTS
Employers Holdings, Inc.
Fourth Quarter and Full Year 2024
Financial Supplement
—1—
2024 EMPLOYERS ANNUAL REPORT
EMPLOYERS HOLDINGS, INC.
Consolidated Financial Highlights (unaudited)
$ in millions, except per share amounts
Three Months Ended
Years Ended
December 31,
December 31,
2024
2023
% change
2024
2023
% change
Selected financial highlights:
Gross premiums written
$
176.3
$
178.2
(1) %
$
776.3
$
767.7
1 %
Net premiums written
174.7
176.4
(1)
769.5
760.6
1
Net premiums earned
190.2
187.5
1
749.5
721.9
4
Net investment income
26.7
26.2
2
107.0
106.5
—
Net income excluding LPT(1)
28.4
44.4
(36)
113.0
110.9
2
Adjusted net income(1)
28.7
36.1
(20)
94.0
101.7
(8)
Net income before income taxes
34.7
58.2
(40)
146.7
148.4
(1)
Net income
28.3
45.6
(38)
118.6
118.1
—
Comprehensive income (loss)
(8.9)
116.2
(108)
122.1
171.0
(29)
Total assets
3,541.3
3,550.4
—
Stockholders' equity
1,068.7
1,013.9
5
Stockholders' equity including the Deferred Gain(2)
1,162.7
1,113.1
4
Adjusted stockholders' equity(2)
1,245.2
1,199.1
4
Annualized adjusted return on stockholders' equity(3)
9.3 %
12.2 %
(24) %
7.7 %
8.5 %
(9)
Amounts per share:
Cash dividends declared per share
$
0.30
$
0.28
7 %
$
1.18
$
1.10
7 %
Earnings per diluted share(4)
1.14
1.77
(36)
4.71
4.45
6
Earnings per diluted share excluding LPT(4)
1.14
1.72
(34)
4.49
4.18
7
Adjusted earnings per diluted share(4)
1.15
1.40
(18)
3.73
3.83
(3)
Book value per share(2)
43.52
39.96
9
Book value per share including the Deferred Gain(2)
47.35
43.88
8
Adjusted book value per share(2)
50.71
47.26
7
Combined ratio excluding LPT:(5)
Loss and loss adjustment expense ratio:
Current year
64.2 %
63.5 %
64.1 %
63.4 %
Prior Year
(4.7)
(13.3)
(2.5)
(6.2)
Loss and loss adjustment expense ratio
59.5 %
50.2 %
61.6 %
57.2 %
Commission expense ratio
12.8
14.0
13.5
13.9
Underwriting and general and administrative expense ratio
23.2
24.6
23.5
24.9
Combined ratio excluding LPT
95.5 %
88.8 %
98.6 %
96.0 %
(1) See Page 3 for calculations and Page 10 for information regarding our use of Non-GAAP Financial Measures.
(2) See Page 8 for calculations and Page 10 for information regarding our use of Non-GAAP Financial Measures.
(3) See Page 4 for calculations and Page 10 for information regarding our use of Non-GAAP Financial Measures.
(4) See Page 9 for calculations and Page 10 for information regarding our use of Non-GAAP Financial Measures.
(5) See Page 5 for calculations and Page 10 for information regarding our use of Non-GAAP Financial Measures.
—2—
2024 EMPLOYERS ANNUAL REPORT
EMPLOYERS HOLDINGS, INC.
Summary Consolidated Balance Sheets (unaudited)
$ in millions, except per share amounts
December 31,
2024
December 31,
2023
ASSETS
Available for sale:
Investments, cash and cash equivalents
$
2,532.4 $
2,504.7
Accrued investment income
15.7
16.3
Premiums receivable, net
361.3
359.4
Reinsurance recoverable, net of allowance, on paid and unpaid losses and LAE
417.8
433.8
Deferred policy acquisition costs
59.6
55.6
Deferred income taxes, net
38.3
43.4
Contingent commission receivable—LPT Agreement
—
14.2
Other assets
116.2
123.0
Total assets
$
3,541.3 $
3,550.4
LIABILITIES
Unpaid losses and LAE
$
1,808.2 $
1,884.5
Unearned premiums
402.2
379.7
Commissions and premium taxes payable
65.8
66.0
Deferred Gain
94.0
99.2
Other liabilities
102.4
107.1
Total liabilities
$
2,472.6 $
2,536.5
STOCKHOLDERS' EQUITY
Common stock and additional paid-in capital
$
424.8 $
420.4
Retained earnings
1,472.9
1,384.3
Accumulated other comprehensive loss, net
(82.5)
(86.0)
Treasury stock, at cost
(746.5)
(704.8)
Total stockholders’ equity
1,068.7
1,013.9
Total liabilities and stockholders’ equity
$
3,541.3 $
3,550.4
Stockholders' equity including the Deferred Gain (1)
$
1,162.7 $
1,113.1
Adjusted stockholders' equity (1)
1,245.2
1,199.1
Book value per share (1)
$
43.52 $
39.96
Book value per share including the Deferred Gain (1)
47.35
43.88
Adjusted book value per share (1)
50.71
47.26
(1) See Page 8 for calculations and Page 10 for information regarding our use of Non-GAAP Financial Measures.
—3—
2024 EMPLOYERS ANNUAL REPORT
EMPLOYERS HOLDINGS, INC.
Summary Consolidated Income Statements (unaudited)
$ in millions
Three Months Ended
Years Ended
December 31,
December 31,
2024
2023
2024
2023
Revenues:
Net premiums earned
$
190.2 $
187.5 $
749.5 $
721.9
Net investment income
26.7
26.2
107.0
106.5
Net realized and unrealized (losses) gains on investments(1)
(0.4)
12.1
24.1
22.7
Other income (loss)
0.1
(0.1)
0.1
(0.2)
Total revenues
216.6
225.7
880.7
850.9
Expenses:
Losses and LAE incurred
113.2
92.9
456.2
405.7
Commission expense
24.4
26.3
101.2
100.0
Underwriting and general and administrative expenses
44.2
46.1
176.5
180.0
Interest and financing expenses
0.1
0.6
0.1
5.8
Other expenses
—
1.6
—
11.0
Total expenses
(181.9)
(167.5)
(734.0)
(702.5)
Net income before income taxes
34.7
58.2
146.7
148.4
Income tax expense
(6.4)
(12.6)
(28.1)
(30.3)
Net income
28.3
45.6
118.6
118.1
Unrealized AFS investment (losses) gains arising during the period, net of tax
(39.2)
66.6
(3.5)
46.6
Reclassification adjustment for realized AFS investment gains in net income, net of tax
2.0
4.0
7.0
6.3
Total Comprehensive income
$
(8.9) $
116.2 $
122.1 $
171.0
Net income
$
28.3 $
45.6 $
118.6 $
118.1
Amortization of the Deferred Gain - losses
(1.6)
(1.5)
(6.1)
(6.3)
Amortization of the Deferred Gain - contingent commission
—
(0.3)
(0.8)
(1.5)
LPT reserve adjustment
1.7
0.9
1.7
0.9
LPT contingent commission adjustments
—
(0.3)
(0.4)
(0.3)
Net income excluding LPT Agreement (2)
$
28.4 $
44.4 $
113.0 $
110.9
Net realized and unrealized losses (gains) on investments
0.4
(12.1)
(24.1)
(22.7)
Lease termination and asset impairment charges
—
1.6
—
11.0
Income tax (benefit) expense related to items excluded from Net income
(0.1)
2.2
5.1
2.5
Adjusted net income (2)
$
28.7 $
36.1 $
94.0 $
101.7
(1) Includes unrealized gains on equity securities and other invested assets of $2.4 million and $17.8 million for the three months ended December 31, 2024 and 2023, respectively, and $30.5 million and $36.2
million for the year ended December 31, 2024 and 2023, respectively
(2) See Page 10 regarding our use of Non-GAAP Financial Measures.
—4—
2024 EMPLOYERS ANNUAL REPORT
EMPLOYERS HOLDINGS, INC.
Return on Equity (unaudited)
$ in millions
Three Months Ended
Years Ended
December 31,
December 31,
2024
2023
2024
2023
Net income
A
$
28.3
$
45.6
$
118.6
$
118.1
Impact of the LPT Agreement
0.1
(1.2)
(5.6)
(7.2)
Net realized and unrealized losses (gains) on investments
0.4
(12.1)
(24.1)
(22.7)
Lease termination and asset impairment charges
—
1.6
—
11.0
Income tax (benefit) expense related to items excluded from Net income
(0.1)
2.2
5.1
2.5
Adjusted net income(1)
B
$
28.7
$
36.1
$
94.0
$
101.7
Stockholders' equity - end of period
$
1,068.7
$
1,013.9
$
1,068.7
$
1,013.9
Stockholders' equity - beginning of period
1,093.4
919.0
1,013.9
944.2
Average stockholders' equity
C
$
1,081.1
$
966.5
$
1,041.3
$
979.1
Stockholders' equity - end of period
$
1,068.7
$
1,013.9
$
1,068.7
$
1,013.9
Deferred Gain - end of period
94.0
99.2
94.0
99.2
Accumulated other comprehensive loss, before taxes - end of period
104.5
108.9
104.5
108.9
Income tax related to accumulated other comprehensive loss - end of period
(22.0)
(22.9)
(22.0)
(22.9)
Adjusted stockholders' equity - end of period
1,245.2
1,199.1
1,245.2
1,199.1
Adjusted stockholders' equity - beginning of period
1,232.5
1,175.8
1,199.1
1,189.2
Average adjusted stockholders' equity(1)
D
$
1,238.9
$
1,187.5
$
1,222.2
$
1,194.2
Return on stockholders' equity
A / C
2.6 %
4.7 %
11.4 %
12.1 %
Annualized return on stockholders' equity
10.5
18.9
Adjusted return on stockholders' equity(1)
B / D
2.3
3.0
7.7
8.5
Annualized adjusted return on stockholders' equity(1)
9.3
12.2
(1) See Page 10 for information regarding our use of Non-GAAP Financial Measures.
—5—
2024 EMPLOYERS ANNUAL REPORT
EMPLOYERS HOLDINGS, INC.
Combined Ratios (unaudited)
$ in millions, except per share amounts
Three Months Ended
Years Ended
December 31,
December 31,
2024
2023
2024
2023
Net premiums earned
A
$
190.2
$
187.5
$
749.5
$
721.9
Losses and LAE incurred
B
113.2
92.9
456.2
405.7
Amortization of deferred reinsurance gain - losses
1.6
1.5
6.1
6.3
Amortization of deferred reinsurance gain - contingent commission
—
0.3
0.8
1.5
LPT reserve adjustment
(1.7)
(0.9)
(1.7)
(0.9)
LPT contingent commission adjustments
—
0.3
0.4
0.3
Losses and LAE excluding LPT(1)
C
$
113.1
$
94.1
$
461.8
$
412.9
Prior year loss reserve development
(9.1)
(24.9)
(18.4)
(44.9)
Losses and LAE excluding LPT - current accident year
D
$
122.2
$
119.0
$
480.2
$
457.8
Commission expense
E
$
24.4
$
26.3
$
101.2
$
100.0
Underwriting and general and administrative expense
F
$
44.2
$
46.1
$
176.5
$
180.0
GAAP combined ratio:
Loss and LAE ratio
B/A
59.5 %
49.5 %
60.9 %
56.2 %
Commission expense ratio
E/A
12.8
14.0
13.5
13.9
Underwriting and general and administrative expense ratio
F/A
23.2
24.6
23.5
24.9
GAAP combined ratio
95.5 %
88.1 %
97.9 %
95.0 %
Combined ratio excluding LPT:(1)
Loss and LAE ratio excluding LPT
C/A
59.5 %
50.2 %
61.6 %
57.2 %
Commission expense ratio
E/A
12.8
14.0
13.5
13.9
Underwriting and general and administrative expense ratio
F/A
23.2
24.6
23.5
24.9
Combined ratio excluding LPT
95.5 %
88.8 %
98.6 %
96.0 %
Combined ratio excluding LPT: current accident year:(1)
Loss and LAE ratio excluding LPT
D/A
64.2 %
63.5 %
64.1 %
63.4 %
Commission expense ratio
E/A
12.8
14.0
13.5
13.9
Underwriting and general and administrative expenses ratio
F/A
23.2
24.6
23.5
24.9
Combined ratio excluding LPT: current accident year
100.2 %
102.1 %
101.1 %
102.2 %
(1) See Page 10 for information regarding our use of Non-GAAP Financial Measures.
—6—
2024 EMPLOYERS ANNUAL REPORT
EMPLOYERS HOLDINGS, INC.
Roll-forward of Unpaid Losses and LAE (unaudited)
$ in millions
Three Months Ended
Years Ended
December 31,
December 31,
2024
2023
2024
2023
Unpaid losses and LAE at beginning of period
$
1,836.5 $
1,913.4 $
1,884.5 $
1,960.7
Less reinsurance recoverable on unpaid losses and LAE
413.1
426.6
428.4
445.4
Net unpaid losses and LAE at beginning of period
1,423.4
1,486.8
1,456.1
1,515.3
Losses and LAE incurred:
Current year
122.2
119.1
480.2
457.8
Prior years - voluntary business
(8.6)
(24.6)
(17.9)
(44.6)
Prior years - involuntary business
(0.5)
(0.3)
(0.5)
(0.3)
Total losses incurred
113.1
94.2
461.8
412.9
Losses and LAE paid:
Current year
57.9
47.6
127.1
111.7
Prior years
82.8
77.3
395.0
360.4
Total paid losses
140.7
124.9
522.1
472.1
Net unpaid losses and LAE at end of period
1,395.8
1,456.1
1,395.8
1,456.1
Reinsurance recoverable, excluding CECL allowance, on unpaid losses and LAE
412.4
428.4
412.4
428.4
Unpaid losses and LAE at end of period
$
1,808.2 $
1,884.5 $
1,808.2 $
1,884.5
Total losses and LAE shown in the above table exclude amortization of the Deferred Gain, LPT Reserve Adjustments, and LPT Contingent Commission Adjustments, which totaled $(0.1)
million and $1.2 million for the three months ended December 31, 2024 and 2023, respectively, and $5.6 million and $7.2 million for the year ended December 31, 2024 and 2023,
respectively.
—7—
2024 EMPLOYERS ANNUAL REPORT
EMPLOYERS HOLDINGS, INC.
Consolidated Investment Portfolio (unaudited)
$ in millions
December 31, 2024
December 31, 2023
Investment Positions:
Cost or
Amortized
Cost(1)
Net Unrealized
Gain (Loss)
Fair Value
%
Fair Value
%
Fixed maturity securities
$
2,203.1
$
(104.6) $
2,097.4
83 % $
1,936.3
77 %
Equity securities
150.7
109.1
259.8
10
217.2
9
Other invested assets
90.9
15.7
106.6
4
91.5
4
Short-term investments
0.1
—
0.1
—
33.1
1
Cash and cash equivalents
68.3
—
68.3
3
226.4
9
Restricted cash and cash equivalents
0.2
—
0.2
—
0.2
—
Total investments and cash
$
2,513.3
$
20.2 $
2,532.4
100 % $
2,504.7
100 %
Breakout of Fixed Maturity Securities:
U.S. Treasuries and Agencies
$
61.4
$
(2.1) $
59.3
3 % $
60.5
3 %
States and Municipalities
163.0
(3.7)
159.3
8
210.2
11
Corporate Securities
849.2
(46.0)
803.0
38
895.8
46
Mortgage-Backed Securities
733.1
(47.9)
684.9
33
426.0
22
Asset-Backed Securities
216.0
(2.0)
214.0
10
128.0
7
Collateralized loan obligations
35.5
(0.2)
35.3
2
91.5
5
Bank loans and other
144.9
(2.7)
141.6
7
124.3
6
Total fixed maturity securities
$
2,203.1
$
(104.6) $
2,097.4
100 % $
1,936.3
100 %
Weighted average ending book yield on fixed income securities, cash, and cash equivalents
4.5 %
4.3 %
Average credit quality (S&P)
A+
A
Duration
4.5
4.5
(1) Amortized cost excludes an allowance for current expected credit losses (CECL) of $1.1 million
—8—
2024 EMPLOYERS ANNUAL REPORT
EMPLOYERS HOLDINGS, INC.
Book Value Per Share (unaudited)
$ in millions, except per share amounts
December 31,
2024
December 31,
2023
Numerators:
Stockholders' equity
A
$
1,068.7
$
1,013.9
Deferred Gain
94.0
99.2
Stockholders' equity including the Deferred Gain(1)
B
1,162.7
1,113.1
Accumulated other comprehensive loss, before taxes
104.5
108.9
Income taxes related to accumulated other comprehensive loss, before taxes
(22.0)
(22.9)
Adjusted stockholders' equity(1)
C
$
1,245.2
$
1,199.1
Denominator (shares outstanding)
D
24,556,706
25,369,753
Book value per share(1)
A / D $
43.52
$
39.96
Book value per share including the Deferred Gain(1)
B / D
47.35
43.88
Adjusted book value per share(1)
C / D
50.71
47.26
Cash dividends declared per share
$
1.18
$
1.10
YTD Change in:(2)
Book value per share
11.9 %
18.1 %
Book value per share including the Deferred Gain
10.6
16.3
Adjusted book value per share
9.8
10.5
(1) See Page 10 for information regarding our use of Non-GAAP Financial Measures.
(2) Reflects the change per share after taking into account dividends declared in the
period.
—9—
2024 EMPLOYERS ANNUAL REPORT
EMPLOYERS HOLDINGS, INC.
Earnings Per Share (unaudited)
$ in millions, except per share amounts
Three Months Ended
Years Ended
December 31,
December 31,
2024
2023
2024
2023
Numerators:
Net income
A
$
28.3 $
45.6 $
118.6 $
118.1
Impact of the LPT Agreement
0.1
(1.2)
(5.6)
(7.2)
Net income excluding LPT (1)
B
$
28.4 $
44.4 $
113.0 $
110.9
Net realized and unrealized (gains) losses on investments
0.4
(12.1)
(24.1)
(22.7)
Lease termination and asset impairment charges
—
1.6
—
11.0
Income tax (benefit) expense related to items excluded from Net income
(0.1)
2.2
5.1
2.5
Adjusted net income (1)
C
$
28.7 $
36.1 $
94.0 $
101.7
Denominators:
Average common shares outstanding (basic)
D
24,725,425
25,645,821
25,050,605
26,368,801
Average common shares outstanding (diluted)
E
24,902,459
25,801,380
25,194,814
26,523,651
Earnings per share:
Basic
A / D $
1.14 $
1.78 $
4.73 $
4.48
Diluted
A / E
1.14
1.77
4.71
4.45
Earnings per share excluding LPT:(1)
Basic
B / D
$
1.15 $
1.73 $
4.51 $
4.21
Diluted
B / E
1.14
1.72
4.49
4.18
Adjusted earnings per share:(1)
Basic
C / D $
1.16 $
1.41 $
3.75 $
3.86
Diluted
C / E
1.15
1.40
3.73
3.83
(1) See Page 10 for information regarding our use of Non-GAAP Financial Measures.
—10—
2024 EMPLOYERS ANNUAL REPORT
Non-GAAP Financial Measures
Within this earnings release we present the following measures, each of which are "non-GAAP financial measures." A reconciliation of these measures to the Company's
most directly comparable GAAP financial measures is included herein. Management believes that these non-GAAP measures are important to the Company's investors,
analysts and other interested parties who benefit from having an objective and consistent basis for comparison with other companies within our industry. Management
further believes that these measures are more relevant than comparable GAAP measures in evaluating our financial performance.
The LPT Agreement is a non-recurring transaction that no longer provides any ongoing cash benefits to the Company. Management believes that providing non-GAAP
measures that exclude the effects of the LPT Agreement (amortization of deferred reinsurance gain, adjustments to LPT Agreement ceded reserves and adjustments to the
contingent commission receivable) is useful in providing investors, analysts and other interested parties a meaningful understanding of the Company's ongoing underwriting
performance.
Deferred reinsurance gain (Deferred Gain) reflects the unamortized gain from the LPT Agreement. This gain has been deferred and is being amortized using the recovery
method, whereby the amortization is determined by the proportion of actual reinsurance recoveries to total estimated recoveries, except for the contingent profit commission,
which was amortized through June 30, 2024, the date of its final determination. Amortization is reflected in losses and LAE incurred.
Adjusted net income (see Page 3 for calculations) is net income excluding the effects of the LPT Agreement, and net realized and unrealized gains and losses
on investments (net of tax), and any miscellaneous non-recurring transactions (net of tax). Management believes that providing this non-GAAP measures is helpful to
investors, analysts and other interested parties in identifying trends in the Company's operating performance because such items have limited significance to its ongoing
operations or can be impacted by both discretionary and other economic factors and may not represent operating trends.
Stockholders' equity including the Deferred Gain (see Page 8 for calculations) is stockholders' equity including the Deferred Gain. Management believes that providing
this non-GAAP measure is useful in providing investors, analysts and other interested parties a meaningful measure of the Company's total underwriting capital.
Adjusted stockholders' equity (see Page 8 for calculations) is stockholders' equity including the Deferred Gain, less accumulated other comprehensive income (net of tax).
Management believes that providing this non-GAAP measure is useful to investors, analysts and other interested parties since it serves as the denominator to the Company's
adjusted return on stockholders' equity metric.
Return on stockholders' equity and Adjusted return on stockholders' equity (see Page 4 for calculations). Management believes that these profitability measures
are widely used by our investors, analysts and other interested parties.
Book value per share, Book value per share including the Deferred Gain, and Adjusted book value per share (see Page 8 for calculations). Management believes that
these valuation measures are widely used by our investors, analysts and other interested parties.
Net income excluding LPT (see Page 3 for calculations). Management believes that these performance and underwriting measures are widely used by our
investors, analysts and other interested parties.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number: 001-33245
EMPLOYERS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada
04-3850065
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
5340 Kietzke Lane, Suite 202
Reno, Nevada 89511
(Address of principal executive offices and zip code)
(888) 682-6671
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
EIG
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and
"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
R
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D–1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2024 was
$756,037,167.
As of February 24, 2025, there were 24,357,217 shares of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Definitive Proxy Statement relating to the 2025 Annual Meeting of Stockholders are incorporated by reference in
Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
Page
No.
FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
NOTE REGARDING RELIANCE ON STATEMENTS IN OUR CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
PART 1
Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
Item 1B Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
Item 1C Cybersecurity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
Item 2
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
Item 3
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
Item 4
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
PART II
Item 5
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
Item 6
Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28
Item 7
Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations .
29
Item 7A Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
Item 8
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48
Item 9
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . .
90
Item 9A Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90
Item 9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90
PART III
Item 10
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91
Item 11
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . .
93
Item 13
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . .
94
Item 14
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94
PART IV
Item 15
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
Item 16
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101
SIGNATURES
102
2
FORWARD-LOOKING STATEMENTS
Unless otherwise indicated, all references to "we," "us," "our," the "Company" or similar terms refer to Employers Holdings,
Inc., together with its subsidiaries. In this Annual Report on Form 10-K, the Company and its management discuss and make
statements based on currently available information regarding their intentions, beliefs, current expectations, and projections of,
among other things, the Company's future performance, economic or market conditions, including current or future levels of
inflation, changes in interest rates, labor market expectations, catastrophic events or geo-political conditions, legislative or
regulatory actions or court decisions, business growth, retention rates, loss costs, claim trends and the impact of key business
initiatives, future technologies and planned investments. 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. The Company
and its management caution investors that such forward-looking statements are not guarantees of future performance. Risks and
uncertainties are inherent in the Company'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 the Company's public filings with the Securities and Exchange Commission (SEC), including the risks
detailed in Item 1A, "Risk Factors." Except as required by applicable securities laws, the Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
3
PART I
Item 1. Business
General
Employers Holdings, Inc. (EHI) is a holding company, which was incorporated in Nevada in 2005, with subsidiaries that are
specialty providers of workers' compensation insurance and services focused on small and mid-sized businesses engaged in
low-to-medium hazard industries. We had 715 full-time employees at December 31, 2024 and our corporate headquarters are
located at 5340 Kietzke Lane, Suite 202, Reno, Nevada. We operate throughout the United States (U.S.) with the exception of
North Dakota, Ohio, Washington and Wyoming, which are served exclusively by their state funds. We offer insurance through
Employers Insurance Company of Nevada (EICN), Employers Compensation Insurance Company (ECIC), Employers
Preferred Insurance Company (EPIC), Employers Assurance Company (EAC) and Cerity Insurance Company (CIC), each of
which has been assigned an AM Best Company, Inc. (AM Best) financial strength rating of "A" (Excellent).
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those
reports, and Proxy Statements for our Annual Meetings of Stockholders are available free of charge on our website at
www.employers.com as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our
website also provides access to reports filed by our directors, executive officers and certain significant stockholders pursuant to
Section 16 of the Securities Exchange Act of 1934 (Exchange Act). In addition, our Corporate Governance Guidelines, Code of
Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, Related Person Transactions Policy, and charters for
the Audit, Board Governance and Nominating, Executive, Human Capital Management and Compensation, and Risk
Management, Technology and Innovation committees of our Board of Directors (Board) are available on our website.
Information in, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form
10-K. Copies of these documents may also be obtained free of charge by written request to Investor Relations, 5340 Kietzke
Lane, Suite 202, Reno, Nevada 89511. The SEC also maintains a website at www.sec.gov that contains the information that we
file electronically with the SEC.
Property and Casualty Insurance in General
A widely-used measure of relative underwriting performance for an insurance company is the combined ratio. The combined
ratio is calculated by adding: (i) the ratio of losses and loss adjustment expense (LAE) to earned premiums (known as the "loss
and LAE ratio"); (ii) the ratio of commission expenses to earned premiums (known as the "commission expense ratio"); and
(iii) the ratio of underwriting and general and administrative expenses to earned premiums (known as the "underwriting expense
ratio"), with each component determined in accordance with U.S. generally accepted accounting principles (GAAP). A
combined ratio under 100% indicates that an insurance company is generating an underwriting profit. A combined ratio over
100% indicates that an insurance company is generating an underwriting loss.
An insurance company’s calendar year loss experience includes loss and LAE movements recognized during any given
calendar year regardless of the year in which the underlying insured event actually occurred. An insurance company’s accident
year loss experience includes only those loss and LAE movements recognized during the year in which the underlying insured
event actually occurred.
In insurance and reinsurance operations, "float" arises when premiums are received before losses and other expenses are paid,
an interval that may extend over many years. During that time, the insurer has the opportunity to invest the money, thereby
earning investment income and generating investment gains and losses.
Insurance companies operating at a combined ratio of greater than 100% can be profitable when investment income and net
investment gains are taken into account. The length of time between receiving premiums and paying out losses and other
expenses, commonly referred to as the "tail," can significantly affect how profitable float can be. Long-tail losses, such as
workers' compensation, pay out over longer periods of time, which provides us the opportunity to generate significant
investment earnings from float.
Underwriting income or loss is determined by deducting losses and LAE, commission expenses, and underwriting and general
and administrative expenses from net premiums earned.
Our Business Strategy
Our overall strategy is to pursue profitable growth opportunities across workers' compensation insurance market cycles,
maximize our investment earnings within the constraints of prudent portfolio management, maintain a strong equity capital
position at all times, and deliver value to our shareholders while being conscious of environmental, social and governance
(ESG) concerns.
4
Underwriting Strategy
We pursue profitable growth opportunities by focusing on disciplined underwriting and claims management, utilizing medical
provider networks designed to produce superior medical and indemnity outcomes, establishing and maintaining strong, long-
term relationships with traditional and specialty insurance agencies, developing important alternative distribution channels, and
offering workers' compensation insurance solutions directly to customers.
We believe we have a cost-effective and scalable information technology infrastructure that complements our geographic reach
and business model. We continue to invest in technology to automate business processes and further develop our data and
analytics capabilities, which we believe will enable us to reduce our operating costs over the long-term and set a foundation for
our future needs. Our technology aims to save our insurance agents and brokers, and our policyholders, considerable time and
maintains our competitiveness in our target markets.
We also continue to execute a number of ongoing business initiatives, including: achieving internal and customer-facing
business process excellence and efficiency; delivering self-service options to policyholders, agents, and injured workers; further
diversifying our risk exposure across geographic markets and economic sectors; and expanding our appetite.
Beginning in 2021, we extended our reach by applying our established underwriting approach to new industries, including
landscaping, janitorial, property management, and artisan contracting. This expansion has provided meaningful and
complementary growth for the Company as we’ve been able to identify and partner with those small to mid-sized businesses in
these classes that fit a desirable low-to-medium risk profile. The workers' compensation insurance industry classifies risks into
seven hazard groups (A-G), with classes of business in hazard group A having the lowest potential for large claims, and those in
hazard group G having the highest potential for large claims. Over the past few years, the amount of business that we have
written in hazard groups D through G has increased, which is, in part, due to this expansion.
This expansion was achieved by thoughtfully considering industries that we previously excluded on a broad basis, and applying
a finer approach to identify the lower hazard opportunities within these classes. The underwriting appetite in which we operate
is defined by specific and preferred characteristics related to the typical job site, standard work activities, and type of equipment
utilized, consistent with our low-to-medium risk appetite.
Underwriting discipline remains a top priority as we continue to execute our growth strategy.
Investing Strategy
Our invested assets consist of our equity capital, as well as funds provided from float. Due to our financial strength and the
magnitude of our unpaid loss and loss adjustment expenses, our invested assets provide us with a significant amount of net
investment income annually. During the years ended December 31, 2024, 2023, and 2022, our net investment income totaled
$107.0 million, $106.5 million and $89.8 million, respectively. In addition, certain of our invested assets also generate net
realized and unrealized gains and losses that we record on our Consolidated Statements of Comprehensive Income (Loss).
During the years ended December 31, 2024, 2023, and 2022, our net realized and unrealized gains (losses) from those invested
assets totaled $24.1 million, $22.7 million and $(51.8) million, respectively.
Our investment portfolio is structured to support our need for: (i) optimizing our risk-adjusted total return; (ii) providing
adequate liquidity; (iii) facilitating financial strength and stability; and (iv) ensuring regulatory and legal compliance.
Equity Capital Strategy
We believe that we have a strong equity capital position. Our equity capital strategy is focused on supporting our business
operations by maintaining equity capital levels commensurate with our desired ratings from independent rating agencies,
satisfying regulatory constraints and legal requirements, and sustaining a level of financial flexibility to prudently manage our
business through insurance and economic cycles while allowing us to take advantage of investment opportunities, including
acquisitions of insurance and insurance-related entities, as and when they arise.
We also believe in returning equity capital not needed for these purposes to our stockholders through regular quarterly
dividends and, when feasible, special dividends, and common stock repurchases. During the three-year period ended
December 31, 2024, we declared $150.7 million of dividends on our common stock and eligible plan awards, and we
repurchased $149.2 million of our common stock. Any future returns of equity capital to our stockholders are dependent on a
variety of factors, including our financial position, holding company liquidity, share price, corporate and regulatory
requirements, and any other factors that our Board and Audit Committee of our Board (Audit Committee) deem relevant.
ESG Strategy
As a U.S. domestic workers' compensation provider with a small real-estate footprint, our most significant ESG considerations
are primarily limited to: (i) with regard to environmental concerns, the potential impacts of climate change and increased
climate change awareness to our investment portfolio over time; (ii) with regard to social concerns, diversity, equity and
inclusion, human rights and labor standards; and (iii) with regard to governance concerns, Board and management composition,
5
employee relations, executive and employee compensation, bribery and corruption, and cyber risks, including data protection
and privacy.
The Board Governance and Nominating Committee of our Board (Governance Committee) periodically reviews our ESG
programs, including receiving periodic updates from our management responsible for such activities.
Recent Events and Trends
Premium Production and Policies In-Force
Our premium growth in 2024 was primarily the result of higher new and renewal business premiums. Our new business
premiums written in 2024 were $227.5 million versus $201.9 million in 2023 and $167.7 million in 2022, and our renewal
premiums in 2024 were $559.6 million versus $526.7 million in 2023 and $483.2 million in 2022. The solid growth we
experienced in new and renewal premiums in 2024 was partially offset by lower final audit premiums and policy endorsements.
We ended the year with a record amount of premium in-force and number of policies in-force. This growth resulted in part from
our continued appetite expansion efforts, which are complementary to our business model.
Our Investment Portfolio and Net Investment Income
Despite continued market volatility in 2023 and 2024, interest rates largely stabilized as compared to 2022, a year in which
sharp increases in market interest rates negatively impacted the fair value of our fixed maturity investments. As a result, we
were able to buy and sell fixed maturity securities opportunistically throughout 2023 and 2024, which resulted in higher yields
and an increase to the average duration of our fixed maturity securities. These factors served to meaningfully reduce, but did not
eliminate, the unrealized losses that we incurred on our fixed maturity investments in 2022.
Equity markets performed well in 2023 and 2024, which eliminated the unrealized losses that we incurred on our equity
investments in 2022, a year in which economic and market disruptions, inflationary pressures, and geo-political uncertainties
negatively impacted the fair value of our equity securities.
Overall, we experienced $4.4 million of pretax net unrealized investment losses arising from our fixed maturity investments in
2024, versus $58.9 million of pretax gains in 2023 and $256.1 million of pretax losses in 2022, and we experienced $32.9
million of pretax net unrealized investment gains arising from our equity securities and other investments in 2024, versus $30.7
million of pretax gains in 2023 and $48.2 million of pretax losses in 2022.
Conversely, the sharp increases in market interest rates that began to emerge in 2022 have favorably impacted our net
investment income. As a result, our 2024 net investment income was $107.0 million versus $106.5 million in 2023 and $89.8
million in 2022.
Description of Business
We are a specialty provider of workers' compensation insurance focused on small and mid-sized businesses engaged in low-to-
medium hazard industries. We employ a disciplined, conservative underwriting approach designed to individually select
specific types of businesses, predominantly those in the lowest four of the seven workers' compensation insurance industry-
defined hazard groups, that we believe will have fewer and less costly claims relative to other businesses in the same hazard
groups. Workers' compensation is provided under a statutory system wherein most employers are required to provide coverage
for their employees' medical, disability, vocational rehabilitation, and/or death benefit costs for work-related injuries or
illnesses. We provide workers' compensation insurance throughout most of the United States, with a concentration in
California, where 45% of our in-force premiums are generated.
In 1999, the Nevada State Industrial Insurance System (the Fund) entered into a retroactive 100% quota share reinsurance
agreement (LPT Agreement) through a loss portfolio transfer transaction with third party reinsurers. The LPT Agreement
commenced on June 30, 1999 and will remain in effect until all claims under the covered policies have closed, the LPT
Agreement is commuted or terminated, upon the mutual agreement of the parties, or the reinsurers' aggregate maximum limit of
liability is exhausted, whichever occurs first. The LPT Agreement does not provide for any additional termination terms. On
January 1, 2000, we assumed all of the assets, liabilities and operations of the Fund, including the Fund's rights and obligations
associated with the LPT Agreement.
We account for the LPT Agreement as retroactive reinsurance. Upon entry into the LPT Agreement, an initial deferred
reinsurance gain (Deferred Gain) was recorded as a liability on our Consolidated Balance Sheets. We were entitled to a
contingent profit commission (Contingent Commission) under the LPT Agreement from its inception to June 30, 2024. The
Contingent Commission was based on actual paid losses under the LPT Agreement through that period, which was recorded as
an asset on our Consolidated Balance Sheets and was payable every five years beginning June 30, 2004. The final
determination of the Contingent Commission was $70.0 million, and we received the final payment of the Contingent
Commission of $14.6 million during the third quarter of 2024.
6
We had total assets of $3.5 billion and $3.6 billion at December 31, 2024 and 2023, respectively. The following table highlights
key results of our operations for the last three years.
Years Ended December 31,
2024
2023
2022
(in millions)
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
769.5 $
760.6 $
707.2
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
880.7
850.9
713.5
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118.6
118.1
48.4
Our insurance subsidiaries are domiciled in the following states:
State of Domicile
Employers Insurance Company of Nevada (EICN) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nevada
Employers Compensation Insurance Company (ECIC) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California
Employers Preferred Insurance Company (EPIC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida
Employers Assurance Company (EAC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida
Cerity Insurance Company (CIC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York
Products and Services
Workers' compensation provides insurance coverage for the statutorily prescribed benefits that employers are required to
provide to their employees who may be injured or suffer illness in the course of employment. The level of benefits varies by
state, the nature and severity of the injury or disease, and the wages of the injured worker. Each state has a statutory, regulatory,
and adjudicatory system that sets the amount of wage replacement to be paid, determines the level of medical care required to
be provided, establishes the degree of permanent impairment, and specifies the options in selecting healthcare providers. These
state laws generally require two types of benefits for injured employees: (a) medical benefits, including expenses related to the
diagnosis and treatment of an injury, disease, or both, as well as any required rehabilitation, and (b) indemnity payments, which
consist of temporary wage replacement, permanent disability payments, and death benefits to surviving family members.
Disciplined Underwriting
Our strategy is to focus on disciplined underwriting and continually pursue profitable growth opportunities across market cycles
when presented. We carefully monitor market trends to assess business opportunities that we expect will meet our pricing and
risk standards. We price our policies based on the specific risks associated with each potential insured rather than solely on the
industry class in which a potential insured is classified. Our disciplined underwriting approach, workers' compensation
specialization, expertise in underwriting small to mid-sized businesses, and data-driven strategies are critical elements of our
culture, which we believe allow us to offer competitive prices, while diversifying our risks.
We execute our underwriting processes through automated systems and experienced underwriters with specific knowledge of
the local markets in which we operate. We have developed automated underwriting templates for specific classes of business
that produce faster quotes when certain underwriting criteria are met. Our underwriting guidelines consider many factors, such
as type of business, nature of operations, and risk exposures, and are designed to minimize or prevent underwriting of certain
classes of business that we view as being unattractive.
Loss Control Services
Our Risk Advisory and Loss Control group assists our small to mid-sized business partners improve their risk management
programs. This can help reduce claims costs, protect workers, and build a more positive workplace culture, using safety as the
guiding principle. We provide expert advice on the root cause of incidents and assistance in the development of policies and
programs. Policyholders have access to an extensive array of professional risk management resources available through self-
service and direct options.
Premium Audit
We conduct premium audits on substantially all of our policyholders annually upon the policy expiration or termination.
Premium audits verify that our policyholders have accurately reported their payroll and employee job classifications to us, and
allow us to comply with applicable state and reporting bureau requirements. We also selectively perform audit reviews and/or
update renewal payroll on policies in certain classes of business or if unusual claims are filed or concerns are raised regarding
projected annual payrolls.
Actual increases or decreases in premiums resulting from completed final audits are known as final audit pick-ups or refunds,
respectively. Anticipated increases or decreases in premiums associated with policies that are no longer in-force and in which a
7
final audit has not yet been completed are considered in the determination of our final audit accruals. These final audit increases
or decreases, which can be significant, result in adjustments to our written and earned premiums, as well as our net losses and
LAE, in the periods in which they are recognized.
Claims and Medical Case Management
The role of our claims department is to actively and efficiently investigate, evaluate, and pay claims, and to aid injured
employees in returning to work in accordance with applicable laws and regulations. We have implemented rigorous claims
handling guidelines and control procedures, and have claims operations throughout the markets we serve. We also engage
medical case management services for those claims that will benefit from such involvement.
We utilize an outcomes-based medical network that incorporates predictive analytics to identify medical providers who achieve
superior clinical outcomes for our injured employees. Our outcomes-based medical network and our managed care programs
focus on achieving optimal outcomes, while accelerating injured employees' return to work. We also provide an Injured
Employee Hotline that allows employees who are injured at work to receive professional nurse consultation by phone after
sustaining an injury. This service ensures that the appropriate level of treatment is provided, and that the injured employee
receives timely and appropriate medical care.
In addition to our medical networks, we work closely with local vendors, including attorneys, medical professionals, pharmacy
benefits managers, and investigators, to bring local expertise to our reported claims. We use preferred provider organizations,
bill review services, and utilization management to actively manage medical treatment appropriateness. We actively investigate
and pursue all types of fraud including claimant fraud, premium fraud, and provider fraud. We also aggressively pursue all
subrogation recoveries to mitigate claims exposure. Our fraud and subrogation efforts are handled through dedicated units.
We utilize a claim triage predictive model nationally that provides us with early identification of those claims likely to develop
into large losses. Leveraging this information, we ensure the right resources and strategies are brought to bear on those claims
early in the process.
Our claims department also provides claims management services for those claims incurred by the Fund, which were assumed
by EICN and are subject to the LPT Agreement with dates of injury prior to July 1, 1995. Additional information regarding the
LPT Agreement is set forth under "–Reinsurance–LPT Agreement." We receive a management fee from the third party
reinsurers equal to 7% of the loss payments on these claims.
Reportable Segment
We operate our business as a single segment, Insurance Operations, through our wholly owned subsidiaries. In the fourth
quarter of 2023, we developed and executed an integration plan to consolidate our previously segregated direct-to-consumer
operations (Cerity) into our mainstream operations, while retaining its digital distribution capabilities. The integration plan,
which allowed us to operate more efficiently and generate cost savings, resulted in a change in the composition of our
reportable segments by eliminating any distinction between our former segments, which were: Employers and Cerity.
Information Technology
Core Operating Systems and Development of New Technologies and Capabilities
We continue to invest in technology to automate business processes and further develop our data and analytics capabilities,
which we believe will enable us to reduce our operating costs over the long-term and set a foundation for our future needs. Our
technology aims to save our insurance agents and brokers, and our policyholders, considerable time and maintains our
competitiveness in our target markets.
We also believe that these technological and intellectual capabilities will further support our future growth initiatives, provide
continued direct access to workers' compensation insurance to those customers seeking an online experience, provide us with
greater pricing precision and flexibility, and promote long-term value creation. As part of our continued technology and process
improvement initiatives, we implemented a new digital first notice of loss tool and an enhanced payment processing system in
2024.
