Q3 2025 Employers Holdings Inc Earnings Call

Speaker #1: Good day, and thank you for standing by. Welcome to the Q3 2025 Employers Holdings, Inc.—excuse me—Employers Holdings, Inc. earnings conference call. At this time, all participants are in a listen-only mode.

Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 Employers Holdings, Inc. earnings conference 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, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Lori Brown. Please go ahead.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press *1*1 on your telephone.

Speaker #1: You will then hear an automated message advising that your hand is raised. To restore your question, please press star 11 again. Please be advised that today's conference is being recorded.

Speaker #1: I would now like to turn the conference over to your speaker for today, Lori Brown. Please go ahead.

Speaker #2: Thank you, Lisa. Good morning and welcome, everyone, to the third quarter 2025 earnings call for Employers. Today's call is being recorded and webcast from the Investor section of our website, where a replay will be available following the call.

Lori Brown: Thank you, Lisa. Good morning and welcome, everyone, to the third quarter 2025 earnings call for Employers Holdings, Inc. Today's call is being recorded and webcast from the investor section of our website, where a replay will be available following the call. 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: The company also uses its website as a means of disclosing material non-public information and for complying with disclosure obligations under the SEC's regulation FD.

Lori Brown: The company also uses its website as a means of disclosing material non-public information and for complying with disclosure obligations under the SEC's Regulation FD. Such disclosures will be included in the investor 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 investor section on our website. Now I'll turn the call over to Katherine Antonello, our Chief Executive Officer.

Speaker #2: Such disclosures will be included in the Investor 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.

Speaker #2: 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.

Speaker #2: Our investor presentation and any other material available in the Investor Section on our website. And now I'll turn the call over to Katherine Antonello, our chief executive officer.

Speaker #3: Thank you, Lori. Good morning, everyone. And again, welcome to our third quarter 2025 earnings call. Joining me today is Michael Paquette, our Chief Financial Officer.

Katherine Antonello: Thank you, Lori. Good morning, everyone. Again, welcome to our third quarter 2025 earnings call. Joining me today is Michael Pedraja, our Chief Financial Officer. During today's call, I'll begin by providing highlights of our third quarter 2025 results, then I'll hand it over to Michael for more details on our financials. Prior to our Q&A, I'll come back to you with some additional thoughts. I want to begin by discussing the decisive actions we took during the quarter to strengthen our loss and LAE reserves. When we spoke last quarter, I mentioned we had identified significant loss and LAE reserve redundancies in older years and utilized the favorable development from accident years 2021 and prior to strengthen reserves for accident years 2023 and 2024.

Speaker #3: During today's call, I'll begin by providing highlights of our third quarter 2025 results and then I'll hand it over to Mike for more details on our financials.

Speaker #3: Prior to our Q&A, I'll come back to you with some additional thoughts. I want to begin by discussing the decisive actions we took during the quarter to strengthen our loss in LAE reserves.

Speaker #3: When we spoke last quarter, I mentioned we had identified significant loss in LAE reserve redundancies in older years and utilized the favorable development from accident years 2021 and prior to strengthen reserves for accident years 2023 and 2024.

Speaker #3: We also provided our preliminary view of accident year 2025 and shared that the underlying driver of the need for an off-cycle third quarter reserve review was the increased frequency of California cumulative trauma claims in recent accident years.

Katherine Antonello: We also provided our preliminary view of accident year 2025 and shared that the underlying driver of the need for an off-cycle third quarter reserve review was the increased frequency of California cumulative trauma claims in recent accident years. During the third quarter, we completed a thorough reserve analysis, which included a detailed review of our complete book of business. We compared our internal selections to those of an external actuarial review performed mid-year. Our comprehensive and rigorous analysis indicated the need to increase prior year reserves by $38.2 million, or 2.8% of net unpaid loss and LAE. Accident years 2023 and 2024 were the primary contributors of the increase, with AY 2024 increasing by $40.5 million, AY 2023 increasing by $16.1 million, and accident years 2022 and prior decreasing by $18.4 million in total. In addition, we increased our AY 2025 loss and LAE ratio from 69% to 72%.

Speaker #3: During the third quarter, we completed a thorough reserve analysis, which included a detailed review of our complete book of business. We compared our internal selections to those of an external actuarial review performed mid-year.

Speaker #3: Our comprehensive and rigorous analysis indicated the need to increase prior year reserves by $38.2 million or 2.8% of net unpaid loss and loss adjustment expenses (LAE).

Speaker #3: Accident years 2023 and 2024 were the primary contributors of the increase. With AY 2024 increasing by 40.5 million, AY 2023 increasing by 16.1 million, and accident years 2022 and prior decreasing by 18.4 million in total.

Katherine Antonello: We strongly believe these adjustments fully address the recent trends we and the industry have seen in California. We want to emphasize that these adjustments are not a sign of broad deterioration in our book of business. Without the increased frequency of California CT claims, our third quarter 2025 overall reserve position would have developed favorably. As we have discussed, the increased frequency in CT claims is a California-only issue. Frequency in other states continues to show a decreasing trend. I now want to speak to why California CT claims for accident years 2023 and 2024 are impacting our reserves this quarter. In California, older years continue to develop favorably, but more recent years have experienced a meaningful uptick in CT claim frequency.

Katherine Antonello: As there is typically a significant delay in CT claim reporting, the increased CT claim frequency trend did not fully emerge until well after the first 12 months of each accident year, making it more challenging to predict or detect the trend in real time through traditional reserving and pricing analyses. In addition, the continued declining frequency trend of non-CT claims in California initially masked the increasing trend in CT claims and further delayed its visibility. Given the uncertainty in the California CT environment and, more generally, our desire to utilize a more conservative approach across our complete book of business, this quarter, we implemented refinements to our analysis of prior years. These refinements, which strengthened our reserves across all states, were designed to build additional resilience on our balance sheet and significantly reduce future uncertainty.

