Yahoo Finance Employers Holdings, Inc. (NYSE:EIG) Q1 2024 Earnings Call Transcript
Employers Holdings, Inc. (NYSE:EIG) Q1 2024 Earnings Call Transcript April 26, 2024
Employers Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Q1 2024 Employers Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, this call may be recorded. I'll turn the call over to Lori Brown, General Counsel. Please go ahead.
Lori Brown: Thank you, Michelle. Good morning and welcome everyone to the first quarter 2024 earnings call for Employers. Today's call is being recorded and webcast from the Investors section of our website, where a replay will be available following the call. Presenting today are Kathy Antonello, our Chief Executive Officer; and Mike Paquette, our Chief Financial Officer. Statements made during this conference call that are not based on historical facts are considered forward-looking statements. These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Although, we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission.
All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments. The company also uses its website as a means of disclosing material nonpublic information and for complying with the disclosure obligations under the SEC's Regulation FD. Such disclosures will be included in the Investors section of our website. Accordingly, investors should monitor that portion of our website in addition to following our press releases, SEC filings, public conference calls and webcasts. In our earnings press release and in our remarks or responses to questions, we may use non-GAAP financial measures. Reconciliations of these non-GAAP measures to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation and any other materials available in the Investors section on our website.
And now I'll turn the call over to Kathy.
Kathy Antonello: Thank you, Lori. Good morning to everyone, and welcome to our first quarter 2024 earnings call. Today, we will follow our typical agenda, where I'll begin by providing some highlights of our first quarter 2024 results. I'll then hand it over to Mike for more details on our financials and prior to Q&A, I'll discuss the continued improvement we expect to see during the balance of 2024. Higher new and renewal premiums, strong net investment income and investment gains drove an 8% increase in our first quarter revenue year-over-year. Our steady growth in written premium resulted from a 38% increase in new business, a 6% increase in renewal business and continued solid audit premium recognition. Excluding adjustments for audit premium, our gross written premium increased 14% for the quarter with all major distribution channels contributing to the growth.
Our investment performance was also a boost to revenue, with continued strong net investment income and net unrealized gains from our common stock and other investments. We recorded our current accident year loss in LAE ratio on voluntary business at 64%, slightly above the 63.3% we maintained throughout 2023 and consistent with that of 2022. We believe the accident year 2024 loss ratio that we recorded, along with our existing provision for a potential increase in medical inflation, positions us well from a reserving standpoint. As was the case in the first quarter of 2023, we did not recognize any prior year loss reserve development on our voluntary business, because the full actuarial study was not performed and the amount of indicated net prior year loss reserve development was consistent with our expectations.
We will evaluate our prior year reserves in more detail at midyear when we routinely perform a full reserve study. Our commission expense ratio was 13.8%, up from 13.5% a year ago. The increase was due to our strong new business premium growth, which is typically subject to a higher initial commission rate and anticipated 2024 agency incentives, which are contingent on profitable growth. Our underwriting and general and administrative expense ratio was 24.8%, down from 25.7% a year ago. The expense ratio improvement primarily resulted from our recent Cerity integration, and we expect further expense ratio improvement throughout 2024. While our net income and adjusted net income per diluted share rose sharply by 29% and 12%, respectively, our first quarter 2024 GAAP combined ratio of 101.6% was similar to our first quarter 2023 results.
Our combined ratio does not yet fully reflect the underlying enhancements, efficiencies and economies of scale that we have recently achieved, and we expect meaningful improvements in our combined ratio for the balance of the year. With that, Mike will now provide a deeper dive into our financial results and then I'll return to provide my closing remarks. Mike?
Mike Paquette: Thank you, Kathy. Gross premiums written were $211 million, an increase of 8%. The increase was primarily due to higher new and renewal premiums. Net premiums earned were $185 million, an increase of 7%. Our loss and loss adjustment expenses were $117 million, an increase of 8% and our loss and loss adjustment expense ratio was 63% or 64% when excluding the effects of our loss portfolio transfer. As Kathy mentioned, we increased our current accident year loss and LAE ratio on voluntary business to 64% this quarter versus 63.3% a year ago. In addition, we continued to settle claims throughout the quarter on an accelerated basis to both mitigate our overall tail risk and generate additional reserve salvage. Commission expenses were $26 million, an increase of 9% and our commission expense ratio was 13.8% versus 13.5% a year ago.
Underwriting in general and administrative expenses were $46 million, an increase of 3% and our underwriting and general administration expense ratio was 24.8% versus 25.7% a year ago. The decrease was primarily due to savings associated with the fourth quarter 2023 full integration of Cerity’s operations into those of Employers, partially offset by increases in payroll and benefit costs and bad debt expenses. Our net investment income was $27 million for the quarter, a decrease of 3%. The decrease was due to the unwinding of our former Federal Home Loan Bank leverage investment strategy in late 2023. When considering the more than $2 million worth of interest expense that we incurred from that former strategy in the first quarter of 2023, our net investment income was actually up 6% year-over-year.
Our fixed maturities currently have a duration of 4.5 and an average credit quality of A+. Our weighted average book yield was 4.3% at quarter end, which was up nicely from 4.1% a year ago. Our net income this quarter was favorably impacted by $10 million of net after tax unrealized gains from equity securities and other investments, which are reflected on our income statement and our stockholders equity was unfavorably impacted by $12 million of net after tax unrealized losses from fixed maturity securities, which are reflected on our balance sheet. During the quarter, we repurchased $5 million of our common stock at an average price of $39.45 per share, and our remaining share repurchase authority currently stands at just over $16 million.
And earlier this week, our Board of Directors declared a second quarter 2024 regular dividend of $0.30 per share, an increase of 7% from the prior quarterly dividend of $0.28 per share. This action reflects our strong balance sheet, abundant underwriting capital and our confidence in the company’s future operations. And with that, I’ll now turn the call back to Kathy.
Kathy Antonello: Thanks Mike. After considering dividends declared over the last 12 months, our book value per share, including the deferred gain, increased 13% to $44.04 and our adjusted book value per share increased by 11% to $47.86. Both the combined ratio and the change in our adjusted book value per share continue to be our preferred metrics for measuring our success. We are confident we will see further improvements in these ratios in the near-term. During the first quarter of 2024, we delivered a best-in-class digital claim reporting tool, which has received exceptional user experience, feedback from both agents and policyholders. Throughout 2024, we plan to deliver more self-service options and continue our appetite expansion effort, which has led to profitable growth. Our strong capital position supports both our growth and technology initiatives, and we look forward to having a successful 2024. And with that, Michelle, we will now take questions.
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