EIG - NYSE

Good morning, and welcome, everyone, to the fourth quarter 2025 earnings call for Employers Holdings, Inc. 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. 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 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 Investors section of our website. I will now turn the call over to Katherine Holt Antonello, our Chief Executive Officer.

Good morning, everyone, and welcome to our fourth quarter 2025 earnings call. Joining me is Michael Aldo Pedraja, our Chief Financial Officer. During today's call, I will begin by providing highlights of our fourth quarter 2025 results and then hand it over to Michael for more details on our financials. Before our Q&A, I will come back to you with some additional thoughts. I would like to begin with how we are actively addressing the elevated frequency of California cumulative trauma claims. To be clear, this remains a California-specific issue. Claim frequency in our other states and within non-CT claims in California continues to trend favorably. We recognized early that the CT environment was creating a hard market in California, and we moved decisively, have implemented rate increases, and tightened underwriting on several classes of business. We are not waiting for legislative reform, though we do believe the growing impact on California businesses and public budgets will make the case for reform increasingly difficult to ignore. While we are confident that these California pricing and underwriting actions, along with the steps we are taking across the country, will strengthen our underwriting profitability, they are also likely to reduce written premium in 2026. It is worth highlighting that our small commercial franchise maintained strong retention rates throughout 2025, a clear sign the investments we have made in automation and ease of use are genuinely resonating. I am also pleased to report that our standard fourth quarter full actuarial assessment concluded that no additional reserve strengthening or adjustments to our current accident year loss and LAE ratio was necessary. In addition to our internal analysis, we engaged a market-leading actuarial firm to independently assess our estimated ultimate loss, and they concluded that our carried reserves were well within the range of reasonable estimates. We believe the outcome of these two analyses confirms the actions we took in the third quarter adequately addressed recent workers’ compensation trends. I am excited to discuss our new workers’ compensation product, which represents a strategic expansion of our capabilities. By leveraging our core workers’ compensation expertise into the excess layer, we are creating new growth avenues while diversifying our risk profile. Our aggressive adoption of AI tools has accelerated the product’s development, and I am pleased to report that we are now accepting submissions. The early market response has been strong, and we expect this product will deepen our distribution partner relationships while expanding our addressable market. We continued to execute on our commitment to returning capital to stockholders by delivering $215,000,000 of share repurchases and regular quarterly dividends in 2025. In January, we completed the $125,000,000 capital recapitalization plan that we announced in the third quarter. These capital management steps reflect our continued confidence in our financial position and our commitment to delivering value to shareholders. Along with our operational performance, these actions increased our book value per share, including the gain, by 11% to $51.31. We believe our focus on disciplined underwriting, prudent risk management, and strategic investments continues to position us strongly in the workers’ compensation insurance market, which is evidenced by A.M. Best’s recent reaffirmation of our insurance companies’ financial strength rating of A. With that, Michael will now provide a deeper dive into our fourth quarter financial results, and then I will return to provide my closing remarks. Michael?

Thank you, Katherine. Gross premiums written were $156,800,000 compared to $176,300,000 for the prior-year quarter, a decrease of 11% due primarily to a decrease in new business writings and lower final audit premiums, partially offset by higher renewal business premium. Our losses and LAE were $134,400,000 versus $113,200,000 a year ago, an increase of 18.7% due primarily to an increase in the accident year 2025 selected loss and LAE ratio and the absence of favorable developments in the fourth quarter of this year. Commission expense was $25,800,000 for the quarter versus $24,400,000 for the prior year, an increase of 5.7% driven by nonrecurring adjustments. Underwriting expenses were $39,800,000 for the quarter versus $44,200,000 for the prior year, a decrease of 10%. The improvement in underwriting expenses for the fourth quarter was due primarily to continued expense management efforts, including reduced personnel costs and other variable costs, such as policyholder dividends and bad debt. Net investment income was $31,400,000 for the quarter compared to $26,700,000 for the prior year, an increase of 17.6%, due mostly to private equity investment return distributions and an overall higher book yield on our fixed income portfolio. As Katherine mentioned, we executed an investment rebalancing to address several strategic goals, including reducing our equity investment allocation to target levels and increasing our overall portfolio yield. Our equity investments, like most in the market, have appreciated very nicely and reached 16% of our investment portfolio versus a target allocation of approximately 10%. As part of the investment rebalancing, we also sold low-yielding fixed income securities to offset the associated equity gains and redeploy the proceeds into higher-yielding fixed income investments. The investment rebalancing accomplished several goals, including reducing our equity investments to target allocation, increasing our overall investment portfolio yield by a net 40 basis points, extracting an estimated net present value gain of $16,000,000, and reducing our required capital. The sale of fixed income investments produced an after-tax realized loss of $40,000,000, which reduced net income and adjusted book value per share during the quarter. Our stockholders’ equity and book value per share were not impacted by the investment rebalancing. Our fixed maturities maintain a modified duration of 4.4 with strong average credit quality of A+. Aided by our investment rebalancing, our weighted average book yield increased to 4.9% at quarter end compared to 4.5% for the prior year. Our adjusted net income, which excludes net realized and unrealized investment gains and losses and the benefit of our LPT deferred gain amortization, was $14,500,000 for the quarter, compared to $28,700,000 last year. During the fourth quarter, we repurchased almost 2,400,000 shares of our common stock at an average price of $40.94 per share, or $97,000,000. The average repurchase price represented a 20% discount to our book value per share, including the deferred gain, and adjusted book value per share. During the period from January 1 through February 18 of this year, the company repurchased a further 898,594 shares of its common stock at an average price of $44.28 per share. Our remaining share repurchase authorization is $53,100,000. As we have highlighted, we aim to be good stewards of our shareholders’ capital. At current price levels, we are convinced that the Employers Holdings, Inc. stock is meaningfully undervalued, and executing share repurchases at these price levels produces a significant return on investment and generates significant value for our continuing shareholders. I will now turn the call back to Katherine.

