Earnings call transcript: Employers Holdings beats Q1 2025 earnings expectations

Employers Holdings Inc. (EIG) reported better-than-expected earnings for the first quarter of 2025, with earnings per share (EPS) of $0.87, surpassing the forecast of $0.74. Despite actual revenue of $202.6 million falling short of the anticipated $219.76 million, the company’s stock rose 1.71% in after-hours trading, reflecting investor optimism. According to InvestingPro data, the company currently trades at 10.34x earnings, with analysts setting price targets between $53-$58, suggesting potential upside. InvestingPro analysis indicates the stock is currently trading above its Fair Value.

Key Takeaways

• EPS exceeded forecasts by $0.13, a positive surprise for investors.
• Revenue fell below expectations, highlighting potential market challenges.
• The stock price increased by 1.71% post-earnings announcement.
• The company returned $27.5 million to shareholders through dividends and buybacks.
• Optimistic outlook despite potential recessionary pressures.

Company Performance

Employers Holdings demonstrated resilience in Q1 2025, achieving a 1% increase in gross premiums written to $212 million. However, net premiums earned decreased by 1% to $183 million. The company reported a net income of $12.8 million, with adjusted net income up 24% year-over-year at $21.3 million. This performance is set against a backdrop of a competitive workers’ compensation insurance market.

Financial Highlights

• Revenue: $202.6 million, below the $219.76 million forecast
• EPS: $0.87, surpassing the $0.74 forecast
• Net investment income: $32 million, a 20% increase
• Gross premiums written: $212 million, a 1% increase
• Net premiums earned: $183 million, a 1% decrease

Earnings vs. Forecast

Employers Holdings’ EPS of $0.87 exceeded the forecast by 17.6%, indicating strong profitability. The revenue shortfall, however, suggests challenges in meeting market expectations. This mixed performance contrasts with previous quarters, where the company consistently met or exceeded both revenue and EPS forecasts.

Market Reaction

Following the earnings release, Employers Holdings’ stock price rose by 1.71% to $48.91, reflecting positive investor sentiment despite the revenue miss. This movement positions the stock closer to its 52-week high of $54.44, indicating market confidence in the company’s future prospects.

Outlook & Guidance

Looking ahead, Employers Holdings remains cautiously optimistic about navigating potential recessionary headwinds. The company anticipates further improvement in its expense ratio and has increased its quarterly dividend by 7% to $0.32 per share. InvestingPro data shows the company maintains a "GOOD" overall financial health score of 2.8, though analysis suggests net income may face pressure this year. Get access to the comprehensive Pro Research Report for deep-dive analysis of EIG’s financial health and growth prospects. Future EPS projections for FY2025 and FY2026 are $3.68 and $3.70, respectively, with revenue forecasts of $880.75 million and $905.45 million.

Executive Commentary

CEO Kathy Antonello emphasized, "We continue to value profitability over growth," highlighting the company’s strategic focus. CFO Mike Pedraja added, "We’re pleased to be in a strong financial position," underscoring the company’s robust financial health. Antonello also mentioned targeted pricing and underwriting actions taken in Q1.

Risks and Challenges

• Competitive rate environment in the workers’ compensation industry.
• Potential rise in cumulative trauma claims, particularly in California.
• Decreasing reserve redundancies could pressure future profitability.
• Economic uncertainties and recessionary pressures impacting market conditions.
• Rising prescription drug and medical service costs affecting expense ratios.

Q&A

During the earnings call, analysts inquired about the rising cumulative trauma claims in California and factors contributing to the loss ratio increase. Executives confirmed stable year-over-year rates with a 4-5% increase over the past six months, indicating strategic pricing adjustments.

Full transcript - Employers Holdings Inc (EIG) Q1 2025:

Conference Operator: and thank you for standing by. Welcome to the First Quarter twenty twenty five Employers Holdings Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. Please be advised today’s conference is being recorded.

I would now like to hand the conference over to your speaker today, Lori Brown, Chief Legal Officer. Please proceed.

Kathy Antonello, Chief Executive Officer, Employers Holdings: Thank you, Kevin. Good morning, and welcome, everyone, to the First Quarter twenty twenty five Earnings Call for Employers. Today’s call is being recorded and webcast from the Investors section of our website, where a replay will be available following the call. Presenting today are Kathy Antonello, our Chief Executive Officer and Mike Pedraja, our Chief Financial Officer. 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. The company also uses its website as a means of disclosing material nonpublic information and for complying with disclosure obligations under the SEC’s Regulation FD. Such disclosures will be included in the Investors section on 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, investor presentation, and any other materials available in the Investors section of our website. Now I’ll turn the call over to Kathy. Thank you, Lori.

