10-Q: Employers Holdings Reports Q3 Loss Amid Soaring Claims

Employers Holdings, Inc. reported a net loss for Q3 2025 and a significant increase in losses and loss adjustment expenses, despite growth in premiums and strong investment returns.

Summary

• Reported a net loss of $8.3 million for the three months ended September 30, 2025, a substantial decline from a net income of $30.3 million in the prior year period.
• Net income for the nine months ended September 30, 2025, decreased to $34.2 million from $90.3 million in the same period of 2024.
• Gross premiums written increased by 1.5% to $183.9 million for the three months ended September 30, 2025, primarily driven by renewal business premiums.
• Net premiums earned grew by 2.9% to $192.1 million for the three months and 2.5% to $573.4 million for the nine months ended September 30, 2025.
• Losses and loss adjustment expenses (LAE) surged by 58.5% to $186.6 million for the three months and 30.4% to $447.4 million for the nine months ended September 30, 2025.
• The combined ratio deteriorated significantly to 129.7% for the three months and 112.5% for the nine months ended September 30, 2025, compared to 100.4% and 98.7% respectively in 2024.
• Underwriting loss widened to $57.1 million for the three months and $71.8 million for the nine months ended September 30, 2025.
• Net investment income decreased by 1.9% to $26.1 million for the three months but increased by 6.2% to $85.3 million for the nine months ended September 30, 2025.
• Net realized and unrealized gains on investments increased to $21.2 million for the three months and $29.3 million for the nine months ended September 30, 2025.
• The Board of Directors approved a $125.0 million increase to the existing 2025 stock repurchase program, bringing the total authorization to $250.0 million, to be funded through various debt sources.
• Declared a quarterly dividend of $0.32 per share, payable November 26, 2025, to stockholders of record on November 12, 2025.

Sentiment

Score: 3

Explanation: The significant deterioration in underwriting profitability, evidenced by a net loss and a high combined ratio, outweighs the positives of premium growth and strong investment returns. While the expanded share repurchase program and dividend increase might offer some short-term shareholder value, the core business performance is a major concern.

Positives

• Gross premiums written increased by 1.5% for the three months ended September 30, 2025, driven by growth in renewal business premiums.
• Achieved a record number of policies in-force, totaling 135,414 at September 30, 2025.
• Net investment income increased by 6.2% for the nine months ended September 30, 2025, primarily due to returns from private equity limited partnerships and higher book yields on fixed maturity securities.
• Net realized and unrealized gains on investments were strong, reaching $21.2 million for the three months and $29.3 million for the nine months ended September 30, 2025, consistent with U.S. equity market performance and increased private equity values.
• Commission expense decreased by 10.9% for the three months and 6.2% for the nine months ended September 30, 2025, due to lower agency incentive accruals and a release of commissions payable.
• Underwriting expenses decreased by 9.6% for the three months and 4.8% for the nine months ended September 30, 2025, reflecting a disciplined focus on expense reduction.
• The Board approved an increase of $125.0 million to the stock repurchase program, raising the total authorization to $250.0 million, signaling confidence in future value.
• Increased the quarterly dividend per share to $0.32, up from $0.30 in the prior year period.

Negatives

• Reported a net loss of $8.3 million for the three months ended September 30, 2025, compared to a net income of $30.3 million in the prior year.
• Net income for the nine months ended September 30, 2025, significantly decreased to $34.2 million from $90.3 million in the prior year.
• Losses and loss adjustment expenses (LAE) increased by 58.5% for the three months and 30.4% for the nine months ended September 30, 2025, primarily due to higher current accident year loss estimates and reserve strengthening for prior accident years.
• The calendar year loss and LAE ratio increased to 97.1% for the three months and 78.0% for the nine months ended September 30, 2025, from 63.1% and 61.3% respectively in 2024.
• The combined ratio deteriorated significantly to 129.7% for the three months and 112.5% for the nine months ended September 30, 2025, indicating a substantial underwriting loss.
• Underwriting (loss) income worsened to $(57.1) million for the three months and $(71.8) million for the nine months ended September 30, 2025.
• Basic earnings per common share fell to $(0.36) for the three months and $1.43 for the nine months ended September 30, 2025, from $1.22 and $3.59 respectively in 2024.
• Insurance subsidiaries made significant dividend payments to the parent company, restricting their ability to pay further dividends for the remainder of 2025 without prior regulatory approval.

