Key Highlights    --  Added to the S & P 600 Small Cap Index   --  Grew direct written premium 41% since June 30, 2008 and diversified       direct written premium as follows:       --  California 45%, Florida 9%, Wisconsin 7%, Nevada 5%   --  Decreased underwriting and other operating expenses, excluding       acquired operations and non-recurring restructuring charges   --  Continued favorable prior accident year development of $15.7 million       in the quarter and $29.2 million in the first six months of this year   --  Stable portfolio fair market value of $2.1 billion with a tax       equivalent yield of 5.6% at June 30, 2009    --  Generated three month book value per share growth of 3.9% to $18.97 at       June 30, 2009 from $18.26 at March 31, 2009 and six month book value       per share growth of 8.8% since December 31, 2008   

Employers Holdings, Inc. ("EHI" or the "Company") today reported second quarter net income of $20.3 million or $0.44 per share compared with $27.4 million or $0.55 per share in the second quarter of 2008, a decrease of $7.0 million or $0.11 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 $16.0 million or $0.34 per share in the second quarter of 2009 and $22.8 million or $0.46 per share in the second quarter of 2008.

Net income for the six months ended June 30, 2009 was $41.2 million or $0.87 per share compared with $52.9 million or $1.07 per share for the six months ended June 30, 2008. For the first six months of 2009, net income before the impact of the LPT was $32.5 million or $0.68 per share compared to $43.5 million or $0.88 per share for the same period in 2008.

President and Chief Executive Officer Douglas D. Dirks commented: "We are pleased with our performance in the second quarter and first six months of the year, particularly in light of the continuing economic contraction and low interest rate environment. Our acquisition is yielding intended results. Since June 30, 2008, we grew direct written premium 41%. Our book of business at June 30, 2009, is more diversified with 45% of direct written premium in California; 21% in Florida, Wisconsin, and Nevada; and the remaining 34% in our 26 other states. Our invested assets of $2.1 billion yielded 5.6% on a tax equivalent basis at June 30, 2009 with a net unrealized gain of $31.1 million for the six months ended June 30, 2009. Our strong capital position and continued confidence in our business model is reflected in our repurchase of 1.4 million shares in the second quarter, with a total of 3.1 million repurchased shares in the six months ended June 30, 2009. We grew book value per share 3.9% since March 31, 2009 and 8.8% since year-end 2008. Respectively, 32.4% and 34.4% of the three and six month growth in book value per share were related to share repurchases."

The second quarter 2009 combined ratio was 97.4% (101.6% before the LPT), an increase from the second quarter 2008 combined ratio of 77.0% (83.2% before the LPT). Acquired operations contributed 12.1 percentage points of the increase. For the first six months in 2009, the combined ratio was 98.6% (102.6% before the LPT), an increase of 18.6 percentage points from 80.0% (86.3% before the LPT) for the same period in 2008, with acquired operations contributing 11.8 percentage points of the increase. Lower premiums earned, prior rate reductions, competitive pressures, and overall economic conditions also contributed to the higher combined ratios.

Dirks continued: "While improved from the first quarter, our combined ratio is not yet optimal. We are seeing benefits from expense controls and integration activities as our expenses excluding acquired operations and integration/restructuring charges are declining - $2.9 million in the quarter and $4.0 million in the first six months of the year. Year-to-date at June 30, 2009, restructuring expenses added 2.0 percentage points to the combined ratio."

Commenting on the second half of 2009, Dirks concluded: "While we do not know when the economy will improve, we feel confident that given our strong balance sheet and disciplined underwriting, we can continue to reinvest capital in our business, satisfy our debt obligations, and provide high quality service to our customers while growing shareholder value in the long term."

Second quarter net premiums earned increased $30.6 million or 41.4% to $104.4 million from $73.8 million in the second quarter of 2008. Second quarter net premiums earned were $44.0 million for acquired operations. Excluding acquired operations, net premiums earned declined $13.4 million or 18.2% with declines in direct written premium of $9.1 million in California and $3.8 million in Nevada. Policy count increased 28.1% to 45,226 at June 30, 2009 from 35,299 at June 30, 2008. Policy count declined by 373 policies or 0.8% since December 31, 2008.

