Q3 2022 Employers Holdings Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and walk through the Q3 2022 employers Holdings, Inc. Earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone I would now like turn the call over to your house Laurie Brown you may begin.
Yeah.
Thank you Kevin Good morning, and welcome everyone to the third quarter 2022 earnings call for employers.
<unk> call is being recorded and webcast from the investors section of our website, where a replay will be available following the call presenting today on the call will be 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.
<unk> 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 development.
The company also uses its website as a means of disclosing material nonpublic information and for complying with disclosure obligations.
Under SEC's regulation FD, such disclosures will be included in the investors section of the company's website.
Accordingly investors should monitor that portion of the company's website. In addition to following the Companys press releases SEC filings public conference call and webcast.
In our earnings press release, and in our remarks or responses to questions. We may use non-GAAP financial metrics reconciliations of these non-GAAP metrics 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 now I will turn the call over to Kathy.
Thank you Laurie good morning to everyone and thank you for joining us today.
Mike and I will follow the usual agenda will outline our financial results for the third quarter of 2020 to discuss our observations at the current workers' compensation market and then open it up for Q&A.
I'm very pleased with our third quarter results and the positive momentum we're experiencing as a result of the incredibly talented and dedicated team we have here at employers.
We continue to execute extremely well on our post Covid business plan, which is to increase premium by expanding our underwriting appetite, while containing fixed expenses and prudently managing our capital.
The results of our plan have exceeded our expectations with written and earned premiums increasing sharply year over year and for the eighth consecutive quarter, we achieved a record number of policies in force.
The growth we experienced this quarter resulted from strong new and renewal premiums written within our employer segment.
Robust new business writings within our series segment and significant audit premium recognition attributable to policies written in 2020 one.
Continued low unemployment along with wage increases and strong tail wins contributing to the premium audit record contributed to the premium audit recognition.
As a result of these factors our gross premiums written during the quarter and first nine months are up 24% and 21% respectively versus those of a year ago.
In regard to losses for both employers and CRD segments, we maintained our current accident year loss and LAE ratio on voluntary business at 64%.
Largely consistent with the 63.5% we recorded throughout 2021, we.
We did not adjust our loss and LAE reserves. This period as our third quarter Reserve review was consistent with our expectations, we will evaluate our prior year reserves in more detail at year end when we routinely perform a full reserve study.
Our consolidated underwriting expense ratio of 23, 4%. This quarter is the largest it's been in since the fourth quarter of 2018.
While we will continue to diligently manage our expenses, we remain committed to investing in technology, and digitalization, which will improve both our customer and workforce experience and position us to more effectively scale our business.
It's been over a year since we began to expand our underwriting appetite and we are pleased with the early results.
Because of the long tail development pattern of workers' compensation, we remain committed to maintaining a high level of underwriting discipline as we continue to thoughtfully execute our growth strategy for both employers and CRD.
The additional classes of business that we're writing through both of these channels are complementary to our business model and are contributing nicely to our top line growth.
Between July of 2021 in September of 2022, employers wrote $36 million and our expansion classes at loss ratios similar to those we experienced in other target classes.
Series enforced premium at quarter end was $3 $8 million, which represents an increase of 280% over the last four quarters and was supported by its recent collaboration with Intuit's Quickbooks and more recently symbol.
Saturday expects to develop additional strategic opportunities, which will further support our growth initiatives by attracting an untapped segment of our target market.
With that Mike will now provide a further discussion of our financial results and then I'll return to provide my closing remarks, Mike.
Thank you Kathy.
Gross premiums written were $189 million.
<unk> $152 million a year ago, an increase of 24%. The increase was primarily due to higher new and renewal premiums and strong final audit premiums.
Net premiums earned were $179 million versus $147 million, a year ago, an increase of 21%.
Our losses and loss adjustment expenses were $112 million versus $91 million a year ago. The increase was primarily due to higher earned premiums.
Also we did not recognize any prior year loss reserve development on our voluntary business during the third quarter of 2022.
