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What changed in Employers Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Employers Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+384 added−403 removedSource: 10-K (2024-02-26) vs 10-K (2023-02-24)

Top changes in Employers Holdings, Inc.'s 2023 10-K

384 paragraphs added · 403 removed · 323 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

94 edited+22 added−25 removed102 unchanged
Biggest changeThe following table shows our in-force premiums, our in-force premiums including estimated final audit premium, and number of policies in-force for each of our largest states and all other states combined as of December 31: 2022 2021 2020 State In-force Premiums Policies In-force In-force Premiums Policies In-force In-force Premiums Policies In-force (dollars in millions) California $ 279.7 42,876 $ 258.4 40,704 $ 262.0 39,610 Florida 49.4 9,417 41.1 7,989 37.9 6,898 New York 27.3 7,497 24.5 7,307 26.7 6,657 Other (43 states and D.C.) 266.1 61,566 247.4 55,350 251.3 50,341 Total in-force $ 622.5 121,356 $ 571.4 111,350 $ 577.9 103,506 Estimated audit premium 42.5 — 41.6 — (2.7) — Total in-force, including estimated audit premium $ 665.0 121,356 $ 612.9 111,350 $ 575.2 103,506 From 2020 through 2022, our total in-force premiums increased 7.7% and our policies in-force increased 17.2%. 11 The following table sets forth our in-force premiums, excluding estimated final audit premium, by hazard group and as a percentage of our total in-force premiums as of December 31: Hazard Group 2022 Percentage of 2022 Total 2021 Percentage of 2021 Total 2020 Percentage of 2020 Total (in millions, except percentages) A $ 126.4 20.3 % $ 125.6 22.0 % $ 138.1 23.9 % B 174.6 28.0 162.8 28.5 161.6 28.0 C 181.3 29.2 173.0 30.3 170.4 29.5 D 101.3 16.3 92.1 16.1 92.1 15.9 E 28.6 4.6 15.1 2.6 12.8 2.2 F 9.5 1.5 2.3 0.4 2.3 0.4 G 0.8 0.1 0.5 0.1 0.6 0.1 Total in-force $ 622.5 100.0 % $ 571.4 100.0 % $ 577.9 100.0 % In-force premiums, excluding estimated final audit premium, for our top ten employer classifications as of December 31, 2022, and as a percentage of our total in-force premiums as of December 31, 2022, 2021, and 2020 were as follows: 2022 2021 2020 Employer Classifications In-force Premiums Percentage of Total Percentage of Total Percentage of Total (in millions, except percentages) Restaurants and Other Eating Places $ 120.9 19.4 % 21.1 % 23.4 % Traveler Accommodation 41.0 6.6 7.3 7.4 Automobile Dealers 24.9 4.0 4.5 5.0 Automotive Repair and Maintenance 24.4 3.9 4.2 4.5 Services to Buildings and Dwellings 23.2 3.7 3.1 2.5 Offices of Physicians 20.9 3.4 3.7 3.7 Real Estate Management 20.6 3.3 3.3 3.6 Schools 18.7 3.0 3.0 2.9 Other Store Retailers 16.3 2.6 2.6 2.8 Wholesale Stores 15.2 2.4 2.6 2.6 Total $ 326.1 52.3 % 55.4 % 58.4 % We provide workers' compensation insurance throughout the United States, with the exception of four states that are served exclusively by their state funds.
Biggest changeThe following table sets forth our in-force premiums, excluding estimated final audit premium, by hazard group and as a percentage of our total in-force premiums as of December 31: Hazard Group 2023 Percentage of 2023 Total 2022 Percentage of 2022 Total 2021 Percentage of 2021 Total (in millions, except percentages) A $ 132.6 19.1 % $ 126.4 20.3 % $ 125.6 22.0 % B 163.5 23.5 174.6 28.0 162.8 28.5 C 147.6 21.2 181.3 29.2 173.0 30.3 D 146.2 21.1 101.3 16.3 92.1 16.1 E 57.5 8.3 28.6 4.6 15.1 2.6 F 29.6 4.3 9.5 1.5 2.3 0.4 G 17.6 2.5 0.8 0.1 0.5 0.1 Total in-force $ 694.6 100.0 % $ 622.5 100.0 % $ 571.4 100.0 % 11 In-force premiums, excluding estimated final audit premium, for our top ten employer classifications as of December 31, 2023, and as a percentage of our total in-force premiums as of December 31, 2023, 2022, and 2021 were as follows: 2023 2022 2021 Employer Classifications In-force Premiums Percentage of Total Percentage of Total Percentage of Total (in millions, except percentages) Restaurants and Other Eating Places $ 120.7 17.4 % 19.4 % 21.1 % Traveler Accommodation 43.8 6.3 6.6 7.3 Automobile Dealers 25.5 3.7 4.0 4.5 Services to Buildings and Dwellings 25.4 3.7 3.7 3.1 Automotive Repair and Maintenance 23.7 3.4 3.9 4.2 Real Estate Management 22.7 3.3 3.3 3.3 Schools 20.2 2.9 3.0 3.0 Offices of Physicians 19.7 2.8 3.4 3.7 Other Store Retailers 17.3 2.5 2.6 2.6 Wholesale Stores 17.3 2.5 2.4 2.6 Total $ 336.3 48.5 % 52.3 % 55.4 % We provide workers' compensation insurance throughout the United States, with the exception of four states that are served exclusively by their state funds.
Item 1. Business General Employers Holdings, Inc. (EHI) is a holding company, which was incorporated in Nevada in 2005, with subsidiaries that are specialty providers of workers' compensation insurance and services focused on select, small businesses engaged in low-to-medium hazard industries.
Item 1. Business General Employers Holdings, Inc. (EHI) is a holding company, which was incorporated in Nevada in 2005, with subsidiaries that are specialty providers of workers' compensation insurance and services focused on small and select businesses engaged in low-to-medium hazard industries.
Our website also provides access to reports filed by our directors, executive officers and certain significant stockholders pursuant to Section 16 of the Securities Exchange Act of 1934.
Our website also provides access to reports filed by our directors, executive officers and certain significant stockholders pursuant to Section 16 of the Securities Exchange Act of 1934 (Exchange Act).
In addition, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, and charters for the Audit, Board Governance and Nominating, Executive, Finance, Human Capital Management and Compensation, and Risk Management, Technology and Innovation committees of our Board of Directors are available on our website.
In addition, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, and charters for the Audit, Board Governance and Nominating, Executive, Finance, Human Capital Management and Compensation, and Risk Management, Technology and Innovation committees of our Board of Directors (Board) are available on our website.
Combined ratio is calculated by adding: (i) the ratio of losses and loss adjustment expense (LAE) to earned premiums (known as the "loss and LAE ratio"); (ii) the ratio of commission expenses to earned premiums (known as the "commission expense ratio"); and (iii) the ratio of underwriting and general and administrative expenses to earned premiums (known as the "underwriting expense ratio"), with each component determined in accordance with U.S. generally accepted accounting principles (GAAP).
The combined ratio is calculated by adding: (i) the ratio of losses and loss adjustment expense (LAE) to earned premiums (known as the "loss and LAE ratio"); (ii) the ratio of commission expenses to earned premiums (known as the "commission expense ratio"); and (iii) the ratio of underwriting and general and administrative expenses to earned premiums (known as the "underwriting expense ratio"), with each component determined in accordance with U.S. generally accepted accounting principles (GAAP).
Workers' compensation 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 the United States, with a concentration in California, where 45% of our in-force premiums are generated.
Workers' compensation 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 45% of our in-force premiums are generated.
The level must not be less than the outstanding reserve for losses and a loss expense allowance equal to 7% of estimated paid losses discounted at a rate of 6%. If the assets held in trust fall below this threshold, we may require the reinsurers to contribute additional assets to maintain the required minimum level of collateral.
The level must not be less than the outstanding reserve for losses and a loss expense allowance equal to 13 7% of estimated paid losses discounted at a rate of 6%. If the assets held in trust fall below this threshold, we may require the reinsurers to contribute additional assets to maintain the required minimum level of collateral.
Additionally, our Injured Employee Hotline allows employees who are injured at work to consult with a professional nurse when reporting a claim. This service has proven to reduce overall claims costs, thus benefiting all of our policyholders while ensuring the injured worker receives appropriate and timely care.
Additionally, our Injured Employee Hotline allows employees who are injured at work to consult with a professional nurse when reporting a claim. This service has proven to reduce overall claims costs, thus benefiting all of our policyholders while ensuring the injured worker receives appropriate and timely care. III.
Our Risk Management, Technology and Innovation Committee of the Board of Directors reviews and advises on our: (i) information security and data privacy risks, including the assessment, analysis and mitigation of related risks; and (ii) cybersecurity strategy, including: identification and assessment of internal and external cybersecurity risks; protection against cyber security risks; detection, response and mitigation of negative effects from cyber-attacks.
Information Security and Cybersecurity - Our Risk Management, Technology and Innovation Committee of the Board (Risk Committee) reviews and advises on our: (i) information security and data privacy risks, including the assessment, analysis and mitigation of related risks; and (ii) cybersecurity strategy, including: identification and assessment of internal and external cybersecurity risks; protection against cyber security risks; and detection, response and mitigation of negative effects from cyber-attacks.
We believe that the bundling of products and services through these relationships contributes to higher retention rates than business generated by our traditional agents, and we continue to actively seek new partnerships and alliances in these areas. A significant concentration of our business is being generated by our specialty agent ADP.
We believe that the bundling of products and services through these relationships contributes to higher retention rates than business generated by our traditional agents, and we continue to actively seek new partnerships and alliances in these areas. A significant concentration of our business is generated by our specialty agent ADP.
We believe that these technological and intellectual capabilities will support our future growth initiatives, provide direct access to workers' compensation insurance to those customers seeking an online experience, provide us with greater pricing precision and flexibility, and promote long-term value creation.
We also believe that these technological and intellectual capabilities will support our future growth initiatives, provide direct access to workers' compensation insurance to those customers seeking an online experience, provide us with greater pricing precision and flexibility, and promote long-term value creation.
Many of our competitors are significantly larger, more widely known, and/or possess considerably greater financial resources. Regulation State Insurance Regulation Insurance companies are subject to regulation and supervision by the insurance regulator in the state in which they are domiciled and, to a lesser extent, other states in which they conduct business.
Many of our competitors are significantly larger, more widely known, and/or possess considerably greater financial resources. 15 Regulation State Insurance Regulation Insurance companies are subject to regulation and supervision by the insurance regulator in the state in which they are domiciled and, to a lesser extent, other states in which they conduct business.
Departure from the usual ranges on four or more of the ratios can lead to inquiries from individual state insurance regulators as to certain aspects of an insurer's business. None of our insurance subsidiaries is currently subject to any action by any state regulator with respect to IRIS ratios. 17
Departure from the usual ranges on four or more of the ratios can lead to inquiries from individual state insurance regulators as to certain aspects of an insurer's business. None of our insurance subsidiaries is currently subject to any action by any state regulator with respect to IRIS ratios.
These restrictions may require us to invest in assets more conservatively than we would if we were not subject to state restrictions and may prevent us from obtaining as high a return on our assets as we might otherwise be able to realize absent the restrictions.
These restrictions may require us to invest in assets more 16 conservatively than we would if we were not subject to state restrictions and may prevent us from obtaining as high a return on our assets as we might otherwise be able to realize absent the restrictions.
Employees and our Board of Directors are required to familiarize themselves with our comprehensive Code of Business Conduct and Ethics Policy and must remain in compliance with periodic training thereon, which is designed to assist them in conducting business in a legal, professional and ethical manner.
Employees and our Board are required to familiarize themselves with our comprehensive Code of Business Conduct and Ethics Policy and must remain in compliance with periodic training thereon, which is designed to assist them in conducting business in a legal, professional and ethical manner.
Natural Catastrophe Exposure - We purchase a significant amount of catastrophe reinsurance annually, and the models used to develop its potential exposure to natural catastrophes consider the potential effects of climate change. We believe that our largest exposure to natural catastrophes is currently U.S. earthquake risk.
Natural Catastrophe Exposure - We purchase a significant amount of catastrophe reinsurance annually, and the models used to develop our potential exposure to natural catastrophes consider the potential effects of climate change. We believe that our largest exposure to natural catastrophes is currently U.S. earthquake risk.
In California, Florida, Nevada, and New York, "control" is presumed 16 to exist through the direct or indirect ownership of 10% or more of the voting securities of a domestic insurance company or of any entity that controls a domestic insurance company.
In California, Florida, Nevada, and New York, "control" is presumed to exist through the direct or indirect ownership of 10% or more of the voting securities of a domestic insurance company or of any entity that controls a domestic insurance company.
In addition, insurance laws in many states in which we are licensed require pre-notification to the state's insurance commissioner of a change in control of a non-domestic insurance company licensed in those states. Statutory Accounting and Solvency Regulations.
In addition, insurance laws in many states in which we are licensed require pre-notification to the state's insurance commissioner of a proposed change in control of a non-domestic insurance company licensed in those states. Statutory Accounting and Solvency Regulations.
We pursue profitable growth opportunities by focusing on disciplined underwriting and claims management, utilizing medical provider networks designed to produce superior medical and indemnity outcomes, establishing and maintaining strong, long-term relationships with traditional and specialty insurance agencies, developing important alternative distribution channels, and offering workers' compensation insurance solutions directly to customers.
Underwriting Strategy We pursue profitable growth opportunities by focusing on disciplined underwriting and claims management, utilizing medical provider networks designed to produce superior medical and indemnity outcomes, establishing and maintaining strong, long- 4 term relationships with traditional and specialty insurance agencies, developing important alternative distribution channels, and offering workers' compensation insurance solutions directly to customers.
As previously mentioned, the Human Capital Management and Compensation Committee of our Board of Directors provides advice, direction and oversight of the Company's policies and strategies in relation to culture and human capital management, including with regard to diversity, equity and inclusion, and oversees the Company's compensation plans, policies, programs and practices applicable to our Chief Executive Officer (CEO) and other executive officers, including the Company's executive compensation plans, employee benefit plans, and incentive-compensation and equity-based plans.
As previously mentioned, the Compensation Committee provides advice, direction and oversight of the Company's policies and strategies in relation to culture and human capital management, including with regard to diversity, equity and inclusion, and oversees the Company's compensation plans, policies, programs and practices applicable to our Chief Executive Officer (CEO) and other executive officers, including the Company's executive compensation plans, employee benefit plans, and incentive-compensation and equity-based plans.
We operate throughout the United States (U.S.), with the exception of four states that are served exclusively by their state funds. We offer insurance through 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), each of which have been assigned an A.M.
We operate throughout the United States (U.S.), with the exception of four states that are served exclusively by their state funds. We offer insurance through 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), each of which has been assigned an A.M.
In addition, we have closed offices in various states and these employees are working entirely remote, thus reducing our purchased energy. The national average energy usage for office spaces like ours is 15.9 kWh/sq ft annually, according to the U.S. Energy Information Administration.
In addition, we have closed offices in various states and these employees are working entirely remotely, thus reducing our purchased energy. The national average energy usage for office spaces like ours is 15.9 kWh/sq ft annually, according to the U.S. Energy Information Administration.
Governance Board and Management Composition and Conduct - Our Annual Proxy Statements and Annual Reports on Form 10-K provide details regarding the composition of our Board of Directors and our management.
Governance Board and Management Composition and Conduct - Our Annual Proxy Statements and Annual Reports on Form 10-K provide details regarding the composition of our Board and our management.
Governance concerns include, among other things, Board of Director and management composition, employee relations, executive and employee compensation, bribery and corruption, and cyber risks, including data protection and privacy. The Board Governance and Nominating Committee of our Board of Directors periodically reviews our ESG programs, including receiving periodic updates from our management responsible for such activities.
Governance concerns include, among other things, Board and management composition, employee relations, executive and employee compensation, bribery and corruption, and cyber risks, including data protection and privacy. The Board Governance and Nominating Committee of our Board (Governance Committee) periodically reviews our ESG programs, including receiving periodic updates from our management responsible for such activities.
We also continue to execute a number of ongoing business initiatives, including: achieving internal and customer-facing business process excellence; further diversifying our risk exposure across geographic markets and economic sectors, when appropriate; and utilizing a multi-company pricing platform and territory-specific pricing.
We also continue to execute a number of ongoing business initiatives, including: achieving internal and customer-facing business process excellence; further diversifying our risk exposure across geographic markets and economic sectors, when appropriate; appetite expansion; and utilizing a multi-company pricing platform and territory-specific pricing.
The ability of EHI to pay dividends on common stock, repurchase common stock, and to pay other expenses will be dependent to a significant extent upon the ability of our insurance subsidiaries (EICN, ECIC, EPIC, EAC, and CIC) to pay dividends to their immediate holding company, Employers Group, Inc. (EGI) and Cerity Group, Inc.
