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What changed in Employers Holdings, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Employers Holdings, Inc.'s 2023 and 2024 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 2024 report.

+409 added−445 removedSource: 10-K (2025-02-28) vs 10-K (2024-02-26)

Top changes in Employers Holdings, Inc.'s 2024 10-K

409 paragraphs added · 445 removed · 355 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

86 edited+13 added−45 removed87 unchanged
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.
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 2024 Percentage of 2024 Total 2023 Percentage of 2023 Total 2022 Percentage of 2022 Total (in millions, except percentages) A $ 118.5 16.0 % $ 132.6 19.1 % $ 126.4 20.3 % B 168.6 22.7 163.5 23.5 174.6 28.0 C 172.1 23.2 147.6 21.2 181.3 29.2 D 149.8 20.2 146.2 21.1 101.3 16.3 E 63.3 8.5 57.5 8.3 28.6 4.6 F 41.5 5.6 29.6 4.3 9.5 1.5 G 28.3 3.8 17.6 2.5 0.8 0.1 Total in-force $ 742.1 100.0 % $ 694.6 100.0 % $ 622.5 100.0 % 9 In-force premiums, excluding estimated final audit premium, for our top ten employer classifications as of December 31, 2024, and as a percentage of our total in-force premiums as of December 31, 2024, 2023, and 2022 were as follows: 2024 2023 2022 Employer Classifications In-force Premiums Percentage of Total Percentage of Total Percentage of Total (in millions, except percentages) Restaurants and Other Eating Places $ 126.5 17.0 % 17.4 % 19.4 % Traveler Accommodation 47.4 6.4 6.3 6.6 Building Finishing Contractors 39.3 5.3 3.5 1.8 Services to Buildings and Dwellings 30.9 4.2 3.7 3.7 Building Equipment Contractors 28.6 3.9 2.8 1.4 Real Estate Management 24.8 3.3 3.3 3.3 Schools 22.7 3.1 2.9 3.0 Architectural, Engineering and Related Services 22.0 3.0 2.3 1.7 Automobile Dealers 21.8 2.9 3.7 4.0 Automotive Repair and Maintenance 21.8 2.9 3.4 3.9 Total $ 385.8 52.0 % 49.3 % 48.8 % We provide workers' compensation insurance throughout the United States, with the exception of four states that are served exclusively by their state funds.
These state agencies have broad regulatory, supervisory, and administrative powers, including, among other things, the power to grant and revoke licenses to transact business, license agencies, set the standards of solvency to be met and maintained, determine the nature of, and limitations on, investments and dividends, approve policy forms and rates in some states, periodically examine financial statements, determine the form and content of required financial statements, set the rates that we may charge in some states, and periodically examine market conduct.
These state agencies have broad regulatory, supervisory, and administrative powers, including, among other things, the power to grant and revoke licenses to transact business, license agencies, set the standards of solvency to be met and maintained, determine the nature of, and limitations on, 13 investments and dividends, approve policy forms and rates in some states, periodically examine financial statements, determine the form and content of required financial statements, set the rates that we may charge in some states, and periodically examine market conduct.
Our business, including our ability to adequately price products and services, establish reserves, provide an effective and secure service to our customers and report our financial results in a timely and accurate manner, depends significantly on the integrity, availability, and timeliness of the data we maintain, as well as the data held by third party service providers.
Our business, including our ability to adequately price products and services, establish reserves, provide an effective and secure 8 service to our customers and report our financial results in a timely and accurate manner, depends significantly on the integrity, availability, and timeliness of the data we maintain, as well as the data held by our third party service providers.
During that time, the insurer has the opportunity to invest the money, thereby earning investment income and generating investment gains and losses. Insurance companies operating at a GAAP combined ratio of greater than 100% can be profitable when investment income and net investment gains are taken into account.
During that time, the insurer has the opportunity to invest the money, thereby earning investment income and generating investment gains and losses. Insurance companies operating at a combined ratio of greater than 100% can be profitable when investment income and net investment gains are taken into account.
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.
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.
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.
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.
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.
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. 15
We respect the privacy and dignity of all individuals and recognize that our employees want and 6 deserve a safe and healthy workplace where they are respected and appreciated. All employees must contribute to the creation and maintenance of such an environment.
We respect the privacy and dignity of all individuals and recognize that our employees want and deserve a safe and healthy workplace where they are respected and appreciated. All employees must contribute to the creation and maintenance of such an environment.
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.
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. 10 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.
(CGI) and, in turn, the ability of EGI and CGI to pay dividends to EHI. Additional information regarding financial, dividend, and investment restrictions is set forth in Note 15 in the Notes to our Consolidated Financial Statements. Insurance Assessments.
(CGI) and, in turn, the ability of EGI and CGI to pay dividends to EHI. Additional information regarding financial, dividend, and investment restrictions is set forth in Note 15 in the Notes to our Consolidated Financial Statements. 14 Insurance Assessments.
Our disciplined underwriting approach, workers' compensation specialization, expertise in underwriting small businesses, and data-driven strategies are critical elements of our culture, which we believe allow us to offer competitive prices, while diversifying our risks. We execute our underwriting processes through automated systems and experienced underwriters with specific knowledge of the local markets in which we operate.
Our disciplined underwriting approach, workers' compensation specialization, expertise in underwriting small to mid-sized businesses, and data-driven strategies are critical elements of our culture, which we believe allow us to offer competitive prices, while diversifying our risks. We execute our underwriting processes through automated systems and experienced underwriters with specific knowledge of the local markets in which we operate.
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.
The level must not be less than the outstanding reserve for losses and a loss expense allowance equal to 11 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.
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.
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 and analytics capabilities, which we believe will enable us to reduce our operating costs over the long-term and set a foundation for our future needs.
We 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.
We also believe that these technological and intellectual capabilities will further support our future growth initiatives, provide continued 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 monitor the financial strength of our reinsurers and do not believe that we are currently exposed to any material credit risk as substantially all of our reinsurance is recoverable from large, well-capitalized reinsurance companies with A.M. Best financial strength ratings of "A-" (Excellent), or better.
We monitor the financial strength of our reinsurers and do not believe that we are currently exposed to any material credit risk as substantially all of our reinsurance is recoverable from large, well-capitalized reinsurance companies with AM Best financial strength ratings of "A-" (Excellent), or better.
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.
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 Audit Committee.
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.
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 through December 31, 2022.
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.
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, 2024, each of our insurance subsidiaries had total adjusted capital in excess of the minimum RBC requirements.
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.
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 Audit Committee of our Board (Audit Committee) deem relevant.
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.
Our asset allocation is reevaluated by management and reviewed by the Audit 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.
Cerity specializes in smaller risks in those classes of business where we believe that customers prefer an online experience and offers a digital and mobile-friendly experience that allows small businesses to easily acquire and maintain their policies.
Cerity specializes in smaller risks in those classes of business where we believe that customers prefer an online experience, and offers a digital and mobile-friendly experience that allows small to mid-sized businesses to easily acquire and maintain their policies.
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.
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, 2024 and 12:01 a.m.
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.
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 mid-sized businesses engaged in low-to-medium hazard industries.
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.
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 7.0%, 5.0%, and 4.5% of our in-force premiums as of December 31, 2024, 2023, and 2022, respectively.
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.
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, 2024, we declared $150.7 million of dividends on our common stock and eligible plan awards, and we repurchased $149.2 million of our common stock.
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.
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 34.7%, 32.9%, and 30.7% of our in-force premiums as of December 31, 2024, 2023, and 2022, respectively.
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.
Years Ended December 31, 2024 2023 2022 (in millions) Net premiums written $ 769.5 $ 760.6 $ 707.2 Total revenues 880.7 850.9 713.5 Net income 118.6 118.1 48.4 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.
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.
Investments Our investment portfolio is structured to support our need for: (i) optimizing our risk-adjusted total returns; (ii) providing adequate liquidity; (iii) facilitating financial strength and stability; and (iv) ensuring regulatory and legal compliance. As of December 31, 2024, the total carrying value of our investment portfolio was more than $2.4 billion.
Now known as the Terrorism Risk Insurance Program Reauthorization Act of 2019 (TRIPRA of 2019), the program is designed to allow the insurance industry and the federal government to share losses from declared terrorist events according to a specific formula, and is in effect until December 31, 2027.
Now known as TRIPRA of 2019, the program is designed to allow the insurance industry and the federal government to share losses from declared terrorist events according to a specific formula, and is in effect until December 31, 2027.
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.
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 17.2%, 16.2%, and 15.0% of our in-force premiums as of December 31, 2024, 2023, and 2022, respectively.
Premium rates vary by state according to the nature of the employees' duties and the business of the employer. The premium is computed by applying the applicable premium rate to each class of the insured's payroll after it has been appropriately classified.
Premium rates vary by state according to the nature of the employees' duties and the business of the employer. Policy premiums are computed by applying the applicable premium rate to each class of the insured's payroll after it has been appropriately classified.
The coverage under our prior annual reinsurance programs that ended as of June 30, 2023 and 2022 were also $190.0 million in excess of our $10.0 million retention on a per occurrence basis.
The coverage under our prior annual reinsurance programs that ended as of June 30, 2024 and 2023 was also $190.0 million in excess of our $10.0 million retention on a per occurrence basis.
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.
In addition, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, Related Person Transactions Policy, and charters for the Audit, Board Governance and Nominating, Executive, Human Capital Management and Compensation, and Risk Management, Technology and Innovation committees of our Board of Directors (Board) are available on our website.
In summary, we experienced $58.9 million of pretax net unrealized investment gains arising from our fixed maturity investments in 2023, versus $256.1 million of pretax losses in 2022, and we experienced $30.7 million of pretax net unrealized investment gains arising from our equity securities and other investments in 2023, versus $48.2 million of pretax losses in 2022.
