Employers Holdings, Inc. - Quarter Report: 2024 March (Form 10-Q)

Commissions and premium taxes payable Accounts payable and accrued expenses Deferred reinsurance gain—LPT Agreement

See accompanying unaudited notes to the consolidated financial statements.

Employers Holdings, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2024 and 2023

(Unaudited)

Common Stock

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss, Net

Treasury Stock at Cost

Total Stockholders’ Equity

Shares Issued

Amount

(in millions, except share data)

Balance, January 1, 2024

()

Stock-based obligations

Vesting of RSUs and PSUs, net of shares withheld to satisfy tax withholdings

()

Acquisition of common stock(1)

()

Dividends declared

()

Net income for the period

—

Change in net unrealized losses on AFS investments, net of taxes of $

—

()

Balance, March 31, 2024

()

Balance, January 1, 2023

()

Stock-based obligations

Stock options exercised

Vesting of RSUs and PSUs, net of shares withheld to satisfy tax withholdings

()

Acquisition of common stock(1)

()

Dividends declared

()

Net income for the period

—


Employers Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in millions)
	Three Months Ended
	March 31,
	2024	2023
Operating activities	(unaudited)
Net income	$	$
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation
Amortization of cloud computing arrangements
Amortization of premium on investments, net	()
Allowance for expected credit losses
Deferred income tax (benefit) expense
Net realized and unrealized gains on investments	()	()
Change in operating assets and liabilities:
Premiums receivable	()	()
Reinsurance recoverable on paid and unpaid losses
Cloud computing arrangements		()
Operating lease right-of-use assets
Current federal income taxes
Unpaid losses and loss adjustment expenses	()	()
Unearned premiums
Accounts payable, accrued expenses and other liabilities	()	()
Deferred reinsurance gain—LPT Agreement	()	()
Contingent commission receivable—LPT Agreement	()
Operating lease liabilities	()	()
Non-cancellable obligations	()	()
Other	()	()
Net cash provided by operating activities
Investing activities
Purchases of fixed maturity securities	()	()
Purchases of equity securities	()	()
Purchases of short-term investments	()	()
Purchases of other invested assets	()	()
Proceeds from sale of fixed maturity securities
Proceeds from sale of equity securities
Proceeds from maturities and redemptions of fixed maturity securities
Proceeds from maturities of short-term investments
Net change in unsettled investment purchases and sales		()
Capital expenditures and other	()	()
Net cash (used in) provided by investing activities	()
Financing activities
Acquisition of common stock	()	()
Cash transactions related to stock-based compensation	()	()
Dividends paid to stockholders	()	()
Payments on finance leases		()
Net cash used in financing activities	()	()
Net decrease in cash, cash equivalents and restricted cash	()	()
Cash, cash equivalents and restricted cash at the beginning of the period
Cash, cash equivalents and restricted cash at the end of the period	$	$

The following table presents our cash, cash equivalents and restricted cash by category within the Consolidated Balance Sheets:

As of

March 31,
2024

December 31,
2023

(unaudited)

(in millions)

Cash and cash equivalents

Restricted cash and cash equivalents supporting reinsurance obligations

Total cash, cash equivalents and restricted cash

See accompanying unaudited notes to the consolidated financial statements.

Employers Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

% quota share reinsurance agreement (the LPT Agreement) through a loss portfolio transfer transaction with third party reinsurers. The LPT Agreement commenced on June 30, 1999 and will remain in effect until: (i) all claims under the covered policies have closed; (ii) the LPT Agreement is commuted or terminated, upon the mutual agreement of the parties; or (iii) the reinsurers’ aggregate maximum limit of liability is exhausted, whichever occurs first. The LPT Agreement does not provide for any additional termination terms. On January 1, 2000, EICN assumed all of the assets, liabilities and operations of the Fund, including the Fund’s rights and obligations associated with the LPT Agreement (See Note 9).

The Company accounts for the LPT Agreement as retroactive reinsurance. Upon entry into the LPT Agreement, an initial deferred reinsurance gain (the Deferred Gain) was recorded as a liability on the Company’s Consolidated Balance Sheets. The Company is also entitled to receive a contingent profit commission under the LPT Agreement through June 30, 2024. The contingent profit commission is estimated based on both actual paid results to date and projections of expected paid losses under the LPT Agreement and is recorded as an asset on the Company’s Consolidated Balance Sheets. The Contingent Commission receivable at March 31, 2024 was $ million.

The accompanying consolidated financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934 (Exchange Act), as amended. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of the Company’s consolidated financial position and results of operations for the periods presented have been included. The results of operations for an interim period are not necessarily indicative of the results for an entire year. These financial statements have been prepared consistent with the accounting policies described in the Company’s Form 10-K for the year ended December 31, 2023 (Annual Report).

The Company operates as a single operating segment, Insurance Operations, through its wholly owned subsidiaries. The Company considers an operating segment to be any component of its business whose operating results are regularly reviewed by the Company's chief operating decision maker (CODM) to make decisions about resources to be allocated to the segment and assess its performance based on discrete financial information. Prior to December 31, 2023, the Company operated through two reportable segments: Employers and Cerity. All periods prior to December 31, 2023 have been conformed to the current presentation. Detailed financial information about the Company's single operating segment is presented in Note 14.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. As a result, actual results could differ from these estimates. The most significant areas that require management judgment are the estimate of unpaid losses and loss adjustment expenses (LAE), evaluation of reinsurance recoverables, recognition of premium revenue, recoverability of deferred income taxes, and valuation of investments.

$ $ $ Cash and cash equivalents Restricted cash and cash equivalents

Assets and liabilities recorded at fair value on the Company’s Consolidated Balance Sheets are categorized based upon the levels of judgment associated with the inputs used to measure their fair value. Level inputs are defined as follows:

•Level 1 - Inputs are unadjusted quoted market prices for identical assets or liabilities in active markets at the measurement date.

•Level 2 - Inputs other than Level 1 prices that are observable for similar assets or liabilities through corroboration with market data at the measurement date.

•Level 3 - Inputs that are unobservable that reflect management’s best estimate of what willing market participants would use in pricing the assets or liabilities at the measurement date.

