On Thursday, Employers Holdings (NYSE:EIG) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Employers Holdings emphasized disciplined underwriting, prioritizing quality over volume, which led to an improved underwriting expense ratio and a stable actuarial estimate.

The company returned $83 million to shareholders and grew book value per share by 8.9%, while also making strategic moves such as entering new underwriting segments and launching an excess workers compensation product.

Employers Holdings completed a $125 million debt issuance and maintained strong investment performance, reflecting confidence in their financial position.

The company highlighted the deployment of AI to improve operational efficiency and innovation, including being the first insurer to integrate quoting into ChatGPT.

Management noted a competitive and sometimes irrational pricing environment in certain markets, particularly in California, but sees opportunities for growth in select segments and jurisdictions.

Full Transcript

OPERATOR

Good day and thank you for standing by. Welcome to the first quarter 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 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Matthew Hendrickson, Senior Vice President, Treasury and Investments. Please go ahead. Thank you. Operator 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 the actual results to be materially different from our expectations, including the risks set forth in our filings with securities and Exchange Commission (SEC). 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 obligations under the SEC's Regulation Fair Disclosure (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. You may use non-Generally Accepted Accounting Principles (GAAP) Financial Measures Reconciliations of these non Generally Accepted Accounting Principles (GAAP) measures to our Generally Accepted Accounting Principles (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'll turn the call over to Cathy Antonello, our Chief Executive Officer.

Cathy Antonello (Chief Executive Officer)

Thank you, Matthew good morning everyone and welcome to our first quarter 2026 earnings call. Joining me today is Mike Pedraja, our Chief Financial Officer. I will begin by providing highlights of our first quarter 2026 financial results and then hand it over to Mike for more details on our financials before our Q&A. I'll come back to you with some additional thoughts. If I had to characterize this quarter in a single word, it would be discipline. We made a deliberate choice to prioritize underwriting quality over volume and the numbers reflect that conviction. Our underwriting expense ratio improved, our actuarial estimates, came in on target and we returned $83 million to shareholders while growing book value per share, including the deferred gain, by 8.9 percent. That same discipline positions us well to capitalize on favorable market developments, including the continued shift in the California rate environment,. The California Department of Insurance voted earlier this month to submit a second consecutive double digit pure premium rate increase to the Commissioner consistent with the underwriting conditions we have observed throughout the state. As we discussed last quarter, we expect pricing and underwriting actions will pressure growth throughout 2026. Our earned premium was essentially flat year over year, down 1%. The steps we took in certain jurisdictions and segments in 2025 are working as intended. New growth opportunities are now taking shape, including entering new underwriting segments, appointing new agents and our recently launched excess workers compensation product. Profitable growth remains our North Star. Our first quarter actuarial review confirmed the adequacy of our prior year reserves with no strengthening required. We recognized a current accident year loss and LAE ratio of 72% which is consistent with our 2025 accident year ratio. After delivering a record level of $215 million in capital to our shareholders in 2025, we continued our commitment by returning an additional $83 million in the first quarter through share repurchases and regular quarterly dividends. We also completed the $125 million new debt issuance associated with the recapitalization plan through through the cost effective sources of $105 million from the Federal Home Loan bank and $20 million from our credit facility, resulting in a weighted average pre tax interest rate of 4.1%. These capital management steps reflect our continued confidence in our financial position and commitment to delivering value to our shareholders along with our operational performance. These actions increased our book value per share including the deferred to $51.26. We believe our focus on disciplined underwriting, prudent risk management and strategic investments continues to position us strongly in the workers compensation insurance market. With that, Mike will now provide a deeper dive into our first quarter financial results and then I will return to provide my closing remarks. Mike, thank you Kathy.

Mike Pedraja (Chief Financial Officer)

Gross Premiums written were $181 million compared to $212 million for the prior year, a decrease of 15 percent due primarily to a reduction in new business writings. Our losses and loss adjustment expenses were 129 million versus 121 million a year ago. The current quarter did not include any prior period developments on our voluntary business and the current accident year loss in LAE ratio of 72% is consistent with our 2025 accident year ratio. Commission expense is $$24 million for the quarter versus $$23 million for the prior year, an increase of 3% primarily driven by non-recurring 2025 favorable adjustments. Underwriting expenses were $$41 million for the quarter versus $$43 million for the prior year, a decrease of 5 percent. The improvement in underwriting expenses for the quarter was due primarily to our continued expense management efforts, including reduced personnel costs and other variable costs such as policyholder dividends. Excluding returns from private equity partnership investments, our first quarter net investment income exceeded last year's by $$1.5 million. This outperformance was aided by the increased book yields and investment redeployment achieved through last year's investment rebalancing. Our fixed maturities maintained a modified duration of 4.4 years with a strong average credit quality of aided by our investment rebalancing. Our weighted average book yield was 4.9 percent at quarter end compared to 4.5 percent for the prior year. Our adjusted net income, which excludes net realized and unrealized investment gains and losses and the benefit of our LPT deferred gain amortization was $10.3 million for the quarter compared to $21.3 million last year. During the quarter, we repurchased over 1.8 million shares shares of our common stock at an average price of $$42.42 per share, or $76.9 million. The average repurchase price represented a 17% discount to our book value per share, including the deferred gain. During the period from April 1, 2026 through April 28, 2026, the Company repurchased a further 353,547 shares shares of its common stock at an average price of $$42.21 per share. As we have highlighted, we aim to be good stewards of our shareholders capital. At current price levels. We are convinced that employer stock is meaningfully undervalued and executing share repurchases at these price levels produces a compelling return on investment and generates significant value for our continuing shareholders. With that, I'll turn the call back to Kathy.