The ability of EHI to pay dividends on common stock, repurchase common stock, and to pay other expenses will be dependent to a significant extent upon the ability of our insurance subsidiaries (EICN, ECIC, EPIC, EAC, and CIC) to pay dividends to their immediate holding companies, Employers Group, Inc. (EGI) and Cerity Group, Inc.
An insurance company must maintain capital and surplus of at least 200% of the RBC computed by the NAIC's RBC model, known as the "Authorized Control Level" of RBC. At December 31, 2022, each of our insurance subsidiaries had total adjusted capital in excess of the minimum RBC requirements.
An insurance company must maintain capital and surplus of at least 200% of the RBC computed by the NAIC's RBC model, known as the "Authorized Control Level" of RBC. At December 31, 2023, each of our insurance subsidiaries had total adjusted capital in excess of the minimum RBC requirements.
Our asset allocation is reevaluated by management and reviewed by the Finance Committee of the Board of Directors on a quarterly basis. We also utilize our Investment Managers' investment advisory services to assist us in developing a tailored set of portfolio targets and objectives.
Our asset allocation is reevaluated by management and reviewed by the Finance Committee on a quarterly basis. We also utilize our Investment Managers' investment advisory services to assist us in developing a tailored set of portfolio targets and objectives.
July 1, 2023 and consists of one treaty covering excess of loss and catastrophic loss events in four layers of coverage. Our reinsurance coverage is $190.0 million in excess of our $10.0 million retention on a per occurrence basis, subject to certain exclusions.
July 1, 2024 and consists of one treaty covering excess of loss and catastrophic loss events in four layers of coverage. Our reinsurance coverage is $190.0 million in excess of our $10.0 million retention on a per occurrence basis, subject to certain exclusions.
Such reinsurance reduces the magnitude of such losses on our net income and the capital of our insurance subsidiaries. Excess of Loss Reinsurance Our current reinsurance program applies to all covered losses occurring between 12:01 a.m. July 1, 2022 and 12:01 a.m.
Such reinsurance reduces the magnitude of such losses on our net income and the capital of our insurance subsidiaries. Excess of Loss Reinsurance Our current reinsurance program applies to all covered losses occurring between 12:01 a.m. July 1, 2023 and 12:01 a.m.
Over the past several years, we have also acknowledged California’s Climate Risk Carbon Initiative and have altered our investment strategy to avoid owning investments that could be in direct conflict with that initiative.
Over the past several years, we have also participated in California’s Climate Risk Carbon Initiative and have altered our investment strategy to avoid owning investments that could be in direct conflict with that initiative.
Investments Our investment portfolio is structured to support our need for: (i) optimizing our risk-adjusted total return; (ii) providing adequate liquidity; (iii) facilitating financial strength and stability; and (iv) ensuring regulatory and legal compliance. As of December 31, 2022, the total carrying value of our investment portfolio was more than $2.5 billion.
Investments Our investment portfolio is structured to support our need for: (i) optimizing our risk-adjusted total return; (ii) providing adequate liquidity; (iii) facilitating financial strength and stability; and (iv) ensuring regulatory and legal compliance. As of December 31, 2023, the total carrying value of our investment portfolio was more than $2.2 billion.
Policyholders and Their Employees - Our approach to our Risk Advisory services is focused on assisting our policyholders in developing a positive safety culture, helping to ensure employees have a voice and are active participants in their workplace safety and well-being.
Policyholders and Their Employees - Our Risk Advisory services are focused on assisting our policyholders in developing a positive safety culture, helping to ensure employees have a voice and are active participants in their workplace safety and well-being.
These investments provide a steady source of income, which may fluctuate with changes in interest rates and our current investment strategies. 14 While we oversee all of our investment activities, we employ independent Investment Managers. Our Investment Managers follow our written investment guidelines, which are approved by the Finance Committee of the Board of Directors.
These investments provide a steady source of income, which may fluctuate with changes in interest rates and our current investment strategies. While we oversee all of our investment activities, we employ independent Investment Managers. Our Investment Managers follow our written investment guidelines, which are approved by the Finance Committee.
We have implemented a claim triage predictive model nationally that provides us with early identification of those claims likely to develop into large losses. Leveraging this information, we ensure the right resources and strategies are brought to bear on those claims early in the process.
We utilize a claim triage predictive model nationally that provides us with early identification of those claims likely to develop into large losses. Leveraging this information, we ensure the right resources and strategies are brought to bear on those claims early in the process.
This results in enhanced understanding of the businesses, the risks we underwrite, and the needs of prospective customers. We do not delegate underwriting authority to agents or brokers. We had approximately 2,523 traditional insurance agencies that marketed and sold our insurance products at December 31, 2022.
This results in enhanced understanding of the businesses, the risks we underwrite, and the needs of prospective customers. We do not delegate underwriting authority to agents or brokers. We had approximately 2,500 traditional insurance agencies that marketed and sold our insurance products at December 31, 2023.
Select insurance agencies who possess deep expertise in specialized industries market and sell our insurance products that generally fall outside of our traditional appetite, such as senior care and parcel delivery. Specialty agents and distribution partners generated 30.7%, 28.2%, and 27.2% of our in-force premiums as of December 31, 2022, 2021, and 2020, respectively.
Select insurance agencies who possess deep expertise in specialized industries market and sell our insurance products that generally fall outside of our traditional appetite, such as senior care and parcel delivery. Specialty agents and distribution partners generated 32.9%, 30.7%, and 28.2% of our in-force premiums as of December 31, 2023, 2022, and 2021, respectively.
Our technology saves our insurance agents and brokers, and our policyholders considerable time and maintains our competitiveness in our target markets. Development and Implementation of New Technologies and Capabilities We believe that our ongoing plan to develop and implement new technologies and capabilities will fundamentally transform and enhance the digital experience of our workforce, customers, policyholders, and agents.
Our technology saves our insurance agents and brokers, and our policyholders, considerable time and maintains our competitiveness in our target markets. We believe that our ongoing plan to develop and implement new technologies and capabilities continues to fundamentally transform and enhance the digital experience of our workforce, customers, policyholders, and agents.
Years Ended December 31, 2022 2021 2020 (in millions) Net premiums written $ 707.2 $ 583.1 $ 574.9 Total revenues 713.5 703.1 711.4 Net income 48.4 119.3 119.8 Our insurance subsidiaries are domiciled in the following states: State of Domicile Employers Insurance Company of Nevada (EICN) Nevada Employers Compensation Insurance Company (ECIC) California Employers Preferred Insurance Company (EPIC) Florida Employers Assurance Company (EAC) Florida Cerity Insurance Company (CIC) New York Products and Services Workers' compensation provides insurance coverage for the statutorily prescribed benefits that employers are required to provide to their employees who may be injured or suffer illness in the course of employment.
Years Ended December 31, 2023 2022 2021 (in millions) Net premiums written $ 760.6 $ 707.2 $ 583.1 Total revenues 850.9 713.5 703.1 Net income 118.1 48.4 119.3 Our insurance subsidiaries are domiciled in the following states: State of Domicile Employers Insurance Company of Nevada (EICN) Nevada Employers Compensation Insurance Company (ECIC) California Employers Preferred Insurance Company (EPIC) Florida Employers Assurance Company (EAC) Florida Cerity Insurance Company (CIC) New York Products and Services Workers' compensation provides insurance coverage for the statutorily prescribed benefits that employers are required to provide to their employees who may be injured or suffer illness in the course of employment.
Our 2022 TCFD report is posted on the Company's website at www.employers.com in the Investors section under “ESG and Related Reports.” II. Social The Human Capital Management and Compensation Committee of our Board of Directors provides advice and oversight of our policies and strategies in relation to culture and human capital management, including diversity, equity and inclusion.
Our 2023 and 2022 TCFD reports are posted on the Company's website at www.employers.com in the Investors section under “ESG and Related Reports.” II. Social The Human Capital Management and Compensation Committee of our Board (Compensation Committee) provides advice and oversight of our policies and strategies in relation to culture and human capital management, including diversity, equity and inclusion.
Our digital distribution channel utilizes proprietary application programming interfaces (APIs) to submit, quote and bind applications for workers' compensation insurance. Our digital channel is comprised of digital marketplace platforms as well as 15 appointed digital retail and wholesale agency models. Digital agents generated 4.5%, 3.5%, and 2.6% of our in-force premiums as of December 31, 2022, 2021, and 2020, respectively.
Our digital distribution channel utilizes proprietary application programming interfaces (APIs) to submit, quote and bind applications for workers' compensation insurance. Our digital channel is comprised of digital marketplace platforms as well as appointed digital retail and wholesale agency models. Digital agents generated 5.0%, 4.5%, and 3.5% of our in-force premiums as of December 31, 2023, 2022, and 2021, respectively.
We continue to actively seek new digital distribution partnerships and expect our existing partnerships to continue to growth in this channel. Direct-to-Customer To address the changing buying behaviors of small and micro-businesses, we launched Cerity, which offers digital insurance solutions, including direct-to-customer workers' compensation coverage.
We continue to actively seek new digital distribution partnerships and expect our existing partnerships to continue to grow in this channel. Direct-to-Customer To address the changing buying behaviors of small and micro-businesses, we continue our commitment to our Cerity brand, which offers digital insurance solutions, including direct-to-customer workers' compensation coverage.
ADP is the largest payroll services provider in the United States. As part of its services, ADP sells our workers' compensation insurance product along with its payroll and accounting services through its insurance agency and field sales staff. ADP generated 15.0%, 13.1%, and 12.9% of our in-force premiums as of December 31, 2022, 2021, and 2020, respectively.
ADP is the largest payroll services provider in the United States. As part of its services, ADP sells our workers' compensation insurance product along with its payroll and accounting services through its insurance agency and field sales staff. ADP generated 16.2%, 15.0%, and 13.1% of our in-force premiums as of December 31, 2023, 2022, and 2021, respectively.
Our Board of Directors is composed of members with diverse and varied ages, genders, racial and ethnic backgrounds and wide-ranging professional experiences. All members of our Board of Directors are independent, with the exception of our CEO Katherine Antonello.
Our Board consists of members with diverse and varied ages, genders, racial and ethnic backgrounds and wide-ranging professional experiences. All members of our Board are independent, with the exception of our CEO Katherine Antonello.
Any future returns of equity capital to our stockholders are dependent on a variety of factors, including our financial position, holding company liquidity, share price, corporate and regulatory requirements, and any other factors that our Board of Directors deems relevant.
Any future returns of equity capital to our stockholders are dependent on a variety of factors, including our financial position, holding company liquidity, share price, corporate and regulatory requirements, and any other factors that our Board and Finance Committee of our Board (Finance Committee) deem relevant.
In 2022, we released our initial Task Force on Climate Related Financial Disclosures (TCFD) Report, which is the standard for insurance companies to report their climate related risks that was adopted by the National Association of Insurance Commissioners. The TCFD standard is currently the international benchmark for climate-related disclosures and helps stakeholders understand the climate-related risks to the insurance market.
Our 2023 Task Force on Climate Related Financial Disclosures (TCFD) Report released in August 2023, is the standard for insurance companies to report their climate related risks that was adopted by the National Association of Insurance Commissioners. The TCFD standard is currently the international benchmark for climate-related disclosures and helps stakeholders understand the climate-related risks to the insurance market.
Best Company (A.M. Best) financial strength rating of "A-" (Excellent), with a "positive" outlook, which is the 4th highest of 13 A.M. Best ratings.
Best Company (A.M. Best) financial strength rating of "A-" (Excellent), with a "positive" outlook, which is the 4 th highest of 13 A.M. Best ratings.
These agencies generated 69.3%, 71.8%, and 72.8% of our in-force premiums at December 31, 2022, 2021, and 2020, respectively, and our largest traditional insurance agency generated less than five percent of our in-force premiums at each of December 31, 2022, 2021, and 2020.
These agencies generated 67.1%, 69.3%, and 71.8% of our in-force premiums at December 31, 2023, 2022, and 2021, respectively, and our largest traditional insurance agency generated less than five percent of our in-force premiums at each of December 31, 2023, 2022, and 2021.
We are 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. 8 We had total assets of $3.7 billion and $3.8 billion at December 31, 2022 and 2021, respectively.
The contingent profit commission is estimated based on both actual paid results to date and projections of expected paid losses under the LPT Agreement. We are entitled to receive a contingent profit commission under the LPT Agreement through June 30, 2024. 8 We had total assets of $3.6 billion and $3.7 billion at December 31, 2023 and 2022, respectively.
The estimated remaining liabilities subject to the LPT Agreement were approximately $308.6 million and $328.7 million, as of December 31, 2022 and 2021, respectively (See Note 10 in the Notes to our Consolidated Financial Statements). Losses and LAE paid with respect to the LPT Agreement totaled approximately $858.9 million and $838.8 million through December 31, 2022 and 2021, respectively.
The estimated remaining liabilities subject to the LPT Agreement were approximately $291.7 million and $308.6 million, as of December 31, 2023 and 2022, respectively (See Note 10 in the Notes to our Consolidated Financial Statements). Losses and LAE paid with respect to the LPT Agreement totaled approximately $877.6 million and $858.9 million through December 31, 2023 and 2022, respectively.
As of December 31, 2022, our estimate of the ultimate expected contingent profit commission was $69.3 million, of which $55.4 million has been settled.
As of December 31, 2023, our estimate of the ultimate expected contingent profit commission was $69.6 million, of which $55.4 million has been settled.
Information Technology Core Operating Systems 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 advanced data and analytics capabilities that will enable us to reduce our operating costs over the long-term and set a foundation for our future needs.
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 analytic capabilities, which we believe will enable us to reduce our operating costs over the long-term and set a foundation for our future needs.
Each of our Investment Managers are signatories to the United Nations Principles for Responsible Investment Group, an independent non-profit organization that encourages investors to use responsible and sustainable investment practices to enhance returns and better manage risks.
Each of our Investment Managers is a signatory to the United Nations Principles for Responsible Investment Group (UNPRI), an independent non-profit organization that encourages investors to use responsible and sustainable investment practices to enhance returns and better manage risks.
This initiative was designed to provide the public with information relating to potential climate change-related financial risks faced by California insurance companies resulting from exposure to fossil fuel-based investments.
This initiative was designed to provide the public with information relating to potential climate change-related financial risks faced by California insurance companies resulting from exposure to fossil fuel-based investments and includes investments in low-carbon opportunities.
Our average across all of our facilities was 8.4 kWh/sq ft in 2021, less than 53% of the national average. We have made a concerted effort to limit travel within our operations. We have reduced our in-person board meetings by 50%, shifting to a more virtual environment.
Our average across all of our facilities was 12.5 kWh/sq ft in 2022, significantly less than the national average. We have made a concerted effort to limit travel within our operations. We have reduced our in-person board meetings by 50%, shifting to a more virtual environment.
As of December 31, 2022 and 2021, our policyholders had average annual in-force premiums of $5,130 and $5,131, respectively. When adjusting for estimated final audit premium, as of December 31, 2022 and 2021, our policyholders had average annual in-force premiums of $5,480 and $5,504, respectively.
As of December 31, 2023 and 2022, our policyholders had average annual in-force premiums of $5,495 and $5,130, respectively. When adjusting for estimated final audit premium, as of December 31, 2023 and 2022, our policyholders had average annual in-force premiums of $5,856 and $5,480, respectively.
The following highlights several of our most significant ESG concerns, opportunities and achievements and outlines our strategy with regard to each: 5 I. Environmental Investment Portfolio - While we oversee all our investment activities, we employ several independent investment managers (Investment Managers).
The following highlights several of our most significant ESG concerns, opportunities and achievements and outlines our strategy with regard to each: 5 I. Environmental Investment Portfolio - While we oversee all of our investment activities, we employ several independent investment managers (Investment Managers). Our Investment Managers follow our written investment guidelines, which are approved by the Finance Committee.
Information in, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K. Copies of these documents may also be obtained free of charge by written request to Investor Relations, 10375 Professional Circle, Reno, Nevada 89521-4802.
Information in, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K. Copies of these documents may also be obtained free of charge by written request to Investor Relations, 2340 Corporate Circle, Suite 200, Henderson, Nevada 89074.
All employees must contribute to the creation and maintenance of such an environment. 6 We are committed to providing equal employment opportunity to qualified applicants without regard to race, creed, color, religion, sex, national origin or ancestry, age, marital status, pregnancy, sexual orientation, gender identification, medical condition, genetic information, disability, veteran status, and/or any other characteristic protected by law.
We are committed to providing equal employment opportunity to qualified applicants without regard to race, creed, color, religion, sex, national origin or ancestry, age, marital status, pregnancy, sexual orientation, gender identification, medical condition, genetic information, disability, veteran status, and/or any other characteristic protected by law.
We ended the year with a record number of policies in-force. This growth resulted in part from our continued appetite expansion efforts, which are complementary to our business model and are contributing favorably to our top-line growth. As U.S. labor market shortages improve and wage inflation continues, we expect that rising payrolls will bring further improvement to our top line.
