Employers Holdings Inc

Employers Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation and Summary of Operations

Employers Holdings, Inc. (EHI) is a Nevada holding company. Through its wholly owned insurance subsidiaries, Employers Insurance Company of Nevada (EICN), Employers Compensation Insurance Company (ECIC), Employers Preferred Insurance Company (EPIC), Employers Assurance Company (EAC), and Cerity Insurance Company (CIC), EHI is engaged in the commercial property and casualty insurance industry, specializing in workers’ compensation products and services. Unless otherwise indicated, all references to the “Company” refer to EHI, together with its subsidiaries.

In 1999, the Nevada State Industrial Insurance System (the Fund) entered into a retroactive 100% quota share reinsurance agreement (the LPT Agreement) through a loss portfolio transfer transaction with third party reinsurers. The LPT Agreement, which ceded to the reinsurers substantially all of the Fund's outstanding losses as of June 30, 1999 for claims with original dates of injury prior to July 1, 1995, provides coverage for losses up to $2.0 billion, excluding losses for burial and transportation expenses. The LPT Agreement 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 was also entitled to a contingent profit commission (Contingent Commission) under the LPT Agreement through June 30, 2024. The Contingent Commission, of which the final installment was determined to be $14.6 million, was based on actual paid losses under the LPT Agreement through that date and was recorded as an asset on the Company’s Consolidated Balance Sheets. The Company received the final installment of the Contingent Commission during the third quarter of 2024.

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.

2. New Accounting Standards

Recently Issued Accounting Standards

In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, Segment Reporting (Topic 280). The amendments in this update improve disclosures about reportable segments and provide more detailed information about a reportable segment's expenses. Specifically, the amendments in this update require that a public entity disclose, on an annual and interim basis: (i) significant segment expenses that are regularly provided to the CODM; (ii) an amount for other segment items by reportable segment and a description on their composition; (iii) all annual disclosures about a reportable segment's profit or loss and assets currently required by Topic 280 in interim periods; (iv) the measures the CODM uses in assessing performance and allocating resources; and (v) the title and position of the CODM. Public entities that have a single reporting segment are also required to provide all the disclosures required by this amendment, along with all existing segment disclosures in Topic 280. This update is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company will adopt this standard when it becomes effective.

Recently Adopted Accounting Standards

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). This update requires public business entities to annually disclose specific categories within the income tax rate reconciliation, and provide additional information for reconciling items that meet a certain quantitative threshold. Additionally, the amendments in this update require entities to disclose certain information about income taxes paid, income tax disaggregation, disclosures around unrecognized tax benefits, and the removal of disclosures related to temporary differences surrounding deferred tax liabilities to enhance the transparency and decision usefulness of income tax disclosures. This update is effective for fiscal years beginning after December 15, 2024 and early adoption is permitted. The Company early adopted this update as of December 31, 2023, and the impact of this standard was not material to its consolidated financial condition or its results of operations.

In March 2020, the FASB issued Accounting Standards Update(ASU) 2020-04, Reference Rate Reform (Topic 848). This update provides optional transition guidance to ease the potential accounting burden associated with transitioning away from the London Interbank Offered Rate (LIBOR), with optional expedients and exceptions related to the application of US GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. Companies can elect to adopt this ASU through December 31, 2024. The Company has determined that there was no impact of LIBOR transitioning on its existing contracts and investments.

3. Valuation of Financial Instruments

Financial Instruments Carried at Fair Value

The carrying value and the estimated fair value of the Company’s financial instruments at fair value were as follows:

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 Company performs quarterly analyses on the prices it receives from third parties to determine whether the prices are reasonable estimates of fair value, including confirming the fair values of these securities through observable market prices using an alternative pricing source, as it is ultimately management’s responsibility to ensure that the fair values reflected in the Company’s consolidated financial statements are appropriate. If differences are noted in these analyses, the Company may obtain additional information from other pricing services to validate the quoted price.

The Company bases all of its estimates of fair value for assets on bid prices, when available, as they represent what a third-party market participant would be willing to pay in an arm’s length transaction.