Overall, we experienced $4.4 million of pretax net unrealized investment losses arising from our fixed maturity investments in 2024, versus $58.9 million of pretax gains in 2023 and $256.1 million of pretax losses in 2022, and we experienced $32.9 million of pretax net unrealized investment gains arising from our equity securities and other investments in 2024, versus $30.7 million of pretax gains in 2023 and $48.2 million of pretax losses in 2022.
The integration plan, which will allow us to operate more efficiently and generate cost savings, resulted in a change in the composition of our reportable segments by eliminating any distinction among our former segments, which were: Employers and Cerity .
The integration plan, which allowed us to operate more efficiently and generate cost savings, resulted in a change in the composition of our reportable segments by eliminating any distinction between our former segments, which were: Employers and Cerity .
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.
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.
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.
The estimated remaining liabilities subject to the LPT Agreement were approximately $277.1 million and $291.7 million, as of December 31, 2024 and 2023, respectively (See Note 10 in the Notes to our Consolidated Financial Statements). Losses and LAE paid with respect to the LPT Agreement totaled approximately $895.6 million and $877.6 million through December 31, 2024 and 2023, respectively.
Description of Business We are a specialty provider of workers' compensation insurance focused on select small businesses in low-to-medium hazard industries.
Description of Business We are a specialty provider of workers' compensation insurance focused on small and mid-sized businesses engaged in low-to-medium hazard industries.
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.
July 1, 2025 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; including a maximum any one life limit of $20.0 million, subject to certain exclusions.
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.
In recent years, we have made improvements in female representation in leadership roles such that women currently represent 64% of all our employees, 72% of our managers and supervisors, 48% of our vice presidents and directors, 71% of our executive team, and 33% of our members of the Board.
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.
These agencies generated 65.3%, 67.1%, and 69.3% of our in-force premiums at December 31, 2024, 2023, and 2022, respectively, and our largest traditional insurance agency generated less than three percent of our in-force premiums at each of December 31, 2024, 2023, and 2022.
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 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 over the past several years. At December 31, 2024, we had no reinsurance recoverables on paid losses that were greater than 90 days overdue.
Our technology saves our insurance agents and brokers, and our policyholders, considerable time and maintains our competitiveness in our target markets.
Our technology aims to save our insurance agents and brokers, and our policyholders, considerable time and maintains our competitiveness in our target markets.
Conversely, the sharp increases in market interest rates that began in 2022 have favorably impacted our net investment income in 2023 and 2022. As a result, our 2023 net investment income increased to $106.5 million versus $89.8 million in 2022 and $72.7 million in 2021.
Conversely, the sharp increases in market interest rates that began to emerge in 2022 have favorably impacted our net investment income. As a result, our 2024 net investment income was $107.0 million versus $106.5 million in 2023 and $89.8 million in 2022.
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.
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, 5340 Kietzke Lane, Suite 202, Reno, Nevada 89511.
The reinsurers currently party to the LPT Agreement are Chubb Bermuda Insurance Limited, XL Re Limited, and National Indemnity Company. The contract provides that during the term of the agreement all reinsurers need to maintain an A.M. Best financial strength rating of not less than "A-" (Excellent).
The reinsurers are Chubb Bermuda Insurance Limited, XL Re Limited, and National Indemnity Company. The contract provides that during the term of the agreement that these reinsurers need to maintain an AM Best financial strength rating of not less than "A-" (Excellent). Currently, each of these reinsurers have a rating that satisfies this requirement.
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.
As of December 31, 2024 and 2023, our policyholders had average annual in-force premiums of $5,675 and $5,495, respectively. When adjusting for estimated final audit premium, as of December 31, 2024 and 2023, our policyholders had average annual in-force premiums of $5,875 and $5,612, respectively.
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.
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. Cybersecurity and Privacy Our operations rely on the secure processing, storage, and transmission of personal, confidential, and other information.
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.
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 $768.2 million, $709.4 million, and $654.0 million as of December 31, 2024, 2023, and 2022, respectively.
In addition, certain of our invested assets also generate net realized and unrealized gains and losses that we record on our Consolidated Statements of Comprehensive Income (Loss). During the years ended December 31, 2023, 2022, and 2021, our net realized and unrealized gains (losses) from those invested assets totaled $22.7 million, $(51.8) million and $54.6 million, respectively.
During the years ended December 31, 2024, 2023, and 2022, our net investment income totaled $107.0 million, $106.5 million and $89.8 million, respectively. In addition, certain of our invested assets also generate net realized and unrealized gains and losses that we record on our Consolidated Statements of Comprehensive Income (Loss).
Currently, each of the reinsurers that are a party to the LPT Agreement has a rating that satisfies this requirement. We account for the LPT Agreement as retroactive reinsurance. Upon entry into the LPT Agreement, an initial deferred reinsurance gain was recorded as a liability on our Consolidated Balance Sheets as Deferred Gain.
We account for the LPT Agreement as retroactive reinsurance. Upon entry into the LPT Agreement, an initial Deferred Gain was recorded as a liability on our Consolidated Balance Sheets as Deferred Gain.
The 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: 2023 2022 2021 State In-force Premiums Policies In-force In-force Premiums Policies In-force In-force Premiums Policies In-force (dollars in millions) California $ 311.5 43,353 $ 279.7 42,876 $ 258.4 40,704 Florida 56.6 10,008 49.4 9,417 41.1 7,989 New York 31.9 7,603 27.3 7,497 24.5 7,307 Other (43 states and D.C.) 294.6 65,445 266.1 61,566 247.4 55,350 Total in-force $ 694.6 126,409 $ 622.5 121,356 $ 571.4 111,350 Estimated audit premium 45.6 — 39.5 — 42.3 — Total in-force, including estimated audit premium $ 740.2 126,409 $ 662.0 121,356 $ 613.7 111,350 From 2021 through 2023, our total in-force premiums increased 21.6% and our policies in-force increased 13.5%.
The 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: 2024 2023 2022 State In-force Premiums Policies In-force In-force Premiums Policies In-force In-force Premiums Policies In-force (dollars in millions) California $ 336.1 44,540 $ 311.5 43,353 $ 279.7 42,876 Florida 60.1 10,943 56.6 10,008 49.4 9,417 New York 36.1 7,938 31.9 7,603 27.3 7,497 Other (43 states and D.C.) 309.8 67,346 294.6 65,445 266.1 61,566 Total in-force $ 742.1 130,767 $ 694.6 126,409 $ 622.5 121,356 Estimated audit premium 26.1 — 14.8 — 31.5 — Total in-force, including estimated audit premium $ 768.2 130,767 $ 709.4 126,409 $ 654.0 121,356 From 2022 through 2024, our total in-force premiums increased 19.2% and our policies in-force increased 7.8%.
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.
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.
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.
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. 12 Traditional Insurance Agents and Brokers We establish and maintain strong, long-term relationships with our vetted and appointed traditional insurance agencies that actively market our products and services.
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.
We also continue to execute a number of ongoing business initiatives, including: achieving internal and customer-facing business process excellence and efficiency; delivering self-service options to policyholders, agents, and injured workers; further diversifying our risk exposure across geographic markets and economic sectors; and expanding our appetite.
This expansion was achieved by thoughtfully considering industries that we previously excluded on a broad basis, and applying a finer approach to identify the lower hazard opportunities within these classes.
Over the past few years, the amount of business that we have written in hazard groups D through G has increased, which is, in part, due to this expansion. This expansion was achieved by thoughtfully considering industries that we previously excluded on a broad basis, and applying a finer approach to identify the lower hazard opportunities within these classes.
As a result, we were able to buy and sell fixed maturity securities opportunistically throughout the year, capitalizing on our float, which resulted in higher yields and an increase to the average duration of our fixed maturity securities.
As a result, we were able to buy and sell fixed maturity securities opportunistically throughout 2023 and 2024, which resulted in higher yields and an increase to the average duration of our fixed maturity securities. These factors served to meaningfully reduce, but did not eliminate, the unrealized losses that we incurred on our fixed maturity investments in 2022.
For example, for the industries that have shown growth in the higher hazard groups (plumbing, HVAC, electricians, painters and finish carpentry), the underwriting appetite in which we operate is defined by specific and preferred characteristics related to the typical job site, standard work activities, and type of equipment utilized, consistent with our low-to-medium risk appetite.
The underwriting appetite in which we operate is defined by specific and preferred characteristics related to the typical job site, standard work activities, and type of equipment utilized, consistent with our low-to-medium risk appetite. Underwriting discipline remains a top priority as we continue to execute our growth strategy.
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.
Our Business Strategy Our overall strategy is to pursue profitable growth opportunities across workers' compensation insurance market cycles, maximize our investment earnings within the constraints of prudent portfolio management, maintain a strong equity capital position at all times, and deliver value to our shareholders while being conscious of environmental, social and governance (ESG) concerns. 4 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-term relationships with traditional and specialty insurance agencies, developing important alternative distribution channels, and offering workers' compensation insurance solutions directly to customers.
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.
Human Capital Resources We believe that our employees are among our most important resources and they are critical to our continued success and good reputation. 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 review our hiring, promotion and succession practices at all levels.
We provide expert advice on the root cause of incidents and assistance in the development of policies and programs to help protect workers and navigate the often confusing worker’s compensation process. Premium Audit We conduct premium audits on substantially all of our policyholders annually upon the policy expiration or termination.
We provide expert advice on the root cause of incidents and assistance in the development of policies and programs. Policyholders have access to an extensive array of professional risk management resources available through self-service and direct options. Premium Audit We conduct premium audits on substantially all of our policyholders annually upon the policy expiration or termination.
