Employers Holdings Inc · NYSE:EIG
Employers — Investor Presentation (August 2008)
45 slides from Employers's investor presentation, Aug 19, 2008
Slide 1: Employers Holdings, Inc. Investor Presentation
Employers Holdings, Inc. Investor Presentation August, Exhibit 99.1
Slide 2: Non-GAAP Measures and Forward-looking Statements
This slide presentation is for informational purposes only. It should be read in conjunction with our Form 10-K for the year 2007, our Form 10-Q for the first and second quarters of 2008 and our Form 8-Ks filed with the Securities and Exchange Commission (SEC), all of which are available on the “Inv
Slide 3: Overview
· Specialty provider of workers’ compensation insurance · Coverage required by statute Medical, temporary/permanent indemnity, death 12 states, headquarters Reno, NV Market leading presence in California and Nevada Unique markets by state and area Small “main street” businesses 35,299 in force polic
Slide 4: Key Strengths
Key Strengths Net Income* Book Value per Share* $ 102 Million $16.21 $ 152 Million $14.94 $ 94 Million $12.14 * Adjusted for the Loss Portfolio Transfer (LPT) - see Appendix and SEC Filings • Established enterprise with consistently strong performance - year operating history • Focused operations an
Slide 5: Key Strategies: Focus, Growth, Capital
FOCUS GROWTH CAPITAL Key Strategies
Slide 6: Focus: Executing our Strategies
FOCUS Executing our Strategies
Slide 7: Focus: Attractive Small Business Market
• Proven business model • Significant room for growth • In-depth market knowledge Focus: Attractive Small Business Market • U.S. Small Business Administration – 26.8 million small businesses in – More new business creation than closures in 2006 • Two thirds of new firms survive at least two years; 4
Slide 8: Focus: Disciplined Underwriting
Disciplined Underwriting Risk Selection Expertise Strong Underwriting Culture Focused Guidelines and Consistent Automated Approach Pricing of Individual Risks Local Knowledge Focus: Disciplined Underwriting
Slide 9: Focus: Disciplined Risk Selection
=| 2° EMPLOYERS America’s small business insurance specialist.” Focus: Disciplined Risk Selection ‘% of Premiums Written, 12/31/07 % of Premiums Written, 12/31/06 EMPLOYERS Industry (» Th O% su a Hazard Group A mm ‘ower Hazard GroupB mm Hazard Group C Hazard GroupD © Hazard GroupE = Hazard Group F m
Slide 10: Focus: Disciplined Risk Selection, Top 10 Classes
Focus: Disciplined Risk Selection EMPLOYERS further differentiates risks within industry-defined customer classes A Restaurants 6.4 C Physicians and Clerical 5.8 B Wholesale Stores 4.8 B Retail Stores 3.0 B College Employees 2.6 C Clothing Manufacturers 2.4 C Clerical Office Employees 2.3 D Machine
Slide 11: Focus: Superior Claims Management
Focus: Superior Claims Management • In-house medical management staff help coordinate care and manage medical costs – URAC accreditation in case management and utilization review • Comprehensive fraud program – $10 million savings in 2007 • Rigorous quality assurance processes ensure compliance with
Slide 12: Focus: Delivering Superior Loss Ratios
Focus: Delivering superior loss ratios Consistently lower Losses and LAE ratios than the industry (Before the Loss Portfolio Transfer - see APPENDIX) A.M. Best, “Aggregates and Averages”
Slide 13: Growth: Executing our Strategies
GROWTH Executing our Strategies
Slide 14: Growth: Selectively Expanding Footprint
FL TX MT CO UT ID AZ CA OR PA IL California Arizona Montana Other Utah Nevada Colorado Illinois Idaho NM MD OK KS NE SD ND WY NV WA KY ME NH MA CT VA WV OH IN NC TN SC AL AR LA MO IA MN GA MS VT NJ DE RI Direct Premiums Written (%) at 6/30/08 Growth: Selectively Expanding Footprint
Slide 15: Growth: Top Line, Net Premiums Written
Net Premiums Written • 2002 - 2007 NPW CAGR of 13% • Top line challenged by prior rate decreases in California, economic slowdown in Southern Nevada and increasing competition in some markets • Outlook: – EMPLOYERS California rate change (- 4.5% effective 9/15/07) will roll through Q 3, 2008 – Calif
Slide 16: Growth: Increasing Market Penetration
$ million policies • Strong in force policy growth – Strong sales and marketing efforts • 2008 TTM* gain a healthy 10.6% – 13% in California, our largest market – 37% in states other than California and Nevada • Maintaining underwriting discipline – Focused operations – 90% of total policy count in
Slide 17: Growth: Organic and Strategic