Cathy Antonello (Chief Executive Officer)

Thank you, Mike. Yesterday, our Board of Directors declared a second quarter 2026 dividend of $$0.34 per share, representing a 6.25 percent increase from the prior quarter. In addition, the board approved a new $125 million share repurchase authorization through December 31, 2027. Operational discipline continued to drive results. Our underwriting expense ratio improved to 22.6 percent from 23.4 percent a year ago. As I highlighted last quarter, we are convinced that our utilization of artificial intelligence tools will be a force multiplier, allowing our colleagues to be more efficient and effective. Last month we brought together approximately 400 employees from across the country to introduce our strategy for implementing artificial intelligence (AI) throughout the organization. The enthusiasm both at the event and in the weeks since have been overwhelmingly positive. And we believe we are creating an innovative culture that will drive differentiated results. We have now moved from artificial intelligence (AI) experimentation to deployment of products using artificial intelligence (AI). Our vision is that artificial intelligence (AI) will play an increasing role in how we operate going forward. The capabilities that supported our rapid entry into excess workers compensation are now being used to improve underwriting insights, automate premium audit and claims operations and engage our customers. We are convinced that our monoline focus, relatively small size and flat organizational structure will be an advantage for us as we accelerate artificial intelligence (AI) into every aspect of our company. We recently became the first insurance carrier to bring quoting directly into ChatGPT,, made possible by our patented technology. Excuse me. Which we designed to reach business owners where and how they engage. Rather than waiting for the industry to define this channel, we defined it ourselves. That's the kind of culture and capability that distinguishes employers and it's what we will continue to build on. We believe employers is well positioned and well capitalized to achieve our goals. With total capitalization of approximately $1 billion, a strong A.M. Best, A rating and technology enabled distribution that can reach customers where they engage. We are in a position to deliver lasting value for our shareholders, customers and colleagues. And with that, Daniel, we will now take questions

OPERATOR

as a reminder to ask a question. Please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from Mark Hughes with Truth. Your line is open.

Mark Hughes (Analyst)

Hey, Kathy. Hey, Mike. Hey, good morning, Mark. Hey, good morning. Could you talk about the competitive environment in California? You described the. They proposed another double digit rate increase. How, much are you realizing in the California market? Is the broader market, is the competition? Did they follow suit with the first rate increase? How do you see things developing there?

Cathy Antonello (Chief Executive Officer)

Yeah, so let me talk if you don't mind, just about sort of pricing in. In general and then we can get into California. When I think about pricing across workers compensation, especially in guaranteed cost, I would say I used to characterize the pricing environment as competitive. I would now say it's closer to getting somewhat irrational in some jurisdictions and premium bans and specifically I would call out guaranteed cost middle market. We're seeing that there are some diligent carriers and I think we are included in that group that are exiting certain states and classes. Some of the states that I would mention, not specific to us, but just across the market that we've seen exits are New York, California, Massachusetts. So we are seeing some exiting of state jurisdictions in the market. We're also seeing tightening risk selection in states like Florida where there's not a lot of pricing flexibility to begin with for us. We pulled back significantly in Massachusetts and we've also pulled back in certain class codes. We've also cut ties with a few MGAs that we feel were underperforming. I don't believe that all companies are being as forward looking as we are in terms of rate adequacy in certain jurisdictions, including California. You know, I would say it's also possible that the market in certain jurisdictions has really crossed over into what I would call cash flow underwriting. You asked about the rate that we're achieving. You know, when I when we look at our book of business and when we adjust for changes in the mix of business, meaning class code mix, and we compare the first quarter of 2026 to the first quarter of 2025, payrolls were up about a half a percent and our average rate on renewals countrywide increased about 6%. So that's quarter over quarter 26 to 25. I would say a significant portion of that is coming from California and where we're getting double digit rate increases on our renewals. When we look at where our opportunities for growth are, I would say that we would include segments where we, we have a differentiated distribution strategy and I'm speaking to payroll partners and digital agents and marketplaces, we're still seeing a lot of growth opportunity there. We've also identified some jurisdictions where we have opportunities to increase our market share and where the pricing margins we do feel remain very attractive. So we're focusing heavily on those areas. And I would include what I said in the prepared remarks that we are appointing more agents in the areas where we feel like there is better pricing margin and perhaps in certain states where we entered that state maybe 4 or 5 years ago pre Covid. But we feel like it's now a good time to increase our market share there. I would like to add the fact that the top of our funnel, when we look at the submissions coming in California does appear to be a hardening Market to some extent because submissions were the highest that we've seen across the company and specifically in California in Q1 2026 that we've ever seen. So submissions at the top of the funnel, including both counts and premium, are very, very high. At this time. We're just being very specific about where we're willing to quote and where we feel like the pricing is unreasonable. We're just not playing there in terms of growth. Also, I would say our appetite expansion effort has been huge. It's been an area of growth for us over the last four years since we started doing that and we're going to continue to do that going forward and entering into new products like excess and others that we have on the horizon.

