Employers Holdings Inc · NYSE:EIG
Employers — Investor Presentation (June 2007)
34 slides from Employers's investor presentation, Jun 4, 2007
Slide 1: Management Presentation
Management Presentation June 2007
Slide 2: Safe Harbor Disclosure
Safe Harbor Disclosure This slide presentation is for informational purposes only. It should be read in conjunction with our Form 10-K for the year 2006, our Form 10-Q for the first quarter 2007 and our Form 8-Ks filed with the Securities and Exchange Commission (SEC) and available in the “Investor
Slide 3: Page Contents
Page Contents California Rate Setting Process California Rates and Rate Setting Customer Selection Insurance Operations Summary Workers’ Compensation Industry Policy Count Strategic Distribution Partners Focused Marketing and Distribution Focus on Low to Medium Hazard Groups Disciplined Underwriting
Slide 4: Corporate Overview
Corporate Overview
Slide 5: Overview
Specialty provider of workers’ compensation insurance 18 th largest private writer in the U.S. (1) 8 th largest private writer in California (1) 2 nd largest writer in Nevada (1) Focused in Western U.S. – direct premiums written in the first quarter of 2007 66% in California 25% in Nevada 9% in nine
Slide 6: Key Strengths
Key Strengths Established enterprise with 94 year operating history Focused operations and disciplined underwriting – target an attractive and underserved market segment with growth opportunities Unique and long-standing strategic distribution relationships Financial strength and flexibility - stron
Slide 7: History
2000 2007 2002 2005 To be the leader in workers’ compensation for small businesses History (1) EICN = Employers Insurance Company of Nevada; the Fund = Nevada State Workers Compensation Fund State Workers Compensation Fund established in Nevada Demutualization and IPO Entry into California Market Go
Slide 8: Financial Snapshot
Financial Snapshot Net Premium Written Net Income Before Loss Portfolio Transfer (LPT) Equity Incl. Deferred Gain - LPT Statutory Surplus ($ million) Premium growth has reversed due to California rate decreases Strong growth provides a solid basis for underwriting Loss trends and investments are dri
Slide 9: Strategies
Consider opportunistic strategic transactions • Return capital to shareholders • Invest in operations and manage capital prudently • Utilize existing and new strategic distribution partners • Leverage infrastructure, technology and systems • Expand in current markets and in our new states • Maintain
Slide 10: Expanding Geographic Footprint
FL TX MT CO UT ID AZ CA OR IL Expanding Geographic Footprint NM MD OK KS NE SD ND WY NV WA KY ME NY PA MI NH MA CT VA WV OH IN NC TN SC AL AR LA MO IA MN WI GA MS VT NJ DE RI NEW STATES Florida, Oregon, Texas, Arizona and Illinois = 0.8% Direct Premiums Written (%), First Quarter, 2007
Slide 11: Seasoned Executives with Extensive Experience
Average experience of senior operating leadership = 24 years Seasoned Executives with Extensive Experience EVP, Chief Financial Officer William E. Yocke SVP, Chief Underwriting Officer Jeff J. Gans SVP, Chief Claims Officer Stephen V. Festa SVP, President of Western Region George Tway SVP, President
Slide 12: Insurance Operations
EMPLOYERS America’s small business insurance specialist.”
Slide 13: Disciplined Underwriting
37.9% statutory loss and LAE ratio in 2006 Disciplined Underwriting Disciplined Underwriting Risk Selection Expertise Strong Underwriting Culture Focused Guidelines and Consistent Automated Approach Local Knowledge Pricing of Individual Risks Five Basic Elements
Slide 14: Focus on Low to Medium Hazard Groups
EMPLOYERS Focus on low to medium hazard risks allows us to optimize risk selection and pricing adequacy Industry (1) Focus on Low to Medium Hazard Groups Hazard Group A % of Premiums Written, 12/31/2006 Hazard Group B Hazard Group C Hazard Group D Hazard Group E Hazard Group F Hazard Group G Hazard
Slide 15: Customer Selection
EMPLOYERS further differentiates risks within industry-defined customer classes Customer Selection 35.1% $136,883 Top 10 1.7 6,458 Automobile D 2.0 7,939 Dentists & Dental Surgeons & Clerical C 2.3 9,040 Clothing Manufacturers C 2.4 9,455 Machine Shops D 2.5 9,846 Clerical Office Employees C 2.9 11,
Slide 16: Focused Marketing and Distribution
Independent Agents and Brokers Three strategic business units target consistent customer segments with a focused underwriting approach Strategic Distribution Partners Focused Marketing and Distribution PACIFIC REGION California In 2006, 44% of direct premiums written STRATEGIC REGION Largely ADP & W
Slide 17: Strategic Distribution Partners
Strategic partners expand market reach and produce business with high persistency Strategic Distribution Partners Largest payroll services company in the U.S. with over 450,000 clients Partner since entering California market in 2002 Business originated by ADP’s field sales staff and insurance agenc
Slide 18: In Force Policy Count
