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Employers Holdings, Inc. Reports Third Quarter Earnings; Announces $100 Million Stock Repurchase Program and Fourth Quarter Dividend

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Reno, NV—November 3, 2010—Employers Holdings, Inc. (“EHI” or the “Company”)
(NYSE:EIG) today reported third quarter 2010 net income of $10.1 million or $0.25 per diluted
share compared with $30.6 million or $0.67 per diluted share in the third quarter of 2009, a
decrease of $20.5 million or $0.42 per diluted share. Net income includes amortization of the
deferred reinsurance gain related to the Loss Portfolio Transfer (“LPT”) Agreement.
Consolidated net income before the impact of the LPT (the Company’s non-GAAP measure
described below) was $5.3 million or $0.13 per diluted share in the third quarter of 2010
compared with $25.9 million or $0.57 per diluted share in the third quarter of 2009.
 
Net income for the nine months ended September 30, 2010 was $42.7 million or $1.01 per
diluted share compared to $71.8 million or $1.53 per diluted share for the nine months ended
September 30, 2009. For the first nine months of 2010, net income before the impact of the
LPT was $29.1 million or $0.69 per diluted share compared to $58.4 million or $1.25 per diluted
share for the same period in 2009.
 
The Company had a third quarter 2010 combined ratio of 111.6% (117.5% before the LPT), an
increase of 22.7 percentage points from the third quarter of 2009 combined ratio of 88.9%
(93.7% before the LPT).
 
The combined ratio for the nine months ended September 30, 2010 was 106.5% (112.2%
before the LPT), compared with 95.6% (99.8% before the LPT) for the nine months ended
September 30, 2009, an increase of 10.9 percentage points.
 
Douglas D. Dirks, President and Chief Executive Officer of EHI, commented: “While our current
accident year loss estimates remained stable year over year, severity trends in California have
increased and we believe the significant benefits from California reform have largely been
realized. Consequently, there was no favorable loss development for prior accident years in the
third quarter while last year’s third quarter included favorable prior accident year development of
$10.4 million. Importantly, this difference led to substantially lower net income and a higher loss 
ratio in the third quarter of this year compared to the third quarter of last year. On the other
hand, as a result of our cost control efforts, our underwriting and other operating expense ratio
was 2.4 percentage points lower compared to the prior year’s quarter while the underlying
underwriting and other operating expenses were 23.6% lower than the third quarter of last year.”
 
Dirks continued: “We don’t yet see evidence of a sustained economic recovery. Net premiums
written declined just 1.8% year over year, but our total payroll exposure declined approximately
15% year over year and 11% since December 31, 2009, with Florida, Nevada and Wisconsin
having the largest percentage declines for those periods among our largest states. At the end of
the third quarter, our net rate, which is defined as total premium in-force divided by total insured
payroll, declined 4% since December 31, 2009 and 6% since September 30, 2009, reflecting
benefits from positive net rate in California. As California rate increases worked their way
through our book of business, net rate in California flattened in September. Barring additional
California rate increases or other positive impacts on premium, going forward, we would expect
net rate in California to reflect payroll trends in that state.”
 
Commenting on capital, Dirks continued: “We grew book value per share 9.8% since year-end
2009 as the result of higher retained earnings, net unrealized gains on investments and share
repurchases. Since January 1, 2010, we repurchased 3.3 million shares at an average cost of
$15.19 per share for a total cost of $50 million, completing our 2010 authorized stock
repurchase program. We continue to return capital to shareholders as this week the Board of
Directors authorized a new share repurchase program for $100 million through June of 2012.
The Board also declared a quarterly stock dividend of six cents per share for an annual dividend
yield of approximately 1.5%. In addition, the recent affirmation of our A- (Excellent) rating with a
stable outlook by A.M. Best further reflects our strong capital position.”
 
Looking ahead, Dirks concluded: “Notwithstanding economic conditions, the soft market, or
other challenges outside our control, we continue to execute plans to strengthen our Company. 
Our cost control efforts are yielding results in terms of reduced expenses and lower underwriting
and other operating expense ratios. We expect that the cost control actions implemented over
the last two years will generate run rate pre-tax savings of approximately $34 million annually
beginning in 2011 with approximately one quarter of that total applicable to losses and LAE and
approximately three quarters attributable to underwriting and other operating expense.
Additionally, we expect a restructuring charge of $1.4 million in the fourth quarter of this year.”
 
