Employers Holdings, Inc. (EIG) Q2 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Employer Holdings, Inc. Earnings Conference Call. At this time, Q&A session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeffrey Lisenby, Executive Vice President, General Counsel. Please go ahead.

Thank you, Bonnie. Today's call is being recorded and web 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 2 thousand. Although we believe the expectations expressed in 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 developments. The company also uses its website as a means of disclosing material nonpublic information and for complying with disclosure obligations under the SEC's regulation 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, 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, Jeffrey. Good morning, everyone, and welcome to our second quarter 2026 Earnings Call. Joining me today is Mike Pedraja, our Chief Financial Officer. Attracting and retaining high quality executives and directors is always an important priority for us. And we are pleased to welcome Stephanie Bush to our board of directors and Jeffrey Lisenby who you just heard from, as our new general counsel. I am confident that both Stephanie and Jeffrey will make meaningful contributions to our organization. As usual, I will begin by providing highlights of our second quarter 26 financial results and then hand it over to Mike for more details on our financials. Before Q&A, I will come back to you with some additional thoughts. If I had to sum up the second quarter, I would say it is the quarter where the benefits of our recapitalization became fully visible. Diluted earnings per share grew 29% year over year, and adjusted earnings per share grew 46%. Even though net income was essentially flat. The gap between net income and per share growth is the direct compounding benefit of the accretive share repurchases we have executed since undertaking the recapitalization. On the underwriting side, our net premium earned declined 12% year over year. While policies in force declined 5%. These amounts reflect the pricing and underwriting actions we have put in place to prioritize profitability over volume. Most of the decreases were directly related to the customer segments and geographies we targeted as part of our plan. To concentrate on our core small business segment. We are currently focused on building new sources of growth. And in June, we wrote our first excess workers' compensation policy, marking the successful launch of our new product line. The success of this new product continued in July with over 200 submissions and 20 policies bound, producing $4 million in premium. it is a new lever for growth and 1 that complements our core book. Our second quarter actuarial review came in as expected. As a result, we made no change to loss reserves for accident year 2025 and prior. We also maintained our current accident year loss in LAE excluding the LPT, on voluntary business at 72%. Which is consistent with the full-year 2025 accident year ratio. Our underwriting expenses declined to $40 million from $43 million a year ago. Driven by our continued focus on innovation and a reduction in variable expenses. Net investment income was $27 million up 1% year over year. Aided by a 40 basis point increase in our book yields. Which was a result of the investment rebalancing we executed last year. We are laser focused on expanding our book value per share. With dividends, book value per share, including the deferred gain, grew 9% year over year to $52.58. With that, Mike will now provide a deeper dive into our second quarter financial results and then I will return to provide my closing remarks. Mike?

Thank you, Kathy. Gross premiums written were $163 million compared to $203 million for the prior year quarter. A decrease of 20% due primarily to a decrease in new and renewal business writings. These decreases were partially offset by an increase in our ending final audit premium accrual and a $2.5 million premium restitution from a former policyholder. Our losses in LAE were $122 million a year ago. The current quarter did not include any prior period losses or development on our voluntary business and the current accident year loss and LAE ratio of 72% is consistent with the full-year 2025 accident year ratio. The $2.5 million premium restitution reduced our second quarter combined ratio by approximately 1.5 percentage points. Commission expense was $22 million for the quarter versus $26 million for the prior year. Driven by lower agency incentive accruals, and a lower proportion of new business premium which carries a higher commission rate. Underwriting expenses were $40 million for the quarter versus $43 million for the prior year, a decrease of 7%. The improvement in underwriting expenses for the second quarter was due primarily to our continued expense management efforts including reduced personnel costs, policyholder dividends, and bad debt expense. Our second quarter net investment income of $27 million was essentially flat year over year. Our fixed maturities maintain a modified duration of 4.5, with a strong average credit quality of A+. Aided by investment rebalancing that Kathy mentioned, our weighted average book yield was 4.9% at quarter-end compared to 4.5% from the prior year. A 40 basis point improvement. Our adjusted net income, which excludes net realized and unrealized investment gains and losses, and the benefit of our LPT deferred gain amortization, was $13 million for the quarter, compared to $12 million last year. We remain committed to being good stewards of our shareholders' capital. During the second quarter, we repurchased 652 thousand shares of our common stock at an average price of $42.43 per share for $28 million. The average repurchase price represented a 17% discount to our beginning book value per share including the deferred gain, and an 18% discount to our beginning adjusted book value per share. With that, I will turn the call back to Kathy.