Business Continuity/Disaster Recovery
We maintain business continuity and disaster recovery plans for our critical business functions, including the restoration of
information technology infrastructure and applications. We utilize business impact analyses to predict potential consequences of
business disruptions, driving creation of our business continuity plans. Additionally, we utilize multi-zone data centers that act
as production facilities and as disaster recovery sites for each other.
Cybersecurity and Privacy
Our operations rely on the secure processing, storage, and transmission of personal, confidential, and other information. Our
business, including our ability to adequately price products and services, establish reserves, provide an effective and secure
8
service to our customers and report our financial results in a timely and accurate manner, depends significantly on the integrity,
availability, and timeliness of the data we maintain, as well as the data held by our third party service providers.
In an effort to ensure the privacy, confidentiality, and integrity of this data, we continually enhance our cyber and other
information security in order to remain secure against emerging threats, as well as increase our ability to detect, and recover
from, a cyber-attack or unauthorized access.
Additional information regarding our Cybersecurity risk management, strategy and governance, is set forth under "Item 1C -
Cybersecurity."
Workers' Compensation Premiums
We target small to mid-sized businesses engaged in low-to-medium hazard industries. Our underwriters use their local market
expertise and disciplined underwriting to identify those risks within the classes of business we underwrite that are likely to
generate loss ratios that are below the industry average.
Our total in-force premiums were $742.1 million, $694.6 million, and $622.5 million as of December 31, 2024, 2023, and 2022,
respectively. In-force premiums represent the estimated annual premium on all policies that are active and in-force at that date.
More specifically, in-force premiums include policy endorsements but exclude final audit premium. When adjusting for
estimated final audit premium, our total in-force premiums were $768.2 million, $709.4 million, and $654.0 million as of
December 31, 2024, 2023, and 2022, respectively. We focus on in-force premium because it represents premium that is
available for renewal in the future.
The following table shows our in-force premiums, our in-force premiums including estimated final audit premium, and number
of policies in-force for each of our largest states and all other states combined as of December 31:
2024
2023
2022
State
In-force
Premiums
Policies
In-force
In-force
Premiums
Policies
In-force
In-force
Premiums
Policies
In-force
(dollars in millions)
California . . . . . . . . . . . . . . . .
$
336.1
44,540 $
311.5
43,353 $
279.7
42,876
Florida . . . . . . . . . . . . . . . . . . .
60.1
10,943
56.6
10,008
49.4
9,417
New York . . . . . . . . . . . . . . . .
36.1
7,938
31.9
7,603
27.3
7,497
Other (43 states and D.C.) . . . .
309.8
67,346
294.6
65,445
266.1
61,566
Total in-force . . . . . . . . . . . . . .
$
742.1
130,767 $
694.6
126,409 $
622.5
121,356
Estimated audit premium . . . .
26.1
—
14.8
—
31.5
—
Total in-force, including
estimated audit premium . . . . .
$
768.2
130,767 $
709.4
126,409 $
654.0
121,356
From 2022 through 2024, our total in-force premiums increased 19.2% and our policies in-force increased 7.8%.
The following table sets forth our in-force premiums, excluding estimated final audit premium, by hazard group and as a
percentage of our total in-force premiums as of December 31:
Hazard
Group
2024
Percentage
of 2024 Total
2023
Percentage
of 2023 Total
2022
Percentage
of 2022 Total
(in millions, except percentages)
A . . . . . . . . . . . . . . . .
$
118.5
16.0 % $
132.6
19.1 % $
126.4
20.3 %
B . . . . . . . . . . . . . . . .
168.6
22.7
163.5
23.5
174.6
28.0
C . . . . . . . . . . . . . . . .
172.1
23.2
147.6
21.2
181.3
29.2
D . . . . . . . . . . . . . . . .
149.8
20.2
146.2
21.1
101.3
16.3
E . . . . . . . . . . . . . . . .
63.3
8.5
57.5
8.3
28.6
4.6
F . . . . . . . . . . . . . . . .
41.5
5.6
29.6
4.3
9.5
1.5
G . . . . . . . . . . . . . . . .
28.3
3.8
17.6
2.5
0.8
0.1
Total in-force . . . . . .
$
742.1
100.0 % $
694.6
100.0 % $
622.5
100.0 %
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In-force premiums, excluding estimated final audit premium, for our top ten employer classifications as of December 31, 2024,
and as a percentage of our total in-force premiums as of December 31, 2024, 2023, and 2022 were as follows:
2024
2023
2022
Employer Classifications
In-force
Premiums
Percentage
of Total
Percentage
of Total
Percentage
of Total
(in millions, except percentages)
Restaurants and Other Eating Places . . . . . . . . . .
$
126.5
17.0 %
17.4 %
19.4 %
Traveler Accommodation . . . . . . . . . . . . . . . . . .
47.4
6.4
6.3
6.6
Building Finishing Contractors . . . . . . . . . . . . . .
39.3
5.3
3.5
1.8
Services to Buildings and Dwellings . . . . . . . . .
30.9
4.2
3.7
3.7
Building Equipment Contractors . . . . . . . . . . . . .
28.6
3.9
2.8
1.4
Real Estate Management . . . . . . . . . . . . . . . . . . .
24.8
3.3
3.3
3.3
Schools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.7
3.1
2.9
3.0
Architectural, Engineering and Related Services
22.0
3.0
2.3
1.7
Automobile Dealers . . . . . . . . . . . . . . . . . . . . . . .
21.8
2.9
3.7
4.0
Automotive Repair and Maintenance . . . . . . . . .
21.8
2.9
3.4
3.9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
385.8
52.0 %
49.3 %
48.8 %
We provide workers' compensation insurance throughout the United States, with the exception of four states that are served
exclusively by their state funds. Our business is concentrated in California, which makes the results of our operations more
dependent on the trends that are unique to that state and that may differ from national trends. State and federal legislation and
regulation, court decisions, local competition, economic and employment trends, and workers' compensation medical cost
trends can materially impact our financial results.
As of December 31, 2024 and 2023, our policyholders had average annual in-force premiums of $5,675 and $5,495,
respectively. When adjusting for estimated final audit premium, as of December 31, 2024 and 2023, our policyholders had
average annual in-force premiums of $5,875 and $5,612, respectively. We are not dependent on any single policyholder, and
the loss of any single policyholder would not have a material adverse effect on our business.
Our premiums are generally a function of the applicable premium rate, the amount of the insured's payroll, and if applicable, a
factor reflecting the insured's historical loss experience (experience modification factor). Premium rates vary by state according
to the nature of the employees' duties and the business of the employer. Policy premiums are computed by applying the
applicable premium rate to each class of the insured's payroll after it has been appropriately classified. Total policy premium is
determined after applying an experience modification factor and a further adjustment, known as a schedule rating adjustment,
and other adjustments, which may be made in certain circumstances, to increase or decrease the policy premium. Schedule
rating adjustments are made based on individual risk characteristics of the insured and subject to maximum amounts as
established in our premium rate filings. An insurance policy endorsement, also known as a rider or amendment, is a change to
an existing insurance policy to add, remove, or modify coverage, which can affect a policyholder’s total policy premium.
Our premium rates are based upon actuarial analyses for each state in which we do business, except in administered pricing
states, where premium rates are set by state insurance regulators and are adjusted periodically.
The insurance industry is highly competitive, and there is significant competition in the national workers' compensation
industry that is based on price and quality of services. We compete with other specialty workers' compensation carriers, state
agencies, multi-line insurance companies, professional employer organizations, self-insurance funds, and state insurance pools.
Losses and LAE Reserves and Loss Development
We are directly liable for losses and LAE under the terms of the insurance policies our insurance subsidiaries write. A
significant amount of time can elapse between the occurrence of an insured loss, the reporting of the loss to us, and our payment
of that loss. Loss reserves are reflected on our Consolidated Balance Sheets under the line item caption "Unpaid losses and loss
adjustment expenses." Estimating reserves is a complex process that involves a considerable degree of judgment by
management and is inherently uncertain. Loss reserve estimates represent a significant risk to our business, which we attempt to
mitigate by frequently and routinely reviewing loss cost trends.
For a detailed description of our reserves, and the judgments, key assumptions and actuarial methodologies that we use to
estimate our reserves, see "Item 7 –Management's Discussion and Analysis of Consolidated Financial Condition and Results of
Operations –Critical Accounting Estimates –Reserves for Losses and LAE" and Note 9 in the Notes to our Consolidated
Financial Statements.
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Reinsurance
Reinsurance is a transaction between insurance companies in which an original insurer, or ceding company, remits a portion of
its premiums to a reinsurer, or assuming company, as payment for the reinsurer assuming a portion of the risk. Excess of loss
reinsurance may be written in layers, in which a reinsurer or group of reinsurers accepts a band of coverage in excess of a
specified amount, or retention, and up to a specified amount. The ceding company retains any liability exceeding the coverage
limits of the reinsurance program. The ceding company also bears the risk of a reinsurer's unwillingness or inability to pay.
Consistent with general industry practices, we purchase excess of loss reinsurance to protect us against the impact of large
individual, irregularly occurring losses, and aggregate catastrophic losses from natural perils and terrorism, excluding nuclear,
biological, chemical, and radiological events. Such reinsurance reduces the magnitude of such losses on our net income and the
capital of our insurance subsidiaries.
Excess of Loss Reinsurance
Our current reinsurance program applies to all covered losses occurring between 12:01 a.m. July 1, 2024 and 12:01 a.m. July 1,
2025 and consists of one treaty covering excess of loss and catastrophic loss events in four layers of coverage. Our reinsurance
coverage is $190.0 million in excess of our $10.0 million retention on a per occurrence basis; including a maximum any one life
limit of $20.0 million, subject to certain exclusions. The coverage under our prior annual reinsurance programs that ended as of
June 30, 2024 and 2023 was also $190.0 million in excess of our $10.0 million retention on a per occurrence basis. We are
solely responsible for any losses we suffer above $200.0 million except those covered by the Terrorism Risk Insurance Program
Reauthorization Act of 2019 (TRIPRA of 2019). See "—Terrorism Risk Insurance Program." Covered losses that occur prior to
expiration or cancellation of the applicable reinsurance agreement continue to be obligations of the subscribing reinsurers,
subject to the other conditions in the agreement. The subscribing reinsurers may terminate the agreement only for our breach of
the obligations of the agreement. We remain liable for all losses incurred to the extent that any subscribing reinsurer is unable
or unwilling to make timely payments to us.
The agreement includes certain exclusions for which our subscribing reinsurers are not liable for losses. These exclusions
include but are not limited to losses arising from the following: reinsurance assumed by us under pooling arrangements;
financial guarantee and insolvency; certain nuclear risks; liability as a member, subscriber, or reinsurer of any pool, syndicate,
or association, but not assigned risk plans; liability arising from participation or membership in any insolvency fund; loss or
damage caused by war other than acts of terrorism or civil commotion; workers' compensation business covering persons
employed in Minnesota; and any loss or damage caused by any act of terrorism involving biological, chemical, nuclear, or
radioactive pollution or contamination. Our underwriting guidelines generally require that insured risks fall within the coverage
provided in the reinsurance program. Executive review and approval would be required if we were to write risks outside the
reinsurance program.
The agreement provides that we, or any subscribing reinsurer, may request commutation of any outstanding claim or claims 10
years after the effective date of termination or expiration of the agreements and provides a mechanism for the parties to achieve
valuation for commutation. We may require a special commutation of the percentage share of any loss in the reinsurance
program of any subscribing reinsurer that is in runoff.
We believe that our reinsurance program meets our current needs.
LPT Agreement
In 1999, the Fund entered into a retroactive 100% quota share reinsurance agreement through a loss portfolio transfer
transaction with third party reinsurers. The LPT Agreement commenced on June 30, 1999 and will remain in effect until all
claims under the covered policies have closed, the agreement is commuted or terminated upon the mutual agreement of the
parties, or the reinsurers' aggregate maximum limit of liability is exhausted, whichever occurs earlier. The LPT Agreement does
not provide for any additional termination terms. On January 1, 2000, EICN assumed all of the assets, liabilities and operations
of the Fund, including the Fund's rights and obligations associated with the LPT Agreement.
Under the LPT Agreement, the Fund initially ceded $1.5 billion in liabilities for the incurred but unpaid losses and LAE related
to claims incurred prior to July 1, 1995, for consideration of $775.0 million in cash. The LPT Agreement, which ceded to the
reinsurers substantially all of the Fund's outstanding losses as of June 30, 1999 for claims with original dates of injury prior to
July 1, 1995, provides coverage for losses up to $2.0 billion, excluding losses for burial and transportation expenses. The
estimated remaining liabilities subject to the LPT Agreement were approximately $277.1 million and $291.7 million, as of
December 31, 2024 and 2023, respectively (See Note 10 in the Notes to our Consolidated Financial Statements). Losses and
LAE paid with respect to the LPT Agreement totaled approximately $895.6 million and $877.6 million through December 31,
2024 and 2023, respectively.
The reinsurers agreed to assume responsibilities for the claims at the benefit levels which existed in June 1999. The LPT
Agreement required each reinsurer to place assets supporting the payment of claims by them in a trust that requires collateral be
held at a specified level. The level must not be less than the outstanding reserve for losses and a loss expense allowance equal to
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7% of estimated paid losses discounted at a rate of 6%. If the assets held in trust fall below this threshold, we may require the
reinsurers to contribute additional assets to maintain the required minimum level of collateral.
The reinsurers are Chubb Bermuda Insurance Limited, XL Re Limited, and National Indemnity Company. The contract
provides that during the term of the agreement that these reinsurers need to maintain an AM Best financial strength rating of not
less than "A-" (Excellent). Currently, each of these reinsurers have a rating that satisfies this requirement.
We account for the LPT Agreement as retroactive reinsurance. Upon entry into the LPT Agreement, an initial Deferred Gain
was recorded as a liability on our Consolidated Balance Sheets as Deferred Gain. We were also entitled to receive a Contingent
Commission under the LPT Agreement through June 30, 2024, which was based on actual paid losses under the LPT
Agreement through that date. The Contingent Commission was formally settled with the reinsurers in the third quarter of 2024.
Recoverability of Reinsurance
Reinsurance holds the assuming reinsurer liable to the ceding company to the extent of the reinsurance; however, it does not
discharge the ceding company from its primary liability to its policyholders in the event the reinsurer cannot or refuses to pay
its obligations under such reinsurance. We monitor the financial strength of our reinsurers and do not believe that we are
currently exposed to any material credit risk as substantially all of our reinsurance is recoverable from large, well-capitalized
reinsurance companies with AM Best financial strength ratings of "A-" (Excellent), or better.
We review the aging of our reinsurance recoverables on a quarterly basis and no material amounts due from our reinsurers have
been written-off as uncollectible over the past several years. At December 31, 2024, we had no reinsurance recoverables on
paid losses that were greater than 90 days overdue.
Terrorism Risk Insurance Program
The Terrorism Risk Insurance Act of 2002 (2002 Act) was initially enacted in November 2002, modified and extended in 2005,
2007, 2015, and most recently in 2019. Now known as TRIPRA of 2019, the program is designed to allow the insurance
industry and the federal government to share losses from declared terrorist events according to a specific formula, and is in
effect until December 31, 2027.
The workers' compensation laws of the various states generally do not permit the exclusion of coverage for losses arising from
terrorism or nuclear, biological, chemical, or radiological attacks. In addition, we are not able to limit our losses arising from
any one catastrophe or from any one claimant. Our reinsurance policies exclude coverage for losses arising out of nuclear,
biological, chemical, or radiological attacks. Under TRIPRA of 2019, federal protection may be provided to the insurance
industry for certain acts of foreign and domestic terrorism, including nuclear, biological, chemical, or radiological attacks.
The impacts of any future terrorist acts are unpredictable, and the ultimate impact on our insurance subsidiaries, if any, of losses
from any future terrorist acts will depend upon their nature, extent, location, and timing. We monitor the geographic
concentration of our policyholders to help mitigate the risk of loss from terrorist acts.
Investments
Our investment portfolio is structured to support our need for: (i) optimizing our risk-adjusted total returns; (ii) providing
adequate liquidity; (iii) facilitating financial strength and stability; and (iv) ensuring regulatory and legal compliance.
As of December 31, 2024, the total carrying value of our investment portfolio was more than $2.4 billion. These investments
provide a steady source of income, which may fluctuate with changes in interest rates and our current investment strategies.
While we oversee all of our investment activities, we employ independent Investment Managers. Our Investment Managers
follow our written investment guidelines, which are approved by the Audit Committee. Our asset allocation is reevaluated by
management and reviewed by the Audit Committee on a quarterly basis. We also utilize our Investment Managers' investment
advisory services to assist us in developing a tailored set of portfolio targets and objectives.
Each of our Investment Managers are signatories to the United Nations Principles for Responsible Investment Group, an
independent non-profit organization that encourages investors to use responsible and sustainable investment practices to
enhance returns and better manage risks.
Additional information regarding our investment portfolio, including our approach to managing investment risk, is set forth
under "Item 7 –Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations –
Liquidity and Capital Resources –Investments" and "Item 7A –Quantitative and Qualitative Disclosures about Market Risk."
Marketing and Distribution
We market and sell our workers' compensation insurance products through: (i) local, regional, specialty and national insurance
agents and brokers; (ii) national, regional, and local trade groups and associations; and (iii) direct-to-customer interactions.
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Traditional Insurance Agents and Brokers
We establish and maintain strong, long-term relationships with our vetted and appointed traditional insurance agencies that
actively market our products and services. We offer ease of doing business, provide responsive service, and pay competitive
commissions. Our sales representatives and underwriters work closely with these agencies to market and underwrite our
business. This results in enhanced understanding of the businesses, the risks we underwrite, and the needs of prospective
customers. We do not delegate underwriting authority to agents or brokers.
We had approximately 2,500 traditional insurance agencies that marketed and sold our insurance products at December 31,
2024. These agencies generated 65.3%, 67.1%, and 69.3% of our in-force premiums at December 31, 2024, 2023, and 2022,
respectively, and our largest traditional insurance agency generated less than three percent of our in-force premiums at each of
December 31, 2024, 2023, and 2022.
Specialty Agents and Distribution Partners
We have developed and continue to add other important and emerging distribution channels for our products and services that
serve as an alternative to our strong traditional insurance agency channel. These additional channels include distribution
partners that utilize partnerships and alliances with entities such as payroll companies, and health care and property and casualty
insurers, as well as digital agents and marketplaces. Our workers’ compensation insurance products are jointly offered and
marketed with and through our partners and alliances.
Select insurance agencies who possess deep expertise in specialized industries market and sell our insurance products that
generally fall outside of our traditional appetite, such as senior care and parcel delivery.
Specialty agents and distribution partners generated 34.7%, 32.9%, and 30.7% of our in-force premiums as of December 31,
2024, 2023, and 2022, respectively. Our strong presence and relationships with these digital and payroll specialty entities allow
us to approach new customers that we would not otherwise have access to through our traditional insurance agency distribution
channel. We believe that the bundling of products and services through these relationships contributes to higher retention rates
than business generated by our traditional agents, and we continue to actively seek new partnerships and alliances in these
areas.
A significant concentration of our business is generated by our specialty agent ADP. ADP is the largest payroll services
provider in the United States. As part of its services, ADP sells our workers' compensation insurance product along with its
payroll and accounting services through its insurance agency and field sales staff. ADP generated 17.2%, 16.2%, and 15.0% of
our in-force premiums as of December 31, 2024, 2023, and 2022, respectively. The majority of this business is written through
ADP's small business unit, which specializes in accounts from 1 to 50 employees. Our relationship with ADP is non-exclusive;
however, we believe that we are a key partner for ADP in our selected markets and classes of business.
Our digital distribution channel utilizes proprietary application programming interfaces (APIs) to submit, quote and bind
applications for workers' compensation insurance. Our digital channel is comprised of digital marketplace platforms as well as
appointed digital retail and wholesale agency models. Digital agents generated 7.0%, 5.0%, and 4.5% of our in-force premiums
as of December 31, 2024, 2023, and 2022, respectively. We continue to actively seek new digital distribution partnerships and
expect our existing partnerships to continue to grow in this channel.
Direct-to-Customer
To address the changing buying behaviors of small and micro-businesses, we continue our commitment to our Cerity brand,
which offers digital insurance solutions, including direct-to-customer workers' compensation coverage. Cerity specializes in
smaller risks in those classes of business where we believe that customers prefer an online experience, and offers a digital and
mobile-friendly experience that allows small to mid-sized businesses to easily acquire and maintain their policies.
Competition and Market Conditions
The insurance industry is highly competitive, and there is significant competition in the national workers' compensation
industry that is based on price and quality of services. We compete with other specialty workers' compensation carriers, state
agencies, multi-line insurance companies, professional employer organizations, self-insurance funds, and state insurance pools.
Many of our competitors are significantly larger, more widely known, and/or possess considerably greater financial resources.
Regulation
State Insurance Regulation
Insurance companies are subject to regulation and supervision by the insurance regulator in the state in which they are
domiciled and, to a lesser extent, other states in which they conduct business. These state agencies have broad regulatory,
supervisory, and administrative powers, including, among other things, the power to grant and revoke licenses to transact
business, license agencies, set the standards of solvency to be met and maintained, determine the nature of, and limitations on,
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investments and dividends, approve policy forms and rates in some states, periodically examine financial statements, determine
the form and content of required financial statements, set the rates that we may charge in some states, and periodically examine
market conduct.
Detailed annual and quarterly financial statements, prepared in accordance with statutory accounting principles (SAP), and
other reports are required to be filed with the insurance regulator in each of the states in which we are licensed to transact
business. The California Department of Insurance (California DOI), Florida Office of Insurance Regulation (Florida OIR),
Nevada Division of Insurance (Nevada DOI), and New York Department of Financial Services (New York DFS) periodically
examine the statutory financial statements of their respective domiciliary insurance companies. The most recent financial
examinations for each of our insurance companies were conducted through December 31, 2022.
Many states have laws and regulations that limit an insurer's ability to withdraw from a particular market. For example, states
may limit an insurer's ability to cancel or not renew policies. Furthermore, certain states prohibit an insurer from withdrawing
one or more lines of business from the state, except pursuant to a plan that is approved by the state insurance regulator. The
state insurance regulator may disapprove a plan that may lead to market disruption. We are subject to laws and regulations of
this type, and these laws and regulations may restrict our ability to exit unprofitable markets.
Holding Company Regulation. Nearly all states have enacted legislation that regulates insurance holding company systems.
Each insurance company in a holding company system is required to register with the insurance regulator of its state of
domicile and furnish information concerning the operations of companies within the holding company system that may
materially affect the operations, management or financial condition of the insurers within the system. All transactions within a
holding company system affecting an insurer must have fair and reasonable terms, the charges or fees for services performed
must be reasonable, the insurer's total statutory surplus following any transaction must be both reasonable in relation to its
outstanding liabilities and adequate for its needs, and are subject to other standards and requirements established by law and
regulation. Notice to state insurance regulators is required prior to the consummation of certain affiliated and other transactions
involving our insurance subsidiaries and such transactions may be disapproved by the state insurance regulators.
Pursuant to applicable insurance holding company laws, ECIC is required to register with the California DOI, EPIC and EAC
are required to register with the Florida OIR, EICN is required to register with the Nevada DOI, and CIC is required to register
with the New York DFS. Additionally, EPIC, EAC, and CIC are commercially domiciled in California and are required to
register with the California DOI. Under these laws, the respective state insurance regulators may, in addition to performing
financial examinations, require disclosure of material transactions, and require prior notice for, or approval of, certain
transactions.
Change of Control. Our insurance subsidiaries are domiciled in California, Florida, Nevada, and New York. The insurance
laws of these states generally require that any person seeking to acquire control of a domestic insurance company must obtain
the prior approval of the state's insurance commissioner. In California, Florida, Nevada, and New York, "control" is presumed
to exist through the direct or indirect ownership of 10% or more of the voting securities of a domestic insurance company or of
any entity that controls a domestic insurance company. In addition, insurance laws in many states in which we are licensed
require pre-notification to the state's insurance commissioner of a proposed change in control of a non-domestic insurance
company licensed in those states.
Statutory Accounting and Solvency Regulations. State insurance regulators closely monitor the financial condition of insurance
companies reflected in financial statements based on SAP and can impose significant financial and operating restrictions on an
insurance company that becomes financially impaired under SAP guidelines. State insurance regulators can generally impose
restrictions or conditions on the activities of a financially impaired insurance company, including: the transfer or disposition of
assets; the withdrawal of funds from bank accounts; payment of dividends or other distributions; the extension of credit or the
advancement of loans; and investments of funds, including business acquisitions or combinations.
Financial, Dividend, and Investment Restrictions. State laws require insurance companies to maintain minimum levels of
surplus and place limits on the amount of premiums a company may write based on the amount of that company's surplus.
These limitations may restrict the rate at which our insurance operations can grow.
State laws also require insurance companies to establish reserves for payments of policyholder liabilities and impose restrictions
on the kinds of assets in which insurance companies may invest. These restrictions may require us to invest in assets more
conservatively than we would if we were not subject to state restrictions and may prevent us from obtaining as high a return on
our assets as we might otherwise be able to realize absent the restrictions.
The ability of EHI to pay dividends on common stock, repurchase common stock, and to pay other expenses will be dependent
to a significant extent upon the ability of our insurance subsidiaries (EICN, ECIC, EPIC, EAC, and CIC) to pay dividends to
their immediate holding companies, Employers Group, Inc. (EGI) and Cerity Group, Inc. (CGI) and, in turn, the ability of EGI
and CGI to pay dividends to EHI. Additional information regarding financial, dividend, and investment restrictions is set forth
in Note 15 in the Notes to our Consolidated Financial Statements.
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Insurance Assessments. All of the states where our insurance subsidiaries are licensed to transact business require property and
casualty insurers doing business within the state to pay various insurance assessments. We accrue a liability for estimated
insurance assessments as direct premiums are written, losses are recorded, or as other events occur in accordance with various
states' laws and regulations, and defer these costs and recognize them as an expense as the related premiums are earned. Various
mechanisms exist in some of these states for assessed insurance companies to recover certain assessments. Additional
information regarding insurance assessments is set forth in Note 12 in the Notes to our Consolidated Financial Statements.
Pooling Arrangements. As a condition to conducting business in some states, insurance companies are required to participate in
mandatory workers' compensation shared market mechanisms, or pooling arrangements, which provide workers' compensation
insurance coverage to private businesses that are otherwise unable to obtain coverage.
The National Association of Insurance Commissioners (NAIC). The NAIC is a group formed by state insurance regulators to
discuss issues and formulate policy with respect to regulation, reporting, and accounting of and by U.S. insurance companies.
Although the NAIC has no legislative authority and insurance companies are at all times subject to the laws of their respective
domiciliary states and other states in which they conduct business, the NAIC is influential in determining the form in which
insurance laws are enacted. Model Insurance Laws, Regulations, and Guidelines (Model Laws) have been promulgated by the
NAIC as a minimum standard by which state regulatory systems and regulations are measured. Adoption of state laws that
provide for substantially similar regulations to those described in the Model Laws is a requirement for accreditation of state
insurance regulatory agencies by the NAIC.
Under the Model Laws, insurers are required to maintain minimum levels of capital based on their investments and operations.
These risk-based capital (RBC) requirements provide a standard by which regulators can assess the adequacy of an insurance
company's capital and surplus relative to its operations. An insurance company must maintain capital and surplus of at least
200% of the RBC computed by the NAIC's RBC model, known as the "Authorized Control Level" of RBC. At December 31,
2024, each of our insurance subsidiaries had total adjusted capital in excess of the minimum RBC requirements.
The key financial ratios of the NAIC's Insurance Regulatory Information System (IRIS) were developed to assist state
regulators in overseeing the financial condition of insurance companies. These ratios are reviewed by financial examiners of the
NAIC and state insurance regulators for the purposes of detecting financial distress and preventing insolvency and to select
those companies that merit highest priority in the allocation of the regulators' resources. IRIS identifies 13 key financial ratios
and specifies a "usual range" for each. Departure from the usual ranges on four or more of the ratios can lead to inquiries from
individual state insurance regulators as to certain aspects of an insurer's business. None of our insurance subsidiaries is
currently subject to any action by any state regulator with respect to IRIS ratios.
Human Capital Resources
We believe that our employees are among our most important resources and they are critical to our continued success and good
reputation. Our strategy is to attract and retain responsible, talented and experienced individuals through various initiatives that
promote inclusion, diversity, and fair pay. We continue to review our hiring, promotion and succession practices at all levels. In
recent years, we have made improvements in female representation in leadership roles such that women currently represent
64% of all our employees, 72% of our managers and supervisors, 48% of our vice presidents and directors, 71% of our
executive team, and 33% of our members of the Board. Through these initiatives, we seek to create an inclusive and engaged
work community, minimize employee turnover, and improve recruitment.
The work environment we create and the way our employees treat and interact with one another affects job satisfaction and the
way we perform our jobs. We respect the privacy and dignity of all individuals and recognize that our employees want and
deserve a safe and healthy workplace where they are respected and appreciated. All employees must contribute to the creation
and maintenance of such an environment.
We are committed to providing equal employment opportunity to qualified applicants without regard to race, creed, color,
religion, sex, national origin or ancestry, age, marital status, pregnancy, sexual orientation, gender identification, medical
condition, genetic information, disability, veteran status, and/or any other characteristic protected by law. This policy extends to
all areas of employment, including recruitment, selection and placement, compensation, promotion and transfer, disciplinary
measures, demotion, layoffs and terminations, testing and training, working conditions, awards and benefits, and all other
employment-related matters. We are committed to advancing pay equity through the implementation of pay transparency and
conducting fair reviews for new and transferring employees to ensure equitable compensation in comparison to others in similar
roles.
We require our employees to follow specific rules of professional conduct that will protect the interests and safety of all
employees and the organization. Employees and our Board are required to familiarize themselves with our comprehensive Code
of Business Conduct and Ethics Policy and must remain in compliance with periodic training thereon, which is designed to
assist them in conducting business in a legal, professional and ethical manner.
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Item 1A. Risk Factors
Investing in our common stock involves risks. When evaluating the Company, you should carefully consider the risks described
below, together with all the information included or incorporated by reference in this report. The risks facing the Company
include, but are not limited to, those described below. Additional risks that we are not presently aware of or that we currently
believe are immaterial may also impair our business operations. The occurrence of one or more of these events could
significantly and adversely affect our business, financial condition, results of operations, cash flows, and stock price, and you
could lose all or part of your investment.
Operational and Strategic Risks
If we fail to price our insurance policies sufficiently, our business competitiveness, financial condition, and results of
operations could be materially adversely affected.
Premiums are based on the particular class of business and our estimates of expected losses and LAE and other expenses related
to the policies we underwrite. We analyze many factors when pricing a policy, including the policyholder's prior loss history
and industry classification. Inaccurate information regarding a policyholder's past claims experience, inaccurate estimates of
expected losses and LAE, or the potential for payroll, claimant and/or provider fraud could put us at risk for mispricing our
policies, which could have a material adverse effect on our business, financial condition, and results of operations. For example,
when initiating coverage on a policyholder, we must rely on the information provided by the policyholder, agent, or the
policyholder's previous insurer(s) to properly estimate future claims expense. In order to set premium rates accurately, we must
utilize an appropriate pricing model that correctly assesses risks based on individual characteristics and takes into account
actual and projected industry characteristics.
Wage inflation typically increases the total payrolls of our policyholders, which is the basis for the premiums we charge. Wage
inflation can also impact the amount of future indemnity losses that we may incur, which could serve to offset any increase in
premiums and negatively impact our financial condition and results of operations.
Intense competition and the fact that we write only a single line of insurance could adversely affect our ability to sell policies
at rates that we deem adequate.
The market for workers' compensation insurance products is highly competitive. Competition in our business is based on many
factors, including premiums charged, services provided, ease of doing business, financial ratings assigned by independent rating
agencies, speed and reliability of claims payments, reputation, policyholder dividends, perceived financial strength, and overall
experience. In some cases, our competitors offer lower priced products than we do. If our competitors offer more favorable
prices, policyholder dividends, or payment plans, services or commissions to our agents, brokers, and other distribution
partners, we could lose market share and be forced to reduce our premium rates, or increase commission rates, either of which
could adversely affect our profitability. We compete with regional and national insurance companies, professional employer
organizations, third-party administrators, self-insured employers, and state insurance funds. Our main competitors vary from
state to state, but they are usually those companies that offer a full range of services in underwriting, loss control, and claims.
We compete based on the services that we offer to our policyholders and on ease of doing business rather than solely on price.
Many of our competitors are significantly larger and possess greater financial, marketing, and management resources than we
do. Some of our competitors benefit financially by not being subject to federal income tax. Intense competitive pressure on
prices can result from the actions of even a single large competitor. Competitors with more surplus than us have the potential to
expand in our markets more quickly than we can and invest more heavily in innovative technologies. Greater financial
resources also permit an insurer to gain market share through more competitive pricing, even if that pricing results in reduced
underwriting margins or an underwriting loss.
Many of our competitors are multi-line carriers that may offer a lower price for the workers' compensation insurance they
provide than we can because they also insure some or all of the policyholder’s other lines of business. This creates a
competitive disadvantage for us, as we only offer a single line of insurance. For example, a business may find it more efficient
or less expensive to purchase multiple lines of commercial insurance coverage from a single carrier. Additionally, we primarily
target small and mid-sized businesses, which may be more significantly and disproportionately impacted by a downturn in
economic conditions.
The property and casualty insurance industry is cyclical in nature and is characterized by periods of so-called "soft" market
conditions, in which premium rates are stable or falling in relation to the associated loss costs, insurance is readily available,
and insurers' profits decline, and by periods of so-called "hard" market conditions, in which rates rise in relation to the
associated loss costs, insurance may be more difficult to find, and insurers' profits increase. Although the financial performance
of an individual insurance company is dependent on its own specific business characteristics, the profitability of most workers'
compensation insurance companies generally tends to follow this cyclical market pattern. We believe the workers'
compensation industry currently has excess underwriting capacity resulting in lower rate levels and smaller profit margins. We
continue to experience price competition in our target markets.
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Because of cyclicality in the workers' compensation market, due in large part to competition, capacity, and general economic
factors, we cannot predict the timing or duration of changes in the market cycle. This cyclical pattern has in the past, and could
in the future, adversely affect our financial condition and results of operations. If we are unable to compete effectively, our
business, financial condition, and results of operations could be materially adversely affected.
Our concentration in California ties our performance to the business, economic, demographic, natural perils, competitive,
legislative and regulatory conditions in that state.
Our business is concentrated in California, where we generated 45% of our in-force premiums as of December 31, 2024.
Accordingly, the loss environment and any unfavorable business, economic, demographic, natural perils, competitive, and
regulatory conditions in California could have a significant adverse impact on our business.
Many California businesses are dependent on tourism revenues, which are, in turn, dependent on a robust economy. A
downturn in the national economy or the economy of California, or any other event that causes deterioration in tourism, could
adversely impact small and mid-sized businesses, such as restaurants and providers of traveler accommodations, that we have
targeted as customers. The insolvency of a significant number of small and mid-sized businesses could also have a material
adverse effect on our financial condition and results of operations. California is also exposed to climate and environmental
changes, especially natural perils such as earthquakes and wildfires. In addition, California could be more adversely impacted
by pandemics and terrorist acts than most other states due to population density in its major metropolitan areas. Additionally,
the workers' compensation industry has seen a higher level of claims litigation in California, which could expose us beyond the
liabilities currently expected and included in our financial statements. Because of the concentration of our business in
California, we may be exposed to losses and business, economic, and regulatory risks or risk from natural perils that are greater
than the risks associated with companies with greater geographic diversification.
We rely on traditional insurance agents, specialty agents, brokers, and other distribution partners.
We market and sell many of our insurance products through traditional insurance agents, specialty agents, brokers, and other
distribution partners, each of which are non-exclusive. These distribution partners are not obligated to promote our products and
can and do sell our competitors' products. In addition, these distribution partners may find it easier to promote the broader range
of programs of some of our competitors than to promote our single-line workers' compensation insurance products. The loss or
disruption of business from these distribution partners or the failure or inability of these distribution partners to successfully
market our insurance products, could have a material adverse effect on our business, financial condition, and results of
operations.
ADP, our largest distribution agent, generated 17.2% of our total in-force premiums as of December 31, 2024. Our agreement
with ADP is not exclusive. A termination of this agreement, our failure to maintain a good relationship with ADP, or its failure
to successfully market our products could each materially reduce our revenues and could have a material adverse effect on our
results of operations. In addition, we are subject to the risk that ADP may face financial difficulties, reputational issues, or
problems with respect to its own products and services, any of which may lead to decreased sales of our products and services.
Significant industry consolidation among agencies (not limited to ADP), partners, or new entrants to the workers' compensation
marketplace could impact our business opportunities and revenues.
We are also subject to credit risk with respect to certain of our traditional insurance agents, specialty agents, brokers, and other
distribution partners, including ADP, as they collect insurance premiums on our behalf. Any failure to remit such premiums to
us or to remit such amounts on a timely basis could have an adverse effect on our results of operations.
We rely on statistical data models and analytics that leverage internal and external data.
We use models to help make decisions related to, among other things, underwriting, pricing, claims management, reserving,
capital allocation, and investments. These models incorporate various assumptions and forecasts that are subject to the inherent
limitations of any statistical analysis and, as a result, the historical internal and industry data and assumptions used in the
models may not accurately reflect the future. As a result, actual results may differ materially from expectations and our results
of operations and financial condition could be materially adversely affected.
As our industry becomes increasingly reliant on data analytics and artificial intelligence to improve underwriting, pricing,
claims settlements, and focused marketing efforts, our competitors may have better information, greater financial resources and/
or be more efficient in leveraging these tools than we are, which could put us at a competitive disadvantage.
If we are unable to obtain reinsurance or collect on ceded reinsurance, our ability to write new policies and to renew
existing policies could be adversely affected and our financial condition and results of operations could be materially
adversely affected.
At December 31, 2024, we had $417.8 million of reinsurance recoverable for paid and unpaid losses and LAE, of which $6.3
million was due to us on paid claims.
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We purchase reinsurance to protect us against severe individual claims and from aggregate losses associated with certain
catastrophic events. Our reinsurance protection covers natural perils and acts of terrorism events, but excludes nuclear,
biological, chemical, and radiological events. On July 1, 2024, we entered into a new reinsurance program that is effective
through June 30, 2025. The reinsurance program consists of one treaty covering excess of loss and catastrophic loss events in
four layers of coverage. Our reinsurance coverage is $190.0 million in excess of our $10.0 million retention on a per occurrence
basis; including a maximum any one life limit of $20.0 million, subject to certain exclusions.
The availability, amount, and cost of reinsurance depend on market conditions and our loss experience and may fluctuate
significantly. We cannot be certain that our reinsurance agreements will be renewed or replaced prior to their expiration with
terms satisfactory to us. If we are unable to renew or replace our reinsurance agreements with terms satisfactory to us, our net
liability on individual claims could increase and we would have greater aggregate exposure to large and catastrophic losses,
which could have a material adverse effect on our financial condition and results of operations.
In addition, we are subject to credit risk with respect to our reinsurers, and they may be unable to pay or may refuse to pay
losses we cede to them. We remain liable to our policyholders even if we are unable to make recoveries that we believe we are
entitled to under our reinsurance contracts. Losses may not be recovered from our reinsurers until claims are paid and, in the
case of long-term workers' compensation cases, the creditworthiness of our reinsurers may change before we can recover
amounts to which we are entitled. The inability of any of our reinsurers to honor their financial obligations to us could have a
material adverse effect on our financial condition and results of operations.
We obtained reinsurance covering the losses incurred prior to July 1, 1995, and we could be liable for some or all of those
losses if the coverage provided by the LPT Agreement proves inadequate or we fail to collect from the reinsurers to that
agreement.
On January 1, 2000, EICN assumed all of the assets, liabilities, and operations of the Fund, including losses incurred by the
Fund prior to such date. EICN also assumed the Fund's rights and obligations associated with the LPT Agreement that the Fund
entered into with third party reinsurers with respect to its losses incurred prior to July 1, 1995. See "Item 1 -Business -
Reinsurance -LPT Agreement." The reinsurers under the LPT Agreement agreed to assume responsibility for the claims at the
benefit levels which existed in June 1999. Accordingly, if the Nevada legislature were to increase the benefits payable for the
pre-July 1, 1995 claims in the future, we could be responsible for the increased benefit costs to the extent of the legislative
increase.
We could be liable for some or all of those ceded losses if the coverage provided by the LPT Agreement proves inadequate or
we fail to collect from the reinsurers to the transaction. As of December 31, 2024, the estimated remaining liabilities subject to
the LPT Agreement were $277.1 million. If we are unable to collect on these reinsurance recoverables, our financial condition
and results of operations could be materially adversely affected.
The LPT Agreement requires each reinsurer to place assets supporting the payment of claims by them in individual trusts that
require that collateral be held at a specified level. The collateralization level must not be less than the outstanding reserve for
losses and a loss expense allowance equal to 7% of estimated paid losses discounted at a rate of 6%. If the assets held in trust
fall below this threshold, we can require the reinsurers to contribute additional assets to maintain the required minimum level.
If the value of the collateral in the trusts drops below the required minimum level and the reinsurers are unable to contribute
additional assets, we could be responsible for substituting a new reinsurer or paying those claims without the benefit of
reinsurance. The reinsurers have collateralized their obligations under the LPT Agreement by placing investment securities in
trust. The value of this collateral is subject to market fluctuations.
The LPT Agreement provides us with the ability to novate any contract with the reinsurers to the LPT Agreement if the credit
rating of any such reinsurer were to fall below "A-" (Excellent) as determined by AM Best.
Financial Risks
We focus on small and mid-sized businesses, and those businesses may be severely and disproportionately impacted by a
downturn in economic conditions or changes in applicable regulations, taxes, or labor conditions.