In closing, Dirks commented: “While the economy remains under considerable pressure, we’re
driving a set of initiatives that will strengthen our performance and better position us for growth.
We have initiatives in place to add new agents and agencies, additional policies and additional
premium nationally, with particular emphasis on our acquired states. Specifically, over the next
two years, we are targeting the addition of 20,000 policies and over 900 agents. Our intent is to
expand our pipeline by appointing additional agents in newer jurisdictions where we’re doing
business and by deploying our technology into our newer states to make it easier for agents to
do business with us. Our roll-out of rapid quote capability to 19 states allows more agents
access to a rapid quote system for approximately 65 classes of small business customers with
estimated annual premiums of $25,000 or less. We think that by increasing our number of
agents and by enhancing their ease of doing business with us, there are opportunities to grow
going forward, particularly in our acquired states where we have less market presence. We
believe we can produce more business with loss characteristics similar to those we are currently
writing.”  
 
Third Quarter, 2010
Third quarter net premiums written of $81.3 million decreased 1.8% compared with the third
quarter of 2009. Net premiums earned decreased $17.5 million or 17.9% to $80.7 million in the
third quarter of 2010.
 
Third quarter net investment income of $20.7 million decreased $1.6 million or 7.4% largely due
to a 0.3% decrease in average pre-tax book yield.
 
There were no material realized gains on investments in the third quarter of 2010. There were
realized gains of $3.6 million in the third quarter of 2009 related to the sale of previously
impaired equity securities.
 
Third quarter losses and LAE decreased 1.2% to $52.8 million in 2010 from $53.4 million in
2009. Third quarter losses and LAE before the LPT decreased 0.9% to $57.6 million from $58.1
million in the third quarter of 2009. There was no favorable prior accident year development in
the third quarter of 2010 compared with $10.4 million in the third quarter of 2009. Current
accident year loss estimates were 69.4% and 69.7% in the third quarters of 2010 and 2009,
respectively.
 
In the third quarter of 2010, commission expense increased to $10.0 million from a negative
$1.3 million in the third quarter of 2009. Negative commission expense in the third quarter of
2009 was the result of a favorable $14.1 million adjustment in the accrual for the LPT contingent
profit commission during the third quarter of 2009.
 
Dividends to policyholders of $1.6 million were stable relative to the third quarter of 2009.
 
Third quarter 2010 underwriting and other operating expenses decreased 23.6% to $25.7 million
from $33.7 million in the third quarter of 2009 largely as a result of cost control efforts and
favorable adjustments to accruals for premium taxes and bad debt expense. Third quarter 2010
restructuring costs of $4.2 million included $2.9 million related to workforce reductions and $1.3
million related to leases for facilities that were vacated during the quarter. Third quarter 2009
integration and restructuring costs related to the AmCOMP Incorporated acquisition were $0.6
million. Excluding these costs, underwriting and other operating expenses decreased $11.6
million or 35.0% in the third quarter of 2010 compared with 2009, reflecting a $2.9 million
decline in compensation expenses and favorable adjustments to accruals for premium taxes
and bad debt expense of $2.1 million and $1.1 million, respectively.
 
Income taxes of $0.1 million were $4.5 million lower than last year’s third quarter largely due to
lower pre-tax income. The effective tax rate was 0.6% in the third quarter of 2010 compared
with 13.1% in the third quarter of 2009.
 
Year-to-Date 2010
 
Net premiums earned of $238.2 million in the first nine months of the year declined 24.2%
compared to the same period in 2009. Policy count at September 30, 2010 decreased 
approximately 3% to 43,511 from 44,848 at September 30, 2009. Policy count declined by 643
policies or approximately 1% since December 31, 2009 and increased by 178 policies since
June 30, 2010.
For the nine months ended September 30, 2010, net investment income of $62.6 million
decreased 8.9% or $6.1 million due largely to a 0.3% decrease in average pre-tax book yield.
 
The fair market value of invested assets was $2.1 billion at September 30, 2010 with an
average pre-tax yield of 4.3%, a tax equivalent yield of 5.4% and a duration of 4.9. A list of
portfolio securities by CUSIP as of September 30, 2010 will be included in the “Investors”
section of EHI’s web site at www.employers.com.
 