The Company uses third party pricing services to assist with its investment accounting function. The ultimate pricing source varies depending on the investment security and pricing service used, but investment securities valued on the basis of observable inputs (Levels 1 and 2) are generally assigned values on the basis of actual transactions. Securities valued on the basis of pricing models with significant unobservable inputs or non-binding broker quotes are classified as Level 3. The

million of fixed maturity securities at fair value that were designated Level 3. These private placement securities were designated as Level 3 securities due to the limited amount of observable market information available. $ $ $ $ $ U.S. Agencies States and municipalities Corporate securities

Residential mortgage-backed securities

Commercial mortgage-backed securities

Asset-backed securities Collateralized loan obligations Foreign government securities

Other securities

Total fixed maturity securities$ $ $ $ $ $ Equity securities at fair value:Industrial and miscellaneous$ $ $ $ $ $ Other Total equity securities at fair value$ $ $ $ $ $ Short-term investments$ $ $ $ $ $ Total investments at fair value$ $ $ $ $ $

Financial Instruments Carried at Cost

All of the Company's insurance subsidiaries are members of the Federal Home Loan Bank of San Francisco (FHLB). Members are required to purchase stock in the FHLB in addition to maintaining collateral deposits that back any funds advanced and standby letters of credit issued (See Note 10). The Company’s investment in FHLB stock is recorded at cost, which approximates fair value, as purchases and sales of these securities are at par value with the issuer. FHLB stock is considered a restricted security and is periodically evaluated by the Company for impairment based on the estimated ultimate recovery of par value.

to years, subject to two or three one-year extensions at the general partner’s discretion. The Company will receive distributions of proceeds from dividends and interest from fund investments, as well as from the disposition of a fund investment, or a portion thereof. The Company expects these distributions from time-to-time during the full course of the fund term. As of March 31, 2024, the Company had unfunded commitments to these private equity limited partnerships totaling $ million.

Additionally, certain cash equivalents, principally money market securities, are measured using NAV, which approximates fair value.

The following table presents cash and investments carried at NAV on the Company’s Consolidated Balance Sheets.

$ Other invested assets carried at NAV

$ Purchases

Unrealized (losses) gains included in comprehensive (loss) income

()

Balance at end of period

$ $

$ $ $()$ U.S. Agencies () States and municipalities () Corporate securities () () Residential mortgage-backed securities () Commercial mortgage-backed securities () () Asset-backed securities () Collateralized loan obligations () Foreign government securities ()

Other securities(1)

() () Total fixed maturity securities$ $()$ $()$ Short-term investments Total AFS investments$ $()$ $()$

At December 31, 2023

Fixed maturity securities

U.S. Treasuries

()

U.S. Agencies

()

States and municipalities

()

Corporate securities

()

Residential mortgage-backed securities

()

Commercial mortgage-backed securities

()

Asset-backed securities

()

Collateralized loan obligations

()

Foreign government securities

()

Other securities(1)

()

Total fixed maturity securities

()

Short-term investments

Total AFS investments

()

(1)Other securities within fixed maturity securities consist of bank loans, which are classified as AFS and reported at fair value.

$ Other Total equity securities at fair value$ $

million and $ million (initial cost of $ million and $ million) at March 31, 2024 and December 31, 2023, respectively, consisting of private equity limited partnerships, which are carried at NAV based on information provided by the general partner. These investments are non-redeemable until conversion and are periodically evaluated by the Company for impairment based on the ultimate recovery of the investment. Changes in the value of these investments are recorded through Net realized and unrealized gains (losses) on the Company’s Consolidated Statements of Comprehensive Income (Loss).

$ Due after one year through five years Due after five years through ten years Due after ten years Mortgage and asset-backed securities Total$ $

$() $ $() States and municipalities () () Corporate securities () ()

Residential mortgage-backed securities

() () Asset-backed securities () () Collateralized loan obligations ()

Other securities

() () Total fixed maturity securities () () Total less than 12 months$ $() $ $() 12 months or greater:Fixed maturity securitiesU.S. Treasuries$ $() $ $()

U.S. Agencies

() () States and municipalities () () Corporate securities () ()

Residential mortgage-backed securities

() ()

Commercial mortgage-backed securities

() () Asset-backed securities () () Collateralized loan obligations () () Foreign government securities () () Other securities () () Total fixed maturity securities () () Total 12 months or greater$ $() $ $()

As of March 31, 2024 and December 31, 2023, the Company had an allowance for current expected credit losses (CECL) on AFS debt securities of $ million and $ million, respectively (See Note 5). Those fixed maturity securities whose total fair value was less than amortized cost at each of March 31, 2024 and December 31, 2023, were those in which the Company had no intent, need or requirement to sell at an amount less than their amortized cost.

Realized gains and losses on investments include the gain or loss on a security at the time of sale compared to its original or adjusted cost (equity securities and other invested assets) or amortized cost (fixed maturity securities). Realized losses on fixed maturity securities are also recognized when securities are written down as a result of an other-than-temporary impairment or for unfavorable changes in CECL. Reversals of previously recognized realized losses on fixed maturity securities can also result when securities are written up for favorable changes in CECL.

$()$()$()$()$()Equity securities () Other invested assets ()() Total investments$ $()$()$()$ $()

Three Months Ended March 31, 2023

Fixed maturity securities

()

Equity securities

()

Other invested assets

Total investments

()

) )) )() $

$ $

As of March 31, 2024, the weighted average remaining lease term for operating leases was years and for finance leases was years. The weighted average discount rate was % and % for operating and finance leases, respectively.

$ 2025 2026 2027

2028

Thereafter Total lease payments Less: imputed interest() Total$ $ $ Operating lease liability Finance leases:Property and equipment, gross Accumulated depreciation()()Property and equipment, net Other liabilities$ $ $ Financing cash flows used for finance leases

% and the Company’s effective tax rate for the three months ended March 31, 2023 was %. The effective rates during each of the periods presented included income tax benefits and exclusions associated with tax-advantaged investment income, LPT adjustments, and deferred gain amortization.

million at March 31, 2024, which is included in treasury stock, on its Consolidated Balance Sheets.

Less reinsurance recoverable, excluding CECL allowance, on unpaid losses and LAE

Net unpaid losses and LAE at beginning of period

Losses and LAE, net of reinsurance, incurred during the period related to:

Current period Prior periods()()Total net losses and LAE incurred during the period Paid losses and LAE, net of reinsurance, related to:Current period Prior periods Total net paid losses and LAE during the period Ending unpaid losses and LAE, net of reinsurance

Reinsurance recoverable, excluding CECL allowance, on unpaid losses and LAE

Unpaid losses and LAE at end of period$ $

(1).

(2). The PSU awards are subject to certain performance goals with payouts that range from % to % of the target awards. The value shown in the table represents the aggregate number of PSUs awarded at the target level.

Employees who are awarded RSUs and PSUs are entitled to receive dividend equivalents for eligible awards, payable in cash, when and if, the underlying award vests and becomes payable. If the underlying award does not vest or is forfeited, dividend equivalents with respect to the underlying award fail to become payable and are forfeited.

RSUs and PSUs are subject to accelerated vesting in certain circumstances, including but not limited to: death, disability, retirement, or in connection with a change of control of the Company.

As of March 31, 2024, the Company no longer had any stock options outstanding. During the three months ended March 31, 2023, and the year ended December 31, 2023, there were stock options exercised.

RSUs, and PSUs (based on the target achievement for the PSUs awarded) outstanding.

13.

$ Weighted average number of shares outstanding—basic Effect of dilutive securities:PSUs Stock options RSUs Potential dilutive shares Weighted average number of shares outstanding—diluted

)

Entity-Wide Disclosures

The Company operates solely within the U.S. and does not have revenue from transactions with a single policyholder accounting for % or more of its revenues.

