Employers Holdings Inc
For the period ended Dec 31, 2024. Filed Feb 28, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 28, 2025
EIG$47.30+0.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-26.
0001379041-24-000042
Item 7. Management's Discussion and Analysis of Consolidated Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-28.
0001379041-25-000049
Item 7. Management's Discussion and Analysis of Consolidated Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 196 previous paragraphs and 196 current paragraphs.
81 unchanged; 91 reworded; 21 added; 22 removed; 2 previous and 3 current paragraphs rearranged.
Tables are not compared: 14 previous and 14 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (21)
Current report
•Underwriting income was $15.6 million, $36.2 million, and $21.0 million in 2024, 2023, and 2022, respectively;
Current report
Summary of Year Ended December 31, 2024
Current report
Our underwriting results for the year ended December 31, 2024 reflect increases in net premiums earned from higher new and renewal business premiums, and lower underwriting and general and administrative expenses, partially offset by lower final audit premiums and endorsements, a decrease in favorable prior year loss reserve development, and a higher current accident year loss and LAE ratio. Our investment results benefited from continued strong net investment income and net realized and unrealized gains.
Current report
Summary of Year Ended December 31, 2023
Current report
Summary of Year Ended December 31, 2022
Current report
Net premiums earned were $749.5 million, $721.9 million, and $675.2 million for the years ended December 31, 2024, 2023, and 2022, respectively.
Current report
The net favorable development recognized in 2024 resulted primarily from overall favorable loss experience, including decreasing medical paid loss trends in California, partially offset by unfavorable prior year loss experience in accident years 2023 and 2021 associated with certain large claims.
Current report
We refined the presentation of certain expenses associated with our involuntary premium during the year ended December 31, 2024. This revision, which was immaterial, reduced our 2024 commission expenses and commission expense ratio by $2.4 million and 0.3 percentage points, respectively, and increased our 2024 underwriting and general and administrative expenses and underwriting and general and administrative expense ratio by the same amounts. This revision had no effect on our total expenses or net income.
Current report
During 2024, our fixed underwriting expenses decreased by $13.4 million, primarily the result of decreases in depreciation and amortization, professional fees, and advertising and marketing expenses, partially offset by the expense revision we made in 2024 associated with our involuntary premium. The decreases in our fixed underwriting expenses were, in large part, the result of our Cerity integration plan that was undertaken in the fourth quarter of 2023. These decreases were partially offset by increases in our variable underwriting expenses of $9.9 million, which primarily related to our allowance for bad debt and premium tax and assessments.
Current report
Net realized and unrealized gains (losses) on investments were $24.1 million, $22.7 million, and $(51.8) million for the years ended December 31, 2024, 2023, and 2022, respectively.
Current report
Net realized and unrealized gains (losses) on investments in 2024 included $26.2 million of net realized and unrealized gains on equity securities, $(8.8) million of net realized losses on fixed maturity securities, and $6.7 million of unrealized gains on other invested assets. The net investment gains on our equity securities were largely consistent with the performance of the U.S. equity markets. The net investment losses on our fixed maturity securities were primarily the result of sales associated with the rebalancing of our fixed maturity investment portfolio, partially offset by a decrease of $1.6 million in our allowance for CECL. The net investment gains on our other invested assets resulted primarily from an increase in the underlying value of the private equity limited partnership interests we own.
Current report
Other Income (Loss)
Current report
Interest and financing expenses were $0.1 million, $5.8 million, and $3.5 million for the years ended December 31, 2024, 2023, and 2022, respectively.
Current report
The decrease in interest and financing expenses in 2024, versus those of 2023, 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.
Current report
Credit Agreement
Current report
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 AM Best or EHI’s debt to total capitalization ratio if such financial strength rating is not available. Total interest paid and/or fees incurred pursuant to the Credit Agreement was $0.1 million for the year ended December 31, 2024.
Current report
On January 8, 2025, AM Best upgraded the financial strength ratings of EHI’s insurance subsidiaries to “A” (Excellent). As a result of this ratings action, and effective as of that date: (i) the applicable margin with respect to SOFR loans was reduced from 1.75% to 1.50%; (ii) the applicable margin with respect to base rate loans was reduced from 0.75% to 0.50%; and (iii) the annual commitment fee on the unused portion of the facility was reduced from 0.35% to 0.30%.