The effects of labor supply conditions, inflationary pressures, monetary and fiscal policy measures, recessionary concerns, new,
evolving, or conflicting regulations, and overall general economic instability have, at times, caused disruptions in business
activity and may do so again in the future. This risk is more significant during periods involving rapid regulatory change. Given
our focus on small and mid-sized businesses, certain classes of business that we insure could be adversely and
disproportionately affected by these challenges, including the tariffs proposed in the first quarter of 2025 and potential labor
market disruptions due to changes in the rules or enforcement around immigration.
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A downgrade in our financial strength rating could reduce the amount of business that we are able to write or result in the
termination of certain of our agreements with our strategic partners.
Rating agencies rate insurance companies based on financial strength as an indication of an ability to pay claims. Our insurance
subsidiaries are currently assigned a group financial strength rating of "A" (Excellent) by AM Best, which is the rating agency
that we believe has the most influence on our insurance operations. This rating is assigned to companies that, in the opinion of
AM Best, have demonstrated excellent overall performance when compared to industry standards. AM Best considers
"A" (Excellent) rated companies to have an excellent ability to meet their ongoing obligations to policyholders. This rating does
not refer to our ability to meet non-insurance obligations.
The financial strength ratings of AM Best and other rating agencies are subject to periodic review using, among other things,
proprietary capital adequacy models, and are subject to revision or withdrawal at any time. Insurers' financial strength ratings
are directed toward the concerns of policyholders and insurance agents and are not intended for the protection of investors or as
a recommendation to buy, hold, or sell securities. Our competitive position relative to other companies is determined in part by
our financial strength rating. A reduction in our AM Best rating could adversely affect the amount of business we could write,
as well as the relationships we currently have with our insurance agents, brokers, distribution partners, reinsurers, and others.
AM Best may increase the frequency and scope of its reviews and request additional information from the companies that it
rates, including additional information regarding the valuation of investment securities held and/or susceptibilities to
inflationary pressures. We cannot predict what actions rating agencies may take, or what actions we may take in response to the
actions of rating agencies.
Our liability for losses and LAE is based on estimates and may be inadequate to cover our actual losses and expenses.
We establish and maintain reserves for our estimated losses and LAE. The loss and LAE reserves on our financial statements
represent an estimate of amounts needed to pay and administer claims with respect to insured claims that have occurred,
including claims that have occurred but have not yet been reported to us. Loss and LAE reserves are aggregate estimates of the
ultimate outstanding cost of claims based on actuarial estimation techniques, are inherently uncertain, and do not represent an
exact measure of liability. Additionally, any changes to our claims management and/or actuarial reserving processes could
introduce volatility in our estimates of losses and LAE. Any changes in these estimates could be material and could have an
adverse effect on our results of operations and financial condition during the period the changes are made.
Several factors contribute to the inherent uncertainty in establishing estimated loss and LAE reserves, including the length of
time to settle long-term, severe cases, claim cost inflation (deflation) trends, potential claimant and/or provider fraud, current
and future economic conditions, and uncertainties in the long-term outcome of legislative reforms. Judgment is required in
applying actuarial techniques to determine the relevance of historical payment and claim settlement patterns under current facts
and circumstances. In certain states, we have a relatively limited operating history and must rely on a combination of industry
experience and our specific experience regarding claims emergence and payment patterns, medical cost inflation, and claim cost
trends, adjusted for future anticipated changes in claims-related and economic trends, as well as regulatory and legislative
changes, to establish our best estimate of reserves for losses and LAE. As we receive new information and update our
assumptions over time regarding the ultimate liability, our loss reserves may prove to be inadequate to cover our actual losses,
and we have in the past made, and may in the future make, adjustments to our reserves based on various factors.
Our estimates for losses and LAE include assumptions about the timing of closure and future payment of claims and claims
handling expenses, such as medical treatments and litigation costs. Inflation is also incorporated in our reserving process
through projections supported by historical loss emergence. Additional inflationary concerns are considered in determining the
level and adequacy of our reserves for losses and LAE, and particular consideration is given to medical and hospital inflation
rates as these inflation rates have historically exceeded general inflation rates. To the extent that inflation causes these costs to
increase above our established reserves, we will be required to increase those reserves for losses and LAE, which would
negatively impact our financial condition and results of operations.
We are a holding company with no direct operations. We depend on the ability of our subsidiaries to transfer funds to us to
meet our obligations and capital management objectives, and our insurance subsidiaries' ability to pay dividends to us is
restricted by law.
EHI is a holding company that transacts substantially all of its business through its operating subsidiaries. Its primary assets are
the shares of stock of our insurance subsidiaries. The ability of EHI to meet its operating and financing cash needs and capital
management objectives largely depends on the surplus and earnings of our subsidiaries, and upon the ability of our insurance
subsidiaries to pay dividends to EGI and CGI and, in turn, the ability of EGI and CGI to pay dividends to EHI.
Payments of dividends by our insurance subsidiaries are restricted by state insurance laws, including laws establishing
minimum solvency and liquidity thresholds. As a result, we may not be able to receive dividends from these subsidiaries and we
may not receive dividends in the amounts necessary to meet our holding company obligations. Further, if we were to experience
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a diminution in dividend payments from these subsidiaries in the future, we may not be able to continue to pay dividends to our
stockholders and/or repurchase shares of our common stock.
Acts of terrorism and natural, or man-made catastrophes or other disruptive events could materially adversely impact our
financial condition and results of operations.
Under our workers' compensation policies and applicable laws in the states in which we operate, we are required to provide
workers' compensation benefits for losses arising from acts of terrorism. The impact of any terrorist act is unpredictable, and the
ultimate impact on us would depend upon the nature, extent, location, and timing of such an act. We would be particularly
adversely affected by a terrorist act occurring during normal business hours in an area where our policyholders have a large
concentration of workers.
Notwithstanding the protection provided by the reinsurance we have purchased and any protection provided by the 2002 Act, or
its extension, TRIPRA of 2019, the risk of severe losses to us from acts of terrorism has not been eliminated because our excess
of loss reinsurance treaty program contains various sub-limits and exclusions limiting our reinsurers' obligation to cover losses
caused by acts of terrorism. Our excess of loss reinsurance treaties do not protect us against nuclear, biological, chemical, or
radiological events. If such an event were to impact one or more of the businesses we insure, we would be entirely responsible
for any workers' compensation claims arising out of such event, subject to the terms of the 2002 Act and TRIPRA of 2019 and
we could suffer substantial losses as a result.
Our operations also expose us to claims arising out of natural or man-made catastrophes because we may be required to pay
benefits to workers who are injured in the workplace as a result of a catastrophe. Catastrophes can be caused by various
unpredictable events, either natural or man-made. Any catastrophe occurring in the communities in which we operate or that
have significant impacts on one or more of our targeted classes of business could expose us to potentially substantial losses and,
accordingly, could have a material adverse effect on our financial condition and results of operations.
Acts of terrorism, natural or man-made catastrophes or other disruptive events, including social unrest, can also affect our
business due to resulting temporary or permanent closures of our insured’s businesses, even if there are no claims arising from
such event.
While we have no international operations, recent geo-political uncertainties, including impacts from ongoing conflicts abroad
have indirectly impacted the value of our investment portfolio, and may continue to impact our investment portfolio in the
future.
Regulatory and Legal Risks
The insurance business is subject to extensive regulation and legislative changes, which impact the manner in which we
operate our business.
Our insurance business is subject to extensive regulation by the applicable state agencies in the jurisdictions in which we
operate, most significantly by the insurance regulators in California, Florida, Nevada, and New York, the states in which our
insurance subsidiaries are domiciled. Changes in laws and regulations could have a significant negative impact on our business.
More generally, insurance regulators have broad regulatory powers designed to protect policyholders and claimants, and not
stockholders or other investors.
Regulations vary from state to state, but typically address or include:
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standards of solvency, including RBC measurements;
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restrictions on the nature, quality, and concentration of investments;
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restrictions on the types of terms that we can include in the insurance policies we offer;
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mandates that may affect wage replacement and medical care benefits paid under the workers' compensation system;
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requirements for the handling and reporting of claims and procedures for adjusting claims;
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restrictions on the way rates are developed, and premiums are determined;
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the manner in which agents may be appointed;
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establishment of liabilities for unearned premiums, unpaid losses and LAE;
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limitations on our ability to transact business with affiliates;
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sustainability practices;
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mergers, acquisitions, and divestitures involving our insurance subsidiaries;
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licensing requirements and approvals that affect our ability to do business;
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applicable privacy laws, including the protection of nonpublic personal information and personally identifiable
information, including health information;
•
cyber-security, privacy, and artificial intelligence laws and regulations;
•
potential assessments for the settlement of covered claims under insurance policies issued by impaired, insolvent, or
failed insurance companies or other assessments imposed by regulatory agencies; and
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•
the amount of dividends that our insurance subsidiaries may pay to EGI and CGI and, in turn, the ability of EGI and
CGI to pay dividends to EHI.
Workers' compensation insurance is statutorily required in all the states in which we do business, except for Texas. State laws
and regulations specify the form and content of policy coverage and the rights and benefits that are available to injured workers,
their representatives, and medical providers. Additionally, any retrospective change in regulatorily required benefits could
materially increase the benefits costs that we would be responsible for to the extent of the legislative increase.
Legislation and regulation impact our ability to investigate fraud and other abuses of the workers' compensation system in the
states in which we do business. Our relationships with medical providers are also impacted by legislation and regulation,
including penalties for failure to make timely payments.
Federal legislation typically does not directly impact our workers' compensation business, but our business may be directly or
indirectly affected by changes in healthcare, occupational safety and health, and tax and financial regulations. These risks may
become more significant in a volatile and uncertain regulatory environment or during times of rapid regulatory change. In
addition, our costs of compliance may increase as a result of new or changing regulations or regulations in different
jurisdictions that conflict with each other. Since healthcare costs are the largest component of our loss costs, we may be
impacted by changes in healthcare legislation, which could affect healthcare costs and delivery in the future. There is also the
possibility of federal regulation of insurance.
This extensive regulation of our business may affect the cost or demand for our products and may limit our ability to obtain rate
increases or to take other actions that we might desire to maintain our profitability. In addition, we may be unable to maintain
all required approvals or comply fully with applicable laws and regulations, or the relevant governmental authority's
interpretation of such laws and regulations. If that were to occur, we might lose our ability to conduct business in certain
jurisdictions. Further, changes in the level of regulation of the insurance industry or changes in laws or regulations or
interpretations by regulatory authorities could impact our operations, require us to bear additional costs of compliance, and
impact our profitability.
Lastly, the establishment of a comprehensive, universal single-payer health care coverage program which could potentially
cover all injuries, including those that occur in the workplace, could adversely impact our current business model and
negatively impact our financial condition and results of operations.
Administrative proceedings, legal actions, or judicial decisions involving our insurance subsidiaries could have a material
adverse effect on our business, financial condition and results of operations.
Our insurance subsidiaries are involved in various administrative proceedings and legal actions in the normal course of their
business and could be impacted by adverse judicial decisions. Our subsidiaries have responded to such actions and intend to
defend these claims. These claims or decisions concern issues including eligibility for workers' compensation insurance
coverage or benefits, the extent of injuries, wage determinations, disability ratings, and bad faith and extra-contractual liability.
Adverse decisions in administrative proceedings, legal actions, or judicial decisions could require us to pay significant amounts
in the aggregate or to change the way we administer claims, which could have a material adverse effect on our business,
financial condition and results of operations.
Assessments and other surcharges for guaranty funds, second injury funds, and other mandatory pooling arrangements may
reduce our profitability.
All states require insurance companies licensed to do business in their state to bear a portion of the unfunded obligations of
insolvent insurance companies. These obligations are funded by assessments that can be expected to continue in the future in
the states in which we operate. Many states also have laws that establish second injury funds to provide compensation to injured
employees for aggravation of a prior condition or injury, which are funded by either assessments based on paid losses or
premium. In addition, as a condition to the ability to conduct business in some states, insurance companies are required to
participate in mandatory workers' compensation shared market mechanisms or pooling arrangements, which provide workers'
compensation insurance coverage from private insurers. The effect of these assessments and mandatory shared market
mechanisms or changes in them could reduce our profitability in any given period or limit our ability to grow our business.
State insurance laws, certain provisions of our charter documents, and Nevada corporation law could prevent or delay a
change in control that could be beneficial to us and our stockholders.
Our insurance subsidiaries are domiciled in California, Florida, Nevada, and New York. The insurance laws of these states
generally require that any person seeking to acquire control of a domestic insurance company obtain the prior approval of the
state's insurance commissioner. In California, Florida, Nevada, and New York, "control" is presumed to exist through the direct
or indirect ownership of 10% or more of the voting securities of a domestic insurance company or of any entity that controls a
domestic insurance company. In addition, insurance laws in many states in which we are licensed require pre-notification to the
state's insurance commissioner of a change in control of a non-domestic insurance company licensed in those states. Because
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we have insurance subsidiaries domiciled in California, Florida, Nevada, and New York, any transaction that would constitute a
change in control of us would generally require the party attempting to acquire control to obtain the prior approval of the
insurance commissioners of these states and may require pre-notification of the proposed change of control in these or other
states in which we are licensed to transact business. The time required to obtain these approvals may result in a material delay
of, or deter, any such transaction. These laws may discourage potential acquisition proposals or tender offers, and may delay,
deter, or prevent a change of control, even if the acquisition proposal or tender offer is considered favorable to our stockholders.
Provisions of our amended and restated articles of incorporation and amended and restated by-laws could discourage, delay, or
prevent a merger, acquisition, or other change in control of us, even if our stockholders might consider such a change in control
to be favorable. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect
Directors and take other corporate actions. In particular, our amended and restated articles of incorporation and amended and
restated by-laws currently include provisions:
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eliminating the ability of our stockholders to call special meetings of stockholders;
•
permitting our Board to issue preferred stock in one or more series;
•
imposing advance notice requirements for nominations for election to our Board and/or for proposing matters that can
be acted upon by stockholders at the stockholder meetings; and
•
prohibiting stockholder action by written consent, thereby limiting stockholder action to that taken at an annual or
special meeting of our stockholders.
These provisions may make it difficult for stockholders to replace Directors and could have the effect of discouraging a future
takeover attempt that is not approved by our Board, but which stockholders might consider favorable. Additionally, these
provisions could limit the price that investors are willing to pay in the future for shares of our common stock.
General Risk Factors
We may be unable to realize our investment objectives, and economic conditions in the financial markets could lead to
investment losses.
Investment income is a key component of our revenue and net income. Our investment portfolio is managed by independent
asset managers that operate under investment guidelines approved by our Audit Committee. Although these guidelines stress
diversification and capital preservation, our investments are subject to a variety of risks that are beyond our control, including
risks related to general economic conditions, interest rate fluctuations or prolonged periods of high or low interest rates, and
market volatility. Interest rates are highly sensitive to many factors, including governmental fiscal and monetary policies and
domestic and international economic and political conditions. These and other factors affect the capital markets and,
consequently, the value of our investment portfolio.
We are exposed to significant financial risks related to the capital markets, including the risk of potential economic loss
principally arising from adverse changes in the fair value of financial instruments. The major components of market risk
affecting us are credit risk, interest rate risk, equity price risk and effects of inflation. For more information regarding market
risk, see "Item 7A–Quantitative and Qualitative Disclosures About Market Risk."
Sharp increases in market interest rates throughout 2022 negatively impacted the fair value of our fixed maturity investments.
In addition, economic and market disruptions caused by volatility and credit concerns in certain financial and banking markets,
inflationary pressures, and geo-political uncertainties negatively impacted the fair value of our equity securities in 2022. The
negative impacts to our investment portfolio experienced in 2022 consisted primarily of unrealized investment losses.
In 2023 and 2024, despite volatility, market interest rates largely stabilized, and equity markets performed well versus those of
2022. These factors served to meaningfully reduce, but did not eliminate, the unrealized losses that we experienced in 2022.
The outlook for our investment income is dependent on current and future interest rates, maturity schedules, and cash available
for investment. In addition, the fair value of our fixed maturity securities that are available-for-sale (AFS) fluctuates with
changes in interest rates and credit risk assumptions, which cause fluctuations in our stockholders' equity, net income and
comprehensive income. A significant decline in our investment income or the value of our investments as a result of changes in
interest rates, deterioration in the credit of the securities in which we have invested, decreased dividend payments, general
market conditions, events that have an adverse impact on any particular industry, asset class, or geographic region in which we
hold significant investments could have an adverse effect on our net income and, as a result, on our stockholders' equity and
policyholder surplus.
The valuation of our investments, including the determination of the amount of charges and impairments, includes estimates
and assumptions and could result in changes to investment valuations. Our determinations, including the use of valuation
models, pricing services and other techniques, can have a material effect on the valuation of our investments which may
adversely affect our financial condition and results of operations.
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We regularly review the valuation of our portfolio of fixed maturity investments, including the identification of other-than-
temporary declines in fair value and current expected credit losses (CECL). The determination of the amount of impairments
and/or credit losses recognized on our investments is based on our periodic evaluation and assessment of our investments and
known and inherent risks associated with the various asset classes. There can be no assurance that we have accurately
determined the level of impairments and/or credit losses reflected in our financial statements and additional provisions may
need to be recognized in the future. Further, historical trends may not be indicative of future impairments and/or credit losses.
We may require additional capital in the future, which may not be available to us or may be available only on unfavorable
terms.
Our future capital requirements will depend on many factors, including state regulatory requirements, our ability to write new
business successfully, and our ability to establish premium rates and reserves at levels sufficient to cover losses. If we must
raise additional capital, equity or debt financing may not be available on terms that are favorable to us. In the case of equity
financings, there could be dilution to our stockholders and the securities may have rights, preferences, and privileges senior to
our common stock. In the case of debt financings, we may be subject to covenants that restrict our ability to freely operate our
business. If we cannot obtain adequate capital on favorable terms or at all, we may be unable to implement our future growth or
operating plans and our business, financial condition, and results of operations could be materially adversely affected.
Our business is largely dependent on the efforts of our executives and other key employees because of their industry and
technical expertise, knowledge of our markets, and relationships with the insurance agents, brokers, and other distribution
partners that sell our products.
Our success depends in substantial part on our ability to attract and retain qualified executive officers, experienced
underwriting, claims, and information technology personnel, and other highly skilled employees who are knowledgeable about
our business. The success of our business is dependent in significant part on the efforts of our executive officers. Many of our
employees are also particularly important to our operations because of their industry expertise, knowledge of our markets, and
relationships with the insurance agents, brokers, and partners who sell our products. If we were to lose the services of members
of our management team or other key employees, we may be unable to find replacements satisfactory to us and our business,
which could disrupt our operations and adversely impact our financial performance and results of operations.
We rely on our information technology and telecommunication systems, including those of third parties that we outsource
certain business functions to, and the disruption or failure of these systems, cyber-attacks on these systems, or security
breaches or incidents could materially and adversely affect our business.
Our business is highly dependent upon the successful and uninterrupted functioning of our information technology and
telecommunications systems, including those of third parties to which we outsource certain functions. We rely on these systems
to operate key aspects of our business, including processing and generating new and renewal business, providing customer
service, administering and making payments on claims, facilitating collections, and underwriting and administering the policies
we write. Additionally, our business and operations involve the collection, storage, transmission, and other processing of
personal data and certain other sensitive and proprietary data.
Companies are increasingly subject to a wide variety of attacks on their systems and networks on an ongoing basis. In addition
to threats from traditional computer “hackers,” we face threats from malicious code (such as malware, viruses, worms, and
ransomware), employee or contractor error or malfeasance, fraud, misconduct, or misuse, phishing, social engineering attacks
and denial-of-service attacks. We could be a target for cybersecurity attacks designed to disrupt our operations or to attempt to
gain access to our systems, data processed or maintained in our business, trade secrets, or other proprietary information or
financial resources. The third parties we have outsourced business functions to also face significant security risks. Although we
have implemented and are continually in the process of implementing additional systems and processes designed to protect our
data and systems, these security measures cannot guarantee security. Because techniques used to obtain unauthorized access to
or to sabotage systems change frequently and may not be known until launched, we and the third parties on which we rely may
be unable to anticipate or prevent these attacks, react in a timely manner or implement adequate preventive measures, and we
may face delays in our detection or remediation of, or other responses to, security breaches and other privacy-and security-
related incidents. Certain efforts may be state-sponsored or supported by significant financial and technological resources,
making them even more difficult to detect, remediate, and otherwise handle.
Any security breach or security incident, or any outages or other disruption to systems used in our business, could interrupt our
operations (including by impacting our ability to service our agents, insureds, and injured workers, generate and service direct-
to-customer business, and meet certain regulatory requirements), result in loss or improper access to, or acquisition, disclosure,
or other processing of, personal data and other sensitive and proprietary data, or a loss of intellectual property protection.
Additionally, any actual or perceived outage, breach, incident, or disruption may harm our reputation and competitive position,
reduce demand for our products and services, damage our relationships with customers or others or result in claims, demands,
litigation, regulatory investigations and proceedings and significant legal, regulatory and financial exposure. Further, any such
incidents or any perception that our security measures are inadequate could lead to a loss of confidence in us and harm to our
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reputation. Any of the foregoing matters could have a material adverse effect upon our business, financial condition, and
operating results. We expect to incur significant costs in an effort to detect and prevent security breaches and incidents, and we
may face increased costs and requirements to expend substantial resources in the event of an actual or perceived security breach
or other incident.
We also may experience outages, interruptions, and other disruptions to systems used in our business, including information
technology and telecommunications systems, and may suffer the loss of, or inability to perform of, third parties who provide
these services. Any interruptions, outages, or delays in our systems and infrastructure, our business or third parties, or
deterioration in the performance of these systems and infrastructure, could impair our ability to provide our products and
services. Fire, flood, power loss, telecommunications failure, hurricanes, tornadoes, earthquakes, other natural disasters, acts of
war or military conflict, terrorism, exceeding capacity limits, and similar events or disruptions may result in damage to or
interruption of telecommunications and other systems. There can be no guarantee that our business continuity plans or measures
would be sufficient to restore or secure systems or data.
While we maintain insurance that may cover certain liabilities in connection with certain disruptions, security breaches, and
incidents, our insurance policies may not be adequate to compensate us for the potential losses arising from any disruption in or,
failure or security breach or incident of or impacting our systems or third-party systems used in our business, and such
insurance may not be available to us in the future on economically reasonable terms, or at all. Further, our insurance coverage
may not cover all claims made against us and could have high deductibles in any event, and defending a suit, regardless of its
merit, could be costly and divert management attention.
A failure to effectively maintain, enhance and modernize our information technology systems, effectively develop and deploy
innovative technologies, and execute new business initiatives, including those involving artificial intelligence, could
adversely affect our business.
Our success depends on our ability to maintain effective information technology systems, to enhance those systems to better
support our business in an efficient and cost-effective manner, and to develop innovative technologies and capabilities,
including those involving the use of data, analytics, and artificial intelligence, in pursuit of our long-term strategy. We have
multiple initiatives that are focused on developing innovative technologies and capabilities and enhancing our information
technology infrastructure. Some long-term technology development and new business initiatives may negatively impact our
expense ratios as we invest in such initiatives, may cost more than anticipated to complete, or may not be completed.
Additionally, these initiatives may be more time-consuming than anticipated, may not deliver the expected benefits upon
completion, and/or may need to be replaced or become obsolete more quickly than expected, all of which could result in
accelerated recognition of expenses. If we fail to successfully execute on new business initiatives, fail to maintain or enhance
our existing information technology systems, or if we were to experience failure in developing and implementing new
technologies, our relationships, ability to do business with our clients and/or our competitive position may be adversely
affected. We could also experience other adverse consequences, including additional costs or write-offs of capitalized costs,
unfavorable underwriting and reserving decisions, internal control deficiencies, and information security breaches resulting in
loss or inappropriate disclosure of data.
We are subject to laws and regulations governing privacy and information security that could adversely affect our business
or subject us to liability.
Privacy and information security are areas of increasing focus for our customers, regulators, and privacy advocates, and many
jurisdictions are evaluating or have implemented laws and regulations relating to these matters. The laws, rules, regulations,
standards and other actual and asserted obligations relating to privacy and information security to which we may be subject, or
that otherwise apply to our business, are constantly evolving, and we expect that there will continue to be new proposed laws,
regulations and industry standards concerning these matters. We cannot fully predict the impact of these laws or regulations,
including those that may be modified or enacted in the future, or new or evolving industry standards or actual or asserted
obligations, relating to privacy, information security, or data processing on our business or operations.
These laws, regulations, and other obligations to which we are or may become subject, or that may be argued to apply to us,
including contractual obligations and industry standards, may require us to modify our practices and policies and to incur
substantial costs and expenses to comply. The interpretation and enforcement of these actual and asserted obligations are
uncertain and constantly evolve, and it is possible that our products, services, or practices may be alleged to violate such laws,
regulations, or other actual or asserted obligations to which we are or may be subject.
Any actual or perceived failure to comply with laws, regulations, or other actual or asserted obligations to which we are or are
alleged to be subject relating to privacy or information security could result in claims, litigation, and regulatory investigations
and other proceedings, as well as damage to our reputation. These could result in substantial costs, diversion of resources, fines,
penalties, and other damages and liabilities, and harm to our customer relationships, our market position, and our ability to
attract new customers. Any of these could harm our business, financial condition, and results of operations.
24
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
Our operations rely on the secure processing, storage, and transmission of personal, confidential, and other information. Our
business, including our ability to adequately price products and services, establish reserves, provide an effective and secure
service to our customers and report our financial results in a timely and accurate manner, depends significantly on the integrity,
availability, and timeliness of the data we maintain, as well as the data held by our third party service providers. We manage
cybersecurity risk via expectations set by our information security and related policies, real-time monitoring of threats, and
recovery where needed through incident response plans.
We leverage ISO 27005, an international standard for identifying, measuring, and assessing cybersecurity risks, as a model for
measuring our cybersecurity risk. The ISO 27005 model is periodically refreshed as new cybersecurity risks are identified.
Our Chief Information Security Officer (CISO) leverages vulnerability detection techniques to identify new cybersecurity risks.
Our information security program is subject to periodic assessments using the ISO 27001 standard for managing cybersecurity.
External security firms conduct penetration tests of our technology surface area internally and externally. Our information
security program is also subject to internal and independent external audits.
We are not aware of any cybersecurity risks, including as a result of any cybersecurity incidents during 2024, that have
materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or
financial condition.
Third parties with access to sensitive data or systems are subject to due diligence and ongoing monitoring.
Potential new vendors and existing vendors that are known to have access to sensitive data or our systems are subject to a risk
assessment process including the periodic review of independent security audits where available. Existing vendors are
monitored via an automated service that rates companies’ publicly facing cybersecurity posture and identifies known
vulnerabilities.
Governance
Our cybersecurity risks and strategies are overseen by both management, including our CISO, Chief Information Officer (CIO),
VP, Enterprise Risk Management, Executive Risk Committee (ERC), and the Board and relevant Board committees, including
the Risk Management, Technology & Innovation Committee (RMTIC). This structure reinforces that our most critical risks are
effectively monitored and communicated to the Board, and management, including for the purposes of making any required
disclosures in a timely manner. Cybersecurity risk assessments, subsequent findings, and response plans, including risks arising
in connection with our use of vendors and third parties, are integrated within our Enterprise Risk Management framework.
Members of our senior management team have specific and relevant cybersecurity expertise and experience, including the
following:
•
Our CISO has more than 30 years of experience in technology and cybersecurity, he also holds multiple professional
certifications in security, privacy, governance, audit, and technology.
•
Our CIO has more than 17 years of experience in technology, she has directly managed global privacy, compliance,
ethics, and records retention technology, has been responsible for addressing global cybersecurity risks, and has also
attended multiple training programs in cybersecurity, privacy, governance, and technology.
•
Our VP, Enterprise Risk Management holds a Certificate in Risk and Information Systems Controls certification and
has more than 25 years of experience in managing technology delivery, vendor management, privacy, and governance.
Cybersecurity is one of several key risk categories that are evaluated and rated by the ERC on a quarterly basis. Each of our
CISO, CIO, and VP, Enterprise Risk Management is a member of the ERC. The ERC reports periodically on its activities,
findings, and areas of concern to the RMTIC. The RMTIC in turn reports to the Board on its oversight of cybersecurity risk.
Item 2. Properties
As of February 1, 2025, we leased a total of 50,152 square feet of office space in four states, including our corporate
headquarters located in Reno, Nevada. Since 2021, we have reduced our real estate footprint by closing and vacating certain of
our offices previously located in California, Missouri, Nevada, North Carolina and Wisconsin. We believe that our existing
office space is adequate for our current needs. We will continue to evaluate our office needs and may further adjust our real
estate footprint in the future.
25
Item 3. Legal Proceedings
From time to time, we are involved in pending and threatened litigation in the normal course of business in which claims for
monetary damages are asserted and/or insurance or reinsurance coverage is disputed.
Expected or actual reductions in our reinsurance recoveries due to reinsurance coverage disputes (as opposed to a reinsurer's
inability to pay) are not recorded as an uncollectible reinsurance recoverable. Rather, they are factored into the determination
of, and are reflected in, our net loss and LAE reserves.
In the opinion of management, the ultimate liability, if any, arising from such pending or threatened litigation, individually or in
aggregate, is not expected to have a material effect on our result of operations, liquidity, or financial position.
Item 4. Mine Safety Disclosures
Not applicable.
26
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information, Holders, and Stockholder Dividends
Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol "EIG." There were 648 registered
holders of record as of February 24, 2025.
We have declared and paid quarterly cash dividends on our common stock in every year since we became a publicly traded
company in 2007. We currently expect that quarterly cash dividends will continue to be declared and paid to our stockholders in
the future. In addition, we may also pay special dividends from time-to-time as we did in 2022, though there can be no
assurance that we will do so. Any determination to declare and pay additional or future dividends will be at the discretion of our
Board and Audit Committee and will depend on:
•
the surplus and earnings of our insurance subsidiaries and their ability to pay dividends and/or other statutorily
permissible payments to their parent;
•
our results of operations and cash flows;
•
our financial position and capital requirements;
•
general business conditions;
•
any legal, tax, regulatory, and/or contractual restrictions on the payment of dividends; and
•
any other factors our Board or Audit Committee may deem relevant.
Issuer Purchases of Equity Securities
We have repurchased shares of our common stock in every year since we became a publicly traded company in 2007, including
the periods noted below. However, any repurchase of shares of our common stock in the future will be at the discretion of our
Board and Audit Committee and will depend on:
•
the surplus and earnings of our insurance subsidiaries and their ability to pay dividends and/or other statutorily
permissible payments to their parent;
•
our results of operations and cash flows;
•
our financial position and capital requirements;
•
general business and social economic conditions;
•
any legal, tax, regulatory, and/or contractual restrictions on repurchases of our common stock; and
•
any other factors our Board deem relevant.
The following table provides information with respect to the Company's repurchases of its common stock during the quarter
ended December 31, 2024:
Period
Total Number
of Shares
Purchased
Average
Price Paid
Per Share(1)
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program
Approximate
Dollar Value
of Shares that
May Yet be
Purchased
Under the
Program(2)
(in millions)
October 1 – October 31, 2024 . . . . . . . . . . . . . . . . . .
20,602 $
47.45
20,602 $
38.6
November 1 – November 30, 2024 . . . . . . . . . . . . . .
11,242
48.17
11,242
38.1
December 1 – December 31, 2024 . . . . . . . . . . . . . .
162,013
51.89
162,013
29.7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
193,857 $
51.20
193,857
(1)
Includes fees and commissions paid on stock repurchases, but excludes any applicable excise taxes imposed by the Inflation
Reduction Act of 2022.
(2)
On July 26, 2023, the Board authorized a stock repurchase authorization (the 2023 Program) for up to $50.0 million of repurchases
of the Company's common stock from July 31, 2023 through December 31, 2024. On June 10, 2024, the Board authorized a $50.0
million addition to the 2023 Program, increasing our aggregate purchase authority to $100.0 million, and extended the repurchase
authority pursuant to the 2023 Program through July 31, 2025. The 2023 Program provides that shares may be purchased in the
open market and/or in privately negotiated transactions from time to time, and that all purchases shall be made in compliance with
all applicable provisions of the Nevada Revised Statutes and federal and state securities laws including, but not limited to, Rules
10b5-1 and 10b-18 of the Exchange.
27
Performance Graph
The following information compares the cumulative total return on $100 invested in our common stock, ticker symbol EIG, for
the period commencing at the close of market on December 31, 2019 and ending on December 31, 2024 with the cumulative
total return on $100 invested in each of the Standard and Poor's (S&P) 500 Index (S&P 500) and the Standard and Poor's 500
Property-Casualty Insurance Index (S&P P&C Insurance Index). The calculation of cumulative total return assumes the
reinvestment of dividends. The following graph and related information shall not be deemed to be "soliciting material" or to be
"filed" with the SEC, nor shall such information be incorporated by reference into any filing pursuant to the Securities Act of
1933 or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
Employers Holdings, Inc.
Cumulative Total Return Performance
Period Ending
Index Value
Total Return Performance
Employers Holdings, Inc.
S&P 500
S&P 500 P&C Insurance Index
12/31/2019
12/31/2020
12/31/2021
12/31/2022
12/31/2023
12/31/2024
$50
$100
$150
$200
$250
Period Ending
12/31/2020
12/31/2021
12/31/2022
12/31/2023
12/31/2024
Employers Holdings, Inc. . . . . . . $
79.46 $
104.79 $
118.02 $
110.83 $
147.79
S&P 500 . . . . . . . . . . . . . . . . . . .
118.40
152.39
124.79
157.59
197.02
S&P 500 P&C Insurance Index .
106.96
127.58
151.65
168.05
227.67
Item 6. [Reserved]
28
Item 7. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with
the consolidated financial statements, the accompanying notes thereto, and the financial statement schedules included in Item 8
and Item 15 of this report. In addition to historical information, the following discussion contains forward-looking statements
that are subject to risks and uncertainties and other factors described in Item 1A of this report. Our actual results in future
periods may differ from those referred to herein due to several factors, including the risks described in the sections entitled
"Risk Factors" and "Forward-Looking Statements" elsewhere in this report.
General
We are a Nevada holding company. Through our insurance subsidiaries, we provide workers' compensation insurance coverage
to small and mid-sized businesses engaged in low-to-medium hazard industries. Workers' compensation insurance is provided
under a statutory system wherein most employers are required to provide coverage for their employees' medical, disability,
vocational rehabilitation, and/or death benefit costs for work-related injuries or illnesses. We provide workers' compensation
insurance throughout most of the United States, with a concentration in California, where 45% of our in-force premiums are
generated. Our revenues primarily consist of net premiums earned, net investment income, and net realized and unrealized gains
and (losses) on investments.
The insurance industry is highly competitive, and there is significant competition in the national workers' compensation
industry that is based on price and quality of services. We compete with other specialty workers' compensation carriers, state
agencies, multi-line insurance companies, professional employer organizations, self-insurance funds, and state insurance pools.
We target small to mid-sized businesses, as we believe that this market is traditionally characterized by higher profitability and
stronger persistency when compared to the U.S. workers' compensation insurance industry in general. We believe we can price
our policies at levels that are competitive and profitable over the long-term given our expertise in underwriting and claims
handling in this market segment. Our underwriting approach is to consistently underwrite small to mid-sized business accounts
at appropriate and competitive prices without sacrificing long-term profitability and stability for short-term revenue growth.
Overview
Summary Financial Results
Our net income was $118.6 million, $118.1 million, and $48.4 million in 2024, 2023, and 2022, respectively. The key factors
that affected our financial performance during those years included:
•
Net premiums earned increased 3.8% in 2024 and 6.9% in 2023, each compared to the previous year;
•
Losses and LAE increased 12.4% in 2024 and 3.8% in 2023, each compared to the previous year;
•
Underwriting and general and administrative expenses decreased 1.9% in 2024 and increased 7.6% in 2023, each
compared to the previous year;
•
Underwriting income was $15.6 million, $36.2 million, and $21.0 million in 2024, 2023, and 2022, respectively;
•
Net investment income increased 0.5% in 2024 and 18.6% in 2023, each compared to the previous year;
•
Net realized and unrealized gains (losses) on investments were $24.1 million, $22.7 million, and $(51.8) million in
2024, 2023, and 2022, respectively; and
•
Other non-recurring expenses were $11.0 million in 2023. We did not incur any such expenses in 2024 or 2022.
29
Summary of Year Ended December 31, 2024
Our underwriting results for the year ended December 31, 2024 reflect increases in net premiums earned from higher new and
renewal business premiums, and lower underwriting and general and administrative expenses, partially offset by lower final
audit premiums and endorsements, a decrease in favorable prior year loss reserve development, and a higher current accident
year loss and LAE ratio. Our investment results benefited from continued strong net investment income and net realized and
unrealized gains.
Summary of Year Ended December 31, 2023
Our underwriting results for the year ended December 31, 2023 reflect increases in net premiums earned from higher new and
renewal business premiums, strong final audit premiums, and significant net favorable prior year loss reserve development. Our
investment results benefited from a sharp increase in our net investment income due to higher bond yields and net realized and
unrealized gains. Our non-underwriting expenses in 2023 included the cost of the early lease termination of our former
corporate headquarters and a write-off of previously capitalized cloud computing costs associated with a former policy
management system.
Summary of Year Ended December 31, 2022
Our underwriting results for the year ended December 31, 2022 reflect increases in net premiums earned from higher new and
renewal business premiums, strong final audit premiums, and significant net favorable prior year loss reserve development. Our
investment results reflect an increase in net investment income due to higher bond yields, offset by net realized and unrealized
losses.
Our consolidated financial results of operations for the three year period ending December 31, 2024 are as follows:
Years Ended December 31,
2024
2023
2022
(in millions)
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
776.3
$
767.7
$
714.2
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
769.5
$
760.6
$
707.2
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
749.5
$
721.9
$
675.2
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107.0
106.5
89.8
Net realized and unrealized gains (losses) on investments . . . . . . . . . . . . . .
24.1
22.7
(51.8)
Other (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
(0.2)
0.3
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
880.7
850.9
713.5
Underwriting expenses: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses and LAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
456.2
405.7
391.0
Commission expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101.2
100.0
95.9
Underwriting and general and administrative expenses . . . . . . . . . . . . . . . .
176.5
180.0
167.3
Non-underwriting expenses: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and financing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
5.8
3.5
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
11.0
—
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
734.0
702.5
657.7
Net income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
146.7
148.4
55.8
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.1
30.3
7.4
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
118.6
$
118.1
$
48.4
A primary measure of our financial strength and performance is our ability to increase Adjusted stockholders' equity and
Adjusted stockholders' equity per share over the long-term. We believe that this measure is important to our investors, analysts,
and other interested parties who benefit from having an objective and consistent basis for comparison with other companies
within our industry. Further, the change in our adjusted stockholders' equity per share (after taking into account stockholder
dividends declared) serves as the performance measure associated with our 2024, 2023, and 2022 performance share unit
awards. The following table shows a reconciliation of our Stockholders' equity on a GAAP basis to our Adjusted stockholders'
equity.
30
Years Ended December 31,
2024
2023
(in millions, except share and per share data)
GAAP stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,068.7
$
1,013.9
Deferred Gain - LPT agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94.0
99.2
Accumulated other comprehensive loss, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82.5
86.0
Adjusted stockholders' equity(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,245.2
$
1,199.1
Ending common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,556,706
25,369,753
Adjusted stockholders' equity per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
50.71
$
47.26
(1) Adjusted stockholders' equity is a non-GAAP measure consisting of total GAAP stockholders' equity plus the Deferred Gain, minus
Accumulated other comprehensive gain (loss), net of tax.
During 2024, we grew our Adjusted stockholders’ equity by $46.1 million (or $3.45 per share), despite returning $71.7 million
to stockholders through share repurchases and dividends declared on common stock and eligible plan awards. During 2023, we
grew our Adjusted stockholders’ equity by $9.9 million (or $3.48 per share), despite returning $106.5 million to stockholders
through share repurchases and dividends declared on common stock and eligible plan awards.
I.
Review of Underwriting Results
Underwriting income or loss is determined by deducting losses and LAE, commission expenses, and underwriting and general
and administrative expenses from net premiums earned. Our underwriting results for the three year period ending December 31,
2024 are as follows:
Years Ended December 31,
2024
2023
2022
(in millions)
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
776.3
$
767.7
$
714.2
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
769.5
$
760.6
$
707.2
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
749.5
$
721.9
$
675.2
Losses and LAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
456.2
405.7
391.0
Commission expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101.2
100.0
95.9
Underwriting and general and administrative expenses . . . . . . . . . . . . . . . .
176.5
180.0
167.3
Total underwriting expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
733.9
685.7
654.2
Underwriting income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
15.6
$
36.2
$
21.0
Total impact of the LPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5.6)
(7.2)
(8.3)
Underwriting income excluding LPT(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
10.0
$
29.0
$
12.7
Loss and LAE ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60.9 %
56.2 %
57.9 %
Commission expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.5
13.9
14.2
Underwriting expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.5
24.9
24.8
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97.9 %
95.0 %
96.9 %
Total impact of the LPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.7 %
1.0 %
1.2 %
Combined ratio excluding LPT(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98.6 %
96.0 %
98.1 %
(1) The LPT Agreement is a non-recurring transaction that no longer provides us with any ongoing cash benefits. We provide our
underwriting income and combined ratios excluding the effects of the LPT because we believe that these measures are useful in
providing investors, analysts and other interested parties a meaningful understanding of our ongoing underwriting performance and
provides them with a consistent basis for comparison with other companies in our industry. In addition, we believe that these non-
GAAP measures, as presented, are helpful to our management in identifying trends in our performance because the LPT has limited
significance to our current and ongoing operations.