Additional information regarding our Cybersecurity risk management, strategy and governance, is set forth under "Item 1C -Cybersecurity." Workers' Compensation Premiums Generally, the workers' compensation insurance industry classifies risks into seven hazard groups (A-G). Classes of business in hazard group A have the lowest potential for large claims, while those in hazard group G have the highest potential for large claims.
The workers' compensation insurance industry classifies risks into seven hazard groups (A-G), with classes of business in hazard group A having the lowest potential for large claims, and those in hazard group G having the highest potential for large claims.
LPT Agreement In 1999, the Fund entered into a retroactive 100% quota share reinsurance agreement through a loss portfolio transfer transaction with third party reinsurers.
We may require a special commutation of the percentage share of any loss in the reinsurance program of any subscribing reinsurer that is in runoff. We believe that our reinsurance program meets our current needs. LPT Agreement In 1999, the Fund entered into a retroactive 100% quota share reinsurance agreement through a loss portfolio transfer transaction with third party reinsurers.
We are also 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 through June 30, 2024.
We were also entitled to receive a Contingent Commission under the LPT Agreement through June 30, 2024, which was based on actual paid losses under the LPT Agreement through that date. The Contingent Commission was formally settled with the reinsurers in the third quarter of 2024.
This has provided meaningful and complementary growth for the company, particularly in hazard groups D and E, as we’ve been able to identify and partner with those small businesses in these classes that fit a desirable low-to-medium risk profile.
Beginning in 2021, we extended our reach by applying our established underwriting approach to new industries, including landscaping, janitorial, property management, and artisan contracting. This expansion has provided meaningful and complementary growth for the Company as we’ve been able to identify and partner with those small to mid-sized businesses in these classes that fit a desirable low-to-medium risk profile.
Our new business premiums written in 2023 were $201.9 million versus $167.7 million in 2022 and $145.2 million in 2021, while our renewal premiums in 2023 were $526.7 million versus $483.2 million in 2022 and $449.5 million in 2021. We ended the year with a record number of policies in-force.
Our new business premiums written in 2024 were $227.5 million versus $201.9 million in 2023 and $167.7 million in 2022, and our renewal premiums in 2024 were $559.6 million versus $526.7 million in 2023 and $483.2 million in 2022.
Losses and LAE Reserves and Loss Development We are directly liable for losses and LAE under the terms of the insurance policies our insurance subsidiaries write. Significant time can elapse between the occurrence of an insured loss, the reporting of the loss to us, and our payment of that loss.
A significant amount of time can elapse between the occurrence of an insured loss, the reporting of the loss to us, and our payment of that loss.
Schedule rating adjustments are made based on individual risk characteristics of the insured and subject to maximum amounts as established in our premium rate filings. Our premium rates are based upon actuarial analyses for each state in which we do business, except in administered pricing states, where premium rates are set by state insurance regulators and are adjusted periodically.
Our premium rates are based upon actuarial analyses for each state in which we do business, except in administered pricing states, where premium rates are set by state insurance regulators and are adjusted periodically. The insurance industry is highly competitive, and there is significant competition in the national workers' compensation industry that is based on price and quality of services.
We are responsible for the losses if the subscribing reinsurer cannot or refuses to pay. The agreement includes certain exclusions for which our subscribing reinsurers are not liable for losses.
We remain liable for all losses incurred to the extent that any subscribing reinsurer is unable or unwilling to make timely payments to us. The agreement includes certain exclusions for which our subscribing reinsurers are not liable for losses.
We also selectively perform audit reviews and/or update renewal payroll on policies in certain classes of business or if unusual claims are filed or concerns are raised regarding projected annual payrolls, which could result in substantial variances at final audit.
Premium audits verify that our policyholders have accurately reported their payroll and employee job classifications to us, and allow us to comply with applicable state and reporting bureau requirements. We also selectively perform audit reviews and/or update renewal payroll on policies in certain classes of business or if unusual claims are filed or concerns are raised regarding projected annual payrolls.
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.
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 AM Best Company, Inc. (AM Best) financial strength rating of "A" (Excellent).
Due to our financial strength and the magnitude of our unpaid loss and loss adjustment expenses, our invested assets provide us with a significant amount of net investment income annually. During the years ended December 31, 2023, 2022, and 2021, our net investment income totaled $106.5 million, $89.8 million and $72.7 million, respectively.
Investing Strategy Our invested assets consist of our equity capital, as well as funds provided from float. Due to our financial strength and the magnitude of our unpaid loss and loss adjustment expenses, our invested assets provide us with a significant amount of net investment income annually.
Traditional Insurance Agents and Brokers We establish and maintain strong, long-term relationships with our vetted and appointed traditional insurance agencies that actively market our products and services. We offer ease of doing business, provide responsive service, and pay competitive commissions. Our sales representatives and underwriters work closely with these agencies to market and underwrite our business.
We offer ease of doing business, provide responsive service, and pay competitive commissions. Our sales representatives and underwriters work closely with these agencies to market and underwrite our business. 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.
This service has proven to reduce overall claims costs and is intended to ensure the injured worker receives appropriate and timely medical care. In addition to our medical networks, we work closely with local vendors, including attorneys, medical professionals, pharmacy benefits managers, and investigators, to bring local expertise to our reported claims.
In addition to our medical networks, we work closely with local vendors, including attorneys, medical professionals, pharmacy benefits managers, and investigators, to bring local expertise to our reported claims. We use preferred provider organizations, bill review services, and utilization management to actively manage medical treatment appropriateness.
For injured workers, we utilize an outcome-based medical network that employs predictive analytics to identify medical providers who achieve superior clinical outcomes for injured workers. This enables us to optimize our provider network and enhance quality of care. We have also implemented a proactive pharmacy benefit management program that focuses on accelerating injured workers’ return to work.
We also engage medical case management services for those claims that will benefit from such involvement. We utilize an outcomes-based medical network that incorporates predictive analytics to identify medical providers who achieve superior clinical outcomes for our injured employees. Our outcomes-based medical network and our managed care programs focus on achieving optimal outcomes, while accelerating injured employees' return to work.
The insurance industry is highly competitive, and there is significant competition in the national workers' compensation industry that is based on price and quality of services. We compete with other specialty workers' compensation carriers, state agencies, multi-line insurance companies, professional employer organizations, self-insurance funds, and state insurance pools.
We compete with other specialty workers' compensation carriers, state agencies, multi-line insurance companies, professional employer organizations, self-insurance funds, and state insurance pools. Losses and LAE Reserves and Loss Development We are directly liable for losses and LAE under the terms of the insurance policies our insurance subsidiaries write.
These variances, which can be significant, may result in adjustments to our written and earned premiums, as well as our net losses and LAE, in the periods in which they become known. 9 Claims and Medical Case Management The role of our claims department is to actively and efficiently investigate, evaluate, and pay claims, and to aid injured workers in returning to work in accordance with applicable laws and regulations.
Claims and Medical Case Management The role of our claims department is to actively and efficiently investigate, evaluate, and pay claims, and to aid injured employees in returning to work in accordance with applicable laws and regulations. We have implemented rigorous claims handling guidelines and control procedures, and have claims operations throughout the markets we serve.
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.
Our Investment Portfolio and Net Investment Income Despite continued market volatility in 2023 and 2024, interest rates largely stabilized as compared to 2022, a year in which sharp increases in market interest rates negatively impacted the fair value of our fixed maturity investments.
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.
Our underwriters use their local market expertise and disciplined underwriting to identify those risks within the classes of business we underwrite that are likely to generate loss ratios that are below the industry average. Our total in-force premiums were $742.1 million, $694.6 million, and $622.5 million as of December 31, 2024, 2023, and 2022, respectively.
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.
We had approximately 2,500 traditional insurance agencies that marketed and sold our insurance products at December 31, 2024.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeUnder our workers' compensation policies and applicable laws in the states in which we operate, we are required to provide workers' compensation benefits for losses arising from acts of terrorism. The impact of any terrorist act is unpredictable, and the ultimate impact on us would depend upon the nature, extent, location, and timing of such an act.
Biggest changeActs of terrorism and natural, or man-made catastrophes or other disruptive events could materially adversely impact our financial condition and results of operations. Under our workers' compensation policies and applicable laws in the states in which we operate, we are required to provide workers' compensation benefits for losses arising from acts of terrorism.
Loss reserves are aggregate estimates of the ultimate outstanding cost of claims based on actuarial estimation techniques, are inherently uncertain, and do not represent an exact measure of liability. Additionally, any changes to our claims management and/or actuarial reserving processes could introduce volatility in our estimates of losses and LAE.
Loss and LAE reserves are aggregate estimates of the ultimate outstanding cost of claims based on actuarial estimation techniques, are inherently uncertain, and do not represent an exact measure of liability. Additionally, any changes to our claims management and/or actuarial reserving processes could introduce volatility in our estimates of losses and LAE.
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.
Because 21 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.
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.
AM 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.
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.
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.
The time required to obtain these approvals may result in a material delay of, or deter, any such transaction. These laws may discourage potential acquisition proposals or tender offers, and may delay, deter, or prevent a change of control, even if the acquisition proposal or tender offer is favorable to our stockholders.
The time required to obtain these approvals may result in a material delay of, or deter, any such transaction. These laws may discourage potential acquisition proposals or tender offers, and may delay, deter, or prevent a change of control, even if the acquisition proposal or tender offer is considered favorable to our stockholders.
Further, any such incidents or any perception that our security measures are inadequate could lead to loss of confidence in us and harm to our reputation. Any of the foregoing matters could have a material adverse effect upon our business, financial condition, and operating results.