Risks

• Inherent uncertainty in estimating unpaid losses and loss adjustment expenses (LAE), which are subject to change as facts and circumstances develop.
• Credit risk associated with fixed maturity securities, equity securities, other invested assets, cash and cash equivalents, and reinsurance recoverables.
• Interest rate risk, which exposes fixed maturity securities to changes in fair value due to prevailing interest rates.
• Equity price risk, which is the risk of a decline in the market value of equity securities held in the investment portfolio.
• Inflationary pressures, which could significantly impact claims costs (medical treatments, litigation), operating expenses, payrolls, and the market value of existing fixed maturity investments.
• High competition in the national workers' compensation insurance industry, based on price and quality of services.
• Regulatory restrictions on the ability of insurance subsidiaries to pay dividends to the holding company, impacting EHI's liquidity.
• Economic disruptions caused by ongoing financial market volatility, catastrophic events, or geo-political conditions.

Future Outlook

Management believes its total capital position remains strong and liquidity is adequate for financing needs in the next 12 months and longer-term. The company does not foresee a need to suspend dividends, forego stock repurchases, seek additional required capital, or pursue material non-investment asset sales, though these options remain available if financial circumstances change. The company continues to evaluate the impact of the One Big Beautiful Bill Act (OBBBA) on its financial condition and results of operations.

Management Comments

• "Our 2025 underwriting results demonstrate moderate growth in net premiums earned, accompanied by reductions in both commission expense and underwriting expenses. These improvements were offset by higher losses and LAE compared to the same periods of 2024."
• "Our 2025 investment results were strong, driven by solid net investment income and favorable net realized and unrealized gains."
• "Nonetheless, we closed another quarter with a record number of policies in-force."
• "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."
• "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."
• "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."

Industry Context

The company operates in a highly competitive workers' compensation insurance industry, targeting small to mid-sized businesses. While the company aims for profitable growth through disciplined underwriting and claims management, the significant deterioration in its combined ratio to 129.7% (Q3 2025) and 112.5% (9M 2025) indicates a substantial underwriting loss, which is a concerning trend compared to the industry's general aim for combined ratios below 100% for underwriting profitability. The increase in cumulative trauma claims in California highlights specific regional and claim-type pressures within the workers' compensation market.

Comparison to Industry Standards

• The company's combined ratio of 129.7% for Q3 2025 and 112.5% for 9M 2025 is significantly above the industry benchmark of 100%, indicating a substantial underwriting loss. For comparison, a healthy property and casualty insurer typically aims for a combined ratio below 95-100% to demonstrate underwriting profitability.
• The increase in the current accident year loss and LAE ratio to 72.0% (from 64.0% in 9M 2024) suggests a worsening trend in claims experience, which is a key metric for evaluating an insurer's core profitability and pricing adequacy.
• The investment portfolio's weighted average quality of A+ and duration of 4.4 for fixed maturity securities are generally in line with conservative investment strategies for insurance companies, prioritizing capital preservation and liquidity.
• The company's focus on small to mid-sized businesses is a common strategy in the workers' compensation market, often associated with higher persistency and profitability compared to larger accounts, though the current results suggest challenges in executing this strategy profitably.

Corporate Governance

Legal Proceedings

• The company is involved in pending and threatened litigation in the normal course of business, but management believes the ultimate liability is not expected to have a material effect on results of operations, liquidity, or financial position.

Stakeholder Impact

• Shareholders: Negative impact from the net loss and reduced EPS, but potentially positive from the increased quarterly dividend and the expanded $250.0 million share repurchase program.
• Employees: Incurred $1.3 million in employee severance costs due to a reorganization in Q3 2025, indicating workforce adjustments.
• Policyholders: May face increased premiums due to the higher current accident year loss and LAE ratio, particularly in California due to increased cumulative trauma claim frequency.
• Creditors/Lenders: The company's intent to fund share repurchases through debt sources, including FHLB advances, could increase leverage, though the company remains in compliance with Credit Agreement covenants (e.g., minimum consolidated net worth of $800.0 million, debt to total capitalization ratio no more than 35%).

Next Steps

• The company will continue to evaluate the impact of the One Big Beautiful Bill Act (OBBBA) on its consolidated financial condition and results of operations.
• The company plans to execute share repurchases through open market transactions as part of the expanded $250.0 million stock repurchase program.
• The company's insurance subsidiaries will continue to access collateralized advances from the FHLB to support liquidity and potentially fund the recapitalization plan.

Key Dates

Recommendation

The significant deterioration in underwriting performance, marked by a net loss and a combined ratio well above 100%, is a major concern for the core insurance business. While strong investment returns and an aggressive share repurchase program (funded by debt) may provide some support to the stock price, the underlying operational challenges in claims and loss management are substantial. A 'Hold' recommendation reflects the conflicting signals: the company is actively returning capital to shareholders and has strong investment performance, but the fundamental insurance operations are struggling, creating significant uncertainty about long-term profitability without clear improvements in underwriting.

Keywords

Workers' Compensation Insurance, SEC Filing, 10-Q, Insurance Operations, Losses and LAE, Combined Ratio, Underwriting Performance, Investment Income, Share Repurchase Program, Dividends, California Claims, Cumulative Trauma, Financial Results, Employers Holdings