Operator: Good day, and thank you for standing by. Welcome to the Q3 2026 Employers Holdings, Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Lisenby, General Counsel for Employers Holdings. Please go ahead.
Jeff Lisenby: Thank you, Danny. Today's call is being recorded and webcast from the investors 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.
Jeff Lisenby: The company also uses its website as a means of disclosing material non-public information and for complying with disclosure obligations under SEC Regulation FD. Such disclosures will be included in the investors section of our website. Accordingly, investors should monitor that section 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 of our website. Now, I will turn the call over to Kathy Antonello, our Chief Executive Officer.
Kathy Antonello: Thank you, Jeff. Good morning, everyone, and welcome to our Q3 2026 earnings call. Joining me today is Mike Pedraja, our Chief Financial Officer. As usual, I will begin with highlights of our Q3 results and then hand it over to Mike for more detail on our financials. Before we take your questions, I will come back with some closing thoughts. Our Q3 results reflect the progress we are making to restore our underwriting profitability to historical levels. We reported net income of $0.64 per diluted share, compared to a net loss of $0.36 per diluted share in Q3 of 2025. Adjusted net income was $0.71 per diluted share, compared to an adjusted net loss of $1.10 per diluted share. The improvement in earnings was driven primarily by the absence of the $38 million of reserve strengthening we recorded in the Q3 of 2025.
Kathy Antonello: Our loss and LAE ratio improved to 71.2% from 97.1%. We have not recognized any prior year development on our voluntary business this year, and our current accident year loss and LAE ratio, excluding the loss portfolio transfer, is 72%. Our GAAP combined ratio improved to 108.4% from 129.7%. That is significant progress, but we are not satisfied with that level and will continue to strive for underwriting improvement. The reduction in the loss and LAE ratio was slightly offset by the underwriting expense ratio, which was 24.3% compared to 20.6% a year ago and reflected the smaller premium base. Gross premiums written were $151.1 million, a decrease of 18%, and net premiums earned were $160.2 million, a decrease of 17%. These decreases reflect the pricing and underwriting actions we have taken to prioritize profitability in the prolonged soft market. Policies in force declined 8% to about 124,000.
Kathy Antonello: A smaller decline than premium as we retained the majority of our small business customers while exiting selected classes of business. Underwriting expenses decreased slightly, primarily because of lower policyholder dividends, lower bad debt expense, and premium taxes and assessments. Our commission expense ratio was 12.9%, compared to 12% a year ago. Our investment portfolio was a positive contributor, with net investment income increasing to $32.3 million, supported by higher yields following our 2025 investment rebalancing and $5.6 million in returns from our private equity investments. With a significant rise in US interest rates, our portfolio is well positioned to take advantage of higher reinvestment rates, which should contribute to earnings over time. Higher rates also impacted our book value through unrealized market value declines in our fixed income portfolio. The decrease is not a reflection of credit quality.
Kathy Antonello: Book value per share, including the deferred gain, was $49.44, up 2.1% from a year ago, but down 5.3% from the end of the Q2, with both rates including dividends. Adjusted book value per share, which excludes accumulated other comprehensive income, was $53.64. Up 7.1% from a year ago, and up 1.3% from last quarter, again, with both rates including dividends. With that, Mike will provide a deeper dive into our Q3 financial results, and then I will return with some closing remarks. Mike?
Mike Pedraja: Thank you, Cathy. Gross premiums written were $151.1 million compared to $183.9 million for the prior year quarter, a decrease of 18%, reflecting deliberate pricing and underwriting actions we began in 2025. These actions contributed to declines in both new and renewal business premiums in the quarter. Our losses in LAE were $114 million, a decrease of 38.9%. The decrease was due primarily to the absence of last year's reserve strengthening Cathy mentioned. Our voluntary business current accident year loss in LAE ratio, excluding the LPT, was 72%. Our reported loss in LAE ratio was 71.2%, compared to 97.1% a year ago. Commission expense was $20.6 million, a decrease of 10.4%, consistent with lower premiums. Our commission expense ratio was 12.9%, compared to 12% a year ago.