Katherine Antonello: A comparison of our third quarter 2025 reserve selections to reserve estimates prepared mid-year by an independent external actuarial firm reinforced our conservative reserve position. Now let's focus on accident year 2025. The increase in our AY 2025 loss in LAE ratio is due solely to the increasing frequency of California CT claims, as frequency in the rest of our book continues to decline. Comparing AY 2025 to AY 2024, at three months, AY 2025's incurred loss ratio was higher than 2024's. At both six and nine months, AY 2025's loss ratio was lower than 2024's at the same ages of maturity. Other data points on both an accident year and a policy year basis point towards AY 2025 performing better than both 2024 and 2023. This suggests the underwriting and pricing actions we've implemented are having a positive impact.

The increase in our ay, 2025 loss in Lae ratio, is due solely to the increase in frequency of California. CT claims

As frequency in the rest of our book continues to decline.

Comparing AY 2025 to AY 2024 at 3 months, AY 2025's incurred loss ratio was higher than 2024.

But at both 6 and 9 months, ay, 2025 is loss ratio was lower than 2024 at the same ages of maturity.

Other data points on both accident on both an accident year and a policy year basis.

Point towards ay, 2025 performing better than both 2024 and 2023.

Katherine Antonello: While we could have held the AY 2025 loss ratio steady at our second quarter selection, given the more conservative reserving approach mentioned earlier and recognizing the increased frequency in California CT claims, we decided to increase the accident year 2025 loss ratio. We have implemented a four-pronged approach in California to help mitigate the impact that CT claims may have on our book of business going forward. This includes targeted pricing actions, more aggressive claims handling and litigation management, underwriting refinements, and continued geographic diversification. We are also actively engaged in California's efforts to pursue meaningful legislative reforms to better align California's CT roles to those throughout the country. Having said that, our commitment to providing best-in-class care to all injured workers, whether their claim arose from cumulative trauma or not, is unwavering.

This suggests the underwriting and pricing actions. We've implemented are having a positive impact.

While we could have held the AY 2025 loss ratio steady at our second quarter selection, given the more conservative reserving approach mentioned earlier in recognizing the increased frequency in California CT claims, we decided to increase the accident year 2025 loss ratio.

We have implemented a four-prong approach in California to help mitigate the impact that CT claims may have on our book of business going forward.

This includes targeted pricing actions more aggressive claims handling and litigation management.

Underwriting refinements and continued geographic diversification.

We are also actively engaged in California's efforts to pursue meaningful legislative reforms to better align California's CT Wills to those throughout the country.

Katherine Antonello: We are confident that the actions we have made are timely, appropriate, and prudent, and will better position the more recent accident years for the future. We believe that our current reserves are more than adequate. I'll now turn to discuss other highlights from the quarter. Our third quarter gross written premium increased by 1.4% compared to 2024 due to increases in renewal business premiums. As I've stated in previous quarters, in this sustained soft workers' compensation market, we are prioritizing underwriting margin over growth, and we've continued to undertake targeted pricing actions and implement enhanced risk selection to maintain underwriting margin.

having said that our commitment to providing best-in-class care to all Injured Workers, whether their claim arose from cumulative trauma or not, is unwavering

We are confident that the actions we have made are timely appropriate and prudent and will better position the more recent accident years for the future.

We believe that our current reserves are more than adequate.

I'll now turn to discuss. Other highlights from the quarter.

Our third quarter gross written premium increased by 1.4%, compared to 2024, due to increases in renewal business premiums

Katherine Antonello: While competitive pressures have impacted our desire to grow at the same pace in certain classes, jurisdictions, and policy sizes, we remain pleased with the continued growth in our small commercial business and our strong policy retentions, as evidenced by our 4% growth in policies in force this quarter. We view the small commercial growth as validation that our clients value the investments we've made in automation and ease of use. Over the last 10 years, we've considerably increased our diversification by expanding geographically into a national carrier and into new distribution channels, while also expanding our appetite into new industries and classes. These initiatives are ongoing. To further that diversification, we're excited to announce our first expansion into a new product.

As I stated in previous quarters this in this sustained. Soft workers compensation Market. We are prioritizing underwriting margin overgrowth. And we've continued to undertake targeted pricing actions and Implement enhance enhanced risk, selection to maintain underwriting margin.

While competitive pressures have impacted our desire to grow at the same pace in certain classes, jurisdictions, and policy sizes.

We remain pleased with the continued growth in our small commercial business.

And our strong policy retentions, as evidenced by our 4% growth in policies enforced this quarter.

We view the small commercial growth as validation. That our clients valued the Investments we've made in Automation and ease of use.

Over the last 10 years, we've considerably increased our diversification by expanding geographically into a national period and into new distribution channels while also expanding our appetite into new Industries and classes.

These initiatives are ongoing.

Katherine Antonello: We have commenced the build-out of a new excess workers’ compensation insurance offering by hiring a talented, experienced underwriter and developing the infrastructure to distribute and manage this new product. We plan to start accepting submissions in early 2026. Our entry into the excess workers’ compensation insurance market leverages our existing expertise and systems, capabilities, and customer base, and will strengthen our relationships and offerings with our distribution partners. We earned $26.1 million of net investment income during the quarter, which was slightly lower than the third quarter of 2024. Our net realized and unrealized gains on investments increased to $21.2 million for the quarter, compared to $10.9 million for the prior quarter. We continue to be committed to delivering operational efficiencies and automation of the entire customer journey.

To further that diversification, we're excited to announce our first expansion into a new product.

We have commenced the buildout of a new excess workers' compensation offering by hiring a talented, experienced underwriting underwriter and developing the infrastructure to distribute and manage this new product.

We plan to start accepting submissions and early 2026.