Further, any such incidents or any perception that our security measures are inadequate could lead to a loss of confidence in us and harm to our 23 reputation. Any of the foregoing matters could have a material adverse effect upon our business, financial condition, and operating results.
There can be no assurance that we have accurately determined the level of impairments and/or credit losses reflected on our financial statements and additional provisions may need to be recognized in the future. Further, historical trends may not be indicative of future impairments and/or credit losses.
There can be no assurance that we have accurately determined the level of impairments and/or credit losses reflected in our financial statements and additional provisions may need to be recognized in the future. Further, historical trends may not be indicative of future impairments and/or credit losses.
Further, if we were to lose the services of members of our management team or other key employees, we may be unable to find replacements satisfactory to us and our business, which could disrupt our operations and adversely impact our financial performance and results of operations.
If we were to lose the services of members of our management team or other key employees, we may be unable to find replacements satisfactory to us and our business, which could disrupt our operations and adversely impact our financial performance and results of operations.
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.
We continue to experience price competition in our target markets. 16 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.
These could result in substantial costs, diversion of resources, fines, penalties, and other damages and liabilities, and harm to our customer relationships, our market position, and our ability to attract new customers. Any of these could harm our business, financial condition, and results of operations.
These could result in substantial costs, diversion of resources, fines, penalties, and other damages and liabilities, and harm to our customer relationships, our market position, and our ability to attract new customers. Any of these could harm our business, financial condition, and results of operations. 24
The loss reserves on our financial statements represent an estimate of amounts needed to pay and administer claims with respect to insured claims that have occurred, including claims that have occurred but have not yet been reported to us.
The loss and LAE reserves on our financial statements represent an estimate of amounts needed to pay and administer claims with respect to insured claims that have occurred, including claims that have occurred but have not yet been reported to us.
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.
We expect to incur significant costs in an effort to detect and prevent security breaches and incidents, and we may face increased costs and requirements to expend substantial resources in the event of an actual or perceived security breach or other incident.
Our business is largely dependent on the efforts of our executives and other key employees because of their industry and technical expertise, knowledge of our markets, and relationships with the insurance agents and brokers and partners that sell our products.
Our business is largely dependent on the efforts of our executives and other key employees because of their industry and technical expertise, knowledge of our markets, and relationships with the insurance agents, brokers, and other distribution partners that sell our products.
The ability of EHI to meet its operating and financing cash needs and capital management objectives depends on the surplus and earnings of our subsidiaries, and upon the ability of our insurance subsidiaries to pay dividends to EGI and CGI and, in turn, the ability of EGI and CGI to pay dividends to EHI.
The ability of EHI to meet its operating and financing cash needs and capital management objectives largely depends on the surplus and earnings of our subsidiaries, and upon the ability of our insurance subsidiaries to pay dividends to EGI and CGI and, in turn, the ability of EGI and CGI to pay dividends to EHI.
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.
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.
Many of our employees are also particularly important to our operations because of their industry expertise, knowledge of our markets, and relationships with the insurance agents and brokers who sell our products.
Many of our employees are also particularly important to our operations because of their industry expertise, knowledge of our markets, and relationships with the insurance agents, brokers, and partners who sell our products.
Privacy and information security are areas of increasing focus for our customers, governmental regulators, and privacy advocates, and many jurisdictions are evaluating or have implemented laws and regulations relating to these matters.
Privacy and information security are areas of increasing focus for our customers, regulators, and privacy advocates, and many jurisdictions are evaluating or have implemented laws and regulations relating to these matters.
Although we have implemented and are in the process of implementing additional systems and processes designed to protect our data and systems, these security measures cannot guarantee security.
Although we have implemented and are continually in the process of implementing additional systems and processes designed to protect our data and systems, these security measures cannot guarantee security.
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.
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; • sustainability 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, privacy, and artificial intelligence 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 20 • 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 certain states, we have a relatively short operating history and must rely on a combination of industry experience and our specific experience regarding claims emergence and payment patterns, medical cost inflation, and claim cost trends, adjusted for future anticipated changes in claims-related and economic trends, as well as regulatory and legislative changes, to establish our best estimate of reserves for losses and LAE.
In certain states, we have a relatively limited operating history and must rely on a combination of industry experience and our specific experience regarding claims emergence and payment patterns, medical cost inflation, and claim cost trends, adjusted for future anticipated changes in claims-related and economic trends, as well as regulatory and legislative changes, to establish our best estimate of reserves for losses and LAE.
Significant industry consolidation among agencies (not limited to ADP), partners, or new entrants to the workers' compensation marketplace could impact our business opportunities and revenues. We are also subject to credit risk with respect to certain of our insurance agents, brokers and other distribution partners, including ADP, as they collect insurance premiums on our behalf.
Significant industry consolidation among agencies (not limited to ADP), partners, or new entrants to the workers' compensation marketplace could impact our business opportunities and revenues. We are also subject to credit risk with respect to certain of our traditional insurance agents, specialty agents, brokers, and other distribution partners, including ADP, as they collect insurance premiums on our behalf.
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 reinsurance protection covers natural perils and acts of terrorism events, but excludes nuclear, biological, chemical, and radiological events. On July 1, 2024, we entered into a new reinsurance program that is effective through June 30, 2025. The reinsurance program consists of one treaty covering excess of loss and catastrophic loss events in four layers of coverage.
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.
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.
Insurers' financial strength ratings are directed toward the concerns of policyholders and insurance agents and are not intended for the protection of investors or as a recommendation to buy, hold, or sell securities. Our competitive position relative to other companies is determined in part by our financial strength rating. A reduction in our A.M.
Insurers' financial strength ratings are directed toward the concerns of policyholders and insurance agents and are not intended for the protection of investors or as a recommendation to buy, hold, or sell securities. Our competitive position relative to other companies is determined in part by our financial strength rating.
Additionally, any retrospective change in regulatory required benefits could materially increase the benefits costs that we would be responsible for to the extent of the legislative increase. Legislation and regulation impact our ability to investigate fraud and other abuses of the workers' compensation system in the states in which we do business.
Additionally, any retrospective change in regulatorily required benefits could materially increase the benefits costs that we would be responsible for to the extent of the legislative increase. Legislation and regulation impact our ability to investigate fraud and other abuses of the workers' compensation system in the states in which we do business.
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.
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 innovative technologies and capabilities, including those involving the use of data, analytics, and artificial intelligence, in pursuit of our long-term strategy.
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.
This rating is assigned to companies that, in the opinion of AM Best, have demonstrated excellent overall performance when compared to industry standards. AM 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.
Intense competitive pressure on prices can result from the actions of even a single large competitor. Competitors with more surplus than us have the potential to expand in our markets more quickly than we can and invest more heavily in new technologies.
Intense competitive pressure on prices can result from the actions of even a single large competitor. Competitors with more surplus than us have the potential to expand in our markets more quickly than we can and invest more heavily in innovative technologies.
The interpretation and enforcement of these actual and asserted obligations are uncertain and evolving constantly, and it is possible that our products, services, or practices may be alleged to violate such laws, regulations, or other actual or asserted obligations to which we are or may be subject.
The interpretation and enforcement of these actual and asserted obligations are uncertain and constantly evolve, and it is possible that our products, services, or practices may be alleged to violate such laws, regulations, or other actual or asserted obligations to which we are or may be subject.
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 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, 2024.
Our excess of loss reinsurance treaties do not protect against nuclear, biological, chemical, or radiological events.
Our excess of loss reinsurance treaties do not protect us against nuclear, biological, chemical, or radiological events.
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) fluctuates with changes in interest rates and credit risk assumptions, which cause fluctuations in our stockholders' equity, net income and comprehensive income.
Losses may not be recovered from our reinsurers until claims are paid and, in the case of long-term workers' compensation cases, the creditworthiness of our reinsurers may change before we can recover amounts that we are entitled to.
Losses may not be recovered from our reinsurers until claims are paid and, in the case of long-term workers' compensation cases, the creditworthiness of our reinsurers may change before we can recover amounts to which we are entitled.
Competition in our business is based on many factors, including premiums charged, services provided, ease of doing business, financial ratings assigned by independent rating agencies, speed of claims payments, reputation, policyholder dividends, perceived financial strength, and general experience. In some cases, our competitors offer lower priced products than we do.
Competition in our business is based on many factors, including premiums charged, services provided, ease of doing business, financial ratings assigned by independent rating agencies, speed and reliability of claims payments, reputation, policyholder dividends, perceived financial strength, and overall experience. In some cases, our competitors offer lower priced products than we do.
Our relationships with medical providers are also impacted by legislation and regulation, including penalties for failure to make timely payments. Federal legislation typically does not directly impact our workers' compensation business, but our business can be indirectly affected by changes in healthcare, occupational safety and health, and tax and financial regulations.
Our relationships with medical providers are also impacted by legislation and regulation, including penalties for failure to make timely payments. Federal legislation typically does not directly impact our workers' compensation business, but our business may be directly or indirectly affected by changes in healthcare, occupational safety and health, and tax and financial regulations.
If we are unable to renew or replace our reinsurance agreements with terms satisfactory to us, our net liability on individual risks could increase and we would have greater exposure to large and catastrophic losses, which could have a material adverse effect on our financial condition and results of operations.
If we are unable to renew or replace our reinsurance agreements with terms satisfactory to us, our net liability on individual claims could increase and we would have greater aggregate exposure to large and catastrophic losses, which could have a material adverse effect on our financial condition and results of operations.
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 success depends in substantial part on our ability to attract and retain qualified executive officers, experienced underwriting, claims, and information technology personnel, and other highly skilled employees who are knowledgeable about our business. The success of our business is dependent in significant part on the efforts of our executive officers.
