Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2008 Employers Holdings, Inc. Earnings Conference Call. My name is Amiti [ph] and I will be your coordinator for today. At this time, all participants are in a listen-only mode. (Operator instructions) I would now like to turn the presentation over to your host for today’s call Ms. Vicki Erickson, VP of Investor Relations. Please proceed ma’am.

Thank you, Amiti, and welcome to the fourth quarter and full year 2008 earnings call for Employers Holdings, Inc. Yesterday, we announced our earnings results and today we filed our Form 10-K with the Securities and Exchange Commission. Our press release and Form 10-K may be accessed on the company's Web site at employers.com and are accessible through the Investors link. Today's call is being recorded and webcast from the investor relations section of our Web site, where a replay will be available following the call. With me today are Doug Dirks, our Chief Executive Officer, Ric Yocke, our Chief Financial Officer, and Marty Welch, the President and Chief Operating Officer of our Insurance Subsidiary. Statements made during this 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. Our remarks made during the call are current at the time of the call and will not be updated to reflect subsequent material development. We use a non-GAAP metric that excludes the impact of the 1999 Loss Portfolio Transfer or LPT. This metric defined in our earnings press release available on our Web site. Now I will turn the call over to Doug.

Thank you, Vicky. Welcome and thank you for joining us as we review our fourth quarter and full year 2008 financial results. I am pleased to report that last year our return on average equity based on net income before the LPT and equity including the LPT deferred reinsurance gain was a solid 10% at year end. In addition, our book value per share grew 7.5% from $16.21 at December 31, 2007 to $17.43 at December 31, 2008. A commendable result given the economic downturn and turbulent capital markets that have impeded growth in shareholder value and in some cases destroyed it. Our results at year end reflect some impacts from the changed economic conditions. Yesterday we reported earnings per share before the LPT of $1.69 for the year, and $0.23 for the fourth quarter with both of these measures lower than comparable period in 2007. In 2008 we recognized $11.5 million in impairments and realized losses, primarily related to equity securities and the investment portfolio. In the fourth quarter, we recognized a non-cash OTTI of $7.2 million, primarily related to equity. Though these losses are never welcomed we believe our losses have been minimal. And given market conditions, particularly in the fourth quarter, the performance of our portfolio with its diversified structure and quality bias have been exceptionally strong. Fourth quarter earnings reflect a continuing premium decline in our existing business as well as renewal premium in some portions of our acquired operations, most notably in Florida. In 2008, our operations contributed a combined ratio before the LPT of 91.5%, the highest combined ratio we ever reported in the last five years. The increase in the 2008 combined ratio was caused by declining rate levels in our largest markets, increased unemployment, leading to decline in payrolls, and competitor pricing…

Thank you, Doug. At year end our GAAP combined ratio was 85.9%, a 91.5% before the LPT. For the year, our GAAP combined ratio increased 5.5 percentage points with acquired operations accounting for 2.1 percentage points of the difference. The remainder primarily was a result of lower premium. Favorable prior accident year development was $71.7 million in 2008. Excluding acquired operations in fourth quarter of 2008 prior accident year development was $3.1 million, lower than in the fourth quarter of 2007. Our fourth quarter combined ratio was 99.1% on a GAAP basis and 103.4% before the impact of the LPT. Acquired operations had a two month combined ratio of 105.6%, as Doug has already mentioned while a two month combined ratio is not particularly meaningful and increased the quarter's GAAP combined ratio by 2.7 percentage points. This was expected as the fourth quarter underwriting expenses did not include our recently announced staff reductions and other cost saving measures related to the integration and the consolidation. We expect the majority of staff reductions to be completed by the middle of this year. Losses in LAE declined year-over-year, but increased $24 million in the fourth quarter with $18.5 million of the increase related to the acquired premium. Our current year loss estimate was 68.9%. This compares with 63.8% in 2007, with current year adjustments based largely on premium adequacy. Marty will discuss claim trends in his comments. Commission expense declined slightly year-over-year. Fourth quarter commission expense increased $4.6 million over the same period last year. Acquired operations contributed $3.3 million of the increase in the current year while a favorable change in the LPT agreement contingent commission lowered commission expense in 2007. Underwriting and other operating expenses increased in the year and the quarter with increases largely attributable to acquired operations. Expenses…

