Employers Holdings Inc.

05/01/2026 | Press release | Distributed by Public on 05/01/2026 14:18

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations
You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes thereto included in Item 1 of Part I. Unless otherwise indicated, all references to "we," "us," "our," "the Company," or similar terms refer to EHI, together with its subsidiaries. In this Quarterly Report on Form 10-Q, the Company and its management discuss and make statements based on currently available information regarding their intentions, beliefs, current expectations, and projections of, among other things, the Company's future performance, economic or market conditions, including current or future levels of inflation, potential implications of increased tariffs, changes in interest rates, labor market expectations, catastrophic events or geo-political conditions, legislative or regulatory actions or court decisions, business growth, retention rates, loss costs, claim trends and the impact of key business initiatives, future technologies and planned investments. Certain of these statements may constitute "forward-looking" statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and are often identified by words such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "target," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely," or "continue," or other comparable terminology and their negatives. The Company and its management caution investors that such forward-looking statements are not guarantees of future performance. Risks and uncertainties are inherent in the Company's future performance. Factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements include, among other things, those discussed or identified from time to time in the Company's public filings with the SEC, including the risks detailed in the Company's Annual Reports on Form 10-K and in the Company's subsequent Quarterly Reports on Form 10-Q. Except as required by applicable securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
General
We are a Nevada holding company with insurance subsidiaries that are specialty providers of workers' compensation insurance and related services. 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 46% of our trailing twelve month gross written premiums, excluding adjustments, are generated. In February 2026, we launched a new excess workers' compensation product that will be offered to self-insured enterprises in several jurisdictions across the United States. Our revenues primarily consist of net premiums earned, net investment income, and net realized and unrealized gains and losses on investments.
The insurance industry is highly competitive based on price and quality of services. We compete with other specialty workers' compensation carriers, state agencies, multi-line insurance companies, professional employer organizations, self-insurance funds, and state insurance pools.
For guaranteed cost workers' compensation, 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 and our decades of data and experience. We target small to mid-sized businesses, as we believe this market is traditionally characterized by higher profitability and longer retention. Our distribution strategy consists of establishing and maintaining strong, long-term relationships with traditional and specialty insurance agencies, developing alternative distribution channels, and offering direct-to-consumer workers' compensation through our website.
For excess workers' compensation, our approach is to deliver a flexible, data-driven solution that goes beyond traditional excess coverage by incorporating value-added services. We believe these services including improved organizational performance and reduced long-term loss costs will serve as a key competitive advantage in the self-insured market, differentiating us from carriers that offer coverage alone.
We believe we have a cost-effective and scalable information technology infrastructure that complements our geographic reach and business model. We continue to invest in technology to automate business processes and further develop our data analytics and artificial intelligence capabilities, which we believe will enable us to reduce our operating costs over the long-term and support our future needs. We believe our technology is a strategic advantage that saves our distribution partners and policyholders considerable time and maintains our competitiveness in our target markets.
We continue to execute ongoing business initiatives focused on achieving process excellence and efficiency, as well as delivering self-service options to policyholders, agents, and injured workers. We are also actively pursuing strategies to diversify our risk exposure across geographies and economic sectors, expand our risk appetite, and broaden our product offerings.
Overview
Summary Financial Results
Our net income was $10.2 million for the three months ended March 31, 2026, compared to $12.8 million for the corresponding period of 2025. The key factors that affected our financial performance during the three months ended March 31, 2026, compared to the same period of 2025, included:
•Gross premiums written decreased 14.8%;
•Net premiums earned decreased 1.1%;
•Net investment income decreased 11.8%;
•Net realized and unrealized losses on investments of $1.7 million compared to $12.8 million;
•Losses and LAE increased 7.0%;
•Commission expense increased 3.0%;
•Underwriting expenses decreased 4.7%; and
•Underwriting loss of $12.8 million compared to $3.6 million.
Three Months Ended March 31, 2026
Our 2026 underwriting results reflect lower net premiums earned and higher losses and LAE expenses, combined with a slight increase in commission expense, partially offset by a reduction in underwriting expenses. Our investment results were impacted by lower returns from our investments in private equity limited partnerships and net realized and unrealized losses on investments.
