Employers Insurance Q1 2026 Earnings Call - Disciplined Underwriting Wins as Stock Trades at 17% Discount to Book Value

Daniel, Conference Operator: Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Matthew Hendrickson, Senior Vice President, Treasury & Investments. Please go ahead.

Matthew Hendrickson, Senior Vice President, Treasury & Investments, Employers Insurance: Thank you, operator. 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 the actual results to be materially different from our expectations, including the risks set forth in our filings with 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 the SEC’s Regulation FD. Such disclosures will be included in the investor 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 on our website. Now, I’ll turn the call over to Cathy Antonello, our Chief Executive Officer.

Cathy Antonello, Chief Executive Officer, Employers Insurance: Thank you, Matthew. Good morning, everyone, and welcome to our first quarter 2026 earnings call. Joining me today is Mike Pedraja, our Chief Financial Officer. I will begin by providing highlights of our first quarter 2026 financial results, and then hand it over to Mike for more details on our financials. Before our Q&A, I’ll come back to you with some additional thoughts. If I had to characterize this quarter in a single word, it would be discipline. We made a deliberate choice to prioritize underwriting quality over volume, and the numbers reflect that conviction. Our underwriting expense ratio improved, our actuarial estimates came in on target, and we returned $83 million to shareholders while growing book value per share, including the deferred gain by 8.9%.

That same discipline positions us well to capitalize on favorable market developments, including the continued shift in the California rate environment. The California Bureau voted earlier this month to submit a second consecutive double-digit pure premium rate increase to the Commissioner, consistent with the underwriting conditions we have observed throughout the state. As we discussed last quarter, we expect pricing and underwriting actions will pressure growth throughout 2026. Our earned premium was essentially flat year-over-year, down 1%. The steps we took in certain jurisdictions and segments in 2025 are working as intended. New growth opportunities are now taking shape, including entering new underwriting segments, appointing new agents, and our recently launched Excess Workers’ Compensation product. Profitable growth remains our North Star. Our first quarter actuarial review confirmed the adequacy of our prior year reserves with no strengthening required.

We recognized a current accident year Loss and LAE ratio of 72%, which is consistent with our 2025 accident year ratio. After delivering a record level of $215 million in capital to our shareholders in 2025, we continued our commitment by returning an additional $83 million in the first quarter through share repurchases and regular quarterly dividends. We also completed the $125 million new debt issuance associated with the recapitalization plan through the cost-effective sources of $105 million from the Federal Home Loan Bank and $20 million from our credit facility, resulting in a weighted average pre-tax interest rate of 4.1%. These capital management steps reflect our continued confidence in our financial position and commitment to delivering value to our shareholders.

Along with our operational performance, these actions increased our book value per share, including the deferred gain to $51.26. We believe our focus on disciplined underwriting, prudent risk management, and strategic investments continues to position us strongly in the workers’ compensation insurance market. With that, Mike will now provide a deeper dive into our first quarter financial results, and then I will return to provide my closing remarks. Mike?

Mike Pedraja, Chief Financial Officer, Employers Insurance: Thank you, Cathy. Gross premiums written were $181 million compared to $212 million for the prior year, a decrease of 15% due primarily to a reduction in new business writings. Our losses and loss adjustment expenses were $129 million versus $121 million a year ago. The current quarter did not include any prior period developments on our voluntary business, and the current accident year Loss and LAE ratio, 72%, is consistent with our 2025 accident year ratio.

Commission expense is $24 million for the quarter versus $23 million for the prior year, an increase of 3%, primarily driven by a non-recurring 2025 favorable adjustment. Underwriting expenses were $41 million for the quarter versus $43 million for the prior year, a decrease of 5%. The improvement in underwriting expenses for the quarter was due primarily to our continued expense management efforts, including reduced personnel costs and other variable costs such as policyholder dividends. Excluding returns from private equity partnership investments, our first quarter net investment income exceeded last year’s by $1.5 million. This outperformance was aided by the increased book yields and investment redeployment achieved through last year’s investment rebalancing. Our fixed maturities maintained a modified duration of 4.4, with a strong average credit quality of A+.