Mark Hughes (Analyst)

Yeah, appreciate all that detail. When you describe closer to irrational? is that can you apply that broadly? You talked about specific jurisdictions that you're seeing pressure, but if you were to categorize the whole market? Would that closer to irrational still apply?

Cathy Antonello (Chief Executive Officer)

I wouldn't broad brush it specifically. I would say the first place that we saw this happening, and this was even last year, was in the middle market space. The first doll market space became very, very competitive. Continues to be competitive to the point where, you know, we're just not willing to quote in certain instances where we feel like the margin isn't there.

Mark Hughes (Analyst)

Yeah. Yep. How about the outlook for reserve development you talked about only maybe at Q2 or Q4 where you do the reserve development, you have the potential for favorable or adverse. I guess on a go forward basis, would you say, at least for the time being, it's probably balance sheet, you'd be protecting the balance sheet, rather than recognizing any favorable that might emerge. Or will that be more dependent on just what you see.

Cathy Antonello (Chief Executive Officer)

Yeah, I think it'd be the latter. It's going to be more dependent on what we see and how compelling the numbers are. You, were correct in stating we do an actual versus expected analysis at the end of Q1 and Q3. At the end of Q2 and Q4 we do a full analysis where we reselect development factors, and it's a much deeper dive. We've always said that in Q1 or Q3, if we saw something very compelling, we would likely make a move. I mean, we wouldn't wait. This quarter things came in. There are always puts and takes depending on how you divide the data. But this quarter everything came in right around where we expected. So we did not feel compelled to make a change. But I think I would agree with what you said in the latter half of Your question, which is we will wait and see how things develop in Q2 and make a decision then as to whether or not we would act on favorable development.

Mark Hughes (Analyst)

Mike, the audit premium impact in the quarter, how much did it help or hinder the growth?

Mike Pedraja (Chief Financial Officer)

Yeah, so it was relatively small. So it was $5 million adjustments in the first quarter. So we are seeing premiums generally. The payrolls as we talked about last time, just moderate. And so the payroll increases are not developing as they were after COVID-19. So we see a really moderating level of payrolls currently at that time and we see that into the future.

Mark Hughes (Analyst)

Yeah. Kathy, what's your, what are your spidey senses telling you about what National Council on Compensation Insurance (NCCI) is going to say in a week or two about reserve adequacy and medical inflation? Kind of the hot buttons.

Cathy Antonello (Chief Executive Officer)

Yeah. You know, I'm not deep into the numbers like I used to be. I don't have as much insight being an outsider from NCCI now. But you know, my gut would say that the accident years, the accident year 2025 will continue to show a slight increase and that's been the case over the last few years. And then I would expect the level of redundancy for the industry as a whole to decrease. And then what was your inflation? I think. Is that what you was your third point? Yeah. In terms of inflation, you know, I can tell you we're not seeing anything significant that's impacting our book of business. We continue to track our. We have an internal prescription drug index and you know, it's up slightly but it's not what I would call anything that's alarming. You would expect it to be up slightly. So I guess from what I'm expecting them to present, I wouldn't see anything significant come through on inflation or medical severity.

Mark Hughes (Analyst)

Yeah. Okay. Thank you very much.

OPERATOR

Thank you. As a reminder to ask a question, please press Star 11 on your telephone again. That is Star 11 to ask a question. Our next question comes from Carol Schmiel with Citizens. Your line is open.

Carol Schmiel (Analyst)

Hi, good morning. Just a question regarding the top line. With the quarterly decline and with the context of the planned multi quarter non renewal of certain business classes, would you categorize it as ahead of expectations in terms of timing? So hey, how are you? I think this is exactly as we expected in plans and so last quarter we tried to indicate that we expected to continue that level of teens type of reduction. We expect to have that same level of performance throughout the rest of the year.

Cathy Antonello (Chief Executive Officer)

Yeah, I would agree. And having said that, we are opening new markets, new segments like I was mentioning earlier in my response to Mark. So we're expecting something similar throughout 2026 but we'll be introducing new areas throughout the year too.

Mike Pedraja (Chief Financial Officer)

That's a really good point. I think towards the end of the year you'll start to see all the adjustments we've made flow through and then we expect to see that transition start to be visible through the results.

Carol Schmiel (Analyst)

Excellent. Thank you for the detail.

OPERATOR

Thank you again. If you would like to ask a question, please press Star 11 on your telephone. Again, that is Star 11 to ask a question. I'm showing no further questions at this time. I would now like to turn it back to Kathy Antonello for closing remarks.

Cathy Antonello (Chief Executive Officer)

Okay. Thank you, Daniel and thank you everyone for joining us this morning and we look forward to meeting with you again in July.

OPERATOR

This concludes today's conference call. Thank you for participating. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.