Employers Holdings Inc · NYSE:EIG
Employers — KBW Annual Insurance Conference 2007
33 slides from Employers's conference presentation, Sep 5, 2007
Slide 1: KBW Annual Insurance Conference
September 5, 2007 KBW Annual Insurance Conference
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 second quarter 2007 and our Form 8-Ks filed with the Securities and Exchange Commission (SEC) and available in the “Investor
Slide 3: Contents
Contents Page Corporate Overview Overview 4 Key Strengths 5 Financial Snapshot 6 Strategies 7 Expanding Geographic Footprint 8 Seasoned Executives with Extensive Experience 9 Insurance Operations Disciplined Underwriting – Five Basic Elements 11 Focus on Low to Medium Hazard Groups 12 Customer Selec
Slide 4: Corporate Overview
America’s small business insurance specialist: Corporate Overview ze
Slide 5: Overview
Overview Specialty provider of workers’ compensation insurance 18th largest private writer in the U.S. (1) Business 8th largest private writer in California (1) 2nd largest writer in Nevada (1) Small businesses in low to medium hazard industries Distribution through independent agents and strategic
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: Financial Snapshot
Financial Snapshot ($ million) Net Premium Written Statutory Surplus Premium growth has reversed due to California rate Strong growth provides a solid basis for underwriting decreases ’02 – ’06 CAGR = 20% ’02 – ’06 CAGR = 30% 800 682 500 440 655 418 640 387 531 400 600 298 431 300 339 187 400 200 22
Slide 8: Strategies
Strategies Target attractive, underserved small business market Focus on Profitability Maintain disciplined risk selection, underwriting and pricing Pursue Expand in current markets and in our new states Organic Growth Leverage infrastructure, technology and systems Opportunities Utilize existing an
Slide 9: Expanding Geographic Footprint
Expanding GeographicFootprint NEW STATES Florida, Oregon, Texas, Arizona and Illinois = 1.1% WA MT ME ND MN VT OR NH ID SD WI NY MA WY MI CT RI IA PA NE NJ NV OH IL IN MD DE UT CO WV CA KS VA MO KY NC AZ TN OK AR SC NM MS AL GA LA TX FL 2000 2002 2006 2007 Direct Premiums Written (%) for six months
Slide 10: Seasoned Executives with Extensive Experience
Seasoned Executives with Extensive Experience Experience Name Title (Years) Douglas D. Dirks Chief Executive Officer 22 Martin J. Welch President and Chief Operating Officer 29 William E. Yocke EVP, Chief Financial Officer 31 T. Hale Johnston SVP, President of Pacific Region 16 David M. Quezada SVP,
Slide 11: Insurance Operations
America’s small business insurance specialist” Insurance Operations ae
Slide 12: Disciplined Underwriting – Five Basic Elements
Disciplined Underwriting Strong Five Basic Elements Underwriting Culture Focused Guidelines and Consistent Local Knowledge Automated Approach Disciplined Underwriting Pricing of Risk Selection Individual Risks Expertise 37.9% statutory loss and LAE ratio in 2006 11
Slide 13: Focus on Low to Medium Hazard Groups
Focus on Low to Medium Hazard Groups % of Premiums Written, 12/31/06 EMPLOYERS Industry (1) Hazard Group A Lower Risk Hazard Group B Hazard Group C Hazard Group D Hazard Group E Hazard Group F Hazard Group G Higher Risk Hazard Groups A through D EMPLOYERS = 82% Industry = 56% Focus on low to medium
Slide 14: Customer Selection
Customer Selection Top Ten Classes in 2006 Hazard Direct Premiums Percent of Group Class Written (000s) Total A Restaurants $ 27,654 7.1% C Physicians & Clerical 24,858 6.4 B Store: Wholesale 18,854 4.8 B College: Professional Employees & Clerical 11,590 3.0 B Store: Retail 11,189 2.9 C Clerical Off
Slide 15: Focused Marketing and Distribution
Focused Marketing and Distribution Independent Agents and Brokers Strategic Distribution Partners PACIFIC REGION WESTERN REGION STRATEGIC REGION Nevada, Colorado, Utah, Largely ADP & Wellpoint; California Montana, Idaho, Texas, added E-CHX in Qtr 4, 2006 Arizona, Illinois, Oregon, Primarily Californ
Slide 16: Strategic Distribution Partners / In Force Policy Count