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.
We have multiple initiatives that are focused on developing innovative 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 such initiatives, may cost more than anticipated to complete, or may not be completed.
A significant decline in our investment income or the value of our investments as a result of changes in interest rates, deterioration in the credit of companies or municipalities in which we have invested, decreased dividend payments, general market conditions, or events that have an adverse impact on any particular industry or geographic region in which we hold significant investments could have an adverse effect on our net income and, as a result, on our stockholders' equity and policyholder surplus.
A significant decline in our investment income or the value of our investments as a result of changes in interest rates, deterioration in the credit of the securities in which we have invested, decreased dividend payments, general market conditions, events that have an adverse impact on any particular industry, asset class, or geographic region in which we hold significant investments could have an adverse effect on our net income and, as a result, on our stockholders' equity and policyholder surplus.
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.
The financial strength ratings of AM 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.
In addition, we are subject to credit risk with respect to our reinsurers, and they may refuse to pay or delay payment of losses we cede to them. We remain liable to our policyholders even if we are unable to make recoveries that we believe we are entitled to under our reinsurance contracts.
In addition, we are subject to credit risk with respect to our reinsurers, and they may be unable to pay or may refuse to pay losses we cede to them. We remain liable to our policyholders even if we are unable to make recoveries that we believe we are entitled to under our reinsurance contracts.
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.
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 typically increases the total payrolls of our policyholders, which is the basis for the premiums we charge.
The termination of this agreement, our failure to maintain a good relationship with ADP, or its failure to successfully market our products could each materially reduce our revenues and could have a material adverse effect on our results of operations.
Our agreement with ADP is not exclusive. A termination of this agreement, our failure to maintain a good relationship with ADP, or its failure to successfully market our products could each materially reduce our revenues and could have a material adverse effect on our results of operations.
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.
In 2023 and 2024, despite 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 current and future interest rates, maturity schedules, and cash available for investment.
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.
If our competitors offer more favorable prices, policyholder dividends, or payment plans, services or commissions to our agents, brokers, and other distribution partners, 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.
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.
As our industry becomes increasingly reliant on data analytics and artificial intelligence to improve underwriting, pricing, claims settlements, and focused marketing efforts, 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.
Best rating could adversely affect the amount of business we could write, as well as the relationships we currently have with our insurance agents, brokers, distribution partners, reinsurers, and others. A.M.
A reduction in our AM Best rating could adversely affect the amount of business we could write, as well as the relationships we currently have with our insurance agents, brokers, distribution partners, reinsurers, and others.
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.
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) by AM Best, which is the rating agency that we believe has the most influence on our insurance operations.
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 reinsurance coverage is $190.0 million in excess of our $10.0 million retention on a per occurrence basis; including a maximum any one life limit of $20.0 million, subject to certain exclusions. The availability, amount, and cost of reinsurance depend on market conditions and our loss experience and may fluctuate significantly.
In addition, these agents and brokers may find it easier to promote the broader range of programs of some of our competitors than to promote our single-line workers' compensation insurance products.
In addition, these distribution partners may find it easier to promote the broader range of programs of some of our competitors than to promote our single-line workers' compensation insurance products.
A failure to effectively maintain, enhance and modernize our information technology systems, effectively develop and deploy new technologies, and execute new business initiatives, could adversely affect our business.
A failure to effectively maintain, enhance and modernize our information technology systems, effectively develop and deploy innovative technologies, and execute new business initiatives, including those involving artificial intelligence, could adversely affect our business.
This creates a competitive disadvantage for us, as we only offer a single line of insurance. For example, a business may find it more efficient or less expensive to purchase multiple lines of commercial insurance coverage from a single carrier. Additionally, we primarily target small businesses, which may be more significantly and disproportionately impacted by a downturn in economic conditions.
For example, a business may find it more efficient or less expensive to purchase multiple lines of commercial insurance coverage from a single carrier. Additionally, we primarily target small and mid-sized businesses, which may be more significantly and disproportionately impacted by a downturn in economic conditions.
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 market and sell many of our insurance products through traditional insurance agents, specialty agents, brokers, and other distribution partners, each of which are non-exclusive. These distribution partners 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, 2023, the estimated remaining liabilities subject to the LPT Agreement were $291.7 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 to the transaction. As of December 31, 2024, the estimated remaining liabilities subject to the LPT Agreement were $277.1 million.
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.
At December 31, 2024, we had $417.8 million of reinsurance recoverable for paid and unpaid losses and LAE, of which $6.3 million was due to us on paid claims. 17 We purchase reinsurance to protect us against severe individual claims and from aggregate losses associated with certain catastrophic events.
These claims or decisions concern issues including eligibility for workers' compensation insurance coverage or benefits, the extent of injuries, wage determinations, disability ratings, and bad faith and extra-contractual liability.
Our subsidiaries have responded to such actions and intend to defend these claims. These claims or decisions concern issues including eligibility for workers' compensation insurance coverage or benefits, the extent of injuries, wage determinations, disability ratings, and bad faith and extra-contractual liability.
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. The reinsurers have collateralized their obligations under the LPT Agreement by placing investment securities in trust.
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.
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.
Several factors contribute to the inherent uncertainty in establishing estimated losses, including the length of time to settle long-term, severe cases, the long-term health implications of the COVID-19 pandemic, claim cost inflation (deflation) trends, current and future economic conditions, and uncertainties in the long-term outcome of legislative reforms.
Several factors contribute to the inherent uncertainty in establishing estimated loss and LAE reserves, including the length of time to settle long-term, severe cases, claim cost inflation (deflation) trends, potential claimant and/or provider fraud, current and future economic conditions, and uncertainties in the long-term outcome of legislative reforms.
We analyze many factors when pricing a policy, including the policyholder's prior loss history and industry classification. Inaccurate information regarding a policyholder's past claims experience or inaccurate estimates of expected losses and LAE could put us at risk for mispricing our policies, which could have a material adverse effect on our business, financial condition, and results of operations.
Inaccurate information regarding a policyholder's past claims experience, inaccurate estimates of expected losses and LAE, or the potential for payroll, claimant and/or provider fraud could put us at risk for mispricing our policies, which could have a material adverse effect on our business, financial condition, and results of operations.
Further, if we were to experience a diminution in dividend payments from these subsidiaries in the future, we may not be able to continue to pay dividends to our stockholders and/or repurchase shares of common stock. Acts of terrorism and natural, or man-made catastrophes or other disruptive events could materially adversely impact our financial condition and results of operations.
Further, if we were to experience 19 a diminution in dividend payments from these subsidiaries in the future, we may not be able to continue to pay dividends to our stockholders and/or repurchase shares of our common stock.
The loss or disruption of business from our insurance agents and brokers, or the failure or inability of these agents, and brokers, and our other distribution partners, to successfully market our insurance products could have a material adverse effect on our business, financial condition, and results of operations.
The loss or disruption of business from these distribution partners or the failure or inability of these distribution partners to successfully market our insurance products, could have a material adverse effect on our business, financial condition, and results of operations. ADP, our largest distribution agent, generated 17.2% of our total in-force premiums as of December 31, 2024.
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.
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 to that agreement.
A downturn in the national economy or the economy of California, or any other event that causes deterioration in tourism, could adversely impact small businesses, such as restaurants, that we have targeted as customers. The insolvency of a significant number of small businesses could also have a material adverse effect on our financial condition and results of operations.
A downturn in the national economy or the economy of California, or any other event that causes deterioration in tourism, could adversely impact small and mid-sized businesses, such as restaurants and providers of traveler accommodations, that we have targeted as customers.
Our insurance subsidiaries are involved in various administrative proceedings and legal actions in the normal course of their business and could be impacted by adverse judicial decisions. Our subsidiaries have responded to such actions and intend to defend these claims.
Administrative proceedings, legal actions, or judicial decisions involving our insurance subsidiaries could have a material adverse effect on our business, financial condition and results of operations. Our insurance subsidiaries are involved in various administrative proceedings and legal actions in the normal course of their business and could be impacted by adverse judicial decisions.
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.
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.
Our determinations, including the use of valuation models, pricing services and other techniques, can have a material effect on the valuation of our investments which may adversely affect our financial condition and results of operations.
Our determinations, including the use of valuation models, pricing services and other techniques, can have a material effect on the valuation of our investments which may adversely affect our financial condition and results of operations. 22 We regularly review the valuation of our portfolio of fixed maturity investments, including the identification of other-than-temporary declines in fair value and current expected credit losses (CECL).
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.
While we have no international operations, recent geo-political uncertainties, including impacts from ongoing conflicts abroad have indirectly impacted the value of our investment portfolio, and may continue to impact our investment portfolio in the future. Regulatory and Legal Risks The insurance business is subject to extensive regulation and legislative changes, which impact the manner in which we operate our business.
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.
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. 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 in our financial statements.
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.
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.
The LPT Agreement provides us with the ability to novate any contract with the reinsurers to the LPT Agreement if the credit rating of any such reinsurer were to fall below "A-" (Excellent) as determined by A.M. Best. Financial Risks We focus on small businesses, and those businesses may be severely and disproportionately impacted by a downturn in economic conditions.
The value of this collateral is subject to market fluctuations. The LPT Agreement provides us with the ability to novate any contract with the reinsurers to the LPT Agreement if the credit rating of any such reinsurer were to fall below "A-" (Excellent) as determined by AM Best.
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.
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 a key component of our revenue and net income. Our investment portfolio is managed by independent asset managers that operate under investment guidelines approved by our Audit Committee.
We would be particularly adversely affected by a terrorist act affecting any metropolitan area where our policyholders have a large concentration of workers.