Three Months Ended March 31, 2025
Our 2025 underwriting results reflect lower net premiums earned and higher losses and LAE expenses offset by reductions in commission and underwriting expenses. Our investment results benefited from strong net investment income partially offset by net realized and unrealized losses.
Our consolidated financial results of operations for the three months ended March 31, 2026 and 2025 are as follows:
Three Months Ended
March 31,
2026 2025
(in millions)
Gross premiums written $ 180.8 $ 212.1
Net premiums written $ 179.4 $ 210.3
Net premiums earned $ 180.9 $ 183.0
Net investment income 28.3 32.1
Net realized and unrealized losses on investments
(1.7) (12.8)
Other income
0.1 0.3
Total revenues 207.6 202.6
Underwriting expenses:
Losses and LAE 129.1 120.7
Commission expense 23.7 23.0
Underwriting expenses
40.9 42.9
Non-underwriting expenses:
Interest and financing expenses 1.1 0.1
Total expenses 194.8 186.7
Net income before income taxes
12.8 15.9
Income tax expense
2.6 3.1
Net income
$ 10.2 $ 12.8
I.Review of Underwriting Results
Underwriting income or loss is determined by deducting losses and LAE, commission expense, and underwriting expenses from net premiums earned. Our underwriting results for the three months ended March 31, 2026 and 2025 are as follows:
Three Months Ended
March 31,
2026 2025
(in millions)
Gross premiums written $ 180.8 $ 212.1
Net premiums written $ 179.4 $ 210.3
Net premiums earned $ 180.9 $ 183.0
Losses and LAE 129.1 120.7
Commission expense 23.7 23.0
Underwriting expenses
40.9 42.9
Total underwriting expenses
193.7 186.6
Underwriting loss
$ (12.8) $ (3.6)
Total impact of the LPT
(1.2) (1.6)
Underwriting loss excluding LPT(1)
$ (14.0) $ (5.2)
Loss and LAE ratio 71.4 % 66.0 %
Commission expense ratio 13.1 12.6
Underwriting expense ratio 22.6 23.4
Combined ratio 107.1 % 102.0 %
Total impact of the LPT 0.6 % 0.8 %
Combined ratio excluding LPT(1)
107.7 % 102.8 %
(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.
Gross Premiums Written
Gross premiums written were $180.8 million for the three months ended March 31, 2026, compared to $212.1 million for the corresponding period of 2025. For the three months ended March 31, 2026, the decrease in gross premiums written was largely driven by declines in both new and renewal business premiums driven predominately by our pricing and underwriting actions taken in 2025 to return to historical underwriting margins. Total in-force policies at March 31, 2026 were 130,321 compared to 133,121 in-force policies at March 31, 2025.
Net Premiums Written
Net premiums written are gross premiums written less reinsurance premiums ceded. For each of the periods presented, the reinsurance premiums ceded related to our annual reinsurance program as further described herein.
Net premiums written were $179.4 million for the three months ended March 31, 2026, compared to $210.3 million for the corresponding period of 2025. Reinsurance premiums ceded were $1.4 million for the three months ended March 31, 2026, compared to $1.8 million for the corresponding period of 2025.
Net Premiums Earned
Net premiums earned are primarily a function of the amount and timing of net premiums previously written.
Net premiums earned were $180.9 million for the three months ended March 31, 2026, compared to $183.0 million for the corresponding period of 2025.
Losses and LAE, Commission Expenses, and Underwriting Expenses
The following table presents our calendar year combined ratios.
Three Months Ended
March 31,
2026 2025
Loss and LAE ratio excluding LPT
72.0 % 66.8 %
Loss and LAE ratio - LPT
(0.6) (0.8)
Commission expense ratio 13.1 12.6
Underwriting expense ratio 22.6 23.4
Combined ratio 107.1 % 102.0 %
Combined ratio excluding LPT
107.7 % 102.8 %
Losses and LAE
Losses and LAE represents our largest expense item and includes claim payments made, amortization of the Deferred Gain, 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. We believe that our loss estimates are adequate; however, ultimate losses will not be known with any certainty for many years.
We analyze our loss and LAE ratios on both a calendar year and accident year basis.