Good morning, everyone, and welcome to our first quarter twenty twenty five earnings call. Today, we will follow our typical agenda where I will begin by providing highlights of our first quarter twenty twenty five financial results. I will then hand it over to Mike for more details on our financials, and prior to Q and A, I will come back to you with some additional commentary. Our first quarter net premium earned was relatively flat compared to 2024. This result was driven by higher renewal premium, offset by lower new business and audit premium.

Rate increases and underwriting actions taken to maintain our underwriting profitability targets in certain states impacted our new business premium, while final audit premium pickup and audit accruals decreased in line with the moderation of employment and wage growth. Despite these headwinds, employers ended the period with another record number of policies in force with a year over year growth rate of 4%. We earned $32,000,000 of net investment income during the quarter, an increase of 20% and meaningfully higher than any other quarter in our history as a publicly traded company. Our current accident year loss and LAE ratio on voluntary business was 66% versus the 64% we maintained throughout 2024. This increase is consistent with our conservative reserving philosophy and the recent loss ratio and pricing trends experienced both at employers and within our industry.

Consistent with our normal practice, we did not perform a full loss reserve assessment, as full assessments are performed twice a year in the second and fourth quarters. We’ll provide you with details of this analysis and any associated impact on prior year reserves next quarter. I’m pleased with the reductions we achieved in our underwriting expense ratio, which was 23.4% this quarter, down from 25% a year ago. We believe we’ll achieve further expense ratio improvement throughout 2025. With that, Mike will now provide a deeper dive into our financial results, and then I’ll return to provide my closing remarks.

Mike?

Mike Pedraja, Chief Financial Officer, Employers Holdings: Thank you, Kathy. As this is my first official call, I’d like to thank Kathy, Laurie, and the broader Employers team for welcoming me to this fantastic franchise. I’m very excited about our prospects. For everyone on the call, I look forward to meeting and working with you in the coming weeks. For the quarter, gross premiums written were $212,000,000 an increase of 1%.

The increase was due to higher renewal business, partially offset by lower new business and final audit premiums. As Kathy mentioned, prudent pricing actions and targeted underwriting changes implemented in certain states impacted our new business production, while final audit premiums decreased. Net premiums earned were $183,000,000 a decrease of 1%. During the period, our losses and loss adjustment expenses were $121,000,000 versus $117,000,000 a year ago. The increase was primarily due to higher current accident year loss and loss adjustment expense ratio, which we increased from 64% to 66%.

Commission expense was $23,000,000 versus $25,000,000 a year ago, and our commission expense ratio was 12.6% versus 13.6 The decreases were primarily related to the release of commissions payable associated with non performing policies sent to collections. Underwriting expenses were $43,000,000 versus $46,000,000 and our underwriting expense ratio was 23.4% versus 25%. The reduction in this ratio was primarily the result of decreases in bad debt expense and compensation related expenses. Our net investment income was $32,000,000 versus $27,000,000 a year ago, an increase of 20%. The increase was primarily due to returns from our investments in private equity limited partnerships along with higher yields on our fixed maturities securities.

These fixed maturity investments currently have a duration of four point three years and an average credit quality of A plus Our weighted average book yield was 4.5% at quarter end, which is up nicely from 4.3% a year ago. Our quarterly net income of $12,800,000 was unfavorably impacted by $9,000,000 of net after tax unrealized investment losses generated from equity securities and other investment holdings due to the recent U. S. Capital market fluctuations. Our stockholders’ equity was favorably impacted by 21,000,000 of net after tax unrealized gains generated from our fixed maturity investments.

Our adjusted net income, which excludes unrealized investment gains and losses and the benefit of our LPT deferred gain amortization totaled $21,300,000 a 24% increase from last year’s $17,200,000 During the first quarter, we repurchased $21,000,000 of our common stock at an average price of $49.69 per share. And thus far in the second quarter, we have repurchased an additional 170,000 shares of our common stock at an average price of $48.35 per share. On Wednesday, our Board of Directors authorized a new stock repurchase program to allow for repurchase of up to one hundred $25,000,000 of our common stock over the twenty month period from 05/06/2025 through 12/31/2026. This new program replaces our existing program that was scheduled to expire on 07/31/2025, but has been exhausted. Also on Wednesday, our Board of Directors declared a 7% increase in our quarterly dividend to $0.32 per share.