Responsible Organic Growth Substantive M & A Growth Purchase Fremont Book of Business Purchase AmCOMP Incorporated Net Premiums Written • Excellent strategic fit • Immediate growth in premium volume – Introduction of A- rated paper • Increased scale – 15 new states – Diversified earnings • Meaningfu
Slide 18: Growth: Selectively Expanding Footprint, Pro Forma with AmCOMP
FL NM MD TX OK KS MT CO UT ID AZ NV CA OR KY PA VA IN IL NC TN SC AL AR MO MN GA MS 44% 11% 17% NE SD ND WY WA ME NH MA CT WV OH LA IA VT NJ DE RI EMPLOYERS AmCOMP Overlap California Indiana 3% Texas Other 11% 5% 6% Wisconsin Nevada Florida Tennessee 3% EMPLOYERS is building national scale with loca
Slide 19: Growth: Leverage Infrastructure, Technology and Systems
• Scalable business model – Increasing policy count per full time employee • 7.4% increase in this measure from 2006 to 2007 • Increasing the ease of doing business – Highly automated underwriting system - EACCESS • Electronic submission and review of applications • Includes underwriting guidelines
Slide 20: Growth: Unique Distribution Network
Independent Agents and Brokers Strategic Partnerships Industry Focused • California Restaurant Association provider of choice • California Medical Association sponsorship • Over 900 in place • Strong relationships with agents Restaurants and physicians are our top two classes of customers Growth: Un
Slide 21: Growth: Increasing Points of Access, Strategic Partnerships
Strategic Partnerships • Provide a distribution advantage – Expand market reach – Significant knowledge of local markets • Result in high persistency • Contribute about one-third of direct premiums written • Largest payroll services company in the U.S. with over 450,000 clients • Partner since 2002
Slide 22: Growth: Strong Retention Rates
• Overall retention mid to high 80s • Strategic partnerships historically low 90s • Slightly lower but strong retention in 2008 Growth: Strong retention rates Strategic partnerships maintain higher retention rates
Slide 23: Capital: Executing our Strategies
CAPITAL Executing our Strategies
Slide 24: Capital: Manage Capital Prudently
Strong Underwriting Leverage Catastrophe Reinsurance Program Operating Company Surplus Conservative Reserving High Quality Investment Portfolio Position of Financial Strength • Strong growth in statutory surplus provides a solid basis for underwriting – $275 million extraordinary dividends to parent
Slide 25: Capital: Holding Company Position of Financial Strength
• Holding Company Leverage – $150 million Amended and Restated Secured Revolving Credit Facility (Wells Fargo) through April 30, 2009 for acquisition costs and general corporate purposes • After April 30, 2009 - $50 million – Currently no borrowings – Debt to total capital to continue below rating a
Slide 26: Capital: History of Reserve Strength
Reserve Review Reserve Development • Track record of reserve strength ($ million) Net reserves for workers’ comp industry estimated to be deficient by $2 Billion at 12/31/07 (1) (1) NCCI, “2008 State of the Line” Net Calendar Year Reserve Releases for Prior Accident Years Capital: History of Reserve
Slide 27: Capital: High Quality Investment Portfolio
• $1.7 billion portfolio of invested securities - Less than .02% related to sub-prime - Less than 6% related to financials • Approximately 87% AA rated • Book yield of 4.27% • Tax equivalent book yield of 5.16% • Effective duration of 5.54 • Outsourced to Conning Asset Management Portfolio Mix at 6/
Slide 28: Capital: High Quality Reinsurance
Program Structure • Maintain a high quality reinsurance program – Focus on select small business provides a natural dispersion of exposure across markets • Long-term relationships with lead reinsurers • 100% rated A or better • Priced annually, effective 7/1/2008 • Limits of $200M • Retention of $5M
Slide 29: Capital: Investing in Operations
Statutory Surplus Investing in the Future • Generating capital to support growth • Cost containment initiatives – Underwriting and other operating expenses have been flat YTD at 6/30/08 – Minimal hiring in – Extensive budget review • Redeploying capital in profitable operations – Purchase price of A
Slide 30: Capital: Return Capital to Shareholders
Shareholder Dividends Share Repurchases • $0.06 per share quarterly to date • Approximately $12 million per year • Future dividends subject to Board approval • Repurchased $75 million (3.9 million shares) in 2007 • $100 million authorized in February through June 30 2009 – $7 million YTD at June 30,
Slide 31: Results: Consistently Profitable Underwriting
