Nov. 4, 2009 (PR Newswire) --

RENO, Nev., Nov. 4 /PRNewswire-FirstCall/ -- Employers Holdings, Inc. ("EHI" or the "Company") (NYSE: EIG) today reported third quarter net income of $30.6 million or $0.68 per share compared with $33.1 million or $0.67 per share in the third quarter of 2008, a decrease of $2.5 million in net income and an increase of $0.01 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 deferred reinsurance gain (the Company's non-GAAP measure described below) was $25.9 million or $0.57 per share in the third quarter of 2009 and $28.5 million or $0.58 per share in the third quarter of 2008.

Net income for the nine months ended September 30, 2009 was $71.8 million or $1.54 per share compared with $85.9 million or $1.74 per share for the nine months ended September 30, 2008. For the first nine months of 2009, net income before the impact of the LPT deferred reinsurance gain was $58.4 million or $1.25 per share compared to $72.0 million or $1.46 per share for the same period in 2008.

The third quarter 2009 combined ratio was 88.9% (93.7% before the impact of the LPT deferred reinsurance gain), compared with 78.8% (85.0% before the impact of the LPT deferred reinsurance gain), an increase of 10.1 percentage points. Acquired operations contributed 16.6 percentage points of the increase. Lower favorable reserve development also contributed to the overall 10.1 percentage point increase. These factors were partially offset by the $14.1 million increase in the LPT contingent profit commission that reduced commission expense. For the first nine months of 2009, the combined ratio was 95.6% (99.8% before the impact of the LPT deferred reinsurance gain), an increase of 16.0 percentage points from 79.6% (85.9% before the impact of the LPT deferred reinsurance gain) for the same period in 2008, with acquired operations contributing 13.4 percentage points of the increase. The decrease in favorable prior accident year loss development period over period along with lower premiums earned due to prior rate reductions, competitive pressures, and overall economic conditions contributed to the higher combined ratio, and these factors were partially offset by the increase in the LPT contingent profit commission.

President and Chief Executive Officer Douglas D. Dirks commented: "Although we continue to see impacts of the economic contraction, we are pleased with our results in the third quarter. We grew shareholder equity including the deferred reinsurance gain 5.6% since June 30, 2009 after returning $25.0 million to our shareholders through common share dividends and repurchases during the quarter. We grew book value per share 9.3% in the quarter and 19% since December 31, 2008. Our invested assets of $2.1 billion yielded 5.6% on a tax equivalent basis at September 30, 2009 with a net unrealized gain of $101.0 million for the nine months ended September 30, 2009.

"Given our strong capital position, our Board of Directors has approved a new $50 million share repurchase program, to be effective January 1, 2010 through December 31, 2010. We anticipate that any purchases under this 2010 Stock Repurchase Program will be conducted in a disciplined and opportunistic manner."

Discussing the Company's outlook, Dirks concluded: "While recent economic data may signal the end of the U.S. recession, the pace of recovery remains uncertain and we believe that employment will continue to be negatively impacted in the near-term. The Obama administration has recently announced new efforts to improve access to credit for small businesses which may be an important step in supporting economic recovery and job creation. No matter what the pace of recovery, our strong capital position and earnings power will enable us to continue to invest in our business while maintaining a strong rating of A- from A.M. Best."

Net premiums earned increased $25.1 million or 34.3% to $98.2 million from $73.1 million in the third quarter of 2008. Third quarter net premiums earned were $39.8 million from acquired operations. Excluding acquired operations, net premiums earned declined $14.7 million or 20.2% in the third quarter as compared to the same period in 2008, with declines in direct written premium of $14.1 million or 24.8% in California and $4.1 million or 46.0% in Nevada.

Policy count increased 24.2% to 44,848 at September 30, 2009 from 36,102 at September 30, 2008. Since December 31, 2008, policy count declined 1.6% (a total of 751 policies) with unit decreases of 921 in Nevada and 363 in Florida, partially offset by unit growth in our Midwest and Southeastern states - particularly Illinois and Georgia.

Third quarter 2009 net investment income of $22.3 million increased $3.9 million or 20.9% from $18.5 million in 2008. Net investment income for the nine months ended September 30, 2009 increased 22.9% to $68.7 million from $55.9 million for the same period in 2008 with the third quarter and year-to-date increases due largely to increased invested assets. The pre-tax and tax equivalent yields on invested assets were 4.6% and 5.6%, respectively, year-to-date at September 30, 2009. Realized gains on investments for the third quarter of 2009 totaled $3.6 million compared with realized losses of $1.5 million for the third quarter of 2008. For the nine months ended September 30, 2009, realized gains on investments were $1.1 million compared with realized losses of $3.2 million for the nine months ended September 30, 2008. Realized gains in the first nine months were partially offset by other-than-temporary impairments of $1.9 million in the first two quarters of this year.

Third quarter losses and LAE increased to $53.4 million in 2009 compared with $25.6 million in 2008. Excluding acquired operations, losses and LAE decreased 1.9%. Before the impact of the LPT deferred reinsurance gain, loss and LAE expense was $58.1 million in the third quarter of 2009 and $30.1 million in the third quarter of 2008. Current accident year loss estimates were 69.7% and 75.4% in the third quarters of 2009 and 2008, respectively. Favorable prior accident year loss development was $10.4 million in the third quarter of 2009 compared with $25.0 million in the third quarter of 2008.

