Good day, ladies and gentlemen, and welcome to the first quarter 2010 Employers Holdings Incorporated earnings conference call. (Operator Instructions) I would now like to hand the call over to your host for today, Vicki Erickson, Vice President of Investor Relations. Please proceed.

Welcome everyone to the first quarter 2010 earnings call for Employers Holdings. Yesterday, we announced our earnings results, and today we will file our Form 10-Q with the Securities and Exchange Commission. Our press release and Form 10-Q may be accessed on the company's website 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 website, 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 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 at the time of the call and will not be updated to reflect subsequent developments. We use a non-GAAP metric that excludes the impact of the deferred gains from the 1999 Loss Portfolio Transfer or LPT. This metric is defined in our earnings press release available on our website. Now I will turn the call over to Doug.

Thank you, Vicky. Welcome everyone and thank you for joining us as we review our first quarter results. Our results in the first quarter reflected in part national trends. Today, the NCCI reported that workers' compensation total premium fell in excess of 13% in 2009. For the same period, our in-force premium declined by 17%. Additionally, the rating bureau in California, the WCIRB has reported that California has experienced a decline in workers' compensation premium of approximately 17% in 2009, compared to 2008. For the same period, our in-force premium in California declined by 11%. The NCCI also reported that the estimated deficiency in total workers' compensation loss reserves increased from $6 billion in 2008 to $9 billion in 2009, a 50% increase year-over-year. Taking a closer look at our results, we've grown book value by $0.24 per share since December 31, 2009, to $20.91 at March 31, 2010. Net income in the first quarter was $0.38 per share, and $0.27 per share before the LPT. We again benefited from favorable prior accident year reserve development of $11.1 million in the first quarter. On a GAAP basis, we had an underwriting loss of $4.6 million with a combined ratio of 105.9. Excluding the impact of the LPT, we generated an underwriting loss of $9 million, with a combined ratio of 111.3. Our loss, commission expense, and dividend expense ratios remained stable or improved. The underwriting loss was caused by declining premium, which, in relation to fixed cost increased the underwriting expense ratio despite our nearly 12% decrease in underwriting and other operating expenses year-over-year. Declines in net premium earned continued in the first quarter, stemming primarily from trends in employment and payrolls, rate decreases in some states, competition, and our continued underwriting discipline with a focus on the loss ratio.…

Thank you, Doug. First I will discuss our underwriting performance, then I will move on to investments. Our operations generated a first quarter GAAP combined ratio of 105.9% from 111.3% before the LPT compared with 99.8% and 103.6% before the LPT in the first quarter of 2009. The 6.1 percentage point increase was largely the result of lower premium volume, which in turn increased our expense ratio. Restructuring charges of approximately $945,000 increased the expense ratio by approximately one point, while restructuring and integration charges in the first quarter of last year added approximately 3.4 percentage points to the combined ratio. Our acquisition savings and ongoing cost control efforts successfully helped reduce underwriting and other operating expenses by $4.2 million or 11.6% in the first quarter. Excluding the one-time charges, underwriting and another operating expenses declined 4% relative to last year's first quarter. Our loss rate ratio in the quarter continued to be better than historical industry averages, and our loss ratio before the LPT was stable relative to last year's first quarter. Losses in LAE expense before the LPT declined $18.9 million compared to the prior year's quarter. Prior year accident year development was favorable and we released $11.1 million in reserves, $2.4 million lower than the prior year's quarter. Our effective tax rate in the first quarter was a negative 3.4%, due largely to the impact on the calculation methodology of lower pre-tax income, tax exempt investment income, non taxable amortization of the LPT, and non taxable prior accident year reserve releases. Our pre-tax investment income was $21.3 million in the first quarter of 2010, compared with $23.3 million in the prior year's quarter, a slight decline related to 2% decrease in invested assets from debt reduction and our return of capital to shareholders through dividends and share…