Mike Pedraja: The increase in the ratio was due primarily to higher commission rates on new business writings in 2026, combined with a one-time adjustment that reduced the 2025 Q3 ratio. Underwriting expenses were $38.9 million, a decrease of 1.8%. Our underwriting expense ratio was 24.3%, compared to 20.6% a year ago. Overall, our GAAP combined ratio was 108.4%, or 109.2% excluding the LPT, compared to 129.7% and 130.4% a year ago. Net investment income was $32.3 million, an increase of 23.8%. The increase was primarily the result from our private equity investments, which contributed $5.6 million of distributions this quarter, along with higher yields on fixed maturity securities resulting from our investment rebalancing activity in 2025. Excluding the private equity distributions, net investment income was approximately $26.7 million, up 6% from last year.
Mike Pedraja: Our fixed income book yield was 5%, a 40 basis point increase from last year, while our modified duration was 4.3, and average credit quality remained strong at A+. Net realized and unrealized losses on investments were $3.2 million, compared to gains of $21.2 million a year ago. The current period's result was driven by a reduction in the net asset value of our private equity investments related to distributions and by reduced common equity investment gains. Interest in financing expenses were $1.3 million versus $0.2 million a year ago. The increase relates to our $125 million of senior debt associated with the recapitalization plan we announced in the Q4 of 2025. Federal and state income tax expense was $2.9 million, a 20% effective tax rate, compared to a benefit of $2.9 million or a 25.9% effective benefit rate a year ago.
Mike Pedraja: Our adjusted net income, which excludes net realized and unrealized investment gains and losses and the benefit of LPT deferred gain amortization, was $12.8 million for the quarter, compared to an adjusted net loss of $25.5 million last year. Year to date, net income was $50.8 million, and adjusted net income was $35.9 million, compared to $34.2 million and $7.4 million for the 9 months of last year. Turning to the balance sheet, stockholders' equity was $785.6 million at quarter end, down from $858.8 million at 30 June. Accumulated other comprehensive loss increased by $61.7 million to $74 million, due directly to higher interest rates, reducing the market value of our fixed maturity securities, and as Cathy mentioned, is not related to credit quality. These unrealized losses should reverse as bonds approach maturity or if interest rates decline.
Mike Pedraja: Adjusted shareholders' equity, which excludes accumulated other comprehensive income and adds back the deferred gain, was $943.6 million. We returned $24.4 million to stockholders in the quarter through $18.1 million of share repurchases and $6.3 million of regular quarterly dividends. We repurchased 373,848 shares at an average price of $48.44 per share. That price represented an 8% discount to our beginning book value per share, including the deferred gain, and a 9% discount to our beginning adjusted book value per share. We have $94.9 million of repurchase authorization remaining under the 2026 program. With that, I will turn the call back to Kathy.
Kathy Antonello: Thank you, Mike. Yesterday, our board of directors declared a Q4 2026 dividend of $0.34 per share, payable on 3 December to stockholders of record as of 12 November. Looking ahead, expanding our workers' compensation product offering is driving additional profitable growth and deepening our relationships with distribution partners. Our excess workers' compensation product, which we launched in June, is off to a strong start with 31 accounts and $6.5 million in premium to date. The product feedback from the market on our value-added service offerings has been very positive. We have begun developing our large deductible product, which we are targeting to launch next year. We continue to make progress with our technology investments, and AI adoption is growing each quarter. AI agents are now writing, testing, and documenting software at Employers, with the technology team utilizing AI in two-thirds of eligible work tasks in the Q3.
Kathy Antonello: The results are tangible. This month, our new AI-driven claims summary application went live after assessing our entire inventory of open claims. We expect this new tool will allow our claims team to redeploy more than 50,000 hours over three years, with the efficiency ultimately benefiting our insureds, their injured workers, and the company. It is a very exciting time at Employers, and we are confident that these investments are leading to a stronger and more resilient company. And with that, Daniel, we will now take questions.