Saying, expertise and systems capabilities and customer base and will strengthen our relationships. And, and offerings with our distribution partners,

We are in 26.1 million of net investment income during the quarter which was slightly lower than the third quarter of 2024.

Our net realized and unrealized gains on investments increased to 21.2 million for the quarter compared to 10.9 million for the prior quarter.

Katherine Antonello: In August, we made the difficult decision to undergo a reorganization, which was designed to better align our resources with our current and future business needs and objectives. As a result of this action and broader expense reduction efforts, we reduced our third quarter underwriting expense ratio significantly compared to the third quarter of 2024. Despite the tremendous progress we've already achieved, we now see further improvement potential as we implement our well-designed AI roadmap. As part of our relentless focus on value creation for our shareholders, yesterday we announced a $125 million debt-funded recapitalization plan and an associated $125 million increase to our existing share repurchase authorization. This expands our existing share repurchase authority to $250 million.

We continue to be committed to delivering operational efficiencies and automation of the entire customer Journey.

In August, we made the difficult decision to undergo a reorganization, which was designed to better. Align our Resources with our current and future business needs and objectives.

as a result of this action and broader expense reduction efforts, we reduced our third quarter underwriting expense ratio significantly compared to the third quarter of 2024

Despite the tremendous progress we've already achieved. We now see further Improvement potential as we Implement our well-designed AI road map.

As part of our Relentless, focus on value creation for our shareholders. Yesterday, we announced a 125 million debt funded recapitalization plan.

And an Associated 125 million increase to our existing share we purchase authorization.

Katherine Antonello: In addition to a meaningful return on investment, we believe the recapitalization plan will reduce our cost of capital, improve our return on equity, and expand our earnings per share and adjusted book value per share. The recapitalization plan highlights our belief that our stock price is undervalued and our confidence in our balance sheet and future prospects. With that, Mike will now provide a deeper dive into our financial results, and then I will return to provide my closing remarks. Mike. Thank you, Kathie. Gross premiums written were $183.9 million compared to $181.2 million for the prior year, an increase of 1.4% due primarily to renewal business premium growth. Net premiums earned were $192.1 million compared to $186.6 million for the prior year, an increase of 3% due primarily to larger levels of 2024 written premium earning in 2025.

This expands our existing share; we purchase authority to $250 million.

In addition to a meaningful return on investment, we believe the recapitalization plan will reduce our cost of capital, improve our return on equity, and expand our earnings per share and adjusted book value per share.

The recapitalization plan highlights our beliefs, that our stock price is undervalued and our confidence and our balance sheet and future prospects.

With that Mike will now provide a deeper dive into our financial results. And then I will return to provide my closing remarks. Mike

Thank you, Kathy growth, gross, premiums written were 183, Mitten Point 9.9 million compared to 181.2 million. For the prior year, an increase of 1.4% to primarily to Renewal business premium growth.

Katherine Antonello: During the period, our losses and loss adjustment expenses were $186.6 million versus $117.7 million a year ago. As Kathie just summarized, we increased our current accident year loss in LAE estimates in response to the rapid rise in cumulative trauma claim frequency in California. The current quarter loss in LAE includes a cumulative catch-up adjustment of $11.4 million to the Q2 2025 accident year loss in LAE reserves at June 30, 2025, to reflect the 72% current accident year loss in LAE ratio. As a result, the 2025 accident year loss ratio for the quarter was 78.1%. In addition, we strengthened our reserves related to prior accident years by $38.2 million due to the increased frequency of California cumulative trauma (CT) claims and our desire to utilize an even more conservative approach across our complete book of business.

net premiums urns were 192.1 million compared to 186.6 million for the prior year and increase of 3%, to primarily to larger levels of 2024 written premium earning in 2025,

During the period, our losses and loss adjustment expenses were 186.6 million versus 117.7 million a year ago.

As Kathy, just summarized the increase in our current accident year loss. In Lee's estimates, in response to the rapid rise in cumulative trauma claim frequency in California.

The current quarter loss in Le includes a cumulative, catch of adjustments at 11.4 million to the carry 2025 accident near Los in Leu Reserves at June. 3020 20225 to reflect the 72% current Axion year loss in LED ratio.

As a result, the 2025 vaccine or loss ratio for the quarter was 78.1%.

Katherine Antonello: Commission expense was $23 million for the quarter versus $25.8 million for the prior year. Our commission expense ratio for the corresponding quarters was 12% and 13.8%, respectively. The commission expense and ratio decreases were primarily related to the increased proportion of renewal business, which has a lower commission rate compared to new business and lower agency incentive accruals. Underwriting expenses were $39.6 million for the quarter versus $43.8 million for the prior year. Our underwriting expense ratios for the corresponding quarters were 20.6% and 23.5%, respectively. The underwriting expense decrease was primarily a result of lower compensation-related expenses, including reductions associated with the August reorganization Katherine Antonello mentioned, along with year-over-year declines in policyholder dividends and bad debt expense. Higher net premiums earned also contributed to the lower underwriting expense ratio.

In addition, we strengthened our reserves related to Prior acts in the Years, by 38.2 million, due to the increased frequency of California, CT claims, and our desire to utilize an even more conservative approach a cost across our Complete Book of business,

Commission expense was $23 million for the quarter, compared to $25.8 million for the prior year.

Our commission expense ratio for the corresponding quarters was 12% and 13.8%, respectively.

The commission expense and ratio decrease is primarily related to the increased proportion of renewal business, which has a lower commission rate compared to new business, and lower agency incentive approvals.

Under running expenses, were 39.6 million for the quarter versus 43.8 million for the prior year.

Our underlying expense ratios for the corresponding quarters were 20.6% and 23.5% respectively.

The underwriting expense decreased, primarily as a result of lower compensation-related expenses.