Total in force policy count has grown consistently with a 2002 – 2006 CAGR of 6% Solid in force policy count growth continued in the first quarter, 2007 30,922 at 3/31/2007 27,934 at 3/31/2006 Total increase of 2,988 or 10.7% In Force Policy Count
Slide 19: Workers' Compensation Industry
Workers’ Compensation Industry Historical Pure Loss Ratio California Total U.S. Source: WCIRB as of 09/30/06 (California); Insurance Information Institute as of 12/31/05 (Total U.S.) 2002: Employers entry into California
Slide 20: California Rates and Rate Setting
Recent Commissioner Approved Pure Premium Rate Changes California Rates and Rate Setting -14.2% Recommended Effective-July 1, 2007 - 9.5% January 1, 2007 -65.1% Cumulative Change -16.4% July 1, 2006 -15.3% January 1, 2006 -18.0% July 1, 2005 - 2.2% January 1, 2005 - 7.0% July 1, 2004 -14.9% January
Slide 21: California Rate Setting Process
Rate Setting Process Example California Rate Setting Process Filed Loss Costs Estimate Effective Rates -5 Schedule Credits Revised Filed Rates 166% X LCM Revised Loss Costs Estimate -7.5% + or – adjustment Key Terms: Loss Costs (losses only; also referred to as pure premium); Lost Cost Multiplier (L
Slide 22: Insurance Operations Summary
High performing insurance operation, built upon four key elements A highly focused customer base A disciplined underwriting culture An efficient -- and scalable – infrastructure Strong producer and strategic partner relationships, providing us with: broader access to markets enhanced value delivery
Slide 23: Financial Results
America’s small business insurance specialist’
Slide 24: Four Key Elements of Our Financial Strength
Surplus of $640MM at 12/31/2006 Catastrophe Reinsurance Program Four Key Elements of Our Financial Strength Conservative Reserving High Quality Investment Portfolio 0.6:1 NPW / Surplus at 12/31/2006 Over 90% fixed maturity with average rating AA Coverage up to $175MM loss Track record of reserve str
Slide 25: Loss Portfolio Transfer (LPT)
Contract Accounting at 3/31/2007 Loss Portfolio Transfer (LPT) $ millions 602.5 Gain at 3/31/2007 (147.5) Subsequent Reserve Adjustments Gain at 1/1/2000 Consideration $1,525 Original Reserves Transferred $2,000 Total Coverage $ millions 438.5 GAAP: Deferred Reinsurance Gain – LPT Agreement (164.0)
Slide 26: Selected Operating Results
$ million December 31 2005 2006 First Quarter 2006 2007 Selected Operating Results 746.8 303.8 2,307.8 3,195.7 80.0 1,715.7 152.2 171.6 68.2 393.0 387.2 $ 401.8 -- -- -- -- -- -- 13.4 18.1 15.7 103.3 113.4 $ 117.1 352.0 144.6 Shareholders’ equity Balance Sheet Data 1,768.6 1,595.8 Total investments
Slide 27: Earnings and EPS
First Quarter December 31 2007 2006 2006 2005 $ million, except per share data Earnings and EPS 52,155,944 50,000,002 50,000,002 50,000,002 Weighted Average Shares Outstanding, pro forma (2) $ .45 $ .27 EPS Before Impacts of the LPT, pro forma (2) .08 $ .53 N/A -- -- 23.3 (4.6) $27.9 .40 EPS for the
Slide 28: Underwriting Profitability
COMBINED RATIO (GAAP and excluding the LPT) First Quarter 2006 2007 December 31 2005 2006 Underwriting Profitability $6.3 99.3% 18.7% 11.9% 68.7% 4.6% 64.1% $15.6 $107.1 $78.1 Favorable Reserve Development ($ million) 90.5% 25.9% 13.1% 51.5% 5.1% 46.4% 107.9% 72.6% 84.9% Combined Ratio (excl. LPT) 2
Slide 29: Reinsurance Program
Retention $10M xs $10M Catastrophe per Occurrence First Excess of Loss Layer $30M xs $20M Catastrophe per Occurrence Second Excess of Loss Layer $50M xs $50M Catastrophe per Occurrence Third Excess of Loss Layer $6M xs $4M First Excess of Loss Layer $25M xs $100M Catastrophe per Occurrence Fourth Ex
Slide 30: Investment Portfolio
Investment Portfolio $1.77 billion of investment securities Average credit rating of AA+ Tax equivalent book yield of 5.3% Effective duration of 5.73 Outsourced to Conning Asset Management Portfolio Mix at 3/31/2007
Slide 31: Capital Management
Holding Company Cash Flow Strong Capital Position Capital Management Tools Our goal is to drive shareholder value through an improving ROE resulting from (i) profitability consistent with historical results, (ii) disciplined growth and (iii) prudent capital management Capital Management $38 million
Slide 32: Summary
America’s small business insurance special
Slide 33: Summary
Summary Established enterprise with 94 year operating history Focused operations and disciplined underwriting – target an attractive and underserved market segment with growth opportunities Unique and long-standing strategic distribution relationships Financial strength and flexibility - strong bala
Slide 34: Douglas D. Dirks
Douglas D. Dirks President & Chief Executive Officer Employers Holdings, Inc. William E. (Ric) Yocke Chief Financial Officer Employers Holdings, Inc. Martin J. Welch President and Chief Operating Officer Employers Insurance Company of Nevada and Employers Compensation Insurance Company Analyst Conta
Employers Holdings — Investor Presentation (June 2007) on 6ix