The calendar year loss and LAE ratio is calculated by dividing the losses and LAE recorded during the calendar year, regardless of when the underlying insured event occurred, by the net premiums earned during that calendar year. The calendar year loss and LAE ratio reflects changes made during the calendar year in reserves for losses and LAE established for insured events occurring in the current and prior years. The calendar year loss and LAE ratio for a particular year will not change in future periods.
The accident year loss and LAE ratio is calculated by dividing cumulative losses and LAE that occurred during a particular year by the net premiums earned for that year. The accident year loss and LAE ratio for a particular year can decrease or increase when recalculated in subsequent periods as the reserves established for insured events occurring during that year fluctuate. Our current accident year loss and LAE ratios continue to reflect the impact of key business initiatives, including: an emphasis on accelerated settlements of open claims; further diversifying 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.
Our calendar year loss and LAE ratio is analyzed to measure profitability in a particular year and to evaluate the adequacy of premium rates charged in a particular year to cover expected losses and LAE from all periods, including development (whether favorable or adverse) of reserves established in prior periods. In contrast, our accident year loss and LAE ratios are analyzed to evaluate underwriting performance and the adequacy of the premium rates charged in a particular year in relation to ultimate losses and LAE from insured events occurring during that year. The loss and LAE ratios provided in this report are on a calendar year basis, except where they are expressly identified as accident year loss and LAE ratios.
The table below reflects current and prior accident year loss and LAE reserve adjustments, the impact of the LPT, and the resulting impact to our loss ratio.
Three Months Ended
March 31,
2026 2025
(dollars in millions)
Current accident year losses and LAE - excluding LPT
$ 130.4 $ 121.0
Prior accident year (favorable) adverse loss reserve development, net
(0.1) 1.3
Impact of LPT
(1.2) (1.6)
Calendar year losses and LAE
$ 129.1 $ 120.7
Current accident year loss and LAE ratio - excluding LPT
72.1 % 66.1 %
Calendar year loss and LAE ratio - excluding LPT
72.0 % 66.8 %
Calendar year loss and LAE ratio
71.4 % 66.0 %
The increase in our calendar year losses and LAE during the three months ended March 31, 2026, as compared to the same period of 2025, was primarily due to a higher current accident year loss and LAE estimate due to increased cumulative trauma (CT) claim frequency in California. Prior accident year favorable loss reserve development totaled $0.1 million on our assigned risk business during the three months ended March 31, 2026. Prior accident year unfavorable loss reserve development totaled $1.3 million during the three months ended March 31, 2025, which included $0.6 million of net unfavorable loss reserve development on our assigned risk business.
The table below reflects the impact of the LPT on Losses and LAE, which are recorded as a reduction to Losses and LAE incurred on our Consolidated Statements of Comprehensive Income (Loss).
Three Months Ended
March 31,
2026 2025
(in millions)
Amortization of the Deferred Gain - losses
$ 1.2 $ 1.6
Total impact of the LPT $ 1.2 $ 1.6
Commission Expense
Commission expense includes direct commissions to our agents and brokers, including our partnerships and alliances, for the premiums that they produce for us, as well as agency incentive payments, other marketing costs, and fees.
Our commission expense ratio was 13.1% for the three months ended March 31, 2026, compared to 12.6% for the corresponding period of 2025, and our commission expense was $23.7 million for the three months ended March 31, 2026, compared to $23.0 million for the corresponding period of 2025. The increase in our commission expense ratio and our commission expense for the three months ended March 31, 2026 was primarily driven by a release of commissions payable associated with non-performing policies sent to collections totaling $1.4 million that was recognized in the first quarter of 2025.
Underwriting Expenses
Underwriting 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.
Our underwriting expense ratio was 22.6% for the three months ended March 31, 2026, compared to 23.4% for the corresponding period of 2025, and our underwriting expenses were $40.9 million for the three months ended March 31, 2026, compared to $42.9 million for the corresponding period of 2025. The decrease in our underwriting expense ratio for the three months ended March 31, 2026 was driven by our disciplined focus on expense reduction and our underwriting decisions to reduce policyholder dividends.
The decrease in underwriting expenses for the three months ended March 31, 2026 was primarily the result of lower compensation-related expenses of $2.6 million and policyholder dividends of $1.7 million. These decreases were partially offset by lower internal AO and other expense allocations of $2.0 million, each compared to the same period of 2025.
