Employers Holdings Inc

Ladies and gentlemen, thank you for standing by, and welcome to the Employers Holding Second Quarter 2020 Earnings Conference Call. At this time, all participant lines are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star, then 1 on your telephone keypad. Please be advised that today's conference may be recorded. If you require further assistance, please press star, then 0 to reach an operator. I'd now like to hand the conference over to your host today, Lori Brown, General Counsel. Please go ahead.

Thank you, Liz. Good morning and welcome, everyone, to the second quarter 2020 earnings call for employers. Today's call is being recorded in webcast from the investor section of our website, where a replay will be available following the call. Presenting today on the call will be Doug Dirks, our Chief Executive Officer, and Mike Paquette, our Chief Financial Officer, and Steve Festa, our Chief Operating Officer. Statements made during this conference call that are not based on historical facts are considered forward-looking statements. These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission. All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments. The company also uses its website as a means of disclosing material non-public information and and for complying with disclosure obligation under SEC's Regulation FD. Such disclosures will be included in the investor section of the company's website. Accordingly, investors should monitor that portion of the company's website in addition to following the company's press releases, SEC filings, public conference calls, and webcasts. In our earnings press release and in our remarks or responses to questions, we may use non-GAAP financial metrics. Reconciliations of these non-GAAP metrics to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation, and any other materials available in the investor section of our website. Now I will turn the call over to Doug.

Thank you, Laurie, and thank you all for joining us today. Our second quarter results were highly favorable, and our accident year results were broadly in line with our expectations. Although we expected to see our new business writings down sharply in the quarter because of lower submission volume, we were pleased to see a rebound in June when compared to April and May levels. We are hopeful that this is a sign that businesses in our targeted classes are beginning to reopen and are resuming their operations, albeit with lower payrolls than they had previously. We also believe that the strategic investments we have made over the last several years in data analytics and technology have, in fact, enabled a compellingly superior ease of doing business. further contributing to our growth. Our results at an individual state level reflect the significant differences in the depth and breadth of post-shutdown reopenings. We see this particularly in some of our hospitality classes where some states have returned to normal while others remain almost completely shuttered. In some states, we are experiencing business activity that is on par with or exceeds what we observed immediately prior to the pandemic shutdowns. While in others, most notably and significantly California, activity levels continue to lag. Excluding California, our policies in force were up 5.5% over the previous quarter, and up 11.3% year-to-date, while in-force premium was down a mere 0.8% for the quarter and down 1.3% year-to-date. We have been impacted by regulatory actions that have either mandated or requested that we suspend cancellation of policies for nonpayment of premiums. These orders or requests were for differing lengths of time, varying by jurisdiction, and now have mostly expired, permitting us to resume routine cancellation activities. Our year-to-date results reflect actual and anticipated increases in uncollectible premium and bad debt, although it is still too early to estimate the ultimate cost resulting from these orders. We expect that both actual policies in force and in force premium will be lower than our current count because of these moratorium and the opaqueness they have created. We will have greater clarity on their impact in the coming weeks. Unlike most other lines of property and casualty insurance where pandemic-related changes in exposure resulted in broadly applied premium credits, Workers' compensation is self-adjusting to actual exposure for the policy period, either through midterm endorsements or final audit adjustments. Midterm premium endorsements processed in the quarter were a positive $1.1 million, a reduction of $5.6 million year over year. And final audit adjustments were a negative $4.4 million, a reduction of $11.1 million year over year. Combined for the quarter, these two exposure adjusting components reduced written premium by 9.5% year over year. Unlike most other lines of insurance, workers' compensation benefits are defined by statute and and consequently cannot be changed by us through policy terms, but rather can only be changed through legislative action or judicial interpretation. In many states, insurance commissioners, legislatures, and governors have retroactively expanded definitions of compensability and created new presumptions related to virus exposure. Many of these changes have been limited to first responders and frontline healthcare providers. Some states, however, have adopted more expansive categories of workers entitled to compensability presumptions related to COVID-19 exposures. These changes will have a negative impact on ultimate losses for the workers' compensation industry, although we continue to believe our exposure to additional losses from currently enacted changes are likely immaterial given the classes of business we write. It is important to note, however, that the materiality of these changes could be greater if the presumptions are further expanded or the time periods during which they apply are lengthened. In the quarter, we recorded $24 million of favorable prior year loss reserve development, which related to nearly every accident year. The favorable change in reserves that we recognized this quarter related solely to development that has emerged since March 31, 2020. You may recall that last quarter, despite observing favorable loss development in nearly every year, We recognized observed reserve redundancies only for years 2010 and prior, as we believe those years have relatively low exposure to negative recessionary impacts. As a result, our current year reserving position, our current reserving position continues to reflect our view that there's a higher degree of uncertainty in the loss reserves of more recent years as a result of a recession. We have invested significantly over the last several years in an operating model that drives superior customer experiences and enhanced efficiencies. As our agents and insurers have adjusted to a different and more challenging operating environment, we believe the solutions we provided them are resulting in more business opportunities for us and more durable relationships with our partners. We've been fully functional since we closed all of our buildings to employees and the general public in March and continue to operate in a work from home mode in order to protect the safety and well-being of our employees, their families and our stakeholders. We feel that employers is in a strong position to weather the challenges created by the pandemic and to potentially benefit from a different set of opportunities. Our strong financial position and operational capabilities allow us to continue providing superior service to our agents and insurers without disruption. With that, Mike will now provide a further discussion of our financial results. Steve will then discuss some of the current trends, and then I'll return for a few brief closing remarks.