Operator: As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Mark Hughes with Truist. Your line is open.
Mark Hughes: Yeah, thank you. Good morning.
Kathy Antonello: Good morning, Mark.
Mark Hughes: Kathy, the re-underwriting process, I think you started it late in the year last year. When do you think you will have largely completed that and maybe get on more of a footing to hold the top line stable or perhaps grow may be too tough to ask in this kind of market, but that re-underwriting process, how much more do you have?
Kathy Antonello: Yeah. It is a great question, Mark, and you hit on something that is important, which it is very tough to grow in a market where loss costs continue to decline. I will say, when you speak about the re-underwriting effort, it was very surgical. It was in specific classes and jurisdictions. As you mentioned, we started at the end of last year, and we expect that to roll through the entire book within Q4 of this year. So beyond that, we would expect that premiums will stabilize to some extent because all those policies will have non-renewed or canceled, and we will go back to some stability in our top line.
Mark Hughes: Appreciate that. The question of frequency has come up in a couple of different ways. I was just sort of curious your thoughts on frequency in your book. If you hear others like, say, a Hartford saying that they are seeing a little bit more of an uptick in frequency, does that make sense in this kind of a market?
Kathy Antonello: Yeah. I have seen the transcripts where more and more carriers are calling out increases in frequency. I will talk about our book to begin with. What we are seeing is frequency continuing to decline countrywide, but the devil is in the details, right? When you start to drill down, you might see things differently in different jurisdictions. The decline that we are seeing countrywide is being driven by claims outside of California. That is not new for us. It is something that we have talked about in earnings calls over the past year and a half. The frequency decreases countrywide are consistent with what you are seeing during the state of the line and so forth with the long-term industry trends. California frequency, as I have said before, has increased in the latest accident years, and that is consistent with what the WCIRB is seeing and one of the reasons why they are filing for increases.
Kathy Antonello: For us, up through 2025, that was driven by cumulative trauma claim frequency. Excluding the CT claims, up through 2025, California claim frequency continued to trend downward. So we are keeping an eye on it. It can be a little bit lumpy from quarter to quarter. But overall, countrywide, I would just say that we are seeing decreases. I have not seen much discussion in the earnings call transcripts from others in terms of what jurisdictions are driving that. But for us, I can tell you where we see the increases in California.
Mark Hughes: Yeah. Interesting. How about the audits in the quarter? Anything it tells you about the payrolls and then cancellations? Is there any kind of uptick in cancellations maybe related to more aggressive competition or shopping?
Kathy Antonello: Yeah. In terms of audit, year over year, the audit pickup combined with our change in accrual, they were very close. We are not seeing a huge change there. Our audit accrual currently stands at about $23 million, and we did not make any change to that in Q3 2026. We are seeing a little of an uptick in non-compliance premium. We recognized about $2.3 million of that this quarter. Not seeing a ton of change in terms of audit. You also ask about cancellations. I would say our cancellations are relatively flat year over year also. Where we are seeing big increases are in our submissions and our quotes, which would, to me, say that more agents are shopping business to try to get a better price or a higher commission.
Kathy Antonello: That could be something that is going on, that policyholders are canceling policies looking for better prices.
Mark Hughes: Yeah. One final question, if I might. Are you seeing much upward pressure on commissions? I think your reported commissions look like they are holding reasonably stable. I think maybe there was some non-recurring stuff in the year ago quarter on commissions, if I understand it properly. But are you seeing brokers pushing, and maybe that is impacting your win rate or hit rate on those quotes?
Kathy Antonello: I would say yes to all of that. In regard to our commission rate, you are absolutely correct. There was an adjustment that occurred in Q3 2025, so that 12% from a year ago may have been slightly lower than we would normally see. But in terms of the competitive environment, we are seeing continued pressure on commissions for new business. I think that just comes with the territory of the softer market and carriers competing to keep their market share. We are not chasing that everywhere. We are looking for pockets where we can increase commission, where we feel like there is room in the margin to do so. But there is a lot of upward pressure on commissions right now.