For securities not actively traded, third party pricing services may use quoted market prices of similar instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, broker quotes, benchmark yields, credit spreads, default rates, and prepayment speed assumptions. There were no material adjustments to the valuation methodology utilized by third party pricing services as of September 30, 2024 and December 31, 2023.

These methods of valuation only produce an estimate of fair value if there is objectively verifiable information to produce a valuation. If objectively verifiable information is not available, the Company would be required to produce an estimate of fair value using some of the same methodologies, making assumptions for market-based inputs that are unavailable.

As of September 30, 2024, the Company held $66.1 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.

The following table presents the Company’s investments at fair value and the corresponding fair value measurements.

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.

Financial Instruments Carried at Net Asset Value

The Company has investments in private equity limited partnership interests that are included in Other invested assets on the Company’s Consolidated Balance Sheets. These investments do not have readily determinable fair values and are carried at net asset value (NAV) and therefore are excluded from the fair value hierarchy. The Company initially estimates the value of these investments using the transaction price. In subsequent periods, the Company measures these investments using NAV per share provided quarterly by the general partner, based on financial statements that are audited annually. These investments are generally not redeemable by the investees and cannot be sold without approval of the general partner. These investments have a fund term of 3 to 12 years, subject to two or threeone-year extensions at the general partner’s discretion. The Company periodically receives distributions of proceeds from dividends and interest from fund investments, as well as from any dispositions of fund investments during the full course of the fund term. As of September 30, 2024, the Company had unfunded commitments to these private equity limited partnerships totaling $18.1 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.

The following table provides a reconciliation of the beginning and ending balances that are measured using Level 3 inputs.

4. Investments

The amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the Company’s available-for-sale (AFS) investments were as follows:

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

The cost and estimated fair value of the Company’s equity securities recorded at fair value at September 30, 2024 and December 31, 2023 were as follows:

The Company had Other invested assets totaling $99.7 million and $91.5 million (with an associated cost of $88.8 million and $82.5 million) at September 30, 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 or losses on the Company’s Consolidated Statements of Comprehensive Income (Loss).

The amortized cost and estimated fair value of the Company’s fixed maturity securities at September 30, 2024, by contractual maturity, are shown below. Expected maturities differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The following is a summary of AFS investments that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or greater in each case as of September 30, 2024 and December 31, 2023.

As of September 30, 2024 and December 31, 2023, the Company had an allowance for current expected credit losses (CECL) on AFS investments of $1.4 million and $2.7 million, respectively (See Note 5). Those fixed maturity securities whose total fair value was less than amortized cost at each of September 30, 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.

Net realized gains and losses on investments and the change in unrealized gains and losses on the Company’s investments recorded at fair value are determined on a specific-identification basis and were as follows:

(1)AOCI means Accumulated other comprehensive income or loss

Proceeds from sales of fixed maturity securities were $124.9 million and $209.6 million for the three and nine months ended September 30, 2024, respectively, compared to $204.0 million and $329.5 million for the three and nine months ended September 30, 2023, respectively.

Net investment income was as follows:

The Company is required by various state laws and regulations to support, through securities on deposit or otherwise, its outstanding loss reserves in certain states in which it does business. These laws and regulations govern not only the amount but also the types of securities that are eligible for deposit. As of September 30, 2024 and December 31, 2023, securities having a fair value of $746.1 million and $748.1 million, respectively, were on deposit. Additionally, standby letters of credit from the FHLB were in place in lieu of $70.0 million of securities on deposit as of both September 30, 2024 and December 31, 2023 (See Note 10).

Certain reinsurance contracts require funds owned by the Company to be held in trust for the benefit of the ceding reinsurer to secure the outstanding liabilities assumed by the Company. The fair value of fixed maturity securities and restricted cash and cash equivalents held in trust for the benefit of ceding reinsurers at September 30, 2024 and December 31, 2023 was $3.1 million and $3.0 million, respectively.

5. Current Expected Credit Losses

Premiums Receivable

Premiums receivable balances are all due within one year. The Company currently determines the allowance for premiums receivable based on an internal aging schedule using collectability and historical payment patterns, as well as current and expected future market conditions to determine the appropriateness of the allowance. Historical payment patterns and future market conditions provide the basis for the estimation along with similar risk characteristics and the Company's business strategy, which have not changed significantly over time. Changes in the allowance for CECL are recorded through underwriting and general and administrative expenses.

