Key Highlights    --  Diversified direct written premium       --  California 40%, Florida 10%, Wisconsin 9%, Nevada 6%   --  Continued favorable prior accident year development of $13.5 million   --  Portfolio fair market value increased 2% from December 31, 2008 to       $2.1 billion at March 31, 2009    --  Generated book value per share growth of 5% from $17.43 at December       31, 2008 to $18.26 at March 31, 2009   

Employers Holdings, Inc. ("EHI" or the "Company") today reported first quarter 2009 net income of $20.9 million or $0.43 per share compared with $25.5 million or $0.51 per share in the first quarter of 2008, a decrease of $4.6 million or $0.08 per 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 $16.5 million or $0.34 per share in the first quarter of 2009 compared with $20.7 million or $0.42 per share in the first quarter of 2008.

Douglas D. Dirks, President and Chief Executive Officer commented: "In the first quarter, EHI continued to perform well under difficult economic and investment conditions. We successfully diversified earnings with California representing only 40% of our total direct written premium at the end of the quarter. Our investment strategy has been highly successful despite unprecedented volatility in worldwide financial markets. The strength of our balance sheet and confidence in our business model is reflected in our repurchase of 1.6 million shares of common stock through March 31, 2009. We grew book value per share nearly 5% since year-end 2008 with 35% of the three month growth in book value directly related to share repurchases."

As of March 31, 2009, the Company had a combined ratio of 99.8% (103.6% before the LPT), an increase from the first quarter 2008 combined ratio of 83.0% (89.3% before the LPT). The acquired operations comprised 11.7 percentage points of the increase.

Dirks further remarked: "Our expense ratio at 46.7% remains high due to declines in premium largely from rate decreases, economic contraction, competition and our underwriting discipline. Restructuring and integration costs in the quarter added 3.4 percentage points to the expense ratio. Recently, we increased pure premium rates in California in line with our expected loss costs and LAE. We are making excellent progress on the integration of our acquired operations. We are implementing expense controls and reducing staff, as previously announced, although the impacts of these actions won't be fully realized until year-end."

Looking ahead to the rest of 2009, Dirks concluded: "Given current economic conditions, we expect the decline in premium to continue as in the first quarter, partially mitigated by premium growth in a number of our markets; in particular, those which did not previously have access to our A- rated paper. We are moving to restructure our cost base more in line with our revenues and continue to implement technology for straight-through processing that will enhance our performance. As the economy improves, we believe that we will be well positioned to meet the needs of the marketplace and to benefit from our restructured cost base. Historically, small businesses lead recoveries."

First quarter net premiums earned increased $35.7 million or 47.0% to $111.6 million in 2009 from $75.9 million in first quarter 2008. First quarter net premiums earned for acquired operations were $44.6 million. Excluding acquired operations, net premiums earned declined $8.9 million or 11.7% quarter over quarter with declines in direct written premium of $6.2 million and $6.6 million in California and Nevada, respectively.

First quarter net investment income increased $4.4 million or 23.3% due to an increase in invested assets as a result of the acquisition. Realized losses on investments for the first quarter of 2009 were $2.1 million compared with $1.5 million in the first quarter of 2008 primarily due to $1.8 million in other-than-temporary impairments on certain equity securities.

First quarter losses and LAE increased 93.3% to $59.2 million in 2009 compared with $30.6 million in 2008. Excluding acquired operations, losses and LAE decreased 9.8% to $27.6 million. Losses and LAE before the LPT was $63.5 million in the first quarter of 2009 and $35.4 million in the first quarter of 2008. Favorable prior accident year development in the first quarter of 2009 was $13.5 million compared with $11.4 million in the first quarter of 2008. Current accident year loss estimates were 67.9% and 61.6% in the first quarters of 2009 and 2008, respectively.

In the first quarter of 2009, commission expense of $13.7 million increased from $10.6 million in the first quarter of 2008. First quarter 2009 commission expenses excluding acquired operations were $9.1 million.

First quarter 2009 underwriting and other operating expenses increased to $36.5 million from $21.7 million in 2008. Excluding acquired operations, a restructuring charge of $3.0 million and integration costs of $0.8 million, underwriting and other operating expenses declined $1.2 million or 5.4%.

The income tax benefit of $1.2 million for the first quarter of 2009 was primarily due to a decrease in pre-tax income, a higher proportion of tax exempt investment income and tax benefits associated with reserve reductions related to periods prior to the Company's privatization.

Total invested assets were $2.1 billion at the end of the first quarter 2009 with a 2.0% increase in the fair market value of the portfolio in the first three months of this year. There was a net unrealized gain of $18.0 million in the portfolio during the first quarter of 2009. For your information, we are including, in the "Investors" section of our web site at http://www.employers.com/, a list of portfolio securities by CUSIP.

As of March 31, 2009, total stockholders' equity increased 3.4% to $459.9 million from $444.7 million at December 31, 2008. Equity including the deferred reinsurance gain related to the LPT increased 1.3% to $862.2 million from $851.3 million in December 31, 2008.

In the first quarter, pursuant to the 2008 Stock Repurchase Program, the Company repurchased 1.6 million shares of common stock through March 31, 2009 at an average cost of $9.56 per share. As of March 31, 2009, pursuant to both of our stock repurchase programs, the Company repurchased a total of 6.3 million shares of common stock at an average price of $16.56 per share. Book value per share increased 4.8% to $18.26 at March 31, 2009 from $17.43 at December 31, 2008.

The Board of Directors declared a second quarter cash dividend of six cents per share. The dividend is payable on June 3, 2009, to stockholders of record as of May 20, 2009.

Conference Call and Web Cast, Form 10-Q

The Company will host a conference call Thursday, May 7, 2009 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 http://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 77042913. International callers may dial (617) 801-6888.

EHI will file its Form 10-Q for the quarterly period ended March 31, 2009, with the Securities and Exchange Commission ("SEC") on Thursday, May 7, 2009. The Form 10-Q will be available without charge through the EDGAR system at the SEC's web site and will also be posted on the Company's web site, http://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. 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 stockholders 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 stockholders 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 titled measures used by other companies.

Net Income before impact of LPT. 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.