Year-to-date losses and LAE at September 30, 2009 increased to $166.7 million from $80.3 million at September 30, 2008. Excluding acquired operations, losses and LAE decreased 7.3%. Before the impact of the LPT deferred reinsurance gain, losses and LAE were $180.0 million and $94.2 million for the nine months ended September 30, 2009 and 2008, respectively. Current accident year loss estimates were 69.9% in 2009 and 66.2% in 2008. Favorable prior accident year loss development was $39.6 million in the first nine months of 2009 compared with $53.3 million for the same period in 2008.

In the third quarter of 2009, we recorded a negative commission expense of $1.3 million largely due to the LPT contingent profit commission compared with an expense of $10.1 million in the third quarter of 2008. Under the LPT Agreement, a "contingent profit commission" is calculated every five years beginning June 30, 2004 through June 30, 2024 based on the difference between actual paid losses and loss expenses and projections of expected ultimate losses and loss expenses related to the LPT, with reinsurers paying the Company's Nevada insurance subsidiary 30% of any favorable difference. Through June 30, 2024, any previously received contingent profit commission may be required to be repaid to reinsurers with interest in the event of unfavorable differences between actual and contractually estimated paid losses and loss expenses. The ultimate contingent profit commission is estimated each quarter through June 30, 2024 and included in commission expense. Increases or decreases in the estimated contingent profit commission are reflected in commission expense in the period that the estimate is revised. Estimated total losses and loss adjustment expenses covered under the LPT and to be paid through June 30, 2024 were reduced in the third quarter by approximately $40 million from the previous estimate. These calculations resulted in a $14.1 million increase in the LPT contingent profit commission and $5.7 million in cash paid by reinsurers in the third quarter of this year with the remainder paid in the fourth quarter. Excluding acquired commission expense and the contingent profit commission, commission expense decreased $1.4 million in the third quarter of 2009. Commission expense for the first nine months of 2009 decreased to $25.6 million from $30.5 million for the same period in 2008. Excluding acquired commission expense and the LPT contingent profit commission, commission expense in the first nine months of 2009 decreased $3.8 million.

Dividends to policyholders were $1.5 million in the quarter and $5.4 million in the first nine months of 2009 largely from policies related to acquired operations.

Third quarter underwriting and other operating expenses were $33.7 million in 2009 compared with $21.9 million in 2008. Excluding acquired operating expenses of $11.2 million and one-time integration and restructuring charges of $0.6 million in the quarter, underwriting and other operating expenses remained flat notwithstanding a $1.6 million decrease in the allowance for bad debt in 2008. For the first nine months of 2009, underwriting and other operating expenses were $102.6 million compared with $66.5 million in the same period in 2008. Excluding acquired operating expenses of $35.2 million and non-recurring integration and restructuring charges of $4.9 million, expenses declined $4.0 million in the first nine months of 2009 compared to the same period in 2008.

Interest expense on the Company's Credit Facility with Wells Fargo and acquired surplus notes was $1.8 million in the third quarter and $5.6 million in the first nine months of this year.

Third quarter income tax expense increased to $4.6 million in 2009 compared to an income tax benefit of $289,000 in 2008 primarily due to the final reversal of the liability for previously unrecognized tax benefits including interest in the third quarter of 2008. Income taxes in the first nine months of 2009 were $6.7 million based on lower pre-tax income and the impacts of non-taxable investment income. The effective tax rate for the third quarter was 13.1% and 8.5% for the nine months ended September 30, 2009.

Total invested assets were $2.1 billion at the end of the third quarter 2009. We are including a list of portfolio securities by CUSIP in the Calendar of Events, Third Quarter "Investors" section of our web site at www.employers.com.

As of September 30, 2009, total stockholders' equity increased to $524.6 million from $444.7 million at December 31, 2008. Equity, including the deferred reinsurance gain related to the LPT, increased 7.8% to $917.8 million from $851.3 million at December 31, 2008.

Through the 2008 Stock Repurchase Program, 1,547,106 shares of common stock were repurchased in the third quarter of 2009 at an average price of $14.42 per share. In the first nine months of 2009, the Company repurchased an aggregate of 4,616,401 shares of common stock at an average cost of $11.79 per share. As of September 30, 2009, the Company has repurchased a total of 9,314,468 shares of common stock at an average price of $15.41 per share.

Book value per share increased 9.3% to $20.74 at September 30, 2009 from $18.97 at June 30, 2009. Book value per share increased 19.0% from $17.43 at December 31, 2008.

The Board of Directors declared a fourth quarter dividend of six cents per share. The dividend is payable on December 2, 2009, to stockholders of record as of November 18, 2009.

On November 4, 2009, the Board of Directors also authorized a share repurchase program for up to $50 million of the Company's common stock. The Company expects that shares may be purchased at prevailing market prices from January 1, 2010 through December 31, 2010 through a variety of methods, including open market or private transactions, in accordance with applicable laws and regulations. The timing and actual number of shares repurchased will depend on a variety of factors, including the share price, corporate and regulatory requirements and other market and economic conditions.