Good day, ladies and gentlemen, and welcome to the Q2 2014 Employers Holdings, Inc. Earnings Conference Call. My name is Whitley, and I'll be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this call is being recorded as replay purposes. I would now like to turn the presentation over to your host for today, Ms. Vicki Mills, Vice President of Investor Relations. Please proceed.

Thank you, Whitley, and welcome, everyone, to the second quarter 2014 earnings call for Employers. Yesterday, we announced our earnings results and today we expect to file our Form 10-Q with the Securities and Exchange Commission. These materials 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 on the call are Doug Dirks, our Chief Executive Officer; and Rick Yocke, our Chief Financial Officer. Statements made during this conference call that are not based on historical fact 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 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, Vicki. And thank you all for joining us on today's call. Our second quarter results were strong excluding the adjustments related to the LPT, our earnings per diluted share increased $0.15 over last year's second quarter. Our revenues increased 10%. Our net earned premiums increased nearly 8%. We are record high in the number of areas including book value per share, the market value of our portfolio, total number of policies and total in-force premium. We recorded three items in this year's second quarter which positively impacted our financial results. Two of those three items are adjustments related to the LPT agreement. First, we recognized favorable development in the estimated reserves ceded under the LPT agreement. This resulted in a $20.1 million cumulative adjustment to the deferred reinsurance gain which also reduced losses and LAE and increased GAAP net income by $0.63 per diluted share. Second, the contingent profit commission under the LPT agreement increased. This resulted in a cumulative adjustment of $7.3 million which reduced losses in LAE and increased GAAP net income by $0.23 per diluted share. And third, we reallocated $12 million of reserves from non-taxable to more recent taxable accident years. The reallocation reduced our income taxes and increased net income by $2.2 million or $0.07 per diluted share in the second quarter. As in past periods, our increases in net rate and continued organic growth drove improved financial results. Net earned premium was 8% higher than last year’s second quarter, driven by increases in policy count average policy size and net rate. Growth in premium contributed -- growth in premium continued to outpace our moderating growth in policy count which was 3.7%. Overall, net rate in the second quarter increased 5% year-over-year. File changes in California rates began to flow through our book,…

Thank you Doug. Our second quarter combined ratio before the LPT was flat year-over-year. Our loss ratio before the LPT increased 1.6 percentage points largely due to the higher provision rate in the second quarter of this year compared with same period last year. We have lowered the loss provision rate throughout 2013 until the fourth quarter, when we raised the annual rate to 77% as a cautionary measure in response to a spike and litigated cumulative trauma claims in Southern California. The provision rate in the second quarter of 2013 was 4 points lower than the annual provision rate for losses at year-end 2013. Our underwriting expense ratio improved over 1 percentage point compared to the same period last year as we continued to build scale and contain costs. This ratio declined as net premiums earned increased at a faster rate than our expenses. Our combined ratio before the LPT improved 1.6 points since March 31st of this year. We completed our mid-year actuarial reserve, a review of reserves and we determine that the reserves are adequate. Our indemnity claims frequency decreased year-over-year. Our loss experience indicates an upward trend in medical and indemnity costs per claim this year which is partially due to a year-over-year increased in cumulative trauma claims particularly in California. These trends are reflected in our current accident year loss estimate. Our assigned risk assessment for prior periods increased in the second quarter NCCI increased their development for prior years and we do not know whether these higher levels will continue. We’ve reallocated $12 million of reserves from non-taxable to taxable years. This movement was based on trends in ultimate losses. The reallocation does not reflect the change in the overall adequacy. The reallocation did reduce income taxes in the quarter. We had one large accident in 2013 that pierced our reinsurance layer in the second quarter. Our reinsurance coverage of $195 million in excess of our $5 million retention on a per occurrence basis is subject to a $2 million annual aggregate deductible. Our balance sheet is strong in terms of invested assets. At the holding company we have $86 million in cash and securities, net of restricted cash and securities. Now I will turn it back to Doug.

Thanks Rick. Over the past two years our pricing and growth strategies have driven better underwriting margins and improved profitability. While we have slow policy count growth and overall pricing increases have moderated in 2014, we continue to achieve more favorable pricing. We are observing more favorable loss trends and our portfolio is growing due to strong cash flow. We believe market factors such as maturing securities and ongoing low yields will continue to pressure pricing in the long-term. And with that operator we are now ready to take questions.