Current report
Former Credit Agreement
Current report
Dividend and Distribution Ability
Current report
Our insurance subsidiaries' ability to pay dividends and distributions is based on their reported capital, surplus, and the amount of dividends paid to their immediate holding company within the prior twelve months. Throughout 2025, EICN, ECIC, EPIC and EAC can pay up to an aggregate of $85.0 million in ordinary dividends to EGI, and CIC can pay up to $5.9 million of ordinary dividends to CGI. Upon receipt of such dividends and upon approval by their respective Boards, EGI and CGI may then, in turn, dividend those amounts to EHI.
Current report
Net cash provided by operating activities in 2024 included net premiums received of $769.9 million, investment income received of $106.6 million and cash received of $14.6 million for the final payment of the Contingent Commission. These operating cash inflows were partially offset by net claims payments of $522.0 million, underwriting and general and administrative expenses paid of $160.7 million, commissions paid of $100.9 million, interest and financing fees paid of $0.1 million, and federal income taxes paid of $31.0 million.
Removed paragraphs (22)
Previous report
•Underwriting income was $36.2 million, $21.0 million and $22.9 million in 2023, 2022, and 2021, respectively;
Previous report
Year Ended December 31, 2023
Previous report
Year Ended December 31, 2022
Previous report
Year Ended December 31, 2021
Previous report
Our underwriting results benefited from net favorable prior year loss reserve development. Our investment results benefited from net realized and unrealized investment gains. Our non-underwriting expenses included severance costs from a reduction-in-force and the write-off of previously capitalized costs relating to information technologies identified as no longer being utilized.
Previous report
Net premiums earned were $721.9 million, $675.2 million, and $574.4 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Previous report
The net favorable development recognized in 2021 was primarily the result of decreasing medical and defense and cost containment paid loss trends related to accident years 2017 and prior, due primarily to decreasing medical costs and defense and cost containment, partially offset by: (i) $10.0 million of unfavorable development related to accident year 2019, which is reflective of more weight being placed on now sufficiently seasoned loss trends and patterns originating in part from business written in our newer territories; and (ii) $8.0 million of unfavorable loss development associated with two catastrophic non-COVID-19 claims in accident year 2020.
Previous report
Excluding the impact from the LPT Agreement, losses and LAE would have been $412.9 million, $399.3 million, and $326.7 million, or 57.2%, 59.1%, and 56.9% of net premiums earned, for the years ended December 31, 2023, 2022, and 2021, respectively.
Previous report
During 2022, our fixed underwriting expenses decreased by $2.5 million, primarily the result of a reduction in facilities and IT-related expenses, and our variable underwriting expenses increased by $9.6 million, primarily due to higher premium taxes and assessments.
Previous report
Net realized and unrealized gains (losses) on investments were $22.7 million, $(51.8) million, and $54.6 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Previous report
Net realized and unrealized gains on investments in 2021 included $45.6 million of net realized and unrealized gains on equity securities, $4.1 million of net realized gains on fixed maturity securities, and $4.9 million of unrealized gains on other invested assets. The net investment gains on our equity securities were largely consistent with the performance of U.S. equity markets. The net investment gains on our fixed maturity securities were primarily the result of decreases in market interest rates. The net investment gains on our fixed maturity securities we experienced in 2021 included a $0.5 million net decrease in our allowance for CECL.
Previous report
Other (Loss) Income
Previous report
Interest and financing expenses were $5.8 million, $3.5 million, and $0.5 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Previous report
In 2021, we recorded $3.1 million of employee severance costs resulting from a reduction-in-force, which was undertaken to better align our expenses with current revenues. We also wrote-off $1.0 million of previously capitalized costs relating to information technologies identified as no longer being utilized.
Previous report
On February 16, 2023, the Credit Agreement was amended (the Amended Credit Agreement) to: (i) formally replace the Eurodollar interest rate option with an Adjusted term SOFR option; (ii) amend the definition of consolidated "net worth", as referred to within the Amended Credit Agreement; and (iii) amend the minimum consolidated net worth covenant for fiscal quarters ending after September 30, 2022.
Previous report
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. For 2024, ECIC cannot pay any dividends through March 15, 2024 and can pay $23.3 million thereafter, without prior regulatory approval; EICN cannot pay any dividends through March 27, 2024 and can pay $13.7 million thereafter, without prior regulatory approval; EPIC cannot pay any dividends through July 14, 2024, and can pay $23.2 million thereafter, without prior regulatory approval; EAC cannot pay any dividends through July 14, 2024, and can pay $22.4 million thereafter, without prior regulatory approval; and CIC cannot pay dividends through September 20, 2024, without prior regulatory approval, and $5.7 million thereafter.