The impact of any terrorist act is unpredictable, and the ultimate impact on us would depend upon the nature, extent, location, and timing of such an act. We would be particularly adversely affected by a terrorist act occurring during normal business hours in an area where our policyholders have a large concentration of workers.
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.
The effects of labor supply conditions, inflationary pressures, monetary and fiscal policy measures, recessionary concerns, new, evolving, or conflicting regulations, and overall general economic instability have, at times, caused disruptions in business activity and may do so again in the future. This risk is more significant during periods involving rapid regulatory change.
Under a single-payer system, universal healthcare could potentially cover all injuries, including those that occur in the workplace, which could limit or otherwise eliminate the offering and administration of workers’ compensation insurance coverage by private insurance companies.
Lastly, the establishment of a comprehensive, universal single-payer health care coverage program which could potentially cover all injuries, including those that occur in the workplace, could adversely impact our current business model and negatively impact our financial condition and results of operations.
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.
Given our focus on small and mid-sized businesses, certain classes of business that we insure could be adversely and disproportionately affected by these challenges, including the tariffs proposed in the first quarter of 2025 and potential labor market disruptions due to changes in the rules or enforcement around immigration. 18 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.
If any such proposal were to be enacted in the future, it could adversely impact our current business model and negatively impact our financial condition and results of operations. Administrative proceedings, legal actions, or judicial decisions involving our insurance subsidiaries could have a material adverse effect on our business, financial condition and results of operations.
The inability of any of our reinsurers to honor their financial obligations to us could have a material adverse effect on our financial condition and results of operations.
Removed
According to the Insurance Information Institute, since 1970, the property and casualty insurance industry experienced hard market conditions from 1975 to 1978, 1984 to 1987, and 2001 to 2004.
Added
We analyze many factors when pricing a policy, including the policyholder's prior loss history and industry classification.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

8 edited+1 added−4 removed3 unchanged
Biggest changeIn addition to the CIO’s more than 16 years of experience in technology, she has directly managed global privacy, compliance, ethics, and records retention technology, been responsible for addressing global cybersecurity risks, and has also attended multiple training programs in cybersecurity, privacy, governance, and technology. • The Company’s VP, Enterprise Risk Management holds a Certificate in Risk and Information Systems Controls (CRISC) certification along with 25 years of experience in managing technology delivery, vendor management, privacy, and governance.
Biggest changeMembers of our senior management team have specific and relevant cybersecurity expertise and experience, including the following: • Our CISO has more than 30 years of experience in technology and cybersecurity, he also holds multiple professional certifications in security, privacy, governance, audit, and technology. • Our CIO has more than 17 years of experience in technology, she has directly managed global privacy, compliance, ethics, and records retention technology, has been responsible for addressing global cybersecurity risks, and has also attended multiple training programs in cybersecurity, privacy, governance, and technology. • Our VP, Enterprise Risk Management holds a Certificate in Risk and Information Systems Controls certification and has more than 25 years of experience in managing technology delivery, vendor management, privacy, and governance.
Our business, including our ability to adequately price products and services, establish reserves, provide an effective and secure service to our customers and report our financial results in a timely and accurate manner, depends significantly on the integrity, availability, and timeliness of the data we maintain, as well as the data held by third party service providers.
Our business, including our ability to adequately price products and services, establish reserves, provide an effective and secure service to our customers and report our financial results in a timely and accurate manner, depends significantly on the integrity, availability, and timeliness of the data we maintain, as well as the data held by our third party service providers.
Governance The Company’s cybersecurity risks and strategies are overseen by both management, including our CISO, Chief Information Officer (CIO), VP, Enterprise Risk Management, and Executive Risk Committee (ERC), and the Company’s Board and relevant Board committees, including the Risk Management, Technology & Innovation Committee (RMTIC).
Governance Our cybersecurity risks and strategies are overseen by both management, including our CISO, Chief Information Officer (CIO), VP, Enterprise Risk Management, Executive Risk Committee (ERC), and the Board and relevant Board committees, including the Risk Management, Technology & Innovation Committee (RMTIC).
The Company 26 manages cybersecurity risk via expectations set by its Information Security and related policies, real-time monitoring of threats, and recovery where needed through incident response plans. The Company leverages ISO 27005, an international standard for identifying, measuring, and assessing cybersecurity risks, as a model for measuring its cybersecurity risk.
We manage cybersecurity risk via expectations set by our information security and related policies, real-time monitoring of threats, and recovery where needed through incident response plans. We leverage ISO 27005, an international standard for identifying, measuring, and assessing cybersecurity risks, as a model for measuring our cybersecurity risk.
This structure reinforces that the Company's most critical risks are effectively monitored and communicated to the Board, and management, including for purposes of making any required disclosures in a timely manner.
This structure reinforces that our most critical risks are effectively monitored and communicated to the Board, and management, including for the purposes of making any required disclosures in a timely manner. Cybersecurity risk assessments, subsequent findings, and response plans, including risks arising in connection with our use of vendors and third parties, are integrated within our Enterprise Risk Management framework.
Potential new vendors and existing vendors (which are reviewed periodically) that are known to have access to sensitive data or Company systems are subject to a risk assessment process including the review of independent security audits where available. Continuous monitoring of existing vendors occurs via an automated service that rates companies’ publicly facing cybersecurity posture and identifies known vulnerabilities.
Third parties with access to sensitive data or systems are subject to due diligence and ongoing monitoring. Potential new vendors and existing vendors that are known to have access to sensitive data or our systems are subject to a risk assessment process including the periodic review of independent security audits where available.
The Company is not aware of any cybersecurity risks, including as a result of any cybersecurity incidents during 2023, that have materially affected or are reasonably likely to materially affect it, including its business strategy, results of operations, or financial condition. Third parties with access to sensitive data or systems are subject to due diligence and ongoing monitoring.
Our information security program is also subject to internal and independent external audits. We are not aware of any cybersecurity risks, including as a result of any cybersecurity incidents during 2024, that have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition.
The information security program is subject to a bi-annual assessment using the ISO 27001 standard for managing cybersecurity. Annually, external security firms conduct penetration tests of the Company’s technology surface area internally and externally. The Company’s information security program is subject to internal and independent external audits.
The ISO 27005 model is periodically refreshed as new cybersecurity risks are identified. Our Chief Information Security Officer (CISO) leverages vulnerability detection techniques to identify new cybersecurity risks. Our information security program is subject to periodic assessments using the ISO 27001 standard for managing cybersecurity. External security firms conduct penetration tests of our technology surface area internally and externally.
Removed
An annual baseline is established to guide development of the information security program. The ISO 27005 model is refreshed as new cybersecurity risks are identified. The Company’s Chief Information Security Officer (CISO) leverages a model of continuous vulnerability detection to identify new cybersecurity risk as soon as practicable.
Added
Existing vendors are monitored via an automated service that rates companies’ publicly facing cybersecurity posture and identifies known vulnerabilities.
Removed
Cybersecurity risk assessments, subsequent findings, and response plans, including risks arising in connection with the Company's use of vendors and third parties, are integrated within the Company’s Enterprise Risk Management framework.
Removed
Members of our senior management have specific and relevant cybersecurity expertise and experience, including the following: • The Company’s CISO holds a B.S. degree in Computer Science, an M.S. degree in Administration, an M.S. degree in Electrical Engineering, and a Graduate Certificate in Cybersecurity.
Removed
In addition to the CISO’s more than 30 years of experience in technology and cybersecurity, he also holds multiple professional certifications in security, privacy, governance, audit, and technology. • The Company’s CIO holds a Master of Liberal Arts (ALM) degree in Information Technology Management and a Graduate Certificate in Project Management.

Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeItem 2. Properties As of February 1, 2025, we leased a total of 50,152 square feet of office space in four states, including our corporate headquarters located in Reno, Nevada. Since 2021, we have reduced our real estate footprint by closing and vacating certain of our offices previously located in California, Missouri, Nevada, North Carolina and Wisconsin.
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.
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. 25

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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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.
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.
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.
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.
Added
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 changeThe 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.
Biggest changeThe following table provides information with respect to the Company's repurchases of its common stock during the quarter ended December 31, 2024: 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, 2024 20,602 $ 47.45 20,602 $ 38.6 November 1 – November 30, 2024 11,242 48.17 11,242 38.1 December 1 – December 31, 2024 162,013 51.89 162,013 29.7 Total 193,857 $ 51.20 193,857 (1) Includes fees and commissions paid on stock repurchases, but excludes any applicable excise taxes imposed by the Inflation Reduction Act of 2022.
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.
However, any repurchase of shares of our common stock in the future will be at the discretion of our Board and Audit 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.
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.
Any determination to declare and pay additional or future dividends will be at the discretion of our Board and Audit 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 Audit Committee may deem relevant.
The 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 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, but not limited to, Rules 10b5-1 and 10b-18 of the Exchange. 27 Performance Graph The following information compares the cumulative total return on $100 invested in our common stock, ticker symbol EIG, for the period commencing at the close of market on December 31, 2019 and ending on December 31, 2024 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).
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.
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 648 registered holders of record as of February 24, 2025.
Issuer Purchases of Equity Securities We have repurchased shares of our common stock in every year since 2007, including the periods noted below.
Issuer Purchases of Equity Securities We have repurchased shares of our common stock in every year since we became a publicly traded company in 2007, including the periods noted below.
(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.
(2) On July 26, 2023, the Board authorized a 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.
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.
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.
Removed
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.
Added
We have declared and paid quarterly cash dividends on our common stock in every year since we became a publicly traded company in 2007. We currently expect that quarterly cash dividends will continue to be declared and paid to our stockholders in the future.