The table below shows the changes in CECL on premiums receivable.

Reinsurance Recoverable

In assessing an allowance for reinsurance assets, which includes reinsurance recoverables and the Contingent Commission, the Company considers historical information, financial strength of reinsurers, collateralization amounts, and ratings to determine the appropriateness of the allowance. Historically, the Company has not experienced a credit loss from reinsurance transactions. In assessing future default, the Company evaluated the CECL allowance under the ratings-based method using the A.M. Best's Average Cumulative Net Impairment Rates. Reinsurer ratings are also assessed through this process. Changes in the allowance for CECL are recorded through underwriting and general and administrative expenses.

The table below shows the changes in CECL on reinsurance recoverables.

The Company assesses all AFS investments in an unrealized loss position for CECL. The Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria is met, the security's amortized cost basis is written down to its fair value. For AFS investments that do not meet either criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors.

Any impairment that has not been recorded through an allowance for credit losses is recognized in Accumulated other comprehensive income or loss on the Company's Consolidated Balance Sheets. Changes in the allowance for CECL are recorded as a Realized gain or loss on investments on the Company’s Consolidated Statements of Comprehensive Income (Loss).

As of September 30, 2024, the Company established an aggregate allowance for CECL in the amount of $1.4 million. For the Company’s investments in fixed maturity debt securities, the allowance for CECL was determined by: (i) observing the credit characteristics of those debt securities that may have demonstrated a credit loss as of that date and by comparing the present value of cash flows expected to be collected to its amortized cost basis; and (ii) observing the credit characteristics of those debt securities that are expected to demonstrate a credit loss in the future by comparing the present value of cash flows expected to be collected to its amortized cost basis. The expected present value of cash flows are calculated using scenario based credit loss models derived from the discounted cash flows under the Comprehensive Capital Analysis Review framework, which is adopted by the Federal Reserve.

As of September 30, 2024, the Company did not intend to sell any of its AFS investments in which its amortized cost exceeded its fair value.

Accrued interest receivable on AFS investments totaled $15.8 million at September 30, 2024, which is excluded from the estimate of credit losses based on historically timely payments.

The table below shows the changes in the allowance for CECL on AFS investments.

6. Property and Equipment

Property and equipment consists of the following:

Depreciation expenses related to property and equipment for the three and nine months ended September 30, 2024 were $0.8 million and $2.7 million, respectively, and $4.8 million for the year ended December 31, 2023. Capitalized costs associated with internally developed software were $0.6 million and $1.9 million during the three and nine months ended September 30, 2024, respectively, and $1.8 million during the year ended December 31, 2023.

Cloud Computing Arrangements

Capitalized costs associated with cloud computing arrangements totaled $18.8 million and $28.0 million, which were comprised of service contract fees and implementation costs associated with hosting arrangements as of September 30, 2024 and December 31, 2023, respectively. Total amortization for hosting arrangements was $3.1 million and $10.4 million for the three and nine months ended September 30, 2024, respectively, and $16.7 million for the year ended December 31, 2023.

Leases

The Company determines if an arrangement is a lease at the inception of the transaction. Operating leases for offices are presented as both an Operating lease right-of-use (ROU) asset and an Operating lease liability on the Company’s Consolidated Balance Sheets. Finance leases for automobiles are presented as both Property and equipment and Other liabilities on the Company’s Consolidated Balance Sheets.

ROU assets represent the right to use an underlying asset for the lease term and the lease liability represents the obligation to make lease payments arising from the lease transaction. Operating lease assets and liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. The Company uses collateralized incremental borrowing rates to determine the present value of lease payments. ROU assets also include lease payments less any lease incentives within a lease agreement. The Company’s lease terms may include options to extend or terminate a lease. Lease expense for lease payments is recognized on a straight-line basis over the lease term. As of September 30, 2024, the Company’s operating leases have remaining terms ofone year tofive years, with options to extend up tofive years with no termination provision. The Company’s finance leases have an option to terminate afterone year.