II. Review of Non-Underwriting Results
Net Investment Income and Net Realized and Unrealized Gains and Losses on Investments
We invest in fixed maturity securities, equity securities, other invested assets, short-term investments, and cash equivalents. Net investment income includes interest and dividends earned on our invested assets and amortization of premiums and discounts on our fixed maturity securities, less bank service charges and custodial and portfolio management fees.
Net investment income decreased 11.8% during the three months ended March 31, 2026, compared to the same period of 2025. The decrease for the three months ended March 31, 2026 was primarily attributable to reduced distributions from our investments in private equity limited partnerships, which were elevated in the prior period, partially offset by higher yields on fixed maturity securities resulting from our investment rebalancing activity in 2025.
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 losses on investments on our Consolidated Statements of Comprehensive Income (Loss).
Net realized and unrealized losses on investments were $1.7 million for the three months ended March 31, 2026, compared to $12.8 million for the corresponding period of 2025. The net realized and unrealized losses on investments for the three months ended March 31, 2026 and 2025 included $1.2 million and $11.9 million of net realized and unrealized losses on equity securities and other investments, respectively, and $0.5 million and $0.9 million of net realized losses on fixed maturity securities, respectively.
The net investment losses on our equity securities during the three months ended March 31, 2026 were largely consistent with the performance of the U.S. equity markets. The net investment gains on our other investments during the three months ended March 31, 2026 resulted from an increase in the underlying value of the private equity limited partnership interests we own. The net realized investment losses on our fixed maturity securities during the three months ended March 31, 2026 included a $0.3 million increase in our allowance for CECL.
The net investment losses on our equity securities during the three months ended March 31, 2025 were largely consistent with the performance of the U.S. equity markets. The net investment losses on our other investments during the three months ended March 31, 2025 included the returns from our investments in private equity limited partnerships. The net realized investment losses on our fixed maturity securities during the three months ended March 31, 2025 included a $0.3 million increase in our allowance for CECL.
Additional information regarding our Investments is set forth under "-Liquidity and Capital Resources-Investments."
Other Income
Other income consists of net gains and losses on fixed assets, non-investment interest, and other miscellaneous income and expense items.
Interest and Financing Expenses
Interest and financing expenses include fees and interest associated with borrowings under the credit facility and advances and other credit arrangements with the Federal Home Loan Bank of San Francisco (FHLB).
Interest and financing expenses were $1.1 million for the three months ended March 31, 2026, compared to $0.1 million for the corresponding period of 2025. The increase for the three months ended March 31, 2026, resulted primarily from interest expense associated with our various advances with the FHLB.
Income Tax Expense
Income tax expense was $2.6 million for the three months ended March 31, 2026, compared to $3.1 million for the corresponding period of 2025. The effective tax rate was 20.3% for the three months ended March 31, 2026, compared to 19.5% for the corresponding period of 2025. The effective rates during each of the periods presented deviate favorably from the statutory rate of 21.0% due to, in part, income tax benefits and exclusions associated with tax-advantaged investment income, LPT adjustments, Deferred Gain amortization and related adjustments, and tax credits utilized.
Liquidity and Capital Resources
We believe that our total capital position remains strong and that the liquidity available to EHI and its subsidiaries remains adequate and will be sufficient for our financing needs in the next 12 months and in the longer-term period thereafter. As a result, we do not currently foresee a need to: (i) suspend dividends at either EHI or its insurance subsidiaries; (ii) forego repurchases of EHI's common stock; (iii) seek additional required capital; or (iv) seek any material non-investment asset sales, though we may decide to pursue those or other options if our financial circumstances change or if we deem it strategically advantageous to do so.
EHI Liquidity
EHI is a holding company and its ability to fund its operations is contingent upon its existing capital, the ability of its subsidiaries to pay it dividends, and the availability of loan capacity through its intercompany loan agreements with its insurance subsidiaries and credit facility. Any payments of dividends by our insurance subsidiaries are restricted by state insurance laws and regulations, including laws establishing minimum solvency and liquidity thresholds. EHI requires cash to pay dividends to its stockholders, repurchase its common stock, provide additional surplus to its insurance subsidiaries, and fund its operating expenses.
EHI's insurance subsidiaries' ability to pay dividends and distributions is based on their reported capital, surplus, and dividends paid within the prior twelve months.
During the first quarter of 2026, EICN made a $10.8 million dividend payment to EGI, which in turn distributed that amount to EHI. As a result of that dividend payment, EICN cannot pay dividends for the remainder of 2026 without prior regulatory approval.
During the first quarter of 2026, ECIC made a $20.4 million dividend payment to EGI, which in turn distributed that amount to EHI. As a result of that dividend payment, ECIC cannot pay dividends for the remainder of 2026 without prior regulatory approval.
Total cash and investments at the holding company were $42.3 million at March 31, 2026, consisting of $37.9 million of cash and cash equivalents, $3.9 million of fixed maturity securities, and $0.5 million of equity securities.
In November 2025, EHI entered into two three-year intercompany loan agreements with its insurance subsidiaries: one with EICN (the "EICN Agreement") and one jointly with EAC, ECIC, EPIC, and CIC (the "Omnibus Agreement"). Together, the agreements provide approximately $200.0 million of lending capacity, with individual advances bearing interest at the prevailing rate published by the FHLB for advances of comparable duration. As of March 31, 2026, $140.0 million is outstanding under these intercompany loan agreements.
On May 28, 2024, EHI entered into a Credit Agreement (the Credit Agreement) which provides for a $25.0 million, unsecured, three-year revolving credit facility and is guaranteed by EGI and 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, at EHI's option: (i) a base rate, defined as the higher of the Prime Rate, the Federal Funds Rate plus 0.50% and the Adjusted Term SOFR for a one-month tenor plus 1.00%, or (ii) an Adjusted Term SOFR, defined as the applicable Adjusted Term SOFR plus 1.50%. Borrowings under the Credit Agreement may be used for working capital and general corporate purposes of EHI and its subsidiaries. Interest paid and/or fees incurred pursuant to the Credit Agreement, as applicable, was $0.1 million for each of the three months ended March 31, 2026 and 2025.
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 March 31, 2026, EHI has remained in compliance with all of the covenants associated with the Credit Agreement since its inception.
On February 17, 2026, EHI borrowed $20.0 million under the Credit Agreement as part of the Company's recapitalization plan. The advance bears interest at a rate of 5.50% based on the three-month Adjusted Term SOFR, with a reset date of May 18, 2026. As of March 31, 2026, $20.0 million was outstanding under the Credit Agreement. The outstanding balance is classified as long-term debt as the Credit Agreement does not expire until May 28, 2027. Advances can be repaid at any time without prepayment penalties or additional fees.
Operating Subsidiaries' Liquidity
The primary sources of cash for our operating subsidiaries, which include our insurance and other operating subsidiaries, are premium collections, investment income, sales and maturities of investments, and reinsurance recoveries. The primary uses of cash for our operating subsidiaries are payments of losses and LAE, commission expense, underwriting expenses, ceded reinsurance, investment purchases and dividends paid to their parent.
Total cash and investments held by our operating subsidiaries was $2,445.9 million at March 31, 2026, consisting of $115.4 million of cash and cash equivalents, and restricted cash, $2,029.8 million of fixed maturity securities, $190.3 million of equity securities, $95.8 million of other invested assets, and $14.6 million of short-term investments. Sources of immediate and unencumbered liquidity at our operating subsidiaries as of March 31, 2026 consisted of $115.2 million of cash and cash equivalents, $182.8 million of publicly traded equity securities whose proceeds are available within two business days, and $762.9 million of highly liquid fixed maturity securities whose proceeds are also available within two business days. We believe that our subsidiaries' liquidity needs over the next 12 months and for the longer-term period thereafter will be met with cash from operations, investment income, and maturing investments.
Each of our insurance subsidiaries are members of the FHLB. Membership allows our subsidiaries access to collateralized advances, which may be used to support and enhance liquidity management. The amount of advances that may be taken is dependent on our statutory admitted assets on a per company basis. The following table summarizes the terms and maturities of the advances outstanding at March 31, 2026.
Date of Advance
Borrower Amount Interest Rate Maturity Date
(in millions)
November 17, 2025 EICN $ 19.0 3.84 % May 31, 2029
February 5, 2026(1)
EICN 16.0 3.79 May 31, 2029
January 2, 2026 ECIC 17.0 3.77 May 31, 2029
January 8, 2026 EAC 22.0 3.78 May 31, 2029
January 16, 2026 EPIC 28.0 3.87 May 31, 2029
February 5, 2026 CIC 3.0 3.74 February 5, 2029
Total
$ 105.0
(1) On February 5, 2026, the terms of this advance were revised from an interest rate of 3.70% and a maturity date of December 21, 2026, to an interest rate of 3.79% and a maturity date of May 31, 2029.
These advances were assumed by EHI through the intercompany loan agreements as described above and executed as part of the Company's recapitalization plan. Interest incurred and paid on these borrowings during the three months ended March 31, 2026 was $0.9 million.
FHLB membership also allows our insurance subsidiaries access to standby Letter of Credit Agreements. Letter of Credit Agreements we currently have in effect will expire March 31, 2027 and must be fully secured with eligible collateral at all times (See Note 10).
Various state laws and regulations require us to hold investment securities or letters of credit on deposit with certain states in which we do business. Securities having a fair value of $587.0 million and $587.4 million were on deposit at March 31, 2026 and December 31, 2025, respectively. These laws and regulations govern both the amount and types of investment securities that are eligible for deposit. Additionally, standby letters of credit from the FHLB have been issued in lieu of $170.0 million of securities on deposit at both March 31, 2026 and December 31, 2025.
We purchase reinsurance annually to protect us against the costs of severe claims and certain catastrophic events. On July 1, 2025, we entered into a new reinsurance program that is effective through June 30, 2026. The reinsurance program consists of one treaty covering excess of loss and catastrophic loss events in four layers of coverage, which includes a 10% co-participation share within each layer of coverage retained by us. Our reinsurance coverage is $190.0 million ($171.0 million net of our co-participation) in excess of our $10.0 million retention on a per occurrence basis, including a maximum any one life limit of $20.0 million, subject to certain exclusions. We believe that our reinsurance program currently meets our needs.
Certain reinsurance contracts require funds owned by us to be held in trust for the benefit of the ceding reinsurer to secure the outstanding liabilities we have assumed. The fair value of fixed maturity securities held in trust for the benefit of our ceding reinsurers was $3.0 million and $3.1 million at March 31, 2026 and December 31, 2025, respectively.
Sources of Liquidity
We monitor the cash flows of each of our subsidiaries individually, as well as collectively as a consolidated group. We use trend and variance analyses to project future cash needs, making adjustments to our cash forecasts as appropriate.
The table below shows our net cash flows:
Three Months Ended
March 31,
2026 2025
(in millions)
Cash, cash equivalents, and restricted cash provided by (used in):
Operating activities $ 2.2 $ 14.6
Investing activities (12.3) 46.1
Financing activities 3.4 (28.6)
(Decrease) increase in cash, cash equivalents, and restricted cash
$ (6.7) $ 32.1
For additional information regarding our cash flows, see Item 1, Consolidated Statements of Cash Flows.
Operating Activities
Net cash provided by operating activities for the three months ended March 31, 2026 included net premiums received of $178.3 million and investment income received of $28.2 million. The cash provided by these operating activities was partially offset by net claims payments of $129.7 million, underwriting expenses paid of $46.7 million, commissions paid of $26.8 million and interest paid of $1.1 million.
Net cash provided by operating activities for the three months ended March 31, 2025 included net premiums received of $192.7 million, investment income received of $32.8 million, and federal tax refund received of $2.8 million. The cash provided by these operating activities was partially offset by net claims payments of $132.9 million, underwriting expenses paid of $54.1 million, and commissions paid of $26.6 million.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2026 related primarily to investments of premiums received and the reinvestment of funds from investment sales, maturities, redemptions and interest income. The cash outflows used in these activities were partially offset by investment sales, maturities, and redemptions whose proceeds were used to fund claims payments, underwriting expenses, stockholder dividend payments, and common stock repurchases.
Net cash provided by investing activities for the three months ended March 31, 2025 related primarily to returns from our investments, investment sales, maturities, and redemptions whose proceeds were used to fund claims payments, underwriting expenses, stockholder dividend payments, and common stock repurchases. Those investing cash inflows were partially offset by investments of premiums received and the reinvestment of funds from investment sales, maturities, redemptions and interest income.
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2026 related primarily to FHLB advances and borrowings on the Credit Agreement offset by stockholder dividend payments and common stock repurchases.
Net cash used in financing activities for the three months ended March 31, 2025 related primarily to stockholder dividend payments and common stock repurchases.
Dividends
We paid $6.3 million and $7.5 million in dividends to our stockholders and eligible equity plan award holders for the three months ended March 31, 2026 and 2025, respectively. The declaration and payment of future dividends to our stockholders, including any special dividends, will be at the discretion of our Board of Directors (Board) and will depend upon many factors including our financial position, capital requirements of our operating subsidiaries, legal and regulatory requirements, and any other factors that our Board deems relevant. On April 29, 2026, the Board declared a quarterly dividend per share of $0.34, which represents a 6.25% increase over the $0.32 dividend paid in March 2026, which is payable May 27, 2026 to stockholders of record on May 13, 2026.
Stock Repurchases
We repurchased 1,812,329 shares of our common stock for $76.9 million during the three months ended March 31, 2026. Future repurchases of our common stock will be at the discretion of our Board and will depend upon many factors, including
our financial position, capital requirements of our operating subsidiaries, general business and socioeconomic conditions, legal, tax, regulatory, and/or contractual restrictions, and any other factors that our Board deems relevant.
Capital Resources
As of March 31, 2026, the capital resources available to us consisted of $866.5 million of stockholders' equity and the $86.8 million Deferred Gain.
Contractual Obligations and Commitments
Other than operating expenses, our current and long-term cash requirements include the following contractual obligations and commitments as of March 31, 2026:
Debt
We obtained advances from the FHLB totaling $105.0 million, bearing interest rates ranging from 3.74% to 3.87%, of which none are payable within 12 months. Additionally, we had $20.0 million outstanding under our Credit Agreement, of which none is payable within 12 months.
Leases
We have entered into lease arrangements for certain equipment and facilities. As of March 31, 2026, we had lease payment obligations totaling $4.3 million, of which $0.8 million is payable within 12 months.
Other Purchase Obligations
We have other purchase obligations that primarily consist of non-cancellable obligations to acquire capital assets, commitments for information technology and related services, software acquisition and license commitments, and other legally binding agreements to purchase services that are to be used in our operations. As of March 31, 2026, we had other purchase obligations totaling $6.4 million, of which $3.8 million is payable within 12 months.
Unfunded Investment Commitments
As of March 31, 2026, we had private equity limited partnerships with unfunded investment commitments totaling $9.9 million that can be called at any time.
Unpaid Losses and LAE Expenses
We have developed unpaid losses and LAE expense payment patterns that are computed based on historical information. Our calculation of loss and LAE expense payments by period is subject to the same uncertainties associated with determining the level of reserves and to the additional uncertainties arising from the difficulty of predicting when claims (including claims that have not yet been reported to us) will be paid. Actual payments of losses and LAE by period will vary, perhaps materially, to the extent that current estimates of losses and LAE expense vary from actual ultimate claims amounts due to variations between expected and actual payment patterns. As of March 31, 2026, we had unpaid losses and LAE reserves totaling $1,802.5 million, of which $310.1 million is estimated to be payable within 12 months.
The unpaid losses and LAE expense payment patterns are gross of reinsurance recoverables for unpaid losses. As of March 31, 2026, we had reinsurance recoverables on unpaid losses and LAE totaling $383.1 million, of which $27.0 million is currently expected to be received within 12 months.
Investments
Our investment portfolio is structured to support our need for: (i) optimizing our risk-adjusted total returns; (ii) providing adequate liquidity; (iii) facilitating financial strength and stability; and (iv) ensuring regulatory and legal compliance. These investments provide a steady source of income.
As of March 31, 2026, our investment portfolio consisted of 88% fixed maturity securities with a duration of 4.4, which is measured by their sensitivity to changes in interest rates. Our investment strategy balances consideration of duration, yield, and credit risk. Our investment guidelines require that the minimum weighted average quality of our fixed maturity securities portfolio be "A," using ratings assigned by Standard & Poor's (S&P) or an equivalent rating assigned by another nationally recognized statistical rating agency. Our fixed maturity portfolio had a weighted average quality of "A+" as of March 31, 2026.
