Employers Holdings, Inc. (EIG) is a leading provider of workers' compensation insurance focused on serving small and mid-sized businesses in low-to-medium hazard industries. With a strong presence across the United States, excluding a few states, the company has established itself as a trusted partner for businesses seeking reliable coverage and tailored solutions.
Business Overview and History
Employers Holdings, Inc. was incorporated in Nevada in 2005 and has since grown to become a prominent player in the workers' compensation insurance market. The company's history can be traced back to 1999 when the Nevada State Industrial Insurance System (the "Fund") entered into a retroactive 100% quota share reinsurance agreement through a loss portfolio transfer transaction with third-party reinsurers. In 2000, Employers Insurance Company of Nevada (EICN), one of EIG's subsidiaries, assumed all of the assets, liabilities, and operations of the Fund, including the Fund's rights and obligations associated with the reinsurance agreement.
EIG accounts for the Loss Portfolio Transfer (LPT) Agreement as retroactive reinsurance, recording an initial deferred reinsurance gain that is being amortized over time. Throughout its history, the company has faced challenges related to the LPT Agreement, including adjustments to the estimated liabilities ceded under the agreement and changes to the contingent profit commission receivable. However, the LPT Agreement has also provided EIG with a steady source of reinsurance recoveries that contributed to its underwriting results.
As a specialty provider focused on small to mid-sized businesses, EIG has pursued a disciplined underwriting approach to maintain profitability in the highly competitive workers' compensation insurance market. This strategy has included developing strong relationships with traditional and specialty insurance agencies, as well as expanding into new industry classes that fit its low-to-medium risk appetite.
Over the years, EIG has expanded its reach and diversified its business model. The company now operates through five wholly-owned insurance subsidiaries: EICN, Employers Compensation Insurance Company (ECIC), Employers Preferred Insurance Company (EPIC), Employers Assurance Company (EAC), and Cerity Insurance Company (CIC). These subsidiaries are domiciled in various states, including California, Florida, Nevada, and New York, allowing EIG to provide coverage across most of the United States.
Financial Performance and Ratios
Financials
Employers Holdings, Inc. has demonstrated a strong financial performance over the past few years. In the fiscal year 2024, the company reported net income of $118.6 million, or $4.71 per diluted share, compared to $118.1 million, or $4.45 per diluted share, in the prior year. This represents a 0.4% increase in net income year-over-year.
The company's total revenue for the fiscal year 2024 was $880.7 million, up from $850.9 million in the previous year, indicating a 3.5% growth. The increase in revenue was primarily driven by higher net premiums earned, which grew 3.8% to $749.5 million in 2024 from $721.9 million in 2023. Net investment income also contributed significantly to the company's revenue, reaching $107.0 million in 2024.
EIG's financial ratios reflect its strong financial position. As of December 31, 2024, the company's debt-to-equity ratio stood at 0.004, suggesting a very low level of leverage. The current ratio, which measures the company's ability to meet its short-term obligations, was 1.44 as of the same date, indicating a healthy liquidity position.
Furthermore, EIG's return on equity (ROE) for the fiscal year 2024 was 11.3%, compared to 11.7% in the prior year, demonstrating the company's efficient use of its shareholders' equity to generate profits.
In the most recent quarter (Q4 2024), EIG reported revenue of $216.6 million and net income of $28.3 million. However, this represented a 4% decrease in revenue and a 17.9% decrease in net income compared to the same quarter in the previous year.
The company's operating cash flow for the fiscal year 2024 was $76.4 million, with free cash flow reaching $71.5 million. These figures underscore EIG's ability to generate cash from its operations and maintain financial flexibility.
Liquidity
Employers Holdings, Inc. maintains a strong liquidity position, as evidenced by its healthy current ratio of 1.44 as of December 31, 2024. This indicates that the company has sufficient current assets to cover its short-term liabilities, ensuring its ability to meet immediate financial obligations and maintain smooth operations.
As of December 31, 2024, EIG reported cash and investments totaling $2.46 billion, providing a substantial cushion against potential financial uncertainties. The company also has access to a $25 million unsecured revolving credit facility, which remained undrawn at the end of 2024, further enhancing its financial flexibility.