Previous report
In 2020, the FHLB launched its Recovery Advance Program. The Recovery Advance Program is a zero percent interest, six-month or one-year credit product that members could use to provide immediate relief to property owners, businesses, and other customers struggling with the financial impacts of the COVID-19 pandemic. Each FHLB member was allocated up to $10.0 million in advances under the Recovery Advance Program. On May 11, 2020, our insurance subsidiaries, with the exception of CIC, received a total of $35.0 million of advances from the FHLB under the Recovery Advance Program. The advances were secured by collateral previously pledged to the FHLB by our insurance subsidiaries in support of their existing collateralized advance facility, which was reduced by the amount of these outstanding advances. Our insurance subsidiaries repaid $15.0 million of such advances on November 4, 2020, $5.0 million on March 31, 2021, and $15.0 million on May 4, 2021.
Previous report
Net cash provided by operating activities in 2021 included net premiums received of $568.0 million and investment income received of $82.0 million. These operating cash inflows were partially offset by net claims payments of $394.6 million, underwriting and general and administrative expenses paid of $141.0 million, commissions paid of $74.8 million, and federal income taxes paid of $28.2 million.
Previous report
Net cash used in financing activities in 2021 included common stock repurchases and stockholder dividend payments and repayments of FHLB advances. During the year ended December 31, 2021, we borrowed and repaid $27.0 million under the Credit Agreement.
Previous report
Our insurance subsidiaries have been operating in a period characterized by changing environmental conditions in our major markets, entry into new markets, and operational changes. During periods characterized by such changes, at each evaluation, the actuaries and management must make judgments as to the relative weight to accord to long-term historical company data, more recent company data, and external data. We also consider the impact of environmental and operational changes and other factors when selecting the methods used to project ultimate losses and LAE, the parameters to incorporate in those methods, and the relative weights applied to those methods.
Previous report
An internal initiative that began in 2014 emphasizes the settlement of open claims. This initiative has actively driven a significant increase in claims settlement activity and has primarily affected accident years 2009 and forward. However, this activity slowed down during the height of the COVID-19 pandemic in 2020 and 2021.
Previous report
Additionally, we are entitled to receive a contingent profit commission under the LPT Agreement. The contingent profit commission is an amount based on the favorable difference between actual paid losses and LAE and expected paid losses and LAE as established in the LPT Agreement. The calculation of actual amounts paid versus expected amounts is determined every five years beginning June 30, 2004 and ending June 30, 2024. We are paid 30% of the favorable difference between the actual and expected losses and LAE paid at each calculation point. Each quarter, management records its best estimate of the estimated ultimate contingent profit commission through June 30, 2024, which is impacted by estimates for ceded losses and LAE. The Deferred Gain related to the contingent profit commission is amortized using the recovery method, whereby the amortization is determined by the proportion of actual reinsurance recoveries to total estimated recoveries over the life of the contingent profit commission, or through June 30, 2024, and is recorded in losses and LAE incurred in the accompanying Consolidated Statements of Comprehensive Income (Loss). Changes in estimates of the reserves ceded under the LPT Agreement may significantly impact the Contingent commission receivable–LPT Agreement and the Deferred Gain on our Consolidated Balance Sheets and losses and LAE on our Consolidated Statements of Comprehensive Income (Loss).
Reworded paragraphs (91)
Previous wording
We are a Nevada holding company. Through our insurance subsidiaries, we provide workers' compensation insurance coverage to select, small businesses primarily 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.
Current wording
We are a Nevada holding company. Through our insurance subsidiaries, we provide workers' compensation insurance coverage to small and mid-sized 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.
Previous wording
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.
Current wording
We target small to mid-sized businesses, as we believe that this market is traditionally characterized by higher profitability 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 to mid-sized business accounts at appropriate and competitive prices without sacrificing long-term profitability and stability for short-term revenue growth.