Aided by our investment rebalancing, our weighted average book yield was 4.9% at quarter end, compared to 4.5% for the prior year. Our adjusted net income, which excludes net realized and unrealized investment gains and losses and the benefit of our LPT deferred gain amortization, was $10.3 million for the quarter, compared to $21.3 million last year. During the quarter, we repurchased over 1.8 million shares of our common stock at an average price of $42.42 per share, or $76.9 million. The average repurchase price represented a 17% discount to our book value per share, including the deferred gain.

During the period from April 1st, 2026 through April 28th, 2026, the company repurchased a further 353,547 shares of its common stock at an average price of $42.21 per share. As we have highlighted, we aim to be good stewards of our shareholders’ capital. At current price levels, we are convinced that Employers’ stock is meaningfully undervalued, and executing share repurchases at these price levels produces a compelling return on investment and generates significant value for our continuing shareholders. With that, I’ll turn the call back to Cathy.

Cathy Antonello, Chief Executive Officer, Employers Insurance: Thank you, Mike. Yesterday, our board of directors declared a second quarter 2026 dividend of $0.34 per share, representing a 6.25% increase from the prior quarter. In addition, the board approved a new $125 million share repurchase authorization through December 31, 2027. Operational discipline continued to drive results. Our underwriting expense ratio improved to 22.6% from 23.4% a year ago. As I highlighted last quarter, we are convinced that our utilization of artificial intelligence tools will be a force multiplier, allowing our colleagues to be more efficient and effective. Last month, we brought together approximately 400 employees from across the country to introduce our strategy for implementing AI throughout the organization.

The enthusiasm, both at the event and in the weeks since, have been overwhelmingly positive, and we believe we are creating an innovative culture that will drive differentiated results. We have now moved from AI experimentation to deployment of products using AI. Our vision is that AI will play an increasing role in how we operate going forward. The capabilities that supported our rapid entry into Excess Workers’ Compensation are now being used to improve underwriting insights, automate premium audit and claims operations, and engage our customers. We are convinced that our monoline focus, relatively small size, and flat organizational structure will be an advantage for us as we accelerate AI into every aspect of our company.

We recently became the first insurance carrier to bring quoting directly into ChatGPT, made possible by our patented technology excuse me, which we designed to reach business owners where and how they engage. Rather than waiting for the industry to define this channel, we defined it ourselves. That’s the kind of culture and capability that distinguishes Employers, and it’s what we will continue to build on. We believe Employers is well-positioned and well-capitalized to achieve our goals. With total capitalization of approximately $1 billion, a strong AM Best A rating, and technology-enabled distribution that can reach customers where they engage, we are in a position to deliver lasting value for our shareholders, customers, and colleagues. With that, Daniel, we will now take questions.

Daniel, Conference Operator: As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Mark Hughes with Truist. Your line is open.

Mark Hughes, Analyst, Truist: Hey, Katherine Antonello. Hey, Michael Pedraja.

Cathy Antonello, Chief Executive Officer, Employers Insurance: Hey. Good morning, Mark.

Mike Pedraja, Chief Financial Officer, Employers Insurance: Hey.

Mark Hughes, Analyst, Truist: Good morning. Could you talk about the competitive environment in California? You described they proposed another double-digit rate increase. How much are you realizing in the California market as the broader market is the competition. Did they follow suit with the first rate increase? How do you see things developing there?

Cathy Antonello, Chief Executive Officer, Employers Insurance: So let me talk, if you don’t mind, just about sort of pricing in general, and then we can get into California. You know, when I think about pricing in across workers’ compensation, especially in guaranteed cost, I would say I used to characterize the pricing environment as competitive. I would now say it’s closer to getting somewhat irrational in some jurisdictions and premium bands. Specifically, I would call out guaranteed cost middle market. We’re seeing that there are some diligent carriers, and I think we are included in that group, that are exiting certain states and classes. Some of the states that I would mention, not in specific to us, but just across the market that we’ve seen, exits are New York, California, Massachusetts.