Thank you, Ric. Overall premium declined during the year largely due to lower rates in key states, competitive pressures, and the impact of a slowing economy. With our emphasis on serving small businesses, we monitor economic conditions and the labor markets carefully. In many markets we have seen lower estimated payroll, upon which our premiums are based and lower numbers of jobs. We have seen certain sectors such as construction impacted more than others. And we have seen certain states impacted more than others. Nevada and Florida were impacted earlier than other states. In California, though the state's economy is struggling, the types of businesses we write there held up well in 2008. Overall, many of our targeted customer classes such as physicians' offices and lower priced restaurants should be less impacted by the recession than other businesses, like real estate offices, for example. With only two months of acquired results, California still represented 69% of our direct premiums written at year-end 2008. We expect this percentage to drop below 45% by the end of 2009 as the acquired book works its way in to our results. Our average policy size was $10,200 at year-end 2008. Our unit count remains strong. We achieved a 7.7% increase in organic policy count since December 31st, 2007 and 35.3% when over 9,300 acquired policies are included. New business activity also remains strong in 2008. Through December, submissions, quotes and the written policies were up year-over-year. The introduction of “A” minus rated paper is being well received in our new markets and we expect submissions to increase in 2009. Retentions were down slightly in the fourth quarter, but our holding on a year-over-year basis with our strategic partner business being consistently the strongest. Renewal rate changes are still negative, but continue to flatten quarter-to-quarter.…

Thanks, Marty. That concludes our prepared remarks. Operator, at this point we are ready to take questions.

(Operator instructions) Your first question comes from the line of Mark Hughes with SunTrust. Please proceed. Mark Hughes – SunTrust: Thank you very much. What was the policyholder dividend in the quarter?

As we have acquired business, some of our policies are now participating whereas previously most of our policies were guaranteed costs and so that's a number you should expect to see going forward. Mark Hughes – SunTrust: Is that something you could share for the quarter? Or we will get that disclosure later?

We are looking for it right now. We will have it in a second. Mark Hughes – SunTrust: Okay. Thank you. And then the exited year loss ratio as we think about 2009, at year end last couple quarters you were around 75% or so for the full year, it's about 68, is one of the other of those more likely we should think about for the coming quarters?

I don't know that we can give you guidance on what the loss ratios are going to be by quarter for the balance of the year. In some of my earlier comments some of the favorable trends are increases in rate levels in California and in Florida. So that should give us an ability to see improvements there absent any changes in the underlying losses.

This is Ric. I would say that we expect that, as Doug has pointed out, now that we are beginning to see some rate increases whereas we have been adjusting upwards in our loss ratio because of rate adequacy, because of rate reductions. We should see an abatement of that. Marty has also pointed to the observation that we are seeing – indications that claim counts are dropping, watching those very carefully, it hasn't yet impacted our actuarial projections, but to the extent that it continues because expected to have a beneficial impact as well. Mark Hughes – SunTrust: No material change in severity?

That looks relatively flat. We haven't seen significant changes in severity, in particular on indemnity claims. Mark Hughes – SunTrust: And then what tax rate might be appropriate for 2009?

We did expect it to normalize that to around the 20% range. Mark Hughes – SunTrust: Okay. Thank you.

Going back to the previous question, regarding dividends, that was approximately – the policy holder dividends approximately $2 million in the quarter.

Your next question comes from the line of Matt Carletti with Fox-Pitt Kelton. Please proceed. Matt Carletti – Fox-Pitt Kelton: Hi, good afternoon. Question on – Doug, if I could get you to expand a little bit just on capital management. I think we talked last quarter and you provided your thoughts. If you could just update us if they changed at all given capital levels have continued to grow, the valuation of your stock and the general market has gone the other way. Does that impact your thinking at all in terms of where repurchases are attractive versus where they are?

