Reno, Nev.-based Employers Holdings Inc. has reported first quarter 2010 net income of $16.1 million or $0.38 per share compared with $20.9 million or $0.43 per share in the first quarter of 2009, a decrease of $4.8 million or $0.05 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 was $11.7 million or $0.27 per share in the first quarter of 2010 compared with $16.5 million or $0.34 per share in the first quarter of 2009.
Douglas D. Dirks, president and CEO of EHI, said, “Declines in net premium earned continued in the first quarter stemming primarily from trends in employment and payrolls, rate decreases in some states, competition, and our continued underwriting discipline with a focus on the loss ratio. At March 31, 2010, our total payroll exposure declined approximately 17 percent year over year and 7 percent since Dec. 31, 2009. At the end of the first quarter, our net rate, which is defined as total premium in-force divided by total insured payroll, declined 5 percent since March 31, 2009. However, net rate declined less than one percent from Dec. 31, 2009 to March 31, 2010, largely as a result of positive net rate in California. We grew book value per share 1.2 percent since year-end 2009.”
As of March 31, 2010, the company had a combined ratio of 105.9 percent (111.3 percent before the LPT), an increase of 6.1 percentage points from the first quarter of 2009 combined ratio of 99.8 percent (103.6 percent before the LPT).
“Our increased combined ratio was largely the result of decreased premiums earned that were 29 percent lower than the first quarter of 2009,” Dirks said. “Our first quarter of 2010 underwriting and other operating expense ratio increased to 40.7 percent compared to 32.7 percent in the prior year’s quarter. However, underwriting and other operating expenses were 11.6 percent lower than the first quarter of last year as a result of our integration, restructuring and cost control efforts. Non-recurring costs related to staff reductions in this year’s first quarter added 1.2 percentage points to the combined ratio compared with 3.4 percentage points of integration and restructuring costs in last year’s first quarter, largely related to the integration of AmCOMP Inc.”
Dirks said because he doesn’t know whne small business customers will add jobs or increase payrolls, the company expects its permium and expense ration will continue to be pressured in 2010, yet that will partially be mitigated by a positive net rate in California, which represents half of Employers’ business.
First quarter net premiums earned decreased $32.3 million or 29 percent to $79.3 million in 2010 from $111.6 million in 2009.
First quarter net investment income of $21.3 million decreased $2.1 million or 8.8 percent, due to a 2.2 percent decrease in invested assets compared to March 31, 2009. The small decrease in invested assets was driven by a $50 million reduction in debt in the fourth quarter of 2009 and the return of capital to shareholders through share repurchases and dividends. In the first quarter of 2010, the company repurchased 319,719 shares of common stock at an average price of $13.70 per share for a total of $4.4 million.
In the first quarter of 2010, commission expense of $9.9 million decreased from $13.7 million in the first quarter of 2009.
First quarter of 2010 underwriting and other operating expenses decreased to $32.3 million from $36.5 million in the first quarter of 2009 largely as a result of cost control efforts, staff reductions in the first quarters of 2009 and 2010, and other cost savings related to the 2008 acquisition of AmCOMP Inc. Non-recurring costs associated with restructuring and, in the case of 2009, restructuring and integration, were $0.9 million in the first quarter of 2010 and $3.8 million in the first quarter of 2009.
The first quarter 2010 income tax benefit of $0.5 million decreased $0.7 million compared to the benefit of $1.2 million for the first quarter of 2009. The Company’s effective tax rate was higher in this year’s first quarter – (3.4%) compared to (6.1 percent) in last year’s first quarter.
The company will host a conference call today at 10:30 a.m. PST. The conference call will be available via a live web cast on the Company’s Web site at www.employers.com. The conference call replay number is 888-286-8010 with a passcode of 11788182. International callers may dial 617-801-6888.
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