Previous wording
Our net income was $118.1 million, $48.4 million, and $119.3 million in 2023, 2022, and 2021, respectively. The key factors that affected our financial results during those years included:
Current wording
Our net income was $118.6 million, $118.1 million, and $48.4 million in 2024, 2023, and 2022, respectively. The key factors that affected our financial performance during those years included:
Previous wording
•Net premiums earned increased 6.9% in 2023 and 17.5% in 2022, each compared to the previous year;
Current wording
•Net premiums earned increased 3.8% in 2024 and 6.9% in 2023, each compared to the previous year;
Previous wording
•Losses and LAE increased 3.8% in 2023 and 24.0% in 2022, each compared to the previous year;
Current wording
•Losses and LAE increased 12.4% in 2024 and 3.8% in 2023, each compared to the previous year;
Previous wording
•Underwriting and general and administrative expenses increased 7.6% in 2023 and 4.4% in 2022, each compared to the previous year;
Current wording
•Underwriting and general and administrative expenses decreased 1.9% in 2024 and increased 7.6% in 2023, each compared to the previous year;
Previous wording
•Net investment income increased 18.6% in 2023 and 23.5% in 2022, each compared to the previous year;
Current wording
•Net investment income increased 0.5% in 2024 and 18.6% in 2023, each compared to the previous year;
Previous wording
•Net realized and unrealized gains (losses) on investments were $22.7 million, $(51.8) million, and $54.6 million in 2023, 2022, and 2021, respectively; and
Current wording
•Net realized and unrealized gains (losses) on investments were $24.1 million, $22.7 million, and $(51.8) million in 2024, 2023, and 2022, respectively; and
Previous wording
•Other expenses were $11.0 million and $4.1 million in 2023 and 2021, respectively. We did not incur any noteworthy other expenses in 2022.
Current wording
•Other non-recurring expenses were $11.0 million in 2023. We did not incur any such expenses in 2024 or 2022.
Previous wording
Our underwriting results benefited from an increase in net premiums earned because of higher new and renewal business premiums and higher net favorable prior year loss reserve development. Our investment results benefited from a sharp increase in our net investment income due to higher bond yields and net realized and unrealized gains. Our non-underwriting expenses in 2023 included the cost of the early lease termination of our former corporate headquarters and a write-off of previously capitalized cloud computing costs associated with a policy management system.
Current wording
Our underwriting results for the year ended December 31, 2023 reflect increases in net premiums earned from higher new and renewal business premiums, strong final audit premiums, and significant net favorable prior year loss reserve development. Our investment results benefited from a sharp increase in our net investment income due to higher bond yields and net realized and unrealized gains. Our non-underwriting expenses in 2023 included the cost of the early lease termination of our former corporate headquarters and a write-off of previously capitalized cloud computing costs associated with a former policy management system.
Previous wording
Our underwriting results benefited from an increase in net premiums earned because of higher new and renewal business premiums, increased final audit premiums, and higher net favorable prior year loss reserve development. Our investment results benefited from a sharp increase in our net investment income due to higher bond yields, offset by net realized and unrealized losses.
Current wording
Our underwriting results for the year ended December 31, 2022 reflect increases in net premiums earned from higher new and renewal business premiums, strong final audit premiums, and significant net favorable prior year loss reserve development. Our investment results reflect an increase in net investment income due to higher bond yields, offset by net realized and unrealized losses.
Previous wording
(1) Adjusted stockholders' equity is a non-GAAP measure consisting of total GAAP stockholders' equity plus the Deferred Gain, plus Accumulated other comprehensive loss, net.
Current wording
(1) Adjusted stockholders' equity is a non-GAAP measure consisting of total GAAP stockholders' equity plus the Deferred Gain, minus Accumulated other comprehensive gain (loss), net of tax.
Previous wording
During 2023, we grew our Adjusted stockholders’ equity by $9.9 million (or $3.48 per share), despite returning $106.5 million to stockholders through share repurchases and dividends declared on common stock and eligible plan awards.
Current wording
During 2024, we grew our Adjusted stockholders’ equity by $46.1 million (or $3.45 per share), despite returning $71.7 million to stockholders through share repurchases and dividends declared on common stock and eligible plan awards. During 2023, we grew our Adjusted stockholders’ equity by $9.9 million (or $3.48 per share), despite returning $106.5 million to stockholders through share repurchases and dividends declared on common stock and eligible plan awards.
Previous wording
(1) The LPT Agreement is a non-recurring 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.
Current wording
(1) The LPT Agreement is a non-recurring transaction that no longer provides us with any ongoing cash benefits. 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.