In the first nine months of 2010, losses and LAE decreased 17.1% to $138.1 million from $166.7
million for the nine months ended September 30, 2009. Before the impact of the LPT, losses
and LAE was $151.6 million and $180.0 million for the nine months ended September 30, 2010
and 2009, respectively. Favorable prior accident year loss development was $16.6 million in the
first nine months of 2010 compared to $39.6 million for the same period in 2009, a decrease of
$23.0 million. Current accident year loss estimates were 69.9% for the first nine months of 2010
and 2009.
 
Commission expense for the first nine months of 2010 increased $3.4 million to $29.1 million
from $25.6 million for the same period in 2009 due largely to the favorable adjustment in the
accrual for the LPT contingent profit commission in 2009.
 
For the first nine months of 2010, underwriting and other operating expense was $83.1 million
compared to $102.6 million in 2009, a reduction of $19.5 million or 19.0%. In the first nine
months of 2010, the Company incurred total restructuring charges of $5.1 million, including $3.8
million related to workforce reductions and $1.3 million related to leases for facilities that were
vacated, compared with integration and restructuring charges of $4.9 million for the same period
in 2009. Excluding these charges, underwriting and other operating expense decreased $19.7
million or 20.2%.
 
Dividends to policyholders decreased $2.0 million to $3.4 million in the first nine months of 2010
compared to $5.4 million for the same period in 2009, due to lower premium levels on dividend
policies in Florida and Wisconsin and fewer policies eligible for dividend payments.
 
Income taxes in the first nine months of 2010 were $1.2 million with an effective tax rate of 2.7%
largely due to lower pre-tax income. Please see “Note 5. Income Taxes” in the Company’s
Quarterly Report on Form 10-Q for the period ended September 30, 2010 for a reconciliation of
federal corporate income tax rates to the Company’s effective tax rates for the nine months
ended September 30, 2010 and 2009.
 
As of September 30, 2010, total stockholders’ equity increased to $528.8 million from $498.4
million at December 31, 2009. Equity, including the deferred reinsurance gain related to the LPT
(the Company’s non-GAAP measure described below), increased 1.9% to $903.8 million from
$887.0 million at December 31, 2009. As of September 30, 2010, book value (total stockholders’
equity including the deferred reinsurance gain – LPT Agreement) per share, increased 9.8% to
$22.69 from $20.67 at December 31, 2009.

In the third quarter, EHI repurchased an aggregate of 1,837,779 shares of common stock at an
average price of $15.29 per share for approximately $28.1 million. From January 1, 2010
through September 30, 2010, 3,291,709 shares were repurchased at an average price of
$15.19 per share. As of September 30, 2010, the Company’s $50 million share repurchase
program for 2010 was complete.
 
This week, the Board of Directors authorized a share repurchase program for up to $100 million
of the Company's common stock. The Company expects that shares may be purchased at
prevailing market prices through June 30, 2012 through a variety of methods, including open
market or private transactions, in accordance with applicable laws and regulations and as
determined by the Company’s management. The timing and actual number of shares
repurchased will depend on a variety of factors, including the Company’s share price, corporate
and regulatory requirements, and other market and economic conditions. Repurchases under
the stock repurchase program may be commenced, modified or suspended from time to time
without prior notice, and the program may be suspended or discontinued at any time.
 
This week, the Board of Directors also declared a fourth quarter cash dividend of six cents per
share. The dividend is payable on December 1, 2010 to shareholders of record as of November
17, 2010.

 

Conference Call and Web Cast; Form 10-Q
 
The Company will host a conference call on Thursday, November 4, 2010 at 10:30 a.m. Pacific
Daylight Time. The conference call will be available via a live web cast on the Company’s web
site at www.employers.com. An archived version will be available following the call. The
conference call replay number is (888) 286-8010 with a passcode of 29095710. International
callers may dial (617) 801-6888.
 
EHI will file its Quarterly Report on Form 10-Q for the period ended September 30, 2010, with
the Securities and Exchange Commission (“SEC”) on Thursday, November 4, 2010. The Form
10-Q will be available without charge through the EDGAR system at the SEC's web site,
www.sec.gov, and will also be posted on the Company's web site, www.employers.com, and is
accessible through the “Investors” link.
 