Components of lease expense were as follows:

As of September 30, 2024, the weighted average remaining lease terms for operating and financing leases were 3.4 years and 1.4 years, respectively, and the associated weighted average discount rates were 1.3% and 7.4%, respectively.

Maturities of lease liabilities were as follows:

Supplemental balance sheet information related to leases was as follows:

Supplemental cash flow information related to leases was as follows:

Lease Exit and Disposal Costs

During the nine months ended September 30, 2023, the Company recorded a $9.4 million non-recurring charge in connection with the early termination of the lease associated with the Company's former corporate headquarters in Reno, Nevada. This charge included a one-time lease termination payment of $7.6 million, a write-off related to remaining leasehold improvements and furniture and equipment of $2.6 million, and estimated miscellaneous expenses associated with exiting the property of $0.2 million. The Company also recognized a related lease termination gain pertaining to the elimination of the lease liability, net of an associated ROU asset of $1.0 million, which was included in Other expenses on the Company’s Consolidated Statements of Comprehensive Income (Loss). The decision to terminate this operating lease was undertaken as part of an ongoing review of the Company's facility needs.

7. Income Taxes

The Company’s effective tax rate for the three and nine months ended September 30, 2024 was 17.4% and 19.4%, respectively, and the Company’s effective tax rate for the three and nine months ended September 30, 2023 was 19.5% and 19.7%, respectively. The effective rates during each of the periods presented included income tax benefits and exclusions associated with tax-advantaged investment income, LPT adjustments, Deferred Gain amortization and related adjustments, and tax credits utilized.

The Inflation Reduction Act of 2022 imposed a 1% excise tax on stock repurchases by publicly traded companies, effective January 1, 2023. The Company's excise tax obligation during the nine months ended September 30, 2024 was $0.2 million and $0.7 million during the year ended December 31, 2023, respectively, which is included in Treasury stock on its Consolidated Balance Sheets.

8. Liability for Unpaid Losses and Loss Adjustment Expenses

The following table represents a reconciliation of changes in the liability for unpaid losses and LAE.

Total net losses and LAE included in the above table exclude amortization of the Deferred Gain and Contingent Commission adjustments, when applicable, which totaled $1.5 million and $1.9 million for the three months ended September 30, 2024 and 2023, respectively, and $5.8 million and $5.9 million for the nine months ended September 30, 2024 and 2023, respectively (see Note 9).

The change in incurred losses and LAE attributable to prior periods for the three months ended September 30, 2024 represented net favorable loss reserve development on the Company's assigned risk business. The change in incurred losses and LAE attributable to prior periods for the nine months ended September 30, 2024 represented net favorable loss reserve development on the Company's voluntary risk business. The net favorable prior year loss reserve development on the Company's voluntary business during the nine months ended September 30, 2024 resulted from overall favorable loss experience, which related primarily to accident years 2022 and prior, partially offset by unfavorable prior year loss experience in accident year 2023 associated with certain large claims.

The change in incurred losses and LAE attributable to prior periods for the three months ended September 30, 2023 also represented net favorable loss reserve development on the Company's assigned risk business. The change in incurred losses and LAE attributable to prior periods for the nine months ended September 30, 2023, represented net favorable loss reserve development on the Company's voluntary risk business. The net loss reserve development recognized on voluntary business during the nine months ended September 30, 2023 resulted from overall favorable loss experience, which related primarily to accident years 2020 and prior.

9. LPT Agreement

The LPT Agreement, which ceded to the reinsurers substantially all of the Fund's outstanding losses as of June 30, 1999 for claims with original dates of injury prior to July 1, 1995, provides coverage for losses up to $2.0 billion, excluding losses for burial and transportation expenses. The Deferred Gain associated with the LPT Agreement continues to be amortized using the recovery method over the life of the LPT Agreement. The Contingent Commission portion of the Deferred Gain was being amortized using the proportion of actual reinsurance recoveries to total estimated recoveries through June 30, 2024, the date at which it was settled. The amortization of the Deferred Gain, including the portion related to the Contingent Commission prior to its settlement, is recorded in losses and LAE incurred in its Consolidated Statements of Comprehensive Income (Loss). Any adjustments to the Deferred Gain are recorded in losses and LAE incurred in the Company’s Consolidated Statements of Comprehensive Income (Loss).