Including reductions associated with the August reorganization Kathy mentions.

Along with year-over-year declines in policy holder dividends and bad debt expense.

Higher net premiums earned also contributed to the lower underwriting expense ratio.

Katherine Antonello: Net investment income of $26.1 million for the quarter was relatively flat compared to the prior year, despite a lower yield environment. The current quarter net income results included after-tax realized and unrealized gains from our investments in equity securities and other invested assets of $17.8 million and $6.3 million, respectively. The market value of our fixed maturity holdings has benefited from the lower interest rate environment, reducing our accumulated other comprehensive loss included in our shareholders' equity by $16.6 million. Our fixed maturities currently have a modified duration of 4.4 and an average credit quality of A-plus. Our weighted average book yield was 4.6% at quarter-end compared to 4.4% for the prior year. During the quarter, our average new money investment yield was 5.5% versus 5.7% a year ago.

Matt's investment income of $26.1 million for the quarter was relatively flat compared to the prior year, despite a lower yield environment.

The current quarter, net income results included after-tax realized and unrealized gains from our investments in equity securities and other invested assets of $17.8 million and $6.3 million, respectively.

The market value of our fixed maturity holdings has benefited from the lower interest rate environment, reducing our accumulated other comprehensive loss included in our shareholders' equity by $16.6 million.

Our fixed maturities currently have a modified duration of 4.4 and an average credit quality is a plus.

Our weighted average book yield was 4.6% at quarter, end compared to 4.4% for the prior year.

During the quarter, our average new money investment yield was 5.5% versus 5.7% a year ago.

Katherine Antonello: Our adjusted net loss, which excludes net realized and unrealized investment gains and losses, and the benefit of our LPT deferred gain amortization, was $25.5 million compared to adjusted net income of $20.2 million a year ago. Our nine-month year-to-date adjusted net income was $34 million versus $90 million last year. Due to market opportunities, we increased our level of common stock repurchases to $45.2 million in the quarter. We achieved the repurchases at an average price of $43.09 per share, which represents a 17% and 13% discount for our June 30, 2025, adjusted book value per share and our book value per share plus the LPT gain, respectively. Since September 30, we have repurchased an additional 243,000 shares of our common stock at an average price of $41.77 per share for a total of $10.2 million.

Our just the net loss, which excludes net realized and unrealized investment, gains and losses, and the benefit of our lptt deferred gain ammer, was 25.5 million.

Compared to adjusted net income of $20.2 million a year ago.

Our 9-month year to date adjusted. Net income was 34 million versus 90 million last year.

Due to Market opportunities, we increased our level of common stock to purchases, to 45.2, million in the quarter.

We achieved the repurchases at an average price of $0.439 per share, which represents a 17% and a 13% discount to our June 30, 2025 adjusted book value per share and our book value per share, plus the lpt gain, respectively.

Katherine Antonello: As Kathie highlighted, we announced the board's approval of a recapitalization plan authorizing a $125 million increase to the existing 2025 share repurchase program. Initially, we will utilize a combination of three-year debt funding sources, including our existing borrowing facility at the Federal Home Loan Bank. We ultimately plan to fund the recapitalization with long-term debt. With that, I'll turn the call back to Kathie. Thank you, Mike. Yesterday, our board of directors declared a fourth quarter 2025 quarterly dividend of $0.32 per share. The dividend is payable on November 26 to stockholders of record on November 12. As evidenced by the recapitalization plan Mike just discussed, we remain confident in Employers Holdings' financial strength and prospects and will continue to manage our capital strategically. After considering dividends declared, our book value per share, including the deferred gain, increased 6.1% to $49.70.

Since September 30th, we have repurchased, an additional 243,000 shares of our common stock and an average price of 41.77 cents per share for a total of 10.2 million.

As Kathy. Highlighted we announced the board's approval of a recapitalization plan, authorizing, a 125 million increase to the existing 2025 share purchase program.

Initially we will utilize a combination of 3 year. Debt funding sources including our existing barring facility at the federal Home Loan Bank,

We ultimately plan to find the recalibration with long-term debt.

With that, I'll turn the call back to Kathy.

Thank you. My yesterday, our board of directors, declared a fourth quarter 2025 quarterly dividend of 32 cents per share.

The dividend is payable on November 26th to stockholders of record on November 12th.

As evidenced by the recapitalization plan Mike just discussed, we remain confident in employers by financial strength and prospects, and will continue to manage our capital strategically.

Katherine Antonello: Our adjusted book value per share increased by 5.5% to $51.31 over the last 12 months. We returned $52.7 million to our stockholders this quarter through a combination of regular quarterly dividends and share repurchases at an average price that was highly accretive to our book value per share. While our third quarter results were heavily impacted by the California CT claims trends, we believe our current loss and LAE reserves reflect the level of conservatism to which we are accustomed. We are relentlessly pursuing refinements in our underwriting and pricing approaches and seeking new opportunities like excess workers’ compensation insurance that will enable us to generate profitable growth in both new and renewal business. I am confident that the steps we've taken this quarter will position Employers Holdings well into the future. Lisa, we will now take questions. Thank you.

After considering dividends declared, our book value per share, including the deferred gain, increased 6.1% to $49.70.

And our adjusted book value per share increased by 5 and a half percent to 51.31%.

We returned $52.7 million to our stockholders this quarter through a combination of regular quarterly dividends and share repurchases at an average price that was highly accretive to our book value per share.

Well, our third-quarter results were heavily impacted by the California CT claims trends.

We believe our current loss in LE reserves reflects the level of conservatism to which we are accustomed.

We are relentlessly pursuing refinements in our underwriting and pricing approaches and seeking new opportunities, like excess workers' compensation, that will enable us to generate profitable growth in both new and renewable business.

I am confident that the steps we've taken this quarter will position employers well into the future.