Discussion of Non-GAAP Financial Measures
 
This earnings release includes non-GAAP financial measures used to analyze the Company’s
operating performance for the periods presented.
 
These non-GAAP financial measures exclude impacts related to the LPT Agreement deferred
reinsurance gain. The 1999 LPT Agreement was a non-recurring transaction that does not result
in ongoing cash benefits and, consequently, the Company believes these non-GAAP measures
are useful in providing shareholders and management a meaningful understanding of the
Company’s operating performance. In addition, these measures, as defined, are helpful to
management in identifying trends in the Company’s performance because the items excluded
have limited significance in current and ongoing operations.
 
The Company strongly urges shareholders and other interested persons not to rely on any
single financial measure to evaluate its business. The non-GAAP measures are not a substitute Conference Call and Web Cast; Form 10-Q
 
The Company will host a conference call on Thursday, November 4, 2010 at 10:30 a.m. Pacific
Daylight Time. The conference call will be available via a live web cast on the Company’s web
site at www.employers.com. An archived version will be available following the call. The
conference call replay number is (888) 286-8010 with a passcode of 29095710. International
callers may dial (617) 801-6888.
 
EHI will file its Quarterly Report on Form 10-Q for the period ended September 30, 2010, with
the Securities and Exchange Commission (“SEC”) on Thursday, November 4, 2010. The Form
10-Q will be available without charge through the EDGAR system at the SEC's web site,
www.sec.gov, and will also be posted on the Company's web site, www.employers.com, and is
accessible through the “Investors” link.
 
Discussion of Non-GAAP Financial Measures
 
This earnings release includes non-GAAP financial measures used to analyze the Company’s
operating performance for the periods presented.
 
These non-GAAP financial measures exclude impacts related to the LPT Agreement deferred
reinsurance gain. The 1999 LPT Agreement was a non-recurring transaction that does not result
in ongoing cash benefits and, consequently, the Company believes these non-GAAP measures
are useful in providing shareholders and management a meaningful understanding of the
Company’s operating performance. In addition, these measures, as defined, are helpful to
management in identifying trends in the Company’s performance because the items excluded
have limited significance in current and ongoing operations.
 
The Company strongly urges shareholders and other interested persons not to rely on any
single financial measure to evaluate its business. The non-GAAP measures are not a substitute for GAAp measures and investors should be careful when comparing the Company's non-GAAP financial measures to similarly titles measures used by other companies.

Net Income before impact of the deferred reinsurance gain – LPT Agreement. Net income less
(i) amortization of deferred reinsurance gain—LPT Agreement and (ii) adjustments to LPT
Agreement ceded reserves.
 
Deferred reinsurance gain—LPT Agreement. This reflects the unamortized gain from the LPT
Agreement. Under GAAP, this gain is deferred and amortized using the recovery method,
whereby the amortization is determined by the proportion of actual reinsurance recoveries to
total estimated recoveries, and the amortization is reflected in losses and LAE.
 
Gross Premiums Written. Gross premiums written is the sum of both direct premiums written
and assumed premiums written before the effect of ceded reinsurance. Direct premiums written
represents the premiums on all policies the Company’s insurance subsidiaries have issued
during the year. Assumed premiums written represents the premiums that the insurance
subsidiaries have received from an authorized state-mandated pool.
 
Net Premiums Written. Net premiums written is the sum of direct premiums written and
assumed premiums written less ceded premiums written. Ceded premiums written is the portion
of direct premiums written that are ceded to reinsurers under reinsurance contracts. The
Company uses net premiums written, primarily in relation to gross premiums written, to measure
the amount of business retained after cession to reinsurers.
 
Losses and LAE before impact of the deferred reinsurance gain – LPT Agreement. Losses and
LAE less (i) amortization of deferred reinsurance gain—LPT Agreement and (ii) adjustments to
LPT Agreement ceded reserves.
 
Losses and LAE Ratio. The losses and LAE ratio is a measure of underwriting profitability.
Expressed as a percentage, it is the ratio of losses and LAE to net premiums earned.
 