The Company amortized $1.5 million and $1.9 million of the Deferred Gain for the three months ended September 30, 2024 and 2023, respectively, and $5.4 million and $5.9 million for the nine months ended September 30, 2024 and 2023. The remaining Deferred Gain was $93.8 million and $99.2 million as of September 30, 2024 and December 31, 2023, respectively. Additionally, the Company recognized $0.4 million of favorable Contingent Commission adjustments during the six months ended June 30, 2024. The estimated remaining liabilities subject to the LPT Agreement were $278.2 million and $291.7 million as of September 30, 2024 and December 31, 2023, respectively. Losses and LAE paid with respect to the LPT Agreement totaled $891.1 million and $877.6 million from inception through September 30, 2024 and December 31, 2023, respectively.

The Company received the final installment of the Contingent Commission during the third quarter of 2024.

10. Financing Arrangements

Credit Agreement

On May 28, 2024, EHI entered into a Credit Agreement (the Credit Agreement) with Wells Fargo Bank, National Association, as both administrative agent and issuing lender. The Credit Agreement provides for a $25.0 million, unsecured, three-year revolving credit facility and is guaranteed by certain of EHI’s wholly owned subsidiaries, Employers Group, Inc. (EGI) and Cerity Group, Inc. (CGI). Borrowings under the Credit Agreement may be used for working capital and general corporate purposes of EHI and its subsidiaries. Pursuant to the terms of the Credit Agreement, EHI has an option to request an increase of the credit available under the facility up to a maximum facility amount of $35.0 million, subject to the consent of the lender(s) and the satisfaction of certain conditions.

The interest rates applicable to loans under the Credit Agreement are generally based on either, at EHI's option: (i) a base rate, defined as the higher of the Prime Rate, the Federal Funds Rate plus 1.25% and the Adjusted Term Secured Overnight Financing Rate (SOFR) for a one-month tenor plus 1.75%, or (ii) an Adjusted Term SOFR Rate, defined as the applicable Adjusted Term SOFR Rate plus 1.75%. In addition, EHI is subject to a fee on the lender’s unused commitment, ranging from 0.30% to 0.55%. The applicable margin and the amount of such commitment fee vary based upon the financial strength rating of EHI’s insurance subsidiaries as most recently announced by A.M. Best or EHI’s debt to total capitalization ratio if such financial strength rating is not available. Interest paid and/or fees incurred pursuant to the Credit Agreement, as applicable, was less than $0.1 million for each of the three and nine months ended September 30, 2024.

The Credit Agreement contains covenants that require EHI and its consolidated subsidiaries to maintain:(i) a minimum consolidated net worth, defined as EHI’s total stockholders’ equity excluding any accumulated other comprehensive income or loss, of no less than $800.0 million; and (ii)a debt to total capitalization ratio of no more than 35%, in each case as determined in accordance with the Credit Agreement. As of September 30, 2024, EHI has remained in compliance with all of the covenants associated with the Credit Agreement since its inception.

EHI incurred $0.2 million in debt issuance costs in connection with the Credit Agreement, which are being amortized over the three-year life in Interest and financing expenses on the Company's Consolidated Statements of Comprehensive Income (Loss). The annual commitment fee on the unused portion of the facility is 0.35%, for a maximum of $87,500. Advances can be repaid at any time without prepayment penalties or additional fees.

EHI hadno borrowings under the Credit Agreement during the nine months ended September 30, 2024.

FHLB

All of the Company's insurance subsidiaries are members of the FHLB. Membership allows the insurance 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 the Company’s insurance subsidiaries access to standby letters of credit (Letter of Credit Agreements). Letter of Credit Agreements issued must be fully secured with eligible collateral at all times and are subject to annual maintenance charges and a fee of 15 basis points on issued amounts. As of both September 30, 2024 and December 31, 2023, letters of credit totaling $70.0 million were issued in lieu of securities on deposit with the State of California under the Letter of Credit Agreements. The Letter of Credit Agreements currently in effect expire on March 31, 2025, and will remain evergreen with automatic one-year extensions unless the FHLB notifies the beneficiary at least 60 days prior to the then applicable expiration date of its election not to renew.