And with that, Lisa, we will now take questions.

Katherine Antonello: As a reminder, if you would like to ask a question, please press star 11 on your telephone. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. The first question today will be coming from the line of Mark Hughes of Truist. Your line is open. Yeah, thank you. Good morning. Good morning, Mark. You mentioned one of your strategies would be to perhaps be more assertive on the litigation front. Is this something you can make yourself a harder target, and so the plaintiff's attorneys are not as enthusiastic about pursuing you as opposed to others, or is it more of an administrative process that you can't really control, so to speak? Yeah, it's a good question, Mark. When I talk about our targeted litigation strategies, it's internal.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster.

The first question today will be coming from the line of Mark Hughes of Jewish. Your line is open.

Yeah, thank you. Good morning.

Um, good morning.

And so the, uh, plaintiff's attorneys are not as enthusiastic about pursuing you as opposed to others, or is that, uh,

Is it more of an administrative process that you can't really... uh,

Control so to speak.

Yeah, um if if a good question.

mark,

when I talk about our

Katherine Antonello: We're using analytics to determine the best course of action, and those analytics are based on individual claim facts. We have a multidisciplined team that we've developed internal that's focused solely on managing the CT exposure. We've established some really aggressive targets to reduce the defense and cost containment portion of the claim, to also reduce, if possible, the litigation because CT claims are more highly litigated than other claims. In fact, about 90% of them are litigated. Also, just to focus on the average cost per claim and bringing that down if possible. We've identified and we've developed several defense tactics that are targeting specific firms that represent numerous hundreds and hundreds of CT claims, thousands across the industry that have no medical associated with them.

Strategies. It's, it's internal, you know, we're using analytics to determine the best course of action. And and those analytics are are you based on individual claims facts?

So you know, we have a multi-discipline team that we've developed internal, that's focused solely on managing the CT exposure. We've um, we've established some really aggressive targets.

to reduce the defense and Cost Containment portion of the claims, um, to also, you know, reduce it possible the litigation because

CT claims are more highly litigated than other claims. In fact, about 90% of them are litigated.

Um and then also just to focus on the average cost per claim and bringing that down if possible.

Um, you know, we we've identified and we've developed several defense tactics.

Um, that are targeting specific firms that um represent numerous hundreds and hundreds of CT claims thousands across the industry that have no medical associated with them.

Katherine Antonello: As I've said in the past, we're taking a leadership role in pursuing some legislative reform, working with different industry groups and so forth to really present some meaningful language to legislative committees that would bring California's CT legislation in line with other states across the country. We really are sort of trying to attack this from a lot of different angles when you talk about the claim perspective. As I said in my prepared remarks, we also want the industry to know that we're committed to paying cumulative trauma claims. There are legitimate cumulative trauma claims out there, and it's something that's very important to us to provide the best service to injured workers. Yeah. The trend in terms of those claims, I think you talked about how you're taking underwriting pricing actions, and that has helped the improvement or helped for the 2025 accident year.

Um, you know, and then as I've as I've said in the past, we're we're taking a leadership role in pursuing some legislative reform uh, you know, working with different industry groups and so forth to to Really present some meaningful language to legislative committees that would bring California's.

CT legislation is in line with other states across the country, so we really are, um, sort of trying to attack this from a lot of different angles. Um, when you talk about the claim perspective, as I said in my prepared remarks, we also want the industry to know that we're committed to paying.

Cumulative trauma claims—there are legitimate cumulative trauma claims out there. It's something that's very important to us to provide the best service to injured workers.

Um,

the uh,

the the trend in terms of the those uh those those claims I think you talked about how you take an underwriting pricing actions,

Katherine Antonello: How do we think about going into 2026 and loss picks? Do you feel like you have enough of a handle on the trend, that the trend is predictable at this point? I'm kind of mixing different ideas in this question, so I apologize for that. I'm just trying to figure out whether the trend is stable enough. Have you taken enough actions, pricing, underwriting, that you can get to a more predictable loss pick, or what kind of loss pick can we expect? Is it going to be 72% from here? Like I said, I'm groping a little bit, but pick and choose among those topics, and I would appreciate your feedback. Sure. On the pricing side, we took action earlier than the California filing that went and was effective 9/1.

And, uh, that has helped the improvement or helped for the 2025 accident year.

How do we think about, uh, say, going into 2026?

And loss pics. Um, do do do you feel like you have enough of a handle on the trend that the trend is.

predictable at this point, um, I'm I'm kind of mixing different ideas in this question so I apologize for that but I'm I'm just trying to figure out whether is the trend stable enough have you taken enough actions pricing underwriting

uh, that you can get to a

More predictable. Um, lost pick or, uh, what kind of loss pick can we expect?

Is it going to be 72% from here? So, like I say, I'm groping a little bit, but pick and choose among those topics and would appreciate your feedback.

Katherine Antonello: We were ahead of the curve on that, and then we've taken a couple of targeted actions after that. We feel like we're in a nice position on the pricing side and have taken more rate than what the WCIRB filed with the bureau. That's what we found on the pricing side. On the underwriting side, we have more underwriters looking at risks that are flowing through as submissions and putting eyes on these risks to determine whether they have a higher exposure to CT claims. We have a straight-through quote processing system where our underwriters really only touch the more complex risks, but we've lowered that threshold for California, so we have more eyes on it from an underwriter standpoint. From a trend perspective, I feel like the trend is settling. It is very difficult to know what will happen in the future.

Sure. So on the pricing side, we have we we took action. You know, earlier than the California filing that went in was effective 91. So we were ahead of the curve on that and then we've taken uh you know a couple of targeted actions after that. We feel like we're in um a nice position on the pricing side and have taken more rate than what the wcirb filed um with with the bureau.

um, so that's what we found on the pricing side, on the underwriting side, we have more Underwriters looking at

Um, risks that are you know, flowing through as submissions.

and,

Um, so we've lowered, you know, we typically have a straight-through quote processing.

system where, you know, our underwriters really only touch the more complex risks.