Those are all items of consideration for us, Matt. If you recall our comments on our last call back in November, there was such an incredible level of uncertainty around the capital markets. That not only us, but I think everybody that was holding assets was conserving cash. And we still think it's critical that we maintain appropriate cash levels to the degree of uncertainty that exist in the marketplace, but we are also recognizing that once we're comfortable with our cash positions and our intended uses for cash in the short-term, that share repurchases are something we need to consider as a part of our overall capital management. Matt Carletti – Fox-Pitt Kelton: Okay. Thinking about it, I guess, in other way, are you comfortable with where your cash position is now and if we look forward into 09, I might have the number wrong, say, Q4 I think it was something like 12 million of cash flow, is that something that we could look towards that might be an indicator of what kind of level of interest you might have?

Matt, this is Ric. Let me mention a couple of things that impact us and also impact the way you would look at cash flow. In '09, we don't expect to have any further dividend, ordinary dividends coming up from the operating subs to the holding company. So we are dealing with what presently exist at the holding company. And while we believe that that's adequate, things that we're looking at carefully is we have ongoing shareholder dividends, we have the operating expenses in the holding company, we have debt principal payments, which as I mentioned earlier begin at the end of '09. We have interest payments also on the debt service coming out of the holding company. So we are looking at all of those, against what we currently have that has come up by way of extraordinary dividends over the last 12 months. So we also have in the holding company fixed maturities that service collateral against the outstanding debt. Now as debt payments are made, that collateral requirement will drop, thereby we believe freeing up additional cash going forward. But that would be in the 2010 time frame. So when you look at our cash flow, from the financial statements, just understand that some of it remains at the operating level until we get to a period which will be 2010, when ordinary dividends again will be will be available to the holding company. Matt Carletti – Fox-Pitt Kelton: Okay. And then could you just maybe give the split of what is – how much capital of the holding company right now is earmarked as collateral for the bridge loan and what is kind of free capital, in other words to operate the business end, say, potentially return capital?

As we mentioned earlier, securities with a fair value of $210 million, service collateral against the loan currently. Matt Carletti – Fox-Pitt Kelton: Okay.

We have approximately $100 million additional free capital, if you will. Matt Carletti – Fox-Pitt Kelton: Great. Very helpful, thanks very much.

Your next question comes from the line of Robert Paun with Sidoti & Company. Please proceed. Robert Paun – Sidoti & Company: Good afternoon. First, in terms of AmCOMP do you have the total premium volume for the year both gross and net?

Let me – give me a second, we will come up with that. Do you have any further question? Robert Paun – Sidoti & Company: Yes, my guess in terms of the reserve adjustments you made in the quarter, specifically, what accent years were those did the favorable development come from?

Primarily the '05, '06 years. I say primarily, I don't have a breakout right in front of me, but it was generally speaking if you back to the second and third prior years that generally generating the releases. Robert Paun – Sidoti & Company: Okay. And just last question, can you comment on the competition you are seeing in the market? I guess some of your competitors spoken about aggressive and irresponsible pricing that's been going on. Can you comment on what you are seeing there?

I will start with that one. I alluded to it in my comments that we are seeing some pricing behaviors that we don't believe can possibly result in profitably underwritten business. One of the places we see it is in the competitive commission setting, where commissions are maybe half to double what you would expect, 1.5 to 2 times what you would expect in a normalized environment and then seeing some of it just on aggressive pricing. Marty, do you want to add some color there?