(LPT is 10%)* (LPT is 4.9%) (LPT is 5.2%) (LPT is 12%)* (LPT is 16.8%)* (LPT is 5.5%)* Calendar Year Combined Ratio Before the LPT Underwriting model targets a 100% combined ratio and a 12-13% return 84.9% 72.6% 85.6% 100.9% 94.3% 90.9% * Including reserve adjustments 86.3% (LPT is 6.3%) Results: Co
Slide 32: Results: Continuing Profits
YEAR EPS Before LPT (1) 2002 2003 2004 2005 2006 2007 YTD 6/30/08 $ 0.22 $ 0.92 $ 1.46 $ 1.88 $ 3.04 $ 1.98 $ 0.88 $ million $ million Annual Net Income Before LPT Quarterly Net Income Before LPT (1) 50,000,002 shares prior to February 5, 2007. 51,757,057 diluted shares in 2007. 49,545,264 diluted s
Slide 33: Results: Increasing Shareholder's Equity, Book Value, ROE
YEAR Adjusted ROE (3) 2002 2003 2004 2005 2006 2007 YTD 6/30/08 Shareholder’s Equity (1) Book Value per Share (2) 3.1% 10.9% 14.1% 15.5% 20.4% 12.7% 5.3% (1) Shareholder’s equity including deferred gain related to the LPT (2) Shareholder’s equity including deferred gain related to the LPT; 50,000,00
Slide 34: Investment Considerations
FOCUS on core operations Organic / Strategic GROWTH Prudent CAPITAL Management Investment Considerations • Established enterprise with consistently strong performance • Focused operations and disciplined underwriting • Unique and long-standing strategic distribution relationships • Financial strengt
Slide 35: Analyst Contact
Analyst Contact: Vicki Erickson Vice President, Investor Relations Employers Holdings, Inc. (775) 327-2794 verickson@employers.com Professional Circle Reno, NV 89521 (775) 327-2700 Douglas D. Dirks President & Chief Executive Officer Employers Holdings, Inc. William E. (Ric) Yocke Chief Financial Of
Slide 36: America's small business insurance specialist
EMPLOYERS" America’s small business insurance specialist.”
Slide 37: Workers' Compensation
All other states less than 4% • $50 billion market (1) – California 18% of total workers’ compensation premiums (2) Direct Written Premiums, Commercial Property & Casualty Market (1) (1) A.M. Best - Best’s State/Line - P/C US (data on-line as of 7/23/08) (2) A.M. Best, 2007 Data Direct Written Premi
Slide 38: History
2007 2002 2005 2008 State Workers Compensation Fund established in Nevada History Privatization: EICN assumed assets, liabilities and operations of Fund Entry into California, the largest WC market in the U.S. (and four other states) Formation of mutual holding company Demutualization and IPO - entr
Slide 39: Loss Portfolio Transfer (LPT)
Contract $ Accounting at 9/30/07 $ millions Total Coverage $2,000 Original Reserves Transferred $1,525 Consideration Gain at 1/1/2000 Subsequent Reserve Adjustments (147.5) Gain at 9/30/2007 $602.5 $ millions Statutory Surplus Created $602.5 Cumulative Amortization To Date (186.9) GAAP: Deferred Rei
Slide 40: California Premium and Incurred Losses
Premium and Incurred Losses EMPLOYERS entry Reform and 2008 - increasing competition 73.6% of Premium: California
Slide 41: California Rate Setting Process Example
Rate Setting Process Example California Rate Setting Process Filed Loss Costs Estimate + or - adjustment -7.5% Revised Loss Costs Estimate X LCM 166% Revised Filed Rates Schedule Credits -5 Effective Rates • Key Terms: Loss Costs (losses only; also referred to as Pure Premium); Lost Cost Multiplier
Slide 42: Selected Operating Results
America’s small business insurance specialist.” Selected Operating Results Income Statement ¢5 maton exceptper share data) 2005 2006 2007 ~=YTD 6/30/08 Gross Written Premium § 4587 § 4018 § 3507 § 154.8 Net Written Premium 439.7 387.2 338.6 149.5 Net Earned Premium 438.3 398.0 36.9 149.7 Net Investm
Slide 43: Current Organization and Organization after Acquisition
Employers Holdings, Inc. Employers Insurance Company of Nevada Employers Compensation Insurance Company AmCOMP Preferred Insurance Company Employers Occupational Health, Inc . AmCOMP Assurance Corporation Elite Insurance Services Pinnacle Administrative Company Pinnacle Benefits, Inc. AmSERV, Inc. E
Slide 44: AmCOMP at a Glance
AmCOMP at a Glance Key Strengths of AmCOMP Direct Premiums Written: $101.7 M Net Premiums Earned: $100.7 M Net Investment Income: $10.4 M Net Income: $6.5 M Combined Ratio: 94.8% Total Investments: $434.1 M Total Assets: $655.5 M Shareholder’s Equity: $163.7 M YTD 6/30/08 Source: AmCOMP Incorporated
Slide 45: Growth: Policyholders by Industry Group
18% EMPLOYERS 22% Pro forma Combined at 12/31/2007 20% AmCOMP Miscellaneous Contracting Manufacturing Office and Clerical 36% 32% Goods and Services 6% 8% Miscellaneous Contracting Manufacturing Office and Clerical 46% 13% Goods and Services 10% 9% Miscellaneous Contracting Manufacturing Office and
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