Previous wording
Gross premiums written were $767.7 million, $714.2 million, and $589.7 million for the years ended December 31, 2023, 2022, and 2021, respectively. The strong growth in our premiums written in 2023 was the result of higher new and renewal business premiums. The growth in new business premiums experienced in 2023 was mostly the result of increases in new business submissions, quotes and binds in most of the states in which we operate, which was largely driven by our expansion in the classes of business that we offer. As a result of these initiatives, we closed the year with a record number of policies in-force. Additionally, in 2023 we increased our final audit premium accruals by $4.1 million and we recognized $29.2 million of audit premium pick-up, as our payroll exposure increased with U.S. labor market strengthening and rising wages. Furthermore, our renewal premiums benefited from strong retention rates experienced throughout the year.
Current wording
Gross premiums written were $776.3 million, $767.7 million, and $714.2 million for the years ended December 31, 2024, 2023, and 2022, respectively. The modest growth in our premiums written in 2024 was the result of higher new and renewal business premiums, partially offset by lower final audit premiums and endorsements. The growth in new business premiums experienced in 2024 was the result of increases in new business 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. Our premiums written in 2024 were negatively impacted by a $16.5 million decrease to our ending final audit premium accrual, partially offset by $10.7 million of final audit premium pick-up. Further, our renewal premiums benefited from strong retention rates experienced throughout the year.
Previous wording
The strong growth in our premiums written in 2022 was the result of higher new and renewal business premiums and higher final audit premiums. The growth in new business premiums experienced was the result of increases in new business submissions, quotes and binds in most of the states in which we operate, which was largely driven by our expansion in the classes of business that we offer. We also increased our final audit premium accruals by $24.6 million and recognized $34.8 million of audit premium pick-up, as our payroll exposure increased with U.S. labor market strengthening and rising wages. Furthermore, our renewal premiums benefited from strong retention rates experienced throughout the year.
Current wording
The solid growth in our premiums written in 2023 was the result of higher new and renewal business premiums and strong final audit premiums. The growth in new business premiums experienced in 2023 was mostly the result of increases in new business submissions, quotes, and binds in most of the states in which we operate, which was largely driven by our expansion in the classes of business that we offer. Our premiums written in 2023 benefited from a $3.6 million increase to our ending final audit premium accrual and $29.2 million of final audit premium pick-up. Further, our renewal premiums benefited from strong retention rates experienced throughout the year.
Previous wording
Net premiums written are gross premiums written less reinsurance premiums ceded. For each of the years presented, the reinsurance premiums ceded related to our July 1- June 30 annual reinsurance programs as further described herein.
Current wording
Net premiums written are gross premiums written less reinsurance premiums ceded. For each of the years presented, the reinsurance premiums ceded are related to our July 1- June 30 annual reinsurance programs as further described herein.
Previous wording
Net premiums written were $760.6 million, $707.2 million, and $583.1 million for the years ended December 31, 2023, 2022, and 2021, respectively, which included $7.1 million, $7.0 million, and $6.6 million of reinsurance premiums ceded, respectively.
Current wording
Net premiums written were $769.5 million, $760.6 million, and $707.2 million for the years ended December 31, 2024, 2023, and 2022, respectively, which included $6.8 million, $7.1 million, and $7.0 million of reinsurance premiums ceded, respectively.
Previous wording
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.
Current wording
Losses and LAE represent our largest expense item and includes claim payments made, amortization of the Deferred Gain, Contingent Commission adjustments, estimates for future claim payments and changes in those estimates for current and prior accident years, and costs associated with investigating, defending, and adjusting claims. The accuracy of our financial reporting depends in large part on determining our losses and LAE reserves, which are inherently uncertain as they are estimates of the ultimate cost of individual claims based on actuarial estimation techniques.
Previous wording
Our current accident year loss and LAE ratios from 2021 to 2023 have remained largely consistent due to continued low indemnity claim frequency. In addition, 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 our risk exposure across geographic markets, when appropriate; and leveraging data-driven strategies to target, underwrite, and price profitable classes of business across our markets.
Current wording
Our current accident year loss and LAE estimate excluding the LPT for the year ended December 31, 2024 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. Our current accident year loss and LAE ratio continues to reflect the impact of key business initiatives, including: 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.
Previous wording
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 includes 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.
Current wording
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.
Previous wording
The table below reflects prior accident year loss and LAE reserve adjustments and the impact to loss ratio.
Current wording
The table below reflects current and prior accident year loss and LAE reserve adjustments, the impact of the LPT, and the resulting impact to our loss ratio.