We are seeing some exiting of state jurisdictions in the market. We’re also seeing tightening risk selection in states like Florida, where there’s not a lot of pricing flexibility to begin with. For us, we pulled back significantly in Massachusetts, and we’ve also pulled back in certain class codes. We’ve also cut ties with a few MGAs that we feel were underperforming. I don’t believe that all companies are being as forward-looking as we are in terms of rate adequacy in certain jurisdictions, including California. You know, I would say it’s also possible that the market in certain jurisdictions has really crossed over into what I would call cash flow underwriting. You asked about the rate that we’re achieving.

You know, when we look at our book of business and when we adjust for changes in the mix of business, meaning class code mix, and we compare the first quarter of 2026 to the first quarter of 2025, payrolls were up about 0.5%, and our average rate on renewals countrywide increased about 6%. That’s quarter-over-quarter, 2026 to 2025. I would say, a significant portion of that is coming from California, and where we’re getting double-digit rate increases on our renewals. Yeah, when we look at where our opportunities for growth are, I would say that, we would include segments where we have a differentiated distribution strategy, and I’m speaking to, payroll partners and digital agents and marketplaces. We’re still seeing a lot of growth opportunity there.

We’ve also identified some jurisdictions where we have opportunities to increase our market share and where the pricing margins, we do feel remain very attractive. We’re focusing heavily on those areas. I would include what I said in the prepared remarks that we are appointing more agents in the areas where we feel like there is better pricing margin, and perhaps in certain states where we had entered that state maybe four or five years ago pre-COVID, but we feel like it’s now a good time to increase our market share there.

I would like to add, you know, that the fact that the top of our funnel, when we look at the submissions coming in, California does appear to be a hardening market to some extent because submissions were the highest that we’ve seen across the company and specifically in California in Q1 of 2026 that we’ve ever seen. Submissions at the top of the funnel, including both counts and premium, are very, very high at this time. We’re just being very specific about where we’re willing to quote, and where we feel like the pricing is unreasonable, we’re just not playing there. You know, in terms of growth also, I would say our appetite expansion effort has been huge.

It’s been an area of growth for us over the last 4 years since we started doing that, and we’re gonna continue to do that going forward and entering into new products like Excess and others that we have on the horizon.

Mark Hughes, Analyst, Truist: Yeah, appreciate all that detail. When you describe closer to irrational, can you apply that broadly? You talked about specific jurisdictions, that you’re seeing pressure. If you were to categorize the whole market, would that closer to irrational still apply?

Cathy Antonello, Chief Executive Officer, Employers Insurance: I wouldn’t broad-brush it. Specifically, I would say the first place that we saw this happening, and this was even last year, was in the middle market space. The first dollar middle market space became very competitive, continues to be competitive. To the point where, you know, we’re just not willing to quote in certain instances where we feel like the margin isn’t there.

Mark Hughes, Analyst, Truist: Yeah. Yep. How about the outlook for reserve development? You’ve talked about, you know, only maybe a 2 Q, 4 Q, where where you do the reserve development, you have the potential for a favorable or adverse, I guess. On a go-forward basis, would you say, at least for the time being, it’s probably balance sheet, you know, you’d be protecting the balance sheet rather than recognizing any favorable that might emerge? Or will that be, you know, more dependent on just what you see?

Cathy Antonello, Chief Executive Officer, Employers Insurance: I think it’d be the latter. It’s gonna be more dependent on what we see and how compelling the numbers are. You know, we, you were correct in stating. I mean, we do an actual versus expected analysis at the end of Q1 and Q3. At the end of Q2 and Q4, we do a full analysis where we reselect development factors, and it’s a much deeper dive. We’ve always said that in Q1 or Q3, if we saw something very compelling, we would likely make a move. I mean, we wouldn’t wait. This quarter, things came in, you know, there are always puts and takes depending on how you divide the data. This quarter, everything came in right around where we expected, so we did not feel compelled to make a change.

