• Gross Written Premiums: $176 million for Q4 and $776 million for the full year.
• Net Premiums Earned: $190 million for Q4 and $750 million for the full year, representing increases of 1% and 4% respectively.
• Combined Ratio (Excluding LPT): 95.5% for Q4 and 98.6% for the full year.
• Underwriting and General Administrative Expense Ratio: 23.2% for Q4 and 23.5% for the full year, down from 24.6% and 24.9% a year ago.
• Net Investment Income: $27 million for Q4 and $107 million for the full year.
• Net Realized and Unrealized Gains: $24 million for the full year.
• Book Value Per Share: $47.35, increased by 10.6% during 2024.
• Adjusted Book Value Per Share: $50.71, increased by 9.8% during 2024.
• Share Repurchases: $10 million in Q4 at an average price of $51.20 per share; $11 million since year-end at an average price of $49.38 per share.
• Dividend: $0.30 per share declared for Q1 2025.

• Warning! GuruFocus has detected 4 Warning Sign with EIG.

Release Date: February 21, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Employers Holdings Inc (NYSE:EIG) achieved the highest levels of written and earned premium, ending enforced premium and policies, and net investment income in its history for 2024.
• The company reported solid growth in new and renewal premiums throughout 2024, with a 3% increase in gross written premiums in the fourth quarter and 6% for the full year.
• Net investment income was strong, with $27 million for the fourth quarter and $107 million for the full year, supported by higher bond yields.
• The company achieved a combined ratio of 95.5% for the fourth quarter and 98.6% for the full year, marking the tenth consecutive year of underwriting profit.
• AM Best upgraded the financial strength ratings of Employers Holdings Inc (NYSE:EIG) insurance companies to A, reinforcing its ability to provide reliable coverage.

Negative Points

• Lower final audit premiums and endorsements offset the growth in new and renewal premiums.
• The loss and LAE ratios increased to 59.5% for the fourth quarter and 61.6% for the full year, compared to 50.2% and 57.2% a year ago, due to lower favorable prior year loss reserve development.
• The company anticipates increasing its 2025 accident year loss and LAE ratio for voluntary business due to a competitive rate environment.
• Net realized and unrealized losses on investments were less than $1 million for the quarter, compared to net gains of $12 million a year ago.
• The effective tax rate decreased to 18% for the quarter, down from 22% a year ago, impacting the overall tax expense.

Q & A Highlights

Q: Cathy, can you give us a sense of the magnitude of the change in the loss pick for the current accident year and why now? What do you see in the marketplace that motivates you to increase the loss pay? A: Our current accident year loss in LAE ratio is determined annually by our actuaries, considering the pricing environment, growth prospects, trends in frequency and severity, and any initiatives we might implement. We have maintained a prudent reserving philosophy, and the competitive rate environment led us to select a 2024 accident year loss in LAE ratio of 64%, slightly higher than 2023's 63.3%. We expect to increase this ratio in 2025 due to higher actuarial trend selections and the ongoing competitive rate environment.

Q: Is the 70 basis point uptick in 2024 a good starting point to think about 2025? A: We don't provide specific guidance, but we expect our decrease in the expense ratio to offset and mitigate the impact of the increase in the loss in LAE ratio. The offset is expected to be meaningful.

Q: What trends are driving the higher actuarial trend selection? A: Our claim frequency has continued to trend downward, and we do not expect that to change. Claim severity values have held steady, driven by lower medical severity. Indemnity severity trends with wage inflation, and medical inflation remains mild. The pressure comes from a more conservative approach and industry trends, with the accident year loss and LAE ratio picks for 2023 being 69, while we have been below the industry for years.

Q: How should we think about your expansion in appetite going into 2025? A: We will continue to expand our appetite, accelerating our efforts due to its success. This segment operates at a loss in LAE ratio similar to or better than our traditional target classes, contributing to growth. In Q4, appetite expansion classes generated $35 million or 20% of new renewal premium. We are also focusing on increasing digital partnerships for submissions, quotes, and binds.

Q: It looks like you transitioned investments into mortgage-backed securities during the quarter. What was the thought process? A: We increased our letter of credit by $100 million through the Federal Home Loan Bank to satisfy deposit requirements in California, allowing us to liberate lower-yielding assets. We sold these, recognizing a small realized loss, and invested in residential mortgage-backed securities yielding near 6%, significantly higher than previous yields. This will uplift our net investment income for next year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.