Gross Premiums Written
Gross premiums written were $776.3 million, $767.7 million, and $714.2 million for the years ended December 31, 2024, 2023,
and 2022, respectively. The modest growth in our premiums written in 2024 was the result of higher new and renewal business
31
premiums, partially offset by lower final audit premiums and endorsements. The growth in new business premiums experienced
in 2024 was the result of increases in new business submissions, quotes and binds in the majority of the states in which we
operate, which is being largely driven by the expansion in the classes of business that we offer. Our premiums written in 2024
were negatively impacted by a $16.5 million decrease to our ending final audit premium accrual, partially offset by $10.7
million of final audit premium pick-up. Further, our renewal premiums benefited from strong retention rates experienced
throughout the year.
The solid growth in our premiums written in 2023 was the result of higher new and renewal business premiums and strong final
audit premiums. The growth in new business premiums experienced in 2023 was mostly the result of increases in new business
submissions, quotes, and binds in most of the states in which we operate, which was largely driven by our expansion in the
classes of business that we offer. Our premiums written in 2023 benefited from a $3.6 million increase to our ending final audit
premium accrual and $29.2 million of final audit premium pick-up. Further, our renewal premiums benefited from strong
retention rates experienced throughout the year.
Net Premiums Written
Net premiums written are gross premiums written less reinsurance premiums ceded. For each of the years presented, the
reinsurance premiums ceded are related to our July 1- June 30 annual reinsurance programs as further described herein.
Net premiums written were $769.5 million, $760.6 million, and $707.2 million for the years ended December 31, 2024, 2023,
and 2022, respectively, which included $6.8 million, $7.1 million, and $7.0 million of reinsurance premiums ceded,
respectively.
Net Premiums Earned
Net premiums earned are primarily a function of the amount and timing of net premiums previously written.
Net premiums earned were $749.5 million, $721.9 million, and $675.2 million for the years ended December 31, 2024, 2023,
and 2022, respectively.
Losses and LAE, Commission Expenses, and Underwriting Expenses
The following table presents our calendar year combined ratios.
Years Ended December 31,
2024
2023
2022
Loss and LAE ratio excluding LPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61.6 %
57.2 %
59.1 %
Loss and LAE ratio - LPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.7) %
(1.0) %
(1.2) %
Commission expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.5
13.9
14.2
Underwriting expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.5
24.9
24.8
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97.9 %
95.0 %
96.9 %
Combined ratio excluding LPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98.6 %
96.0 %
98.1 %
Losses and LAE represent our largest expense item and includes claim payments made, amortization of the Deferred Gain,
Contingent Commission adjustments, estimates for future claim payments and changes in those estimates for current and prior
accident years, and costs associated with investigating, defending, and adjusting claims. The accuracy of our financial reporting
depends in large part on determining our losses and LAE reserves, which are inherently uncertain as they are estimates of the
ultimate cost of individual claims based on actuarial estimation techniques.
Our current accident year loss and LAE estimate excluding the LPT for the year ended December 31, 2024 continues to
consider, and benefit from, overall declines in the on-leveled frequency of compensable indemnity claims. We believe that our
current accident year loss estimate is adequate; however, ultimate losses will not be known with any certainty for many years.
Our current accident year loss and LAE ratio continues to reflect the impact of key business initiatives, including: an emphasis
on accelerated settlements of open claims; further diversifying its risk exposure across geographic markets, when appropriate;
and leveraging data-driven strategies to target, underwrite, and price profitable classes of business across all of our markets.
Additional information regarding our reserves for losses and LAE is set forth under "–Critical Accounting Estimates –Reserves
for Losses and LAE."
Loss and LAE Ratio. We analyze our loss and LAE ratios on both a calendar year and accident year basis.
The calendar year loss and LAE ratio is calculated by dividing the losses and LAE recorded during the calendar year, regardless
of when the underlying insured event occurred, by the net premiums earned during that calendar year. The calendar year loss
and LAE ratio reflects changes made during the calendar year in reserves for losses and LAE established for insured events
32
occurring in the current and prior years. The calendar year loss and LAE ratio for a particular year will not change in future
periods.
The accident year loss and LAE ratio is calculated by dividing cumulative losses and LAE for reported events that occurred
during a particular year by the net premiums earned for that year. The accident year loss and LAE ratio for a particular year can
decrease or increase when recalculated in subsequent periods as the reserves established for insured events occurring during that
year fluctuate.
Our calendar year loss and LAE ratio is analyzed to measure profitability in a particular year and to evaluate the adequacy of
premium rates charged in a particular year to cover expected losses and LAE from all periods, including development (whether
favorable or unfavorable) of reserves established in prior periods. In contrast, our accident year loss and LAE ratios are
analyzed to evaluate underwriting performance and the adequacy of the premium rates charged in a particular year in relation to
ultimate losses and LAE from insured events occurring during that year. The loss and LAE ratios provided in this report are on
a calendar year basis, except where they are expressly identified as accident year loss and LAE ratios.
The table below reflects current and prior accident year loss and LAE reserve adjustments, the impact of the LPT, and the
resulting impact to our loss ratio.
Years Ended December 31,
2024
2023
2022
(dollars in millions)
Current accident year losses and LAE - excluding LPT . . . . . . . . . . . . . . . . . . . . . . . . . $ 480.2
$ 457.8
$ 432.8
Prior accident year favorable loss reserve development, net . . . . . . . . . . . . . . . . . . . . . .
(18.4)
(44.9)
(33.5)
Impact of LPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5.6)
(7.2)
(8.3)
Calendar year losses and LAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 456.2
$ 405.7
$ 391.0
Current accident year loss and LAE ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64.1 %
63.4 %
64.1 %
Calendar year loss and LAE ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60.9 %
56.2 %
57.9 %
Calendar year loss and LAE ratio - excluding LPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61.6 %
57.2 %
59.1 %
The increase in our calendar year losses and LAE from 2023 to 2024 was primarily due to higher earned premiums, a slightly
higher current accident year loss and LAE estimate and less net favorable prior year loss reserve development. Net favorable
prior year loss reserve development recognized in 2024 was $18.4 million versus $44.9 million in 2023. The increase in our
calendar year losses and LAE from 2022 to 2023 was primarily due to higher earned premiums, partially offset by higher net
favorable prior year loss reserve development. Net favorable prior year loss reserve development recognized in 2023 was $44.9
million versus $33.5 million recognized in 2022.
The net favorable development recognized in 2024 resulted primarily from overall favorable loss experience, including
decreasing medical paid loss trends in California, partially offset by unfavorable prior year loss experience in accident years
2023 and 2021 associated with certain large claims.
The net favorable development recognized in 2023 was primarily the result of decreasing medical paid loss trends in California
related to accident years 2020 and prior, partially offset by reserve strengthening related to accident year 2021. The rapid
economic rebound following the COVID-19 pandemic led to large premium and payroll increases related to accident year 2021
that were recognized through policy audits in subsequent years. In response, we strengthened our reserves for accident year
2021 to reflect the potential for higher losses arising from the higher than expected premium exposure.
The net favorable development recognized in 2022 was primarily the result of decreasing medical and indemnity paid loss
trends related to accident years 2020 and prior.
33
The table below reflects the impact of the LPT on Losses and LAE, which are recorded as a reduction to Losses and LAE
incurred on our Consolidated Statements of Comprehensive Income (Loss).
Years Ended December 31,
2024
2023
2022
(in millions)
Amortization of the Deferred Gain - losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6.1 $
6.3 $
6.8
Amortization of the Deferred Gain - Contingent Commission . . . . . . . . . . . . . . . .
0.8
1.5
1.5
Impact of LPT Reserve adjustments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.7)
(0.9)
—
Contingent Commission adjustments(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.4
0.3
—
Total impact of the LPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5.6 $
7.2 $
8.3
(1)
LPT Reserve Adjustments result in a cumulative adjustment to the Deferred Gain, which is recognized in losses and LAE incurred on
our Consolidated Statements of Comprehensive Income (Loss), such that the Deferred Gain reflects the balance that would have
existed had the revised reserves been recognized at the inception of the LPT Agreement. (See Note 2 in the Notes to our Consolidated
Financial Statements.)
(2)
LPT Contingent Commission adjustments resulted in an adjustment to the Contingent commission receivable - LPT Agreement, which
is recognized in losses and LAE incurred on our Consolidated Statements of Comprehensive Income (Loss). See Note 2 in the Notes
to our Consolidated Financial Statements.
Commission Expense Ratio.
Commission expenses include direct commissions to our agents and brokers, including our partnerships and alliances, for the
premiums that they produce for us, as well as agency incentive payments, other marketing costs, and fees.
We refined the presentation of certain expenses associated with our involuntary premium during the year ended December 31,
2024. This revision, which was immaterial, reduced our 2024 commission expenses and commission expense ratio by $2.4
million and 0.3 percentage points, respectively, and increased our 2024 underwriting and general and administrative expenses
and underwriting and general and administrative expense ratio by the same amounts. This revision had no effect on our total
expenses or net income.
Our commission expense ratio was 13.5%, 13.9%, and 14.2%, and our commission expenses were $101.2 million, $100.0
million, and $95.9 million for the years ended December 31, 2024, 2023, and 2022, respectively. The decrease in our
commission expense ratio from 2023 to 2024 was primarily related to the expense revision we made in 2024 associated with
our involuntary premium. The decrease in our commission expense ratio from 2022 to 2023 was primarily related to a write-off
of uncollectible premium, which resulted in a reversal of commissions.
Underwriting and General and Administrative Expense Ratio.
Underwriting and general and administrative expenses represent those costs required to run the business, including costs
incurred to underwrite and maintain the insurance policies we issue, excluding commissions. Variable underwriting expenses,
such as premium taxes, policyholder dividends, and other expenses that vary directly with the production of new or renewal
business, are recognized as the associated written premiums are earned. Fixed underwriting expenses, such as the operating
expenses of EHI and its subsidiaries, do not vary directly with the production of new or renewal business and are recognized as
incurred.
Our underwriting and general and administrative expense ratio was 23.5%, 24.9%, and 24.8%, and our underwriting expenses
were $176.5 million, $180.0 million, and $167.3 million for the years ended December 31, 2024, 2023, and 2022, respectively.
During 2024, our fixed underwriting expenses decreased by $13.4 million, primarily the result of decreases in depreciation and
amortization, professional fees, and advertising and marketing expenses, partially offset by the expense revision we made in
2024 associated with our involuntary premium. The decreases in our fixed underwriting expenses were, in large part, the result
of our Cerity integration plan that was undertaken in the fourth quarter of 2023. These decreases were partially offset by
increases in our variable underwriting expenses of $9.9 million, which primarily related to our allowance for bad debt and
premium tax and assessments.
During 2023, our fixed underwriting expenses increased by $7.5 million, primarily the result of increases in compensation-
related expenses and professional fees, partially offset by decreases in facilities and advertising expenses. During 2023, our
variable underwriting expenses also increased by $5.2 million, primarily due to higher policyholder dividends and our
allowance for bad debt.
34
Review of Non-Underwriting Results
Net Investment Income and Net Realized and Unrealized Gains and Losses on Investments
We invest in fixed maturity securities, equity securities, other invested assets, short-term investments, and cash equivalents. Net
investment income includes interest and dividends earned on our invested assets and amortization of premiums and discounts
on our fixed maturity securities, less bank service charges and custodial and portfolio management fees.
Net investment income was $107.0 million, $106.5 million, and $89.8 million for the years ended December 31, 2024, 2023,
and 2022, respectively. The consistent level of net investment income in 2024 was due to higher investment yields being
partially offset by a lower average invested balance of fixed maturity securities, short-term investments, and cash and cash
equivalents, as measured by amortized cost. The lower average invested balances in 2024 resulted primarily from the
unwinding of our former Federal Home Loan Bank of San Francisco (FHLB) leveraged investment strategy, which was in
effect from the first quarter of 2022 to the fourth quarter of 2023. Pursuant to that strategy, certain of our insurance subsidiaries
had received aggregate advances under the FHLB Standard Credit Program, the proceeds from which were used to purchase an
equivalent amount of high-quality collateralized loan obligation securities. The increase in net investment income in 2023 was
due to higher bond yields, partially offset by lower invested balances of fixed maturity securities and short-term investments, as
measured by amortized cost. The average pre-tax ending book yield on our invested assets was 4.5%, 4.3%, and 3.0% at
December 31, 2024, 2023, and 2022, respectively.
Realized and unrealized gains and losses on our investments are reported separately from our net investment income. Realized
gains and losses on investments include the gain or loss on a security at the time of sale compared to its original or adjusted cost
(equity securities) or amortized cost (fixed maturity securities). Realized losses are also recognized for adverse changes in our
CECL allowance or when securities are written down because of an other-than-temporary impairment. Changes in the fair value
of equity securities and other invested assets are also included in Net realized and unrealized gains (losses) on investments on
our Consolidated Statements of Comprehensive Income (Loss).
Net realized and unrealized gains (losses) on investments were $24.1 million, $22.7 million, and $(51.8) million for the years
ended December 31, 2024, 2023, and 2022, respectively.
Net realized and unrealized gains (losses) on investments in 2024 included $26.2 million of net realized and unrealized gains on
equity securities, $(8.8) million of net realized losses on fixed maturity securities, and $6.7 million of unrealized gains on other
invested assets. The net investment gains on our equity securities were largely consistent with the performance of the U.S.
equity markets. The net investment losses on our fixed maturity securities were primarily the result of sales associated with the
rebalancing of our fixed maturity investment portfolio, partially offset by a decrease of $1.6 million in our allowance for CECL.
The net investment gains on our other invested assets resulted primarily from an increase in the underlying value of the private
equity limited partnership interests we own.
Net realized and unrealized gains (losses) on investments in 2023 included $27.0 million of net realized and unrealized gains on
equity securities, $(8.0) million of net realized losses on fixed maturity securities, and $3.7 million of unrealized gains on other
invested assets. The net investments gains on our equity securities were largely consistent with the performance of U.S. equity
markets. The net investment losses on our fixed maturity securities were largely concentrated in certain holdings in the financial
and banking sectors and were partially offset by a decrease of $1.8 million in our allowance for CECL. The net investment
gains on our other invested assets resulted primarily from an increase in the underlying value of the private equity limited
partnership interests we own.
Net realized and unrealized gains (losses) on investments in 2022 included $(49.2) million of net realized and unrealized losses
on equity securities, $(3.6) million of net realized losses on fixed maturity securities, and $1.0 million of unrealized gains on
other invested assets. The net investment losses on our equity securities were largely consistent with the performance of U.S.
equity markets. The net investment losses on our fixed maturity securities were primarily the result of rising market interest
rates and a $4.3 million net increase in our allowance for CECL. The net investment gains on our other invested assets resulted
primarily from an increase in the underlying value of the private equity limited partnership interests we own.
Additional information regarding our Investments is set forth under "–Liquidity and Capital Resources–Investments" and Note
5 in the Notes to our Consolidated Financial Statements.
Other Income (Loss)
Other income (loss) consists of net gains and losses on fixed assets, non-investment interest, and other miscellaneous income
and expense items. Other income (loss) was $0.1 million, $(0.2) million, and $0.3 million for the years ended December 31,
2024, 2023, and 2022, respectively.
35
Interest and Financing Expenses
Interest and financing expenses include fees and interest associated with our credit facilities, fees and interest associated with
our various credit arrangements with the FHLB, finance lease interest, and other financing fees.
Interest and financing expenses were $0.1 million, $5.8 million, and $3.5 million for the years ended December 31, 2024, 2023,
and 2022, respectively.
The decrease in interest and financing expenses in 2024, versus those of 2023, resulted primarily from the unwinding of our
former FHLB leveraged investment strategy, which was in effect from the first quarter of 2022 to the fourth quarter of 2023.
The increase in interest and financing expenses in 2023, versus those of 2022, were the result of advances we received from the
FHLB Standard Credit Program associated with our FHLB leveraged investment strategy, which were fully repaid at December
31, 2023.
Other Expenses
In 2023, we wrote-off $1.6 million of previously capitalized cloud computing costs associated with a policy management
system as part of a continual evaluation of our ongoing technology initiatives. Additionally, we recorded a non-recurring charge
in connection with the early termination of the lease associated with our former corporate headquarters in Reno, Nevada. This
charge included a one-time lease termination payment of $7.6 million, a write-off related to remaining leasehold improvements
and furniture and equipment of $2.6 million, and estimated miscellaneous expenses associated with exiting the property of $0.2
million. We also recognized a related lease termination gain pertaining to the elimination of the lease liability, net of an
associated right-of-use asset (ROU asset) of $1.0 million, which was included in Other expenses on our Consolidated
Statements of Comprehensive Income (Loss). The decision to terminate the former Reno operating lease was undertaken as part
of an ongoing review of our facility needs.
Income Tax Expense
Income tax expense was $28.1 million, $30.3 million, and $7.4 million for the years ended December 31, 2024, 2023, and 2022,
respectively, representing effective tax rates of 19.2%, 20.4%, and 13.3% for the years ended December 31, 2024, 2023, and
2022, respectively.
On January 1, 2000, EICN assumed the assets, liabilities, and operations of the Fund pursuant to legislation passed in the 1999
Nevada Legislature (the Privatization). Prior to the Privatization, the Fund was part of the State of Nevada and therefore was
not subject to federal income tax. Accordingly, any pre-Privatization loss and LAE reserve adjustments, LPT Reserve
Adjustments and Deferred Gain amortization impact our net income but do not change our taxable income.
Tax-advantaged investment income, pre-Privatization loss and LAE reserve adjustments, LPT adjustments, Deferred Gain
amortization, certain other adjustments and tax credits utilized reduced our income tax expense computed at a statutory rate of
21% by $2.7 million, $0.9 million, and $4.3 million for the years ended December 31, 2024, 2023, and 2022, respectively.
In addition to the adjustments described above, our effective tax rate in 2022 was further reduced by a $1.4 million non-
recurring Federal income tax benefit attributable to the repeal of Internal Revenue Code (IRC) section 847.
Additionally, we recognize deferred tax assets when we determine that such assets are more-likely-than-not to be realized in
future periods. In making such a determination, we consider all available evidence, including future reversals of existing taxable
temporary differences, tax-planning strategies, projected future taxable income, projected future tax rates, and results of recent
operations. If it is determined that it is not more-likely-than-not that we could fully realize our deferred tax assets in future
periods, we would establish a deferred tax asset valuation allowance that would increase our provision for income taxes. As of
December 31, 2024, we did not require a deferred tax asset valuation allowance.
For additional information regarding our income tax expense see Note 8 in the Notes to our Consolidated Financial Statements.
Liquidity and Capital Resources
We believe that our total capital position remains strong and that the liquidity available to EHI and its subsidiaries remains
adequate and will be sufficient for our financing needs in the next 12 months and in the longer term period thereafter. As a
result, we do not currently foresee a need to: (i) suspend dividends at either EHI or its insurance subsidiaries; (ii) forego
repurchases of EHI's common stock; (iii) seek additional capital; or (iv) seek any material non-investment asset sales, though
we may decide to pursue those or other options if our financial circumstances change or if we deem it strategically
advantageous to do so.
EHI Liquidity
EHI is a holding company and its ability to fund its operations is contingent upon its existing capital and the ability of its
subsidiaries to pay it dividends. Any payments of dividends by our insurance subsidiaries are restricted by state insurance laws
36
and regulations, including laws establishing minimum solvency and liquidity thresholds. EHI requires cash to pay dividends to
its stockholders, repurchase its common stock, provide additional surplus to its insurance subsidiaries, and fund its operating
expenses.
Total cash and investments at the holding company were $58.1 million at December 31, 2024, consisting of $9.8 million of cash
and cash equivalents, $23.8 million of fixed maturity securities and $24.5 million of equity securities.
Credit Agreement
On May 28, 2024, EHI entered into a Credit Agreement (the Credit Agreement) with Wells Fargo Bank National Association,
as both administrative agent and issuing lender. The Credit Agreement provides for a $25.0 million, unsecured, three-year
revolving credit facility and is guaranteed by certain of EHI's wholly owned subsidiaries, Employers Group, Inc. (EGI) and
Cerity Group, Inc. (CGI). Borrowings under the Credit Agreement may be used for working capital and general corporate
purposes of EHI and its subsidiaries. Pursuant to the terms of the Credit Agreement, EHI has an option to request an increase of
the credit available under the facility up to a maximum facility amount of $35.0 million, subject to the consent of the lender(s)
and the satisfaction of certain conditions.
The interest rates applicable to loans under the Credit Agreement are generally based on either, at EHI's option: (i) a base rate,
defined as the higher of the Prime Rate, the Federal Funds Rate plus 1.25% and the Adjusted Term Secured Overnight
Financing Rate (SOFR) for a one-month tenor plus 1.75%, or (ii) an Adjusted Term SOFR Rate, defined as the applicable
Adjusted Term SOFR Rate plus 1.75%. In addition, EHI is subject to a fee on the lender’s unused commitment, ranging from
0.30% to 0.55%. The applicable margin and the amount of such commitment fee vary based upon the financial strength rating
of EHI’s insurance subsidiaries as most recently announced by AM Best or EHI’s debt to total capitalization ratio if such
financial strength rating is not available. Total interest paid and/or fees incurred pursuant to the Credit Agreement was
$0.1 million for the year ended December 31, 2024.
The Credit Agreement contains covenants that require EHI and its consolidated subsidiaries to maintain: (i) a minimum
consolidated net worth, defined as EHI’s total stockholders’ equity excluding any accumulated other comprehensive income or
loss, of no less than $800.0 million; and (ii) a debt to total capitalization ratio of no more than 35%, in each case as determined
in accordance with the Credit Agreement. As of December 31, 2024, EHI has remained in compliance with all of the covenants
associated with the Credit Agreement.
On January 8, 2025, AM Best upgraded the financial strength ratings of EHI’s insurance subsidiaries to “A” (Excellent). As a
result of this ratings action, and effective as of that date: (i) the applicable margin with respect to SOFR loans was reduced from
1.75% to 1.50%; (ii) the applicable margin with respect to base rate loans was reduced from 0.75% to 0.50%; and (iii) the
annual commitment fee on the unused portion of the facility was reduced from 0.35% to 0.30%.
Former Credit Agreement
On December 15, 2020, EHI entered into a Credit Agreement (the former Credit Agreement) with a syndicate of financial
institutions. The former Credit Agreement provided EHI with a $75.0 million three-year revolving credit facility and was
guaranteed by EHI's wholly owned subsidiaries, EGI and CGI. Borrowings under the former Credit Agreement could be used
for working capital and general corporate purposes.
The interest rates applicable to loans under the former Credit Agreement were generally based on, at EHI's option, a base rate
plus a specified margin, ranging from 0.25% to 1.25%, or the Adjusted Term SOFR rate, plus a specified margin, ranging from
1.25% to 2.25%. In addition, EHI paid a fee on each lender's unused commitment, ranging from 0.20% to 0.50%. Interest paid
and/or fees incurred pursuant to the former Credit Agreement was $0.5 million and $0.3 million for the years ended December
31, 2023 and 2022, respectively.
The former Credit Agreement contained covenants that required EHI and its consolidated subsidiaries to maintain: (i) a
minimum consolidated net worth; and (ii) a debt to total capitalization ratio of no more than 35%. EHI was in compliance with
all the covenants associated with the former Credit Agreement from its inception to its expiration on December 15, 2023.
Dividend and Distribution Ability
Our insurance subsidiaries' ability to pay dividends and distributions is based on their reported capital, surplus, and the amount
of dividends paid to their immediate holding company within the prior twelve months. Throughout 2025, EICN, ECIC, EPIC
and EAC can pay up to an aggregate of $85.0 million in ordinary dividends to EGI, and CIC can pay up to $5.9 million of
ordinary dividends to CGI. Upon receipt of such dividends and upon approval by their respective Boards, EGI and CGI may
then, in turn, dividend those amounts to EHI.
Operating Subsidiaries' Liquidity
The primary sources of cash for our operating subsidiaries, which include our insurance and other operating subsidiaries, are
premium collections, investment income, sales and maturities of investments and reinsurance recoveries. The primary uses of
37
cash for our operating subsidiaries are payments of losses and LAE, commission expenses, underwriting and general and
administrative expenses, ceded reinsurance, investment purchases and dividends paid to their parent.
Total cash and investments held by our operating subsidiaries was $2,474.4 million at December 31, 2024, consisting of $58.7
million of cash and cash equivalents, and restricted cash, $2,073.6 million of fixed maturity securities, $235.3 million of equity
securities, $0.1 million of short-term investments, and $106.6 million of other invested assets. Sources of immediate and
unencumbered liquidity at our operating subsidiaries as of December 31, 2024 consisted of $58.5 million of cash and cash
equivalents, $229.6 million of publicly-traded equity securities whose proceeds are available within two business days, and
$861.2 million of highly liquid fixed maturity securities whose proceeds are also available within two business days. We
believe that our subsidiaries' liquidity needs over the next 12 months and for the longer term period thereafter will be met with
cash from operations, investment income, and maturing investments.
Each of our insurance subsidiaries are members of the FHLB. Membership allows our subsidiaries access to collateralized
advances, which may be used to support and enhance liquidity management. The amount of advances that may be taken is
dependent on our statutory admitted assets on a per company basis.
During 2022, our insurance subsidiaries, with the exception of CIC, received aggregate advances of $182.5 million under the
FHLB Standard Credit Program. These advances could be repaid at any time without penalty and were collateralized by eligible
investment securities. The proceeds from these advances were used to purchase an equivalent amount of high-quality
collateralized loan obligation securities. Interest incurred and paid during the year ended December 31, 2023 each totaled $5.3
million, and in 2022 totaled $3.0 million and $2.3 million, respectively. In 2023, our insurance subsidiaries repaid all of their
advances under the FHLB Standard Credit Program.
FHLB membership also allows our insurance subsidiaries access to standby Letter of Credit Agreements. Throughout 2022 and
2023, EAC, ECIC, and EPIC had $25.0 million, $35.0 million, and $10.0 million of Letter of Credit Agreements in effect,
respectively. On October 9, 2024, EPIC amended its existing Letter of Credit Agreement to increase its capacity to $110.0
million. The Letter of Credit Agreements in effect will expire on March 31, 2025 and may only be used to satisfy, in whole or
in part, insurance deposit requirements with the State of California and must be fully secured with eligible collateral at all times
(See Note 11 in the Notes to our Consolidated Financial Statements).
We purchase reinsurance annually to protect us against the costs of severe claims and certain catastrophic events. On July 1,
2024, we entered into a new reinsurance program that is effective through June 30, 2025. The reinsurance program consists of
one treaty covering excess of loss and catastrophic loss events in four layers of coverage. Our reinsurance coverage is $190.0
million in excess of our $10.0 million retention on a per occurrence basis; including a maximum any one life limit of $20.0
million, subject to certain exclusions. We believe that our reinsurance program currently meets our needs.
Our insurance subsidiaries are required by law to maintain a certain minimum level of surplus on a statutory basis. Surplus is
calculated by subtracting total liabilities from total admitted assets. The amount of capital in our insurance subsidiaries is
maintained relative to standardized capital adequacy measures such as risk-based capital (RBC), as established by the National
Association of Insurance Commissioners. The RBC standard was designed to provide a measure by which regulators can assess
the adequacy of an insurance company's capital and surplus relative to its operations. An insurance company must maintain
capital and surplus of at least 200% of RBC. Each of our insurance subsidiaries had total adjusted capital in excess of the
minimum RBC requirements that correspond to any level of regulatory action at December 31, 2024.
Various state laws and regulations require us to hold investment securities or letters of credit on deposit with certain states in
which we do business. Securities having a fair value of $630.9 million and $748.1 million were on deposit at each of
December 31, 2024 and 2023, respectively. These laws and regulations govern both the amount and types of investment
securities that are eligible for deposit. Additionally, standby letters of credit from the FHLB have been issued in lieu of
$170.0 million and $70.0 million of securities on deposit at December 31, 2024 and 2023, respectively.
Certain reinsurance contracts require funds owned by us to be held in trust for the benefit of the ceding reinsurer to secure the
outstanding liabilities we have assumed. The fair value of fixed maturity securities held in trust for the benefit of our ceding
reinsurers was $3.0 million at both December 31, 2024 and 2023.
Sources of Liquidity
We monitor the cash flows of each of our subsidiaries individually, as well as collectively as a consolidated group. We use
trend and variance analyses to project future cash needs, making adjustments to our cash forecasts as appropriate.
38
The table below shows our net cash flows. For additional information regarding our cash flows, see Item 8, Consolidated
Statements of Cash Flows.
Years Ended December 31,
2024
2023
2022
Cash, cash equivalents, and restricted cash provided by (used in):
(in millions)
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
76.4 $
49.4 $
99.8
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(159.7)
377.3
(146.1)
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(74.8)
(289.5)
60.4
(Decrease) increase in cash, cash equivalents, and restricted cash . . . . . . . . $
(158.1) $
137.2 $
14.1
Operating Activities
Net cash provided by operating activities in 2024 included net premiums received of $769.9 million, investment income
received of $106.6 million and cash received of $14.6 million for the final payment of the Contingent Commission. These
operating cash inflows were partially offset by net claims payments of $522.0 million, underwriting and general and
administrative expenses paid of $160.7 million, commissions paid of $100.9 million, interest and financing fees paid of $0.1
million, and federal income taxes paid of $31.0 million.
Net cash provided by operating activities in 2023 included net premiums received of $703.4 million and investment income
received of $111.6 million. These operating cash inflows were partially offset by net claims payments of $471.6 million,
underwriting and general and administrative expenses paid of $157.3 million, commissions paid of $92.7 million, interest and
financing fees paid of $5.8 million, lease termination and related disposal payments of $7.8 million, and federal income taxes
paid of $30.4 million.
Net cash provided by operating activities in 2022 included net premiums received of $646.2 million and investment income
received of $88.3 million. These operating cash inflows were partially offset by net claims payments of $387.7 million,
underwriting and general and administrative expenses paid of $145.8 million, commissions paid of $82.6 million, interest and
financing fees paid of $3.5 million, and federal income taxes paid of $15.1 million.
Investing Activities
Net cash used in investing activities in 2024 related primarily to investments of premiums received, the receipt of the
Contingent Commission, the reinvestment of funds from investment sales, maturities, redemptions, and interest income. The
cash outflows used in these activities were largely offset by investment sales, maturities, and redemptions whose proceeds were
used to fund claims payments, underwriting and general and administrative expenses, stockholder dividend payments, and
common stock repurchases.
Net cash provided by investing activities in 2023 related primarily to investment sales, maturities, and redemptions whose
proceeds were used to fund claims payment, underwriting and general and administrative expenses, stockholder dividend
payments, common stock repurchases, and to repay FHLB advances. The cash inflows provided by these activities were largely
offset by investments of premiums received and reinvestment of funds from investment sales, maturities, redemptions, and
interest income.
Net cash used in investing activities in 2022 related primarily to FHLB advances received, and reinvestment of funds from
investment sales, maturities, redemptions, and interest income. The cash outflows used in these activities were partially offset
by investment sales, maturities and redemptions whose proceeds were used to fund claims payments, underwriting and general
and administrative expenses, stockholder dividend payments, and common stock repurchases.
Financing Activities
Net cash used in financing activities in 2024 related primarily to stockholder dividend payments and common stock
repurchases.
Net cash used in financing activities in 2023 related primarily to stockholder dividend payments, common stock repurchases,
and repayments of FHLB advances.
Net cash provided by financing activities in 2022 related primarily to FHLB advances received, partially offset by common
stock repurchases and stockholder dividend payments. During the year ended December 31, 2022, we also borrowed and repaid
$10.0 million under the Credit Agreement.
Dividends. We paid $30.3 million, $29.7 million, and $28.8 million in regular quarterly dividends to our stockholders and
eligible equity plan award holders in 2024, 2023, and 2022, respectively. We also paid $27.5 million and $34.0 million in
special dividends to our stockholders in June 2022 and December 2022. The declaration and payment of future dividends to our
stockholders, including any special dividends, will be at the discretion of our Board and will depend upon many factors,
39
including our financial position, capital requirements of our operating subsidiaries, legal and regulatory requirements, and any
other factors that our Board deems relevant. On February 19, 2025, the Board declared a $0.30 quarterly dividend per share,
payable March 19, 2025, to stockholders of record on March 5, 2025.
Repurchases of Common Stock. We repurchased $41.7 million, $77.1 million, and $30.4 million of our common stock in 2024,
2023, and 2022, respectively. On July 26, 2023, our Board authorized a new stock repurchase authorization for repurchases of
up to $50.0 million of our common stock from July 31, 2023 through December 31, 2024 (the 2023 Program). On June 10,
2024, the Board authorized a $50.0 million addition to the 2023 Program, increasing our aggregate purchase authority to $100.0
million, and extended the repurchase authority pursuant to the 2023 Program through July 31, 2025. Future repurchases of our
common stock will be at the discretion of our Board and will depend upon many factors, including our financial position,
capital requirements of our operating subsidiaries, general business and socioeconomic conditions, legal, tax, regulatory, and/or
contractual restrictions, and any other factors our Board deems relevant. As of December 31, 2024, we had a remaining
common stock repurchase authorization of $29.7 million. See Item 5, Issuer Purchases of Equity Securities.
Capital Resources
As of December 31, 2024, the capital resources available to us consisted of $1,068.7 million of stockholders' equity and the
$94.0 million Deferred Gain.
Stockholders' Equity. The following table summarizes our beginning and ending stockholders' equity balance and the changes
thereto for each of the years ended December 31, 2024, 2023, and 2022:
December 31,
2024
2023
2022
(in millions)
Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,013.9 $
944.2 $
1,213.1
Stock-based obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.2
6.1
5.1
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
0.7
1.1
Shares withheld to satisfy minimum tax withholdings for certain stock-
based obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.8)
(1.6)
(2.3)
Acquisition of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(41.7)
(77.1)
(30.4)
Dividends declared on common stock and eligible plan awards . . . . . . . . . .
(30.0)
(29.4)
(91.3)
Net income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118.6
118.1
48.4
Change in net unrealized gains (losses) on investments, net of taxes . . . . . .
3.5
52.9
(199.5)
Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,068.7 $
1,013.9 $
944.2
Deferred Gain. The Deferred Gain, which totaled $94.0 million and $99.2 million as of December 31, 2024 and 2023,
respectively, reflects the unamortized gain from the LPT Agreement. See Note 2 in the Notes to our Consolidated Financial
Statements.
40
Contractual Obligations and Commitments
Other than operating expenses, our current and long-term cash requirements include the following contractual obligations and
commitments as of December 31, 2024:
Leases
We have entered into lease arrangements for certain equipment and facilities. As of December 31, 2024, we had lease payment
obligations totaling $4.4 million, of which $1.6 million is payable within 12 months.
Other Purchase Obligations
We have other purchase obligations that primarily consist of non-cancellable obligations to acquire capital assets, commitments
for information technology and related services, software acquisition and license commitments and other legally binding
agreements to purchase services that are to be used in our operations. As of December 31, 2024, we had other purchase
obligations totaling $13.8 million, of which $7.8 million is payable within 12 months.
Unfunded Investment Commitments
As of December 31, 2024, we had private equity limited partnerships with unfunded investment commitments totaling $15.6
million that can be called at any time.
Unpaid Losses and LAE reserves
We have developed unpaid losses and LAE expense payment patterns that are computed based on historical information. Our
calculation of loss and LAE expense payments by period is subject to the same uncertainties associated with determining the
level of reserves and to the additional uncertainties arising from the difficulty of predicting when claims (including claims that
have not yet been reported to us) will be paid. Actual payments of losses and LAE by period will vary, perhaps materially, to
the extent that current estimates of losses and LAE expense vary from actual ultimate claims amounts due to variations between
expected and actual payment patterns. As of December 31, 2024, we had unpaid losses and LAE reserves totaling $1,808.2
million, of which $304.3 million is payable within 12 months. For a discussion of our reserving process, see ''–Critical
Accounting Estimates–Reserves for Losses and LAE.''
The unpaid losses and LAE expense payment patterns are gross of reinsurance recoverables for unpaid losses. As of
December 31, 2024, we had reinsurance recoverables on unpaid losses and LAE totaling $411.5 million, of which $29.0 million
is currently expected to be received within 12 months.
Investments
Our investment portfolio is structured to support our need for: (i) optimizing our risk-adjusted total returns; (ii) providing
adequate liquidity; (iii) facilitating financial strength and stability; and (iv) ensuring regulatory and legal compliance. These
investments provide a steady source of income.
Our Investment Managers follow our written investment guidelines, which are approved by the Audit Committee. Our asset
allocation is reevaluated by management and reviewed by the Audit Committee on a quarterly basis. We also utilize our
Investment Managers' investment advisory services to assist us in developing a tailored set of portfolio targets and objectives.
As of December 31, 2024, our investment portfolio consisted of 85% fixed maturity securities which had a duration of 4.5 at
December 31, 2024. Our fixed maturity investment strategy balances consideration of duration, yield, and credit risk. Our
investment guidelines require that the minimum weighted average quality of our fixed maturity securities portfolio be “A,”
using ratings assigned by S&P or an equivalent rating assigned by another nationally recognized statistical rating agency. Our
fixed maturity portfolio had a weighted average quality of “A+” as of December 31, 2024.
Our investment portfolio also contains equity securities. We strive to limit the exposure to equity price risk associated with
publicly traded equity securities by diversifying our holdings across several industry sectors. These equity securities had a fair
value of $254.1 million at December 31, 2024, which represented 11% of our investment portfolio at that time. We also have a
$5.7 million investment in FHLB stock which we record at cost. We receive periodic dividends from the FHLB for this
investment, when declared, which can vary from period to period.
Our investment portfolio also contains certain other investments, which made up 4% of our investment portfolio at
December 31, 2024, and include private equity limited partnerships. Our investments in private equity limited partnerships
totaled $106.6 million at December 31, 2024 and are generally not redeemable by the investees and cannot be sold without prior
approval of the general partner. These investments have a fund term of 3 to 12 years, subject to two or three one-year
extensions at the general partner's discretion. We periodically receive distributions of proceeds from dividends and interest from
fund investments, as well as from any dispositions of fund investments, during the full course of the fund term. As of
December 31, 2024, we had unfunded commitments to these private equity limited partnerships totaling $15.6 million.
41
We believe that our current asset allocation meets our strategy to preserve capital for claims and policy liabilities and to provide
sufficient capital resources to support and grow our ongoing insurance operations.
The following table shows the estimated fair value, the percentage of the fair value to total invested assets, and the average
ending book yield (which is calculated based on the amortized cost of the associated invested assets) as of December 31, 2024.
Category
Estimated Fair
Value
Percentage of
Total
Book Yield
(in millions, except percentages)
U.S. Treasuries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
59.3
2.5 %
3.5 %
States and municipalities . . . . . . . . . . . . . . . . . . . . . . . . . .
159.3
6.8
4.4
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
803.0
34.1
4.1
Residential mortgaged-backed securities . . . . . . . . . . . . .
619.7
26.4
4.4
Commercial mortgaged-backed securities . . . . . . . . . . . . .
65.2
2.8
3.7
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
214.0
9.1
5.3
Collateralized loan obligations . . . . . . . . . . . . . . . . . . . . .
35.3
1.5
6.3
Foreign government securities . . . . . . . . . . . . . . . . . . . . . .
9.5
0.4
2.8
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
132.1
5.6
7.4
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
254.1
10.8
2.9
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
—
4.4
Total investments at fair value . . . . . . . . . . . . . . . . . . . . . .
$
2,351.6
100.0 %
Weighted average ending yield . . . . . . . . . . . . . . . . . . . . .
4.5 %
The following table shows the percentage of total estimated fair value of our fixed maturity securities as of December 31, 2024
by credit rating category, using the lower of the ratings assigned by Moody's Investors Service or S&P.
Rating
Percentage of Total
Estimated Fair Value
“AAA” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.5 %
“AA” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40.4
“A” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.0
“BBB” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.3
Below Investment Grade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0 %
Investments that we currently own could be subject to default by the issuer. We regularly assess individual securities as part of
our ongoing portfolio management, including the identification of credit related losses. Our assessment includes reviewing the
extent of declines in fair value of investments below amortized cost, historical and projected financial performance and near-
term prospects of the issuer, the outlook for industry sectors, credit rating, and macro-economic changes. We also make a
determination as to whether it is not more likely than not that we will be required to sell the security before its fair value
recovers to above cost, or maturity.
In addition to recognizing realized gains and losses upon the disposition of an investment security, we also record provisions
and recoveries for changes in our CECL allowance on AFS investments as realized gains and losses. We maintained a CECL
allowance of $1.1 million, $2.7 million, and $4.5 million on AFS investments as of December 31, 2024, 2023, and 2022,
respectively. The decrease in our CECL allowance of $1.6 million in 2024 was due to the sale of securities that previously had
an allowance and the stabilization in the financial markets, which decreased our CECL provision. The remaining fixed maturity
securities whose total fair value was less than amortized cost at December 31, 2024, 2023, and 2022, were those in which we
had no intent, need or requirement to sell at an amount less than their amortized cost.
For additional information regarding our investments, including the cost or amortized cost, gross unrealized gains, gross
unrealized losses, and estimated fair value of our investments, the amortized cost and estimated fair value of fixed maturity
securities by contractual maturity, and net realized and unrealized gains and losses on investments, see Note 5 in the Notes to
our Consolidated Financial Statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
42
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires both the use of estimates and judgment, relative to
the application of appropriate accounting policies, which include the recognition of premium revenue, recoverability of deferred
income taxes, and valuation of investments. Our accounting policies are described in Note 2 to our Consolidated Financial
Statements, however, we believe that the following matters are particularly important to understand our financial statements
because changes in these estimates or changes in the assumptions used to make them, could have a material impact on our
results of operations, financial condition, and cash flows.