Previous wording
The increase in our calendar year losses and LAE from 2022 to 2023 was primarily due to higher earned premium, partially offset by higher net favorable prior year loss reserve development. Net favorable prior year loss reserve development in 2023 was $44.9 million versus $33.5 million in 2022. The increase in our calendar year losses and LAE from 2021 to 2022 was primarily due to higher earned premium, a higher accident year loss and LAE estimate and less net favorable prior year loss reserve development. Net favorable prior year loss reserve development recognized in 2022 was $33.5 million versus $39.8 million recognized in 2021.
Current wording
The increase in our calendar year losses and LAE from 2023 to 2024 was primarily due to higher earned premiums, a slightly higher current accident year loss and LAE estimate and less net favorable prior year loss reserve development. Net favorable prior year loss reserve development recognized in 2024 was $18.4 million versus $44.9 million in 2023. The increase in our calendar year losses and LAE from 2022 to 2023 was primarily due to higher earned premiums, partially offset by higher net favorable prior year loss reserve development. Net favorable prior year loss reserve development recognized in 2023 was $44.9 million versus $33.5 million recognized in 2022.
Previous wording
The net favorable development recognized in 2023 was primarily the result of decreasing medical paid loss trends in California related to accident years 2020 and prior, partially offset by reserve strengthening related to accident year 2021. The rapid economic rebound following the COVID-19 pandemic led to large premium increases related to accident year 2021 that were recognized through policy audits in subsequent years. In response, we strengthened our reserves for accident year 2021 to reflect the potential for higher losses arising from the higher than expected premium.
Current wording
The net favorable development recognized in 2023 was primarily the result of decreasing medical paid loss trends in California related to accident years 2020 and prior, partially offset by reserve strengthening related to accident year 2021. The rapid economic rebound following the COVID-19 pandemic led to large premium and payroll increases related to accident year 2021 that were recognized through policy audits in subsequent years. In response, we strengthened our reserves for accident year 2021 to reflect the potential for higher losses arising from the higher than expected premium exposure.
Previous wording
(2)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 2 in the Notes to our Consolidated Financial Statements.)
Current wording
(2)LPT Contingent Commission adjustments resulted 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 2 in the Notes to our Consolidated Financial Statements.
Previous wording
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 incentive payments, other marketing costs, and fees.
Current wording
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.
Previous wording
Our commission expense ratio was 13.9%, 14.2%, and 13.2%, and our commission expenses were $100.0 million, $95.9 million, and $76.1 million for the years ended December 31, 2023, 2022, and 2021, respectively. The decrease in the commission expense ratio from 2022 to 2023 was primarily related to a reduction for uncollected premium, which resulted in a reversal of commissions. The increase from 2021 to 2022 was primarily the result of an increase in agency incentive accruals, an increase in new business writings, which are subject to higher commission rates, and a reversal of commissions relating to non-compliant and uncollectible premium recorded in 2021.
Current wording
Our commission expense ratio was 13.5%, 13.9%, and 14.2%, and our commission expenses were $101.2 million, $100.0 million, and $95.9 million for the years ended December 31, 2024, 2023, and 2022, respectively. The decrease in our commission expense ratio from 2023 to 2024 was primarily related to the expense revision we made in 2024 associated with our involuntary premium. The decrease in our commission expense ratio from 2022 to 2023 was primarily related to a write-off of uncollectible premium, which resulted in a reversal of commissions.
Previous wording
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.
Current wording
Underwriting and general and administrative expenses represent those costs required to run the business, including costs incurred to underwrite and maintain the insurance policies we issue, excluding commissions. Variable underwriting expenses, such as premium taxes, policyholder dividends, and other expenses that vary directly with the production of new or renewal business, are recognized as the associated written 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.
Previous wording
Our underwriting and general and administrative expense ratio was 24.9%, 24.8%, and 27.9%, and our underwriting expenses were $180.0 million, $167.3 million, and $160.2 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Current wording
Our underwriting and general and administrative expense ratio was 23.5%, 24.9%, and 24.8%, and our underwriting expenses were $176.5 million, $180.0 million, and $167.3 million for the years ended December 31, 2024, 2023, and 2022, respectively.
Previous wording
During 2023, our fixed underwriting expenses increased by $7.5 million, primarily the result of increases in payroll-related expenses and professional fees, partially offset by decreases in facilities and advertising expenses, and our variable underwriting expenses increased by $5.2 million, primarily due to higher policyholder dividends and our allowance for bad debt.
Current wording
During 2023, our fixed underwriting expenses increased by $7.5 million, primarily the result of increases in compensation-related expenses and professional fees, partially offset by decreases in facilities and advertising expenses. During 2023, our variable underwriting expenses also increased by $5.2 million, primarily due to higher policyholder dividends and our allowance for bad debt.