Removed
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
Added
On June 10, 2024, the Board authorized a $50.0 million addition to the 2023 Program, increasing our aggregate purchase authority to $100.0 million, and extended the repurchase authority pursuant to the 2023 Program through July 31, 2025.
Added
Cumulative Total Return Performance Period Ending 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Employers Holdings, Inc. $ 79.46 $ 104.79 $ 118.02 $ 110.83 $ 147.79 S&P 500 118.40 152.39 124.79 157.59 197.02 S&P 500 P&C Insurance Index 106.96 127.58 151.65 168.05 227.67

Item 7. Management's Discussion & Analysis

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

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Biggest changePursuant to the Credit Agreement, EHI also had the option to request an increase of the credit available under the facility, up to a maximum facility amount of $125.0 million, subject to the consent of lenders and the satisfaction of certain conditions. 38 On February 16, 2023, the Credit Agreement was amended (the Amended Credit Agreement) to: (i) formally replace the Eurodollar interest rate option with an Adjusted term SOFR option; (ii) amend the definition of consolidated "net worth", as referred to within the Amended Credit Agreement; and (iii) amend the minimum consolidated net worth covenant for fiscal quarters ending after September 30, 2022.
Biggest changePursuant to the terms of the Credit Agreement, EHI has an option to request an increase of the credit available under the facility up to a maximum facility amount of $35.0 million, subject to the consent of the lender(s) and the satisfaction of certain conditions.
Our investment results benefited from a sharp increase in our net investment income due to higher bond yields and net realized and unrealized gains. Our non-underwriting expenses in 2023 included the cost of the early lease termination of our former corporate headquarters and a write-off of previously capitalized cloud computing costs associated with a policy management system.
Our investment results benefited from a sharp increase in our net investment income due to higher bond yields and net realized and unrealized gains. Our non-underwriting expenses in 2023 included the cost of the early lease termination of our former corporate headquarters and a write-off of previously capitalized cloud computing costs associated with a former policy management system.
Investing Activities Net cash provided by investing activities in 2023 related primarily to investment sales, maturities, and redemptions whose proceeds were used to fund claims payment, underwriting and general and administrative expenses, stockholder dividend payments, common stock repurchases, and to repay FHLB advances.
Net cash provided by investing activities in 2023 related primarily to investment sales, maturities, and redemptions whose proceeds were used to fund claims payment, underwriting and general and administrative expenses, stockholder dividend payments, common stock repurchases, and to repay FHLB advances.
We also make a determination as to whether it is more likely than not that we will be required to sell the security before its fair value recovers to above cost, or maturity.
We also make a determination as to whether it is not more likely than not that we will be required to sell the security before its fair value recovers to above cost, or maturity.
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.
The table below provides the actuarial range of loss and LAE reserves, net of reinsurance, that management considered when selecting its best estimate and our carried reserves.
The amount of advances that may be taken is dependent on statutory admitted assets on a per company basis. During 2022, our insurance subsidiaries, with the exception of CIC, had received aggregate advances of $182.5 million under the FHLB Standard Credit Program. These advances could be repaid at any time without penalty and were collateralized by eligible investment securities.
The amount of advances that may be taken is dependent on our statutory admitted assets on a per company basis. During 2022, our insurance subsidiaries, with the exception of CIC, received aggregate advances of $182.5 million under the FHLB Standard Credit Program. These advances could be repaid at any time without penalty and were collateralized by eligible investment securities.
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.
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 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.
Specifically, judgment is required in the following areas: the selection of parameters utilized in the various methodologies; the use of industry data and other benchmarks; and the weighting of differing reserve indications resulting from alternative methods and assumptions. The adequacy of our ultimate loss reserves is inherently uncertain and 45 represents a significant risk to our business.
Specifically, judgment is required in the following areas: the selection of parameters utilized in the various methodologies; the use of industry data and other benchmarks; and the weighting of differing reserve indications resulting from alternative methods and assumptions. The adequacy of our ultimate loss reserves is inherently uncertain and represents a significant risk to our business.
Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Critical Accounting Estimates The preparation of financial statements in accordance with GAAP requires both the use of estimates and judgment, relative to the application of appropriate accounting policies, which include the recognition of premium revenue, recoverability of deferred income taxes, and valuation of investments.
Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. 42 Critical Accounting Estimates The preparation of financial statements in accordance with GAAP requires both the use of estimates and judgment, relative to the application of appropriate accounting policies, which include the recognition of premium revenue, recoverability of deferred income taxes, and valuation of investments.
We bear credit risk with respect to the reinsurers, which could be significant in the future, considering that some of the loss reserves remain outstanding for an extended period of time. Reinsurers may refuse or fail to pay losses that we cede to them, or they might delay payment.
We 45 bear credit risk with respect to the reinsurers, which could be significant in the future, considering that some of the loss reserves remain outstanding for an extended period of time. Reinsurers may refuse or fail to pay losses that we cede to them, or they might delay payment.
We believe our claims practices, including our continued emphasis on accelerating claims settlements, as well as our various underwriting initiatives, have contributed to our favorable results in California. In Nevada, we have compiled a lengthy history of workers' compensation claims payment patterns based on the business of the Fund and EICN.
We believe our claims practices, including our continued emphasis on accelerating claims settlements, as well as our various underwriting initiatives, have contributed to our favorable results in California. 44 In Nevada, we have compiled a lengthy history of workers' compensation claims payment patterns based on the business of the Fund and EICN.
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.
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 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 2023 included $27.0 million of net realized and unrealized gains on equity securities, $(8.0) million of net realized losses on fixed maturity securities, and $3.7 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.
Net realized and unrealized gains (losses) on investments in 2023 included $27.0 million of net realized and unrealized gains on equity securities, $(8.0) million of net realized losses on fixed maturity securities, and $3.7 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.
In California, our recent loss experience shows a slight upward trend in indemnity severity, likely driven by wage increases, and a slight downward trend in medical severity. Our indemnity claims frequency (the number of claims expressed as a percentage of on-leveled premium) has been decreasing.
In California, our recent loss experience shows a slight upward trend in indemnity severity, likely driven by wage increases, and a slight downward trend in medical severity. Our indemnity claims frequency (the number of claims expressed as a percentage of on-leveled premium) has been generally decreasing.
During 2023, we grew our Adjusted stockholders’ equity by $9.9 million (or $3.48 per share), despite returning $106.5 million to stockholders through share repurchases and dividends declared on common stock and eligible plan awards. 32 I.
During 2023, we grew our Adjusted stockholders’ equity by $9.9 million (or $3.48 per share), despite returning $106.5 million to stockholders through share repurchases and dividends declared on common stock and eligible plan awards. I.
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.
We use trend and variance analyses to project future cash needs, making adjustments to our cash forecasts as appropriate. 38 The table below shows our net cash flows. For additional information regarding our cash flows, see Item 8, Consolidated Statements of Cash Flows.
The cash provided by these activities were largely offset by investments of premiums received and reinvestment of funds from investment sales, maturities, redemptions, and interest income. Net cash used in investing activities in 2022 related primarily to FHLB advances received, and reinvestment of funds from investment sales, maturities, redemptions, and interest income.
The cash inflows provided by these activities were largely offset by investments of premiums received and reinvestment of funds from investment sales, maturities, redemptions, and interest income. Net cash used in investing activities in 2022 related primarily to FHLB advances received, and reinvestment of funds from investment sales, maturities, redemptions, and interest income.
Management considers the results of various actuarial methods and their underlying assumptions, among other factors, in establishing loss reserves. Judgment is required in the actuarial estimation of loss reserves, including the selection of various actuarial methodologies to project the ultimate cost of claims.
Management considers the results of various actuarial methods and their underlying assumptions, among other factors, in establishing loss reserves. 43 Judgment is required in the actuarial estimation of loss reserves, including the selection of various actuarial methodologies to project the ultimate cost of claims.
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.
We believe that our subsidiaries' liquidity needs over the next 12 months and for the longer term period thereafter will be met with cash from operations, investment income, and maturing investments. Each of our insurance subsidiaries are members of the FHLB. Membership allows our subsidiaries access to collateralized advances, which may be used to support and enhance liquidity management.
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.
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, 2024. 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.
For each of the years presented, the reinsurance premiums ceded related to our July 1- June 30 annual reinsurance programs as further described herein.
For each of the years presented, the reinsurance premiums ceded are related to our July 1- June 30 annual reinsurance programs as further described herein.
In doing so, we make reference to the most current actuarial analyses, including a review of the assumptions and the results of the various actuarial methods used. We conducted comprehensive studies in the second and fourth quarters. On the alternate quarters, we update the results of the preceding quarter's studies for actual claim payment and case reserve activity.
In doing so, we make reference to the most current actuarial analyses, including a review of the assumptions and the results of the various actuarial methods used. We conduct comprehensive studies in the second and fourth quarters. On the alternate quarters, we update the results of the preceding quarter's studies for actual claim payment and case reserve activity.
Our calculation of loss and LAE reserve payments by period is subject to the same uncertainties associated with determining the level of reserves and to the additional uncertainties arising from the difficulty of predicting when claims (including claims that have not yet been reported to us) will be paid.
Our calculation of loss and LAE expense payments by period is subject to the same uncertainties associated with determining the level of reserves and to the additional uncertainties arising from the difficulty of predicting when claims (including claims that have not yet been reported to us) will be paid.
Additional information regarding our Investments is set forth under "–Liquidity and Capital Resources–Investments" and Note 5 in the Notes to our Consolidated Financial Statements. Other (Loss) Income Other (loss) income consists of net gains and losses on fixed assets, non-investment interest, and other miscellaneous income.
Additional information regarding our Investments is set forth under "–Liquidity and Capital Resources–Investments" and Note 5 in the Notes to our Consolidated Financial Statements. Other Income (Loss) Other income (loss) consists of net gains and losses on fixed assets, non-investment interest, and other miscellaneous income and expense items.