Thank you, Ric. As Doug mentioned, approximately one-half of our business is generated in California, where we have seen increased net rate for 12 consecutive months. This net rate increase is helping to offset, though not yet completely overcome the effects of lower payrolls on our California premium revenues. We continue to see a steady level of new business submittals there, and our policy count in California remains relatively stable. Across the country, net rate declined 5% year-over-year and less than 1% in the quarter. The modest declines were in large part, driven by a positive shift in business mix to business classes with lower risk profiles in our acquired states, and consequently, lower pricing per unit of exposure that is more consistent with our strategy of writing lower risk business. These are challenging times for a disciplined underwriting company. As Doug mentioned earlier, nationally, workers' compensation premium declined 13% in 2009 compared to 2008. In California, total industry premium declined 17%. At the end of the first quarter, we were $25 million below our planned estimated in-force premium. Nearly 60% of this miss can be attributed to economic conditions and competition in many of our states. Nationally, we saw reduced premiums on our renewal policies, which is evidenced by the 16.5% decline in our average policy size to $8,256 in the first quarter of this year compared to the prior year's first quarter. So why was our drop in premium so much greater this quarter? The remaining 40 % of our premium miss occurred in the Midwest. In addition to challenging economic conditions in our Midwestern states, we took the following underwriting actions; we non-renewed some of our larger accounts in the Midwest during the first quarter, due to poor loss experience. We also re-priced some of the Midwestern…

Thanks Marty. Operator, we'll now open up the call to questions.

(Operator Instructions) Your first question comes from the line of Amit Kumar with Macquarie.

Thanks and good afternoon, maybe just staying on the top of the economic recovery, I'm wondering what sort of lag exists between an economic recovery and when it sort of shows up in the smaller account base? Can you just talk about the past business cycles, compare that to the current scenario and overlay that with the different classes?

If you look at this economic recession, it's definitely been characterized by a more dramatic drop in employment than we've seen in some other downturns. The other, I think unique characteristic this time, is the amount of underemployment, which is reflected in the number of people who are working fewer hours than they would like to. And although we've seen at least maybe a hint that the job recovery is beginning, there really hasn't been a turn in that underemployment number. And that's the one that we focus on most because ultimately, as underemployment improves, payrolls will increase, and that will drive additional revenues for us. It remains to be seen how this recession plays out, but I think the most common view is going to be that it is going to be a slow recovery in jobs, potentially a slow recovery in hours worked, and until that improves it's difficult to see how premium in the workers' comp line will improve. And so, I think you have to look at every recession individually. The other thing that I think is unique about workers' compensation is some of the premium is based on estimates of what the payroll will be for the coming 12 months. And to the extent that individual employers who report payroll to us that way fail to fully anticipate the recovery, our premium will lag, and we'll eventually catch it up at the time we do a final audit. So I think those are the primary drivers that impact the top-line in comp.

And that's sort of helpful. In terms of, you mentioned competition, and sort of re-underwriting the book in pretty much all of your states. What exactly is going on in terms of the competition being so aggressive at this stage of the cycle? Is it just rate? Is it terms and conditions? Like what is their view in terms of trying to garner a lot of new business at this stage?

We see it as great competition. There really isn't a lot of difference in terms and conditions. Re-competition in a couple of our states like Wisconsin and Florida comes in the term of dividend plans. But for the most part it is just the rate on the policy, and insurance carriers apparently disagreeing in their view of what is an appropriate price for that exposure.

And then a final question; can you just talk about how we should think about I guess the tax rate and the expense ratio going forward?

With respect to the tax rate, as I mentioned that we have a GAAP methodology that gives an uneven performance over the year. But if I were to normalize it, in 2009, we had an effective tax rate of 10%. That was reflective, for example, reserve releases of $51 million, if we look at the current year, if - and I stress the word 'if' - if you had somewhere in the neighborhood of $40 or $50 million of reserve releases again, again, our effective tax rate for full twelve months would be in the 10%, 11% range. However, the way the methodology works, it is a combination of actual to-date, and budgeted for the remainder of the year. And that combination, especially when you are in the early quarters, can give you an indication as you can see in our first quarter, with a negative effective rate of 3%.

As to the expense ratio, the way to think about that for the balance of the year, we continue to be focusing on expenses. And as you can see, we had a 12% drop in the actual amount of the expense. But because of the declining top-line, we have an increase in the expense ratio. And that's simply going to be a function of when the market turns and when the top-line starts to grow again. And it doesn't mean that from an expense management standpoint, we sit around and wait for that to happen. We clearly haven't done that, but it is going to take some lift in that top-line before we can begin to see some improvement in the ratio.

