10-K: Employers Holdings Reports Sharp Profit Decline, Underwriting Loss in 2025

Employers Holdings, Inc. announced a significant drop in net income and an underwriting loss for 2025, driven by higher claims and investment losses, despite growth in policies in-force.

Summary

• Net income plummeted to $10.8 million in 2025, a sharp decrease from $118.6 million in 2024 and $118.1 million in 2023.
• The company recorded an underwriting loss of $(83.2) million in 2025, a significant deterioration from underwriting income of $15.6 million in 2024 and $36.2 million in 2023.
• The combined ratio worsened to 110.9% in 2025, up from 97.9% in 2024 and 95.0% in 2023, indicating an underwriting loss.
• Gross premiums written decreased by 2.6% to $756.1 million in 2025, compared to $776.3 million in 2024.
• Net premiums earned increased by 1.7% to $761.9 million in 2025, up from $749.5 million in 2024.
• Losses and loss adjustment expenses (LAE) surged by 27.5% to $581.8 million in 2025, compared to $456.2 million in 2024.
• Net realized and unrealized losses on investments totaled $(20.4) million in 2025, a reversal from gains of $24.1 million in 2024.
• Policies in-force increased by 2% to 133,605 at year-end 2025, from 130,767 in 2024.
• Adjusted stockholders' equity decreased to $1,036.4 million in 2025 from $1,245.2 million in 2024, primarily due to $217.2 million returned to stockholders through share repurchases and dividends.
• Adjusted stockholders' equity per share increased slightly to $50.95 in 2025 from $50.71 in 2024, attributed to the accretive nature of share repurchases.
• The current accident year loss and LAE ratio increased to 72.0% in 2025, an approximate eight-point increase from the 2024 ratio of 64.1%, primarily due to increased cumulative trauma (CT) claim frequency in California.
• Prior accident year adverse loss reserve development of $39.6 million was recognized in 2025, contrasting with net favorable prior year loss reserve development of $18.4 million in 2024.
• The company repurchased $187.3 million of common stock in 2025, significantly higher than $41.7 million in 2024.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a significantly negative report due to the sharp decline in net income, substantial underwriting loss, adverse reserve development, and investment losses, indicating a material deterioration in core operational profitability. While the company maintains a strong capital position and is actively returning capital to shareholders, the underlying financial performance is concerning.

Positives

• Net investment income increased by 9.1% to $116.7 million in 2025, benefiting from increased yields on fixed maturity investments and returns from private equity limited partnerships.
• Policies in-force grew by 2% to 133,605 in 2025, indicating continued business acquisition and retention efforts.
• Adjusted stockholders' equity per share increased to $50.95 in 2025, driven by the accretive nature of share repurchases.
• Launched a new excess workers' compensation product in February 2026, expanding product offerings to self-insured enterprises.
• Continued investment in technology, data analytics, and artificial intelligence capabilities is expected to reduce operating costs over the long-term and support future growth.
• Successfully diversified underwriting approach to include additional industries such as landscaping, janitorial, property management, artisan contracting, and home healthcare, expanding risk appetite.
• Maintained strong financial strength ratings of "A" (Excellent) from AM Best for all insurance subsidiaries.
• Maintained compliance with all covenants associated with the Credit Agreement as of December 31, 2025.
• Successfully integrated Cerity direct-to-customer operations into mainstream operations in 2023, aiming for efficiency and cost savings.

Negatives

• Net income decreased significantly to $10.8 million in 2025 from $118.6 million in 2024, representing a 90.9% decline.
• Reported an underwriting loss of $(83.2) million in 2025, a substantial reversal from underwriting income in prior years.
• The combined ratio worsened to 110.9% in 2025, indicating that underwriting operations were unprofitable.
• Gross premiums written decreased by 2.6% in 2025, primarily due to declines in new business premiums, final audit premiums, and policy endorsements.
• Losses and loss adjustment expenses (LAE) increased by 27.5% in 2025, driven by a higher current accident year loss estimate and reserve strengthening for prior accident years.
• Experienced net realized and unrealized losses on investments of $(20.4) million in 2025, a significant negative swing from gains in 2024.
• The current accident year loss and LAE ratio increased to 72.0% in 2025, an eight-point increase from 2024, attributed to increased cumulative trauma (CT) claim frequency in California.
• Recognized $39.6 million in adverse prior accident year loss reserve development in 2025, contrasting with favorable development of $18.4 million in 2024.
• Adjusted stockholders' equity declined by $(208.8) million in 2025, primarily due to capital returned to stockholders through share repurchases and dividends.