Yes, I think it also points to the local markets somewhat too. When you look at California just the range in rate changes that have been filed by the carriers competing there, some increases, some decreases, really points to the fact that we are approaching an inflection point there, and what is going to seem like extreme competition to some is still being played out in other carriers that maybe not being in their own minds that aggressive. We are seeing it as spotty in the marketplace. It does get in the way sometimes, but as Doug made very clear at the beginning, we're certainly not going to chase those particular carriers into a situation of being unprofitable. Robert Paun – Sidoti & Company: Okay. That's helpful. That's all I have. And if you could get the premium volume -

If you look in the 10K, there is a table included that shows selected financial data for the acquired operations from November 1 forward. The gross written premium from the acquired operations was slightly more than $23 million in gross written premium with an earned premium of in excess of $31 million. Robert Paun – Sidoti & Company: That was just for the two months?

That's right. Robert Paun – Sidoti & Company: Okay. I could look those. Thank you.

(Operator instructions) Your next question comes from the line of Andrew Watsaf [ph] from Auburn Capital [ph]. Please proceed.

Andrew?

Andrew, your line is now open. Andrew Watsaf – Auburn Capital: I'm sorry about that. I had it on mute. Out of the $107 million of expenses that were in this quarter, 107.3, how many of those are expenses that are paid out of holding company cash versus out of the subsidiary where the business is done?

We are not going to have that breakdown readily available in front of us; we can certainly get that for you. Andrew Watsaf – Auburn Capital: Is it mostly coming out of the subsidiaries or?

I think it's fair to say it's mostly coming out of the subsidiaries, we have a small number of employees at the holding company level and then some of the general corporate expenses that are allocated to the holding company. Andrew Watsaf – Auburn Capital: I guess maybe like five or 10 million or something a quarter in that range maybe, that’s a fair estimate.

The annual operating expenses in the holding company are $12 million to $13 million on an annual basis. Andrew Watsaf – Auburn Capital: On an annual basis, okay, 12 to 13 of annual. I was wondering, okay, that helps, thank you. And then so you mentioned before there is a $100 million of cash handle all the needs outside of what's really being kept as collateral, needs to cover the 13 million of annual holding company expenses, I'm sorry I missed it what else is it needed to cover?

Well, we have been paying quarterly shareholder dividends. Andrew Watsaf – Auburn Capital: That’s $0.06 a share. That’s 24.

That’s roughly about 13 million per annum. Andrew Watsaf – Auburn Capital: Okay. That’s 26 million, okay.

We have a principal payment that’s due on December 31 of $50 million. Andrew Watsaf – Auburn Capital: You have that collateralized with securities you can use for the principal payment?

I need to look first at the cash I have on hand to pay that, because while it just collateralized by securities. Andrew Watsaf – Auburn Capital: So you're going to tie up both the securities and cash for the same collateral payment that you have with you on the debt?

The point is, that I do need to make the payment on December 31, notwithstanding whether I'm able to liquidate any portion of portfolio to meet that. Andrew Watsaf – Auburn Capital: I see and that's 50 million, right?

That's 50. Andrew Watsaf – Auburn Capital: Okay. So that's now 76 million we covered.

Yes, there is interest payments of just under 7 million per annum. Andrew Watsaf – Auburn Capital: That's 83 million? Okay I guess I'm just trying to reconcile the 100 million of cash, I'm not sure if I speak for all shareholders in our desire to see buyback stock at 60% of book value where your stock currently trades, feels like if you looked real hard you might be able to find some of that 100 million, really is free and clear, even if you try to identify every possible maybe contingency, I'm just wondering you the company isn't more enthusiastic given how accretive it is for shareholders on a book value per share basis to buyback stock at a big discount to book value, why is it not like top priority instead it sounds like it’s the last thing you want to look to do?

I would not describe it as the last thing we want to do. I don't think our view on share purchases has changed although relative as a component of overall capital management. But we certainly understand how attractive share repurchases are at a time when the company started trading from less than its book value. Andrew Watsaf – Auburn Capital: So why is the company not planning to purchase shares in the near-term then?

We have announced that we had extended our share repurchase plans till the end of the year, I don't plan on providing additional comments beyond that. Andrew Watsaf – Auburn Capital: My only other question would be what is the process the company would have to go through in order to obtain additional capital from its subsidiaries?