And as Kathy mentioned, we will evaluate our prior year loss reserves in more detail at year end when we perform our semiannual full reserve study.
Commission expenses were $25 million versus $20 million a year ago. The increase was primarily due to higher earned premiums and higher 2022 agency incentive accruals.
Our current commission ratio of 14% within our employer segment is expected to decrease over time as a result of a reduction in certain renewal commissions that went into effect on July one.
Underwriting and general administrative expenses were $42 million versus $37 million a year ago.
That increase can be contributed attributed to premium taxes assessments and a provision for bad debt each of which vary with our earned premium.
From a reporting segment perspective, our employer segment had underwriting income of $3 million consistent with its underwriting income a year ago, and its resulting calendar year combined ratios were 98% during each of those periods.
Our surety segment had an underwriting loss of $3 million for the quarter consistent with its underwriting loss of a year ago as Kathy previously mentioned, we remain very enthusiastic about Saturday as premium writings, which have significantly increased over the past several quarters.
Turning to investments our net investment income was $24 million for the quarter versus $18 million a year ago, an increase of nearly 30% the.
The increase was due to higher bond yields and a higher invested asset balance, resulting from our federal home loan bank leveraged investment strategy.
Pursuant to that strategy, our insurance subsidiaries have received advances of $183 million from the federal home loan Bank through September 30 of this year and the proceeds from those advances were used to purchase an equivalent amount of high quality collateralized loan obligation securities.
Our fixed maturities currently have a duration of 4.0 and an average credit quality of a plus.
We proactively sold a $100 million of equity securities in mid August and as a result, our equity securities now represent just 7% of our total investment portfolio.
Our weighted average ending book yield is currently three 6%, which is up sharply from the three point, 0.1% at year end 2021, and our new money rate is now in excess of 5%.
Our stockholders equity and book value per share this quarter were each unfavorably impacted by $61 million of after tax unrealized losses from our fixed maturity securities.
And finally during the quarter, we repurchased seven $4 million of our common stock at an average price of $39 72 per share and our remaining share repurchase authority stands at $49 million.
And now I'll turn the call back to Kathy.
Thank you Mike.
Our capital management strategy is to proactively return excess capital to our shareholders year to date, we've returned $85 million of capital to our shareholders comprised of approximately $30 million of share repurchases and $55 million in dividends either declared or paid.
Managing to a shorter duration in recent years has paid off and allowed us to more quickly reinvest proceeds from maturities and redemptions of our fixed maturity securities at higher reinvestment yields.
By leveraging the sharp increases in market interest rates occurring throughout the first nine months of 2022, our net investment income has grown 14% year to date versus a year ago.
While those same market interest rates generated unrealized investment losses in our fixed maturity portfolio. Our adjusted book value per share has dropped by only 1% a direct result of unrealized losses from our equities and other investments which flow through our income statement.
Our balance sheet and underwriting capital remained very strong and are highly supportive of our continued growth and success.
As a unique specialist in small business workers' compensation, we are well positioned to identify and react to favorable opportunities and trends and we remain highly confident in our continued success.
And with that operator, we will now take questions.
Ladies and gentlemen, this second question or comment at this time. Please press star one on your Touchtone telephone, we will pause for a moment, while we compile the Q&A roster.
Yeah.
Our first question comes from Joe Massaro with Factset. Your line is open.
Okay.
Yeah.
Your line is open you can ask your question.
Again, ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone.
Yeah.
One moment for our first question.
Yeah.
Yeah.
Jim with Factset. Your line is open Jim I'm sorry. Your line is open with facts that you can ask your question.
Thank you. Your line is muted could you. Please UN mute your line.
Yeah.
It seems like Theyre not responded or do you want to try and move on or.
Yes, you can move on.
Yeah.
Again, ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone.
It's the same person that queued up that did you run its course, so you maybe they respond this time or did you.
Okay.
Right.
We can conclude.
Okay.
I will turn it back to you for any closing remarks.
Yes.
Yes, thanks, Kevin that was easy.
Thank you all for joining this morning, I look forward to meeting with you all again in February .
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
[music].