Good day, ladies and gentlemen. Thank you for standing by. And welcome to the Q3 2022 Employers Holdings, Inc., Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would not like to hand the call over to your host, Lori Brown. You may begin..

Thank you, Kevin. Good morning and welcome everyone to the third quarter 2022 earnings call for Employers. Today's call is being recorded and webcast from the Investor section of our website, while replay will be available following the call.

Presenting today on the call will be Kathy Antonello, our Chief Executive Officer; and Mike Paquette, 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 non-public information and for complying with disclosure obligation under SEC's Regulation FD.

Such disclosures will be included in the Investors section of the company's website. Accordingly, investors should monitor that portion of the company's website in addition to following the company's press releases, SEC filings, public conference calls and webcast.

In our earnings press release and in our remarks or responses to questions, we may use non-GAAP financial metrics.

Reconciliations of these non-GAAP metrics 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 on our website. Now, I will turn the call over to Kathy..

Thank you, Lori. Good morning to everyone and thank you for joining us today. Mike and I will follow the usual agenda, will outline our financial results for the third quarter of 2022, discuss our observations of the current workers' compensation market and then open it up for Q&A.

I'm very pleased with our third quarter results and the positive momentum we're experiencing as a result of the incredibly talented and dedicated team we have here at Employers.

We continue to execute extremely well on our post-COVID business plan, which is to increase premium by expanding our underwriting appetite while containing fixed expenses and prudently managing our capital.

The results of our plan have exceeded our expectation with written and earned premiums increasing sharply year-over-year and for the eighth consecutive quarter we achieved a record number of policies enforced.

The growth we experienced this quarter resulted from strong new and renewal premium written within our Employers segment, robust new business writings within our Cerity segment, and significant audit premium recognition attributable to policies written in 2021.

Continued low unemployment along with wage increases and strong tailwinds contributed to the premium audit recognition. As a result of these factors, our growth premiums written during the quarter and first nine months are up 24% and 21% respectively versus those of the year ago.

Inventory to losses for both Employers and Cerity segments, we maintained our current accident year loss and LAE ratio on voluntary business at 64%, largely consistent with the 63.5% we recorded throughout 2021. We did not adjust our loss and LAE reserves this period as our third quarter reserve review was consistent with our expectations.

We will evaluate our prior year reserves in more detail at year-end when we routinely perform a full reserve study. Our consolidated underwriting expense ratio of 23.4% this quarter is the largest it's spend and since the fourth quarter of 2018.

While we will continue to diligently manage our expenses, we remain committed to investing in technology and digitalization which will improve both our customer and workforce experience and position us to more effectively scale our business.

It's been over a year since we began to expand our underwriting appetite and we are pleased with our early results.

Because of the long tailed development pattern and workers compensation, we remain committed to maintaining a high level of underwriting discipline as we continue to thoughtfully execute our growth strategy for both Employers and Cerity.

The additional classes of business that we're writing through both of these channels are complementary to our business model and are contributing nicely to our topline growth. Between July of 2021 and September of 2022, Employers wrote $36 million in our expansion classes, at loss ratios similar to those we experienced in other target classes.

Cerity's enforced premium at quarter end was $3.8 million, which represents an increase of 280% over the last four quarters and was supported by its recent collaboration with Intuit's QuickBooks and more recently, Thimble.

Cerity expects to develop additional strategic opportunities which will further support our growth initiatives by attracting an untapped segment of our target market. With that, Mike will not provide us a further discussion of our financial results. And then I'll return to provide my closing remarks.

Mike?.

Thank you, Kathy. Gross premiums written were a $189 million versus $152 million a year ago, an increase of 24%. The increase was primarily due to higher new and renewable premiums and strong final audit premiums. Net premiums earned were a $179 million versus $147 million a year ago, an increase of 21%.

Our losses and loss adjustment expenses were a $112 million versus $91 million a year ago. The increase was primarily due to higher earned premiums, also we did not recognize any prior year loss reserve development on our voluntary business during the third quarter of 2022.