Strategic Distribution Partners Largest payroll services company in the Largest group health carrier in California U.S. with over 450,000 clients Partner since entering California market Partner since entering California market in 2002 in 2002 Business originated by Wellpoint’s health Business origi
Slide 17: Policy Count
Slide 18: Workers' Compensation Industry
Workers’ Compensation Industry 2002: EMPLOYERS entry into California 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.) 17
Slide 19: California Rates and Rate Setting
California Rates and Rate Setting Workers’ Compensation Insurance Rating Bureau (WCIRB) recommended decrease of 11.3% Recent Commissioner Ordered Insurance Commissioner ordered decrease of 14.2% in Advisory Pure Premium Changes advisory rates January 1, 2004 -14.9% Company’s choice to implement rate
Slide 20: Insurance Operations Summary
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 mar
Slide 21: Financial Results
EMPLOYERS” America's small business insurance specialist. Financial Results ze
Slide 22: Four Key Elements of Our Financial Strength
Four Key Elements of Our Financial Strength 0.6:1 NPW / Surplus Surplus of Conservative Track record of at 12/31/2006 $640MM Reserving reserve strength at 12/31/2006 Over 90% fixed maturity High Quality Catastrophe Coverage up to with average rating AA Investment Reinsurance $200MM loss Portfolio Pr
Slide 23: Loss Portfolio Transfer (LPT)
Loss Portfolio Transfer (LPT) Non-recurring transaction with no ongoing cash benefits or charges to current operations Retroactive 100% quota share reinsurance coverage for all losses occurring prior to 7/1/95 Gain on transaction booked as statutory surplus; deferred and amortized under GAAP Contrac
Slide 24: Selected Operating Results
Selected Operating Results December 31 Q1 Q2 YTD $ million 2005 2006 2007 2007 2007 Income Statement Data Gross Written Premium $ 458.7 $ 401.8 $ 96.5 $84.6 $181.0 Premiums are Net Written Premium 439.7 387.2 93.2 81.5 174.7 declining due to California rate Net Earned Premium 438.3 393.0 89.8 84.1 1
Slide 25: Earnings and EPS
Earnings and EPS $ million, except per share data December 31 Q1 Q2 YTD 2005 2006 2007 2007 2007 Net Income $137.6 $171.6 $27.9 $30.8 $58.7 Less: LPT Deferred Gain Amortization (43.8) (19.4) (4.6) (4.6) (9.2) Net Income Before LPT 93.8 152.2 23.3 26.2 49.5 (1) (1) GAAP Pro forma EPS – assuming conve
Slide 26: Underwriting Profitability
Underwriting Profitability Excluding COMBINED RATIO December 31 Q1 Q2 YTD reserve (GAAP and excluding the LPT) 2005 2006 2007 2007 2007 development for (1) 6 mos., 2007 Loss & LAE Ratio 48.3% 33.0% 46.4% 34.2% 40.5% 61.2% Less: Impact of LPT (2) 10.0% 4.9% 5.1% 5.4% 5.3% 5.3% Loss & LAE Ratio (excl.
Slide 27: Reinsurance Program
Reinsurance Program $200M $50M xs $150M Catastrophe per Occurrence Fifth Excess of Loss Layer Expires 7/1/08 $150M $50M xs $100M Priced annually Catastrophe per Occurrence Fourth Excess of Loss Layer $100M Includes terrorism, except nuclear, $50M xs $50M Catastrophe per Occurrence biological, chemic
Slide 28: Investment Portfolio
Investment Portfolio $1.7 billion of investment securities Over 90% AA+ rated Book yield of 4.3% Tax equivalent book yield of 5.3% Effective duration of 5.68 Outsourced to Conning Asset Management Portfolio Mix at 6/30/07 27
Slide 29: Mortgage-backed Securities
Mortgage-backed Securities PORTFOLIO at 6/30/07 ($ million) Approximately 97% of US Treasury Securities 129.7 7.6% MBS are agency-backed US Agency Securities 140.3 8.3% Of these: Corporate Securities 184.8 10.9% Fannie Mae = 48% Tax-exempt Municipals 868.0 51.2% Freddie Mac = 32% Mortgage-backed Sec
Slide 30: Capital Management
Capital Management Strong Capital Position Holding Company Capital Management Cash Flow Tools $38 million ordinary Shareholder dividends $790 million GAAP dividend capacity $0.06 per share adjusted equity at (unassigned surplus at quarterly dividend 3/31/2007 12/31/2006), plus Two quarters 0.6:1 NPW
Slide 31: Summary
America’s small business insurance specialist: Summary
Slide 32: 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 33: Douglas D. Dirks, President & Chief Executive Officer
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
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