Reno, Nev.-based Employers Holdings Inc. has reported second quarter 2010 net income of $16.5 million compared with $20.3 million in the second quarter of 2009, a decrease of $3.8 million or $0.05 per share. Net income for the six months ended June 30, 2010 was $32.6 million compared to $41.2 million for the six months ended June 30, 2009. Meanwhile, the company expects to realize gains from workforce reductions in the third quarter of 2010.
Douglas D. Dirks, president and CEO, said, net premiums written declined 15.5 percent in the second quarter due to trends in employment and payrolls, rate decreases in some states, competition, and continued underwriting discipline with a focus on the loss ratio. At June 30, 2010, total payroll exposure declined approximately 16 percent year over year and 9 percent since Dec. 31, 2009, with Florida and Wisconsin having the largest percentage declines for those periods among the company’s largest states. At the end of the second quarter, the net rate, which is defined as total premium in-force divided by total insured payroll, declined just 2 percent since Dec.31, 2009 and 6 percent since June 30, 2009, reflecting continued benefits from positive net rate in California.
“We grew book value per share 4.6 percent since year-end 2009 as the result of higher retained earnings, net unrealized gains on investments and share repurchases. We repurchased 1.1 million shares of our common stock in the second quarter and 1.5 million shares in the first six months of this year. Year-to-date, our share repurchases had an average cost of $15.06 per share for a total cost of $21.9 million in 2010. We continue to return capital to shareholders as this week the Board of Directors declared a quarterly stock dividend of six cents per share for an annual dividend yield of approximately one and a half percent,” Dirks said.
The company had a second quarter 2010 combined ratio of 101.9 percent (107.4 percent before the LPT), an increase of 4.5 percentage points from the second quarter of 2009 combined ratio of 97.4 percent (101.6 percent before the LPT).
In the second quarter of 2010, the 5.9 percentage point year-over-year increase in the company’s loss ratio was largely the result of lower favorable prior accident year reserve development, according to Dirks. The underwriting and other operating expense ratio was essentially flat compared to the prior year’s quarter while the underlying underwriting and other operating expenses were 22.5 percent lower than the second quarter of last year.
Looking ahead, Dirks concluded: “Our cost control efforts are resulting in an improvement in our underwriting and other operating expense ratio. We expect to see lower run rate underwriting and other operating expenses throughout the remainder of this year relative to last year, from staffing and other cost reductions. We expect to record a restructuring charge of $2.4 million related to workforce reductions in the third quarter of 2010. Additionally, in the third and fourth quarters of 2010, we expect to record restructuring charges of $1.3 million and $1.8 million, respectively, related to leases for facilities that we will vacate. For the remainder of 2010, we expect to generate salary and benefit savings of approximately $8.2 million, with net savings of $2.7 million. Beginning in 2011, we anticipate annualized savings of approximately $18.3 million, comprised of $17.0 million in salaries and benefits and $1.3 million in lease-related savings.”
Second quarter net premiums written of $73.7 million decreased 15.5 percent compared to the second quarter of 2009. Net premiums earned decreased $26.1 million or 25 percent to $78.2 million in 2010 from $104.4 million in 2009.
Second quarter net investment income of $20.6 million decreased $2.4 million or 10.5% due to a 2.8 percent decrease in average invested assets compared to June 30, 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.
Realized gains on investments in the second quarter of 2010 were $0.4 million compared to realized losses of $0.4 million in the second quarter of 2009 due to other-than-temporary impairments on equity securities.
Net premiums earned of $157.5 million in the first six months of the year declined 27.1 percent compared to the same period in 2009. Policy count at June 30, 2010 decreased 4.2 percet to 43,333 from 45,226 at June 30, 2009. Policy count declined by 821 policies or 1.9 percent since December 31, 2009.
For the six months ended June 30, 2010, net investment income of $41.9 million decreased 9.6 percent or $4.5 million due largely to a 2.6 percent decrease in average invested assets. Realized gains on investments were $0.9 million compared with realized losses of $2.5 million for the six months ended June 30, 2009 due to other-than-temporary impairments on equity securities.
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