It would require – in the case of a dividend, out of the Nevada company, the approval by the insurance commissioner of an extraordinary dividend. And that will be the case until financial statements are filed in 2010, statutory financial statements are filed in 2010 for the 2009 year. Andrew Watsaf – Auburn Capital: Is that what you’ve done before applied for and received extraordinary dividends from Nevada?

We have. Andrew Watsaf – Auburn Capital: Is there a reason why you couldn't do that again?

There is no legal prohibition from us doing that again. I would note that we have a new commissioner in Nevada who has been in office for less than two months replaced the commissioner who had been in office for nearly 14 years and who we had a very longstanding relationship with. So I am not suggesting that it can't happen but there has clearly been a change in the regulatory relationship. Andrew Watsaf – Auburn Capital: Have you guys tried as of yet?

We have introduced ourselves to the commissioner at this point we made no request for extraordinary dividends. Andrew Watsaf – Auburn Capital: How much capital do you think you might be able to access if he proves to be somebody’s willing to let you do that sort of thing?

Well, it’s not merely a matter of getting the commissioner's approval. When we think about extraordinary dividends coming out of the operating subsidiaries, we also have to be mindful of our A.M. Best rating and the implications it might have on our rating, we also have to be mindful of our RBC calculations, so that we don't find ourselves in a situation where we have unnecessary or unwanted regulatory oversight.

Andrew, from the commissioner standpoint one thing that they will certainly consider is over the past two years we have had extraordinary dividends of $410 million out of the Nevada subsidiary to the holding company. So any additional requests on our part will be viewed be covered by that information as well. Andrew Watsaf – Auburn Capital: So the fact that the level of business that you're writing is so much less than what you require – so much capital you have so much more than what you required and the level of business you are writing would not be dominant sort of facts in assessing this?

Well, just in my experience with regulators, their charge is to maintain the highest levels of capital they can in the operating subsidiaries. Again, it’s that we have been able to move a significant amount of capital out of the operating companies into the holding company where we have more flexibility. It shows that you can do this, but there is going to be some point at which the commissioner is going to say I would prefer to see capital down in the operating company. Andrew Watsaf – Auburn Capital: Okay. Thank you very much for your time.

You're welcome.

Next question comes from the line of Chris Sommers with Greenlight. Please proceed. Chris Sommers – Greenlight: Hey guys, I have a couple of questions, first I guess a comment being throughout the insurance industry recently has been lot of the investment side of – these insurance companies has been harmed causing many to think that pricing should improve dramatically in 2009. I know you guys talked about 10% in California and 6.5% in Florida, just wanted to hear your guys impressions of where pricing might be headed over the next year or two across your market and maybe talk about what some of your competitors capital position might be after this market fallout compare to your own?

Well, speak very generally, which is I think relative to a lot of other industries, the PNC Industries capital base is held up very well. I think that's just a function of the conservative in the investments overall, and obviously we have done quite well in that respect. I think a bigger impact on premium levels in our segment of the business going to be driven by payrolls, and if the economy starts to turnaround, job creation returns, that will likely have a greater impact on revenues than rate increases. I think if you just look across where we might be in the cycle, key aspects are California is having a turn in the rates for the first time since reforms, I think California now something like 18% of the total national workers compensation market. We are going to see some firming there, I would expect you would see some firming in Florida, the rest of the states from a pure rate level I think have been reasonably stable over the last two years. Chris Sommers – Greenlight: Got it.

That has the impact on capital again I think given the strength of the PNC Industries balance sheet that's not going to be large rival on pricing behaviors. Chris Sommers – Greenlight: Got it. My next question get to Andrew's question a little bit. You guys have $2 billion of investment, and net of reassurance you guys have reserves of 1.5 billion, what's your view of what you need to have investments relative to kind of reserve losses in loss adjustment expenses? Do you think you need – the regulators want you to have that much investment over your reserves or do you need to keep some of those assets up there as an offset to the LPT agreement, what's causing the big gap?