Thank you, Michael. Yesterday, our Board of Directors declared a first quarter 2026 quarterly dividend of $0.32 per share. The dividend is payable on March 18 to stockholders of record on March 4. As evidenced by the recapitalization plan, we remain confident in Employers Holdings, Inc.’s financial strength and financial prospects and will continue to manage our capital strategically. We returned $104,100,000 to our stockholders in the fourth 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. Our focus on operational excellence is unwavering. In 2025, we drove our expense ratio down 180 basis points to 21.7%, and we believe it will continue to decline with our wide deployment of AI. In addition to our new excess workers’ compensation risk management tools, which are comprised of dozens of specialized AI agents, AI has helped us internally develop a significant claims platform enhancement and other new claim capabilities backed by our agentic ecosystem. Our mindset around the adoption of AI is not just about efficiency; it is also about creating a sustainable competitive advantage for the company. As we look ahead, we are confident that we are operating from a position of strength: solid reserves validated by independent analysis, improving expense ratios, expanding product capabilities, and a solid balance sheet. We believe we are making deliberate strategic choices to position Employers Holdings, Inc. for the future, and we are executing with discipline and urgency. We are absolutely confident in the path that we are on. Before we take questions, I want to take a moment to thank the entire Employers Holdings, Inc. team. This was a demanding year, and the way this team rose to meet it speaks volumes about who we are as a company. From our underwriting and claims teams navigating the challenging California market, to the technology teams whose AI initiatives are already delivering measurable results, to our finance, operations, and support teams who keep us running efficiently every day, none of what we have accomplished would be possible without you. We will now open for questions.

Thank you. Star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Our first question comes from Mark Douglas Hughes of Truist. Your line is open.

Yes, thank you. Good morning. Katherine, anything about the trajectory of CT claims seems like once the lawyers get a new shiny object in front of them, they just keep piling in. Are you seeing any further acceleration? Has it is it on a relatively even keel?

That is a great question, Mark. We are seeing throughout 2025 that the acceleration of the frequency that we saw in early 2025 and throughout 2024 as those accident years emerged late, we are seeing that acceleration slow down and flatten quite a bit. So that has been good news. Having said that, CT claims as a percentage of overall claims is still quite elevated relative to what we have seen in the past. But what we are seeing now—I am not ready to claim victory yet—is that the acceleration of the frequency has flattened.

And you mentioned in 2026, likely to see reduced written premium. You talked about a hardening market, which implies that others are recognizing the issue, but it seems like there are still competitors taking share. Could you maybe just talk about that dynamic again, kind of hardening market, but you are still being cautious about it?

When I talk about a hardening market, I think it is specific mostly to California, where the bureau took a rate increase. We saw a significant increase that was also filed in Nevada. So most of it is happening in the West. But I would characterize the California market as hardening. Generally speaking, though, across the country, the environment is still fairly competitive. We are seeing pockets, though, carriers that are exiting certain states or certain classes of business, definitely seeing tightening of risk selection, especially in states where you do not have a lot of flexibility in pricing like Florida. I would not characterize it as a major trend. I do not believe all companies are as forward-looking as we are in some of these aspects. But we have decided we are just not going to play in some of the areas where we feel like pricing margins have become too thin. I can give you just some high-level numbers of what we are seeing in our book. Countrywide in the fourth quarter, payrolls were basically flat for our renewal book, but we are seeing an average rate on renewal increase a little over 5% for our entire book.

How is that California versus non-California?

California is driving quite a bit of that. But we are seeing, like I said, certain states that are pushing rate higher. I mentioned Nevada earlier, but there are other states where we are more focused on risk selection than on pricing being the lever that we are pulling.