In-force premiums represent the estimated annual premium on all policies that are active and in-force on such date. More specifically, in-force premiums include policy endorsements but exclude estimated final audit premiums. When adjusting for estimated final audit premium, our total in-force premiums were $ million, $ million, $ million, and $ million as of March 31, 2024, December 31, 2023, March 31, 2023, and December 31, 2022, respectively. The Company's management focuses on in-force premium because it represents premium that is available for renewal in the future. The

$ $ $ Florida New York

Other (43 states and D.C.)

Total in-force$ $ $ $ Estimated audit premium Total in-force, including
estimated audit premium$ $ $ $

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes thereto included in Item 1 of Part I. Unless otherwise indicated, all references to "we," "us," "our," "the Company," or similar terms refer to EHI, together with its subsidiaries. In this Quarterly Report on Form 10-Q, the Company and its management discuss and make statements based on currently available information regarding their intentions, beliefs, current expectations, and projections of, among other things, the Company's future performance, economic or market conditions, including current levels of inflation, changes in interest rates, labor market expectations, catastrophic events or geo-political conditions, legislative or regulatory actions or court decisions, business growth, retention rates, loss costs, claim trends and the impact of key business initiatives, future technologies and planned investments. Certain of these statements may constitute "forward-looking" statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and are often identified by words such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "target," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely," or "continue," or other comparable terminology and their negatives. The Company and its management caution investors that such forward-looking statements are not guarantees of future performance. Risks and uncertainties are inherent in the Company’s future performance. Factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements include, among other things, those discussed or identified from time to time in the Company’s public filings with the SEC, including the risks detailed in the Company's Annual Reports on Form 10-K and in Part II, Item 1A of this report. Except as required by applicable securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

General

We are a Nevada holding company. Through our insurance subsidiaries, we provide workers’ compensation insurance coverage to small and select businesses engaged in low-to-medium hazard industries. Workers’ compensation insurance is provided under a statutory system wherein most employers are required to provide coverage for their employees’ medical, disability, vocational rehabilitation, and/or death benefit costs for work-related injuries or illnesses. We provide workers’ compensation insurance throughout most of the United States, with a concentration in California, where 45% of our in-force premiums are generated. Our revenues primarily consist of net premiums earned, net investment income, and net realized and unrealized gains and (losses) on investments.

The insurance industry is highly competitive, and there is significant competition in the national workers’ compensation industry that is based on price and quality of services. We compete with other specialty workers’ compensation carriers, state agencies, multi-line insurance companies, professional employer organizations, self-insurance funds, and state insurance pools.

We target small businesses, as we believe that this market is traditionally characterized by more attractive pricing, and stronger persistency when compared to the U.S. workers’ compensation insurance industry in general. We believe we can price our policies at levels that are competitive and profitable over the long-term given our expertise in underwriting and claims handling in this market segment. Our underwriting approach is to consistently underwrite small business accounts at appropriate and competitive prices without sacrificing long-term profitability and stability for short-term top-line revenue growth.

We pursue profitable growth opportunities by focusing on disciplined underwriting and claims management, utilizing medical provider networks designed to produce superior medical and indemnity outcomes, establishing and maintaining strong, long-

term relationships with traditional and specialty insurance agencies, developing important alternative distribution channels, and offering workers' compensation solutions directly to customers.

We believe we have a cost-effective and scalable information technology infrastructure that complements our geographic reach and business model. We continue to invest in technology to automate business processes and further develop our data analytic capabilities, which we believe will enable us to reduce our operating costs over the long-term and set a foundation for our future needs. Our technology saves our insurance agents and brokers, and our policyholders, considerable time and maintains our competitiveness in our target markets.

We also continue to execute a number of ongoing business initiatives, including: achieving internal and customer-facing business process excellence; further diversifying our risk exposure across geographic markets and economic sectors, when appropriate; appetite expansion; and utilizing a multi-company pricing platform and territory-specific pricing.

Overview

Summary Financial Results

Our net income was $28.3 million for the three months ended March 31, 2024 compared to $23.6 million for the corresponding period of 2023. The key factors that affected our financial performance during the three months ended March 31, 2024, compared to the same period of 2023, included:

•Net premiums earned increased 7.1%;

•Losses and LAE increased 8.5%;

•Underwriting and general and administrative expenses increased 3.2%;

•Underwriting loss of $2.9 million, compared to $2.5 million;

•Net investment income of $26.8 million, compared to $27.6 million; and

•Net realized and unrealized gains on investments of $11.4 million, compared to $6.4 million.

Three Months Ended March 31, 2024

Our underwriting results reflect a 7% increase in net premiums earned, compared to the first quarter of 2023, due to higher new and renewal business premiums. Our investment results benefited from strong and steady net investment income and moderate net realized and unrealized gains.

Three Months Ended March 31, 2023

Our underwriting results reflect a 15% increase in net premiums earned, compared to the first quarter of 2022, due to higher new and renewal business premiums and strong final audit premiums. Our investment results benefited from strong and steady net investment income and moderate net realized and unrealized gains.

Our consolidated financial results of operations for the three months ended March 31, 2024 and 2023 are as follows:


	Three Months Ended
	March 31,
	2024		2023
	(in millions)
Gross premiums written	$	210.9	$	194.9
Net premiums written	$	209.1	$	193.1

Net premiums earned	$	184.9	$	172.7
Net investment income	26.8		27.6
Net realized and unrealized gains on investments	11.4		6.4

Other income (loss)	—		(0.2)
Total revenues	223.1		206.5

Underwriting expenses:
Losses and LAE	116.5		107.4
Commission expense	25.5		23.4

Underwriting and general and administrative expenses	45.8		44.4
Non-underwriting expenses:
Interest and financing expenses	—		2.3

Total expenses	187.8		177.5

Net income before income taxes	35.3		29.0
Income tax expense	7.0		5.4
Net income	$	28.3	$	23.6

I.Review of Underwriting Results

Underwriting income or loss is determined by deducting losses and LAE, commission expenses, and underwriting and general and administrative expenses from net premiums earned. Our underwriting results for the three months ended March 31, 2024 and 2023 are as follows:


	Three Months Ended
	March 31,
	2024			2023
	(in millions)
Gross premiums written	$	210.9		$	194.9
Net premiums written	$	209.1		$	193.1

Net premiums earned	$	184.9		$	172.7






Losses and LAE	116.5			107.4
Commission expense	25.5			23.4

Underwriting and general and administrative expenses	45.8			44.4












Total underwriting expenses	187.8			175.2
Underwriting loss	$	(2.9)		$	(2.5)
Total impact of the LPT	2.1			2.0
Underwriting loss excluding LPT(1)	$	(0.8)		$	(0.5)

Loss and LAE ratio	63.0		%	62.2		%
Commission expense ratio	13.8			13.5
Underwriting expense ratio	24.8			25.7
Combined ratio	101.6		%	101.4		%
Total impact of the LPT	1.1		%	1.1		%
Combined ratio excluding LPT(1)	102.7		%	102.6		%

(1) The LPT Agreement is a non-recurring (loss portfolio transfer) transaction that does not result in any significant ongoing benefits to the Company. We provide our underwriting income and combined ratios excluding the effects of the LPT because we believe that these measures are useful in providing investors, analysts and other interested parties a meaningful understanding of our ongoing underwriting performance and provides them with a consistent basis for comparison with other companies in our industry. In addition, we believe that these non-GAAP measures, as presented, are helpful to our management in identifying trends in our performance because the LPT has limited significance to our current and ongoing operations.