Mark Hughes: Appreciate that. Thank you.
Kathy Antonello: Thank you.
Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone. Again, that is star one one to ask a question. Our next question comes from Karol Chmiel with Citizens. Your line is open.
Karol Chmiel: Yes. Hi, good morning. Cathy, just to go back to what Mark Hughes was inquiring regarding the audit. I know there wasn't much change. But in the bigger picture, with the whole higher cost of living and now various states and counties and cities pushing for higher minimum wage, are you having any conversations with your clients as to audit issues maybe coming up in the future where companies are going to be doing more with less workers?
Kathy Antonello: Yeah, it's a good question. It's something we keep an eye on in terms of just a macroeconomic, the picture there. Given our policyholder base and just the small accounts that we typically write, don't know that we've had any specific conversations, but we do track the economic behavior of what that might impact our book of business. Not seeing anything right now that would change what I feel like is our audit pickup in the future. I will say it's nothing like what we were seeing, say, coming out of the pandemic, when payrolls were just increasing at such a dramatic rate. Things are fairly stable now. And we see from month to month that one month we might have a pickup, the next month we might have a return in total, but not a lot of movement there.
Karol Chmiel: Okay, great. Thank you. That's all.
Operator: Thank you. Our next question comes from Alex Scott with Barclays. Your line is open.
[Analyst] (Barclays): Good morning. This is Justin on for Alex, and thank you very much for taking my question. I wanted to revisit the topic of frequency. I understand the frequency outside of California continues to be trending lower for your book of business. I was just wondering if there are any particular, say, industries or claims types or even worker populations where you may be seeing some frequency pressures emerge, or maybe the rate of frequency declines are not as pronounced as it has been before.
Kathy Antonello: Yeah, it's a great question. For us, and I'm talking about our guaranteed cost workers' compensation book. The area where we're seeing the most elevated frequency, and then over the last 2 to 3 years, the largest increase in frequency, has been California cumulative trauma. I will say one of our strategic moves to give us more optionality was to move into the excess workers' compensation space, which will diversify our book of business and allow us to write larger insureds with self-insured retentions that might not be impacted by changes in frequency to the same extent that you would see in a small business guaranteed cost book. For us, that move was intentional. For example, if I stick with California and CT, we just got approved to write excess workers' comp in California.
Kathy Antonello: We would not expect that future book to be impacted by frequency increases as much as it has impacted the guaranteed cost book. In terms of industries, I have not seen that there are increases in frequency. I've seen no research, and I haven't seen anything in our book that is showing anything in terms of the increase in frequency is more prevalent, or the lack of a decrease is more prevalent in one industry versus another.
[Analyst] (Barclays): Understood. Thank you for the color there. Maybe a quick follow-up on a similar point. I think we've been hearing some discussion around the rising cost of healthcare costs and the affordability potentially affecting workers' comp claims behavior. Historically, maybe some claims that have been addressed in healthcare is now spilling over into workers' comp claims instead. I was wondering if this was something that you are seeing in your own book of business, or if there's any sort of observations that you're seeing industry-wide that talks to this sort of observation.
Kathy Antonello: Yeah. I'll start with our book. When we look at our book overall, severity is very steady or lower. We have early indications with accident year 2026 in states outside of California that we might have some pressure on severity, but that's entirely driven by a few large losses. I wouldn't call it a widespread severity trend. We have, for the last 5 or 6 years, developed our own pharmaceutical index that we continue to look at, and those costs are up slightly relative to what we were seeing pre-pandemic levels. We had a recent uptick that recovered most of the post-pandemic decline, but it's really pretty moderate. I have also heard what you've heard out on the street, but we're not seeing anything in our book right now that would suggest it's impacting us.
[Analyst] (Barclays): Great. Thank you for the color.
Kathy Antonello: Thank you.
Operator: Thank you. I am showing no further questions at this time. I would now like to turn it back to Kathy Antonello for closing remarks.
Kathy Antonello: Okay. Thank you, Danielle. Thank you all for joining us this morning. We look forward to speaking with you all again in February.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