And as Kathy mentioned, we will evaluate our prior year loss reserves in more detail at year-end when we perform our semi-annual full reserve study. Commission expenses were $25 million versus $20 million a year ago. The increase was primarily due to higher earned premiums and higher 2022 agency incentive accruals.

Our current commission ratio of 14% within our Employer segment is expected to decrease over time as a result of a reduction in certain renewal commissions that went into effect on July 1. Underwriting and general administrative expenses were $42 million, versus $37 million a year ago.

That increase can be attributed to premium taxes, assessments and our provision for bad debt each of which vary with our earned premium.

From a reporting segment perspective, our Employer segment had underwriting income of $3 million consistent with its underwriting income a year ago and its resulting calendar year combined ratio were 98% during each of those periods.

Our Cerity segment have an underwriting loss of $3 million for the quarter, consistent with its underwriting loss of a year ago. As Kathy previously mentioned, we remain very enthusiastic about Cerity's premium writings, which have significantly increased over the past several quarters.

Turning to investments, our net investment income was $24 million for the quarter versus $18 million a year ago, an increase of nearly 30%. The increase was due to higher bond yields and a higher invested asset balance, resulting from our Federal Home Loan Bank leveraged investment strategy.

Pursuant to that strategy, our insurance subsidiaries have received advances of a $183 million from the Federal Home Loan Bank through September 30 of this year and the proceeds from those advances were used to purchase an equivalent amount of high-quality collateralized loan obligation securities.

Our fixed maturities currently have a duration of 4.0 and an average credit quality of A Plus. We proactively sold a $100 million of equity securities in mid-August and as a result our equity securities now represent just 7% of our total investment portfolio.

Our weighted average ending book yield is currently 3.6%, which is up sharply from the 3.0% at year-end 2021, and our new money rate is now in excess of 5%. Our stockholders equity and book value per share this quarter reach unfavorably impacted by $61 million of after-tax unrealized losses from our fixed maturity securities.

And finally, during the quarter, we repurchased $7.4 million of our common stock at an average price of $39.72 per share and our remaining share repurchase authority stands at $49 million. And now, I'll turn the call back to Kathy..

Thank you, Mike. Our capital management strategy is to proactively return excess capital to our shareholders. Year-to-date, we've returned $85 million of capital to our shareholders comprised of approximately $30 million of share repurchases and $55 million in dividends either to cleared or paid.

Managing to a shorter duration in recent years has paid off and allowed us to more quickly reinvest proceeds from maturities and redemptions of our fixed maturity securities at higher reinvestment yields.

By leveraging the short increases and market interest rates occurring throughout the first nine months of 2022, our net investment income has grown 14% year-to-date versus a year ago.

While those same market interest rates generated unrealized investment losses in our fixed maturity portfolio, our adjusted book value per share has dropped by only 1%, a direct result of unrealized losses from our equities and other investments, which flow through our income statement.

Our balance sheet and underwriting capital remained very strong and are highly supportive of our continued growth and success. As a unique specialist in small business workers' compensation, we are well-positioned to identify and react to favorable opportunities and trends, and we remain highly confident in our continued success.

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

Our first question comes from Goran Skoko with FactSet. Your line is open. Your line is open, you can ask your question. One moment for our first question. Goran with FactSet, your line is open. Goran Skoko, your line is open, with FactSet. You can ask your question. If your line is muted, could you please unmute the line.

It seems like they're not responding.

Do you want to try and move on or --?.

Yes, we can move on..

It's the same person that queued up, there are.

Did you want to just close or see maybe they respond this time or did you?.

We can conclude..

Okay. I will turn it back to you Katherine for any closing remarks..

Yes, thanks Kevin. That was easy. Thank you all for joining this morning. And I look forward to meeting with you all again in February..

Ladies and gentlemen, that concludes today's presentation. You may now disconnect. And have a wonderful day..