Thank you, Mike. Yesterday, Board of Directors declared a third quarter 26 dividend of $0.34 per share consistent with the 6.5% increase we implemented last quarter. In addition to executing our underwriting strategy, we continue to make progress in our technology initiatives. Including a major claim system upgrade, a new customer relationship management system, and the continued rollout of our AI tools. During the quarter, we achieved a 94% AI staff adoption rate, and implemented several AI assisted use cases with meaningful tangible ROI. As the guarantee cost workers' compensation market softened, our focus turned to building our excess product. We are now turning our attention to rounding out our workers' compensation offerings with other loss sensitive products. Including large deductible. We also see opportunities to leverage our prior success and expand our appetite further. We are confident these new offerings will diversify our book, provide optionality during market cycles, and increase new business. We step into the second half of 26 with genuine momentum at our backs. Our new business pipeline is accelerating Our renewal book continues to perform as designed. And our underwriting discipline remains solid. The California Insurance Commissioner's approval of a 6.6% advisory pure premium rate increase effective September 1st provides a significant opportunity for improved results in our largest market. Employers remains well capitalized, well positioned, and firmly focused on our North Star, which is delivering profitable, sustainable growth for our shareholders. And with that, Bonnie, we will now take questions.

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 again. Our first question comes from the line of Mark Douglas Hughes with Truist. Your line is open.

Yeah. Thank you. Good morning.

Good morning, Mark.

Kathy, you mentioned the 6.6% rate increase what is your experience? Do you think carriers will follow that? And assuming you take the 6.6%, what will that mean in terms of your overall pricing kind of all in with other pricing actions for you in California?

Yeah. So if we are talking specifically about California we do internally feel like we have been ahead of the curve in terms of rate adequacy in the state. So the increase that the bureau filed and the commissioner approved not the entire increase, but some of it. We feel like we already had that baked into our rates. So we feel like it is more we were ahead of the curve on that, I would say. So I would not expect it to impact our book significantly We are feeling good about where we are positioned in California. And I cannot speak to where other carriers are. But I think the commissioner has done a nice job of laying out the issues in the state that need to be addressed. And we are hopeful that there will continue to be a lot of focus on those areas where reform could help. But we feel like we are well positioned in terms of our rate adequacy in the state. Overall, countrywide, you know, just to give you a view of the landscape in terms of rates there. Payrolls have been relatively flat, up about 0.5%. And we have achieved overall across the country about a 5% increase in our rate when you look at our renewal book year over year.

Very good. How would you characterize the competition? I think you had talked about kind of expecting mid-teens declines The dip was just a little bit faster. Did you see more competition in the quarter and what was the nature of that Workers' comp specialists, package writers? How would you describe it?

Yeah. You know, package writers have always been an area of fierce competition because of the optionality that they have. We are seeing most of the competition in the middle market space to the point where we are just turning away when we do not feel like we can, get the margins that we need I would say, you know, there is definitely some irrational behavior going on in certain jurisdictions. But we are working hard to find those areas where we can continue to grow. In our release, and the prepared remarks, we talked about how our premium is down, but the number of policies is down not near to the same extent, and that is because of the competition that we are seeing in the middle market. Yep.

In thinking about your reserves, I think, some slight favorable development this quarter. You know, relative to the industry as a whole, I think you are still seeing you know, meaningful reserve releases though at a bit slower pace these days. When you think about your book, is it maybe just some care or concern around CT claims, and so you are kind of holding the line to protect the balance sheet or is there something about your book that may be different than we are seeing more broadly, which is, you know, still redundancy, still reserve releases.

Yeah. I think you are spot on. I mean, our you know, every book of business is different. We have a higher weight in than countrywide. So when you mentioned CT, yes, we are trying to remain cautious, and protect the balance sheet exactly like you said. The more recent years, which is where we have seen the cumulative trauma claims come through. there is just more uncertainty in those years. And we are just being ultra cautious there. We are continuing to see favorable development emerge in the older accident years, just as we would expect. Yeah.

Okay. And then the excess workers' comp was that 4 million number, was that June?

That was July to date. We did write 1 policy in June. But that was we were getting you up to date for what we have done month to date. Yeah.

Is that seems like pretty good start. How do you feel about that? And seems like that could be a decent contributor even if you kept up that pace.

Yeah. I would agree. You know, I would add that July 1 is a big for the segments that we are targeting, municipalities, schools, and so forth, July 1 is a big renewal day. that is why we targeted that as our launch. And so I would not expect that same amount every month going forward, but we are seeing a very strong submission flow and a lot of interest from the brokers. So it is exciting to watch and we look forward to seeing the growth there. Yeah.

And I will ask just 1 more of the share repurchase appetite at this point How do we think about that?

Yeah, Mark. We have a very strong view of our in intrinsic value and that intrinsic value is above the current stock price. We do believe in being very prudent purchasers of our shares. And so as you know, have $113 million of additional capacity left. And so we think we will continue to be active repurchasers, but obviously, we are going to do it on a prudent basis, and we will use the return on equity as our guidepost to focus on those purchases. Okay.

So $113 million, would that be kind of 12 months? Or Yeah.

Through the end of next year. So the program we implemented is of $125 million through the end of 27. And so we have $113 million left.

Okay. And that seems like reasonable pacing sounds like?

It all depends. If the market opportunity to be easy to be candid, if the market opportunity has the stock down, we will accelerate those repurchases. Yeah. Okay.

Thank you very much. Okay.

Thank you. Thank you.

Our next question comes from the line of Karol Chmiel with Citizens Bank. Your line is open.

Hi. Good morning. Thank you for taking my questions. I just have 2 questions. First 1 is just a general viewpoint on the whole reunderwriting of some of the policies due to the CT phenomenon and would you categorize it as being more than 50% done in terms of reunderwriting those risks?

Yes. I would characterize it as more than 50% done. We started this at the tail end of 25. So I think that is an accurate way to view it. Right. Thank you.

And then just to follow-up on the repurchases, do you have anything you wanna share Regarding your repurchases in Q3? As far as to date? As far as, you know, if you have used the authorization to purchase any shares, Yeah.

No. Like I said, we are we are eager and, you know, we are very focused on being prudent capital monitors our shareholders for our shareholders. And we continue to watch the stock. So we were repurchasers. It just it depends. The fluctuation will depend simply on how the stock, performs. And so if, as I mentioned to just to Mark, if the stock drops, we will accelerate the level of repurchases.

Understood. Thank you so much. that is all.

Thank you. I am showing no further questions at this time. I would now like to turn it back to Kathy Antonello for closing remarks.

I think we might have a follow-up question in the queue.

I do see that. Thanks. We have Mark Douglas Hughes with a follow-up question.

Hey. Right on time.

Anything, Kathy, from a medical inflation standpoint? You know, the CT issue to the side, but underlying inflation trends, medical inflation, frequency, severity, what is the latest vibe on that? Yeah. I mean, inflation generally, as it is impacting the workers' compensation environment, is quite benign. We are not seeing anything that is alarming. We have not seen anything that has emerged from the tariffs or their impact on medical prices. We internally, as you are aware, have a prescription drug index that we monitor on a quarterly basis. We are not seeing anything there that is concerning. To us, and, it seems like we are in lockstep with the rest of the industry. And CCI just published a new economic study on medical inflation. I think it just came out last week. And they had a similar result in their study and their medical inflation index that they track. So seems to be pretty calm right now. Yeah. Yeah. Yeah.

Anything more on AI? You described some good use cases. Anything around the budget in order to implement AI? I think you have done really well on expenses and Mike, I think kind of intimated that the expense discipline should continue Just wonder whether there is anything you would highlight there. Either from a customer service, customer acquisition, internal efficiency would be interested in any more thoughts?

Yeah. We do feel like AI is helping us from an efficiency standpoint. We are very focused on the cost of AI. And as many of the models turn from license based to usage based. Fees. How we are going to manage that internally. And we think we have a good plan for that. And we are seeing a lot of use cases. I mentioned in my prepared remarks the vast majority of our organization is utilizing AI. We are pushing out tools to help with productivity. In almost every area of the company. And we are really excited about the momentum we are seeing there. I fully expect that we will be building out our large deductible product utilizing AI exactly the same way that we did when we built our access workers' compensation product. So we are true believers, and it is exciting to watch all the success that we are having from it.

Very good. Thank you.

Thank you.

Excellent. This concludes the question and answer session, and I would now like to turn it back to Kathy Antonello for closing remarks.

Okay. Thank you, Bonnie, and thank you all for joining us this morning. And we look forward to meeting with you again in October.

Thank you for today's participation in this conference. This does conclude the program. You may now disconnect.