Reserves for Losses and LAE
Accounting for workers' compensation insurance requires us to estimate the liability for the expected ultimate cost of unpaid
losses and LAE (loss reserves) as of a balance sheet date. Loss reserve estimates are inherently uncertain because the ultimate
amount we pay for many of the claims we have incurred as of the balance sheet date will not be known for many years. Our
estimate of loss reserves is intended to equal the difference between the expected ultimate losses and LAE of all claims that
have occurred as of a balance sheet date and amounts already paid. We establish loss reserves based on our own analysis of
emerging claims experience and environmental conditions in our markets and a review of the results of various actuarial
projections. Our aggregate carried loss reserves is the sum of our loss and LAE reserves for each accident year and represents
our best estimate of outstanding loss reserves.
The amount by which estimated losses in the aggregate differ from those previously estimated for a specific time period is
known as reserve "development." Reserve development is unfavorable when losses ultimately settle for more than the amount
estimated or subsequent estimates indicate a basis for reserve increases, causing the previously estimated loss reserves to be
''deficient.'' Reserve development is favorable when estimates of ultimate losses indicate a decrease in established reserves,
causing the previously estimated loss reserves to be ''redundant.'' Development is reflected in our operating results through an
adjustment to incurred losses and LAE during the period in which it is recognized.
Although claims for which reserves are established may not be paid for several years or more, we do not discount loss reserves
in our financial statements for the time value of money.
The three main components of our loss reserves are case reserves, incurred but not reported (IBNR) loss reserves, and LAE
reserves.
When claims are reported to us, we establish individual estimates of the ultimate cost of each claim (case reserves). These case
reserves are continually monitored and revised in response to new information and for amounts paid.
In addition to case reserves, we establish a provision for IBNR. IBNR is an actuarial estimate comprised of the following: (i)
future payments on claims that are incurred but have not yet been reported to us; (ii) a reserve for the additional development on
claims that have been reported to us; and (iii) a provision for additional payments on closed claims that might reopen. IBNR
reserves apply to the entire body of claims arising from a specific time period, rather than a specific claim. Most of our IBNR
reserves relate to estimated future claim payments on recorded open claims.
LAE reserves are our estimate of future expense payments to manage, investigate, administer, and settle claims that have
occurred, and include legal expenses. LAE reserves are established in the aggregate, rather than on a claim-by-claim basis. LAE
reserves are categorized between defense and cost containment, and adjusting and other.
We cede a portion of our obligations for losses and LAE to unaffiliated reinsurers. The amount of reinsurance that will be
recoverable on our losses and LAE includes both the reinsurance recoverable from our excess of loss reinsurance contracts, as
well as reinsurance recoverable under the terms of the LPT Agreement.
Our loss reserves (gross and net of reinsurance), including the main components of such reserves, were as follows:
As of December 31,
2024
2023
(in millions)
Case reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
938.1 $
924.2
IBNR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
611.1
695.7
LAE reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
259.0
264.6
Gross unpaid losses and LAE reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,808.2
1,884.5
Less reinsurance recoverable on unpaid losses and LAE, excluding CECL allowance . . . . . .
412.4
428.4
Net unpaid losses and LAE reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,395.8 $
1,456.1
We use actuarial methods to analyze and estimate the aggregate amount of loss reserves. Management considers the results of
various actuarial methods and their underlying assumptions, among other factors, in establishing loss reserves.
43
Judgment is required in the actuarial estimation of loss reserves, including the selection of various actuarial methodologies to
project the ultimate cost of claims. Specifically, judgment is required in the following areas: the selection of parameters utilized
in the various methodologies; the use of industry data and other benchmarks; and the weighting of differing reserve indications
resulting from alternative methods and assumptions. The adequacy of our ultimate loss reserves is inherently uncertain and
represents a significant risk to our business. We attempt to mitigate this risk through our claims management processes and by
monitoring and reacting to statistics relating to the cost and duration of claims.
We compile and aggregate our claims data by grouping the claims according to the accident year in which the claim occurred
when analyzing claim payment and emergence patterns and trends over time. Additionally, we aggregate and analyze claims
data by claim type, benefits type, and by state, territory within state, or groups of states in which we do business.
We prepared reserve estimates for all accident years using our own historical claims data, industry data and many of the
generally accepted actuarial methodologies for estimating loss reserves, such as paid loss development methods, incurred loss
development methods, and Bornhuetter-Ferguson methods. These methods vary in their responsiveness to different information,
characteristics, and dynamics in the data, and the results assist the actuary in considering these characteristics and dynamics in
the historical data. The methods employed for each segment of claims data, and the relative weight accorded to each method,
vary depending on the nature of the claims segment and on the age of the claims.
Each actuarial methodology requires the selection and application of various parameters and assumptions. The key parameters
and assumptions include: the future payment and emergence patterns of our aggregate claims data; the magnitude and changes
in claim settlement activity; the effects of legislative benefit changes and/or judicial decisions; and trends in the frequency and
severity of claims.
We analyze LAE and estimated unpaid LAE separately. These analyses rely primarily on examining the relationship between
historical aggregate paid LAE and the volume of claims activity for the corresponding periods. The portion of unpaid LAE that
will be recoverable from reinsurers is estimated based on the contractual reinsurance terms.
The ranges of estimates of loss reserves produced are intended to represent the range in which it is most likely that the ultimate
losses will fall. These ranges are narrower than the range of indications produced by the individual methods applied because it
is not likely that the high or low result will emerge for every claim segment and accident year. Each point estimate of loss
reserves for each claim segment is based on a judgmental selection from within the range of results indicated by the different
actuarial methods.
Management formally establishes loss reserves for financial statement purposes on a quarterly basis. In doing so, we make
reference to the most current actuarial analyses, including a review of the assumptions and the results of the various actuarial
methods used. We conduct comprehensive studies in the second and fourth quarters. On the alternate quarters, we update the
results of the preceding quarter's studies for actual claim payment and case reserve activity.
The aggregate carried reserve calculated by management represents our best estimate of our outstanding unpaid losses and
LAE. In establishing management's best estimate of unpaid losses and LAE at December 31 for the last two years, we reviewed
and considered the following: (i) our actuaries' assumptions, point estimates, and ranges; and (ii) the inherent uncertainty of
workers' compensation loss reserves. Management did not quantify a specific loss reserve increment for each uncertainty, but
rather established an overall provision that represented management's best estimate of loss reserves in light of the historical
data, actuarial assumptions, point estimate and range, and current facts and circumstances.
The table below provides the actuarial range of loss and LAE reserves, net of reinsurance, that management considered when
selecting its best estimate and our carried reserves.
As of December 31,
2024
2023
(in millions)
Low end of actuarial range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,247.0 $
1,316.8
Carried reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,395.8
1,456.1
High end of actuarial range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,597.2
1,631.7
As of December 31, 2024, California and Nevada loss reserves represented approximately 60% of our total net loss reserves on
our Consolidated Balance Sheet.
In California, our recent loss experience shows a slight upward trend in indemnity severity, likely driven by wage increases, and
a slight downward trend in medical severity. Our indemnity claims frequency (the number of claims expressed as a percentage
of on-leveled premium) has been generally decreasing. We believe our claims practices, including our continued emphasis on
accelerating claims settlements, as well as our various underwriting initiatives, have contributed to our favorable results in
California.
44
In Nevada, we have compiled a lengthy history of workers' compensation claims payment patterns based on the business of the
Fund and EICN. The emergence of claims payments in recent years has generally been consistent with expectations which has
resulted in relatively minor changes in reserve estimates. Nevada statutorily prohibits entering into full and final settlement of
claims, therefore, paid losses largely reflect stable and consistent periodic payments, particularly for indemnity benefits.
Over 50% of our claims payments during the three years ended December 31, 2024 related to medical care for injured workers.
The utilization and cost of medical services in the future is a significant source of uncertainty in the establishment of loss
reserves for workers' compensation. However, because medical care may be provided to an injured worker over many years,
and in some cases decades, the pace of medical claim cost inflation can have a significant impact on our ultimate claim
payments. For example, if the rate of medical claim cost inflation increases by 1% above the inflation rate that is implicitly
included in the loss reserves at December 31, 2024, we estimate that future medical costs over the lifetime of current claims
would increase by approximately $73.0 million on a net-of-reinsurance basis. Under the current elevated inflationary
environment, additional inflationary considerations were included in determining the level and adequacy of our reserves, and
particular consideration was given to medical and hospital inflation rates as these inflation rates have historically exceeded
general inflation rates.
Our reserve estimates reflect expected increases in the costs of contested claims, but do not assume any losses resulting from
significant new legal liability theories. Our reserve estimates also assume that there will not be significant future changes in the
regulatory and legislative environment. In the event of significant new legal liability theories or new regulation or legislation,
we will attempt to quantify its impact on our business.
If the actual loss reserves were at the high or the low end of the actuarial range, the impact on our financial results would have
been as follows:
December 31,
2024
2023
Increase (decrease) in reserves (1)
(in millions)
At low end of range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(148.8) $
(139.3)
At high end of range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
201.4
175.6
Increase (decrease) in stockholders' equity and net income
At low end of range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
117.6 $
110.0
At high end of range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(159.1)
(138.7)
(1) The range of actuarial indications captures the range of reasonable estimates and is asymmetrical (e.g., not based on a normal distribution).
Actual losses are affected by a more complex combination of forces and dynamics than any one model or actuarial
methodology can represent, and each methodology is an approximation of these complex forces and dynamics. None of the
methods are designed or intended to produce an indication that is systematically higher or lower than the other methods. At any
given evaluation date, some of the actuarial projection methods produce indications outside the actuary's selected range.
Accordingly, we believe that the range of potential outcomes is considerably wider than the actuarially estimated range of the
most likely outcomes. We have no basis for anticipating whether actual future payments of losses and LAE may be either
greater than or less than the loss reserves currently on our Consolidated Balance Sheets.
Additionally, any adjustment to the estimated ceded reserves 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 Statements of Comprehensive Income
(Loss), 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. The table below provides the actuarial range of estimated liabilities for gross loss reserves
under the LPT Agreement and our carried reserves.
As of December 31,
2024
(in millions)
Low end of actuarial range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
263.3
LPT carried reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
277.1
High end of actuarial range . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
286.1
Reinsurance Recoverables
Reinsurance recoverables represent: (i) amounts currently due from reinsurers on paid losses and LAE; (ii) amounts recoverable
from reinsurers on estimates of case reserves; and (iii) amounts recoverable from reinsurers on actuarial estimates of IBNR for
losses and LAE. These recoverables are based on our current estimates of the underlying loss reserves and are reported on our
Consolidated Balance Sheets separately as assets, as reinsurance does not relieve us of our legal liability to policyholders. We
45
bear credit risk with respect to the reinsurers, which could be significant in the future, considering that some of the loss reserves
remain outstanding for an extended period of time. Reinsurers may refuse or fail to pay losses that we cede to them, or they
might delay payment. We are required to pay losses even if a reinsurer refuses or fails to meet its obligations under the
applicable reinsurance agreement. We continually monitor the financial condition and financial strength ratings of our
reinsurers. No material amounts due from reinsurers have been written-off as uncollectible since our inception in 2000, and in
assessing future default, we evaluate the allowance for CECL under the ratings based method using the AM Best Average
Cumulative Net Impairment Rates. Reinsurer ratings are also assessed through this process.
Under the LPT Agreement, the Fund initially ceded $1.5 billion in liabilities for the incurred but unpaid losses and LAE related
to claims incurred prior to July 1, 1995 for consideration of $775.0 million in cash. The estimated remaining liabilities subject
to the LPT Agreement were $277.1 million as of December 31, 2024. Losses and LAE paid with respect to the LPT Agreement
totaled $895.6 million at December 31, 2024. We account for the LPT Agreement as retroactive reinsurance. Entry into the LPT
Agreement resulted in a Deferred Gain that was recorded on our Consolidated Balance Sheets as a liability. The Deferred Gain
is being amortized using the recovery method, whereby the amortization is determined by the proportion of actual reinsurance
recoveries to total estimated recoveries through the life of the LPT Agreement, and the amortization is reflected in losses and
LAE. Changes in estimates of the reserves ceded under the LPT Agreement may significantly impact the Deferred Gain on our
Consolidated Balance Sheets and losses and LAE on our Consolidated Statements of Comprehensive Income (Loss).
New Accounting Standards
See Note 3 in the Notes to our Consolidated Financial Statements for a summary of all recently issued and recently adopted
accounting standards.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of potential economic loss principally arising from adverse changes in the fair value of financial
instruments. The major components of market risk affecting us are credit risk, interest rate risk, and equity price risk.
Credit Risk
Our fixed maturity securities, equity securities, other invested assets and cash and cash equivalents are exposed to credit risk,
which we attempt to mitigate through issuer and industry diversification. Our investment guidelines include limitations on the
minimum rating of fixed maturity securities and concentrations of a single issuer.
We also bear credit risk with respect to the reinsurers, which can be significant considering that some loss reserves remain
outstanding for an extended period of time. We are required to pay losses even if a reinsurer refuses or fails to meet its
obligations to us under the applicable reinsurance agreement(s). We continually monitor the financial condition and financial
strength ratings of our reinsurers. Additionally, we bear credit risk with respect to premiums receivable, which is generally
diversified due to the large number of entities comprising our policyholder base and their dispersion across many different
industries and geographies.
Economic disruptions caused by ongoing financial market volatility, inflationary pressures, and heightened geo-political
conditions, have impacted the credit risk associated with certain of our investment holdings. As a result, we maintained a $1.1
million and $2.7 million allowance for CECL on our fixed maturity portfolio as of December 31, 2024 and 2023, respectively.
See Note 6 in the Notes to our Consolidated Financial Statements.
Interest Rate Risk
Investments
Our fixed maturity securities are exposed to interest rate risk, which is the risk of a change in fair value resulting from changes
in prevailing interest rates, which we manage through duration. Our fixed maturity investments (excluding cash and cash
equivalents) had a duration of 4.5 at December 31, 2024. Our investment strategy balances consideration of duration, yield and
credit risk. We continually monitor changes in interest rates and their impact on our liquidity and ability to meet our
obligations.
Sensitivity Analysis
The fair values or cash flows of our market sensitive investments are subject to potential losses in future earnings resulting from
changes in interest rates and other market conditions. Our sensitivity analysis applies a hypothetical parallel shift in market rates
and reflects what we believe are reasonably possible near-term changes in those rates (covering a period of time going forward
up to one year from the date of the consolidated financial statements). Actual results may differ from the hypothetical change in
market rates assumed in this disclosure. This sensitivity analysis does not reflect the results of any action that we may take to
mitigate such hypothetical losses in fair value.
46
We use fair values to measure our potential loss in this model, which includes fixed maturity securities and short-term
investments. For invested assets, we use modified duration modeling to calculate changes in fair values. Durations on invested
assets are adjusted for call, put, and interest rate reset features. Invested asset portfolio durations are calculated on a market
value weighted basis, excluding accrued investment income, using holdings as of December 31, 2024. The estimated changes in
fair values on our fixed maturity securities and short-term investments, which had an aggregate value of $2,097.5 million as of
December 31, 2024, based on specific changes in interest rates are as follows:
Hypothetical Changes in Interest Rates
Estimated Pre-tax Increase
(Decrease) in Fair Value
(in millions, except percentages)
300 basis point rise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(256.6)
(12.2) %
200 basis point rise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(174.8)
(8.3)
100 basis point rise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(88.7)
(4.2)
50 basis point decline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44.8
2.1
100 basis point decline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89.5
4.3
200 basis point decline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
177.8
8.5
300 basis point decline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
264.0
12.6
The most significant assessment of the effects of hypothetical changes in interest rates on investment income would be based on
GAAP guidance related to "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases," which requires amortization adjustments for mortgage-backed securities. The rates at which the
mortgages underlying mortgage-backed securities are prepaid, and therefore the average life of mortgage-backed securities, can
vary depending on changes in interest rates (for example, mortgages tend to prepay faster and the average life of mortgage-
backed securities falls when interest rates decline). Adjustments for changes in amortization are based on revised average life
assumptions and would have an impact on investment income if a significant portion of our commercial and residential
mortgage-backed securities were purchased at significant discounts or premiums to par value. As of December 31, 2024, the par
value of our commercial and residential mortgage-backed securities holdings was $727.9 million, and the amortized cost was
100.7% of par value. The commercial and residential mortgage-backed securities portion of the portfolio totaled 29.1% of total
investments as of December 31, 2024. Agency-backed residential mortgage pass-throughs totaled $463.8 million, or 74.8%, of
the residential mortgage-backed securities portion of the portfolio as of December 31, 2024.
Equity Price Risk
Equity price risk is the risk that we may incur losses in the fair value of the equity securities we hold in our investment
portfolio. Adverse changes in the market prices of the equity securities we hold in our investment portfolio would result in
decreases in the fair value of our total assets on our Consolidated Balance Sheets and in net realized and unrealized gains and
losses on our Consolidated Statements of Comprehensive Income (Loss). Economic and market disruptions caused by geo-
political conditions, inflationary pressures and credit concerns in certain financial and banking markets, have resulted in
volatility in the fair value of our equity securities. We minimize our exposure to equity price risk by investing primarily in the
equity securities of mid-to-large capitalization issuers and by diversifying our equity holdings across several industry sectors.
The table below shows the sensitivity of our equity securities at fair value to price changes as of December 31, 2024:
(in millions)
Cost
Fair Value
10% Fair
Value
Decrease
Pre-tax
Impact on
Decrease in
Total
Equity
Securities
10% Fair
Value
Increase
Pre-tax
Impact on
Increase in
Total
Equity
Securities
Equity securities . . . . . . . . . . . . . . $
145.0 $
254.1 $
228.7 $
(25.4) $
279.5 $
25.4
Effects of Inflation
In recent years, economic slowdowns, financial market volatility, monetary and fiscal policy measures, heightened geo-political
tensions and fluctuations in interest rates have contributed to higher levels of inflation and may continue to lead to elevated
levels of inflation in future periods.
Higher levels of inflation than we have anticipated could significantly impact our financial statements and results of operations.
Our estimates for losses and LAE include assumptions about the timing of closure and future payment of claims and claims
handling expenses, such as medical treatments and litigation costs. Inflation is also incorporated in our reserving process
through projections supported by historical loss emergence. Under the current elevated inflationary environment, additional
inflationary considerations were included in determining the level and adequacy of our reserves, and particular consideration
was given to medical and hospital inflation rates as these inflation rates have historically exceeded general inflation rates. To
47
the extent inflation causes these costs to increase above established reserves, we will be required to increase those reserves for
losses and LAE, reducing our earnings in the period in which our assumptions are revised.
Higher levels of wage inflation can specifically impact the payrolls of our insureds, which is the basis for the premiums we
charge, as well as amount of future indemnity losses we may incur.
Higher levels of inflation could also adversely impact certain of our operating expenses and, in the case of wage inflation, could
adversely impact our payroll expenses.
Increases in market interest rates that have occurred in recent years, which were intended to aid in the suppression of inflation,
continue to negatively impact the market value of our existing fixed maturity investments while also having the effect of
increasing our net investment income.
Item 8. Financial Statements and Supplementary Data
Page
Management's Annual Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting . . . . . . . . .
50
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51
Consolidated Balance Sheets as of December 31, 2024 and 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
Consolidated Statements of Comprehensive Income (Loss) for each of the years ended December 31, 2024, 2023,
and 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55
Consolidated Statements of Stockholders' Equity for each of the years ended December 31, 2024, 2023, and 2022 . .
56
Consolidated Statements of Cash Flows for each of the years ended December 31, 2024, 2023, and 2022 . . . . . . . . .
57
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
The following Financial Statement Schedules are filed in Item 15 of Part IV of this report:
Financial Statement Schedules:
Schedule II. Condensed Financial Information of Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96
Schedule VI. Supplemental Information Concerning Property-Casualty Insurance Operations . . . . . . . . . . . . . . . . . .
99
Pursuant to Rule 7-05 of Regulation S-X, Financial Statement Schedules I, III, IV, and V have been omitted as the
information to be set forth therein is included in the Notes to Consolidated Financial Statements or has been supplied in
another Financial Statement Schedule.
48
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Employers Holdings, Inc. and its Subsidiaries (collectively, the Company) is responsible for establishing and
maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control
over financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a
process designed by, or under the supervision of, the Company's principal executive officer and principal financial officer, and
effected by the Company's Board, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles
(GAAP).
The Company's internal control over financial reporting includes policies and procedures that: (a) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company's assets; (b)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of its management and Board; and (c) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of the Company's internal control over financial reporting as of
December 31, 2024 based on criteria established in Internal Control–Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework).
Based on this assessment, management did not identify any material weaknesses in the internal control over financial reporting
and management has concluded that the Company's internal control over financial reporting was effective as of December 31,
2024.
The Company's independent registered public accounting firm, Ernst & Young LLP, has independently assessed the
effectiveness of the Company's internal control over financial reporting. A copy of their report is included in Item 8 of this
report.
February 28, 2025
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Employers Holdings, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Employers Holdings, Inc. and Subsidiaries' internal control over financial reporting as of December 31, 2024,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Employers Holdings, Inc. and Subsidiaries
(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated
statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended
December 31, 2024, and the related notes and financial statement schedules listed in the Index at Item 15 and our report dated
February 28, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Francisco, California
February 28, 2025
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Employers Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Employers Holdings, Inc. and Subsidiaries (the Company)
as of December 31, 2024 and 2023, the related consolidated statements of comprehensive income (loss), stockholders' equity
and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement
schedules listed in the Index at Item 15 (collectively referred to as the "consolidated financial statements"). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31,
2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 28, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
51
Valuation of reserve for Unpaid Losses and Loss Adjustment Expenses
Description of
the Matter
At December 31, 2024, the liability for incurred but not reported (IBNR) reserves represented a material
portion of the $1,808.2 million of unpaid loss and loss adjustment expenses (LAE). As explained in Notes 2
and 9 to the consolidated financial statements, the liability for unpaid losses and LAE represents
management's best estimate of the ultimate net cost of all reported and unreported losses incurred for the
applicable periods, less payments made. The estimated reserves include the accumulation of estimates for all
claims reported prior to the balance sheet date, estimates of claims incurred but not reported, and estimates
of expenses for investigating and adjusting all incurred and unadjusted claims. IBNR reserves include an
estimate for claims that are incurred but not yet reported, expected development on reported claims and for
additional payments on closed claims. There is significant uncertainty inherent in determining management’s
best estimate of the ultimate loss settlement cost which is used to determine the incurred but not reported
claim reserves. In particular, the estimate is sensitive to the selection and weighting of actuarial methods and
management’s selection of parameters and assumptions including, the pattern with which aggregate claims
data will be paid or emerge over time, the magnitude and change in claim settlement activity, the effects of
legislative benefit changes and/or judicial decisions, and trends in claim frequency and severity.
Auditing management’s best estimate of IBNR reserves was complex due to the highly judgmental nature of
the assumptions used in the actuarial reserving process. The significant judgement was primarily due to the
sensitivity of management’s estimate to the selection of methods and assumptions including the pattern with
which aggregate claims data will be paid or emerge over time, which had a significant effect on the valuation
of IBNR reserves.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s
controls over the process for estimating IBNR reserves. This included, among other procedures, testing
management review controls in place over the review and approval of methods and assumptions used in
estimating IBNR reserves.
To test IBNR reserves, our audit procedures included, among others, testing the completeness and accuracy
of the data used in the calculations by testing reconciliations of the underlying claims and policyholder data
recorded in the source systems to the actuarial reserving calculations, and comparing a sample of incurred
and paid claims to source documentation. With the assistance of EY actuarial specialists, we evaluated the
Company’s selection and weighting of actuarial methods by comparing the methods and weightings used in
the current estimate to our expectations of those used in the industry for the specific types of insurance and
age of the claims. To evaluate the significant assumptions used by management, we compared the
assumptions to current and historical claims trends. We also compared management’s recorded reserves to a
range of reasonable reserve estimates calculated independently by our EY actuarial specialists. Additionally,
we performed a hindsight analysis of the prior period estimates using subsequent claims development.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2002.
San Francisco, California
February 28, 2025
52
Assets
Investments:
Fixed maturity securities at fair value (amortized cost $2,203.1 at December 31, 2024 and
$2,048.0 at December 31, 2023, less CECL allowance of $1.1 at December 31, 2024
and $2.7 at December 31, 2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,097.4 $
1,936.3
Equity securities at fair value (cost $145.0 at December 31, 2024 and $125.9 at
December 31, 2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
254.1
211.2
Equity securities at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.7
6.0
Other invested assets (cost $90.9 at December 31, 2024 and $82.5 at December 31, 2023) .
106.6
91.5
Short-term investments at fair value (amortized cost $0.1 at December 31, 2024 and $33.1
at December 31, 2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
33.1
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,463.9
2,278.1
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68.3
226.4
Restricted cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
0.2
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.7
16.3
Premiums receivable (less CECL allowance of $19.2 at December 31, 2024 and $17.9 at
December 31, 2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
361.3
359.4
Reinsurance recoverable for:
Paid losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.3
6.3
Unpaid losses (less CECL allowance of $0.9 at December 31, 2024 and $0.9 at
December 31, 2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
411.5
427.5
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59.6
55.6
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38.3
43.4
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.8
6.5
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.7
5.1
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.6
13.6
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36.2
36.2
Contingent commission receivable–LPT Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
14.2
Cloud computing arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.3
28.0
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37.6
33.6
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,541.3 $
3,550.4
Liabilities and stockholders' equity
Claims and policy liabilities:
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,808.2 $
1,884.5
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
402.2
379.7
Commissions and premium taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65.8
66.0
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.2
26.1
Deferred reinsurance gain—LPT Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94.0
99.2
Non-cancellable obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.8
17.0
Operating lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2
5.9
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63.2
58.1
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,472.6 $
2,536.5
Commitments and contingencies (Note 12)
Employers Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 31,
2024
2023
(in millions, except share data)
53
Stockholders' equity:
Common stock, $0.01 par value; 150,000,000 shares authorized; 58,184,861 and
58,055,968 shares issued and 24,556,706 and 25,369,753 shares outstanding at
December 31, 2024 and 2023, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.6 $
0.6
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued . . . . . . . . . . . . .
—
—
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
424.2
419.8
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,472.9
1,384.3
Accumulated other comprehensive loss, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(82.5)
(86.0)
Treasury stock, at cost (33,628,155 shares at December 31, 2024 and 32,686,215 shares at
December 31, 2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(746.5)
(704.8)
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,068.7
1,013.9
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,541.3 $
3,550.4
Employers Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 31,
2024
2023
(in millions, except share data)
See accompanying notes.
54
Employers Holdings, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31,
2024
2023
2022
Revenues
(in millions, except per share data)
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
749.5 $
721.9 $
675.2
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107.0
106.5
89.8
Net realized and unrealized gains (losses) on investments . . . . . . . . . . . . . . . . . . . .
24.1
22.7
(51.8)
Other income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
(0.2)
0.3
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
880.7
850.9
713.5
Expenses
Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
456.2
405.7
391.0
Commission expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101.2
100.0
95.9
Underwriting and general and administrative expenses . . . . . . . . . . . . . . . . . . . . . .
176.5
180.0
167.3
Interest and financing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
5.8
3.5
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
11.0
—
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
734.0
702.5
657.7
Net income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
146.7
148.4
55.8
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.1
30.3
7.4
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
118.6 $
118.1 $
48.4
Comprehensive income (loss)
Unrealized AFS investment (losses) gains during the period, net of tax benefit
(expense) of $0.9, $(12.3), and $53.8 for the years ended December 31, 2024,
2023, and 2022, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(3.5) $
46.6 $
(202.3)
Reclassification adjustment for realized AFS investment losses in net income, net
of tax (benefit) of $(1.8), $(1.7), and $(0.8) for the years ended December 31,
2024, 2023, and 2022, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.0
6.3
2.8
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.5
52.9
(199.5)
Total comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
122.1 $
171.0 $
(151.1)
Earnings per common share (Note 18):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4.73 $
4.48 $
1.76
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4.71 $
4.45 $
1.75
Cash dividends declared per common share and eligible equity plan awards . . . . .
$
1.18 $
1.10 $
3.28
See accompanying notes.
55
Employers Holdings, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Common Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss,
Net of Tax
Treasury
Stock, at
Cost
Total
Stockholders'
Equity
Shares
Amount
(in millions, except share data)
Balance, January 1, 2022 . . . . . . . . . . . . . . . . . . 57,690,254
$
0.6
$
410.7
$
1,338.5
$
60.6
$
(597.3) $
1,213.1
Stock-based obligations (Note 14) . . . . . . . . . .
—
—
5.1
—
—
—
5.1
Stock options exercised . . . . . . . . . . . . . . . . . . .
41,665
—
1.1
—
—
—
1.1
Vesting of RSUs and PSUs, net of shares
withheld to satisfy minimum tax withholding
(Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
144,368
—
(2.3)
—
—
—
(2.3)
Acquisitions of common stock (Note 13) . . . . .
—
—
—
—
—
(30.4)
(30.4)
Dividends declared . . . . . . . . . . . . . . . . . . . . . .
—
—
—
(91.3)
—
—
(91.3)
Net income for the year . . . . . . . . . . . . . . . . . . .
—
—
—
48.4
—
—
48.4
Change in net unrealized gains on AFS
investments, net of taxes of $53.0 . . . . . . . . . . .
—
—
—
—
(199.5)
—
(199.5)
Balance, December 31, 2022 . . . . . . . . . . . . . . . 57,876,287
$
0.6
$
414.6
$
1,295.6
$
(138.9) $
(627.7) $
944.2
Balance, January 1, 2023 . . . . . . . . . . . . . . . . . . 57,876,287
$
0.6
$
414.6
$
1,295.6
$
(138.9) $
(627.7) $
944.2
Stock-based obligations (Note 14) . . . . . . . . . .
—
—
6.1
—
—
—
6.1
Stock options exercised . . . . . . . . . . . . . . . . . . .
23,500
—
0.7
—
—
—
0.7
Vesting of RSUs and PSUs, net of shares
withheld to satisfy minimum tax withholding
(Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
156,181
—
(1.6)
—
—
—
(1.6)
Acquisition of common stock(1) (Note 13) . . . .
—
—
—
—
—
(77.1)
(77.1)
Dividends declared . . . . . . . . . . . . . . . . . . . . . .
—
—
—
(29.4)
—
—
(29.4)
Net income for the year . . . . . . . . . . . . . . . . . . .
—
—
—
118.1
—
—
118.1
Change in net unrealized losses on AFS
investments, net of taxes of $(14.0) . . . . . . . . .
—
—
—
—
52.9
—
52.9
Balance, December 31, 2023 . . . . . . . . . . . . . . . 58,055,968
$
0.6
$
419.8
$
1,384.3
$
(86.0) $
(704.8) $
1,013.9
Balance, January 1, 2024 . . . . . . . . . . . . . . . . . . 58,055,968
$
0.6
$
419.8
$
1,384.3
$
(86.0) $
(704.8) $
1,013.9
Stock-based obligations (Note 14) . . . . . . . . . .
—
—
6.2
—
—
—
6.2
Stock options exercised . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
Vesting of RSUs and PSUs, net of shares
withheld to satisfy minimum tax withholding
(Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
128,893
—
(1.8)
—
—
—
(1.8)
Acquisition of common stock(1) (Note 13) . . . .
—
—
—
—
—
(41.7)
(41.7)
Dividends declared . . . . . . . . . . . . . . . . . . . . . .
—
—
—
(30.0)
—
—
(30.0)
Net income for the year . . . . . . . . . . . . . . . . . . .
—
—
—
118.6
—
—
118.6
Change in net unrealized losses on AFS
investments, net of taxes of $(0.9) . . . . . . . . . .
—
—
—
—
3.5
—
3.5
Balance, December 31, 2024 . . . . . . . . . . . . . . . 58,184,861
$
0.6
$
424.2
$
1,472.9
$
(82.5) $
(746.5) $
1,068.7
(1) Beginning January 1, 2023, amount includes applicable excise taxes as imposed by the Inflation Reduction Act of 2022.
See accompanying notes.
56
Employers Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31,
2024
2023
2022
Operating activities
(in millions)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
118.6 $
118.1 $
48.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.6
4.8
5.3
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.3
6.2
5.1
Amortization of cloud computing arrangements . . . . . . . . . . . . . . . . . . . . . . . . .
13.1
16.7
16.4
Amortization of discounts and premiums on investments, net . . . . . . . . . . . . . . .
(1.0)
2.4
3.0
Allowance for expected credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3
5.1
2.8
Deferred income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1
5.3
(17.4)
Net realized and unrealized (gains) losses on investments . . . . . . . . . . . . . . . . . .
(24.1)
(22.7)
51.8
Asset impairment and related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
4.2
—
Noncash operating lease term adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(1.0)
—
Change in operating assets and liabilities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premiums receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3.2)
(58.6)
(63.7)
Reinsurance recoverable on paid and unpaid losses . . . . . . . . . . . . . . . . . . . . .
16.0
17.5
32.2
Cloud computing arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2.4)
(3.4)
(15.4)
Operating lease right-of-use-assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.4
6.4
2.7
Current federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8.4)
(6.7)
8.8
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
(76.3)
(76.2)
(20.5)
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.5
40.2
34.8
Accounts payable, accrued expenses and other liabilities . . . . . . . . . . . . . . . .
3.3
3.7
7.2
Deferred reinsurance gain–LPT Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5.2)
(6.9)
(8.3)
Contingent commission receivable–LPT Agreement . . . . . . . . . . . . . . . . . . . .
14.2
(0.3)
—
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.7)
(6.7)
(3.0)
Non-cancellable obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3.2)
(9.1)
4.4
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2.5)
10.4
5.2
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76.4
49.4
99.8
Investing activities
Purchases of fixed maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(722.4)
(416.4)
(611.4)
Purchases of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(61.4)
(39.8)
(124.9)
Purchases of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(39.8)
(68.7)
(132.7)
Purchases of other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8.4)
(28.1)
(20.3)
Proceeds from sale of fixed maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
342.8
558.0
313.8
Proceeds from sale of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45.0
53.2
216.3
Proceeds from maturities and redemptions of fixed maturity securities . . . . . . . . . .
214.7
162.7
195.0
Proceeds from maturities of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . .
73.1
157.0
24.0
Net change in unsettled investment purchases and sales . . . . . . . . . . . . . . . . . . . . . .
1.6
1.6
(3.3)
Capital expenditures and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4.9)
(2.2)
(2.6)
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(159.7)
377.3
(146.1)
Financing activities
Acquisition of common stock and excise tax payments . . . . . . . . . . . . . . . . . . . . . . .
(42.6)
(76.1)
(30.4)
Cash transactions related to stock-based compensation . . . . . . . . . . . . . . . . . . . . . . .
(1.8)
(1.0)
(1.2)
Dividends paid to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(30.3)
(29.7)
(90.3)
Proceeds from FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
182.5
Repayments of FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(182.5)
—
Proceeds from line of credit advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
10.0
Repayments of line of credit advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(10.0)
Payments on finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.1)
(0.2)
(0.2)
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(74.8)
(289.5)
60.4
57
Net (decrease) increase in cash, cash equivalents, and restricted cash . . . . . . . . . . . . . .
(158.1)
137.2
14.1
Cash, cash equivalents, and restricted cash at the beginning of the period . . . . . . . . . .
226.6
89.4
75.3
Cash, cash equivalents, and restricted cash at the end of the period . . . . . . . . . . . . . . . .
$
68.5 $
226.6 $
89.4
Cash paid for federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
31.0 $
30.4 $
15.1
Cash paid for state income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.4 $
1.5 $
0.7
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.1 $
5.8 $
2.6
Non-cash transactions
Financed property and equipment purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.1 $
— $
0.1
The following table presents our cash, cash equivalents, and restricted cash by category within the Consolidated Balance
Sheets:
As of
As of
December 31,
2024
December 31,
2023
(in millions)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
68.3 $
226.4
Restricted cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
0.2
Total cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
68.5 $
226.6
See accompanying notes.
58
Employers Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024
1. Basis of Presentation and Summary of Operations
Nature of Operations and Organization
Employers Holdings, Inc. (EHI) is a Nevada holding company. Through its wholly owned insurance subsidiaries, Employers
Insurance Company of Nevada (EICN), Employers Compensation Insurance Company (ECIC), Employers Preferred Insurance
Company (EPIC), Employers Assurance Company (EAC), and Cerity Insurance Company (CIC), EHI is engaged in the
commercial property and casualty insurance industry, specializing in workers' compensation products and services. Unless
otherwise indicated, all references to the "Company" refer to EHI, together with its subsidiaries.
In 1999, the Nevada State Industrial Insurance System (the Fund) entered into a retroactive 100% quota share reinsurance
agreement (the LPT Agreement) through a loss portfolio transfer transaction with third party reinsurers. The LPT Agreement
commenced on June 30, 1999 and will remain in effect until: (i) all claims under the covered policies have closed; (ii) the LPT
Agreement is commuted or terminated upon the mutual agreement of the parties; or (iii) the reinsurers' aggregate maximum
limit of liability is exhausted, whichever occurs first. The LPT Agreement does not provide for any additional termination
terms. On January 1, 2000, EICN assumed all of the assets, liabilities and operations of the Fund, including the Fund's rights
and obligations associated with the LPT Agreement. See Notes 2 and 10.
The Company accounts for the LPT Agreement as retroactive reinsurance. Upon entry into the LPT Agreement, an initial
deferred reinsurance gain (the Deferred Gain) was recorded as a liability on the Company's Consolidated Balance Sheets. The
Company was also entitled to receive a contingent profit commission (Contingent Commission) under the LPT Agreement
through June 30, 2024. The Contingent Commission, of which the final payment was determined to be $14.6 million, was based
on actual paid losses under the LPT Agreement through that date and was recorded as an asset on the Company's Consolidated
Balance Sheets. The Company received the final payment of the Contingent Commission during the third quarter of 2024.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles (GAAP). All intercompany transactions and balances have been eliminated in consolidation.
The Company operates as a single operating segment, Insurance Operations, through its wholly owned subsidiaries. The
Company considers an operating segment to be any component of its business whose operating results are regularly reviewed
by the Company's chief operating decision maker (CODM) to make decisions about resources to be allocated to the segment
and assess its performance based on discrete financial information. Prior to December 31, 2023, the Company operated through
two reportable segments: Employers and Cerity. Detailed financial information about the Company's single operating segment
is presented in Note 19.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. As
a result, actual results could differ from these estimates. The most significant areas that require management judgment are the
estimate of unpaid losses and loss adjustment expenses (LAE), evaluation of reinsurance recoverables, recognition of premium
revenue, recoverability of deferred income taxes, and valuation of investments.
Reclassifications
Certain prior period information has been recast to conform to the 2024 presentation.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all liquid investments with maturities of less than three months, as measured from the date of purchase,
to be cash equivalents.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents represent cash and cash equivalents held in trust in order to secure certain of the
Company's obligations and, accordingly, are restricted as to withdrawal or usage. As of December 31, 2024 and 2023 the
59
Company held $3.0 million in cash and investments in trust for reinsurance obligations, of which $0.2 million, represented
restricted cash and cash equivalents for each year.
Short-Term Investments
The Company considers all liquid investments with maturities of between three and twelve months, as measured from the date
of purchase, to be short-term investments.
Investment Securities
The Company's investments in fixed maturity securities and short-term investments are classified as available-for-sale (AFS)
and are reported at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of
stockholders' equity, net of deferred taxes, in Accumulated other comprehensive loss on the Company's Consolidated Balance
Sheets.
The Company's investments in equity securities at fair value are not classified as AFS and changes in fair value are included in
Net realized and unrealized gains and losses on investments on the Company's Consolidated Statements of Comprehensive
Income (Loss). The Company's investment in FHLB stock is presented within Equity securities at cost on the Company's
Consolidated Balance Sheets.
The Company's investments in other invested assets are reported at net asset value and changes in the value of these
investments are included in Net realized and unrealized gains (losses) on investments on the Company's Consolidated
Statements of Comprehensive Income (Loss).
The Company's investments in fixed maturity securities are presented net of an allowance for current expected credit losses
(CECL). The Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the
security before recovery of its amortized cost basis. If either of the criteria is met, the security's amortized cost basis is written
down to its fair value. For AFS debt securities that do not meet either criteria, the Company evaluates whether the decline in
fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which
fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions
specifically related to the security, among other factors. The changes in the Company's allowance for CECL on investments are
included in Net realized and unrealized gains (losses) on investments on the Company's Consolidated Statements of
Comprehensive Income (Loss) (see Note 6).
Investment income consists primarily of interest and dividends generated by investment securities. Interest is recorded as earned
on an accrual basis and dividends are recorded as earned at the ex-dividend date. Interest income on mortgage-backed and
asset-backed securities is determined using the effective-yield method based on estimated principal repayments. Mortgage-
backed securities are adjusted for the effects of changes in prepayment assumptions on the related accretion of discount or
amortization of premium of such securities using the retrospective method.
Realized gains and losses on investments are determined on a specific-identification basis.
Recognition of Revenue and Expense
Revenue Recognition
Premiums written are recognized as revenues, net of any applicable underlying reinsurance coverage, and recognized as
premiums earned, over the period of the contract in proportion to the amount of insurance protection provided. At the end of the
policy term, premium audits are performed on substantially all policyholder accounts to determine the actual amount of net
premiums earned for that policy year. Earned but unbilled premiums include estimated future audit premiums based on the
Company's historical experience. These estimates are subject to changes in policyholders' payrolls and employee job
classifications, economic conditions, and seasonality, and are continually reviewed and adjusted as experience develops or new
information becomes known. Audit premium adjustments are included in premiums earned; however, these adjustments are
partially offset by the resulting changes in losses and LAE, commission expenses, and premium taxes. The Company's
premiums receivable on its Consolidated Balance Sheets included $25.7 million and $42.9 million of additional premiums
expected to be received from policyholders for premium audits at December 31, 2024 and 2023, respectively.
