Quarterly GAAP Net Income per Diluted Share of $0.91, up $0.47 from the Fourth Quarter of 2013
Quarterly Net Income Before the LPT per Diluted Share of $0.44, up $0.47 from the Fourth Quarter of 2013
Full Year GAAP Net Income per Diluted Share of $3.14 per Diluted Share, up $1.14 from the Full Year of 2013
Full Year Net Income Before the LPT per Diluted Share of $1.42 per Diluted Share, up $0.61 from the Full Year of 2013
(Comparison of Q4 and full year 2014 to Q4 and full year of 2013)
(1) Favorable development in the LPT ceded reserves reduced the deferred reinsurance gain, reduced losses and loss adjustment expenses (LAE) and increased net income by:
- Net premiums earned increased 1.5% in the quarter and 6.6% in the full year
- Net premiums written declined 2.8% in the quarter and increased 1.4% in the full year
- Total revenue was flat in the quarter and increased 6.9% in the full year
- In-force payroll exposure declined 2.1% overall and 9.3% in California year-over-year
- Net rate (in-force premium divided by in-force payroll) increased 3.9% overall and 11.2% in California in the full year
- Net realized gains declined 43.7% in the quarter and increased 71.5% in the full year
- The combined ratio before the LPT improved 16.0 percentage points in the quarter and 4.8 points for the full year, largely driven by a loss provision rate of 72.2% in the fourth quarter of 2014, a decline of 14.3 percentage points year-over-year, and an estimated loss provision rate of 73.6% in the full year, a decline of 3.4 percentage points year-over-year
- Book value per share before the LPT increased 8.6% since December 31, 2013
- In the full year, the reallocation of $13.1 million of reserves ($1.1 million in the fourth quarter) from non-taxable periods prior to January 1, 2000, reduced our effective tax rate by 3.4 percentage points, or $3.6 million
- Changes in LPT estimates lowered GAAP losses and increased GAAP net income
a. $8.8 million in the quarter, an increase of $0.27 per diluted share; and
b. $31.1 million in the full year, an increase of $0.97 per diluted share.
(2) Increases in LPT contingent profit commission receivables reduced losses and LAE and increased net income by:
a. $2.9 million in the quarter, an increase of $0.09 per diluted share; and
b. $10.8 million in the full year, an increase of $0.34 per diluted share.
Reno, Nevada-February 18, 2015-Employers Holdings, Inc. (“EHI” or the “Company”) (NYSE:EIG) today reported fourth quarter 2014 net income of $29.1 million or $0.91 per diluted share compared with net income of $14.2 million or $0.44 per diluted share in the fourth quarter of 2013. Full year net income was $100.7 million or $3.14 per diluted share in 2014 compared with $63.8 million or $2.00 per diluted share in 2013.
Net income includes the impact of the Loss Portfolio Transfer ("LPT") Agreement. Fourth quarter net income before impact of the LPT (the Company's non-GAAP measure described below) was $14.2 million or $0.44 per diluted share in the fourth quarter of 2014 and $(1.1) million or $(0.03) per diluted share in the fourth quarter of 2013. Full year net income before impact of the LPT was $45.7 million or $1.42 per diluted share in 2014 compared with $25.9 million or $0.81 per diluted share in 2013. As indicated in the key highlights above, LPT reserves continued to develop favorably. Management reiterates that given the continuing favorable adjustments to the LPT ceded reserves, it is important to review the Company's results before impact of the LPT. Calculations before the impact of the LPT exclude the favorable adjustments which may, in some reporting periods, mask underlying trends in the business.
President and Chief Executive Officer Douglas D. Dirks commented on the results: “Our fourth quarter was a strong finish to a solid year. Earnings before the LPT increased $0.47 per diluted share in the fourth quarter of 2014 and $0.61 per diluted share in the full year relative to the same periods in 2013. Our combined ratio before the LPT improved 16.0 percentage points in the quarter and 4.8 percentage points in the year relative to 2013, largely attributable to improvements in our provision rate for current year losses relative to net premiums earned. As demonstrated in our improved financial and operating results, benefits from the underwriting and pricing initiatives we announced one year ago are beginning to be realized, and we believe these benefits will continue throughout 2015, given current conditions."
Dirks continued: "As a reminder, our initiatives include the following: centralizing the management of our underwriting and sales operations; slowing policy count growth in California; establishing a three-company pricing platform in California with newly approved rates and territorial multipliers; non-renewing poor performing business; increasing pricing for under-performing class codes; and targeting attractive classes of business in and outside of California. As a result of these initiatives, at December 31, 2014, our net rate in California increased 11.2% as our policy count declined 2.0% and payroll exposure decreased a substantial 9.3%. In all of our states, our net rate increased 3.9% as policy count grew 1.5% and our overall payroll exposure declined 2.1%. To further illustrate the impact of our initiatives, since June 2014, we have decided to non-renew 13.3% of our premium available to renew in southern California, where attorney involvement and cumulative trauma claims previously drove our loss and loss adjustment expense per open claim higher than in other parts of California and significantly higher than in the other states where we operate."
Dirks concluded: "While the spike in litigated claims in southern California that we experienced in the fourth quarter of 2013 was not repeated throughout 2014, nearly four out of five open claims in southern California continue to have attorney representation. However, we have experience in handling these claims, which has resulted in our average paid litigated claims in California being 40% below the California industry average in 2013, according to the California Workers' Compensation Institute. Our superior claims handling, in combination with benefits from our underwriting and pricing initiatives, have contributed to loss trends in our book of business which are improving. At year-end 2014, our total Company indemnity claim frequency is down year-over-year while severity has remained stable relative to prior quarters in 2014. As a result, we dropped our current accident year provision rate for losses by 14.3 percentage points in the fourth quarter and 3.4 points for the full year compared to the same periods in 2013."
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