The dividend is payable on May 28 to stockholders of record on May 14. We believe both actions, the increase in our quarterly dividend and the new stock repurchase program, are reflections of our confidence in Employers’ financial strength and financial prospects. And now I will turn the call back to Kathy.

Kathy Antonello, Chief Executive Officer, Employers Holdings: Thank you, Mike. We continue to value profitability over growth and have identified a number of refinements in our underwriting and pricing approach that we believe will allow us to maintain our underwriting discipline while returning to moderate new business growth levels. Our appetite expansion effort continues to identify areas of opportunity for profitable growth, and our success has given us the confidence to accelerate this effort going forward. To date, we have not experienced negative impacts from the tariff discussions, but we intend to closely monitor the cost of prescription drugs and medical services for potential changes. If any recessionary headwinds emerge, we are cautiously optimistic that our deep relationships with our customers and agents, our product and service value proposition, and our geographic and industry segment diversification will allow us to maintain our strong customer base and weather the storm.

I’m very pleased with the team’s continued focus on expense management and our prudent capital management. We continue to improve our key operating metrics, which is a clear indication of our success. After considering dividends declared, our book value per share, including the deferred gain, increased 14% to $48.25 and our adjusted book value per share increased by 9% to $50.75 over the last twelve months. And finally, we returned $27,500,000 to our shareholders this quarter through a combination of regular quarterly dividends and share repurchases at an average price that was accretive to our adjusted book value per share. As Mike mentioned, we’re pleased to be in a strong financial position, which allows us to declare a dividend increase and a new share repurchase authorization.

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

Conference Operator: Thank you. First question comes from Mark Hughes with Truist. Your line is open.

Mark Hughes, Analyst, Truist: Yes, thank you. Good morning.

Kathy Antonello, Chief Executive Officer, Employers Holdings: Good morning, Mark.

Mark Hughes, Analyst, Truist: Kathy, could you talk about any specifics you might be able to share regarding those loss trends? You’ve taken some meaningful action here to protect the balance sheet and, as you say, focus on profitability. What are you seeing? And can you characterize how broad that is in terms of geography?

Kathy Antonello, Chief Executive Officer, Employers Holdings: Sure. So you’re referring, I assume, to the increase in our accident year GLOF and LAE ratio from 64% to 66% Okay. Yes. So the higher 2025 ratio reflects a few things that we’re seeing.

The first is the ongoing competitive rate environment. That’s first and foremost. But we’re also seeing some pressure on accident years 2023 and 2024. We’ve also, along with the California Bureau, seen a rise in cumulative trauma claims in California in the more recent accident years. And then finally, it’s some of the overall decrease in favorable development that the industry has seen in recent years.

We’re factoring that in. So those four things together made us feel that we should increase our current accident year loss ratio. Having said all that, the increase is directionally consistent with what we’re seeing across the entire work comp industry, and the overall selection of 66 is below what we’ve seen as an industry average, which has been in the range of 69% to 70% in recent years. So we have taken I mentioned in our prepared remarks that we’ve taken some targeted pricing and underwriting actions in Q1. We’re still refining those.

So that’s part of this effort. But high level, those are the things that we’re seeing.

Mark Hughes, Analyst, Truist: Yeah. How about underlying medical inflation? If you look at frequency, severity, cost of treatment, you name it. Is there any change there? I hear you on the cumulative trauma, but how about the other drivers of medical expenses?

Kathy Antonello, Chief Executive Officer, Employers Holdings: Yeah, we keep an eye on frequency and severity when we look at our based on on level premium as we do in rate making. Our lost time claim frequencies have really continued to, generally speaking, now it varies by state, but they generally continue to trend downward over the last several years. Although, when I say it varies by state, in California, we did see an uptick in the latest accident year, and that is almost all attributable to the cumulative trauma claims that we’re seeing similar to what the bureau is seeing. Our overall severity values have pretty much held steady in the more recent years and are below what we saw pre pandemic level, and that’s driven by lower medical severity. And then on the indemnity side, it’s trending about the same as wage inflation.