Gross Premiums Written

Gross premiums written were $210.9 million for the three months ended March 31, 2024 compared to $194.9 million for the corresponding period of 2023. The growth in new business premiums we experienced is the result of an increase in new submissions, quotes and binds in the majority of the states in which we operate, which is being largely driven by the expansion in the classes of business that we offer. As a result of these continued initiatives, we closed another quarter with a record number of policies in-force. In addition, our renewal premiums benefited from continued strong retention rates during the three months ended March 31, 2024.

Net Premiums Written

Net premiums written are gross premiums written less reinsurance premiums ceded. For each of the periods presented, the reinsurance premiums ceded related to our July 1 - June 30 annual reinsurance programs as further described herein.

Net premiums written were $209.1 million for the three months ended March 31, 2024, compared to $193.1 million for the corresponding period of 2023. Reinsurance premiums ceded were $1.8 million for each of the three months ended March 31, 2024 and March 31, 2023.

Net Premiums Earned

Net premiums earned are primarily a function of the amount and timing of net premiums previously written.

Net premiums earned were $184.9 million for the three months ended March 31, 2024, compared to $172.7 million for the corresponding period of 2023.

Losses and LAE, Commission Expenses, and Underwriting Expenses

The following table presents our calendar year combined ratios.


	Three Months Ended
	March 31,
	2024		2023
Loss and LAE ratio excluding LPT	64.1	%	63.3	%

Loss and LAE ratio - LPT	(1.1)		(1.1)
Commission expense ratio	13.8		13.5
Underwriting expense ratio	24.8		25.7
Combined ratio	101.6	%	101.4	%
Combined ratio excluding LPT	102.7	%	102.5	%

Losses and LAE represents our largest expense item and includes claim payments made, amortization of the Deferred Gain, LPT Reserve Adjustments, LPT Contingent Commission Adjustments, estimates for future claim payments and changes in those estimates for current and prior periods, and costs associated with investigating, defending, and adjusting claims. The quality of our financial reporting depends in large part on accurately predicting our losses and LAE, which are inherently uncertain as they are estimates of the ultimate cost of individual claims based on actuarial estimation techniques.

Our current accident year loss estimate continues to consider, and benefit from, overall declines in the on-leveled frequency of compensable indemnity claims. We believe that our current accident year loss estimate is adequate; however, ultimate losses will not be known with any certainty for many years. Total claims costs have also been reduced by cost savings associated with our continued focus on accelerating claims settlements.

Loss and LAE Ratio. We analyze our loss and LAE ratios on both a calendar year and accident year basis.

The calendar year loss and LAE ratio is calculated by dividing the losses and LAE recorded during the calendar year, regardless of when the underlying insured event occurred, by the net premiums earned during that calendar year. The calendar year loss and LAE ratio reflects changes made during the calendar year in reserves for losses and LAE established for insured events occurring in the current and prior years. The calendar year loss and LAE ratio for a particular year will not change in future periods.

The accident year loss and LAE ratio is calculated by dividing cumulative losses and LAE for reported events that occurred during a particular year by the net premiums earned for that year. The accident year loss and LAE ratio for a particular year can decrease or increase when recalculated in subsequent periods as the reserves established for insured events occurring during that year fluctuate.

Our calendar year loss and LAE ratio is analyzed to measure profitability in a particular year and to evaluate the adequacy of premium rates charged in a particular year to cover expected losses and LAE from all periods, including development (whether favorable or unfavorable) of reserves established in prior periods. In contrast, our accident year loss and LAE ratios are analyzed to evaluate underwriting performance and the adequacy of the premium rates charged in a particular year in relation to ultimate losses and LAE from insured events occurring during that year. The loss and LAE ratios provided in this report are on a calendar year basis, except where they are expressly identified as accident year loss and LAE ratios.

The table below reflects prior accident year loss and LAE reserve adjustments and the impact to loss ratio.


	Three Months Ended
	March 31,
	2024			2023
	(dollars in millions)


Current accident year losses and LAE - excluding LPT	$	118.7		$	109.6
Prior accident year favorable loss reserve development, net	(0.1)			(0.2)

Impact of LPT	(2.1)			(2.0)
Calendar year losses and LAE	$	116.5		$	107.4





Current accident year loss and LAE ratio - excluding LPT	64.2		%	63.5		%
Calendar year loss and LAE ratio - excluding LPT	64.1		%	63.3		%
Calendar year loss and LAE ratio	63.0		%	62.2		%

The increase in our calendar year losses and LAE during the three months ended March 31, 2024, as compared to the same period of 2023, was primarily due to higher earned premium and a higher accident year loss and LAE estimate. All of the favorable development that we recognized during these periods related to our assigned risk business.

Our current accident year loss and LAE ratio was 64.1% (64.0% excluding involuntary business) for the three months ended March 31, 2024, compared to 63.5% (63.3% excluding involuntary business) for the corresponding period of 2023. Our current accident year loss and LAE ratios continue to reflect the impact of key business initiatives: an emphasis on accelerated settlements of open claims; further diversifying its risk exposure across geographic markets, when appropriate; and leveraging data-driven strategies to target, underwrite, and price profitable classes of business across all of our markets.

Excluding the impact from the LPT Agreement, losses and LAE would have been $118.4 million and $109.4 million for the three months ended March 31, 2024 and 2023, respectively.

The table below reflects the impact of the LPT on Losses and LAE, which are recorded as a reduction to Losses and LAE incurred on our Consolidated Statements of Comprehensive Income (Loss).


	Three Months Ended
	March 31,
	2024		2023
	(in millions)
Amortization of the Deferred Gain related to losses	$	1.5	$	1.6
Amortization of the Deferred Gain related to contingent commission	0.4		0.4

Impact of LPT Contingent Commission Adjustments(1)	0.2		—
Total impact of the LPT	$	2.1	$	2.0

(1)LPT Contingent Commission Adjustments result in an adjustment to the Contingent commission receivable - LPT Agreement, which is recognized in losses and LAE incurred on our Consolidated Statements of Comprehensive Income (Loss). (See Note 9 in the Notes to our Consolidated Financial Statements.)

Commission Expenses Ratio

Commission expenses include direct commissions to our agents and brokers, including our partnerships and alliances, for the premiums that they produce for us, as well as agency incentive payments, other marketing costs, and fees.

Our commission expense ratio was 13.8% and 13.5%, and our commission expenses were $25.5 million and $23.4 million for the three months ended March 31, 2024 and 2023, respectively. The increase for the three months ended March 31, 2024 was primarily related to an increase in new business writings, which are typically subject to higher initial commission rates, and an increase in anticipated 2024 agency incentives.