But we've lowered that threshold for California, so we have more eyes on it from an underwriter standpoint.

Um,

From a trend perspective, I feel like...

the trend is settling.

Katherine Antonello: I don't expect our accident year pick to be much changed from what it is this year until we see these results flow through. When I say these results, I mean the pricing actions, the underwriting actions, any changes that are made within California and so forth. We're going to continue to be conservative and hopefully be ahead of that trend. Mike, on the buyback, what is the interest rate that you expect on the borrowing? I think of the Federal Home Loan line that you've got. What is the rate on that? Yeah, Mark, that's why it's very exciting. The current rate is 3.7%. Okay. Has that flowed, or is it— No, that number is fixed. Okay. How much capital do you have at the holding company at this point? At various different times, you can imagine we manage the capital effectively through the dividends from our insurance companies.

You know, it is very difficult to know what will happen in the future. I don't expect our accident year pick to be much changed from what it is this year until we see these results flow through. Um, so when I say these results, I mean the pricing actions, the underwriting actions, you know any changes that are made within California and so forth. Um, we're going to continue to be conservative and hopefully be ahead of that trend.

On the, uh, Mike, on the buyback. What is the interest rate, um, that you expect on the...

On the borrowings, I think the federal home loan line that you've got, what is the rate on that?

Yeah, Marcus. That's why it's very exciting. And the current rate is 3.7%.

Okay. And is that flow? Uh,

What is it know that, that, that number is that number, is that number is fixed.

Okay, and then, uh, how much capital do you have at the holding company at this point?

Katherine Antonello: We have a sufficient level of capital at the holding company. We don't publish that number, but it's plenty to cover a decent portion of our expenses, including repurchases and dividends at the holding company. Okay. How much is available under the share repurchases? $250 million in total. How much of that has been used up? To date, on the existing plan, we've used $65 million. Was that $65 million? $65 million, yeah. $65 million, okay. What would you anticipate in terms of the pacing on the $125 million? Was the $45 million this quarter a preview of things to come until you use the $125 million, or how would you characterize it? I think I've mentioned on previous calls, we really look at the repurchases on a return-on-investment basis. We're going to be very disciplined. If the stock goes down below and creates further opportunity, we'll increase that activity.

You're still very several times. You can imagine, we manage a capital effectively through the dividends from our insurance companies, but we we have a sufficient level of capital at the, the holding company. We don't publish that number, but it's plenty to cover, um, you know, a decent portion of our expenses, uh, including your purchases and dividends at the holding company.

Okay. The, uh, how much is available under the share repurchases? $250 million in total. How much of that has been used on?

so uh, today on the existing plan we've used 65 million

Was that 65 million?

65. Yeah.

65. Okay. And then what, what would you anticipate in terms of the pacing on the 125, was the 45 million. This quarter? Is that a preview of things to come until you use the, the 125, or how would you characterize it?

Katherine Antonello: We're very focused on effecting this $125 million debt-funded recapitalization plan. It's going to be market-dependent, but we're disciplined and intend to effect it as soon as we can. One final question. The top-line growth here is kind of steady. Some puts and takes, obviously. Some expansion to excess, but the tighter underwriting, your rate increases. Is this a kind of steady state for top-line dynamics? Would we assume maybe flat to up slightly? Would that be consistent with where you are at in terms of taking these actions to help control the loss trajectory here? I think you categorized it well by saying puts and takes. There are areas in which we are wanting to grow, and there are areas in which we're perfectly fine turning down business. That varies by state. It varies by policy size.

You know, I think, I think I've mentioned on previous calls so we really look at the uh, repurchases as on a return on investment basis. And so we're going to be very disciplined and when if a stock you know, goes down below. Um, and creates further opportunity will increase that activity. Um, and so we will, we be we're very focused on affecting this 125 recapitalization plan. So um, it's going to be Market dependent, but, um, we're disciplined and uh intend to affect it. Uh, as soon as we can.

Yeah, then 1. Final question. The

Top Line growth here kind of steady. Um,

some puts and takes obviously a

Some expansion. The excess uh, you know, but the tighter underwriting your your rate increases is this

It kind of steady state for.

Topline Dynamics. I mean, would we assume maybe flat to up slightly? Would that be consistent with where you are at in terms of taking these actions to help control the loss? Uh, trajectory here?

Katherine Antonello: We are having a lot of success on the smaller policy sizes, and that's why you're continuing to see the growth in policy count, but it's putting pressure on the top lines because the average policy size that we're writing is lower. I would not expect tremendous growth over the next 12 months because, as I said in my prepared remarks, underwriting margin is what we are focusing on right now. Very good. Thank you. Thank you. One moment for the next question. The next question will be coming from the line of Carol Schmoll of Citizens. Your line is open. Hi, good morning. I got two questions. The first one is really just regarding the cumulative trauma claim statute of limitations and the date of injury that is kind of part of the legal issue here. Can you comment on that? Yeah.

Yeah. I mean I I think you categorized it um well by saying puts and takes there's there. There are areas in which we are wanting to grow. And then there are areas in which we're perfectly fine, turning down business and that, you know, varies by state it varies by policy size. Um, we are having a lot of success on the smaller policy size and that's why sizes and that's why you're continuing to see the growth in policy count.

Um, but it's putting pressure on the top line because of you know, the average policy size that we're writing is lower. Um, so you know, I would not expect tremendous growth over the next 12 months.

Um, because as I said, in my prepared, remarks underwriting margin is what we are focusing on right now.

Okay, very good. Thank you.

Thank you. 1 moment for the next question.

So, this line is open.