Second quarter net investment income increased $4.5 million in 2009 primarily due to acquired invested assets. Net investment income for the six months ended June 30, 2009 increased 23.8% to $46.4 million from $37.4 million for the same period in 2008. The tax equivalent yield on invested assets was 5.6% at June 30, 2009. Realized losses on investments for the second quarter of 2009 totaled $0.4 million compared with realized losses of $0.2 million for the second quarter of 2008. For the six months ended June 30, 2009, realized losses on investments were $2.5 million compared with $1.7 million for the six months ended June 30, 2008 due to $1.9 million in other-than-temporary impairments on certain equity securities and sales of impaired fixed maturity securities.

Second quarter losses and LAE increased to $54.1 million in 2009 compared with $24.1 million in 2008. Excluding acquired operations, losses and LAE decreased 9.9%. Before the impact of the LPT, loss and LAE expense was $58.5 million in the second quarter of 2009 and $28.7 million in the second quarter of 2008. Current accident year loss estimates were 71.0% and 61.8% in the second quarters of 2009 and 2008, respectively. Favorable prior accident year loss development was $15.7 million in the second quarter of 2009 compared with $16.9 million in the second quarter of 2008.

Year-to-date losses and LAE at June 30, 2009 increased to $113.3 million from $54.8 million at June 30, 2008. Excluding acquired operations, losses and LAE decreased 9.9%. Before the impact of the LPT, loss and LAE expense was $122.0 million and $64.1 million for the six months ended June 30, 2009 and 2008, respectively. Current accident year loss estimates were 70.0% in 2009 and 61.7% in 2008. Favorable prior accident year loss development was $29.2 million in the first six months of 2009 compared with $28.3 million for the same period in 2008.

In the second quarter of 2009, commission expense was $13.2 million compared with $9.7 million in the second quarter of 2008. Excluding the acquisition, commission expense decreased $0.8 million. Commission expense for the first six months of 2009 increased to $26.9 million from $20.3 million for the same period in 2008.

Second quarter underwriting and other operating expense was $32.5 million in 2009 compared with $22.9 million in 2008. Excluding acquired operation expenses of $11.9 million and non-recurring restructuring charges of $0.5 million, expenses would have declined $2.9 million. For the first six months of 2009, underwriting and other operating expense was $68.9 million in 2009 compared with $44.6 million in 2008. Excluding acquired operation expenses of $24.0 million and non-recurring integration and restructuring charges of $4.3 million, expenses would have declined $4.0 million in these six month periods. In the first six months of 2009, we incurred total one-time integration and restructuring charges of $4.3 million, including $2.7 million in severance expenses.

Second quarter income tax expense was $3.3 million in 2009 compared to $8.3 million in 2008. Income taxes in the first six months of 2009 were $2.1 million based on lower pre-tax income and the impacts of non-taxable investment income. The effective tax rate for the second quarter was 14.0% and 4.9% for the six months ended June 30, 2009.

Total invested assets were $2.1 billion at the end of the second quarter 2009 with a tax equivalent yield of 5.6%. There was a net unrealized gain of $31.1 million in the portfolio for the six months ended June 30, 2009. For your information, we are including a list of portfolio securities by CUSIP in the Calendar of Events, Second Quarter "Investors" section of our web site at http://www.employers.com/.

As of June 30, 2009, total stockholders' equity increased to $471.1 million from $444.7 million at December 31, 2008. Equity, including the deferred reinsurance gain related to the LPT, increased 2.1% to $868.9 million from $851.3 million at December 31, 2008.

Through the 2008 Stock Repurchase Program, 1,445,100 shares of common stock were repurchased in the second quarter of 2009 at an average price of $11.47. In the first six months of 2009, the Company repurchased 3,069,295 shares of common stock at an average cost of $10.46 per share. As of June 30, 2009, the Company has repurchased a total of 7,767,362 shares of common stock at an average price of $15.61 per share.

Book value per share increased 3.9% to $18.97 at June 30, 2009 from $18.26 at March 31, 2009. Book value per share increased 8.8% from $17.43 at December 31, 2008.

The Board of Directors declared a third quarter dividend of six cents per share. The dividend is payable on September 3, 2009, to stockholders of record as of August 20, 2009.

Conference Call and Web Cast, Form 10-Q

The Company will host a conference call Friday, August 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 77509677. International callers may dial (617) 801-6888.

EHI will file its Form 10-Q for the period ended June 30, 2009, with the Securities and Exchange Commission ("SEC") on Friday, August 7, 2009. The Form 10-Q will be available without charge through the EDGAR system at the SEC's Web site and will also posted on the Company's Web site, http://www.employers.com/, 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.