The Company establishes an allowance for CECL (see Note 6) on its premiums receivable through a charge included in
underwriting and general and administrative expenses in its Consolidated Statements of Comprehensive Income (Loss). This
allowance for CECL is determined based on estimates (collectability and historical payment patterns) and assumptions to
project future experience. After all collection efforts have been exhausted, the Company reduces the allowance for CECL for
write-offs of premiums receivable that have been deemed uncollectible. The Company's allowance for CECL was $19.2 million
and $17.9 million at December 31, 2024 and 2023, respectively. The Company had write-offs charged against CECL of $13.8
million, $3.9 million, and $2.0 million for the years ended December 31, 2024, 2023, and 2022, respectively.
60
Deferred Policy Acquisition Costs
Policy acquisition costs, those costs that relate directly to the successful acquisition of new or renewal insurance contracts,
including underwriting, policy issuance and processing, medical and inspection, sales force contract selling and commissions
are deferred and amortized as the related premiums are earned. Amortization of deferred policy acquisition costs for the years
ended December 31, 2024, 2023, and 2022, was $119.6 million, $113.8 million, and $106.4 million, respectively.
If the sum of a policy's expected losses and LAE and deferred policy acquisition costs exceeds the related unearned premiums
and projected investment income, a premium deficiency is determined to exist. In this event, deferred policy acquisition costs
are immediately expensed to the extent necessary to eliminate the premium deficiency. If the premium deficiency exceeds
deferred acquisition costs, a liability is accrued for the excess deficiency. There were no premium deficiency adjustments
recognized during the years ended December 31, 2024, 2023, and 2022.
Unpaid Loss and LAE Reserves
Unpaid loss and LAE reserves represent management's best estimate of the ultimate net cost of all reported and unreported
losses incurred for the applicable periods, less payments made. The estimated reserves for losses and LAE include the
accumulation of estimates for all claims reported prior to the balance sheet date, estimates of claims incurred but not reported,
and estimates of expenses for investigating and adjusting all incurred and unadjusted claims (based on projections of relevant
historical data). Amounts reported are subject to the impact of future changes in economic, regulatory and social conditions.
Management believes that, subject to the inherent variability in any such estimate, the reserves are within a reasonable and
acceptable range of adequacy. Estimates for claims prior to the balance sheet date are continually monitored and reviewed, and
as settlements are made or reserves adjusted, the differences are reported in current operations. Salvage and subrogation
recoveries are estimated based on a review of the level of historical salvage and subrogation recoveries.
Reinsurance
In the ordinary course of business, the Company purchases excess of loss reinsurance in order to protect it against the impact of
large and/or catastrophic losses. The Company is also a party to the LPT Agreement (see Note 10). These reinsurance
arrangements reduce the Company's exposure to such losses since its reinsurers are liable to the Company to the extent of the
reinsurance protection provided. However, the Company remains liable for all losses it incurs to the extent that any reinsurer is
unable or unwilling to make timely payments under its reinsurance agreements.
Balances due from reinsurers on unpaid losses, including an estimate of such recoverables related to reserves for incurred but
not reported losses, are reported as reinsurance recoverables on the Company's Consolidated Balance Sheets. Reinsurance
recoverables on paid losses represent amounts currently due from reinsurers. Reinsurance recoverables on unpaid losses
represent amounts that will be collectible from reinsurers once the losses are paid. Reinsurance recoverables on unpaid losses
and LAE amounted to $411.5 million and $427.5 million at December 31, 2024 and 2023, respectively.
The Company's reinsurance recoverables are presented net of an allowance for CECL. The changes in the Company's allowance
for CECL are included in underwriting and general and administrative expenses on the Company's Consolidated Statements of
Comprehensive Income (Loss) (see Note 6). This allowance for CECL is determined based on historical information, financial
strength of reinsurers, collateralization amounts and ratings to determine the appropriateness of the allowance.
Ceded reinsurance premiums are accounted for on a basis consistent with those used in accounting for the underlying
premiums, and are reported as reductions to arrive at net premiums written and earned.
Ceded losses and LAE are also accounted for on a basis consistent with those used in accounting for the original policies issued
and the terms of the relevant reinsurance agreement, and are recorded as reductions to losses and LAE incurred.
Pursuant to the LPT Agreement, LAE is deemed to be 7% of total losses paid and is payable to the Company as compensation
for management of the claims under the LPT Agreement. The Deferred Gain is amortized using the recovery method, whereby
the amortization is determined by the proportion of actual reinsurance recoveries to total estimated recoveries through the life of
the LPT Agreement, and is recorded in losses and LAE incurred in the Company's Consolidated Statements of Comprehensive
Income (Loss). Any adjustment to the estimated loss and LAE reserves ceded under the LPT Agreement results in a cumulative
adjustment to the Deferred Gain, which is also recognized in losses and LAE incurred in the Company's Consolidated
Statements of Comprehensive Income (Loss), such 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 Adjustment).
Additionally, the Company was entitled to a Contingent Commission under the LPT Agreement through June 30, 2024. The
Contingent Commission was equal to 30% of the favorable difference between actual paid losses and LAE and expected paid
losses and LAE as established in the LPT Agreement based on losses paid through that date. The Company recorded an
estimate of Contingent Commission on its Consolidated Balance Sheets as Contingent commission receivable–LPT Agreement
and a corresponding liability was recorded as Deferred reinsurance gain–LPT Agreement. The Contingent commission
receivable–LPT Agreement was reduced as amounts were received from participating reinsurers. The Contingent Commission
61
was payable every five years beginning June 30, 2004, and the final payment of the Contingent Commission of $14.6 million
was received in the third quarter of 2024.
The Deferred reinsurance gain–LPT Agreement is amortized using the recovery method. The amortization of the Contingent
Commission was determined by the proportion of actual reinsurance recoveries to total estimated recoveries over the life of the
Contingent Commission and was recorded in losses and LAE incurred in the Company's Consolidated Statements of
Comprehensive Income (Loss). Any adjustment to the Contingent Commission under the LPT Agreement resulted in a
cumulative adjustment to the Deferred Gain, which was also recognized in losses and LAE incurred in the Company's
Consolidated Statements of Comprehensive Income (Loss), such that the Deferred Gain reflects the balance that would have
existed had the revised Contingent Commission been recognized at the inception of the LPT Agreement (LPT Contingent
Commission Adjustment).
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation (see Note 7). Expenditures for maintenance and repairs
are charged against operations as incurred.
Electronic data processing equipment, software, furniture and equipment, and automobiles are depreciated using the straight-
line method over 3 to 7 years. Leasehold improvements are carried at cost less accumulated amortization. The Company
amortizes leasehold improvements using the straight-line method over the lesser of the useful life of the asset or the remaining
original lease term, excluding options or renewal periods. Leasehold improvements are generally amortized over 3 to 8 years.
Cloud Computing Arrangements
The Company capitalizes software license fees and implementation costs associated with hosting arrangements that are service
contracts. These amounts are included in Cloud computing arrangements on the Company's Consolidated Balance Sheets.
Amortization of the software license fees is calculated using the straight-line method over the term of the service contract or
based on the expected utilization of the asset. Amortization of the implementation costs are calculated using the straight-line
method based on the term of the service contract and commence once the module or component is ready for its intended use,
regardless of whether the hosted software has been placed into service, and will be recognized over the remaining life of the
service contract.
Operating leases
The Company determines if an arrangement is a lease at the inception of the transaction. Leased office property meets the
definition of operating leases under ASC 842 and is presented as a right-of-use asset (ROU asset) and lease liability on the
Company's Consolidated Balance Sheets. ROU assets represent the right to use an underlying asset for the lease payments
arising from the lease transaction. Operating lease ROU assets and liabilities are recognized at the commencement date based
on the present value of the lease payments over the lease term. The Company uses collateralized incremental borrowing rates to
determine the present value of lease payments. The ROU assets also include lease payments less any lease incentives within a
lease agreement. The Company's lease terms may include options to extend or terminate a lease. Lease expense for lease
payments is recognized on a straight-line basis over the lease term. See Note 12 for additional disclosures related to operating
leases.
Finance Leases
Leased property and equipment meeting finance lease criteria are capitalized at the lower of the present value of the related
lease payments or the fair value of the leased asset at the inception of the lease. Financing leases for automobiles are included in
property and equipment in other liabilities on the Company's Consolidated Balance Sheets. Amortization is calculated using the
straight-line method based on the term of the lease and is included in the depreciation expense of property and equipment. See
Note 12 for additional disclosures related to finance leases.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that have been included in the Company's financial
statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences
between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which
the differences are expected to reverse.
The Company recognizes tax positions that are determined to be more likely than not of being sustained upon examination.
Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized.
Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
The Company recognizes deferred tax assets when it determines that such assets are more likely than not to be realized in future
periods. In making such a determination, the Company considers all available positive and negative evidence, including future
62
reversals of existing taxable temporary differences, tax-planning strategies, projected future taxable income, projected future tax
rates, and results of recent operations. If the Company determines that it is not more likely than not that it could realize its
deferred tax assets in future periods, it would establish a deferred tax asset valuation allowance that would increase the
Company's provision for income taxes. If the Company determines that it would be able to realize its deferred tax assets in the
future in excess of its net recorded amount, the Company would make an adjustment to the deferred tax asset valuation
allowance, which would reduce the provision for income taxes.
The Company recognizes accrued interest and penalties, if any, in income taxes. For the years ended December 31, 2024 and
2023, the Company incurred no material interest and penalties.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash
equivalents (including restricted cash equivalents), short-term investments, investment securities, premiums receivable, and
reinsurance recoverable balances.
The Company's cash equivalents and short-term investments include investments in money market securities and securities
backed by the U.S. government. The Company's investment securities are diversified throughout many industries and
geographic regions and include investments in U.S. government and U.S. government-sponsored enterprises. The Company
believes that it has no significant concentrations of credit risk from a single issue or issuer within its cash equivalents, short-
term investments and investment securities, other than concentrations in U.S. government and U.S. government-sponsored
enterprises.
The Company's premiums receivable are generally diversified due to the large number of entities composing the Company's
policyholder base and their dispersion across many different industries.
The Company monitors the financial condition of its reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies.
Fair Value of Financial Instruments
The fair values of the Company's financial instruments have been determined using available market information and other
appropriate valuation methodologies. Judgment is required in developing fair value estimates where quoted market prices are
not available. Accordingly, these estimates are not necessarily indicative of the amounts that could be realized in a current
market exchange. The use of different market assumptions or estimating methodologies may have an effect on the estimated fair
value amounts.
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Cash and cash equivalents, short-term investments, premiums receivable, accounts payable and accrued expenses, and other
liabilities. The carrying amounts for each of these financial instruments as reported in the Company's Consolidated Balance
Sheets approximate their fair values.
Investment securities. The Company's investment securities are predominantly valued on the basis of actual market transactions
or observable inputs. A small portion of the Company's investment securities are valued on the basis of pricing models with
significant unobservable inputs or nonbinding broker quotes (see Note 4).
Goodwill and Other Intangible Assets
The Company formally tests for impairment of goodwill and intangible assets in the fourth quarter of each year. At the end of
each quarter, management further considers the results of the previous analysis as well as any recent developments that may
constitute triggering events requiring the impairment analysis of goodwill and other intangible assets to be updated. The
Company assessed the effects of current economic conditions on the Company's financial condition and results of operations
and changes in the Company's fair value and determined that there were no impairments of these assets as of December 31,
2024 and 2023.
Intangible assets related to state licenses are not subject to amortization. Intangible assets related to insurance relationships were
amortized in proportion to the expected period of benefit and were fully amortized as of December 31, 2018.
63
The gross carrying value, accumulated amortization, and net carrying value for the Company's intangible assets, by major class,
as of December 31, were as follows:
2024
2023
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
(in millions)
State licenses . . . . . . . . . . . . $
13.5 $
— $
13.5 $
13.5 $
— $
13.5
Insurance relationships . . . . .
9.4 $
(9.4)
—
9.4
(9.4)
—
Other . . . . . . . . . . . . . . . . . . .
0.1
—
0.1
0.1
—
0.1
Total . . . . . . . . . . . . . . . . . . . $
23.0 $
(9.4) $
13.6 $
23.0 $
(9.4) $
13.6
There was no amortization expense in 2024 or 2023. Amortization expenses, when recognized, are included in the Company's
Consolidated Statements of Comprehensive Income (Loss) in underwriting and general and administrative expenses.
Stock-Based Compensation
The Company provides stock-based compensation to its directors and certain of its employees, which is recognized in its
Consolidated Statements of Comprehensive Income (Loss) and based on estimated grant date fair values over the relevant
service period (see Note 14).
64
3. New Accounting Standards
Recently Issued Accounting Standards
In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, Income Statement - Reporting
Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40). The amendments in this update require further
disaggregation of certain relevant costs and expenses into specified categories in disclosures within the footnotes to the
financial statements at each interim and annual reporting period. Relevant expense captions required to be disclosed include the
following, as applicable: (i) purchases of inventory; (ii) employee compensation; (iii) depreciation; (iv) intangible asset
amortization; and (v) depreciation, depletion, and amortization recognized as part of oil and gas-producing activities (or other
depletion expenses). Also, the amendments require a qualitative description of the amounts of other items remaining in relevant
expense captions that are not separately disaggregated. In addition, a separate disclosure of the total amount of selling expenses
should be presented and, in annual reporting periods, an entity's definition of selling expenses should be disclosed. This update
is effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15,
2027. Early adoption is permitted. The Company will adopt this standard when it becomes effective.
Recently Adopted Accounting Standards
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment
Disclosures. The amendments in this update improve disclosures about reportable segments and provide more detailed
information about a reportable segment's expenses. Specifically, the amendments in this update require that a public entity
disclose, on an annual and interim basis: (i) significant segment expenses that are regularly provided to the CODM; (ii) an
amount for other segment items by reportable segment and a description of their composition; (iii) all annual disclosures about
a reportable segment's profit or loss and assets currently required by Topic 280 in interim periods; (iv) the measures the CODM
uses in assessing performance and allocating resources; and (v) the title and position of the CODM. Public entities that have a
single reporting segment are also required to provide all the disclosures required by this amendment, along with all existing
segment disclosures in Topic 280. This update is effective for fiscal years beginning after December 15, 2023 and interim
periods within fiscal years beginning after December 15, 2024. The Company adopted this update as of December 31, 2024 (see
Note 19).
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). This update requires public business entities to
annually disclose specific categories within the income tax rate reconciliation, and provide additional information for
reconciling items that meet a certain quantitative threshold. Additionally, the amendments in this update require entities to
disclose certain information about income taxes paid, income tax disaggregation, disclosures around unrecognized tax benefits,
and the removal of disclosures related to temporary differences surrounding deferred tax liabilities to enhance the transparency
and decision usefulness of income tax disclosures. This update is effective for fiscal years beginning after December 15, 2024
and early adoption is permitted. The Company early adopted this update as of December 31, 2023 (see Note 8).
In March 2020, the FASB issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848). This
update provided optional transition guidance to ease the potential accounting burden associated with transitioning away from
the London Interbank Offered Rate (LIBOR), with optional expedients and exceptions related to the application of US GAAP
to contracts, hedging relationships and other transactions affected by reference rate reform. Companies could elect to adopt this
ASU through December 31, 2024. The Company determined that there was no impact of LIBOR transitioning on its existing
contracts and investments.
4. Valuation of Financial Instruments
Financial Instruments Carried at Fair Value
The carrying value and the estimated fair value of the Company's financial instruments at fair value were as follows as of
December 31:
2024
2023
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Financial assets
(in millions)
Total investments at fair value (Note 5) . . . . . . . . . . . . . . . . . . . $
2,351.6 $
2,351.6 $
2,180.6 $
2,180.6
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68.3
68.3
226.4
226.4
Restricted cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
0.2
0.2
0.2
0.2
Assets and liabilities recorded at fair value on the Company's Consolidated Balance Sheets are categorized based upon the
levels of judgment associated with the inputs used to measure their fair value. Level inputs are defined as follows:
•
Level 1 - Inputs are unadjusted quoted market prices for identical assets or liabilities in active markets at the
measurement date.
65
•
Level 2 - Inputs other than Level 1 prices that are observable for similar assets or liabilities through corroboration with
market data at the measurement date.
•
Level 3 - Inputs that are unobservable that reflect management's best estimate of what willing market participants
would use in pricing the assets or liabilities at the measurement date.
The Company uses third party pricing services to assist with its investment accounting function. The ultimate pricing source
varies depending on the investment security and pricing service used, but investment securities valued on the basis of
observable inputs (Levels 1 and 2) are generally assigned values on the basis of actual transactions. Securities valued on the
basis of pricing models with significant unobservable inputs or non-binding broker quotes are classified as Level 3. The
Company performs quarterly analyses on the prices it receives from third parties to determine whether the prices are reasonable
estimates of fair value, including confirming the fair values of these securities through observable market prices using an
alternative pricing source, as it is ultimately management's responsibility to ensure that the fair values reflected in the
Company's consolidated financial statements are appropriate. If differences are noted in these analyses, the Company may
obtain additional information from other pricing services to validate the quoted price.
The Company bases all of its estimates of fair value for assets on bid prices, when available, as they represent what a third-party
market participant would be willing to pay in an arm's length transaction.
For securities not actively traded, third party pricing services may use quoted market prices of similar instruments or discounted
cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often
used in the valuation methodologies include, but are not limited to, broker quotes, benchmark yields, credit spreads, default
rates, and prepayment speed assumptions. There were no material adjustments to the valuation methodology utilized by third
party pricing services as of December 31, 2024 and 2023.
These methods of valuation only produce an estimate of fair value if there is objectively verifiable information to produce a
valuation. If objectively verifiable information is not available, the Company would be required to produce an estimate of fair
value using some of the same methodologies, making assumptions for market-based inputs that are unavailable.
As of December 31, 2024, the Company held $65.6 million of fixed maturity securities at fair value that were designated Level
3. These private placement securities were designated as Level 3 securities due to the limited amount of observable market
information available.
The following table presents the Company's investments at fair value and the corresponding fair value measurements.
December 31, 2024
December 31, 2023
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
(in millions)
Fixed maturity securities
U.S. Treasuries . . . . . . . . . . . . . . . . . . . . . . $
— $
59.3 $
— $
— $
58.4 $
—
U.S. Agencies . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
2.1
—
States and municipalities . . . . . . . . . . . . . . .
—
159.3
—
—
210.2
—
Corporate securities . . . . . . . . . . . . . . . . . . .
—
751.7
51.3
—
863.7
32.1
Residential mortgage-backed securities . . .
—
619.7
—
—
362.2
—
Commercial mortgage-backed securities . .
—
65.2
—
—
63.8
—
Asset-backed securities . . . . . . . . . . . . . . . .
—
199.7
14.3
—
113.9
14.1
Collateralized loan obligations . . . . . . . . . .
—
35.3
—
—
91.5
—
Foreign government securities . . . . . . . . . .
—
9.5
—
—
10.4
—
Other securities . . . . . . . . . . . . . . . . . . . . . .
—
132.1
—
—
113.9
—
Total fixed maturity securities . . . . . . . . . . . . . $
— $ 2,031.8 $
65.6 $
— $ 1,890.1 $
46.2
Equity securities at fair value
Industrial and miscellaneous . . . . . . . . . . . . $
215.1 $
— $
— $
181.7 $
— $
—
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39.0
—
—
29.5
—
—
Total equity securities at fair value . . . . . . . . . $
254.1 $
— $
— $
211.2 $
— $
—
Short-term investments . . . . . . . . . . . . . . . . . $
0.1 $
— $
— $
17.6 $
15.5 $
—
Total investments at fair value . . . . . . . . . . . $
254.2 $ 2,031.8 $
65.6 $
228.8 $ 1,905.6 $
46.2
66
Financial Instruments Carried at Cost
Each of the Company's insurance subsidiaries are members of the Federal Home Loan Bank of San Francisco (FHLB).
Members are required to purchase a designated amount of FHLB capital stock to maintain their membership, in addition to
maintaining collateral deposits that back any funds advanced and standby letters of credit issued (See Note 11). The Company's
investment in FHLB stock is recorded at cost, which approximates fair value, as purchases and sales of these securities are at
par value with the issuer. FHLB stock is considered a restricted security and is periodically evaluated by the Company for
impairment based on the estimated ultimate recovery of par value.
Financial Instruments Carried at Net Asset Value (NAV)
The Company has investments in private equity limited partnership interests that are included in Other invested assets on the
Company's Consolidated Balance Sheets. These investments do not have readily determinable fair values and are carried at net
asset value (NAV) and therefore are excluded from the fair value hierarchy. The Company initially estimates the value of these
investments using the transaction price. In subsequent periods, the Company measures these investments using NAV per share
provided quarterly by the general partner, based on financial statements that are audited annually. These investments are
generally not redeemable by the investees and cannot be sold without approval of the general partner. These investments have a
fund term of 3 to 12 years, subject to two or three one-year extensions at the general partner's discretion. The Company
periodically receives distributions of proceeds from dividends and interest from fund investments, as well as from any
dispositions of fund investments during the full course of the fund term. As of December 31, 2024 and 2023, the Company had
unfunded commitments to these private equity limited partnerships totaling $15.6 million and $25.4 million, respectively.
Additionally, certain cash equivalents, principally money market securities, are measured using NAV, which approximates fair
value.
The following table presents cash and investments carried at NAV on the Company's Consolidated Balance Sheets.
December 31, 2024
December 31, 2023
(in millions)
Cash equivalents measured at NAV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30.7
197.2
Other invested assets carried at NAV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
106.6
91.5
The following table provides a reconciliation of the beginning and ending balances that are measured using Level 3 inputs.
Years Ended December 31,
2024
2023
(in millions)
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
46.2 $
24.2
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19.3
20.7
Unrealized gains included in comprehensive income or loss . . . . . . . . . . . . . . . . .
0.1
1.3
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
65.6 $
46.2
67
5. Investments
The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the Company's AFS investments
were as follows:
Amortized
Cost
Allowance
for CECL
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
At December 31, 2024
(in millions)
Fixed maturity securities
U.S. Treasuries . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
61.4 $
— $
0.2 $
(2.3) $
59.3
States and municipalities . . . . . . . . . . . . . . . . . . .
163.0
—
1.1
(4.8)
159.3
Corporate securities . . . . . . . . . . . . . . . . . . . . . . .
849.2
(0.2)
4.4
(50.4)
803.0
Residential mortgage-backed securities . . . . . . . .
663.5
—
1.6
(45.4)
619.7
Commercial mortgage-backed securities . . . . . . .
69.6
(0.3)
0.1
(4.2)
65.2
Asset-backed securities . . . . . . . . . . . . . . . . . . . .
216.0
—
1.6
(3.6)
214.0
Collateralized loan obligations . . . . . . . . . . . . . .
35.5
—
—
(0.2)
35.3
Foreign government securities . . . . . . . . . . . . . . .
12.7
—
—
(3.2)
9.5
Other securities(1)
. . . . . . . . . . . . . . . . . . . . . . . . .
132.2
(0.6)
0.9
(0.4)
132.1
Total fixed maturity securities . . . . . . . . . . . . . . . . .
2,203.1
(1.1)
9.9
(114.5)
2,097.4
Short-term investments . . . . . . . . . . . . . . . . . . . . .
0.1
—
—
—
0.1
Total AFS investments . . . . . . . . . . . . . . . . . . . . . .
$
2,203.2 $
(1.1) $
9.9 $
(114.5) $
2,097.5
At December 31, 2023
Fixed maturity securities
U.S. Treasuries . . . . . . . . . . . . . . . . . . . . . . . . .
$
60.3 $
— $
0.6 $
(2.5) $
58.4
U.S. Agencies . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2
—
—
(0.1)
2.1
States and municipalities . . . . . . . . . . . . . . . . . .
212.3
—
3.1
(5.2)
210.2
Corporate securities . . . . . . . . . . . . . . . . . . . . . .
952.8
(2.1)
8.3
(63.2)
895.8
Residential mortgage-backed securities . . . . . .
399.3
—
0.9
(38.0)
362.2
Commercial mortgage-backed securities . . . . .
70.2
—
—
(6.4)
63.8
Asset-backed securities . . . . . . . . . . . . . . . . . . .
131.8
—
1.0
(4.8)
128.0
Collateralized loan obligations . . . . . . . . . . . . .
92.2
—
—
(0.7)
91.5
Foreign government securities . . . . . . . . . . . . .
12.7
—
—
(2.3)
10.4
Other securities(1) . . . . . . . . . . . . . . . . . . . . . . .
114.2
(0.6)
1.0
(0.7)
113.9
Total fixed maturity securities . . . . . . . . . . . . . . . . .
2,048.0
(2.7)
14.9
(123.9)
1,936.3
Short-term investments . . . . . . . . . . . . . . . . . . . . .
33.1
—
—
—
33.1
Total AFS investments . . . . . . . . . . . . . . . . . . . . . .
$
2,081.1 $
(2.7) $
14.9 $
(123.9) $
1,969.4
(1)
Other securities within fixed maturity securities consist of bank loans, which are classified as AFS and reported at fair value.
The cost and estimated fair value of the Company's equity securities recorded at fair value at December 31, 2024 and 2023 were
as follows:
Cost
Estimated
Fair Value
(in millions)
At December 31, 2024
Equity securities at fair value
Industrial and miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
117.4 $
215.1
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27.6
39.0
Total equity securities at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
145.0 $
254.1
At December 31, 2023
Equity securities at fair value
Industrial and miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
104.4 $
181.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.5
29.5
Total equity securities at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
125.9 $
211.2
68
The Company had Other invested assets totaling $106.6 million and $91.5 million (initial cost of $90.9 million and $82.5
million) at December 31, 2024 and 2023, respectively, consisting of private equity limited partnerships, which are carried at
NAV based on information provided by the general partner. These investments are non-redeemable until conversion and are
periodically evaluated by the Company for impairment based on the ultimate recovery of the investment. Changes in the value
of these investments are recorded through Net realized and unrealized gains and losses on the Company's Consolidated
Statements of Comprehensive Income (Loss).
The amortized cost and estimated fair value of the Company's fixed maturity securities at December 31, 2024, by contractual
maturity, are shown below. Expected maturities differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Amortized
Cost
Estimated
Fair Value
(in millions)
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
14.8 $
14.8
Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
479.2
467.0
Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
628.6
594.8
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95.9
86.6
Mortgage and asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
984.6
934.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,203.1 $
2,097.4
The following is a summary of AFS investments that have been in a continuous unrealized loss position for less than 12 months
and those that have been in a continuous unrealized loss position for 12 months or greater in each case as of December 31, 2024
and 2023.
December 31, 2024
December 31, 2023
Estimated
Fair
Value
Gross
Unrealized
Losses
Number
of Issues
Estimated
Fair
Value
Gross
Unrealized
Losses
Number
of Issues
Less than 12 months:
(dollars in millions)
Fixed maturity securities
U.S. Treasuries . . . . . . . . . . . . . . . . . . . . . .
$
26.5 $
(0.4)
8 $
11.9 $
(0.1)
5
States and municipalities . . . . . . . . . . . . . . .
48.0
(0.9)
20
39.5
(0.3)
15
Corporate securities . . . . . . . . . . . . . . . . . . .
182.3
(4.0)
47
26.1
(0.8)
13
Residential mortgage-backed securities . . .
190.6
(3.2)
111
15.8
(0.2)
15
Asset-backed securities . . . . . . . . . . . . . . . .
51.5
(0.8)
25
24.0
(0.1)
15
Other securities . . . . . . . . . . . . . . . . . . . . . .
29.2
(0.2)
133
12.6
(0.1)
70
Total fixed maturity securities . . . . . . . . . . .
528.1
(9.5)
344
129.9
(1.6)
133
Total less than 12 months . . . . . . . . . . . . . . .
$
528.1 $
(9.5)
344 $
129.9 $
(1.6)
133
12 months or greater:
Fixed maturity securities
U.S. Treasuries . . . . . . . . . . . . . . . . . . . . . .
$
15.6 $
(1.9)
2 $
23.7 $
(2.4)
7
U.S. Agencies . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
2.2
(0.1)
1
States and municipalities . . . . . . . . . . . . . . .
37.1
(3.9)
20
73.5
(4.9)
32
Corporate securities . . . . . . . . . . . . . . . . . . .
430.0
(46.4)
219
684.5
(62.4)
331
Residential mortgage-backed securities . . .
272.0
(42.2)
220
306.6
(37.8)
228
Commercial mortgage-backed securities . .
53.6
(4.2)
23
53.0
(6.4)
24
Asset-backed securities . . . . . . . . . . . . . . . .
42.0
(2.8)
27
47.0
(4.7)
29
Collateralized loan obligations . . . . . . . . . .
3.2
(0.2)
2
80.5
(0.7)
21
Foreign government securities . . . . . . . . . .
9.5
(3.2)
2
10.4
(2.3)
2
Other securities . . . . . . . . . . . . . . . . . . . . . .
2.5
(0.2)
20
10.2
(0.6)
58
Total fixed maturity securities . . . . . . . . . . .
865.5
(105.0)
535
1,291.6
(122.3)
733
Total 12 months or greater . . . . . . . . . . . . . .
$
865.5 $
(105.0)
535 $ 1,291.6 $
(122.3)
733
The Company recorded a CECL allowance on its AFS debt securities of $1.1 million and $2.7 million as of December 31, 2024
and 2023, respectively (see Note 6). Those fixed maturity securities whose total fair value was less than amortized cost at
December 31, 2024 and December 31, 2023, were those in which the Company had no intent, need or requirement to sell at an
amount less than their amortized cost.
69
Realized gains and losses on investments include the gain or loss on a security at the time of sale compared to its original or
adjusted cost (equity securities and other invested assets) or amortized cost (fixed maturity securities). Realized losses on fixed
maturity securities are also recognized when securities are written down as a result of an other-than-temporary impairment or
for unfavorable changes in CECL. Reversals of previously recognized realized losses on fixed maturity securities can also result
when securities are written up for favorable changes in CECL.
Net realized gains on investments and the change in unrealized gains (losses) on the Company's investments recorded at fair
value are determined on a specific-identification basis and were as follows:
Gross
Realized
Gains
Gross
Realized
Losses
Net Decrease
(Increase)
Change in
CECL
Allowance
Change in Net
Unrealized
Gains
(Losses)
Changes in
Fair Value
Reflected in
Earnings
Changes in
Fair Value
Reflected in
AOCI(1),
before tax
(in millions)
Year Ended December 31, 2024
Fixed maturity securities . . . . . . .
$
0.3 $
(10.7) $
1.6 $
4.4 $
(8.8) $
4.4
Equity securities . . . . . . . . . . . . . .
4.9
(2.5)
—
23.8
26.2
—
Other invested assets . . . . . . . . . .
—
—
—
6.7
6.7
—
Total investments . . . . . . . . . . . . .
$
5.2 $
(13.2) $
1.6 $
34.9 $
24.1 $
4.4
Year Ended December 31, 2023
Fixed maturity securities . . . . . . .
$
1.0 $
(10.8) $
1.8 $
66.9 $
(8.0) $
66.9
Equity securities . . . . . . . . . . . . . .
0.2
(5.7)
—
32.5
27.0
—
Other invested assets . . . . . . . . . .
—
—
—
3.7
3.7
—
Total investments . . . . . . . . . . . . .
$
1.2 $
(16.5) $
1.8 $
103.1 $
22.7 $
66.9
Year Ended December 31, 2022
Fixed maturity securities . . . . . . .
$
3.2 $
(2.5) $
(4.3) $
(252.5) $
(3.6) $
(252.5)
Equity securities . . . . . . . . . . . . . .
41.2
(17.1)
—
(73.3)
(49.2)
—
Other invested assets . . . . . . . . . .
—
—
—
1.0
1.0
—
Total investments . . . . . . . . . . . . .
$
44.4 $
(19.6) $
(4.3) $
(324.8) $
(51.8) $
(252.5)
(1) AOCI means Accumulated other comprehensive income or loss
Proceeds from sales of fixed maturity securities were $342.8 million, $558.0 million and $313.8 million for years ended
December 31, 2024, 2023, and 2022, respectively.
Net investment income was as follows:
Years Ended December 31,
2024
2023
2022
(in millions)
Fixed maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
91.1 $
92.3 $
81.1
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.8
6.8
8.3
Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.9
3.8
2.8
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.5
2.6
0.2
Cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.8
4.7
2.1
Gross investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
111.1
110.2
94.5
Investment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4.1)
(3.7)
(4.7)
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
107.0 $
106.5 $
89.8
The Company is required by various state laws and regulations to support, through securities on deposit or otherwise, its
outstanding loss reserves in certain states in which it does business. These laws and regulations govern not only the amount but
also the types of securities that are eligible for deposit. As of December 31, 2024 and 2023, securities having a fair value of
$630.9 million and $748.1 million, respectively, were on deposit. Additionally, standby letters of credit from the FHLB were in
place in lieu of $170.0 million and $70.0 million of securities on deposit as of December 31, 2024 and 2023, respectively (see
Note 11).
70
Certain reinsurance contracts require funds owned by the Company to be held in trust for the benefit of the ceding reinsurer to
secure the outstanding liabilities assumed by the Company. The fair value of fixed maturity securities and restricted cash and
cash equivalents held in trust for the benefit of ceding reinsurers at both December 31, 2024 and 2023 was $3.0 million.
6. Current Expected Credit Losses
Premiums Receivable
Premiums receivable balances are all due within one year. The Company currently determines the allowance for premiums
receivable based on an internal aging schedule using collectability and historical payment patterns, as well as current and
expected future market conditions to determine the appropriateness of the allowance. Historical payment patterns and future
market conditions provide the basis for the estimation along with similar risk characteristics and the Company's business
strategy, which have not changed significantly over time. Changes in the allowance for CECL on premiums receivable are
recorded through underwriting and general and administrative expenses.
The table below shows the changes in CECL on premiums receivable.
Years Ended December 31,
2024
2023
(in millions)
Beginning balance of the allowance for CECL on premiums receivable . . . . . . . . . . . . . $
17.9 $
12.8
Current period provision for CECL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.9
17.3
Write-offs charged against the allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13.8)
(3.9)
Recoveries collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8.8)
(8.3)
Ending balance of the allowance for CECL on premiums receivable . . . . . . . . . . . . . . . $
19.2 $
17.9
Reinsurance Recoverables
In assessing an allowance for reinsurance assets, which includes reinsurance recoverables and the Contingent Commission, the
Company considers historical information, the financial strength ratings of reinsurers, and collateralization amounts, to
determine the appropriateness of the allowance. Historically, the Company has not experienced a credit loss from reinsurance
transactions. In assessing future default, the Company evaluated the CECL allowance under the ratings-based method using
AM Best's Average Cumulative Net Impairment Rates. Reinsurer ratings are also assessed through this process. Changes in the
allowance for CECL on reinsurance recoverables are recorded through underwriting and general and administrative expenses.
The table below shows the changes in CECL on reinsurance recoverables.
Years Ended December 31,
2024
2023
(in millions)
Beginning balance of the allowance for CECL on reinsurance recoverables . . . . . . . . . . $
0.9 $
0.9
Current period provision for CECL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Ending balance of the allowance for CECL on reinsurance recoverables . . . . . . . . . . . . . $
0.9 $
0.9
Investments
The Company assesses all AFS investments in an unrealized loss position for CECL. The Company first assesses whether it
intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis.
If either of the criteria is met, the security's amortized cost basis is written down to its fair value. For AFS investments that do
not meet either criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.
In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the
rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors.
Any impairment that has not been recorded through an allowance for credit losses is recognized in Accumulated other
comprehensive income or loss on the Company's Consolidated Balance Sheets. Changes in the allowance for CECL on
investments are recorded as a Realized gain or loss on investments on the Company’s Consolidated Statements of
Comprehensive Income (Loss).
As of December 31, 2024, the Company established an aggregate allowance for CECL on investments in the amount of $1.1
million. For the Company’s investments in fixed maturity debt securities, the allowance for CECL was determined by: (i)
71
observing the credit characteristics of those debt securities that may have demonstrated a credit loss as of that date and by
comparing the present value of cash flows expected to be collected to its amortized cost basis; and (ii) observing the credit
characteristics of those debt securities that are expected to demonstrate a credit loss in the future by comparing the present value
of cash flows expected to be collected to its amortized cost basis. The expected present value of cash flows are calculated using
scenario based credit loss models derived from the discounted cash flows under the Comprehensive Capital Analysis Review
framework, which is adopted by the Federal Reserve.
As of December 31, 2024, the Company did not intend to sell any of its AFS investments in which its amortized cost exceeded
its fair value.
Accrued interest receivable on AFS investments is excluded from the estimate of credit losses as these amounts have been
consistently received on a timely basis.
The table below shows the changes in the allowance for CECL on AFS investments.
Years Ended December 31,
2024
2023
(in millions)
Beginning balance of CECL on AFS investments . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2.7 $
4.5
Net change in CECL provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.4
(0.1)
Reductions in allowance from disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2.0)
(1.7)
Ending balance of CECL on AFS investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.1 $
2.7
7. Property and Equipment
Property and equipment consists of the following:
As of December 31,
2024
2023
(in millions)
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.8 $
1.8
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.5
0.5
Computers and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46.2
45.7
Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.4
0.6
Property and equipment, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48.9
48.6
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(41.1)
(42.1)
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
7.8 $
6.5
Depreciation expenses related to property and equipment for the years ended December 31, 2024, 2023, and 2022 were $3.6
million, $4.8 million, and $5.3 million, respectively. Capitalized costs associated with internally developed software were $2.5
million and $1.8 million during the years ended December 31, 2024 and 2023, respectively.
Cloud Computing Arrangements
Capitalized costs associated with cloud computing arrangements totaled $17.3 million and $28.0 million as of December 31,
2024 and 2023, respectively, which were comprised of service contract fees and implementation costs associated with hosting
arrangements. Total amortization for hosting arrangements for the years ended December 31, 2024 and 2023 was $13.1 million
and $16.7 million, respectively.
In 2023, the Company wrote-off $1.6 million of previously capitalized cloud computing costs associated with a policy
management system as part of a continual evaluation of our ongoing technology initiatives, which is included in Other expenses
on the Company's Consolidated Statements of Comprehensive Income (Loss).
Lease Exit and Disposal Cost
In 2023, the Company recorded a non-recurring charge in connection with the early termination of the lease associated with its
former corporate headquarters in Reno, Nevada. This charge included a one-time lease termination payment of $7.6 million, a
write-off related to remaining leasehold improvements and furniture and equipment of $2.6 million, and estimated
miscellaneous expenses associated with exiting the property of $0.2 million. The Company also recognized a lease termination
gain pertaining to the elimination of the lease liability net of the ROU asset of $1.0 million. These amounts are included in
Other expenses on the Company's Consolidated Statements of Comprehensive Income (Loss). The decision to terminate this
operating lease was undertaken as part of an ongoing review of the Company's future facility needs.
72
8. Income Taxes
The Company files a consolidated federal income tax return. The insurance subsidiaries pay premium taxes on premiums in lieu
of some states' income or franchise taxes. Tax years 2021 through 2024 remain open and are available for examination by the
Internal Revenue Service (IRS).
The Company's provision for income taxes consisted of the following:
Years Ended December 31,
2024
2023
2022
Current tax expense:
(in millions)
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
23.1 $
23.7 $
23.6
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.8
1.5
1.1
Total current tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.9
25.2
24.7
Total deferred federal tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2
5.1
(17.3)
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
28.1 $
30.3 $
7.4
The differences in amounts and percentages between the statutory federal tax rate of 21% and the Company's effective tax rate
on net income before income taxes as reflected in the Consolidated Statements of Comprehensive Income (Loss) were as
follows:
Years Ended December 31,
2024
2023
2022
(in millions)
(percent)
(in millions)
(percent)
(in millions)
(percent)
U.S. Federal statutory tax rate . . . . . . . . . . . . . $
30.8
21.0 % $
31.2
21.0 % $
11.7
21.0 %
State income tax expense, net of federal
income tax effect(1)
. . . . . . . . . . . . . . . . . . . . . .
0.6
0.4
1.1
0.8
0.9
1.5
Tax credits
(0.8)
(0.5)
(0.3)
(0.2)
(0.2)
(0.4)
Nontaxable or nondeductible items . . . . . . . . .
Tax-advantaged investment income . . . . . .
(0.4)
(0.3)
(0.9)
(0.6)
(1.4)
(2.5)
LPT deferred gain amortization and LPT
reserve adjustments . . . . . . . . . . . . . . . . . . .
(1.2)
(0.8)
(1.5)
(1.0)
(1.7)
(3.1)
IRC section 162(m), excessive employee
remuneration . . . . . . . . . . . . . . . . . . . . . . . .
0.8
0.6
0.9
0.6
0.8
1.4
Tax benefit attributable to repeal of IRC
section 847 . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
(1.4)
(2.5)
Pre-Privatization loss and LAE reserve
adjustments, excluding LPT . . . . . . . . . . . .
(1.1)
(0.8)
(0.1)
—
(0.9)
(1.7)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.6)
(0.4)
(0.1)
(0.2)
(0.4)
(0.4)
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . $
28.1
19.2 % $
30.3
20.4 % $
7.4
13.3 %
(1) Florida and Illinois make up the majority (greater than 50 percent) of the state income tax expense, net of federal income tax effect
category.
The LPT Reserve Adjustments for the years ended December 31, 2024 and 2023 decreased net income by $1.7 million, and
$0.9 million, respectively, but did not affect taxable income. The LPT Contingent Commission adjustments increased net
income by $0.4 million, and $0.3 million during 2024 and 2023, respectively, but did not increase taxable income.