This growth resulted in part from our continued appetite expansion efforts, which are complementary to our business model and are contributing favorably to our top-line growth. As U.S. labor market shortages improve and wage inflation continues, we believe that rising payrolls will bring further improvement to our top line.
Our strategy is to attract and retain responsible, talented and experienced individuals through various initiatives that promote inclusion, diversity and fair pay. We continue to take positive action to increase diversity and inclusion within the Company.
Our strategy is to attract and retain responsible, talented and experienced individuals through various initiatives that promote inclusion, diversity and fair pay. We continue to take positive action to increase diversity, equity and inclusion within the Company. We continue to review our hiring, promotion and succession practices at all levels within the Company.
In the past 24 months, we have made a major move to shift our workforce to more remote and flexible arrangements, thus sharply reducing or eliminating commutes and their resulting carbon emissions. In fact, we have eliminated over 1 million miles of annual commuting by our employees through these actions.
Carbon Footprint - Over the past few years, we have reduced our carbon footprint by significantly shifting our workforce to more remote and flexible arrangements, thus sharply reducing or eliminating commutes and their resulting carbon emissions. In fact, we have eliminated over 1 million miles of annual commuting by our employees through these actions.
We believe, based on the most recent catastrophe modeling software, that with our current reinsurance protection we could withstand a greater than 1 in 1,000 year U.S. earthquake occurrence. Carbon Footprint - We have been taking action to reduce our carbon footprint.
We believe, based on the most recent catastrophe modeling software, that with our current reinsurance protection we could withstand a greater than 1 in 1,000 year U.S. earthquake occurrence (a 0.1% chance of occurrence).
Additional information regarding our investment portfolio, including our approach to managing investment risk, is set forth under "Item 7 –Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations –Liquidity and Capital Resources –Investments" and "Item 7A –Quantitative and Qualitative Disclosures about Market Risk." Marketing and Distribution We market and sell our workers' compensation insurance products through: (i) local, regional, specialty and national insurance agents and brokers; (ii) national, regional, and local trade groups and associations; and (iii) direct-to-customer interactions.
This initiative was designed to provide the public with information relating to potential climate change-related financial risks faced by California insurance companies resulting from exposure to fossil fuel-based investments. 14 Additional information regarding our investment portfolio, including our approach to managing investment risk, is set forth under "Item 7 –Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations –Liquidity and Capital Resources –Investments" and "Item 7A –Quantitative and Qualitative Disclosures about Market Risk." Marketing and Distribution We market and sell our workers' compensation insurance products through: (i) local, regional, specialty and national insurance agents and brokers; (ii) national, regional, and local trade groups and associations; and (iii) direct-to-customer interactions.
In-force premiums represent the estimated annual premium on all policies that are active and in-force at that date. More specifically, in-force premiums include policy endorsements but exclude final audit premium. When adjusting for estimated final audit premium, our total in-force premiums were $665.0 million, $612.9 million and $575.2 million as of December 31, 2022, 2021, and 2020, respectively.
Our total in-force premiums were $694.6 million, $622.5 million and $571.4 million as of December 31, 2023, 2022, and 2021, respectively. In-force premiums represent the estimated annual premium on all policies that are active and in-force at that date. More specifically, in-force premiums include policy endorsements but exclude final audit premium.
The California Department of Insurance (California DOI), Florida Office of Insurance Regulation (Florida OIR), Nevada Division of Insurance (Nevada DOI), and New York Department of Financial Services (New York DFS) periodically examine the statutory financial statements of their respective domiciliary insurance companies.
The California Department of Insurance (California DOI), Florida Office of Insurance Regulation (Florida OIR), Nevada Division of Insurance (Nevada DOI), and New York Department of Financial Services (New York DFS) periodically examine the statutory financial statements of their respective domiciliary insurance companies. The most recent financial examinations for each of our insurance companies were conducted as of December 31, 2022.
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. 13 Under the LPT Agreement, the Fund initially ceded $1.5 billion in liabilities for the incurred but unpaid losses and LAE related to claims incurred prior to July 1, 1995, for consideration of $775.0 million in cash.
Under the LPT Agreement, the Fund initially ceded $1.5 billion in liabilities for the incurred but unpaid losses and LAE related to claims incurred prior to July 1, 1995, for consideration of $775.0 million in cash.
We utilize business impact analyses to predict potential consequences of business disruptions, driving creation of our business continuity plans. Additionally, we utilize multi-zone data centers that act as production facilities and as disaster recovery sites for each other. Cyber Security and Privacy Our operations rely on the secure processing, storage, and transmission of personal, confidential, and other information.
Additionally, we utilize multi-zone data centers that act as production facilities and as disaster recovery sites for each other. 10 Cybersecurity and Privacy Our operations rely on the secure processing, storage, and transmission of personal, confidential, and other information.
Fluctuations in Investment Income and Investment Gains and Losses on our Investment Portfolio Increases in market interest rates throughout 2022 have negatively impacted the fair value of our fixed maturity investments. In addition, economic and market disruptions in 2022 caused by inflationary pressures and geo-political conditions have negatively impacted the fair value of our equity securities.
Our Investment Portfolio and Net Investment Income Sharp increases in market interest rates throughout 2022 negatively impacted the fair value of our fixed maturity investments. In addition, economic and market disruptions caused by volatility and credit concerns in certain financial and banking markets, inflationary pressures, and geo-political uncertainties, negatively impacted the fair value of our equity securities.
With respect to gender, we have made improvements in female representation in leadership roles such that women currently represent 64% of all our employees, 68% of our managers and supervisors, 36% of our vice presidents and directors, 56% of our executive team and 33% of our independent members of the Board of Directors.
In recent years, we have made improvements in female representation in leadership roles such that women currently represent 63% of all our employees, 70% of our managers and supervisors, 44% of our vice presidents and directors, 67% of our executive team and 33% of our members of the Board.
Our Board of Directors’ Committee Charters, Corporate Governance Guidelines, Related Person Transactions Policy and Procedures, Code of Business Conduct and Ethics, and Code of Ethics for Senior Financial Officers are posted on the Company's website at www.employers.com. 7 Information Security and Cybersecurity - Our operations rely on the secure processing, storage, and transmission of personal, confidential, and other information.
Our Board's Committee Charters, Corporate Governance Guidelines, Related Person Transactions Policy and Procedures, Code of Business Conduct and Ethics, and Code of Ethics for Senior Financial Officers are posted on the Company's website at www.employers.com.
Environmental, Social and Governance (ESG) Strategy We are committed to delivering value to our shareholders while being conscientious of Environmental, Social, and Governance concerns. Environmental concerns include, among other things, dealing with the current climate crisis as well as environmental sustainability. Social concerns include, among other things, diversity, inclusion, human rights and labor standards.
ESG Strategy Our commitment to environmental management includes, among other things, dealing with the current climate crisis as well as environmental sustainability. Social concerns include, among other things, diversity, equity and inclusion, human rights and labor standards.
For a detailed description of our reserves, the judgments, key assumptions and actuarial methodologies that we use to estimate our reserves, see "Item 7 –Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations –Critical Accounting Estimates –Reserves for Losses and LAE" and Note 9 in the Notes to our Consolidated Financial Statements.
For a detailed description of our reserves, and the judgments, key assumptions and actuarial methodologies that we use to estimate our reserves, see "Item 7 –Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations –Critical Accounting Estimates –Reserves for Losses and LAE" and Note 9 in the Notes to our Consolidated Financial Statements. 12 Reinsurance Reinsurance is a transaction between insurance companies in which an original insurer, or ceding company, remits a portion of its premiums to a reinsurer, or assuming company, as payment for the reinsurer assuming a portion of the risk.
Additional information regarding the LPT Agreement is set forth under "–Reinsurance–LPT Agreement." We receive a management fee from the third party reinsurers equal to 7% of the loss payments on these claims. Reportable Segments We have two reportable segments: Employers and Cerity .
Additional information regarding the LPT Agreement is set forth under "–Reinsurance–LPT Agreement." We receive a management fee from the third party reinsurers equal to 7% of the loss payments on these claims. Reportable Segment We operate our business as a single segment, Insurance Operations , through our wholly owned subsidiaries.
We also utilize our Investment Managers' investment advisory services to assist us in developing a tailored set of portfolio targets and objectives. Our Investment Managers actively monitor the ability of our bond issuers to repay their obligations, remain competitive, and maintain a strong financial position. Our Investment Managers also consider ESG criteria when evaluating investment opportunities.
Our Investment Managers actively monitor the ability of our bond issuers to repay their obligations, remain competitive, and maintain a strong financial position. Our Investment Managers also consider ESG criteria when evaluating investment opportunities. Each of our Investment Managers is a signatory to the UNPRI.
We had 676 full-time employees at December 31, 2022 and our principal executive offices are located at 10375 Professional Circle in Reno, Nevada. Human Capital - We believe that our employees are among our most important resources and they are critical to our continued success, good name and reputation.
We had 717 full-time employees at December 31, 2023 and our corporate headquarters are located at 2340 Corporate Circle, Suite 200, Henderson, Nevada. Human Capital - We believe that our employees are among our most important resources and they are critical to our continued success and good reputation.
This policy extends to all areas of employment, including recruitment, selection and placement, compensation, promotion and transfer, disciplinary measures, demotion, layoffs and terminations, testing and training, working conditions, awards and benefits, and all other employment-related actions. We are also committed to advancing diversity, equity, and inclusion across our organization.
This policy extends to all areas of employment, including recruitment, selection and placement, compensation, promotion and transfer, disciplinary measures, demotion, layoffs and terminations, testing and training, working conditions, awards and benefits, and all other employment-related matters. We require our employees to follow specific rules of professional conduct that will protect the interests and safety of all employees and the organization.
Our underwriters use their local market expertise and disciplined underwriting to select specific types of businesses and risks within the classes of business we underwrite that allow us to generate loss ratios that are better than the industry average. Our total in-force premiums were $622.5 million, $571.4 million and $577.9 million as of December 31, 2022, 2021, and 2020, respectively.
We generally target select small businesses engaged in low-to-medium hazard industries. Our underwriters use their local market expertise and disciplined underwriting to select specific types of businesses and risks within the classes of business we underwrite that allow us to generate loss ratios that are better than the industry average.
At December 31, 2022, $1.7 million was held as collateral by cash or letters of credit for our reinsurance recoverables. We review the aging of our reinsurance recoverables on a quarterly basis and no material amounts due from our reinsurers have been written-off as uncollectible since our inception in 2000.
We review the aging of our reinsurance recoverables on a quarterly basis and no material amounts due from our reinsurers have been written-off as uncollectible since our inception in 2000. At December 31, 2023, we had no reinsurance recoverables on paid losses that were greater than 90 days overdue.
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.
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. During the three-year period ended December 31, 2023, we declared $149.4 million of dividends on our common stock and eligible plan awards, and we repurchased $149.7 million of our common stock.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny security breach or security incident, or any outages or other disruption to systems used in our business, could interrupt our operations (including by impacting our ability to service our agents, insureds, and injured workers, generate and service direct-to-customer business, and meet certain regulatory requirements), result in loss or improper access to, or acquisition, disclosure, or other processing of, personal data and other sensitive and proprietary data, or a loss of intellectual property protection. 25 Additionally, any actual or perceived outage, breach, incident, or disruption may harm our reputation and competitive position, reduce demand for our products and services, damage our relationships with customers or others or result in claims, demands, litigation, regulatory investigations and proceedings and significant legal, regulatory and financial exposure.
Biggest changeAny security breach or security incident, or any outages or other disruption to systems used in our business, could interrupt our operations (including by impacting our ability to service our agents, insureds, and injured workers, generate and service direct-to-customer business, and meet certain regulatory requirements), result in loss or improper access to, or acquisition, disclosure, or other processing of, personal data and other sensitive and proprietary data, or a loss of intellectual property protection.
If such an event were to impact one or more of the businesses we insure, we would be entirely responsible for any workers' compensation claims arising out of such event, subject to the terms of the 2002 Act and TRIPRA of 2019 and could suffer substantial losses as a result.
If such an event were to impact one or more of the businesses we insure, we would be entirely responsible for any workers' compensation claims arising out of such event, subject to the terms of the 2002 Act and TRIPRA of 2019 and we could suffer substantial losses as a result.
We may require additional capital in the future, which may not be available to us or may be available only on unfavorable terms. Our future capital requirements will depend on many factors, including state regulatory requirements, our ability to write new business successfully, and to establish premium rates and reserves at levels sufficient to cover losses.
We may require additional capital in the future, which may not be available to us or may be available only on unfavorable terms. Our future capital requirements will depend on many factors, including state regulatory requirements, our ability to write new business successfully, and our ability to establish premium rates and reserves at levels sufficient to cover losses.
Greater financial resources also permit an insurer to gain market share through more competitive pricing, even if that pricing results in reduced underwriting margins or an underwriting loss. Many of our competitors are multi-line carriers that can price the workers' compensation insurance they offer at a loss in order to obtain other lines of business at a profit.
Greater financial resources also permit an insurer to gain market share through more competitive pricing, even if that pricing results in reduced underwriting margins or an underwriting loss. Many of our competitors are multi-line carriers that can price the workers' compensation insurance they offer at a loss to obtain other lines of business at a profit.
Further, changes in the level of regulation of the insurance industry or changes in laws or regulations or interpretations by regulatory authorities could impact our operations, require us to bear additional costs of compliance, and impact our profitability. Single-payer healthcare proposals have been considered by the U.S. Government and certain states, including California, at various times in the past.
Further, changes in the level of regulation of the insurance industry or changes in laws or regulations or 22 interpretations by regulatory authorities could impact our operations, require us to bear additional costs of compliance, and impact our profitability. Single-payer healthcare proposals have been considered by the U.S. Government and certain states, including California, at various times in the past.
Because we have insurance subsidiaries domiciled in California, Florida, Nevada, and New York, any transaction that would constitute a change in control of us would generally require the party attempting to acquire control to obtain the prior approval of the insurance commissioners of these states and may require pre-notification of the change of control in these or other states in which we are licensed to transact business.
Because we have insurance subsidiaries domiciled in California, Florida, Nevada, and New York, any transaction that would constitute a change in control of us would generally require the party attempting to acquire control to obtain the prior approval of the insurance commissioners of these states and may require pre-notification of the proposed change of control in these or other states in which we are licensed to transact business.
We compete with regional and national insurance companies, professional employer organizations, third-party administrators, self-insured employers, and state insurance funds. Our main competitors vary from state to state, but are usually those companies that offer a full range of services in underwriting, loss control, and claims.
We compete with regional and national insurance companies, professional employer organizations, third-party administrators, self-insured employers, and state insurance funds. Our main competitors vary from state to state, but they are usually those companies that offer a full range of services in underwriting, loss control, and claims.
Any catastrophe occurring in the communities in which we operate or that have significant impacts on one or more of our targeted classes of business could expose us to potentially substantial losses and, accordingly, could have a material adverse effect on our financial condition and results of operations.
Any catastrophe occurring in the communities in which we operate or that 21 have significant impacts on one or more of our targeted classes of business could expose us to potentially substantial losses and, accordingly, could have a material adverse effect on our financial condition and results of operations.
Although these guidelines stress diversification and capital preservation, our investments are subject to a variety of risks that are beyond our control, including risks related to general economic conditions, interest rate fluctuations or prolonged periods of low interest rates, and market volatility.
Although these guidelines stress diversification and capital preservation, our investments are subject to a variety of risks that are beyond our control, including risks related to general economic conditions, interest rate fluctuations or prolonged periods of high or low interest rates, and market volatility.
In addition, we could be forced to delay raising capital or be unable to raise capital on favorable terms, or at all, which could decrease our profitability, significantly reduce our financial flexibility, and cause rating agencies to reevaluate our financial strength ratings.
In addition, we could be forced to delay raising capital or 24 be unable to raise capital on favorable terms, or at all, which could decrease our profitability, significantly reduce our financial flexibility, and cause rating agencies to reevaluate our financial strength ratings.
We continue to experience price competition in our target markets. 18 Because of cyclicality in the workers' compensation market, due in large part to competition, capacity, and general economic factors, we cannot predict the timing or duration of changes in the market cycle.
We continue to experience price competition in our target markets. Because of cyclicality in the workers' compensation market, due in large part to competition, capacity, and general economic factors, we cannot predict the timing or duration of changes in the market cycle.
Since healthcare costs are 22 the largest component of our loss costs, we may be impacted by changes in healthcare legislation, which could affect healthcare costs and delivery in the future. There is also the possibility of federal regulation of insurance.
Since healthcare costs are the largest component of our loss costs, we may be impacted by changes in healthcare legislation, which could affect healthcare costs and delivery in the future. There is also the possibility of federal regulation of insurance.
We expect to incur significant costs in an effort to detect and prevent security breaches and incidents, and may face increased costs and requirements to expend substantial resources in the event of an actual or perceived security breach or other incident.
We expect to incur significant costs in an effort to detect and prevent security breaches and incidents, and we 25 may face increased costs and requirements to expend substantial resources in the event of an actual or perceived security breach or other incident.