As of September 30, 2024 and December 31, 2023, investment securities having a fair value of $302.0 million and $286.4 million, respectively, were pledged to the FHLB by the Company’s insurance subsidiaries in support of the collateralized advance facility and the Letter of Credit Agreements.

11. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is comprised of unrealized gains and losses on investments classified as AFS, net of deferred taxes. The following table summarizes the components of accumulated other comprehensive loss:

12. Stock-Based Compensation

The Company awarded restricted stock units (RSUs) and performance share units (PSUs) to certain employees and non-employee Directors of the Company as follows:

(1)These RSUs were awarded to certain employees of the Company on two separate dates and allvest 25% on March 15, 2025 and each of the subsequent three anniversaries of that date.

(2)These PSUs were awarded to certain employees of the Company and have a performance period ofthree years. The PSU awards are subject to certain performance goals with payouts that range from 0% to 250% of the target awards. The value shown in the table represents the aggregate number of PSUs awarded at the target level.

(3)All RSUs awarded on this date were awarded to non-employee directors of the Company andvest in full on May 23, 2025.

(4)These RSUs were awarded to certain employees of the Company andvest 25% on August 15, 2025 and each of the subsequent three anniversaries of that date.

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 September 30, 2024, the Companyno longer had any stock options outstanding. During the nine months ended September 30, 2023, and the year ended December 31, 2023, there were 23,500 stock options exercised.

As of September 30, 2024, the Company had 227,856 RSUs and 200,455 PSUs (based on the target achievement for the PSUs awarded) outstanding.

13. Earnings Per Common Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilutive impact of all common stock equivalents on earnings per share. Diluted earnings per share includes common shares assumed issued under the “treasury stock method,” which reflects the potential dilution that would occur if outstanding RSUs and PSUs vested.

No outstanding PSUs and RSUs are considered in the Company’s diluted earnings per share computations in any period that involves a net loss because their inclusion would be anti-dilutive.

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. Therefore, these awards are not considered participating securities for the purposes of determining earnings per share.

The following table presents the net income and the weighted average number of shares outstanding used in the earnings per common share calculations.

Diluted earnings per share excludes outstanding potential dilutive shares in periods where the inclusion of such securities would be anti-dilutive under the treasury stock methodology. Potential dilutive shares of 12,328 for the three months ended September 30, 2023, and potential dilutive shares of 27,357 and 29,860 for the nine months ended September 30, 2024 and 2023, respectively, were excluded from the Company's diluted earnings per share computations because they were anti-dilutive. There wereno potential dilutive shares excluded from the Company's diluted earnings per share computations for the three months ended September 30, 2024.

14. Segment Reporting

The Company operates as a single reportable segment, Insurance Operations, through its wholly owned subsidiaries. In the fourth quarter of 2023, the Company developed and executed an integration plan to consolidate its previously segregated direct-to-consumer operations(Cerity)into the Company's mainstream operations, while retaining its digital distribution capabilities. The integration plan, which will allow the Company to operate more efficiently and generate cost savings, resulted in a change in the composition of our reportable segments by eliminating any distinction for reporting purposes, including stand-alone financial statements, among our former segments, which were: Employers and Cerity.

The Insurance Operations segment represents the traditional business offered through its agents, including business originated from the Company's strategic partnerships and alliances and also direct-to-customer business.

The following table summarizes the Company's written premium and components of net income. The prior period has been conformed to current presentation.

Entity-Wide Disclosures

The Company operates solely within the U.S. and does not have revenue from transactions with a single policyholder accounting for 10% 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 $767.3 million, $718.1 million, $698.3 million, and $654.1 million as of September 30, 2024, December 31, 2023, September 30, 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 following table shows our in-force premiums, in-force premiums including estimated final audit premium, and number of policies in-force for each of our largest states and all other states combined for the periods presented: