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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____  to ____

Commission file number: 001-33245

EMPLOYERS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada04-3850065
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification Number)
10375 Professional Circle
Reno,Nevada89521
(Address of principal executive offices and zip code)
(888682-6671
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareEIGNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of October 25, 2022, there were 27,196,727 shares of the registrant's common stock outstanding.



  Page
No.
   
 
 
 
 
 
   
  
   



2



PART IFINANCIAL INFORMATION
Item 1.  Consolidated Financial Statements
Employers Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(in millions, except share data)
As ofAs of
September 30,
2022
December 31,
2021
Assets(unaudited)
Investments:  
Fixed maturity securities at fair value (amortized cost $2,440.9 at September 30, 2022 and $2,266.3 at December 31, 2021, less CECL allowance of $4.7 at September 30, 2022 and $0.2 at December 31, 2021)
$2,235.1 $2,342.7 
Equity securities at fair value (cost $146.5 at September 30, 2022 and $212.6 at December 31, 2021)
182.2 338.8 
Equity securities at cost
6.3 5.6 
Other invested assets (cost $52.9 at September 30, 2022 and $34.1 at December 31, 2021)
58.4 38.4 
Short-term investments at fair value (amortized cost $10.5 at December 31, 2021)
 10.5 
Total investments2,482.0 2,736.0 
Cash and cash equivalents148.1 75.1 
Restricted cash and cash equivalents0.2 0.2 
Accrued investment income19.7 14.5 
Premiums receivable (less CECL allowance of $11.0 at September 30, 2022 and $10.3 at December 31, 2021)
301.0 244.7 
Reinsurance recoverable for:
Paid losses 7.3 7.5 
Unpaid losses (less CECL allowance of $0.6 at September 30, 2022 and $0.6 at December 31, 2021)
455.8 476.3 
Deferred policy acquisition costs49.7 43.7 
Deferred income tax asset, net71.2  
Property and equipment, net12.8 14.7 
Operating lease right-of-use assets12.2 14.2 
Intangible assets, net13.6 13.6 
Goodwill36.2 36.2 
Contingent commission receivable—LPT Agreement13.9 13.9 
Cloud computing arrangements46.9 43.9 
Other assets38.1 48.7 
Total assets$3,708.7 $3,783.2 
Liabilities and stockholders’ equity  
Claims and policy liabilities:  
Unpaid losses and loss adjustment expenses$1,979.9 $1,981.2 
Unearned premiums345.8 304.7 
Commissions and premium taxes payable53.4 42.1 
Accounts payable and accrued expenses21.4 24.1 
Deferred reinsurance gain—LPT Agreement108.1 114.4 
FHLB advances182.5  
Deferred income tax liability, net 7.7 
Operating lease liability14.3 16.6 
Non-cancellable obligations27.8 21.7 
Other liabilities56.5 57.6 
Total liabilities$2,789.7 $2,570.1 
Commitments and contingencies
3


Employers Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(in millions, except share data)
As ofAs of
September 30,
2022
December 31,
2021
Stockholders’ equity:(unaudited) 
Common stock, $0.01 par value; 150,000,000 shares authorized; 57,871,517 and 57,690,254 shares issued and 27,196,333 and 27,741,400 shares outstanding at September 30, 2022 and December 31, 2021, respectively
$0.6 $0.6 
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued  
Additional paid-in capital412.9 410.7 
Retained earnings1,290.4 1,338.5 
Accumulated other comprehensive (loss) income, net of tax(158.9)60.6 
Treasury stock, at cost (30,675,184 shares at September 30, 2022 and 29,948,854 shares at December 31, 2021)
(626.0)(597.3)
Total stockholders’ equity919.0 1,213.1 
Total liabilities and stockholders’ equity$3,708.7 $3,783.2 
See accompanying unaudited notes to the consolidated financial statements.
4


Employers Holdings, Inc. and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income
(in millions, except per share data)
Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
Revenues(unaudited)(unaudited)
Net premiums earned$178.7 $147.1 $494.1 $418.0 
Net investment income23.7 18.4 62.8 54.9 
Net realized and unrealized gains (losses) on investments1.9 2.7 (65.5)29.6 
Other income 0.1 0.1 0.3 0.8 
Total revenues204.4 168.3 491.7 503.3 
Expenses  
Losses and loss adjustment expenses112.3 91.2 299.7 244.5 
Commission expense25.3 19.9 69.9 54.7 
Underwriting and general and administrative expenses41.9 37.4 120.6 121.0 
Interest and financing expenses1.1 0.1 1.6 0.4 
Other expenses 1.1  4.1 
Total expenses180.6 149.7 491.8 424.7 
Net income (loss) before income taxes23.8 18.6 (0.1)78.6 
Income tax expense (benefit)4.7 3.6 (1.4)14.1 
Net income$19.1 $15.0 $1.3 $64.5 
Comprehensive (loss) income
Unrealized AFS investment losses arising during the period, net of tax benefit of $16.0 and $2.2 for the three months ended September 30, 2022 and 2021, respectively, and $59.0 and $8.9 for the nine months ended September 30, 2022 and 2021,respectively
$(60.3)$(8.8)$(222.2)$(33.8)
Reclassification adjustment for realized AFS investment losses (gains) in net income, net of tax (benefit) expense of $1.1 and $0.2 for the three months ended September 30, 2022 and 2021, respectively and $(0.7) and $0.8 for the nine months ended September 30, 2022 and 2021, respectively
(3.9)(0.6)2.7 (2.9)
Other comprehensive loss, net of tax(64.2)(9.4)(219.5)(36.7)
Total comprehensive (loss) income$(45.1)$5.6 $(218.2)$27.8 
Net realized and unrealized gains (losses) on investments
Net realized and unrealized gains (losses) on investments before impairments$1.9 $2.7 $(65.5)$29.6 
Net realized and unrealized gains (losses) on investments$1.9 $2.7 $(65.5)$29.6 
Earnings per common share (Note 13):
Basic$0.70 $0.53 $0.05 $2.27 
Diluted$0.70 $0.53 $0.05 $2.24 
Cash dividends declared per common share and eligible equity plan awards$0.26 $0.25 $1.77 $0.75 
See accompanying unaudited notes to the consolidated financial statements.
5


Employers Holdings, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Three Months Ended September 30, 2022 and 2021
(Unaudited)
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive (Loss) Income, NetTreasury Stock at CostTotal Stockholders’ Equity
Shares IssuedAmount
(in millions, except share data)
Balance, July 1, 202257,871,517 $0.6 $411.8 $1,278.4 $(94.7)$(618.6)$977.5 
Stock-based obligations  1.1    1.1 
Acquisition of common stock      (7.4)(7.4)
Dividends declared   (7.1)  (7.1)
Net income for the period—   19.1   19.1 
Change in net unrealized losses on AFS investments, net of taxes of $17.1—    (64.2) (64.2)
Balance, September 30, 202257,871,517 $0.6 $412.9 $1,290.4 $(158.9)$(626.0)$919.0 
Balance, July 1, 202157,689,672 $0.6 $407.4 $1,283.0 $87.8 $(575.2)$1,203.6 
Stock-based obligations  1.1    1.1 
Vesting of RSUs and PSUs, net of shares withheld to satisfy tax withholdings       
Acquisition of common stock     (13.2)(13.2)
Dividends declared   (7.1)  (7.1)
Net income for the period—   15.0   15.0 
Change in net unrealized gains on AFS investments, net of taxes of $2.4—    (9.4) (9.4)
Balance, September 30, 202157,689,672 $0.6 $408.5 $1,290.8 $78.4 $(588.4)$1,189.9 
See accompanying unaudited notes to the consolidated financial statements.
6


Employers Holdings, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive (Loss) Income, NetTreasury Stock at CostTotal Stockholders’ Equity
Shares IssuedAmount
(in millions, except share data)
Balance, January 1, 202257,690,254 $0.6 $410.7 $1,338.5 $60.6 $(597.3)$1,213.1 
Stock-based obligations  3.4    3.4 
Stock options exercised41,665  1.1    1.1 
Vesting of RSUs and PSUs, net of shares withheld to satisfy tax withholdings139,598  (2.3)   (2.3)
Acquisition of common stock      (28.7)(28.7)
Dividends declared   (49.4)  (49.4)
Net income for the period—   1.3   1.3 
Change in net unrealized losses on AFS investments, net of taxes of $58.3—    (219.5) (219.5)
Balance, September 30, 202257,871,517 $0.6 $412.9 $1,290.4 $(158.9)$(626.0)$919.0 
Balance, January 1, 202157,413,806 $0.6 $404.3 $1,247.9 $115.1 $(555.1)$1,212.8 
Stock-based obligations  6.8    6.8 
Stock options exercised48,051  1.1    1.1 
Vesting of RSUs and PSUs, net of shares withheld to satisfy tax withholdings227,815  (3.7)   (3.7)
Acquisition of common stock     (33.3)(33.3)
Dividends declared   (21.5)  (21.5)
Net income for the period—   64.5   64.5 
Change in net unrealized gains on AFS investments, net of taxes of $9.7—    (36.7) (36.7)
Balance, September 30, 202157,689,672 $0.6 $408.5 $1,290.8 $78.4 $(588.4)$1,189.9 
See accompanying unaudited notes to the consolidated financial statements.
7


Employers Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in millions)
 Nine Months Ended
 September 30,
 20222021
Operating activities(unaudited)
Net income$1.3 $64.5 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization4.1 5.7 
Stock-based compensation3.4 6.8 
Amortization of cloud computing arrangements12.1 11.0 
Amortization of premium on investments, net2.6 6.7 
Allowance for expected credit losses0.7 (0.6)
Deferred income tax (benefit) expense(20.6)1.5 
Net realized and unrealized losses (gains) on investments65.5 (29.6)
Asset impairment charges 1.0 
Change in operating assets and liabilities:  
Premiums receivable(57.0)(17.9)
Reinsurance recoverable on paid and unpaid losses20.7 19.2 
Cloud computing arrangements(15.1)(6.4)
Operating lease right-of-use-assets2.0 2.4 
Current federal income taxes6.8 (11.8)
Unpaid losses and loss adjustment expenses(1.3)(67.3)
Unearned premiums41.1 18.3 
Accounts payable, accrued expenses and other liabilities(0.1)(4.0)
Deferred reinsurance gain—LPT Agreement(6.3)(6.2)
Operating lease liabilities(2.3)(2.4)
Non-cancellable obligations6.1 (0.9)
Other3.8 0.7 
Net cash provided by (used in) operating activities67.5 (9.3)
Investing activities  
Purchases of fixed maturity securities(540.0)(416.0)
Purchases of equity securities(111.4)(157.8)
Purchases of short-term investments(9.6)(2.0)
Purchases of other invested assets(18.8)(13.4)
Proceeds from sale of fixed maturity securities230.7 182.3 
Proceeds from sale of equity securities204.0 98.5 
Proceeds from maturities and redemptions of fixed maturity securities133.2 302.0 
Proceeds from maturities of short-term investments20.0 28.3 
Net change in unsettled investment purchases and sales(3.6)2.7 
Capital expenditures and other(2.2)(2.1)
Net cash (used in) provided by investing activities(97.7)22.5 
Financing activities  
Acquisition of common stock(28.7)(33.7)
Cash transactions related to stock-based compensation(1.2)(2.7)
Dividends paid to stockholders(49.3)(21.5)
Proceeds from FHLB advances182.5  
Repayments on FHLB advances (20.0)
Proceeds from line of credit advances10.0 27.0 
Repayments on line of credit advances(10.0)(27.0)
Payments on finance leases(0.1)(0.1)
Net cash provided by (used in) financing activities103.2 (78.0)
Net increase (decrease) in cash, cash equivalents and restricted cash73.0 (64.8)
8


Cash, cash equivalents and restricted cash at the beginning of the period75.3 160.6 
Cash, cash equivalents and restricted cash at the end of the period$148.3 $95.8 

The following table presents our cash, cash equivalents and restricted cash by category within the Consolidated Balance Sheets:
As ofAs of
September 30,
2022
December 31,
2021
(in millions)
Cash and cash equivalents$148.1 $75.1 
Restricted cash and cash equivalents supporting reinsurance obligations0.2 0.2 
Total cash, cash equivalents and restricted cash$148.3 $75.3 
 
See accompanying unaudited notes to the consolidated financial statements.
9


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 commenced on June 30, 1999 and will remain in effect until: (i) all claims under the covered policies have closed; (ii) the LPT Agreement is commuted or terminated, upon the mutual agreement of the parties; or (iii) the reinsurers’ aggregate maximum limit of liability is exhausted, whichever occurs first. The LPT Agreement does not provide for any additional termination terms. On January 1, 2000, EICN assumed all of the assets, liabilities and operations of the Fund, including the Fund’s rights and obligations associated with the LPT Agreement (See Note 9).
The Company accounts for the LPT Agreement as retroactive reinsurance. Upon entry into the LPT Agreement, an initial deferred reinsurance gain (the Deferred Gain) was recorded as a liability on the Company’s Consolidated Balance Sheets. The Company is entitled to receive a contingent profit commission under the LPT Agreement. The contingent profit commission is estimated based on both actual paid results to date and projections of expected paid losses under the LPT Agreement and is recorded as an asset on the Company’s Consolidated Balance Sheets.
The 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, 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, 2021 (Annual Report).
The Company operates through two reportable segments: Employers and Cerity. Each of the segments represents a separate and distinct distribution channel through which the Company conducts insurance business. This presentation allows the reader, as well as the Company's chief operating decision makers, to objectively analyze the business originated through each of these channels. Detailed financial information about the Company's operating segments 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.
Reclassifications
Certain prior period information has been reclassified to conform to the current period presentation.
2. New Accounting Standards
Recently Issued Accounting Standards
In March 2020, the Financial Accounting Standards Board (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 apply this ASU at any time, but early adoption is only available through December 31, 2022 when this ASU becomes effective. The Company has and will continue to evaluate the impact of LIBOR on its existing contracts and investments, but does not expect that this update will have a material impact on its consolidated financial condition or results of operations.
10


Recently Adopted Accounting Standards
None.
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:
September 30, 2022December 31, 2021
 Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
 (in millions)
Financial assets  
Total investments at fair value$2,417.3 $2,417.3 $2,692.0 $2,692.0 
Cash and cash equivalents148.1 148.1 75.1 75.1 
Restricted cash and cash equivalents0.2 0.2 0.2 0.2 
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 the 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, 2022 and December 31, 2021.
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, 2022, the Company held $16.1 million of fixed maturity securities at fair value that were designated Level 3. These private placement securities, which were acquired during the second quarter of 2022, were designated as Level 3 securities due to the limited amount of observable market information available.


11


The following table presents the Company’s investments at fair value and the corresponding fair value measurements.
September 30, 2022December 31, 2021
Level 1Level 2Level 3Level 1Level 2Level 3
(in millions)
Fixed maturity securities:
U.S. Treasuries$ $90.7 $ $ $65.7 $ 
U.S. Agencies 2.1   2.4  
States and municipalities 355.1   436.1  
Corporate securities 885.6 16.1  1,080.3  
Residential mortgage-backed securities
 353.5   321.8  
Commercial mortgage-backed securities
 57.5   92.3  
Asset-backed securities 59.5   68.5  
Collateralized loan obligations 259.6   85.4  
Foreign government securities 9.6   12.5  
Other securities
 145.8   177.7  
Total fixed maturity securities$ $2,219.0 $16.1 $ $2,342.7 $ 
Equity securities at fair value:
Industrial and miscellaneous$154.3 $ $ $283.1 $ $ 
Other27.9   55.7   
Total equity securities at fair value$182.2 $ $ $338.8 $ $ 
Short-term investments$ $ $ $ $10.5 $ 
Total investments at fair value$182.2 $2,219.0 $16.1 $338.8 $2,353.2 $ 
Financial Instruments Carried at Cost
EICN, ECIC, EPIC, and EAC 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. 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 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 fund terms of