Additionally, the workers' compensation industry has seen a higher level of claims litigation in California, which could expose us beyond the liabilities currently expected and included on our financial statements.
Additionally, the workers' compensation industry has seen a higher level of claims litigation in California, which could expose us beyond the liabilities currently expected and included on our financial 18 statements.
For example, when initiating coverage on a policyholder, we must rely on the information provided by the policyholder, agent, or the policyholder's previous insurer(s) to properly estimate future claims expense.
For example, when initiating coverage on a policyholder, we must rely on the information provided by the policyholder, agent, or the policyholder's previous insurer(s) to properly estimate future 17 claims expense.
If we are unable to collect on these reinsurance recoverable, our financial condition and results of operations could be materially adversely affected. The LPT Agreement requires each reinsurer to place assets supporting the payment of claims by them in individual trusts that require that collateral be held at a specified level.
If we are unable to collect on these reinsurance recoverables, our financial condition and results of operations could be materially adversely affected. The LPT Agreement requires each reinsurer to place assets supporting the payment of claims by them in individual trusts that require that collateral be held at a specified level.
Our liability for losses and LAE is based on estimates and may be inadequate to cover our actual losses and expenses. We establish and maintain reserves for our estimated losses and LAE.
Our liability for losses and LAE is based on estimates and may be inadequate to cover our actual losses and expenses. 20 We establish and maintain reserves for our estimated losses and LAE.
We would be particularly 21 adversely affected by a terrorist act affecting any metropolitan area where our policyholders have a large concentration of workers.
We would be particularly adversely affected by a terrorist act affecting any metropolitan area where our policyholders have a large concentration of workers.
These provisions could also discourage proxy contests and make it more difficult for stockholders to elect 23 Directors and take other corporate actions.
These provisions could also discourage proxy contests and make it more difficult for stockholders to elect Directors and take other corporate actions.
We compete on the basis of the services that we offer to our policyholders and on ease of doing business rather than solely on price. Many of our competitors are significantly larger and possess greater financial, marketing, and management resources than we do. Some of our competitors benefit financially by not being subject to federal income tax.
We compete based on the services that we offer to our policyholders and on ease of doing business rather than solely on price. Many of our competitors are significantly larger and possess greater financial, marketing, and management resources than we do. Some of our competitors benefit financially by not being subject to federal income tax.
If we have to raise additional capital, equity or debt financing may not be available on terms that are favorable to us. In the case of equity financings, there could be dilution to our stockholders and the securities may have rights, preferences, and privileges senior to 24 our common stock.
If we must raise additional capital, equity or debt financing may not be available on terms that are favorable to us. In the case of equity financings, there could be dilution to our stockholders and the securities may have rights, preferences, and privileges senior to our common stock.
Adverse decisions in administrative proceedings, legal actions, or judicial decisions could require us to pay significant amounts in the aggregate or to change the manner in which we administer claims, which could have a material adverse effect on our business, financial condition and results of operations.
Adverse decisions in administrative proceedings, legal actions, or judicial decisions could require us to pay significant amounts in the aggregate or to change the way we administer claims, which could have a material adverse effect on our business, financial condition and results of operations.
Our success depends in substantial part upon our ability to attract and retain qualified executive officers, experienced underwriting and claims personnel, and other skilled employees who are knowledgeable about our business. The current success of our business is dependent in significant part on the efforts of our executive officers.
Our success depends in substantial part on our ability to attract and retain qualified executive officers, experienced underwriting and claims personnel, and other highly skilled employees who are knowledgeable about our business. The current success of our business is dependent in significant part on the efforts of our executive officers.
Our reinsurance coverage is $190.0 million in excess of our $10.0 million retention on a per occurrence basis, subject to certain exclusions. The availability, amount, and cost of reinsurance depend on market conditions and our loss experience and may vary significantly.
Our reinsurance coverage is $190.0 million in excess of our $10.0 million retention on a per occurrence basis, subject to certain exclusions. The availability, amount, and cost of reinsurance depend on market conditions and our loss experience and may fluctuate significantly.
Our concentration in California ties our performance to the business, economic, demographic, natural perils, competitive, legislative and regulatory conditions in that state. Our business is concentrated in California, where we generated 45% of our in-force premiums as of December 31, 2022.
Our concentration in California ties our performance to the business, economic, demographic, natural perils, competitive, legislative and regulatory conditions in that state. Our business is concentrated in California, where we generated 45% of our in-force premiums as of December 31, 2023.
Our reinsurance protection covers natural perils and acts of terrorism events, but excludes nuclear, biological, chemical, and radiological events. On July 1, 2022, 19 we entered into a new reinsurance program that is effective through June 30, 2023. The reinsurance program consists of one treaty covering excess of loss and catastrophic loss events in four layers of coverage.
Our reinsurance protection covers natural perils and acts of terrorism events, but excludes nuclear, biological, chemical, and radiological events. On July 1, 2023, we entered into a new reinsurance program that is effective through June 30, 2024. The reinsurance program consists of one treaty covering excess of loss and catastrophic loss events in four layers of coverage.
Our business is highly dependent upon the successful and uninterrupted functioning of our information technology and telecommunications systems, including those of third parties that we outsource certain functions to.
Our business is highly dependent upon the successful and uninterrupted functioning of our information technology and telecommunications systems, including those of third parties to which we outsource certain functions.
Best may increase the frequency and scope of its reviews, and request additional information from the companies that it rates, including additional information regarding the valuation of investment securities held. We cannot predict what actions rating agencies may take, or what actions we may take in response to the actions of rating agencies.
Best may increase the frequency and scope of its reviews and request additional information from the companies that it rates, including additional information regarding the valuation of investment securities held and/or susceptibilities to inflationary pressures. We cannot predict what actions rating agencies may take, or what actions we may take in response to the actions of rating agencies.
Certain efforts may be state-sponsored or supported by significant financial and technological resources, making them even more difficult to detect, remediate, and otherwise respond to.
Certain efforts may be state-sponsored or supported by significant financial and technological resources, making them even more difficult to detect, remediate, and otherwise handle.
These laws, regulations, and other obligations to which we are or may become subject, or that may be argued to apply to us, including contractual obligations and industry standards, may require us to modify our practices and policies and to incur substantial costs and expenses in an effort to comply.
These laws, regulations, and other obligations to which we are or may become subject, or that may be argued to apply to us, including contractual obligations and industry standards, may require us to modify our practices and policies and to incur substantial costs and expenses to comply.
As our industry becomes increasingly reliant on data analytics to improve pricing and be more targeted in marketing, our competitors may have better information, greater financial resources and/or be more efficient in leveraging analytics than we are, which could put us at a competitive disadvantage.
As our industry becomes increasingly reliant on data analytics and artificial intelligence to improve pricing and be more targeted in marketing, our competitors may have better information, greater financial resources and/or be more efficient in leveraging these tools than we are, which could put us at a competitive disadvantage.
Workers' compensation insurance is statutorily required in all the states in which we do business, with the exception of Texas. State laws and regulations specify the form and content of policy coverage and the rights and benefits that are available to injured workers, their representatives, and medical providers.
Workers' compensation insurance is statutorily required in all the states in which we do business, except for Texas. State laws and regulations specify the form and content of policy coverage and the rights and benefits that are available to injured workers, their representatives, and medical providers.
As we receive new information and update our assumptions over time regarding the ultimate liability, our loss reserves may prove to be inadequate to cover our actual losses, and we have in the past made, and may in the future make, adjustments to our reserves based on a number of factors.
As we receive new information and update our assumptions over time regarding the ultimate liability, our loss reserves may prove to be inadequate to cover our actual losses, and we have in the past made, and may in the future make, adjustments to our reserves based on various factors.
Regulations vary from state to state, but typically address or include: • standards of solvency, including RBC measurements; • restrictions on the nature, quality, and concentration of investments; • restrictions on the types of terms that we can include in the insurance policies we offer; • mandates that may affect wage replacement and medical care benefits paid under the workers' compensation system; • requirements for the handling and reporting of claims and procedures for adjusting claims; • restrictions on the way rates are developed and premiums are determined; • the manner in which agents may be appointed; • establishment of liabilities for unearned premiums, unpaid losses and LAE; • limitations on our ability to transact business with affiliates; • environmental, social and governance-related requirements; • mergers, acquisitions, and divestitures involving our insurance subsidiaries; • licensing requirements and approvals that affect our ability to do business; • applicable privacy laws; • cyber-security laws and regulations; • potential assessments for the settlement of covered claims under insurance policies issued by impaired, insolvent, or failed insurance companies or other assessments imposed by regulatory agencies; and • the amount of dividends that our insurance subsidiaries may pay to EGI and CGI and, in turn, the ability of EGI and CGI to pay dividends to EHI.
Regulations vary from state to state, but typically address or include: • standards of solvency, including RBC measurements; • restrictions on the nature, quality, and concentration of investments; • restrictions on the types of terms that we can include in the insurance policies we offer; • mandates that may affect wage replacement and medical care benefits paid under the workers' compensation system; • requirements for the handling and reporting of claims and procedures for adjusting claims; • restrictions on the way rates are developed and premiums are determined; • the manner in which agents may be appointed; • establishment of liabilities for unearned premiums, unpaid losses and LAE; • limitations on our ability to transact business with affiliates; • ESG practices; • mergers, acquisitions, and divestitures involving our insurance subsidiaries; • licensing requirements and approvals that affect our ability to do business; • applicable privacy laws, including the protection of nonpublic personal information and personally identifiable information, including health information; • cyber-security laws and regulations; • potential assessments for the settlement of covered claims under insurance policies issued by impaired, insolvent, or failed insurance companies or other assessments imposed by regulatory agencies; and • the amount of dividends that our insurance subsidiaries may pay to EGI and CGI and, in turn, the ability of EGI and CGI to pay dividends to EHI.
In order to set premium rates accurately, we must utilize an appropriate pricing model that correctly assesses risks based on their individual characteristics and takes into account actual and projected industry characteristics. Wage inflation can increase the payrolls of our policyholders, which is the basis for the premiums we charge.
In order to set premium rates accurately, we must utilize an appropriate pricing model that correctly assesses risks based on individual characteristics and takes into account actual and projected industry characteristics. Wage inflation has increased the payrolls of our policyholders, which is the basis for the premiums we charge.
At December 31, 2022, we had $451.3 million of reinsurance recoverable for paid and unpaid losses and LAE, of which $6.8 million was due to us on paid claims. We purchase reinsurance to protect us against severe claims and certain catastrophic events.
At December 31, 2023, we had $433.8 million of reinsurance recoverable for paid and unpaid losses and LAE, of which $6.3 million was due to us on paid claims. We purchase reinsurance to protect us against severe claims and certain catastrophic events.
We market and sell the majority of our insurance products through non-exclusive insurance agents and brokers. These agents and brokers are not obligated to promote our products and can and do sell our competitors' products.
We market and sell many of our insurance products through non-exclusive insurance agents and brokers. These agents and brokers are not obligated to promote our products and can and do sell our competitors' products.
We could be liable for some or all of those ceded losses if the coverage provided by the LPT Agreement proves inadequate or we fail to collect from the reinsurers that are a party to such transaction. As of December 31, 2022, the estimated remaining liabilities subject to the LPT Agreement were $308.6 million.
We could be liable for some or all of those ceded losses if the coverage provided by the LPT Agreement proves inadequate or we fail to collect from the reinsurers that are a party to such transaction. As of December 31, 2023, the estimated remaining liabilities subject to the LPT Agreement were $291.7 million.
If our competitors offer more competitive prices, policyholder dividends, or payment plans, services or commissions to our agents, brokers, and other distributors, we could lose market share, have to reduce our premium rates, or increase commission rates, which could adversely affect our profitability.
If our competitors offer more competitive prices, policyholder dividends, or payment plans, services or commissions to our agents, brokers, and other distributors, we could lose market share and be forced to reduce our premium rates, or increase commission rates, either of which could adversely affect our profitability.
California is also exposed to climate and environmental changes, natural perils such as earthquakes and wildfires. In addition, California could be more adversely impacted by pandemics and terrorist acts than most other states due to population density.
California is also exposed to climate and environmental changes, especially natural perils such as earthquakes and wildfires. In addition, California could be more adversely impacted by pandemics and terrorist acts than most other states due to population density in its major metropolitan areas.
Accordingly, if the Nevada legislature were to increase the benefits payable for the pre-July 1, 1995 claims, we would be responsible for the increased benefit costs to the extent of the legislative increase.
Accordingly, if the Nevada legislature were to increase the benefits payable for the pre-July 1, 1995 claims in the future, we could be responsible for the increased benefit costs to the extent of the legislative increase.
Accordingly, the loss environment and unfavorable business, economic, demographic, natural perils, competitive, and regulatory conditions in California could negatively impact our business. Many California businesses are dependent on tourism revenues, which are, in turn, dependent on a robust economy.
Accordingly, the loss environment and any unfavorable business, economic, demographic, natural perils, competitive, and regulatory conditions in California could have a significant adverse impact on our business. Many California businesses are dependent on tourism revenues, which are, in turn, dependent on a robust economy.
Higher levels of wage inflation and U.S. labor market shortages, including impacts from the “Great Resignation,” may lead to increased staffing expenses, increased turnover rates among key personnel and difficulty filling new and vacant roles. As a result, our operations may be disrupted and/or our financial performance and results of operations may be adversely affected.
Higher levels of wage inflation and U.S. labor market shortages may lead to increased staffing expenses, increased turnover rates among key personnel and difficulty filling new and vacant roles. As a result, our operations may be disrupted and/or our financial performance and results of operations may be adversely affected.
For more information regarding market risk, see "Item 7A–Quantitative and Qualitative Disclosures About Market Risk." Increases in market interest rates that have occurred throughout 2022 have negatively impacted the fair value of our fixed maturity investments as of December 31, 2022.
For more information regarding market risk, see "Item 7A–Quantitative and Qualitative Disclosures About Market Risk." Sharp increases in market interest rates throughout 2022 negatively impacted the fair value of our fixed maturity investments.
The value of these assets at December 31, 2022 was $312.5 million. If the value of the collateral in the trusts drops below the required minimum level and the reinsurers are unable to contribute additional assets, we could be responsible for substituting a new reinsurer or paying those claims without the benefit of reinsurance.
If the value of the collateral in the trusts drops below the required minimum level and the reinsurers are unable to contribute additional assets, we could be responsible for substituting a new reinsurer or paying those claims without the benefit of reinsurance.
Best, have demonstrated an excellent overall performance when compared to industry standards. 20 A.M. Best considers "A-" (Excellent) rated companies to have an excellent ability to meet their ongoing obligations to policyholders. This rating does not refer to our ability to meet non-insurance obligations. The financial strength ratings of A.M.
This rating is assigned to companies that, in the opinion of A.M. Best, have demonstrated an excellent overall performance when compared to industry standards. A.M. Best considers "A-" (Excellent) rated companies to have an excellent ability to meet their ongoing obligations to policyholders. This rating does not refer to our ability to meet non-insurance obligations.
The future outlook for our investment income is dependent on the direction of interest rates, maturity schedules, and cash available for investment. In addition, the fair value of our fixed maturity securities that are available-for-sale (AFS) fluctuate with changes in interest rates and credit risk assumptions, which cause fluctuations in our stockholders' equity, net income and comprehensive income.
In addition, the fair value of our fixed maturity securities that are available-for-sale (AFS) fluctuate with changes in interest rates and credit risk assumptions, which cause fluctuations in our stockholders' equity, net income and comprehensive income.
Best and other rating agencies are subject to periodic review using, among other things, proprietary capital adequacy models, and are subject to revision or withdrawal at any time.
The financial strength ratings of A.M. Best and other rating agencies are subject to periodic review using, among other things, proprietary capital adequacy models, and are subject to revision or withdrawal at any time.
ADP, our largest distribution agent, generated 15.0% of our total in-force premiums as of December 31, 2022. Our agreement with ADP is not exclusive.
ADP, our largest distribution agent, generated 16.2% of our total in-force premiums as of December 31, 2023. Our agreement with ADP is not exclusive.
In addition, economic and market disruptions caused by inflationary pressures and geo-political conditions have negatively impacted the fair value of our equity securities during 2022. The negative impacts to our investment portfolio experienced in 2022 have consisted primarily of unrealized investment losses.
In addition, economic and market disruptions caused by volatility and credit concerns in certain financial and banking markets, inflationary pressures, and geo-political uncertainties, negatively impacted the fair value of our equity securities in 2022. The negative impacts to our investment portfolio experienced in 2022 consisted primarily of unrealized investment losses.
Our insurance subsidiaries are currently assigned a group financial strength rating of "A-" (Excellent), with a "positive" outlook, by A.M. Best, which is the rating agency that we believe has the most influence on our business. This rating is assigned to companies that, in the opinion of A.M.
Rating agencies rate insurance companies based on financial strength as an indication of an ability to pay claims. Our insurance subsidiaries are currently assigned a group financial strength rating of "A-" (Excellent), with a "positive" outlook, by A.M. Best, which is the rating agency that we believe has the most influence on our business.
Some long-term technology development and new business initiatives may negatively impact our expense ratios as we invest in the projects, may cost more than anticipated to complete, or may not be completed.
We have multiple initiatives that are focused on developing new technologies and capabilities and enhancing our information technology infrastructure. Some long-term technology development and new business initiatives may negatively impact our expense ratios as we invest in the projects, may cost more than anticipated to complete, or may not be completed.
In particular, our amended and restated articles of incorporation and amended and restated by-laws currently include provisions: • eliminating the ability of our stockholders to call special meetings of stockholders; • permitting our Board of Directors to issue preferred stock in one or more series; • imposing advance notice requirements for nominations for election to our Board of Directors and/or for proposing matters that can be acted upon by stockholders at the stockholder meetings; and • prohibiting stockholder action by written consent, thereby limiting stockholder action to that taken at an annual or special meeting of our stockholders.
In particular, our amended and restated articles of incorporation and amended and restated by-laws currently include provisions: • eliminating the ability of our stockholders to call special meetings of stockholders; • permitting our Board to issue preferred stock in one or more series; • imposing advance notice requirements for nominations for election to our Board and/or for proposing matters that can be acted upon by stockholders at the stockholder meetings; and • prohibiting stockholder action by written consent, thereby limiting stockholder action to that taken at an annual or special meeting of our stockholders. 23 These provisions may make it difficult for stockholders to replace Directors and could have the effect of discouraging a future takeover attempt that is not approved by our Board, but which stockholders might consider favorable.
We obtained reinsurance covering the losses incurred prior to July 1, 1995, and we could be liable for some or all of those losses if the coverage provided by the LPT Agreement proves inadequate or we fail to collect from the reinsurers that are a party to such transaction.
The inability of any of our reinsurers to meet their financial obligations could have a material adverse effect on our financial condition and results of operations. 19 We obtained reinsurance covering the losses incurred prior to July 1, 1995, and we could be liable for some or all of those losses if the coverage provided by the LPT Agreement proves inadequate or we fail to collect from the reinsurers that are a party to such transaction.
The effects of supply chain interruptions, lingering U.S. labor market shortages impacting certain employer classifications that we insure, inflationary pressures, monetary and fiscal policy measures, recessionary concerns, overall general economic instability and the COVID-19 pandemic have caused recent disruptions in business activity.
The effects of lingering U.S. labor market shortages impacting certain employer classifications that we insure, inflationary pressures, volatility and credit concerns in certain financial and banking markets, monetary and fiscal policy measures, recessionary concerns and, overall general economic instability have, at times, caused disruptions in business activity.
Our success depends on our ability to maintain effective information technology systems, to enhance those systems to better support our business in an efficient and cost-effective manner, and to develop new technologies and capabilities in pursuit of our long-term strategy. We have multiple initiatives that are focused on developing new technologies and capabilities and enhancing our information technology infrastructure.
Our success depends on our ability to maintain effective information technology systems, to enhance those systems to better support our business in an efficient and cost-effective manner, and to develop new technologies and capabilities, including those involving the use of data, analytics, and artificial intelligence, in pursuit of our long-term strategy.
To the extent that inflation causes these costs to increase above established reserves, we will be required to increase our loss and LAE reserve assumptions, which would reduce our earnings in the period in which assumptions are revised. We are a holding company with no direct operations.
To the extent that inflation causes these costs to increase above our established reserves, we will be required to increase those reserves for losses and LAE, which would negatively impact our financial condition and results of operations. We are a holding company with no direct operations.
Under the current elevated inflationary environment, additional inflationary considerations were included in determining the level and adequacy of our reserves, and particular consideration was given to medical and hospital inflation rates as these inflation rates have historically exceeded general inflation rates.
Additional inflationary concerns are considered in determining the level and adequacy of our reserves for losses and LAE, and particular consideration is given to medical and hospital inflation rates as these inflation rates have historically exceeded general inflation rates.
General Risk Factors We may be unable to realize our investment objectives, and economic conditions in the financial markets could lead to investment losses. Investment income is an important component of our revenue and net income. Our investment portfolio is managed by independent asset managers that operate under investment guidelines approved by the Finance Committee of the Board of Directors.
Additionally, these provisions could limit the price that investors are willing to pay in the future for shares of our common stock. General Risk Factors We may be unable to realize our investment objectives, and economic conditions in the financial markets could lead to investment losses. Investment income is an important component of our revenue and net income.
A downgrade in our financial strength rating could reduce the amount of business that we are able to write or result in the termination of certain of our agreements with our strategic partners. Rating agencies rate insurance companies based on financial strength as an indication of an ability to pay claims.
All states, including California, where we generated 45% of our in-force premiums as of December 31, 2023, have experienced adverse economic impacts. A downgrade in our financial strength rating could reduce the amount of business that we are able to write or result in the termination of certain of our agreements with our strategic partners.
Removed
The inability of any of our reinsurers to meet their financial obligations could have a material adverse effect on our financial condition and results of operations.
Added
While we have no international operations, recent geo-political uncertainties, including impacts from ongoing conflicts between Russia and Ukraine and those in the Middle East, have indirectly impacted the value of our investment portfolio, and may continue to impact our investment portfolio in the future.
Removed
All states, including California, where we generated 45% of our in-force premiums as of December 31, 2022, have experienced adverse economic impacts. Certain classes of business that we insure continue to be adversely and disproportionately affected by these challenges.
Added
Our investment portfolio is managed by independent asset managers that operate under investment guidelines approved by the Finance Committee.
Removed
These provisions may make it difficult for stockholders to replace Directors and could have the effect of discouraging a future takeover attempt that is not approved by our Board of Directors, but which stockholders might consider favorable. Additionally, these provisions could limit the price that investors are willing to pay in the future for shares of our common stock.
Added
In 2023, despite intra-year volatility, market interest rates largely stabilized and equity markets performed well versus those of 2022. These factors served to meaningfully reduce, but did not eliminate, the unrealized losses that we experienced in 2022. The outlook for our investment income is dependent on the direction of interest rates, maturity schedules, and cash available for investment.
Added
Additionally, any actual or perceived outage, breach, incident, or disruption may harm our reputation and competitive position, reduce demand for our products and services, damage our relationships with customers or others or result in claims, demands, litigation, regulatory investigations and proceedings and significant legal, regulatory and financial exposure.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties As of February 1, 2023, we leased 131,882 square feet of office space in 5 states, including our principal executive offices located in Reno, Nevada. Since 2021, we have reduced our real estate footprint by closing and vacating certain of our offices 26 located in California, Nevada, North Carolina and Wisconsin.
Biggest changeItem 2. Properties As of February 1, 2024, we leased 50,140 square feet of office space in four states, including our corporate headquarters located in Henderson, Nevada. Since 2021, we have reduced our real estate footprint by closing and vacating certain of our offices located in California, Missouri, Nevada, North Carolina and Wisconsin.
Whereas we believe that our existing office space is adequate for our current needs, we will continue to evaluate our office needs and may further reduce our real estate footprint in the future.
We believe that our existing office space is adequate for our current needs. We will continue to evaluate our office needs and may further adjust our real estate footprint in the future.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings From time to time, we are involved in pending and threatened litigation in the normal course of business in which claims for monetary damages are asserted and/or insurance or reinsurance coverage is disputed.
Biggest changeLegal Proceedings From time to time, we are involved in pending and threatened litigation in the normal course of business in which claims for monetary damages are asserted and/or insurance or reinsurance coverage is disputed. 27 Expected or actual reductions in our reinsurance recoveries due to reinsurance coverage disputes (as opposed to a reinsurer's inability to pay) are not recorded as an uncollectible reinsurance recoverable.
In the opinion of management, the ultimate liability, if any, arising from such pending or threatened litigation is not expected to have a material effect on our result of operations, liquidity, or financial position.
Rather, they are factored into the determination of, and are reflected in, our net loss and LAE reserves. In the opinion of management, 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 our result of operations, liquidity, or financial position.
Removed
Expected or actual reductions in our reinsurance recoveries due to reinsurance coverage disputes (as opposed to a reinsurer's inability to pay) are not recorded as an uncollectible reinsurance recoverable. Rather, they are factored into the determination of, and are reflected in, our net loss and LAE reserves.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRepurchases under the 2021 Program may be commenced, modified, or suspended from time to time without prior notice, and the program may be suspended or discontinued at any time. 28 Performance Graph The following information compares the cumulative total return on $100 invested in the common stock of EHI, ticker symbol EIG, for the period commencing at the close of market on December 31, 2017 and ending on December 31, 2022 with the cumulative total return on $100 invested in each of the Standard and Poor's (S&P) 500 Index (S&P 500) and the Standard and Poor's 500 Property-Casualty Insurance Index (S&P P&C Insurance Index).
Biggest changeThe 2023 Program provides that shares may be purchased in the open market and/or in privately negotiated transactions from time to time, and that all purchases shall be made in compliance with all applicable provisions of the Nevada Revised Statutes and federal and state securities laws, including Rules 10b5-1 and 10b-18 of the Exchange. 29 Performance Graph The following information compares the cumulative total return on $100 invested in the common stock of EHI, ticker symbol EIG, for the period commencing at the close of market on December 31, 2018 and ending on December 31, 2023 with the cumulative total return on $100 invested in each of the Standard and Poor's (S&P) 500 Index (S&P 500) and the Standard and Poor's 500 Property-Casualty Insurance Index (S&P P&C Insurance Index).
The following graph and related information shall not be deemed to be "soliciting material" or to be "filed" with the SEC, nor shall such information be incorporated by reference into any filing pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into such filing.
The following graph and related information shall not be deemed to be "soliciting material" or to be "filed" with the SEC, nor shall such information be incorporated by reference into any filing pursuant to the Securities Act of 1933 or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing. Employers Holdings, Inc.
However, any repurchase of shares of our common stock in the future will be at the discretion of our Board of Directors and will be dependent upon: • the surplus and earnings of our insurance subsidiaries and their ability to pay dividends and/or other statutorily permissible payments to their parent; • our results of operations and cash flows; • our financial position and capital requirements; • general business and social economic conditions; • any legal, tax, regulatory, and/or contractual restrictions on repurchases of our common stock; and • any other factors our Board of Directors deems relevant.
However, any repurchase of shares of our common stock in the future will be at the discretion of our Board and Finance Committee and will depend on: • the surplus and earnings of our insurance subsidiaries and their ability to pay dividends and/or other statutorily permissible payments to their parent; • our results of operations and cash flows; • our financial position and capital requirements; • general business and social economic conditions; • any legal, tax, regulatory, and/or contractual restrictions on repurchases of our common stock; and • any other factors our Board deem relevant.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information, Holders, and Stockholder Dividends Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol "EIG." There were 740 registered holders of record as of February 21, 2023.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information, Holders, and Stockholder Dividends Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol "EIG." There were 669 registered holders of record as of February 20, 2024.
Any determination to declare and pay additional or future dividends will be at the discretion of our Board of Directors and will be dependent upon: • the surplus and earnings of our insurance subsidiaries and their ability to pay dividends and/or other statutorily permissible payments to their parent; • our results of operations and cash flows; • our financial position and capital requirements; • general business conditions; • any legal, tax, regulatory, and/or contractual restrictions on the payment of dividends; and • any other factors our Board of Directors deems relevant.
Any determination to declare and pay additional or future dividends will be at the discretion of our Board and Finance Committee and will depend on: • the surplus and earnings of our insurance subsidiaries and their ability to pay dividends and/or other statutorily permissible payments to their parent; • our results of operations and cash flows; • our financial position and capital requirements; • general business conditions; • any legal, tax, regulatory, and/or contractual restrictions on the payment of dividends; and • any other factors our Board or Finance Committee may deem relevant.
We currently expect that quarterly cash dividends will continue to be declared and paid to our stockholders in the future. In addition, we may also pay special dividends from time-to-time as we did in 2022.
We currently expect that quarterly cash dividends will continue to be declared and paid to our stockholders in the future. In addition, we may also pay special dividends from time-to-time as we did in 2022, though there can be no assurance that we will do so.
Issuer Purchases of Equity Securities We have repurchased shares of our common stock during the periods noted below.
Issuer Purchases of Equity Securities We have repurchased shares of our common stock in every year since 2007, including the periods noted below.
The following table provides information with respect to the Company's repurchases of its common stock during the quarter ended December 31, 2022: Period Total Number of Shares Purchased Average Price Paid Per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (2) (in millions) October 1 – October 31, 2022 — $ — — $ 49.1 November 1 – November 30, 2022 — — — 49.1 December 1 – December 31, 2022 40,355 42.15 40,355 47.4 Total 40,355 $ 42.15 40,355 (1) Includes fees and commissions paid on stock repurchases.
The following table provides information with respect to the Company's repurchases of its common stock during the quarter ended December 31, 2023: Period Total Number of Shares Purchased Average Price Paid Per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (2) (in millions) October 1 – October 31, 2023 30,000 $ 37.77 30,000 $ 35.3 November 1 – November 30, 2023 248,675 38.09 248,675 25.8 December 1 – December 31, 2023 121,659 39.18 121,659 21.0 Total 400,334 $ 38.40 400,334 (1) Includes fees and commissions paid on stock repurchases.
(2) On July 21, 2021, the Board of Directors authorized a new share repurchase authorization for repurchases of up to $50.0 million of the Company's common stock from July 27, 2021 through December 31, 2022 (the 2021 Program).
(2) On July 26, 2023, the Board authorized a new stock repurchase authorization (the "2023 Program") for up to $50.0 million of repurchases of the Company's common stock from July 31, 2023 through December 31, 2024, unless otherwise extended, terminated, or modified by the Board.
Employers Holdings, Inc. Cumulative Total Return Performance Period Ending 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Employers Holdings, Inc. $ 96.33 $ 97.86 $ 77.75 $ 102.55 $ 115.49 S&P 500 95.62 125.72 148.85 191.58 156.89 S&P 500 P&C Insurance Index 95.31 119.97 128.31 153.05 181.93
Cumulative Total Return Performance Period Ending 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Employers Holdings, Inc. $ 101.58 $ 80.71 $ 106.45 $ 119.88 $ 112.58 S&P 500 131.49 155.68 200.37 164.08 207.21 S&P 500 P&C Insurance Index 125.87 134.63 160.58 190.89 211.53
Removed
On April 27, 2022, the Board of Directors authorized a $50.0 million expansion of the 2021 Program to $100.0 million, and extended the program's expiration to December 31, 2023.
Added
The 2023 Program replaced its former program (the 2021 Program) that was set to expire on December 31, 2023, but its remaining repurchase authorization had been exhausted.
Removed
The 2021 Program provides that shares may be purchased at prevailing market prices through a variety of methods, including open market or private transactions, in accordance with applicable laws and regulations and as determined by management.
Removed
The timing and actual number of shares that may be repurchased will depend on a variety of factors, including the share price, corporate and regulatory requirements, and other market and economic conditions.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWhile we have no international operations, the geo-political uncertainties associated with the ongoing Russia and Ukraine conflict have indirectly impacted the value of our investment portfolio. 30 Results of Operations Our results of operations for the three year period ending December 31, 2022 are as follows: Years Ended December 31, 2022 2021 2020 (in millions) Gross premiums written $ 714.2 $ 589.7 $ 580.1 Net premiums written $ 707.2 $ 583.1 $ 574.9 Net premiums earned $ 675.2 $ 574.4 $ 615.3 Net investment income 89.8 72.7 76.3 Net realized and unrealized (losses) gains on investments (51.8) 54.6 19.0 Other income 0.3 1.4 0.8 Total revenues 713.5 703.1 711.4 Losses and LAE 391.0 315.2 302.4 Commission expense 95.9 76.1 78.8 Underwriting and general and administrative expenses 167.3 160.2 181.3 Interest and financing expenses 3.5 0.5 0.4 Other expenses — 4.1 0.8 Total expenses 657.7 556.1 563.7 Net income before income taxes 55.8 147.0 147.7 Income tax expense 7.4 27.7 27.9 Net income $ 48.4 $ 119.3 $ 119.8 Overview Our net income was $48.4 million, $119.3 million, and $119.8 million in 2022, 2021, and 2020, respectively.
Biggest changeOur consolidated financial results of operations for the three year period ending December 31, 2023 are as follows: Years Ended December 31, 2023 2022 2021 (in millions) Gross premiums written $ 767.7 $ 714.2 $ 589.7 Net premiums written $ 760.6 $ 707.2 $ 583.1 Net premiums earned $ 721.9 $ 675.2 $ 574.4 Net investment income 106.5 89.8 72.7 Net realized and unrealized gains (losses) on investments 22.7 (51.8) 54.6 Other (loss) income (0.2) 0.3 1.4 Total revenues 850.9 713.5 703.1 Underwriting expenses: Losses and LAE 405.7 391.0 315.2 Commission expense 100.0 95.9 76.1 Underwriting and general and administrative expenses 180.0 167.3 160.2 Non-underwriting expenses: Interest and financing expenses 5.8 3.5 0.5 Other expenses 11.0 — 4.1 Total expenses 702.5 657.7 556.1 Net income before income taxes 148.4 55.8 147.0 Income tax expense 30.3 7.4 27.7 Net income $ 118.1 $ 48.4 $ 119.3 A primary measure of our financial strength and performance is our ability to increase Adjusted stockholders' equity and Adjusted stockholders' equity per share over the long-term.
Net cash used in investing activities in 2021 primarily related to the investment of premiums received and reinvestment of funds from investment sales, maturities, redemptions, and interest income.
Net cash used in investing activities in 2021 related primarily to the investment of premiums received and reinvestment of funds from investment sales, maturities, redemptions, and interest income.
Our accounting policies are described in Note 2 to our Consolidated Financial Statements, however, we believe that the following matters are particularly important to understand our financial statements 44 because changes in these estimates or changes in the assumptions used to make them could have a material impact on our results of operations, financial condition, and cash flows.
Our accounting policies are described in Note 2 to our Consolidated Financial 44 Statements, however, we believe that the following matters are particularly important to understand our financial statements because changes in these estimates or changes in the assumptions used to make them could have a material impact on our results of operations, financial condition, and cash flows.
In addition to the adjustments described above, our effective tax rate in 2022 was further reduced by a $1.4 million non-recurring Federal income tax benefit attributable to the repeal of Internal Revenue Code section 847. Additionally, we recognize deferred tax assets when we determine that such assets are more-likely-than-not to be realized in future periods.
In addition to the adjustments described above, our effective tax rate in 2022 was further reduced by a $1.4 million non-recurring Federal income tax benefit attributable to the repeal of Internal Revenue Code (IRC) section 847. Additionally, we recognize deferred tax assets when we determine that such assets are more-likely-than-not to be realized in future periods.
Investments Our investment portfolio is structured to support our need for: (i) optimizing our risk-adjusted total return; (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, which may fluctuate with changes in interest rates and our current investment strategies.
Investments Our investment portfolio is structured to support our need for: (i) optimizing our risk-adjusted total return; (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, which may fluctuate with changes in interest rates and our current investment 42 strategies.
Other Expenses In 2021, we recorded $3.1 million of employee severance costs resulting from a reduction-in-force, which was undertaken to better align our expenses with current revenues. We also wrote off $1.0 million of previously capitalized costs relating to information technologies identified as no longer being utilized.
In 2021, we recorded $3.1 million of employee severance costs resulting from a reduction-in-force, which was undertaken to better align our expenses with current revenues. We also wrote-off $1.0 million of previously capitalized costs relating to information technologies identified as no longer being utilized.
The Deferred Gain related to the contingent profit commission is amortized using the recovery method, whereby the amortization is determined by the proportion of actual reinsurance recoveries to total estimated recoveries over the life of the contingent profit commission, or through June 30, 2024, and is recorded in losses and LAE incurred in the accompanying Consolidated Statements of Comprehensive Income.
The Deferred Gain related to the contingent profit commission is amortized using the recovery method, whereby the amortization is determined by the proportion of actual reinsurance recoveries to total estimated recoveries over the life of the contingent profit commission, or through June 30, 2024, and is recorded in losses and LAE incurred in the accompanying Consolidated Statements of Comprehensive Income (Loss).
Net realized and unrealized (losses) gains on investments in 2022 included $(49.2) million of net realized and unrealized losses on equity securities, $(3.6) million of net realized losses on fixed maturity securities, and $1.0 million of unrealized gains on other invested assets. The net investment losses on our equity securities were largely consistent with the performance of U.S. equity markets.
Net realized and unrealized gains (losses) on investments in 2022 included $(49.2) million of net realized and unrealized losses on equity securities, $(3.6) million of net realized losses on fixed maturity securities, and $1.0 million of unrealized gains on other invested assets. The net investments losses on our equity securities were largely consistent with the performance of U.S. equity markets.
Changes in estimates of the reserves ceded under the LPT Agreement may significantly impact the Deferred Gain on our Consolidated Balance Sheets and losses and LAE on our Consolidated Statements of Comprehensive Income. Additionally, we are entitled to receive a contingent profit commission under the LPT Agreement.
Changes in estimates of the reserves ceded under the LPT Agreement may significantly impact the Deferred Gain on our Consolidated Balance Sheets and losses and LAE on our Consolidated Statements of Comprehensive Income (Loss). Additionally, we are entitled to receive a contingent profit commission under the LPT Agreement.
Net realized and unrealized gains on investments in 2021 included $45.6 million of net realized and unrealized gains on equity securities, $4.1 million of net realized gains on fixed maturity securities, and $4.9 million of unrealized gains on other invested assets. The net investments gains on our equity securities were largely consistent with the performance of U.S. equity markets.
Net realized and unrealized gains on investments in 2021 included $45.6 million of net realized and unrealized gains on equity securities, $4.1 million of net realized gains on fixed maturity securities, and $4.9 million of unrealized gains on other invested assets. The net investment gains on our equity securities were largely consistent with the performance of U.S. equity markets.
We use trend and variance analyses to project future cash needs, making adjustments to our forecasts as appropriate. 40 The table below shows our net cash flows. For additional information regarding our cash flows, see Item 8, Consolidated Statements of Cash Flows.
We use trend and variance analyses to project future cash needs, making adjustments to our forecasts as appropriate. The table below shows our net cash flows. For additional information regarding our cash flows, see Item 8, Consolidated Statements of Cash Flows.
Each actuary's point estimate of loss reserves for each claim segment is based on a judgmental selection from within the range of results indicated by the different actuarial methods. Management formally establishes loss reserves for financial statement purposes on a quarterly basis.
Each point estimate of loss reserves for each claim segment is based on a judgmental selection from within the range of results indicated by the different actuarial methods. Management formally establishes loss reserves for financial statement purposes on a quarterly basis.
The net investment losses on our fixed maturity securities were primarily the result of rising market interest rates. The net realized losses on our fixed maturity securities we experienced in 2022 included a $4.3 million net increase in our allowance for CECL.
The net investment losses on our fixed maturity securities were primarily the result of rising market interest rates. The net investment losses on our fixed maturity securities we experienced in 2022 included a $4.3 million net increase in our allowance for CECL.
Changes in estimates of the reserves ceded under the LPT Agreement may significantly impact the Contingent commission receivable–LPT Agreement and the Deferred Gain on our Consolidated Balance Sheets and losses and LAE on our Consolidated Statements of Comprehensive Income.
Changes in estimates of the reserves ceded under the LPT Agreement may significantly impact the Contingent commission receivable–LPT Agreement and the Deferred Gain on our Consolidated Balance Sheets and losses and LAE on our Consolidated Statements of Comprehensive Income (Loss).
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. 43 The following table shows the estimated fair value, the percentage of the fair value to total invested assets, and the average ending book yield (each based on the book value of each category of invested assets) as of December 31, 2022.
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. 43 The following table shows the estimated fair value, the percentage of the fair value to total invested assets, and the average ending book yield (each based on the book value of each category of invested assets) as of December 31, 2023.
Each of our insurance subsidiaries had total adjusted capital in excess of the minimum RBC requirements that correspond to any level of regulatory action at December 31, 2022. 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.
Each of our insurance subsidiaries had total adjusted capital in excess of the minimum RBC requirements that correspond to any level of regulatory action at December 31, 2023. 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.
The quality of our financial reporting depends in large part on accurately predicting our losses and LAE, which are inherently uncertain as they are estimates of the ultimate cost of individual claims based on actuarial estimation techniques. Our current accident year loss estimate continues to consider, and benefit from, overall declines in the on-leveled frequency of compensable indemnity claims.
The quality of our financial reporting depends in large part on accurately predicting our losses and LAE, which are inherently uncertain as they are estimates of the ultimate cost of individual claims based on actuarial estimation techniques. Our current accident year loss estimate considers, and continues to benefit from, overall declines in the on-leveled frequency of compensable indemnity claims.
The net favorable development recognized in 2021 was primarily the result of observed favorable paid loss cost trends predominantly related to accident years 2017 and prior, due primarily to decreasing medical costs and defense and cost containment, partially offset by: (i) $10.0 million of unfavorable development related to accident year 2019, which is reflective of more weight being placed on now sufficiently seasoned loss trends and patterns originating in part from business written in our newer territories; and (ii) $8.0 million of unfavorable loss development associated with two catastrophic non-COVID claims in accident year 2020.
The net favorable development recognized in 2021 was primarily the result of decreasing medical and defense and cost containment paid loss trends related to accident years 2017 and prior, due primarily to decreasing medical costs and defense and cost containment, partially offset by: (i) $10.0 million of unfavorable development related to accident year 2019, which is reflective of more weight being placed on now sufficiently seasoned loss trends and patterns originating in part from business written in our newer territories; and (ii) $8.0 million of unfavorable loss development associated with two catastrophic non-COVID-19 claims in accident year 2020.
We believe we are able to price our policies at levels that are competitive and profitable over the long-term given our expertise in underwriting and claims handling in this market segment. Our underwriting approach is to consistently underwrite small business accounts at appropriate and competitive prices without sacrificing long-term profitability and stability for short-term top-line revenue growth.
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 in this market segment. Our underwriting approach is to consistently underwrite small business accounts at appropriate and competitive prices without sacrificing long-term profitability and stability for short-term top-line revenue growth.
The table below provides the actuarial range of loss reserves, net of reinsurance, that management considered when selecting its best estimate and our carried reserves.
The table below provides the actuarial range of loss reserves and LAE, net of reinsurance, that management considered when selecting its best estimate and our carried reserves.
Additionally, standby letters of credit from the FHLB have been issued in lieu of $70.0 million of securities on deposit at December 31, 2022 and 2021. Certain reinsurance contracts require company funds to be held in trust for the benefit of the ceding reinsurer to secure the outstanding liabilities we have assumed.
Additionally, standby letters of credit from the FHLB have been issued in lieu of $70.0 million of securities on deposit at December 31, 2023 and 2022. Certain reinsurance contracts require company funds to be held in trust for the benefit of the ceding reinsurer to secure the outstanding liabilities we have assumed.
Additionally, any adjustment to the estimated ceded reserves under the LPT Agreement results in a cumulative adjustment to the Deferred Gain, which is also included in losses and LAE incurred in the Consolidated Statements of Comprehensive Income, so that the Deferred Gain reflects the balance that would have existed had the revised reserves been recognized at the 47 inception of the LPT Agreement.
Additionally, any adjustment to the estimated ceded reserves under the LPT Agreement results in a cumulative adjustment to the Deferred Gain, which is also included in losses and LAE incurred in the Consolidated Statements of Comprehensive Income (Loss), so that the Deferred Gain reflects the balance that would have existed had the revised reserves been recognized at the inception of the LPT Agreement.
Years Ended December 31, 2022 2021 2020 (in millions) Amortization of the Deferred Gain related to losses $ 6.8 $ 6.7 $ 8.7 Amortization of the Deferred Gain related to contingent commission 1.5 1.7 1.8 Impact of LPT Reserve Adjustments (1) — 2.6 1.2 Impact of LPT Contingent Commission Adjustments (2) — 0.5 0.2 Total impact of the LPT $ 8.3 $ 11.5 $ 11.9 (1) LPT Reserve Adjustments result in a cumulative adjustment to the Deferred Gain, which is recognized in losses and LAE incurred on our Consolidated Statements of Comprehensive Income, such that the Deferred Gain reflects the balance that would have existed had the revised reserves been recognized at the inception of the LPT Agreement.
Years Ended December 31, 2023 2022 2021 (in millions) Amortization of the Deferred Gain related to losses $ 6.3 $ 6.8 $ 6.7 Amortization of the Deferred Gain related to contingent commission 1.5 1.5 1.7 Impact of LPT Reserve Adjustments (1) (0.9) — 2.6 Impact of LPT Contingent Commission Adjustments (2) 0.3 — 0.5 Total impact of the LPT $ 7.2 $ 8.3 $ 11.5 (1) LPT Reserve Adjustments result in a cumulative adjustment to the Deferred Gain, which is recognized in losses and LAE incurred on our Consolidated Statements of Comprehensive Income (Loss), such that the Deferred Gain reflects the balance that would have existed had the revised reserves been recognized at the inception of the LPT Agreement.
We purchase reinsurance to protect us against the costs of severe claims and catastrophic events, including pandemics. On July 1, 2022, we entered into a new reinsurance program that is effective through June 30, 2023. The reinsurance program consists of one treaty covering excess of loss and catastrophic loss events in four layers of coverage.
We purchase reinsurance to protect us against the costs of severe claims and catastrophic events, including pandemics. On July 1, 2023, we entered into a new reinsurance program that is effective through June 30, 2024. The reinsurance program consists of one treaty covering excess of loss and catastrophic loss events in four layers of coverage.
Financing Activities Net cash provided by financing activities in 2022 was primarily related to FHLB advances received partially offset by common stock repurchases and stockholder dividend payments. During the year ended December 31, 2022, we borrowed and subsequently repaid $10.0 million under the Credit Agreement.
Net cash provided by financing activities in 2022 related primarily to FHLB advances received, partially offset by common stock repurchases and stockholder dividend payments. During the year ended December 31, 2022, we borrowed and repaid $10.0 million under the Credit Agreement.
Our investment guidelines require that the minimum weighted average quality of our fixed maturity securities portfolio be "A," using ratings assigned by S&P or an equivalent rating assigned by another nationally recognized statistical rating agency. Our fixed maturity securities portfolio had a weighted average quality of "A" as of December 31, 2022.
Our investment guidelines require that the minimum weighted average quality of our fixed maturity securities portfolio be "A," using ratings assigned by S&P or an equivalent rating assigned by another nationally recognized statistical rating agency. Our fixed maturity securities portfolio had a weighted average quality of "A" as of December 31, 2023.
The remaining fixed maturity securities whose total fair value was less than amortized cost at December 31, 2022, 2021, and 2020, were those in which we had no intent, need or requirement to sell at an amount less than their amortized cost.
The remaining fixed maturity securities whose total fair value was less than amortized cost at December 31, 2023, 2022, and 2021, were those in which we had no intent, need or requirement to sell at an amount less than their amortized cost.
Net cash used in financing activities in 2021 included common stock repurchases and stockholder dividend payments and repayments of FHLB advances. During the year ended December 31, 2021, we borrowed and subsequently repaid $27.0 million under the Credit Agreement.
Net cash used in financing activities in 2021 included common stock repurchases and stockholder dividend payments and repayments of FHLB advances. During the year ended December 31, 2021, we borrowed and repaid $27.0 million under the Credit Agreement. Dividends.
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 Employers' prior accident year loss and LAE reserve adjustments and the impact to loss ratio.
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. 34 The table below reflects prior accident year loss and LAE reserve adjustments and the impact to loss ratio.
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 changes in our CECL allowance or when securities are written down as a result of an other-than-temporary impairment.
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 changes in our CECL allowance or when securities are written down because of an other-than-temporary impairment.
Future repurchases of our common stock will be at the discretion of our Board of Directors and will depend upon many factors, including our financial position, capital requirements of our operating subsidiaries, general business and social economic conditions, legal, tax, regulatory, and/or contractual restrictions, and any other factors our Board of Directors deems relevant.
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 social economic conditions, legal, tax, regulatory, and/or contractual restrictions, and any other factors our Board deem relevant.
The average pre-tax ending book yield on our invested assets was 3.9%, 3.0%, and 3.0% at December 31, 2022, 2021, and 2020, respectively. Realized and unrealized gains and losses on our investments are reported separately from our net investment income.
The average pre-tax ending book yield on our invested assets was 4.3%, 3.9%, and 3.0% at December 31, 2023, 2022, and 2021, respectively. Realized and unrealized gains and losses on our investments are reported separately from our net investment income.
This initiative has actively driven a significant increase in claims settlement activity and has primarily affected accident years 2009 and forward. However, this activity slowed down during the height of the COVID-19 pandemic in 2020 and 2021. Approximately 55% of our claims payments during the three years ended December 31, 2022 related to medical care for injured workers.
This initiative has actively driven a significant increase in claims settlement activity and has primarily affected accident years 2009 and forward. However, this activity slowed down during the height of the COVID-19 pandemic in 2020 and 2021. Approximately 54% of our claims payments during the three years ended December 31, 2023 related to medical care for injured workers.
Our Internal Actuary prepared reserve estimates for all accident years using our own historical claims data, industry data and many of the generally accepted actuarial methodologies for estimating loss reserves, such as paid loss development methods, incurred loss development methods, and Bornhuetter-Ferguson methods.
We prepared reserve estimates for all accident years using our own historical claims data, industry data and many of the generally accepted actuarial methodologies for estimating loss reserves, such as paid loss development methods, incurred loss development methods, and Bornhuetter-Ferguson methods.
The declaration and payment of future dividends to common stockholders will be at the discretion of our Board of Directors and will depend upon many factors, including our financial position, capital requirements of our operating subsidiaries, legal and regulatory requirements, and any other factors our Board of Directors deems relevant.
The declaration and payment of future dividends to common stockholders will be at the discretion of our 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 our Board deem relevant.
The fair value of fixed maturity securities held in trust for the benefit of our ceding reinsurers was $2.7 million and $3.1 million at December 31, 2022 and 2021, respectively. Sources of Liquidity We monitor the cash flows of each of our subsidiaries individually, as well as collectively as a consolidated group.
The fair value of fixed maturity securities held in trust for the benefit of our ceding reinsurers was $3.0 million and $2.7 million at December 31, 2023 and 2022, respectively. Sources of Liquidity We monitor the cash flows of each of our subsidiaries individually, as well as collectively as a consolidated group.
The increase in Employers' commission expense ratio from 2021 to 2022 was primarily the result of an increase in agency incentive accruals, an increase in new business writings, which are subject to higher commission rates, and a reversal of commissions relating to non-compliant and uncollectible premium recorded in 2021.
The increase from 2021 to 2022 was primarily the result of an increase in agency incentive accruals, an increase in new business writings, which are subject to higher commission rates, and a reversal of commissions relating to non-compliant and uncollectible premium recorded in 2021. Underwriting and General and Administrative Expense Ratio.
Tax-advantaged investment income, pre-Privatization loss and LAE reserve adjustments, LPT Reserve Adjustments, LPT Contingent Commission Adjustments, Deferred Gain amortization and certain other adjustments reduced our income tax expense computed at a statutory rate of 21% by $4.3 million, $3.3 million, and $3.1 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Tax-advantaged investment income, pre-Privatization loss and LAE reserve adjustments, LPT Reserve Adjustments, LPT Contingent Commission Adjustments, Deferred Gain amortization and certain other adjustments reduced our income tax expense computed at a statutory rate of 21% by $0.9 million, $4.3 million, and $3.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Changes in fair value of equity securities and other invested assets are also included in Net realized and unrealized gains and losses on investments on our Consolidated Statements of Comprehensive (Loss) Income. Net realized and unrealized (losses) gains on investments were $(51.8) million, $54.6 million, and $19.0 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Changes in fair value of equity securities and other invested assets are also included in Net realized and unrealized gains and losses on investments on our Consolidated Statements of Comprehensive Income (Loss). Net realized and unrealized gains (losses) on investments were $22.7 million, $(51.8) million, and $54.6 million for the years ended December 31, 2023, 2022, and 2021, respectively.
The contingent profit commission is an amount based on the favorable difference between actual paid losses and LAE and expected paid losses and LAE as established in the LPT Agreement. The calculation of actual amounts paid versus expected amounts is determined every five years beginning June 30, 2004 for the first twenty-five years of the agreement.
The contingent profit commission is an amount based on the favorable difference between actual paid losses and LAE and expected paid losses and LAE as established in the LPT Agreement. The calculation of actual amounts paid versus expected amounts is determined every five years beginning June 30, 2004 and ending June 30, 2024.
The following table summarizes our beginning and ending stockholders' equity balance and the changes thereto for each of the years ended December 31, 2022, 2021, and 2020: December 31, 2022 2021 2020 (in millions) Beginning Balance $ 1,213.1 $ 1,212.8 $ 1,165.8 Stock-based obligations 5.1 9.1 9.7 Stock options exercised 1.1 1.1 0.9 Shares withheld to satisfy minimum tax withholdings for certain stock-based obligations (2.3) (3.8) (2.7) Acquisition of common stock (30.4) (42.2) (99.8) Dividends declared on common stock and eligible plan awards (91.3) (28.7) (30.8) Net income for the year 48.4 119.3 119.8 Change in net unrealized (losses) gains on investments, net of taxes (199.5) (54.5) 49.8 Ending Balance $ 944.2 $ 1,213.1 $ 1,212.8 Deferred Gain.
The following table summarizes our beginning and ending stockholders' equity balance and the changes thereto for each of the years ended December 31, 2023, 2022, and 2021: December 31, 2023 2022 2021 (in millions) Beginning Balance $ 944.2 $ 1,213.1 $ 1,212.8 Stock-based obligations 6.1 5.1 9.1 Stock options exercised 0.7 1.1 1.1 Shares withheld to satisfy minimum tax withholdings for certain stock-based obligations (1.6) (2.3) (3.8) Acquisition of common stock (77.1) (30.4) (42.2) Dividends declared on common stock and eligible plan awards (29.4) (91.3) (28.7) Net income for the year 118.1 48.4 119.3 Change in net unrealized gains (losses) on investments, net of taxes 52.9 (199.5) (54.5) Ending Balance $ 1,013.9 $ 944.2 $ 1,213.1 Deferred Gain.
For example, if the rate of medical claim cost inflation increases by 1% above the inflation rate that is implicitly included in the loss reserves at December 31, 2022, we estimate that future medical costs over the lifetime of current claims would increase by approximately $63.9 million on a net-of-reinsurance basis.
For example, if the rate of medical claim cost inflation increases by 1% above the inflation rate that is implicitly included in the loss reserves at December 31, 2023, we estimate that future medical costs over the lifetime of current claims would increase by approximately $74.0 million on a net-of-reinsurance basis.
Under the LPT Agreement, the Fund initially ceded $1.5 billion in liabilities for the incurred but unpaid losses and LAE related to claims incurred prior to July 1, 1995 for consideration of $775.0 million in cash. The estimated remaining liabilities subject to the LPT Agreement were $308.6 million as of December 31, 2022.
Under the LPT Agreement, the Fund initially ceded $1.5 billion in liabilities for the incurred but unpaid losses and LAE related to claims incurred prior to July 1, 1995 for consideration of $775.0 million in cash. The estimated remaining liabilities subject to the LPT Agreement were $291.7 million as of December 31, 2023.
Losses and LAE paid with respect to the LPT Agreement totaled $858.9 million at December 31, 2022. We account for the LPT Agreement as retroactive reinsurance. Entry into the LPT Agreement resulted in a deferred reinsurance gain that was recorded on our Consolidated Balance Sheets as a liability.
Losses and LAE paid with respect to the LPT Agreement totaled $877.6 million at December 31, 2023. We account for the LPT Agreement as retroactive reinsurance. Entry into the LPT Agreement resulted in a deferred reinsurance gain that was recorded on our Consolidated Balance Sheets as a liability.
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. 31 Net investment income was $89.8 million, $72.7 million, and $76.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.
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. 36 Net investment income was $106.5 million, $89.8 million, and $72.7 million for the years ended December 31, 2023, 2022, and 2021, respectively.
The Credit Agreement provides EHI with a $75.0 million three-year revolving credit facility. Borrowings under the Credit Agreement may be used for working capital and general corporate purposes.
The Credit Agreement provided EHI with a $75.0 million three-year revolving credit facility. Borrowings under the Credit Agreement could be used for working capital and general corporate purposes.
We believe that our subsidiaries' liquidity needs over the next 24 months will be met with cash from operations, investment income, and maturing investments. All 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.
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. All 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 Deferred Gain, which totaled $106.1 million and $114.4 million as of December 31, 2022 and 2021, respectively, reflects the unamortized gain from the LPT Agreement. See Note 2 in the Notes to our Consolidated Financial Statements.
The Deferred Gain, which totaled $99.2 million and $106.1 million as of December 31, 2023 and 2022, respectively, reflects the unamortized gain from the LPT Agreement. See Note 2 in the Notes to our Consolidated Financial Statements.
The key parameters and assumptions include: the future payment and emergence patterns of our aggregate claims data; the magnitude and changes in claim settlement activity; the effects of legislative benefit changes and/or judicial decisions; and trends in the frequency and severity of claims. Management, along with our Internal Actuary, separately analyzed LAE and estimated unpaid LAE.
The key parameters and assumptions include: the future payment and emergence patterns of our aggregate claims data; the magnitude and changes in claim settlement activity; the effects of legislative benefit changes and/or judicial decisions; and trends in the frequency and severity of claims. We separately analyzed LAE and estimated unpaid LAE.
The ranges of estimates of loss reserves produced by our Internal Actuary are intended to represent the range in which it is most likely that the ultimate losses will fall.
The ranges of estimates of loss reserves produced are intended to represent the range in which it is most likely that the ultimate losses will fall.
Securities having a fair value of $745.9 million and $861.4 million were on deposit at each of December 31, 2022 and 2021, respectively. These laws and regulations govern both the amount and types of investment securities that are eligible for deposit.
Securities having a fair value of $748.1 million and $745.9 million were on deposit at each of December 31, 2023 and 2022, respectively. These laws and regulations govern both the amount and types of investment securities that are eligible for deposit.
These equity securities had a fair value of $197.0 million at December 31, 2022, which represented 8% of our investment portfolio at that time. We also have a $6.7 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.
These equity securities had a fair value of $211.2 million at December 31, 2023, which represented 9% of our investment portfolio at that time. We also have a $6.0 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.
Rating Percentage of Total Estimated Fair Value "AAA" 13.6 % "AA" 36.3 "A" 25.9 "BBB" 13.1 Below Investment Grade 11.1 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.
Rating Percentage of Total Estimated Fair Value "AAA" 9.1 % "AA" 36.2 "A" 30.9 "BBB" 14.7 Below Investment Grade 9.1 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.
Income Tax Expense Income tax expense was $7.4 million, $27.7 million, and $27.9 million for the years ended December 31, 2022, 2021, and 2020, respectively, representing effective tax rates of 13.3%, 18.8%, and 18.9% for the years ended December 31, 2022, 2021, and 2020, respectively.
Income Tax Expense Income tax expense was $30.3 million, $7.4 million, and $27.7 million for the years ended December 31, 2023, 2022, and 2021, respectively, representing effective tax rates of 20.4%, 13.3%, and 18.8% for the years ended December 31, 2023, 2022, and 2021, respectively.
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.
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.
On August 13, 2021, we chose to amend our existing Letter of Credit Agreements among the FHLB, ECIC and EAC to decrease their respective credit amounts.
On January 26, 2021, we chose to amend our existing Letter of Credit Agreements among the FHLB and EPIC to decrease its respective credit amount. On August 13, 2021, we chose to amend our existing Letter of Credit Agreements among the FHLB, ECIC and EAC to decrease their respective credit amounts.
The key factors that affected our financial performance during those years included: • Net premiums earned increased 17.5% in 2022 and decreased 6.6% in 2021, each compared to the previous year; • Losses and LAE increased 24.0% in 2022 and 4.2% in 2021, each compared to the previous year; • Underwriting and general and administrative expenses increased 4.4% in 2022 and decreased 11.6% in 2021, each compared to the previous year; • Underwriting income was $21.0 million, $22.9 million and $52.8 million in 2022, 2021, and 2020, respectively; • Net investment income increased 23.5% in 2022 and decreased 4.7% in 2021, each compared to the previous year; and • Net realized and unrealized (losses) gains on investments were $(51.8) million, $54.6 million, and $19.0 million in 2022, 2021, and 2020, respectively.
The key factors that affected our financial results during those years included: • Net premiums earned increased 6.9% in 2023 and 17.5% in 2022, each compared to the previous year; • Losses and LAE increased 3.8% in 2023 and 24.0% in 2022, each compared to the previous year; • Underwriting and general and administrative expenses increased 7.6% in 2023 and 4.4% in 2022, each compared to the previous year; • Underwriting income was $36.2 million, $21.0 million and $22.9 million in 2023, 2022, and 2021, respectively; • Net investment income increased 18.6% in 2023 and 23.5% in 2022, each compared to the previous year; • Net realized and unrealized gains (losses) on investments were $22.7 million, $(51.8) million, and $54.6 million in 2023, 2022, and 2021, respectively; and • Other expenses were $11.0 million and $4.1 million in 2023 and 2021, respectively.
The Letter of Credit Agreements may only be used to satisfy, in whole or in part, insurance deposit requirements with the State of California and are fully secured with eligible collateral at all times (See Note 11 in the Notes to our Consolidated Financial Statements).
The amended Letter of Credit Agreements in effect will expire on March 31, 2024 and may only be used to satisfy, in whole or in part, insurance deposit requirements with the State of California and are fully secured with eligible collateral at all times (See Note 11 in the Notes to our Consolidated Financial Statements).
Our other invested assets made up 2% of our investment portfolio at December 31, 2022 and include private equity limited partnerships. Our investments in private equity limited partnerships totaled $59.7 million at December 31, 2022 and are generally not redeemable by the investees and cannot be sold without prior approval of the general partner.
Our other invested assets made up 4% of our investment portfolio at December 31, 2023 and include private equity limited partnerships. Our investments in private equity limited partnerships totaled $91.5 million at December 31, 2023 and are generally not redeemable by the investees and cannot be sold without prior approval of the general partner.
The proceeds from these advances were used to purchase an equivalent amount of high-quality collateralized loan obligation securities. The annualized weighted average interest rate on these advances was 2.65% in 2022. Interest incurred and paid during the year ended December 31, 2022 totaled $3.0 million and $2.3 million, respectively.
The proceeds from these advances were used to purchase an equivalent amount of high-quality collateralized loan obligation securities. The Company's weighted average annual interest rate on these advances was 5.11% for 2023. Interest incurred and paid during the year ended December 31, 2023 each totaled $5.3 million, and in 2022 totaled $3.0 million and $2.3 million, respectively.
If it is determined that it is not more-likely-than-not that we could fully realize our deferred tax assets in future periods, we would establish a deferred tax asset valuation allowance that would increase our provision for income taxes.
If it is determined that it is not more-likely-than-not that we could fully realize our deferred tax assets in future periods, we would establish a deferred tax asset valuation allowance that would increase our provision for income taxes. As of December 31, 2023, we did not require a deferred tax asset valuation allowance.
The amended Letter of Credit Agreements are between the FHLB and each of EAC, in the amount of $25.0 million, ECIC, in the amount of $35.0 million, and EPIC, in the amount of $10.0 million. The amended Letter of Credit Agreements will expire March 31, 2023.
The amended Letter of Credit Agreements are between the FHLB and each of EAC, in the amount of $25.0 million, ECIC, in the amount of $35.0 million, and EPIC, in the amount of $10.0 million.
Contractual Obligations and Commitments Other than operating expenses, current and long-term cash requirements include the following contractual obligations and commitments as of December 31, 2022. Leases We have entered into lease arrangements for certain equipment and facilities. As of December 31, 2022, we had lease payment obligations of $14.7 million, with $3.5 million payable within 12 months.
Contractual Obligations and Commitments Other than operating expenses, current and long-term cash requirements include the following contractual obligations and commitments as of December 31, 2023: Leases We have entered into lease arrangements for certain equipment and facilities. As of December 31, 2023, we had lease payment obligations of $6.2 million, with $1.8 million payable within 12 months.
Holding Company Liquidity We are a holding company and our ability to fund our operations is contingent upon our existing capital and the ability of our subsidiaries to pay dividends up to the holding company. Payment of dividends by our insurance subsidiaries is restricted by state insurance laws and regulations, including laws establishing minimum solvency and liquidity thresholds.
EHI Liquidity EHI is a holding company and its ability to fund its operations is contingent upon its existing capital and the ability of its subsidiaries to pay it dividends. Payment of dividends by EHI's insurance subsidiaries is restricted by state insurance laws and regulations, including laws establishing minimum solvency and liquidity thresholds.
If the actual loss reserves were at the high or the low end of the actuarial range, the impact on our financial results would have been as follows: December 31, 2022 2021 Increase (decrease) in reserves (1) (in millions) At low end of range $ (149.5) $ (153.0) At high end of range 172.0 182.8 Increase (decrease) in stockholders' equity and net income At low end of range $ 118.1 $ 120.9 At high end of range (135.9) (144.4) (1) The range of actuarial indications captures the range of reasonable estimates and is asymmetrical (e.g. not based on a normal distribution).
If the actual loss reserves were at the high or the low end of the actuarial range, the impact on our financial results would have been as follows: December 31, 2023 2022 Increase (decrease) in reserves (1) (in millions) At low end of range $ (139.3) $ (149.5) At high end of range 175.6 172.0 Increase (decrease) in stockholders' equity and net income At low end of range $ 110.0 $ 118.1 At high end of range (138.7) (135.9) (1) The range of actuarial indications captures the range of reasonable estimates and is asymmetrical (e.g. not based on a normal distribution).
As a result, we do not currently foresee a need to: (i) suspend dividends at either the holding company or our insurance subsidiaries; (ii) forgo repurchases of our common stock; (iii) seek additional capital; or (iv) seek any material non-investment asset sales.
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 capital; or (iv) seek any material non-investment asset sales.
The growth in new business premiums experienced was the result of increases in new business submissions, quotes and binds in the majority of the states in which we operate, which is being largely driven by our expansion in the classes of business that Employers offers.
The growth in new business premiums experienced was the result of increases in new business submissions, quotes and binds in most of the states in which we operate, which was largely driven by our expansion in the classes of business that we offer.
In addition to recognizing realized gains and losses upon the disposition of an investment security, we also recognize realized gains or losses on AFS debt securities for changes in CECL. We recognized $4.5 million, $0.2 million and $0.7 million of CECL on AFS debt securities during the years ended December 31, 2022, 2021, and 2020, respectively.
In addition to recognizing realized gains and losses upon the disposition of an investment security, we also recognize realized gains or losses on AFS debt securities for changes in CECL. We maintained a CECL allowance of $2.7 million, $4.5 million and $0.2 million on AFS debt securities as of December 31, 2023, 2022, and 2021, respectively.
As of December 31, 2022, we had reinsurance recoverables on unpaid losses and LAE of $445.4 million, of which $30.9 million is currently expected to be received within 12 months.
As of December 31, 2023, we had reinsurance recoverables on unpaid losses and LAE of $405.3 million, of which $30.3 million is currently expected to be received within 12 months.
As of December 31, 2022 (in millions) Low end of actuarial range $ 285.1 LPT carried reserves 308.6 High end of actuarial range 349.7 Reinsurance Recoverables Reinsurance recoverables represent: (a) amounts currently due from reinsurers on paid losses and LAE; (b) amounts recoverable from reinsurers on estimates of reported losses; and (c) amounts recoverable from reinsurers on actuarial estimates of IBNR for losses and LAE.
As of December 31, 2023 (in millions) Low end of actuarial range $ 277.4 LPT carried reserves 291.7 High end of actuarial range 300.6 47 Reinsurance Recoverables Reinsurance recoverables represent: (a) amounts currently due from reinsurers on paid losses and LAE; (b) amounts recoverable from reinsurers on estimates of reported losses; and (c) amounts recoverable from reinsurers on actuarial estimates of IBNR for losses and LAE.
Our loss reserves (gross and net of reinsurance), including the main components of such reserves, were as follows: As of December 31, 2022 2021 (in millions) Case reserves $ 917.6 $ 900.2 IBNR 771.7 818.7 LAE reserves 271.4 262.3 Gross unpaid losses and LAE reserves 1,960.7 1,981.2 Less reinsurance recoverable on unpaid losses and LAE, excluding CECL allowance 445.4 476.9 Net unpaid losses and LAE reserves $ 1,515.3 $ 1,504.3 We use actuarial methods to analyze and estimate the aggregate amount of loss reserves.
Our loss reserves (gross and net of reinsurance), including the main components of such reserves, were as follows: As of December 31, 2023 2022 (in millions) Case reserves $ 924.2 $ 917.6 IBNR 695.7 771.7 LAE reserves 264.6 271.4 Gross unpaid losses and LAE reserves 1,884.5 1,960.7 Less reinsurance recoverable on unpaid losses and LAE, excluding CECL allowance 428.4 445.4 Net unpaid losses and LAE reserves $ 1,456.1 $ 1,515.3 We use actuarial methods to analyze and estimate the aggregate amount of loss reserves.
The net favorable development recognized in 2022 was primarily the result of observed favorable paid loss cost trends predominantly related to accident years 2017 and prior, due primarily to decreasing medical and indemnity costs.
The net favorable development recognized in 2022 was primarily the result of decreasing medical and indemnity paid loss trends related to accident years 2020 and prior.
These operating cash inflows were partially offset by net claims payments of $387.7 million, underwriting and general and administrative expenses paid of $145.8 million, commissions paid of $82.6 million, interest and financing fees paid of $3.5 million, and federal income taxes paid of $15.1 million.
These operating cash inflows were partially offset by net claims payments of $387.7 million, underwriting and general and administrative expenses paid of $145.8 million, commissions paid of $82.6 million, interest and financing fees paid of $3.5 million, and federal income taxes paid of $15.1 million. 40 Net cash provided by operating activities in 2021 included net premiums received of $568.0 million and investment income received of $82.0 million.
The increase in 2022 was primarily due to higher market interest rates impacting bond yields and higher invested balances of fixed maturity securities, short-term investments, and cash and cash equivalents, as measured by amortized cost. The decrease in 2021 was primarily due to lower interest rates impacting bond yields.
The increase in 2023 was due to higher bond yields, partially offset by lower invested balances of fixed maturity securities and short-term investments, as measured by amortized cost. The increase in 2022 was primarily due to higher bond yields and higher invested balances of fixed maturity securities, short-term investments, and cash and cash equivalents, as measured by amortized cost.
Employers' current accident year loss and LAE ratios from 2020 to 2022 have remained largely consistent due to continued low indemnity claim frequency.
Our current accident year loss and LAE ratios from 2021 to 2023 have remained largely consistent due to continued low indemnity claim frequency.
Years Ended December 31, 2022 2021 2020 Cash, cash equivalents, and restricted cash provided by (used in): (in millions) Operating activities $ 99.8 $ 10.8 $ 33.0 Investing activities (146.1) (1.7) 84.3 Financing activities 60.4 (94.4) (111.9) Increase (decrease) in cash, cash equivalents, and restricted cash $ 14.1 $ (85.3) $ 5.4 Operating Activities Net cash provided by operating activities in 2022 included net premiums received of $646.2 million and investment income received of $88.3 million.
Years Ended December 31, 2023 2022 2021 Cash, cash equivalents, and restricted cash provided by (used in): (in millions) Operating activities $ 49.4 $ 99.8 $ 10.8 Investing activities 377.3 (146.1) (1.7) Financing activities (289.5) 60.4 (94.4) Increase (decrease) in cash, cash equivalents, and restricted cash $ 137.2 $ 14.1 $ (85.3) Operating Activities Net cash provided by operating activities in 2023 included net premiums received of $703.4 million and investment income received of $111.6 million.
Net cash provided by operating activities in 2021 included net premiums received of $568.0 million and investment income received of $82.0 million. These operating cash inflows were partially offset by net claims payments of $394.6 million, underwriting and general and administrative expenses paid of $141.0 million, commissions paid of $74.8 million, and federal income taxes paid of $28.2 million.
These operating cash inflows were partially offset by net claims payments of $394.6 million, underwriting and general and administrative expenses paid of $141.0 million, commissions paid of $74.8 million, and federal income taxes paid of $28.2 million.
We also increased our final audit premium accruals by $24.6 million and recognized $34.8 million of audit premium pick-up, as our payroll exposure increased with U.S. labor market strengthening and rising wages. In addition, renewal premium benefited from continued strong retention rates throughout the year.
We also increased our final audit premium accruals by $24.6 million and recognized $34.8 million of audit premium pick-up, as our payroll exposure increased with U.S. labor market strengthening and rising wages. Furthermore, our renewal premiums benefited from strong retention rates experienced throughout the year. Net Premiums Written Net premiums written are gross premiums written less reinsurance premiums ceded.
These investing cash outflows were largely offset by sales, maturities, and redemptions of investments whose proceeds were used to fund claims payments, underwriting and general and administrative expenses, stockholder dividend payments, and common stock repurchases.
These investing cash outflows were largely offset by sales, maturities, and redemptions of investments whose proceeds were used to fund claims payments, underwriting and general and administrative expenses, stockholder dividend payments, and common stock repurchases. Financing Activities Net cash used in financing activities in 2023 related primarily to stockholder dividend payments, common stock repurchases, and repayments of FHLB advances.
As of December 31, 2022, we had other purchase obligations of $26.1 million, with $7.7 million payable within 12 months. Unfunded Investment Commitments We have investments in private equity limited partnerships that require capital distributions to fund the investments and can be called at any time deemed necessary.
As of December 31, 2023, we had other purchase obligations of $17.0 million, with $6.3 million payable within 12 months. Unfunded Investment Commitments We have investments in private equity limited partnerships that require capital distributions to fund the investments and can be called at any time. As of December 31, 2023, we had unfunded investment commitments of $25.4 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

14 edited+2 added−2 removed10 unchanged
Biggest changeWe are required to pay losses even if a reinsurer refuses or fails to meet its obligations to us under the applicable reinsurance agreement(s). We continually monitor the financial condition and financial strength ratings of our reinsurers.
Biggest changeWe also bear credit risk with respect to the reinsurers, which can be significant considering that some loss reserves remain outstanding for an extended period of time. We are required to pay losses even if a reinsurer refuses or fails to meet its obligations to us under the applicable reinsurance agreement(s).
Adverse changes in the market prices of the equity securities we hold in our investment portfolio would result in decreases in the fair value of our total assets on our Consolidated Balance Sheets and in net realized and unrealized gains and losses on our Consolidated Statements of Comprehensive Income.
Adverse changes in the market prices of the equity securities we hold in our investment portfolio would result in decreases in the fair value of our total assets on our Consolidated Balance Sheets and in net realized and unrealized gains and losses on our Consolidated Statements of Comprehensive Income (Loss).
Durations on invested assets are adjusted for call, put, and interest rate reset features. Invested asset portfolio durations are calculated on a market value weighted basis, excluding accrued investment income, using holdings as of December 31, 2022.
Durations on invested assets are adjusted for call, put, and interest rate reset features. Invested asset portfolio durations are calculated on a market value weighted basis, excluding accrued investment income, using holdings as of December 31, 2023.
As of December 31, 2022, the par value of our commercial and residential mortgage-backed securities holdings was $452.1 million, and the amortized cost was 102.8% of par value. Since a majority of our mortgage-backed securities were purchased at a premium that is significant as a percentage of par, an adjustment could have a significant effect on investment income.
As of December 31, 2023, the par value of our commercial and residential mortgage-backed securities holdings was $458.6 million, and the amortized cost was 102.4% of par value. Since a majority of our mortgage-backed securities were purchased at a premium that is significant as a percentage of par, an adjustment could have a significant effect on investment income.
The estimated changes in fair values on our fixed maturity securities and short-term investments, which had an aggregate value of $2,305.4 million as of December 31, 2022, based on specific changes in interest rates are as follows: Hypothetical Changes in Interest Rates Estimated Pre-tax Increase (Decrease) in Fair Value (in millions, except percentages) 300 basis point rise $ (242.3) (10.5) % 200 basis point rise (161.8) (7.0) 100 basis point rise (74.3) (3.2) 50 basis point decline 71.8 3.1 100 basis point decline 124.5 5.4 200 basis point decline 235.9 10.2 300 basis point decline 351.9 15.3 The most significant assessment of the effects of hypothetical changes in interest rates on investment income would be based on GAAP guidance related to " Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, " which requires amortization adjustments for mortgage-backed securities.
The estimated changes in fair values on our fixed maturity securities and short-term investments, which had an aggregate value of $1,969.4 million as of December 31, 2023, based on specific changes in interest rates are as follows: Hypothetical Changes in Interest Rates Estimated Pre-tax Increase (Decrease) in Fair Value (in millions, except percentages) 300 basis point rise $ (222.1) (11.3) % 200 basis point rise (150.9) (7.7) 100 basis point rise (74.9) (3.8) 50 basis point decline 46.9 2.4 100 basis point decline 89.2 4.5 200 basis point decline 174.7 8.9 300 basis point decline 259.1 13.2 The most significant assessment of the effects of hypothetical changes in interest rates on investment income would be based on GAAP guidance related to " Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, " which requires amortization adjustments for mortgage-backed securities.
The table below shows the sensitivity of our equity securities at fair value to price changes as of December 31, 2022: (in millions) Cost Fair Value 10% Fair Value Decrease Pre-tax Impact on Decrease in Total Equity Securities 10% Fair Value Increase Pre-tax Impact on Increase in Total Equity Securities Equity securities $ 144.2 $ 197.0 $ 177.3 $ (19.7) $ 216.7 $ 19.7 Effects of Inflation Recent economic slowdowns, financial market volatility, supply chain disruptions, monetary and fiscal policy measures, heightened geo-political tensions and fluctuations in interest rates have contributed to higher levels of inflation and may continue to lead to elevated levels of inflation in future periods.
The table below shows the sensitivity of our equity securities at fair value to price changes as of December 31, 2023: (in millions) Cost Fair Value 10% Fair Value Decrease Pre-tax Impact on Decrease in Total Equity Securities 10% Fair Value Increase Pre-tax Impact on Increase in Total Equity Securities Equity securities $ 125.9 $ 211.2 $ 190.1 $ (21.1) $ 232.3 $ 21.1 Effects of Inflation Recent economic slowdowns, financial market volatility, monetary and fiscal policy measures, heightened geo-political tensions and fluctuations in interest rates have contributed to higher levels of inflation and may continue to lead to elevated levels of inflation in future periods.
We continually monitor the changes in interest rates and the impact on our liquidity and ability to meet our obligations. Sensitivity Analysis The fair values or cash flows of market sensitive instruments are subject to potential losses in future earnings resulting from changes in interest rates and other market conditions.
Sensitivity Analysis The fair values or cash flows of market sensitive instruments are subject to potential losses in future earnings resulting from changes in interest rates and other market conditions.
Recent increases in interest rates, which are intended to aid in the suppression of inflation, have negatively impacted the market value of our fixed maturity investments while increasing the yields on our new investments. 50
Increases in market interest rates throughout 2022, which were sustained throughout 2023, are intended to aid in the suppression of inflation, negatively impacted the market value of our existing fixed maturity investments while increasing the yields on our new and variable rate fixed maturity investments.
The commercial and residential mortgage-backed securities portion of the portfolio totaled 16.6% of total investments as of December 31, 2022. Agency- 49 backed residential mortgage pass-throughs totaled $332.8 million, or 92.4%, of the residential mortgage-backed securities portion of the portfolio as of December 31, 2022.
The commercial and residential mortgage-backed securities portion of the portfolio totaled 19.5% of total investments as of December 31, 2023. Agency-backed residential mortgage pass-throughs totaled $331.8 million, or 91.6%, of the residential mortgage-backed securities portion of the portfolio as of December 31, 2023.
Credit Risk Our fixed maturity securities, equity securities, other invested assets and cash equivalents are exposed to credit risk, which we attempt to manage through issuer and industry diversification.
Credit Risk Our fixed maturity securities, equity securities, other invested assets and cash equivalents are exposed to credit risk, which we attempt to manage through issuer and industry diversification. Our investment guidelines include limitations on the minimum rating of fixed maturity securities and concentrations of a single issuer.
Interest Rate Risk Investments The fair value of our fixed maturity portfolio is exposed to interest rate risk, which is the risk of a decline in fair value resulting from changes in prevailing interest rates, which we strive to limit by managing duration.
See Note 6 in the Notes to our Consolidated Financial Statements. Interest Rate Risk Investments The fair value of our fixed maturity portfolio is exposed to interest rate risk, which is the risk of a decline in fair value resulting from changes in prevailing interest rates, which we manage through duration.
Economic and market disruptions caused by geo-political conditions, inflationary pressures and the COVID-19 pandemic have resulted in volatility in the fair value of our equity securities. We minimize our exposure to equity price risk by investing primarily in the equity securities of mid-to-large capitalization issuers and by diversifying our equity holdings across several industry sectors.
We minimize our exposure to equity price risk by investing primarily in the equity securities of mid-to-large capitalization issuers and by diversifying our equity holdings across several industry sectors.
Additionally, we bear credit risk with respect to premiums receivable, which is generally diversified due to the large number of entities comprising our policyholder base and their dispersion across many different industries and geographies. The economic disruptions caused by inflationary pressures, geo-political conditions and the COVID-19 pandemic have impacted the credit risk associated with certain of our investment holdings.
We continually monitor the financial condition and financial strength ratings of our reinsurers. Additionally, we bear credit risk with respect to premiums receivable, which is generally diversified due to the large number of entities comprising our policyholder base and their dispersion across many different industries and geographies.
Our fixed maturity investments (excluding cash and cash equivalents) had a duration of 3.9 at December 31, 2022. To minimize interest rate risk, our portfolio is weighted toward short-term and intermediate-term bonds; however, our investment strategy balances consideration of duration, yield and credit risk.
Our fixed maturity investments (excluding cash and cash equivalents) had a duration of 4.5 at December 31, 2023. Our investment strategy balances consideration of duration, yield and credit risk. We continually monitor changes in interest rates and their impact on our liquidity and ability to meet our obligations.
Removed
Our investment guidelines include limitations on the minimum rating of fixed maturity securities and concentrations of a single issuer. 48 We also bear credit risk with respect to the reinsurers, which can be significant considering that some loss reserves remain outstanding for an extended period of time.
Added
The economic disruptions caused by volatility and credit concerns in certain financial and banking markets, inflationary pressures, heightened geo-political conditions, have impacted the credit risk associated with certain of our investment holdings. 48 As a result, we maintained $2.7 million of allowance for CECL on our fixed maturity portfolio as of December 31, 2023.
Removed
As a result, we recorded $4.5 million of allowance for CECL on our fixed maturity portfolio during the year ended December 31, 2022. See Note 6 in the Notes to our Consolidated Financial Statements.
Added
Economic and market disruptions caused by geo-political conditions, inflationary pressures and credit concerns in certain financial and banking markets, have resulted in 49 volatility in the fair value of our equity securities.

Other EIG 10-K year-over-year comparisons