(Operator Instructions) Our first question comes from the line of Mark Hughes with SunTrust. Please proceed.

Thank you, good morning.

Good morning.

When you look at your actions on pricing, how do you think that will play out in terms of gross written premiums, say in the back half? You had some deceleration this quarter, gross premiums written up a couple of points. How do you think that will trend in Q3 and Q4?

The greatest impact will be from the standing up of the three companies in California and the territorial modifier in Southern California. To the extent that that business renews subject to both the higher rate and the territorial modifier. We would expect to see an acceleration in the rate of growth attributable to Southern California. I can't tell you whether or not if that occurs it would be sufficient to offset slower growth in other parts of the country but certainly that's a reasonable expectation, if we have success in retaining the renewal book there. Because of the rate, we are seeing although it’s early, we are seeing a slowdown in new business production and that was expected.

Do you think that will slowdown further in the third quarter? Was that just an impact for part of the quarter in 2Q or did you get kind of the full effect of your more aggressive pricing actions?

We only saw one month related to the three company strategy. So it is early. But we believe what we can interpret from that one month is that more of the premium, the renewal book is staying with us at the higher rate than we might have expected. But again you can see the new business production being impacted by the higher rate.

Right, exactly. And then any comments just about competition? You are taking rate action. Are your competitors going in the other direction, being a little more generous perhaps with the pricing?

On a relative basis that appears to be the case. If you look at the competitive pressures in the market, I don’t believe they changed much over the quarter. Some of the observations we’re hearing from the market is that there are some competitors that are consistently aggressive in terms of pricing. There has been a continuing willingness on the part of some of the national markets to right comp on an underlying basis. We see more of that as the size of the account increases both in terms of new business opportunities and renewals. Then at the lower end, although it continues to be competitive probably still less appetite from some of the market participants than we saw three years, four years ago.

Right. Then you had made a point, I think that decline in the number of new claims with legal representation, I think you were saying at the outset of the claim. What is that telling you? It seems like a good sign. Does that mean this trend is kind of crested and is coming back in the other direction?

Well there is that interpretation I’ll give you another one which is given the fact that we have had this increase in litigation particularly driving cumulative trauma claims to the extent that that’s changed the underlying comp environment. We might may now have injured workers that don’t believe they need an attorney to successfully pursue a cumulative trauma claim. So I wouldn’t interpret that as being favorable. What it might suggest is that instead of being a spike at the end of the year what we’re now seeing is something that resembles a new normal where we’re going to have higher levels of cumulative trauma claims in the comp system generally in California.

But your pricing is now reflecting that viewpoint?

Yes. I think that’s the key point Mark which is if that is going to be the new normal in California, pricing has to recognize that. That this isn’t a spike that we’re going to see a 15% drop in litigation involvement in claims. This could be a new normal. And if it’s -- we’ve got two quarters now where it’s stabilized but it hasn’t improved. And that suggests to me that the environment particularly concerning cumulative trauma claims, might be unchanged for a long time in California and the pricing is going to have to account for that.

The final question, what kind of feedback have you gotten from other carriers, other officials to the extent that you have reached out? Your experience was one data point. What are others -- are they still -- are they seeing the same thing?

I’ve not had any discussions with competitors on this subject. I think the industry data, the most recent industry data supports that. We’re not unique here.

Okay. Thank you.

Your next question comes from the line of Amit Kumar with Macquarie. Please proceed.

Thanks and good morning. Just I guess one or two quick follow-ups going back to the previous question. As you look back and when you talk about the litigated claims, do you think the impact of SB 863 has completely played out? And when we were talking about it in the past few quarters, did you perhaps overstate that impact when you talk about I guess a cyclical change in the industry in regards to cumulative trauma? What I'm trying to understand is, as you said, this is a new normal. Perhaps when we look back, this was a new normal which we thought at the time was from SB 863.