Operational Highlights and Initiatives
Employers Holdings, Inc. has consistently focused on disciplined underwriting and claims management, which has been a key driver of its success. The company's underwriting and general administrative expense ratio improved to 23.5% in 2024, down from 24.9% in the previous year, reflecting its ongoing efforts to streamline operations and enhance efficiency. This improvement was primarily due to cost savings from the Cerity integration plan.
In 2024, EIG continued to expand its appetite for new classes of business, which contributed to 20% of its new and renewal premiums in the fourth quarter. This strategic initiative has allowed the company to diversify its portfolio and capture additional growth opportunities.
Moreover, EIG has been investing in technology to automate business processes and further develop its data and analytics capabilities. These investments are expected to enable the company to reduce operating costs over the long term and set a foundation for future growth.
The company's in-force premiums, which represent the estimated annual premium on all active policies, totaled $742.1 million as of December 31, 2024, reflecting a 19.2% increase from 2022. This growth was driven by higher new and renewal business premiums, partially offset by lower final audit premiums and endorsements.
EIG's combined ratio, a key industry metric, was 97.9% in 2024, indicating underwriting profitability. The company achieved its 10th straight year of underwriting profit in its long-tailed line of business, with a combined ratio excluding the LPT of 98.6% for the full year 2024.
Recent Developments and Outlook
In January 2025, AM Best upgraded the financial strength ratings of EIG's insurance subsidiaries to "A" (Excellent) from "A-" (Excellent), reflecting the company's strong financial position and operational excellence. This rating upgrade reaffirms EIG's commitment to financial stability and its ability to provide reliable coverage to its customers.
Looking ahead, the company expects to increase its 2025 accident year loss and LAE ratio for voluntary business, which is consistent with the industry's overall trend and EIG's prudent reserving philosophy. However, the company believes that the increase in the loss ratio will be mitigated to some extent by its continued focus on reducing the expense ratio.
The workers' compensation insurance industry has been experiencing soft pricing over the past several quarters, a trend that is not expected to change in the near term. However, a rise in claims of lower severity as business activities return to normal levels is likely to favor pricing going forward. The increasing adoption of technology in operations is expected to help the industry function more efficiently, a trend that aligns with EIG's ongoing investments in technology and process automation.
Geographic Market Performance
While Employers Holdings, Inc. operates throughout most of the United States, it has a significant concentration in California. As of 2024, approximately 45% of the company's in-force premiums were generated in California. This geographic concentration allows EIG to leverage its expertise and established presence in a key market while also presenting potential risks associated with regional economic fluctuations or regulatory changes.
Risks and Challenges
As with any insurance company, EIG faces various risks and challenges that could impact its operations and financial performance. These include:
1. Competitive Pressures: The workers' compensation insurance industry is highly competitive, and EIG competes with other specialty carriers, state agencies, and multi-line insurance companies. Intense competition based on pricing and service quality could pressure the company's profit margins.
2. Regulatory Changes: The insurance industry is subject to extensive regulation, and changes in laws and regulations in the states where EIG operates could have a significant impact on the company's business model and compliance requirements.
3. Claim Volatility: The inherent uncertainty in estimating losses and loss adjustment expenses, as well as the potential for large individual claims or catastrophic events, could adversely affect EIG's financial results.
4. Investment Risk: EIG's investment portfolio, which generates a significant portion of its revenue, is exposed to market risks such as interest rate fluctuations and equity price volatility, which could impact the company's net investment income and overall financial performance.
5. Geographic Concentration: With 45% of in-force premiums generated in California, EIG is exposed to risks associated with economic or regulatory changes specific to that state.
6. Industry Trends: The soft pricing environment in the workers' compensation insurance industry could continue to put pressure on premiums and profitability.
Conclusion
Employers Holdings, Inc. has established itself as a leading provider of workers' compensation insurance, serving small and mid-sized businesses across the United States. The company's disciplined underwriting approach, strong financial position, and continuous operational improvements have enabled it to navigate industry challenges and deliver consistent financial performance. As EIG continues to expand its appetite and leverage technological advancements, it is well-positioned to capitalize on growth opportunities while maintaining its focus on risk management and operational efficiency. The company's strong liquidity, low debt levels, and strategic initiatives in technology and operational efficiency provide a solid foundation for future growth and resilience in the competitive workers' compensation insurance market.