Q4 2023 Employers Holdings Inc Earnings Call
Michael Scott Paquette: Gross premiums written were $178 million for the fourth quarter and $768 million for the full year, increases of 3% and 7%, respectively. The increases were due to higher new and renewal premiums. Net premiums earned were $188 million for the fourth quarter and $722 million for 2023, increases of 4% and 7%, respectively. Our fourth quarter and full year loss in LAE ratios, excluding the impact of LPT, of 50.2% and 57.2%, respectively, each represented meaningful improvements from the ratio as reported a year ago. These improvements reflect a lower current accident-year loss LAE provision, as well as higher prior year loss development. We recognize $25 million and $45 million of favorable prior year loss reserve development during the fourth quarter and full year on a voluntary basis, respectively, versus $23 million and $32 million, respectively, a year ago. We continue to settle claims throughout the year on an accelerated basis to both mitigate our overall tail risk and generate additional reserve salvage.
Michael Scott Paquette: Our fourth quarter and full year commission expense ratios were 14% and 13.9%, respectively, each representing modest improvements from those ratios reported a year ago. Our fourth quarter and full year underwriting and general administrative expense ratios were 24.6% and 24.9%, respectively, with the full year expense ratio being highly consistent with that of a year ago. Our net investment income for the quarter was $26 million versus $27 million a year ago. The slight decrease was due to a lower invested asset balance, as measured by amortized costs, partially offset by higher bond yields.
Michael Scott Paquette: The reduction in our invested asset balance was partially the result of an unwinding of our federal home loan bank leveraged investment strategy. Investment income for the full year was $107 million versus $90 million a year ago, and our weighted average ending book yield on our fixed income investments was 4.3 percent. Net realized and unrealized gains on investments recorded through our income statement were $12 million for the quarter versus $14 million a year ago. For the full year, our net investment realized and unrealized gains were $23 million versus losses of $52 million experienced a year ago. Interest in financing expenses for the quarter were less than $1 million versus $2 million a year ago.
Michael Scott Paquette: The decrease was due to the repayment of our federal home loan bank advances, as previously mentioned. Interest in financing expenses for the full year was $6 million versus $4 million a year ago. Other investments of about $2 million consisted of a non-recurring charge in connection with a write-off of previously capitalized cloud computing costs. We did not incur any noteworthy other expenses a year ago. Federal and state income tax expense for the quarter was $13 million, a 22% effective rate, versus $9 million, a 16% effective rate, a year ago. The effective rates in each of the periods included income tax benefits and exclusions associated with our tax-advantaged investment income and LPT deferred gain amortization. Our income tax expense for the full year was $30 million, a 20% effective tax rate, versus $7 million, a 13% effective tax rate, a year ago.
Michael Scott Paquette: Our net income this quarter was favorably impacted by $14 million of net after-tax unrealized gains arising from equity securities and other investments, which are reflected in our income statement. And our stockholders' equity and book value per share this quarter were favorably impacted by $66 million of net after-tax unrealized gains arising from our fixed maturity securities, which are reflected on our balance sheet. During the quarter, we repurchased $15.4 million of our common stock at an average price of $38.40 per share. And since year-end, we've bought a further $4.9 million of our stock at an average price of $39.45 per share. And our remaining share repurchase authority currently stands at $16.2 million.
Kathy Antonello: And now I'll turn the call back to Kathy. Thank you, Mike. We met our capital management objectives in 2023 by returning $107 million to our shareholders through share repurchases and regular quarterly dividends.
Kathy Antonello: Our success in opportunistically repurchasing our shares in 2023 allowed us to meet these objectives in the best possible way, thereby improving several of our current and future key metrics without the need to declare any special dividends. Beyond our financial results, I am very excited to announce that we recently completed an ambitious full integration of CERTI's operations into those of employers. The integration allows us to continue to offer direct-to-consumer policies through the CREB brand, and we expect to realize meaningful fixed underwriting expense savings going forward. We've also eliminated the former SARE segment from our financial reporting, returning to single-segment reporting.
Kathy Antonello: With the CERTI integration behind us, we are now exceptionally well positioned to focus our efforts on the future of small business workers' compensation and how we can offer a superior experience to our growing customer base. In 2024, we plan to deliver more self-service options to our policyholders, our agents, and our injured workers. And we expect to continue our Appetite expansion effort, which has led to very profitable growth. We are confident that our strong capital position will nicely support both our growth and technology initiatives, and we look forward to the year ahead.
Operator: And with that, Norma, we will now take questions. Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Please wait for your name to be announced.
Operator: Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Mark Hughes with Truist. Your line is now open.
Mark Hughes: Yeah, thank you. Good morning. Good morning, Mark.
Kathy Antonello: You might maybe just comment on the strategic partnerships you have, the distribution agreements, payroll processors, for instance. I know you have been kind of restructuring some of the commissions for new versus renewal. Could you just give us an update on where we stand with those? Is that it?
Kathy Antonello: Updated commissions, is that fully reflected in the P&L? How do you feel about the growth prospects for that? For more information, visit www.fema.gov. Yeah, so I would say that the changes in any commission structures with our payroll partners have been fully reflected in the financials that you are seeing. That was a couple of years ago.
Kathy Antonello: So, you know, we don't expect that to have much of a change going forward. The growth in all of our segments is really quite strong, whether you look at it from our payroll partners or any of our alternative distribution channels. Our core business is growing really strong, and I've said in the past that that's due to our new sales and underwriting operating model. So we're seeing quite a bit of growth across all of our segments in addition to the payroll partner channels, and then The question about medical inflation continues to be pretty benign. Is there a historical pattern of some kind of delayed impact?
Kathy Antonello: Medical, you know, it takes a while for elected bargaining to catch up or for the government fee schedule to adjust. Is that a real thing based on https://www.fema.gov? Is there less reason to think they're experiencing delayed medical costs. Well, you know, I would agree with what you said. Up to this point, medical inflation in the economic data has been relatively mild, especially compared to the inflation in the other sectors, like energy and housing or food.
Kathy Antonello: So that's really good for us. We have not also, you know, also, I'd say we have not seen it within our data, any indication that medical inflation is creeping up in terms of whether or not there's a lag. I haven't necessarily seen any studies that are pointed just at looking at that.
Kathy Antonello: I've seen the same news articles that you have seen that perhaps that's what's going on. What I will say, though, is we have taken a look at some scenarios in case that does happen, and we have recognized an explicit medical inflation addition to our reserves. We did that a couple of years ago, maybe a year and a half ago, and that's reflected in our current reserves. So we feel like if we do see something happen with medical inflation, we're in a good spot, and we've tried to contemplate that in our reserves.
Operator: Thank you very much. Thank you. Thank you. As a reminder, that's Star 1-1 to ask your questions.
Kathy Antonello: I'm currently showing no further questions at this time. I'd like to hand the conference back over to Ms. Catherine Antonello for closing remarks. Okay, so thank you so much, Norma, and thank you all for joining us this morning. I look forward to meeting with you all again in April. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day. Please see the complete disclaimer at https://sites.google.com or at www.google.com.