Your next question comes from the line of Michael Nannizzi with Oppenheimer & Company. Michael Nannizzi - Oppenheimer & Company: You had mentioned the $25 million less in premiums than you had expected. When was the budget, or when had you set that expectation? Was it a year ago or was it at the end of last year?

Would have been at the end of the third quarter, beginning of the fourth quarter of last year. Michael Nannizzi - Oppenheimer & Company: So 40% of that difference was due to the activities in the Midwest and then 60% was due to, was it California? I am sorry, I don't remember the other, it's 60% certainly.

It's really a combination of economic conditions and rate levels and competition everywhere else. Michael Nannizzi - Oppenheimer & Company: And that would be the former AmCOMP book, the business in the Midwest?

Correct. Michael Nannizzi - Oppenheimer & Company: This business, is it different than other AmCOMP legacy business? What made this particular business unique?

Well, I don't know that it was unique, Michael. I think the AmCOMP book we inherited had a broader spectrum in its book then ours did in terms of appetite, class, and probably average severity of the classes that were underwritten. So while a good portion of the AmCOMP book, probably the lion's share actually, was pretty close to looking like the former employers book of business. There were aspects of the former AmCOMP book that was in tougher classes and had perhaps not the price it should have, or had other experience issues that we knew we were going to have to deal with, as we went through that whole book of business the first year or so after our close. Michael Nannizzi - Oppenheimer & Company: And then, and are you conducting that same level of review on any the other patches of the book of business now, that led you to that conclusion in the first quarter.

Well, I wouldn't refer to them as patches of our business, we do underwriting audits in all of our locations and manage the quality of the files that we have and effectively. When we got into some of the offices and the acquired operations there was a little more work to do there. If you think about the book of business that we have in California, much more mature market and had it for a long time, we still do underwriting quality reviews there as well. But for the most part, the book of business is a book that we are comfortable with; we recognize and have accepted for some time. Michael Nannizzi - Oppenheimer & Company: Okay, got it. Just a question about the industry, Doug, I think you mentioned in your comments that national premiums about 13% in 2009, so this is not EIG, but just overall workers' comp premiums. And this maybe a silly question, but total employment didn't decrease 13% year-over-year. So is that part of what you were alluding to as far as less utilization? So temporary workers, underemployed people. Do you have any sense how to reconcile those sorts of trends?

There's a combination of things that will drive that number, one is rate level and if you think nationally, we're still seeing some large rate decreases move through Florida, which is a large part of the national market. Some of it's competitions, we've got competitors providing schedule credits that ultimately influence the total amount of premium, and then some of it's payroll, where you've got people that might still be employed, but working 30 hours a week instead of 40. Now all of those forces together resulted in a decline nationally of 13% in the total premium. Michael Nannizzi - Oppenheimer & Company: Okay, got it. Just one question for Ric. You had mentioned the tax rate. Can you explain the concept of taxation and reserve releases, because I'm not sure I heard that right, just want to make sure, is the tax treatment of prior year reserve releases different than the tax event of current accident year losses?

Two things; to the extent that the reserve releases relate to our pre-privatization periods, pre-2000, those releases are tax exempt. The other aspect that I'm referring to is the methodology of computing what your annual tax rate will be, and in that situation, you take your, in this case, first quarter actual results, but you're then including your budgeted results or your plan results for the remaining nine months. And we never anticipate reserve releases. That constitutes additional income to us. And that's how potential future reserve releases can impact the quarterly tax rate calculation. Michael Nannizzi - Oppenheimer & Company: Do you disclose how much of your reserve releases relate to post or pre-LPT?

It's about $5 million.

Your next question comes from the line of (Mark Hughes with SunTrust Bank).

A question about California pricing, the WCIRB I think as you alluded to, one of the things they referenced in their recent report was that there are pretty good redundancies in reserves in that state. So even though the current policies seem to be going at a loss, the reserves were redundant. Do the carriers have to eat through those reserves before the pricing will firm up? What is the dynamic there that's finally going to allow a little more reasonable results in the state?