Our investment portfolio also contains equity securities. We strive to limit the exposure to equity price risk associated with publicly traded equity securities by diversifying our holdings across several industry sectors. These equity securities had a fair value of $183.3 million at March 31, 2026, which represented 8% of our investment portfolio at that time. We also have a $7.5 million investment in FHLB stock which we record at cost. We receive periodic dividends from the FHLB for this investment, when declared, which can vary from period to period.
Our investment portfolio also contains certain other investments, which made up 4% of our investment portfolio at March 31, 2026, and include private equity limited partnerships. Our investments in private equity limited partnerships totaled $95.8 million at March 31, 2026 and are generally not redeemable by the investees and cannot be sold without prior approval of the general partner. These investments have a fund term of 3 to 12 years, subject to two or three one-year extensions at the general partner's discretion. We periodically receive 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 March 31, 2026, we had unfunded commitments to these private equity limited partnerships totaling $9.9 million.
We believe that our current asset allocation meets our strategy to preserve capital for claims and policy liabilities and to provide sufficient capital resources to support and grow our ongoing insurance operations.
The following table shows the estimated fair value, the percentage of the fair value to total invested assets, and the average ending book yield (which is calculated based on the amortized cost of the associated invested assets) as of March 31, 2026.
Category Estimated Fair
Value
Percentage of
Total Investments
Measured at Fair Value
Book Yield
(in millions, except percentages)
U.S. Treasuries $ 81.0 3.6 % 3.9 %
States and municipalities 145.7 6.5 4.8
Corporate securities 696.7 31.2 4.7
Residential mortgage-backed securities 771.3 34.6 5.1
Commercial mortgage-backed securities 29.3 1.3 5.6
Asset-backed securities 154.0 6.9 5.5
Collateralized loan obligations 2.5 0.1 6.2
Foreign government securities 2.0 0.1 6.2
Other securities 151.2 6.8 6.3
Equity securities 183.3 8.2 2.3
Short-term investments 14.6 0.7 3.9
Total investments at fair value $ 2,231.6 100.0 %
Weighted average book yield
4.9 %
The following table shows the percentage of total estimated fair value of our fixed maturity securities as of March 31, 2026 by credit rating category, using the lower of the ratings assigned by Moody's Investors Service or S&P.
Rating Percentage of Total
Estimated Fair Value
"AAA" 8.7 %
"AA" 46.8
"A" 31.4
"BBB" 5.0
Below Investment Grade 8.1
Total 100.0 %
Investments that we currently own could be subject to default by the issuer. We regularly assess individual securities as part of our ongoing portfolio management, including the identification of credit-related losses. Our assessment includes reviewing the extent of declines in the fair value of investments below amortized cost, historical and projected financial performance and near-term prospects of the issuer, the outlook for industry sectors, credit rating, and macro-economic changes. We also make a determination as to whether it is not more likely than not that we will be required to sell the security before its fair value recovers to above cost, or maturity.
In addition to recognizing realized gains and losses upon the disposition of an investment security, we also record provisions and recoveries for changes in CECL allowance on AFS investments as realized gains and losses. As of March 31, 2026, we maintained a CECL allowance of $0.7 million on AFS investments. During the three months ended March 31, 2026, we recognized a net $0.3 million increase to our allowance for CECL on AFS investments. The remaining fixed maturity securities whose total fair value was less than amortized cost at March 31, 2026, were those in which we had no intent, need, or requirement to sell at an amount less than their amortized cost.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Estimates
The unaudited interim consolidated financial statements included in this quarterly report include amounts based on the use of estimates and judgments of management for those transactions that are not yet complete. We believe that the estimates and judgments that were most critical to the preparation of the consolidated financial statements involved the reserves for losses and LAE and reinsurance recoverables. These estimates and judgments require the use of assumptions about matters that are highly uncertain and therefore are subject to change as facts and circumstances develop. Our accounting policies are discussed under "Critical Accounting Estimates" in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report.
Employers Holdings Inc. published this content on May 01, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 01, 2026 at 20:18 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]