Previous wording
Net investment income was $106.5 million, $89.8 million, and $72.7 million for the years ended December 31, 2023, 2022, and 2021, respectively. The increase in 2023 was due to higher bond yields, partially offset by lower invested balances of fixed maturity securities and short-term investments, as measured by amortized cost. The increase in 2022 was primarily due to higher bond yields and higher invested balances of fixed maturity securities, short-term investments, and cash and cash equivalents, as measured by amortized cost. The average pre-tax ending book yield on our invested assets was 4.3%, 3.9%, and 3.0% at December 31, 2023, 2022, and 2021, respectively.
Current wording
Net investment income was $107.0 million, $106.5 million, and $89.8 million for the years ended December 31, 2024, 2023, and 2022, respectively. The consistent level of net investment income in 2024 was due to higher investment yields being partially offset by a lower average invested balance of fixed maturity securities, short-term investments, and cash and cash equivalents, as measured by amortized cost. The lower average invested balances in 2024 resulted primarily from the unwinding of our former Federal Home Loan Bank of San Francisco (FHLB) leveraged investment strategy, which was in effect from the first quarter of 2022 to the fourth quarter of 2023. Pursuant to that strategy, certain of our insurance subsidiaries had received aggregate advances under the FHLB Standard Credit Program, the proceeds from which were used to purchase an equivalent amount of high-quality collateralized loan obligation securities. The increase in net investment income in 2023 was due to higher bond yields, partially offset by lower invested balances of fixed maturity securities and short-term investments, as measured by amortized cost. The average pre-tax ending book yield on our invested assets was 4.5%, 4.3%, and 3.0% at December 31, 2024, 2023, and 2022, respectively.
Previous wording
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 fair value of equity securities and other invested assets are also included in Net realized and unrealized gains and losses on investments on our Consolidated Statements of Comprehensive Income (Loss).
Current wording
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 adverse 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).
Previous wording
Net realized and unrealized gains (losses) on investments in 2023 included $27.0 million of net realized and unrealized gains on equity securities, $(8.0) million of net realized losses on fixed maturity securities, and $3.7 million of unrealized gains on other invested assets. The net investment gains on our equity securities were largely consistent with the performance of U.S. equity markets. The net investment losses on our fixed maturity securities were largely concentrated in certain holdings in the financial and banking sectors and were partially offset by a decrease of $1.8 million in our allowance for CECL.
Current wording
Net realized and unrealized gains (losses) on investments in 2023 included $27.0 million of net realized and unrealized gains on equity securities, $(8.0) million of net realized losses on fixed maturity securities, and $3.7 million of unrealized gains on other invested assets. The net investments gains on our equity securities were largely consistent with the performance of U.S. equity markets. The net investment losses on our fixed maturity securities were largely concentrated in certain holdings in the financial and banking sectors and were partially offset by a decrease of $1.8 million in our allowance for CECL. The net investment gains on our other invested assets resulted primarily from an increase in the underlying value of the private equity limited partnership interests we own.
Previous wording
Net realized and unrealized gains (losses) on investments in 2022 included $(49.2) million of net realized and unrealized losses on equity securities, $(3.6) million of net realized losses on fixed maturity securities, and $1.0 million of unrealized gains on other invested assets. The net investments losses on our equity securities were largely consistent with the performance of U.S. equity markets. The net investment losses on our fixed maturity securities were primarily the result of rising market interest rates. The net investment losses on our fixed maturity securities we experienced in 2022 included a $4.3 million net increase in our allowance for CECL.
Current wording
Net realized and unrealized gains (losses) on investments in 2022 included $(49.2) million of net realized and unrealized losses on equity securities, $(3.6) million of net realized losses on fixed maturity securities, and $1.0 million of unrealized gains on other invested assets. The net investment losses on our equity securities were largely consistent with the performance of U.S. equity markets. The net investment losses on our fixed maturity securities were primarily the result of rising market interest rates and a $4.3 million net increase in our allowance for CECL. The net investment gains on our other invested assets resulted primarily from an increase in the underlying value of the private equity limited partnership interests we own.
Previous wording
Other (loss) income consists of net gains and losses on fixed assets, non-investment interest, and other miscellaneous income. Other (loss) income were $(0.2) million, $0.3 million, and $1.4 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Current wording
Other income (loss) consists of net gains and losses on fixed assets, non-investment interest, and other miscellaneous income and expense items. Other income (loss) was $0.1 million, $(0.2) million, and $0.3 million for the years ended December 31, 2024, 2023, and 2022, respectively.