Well, I think we've already started to see the firming of prices in California. A number of carriers have filed for rate increases over the last, roughly year-end quarter, so we've filed for three different ones that push our filed rates up to something almost 25%. So I think we're starting to see some of that. I suspect within the industry, there's always some concern around potential impact of judicial decisions that could impact previous years, and I think that just argues for a bit more conservatives and then in the rate at which companies maybe reducing redundancies.

Can you save your affective rates in California, seem like the leases state wide there, hadn't really been much movement at least for 2009 in affective rate, even though I think a lot of folks had filed for increasing.

Yes, if you look at the bureau of latest reports, they're saying that the net rate '09 over '08 was flat. We are saying that ours has increased for the last 12 consecutive months. We don't disclose how much that's moving, but it would suggest that if the total market has been flat, we are in fact getting more rate relative to the market.

Your next question comes from the line of (Robert Rowe with Columbia Management).

I was curious on the scheduled credits and there's been some discussion on gross rates versus filed versus net rate, effective rate. I'm curious if you can comment on the scheduled credits, they are happening that you are giving out, and your competitors are giving out. I am just wondering what the nature of that activity is and also can you comment on credits outside of California?

If you look at our numbers in totality, if we filed for a 25% increase over the period of the last fifteen months, the market isn't giving all of that clearly. And so what that means is scheduled credits have to be increasing to react to the competitive pressures in the market. We don't disclose what our average scheduled credit is. We consider that to be proprietary. But there is no question that there is a gap between filed rates and the net rate out the door.

What about outside California?

Outside California, it does vary greatly by state and it's somewhat a function of what the markets perception is, filed rate adequacy. So, I can't tell you that there is a single thought that you should have as to what scheduled credits do. It really varies around individual state rate filings and rate adequacy at a point in time. But it is the mechanism by which the market typically competes. And in our case that would exclude Florida and Wisconsin, which are administered pricing states where the scheduled credit mechanism takes the form of a dividend plan.

(Operator Instructions) Your next question comes from the line of (Bob Farnam with KBW).

It looks like your current accident year loss ratio was about the same as it was for the full year 2009 accident year loss ratio. Can we infer from that that you think that your rates are pretty much offsetting now loss costs?

You're correct, Bob.

So no change in frequency I assume that you've come across yet?

We see frequency continuing to go down. It's perhaps not as steep Bob, but our frequency of claims indexed continues to be lower quarter-over-quarter.

And I think to add to that, Bob, there's really a couple of things that are happening. This isn't just us, but it's what the market's seeing. Not only is there declining frequency or stable frequency, but because of the decline in exposure, the total number of claims is falling. And although that's not a measure of frequency, it is kind of an interesting phenomenon to see. And you can see what the impact has been of declining payrolls on the industry. The total number of claims is having a fairly large drop.

And in terms of reserve (development), just to go back to that, $5 million was from the LPT years? Did I have that right?

No, well, LPT years are '95 and prior. In this case, we're just saying its 2000 and prior. I have said, I don't think it impacted '95 or prior.

So was there any movement in the reserves in the recent accident years like 2007 to 2009?

Nothing material.

And how was the performance of the business from the strategic partnerships been going relative to your regular agency book? Just curious whether or not the trends in the two different books are similar?

Are you talking about loss ratio, Bob?

Yes, right.

We don't report out segments, but we believe our loss experience in our partnership book is as good or better than the overall book.

Your final question comes from the line of Matt Carletti with JMP Securities.

Doug, just had a quick question on the share buyback activity in the quarter. Could you just give a little more color on, maybe some of the reasons why, specifically this quarter was pretty light, and if you do still plan on, through out the remainder of the year, making use of the $50 million.

As to what's happening individually on the authorization matter, really can't provide much more color around there. As we always said, there are three uses of capital for us, one is to invest in the business, one is to do strategic acquisitions and the third is to return it through share purchases and dividends. And at various points in time, even though they're at the authorization is outstanding, we may be thinking about potential uses of the capital within that context differently. But we do have an authorization that calls for $50 million during the year; and that remains unchanged.

This concludes the question and answer session. I will now hand the call over to Douglas Dirks.