73
The significant components of deferred income taxes, net, were as follows as of December 31:
2024
2023
Deferred Tax
Deferred Tax
Assets
Liabilities
Assets
Liabilities
(in millions)
Unrealized capital gains and losses, net . . . . . . . . . . . . . . . . . . . . . . . $
— $
4.3 $
3.1 $
—
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
12.7
—
11.9
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1.6
—
1.6
Loss reserve discounting for income tax reporting . . . . . . . . . . . . . .
31.4
—
31.2
—
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.8
—
14.9
—
Allowance for bad debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2
—
4.0
—
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.6
—
1.6
—
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2
—
4.9
—
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.9
0.8
1.2
1.1
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.3
9.7
3.2
6.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
67.4 $
29.1 $
64.1 $
20.7
Deferred income tax asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
38.3
$
43.4
Deferred tax assets are required to be reduced by a valuation allowance if it is more likely than not that all or some portion of
the deferred tax asset will not be realized. Realization of the deferred income tax asset is dependent on the Company generating
sufficient taxable income in future years as the deferred income tax charges become deductible for tax reporting purposes.
Although realization is not assured, management believes that it is more likely than not that the net deferred income tax asset
will be realized. For the years ended December 31, 2024 and 2023, respectively, the Company did not record a deferred tax
asset valuation allowance.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, in income taxes. For the
years ended December 31, 2024, 2023, and 2022, respectively, the Company incurred no material interest and penalties. All of
the total amount of gross unrecognized tax benefits, if recognized, would impact the Company's effective tax rate. The changes
in the balances of gross unrecognized tax benefits were as follows:
Years Ended December 31,
2024
2023
2022
(in millions)
Beginning balance of unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . $
0.6 $
0.4 $
0.3
Increases resulting from prior period tax provisions . . . . . . . . . . . . . . . .
0.4
—
0.1
Increases resulting from current period tax provisions . . . . . . . . . . . . . . .
0.5
0.2
0.1
Decreases resulting from lapse of applicable statute of limitations . . . . .
(0.1)
—
(0.1)
Ending balance of unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . . . $
1.4 $
0.6 $
0.4
9. Liability for Unpaid Losses and Loss Adjustment Expenses
Accounting for workers' compensation insurance requires the Company to estimate the liability for the expected ultimate cost of
unpaid losses and LAE (loss reserves) as of a balance sheet date. Loss reserve estimates are inherently uncertain because the
ultimate amount the Company will pay for many of the claims it has incurred as of the balance sheet date will not be known for
many years. The estimate of loss reserves is intended to equal the difference between the expected ultimate losses and LAE of
all claims that have occurred as of a balance sheet date and amounts already paid. The Company establishes loss reserves based
on its own analysis of emerging claims experience and environmental conditions in its markets and review of the results of
various actuarial projections. The Company's aggregate carried reserve for unpaid losses and LAE is the sum of its reserves for
each accident year and represents its best estimate of outstanding loss reserves.
The amount by which estimated losses in the aggregate differ from those previously estimated for a specific time period is
known as reserve development. Reserve development is unfavorable when losses ultimately settle for more than the amount
estimated or subsequent estimates indicate a basis for reserve increases on open claims, causing the previously estimated loss
reserves to be deficient. Reserve development is favorable when estimates of ultimate losses indicate a decrease in established
reserves, causing the previously estimated loss reserves to be redundant. Development is reflected in the Company's operating
results through an adjustment to incurred losses and LAE during the period in which it is recognized.
Although claims for which reserves are established may not be paid for several years or more, the Company does not discount
loss reserves in its financial statements for the time value of money, in accordance with GAAP.
74
The three main components of reserves for unpaid losses and LAE are case reserves, incurred but not reported (IBNR) loss
reserves, and LAE reserves.
When claims are reported, the Company establishes individual estimates of the ultimate cost of each claim (case reserves).
These case reserves are continually monitored and revised in response to new information and for amounts paid.
In addition to case reserves, the Company establishes a provision for IBNR. IBNR is an actuarial estimate composed of the
following: (i) future payments on claims that are incurred but have not yet been reported to the Company; (ii) a reserve for the
additional development on claims that have been reported to the Company; and (iii) a provision for additional payments on
closed claims that might reopen. IBNR reserves apply to the entire body of claims arising from a specific period, rather than a
specific claim. Most of the Company's IBNR reserves relate to estimated future claim payments on recorded open claims.
LAE reserves are the Company's estimate of the future expense to manage, investigate, administer, and settle claims that have
occurred, and include legal expenses. LAE reserves are established in the aggregate, rather than on a claim-by-claim basis. LAE
reserves are categorized between defense and cost containment (DCC), and adjusting and other (AO).
A portion of the Company's obligations for losses and LAE are ceded to unaffiliated reinsurers. The amount of reinsurance that
will be recoverable on losses and LAE reserves includes both the reinsurance recoverable from excess of loss reinsurance
contracts, as well as reinsurance recoverable under the terms of the LPT Agreement.
The Company uses actuarial methods to analyze and estimate the aggregate amount of unpaid losses and LAE. Management
considers the results of various actuarial methods and their underlying assumptions, among other factors, in establishing
reserves for unpaid losses and LAE.
Judgment is required in the actuarial estimation of loss reserves, including the selection of various actuarial methodologies to
project the ultimate cost of claims. Specifically, judgment is required in the following areas: the selection of parameters utilized
in the various methodologies; the use of industry data and other benchmarks; and the weighting of differing reserve indications
resulting from alternative methods and assumptions.
The Company prepares reserve estimates for all accident years using our own historical claims data, industry data and many of
the generally accepted actuarial methodologies for estimating loss reserves, such as paid loss development methods, incurred
loss development methods, and Bornhuetter-Ferguson methods. These methods vary in their responsiveness to different
information, characteristics, and dynamics in the data, and the results assist the actuary in considering these characteristics and
dynamics in the historical data. The methods employed for each segment of claims data, and the relative weight accorded to
each method, vary depending on the nature of the claims segment and on the age of the claims.
Each actuarial methodology requires the selection and application of various parameters and assumptions. The key parameters
and assumptions include the future payment and emergence patterns of our aggregate claims data; the magnitude and changes in
claim settlement activity; the effects of legislative benefit changes and/or judicial decisions; and trends in the frequency and
severity of claims.
The following table represents a reconciliation of changes in the liability for unpaid losses and LAE.
Years Ended December 31,
2024
2023
2022
(in millions)
Unpaid losses and LAE at beginning of period . . . . . . . . . . . . . . . . . . . . . . . $
1,884.5 $
1,960.7 $
1,981.2
Less reinsurance recoverable, excluding CECL allowance, on unpaid
losses and LAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
428.4
445.4
476.9
Net unpaid losses and LAE at beginning of period . . . . . . . . . . . . . . . . . . . .
1,456.1
1,515.3
1,504.3
Losses and LAE, net of reinsurance, incurred during the period related to:
Current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
480.2
457.8
432.8
Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(18.4)
(44.9)
(33.5)
Total net losses and LAE incurred during the period . . . . . . . . . . . . . . . . . .
461.8
412.9
399.3
Paid losses and LAE, net of reinsurance, related to:
Current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
127.1
111.7
92.5
Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
395.0
360.4
295.8
Total net paid losses and LAE during the period . . . . . . . . . . . . . . . . . . . . .
522.1
472.1
388.3
Ending unpaid losses and LAE, net of reinsurance . . . . . . . . . . . . . . . . . . . .
1,395.8
1,456.1
1,515.3
Reinsurance recoverable, excluding CECL allowance, on unpaid losses
and LAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
412.4
428.4
445.4
Unpaid losses and LAE at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,808.2 $
1,884.5 $
1,960.7
75
Total net losses and LAE included in the above table excludes the impact of the amortization of the Deferred Gain and LPT
Reserve adjustments (See Note 10).
In 2024, the Company had $18.4 million of net favorable prior accident year loss reserve development, which included $17.9
million of favorable loss reserve development on the Company's voluntary business and $0.5 million on its assigned risk
business. The net favorable loss development recognized in 2024 was primarily the result of overall favorable loss experience,
including decreasing medical paid loss trends in California, partially offset by unfavorable prior year loss experience in accident
years 2023 and 2021 associated with certain large claims.
In 2023, the Company had $44.9 million of net favorable prior accident year loss reserve development, which included $44.6
million of favorable loss reserve development on the Company's voluntary business and $0.3 million on its assigned risk
business. The net favorable loss development recognized in 2023 was primarily the result of decreasing medical paid loss trends
in California related to accident years 2020 and prior, partially offset by reserve strengthening related to accident year 2021.
The rapid economic rebound following the COVID-19 pandemic led to large premium and payroll increases related to accident
year 2021 that were recognized through policy audits in subsequent years. In response, the Company strengthened its reserves
for accident year 2021 to reflect the potential for higher losses arising from the higher than expected premium exposure.
In 2022, the Company had $33.5 million of net favorable prior accident year loss reserve development, which included $32.1
million of favorable development on its voluntary business and $1.4 million on its assigned risk business. The net favorable loss
development recognized in 2022 was primarily the result of decreasing medical and indemnity paid loss trends related to
accident years 2020 and prior.
The Company compiles and aggregates its claims data by grouping the claims according to the year in which the claim occurred
(accident year) when analyzing claim payment and emergence patterns and trends over time. Reported claims include any claim
that has case reserves and/or loss and LAE payments associated with them.
The Company analyzed the usefulness of disaggregation of its results and determined the characteristics associated with the
policies and the related unpaid loss reserves, incurred losses, and payment patterns are similar in nature. As such, the following
tables show the Company's historical incurred and cumulative paid losses and LAE development, net of reinsurance, as well as
IBNR loss reserves and the number of reported claims on an aggregated basis as of December 31, 2024 for each of the previous
ten accident years.
Incurred Losses and DCC, Net of Reinsurance
Years Ended December 31,
As of December 31, 2024
Accident
Year
2015(1) 2016(1) 2017(1) 2018(1) 2019(1) 2020(1) 2021(1) 2022(1) 2023(1)
2024
IBNR
Cumulative
number of
reported claims
(in millions, except claims counts)
2015 . . . $ 422.2 $ 425.8 $ 423.9 $ 419.6 $ 408.7 $ 396.7 $ 384.9 $ 381.9 $ 374.9 $ 370.4 $
14.3
27,293
2016 . . .
419.0 414.6 395.4 375.0 364.6 354.8 350.4 347.1
342.4
16.2
25,833
2017 . . .
412.4 391.3 358.3 337.9 329.8 326.9 322.5
315.8
18.2
25,128
2018 . . .
422.5 424.6 407.7 400.6 400.5 400.5
400.8
22.8
28,028
2019 . . .
422.4 435.7 448.5 448.8 443.9
441.7
34.6
33,060
2020 . . .
365.7 374.0 373.3 366.9
364.4
27.0
24,320
2021 . . .
339.2 339.0 348.9
359.4
24.1
23,096
2022 . . .
399.3 400.7
400.7
48.0
23,559
2023 . . .
421.4
433.3
77.7
24,053
2024 . . .
442.3
188.6
21,615
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,871.2
76
Cumulative Paid Losses and DCC, Net of Reinsurance
Years Ended December 31,
Accident Year
2015(1)
2016(1)
2017(1)
2018(1)
2019(1)
2020(1)
2021(1)
2022(1)
2023(1)
2024
(in millions)
2015 . . . . . . . . . . . . . . . . $
65.5 $ 174.5 $ 246.9 $ 290.5 $ 311.2 $ 322.2 $ 329.3 $ 333.7 $ 337.6 $
340.9
2016 . . . . . . . . . . . . . . . .
65.6
166.8
227.7
261.2
278.3
290.0
298.1
302.3
309.2
2017 . . . . . . . . . . . . . . . .
63.5
160.2
215.7
243.7
260.0
269.5
277.1
283.5
2018 . . . . . . . . . . . . . . . .
77.9
189.9
254.2
293.6
315.2
340.1
352.3
2019 . . . . . . . . . . . . . . . .
88.8
212.6
285.2
325.8
354.4
374.5
2020 . . . . . . . . . . . . . . . .
71.9
175.6
233.5
274.3
299.6
2021 . . . . . . . . . . . . . . . .
66.1
166.8
231.2
277.5
2022 . . . . . . . . . . . . . . . .
76.5
203.7
279.0
2023 . . . . . . . . . . . . . . . .
92.5
240.7
2024 . . . . . . . . . . . . . . . .
106.9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,864.1
All outstanding liabilities for unpaid losses and DCC prior to 2015, net of reinsurance . . . . . . . . . . . . . . . . . . . . . . .
321.9
Total outstanding liabilities for unpaid losses and DCC, net of reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,329.0
(1)
Data presented for these calendar years is required supplementary information, which is unaudited.
The following table represents a reconciliation of claims development to the aggregate carrying amount of the liability for
unpaid losses and LAE:
December 31, 2024
(in millions)
Liabilities for unpaid losses and LAE, net of reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,329.0
Reinsurance recoverable, excluding CECL allowance, on unpaid losses . . . . . . . . . . . . . . . . . . . . . .
412.4
AO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66.8
Total liability for unpaid losses and LAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,808.2
The following table presents the average annual percentage payout of incurred claims by age, net of reinsurance, as of
December 31, 2024 and is presented as required supplementary information, which is unaudited:
Average Annual Percentage Payout of Claims by Age, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
19.9 %
29.8 %
17.5 %
10.5 %
5.8 %
4.0 %
2.4 %
1.5 %
1.6 %
0.9 %
10. Reinsurance
The Company purchases reinsurance from third parties in the normal course of its business in order to manage its exposures.
The Company's reinsurance coverage is provided on both a quota share and excess of loss basis.
The effects of reinsurance on the Company's written and earned premiums and on its losses and LAE incurred were as follows:
Years Ended December 31,
2024
2023
2022
Written
Earned
Written
Earned
Written
Earned
(in millions)
Direct premiums . . . . . . . . . . . . . . . . . . . . . $
767.8 $
747.8 $
758.6 $
719.9 $
705.3 $
673.2
Assumed premiums . . . . . . . . . . . . . . . . . .
8.5
8.5
9.1
9.1
8.9
9.0
Gross premiums . . . . . . . . . . . . . . . . . . . . .
776.3
756.3
767.7
729.0
714.2
682.2
Ceded premiums . . . . . . . . . . . . . . . . . . . .
(6.8)
(6.8)
(7.1)
(7.1)
(7.0)
(7.0)
Net premiums . . . . . . . . . . . . . . . . . . . . . . . $
769.5 $
749.5 $
760.6 $
721.9 $
707.2 $
675.2
Ceded losses and LAE incurred . . . . . . . . . $
13.1
$
17.0
$
3.5
Ceded losses and LAE incurred includes the amortization of the Deferred Gain, LPT Reserve Adjustments, and LPT Contingent
Commission adjustments.
77
Excess of Loss Reinsurance
The Company purchases reinsurance annually to protect it against the costs of severe claims and certain catastrophic events in
its workers' compensation business. The reinsurance program consists of one treaty covering excess of loss and catastrophic
loss events in four layers of coverage. The Company's reinsurance coverage for losses from a single occurrence or catastrophic
event is $190.0 million in excess of a $10.0 million retention; including a maximum any one life limit of $20.0 million, subject
to certain exclusions. The current reinsurance program is effective July 1, 2024 through June 30, 2025, and is highly consistent
with annual programs that ended on June 30, 2023 and 2022. This reinsurance coverage includes coverage for pandemics and
acts of terrorism, excluding nuclear, biological, chemical, and radiological events. Any liability outside the coverage limits of
the reinsurance program is retained by the Company.
LPT Agreement
Amounts recoverable from reinsurers on unpaid losses and LAE were $411.5 million and $427.5 million at December 31, 2024
and 2023, respectively. At December 31, 2024 and 2023, $277.1 million and $291.7 million of those recoverables, respectively,
were related to the LPT Agreement that was entered into in 1999 by the Fund and assumed by EICN. Under the LPT
Agreement, substantially all of the Fund's losses and LAE on claims incurred prior to July 1, 1995 have been ceded to three
unaffiliated reinsurers on a 100% quota share basis. Under the LPT Agreement, initially $1.5 billion in liabilities for the
incurred but unpaid losses and LAE related to claims incurred prior to July 1, 1995, were reinsured for consideration of $775.0
million. The LPT Agreement provides coverage up to $2.0 billion. Through December 31, 2024, the Company had paid losses
and LAE claims totaling $895.6 million related to the LPT Agreement.
The Company amortized $5.2 million, $6.9 million, and $8.3 million of the Deferred Gain for the years ended December 31,
2024, 2023, and 2022, respectively. Additionally, through June 30, 2024 and for the year ended December 31, 2023, the
Company recognized $0.4 million and $0.3 million of favorable LPT Contingent Commission adjustments, respectively (Note 2
–Reinsurance).
The Company received the final payment of the Contingent Commission associated with the LPT during the third quarter of
2024.
11. Financing Arrangements
Credit Agreement
On May 28, 2024, EHI entered into a Credit Agreement (the Credit Agreement) with Wells Fargo Bank National Association,
as both administrative agent and issuing lender. The Credit Agreement provides for a $25.0 million, unsecured, three-year
revolving credit facility and is guaranteed by certain of EHI's wholly owned subsidiaries, Employers Group, Inc. (EGI) and
Cerity Group, Inc. (CGI). Borrowings under the Credit Agreement may be used for working capital and general corporate
purposes of EHI and its subsidiaries. Pursuant to the terms of the Credit Agreement, EHI has an option to request an increase of
the credit available under the facility up to a maximum facility amount of $35.0 million, subject to the consent of the lender(s)
and the satisfaction of certain conditions.
The interest rates applicable to loans under the Credit Agreement are generally based on either, at EHI's option: (i) a base rate,
defined as the higher of the Prime Rate, the Federal Funds Rate plus 1.25% and the Adjusted Term Secured Overnight
Financing Rate (SOFR) for a one-month tenor plus 1.75%, or (ii) an Adjusted Term SOFR Rate, defined as the applicable
Adjusted Term SOFR Rate plus 1.75%. In addition, EHI is subject to a fee on the lender’s unused commitment, ranging from
0.30% to 0.55%. The applicable margin and the amount of such commitment fee vary based upon the financial strength rating
of EHI’s insurance subsidiaries as most recently announced by AM Best or EHI’s debt to total capitalization ratio if such
financial strength rating is not available. Total interest paid and/or fees incurred pursuant to the Credit Agreement was
$0.1 million for the year ended December 31, 2024.
The Credit Agreement contains covenants that require EHI and its consolidated subsidiaries to maintain: (i) a minimum
consolidated net worth, defined as EHI’s total stockholders’ equity excluding any accumulated other comprehensive income or
loss, of no less than $800.0 million; and (ii) a debt to total capitalization ratio of no more than 35%, in each case as determined
in accordance with the Credit Agreement. As of December 31, 2024, EHI has remained in compliance with all of the covenants
associated with the Credit Agreement.
EHI incurred $0.2 million in debt issuance costs in connection with the Credit Agreement, which are being amortized over the
three-year life in Interest and financing expenses on the Company's Consolidated Statements of Comprehensive Income (Loss).
Advances can be repaid at any time without prepayment penalties or additional fees.
EHI had no borrowings under the Credit Agreement during the year ended December 31, 2024.
On January 8, 2025, AM Best upgraded the financial strength ratings of EHI’s insurance subsidiaries to “A” (Excellent). As a
result of this ratings action, and effective as of that date: (i) the applicable margin with respect to SOFR loans was reduced from
78
1.75% to 1.50%; (ii) the applicable margin with respect to base rate loans was reduced from 0.75% to 0.50%; and (iii) the
annual commitment fee on the unused portion of the facility was reduced from 0.35% to 0.30%.
Former Credit Agreement
On December 15, 2020, EHI entered into a Credit Agreement (the former Credit Agreement) with a syndicate of financial
institutions. The former Credit Agreement provided for a $75.0 million three-year revolving credit facility and was guaranteed
by EHI’s wholly owned subsidiaries, EGI and CGI. Borrowings under the former Credit Agreement could be used for working
capital and general corporate purposes of EHI and its subsidiaries.
The interest rates applicable to loans made under the former Credit Agreement were generally based on, at EHI's option, a base
rate plus a specified margin, ranging from 0.25% to 1.25%, or the Adjusted Term SOFR rate plus a specified margin, ranging
from 1.25% to 2.25%. In addition, EHI paid a fee on each lender’s unused commitment, ranging from 0.20% to 0.50%. Interest
paid and/or fees incurred pursuant to the former Credit Agreement during the years ended December 31, 2023 and 2022 was
$0.5 million and $0.3 million, respectively.
The former Credit Agreement contained covenants that required EHI and its consolidated subsidiaries to maintain: (i) a
minimum consolidated net worth; and (ii) a debt to total capitalization ratio of no more than 35%. EHI remained in compliance
with all of the covenants associated with the former Credit Agreement from its inception to its expiration on December 15,
2023.
EHI borrowed and subsequently repaid $10.0 million under the former Credit Agreement during the year ended December 31,
2022 and had no borrowings during the year ended December 31, 2023.
FHLB
Each of the Company's insurance subsidiaries are members of the FHLB. Membership allows the insurance subsidiaries access
to collateralized advances, which may be used to support and enhance liquidity management. The amount of advances that may
be taken is dependent on statutory admitted assets on a per company basis.
During 2022, the Company's insurance subsidiaries, with the exception of CIC, had received aggregate advances of $182.5
million under the FHLB Standard Credit Program. These advances could be repaid at any time without penalty and were
collateralized by eligible investment securities. The proceeds from these advances were used to purchase an equivalent amount
of high-quality collateralized loan obligation securities. The Company's weighted average annual interest rate on these advances
was 5.11% for 2023 and 2.65% for 2022. Interest incurred and paid during the year ended December 31, 2023 each totaled $5.3
million, and in 2022 totaled $3.0 million and $2.3 million, respectively. In 2023, the Company's insurance subsidiaries repaid
all of its advances under the FHLB Standard Credit Program.
FHLB membership also allows the Company's insurance subsidiaries access to standby letters of credit (Letter of Credit
Agreements). Throughout 2022 and 2023, EAC, ECIC, and EPIC had $25.0 million, $35.0 million, and $10.0 million of Letter
of Credit Agreements in effect, respectively. On October 9, 2024, EPIC amended its existing Letter of Credit Agreement to
increase its capacity to $110.0 million. The Letter of Credit Agreements currently in effect expire on March 31, 2025, and will
remain evergreen with automatic one-year extensions unless the FHLB notifies the beneficiary at least 60 days prior to the then
applicable expiration date of its election not to renew. The Letter of Credit Agreements may only be used to satisfy, in whole or
in part, insurance deposit requirements with the State of California and are fully secured with eligible collateral at all times. The
Letter of Credit Agreements are subject to annual maintenance charges and a fee of 15 basis points on issued amounts. As of
December 31, 2024 and 2023 letters of credit totaling $170.0 million and $70.0 million, respectively, were issued in lieu of
securities on deposit with the State of California under these Letter of Credit Agreements.
As of December 31, 2024 and 2023, investment securities having a fair value of $284.7 million and $286.4 million,
respectively, were pledged to the FHLB by the Company's insurance subsidiaries in support of the collateralized advance
facility and the Letter of Credit Agreements.
12. Commitments and Contingencies
Leases
At December 31, 2024, the Company's operating leases have remaining terms of one to five years, with options to extend up to
five years with no termination provision. The Company's finance leases have an option to terminate after one year.
79
Components of lease expense were as follows:
Years Ended December 31,
2024
2023
(in millions)
Operating lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.1 $
1.6
Finance lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
0.2
Total lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.2 $
1.8
As of December 31, 2024, the weighted average remaining lease terms for operating and financing leases were 3.2 years and
1.2 years, respectively, and the associated weighted average discount rates were 1.3% and 7.3%, respectively.
Maturities of lease liabilities were as follows:
Year
Operating Leases
Finance Leases
(in millions)
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.5 $
0.1
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.2
—
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.2
—
2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.4
—
2029 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3
0.1
Less: imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.1)
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4.2 $
0.1
Supplemental balance sheet information related to leases was as follows:
As of December 31,
2024
2023
(in millions)
Operating leases:
Operating lease right-of-use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3.7
5.1
Operating lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2
5.9
Finance leases:
Property and equipment, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.4
0.6
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.3)
(0.4)
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
0.2
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.1 $
0.2
Supplemental cash flow information related to leases was as follows:
Years Ended December 31,
2024
2023
(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.1 $
1.6
Financing cash flows used for finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
0.2
Lease Exit and Disposal Costs
During the year ended December 31, 2023, the Company recorded a non-recurring charge in connection with the early
termination of the lease associated with its former corporate headquarters in Reno, Nevada. This charge included a one-time
lease termination payment of $7.6 million, a write-off related to remaining leasehold improvements and furniture and
equipment of $2.6 million, and estimated miscellaneous expenses associated with exiting the property of $0.2 million. The
Company also recognized a related lease termination gain pertaining to the elimination of the lease liability net of the ROU
asset of $1.0 million, which amount is included in Other expenses on the Company’s Consolidated Statements of
Comprehensive Income (Loss). The decision to terminate the former Reno operating lease was undertaken as part of an ongoing
review of the Company's current and future facility needs.
80
Contingencies Surrounding Insurance Assessments
Each of the states where the Company's insurance subsidiaries are licensed to transact business require property and casualty
insurers that write business within the respective state to pay various insurance assessments. The Company accrues a liability
for estimated insurance assessments as direct premiums are written, losses are recorded, or as other events occur, depending on
the relevant laws and regulations of a particular state. The Company defers such costs to the extent they are associated with
unearned premium and recognizes them as an expense as such premiums are earned. The Company had an accrued liability for
guaranty fund assessments, second injury funds assessments, and other insurance assessments totaling $12.2 million and $13.0
million as of December 31, 2024 and 2023, respectively. These liabilities are generally expected to be paid over periods from
less than one year to, in some instances, the duration of the outstanding claims, based on individual state's laws and regulations.
The Company also recorded an asset of $11.2 million and $12.5 million as of December 31, 2024 and 2023, respectively, for
remitted estimated policy charges anticipated to be recouped from policyholders. This asset also includes state assessments that
may be recovered through a reduction in future premium taxes. These assets are expected to be realized over one to ten year
periods in accordance with their type and each individual state's laws and regulations.
Unfunded Investment Commitments
As of December 31, 2024 and 2023, the Company had unfunded commitments to invest $15.6 million and $25.4 million,
respectively, into private equity limited partnerships. See Note 4.
13. Stockholders' Equity
Stock Repurchase Programs
On July 26, 2023, the Board authorized a stock repurchase authorization for up to $50.0 million of repurchases of our common
stock from July 31, 2023 through December 31, 2024 (the 2023 Program). On June 10, 2024, the Board authorized a
$50.0 million addition to the 2023 Program, increasing our aggregate purchase authority to $100.0 million, and extended the
repurchase authority pursuant to the 2023 Program through July 31, 2025. The 2023 Program replaced its former program that
expired on December 31, 2023. The 2023 Program provides that shares may be purchased in the open market and/or in
privately negotiated transactions from time to time, and that all purchases shall be made in compliance with all applicable
provisions of the Nevada Revised Statutes and federal and state securities laws including, Rules 10b5-1 and 10b-18 of the
Exchange Act, as amended. Through December 31, 2024, the Company has repurchased a total of 1,694,483 shares of common
stock at an average price of $41.58 per share, including commissions, for a total of $70.5 million under the 2023 Program.
Since the Company's initial public offering in January 2007 through December 31, 2024, the Company has repurchased a total
of 33,628,155 shares of common stock at an average cost per share of $22.17 through various stock repurchase programs,
which is reported as treasury stock, at cost, on its Consolidated Balance Sheets.
The Inflation Reduction Act of 2022 added a new IRC section, Section 4501, that imposes a 1% excise tax on certain stock
repurchases on publicly traded companies occurring after December 31, 2022. The Company's excise tax obligation is $0.3
million and $0.7 million at December 31, 2024 and 2023, respectively, which is included in treasury stock, on its Consolidated
Balance Sheets.
14. Stock-Based Compensation
On May 28, 2020, the Company’s stockholders approved the Employers Holdings, Inc. Amended and Restated Equity and
Incentive Plan (as amended and restated, the Plan). The Plan will expire on the tenth anniversary of April 1, 2020, which is also
the effective date of the Plan. The Plan is administered by the Human Capital Management and Compensation Committee of
the Board (Compensation Committee), which is authorized to grant, at its discretion, awards to officers, employees, non-
employee directors, consultants, and independent contractors. The maximum number of common shares reserved for grants of
awards under the Plan was 6,555,000 shares, prior to reductions for grants made. The Plan provides for the grant of stock
options (both incentive stock options and nonqualified stock options), stock appreciation rights, shares of restricted stock,
restricted stock units (RSUs), performance stock units (PSUs), and other stock-based awards.
Employees that are awarded RSUs and PSUs are entitled to receive dividend equivalents for eligible awards, payable in cash,
when and if, the underlying award vests and becomes payable. If the underlying award does not vest or is forfeited, dividend
equivalents with respect to the underlying award fail to become payable and are forfeited.
As of December 31, 2024, the only stock based incentive awards outstanding under the Plan were RSUs and PSUs.
Compensation costs are recognized based on actual or expected performance, if applicable, net of any estimated forfeitures on a
straight-line basis over the requisite employee service periods. Forfeiture rates are based on historical experience and are
adjusted in subsequent periods for differences in actual forfeitures from those estimated. The Company’s forfeiture assumptions
serve to reduce the unamortized grant date fair value of outstanding awards as well as the associated stock-based compensation
expense. As awards are actually forfeited, the number of awards outstanding is reduced and the remaining unamortized grant
date fair value is compared to assumed forfeiture levels. True-up adjustments are made as deemed necessary. For the years
81
presented, the Company assumed a zero to 15% forfeiture rate on RSU and PSU awards. Net stock-based compensation
expense recognized in the Company's Consolidated Statements of Comprehensive Income (Loss) was as follows:
Years Ended December 31,
2024
2023
2022
Stock-based compensation expense related to:
(in millions)
RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2
3.5
2.6
PSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.0
2.6
2.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.2
6.1
4.9
Less: related tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3
1.3
1.0
Net stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4.9 $
4.8 $
3.9
Stock Options
No stock options were granted in 2024, 2023 or 2022, and no stock options were outstanding or exercisable at each of the years
ended December 31, 2024 and 2023.
Changes in outstanding stock options as of December 31, were as follows:
Number of Stock
Options
Weighted-
Average Price
Weighted Average
Remaining
Contractual Life
Stock options outstanding at January 1, 2022 . . . . . . . . . . . . . .
65,165 $
25.96
0.7 years
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(41,665)
24.97
Stock options outstanding at December 31, 2022 . . . . . . . . . . .
23,500
27.72
0.2 years
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(23,500)
27.72
Stock options outstanding at December 31, 2023 . . . . . . . . . . .
—
—
0.0 years
The fair value of stock options vested and the intrinsic value of outstanding and exercisable stock options as of December 31,
were as follows:
2024
2023
2022
(in millions)
Intrinsic value of outstanding stock options . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
0.4
Intrinsic value of exercisable stock options . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
0.4
The intrinsic value of stock options exercised was $0.4 million and $0.7 million for the years ended December 31, 2023 and
2022, respectively.
RSUs
The Company has awarded RSUs to non-employee members of the Board and certain employees of the Company.
The RSUs awarded to non-employee members of the Board generally vest on the first anniversary of the award date. RSU
grants allow each non-employee Director to decide whether to defer settlement of the RSUs until six months after termination
of Board service or settle the RSUs at vesting. Dividend equivalents are granted to Directors who elected to defer settlement of
the RSUs after the grants have vested.
The RSUs awarded to employees of the Company typically have a service vesting period of four years from the date awarded
and vest 25% on or after each of the subsequent four anniversaries of such date. All RSUs are subject to accelerated vesting in
certain limited circumstances, such as: retirement, death or disability of the holder, or in connection with a change of control of
the Company.
82
Changes in outstanding RSUs as of December 31, were as follows:
Number of RSUs
Weighted Average
Grant Date Fair Value
RSUs outstanding at January 1, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
198,126 $
34.53
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
124,042
39.90
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,728)
38.45
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(51,127)
37.69
RSUs outstanding at December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . .
257,313
36.28
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112,114
40.05
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(27,447)
40.06
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(111,158)
33.83
RSUs outstanding at December 31, 2023 . . . . . . . . . . . . . . . . . . . . . . . . .
230,822
38.84
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89,783
45.33
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(18,251)
42.16
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(88,062)
38.59
RSUs outstanding at December 31, 2024 . . . . . . . . . . . . . . . . . . . . . . . . .
214,292
41.40
Vested but unsettled RSUs at December 31, 2024 . . . . . . . . . . . . . . . . . .
31,553
35.46
At December 31, 2024, the Company had yet to recognize $5.4 million of expense related to outstanding RSUs and expects to
recognize the remaining expense on a straight-line basis over the next 39 months. The grant date fair value of RSUs vested and
the intrinsic value of vested RSUs for the years ended December 31, were as follows:
2024
2023
2022
(in millions)
Grant date fair value of RSUs vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3.4 $
3.8 $
1.9
Intrinsic value of RSUs vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.0
4.4
2.1
The intrinsic value of outstanding RSUs was $11.0 million, $9.1 million, and $11.1 million at December 31, 2024, 2023, and
2022, respectively.
PSUs
The Company has awarded PSUs to certain employees of the Company as follows:
Date of Grant
Target Number
Awarded
Fair Value on
Date of Grant
Aggregate Fair Value
on Date of Grant
(in millions)
March 2022(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,120
40.54
3.0
March 2023(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,800
41.14
3.4
April 2023(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,220
42.34
0.1
February 2024(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,360
46.36
3.6
(1)
The PSUs awarded in March 2022, had a performance period of two years, followed by an additional one year vesting period. These
awards were subject to certain performance goals with payouts that ranged from 0% to 250% of the target awards. The actual
performance goal achieved was determined to be 59% of target in February 2024. The values shown in the table represent the aggregate
number of PSUs that were originally awarded at the target level.
(2)
The PSUs awarded in March 2023, April 2023, and February 2024 have a performance period of three years. These PSU awards are
subject to certain performance goals with payouts that range from 0% to 250% of the target awards. The values shown in the table
represent the aggregate number of PSUs awarded at the target level.
At December 31, 2024, the Company had yet to recognize $4.3 million of expense related to the 2023 and 2024 PSU grants and
expects to recognize the remaining expense associated with the 2023 PSU grants on a straight-line basis over the next 12
months and the 2024 PSU grants on a straight-line basis over the next 24 months. This is based on the expectation of the
Company achieving a 130% of target rate for the 2023 PSUs, and a 100% of target rate for the 2024 PSUs.
83
15. Statutory Matters
Statutory Financial Data
The combined capital stock, surplus, and net income of the Company's insurance subsidiaries (EICN, ECIC, EPIC, EAC, and
CIC), prepared in accordance with the statutory accounting practices (SAP) of the National Association of Insurance
Commissioners (NAIC) as well as SAP permitted by the states of California, Florida, Nevada, and New York were as follows:
December 31,
2024
2023
(in millions)
Capital stock and unassigned surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
776.7 $
739.7
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
243.2
243.2
Total statutory surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,019.9 $
982.9
Net income provided from the Company's insurance subsidiaries prepared in accordance with SAP was $92.1 million, $96.2
million, and $105.1 million, for the years ended December 31, 2024, 2023, and 2022, respectively.
Treatment of the LPT Agreement, deferred policy acquisition costs, and fair value of financial instruments (see Notes 4 and 10)
are the primary differences in the SAP-basis capital stock and total surplus of the insurance subsidiaries of $1,019.9 million and
$982.9 million, and the GAAP-basis equity of the Company of $1,068.7 million and $1,013.9 million as of December 31, 2024
and 2023, respectively. Under SAP accounting, the retroactive reinsurance gain resulting from the LPT Agreement is recorded
as a special component of surplus (special surplus funds) in the initial year of the contract, and not reported as unassigned
surplus until the Company has recovered amounts in excess of the original consideration paid. The special surplus funds are
also reduced by the amount of extraordinary dividends as approved by the Nevada Division of Insurance. Under SAP, changes
to the estimated contingent profit commission under the LPT Agreement was reflected in commission expense through June 30,
2024 when the final payment was determined.
Insurance Company Dividends and Regulatory Requirements and Restrictions
The ability of EHI to pay dividends on the Company's common stock and to pay other expenses will be dependent to a
significant extent upon the ability of the Nevada domiciled insurance company, EICN, the California domiciled insurance
company, ECIC, the Florida domiciled insurance companies, EPIC and EAC, to pay dividends to their immediate holding
company, Employers Group, Inc. (EGI) and the New York domiciled insurance company, CIC, to pay dividends to its
immediate holding company Cerity Group, Inc. (CGI), and in turn, the ability of EGI and CGI to pay dividends to EHI. The
amount of dividends each of the Company's insurance subsidiaries may pay to their immediate parent is limited by the laws of
its respective state of domicile.
Nevada law limits the payment of cash dividends by EICN to its parent by providing that payments cannot be made except from
available and accumulated surplus, otherwise unrestricted (unassigned), and derived from realized net operating profits and
realized and unrealized capital gains. A stock dividend may be paid out of any available surplus. A cash or stock dividend
prohibited by these restrictions may only be declared and distributed as an extraordinary dividend upon the prior approval of the
Nevada Commissioner of Insurance (Nevada Commissioner). EICN may not pay such an extraordinary dividend or make an
extraordinary distribution until the Nevada Commissioner either approves or does not disapprove the payment within 30 days
after receiving notice of its declaration. An extraordinary dividend or distribution is defined by statute to include any dividend
or distribution of cash or property whose fair market value, together with that of other dividends or distributions made within
the preceding 12 months, exceeds the lesser of: (a) 10% of EICN's statutory surplus as regards to policyholders at the preceding
December 31; or (b) EICN's statutory net income, not including realized capital gains, for the 12-month period ending at the
preceding December 31. As of December 31, 2024, EICN had positive unassigned surplus of $259.1 million. During 2024,
EICN paid an ordinary dividend in the amount of $13.7 million to its parent company, EGI. As a result of that payment, EICN
cannot pay any dividends through March 26, 2025, and can pay $14.0 million of dividends thereafter, without regulatory
approval.
Under Florida law, without regulatory approval, EPIC and EAC may pay dividends if they do not exceed the greater of: the
lesser of 10% of surplus or net income, not including realized capital gains, plus a 2-year carry forward; 10% of surplus, with
dividends payable limited to unassigned funds minus 25% of unrealized capital gains; or, the lesser of 10% of surplus or net
investment income plus a 3-year carry forward with dividends payable limited to unassigned funds minus 25% of unrealized
capital gains. During 2024, EAC paid an ordinary dividend in the amount of $22.4 million to its parent company, EGI. As a
result of that payment, EAC cannot pay any dividends through July 15, 2025 and $23.6 million thereafter, without regulatory
approval from the Florida Office of Insurance Regulation (FOIR), provided that no dividends are paid prior to July 15, 2025.
During 2024, EPIC paid an ordinary dividend in the amount of $23.2 million to its parent company, EGI. As a result of that
84
payment, EPIC cannot pay any dividends through July 15, 2025 and can pay $23.9 million of dividends thereafter, without
regulatory approval from the FOIR.
EPIC and EAC are subject to regulation by the Florida Department of Financial Services (FDFS). Florida statute Section
624.408 requires EPIC and EAC to maintain minimum capital and surplus of the greater of $4.0 million or 10% of total
liabilities. Florida statutes require EPIC and EAC to maintain a ratio of written premiums, defined as 1.25 times written
premiums, to surplus of no greater than 10-to-1 for gross written premiums and 4-to-1 for net written premiums. During the
years ended December 31, 2024, 2023, and 2022, EPIC and EAC were in compliance with these statutes.
ECIC is subject to regulation by the California Department of Insurance (California DOI). Additionally, the California
Insurance Holding Company System Regulatory Act limits the ability of ECIC to pay dividends to its parent. California law
provides that, absent prior approval of the California Insurance Commissioner, dividends may only be declared from earned
surplus. For purpose of this statute, earned surplus excludes amounts derived from net appreciation in the value of assets not yet
realized, or derived from an exchange of assets, unless the assets received are currently realizable in cash. In addition,
California law provides that the appropriate insurance regulatory authorities in the state of California must approve (or, within a
30-day notice period, not disapprove) any dividend that, together with all other such dividends paid during the preceding 12
months, exceeds the greater of: (i) 10% of the paying company's statutory surplus as regards to policyholders at the preceding
December 31; or (ii) 100% of net income for the preceding year. During the years ended December 31, 2024, 2023, and 2022,
ECIC was in compliance with these requirements.
During 2024, ECIC paid an ordinary dividend in the amount of $23.3 million to its parent company, EGI. As a result of that
payment, ECIC cannot pay any dividends until March 18, 2025 and can pay $23.5 million thereafter without prior regulatory
approval.
Under New York law, without regulatory approval, CIC may pay dividends if they do not exceed the lesser of 10% of surplus
or 100% of net investment income for the previous year increased by the excess, if any, of net investment income over
dividends declared or distributed during the period commencing 36 months prior to the declaration or distribution of the current
dividend and ending 12 months prior thereto. The New York state law also provides that any distribution may only be paid out
of earned surplus. During 2024, CIC paid an ordinary dividend in the amount of $5.7 million to its parent company, CSI. As a
result of that payment, CIC cannot pay any dividends through September 20, 2025, and can pay $5.9 million of dividends
thereafter, without regulatory approval.
Additionally, EICN, ECIC, EPIC, EAC, and CIC are required to comply with RBC requirements. RBC is a method of
measuring the amount of capital appropriate for an insurance company to support its overall business operations in light of its
size and risk profile. NAIC RBC standards are used by regulators to determine appropriate regulatory actions relating to
insurers that show signs of weak or deteriorating conditions. As of December 31, 2024, 2023, and 2022, EICN, ECIC, EPIC,
EAC, and CIC each had total adjusted capital above all regulatory action levels.
16. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is comprised of unrealized gains on investments classified as available-for-sale, net of
deferred tax expense. The following table summarizes the components of Accumulated other comprehensive loss:
Years Ended December 31,
2024
2023
(in millions)
Net unrealized losses on investments, before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(104.5) $
(108.9)
Deferred tax benefit on net unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.0
22.9
Total accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(82.5) $
(86.0)
17. Employee Benefit and Retirement Plans
The Company maintains a 401(k) defined contribution plan covering all eligible Company employees (the Employers 401(k)
Plan). Under the Employers 401(k) Plan, the Company's safe harbor matching consists of a 100% matching contribution on
salary deferrals up to 3% of compensation and then a 50% matching contribution on salary deferrals from 3% to 5% of
compensation. The Company's matching contribution to the Employers 401(k) Plan was $2.5 million, $2.3 million, and $2.0
million for the years ended December 31, 2024, 2023, and 2022, respectively.
18. Earnings Per Common Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilutive impact of all common stock equivalents on earnings per
share. Diluted earnings per share includes common shares assumed issued under the "treasury stock method," which reflects the
potential dilution that would occur if outstanding RSUs and PSUs vested.
85
Employees that are awarded RSUs and PSUs are entitled to receive dividend equivalents for eligible awards, payable in cash,
when and if, the underlying award vests and becomes payable. Therefore, these awards are not considered participating
securities for the purposes of determining earnings per share.
The following table presents the net income and the weighted average number of shares outstanding used in the earnings per
common share calculations.
Years Ended December 31,
2024
2023
2022
(in millions, except share data)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
118.6 $
118.1 $
48.4
Weighted average number of shares outstanding–basic . . . . . . . . . . . . . . . .
25,050,605
26,368,801
27,503,941
Effect of dilutive securities:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2,072
11,256
PSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86,920
110,342
131,465
RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,289
42,436
34,326
Dilutive potential shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
144,209
154,850
177,047
Weighted average number of shares outstanding–diluted . . . . . . . . . . . . . . .
25,194,814
26,523,651
27,680,988
Diluted earnings per share excludes outstanding potential dilutive shares in periods where the inclusion of such securities would
be anti-dilutive under the treasury stock methodology. Potential dilutive shares of 20,518 and 22,395 for the years ended
December 31, 2024 and 2023, respectively, were excluded from the Company's diluted earnings per share computations
because they were anti-dilutive. There were no potential dilutive shares excluded from the Company's diluted earnings per share
computations for the year ended December 31, 2022.
No outstanding PSUs and RSUs are considered in the Company's diluted earnings per share computations in any period that
involves a net loss because their inclusion would be anti-dilutive.
19. Segment Reporting
The Company operates as a single reportable segment, Insurance Operations, providing workers' compensation insurance
through its wholly owned subsidiaries. In 2023, the Company developed and executed an integration plan to consolidate its
previously segregated direct-to-consumer operations (Cerity) into the Company’s mainstream operations, while retaining its
digital distribution capabilities. The integration plan, which provided efficiencies and cost savings, resulted in a change in the
composition of our reportable segments by eliminating any distinction for reporting purposes, including stand-alone financial
statements, among our former reportable segments, which were: Employers and Cerity.
The Insurance Operations segment represents the Company's traditional business offered through its agents, including business
originated from its strategic partnerships and alliances and its direct-to-customer business. Revenues for the Insurance
Operations segment are generated primarily from earned workers' compensation premiums, investment income and realized and
unrealized gains (losses) on investments. The Company does not have intra-entity sales or transfers.
The Company considers an operating segment to be any component of its business whose operating results are regularly
reviewed by the CODM (the President and Chief Executive Officer) to make key decisions about resources to be allocated and
to assesses its performance. Performance is determined based on multiple measures, including net income, the Company’s
combined ratio and the Company’s adjusted stockholders' equity. Net income, which is reported on the Company's
Consolidated Statements of Comprehensive Income (Loss), is a comprehensive measure used to determine the Company’s
overall profitability. The combined ratio, which is a widely-used measure used in the property and casualty insurance industry,
is used to determine whether the Company is generating an underwriting profit or loss. Adjusted stockholders' equity, which is
a non-GAAP measure of financial strength and overall performance, and is defined as [Total stockholders' equity plus Deferred
reinsurance gain - LPT Agreement less Accumulated other comprehensive income or loss, net of tax] divided by ending
common shares outstanding.
The measurement of segment assets is reported on the Company's Consolidated Balance Sheet as Total assets. The accounting
policies of the Insurance Operations segment are the same as those described in the summary of significant accounting policies
(see Note 2).
Under ASU 2023-07, the Company is required to disclose segment reporting requirements even as a single reportable segment,
which includes additional disclosures regarding profit and loss information, as well as a further breakdown of significant
expenses. The following table summarizes the Company's written premiums, components of net income, and significant
segment expenses. Certain information presented below has been recast to conform to the 2024 presentation.
86
Insurance
Operations
Total
(in millions)
Year Ended December 31, 2024
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
776.3
$
776.3
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
769.5
$
769.5
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
749.5
$
749.5
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107.0
107.0
Net realized and unrealized gains on investments . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.1
24.1
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
0.1
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
880.7
880.7
Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
456.2
456.2
Commission expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101.2
101.2
Compensation-related expenses(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108.9
108.9
Information technology expenses(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.0
12.0
Professional fees(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19.3
19.3
Depreciation and amortization expenses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.7
16.7
Other underwriting and general and administrative expenses(1) (2) . . . . . . . . . . . . . .
9.4
9.4
AO and other expense allocations(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(48.0)
(48.0)
Premium taxes and assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.5
29.5
Policyholder dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.2
11.2
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.5
17.5
Interest and financing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
0.1
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
734.0
$
734.0
Net income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
146.7
146.7
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.1
28.1
Net income(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
118.6
$
118.6
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98.7 %
98.7 %
87
Insurance
Operations
Total
(in millions)
Year Ended December 31, 2023
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
767.7
$
767.7
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
760.6
$
760.6
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
721.9
$
721.9
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
106.5
106.5
Net realized and unrealized gains on investments . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.7
22.7
Other (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.2)
(0.2)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
850.9
850.9
Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
405.7
405.7
Commission expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0
100.0
Compensation-related expenses(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109.2
109.2
Information technology expenses(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.8
12.8
Professional fees(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.1
22.1
Depreciation and amortization expenses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.5
21.5
Other underwriting and general and administrative expenses(1) (2) . . . . . . . . . . . . . .
12.6
12.6
AO and other expense allocations(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(46.5)
(46.5)
Premium taxes and assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27.9
27.9
Policyholder dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.3
10.3
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.1
10.1
Interest and financing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.8
5.8
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.0
11.0
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
702.5
$
702.5
Net income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
148.4
148.4
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30.3
30.3
Net income(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
118.1
$
118.1
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96.0 %
96.0 %
88
Insurance
Operations
Total
(in millions)
Year Ended December 31, 2022
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
714.2
$
714.2
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
707.2
$
707.2
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
675.2
$
675.2
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89.8
89.8
Net realized and unrealized (losses) on investments . . . . . . . . . . . . . . . . . . . . . . . . .
(51.8)
(51.8)
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.3
0.3
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
713.5
713.5
Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
391.0
391.0
Commission expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95.9
95.9
Compensation-related expenses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96.6
96.6
Information technology expenses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.5
12.5
Professional fees(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18.2
18.2
Depreciation and amortization expenses(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.7
21.7
Other underwriting and general and administrative expenses(1) (2) . . . . . . . . . . . . . .
14.0
14.0
AO and other expense allocations(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(38.8)
(38.8)
Premium taxes and assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.4
28.4
Policyholder dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.7
7.7
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.0
7.0
Interest and financing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.5
3.5
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
657.7
$
657.7
Net income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55.8
55.8
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.4
7.4
Net income(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
48.4
$
48.4
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98.1 %
98.1 %
(1) Certain underwriting and general and administrative expenses are shown prior to adjusting and other (AO) and other expense allocations.
(2) Other underwriting and general and administrative segment expenses include marketing and advertising, travel, corporate insurance, payment
processing fees and other miscellaneous expenses.
(3) AO allocations consist of those underwriting and general and administrative expenses that relate to claims handling activities, which are allocated to
loss adjustment expenses. Other allocations consist primarily of those underwriting and general and administrative expenses that relate to investing
activities, which are allocated to net investment income, and nurse billing expenses that constitute defense and cost containment (DCC) costs, which
are allocated to loss adjustment expenses.
(4) There are no reconciling adjustments to consolidated net income.
89
Entity-Wide Disclosures
The Company operates solely within the United States and does not have revenue from transactions with a single policyholder
accounting for 10% or more of its revenues. The following table shows our in-force premiums, in-force premiums including
estimated final audit premium, and number of policies in-force for each state of our largest states and all other states combined
as of December 31:
2024
2023
2022
State
In-force
Premiums
Policies
In-force
In-force
Premiums
Policies
In-force
In-force
Premiums
Policies
In-force
(dollars in millions)
California . . . . . . . . . . . . . . . .
$
336.1
44,540 $
311.5
43,353 $
279.7
42,876
Florida . . . . . . . . . . . . . . . . . .
60.1
10,943
56.6
10,008
49.4
9,417
New York . . . . . . . . . . . . . . .
36.1
7,938
31.9
7,603
27.3
7,497
Other (43 states and D.C.) . . .
309.8
67,346
294.6
65,445
266.1
61,566
Total . . . . . . . . . . . . . . . . . . .
$
742.1
130,767 $
694.6
126,409 $
622.5
121,356
Estimated audit premium . . .
26.1
—
14.8
—
31.5
—
Total, including estimated
audit premium . . . . . . . . . . . .
$
768.2
130,767 $
709.4
126,409 $
654.0
121,356
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, designed to
provide reasonable assurance that the information required to be reported in the Exchange Act filings is recorded, processed,
summarized and reported within the time periods specified and pursuant to SEC regulations, including controls and procedures
designed to ensure that this information is accumulated and communicated to management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. It should be
noted that, because of inherent limitations, our disclosure controls and procedures, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective
at a reasonable level of assurance as of December 31, 2024.
Management's Annual Report on Internal Control Over Financial Reporting
Management's annual report regarding internal control over financial reporting is set forth in Item 8 of this report under the
caption "Management's Annual Report on Internal Control over Financial Reporting" and incorporated herein by reference.
Attestation Report of Independent Registered Public Accounting Firm
The attestation report of the Company's independent registered public accounting firm regarding internal control over financial
reporting is set forth in Item 8 of this report under the caption "Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting" and incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) in
the Exchange Act) during the fourth fiscal quarter of the year to which this report relates that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
During the three months ended December 31, 2024, no director or officer of the Company adopted or terminated a Rule 10b5-1
trading arrangement or non-Rule 10b5-1 trading arrangement, as each such term is defined in Item 408(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
90
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Executive Officers of the Registrant
The following provides information regarding our executive officers as of February 28, 2025. No family relationships exist
among our directors or executive officers.
Name
Age
Position
Katherine H. Antonello
60
President and Chief Executive Officer of EHI
Michael S. Paquette
61
Executive Vice President, Chief Financial Officer of EHI
Michael A. Pedraja
57
Executive Vice President, Chief Financial Officer (Designate) of EHI
Lori A. Brown
59
Executive Vice President, Chief Legal Officer and General Counsel of EHI
John M. Mutschink
52
Executive Vice President, Chief Administrative Officer of EHI
Christina M. Ozuna
55
Senior Vice President, Chief Claims Officer of EHI
Ann Marie Smith
54
Senior Vice President, Chief Actuarial and Underwriting Officer of EHI
Lindsey M. Rynard
45
Senior Vice President, Chief Sales Officer of EHI
Kelley F. Kage
40
Senior Vice President, Chief Information Officer of EHI
Katherine H. Antonello. Ms. Antonello has served as President and Chief Executive Officer of EHI since April 2021. She has
also served as a director and Chief Executive Officer of all of the Company’s wholly-owned subsidiaries since April 2021
except for Elite Insurance Services, Inc. where she served as a director and Chief Executive Officer from March 2021 to
December 2023 when it merged into EIG Services. Ms. Antonello joined the Company in August 2019 as Executive Vice
President, Chief Actuary. Prior to joining the Company, she served as the Chief Actuary of NCCI from June 2013 to June 2019.
Prior to that position, from July 2001 to June 2013, Ms. Antonello held various positions at Lumbermen's Underwriting
Alliance and served as Vice President and Chief Actuary. Earlier in her career, she worked at Milliman & Robertson and
Liberty National Life Insurance Company. She has also previously worked at NCCI as an Associate Actuary. Ms. Antonello
holds a B.S. degree in Mathematics from Birmingham-Southern College. She is a Fellow of the Casualty Actuarial Society, a
Fellow of the Society of Actuaries, and a Member of the American Academy of Actuaries. In addition, she has served as Chair
of the Board of Directors and President of the Casualty Actuarial Society and continues as an advisory board member of Kids
Chance of America.
Michael S. Paquette. Mr. Paquette has served as Executive Vice President, Chief Financial Officer and Treasurer of EHI since
January 2017. He has served as Treasurer of EGI, EICN, ECIC, EPIC, EAC, and EIG Services since January 2017, of CGI and
CSI since May 2018, of CIC since August 2019, and of Elite Insurance Services, Inc. from January 2017 to December 2023
when it merged into EIG Services. He has served as a Director of EICN, ECIC, EPIC, EAC, and EIG Services since January
2017, of EGI, CGI and CSI since May 2018, and of CIC since August 2019. He has served on the Board of Directors of the
Illinois Insurance Guaranty Fund since June 2019. Mr. Paquette previously served as Executive Vice President, Chief Financial
Officer of Montpelier Re Holdings Ltd. from 2008 to 2015 and Chief Financial Officer of Blue Capital Reinsurance Holdings
Ltd. from its inception in 2012 to 2015. Mr. Paquette had also previously spent 18 years with White Mountains Insurance
Group, Ltd. in various capacities, including Senior Vice President, Controller, and 4 years with KPMG LLP as an auditor. Mr.
Paquette holds a B.S. degree in Business Administration from the University of Vermont and is a Certified Public Accountant,
Certified Management Accountant, Certified Financial Manager, and Chartered Global Management Accountant.
Michael A. Pedraja. Mr. Pedraja has served as Executive Vice President, Finance and Chief Financial Officer (Designate) of
EHI since February 2025. Before joining the Company, Mr. Pedraja served as Group Chief Financial Officer for Ariel Re, a
global reinsurance underwriter and service provider from May 2021 to January 2025. From April 2019 to April 2021, Mr.
Pedraja served as Senior Vice President and Treasurer of The Allstate Corporation, a leading provider of personal lines
insurance. Prior to that, Mr. Pedraja worked as an investment banker for over 20 years focusing on the Insurance Industry at
Aon Securities, Barclays and Credit Suisse. Mr. Pedraja began his career as a Certified Public Accountant for Coopers &
Lybrand and earned his B.S. in Commerce from DePaul University.
Lori A. Brown. Ms. Brown has served as Executive Vice President, Chief Legal Officer, General Counsel, and Secretary of
EHI since January 2019. She served as Senior Vice President, Deputy General Counsel from March 2015 to December 2018 to
EIG Services, EICN, ECIC, EPIC, and EAC and as Vice President, Deputy General Counsel of ECIC and EICN from January
2006 to March 2015, EPIC and EAC from November 2008 to March 2015, and EIG Services and its predecessor from May
2014 to March 2015. Ms. Brown has served as a director of EGI, CGI and CSI since May 2018, of EICN, ECIC, EPIC, EAC,
and EIG Services since January 2019, and of CIC since August 2019. She has served as Secretary to EGI, ECIC, EPIC, EAC,
91
and EIG Services since March 2021, Elite Insurance Services, Inc. from March 2021 to December 2023 when it merged into
EIG Services, and EICN, CGI, CSI, and CIC since November 2022. Prior to joining the Company, she was Senior Legal
Counsel of DHL Worldwide from May 1994 to April 2005. Ms. Brown brings more than 30 years of experience as an attorney
primarily in the areas of corporate law and governance, SEC compliance, insurance regulation, labor and employment, and risk
management. Ms. Brown holds a B.A. degree from UC Riverside and a J.D. degree from the University of San Francisco.
John M. Mutschink. Mr. Mutschink has served as Executive Vice President, Chief Administrative Officer of EHI since August
2021. Previously, he served as Senior Vice President, Chief Human Resources Officer beginning in November 2019. He has
served as a Director of CGI, CSI and CIC since July 2023. Prior to joining the Company, he was Managing Director, HR at
Maxim Integrated – an analog, mixed-signal semiconductor company. He worked at Maxim Integrated from July 2010 to
October 2019. He has also held roles at several other technology companies, including Intuit, HP and Compaq. Mr. Mutschink
holds a B.S. degree from Texas A&M University and a M.S. & Ph.D. from Kansas State University.
Christina M. Ozuna. Ms. Ozuna has served as Senior Vice President, Chief Claims Officer of EIG Services since October
2022. Prior to holding this position, she served as Vice President, Quality Assurance of EIG Services from 2015 to 2022, as the
Vice President, Claims of EICN from 2006 to 2015, and as Claims Manager of EICN from 2003 to 2006. Prior to joining the
Company, Ms. Ozuna held other roles in the workers’ compensation industry, including as a managing director for a regional
third-party administrator and as a director for a multinational, multi-line insurance carrier. She is a member of the Finance and
Investment Committee for the California Insurance Guarantee Association and is the Chairperson of the Scholarship Committee
for Kids’ Chance of Nevada. Ms. Ozuna attended the University of Nevada, Reno and holds a New York claims adjusting
license.
Ann Marie Smith. Ms. Smith has served as Senior Vice President, Chief Actuarial and Underwriting Officer of EIG Services
since March 2024. Previously, she served as Senior Vice President, Chief Underwriting Officer of EIG Services from April
2021 to March 2024 and Vice President, Actuarial Pricing from July 2020 to April 2021. She has served as a Director of EGI,
EICN, ECIC, EPIC, EAC, CIC, and EIG Services since December 2023. Prior to joining the Company, she was an Actuarial
Loss Modeling Manager at Allstate Dealer Services from March 2019 to July 2020 and was an independent actuarial consultant
from June 2018 to June 2020. Earlier in her career, she worked at the National Council on Compensation Insurance (NCCI) for
over 15 years. Ms. Smith holds a B.A. degree in Mathematics and a M.S. degree in Teaching Mathematics from Florida
Atlantic University. She is a Fellow of the Casualty Actuary Society and a Member of the American Academy of Actuaries.
Lindsey M. Rynard. Ms. Rynard has served as Senior Vice President, Chief Sales Officer of EIG Services since April 2022.
Prior to this position, she served as Vice President, Sales Operations from March 2019 to April 2022, and Director, Sales
Operations from April 2017 to March 2019. Prior to joining the Company, Ms. Rynard held various roles within the areas of
underwriting, sales, and marketing with two national multi-line insurance carriers, C.N.A. and The Hartford from 2003 to 2017.
Ms. Rynard holds B.S. degrees in Marketing and Spanish from Missouri State University.
Kelley F. Kage. Ms. Kage has served as Senior Vice President, Chief Information Officer of EIG Services since October 2023.
Prior to joining the Company, she worked at Liberty Mutual Insurance (Liberty Mutual) for 16 years, most recently as its
Business Segment Chief Information Officer and Vice President, Technology from June 2021 to October 2023, serving as its
technology leader for Global Surety, supporting 18 countries, and for its North American Commercial business. Ms. Kage was
the Sr. Director of Technology, Legal and Compliance at Liberty Mutual from September 2018 to June 2021, and held other
technology leadership roles during the remainder of her tenure with Liberty Mutual. Ms. Kage holds a B.S. degree from the
University of New Hampshire and a Master of Liberal Arts (ALM) degree from Harvard University Extension School in
Information Technology Management.
Insider Trading Policy
The Company has an insider trading compliance policy and program applicable to the Company’s directors, executive officers,
and employees, as well as the Company itself, that the Company believes is reasonably designed to promote compliance with
insider trading laws, rules and regulations and the New York Stock Exchange listing standards. The foregoing summary of the
Company’s insider trading compliance policy and program does not purport to be complete and is qualified by reference to the
full text of the Insider Trading Policy filed as Exhibit 19.1 to this Annual Report on Form 10-K.
Other Matters
The information required by Item 10 with respect to our Directors is included under the caption "Election of Directors" in our
Proxy Statement for the 2025 Annual Meeting of Stockholders and is incorporated herein by reference.
The information required by Item 10 with respect to the Audit Committee of our Board (Audit Committee) and Audit
Committee financial expert is included under the caption "Board Committees" in our Proxy Statement for the 2025 Annual
Meeting of Stockholders and is incorporated herein by reference.
92
The information required by Item 10 with respect to our Code of Business Conduct and Ethics and our Code of Ethics for
Senior Financial Officers is posted on our website at www.employers.com in the Investors section under "Governance." We will
post information regarding any amendment to, or waiver from, our Code of Business Conduct and Ethics on our website in the
Investor section under Governance.
Item 11. Executive Compensation
The information required by Item 11 is included under the captions "Equity and Other Compensation Grant Policies, Procedures
and Requirements," "Compensation Discussion and Analysis," "Compensation Committee Report" and "Compensation
Committee Interlocks and Insider Participation" in our Proxy Statement for the 2025 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain information required by Item 12 is included under the captions "Security Ownership of Certain Beneficial Owners and
Management" and "Compensation Discussion and Analysis" in our Proxy Statement for the 2025 Annual Meeting of
Stockholders and is incorporated herein by reference.
Equity and Incentive Plan
The following table gives information about our common stock that may be issued upon the exercise of options, warrants, and
rights under all of our existing equity compensation plans as of December 31, 2024. We do not have any plans not approved by
our stockholders. Our equity compensation plans are discussed further in Note 14 in the Notes to our Consolidated Financial
Statements, which are included herein.
Plan Category
(a)
Number of securities
to be issued upon
exercise of outstanding
options, warrants, and
rights
(b)
Weighted-average
exercised price of
outstanding options,
warrants, and
rights(4)
(c)
Number of securities
remaining available for
further issuance
under compensation plans
(excluding securities
reflected in column (a))
Equity compensation plans approved by
stockholders(1):
Stock options . . . . . . . . . . . . . . . . . . . . .
— $
—
1,169,790
RSUs(2) . . . . . . . . . . . . . . . . . . . . . . . . .
214,292
955,498
PSUs(3)
. . . . . . . . . . . . . . . . . . . . . . . . . .
228,427
727,071
Equity compensation plans not approved
by stockholders . . . . . . . . . . . . . . . . . . .
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
442,719 $
—
727,071
(1)
On May 28, 2020, our stockholders approved the Amended and Restated Equity and Incentive Plan (as amended and restated, the Plan).
The Plan will expire on the tenth anniversary of April 1, 2020, which is also the effective date of the Plan. The Plan is administered by
the Compensation Committee of the Board, which is authorized to grant, at its discretion, awards to officers, employees, non-employee
directors, consultants, and independent contractors. The maximum number of common shares currently reserved for grants of awards
under the Plan was 6,555,000 shares, prior to reductions for grants made.
The Plan provides for the grant of stock options (both incentive stock options and nonqualified stock options), stock appreciation rights,
shares of restricted stock, RSUs, PSUs, and other stock-based awards. As of December 31, 2024, the only stock based incentive awards
outstanding under the Plan were RSUs and PSUs.
(2)
RSUs are phantom (as opposed to actual) shares of common stock which, depending on the individual award, vest in equal tranches over
one- to four-year periods, subject to the recipient maintaining a continuous relationship with the Company through the applicable vesting
date.
(3)
PSUs are phantom (as opposed to actual) shares of common stock, which are subject to a performance period of two years followed by
an additional one-year vesting period prior to 2023, and thereafter are subject to a performance period of three years, subject to the
recipient maintaining a continuous relationship with the Company through the applicable vesting date. PSU awards are subject to certain
performance goals with payouts that vary from 0% to 250% of the target awards. The values shown in the table above represent the
aggregate number of PSUs based on the expectation of the Company achieving a 59% of target rate for the 2022 PSUs, a 130% of target
rate for the 2023 PSUs, and a 100% of target rate for the 2024 PSUs.
(4)
Holders of RSUs and PSUs are not entitled to voting rights, but are entitled to receive dividend equivalents for eligible awards, payable
in cash, when and if, the underlying award vests and becomes payable. RSUs and PSUs do not require the payment of an exercise price;
accordingly, there is no weighted average exercise price for these awards.
93
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is included under the captions "Certain Relationships and Related Transactions" and
"Director Independence" in our Proxy Statement for the 2025 Annual Meeting of Stockholders and is incorporated herein by
reference.
Item 14. Principal Accountant Fees and Services
The information required by Item 14 with respect to the fees and services of Ernst & Young LLP, our independent registered
public accounting firm, is included under the caption "Audit Matters" in our Proxy Statement for the 2025 Annual Meeting of
Stockholders and is incorporated herein by reference.
94
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following consolidated financial statements are filed in Item 8 of Part II of this report:
Page
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51
Consolidated Balance Sheets as of December 31, 2024 and 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
Consolidated Statements of Comprehensive Income (Loss) for each of the three years ended December 31,
2024, 2023, and 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55
Consolidated Statements of Stockholders' Equity for each of the three years ended December 31, 2024, 2023,
and 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2024, 2023, and 2022 .
57
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
Financial Statement Schedules:
Schedule II. Condensed Financial Information of Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96
Schedule VI. Supplemental Information Concerning Property-Casualty Insurance Operations . . . . . . . . . . . . . . .
99
Pursuant to Rule 7-05 of Regulation S-X, Financial Statement Schedules I, III, IV, and V have been omitted as the
information to be set forth therein is included in the notes to the audited consolidated financial statements.
95
Schedule II. Condensed Financial Information of Registrant
Employers Holdings, Inc.
Condensed Balance Sheets
December 31,
2024
2023
Assets
(in millions, except share data)
Investments:
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,006.7 $
972.4
Fixed maturity securities at fair value (amortized cost $23.8 at December 31, 2024 and
$1.3 at December 31, 2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.8
1.3
Equity securities at fair value (cost $26.2 at December 31, 2024 and $26.2 at December
31, 2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.5
24.2
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,055.0
997.9
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.8
20.3
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
0.1
Intercompany receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.3
0.4
Federal income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3
—
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.0
1.9
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.7
0.3
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,072.2 $
1,020.9
Liabilities and stockholders' equity
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2.8 $
6.5
Intercompany payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.7
—
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
0.5
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.5
7.0
Stockholders' equity:
Common stock, $0.01 par value; 150,000,000 shares authorized; 58,184,861 and
58,055,968 shares issued and 24,556,706 and 25,369,753 shares outstanding at
December 31, 2024 and 2023, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.6
0.6
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
424.2
419.8
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,472.9
1,384.3
Accumulated other comprehensive loss, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(82.5)
(86.0)
Treasury stock, at cost (33,628,155 shares at December 31, 2024 and 32,686,215 shares at
December 31, 2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(746.5)
(704.8)
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,068.7
1,013.9
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,072.2 $
1,020.9
96
Employers Holdings, Inc.
Condensed Statements of Income
Years Ended December 31,
2024
2023
2022
(in millions, except per share data)
Revenues
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3.1 $
3.7 $
3.6
Net realized and unrealized gains (losses) on investments . . . . . . . . . . . . . .
0.3
1.2
(6.5)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.4
4.9
(2.9)
Expenses
Underwriting and general and administrative expenses . . . . . . . . . . . . . . . . .
10.0
12.1
13.5
Interest and financing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
0.4
0.5
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.1
12.5
14.0
Loss before income taxes and equity in earnings of subsidiaries . . . . . . . . . .
(6.7)
(7.6)
(16.9)
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2.1)
(1.3)
(3.4)
Net loss before equity in earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . .
(4.6)
(6.3)
(13.5)
Equity in earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123.2
124.4
61.9
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
118.6 $
118.1 $
48.4
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4.73 $
4.48 $
1.76
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4.71 $
4.45 $
1.75
Cash dividends declared per common share and eligible equity plan awards $
1.18 $
1.10 $
3.28
97
Employers Holdings, Inc.
Condensed Statement of Cash Flows
Years Ended December 31,
2024
2023
2022
(in millions)
Operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
118.6 $
118.1 $
48.4
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of subsidiaries . . . . . . . . . . . . . . . . . .
(30.9)
(45.7)
117.6
Net realized and unrealized (gains) losses on investments . . . . . . . . . .
(0.3)
(1.2)
6.5
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.3
6.2
5.1
Amortization of discounts and premiums on investments, net . . . . . . .
—
—
0.1
Deferred income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . .
(0.1)
1.1
(0.5)
Change in operating assets and liabilities: . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses, and other liabilities . . . . . . .
(2.6)
(0.2)
0.8
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4.8)
(7.8)
9.8
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.3)
0.5
0.2
Intercompany payables and receivables . . . . . . . . . . . . . . . . . . . . .
0.8
(0.9)
0.6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(0.1)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
86.7
70.1
188.5
Investing activities
Purchases of fixed maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(26.7)
—
(14.7)
Purchases of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(40.2)
Purchases of short-term securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(18.6)
(24.7)
Proceeds from sale of fixed maturity securities . . . . . . . . . . . . . . . . . . . . . . .
4.2
6.6
16.0
Proceeds from sale of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
10.0
25.5
Proceeds from maturities of short-term investments . . . . . . . . . . . . . . . . . . .
—
39.3
4.0
Capital contributions to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(17.6)
—
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . .
(22.5)
19.7
(34.1)
Financing activities
Acquisition of common stock and excise tax payments . . . . . . . . . . . . . . . .
(42.6)
(76.1)
(30.4)
Cash transactions related to stock-based compensation . . . . . . . . . . . . . . . .
(1.8)
(1.0)
(1.2)
Dividends paid to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(30.3)
(29.7)
(90.3)
Proceeds from line of credit advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
10.0
Repayments of line of credit advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(10.0)
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(74.7)
(106.8)
(121.9)
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . .
(10.5)
(17.0)
32.5
Cash and cash equivalents at the beginning of the period . . . . . . . . . . . . . . .
20.3
37.3
4.8
Cash and cash equivalents at the end of the period . . . . . . . . . . . . . . . . . . . . $
9.8 $
20.3 $
37.3
98
Schedule VI. Supplemental Information Concerning Property - Casualty Insurance Operations
Employers Holdings, Inc. and Subsidiaries
Consolidated Supplemental Information Concerning Property and Casualty Insurance Operations
Year
Ended
Deferred
Policy
Acquisition
Costs
Reserves
For
Unpaid
Losses And
LAE
Unearned
Premiums
Net
Premiums
Earned
Net
Investment
Income
Losses and
LAE
Related
to Current
Years
Losses and
LAE Related to
Prior
Years (including
LPT Amortization
and Adj)
Amortization
of Deferred
Policy
Acquisition
Costs
Paid Losses
And LAE
(including
LPT
Amortization
and Adj)
Net
Premiums
Written
(in millions)
Insurance Operations
2024
59.6
1,808.2
402.2
749.5
107.0
480.2
(24.0)
119.6
516.5
769.5
2023
55.6
1,884.5
379.7
721.9
106.5
457.8
(52.1)
113.8
464.9
760.6
2022
48.3
1,960.7
339.5
675.2
89.8
432.8
(41.8)
106.4
380.0
707.2
99
Exhibits:
Exhibit
No.
Description of Exhibit
Included
Herewith
Incorporated by Reference Herein
Form
File No.
Exhibit
Filing Date
3.1 Amended and Restated Articles of Incorporation
of Employers Holdings, Inc.
10-K
001-33245
3.1
February 28, 2019
3.2 Amended and Restated Bylaws of Employers
Holdings, Inc.
8-K
001-33245
3.1
May 22, 2023
4.1 Form of Common Stock Certificate
S-1/A
333-139092
4.1
January 18, 2007
4.2 Description of Capital Stock
10-K
001-33245
4.2
February 20, 2020
10.1 Quota Share Reinsurance Agreement, dated as
of June 30, 1999, between State Industrial
Insurance System of Nevada, D.B.A.:
Employers Insurance Company of Nevada and
the various Reinsurers as identified by the
Interests and Liabilities Agreements attached
thereto(1)
S-1/A
333-139092
10.1
January 18, 2007
10.2 Producer Agreement, dated as of May 1, 2005,
between Employers Compensation Insurance
Company and Automatic Data Processing
Insurance Agency, Inc.(1)
S-1/A
333-139092
10.2
January 18, 2007
10.3
Form of Letter of Credit and Reimbursement
Agreement
8-K
001-33245
10.4
March 15, 2018
10.4
Credit Agreement, dated as of May 28, 2024, by
and among Employers Holdings, Inc., as
Borrower, the lenders referred to therein, and
Wells Fargo Bank, National Association, as
Administrative Agent, Swingline Lender and
Issuing Lender
8-K
001-33245
10.1
May 29, 2024
10.5
FHLB Form of Advances and Security
Agreement
10-Q
001-33245
10.7
July 28, 2020
10.6
Amendment No. 4 to Irrevocable Standby Letter
of Credit No. 2018-08 between EAC and FHLB,
dated August 13, 2021
10-K
001-33245
10.1
February 24, 2022
10.7
Amendment No. 3 to Irrevocable Standby Letter
of Credit No. 2018-09 between ECIC and
FHLB, dated August 13, 2021
10-K
001-33245
10.2
February 24, 2022
10.8
Confirmation of Amendment No. 4 to
Irrevocable Standby Letter of Credit No.
2018-10 between EPIC and FHLB, dated
October 9, 2024
X
10.1
*10.9
Employers Holdings, Inc. Key Executive
Change in Control and Severance Plan
8-K
001-33245
10.1
August 3, 2021
*10.10
Employers Holdings, Inc. Amended and
Restated Equity and Incentive Plan effective as
of April 1, 2020
S-8
POS
333-168563
10.2
May 28, 2020
*10.11
Employers Holdings, Inc. Equity and Incentive
Plan Form of Stock Option Agreement
10-Q
001-33245
10.3
April 30, 2015
*10.12
Employers Holdings, Inc. Equity and Incentive
Plan Form of Restricted Stock Unit Agreement
for Non-Employee Directors
10-Q
001-33245
10.1
August 7, 2009
*10.13
Employers Holdings, Inc. Equity and Incentive
Plan Form of Restricted Stock Unit Agreement
10-Q
001-33245
10.3
April 27, 2017
*10.14
Employers Holdings, Inc. Equity and Incentive
Plan Form of Performance Share Agreement
10-Q
001-33245
10.1
April 29, 2022
*10.15
Employers Holdings, Inc. Equity and Incentive
Plan Form of Restricted Stock Unit Agreement
10-Q
001-33245
10.2
April 29, 2022
*10.16
Employers Holdings, Inc. Equity and Incentive
Plan Form of Performance Share Agreement
10-Q
001-33245
10.1
April 28, 2023
*10.17
Employers Holdings, Inc. Equity and Incentive
Plan Form of Restricted Stock Unit Agreement
10-Q
001-33245
10.2
April 28, 2023
100
*10.18 Employers Holdings, Inc. Form of Annual Cash
Bonus Program Award Agreement
10-Q
001-33245
10.1
April 26, 2024
*10.19
Offer of Employment Letter dated October 7,
2024 from Employers Holdings, Inc. to Michael
A. Pedraja
8-K
001-33245
10.1
October 9, 2024
19.1
Insider Trading Policy
X
21.1
Subsidiaries of Employers Holdings, Inc.
X
23.1
Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm
X
31.1
Certification of Katherine H. Antonello
Pursuant to Section 302
X
31.2
Certification of Michael S. Paquette Pursuant to
Section 302
X
32.1
Certification of Katherine H. Antonello
Pursuant to Section 906
X
32.2
Certification of Michael S. Paquette Pursuant to
Section 906
X
97.1
Policy Relating to Recovery of Erroneously
Awarded Compensation
10-K
001-33245
97.1
February 26, 2024
101.INS The following materials from Employers
Holdings, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 2024,
formatted in iXBRL (Inline eXtensible Business
Reporting Language): (i) Consolidated Balance
Sheets as of December 31, 2024 and December
31, 2023; (ii) Consolidated Statements of
Income for the years ended December 31, 2024,
2023 and 2022 (iii) Consolidated Statements of
Comprehensive Income (Loss) for the years
ended December 31, 2024, 2023 and 2022; (iv)
Consolidated Statements of Stockholders'
Equity for the years ended December 31, 2024,
2023 and 2022; (v) Consolidated Statements of
Cash Flows for the years ended December 31,
2024, 2023 and 2022; (vi) Notes to consolidated
financial statements tagged in summary and
detail; (vii) Schedule II - Condensed Financial
Information of Registrant (Parent Only); and
(viii) Supplemental Information Concerning
Property-Casualty Insurance Operations.
X
101.SCH XBRL Taxonomy Extension Schema Document
X
101.CAL XBRL Taxonomy Extension Calculation
Linkbase Document
X
101.DEF XBRL Taxonomy Definition Linkbase
Document
X
101.LAB XBRL Taxonomy Extension Label Linkbase
Document
X
101.PRE XBRL Taxonomy Extension Presentation
Linkbase Document
X
104
Cover Page Interactive Data File (formatted as
inline XBRL and contained in Exhibit 101)
————
*Represents management contracts and compensatory plans or arrangements.
(1) Confidential treatment has been requested for certain confidential portions of this exhibit; these confidential portions have been omitted
from this exhibit and filed separately with the Securities and Exchange Commission.
Item 16. Form 10-K Summary
None.
101
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date:
February 28, 2025
EMPLOYERS HOLDINGS, INC.
By: /s/ Michael S. Paquette
Name: Michael S. Paquette
Title: Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Jeanne L. Mockard
Chair of the Board
February 28, 2025
Jeanne L. Mockard
/s/ Katherine H. Antonello
President and Chief Executive Officer, Director
(Principal Executive Officer)
February 28, 2025
Katherine H. Antonello
/s/ Michael S. Paquette
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 28, 2025
Michael S. Paquette
/s/ João (John) M. de Figueiredo
Director
February 28, 2025
João (John) M. de Figueiredo
/s/ James R. Kroner
Director
February 28, 2025
James R. Kroner
/s/ Barbara A. Higgins
Director
February 28, 2025
Barbara A. Higgins
/s/ Michael J. McColgan
Director
February 28, 2025
Michael J. McColgan
/s/ Michael J. McSally
Director
February 28, 2025
Michael J. McSally
/s/ Steven P. Sorenson
Director
February 28, 2025
Steven P. Sorenson
/s/ Alex Perez-Tenessa
Director
February 28, 2025
Alex Perez-Tenessa
102
Directors
Jeanne L. Mockard
Chair of the Board
Katherine H. Antonello
President and Chief Executive Officer
João “John” M. de Figueiredo
Chair – Board Governance
& Nominating Committee
Barbara A. Higgins
Chair – Human Capital Management
& Compensation Committee
Michael J. McColgan
Chair – Audit Committee
Alejandro “Alex” Perez-Tenessa
Chair – Risk Management,
Technology & Innovation Committee
Marvin Pestcoe
Director
Steven P. Sorenson
Director
Stockholder Inquiries
Michael A. Pedraja
Executive Vice President,
Chief Financial Officer
mpedraja@employers.com
775-327-2706
Transfer Agent
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
800-468-9716
Independent Auditors
Ernst & Young LLP
560 Mission Street, Suite 1600
San Francisco, CA 94105-2907
EMPLOYERS HOLDINGS, INC.
Employers Holdings, Inc.
and Subsidiaries
Executives
Katherine H. Antonello
President and Chief Executive Officer
Lori A. Brown
Executive Vice President,
Chief Legal Officer
John M. Mutschink
Executive Vice President,
Chief Administrative Officer
Michael A. Pedraja
Executive Vice President,
Chief Financial Officer
Matthew H. Hendricksen
Senior Vice President,
Treasury & Investments
Kelley F. Kage
Senior Vice President,
Chief Information Officer
Christina M. Ozuna
Senior Vice President,
Chief Claims Officer
Lindsey M. Rynard
Senior Vice President,
Chief Sales Officer
Ann Marie Smith
Senior Vice President,
Chief Actuarial & Underwriting Officer
Company Information
Employers Holdings, Inc.
P.O. Box 539003
Henderson, NV 89053-9003
888-682-6671
Annual Meeting
Thursday, May 22, 2025
9:00 a.m.
5340 Kietzke Lane, Suite 202
Reno, NV 89511
©2025 EMPLOYERS. All rights reserved.
Employers Holdings, Inc. (NYSE: EIG), is a holding company with subsidiaries that are specialty providers of workers’ compensation insurance and services (collectively
“EMPLOYERS®”) focused on small and mid-sized businesses engaged in low-to-medium hazard industries. EMPLOYERS® leverages over a century of experience to deliver
comprehensive coverage solutions that meet the unique needs of its customers. Drawing from its long history and extensive knowledge, EMPLOYERS® empowers businesses
by protecting their most valuable asset – their employees – through exceptional claims management, loss control, and risk management services, creating safer work
environments.
EMPLOYERS® is also proud to offer Cerity®, which is focused on providing digital-first, direct-to-consumer workers’ compensation insurance solutions with fast, and affordable
coverage options through a user-friendly online platform.
EMPLOYERS® operates throughout the United States, apart from four states that are served exclusively by their state funds. Insurance is offered through Employers Insurance
Company of Nevada, Employers Compensation Insurance Company, Employers Preferred Insurance Company, Employers Assurance Company, and Cerity Insurance Company,
all rated A (Excellent) by A.M. Best. Not all companies do business in all jurisdictions. EIG Services, Inc., and Cerity Services, Inc., are subsidiaries of Employers Holdings, Inc.
EMPLOYERS® is a registered trademark of EIG Services, Inc., and Cerity® is a registered trademark of Cerity Services, Inc. For more information, please visit employers.com and
cerity.com.