Underwriting and General and Administrative Expense Ratio

Underwriting and general and administrative expenses represent those costs that we incur to underwrite and maintain the insurance policies we issue, excluding commissions. Variable underwriting expenses, such as premium taxes, policyholder dividends, and those expenses that vary directly with the production of new or renewal business, are recognized as the associated premiums are earned. Fixed underwriting expenses, such as the operating expenses of EHI and its subsidiaries, do not vary directly with the production of new or renewal business and are recognized as incurred.

Our underwriting and general and administrative expense ratio was 24.8% and 25.7%, and our underwriting expenses were $45.8 million and $44.4 million for the three months ended March 31, 2024 and 2023, respectively. The increase in underwriting expenses for the three months ended March 31, 2024 was primarily the result of increases in compensation-related expenses of $2.8 million and bad debt expense of $2.3 million, partially offset by decreases in depreciation and amortization of $1.6 million, marketing and advertising expenses of $1.0 million, and professional fees of $0.9 million, each compared to the same period of 2023.

II. Review of Non-Underwriting Results

Net Investment Income and Net Realized and Unrealized Gains and Losses on Investments

We invest in fixed maturity securities, equity securities, other invested assets, short-term investments, and cash equivalents. Net investment income includes interest and dividends earned on our invested assets and amortization of premiums and discounts on our fixed maturity securities, less bank service charges and custodial and portfolio management fees.

Net investment income decreased 2.9% for the three months ended March 31, 2024, compared to the same period of 2023. The decrease was due to a lower invested balance of fixed maturity securities and short-term investments, as measured by amortized

cost, resulting primarily from the unwinding of our former FHLB leveraged investment strategy, which was in effect from the first quarter of 2022 to the fourth quarter of 2023.

Realized and unrealized gains and losses on our investments are reported separately from our net investment income. Realized gains and losses on investments include the gain or loss on a security at the time of sale compared to its original or adjusted cost (equity securities) or amortized cost (fixed maturity securities). Realized losses are also recognized for changes in our CECL allowance or when securities are written down because of an other-than-temporary impairment. Changes in the fair value of equity securities and other invested assets are also included in Net realized and unrealized gains (losses) on investments on our Consolidated Statements of Comprehensive Income (Loss).

Net realized and unrealized gains on investments were $11.4 million for the three months ended March 31, 2024, compared to $6.4 million for the corresponding period of 2023. The net realized and unrealized gains on investments for the three months ended March 31, 2024 and 2023 included $12.3 million and $8.0 million of net realized and unrealized gains on equity securities and other investments, respectively, and $0.9 million and $1.6 million of net realized losses on fixed maturity securities, respectively.

The net investment gains and losses on our equity securities during the three months ended March 31, 2024 were largely consistent with the performance of U.S. equity markets. The net realized investment losses on our fixed maturity securities during the three months ended March 31, 2024 were primarily the result of a $0.5 million increase in our allowance for CECL.

The net investment gains on our equity securities during the three months ended March 31, 2023 were largely consistent with the performance of U.S. equity markets. The net realized investment losses on our fixed maturity securities during the three months ended March 31, 2023 were primarily the result of a $1.4 million increase in our allowance for CECL, which resulted primarily from volatility and credit concerns in certain financial and banking markets.

Additional information regarding our Investments is set forth under “—Liquidity and Capital Resources—Investments.”

Other Income (Loss)

Other income (loss) consists of net gains and losses on fixed assets, non-investment interest, and other miscellaneous income.

Interest and Financing Expenses

Interest and financing expenses include fees and interest associated with our $75.0 million three-year revolving credit facility, fees and interest associated with our various credit arrangements with the FHLB, finance lease interest, and other financing fees.

Interest and financing expenses were less than $0.1 million for the three months ended March 31, 2024, compared to $2.3 million for the corresponding period of 2023. The decrease resulted primarily from the unwinding of our former FHLB leveraged investment strategy, which was in effect from the first quarter of 2022 to the fourth quarter of 2023.

Income Tax Expense

Income tax expense was $7.0 million for the three months ended March 31, 2024, compared to $5.4 million for the corresponding period of 2023. The effective tax rates were 19.8% for the three months ended March 31, 2024, compared to 18.6% for the corresponding period of 2023. The effective rates during each of the periods presented included income tax benefits and exclusions associated with tax-advantaged investment income, LPT adjustments, and deferred gain amortization.

Liquidity and Capital Resources

We believe that our total capital position remains strong and that the liquidity available to EHI and its subsidiaries remains adequate and will be sufficient for our financing needs in the next 12 months and in the longer term period thereafter. As a result, we do not currently foresee a need to: (i) suspend dividends at either EHI or its insurance subsidiaries; (ii) forego repurchases of EHI's common stock; (iii) seek additional capital; or (iii) seek any material non-investment asset sales.

EHI Liquidity

EHI is a holding company and its ability to fund its operations is contingent upon its existing capital and the ability of its subsidiaries to pay it dividends. Payment of dividends by EHI's insurance subsidiaries is restricted by state insurance laws and regulations, including laws establishing minimum solvency and liquidity thresholds. EHI requires cash to pay dividends to its stockholders, repurchase its common stock, provide additional surplus to its insurance subsidiaries, and fund its operating expenses.

EHI's insurance subsidiaries’ ability to pay dividends and distributions is based on their reported capital, surplus, and dividends paid within the prior twelve months.

During the first quarter of 2024, ECIC made a $23.3 million dividend payment to its parent company, which in turn distributed that amount to EHI. As a result of that dividend payment, ECIC cannot pay dividends for the remainder of 2024 without prior regulatory approval.

During the first quarter of 2024, EICN made a $13.7 million dividend payment to its parent company, which in turn distributed that amount to EHI. As a result of that dividend payment, EICN cannot pay any dividends for the remainder of 2024 without prior regulatory approval.

Total cash and investments at EHI were $66.6 million at March 31, 2024, consisting of $40.8 million of cash and cash equivalents, $1.3 million of fixed maturity securities, and $24.5 million of equity securities.

Operating Subsidiaries’ Liquidity

The primary sources of cash for our operating subsidiaries, which include our insurance and other operating subsidiaries, are premium collections, investment income, sales and maturities of investments, and reinsurance recoveries. The primary uses of cash for our operating subsidiaries are payments of losses and LAE, commission expenses, underwriting and general and administrative expenses, ceded reinsurance, investment purchases and dividends paid to their parent.

Total cash and investments held by our operating subsidiaries was $2,427.7 million at March 31, 2024, consisting of $73.6 million of cash and cash equivalents, and restricted cash, $38.2 million of short-term investments, $2,012.5 million of fixed maturity securities, $205.8 million of equity securities, and $97.6 million of other invested assets. Sources of immediate and unencumbered liquidity at our operating subsidiaries as of March 31, 2024 consisted of $73.4 million of cash and cash equivalents, $199.7 million of publicly traded equity securities whose proceeds are available within three business days, $668.5 million of highly liquid fixed maturity securities whose proceeds are available within three business days and $17.7 million of short-term investments whose proceeds are available within three business days. We believe that our subsidiaries’ liquidity needs over the next 12 months and for the longer term period thereafter will be met with cash from operations, investment income, and maturing investments.