Previous wording
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 Federal Home Loan Bank of San Francisco (FHLB), finance lease interest, and other financing fees.
Current wording
Interest and financing expenses include fees and interest associated with our credit facilities, fees and interest associated with our various credit arrangements with the FHLB, finance lease interest, and other financing fees.
Previous wording
The increase in interest and financing expenses in December 31, 2023 and 2022, versus those of 2021, were the result of advances we received from the FHLB Standard Credit Program, all of which were repaid at December 31, 2023.
Current wording
The increase in interest and financing expenses in 2023, versus those of 2022, were the result of advances we received from the FHLB Standard Credit Program associated with our FHLB leveraged investment strategy, which were fully repaid at December 31, 2023.
Previous wording
In 2023, we wrote-off $1.6 million of previously capitalized cloud computing costs associated with a policy management system as part of a continual evaluation of our ongoing technology initiatives. Additionally, we recorded a non-recurring charge in connection with the early termination of the lease associated with our former corporate headquarters in Reno, Nevada. This charge included a 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. We also recognized a lease termination gain pertaining to the elimination of the lease liability net of the right-of-use asset of $1.0 million. The decision to terminate this operating lease was undertaken as part of an ongoing review of our future facility needs.
Current wording
In 2023, we wrote-off $1.6 million of previously capitalized cloud computing costs associated with a policy management system as part of a continual evaluation of our ongoing technology initiatives. Additionally, we recorded a non-recurring charge in connection with the early termination of the lease associated with our 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. We also recognized a related lease termination gain pertaining to the elimination of the lease liability, net of an associated right-of-use asset (ROU asset) of $1.0 million, which was included in Other expenses on our Consolidated Statements of Comprehensive Income (Loss). The decision to terminate the former Reno operating lease was undertaken as part of an ongoing review of our facility needs.
Previous wording
Income tax expense was $30.3 million, $7.4 million, and $27.7 million for the years ended December 31, 2023, 2022, and 2021, respectively, representing effective tax rates of 20.4%, 13.3%, and 18.8% for the years ended December 31, 2023, 2022, and 2021, respectively.
Current wording
Income tax expense was $28.1 million, $30.3 million, and $7.4 million for the years ended December 31, 2024, 2023, and 2022, respectively, representing effective tax rates of 19.2%, 20.4%, and 13.3% for the years ended December 31, 2024, 2023, and 2022, respectively.
Previous wording
Tax-advantaged investment income, pre-Privatization loss and LAE reserve adjustments, LPT Reserve Adjustments, LPT Contingent Commission Adjustments, Deferred Gain amortization and certain other adjustments reduced our income tax expense computed at a statutory rate of 21% by $0.9 million, $4.3 million, and $3.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Current wording
Tax-advantaged investment income, pre-Privatization loss and LAE reserve adjustments, LPT adjustments, Deferred Gain amortization, certain other adjustments and tax credits utilized reduced our income tax expense computed at a statutory rate of 21% by $2.7 million, $0.9 million, and $4.3 million for the years ended December 31, 2024, 2023, and 2022, respectively.
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Rearranged current paragraphs (3)
Current report — wording carried from elsewhere
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 December 31, 2024, EHI has remained in compliance with all of the covenants associated with the Credit Agreement.
Current report — wording carried from elsewhere
On December 15, 2020, EHI entered into a Credit Agreement (the former Credit Agreement) with a syndicate of financial institutions. The former Credit Agreement provided EHI with a $75.0 million three-year revolving credit facility and was guaranteed by EHI's wholly owned subsidiaries, EGI and CGI. Borrowings under the former Credit Agreement could be used for working capital and general corporate purposes.
Current report — wording carried from elsewhere
Net cash used in financing activities in 2024 related primarily to stockholder dividend payments and common stock repurchases.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
Our current accident year loss estimate considers, and continues to benefit from, overall declines in the on-leveled frequency of compensable indemnity claims. Total claims costs have also been reduced by cost savings associated with our continued focus on accelerating claims settlements. We believe that our current accident year loss estimate is adequate; however, ultimate losses will not be known with any certainty for many years.
Previous report — wording carried elsewhere
Statements, however, we believe that the following matters are particularly important to understand our financial statements because changes in these estimates or changes in the assumptions used to make them could have a material impact on our results of operations, financial condition, and cash flows.