And hi, good morning. I got two questions. The first one is really just regarding the cumulative trauma claims statute of limitations and the date of injury that is kind of part of the legal issue here. Can you comment on that?

Yeah.

Katherine Antonello: The real issue underlying cumulative trauma (CT)—and this is my opinion—in California is the fact that an injured worker can file a cumulative trauma claim post-termination. The claim itself can stretch over multiple years, and multiple carriers can be involved in that claim. What we're seeing is a lot of these claims are being filed post-termination now. They have much more indemnity on them than they used to. It used to be more of a medical phenomenon. That's the real issue in terms of what's going on with California CT. Thank you. A follow-up question in regard to the buybacks. I'm just looking at the model. I'm just curious, will your investment leverage technically go up and maintain the investment balance as you buy back the shares? Our investment balance should not be impacted, right? We're going to fund the repurchases through debt. The investment leverage will stay.

The real issue underlying CT, and this is my opinion in California, is the fact that.

um,

An injured worker can file a cumulative trauma claim post-termination.

Um, the claim itself can stretch over multiple years, um, and multiple carriers can be involved in that claim.

Um, so it's the, you know, what we're seeing is a lot of these claims are being filed post-termination. Now they have much more Indemnity on them than they used to. It used to be more of a medical phenomenon.

Um, but that's the real issue in terms of what's going on with California. CT.

Hi, thank you. And then just a follow-up question in regard to the buybacks. I'm just looking at the model, and I'm just curious: will your investment leverage technically go up and maintain the investment balance as you buy back the shares?

Katherine Antonello: Investments compared to equity will increase. If that's what you're asking, yes, the investment leverage will increase. Perfect. Thank you very much. Thank you. Thank you. If you would like to ask a question, please press star 11 on your telephone. Our next question will be coming from the line of Bob Farnam of J. Montgomery Scott. Your line is open. Good morning. What happens with the—are you going to have a traditional fourth-quarter reserve review as well, like internal and external? Or is this third-quarter review kind of taking your annual look fee? That's a good question, Bob. We are going to have a full fourth-quarter review and get back on track. Third quarter was off-cycle. We usually just look at actual versus expected then. We wanted to definitively come out with something and look at it with a fresh eye. We'll get back on track.

Well, because our investment balance should not be impacted, right? We're going to fund the repurchases through debt. So the investment leverage will stay, and investments compared to equity will increase. So if that's your question, yes, the investment leverage will increase.

Thank you very much.

Thank you.

Thank you. If you would like to ask a question, please press star, 1, 1 1 on your telephone, our next question.

Will be coming from the line of Bob farman of Janie Montgomery. Scott, your line is open.

Hey, there and good morning. Uh so what happens with the are you going to have a traditional fourth quarter Reserve review as well, like internal and external? Or is this third quarter review, kind of taking your, your annual lookie

Katherine Antonello: In fourth quarter, we'll have an internal review. It will also, because this is the year that we've hired an external actuarial firm to review our reserves, they will also do a fourth-quarter review. We do not expect an impact from that fourth-quarter review. Right. Is the external firm that's looking at the fourth quarter, are they the same one that looked at them at mid-year? Yes. Was there—I know you've had to discuss these types of things with AM Best. What kind of commentary have you gotten from rating agencies in regards to the whole situation with the cumulative trauma in California? Thanks, Bob. We're very active and engaged with our rating agency partners, and we've discussed and kept them posted as far as the process from an operating perspective as well as the capital perspective.

Yeah, that's a good question, Bob, we are going to have a full 4 quarter review, um, and get back on track. Third quarter was off cycle. We usually just look at actual versus expected then, but we wanted to, you know, definitively come out with something and and look at it with a fresh eye. And but we'll get back on track and, and fourth quarter, we'll have an internal review, it will.

Also, because this is the year that we've, um, hired an external actuarial firm to review our reserves, they will also do a fourth quarter review, um, but we do not expect an impact from that fourth quarter review.

Right is the is the is the external firm that's looking at the fourth quarter. Are they the same 1 that looked at them at at mid year?

Yes.

Okay. Uh, and and was there, you know, I I I know you've you've had to discuss this thing. You said these types of things with am best like what, what what kind of commentary have you gotten from a rating agencies in regards to the?

You know, the whole situation and with the cumulative trauma in California.

Katherine Antonello: They all continue to be quite supportive of where we're at, the actions we're taking, both from an operation perspective as well as from a capital perspective. Okay. All right. Good. Have you seen any change in medical cost trends? I know you probably ask every quarter about it, but what's going on with medical costs? I know we've been talking a lot about claim frequency, but how about the severity side? Yeah. The severity side, what we're seeing, our overall claim severity values have generally held steady in the most recent years. They continue to be, generally speaking, below pre-pandemic levels. That's both indemnity and medical severity in that number or in that severity that I'm speaking to, but it's driven by lower medical severity. I've talked about in several calls that we monitor our own prescription drug costs.

Yes, thanks Bob. Um, yeah, so we're very active in and engaged with our rating agency partners and we've discussed and keep them posted, uh, as far as um, the process of what's, you know, from an operating perspective, as well as the capital perspective. And they all continue to be quite supportive of um of of where we're at the actions. We're taking uh both from an operation perspective, as well as from Capital perspective.

Okay, all right. Good. Um, have you seen?

Any change in medical cost trends? I know you probably asked every quarter about it, but what's going on with medical costs? And, you know, I know we've been talking a lot about cleaning frequency, but how about the severity side?

Katherine Antonello: We've seen slight increases in drug costs versus those that were in place pre-pandemic, but nothing that is really alarming on the pharmaceuticals. Severity is not something that we are currently concerned about. We did have some large losses in 2024. Those are more than adequately reserved for, but we're not seeing anything that is concerning to us right now. Okay. In a recessionary environment with the increase in unemployment or terminations and stuff, I understand they can file claims in California. Will you see some similar issues in other states if unemployment starts to become, starts to go up? It's something that has been researched in the past, and there have been studies that show that could and has happened. The most prominent one was the study research that was done after the Great Recession.