All of our insurance subsidiaries are members of the FHLB. Membership allows our subsidiaries access to collateralized advances, which may be used to support and enhance liquidity management. The amount of advances that may be taken is dependent on statutory admitted assets on a per company basis.

FHLB membership also allows our insurance subsidiaries access to standby Letter of Credit Agreements. Letter of Credit Agreements we currently have in effect will expire March 31, 2025 and may only be used to satisfy, in whole or in part, insurance deposit requirements with the State of California and are fully secured with eligible collateral at all times (See Note 10).

We purchase reinsurance to protect us against the costs of severe claims and catastrophic events, including pandemics. On July 1, 2023, we entered into a new reinsurance program, which is largely unchanged from our expiring reinsurance program, which is effective through June 30, 2024. The reinsurance program consists of one treaty covering excess of loss and catastrophic loss events in four layers of coverage. Our reinsurance coverage is $190.0 million in excess of our $10.0 million retention on a per occurrence basis, subject to certain exclusions. We believe that our reinsurance program meets our needs and that we are sufficiently capitalized.

Various state laws and regulations require us to hold investment securities or letters of credit on deposit with certain states in which we do business. Securities having a fair value of $760.6 million and $748.1 million were on deposit at March 31, 2024 and December 31, 2023, respectively. These laws and regulations govern both the amount and types of investment securities that are eligible for deposit. Additionally, standby letters of credit from the FHLB have been issued in lieu of $70.0 million securities on deposit at both March 31, 2024 and December 31, 2023.

Certain reinsurance contracts require company funds to be held in trust for the benefit of the ceding reinsurer to secure the outstanding liabilities we have assumed. The fair value of fixed maturity securities held in trust for the benefit of our ceding reinsurers was $3.0 million at both March 31, 2024 and December 31, 2023, respectively.

Sources of Liquidity

We monitor the cash flows of each of our subsidiaries individually, as well as collectively as a consolidated group. We use trend and variance analyses to project future cash needs, making adjustments to our forecasts as appropriate.

The table below shows our net cash flows for the three months ended:


	March 31,
	2024		2023
	(in millions)
Cash, cash equivalents, and restricted cash provided by (used in):
Operating activities	$	0.6	$	4.3
Investing activities	(97.7)		12.8
Financing activities	(15.1)		(19.6)
Decrease in cash, cash equivalents, and restricted cash	$	(112.2)	$	(2.5)

For additional information regarding our cash flows, see Item 1, Consolidated Statements of Cash Flows.

Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2024, included net premiums received of $185.1 million and investment income received of $26.2 million. The cash provided by these operating activities were largely offset by net claims payments of $124.6 million, underwriting and general and administrative expenses paid of $57.3 million, and commissions paid of $28.8 million.

Net cash provided by operating activities for the three months ended March 31, 2023, included net premiums received of $171.7 million and investment income received of $26.8 million. These operating cash inflows were partially offset by net claims payments of $111.5 million, underwriting and general and administrative expenses paid of $53.9 million, commissions paid of $26.5 million, and interest paid of $2.3 million.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2024, related primarily to investment of premiums received and the reinvestment of funds from invest sales, maturities, redemptions, and interest income. The cash used in these investment activities was partially offset by investment sales, maturities, and redemptions whose proceeds were used to fund claims payments, underwriting and general and administrative expenses, stockholder dividend payments, and common stock repurchases.

Net cash provided by investing activities for the three months ended March 31, 2023, related primarily to investment sales, maturities, and redemptions whose proceeds were used to fund claims payments, underwriting and general and administrative expenses, stockholder dividend payments, and common stock repurchases. These investing cash inflows were partially offset by the investment of premiums received and reinvestment of funds from investment sales, maturities, redemptions, and interest income.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2024 and 2023, related primarily to stockholder dividend payments and common stock repurchases.

Dividends

We paid $7.8 million and $7.6 million in dividends to our stockholders and eligible plan award holders for the three months ended March 31, 2024 and 2023, respectively. The declaration and payment of future dividends to common stockholders, including any special dividends that may be declared in the future, will be at the discretion of our Board of Directors (Board) and will depend upon many factors including our financial position, capital requirements of our operating subsidiaries, legal and regulatory requirements, and any other factors that our Board deems relevant. On April 24, 2024, the Board declared a quarterly dividend per share of $0.30, which is payable May 22, 2024 to stockholders of record on May 8, 2024.

Stock Repurchases

We repurchased 123,073 shares of our common stock for $4.9 million during the three months ended March 31, 2024. Future repurchases of our common stock will be at the discretion of our Board and will depend upon many factors, including our financial position, capital requirements of our operating subsidiaries, general business and socioeconomic conditions, legal, tax, regulatory, and/or contractual restrictions, and any other factors that our Board deems relevant.

Capital Resources

As of March 31, 2024, the capital resources available to us consisted of $1,018.9 million of stockholders’ equity and the $97.2 million Deferred Gain.

Contractual Obligations and Commitments

Other than operating expenses, our current and long-term cash requirements include the following contractual obligations and commitments as of March 31, 2024:

Leases

We have entered into lease arrangements for certain equipment and facilities. As of March 31, 2024, we had lease payment obligations totaling $5.8 million, of which $1.8 million is payable within 12 months.

Other Purchase Obligations

We have other purchase obligations that primarily consist of non-cancellable obligations to acquire capital assets, commitments for information technology and related services, software acquisition and license commitments and other legally binding agreements to purchase services that are to be used in our operations. As of March 31, 2024, we had other purchase obligations totaling $14.1 million, of which $3.4 million is payable within 12 months.

Unfunded Investment Commitments

We have investments in private equity limited partnerships that require capital distributions to fund the investments and can be called any time. As of March 31, 2024, we had unfunded investment commitments totaling $19.0 million.

Unpaid Losses and LAE Expenses

We have developed unpaid losses and LAE expense payment patterns that are computed based on historical information. Our calculation of loss and LAE expense payments by period is subject to the same uncertainties associated with determining the level of reserves and to the additional uncertainties arising from the difficulty of predicting when claims (including claims that have not yet been reported to us) will be paid. Actual payments of losses and LAE by period will vary, perhaps materially, to the extent that current estimates of losses and LAE expense vary from actual ultimate claims amounts due to variations between expected and actual payment patterns. As of March 31, 2024, we had unpaid losses and LAE reserves totaling $1,874.5 million, of which $300.1 million is currently expected to be paid within 12 months.

The unpaid losses and LAE expense payment patterns are gross of reinsurance recoverables for unpaid losses. As of March 31, 2024, we had reinsurance recoverables on unpaid losses and LAE totaling $424.0 million, of which $29.9 million is currently expected to be received within 12 months.

Investments

Our investment portfolio is structured to support our need for: (i) optimizing our risk-adjusted total returns; (ii) providing adequate liquidity; (iii) facilitating financial strength and stability; and (iv) ensuring regulatory and legal compliance. These investments provide a steady source of income, which may fluctuate with changes in interest rates and our current investment strategies.

As of March 31, 2024, our investment portfolio consisted of 85% fixed maturity securities which had a duration of 4.5 at March 31, 2024. Our investment strategy balances consideration of duration, yield, and credit risk. Our investment guidelines require that the minimum weighted average quality of our fixed maturity securities portfolio be “A,” using ratings assigned by Standard & Poor’s (S&P) or an equivalent rating assigned by another nationally recognized statistical rating agency. Our fixed maturity securities portfolio had a weighted average quality of “A+” as of March 31, 2024. Other securities within fixed maturity securities consist of bank loans, which are classified as AFS and are reported at fair value.

Our investment portfolio also contains equity securities. We strive to limit the exposure to equity price risk associated with publicly traded equity securities by diversifying our holdings across several industry sectors. These equity securities had a fair value of $224.3 million at March 31, 2024, which represented 10% of our investment portfolio at that time. We also have a $6.0 million investment in FHLB stock which we record at cost. We receive periodic dividends from the FHLB for this investment, when declared, which can vary from period to period.

Our other invested assets made up 4% of our investment portfolio as of March 31, 2024 and include private equity limited partnerships. Our investments in private equity limited partnerships totaled $97.6 million at March 31, 2024 and are generally not redeemable by the investees and cannot be sold without prior approval of the general partner. These investments have a fund term of 3 to 12 years, subject to two or three one-year extensions at the general partner’s discretion. We expect to receive distributions of proceeds from dividends and interest from fund investments, as well as from the disposition of a fund investment or portion thereof, from time-to-time during the full course of the fund term. As of March 31, 2024, we had unfunded commitments to these private equity limited partnerships totaling $19.0 million.

We believe that our current asset allocation meets our strategy to preserve capital for claims and policy liabilities and to provide sufficient capital resources to support and grow our ongoing insurance operations.

The following table shows the estimated fair value, the percentage of the fair value to total invested assets, and the average ending book yield, (each based on the "book value" of each category of invested assets) as of March 31, 2024.


Category	Estimated Fair Value		Percentage of Total		Book Yield
	(in millions, except percentages)
U.S. Treasuries	$	63.0	2.8	%	3.1	%
U.S. Agencies	2.1		0.1		2.9
States and municipalities	199.8		8.8		4.0
Corporate securities	939.5		41.1		3.8
Residential mortgage-backed securities	370.0		16.3		3.5
Commercial mortgage-backed securities	63.2		2.8		3.9
Asset-backed securities	176.7		7.8		5.3
Collateralized loan obligations	72.8		3.2		7.3
Foreign government securities	10.0		0.4		2.8
Other securities	116.7		5.1		8.7
Equity securities	224.3		9.9		3.1
Short-term investments	38.2		1.7		5.5
Total investments at fair value	$	2,276.3	100.0	%
Weighted average yield					4.3	%

The following table shows the percentage of total estimated fair value of our fixed maturity securities as of March 31, 2024 by credit rating category, using the lower of the ratings assigned by Moody’s Investors Service or S&P.


Rating	Percentage of Total Estimated Fair Value
“AAA”	11.5	%
“AA”	34.0
“A”	31.4
“BBB”	13.7
Below Investment Grade	9.4
Total	100.0	%

Investments that we currently own could be subject to default by the issuer. We regularly assess individual securities as part of our ongoing portfolio management, including the identification of credit related losses. Our assessment includes reviewing the extent of declines in fair value of investments below amortized cost, historical and projected financial performance and near-term prospects of the issuer, the outlook for industry sectors, credit rating, and macro-economic changes. We also make a determination as to whether it is not more likely than not that we will be required to sell the security before its fair value recovers to above cost, or maturity.

In addition to recognizing realized gains and losses upon the disposition of an investment security, we also recognize realized losses and recoveries of previously recorded realized losses on AFS debt securities for changes in CECL. As of March 31, 2024, we maintained a CECL allowance of $3.2 million on AFS debt securities. During the three months ended March 31, 2024, we recognized a net $0.5 million increase to our allowance for CECL on AFS debt securities. The remaining fixed maturity securities whose total fair value was less than amortized cost at March 31, 2024, were those in which we had no intent, need, or requirement to sell at an amount less than their amortized cost.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Estimates

The unaudited interim consolidated financial statements included in this quarterly report include amounts based on the use of estimates and judgments of management for those transactions that are not yet complete. We believe that the estimates and judgments that were most critical to the preparation of the consolidated financial statements involved the reserves for losses and LAE and reinsurance recoverables. These estimates and judgments require the use of assumptions about matters that are highly uncertain and therefore are subject to change as facts and circumstances develop. Our accounting policies are discussed under "Critical Accounting Estimates" in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of potential economic loss principally arising from adverse changes in the fair value of financial instruments. The major components of market risk affecting us are credit risk, interest rate risk, and equity price risk.

Credit Risk

Our fixed maturity securities, equity securities, other invested assets and cash equivalents are exposed to credit risk, which we attempt to mitigate through issuer and industry diversification. Our investment guidelines include limitations on the minimum rating of fixed maturity securities and concentrations of a single issuer.

We also bear credit risk with respect to the reinsurers, which can be significant considering that some loss reserves remain outstanding for an extended period of time. We are required to pay losses even if a reinsurer refuses or fails to meet its obligations to us under the applicable reinsurance agreement(s). We continually monitor the financial condition and financial strength ratings of our reinsurers. Additionally, we bear credit risk with respect to premiums receivable, which is generally diversified due to the large number of entities comprising our policyholder base and their dispersion across many different industries and geographies.

The economic disruptions caused by financial market volatility, inflationary pressures, and heightened geo-political conditions, have impacted the credit risk associated with certain of our investment holdings. As of March 31, 2024, we maintained a $3.2 million allowance for CECL on our fixed maturity portfolio. See Note 5 to the consolidated financial statements.

Interest Rate Risk

Investments

The fair value of our fixed maturity portfolio is exposed to interest rate risk, which is the risk of a change in fair value resulting from changes in prevailing interest rates, which we manage through duration. Our fixed maturity investments (excluding cash and cash equivalents) had a duration of 4.5 at March 31, 2024. Our investment strategy balances consideration of duration, yield and credit risk. We continually monitor the changes in interest rates and their impact on our liquidity and ability to meet our obligations.

Sensitivity Analysis

The fair values or cash flows of market sensitive instruments are subject to potential losses in future earnings resulting from changes in interest rates and other market conditions. Our sensitivity analysis applies a hypothetical parallel shift in market rates and reflects what we believe are reasonably possible near-term changes in those rates (covering a period of time going forward up to one year from the date of the consolidated financial statements). Actual results may differ from the hypothetical change in market rates assumed in this disclosure. This sensitivity analysis does not reflect the results of any action that we may take to mitigate such hypothetical losses in fair value.