Commission Expense Ratio. Commission expense ratio is the ratio (expressed as a
percentage) of commission expense to net premiums earned. Commission expense includes
direct commissions to our agents and brokers for the premiums that they produce. Also included
are incentive payments, other marketing costs and fees. Commission expense is net of
contingent profit commission income related to the LPT Agreement.
 
Underwriting and Other Operating Expense Ratio. The underwriting and other operating
expense ratio is the ratio (expressed as a percentage) of underwriting and other operating
expense to net premiums earned.
 
Combined Ratio. The combined ratio represents a summary percentage of claims and
expenses to net premiums earned. The combined ratio is the sum of the losses and LAE ratio,
the commission expense ratio, the policyholder dividends ratio and the underwriting and other
operating expense ratio.
 
Combined Ratio before impacts of the deferred reinsurance gain – LPT Agreement. Combined
ratio before impacts of LPT is the GAAP combined ratio before (i) amortization of deferred
reinsurance gain—LPT Agreement and (ii) adjustments to LPT Agreement ceded reserves.

Equity including deferred reinsurance gain—LPT Agreement. Equity including deferred
reinsurance gain—LPT is total equity plus the deferred reinsurance gain—LPT Agreement.
 
Book value per share. Equity including deferred reinsurance gain—LPT Agreement divided by
number of shares outstanding.
 
Forward-Looking Statements
 
In this press release, the Company and its management discuss and make statements based
on currently available information regarding their intentions, beliefs, current expectations, and
projections regarding the Company’s future operations and performance. Certain of these
statements may constitute "forward-looking" statements as that term is defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the
fact that they do not relate strictly to historical or current facts and are often identified by words
such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "target," "project,"
"intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely," or "continue," or
other comparable terminology and their negatives.
 
EHI and its management caution investors that such forward-looking statements are not
guarantees of future performance. Risks and uncertainties are inherent in EHI’s future
performance. Factors that could cause the Company’s actual results to differ materially from
those indicated by such forward-looking statements include, among other things, those
discussed or identified from time to time in our public filings with the SEC, including the risks
detailed in the Company's Quarterly Reports on Form 10-Q and the Company’s Annual Reports
on Form 10-K.
 
All forward-looking statements made in this press release reflect EHI’s current views with
respect to future events, business transactions and business performance and are made
pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such statements involve risks and uncertainties, which may cause actual results to differ
materially from those set forth in these statements. The business of EHI could be affected by,
among other things, competition, pricing and policy term trends, the levels of new and renewal
business achieved, market acceptance, changes in demand, the frequency and severity of
catastrophic events, actual loss experience, uncertainties in the loss reserving and claims
settlement process, new theories of liability, judicial, legislative, regulatory and other
governmental developments, litigation tactics and developments, investigation developments,
the amount and timing of reinsurance recoverables, credit developments among reinsurers,
changes in the cost or availability of reinsurance, market developments (including adverse
developments in financial markets as a result of, among other things, changes in local, regional
or national economic conditions and volatility and deterioration of financial markets), credit and
other risks associated with EHI’s investment activities, significant changes in investment yield
rates, rating agency action, possible terrorism or the outbreak and effects of war and economic,
political, regulatory, insurance and reinsurance business conditions, relations with and
performance of employees and agents, and other factors identified in EHI’s filings with the SEC.
Readers are cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which they are made.

The SEC filings for EHI can be accessed through the “Investors” link on the Company’s website,
www.employers.com, or through the SEC's EDGAR Database at www.sec.gov (EHI EDGAR
CIK No. 0001379041). EHI assumes no obligation to update this release or the information
contained herein, which speaks as of the date issued.
 
CONTACT:
Media: Ty Vukelich, (775) 327-2677, tvukelich@employers.com.
Analysts: Vicki Erickson, (775) 327-2794, verickson@employers.com.
 
 
Copyright © 2010 EMPLOYERS. All rights reserved. EMPLOYERS® and America’s small business insurance specialist. ® are
registered trademarks of Employers Insurance Company of Nevada. Employers Holdings, Inc. is a holding company with
subsidiaries that are specialty providers of workers’ compensation insurance and services focused on select, small businesses
engaged in low to medium hazard industries. Insurance subsidiaries include Employers Insurance Company of Nevada, Employers
Compensation Insurance Company, Employers Preferred Insurance Company, and Employers Assurance Company, all rated A-
(Excellent) by A.M. Best Company.

 

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