Yes, I suspect what we saw is a result of the increase in the permanent disability award in the attractiveness of pursuing claims that would be eligible for that award. And cumulative trauma certainly falls right within that description. If you look at the whole concept of the 863 reforms, they were supposed to be neutral. To the extent that permanent disability awards went up, that was going to be paid for by other reforms in the system. And I think the -- in the end, we are going to determine that the increase in permanent disability of awards was greater than expected and the savings were less than advertised. And the combination of those two means that 863 was not neutral, but in fact there will be increasing costs. And I suspect what we’re seeing with the litigated claims and the increasing cumulative trauma, which continued in the second quarter as well that we’re -- we may not be done seeing this, certainly the litigated claims seem to have stabilized, but again the cumulative trauma was still rising in the second quarter.

Got it, that is helpful. I guess the only other question goes back to the reallocation of reserves. These were prior 2000. Would it be fair to say that this noise should diminish? I know that occasionally pops up and the consequent tax benefit. But would it be fair to say that as we look forward to 2014 and 2015, this would be de minimis going forward?

I think it’s reasonable to assume that it will diminish, but we continue to look at reserve adequacy every quarter as you know. And our methodology is one where if we see reserve adequacy, it will be reallocated generally to more recent years where you expect a little bit more volatility and movement in reserves. So going back to your question yes I think it’s reasonable to assume that that would diminish overtime.

And what exactly, as you are looking at the book, obviously it's 2014 and you have realized, maybe just expand on that what exactly is resulting, what actually is causing this reallocation?

Yes it’s a normal reserve analysis when we look at some of the older accident years. We are seeing that the carried reserves are in excess of current actuarial estimate.

I didn't phrase my question properly. Was this a specific hazard class or is it just more sort of a generic review which is causing this? That’s is what I was trying to get at. Was there a specific book at that time which is resulting in it?

It’s the generic broad actuarial analysis.

Got it, thanks for that clarification that’s all I have, thanks.

(Operator Instructions) Your next question comes from the line of Samir Khare with Capital Returns Management. Please proceed.

Good morning, guys how are you?

Good, good morning.

I just have a couple of quick questions. For your California book, what was the overall effective rate increase?

We filed a 7% increase effective July or June 1. Included in that were territorial modifiers and the standing up of the three companies. So that was just the average filed rate. If you look at the overall increase.

Yes, if you incorporate everything, what you guys, just your rate out.

In Q1, year-over-year was 6.5%, in Q2 year-over-year was 5.8%.

That's for just for California?

For California.

Okay and how does that compare to your…

That's total book.

Yes, sorry. I'm asking about just California?

So, California can give you the, I'm just going to see, if I can pull the numbers, 9.1% year-over-year. For the quarter and I'm going to back and reference something I had made in the comment I made to Mark. It actually was up more in June year-over-year than it was in May year-over-year. And so what we are seeing there is the impact of that rate filing that took effect June 1.

Got it. Sorry, the 9.1% that you are citing for California, how does that compare with the rate increases you are seeing in your LA book, the effective rate increases?

I don't have that data in front of me. But the expectation should be given all of the rating actions we have taken is that, it will impact the higher in Southern California than it will be in the state as whole. I don't have the exact number in front of me. But I'm -- and certainly that’s what the expectation is.

Okay. And just on the reserving piece, I guess the reallocation to more recent accident years. What accident years are being taken down and what accident years are being increased?

The accident years that we’re taking down were 2000 and prior. And as I said that our methodology would generally reallocate that to the most recent accident years, 2010 and forward.

Okay, great, thank you. That’s it for me.

Your next question comes from the line of Matt Carletti with JMP Securities. Please proceed.

Hi thanks, good morning.

Good morning.

Just following up on Samir’s question. He kind of got asked and answered there, but if I could ask for a little more color. What sort of magnitude are we talking about in what’s getting added to 2010 and forward? And is it kind of -- I know it has been like last quarter it slowed down versus kind of a couple quarters before. Is that sort of the same that we're getting a little more comfort with some of the more recent years at this point?

Yes. It’s still single-digit millions, Matt.

Okay, that’s helpful. That’s all I got. Thanks very much and best of luck for the rest of the year.

Thank you.

That concludes our Q&A. I’ll now turn the call over to Mr. Douglas Dirks for closing remarks.

Thank you. Thank you everyone for joining us this morning. We appreciate your interest and your questions. We look forward to speaking to you again for our third quarter 2014 results. Thanks.

Ladies and gentlemen that concludes today’s conference. Thank you for you participation. You may now disconnect. Have a great day.