I think I would agree with what you said in the latter half of your question, which is we will wait and see how things develop in Q2 and make a decision then as to whether or not we would act on favorable development.

Mark Hughes, Analyst, Truist: Mike, the, audit premium impact in the quarter, how much did it help or hinder the growth?

Mike Pedraja, Chief Financial Officer, Employers Insurance: it was relatively small. it was $5 million adjustments in the first quarter. we are seeing premiums generally, the payrolls, as we talked about last time, just moderate. the payroll increases are not developing as they were after COVID. we see a really moderating level of payrolls currently at time, and we see that into the future.

Mark Hughes, Analyst, Truist: Yeah. Katherine Antonello, what’s your what are your Spidey senses telling you about what NCCI is gonna say in a week or two about reserve adequacy, medical inflation, kind of the hot buttons?

Cathy Antonello, Chief Executive Officer, Employers Insurance: Yeah, I, you know, I’m not deep into the numbers like I used to be. I don’t have as much insight being an outsider from NCCI now. You know, my gut would say that the accident years, the accident year 2025 will continue to show a slight increase, and that’s been the case over the last few years. I would expect the level of redundancy for the industry as a whole to decrease. What was your. Oh, inflation, I think. Is that what you, was your third point?

Mark Hughes, Analyst, Truist: Yeah.

Cathy Antonello, Chief Executive Officer, Employers Insurance: Um.

Mark Hughes, Analyst, Truist: Yeah.

Cathy Antonello, Chief Executive Officer, Employers Insurance: Yeah. In terms of inflation, you know, I can tell you, we are, we’re not seeing anything significant that’s impacting our book of business. We continue to track our, we have an internal prescription drug index and, you know, it’s up slightly, but it’s not what I would call anything that’s alarming. You would expect it to be up slightly. So I guess I, from what I’m expecting them to present, I wouldn’t see anything significant come through on inflation or medical severity.

Mark Hughes, Analyst, Truist: Yeah. Okay. Thank you very much.

Cathy Antonello, Chief Executive Officer, Employers Insurance: Thank you, Mark.

Daniel, Conference Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone. Again, that is star one one to ask a question. Our next question comes from Carol Chmiel with Citizens. Your line is open.

Carol Chmiel, Analyst, Citizens: Hi, good morning. Just a question regarding the top line. With the quarterly decline and with the context of the planned, multi-quarter non-renewal of certain business classes, would you categorize it as ahead of expectations in terms of timing?

Mike Pedraja, Chief Financial Officer, Employers Insurance: Hey, Carol Chmiel, how are you? I think this is exactly as we expected and planned. Last quarter, we tried to indicate that we expected to continue that level of, you know, teens type of reduction. We expect to have that same level of performance throughout the rest of the year.

Cathy Antonello, Chief Executive Officer, Employers Insurance: Yeah, I would agree. And having said that, you know, we are opening new markets, new segments, like I was mentioning earlier in my response to Mark. You know, we’re expecting something similar throughout 2026, but we’ll be, you know, introducing new areas throughout the year too.

Mike Pedraja, Chief Financial Officer, Employers Insurance: Yeah, that’s a really good point. I think towards the end of the year, you’ll start to see all the adjustments we’ve made flow through. We expect to see that transition start to be visible, you know, through the results.

Carol Chmiel, Analyst, Citizens: Excellent. Thank you for the detail.

Cathy Antonello, Chief Executive Officer, Employers Insurance: Thanks, Carol.

Daniel, Conference Operator: If you would like to ask a question, please press star one one on your telephone. That is star one one to ask a question. I’m showing no further questions at this time. I would now like to turn it back to Katherine Antonello for closing remarks.

Cathy Antonello, Chief Executive Officer, Employers Insurance: Okay. Thank you, Daniel. Thank you everyone for joining us this morning. We look forward to meeting with you again in July.

Daniel, Conference Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.