Are you suggesting that we would want something less than reserves in the way of assets? Chris Sommers – Greenlight: Well I'm thinking of 2 billion in assets and 1.5 billion in reserves.

One of the ways to think about this, maybe not so much from a regulator standpoint but from the rating agency standpoint is even though we have reinsurance that is collateralized by a trust, there is still a very large recoverable. So when rating agencies and – for that matter the regulators run their metrics against required capital, we do take a bit of a haircut there. Again even though we believe that those trusts will fully collateralize then it will be sufficient to payout those obligations, it's a just of slightly higher level of acquired capital than you might otherwise expect. Chris Sommers – Greenlight: Okay. So then you would disagree with those that would say you're overcapitalized.

I'm speaking in the context but I think as I understood your question the context of a rating agency and in context of a regulator, they might require more capital than somebody else might think is required given the balance sheet. Chris Sommers – Greenlight: What's the Bcards [ph] for?

I think our term numbers are about 150 to 60 in that range. I think that's not right. Well let me – I don't have that at my finger tips. I will provide that later. Chris Sommers – Greenlight: What's the minimum for the rating?

Well, there isn't minimum, and we technically don't publish ranges, and so it's a function of where you are relative to – anyone else with an "A-" rating. Some of the unofficial ranges I have seen suggest that the minimal is about 135 in that range. But I can assure you that it would not be our intent to manage of a par to be at what we think is the bottom of that rating range. Chris Sommers – Greenlight: Where are you relative to your peers?

Since I don't have a number to give you, I can't tell you where we are relative to the peers for 2008. Where we been in prior years is comfortably within the range. Chris Sommers – Greenlight: Got it. Okay. We like to follow up with you afterwards if we could.

No problem. Chris Sommers – Greenlight: Alright, thank you.

Next question comes from the line of Michael Nannizzi with Oppenheimer. Please proceed. Michael Nannizzi – Oppenheimer: Hi, just a quick question, on the strategic partnerships, can you talk a little bit about how that's going any change during the year? The type of business that you wrote in '08 on particularly the ADP contract versus or (inaudible) any headway in extending that program into the former AmCOMP markets? Thanks.

Well, our two primary relationships with Wellpoint and the AmCOMP, ADP continue to be very good. ADP certainly has a provider payroll services is also experiencing impact in the recession on the small businesses that they are providing payroll services to. And we are certainly feeling that in some of our accounts and activities with them. We continue to explore expansion of that partnership, which has been primarily and historically in California into principally Florida via our acquisition new markets that we have. And there is certainly potential for that to go in to other states as well and we are looking at that. Our Wellpoint relationship in California continues to be strong; we are able to sell that integrated product through both the life and health agency force as well as some PNC agents that we have contracts with that also hold ANH licenses. So we are optimistic that as we go forward that our ability to grow those partnerships as well as find additional ones because of our now close to national presence is going to be improved. Michael Nannizzi – Oppenheimer: Great, thank you.

(Operator instructions) Your next question is a follow up from the line of Mark Hughes with SunTrust. Please proceed. Mark Hughes – SunTrust: Thank you. Was there any effect from audit premium in the quarter? Any material effect?

There was no any relative to other quarters.

That's right. Mark Hughes – SunTrust: No. Interest rate on the debt, could you refresh me on that?

Okay. What respect? Mark Hughes – SunTrust: What the interest rates.

Annualized basis we're expecting interest expense of about $6.5 million to $7 million. Mark Hughes – SunTrust: Annualized.

Right. Mark Hughes – SunTrust: Okay. Alright, thank you.

I will now like turn the call back over to management for closing remarks.

Thank you very much operator. Again, thank all of you for joining us today. As we move through 2009, we believe we are well positioned to weather the economic downturn and are focusing our resources in areas that we think are going to be most advantageous to us going forward particularly given our greater geographic diversity. And so we are optimistic about our ability to continue to take advantage of opportunities. With that thank you again all very much. We look forward to talking to you soon.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.