Employers Holdings, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, Danny.

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 non-public information and for complying with disclosure obligations under SEC Regulation FD. Such disclosures will be included in the Investors section of our website. Accordingly, investors should monitor that section 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. Now I will turn the call over to Kathy Antonello, our Chief Executive Officer.

Thank you, Jeff. Good morning, everyone, and welcome to our third quarter 2026 earnings call. Joining me today is Mike Pedraja, our Chief Financial Officer. As usual, I will begin with highlights of our third quarter results and then hand it over to Mike for more detail on our financials. Before we take your questions, I'll come back with some closing thoughts. Our third quarter results reflect the progress we're making to restore our underwriting profitability to historical levels. We reported net income of $0.64 per diluted share, compared to a net loss of $0.36 per diluted share in Q3 of 2025. Adjusted net income was $0.71 per diluted share, compared to an adjusted net loss of $1.10 per diluted share. The improvement in earnings was driven primarily by the absence of the $38 million of reserve strengthening we recorded in the third quarter of 2025.

Our loss and LAE ratio improved to 71.2% from 97.1%. We have not recognized any prior year development on our voluntary business this year, and our current accident year loss and LAE ratio, excluding the loss portfolio transfer, is 72%. Our GAAP combined ratio improved to 108.4% from 129.7%. That is significant progress, but we are not satisfied with that level and will continue to strive for underwriting improvement. The reduction in the loss and LAE ratio was slightly offset by the underwriting expense ratio, which was 24.3% compared to 20.6% a year ago and reflected the smaller premium base. Gross premiums written were $151.1 million, a decrease of 18%, and net premiums earned were $160.2 million, a decrease of 17%. These decreases reflect the pricing and underwriting actions we've taken to prioritize profitability in the prolonged soft market.

Policies in force declined 8% to about 124,000, a smaller decline than premium as we retained the majority of our small business customers while exiting selected classes of business. Underwriting expenses decreased slightly, primarily because of lower policyholder dividends, lower bad debt expense, and premium taxes and assessments. Our commission expense ratio was 12.9%, compared to 12% a year ago. Our investment portfolio was a positive contributor, with net investment income increasing to $32.3 million, supported by higher yields following our 2025 investment rebalancing and $5.6 million in returns from our private equity investments. With the significant rise in U.S. interest rates, our portfolio is well-positioned to take advantage of higher reinvestment rates, which should contribute to earnings over time. Higher rates also impacted our book value through unrealized market value declines in our fixed income portfolio. The decrease is not a reflection of credit quality.

Book value per share, including the deferred gain, was $49.44, up 2.1% from a year ago, but down 5.3% from the end of the second quarter, with both rates including dividends. Adjusted book value per share, which excludes accumulated other comprehensive income, was $53.64, up 7.1% from a year ago and up 1.3% from last quarter, again, with both rates including dividends. With that, Mike will provide a deeper dive into our third quarter financial results, and then I'll return with some closing remarks.

Mike? Thank you, Kathy. Gross premiums written were $151.1 million, compared to $183.9 million for the prior year quarter, a decrease of 18%, reflecting the deliberate pricing and underwriting actions we began in 2025.

These actions contributed to declines in both new and renewal business premiums in the quarter. Our losses and LAE were $114 million, a decrease of 38.9%. The decrease was due primarily to the absence of last year's reserve strengthening Kathy mentioned. Our voluntary business current accident year loss and LAE ratio, excluding the LPT, was 72%. Our reported loss and LAE ratio was 71.2%, compared to 97.1% a year ago. Commission expense was $20.6 million, a decrease of 10.4%, consistent with lower premiums. Our commission expense ratio was 12.9%, compared to 12% a year ago.

The increase in the ratio was due primarily to higher commission rates on new business writings in 2026, combined with a one-time adjustment that reduced the 2025 third quarter ratio. Underwriting expenses were $38.9 million, a decrease of 1.8%. Our underwriting expense ratio was 24.3%, compared to 20.6% a year ago. Overall, our GAAP combined ratio was 108.4%, or 109.2% excluding the LPT, compared to 129.7% and 130.4% a year ago. Net investment income was $32.3 million, an increase of 23.8%. The increase was primarily the result from our private equity investments, which contributed $5.6 million of distributions this quarter, along with higher yields on fixed maturity securities resulting from our investment rebalancing activity in 2025. Excluding the private equity distributions, net investment income was approximately $26.7 million, up 6% from last year.

Our fixed income book yield was 5%, a 40 basis point increase from last year, while our modified duration was 4.3, and average credit quality remained strong at A+. Net realized and unrealized losses on investments were $3.2 million, compared to gains of $21.2 million a year ago. The current period's result was driven by a reduction in the net asset value of our private equity investments related to distributions and by reduced common equity investment gains. Interest and financing expenses were $1.3 million versus $0.2 million a year ago. The increase relates to our $125 million of senior debt associated with the recapitalization plan we announced in the fourth quarter of 2025. Federal and state income tax expense was $2.9 million, a 20% effective tax rate, compared to a benefit of $2.9 million or a 25.9% effective benefit rate a year ago.

Our adjusted net income, which excludes net realized and unrealized investment gains and losses and the benefit of LPT deferred gain amortization, was $12.8 million for the quarter, compared to an adjusted net loss of $25.5 million last year. Year to date, net income was $50.8 million, and adjusted net income was $35.9 million, compared to $34.2 million and $7.4 million for the nine months of last year. Turning to the balance sheet, stockholders' equity was $785.6 million at quarter end, down from $858.8 million at June 30th. Accumulated other comprehensive loss increased by $61.7 million to $74 million due directly to higher interest rates, reducing the market value of our fixed maturity securities, and as Kathy mentioned, is not related to credit quality. These unrealized losses should reverse as bonds approach maturity or if interest rates decline.

Adjusted shareholders' equity, which excludes accumulated other comprehensive income and adds back the deferred gain, was $943.6 million. We returned $24.4 million to stockholders in the quarter through $18.1 million of share repurchases and $6.3 million of regular quarterly dividends. We repurchased 373,848 shares at an average price of $48.44 per share. That price represented an 8% discount to our beginning book value per share, including the deferred gain, and a 9% discount to our beginning adjusted book value per share. We have $94.9 million of repurchase authorization remaining under the 2026 program. With that, I'll turn the call back to Kathy.