Yeah, the the severity side you know what, we're seeing our overall claim severity values are generally health health steady and and the most recent years, um, they're they continue to be generally speaking below pre-pandemic levels and um that's both Indemnity and medical severity um, in that number that or or in that severity that I'm speaking to, but it's driven by lower medical severity. Um, I've talked about in several calls that we monitor our own prescription drug costs.

Versus those that were in place. Um, pre-pandemic.

Um, but nothing that is really alarming to um, on the on the Pharmaceuticals. So severity is not something that we are uh, currently concerned about. Um, you know, we did have some large losses in 2024, those are more than adequately reserved for, um, but we're not seeing anything that is concerning to us right now.

Okay.

Um,

so,

If?

in a recessionary environment, you know with the increase in unemployment or terminations and stuff, I understand

They can file a claims in California, but we see some issue. Same similar issues in other states. If, if unemployment starts to become, uh, you know, it starts to go up.

Katherine Antonello: Of course, that was a huge impact to the economy and unemployment and so forth. I wouldn't expect anything like that. Recessions are just very specific in terms of the industries and jobs that they tend to impact. It's very difficult to answer your question other than generally, but the answer is it could. It just depends on the type of recession. Yeah. I didn't expect an exact detailed answer for you on that one. It was just more of a broad question. I guess I'm sorry to kind of monopolize the questions here, but I guess one last thing I want, just can you talk a little bit more about the excess workers’ comp product? What size market is that? Who competes in that market and where you can add value? Sure. Our entry into excess workers’ compensation is part of our diversification effort.

Um, you know, it's it's something that has been researched in the past and there have been studies that show that that could and has happened. Um, the the most prominent 1 was the, the study research that was done after the Great Recession, of course, that was a huge impact to the economy and unemployment and so forth. So I don't I wouldn't expect anything like that. Um you know, recessions are just very specific in terms of the industry.

And jobs that they tend to impact.

So it it's very difficult to answer your question other than generally, um, but the answer is it all it could. Um, it it just depends on the type of recession.

Yeah, I I I didn't expect an exact detailed answer for you on that 1. It was just a more of a a broad broad question. Um,

So I I guess I'm sorry to kind of monopolize the question here but but I guess 1 last thing I want to just can you, can you talk a little bit more about the excess workers comp product? What size Market is that who who who who can peach in that market and and and where you can add value,

Sure. So, you know,

Katherine Antonello: As I said earlier, it's our first new product expansion. We've been researching new products for about a year now, and excess was the right place to start for us. Given our expertise in workers' compensation insurance, it's just a natural extension of what we do now and leverages the talent and the systems capabilities and so forth that we already have in place. We're spinning this up in a very efficient way by hiring a team of underwriters. We're utilizing Agentic AI to build out the underwriting platform and the CRM platform. We're going to go slow here. We're not expecting something huge in 2026 because we're going to learn as we go. We do expect to get submissions in the door in early second quarter and binding by July 1 of 2026.

the the our entry into excess workers compensation. Um, it was is part of our diversification effort and as as I said earlier it's our first new product expansion. We've been researching new products for about a year now and and excess.

Um, it was the right place to start for us. Given our expertise in workers' compensation, it's just a natural extension of what we do now and leverages the talent and the systems capabilities and so forth that we already have in place.

Um, so we're spinning this up in a very efficient way by hiring a team of Underwriters and then we're utilizing a gentic AI to build out the underwriting platform and the CRM platform. Um, we don't, we're going to go slow here. We don't expect we're not, you know, expecting something huge in 2026 because we're going to learn as we go.

Katherine Antonello: There aren't a lot of excess workers' compensation insurance providers that are large and have an extensive book of business. We feel like this is a good place for us to enter. It's a good time in the market for us to enter it. We're really excited about it. You're saying your producers are basically saying this would be a nice add-on just because they have trouble placing any type of risk to others. Is that kind of a main driver? We do feel like there's just an opportunity for another entrant in the market and that we can provide some services that potentially don't exist right now. We can absolutely leverage our extensive agency plant that we have in place. There's not a lot of friction there for us to enter the market. Right. Okay. Thanks a lot for all the color. Thanks, Bob. Thank you.

Um, but we do expect to get submissions in the door in early Q2 and binding by July 1, 2026.

There aren't a lot of excess workers compensation providers. Um that are that are very you know that are large and having the extensive book of business. So we feel like, you know, this is a good place for us to enter. It's a good time in the market for us to enter it. Um, and we're really excited about it.

producers are basically saying, this would be nice to add on just because

You know, trouble plate, placing any type of that type of risk to to others that kind of, we just feel like that. Yeah, we feel like there's just an opportunity for another entrance in in the market and um that that we can provide some services that potentially. Um, don't exist right now and we can

Absolutely leverage our extensive agency plan that we have in place. So, there’s not a lot of friction there for us to enter the market.

Right. Okay, thanks a lot.

Thanks Bob.

Katherine Antonello: If you would like to ask a question, please press star 11 on your telephone. At this time, I'm not seeing any more questions in the queue. I would like to go ahead and turn the call back over to Katherine Antonello. Please go ahead. Thank you, Lisa. Thank you all for joining us this morning. I look forward to meeting with you again in February. Have a good weekend. This concludes today's program. You may all disconnect.

Thank you. If you would like to ask a question, please press *1 on your telephone.

Antonello. Please go ahead.

Okay, thank you, Lisa. Thank you all for joining us this morning, and I look forward to meeting with you again in February.

Have a good weekend.

this concludes today's program, you may all disconnect