Mark Hughes, Analyst, Truist: Yeah. And when I hear cumulative trauma, my radar goes up a little bit, and I wonder whether that’s maybe caused by the macro conditions, somebody’s looking for a wage replacement. I know you cover cumulative trauma and there’s plenty of support within the system for that, but it always sounds to me like it’s a little aggressive on the part of the claimants. Can you talk me out of that or address whether there might be some macroeconomic contribution to those claims?

Kathy Antonello, Chief Executive Officer, Employers Holdings: Yeah, it’s an interesting question because these are arising from accident year 2024 is what we’re seeing now and what we’re reacting to. And so I can’t point to anything in the macro environment in 2024 that would have caused this, so it sort of is an interesting phenomenon. I can say that it is only in California, and we know that there are provisions in California that allow cumulative trauma claims to be filed post termination of an employee. California is the only state, to my knowledge, that allows that, And so as you mentioned, these claims that come in post term, there’s no return to work potential. They have high PD, some cumulative work stress usually associated with them.

They’re usually come in the door with an attorney. So it’s just a California phenomenon. It would be great to see that remedied. But back to your original question, don’t see anything in the 2024 macro environment that has caused this.

Mark Hughes, Analyst, Truist: Is that we’ll put it under the social inflation. The attorneys are getting more aggressive and getting the word out. So as you say, they usually show up with an attorney. Would

Kathy Antonello, Chief Executive Officer, Employers Holdings: I would say that that’s an accurate representation.

Mark Hughes, Analyst, Truist: Yeah, okay. Yeah. The

Kathy Antonello, Chief Executive Officer, Employers Holdings: one thing I would add to that is you’ve probably seen that the WCRB has recommended an 11.2% increase in their pure premium rates effective nineone of twenty twenty five. And while there were many things going on that caused that 11.2% increase to be filed, one of them that was called out in the filing was the cumulative trauma claims.

Mark Hughes, Analyst, Truist: Yeah. And am I still right in thinking the rate filings are advisory that may influence the behavior of carriers, that if they’re looking for references, the state says up 11, then maybe that’ll move the benchmark competitive level up a bit, but it’s not binding by any means. Is that a fair way to describe it?

Kathy Antonello, Chief Executive Officer, Employers Holdings: That is correct. In California, their advisory, any individual carrier is going to look at their own book of business and it’s going to vary dramatically both from each other and the statewide data. And so I believe California has plus or minus 50% schedule rating. And so we do have a lot of flexibility in California And we’ll do what’s right for our book of business.

Mark Hughes, Analyst, Truist: Yeah. Very good. I’ll just ask one more. Apologize for going on. But what do you think is going to show up when the NCCI does the state of the line how do you see kind of redundancy across the industry?

I was interested on the Gallagher call. They said workers’ comp rates that they had said were up 1% in Q4, were up 5% in Q1. I thought that was kind of striking, not the usual description of what’s going on, but what do you think NCCI is going to say about the industry fundamentals?

Kathy Antonello, Chief Executive Officer, Employers Holdings: We’ll know in a couple of weeks, but I would say, generally speaking, what we have been seeing is it seems like the reserve redundancies, while there are still significant redundancies in the industry, it seems like carriers are reducing a little bit less, and maybe that’s just cautionary. And from a rate environment, when we look at our own internal rates, year over year, a rolling twelve months, we were flat. But when I looked at six months over six months, we were up between 45%.

Mark Hughes, Analyst, Truist: So on a rolling twelve months, you’re flat. Rolling six months, you’re up 4% to 5%. Correct.

Kathy Antonello, Chief Executive Officer, Employers Holdings: So not too different from what you said you saw in a recent report.

Mark Hughes, Analyst, Truist: Yeah, that was Gallagher’s feedback on their conference call last night. Okay. Thank you very much for all the detail. Appreciate it.

Kathy Antonello, Chief Executive Officer, Employers Holdings: Okay. Thank you, Mark.

Conference Operator: I’m not showing any further questions at this time. I’d like to turn the call back over to Kathy Antonella for any further remarks.

Kathy Antonello, Chief Executive Officer, Employers Holdings: Okay. Thanks, Kevin, and thank you, everyone, for joining us this morning, and we look forward to meeting with you again in July when we report our second quarter numbers.

Conference Operator: Thank you, ladies and gentlemen. This does conclude today’s presentation. You may now disconnect, and have a wonderful day.

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