Risks

• Failure to price insurance policies sufficiently could materially adversely affect business competitiveness, financial condition, and results of operations.
• Intense competition in the workers' compensation market, with many competitors being larger, more widely known, or possessing greater financial resources, could lead to loss of market share or reduced premium rates.
• The cyclical nature of the property and casualty insurance industry, characterized by "soft" market conditions (stable or falling premium rates, declining profits), could adversely affect financial condition.
• Concentration of business in California (46% of gross premiums written in 2025) exposes the company to significant adverse impacts from local business, economic, demographic, natural perils (earthquakes, wildfires), competitive, legislative, and regulatory conditions, including higher claims litigation and cumulative trauma claims.
• Reliance on traditional and specialty agents, including Automatic Data Processing (ADP) which generated 18.6% of gross premiums written, poses a risk if these partners fail to promote products or terminate agreements.
• Reliance on statistical data models and analytics for underwriting, pricing, and claims management carries inherent limitations and risks of inaccurate reflections of future outcomes.
• Inability to obtain reinsurance or collect on ceded reinsurance could increase net liability on individual claims and aggregate exposure to large and catastrophic losses.
• Potential liability for pre-July 1, 1995 losses if the Loss Portfolio Transfer (LPT) Agreement proves inadequate or reinsurers fail to pay.
• Focus on small and mid-sized businesses makes the company disproportionately susceptible to economic downturns, changes in regulations, taxes, or labor conditions.
• A downgrade in financial strength rating from agencies like AM Best could reduce underwriting capacity or terminate agreements with strategic partners.
• Liability for losses and LAE is based on inherently uncertain estimates, and actual losses may exceed reserves, requiring future adjustments that could negatively impact financial results.
• As a holding company, EHI depends on dividends from subsidiaries, which are restricted by state insurance laws, potentially limiting its ability to meet obligations or return capital to stockholders.
• Acts of terrorism and natural or man-made catastrophes could materially adversely impact financial condition, especially since reinsurance excludes nuclear, biological, chemical, or radiological events.
• Extensive state and potential federal regulation, including legislative changes in healthcare, occupational safety, tax, and financial regulations, could impact operations, increase compliance costs, or limit profitability.
• Administrative proceedings, legal actions, or adverse judicial decisions could require significant payments or changes in claims administration.
• Assessments and surcharges for guaranty funds, second injury funds, and other mandatory pooling arrangements may reduce profitability.
• State insurance laws, charter documents, and Nevada corporation law could prevent or delay a change in control.
• Inability to realize investment objectives due to general economic conditions, interest rate fluctuations, market volatility, and credit risk could lead to investment losses.
• The company may require additional capital in the future, which may not be available on favorable terms or at all, potentially hindering growth plans.
• Reliance on executives and other key employees, whose loss could disrupt operations and adversely impact financial performance.
• Reliance on information technology and telecommunication systems, including those of third parties, exposes the company to risks of disruption, failure, cyber-attacks, and security breaches.
• Failure to effectively maintain, enhance, and modernize IT systems, develop innovative technologies (including AI), and execute new business initiatives could adversely affect the business.
• Subject to evolving laws and regulations governing privacy and information security, which could require costly modifications to practices or lead to liability.

Future Outlook

The company expects to continue pursuing profitable growth opportunities in workers' compensation, maximize investment earnings, maintain a strong equity capital position, and deliver long-term shareholder value while considering ESG factors. It plans to continue investing in technology to automate processes, develop data analytics and AI capabilities to reduce operating costs, and diversify geographic and economic sector risk exposures. The company also expects to continue returning equity capital to stockholders through regular quarterly dividends and, when feasible, special dividends and common stock repurchases. The new excess workers' compensation product is expected to commence underwriting in 2026.

Management Comments

• "Our overall strategy is to pursue profitable growth opportunities across workers' compensation insurance market cycles, to maximize investment earnings within the parameters of prudent portfolio management, to maintain a strong equity capital position at all times, and to deliver long-term value to our shareholders while remaining conscious of environmental, social and governance (ESG) considerations."
• "We continue to invest in technology to automate business processes and further develop our data analytic and artificial intelligence capabilities, which we believe will enable us to reduce our operating costs over the long-term and set a foundation for our future needs."
• "We believe our technology saves our insurance agents and brokers, and our policyholders, considerable time and maintains our competitiveness in our target markets."
• "We are actively pursuing strategies to diversify our geographic and economic sector risk exposures, expand our risk appetite, and broaden our product offerings, including our recently announced new excess workers' compensation product, with underwriting expected to commence in 2026."
• "Underwriting discipline remains a top priority as we continue to execute our growth strategy."
• "We believe that we have a strong equity capital position."
• "We also believe in returning equity capital not needed for these purposes to our stockholders through regular quarterly dividends and, when feasible, special dividends, and common stock repurchases."
• "Management believes that, subject to the inherent variability in any such estimate, the reserves are within a reasonable and acceptable range of adequacy."
• "Although realization is not assured, management believes that it is more likely than not that the net deferred income tax asset will be realized."
• "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 believe that our reinsurance program currently meets our needs."
• "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

StockSavvy.ai notes that the workers' compensation insurance industry is highly competitive and cyclical, characterized by periods of "soft" and "hard" market conditions. The filing indicates the industry currently has excess underwriting capacity, leading to lower rate levels and smaller profit margins, contributing to the company's price competition in its target markets. The company's strategy to diversify risk exposure and expand product offerings, including a new excess workers' compensation product, aligns with broader industry trends of seeking growth and efficiency through technology and expanded risk appetites. The increased frequency of cumulative trauma claims in California, a key market for the company, reflects a specific regional challenge impacting the industry.

Comparison to Industry Standards

• The company's combined ratio of 110.9% in 2025 is significantly above the 100% threshold, indicating an underwriting loss, which is worse than industry standards for profitable underwriting. Many top-tier property and casualty insurers typically aim for combined ratios in the low 90s.
• The increase in the current accident year loss and LAE ratio to 72.0% in 2025, driven by increased cumulative trauma claims in California, suggests a deterioration in underwriting performance compared to industry peers who may have better managed or less exposure to such specific regional claim trends.
• The company's financial strength rating of "A" (Excellent) from AM Best is considered strong and aligns with industry standards for well-capitalized insurance companies, indicating an excellent ability to meet policyholder obligations. This rating is comparable to many established regional and national property and casualty insurers.
• The company's investment portfolio strategy, with 87% in fixed maturity securities and a weighted average quality of A+, reflects a conservative approach consistent with many insurance companies focused on capital preservation and liquidity to support long-tail liabilities like workers' compensation.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in various administrative proceedings and legal actions in the normal course of business, in which claims for monetary damages are asserted and/or insurance or reinsurance coverage is disputed.
• Management believes the ultimate liability, if any, arising from such pending or threatened litigation, individually or in aggregate, is not expected to have a material effect on the company's results of operations, liquidity, or financial position.

Related Party Transactions

• None explicitly detailed in the filing; information is incorporated by reference from the Proxy Statement for the 2026 Annual Meeting of Stockholders.

Stakeholder Impact

• Shareholders: Significant decline in net income and underwriting profitability could negatively impact future dividend growth and stock price performance. However, aggressive share repurchases in 2025 were accretive to adjusted stockholders' equity per share.
• Employees: The company emphasizes attracting and retaining talent through initiatives promoting inclusion, diversity, fair pay, and a safe workplace. A reorganization in 2025 resulted in $1.3 million of employee severance costs.
• Customers (Policyholders): The launch of a new excess workers' compensation product and continued investment in technology aim to enhance service and product offerings. However, potential mispricing of policies or increased claims costs could affect policyholder experience or future premiums.
• Reinsurers: The company monitors the financial strength of its reinsurers to mitigate credit risk, indicating ongoing engagement and potential impact from reinsurer performance.
• Agents and Brokers: The company relies heavily on these distribution partners, and maintaining strong relationships and competitive commissions is crucial for business generation.

Next Steps

• Underwriting is expected to commence for the new excess workers' compensation product in 2026.
• Continue to invest in technology to automate business processes and further develop data analytic and artificial intelligence capabilities.
• Actively pursue strategies to diversify geographic and economic sector risk exposures, expand risk appetite, and broaden product offerings.
• Continue to evaluate office needs and may further adjust real estate footprint in the future.
• Quarterly cash dividends are expected to continue to be declared and paid, with a $0.32 quarterly dividend per share declared on February 18, 2026, payable March 18, 2026.
• Future common stock repurchases will be at the discretion of the Board, with $92.8 million remaining authorization as of December 31, 2025.
• The company will adopt ASU 2025-11 (Interim Reporting) when it becomes effective for interim periods within annual periods beginning after December 15, 2027.
• The company will adopt ASU 2025-06 (Intangibles-Goodwill and Other-Internal-Use Software) when it becomes effective for fiscal years beginning after December 15, 2027.
• The company will adopt ASU 2024-03 (Income Statement Reporting Comprehensive Income-Expense Disaggregation Disclosures) when it becomes effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Key Dates

Recommendation

The company's 2025 results show a severe deterioration in core profitability, with net income plummeting by over 90% and the combined ratio indicating a significant underwriting loss. This is primarily driven by a substantial increase in losses and loss adjustment expenses, particularly from cumulative trauma claims in California, and a reversal to net investment losses. While the company maintains a strong capital position and is actively repurchasing shares, the underlying operational performance is highly concerning and suggests fundamental challenges in its underwriting segment. A seasoned investor would likely view this as a strong signal to exit or reduce exposure, as the operational headwinds appear significant and could persist.

Keywords

Workers' Compensation Insurance, Property and Casualty Insurance, SEC Filing, 10-K, Financial Performance, Insurance Underwriting, Claims Management, Investment Portfolio, Share Repurchase, Dividends, Risk Factors, Corporate Governance, Cybersecurity, California Insurance Market, Loss Reserves, Reinsurance, Small Business Insurance, Digital Insurance, Actuarial Analysis, Financial Strength Rating