We use fair values to measure our potential loss in this model, which includes fixed maturity securities and short-term investments. For invested assets, we use modified duration modeling to calculate changes in fair values. Durations on invested assets are adjusted for call, put, and interest rate reset features. Invested asset portfolio durations are calculated on a market value weighted basis, excluding accrued investment income, using holdings as of March 31, 2024. The estimated changes in fair values on our fixed maturity securities and short-term investments, which had an aggregate value of $2,052.0 million as of March 31, 2024, based on specific changes in interest rates are as follows:


Hypothetical Changes in Interest Rates	Estimated Pre-tax Increase (Decrease) in Fair Value
	(in millions, except percentages)
300 basis point rise	$	(240.9)	(11.7)	%
200 basis point rise	(164.2)		(8.0)
100 basis point rise	(82.0)		(4.0)
50 basis point decline	50.5		1.9
100 basis point decline	96.7		4.7
200 basis point decline	190.9		9.3
300 basis point decline	285.5		13.9

The most significant assessment of the effects of hypothetical changes in interest rates on investment income would be based on GAAP guidance related to "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases," which requires amortization adjustments for mortgage-backed securities. The rates at which the mortgages underlying mortgage-backed securities are prepaid, and therefore the average life of mortgage-backed securities, can vary depending on changes in interest rates (for example, mortgages are prepaid faster and the average life of mortgage-backed

securities falls when interest rates decline). Adjustments for changes in amortization are based on revised average life assumptions and would have an impact on investment income if a significant portion of our commercial and residential mortgage-backed securities were purchased at significant discounts or premiums to par value. As of March 31, 2024, the par value of our commercial and residential mortgage-backed securities holdings was $472.2 million, and the amortized cost was 102.0% of par value. Since a majority of our mortgage-backed securities were purchased at a premium that is significant as a percentage of par, an adjustment could have a significant effect on investment income. The commercial and residential mortgage-backed securities portion of the portfolio represented 19.1% of our total investments as of March 31, 2024. Agency-backed residential mortgage pass-throughs represented 86.0% of the residential mortgage-backed securities portion of the portfolio as of March 31, 2024.

Equity Price Risk

Equity price risk is the risk that we may incur losses in the fair value of the equity securities we hold in our investment portfolio. Adverse changes in the market prices of the equity securities we hold in our investment portfolio would result in decreases in the fair value of our total assets on our Consolidated Balance Sheets and in net realized and unrealized gains on our Consolidated Statements of Comprehensive Income (Loss). Economic and market disruptions caused by geo-political conditions, inflationary pressures and credit concerns in certain financial and banking markets, have resulted in volatility in the fair value of our equity securities. We minimize our exposure to equity price risk by investing primarily in the equity securities of mid-to-large capitalization issuers and by diversifying our equity holdings across several industry sectors.

The table below shows the sensitivity of our equity securities at fair value to price changes as of March 31, 2024:


(in millions)	Cost		Fair Value		10% Fair Value Decrease		Pre-tax Impact on Decrease in Total Equity Securities		10% Fair Value Increase		Pre-tax Impact on Increase in Total Equity Securities
Equity securities	$	125.9	$	224.3	$	201.9	$	(22.4)	$	246.7	$	22.4

Effects of Inflation

In recent years, economic slowdowns, financial market volatility, monetary and fiscal policy measures, heightened geo-political tensions and fluctuations in interest rates have contributed to higher levels of inflation and may continue to lead to elevated levels of inflation in future periods.

Higher levels of inflation than we have anticipated could significantly impact our financial statements and results of operations. Our estimates for losses and LAE include assumptions about the timing of closure and future payment of claims and claims handling expenses, such as medical treatments and litigation costs. Inflation is also incorporated in our reserving process through projections supported by historical loss emergence. Under the current elevated inflationary environment, additional inflationary considerations were included in determining the level and adequacy of our reserves, and particular consideration was given to medical and hospital inflation rates as these inflation rates have historically exceeded general inflation rates. To the extent that inflation causes these costs to increase above established reserves, we will be required to increase those reserves for losses and LAE, reducing our earnings in the period in which our assumptions are revised.

Higher levels of wage inflation can specifically impact the payrolls of our insureds, which is the basis for the premiums we charge, as well as amount of future indemnity losses we may incur.

Higher levels of inflation could also impact our operating expenses and, in the case of wage inflation, could impact our payroll expenses.

Increases in market interest rates that have occurred in recent years are intended to aid in the suppression of inflation, negatively impacted the market value of our existing fixed maturity investments while increasing the yields on our new and variable rate fixed maturity investments.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time-to-time, the Company is involved in pending and threatened litigation in the normal course of business in which claims for monetary damages are asserted. In the opinion of management, the ultimate liability, if any, arising from such pending or threatened litigation is not expected to have a material effect on our results of operations, liquidity, or financial position.

Item 1A. Risk Factors

We have disclosed in our Annual Report the most significant risk factors that can impact year-to-year comparisons and that may affect the future performance of the Company's business. On a quarterly basis, we review these disclosures and update the risk factors, as appropriate. As of the date of this report, there have been no material changes to the risk factors contained in our Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to the Company’s repurchases of its common stock during the three months ended March 31, 2024:


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet be Purchased Under the Program
					(in millions)
January 1 - January 31	111,973	$	39.40	111,973	$	16.6
February 1 - February 29	11,100	39.99		11,100	16.2
March 1 - March 31	—	—		—	16.2
	123,073	$	39.45	123,073

On July 26, 2023, the Board authorized a new stock repurchase authorization (the "2023 Program") for up to $50.0 million of repurchases of our common stock from July 31, 2023 through December 31, 2024, unless otherwise extended, terminated or modified by the Board. The 2023 Program provides that shares may be purchased in the open market and/or in privately negotiated transactions from time to time, and that all purchases shall be made in compliance with all applicable provisions of the Nevada Revised Statutes and federal and state securities laws including, but not limited to, Rules 10b5-1 and 10b-18 of the Exchange Act.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

or a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each such term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits

Incorporated by Reference Herein

Exhibit
No.

Description of Exhibit

Included
Herewith

Form

File No.

Exhibit

Filing Date

*10.1

E mployers Holdings , Inc. For m of Ann ua l Cash Bonus Program Award Agreement

31.1

Certification of Katherine H. Antonello Pursuant to Section 302

31.2

Certification of Michael S. Paquette Pursuant to Section 302

32.1

Certification of Katherine H. Antonello Pursuant to Section 906

32.2

Certification of Michael S. Paquette Pursuant to Section 906

101.INS

The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Represents management contracts and compensatory plans or arrangements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EMPLOYERS HOLDINGS, INC.


Date:	April 26, 2024	/s/ Michael S. Paquette
		Michael S. Paquette
		Executive Vice President and Chief Financial Officer
		Employers Holdings, Inc.
		(Principal Financial and Accounting Officer)

Employers Holdings, Inc. - Quarter Report: 2024 March (Form 10-Q)

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