What is your view on buybacks for 2026? We still have quite a bit left in our share repurchase authority that we did quite a bit in the ’25. And as we just mentioned in our prepared remarks, in January and early February.

I do expect it will return to a normal level of repurchase authority in 2026, absent some change. But we are trying to be very opportunistic in terms of when we buy our shares back.

And then your expense ratio, if top line is down in 2026, can you still get improvement in the expense ratio?

We are hoping to still get improvement. As I mentioned, we have a lot of AI initiatives that are underway. We put an AI roadmap in place in 2025 and are setting the stage to get all of our data into Databricks. We started utilizing AI a couple of years ago when we embedded a large language model in our new digital first notice of loss tool. We are rolling out Anthropic’s Claude to the entire organization. Our developers are enhancing their productivity by using AI code assistance. We have started with the claims area, where we are incorporating AI into over 40 to 50 identified use cases, but I would say our latest achievement is definitely our excess workers’ compensation product that we just rolled out. We used voice transcription that was ingested by Claude to build the tool, and it iterated daily for about four weeks, and we were ready to launch months earlier than we initially expected. Results were truly remarkable. We have more tools going in place in the first quarter that are more claims-focused: a caseload summary tool for our claims adjusters that is going to provide better continuity of care when an injured worker’s claim gets passed from one adjuster to another. We have an agentic assistant that we are hoping to put into production for our premium auditors. All of these things we feel like are going to help our expense ratio in the long run. These are real. These are not just tests that we have going on behind the scenes, and that is where we are hopeful we are going to get more expense savings.

Very good. Thank you.

Thanks, Mark. Our next question comes from Robert Edward Farnam at Green Capital. Your line is open. Good morning, Robert. Some more a couple more questions on the excess workers’ comp. Can you still hear me?

Yes. Okay. So, obviously, there are competitors that are already entrenched in this business. How do you expect to win business? Is it more the fact that you can do it more efficiently because of the use of AI, or are there other factors you think that can be successful for you?

We do feel like there are areas that we are going to focus on within the product that are not provided by other carriers in an efficient way. In talking about loss control, the ingestion of the data, we do feel like we are going to be able to provide quotes in a faster manner because of the AI tool that we are going to be using to ingest all of the data when we get a submission and to process the loss runs that can go back 10 to 15 years on excess workers’ comp. This is part of our diversification effort. We have been researching new products for about a year. In excess, we felt like it was the right place to start. Because of our extensive expertise in workers’ comp, we felt like it was just a natural extension of what we do now. We do feel like while there are carriers that are entrenched in the space, there are not a lot of carriers that do it on a significant basis—that it is a significant amount of their portfolio. So we felt like there was room for another carrier to enter the market, and we do feel like we are going to make a difference that is going to put us ahead of the pack.

Okay. Obviously, you have done a lot of research on this. So what type of performance does this product perform, I should say? In terms of combined ratio, and is there a difference between the expense ratio component and loss ratio? In other words, is it more of a higher expense ratio or lower loss ratio type product? And just to get a feel for going forward—not necessarily in 2026, but when it gets up to full speed—what type of impact that might have relative to your traditional book?

Relative to the guaranteed cost business that we have written for forever, the excess comp space, while it is a bit, what I would say, lumpier, overall, we feel like it is going to perform in the mid-80s in terms of a combined ratio. The way we built it and the way that we are using AI to underwrite it, we do feel like our expense ratio will be strong and competitive in the space. And then the loss ratio is just typically less than what you would see in the guaranteed cost space.

And it is still driven by state loss costs and, you know, the same way that the primary workers’ comp system is? Is it still priced the same way?

The pricing is a little bit different. The underlying pricing, you still start with the state loss cost like you do with guaranteed cost, but because the self-insured retention can be anywhere from $500,000 to $2,000,000, you are eliminating a lot of the frequency that comes along with the guaranteed cost book of business, so it is more severity-driven than frequency-driven. We think that is one of the things that is a nice play to put excess along with the guaranteed cost. It is very similar to large deductible.

Right. Right. Okay. And last one for me. You may not be able to give any specification here, but once a few years down the road when this is kind of up to speed, what do you envision in terms of the proportion of your total premium that could be coming from excess versus the primary book?

It is a good question. We do not give guidance, as you know, but we would love to see this be 10% of our overall written premium over the next, you know, four to seven years, say, and I know I am being very broad in my projection there.

I expect nothing but broad right now.

So, yes, that is kind of what we are hoping for. We will obviously keep everyone apprised of our progress there.

That is it for me. Thanks.

Thanks, Robert.

There are no further questions at this time. I would now like to turn the call back to Katherine Holt Antonello for closing remarks.