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.
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, 2024, we did not require a deferred tax asset valuation allowance.
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.
The remaining fixed maturity securities whose total fair value was less than amortized cost at December 31, 2024, 2023, and 2022, were those in which we had no intent, need or requirement to sell at an amount less than their amortized cost.
We establish loss reserves based on our own analysis of emerging claims experience and environmental conditions in our markets and review of the results of various actuarial projections. Our aggregate carried loss reserves is the sum of our reserves for each accident year and represents our best estimate of outstanding loss reserves.
We establish loss reserves based on our own analysis of emerging claims experience and environmental conditions in our markets and a review of the results of various actuarial projections. Our aggregate carried loss reserves is the sum of our loss and LAE reserves for each accident year and represents our best estimate of outstanding loss reserves.
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 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 analyze LAE and estimated unpaid LAE separately.
Unpaid Losses and LAE reserves We have developed unpaid losses and LAE reserves payment patterns that are computed based on historical information.
Unpaid Losses and LAE reserves We have developed unpaid losses and LAE expense payment patterns that are computed based on historical information.
(See Note 2 in the Notes to our Consolidated Financial Statements.) (2) LPT Contingent Commission Adjustments result in an adjustment to the Contingent commission receivable - LPT Agreement, which is recognized in losses and LAE incurred on our Consolidated Statements of Comprehensive Income (Loss). (See Note 2 in the Notes to our Consolidated Financial Statements.) Commission Expense Ratio.
(See Note 2 in the Notes to our Consolidated Financial Statements.) (2) LPT Contingent Commission adjustments resulted in an adjustment to the Contingent commission receivable - LPT Agreement, which is recognized in losses and LAE incurred on our Consolidated Statements of Comprehensive Income (Loss). See Note 2 in the Notes to our Consolidated Financial Statements. Commission Expense Ratio.
The interest rates applicable to loans under the Amended Credit Agreement were generally based on, at EHI's option, a base rate plus a specified margin, ranging from 0.25% to 1.25%, or the Adjusted Term SOFR rate, plus a specified margin, ranging from 1.25% to 2.25%.
The interest rates applicable to loans under the former Credit Agreement were generally based on, at EHI's option, a base rate plus a specified margin, ranging from 0.25% to 1.25%, or the Adjusted Term SOFR rate, plus a specified margin, ranging from 1.25% to 2.25%.
No material amounts due from reinsurers have been written-off as uncollectible since our inception in 2000, and in assessing future default, we evaluate the allowance for CECL under the ratings based method using the A.M. Best Average Cumulative Net Impairment Rates. Reinsurer ratings are also assessed through this process.
No material amounts due from reinsurers have been written-off as uncollectible since our inception in 2000, and in assessing future default, we evaluate the allowance for CECL under the ratings based method using the AM Best Average Cumulative Net Impairment Rates. Reinsurer ratings are also assessed through this process.
The rapid economic rebound following the COVID-19 pandemic led to large premium increases related to accident year 2021 that were recognized through policy audits in subsequent years. In response, we strengthened our reserves for accident year 2021 to reflect the potential for higher losses arising from the higher than expected premium.
The rapid economic rebound following the COVID-19 pandemic led to large premium and payroll increases related to accident year 2021 that were recognized through policy audits in subsequent years. In response, we strengthened our reserves for accident year 2021 to reflect the potential for higher losses arising from the higher than expected premium exposure.
As of December 31, 2023, our investment portfolio consisted of 85% fixed maturity securities which had a duration of 4.5 at December 31, 2023. Our investment strategy balances consideration of duration, yield, and credit risk.
As of December 31, 2024, our investment portfolio consisted of 85% fixed maturity securities which had a duration of 4.5 at December 31, 2024. Our fixed maturity investment strategy balances consideration of duration, yield, and credit risk.
Although claims for which reserves are established may not be paid for several years or more, we do not discount loss reserves in our financial statements for the time value of money, in accordance with GAAP. The three main components of our loss reserves are case reserves, incurred but not reported (IBNR) loss reserves, and LAE reserves.
Although claims for which reserves are established may not be paid for several years or more, we do not discount loss reserves in our financial statements for the time value of money. The three main components of our loss reserves are case reserves, incurred but not reported (IBNR) loss reserves, and LAE reserves.
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.
Years Ended December 31, 2024 2023 2022 (in millions) Amortization of the Deferred Gain - losses $ 6.1 $ 6.3 $ 6.8 Amortization of the Deferred Gain - Contingent Commission 0.8 1.5 1.5 Impact of LPT Reserve adjustments (1) (1.7) (0.9) — Contingent Commission adjustments (2) 0.4 0.3 — Total impact of the LPT $ 5.6 $ 7.2 $ 8.3 (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 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.
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 to mid-sized business accounts at appropriate and competitive prices without sacrificing long-term profitability and stability for short-term revenue growth.
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.
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, 2024, we estimate that future medical costs over the lifetime of current claims would increase by approximately $73.0 million on a net-of-reinsurance basis.
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.
Losses and LAE paid with respect to the LPT Agreement totaled $895.6 million at December 31, 2024. We account for the LPT Agreement as retroactive reinsurance. Entry into the LPT Agreement resulted in a Deferred Gain that was recorded on our Consolidated Balance Sheets as a liability.
The calendar year loss and LAE ratio includes changes made during the calendar year in reserves for losses and LAE established for insured events occurring in the current and prior years. The calendar year loss and LAE ratio for a particular year will not change in future periods.
The calendar year loss and LAE ratio reflects changes made during the calendar year in reserves for losses and LAE established for insured events 32 occurring in the current and prior years. The calendar year loss and LAE ratio for a particular year will not change in future periods.
In addition, we believe that these non-GAAP measures, as presented, are helpful to our management in identifying trends in our performance because the LPT has limited significance to our current and ongoing operations. Gross Premiums Written Gross premiums written were $767.7 million, $714.2 million, and $589.7 million for the years ended December 31, 2023, 2022, and 2021, respectively.
In addition, we believe that these non-GAAP measures, as presented, are helpful to our management in identifying trends in our performance because the LPT has limited significance to our current and ongoing operations. Gross Premiums Written Gross premiums written were $776.3 million, $767.7 million, and $714.2 million for the years ended December 31, 2024, 2023, and 2022, respectively.
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).
The Letter of Credit Agreements in effect will expire on March 31, 2025 and may only be used to satisfy, in whole or in part, insurance deposit requirements with the State of California and must be fully secured with eligible collateral at all times (See Note 11 in the Notes to our Consolidated Financial Statements).
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.
The following table summarizes our beginning and ending stockholders' equity balance and the changes thereto for each of the years ended December 31, 2024, 2023, and 2022: December 31, 2024 2023 2022 (in millions) Beginning Balance $ 1,013.9 $ 944.2 $ 1,213.1 Stock-based obligations 6.2 6.1 5.1 Stock options exercised — 0.7 1.1 Shares withheld to satisfy minimum tax withholdings for certain stock-based obligations (1.8) (1.6) (2.3) Acquisition of common stock (41.7) (77.1) (30.4) Dividends declared on common stock and eligible plan awards (30.0) (29.4) (91.3) Net income for the year 118.6 118.1 48.4 Change in net unrealized gains (losses) on investments, net of taxes 3.5 52.9 (199.5) Ending Balance $ 1,068.7 $ 1,013.9 $ 944.2 Deferred Gain.
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.
Securities having a fair value of $630.9 million and $748.1 million were on deposit at each of December 31, 2024 and 2023, respectively. These laws and regulations govern both the amount and types of investment securities that are eligible for deposit.
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.
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 $277.1 million as of December 31, 2024.
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.
Future repurchases of our common stock will be at the discretion of our Board and will depend upon many factors, including our financial position, capital requirements of our operating subsidiaries, general business and socioeconomic conditions, legal, tax, regulatory, and/or contractual restrictions, and any other factors our Board deems relevant.
The primary uses of cash for our operating subsidiaries are payments of losses and LAE, commission expenses, underwriting and general and administrative expenses, ceded reinsurance, repayments of FHLB advances, investment purchases and dividends paid to their parent.
The primary uses of 37 cash for our operating subsidiaries are payments of losses and LAE, commission expenses, underwriting and general and administrative expenses, ceded reinsurance, investment purchases and dividends paid to their parent.
The aggregate carried reserve calculated by management represents our best estimate of our outstanding unpaid losses and LAE. In establishing management's best estimate of unpaid losses and LAE at December 31 for the last three years, we reviewed and considered the following: (a) our actuaries' assumptions, point estimates, and ranges; and (b) the inherent uncertainty of workers' compensation loss reserves.
The aggregate carried reserve calculated by management represents our best estimate of our outstanding unpaid losses and LAE. In establishing management's best estimate of unpaid losses and LAE at December 31 for the last two years, we reviewed and considered the following: (i) our actuaries' assumptions, point estimates, and ranges; and (ii) the inherent uncertainty of workers' compensation loss reserves.
IBNR is an actuarial estimate comprised of the following: (a) future payments on claims that are incurred but have not yet been reported to us; (b) a reserve for the additional development on claims that have been reported to us; and (c) a provision for additional payments on closed claims that might reopen.
IBNR is an actuarial estimate comprised of the following: (i) future payments on claims that are incurred but have not yet been reported to us; (ii) a reserve for the additional development on claims that have been reported to us; and (iii) a provision for additional payments on closed claims that might reopen.
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.
We purchase reinsurance annually to protect us against the costs of severe claims and certain catastrophic events. On July 1, 2024, we entered into a new reinsurance program that is effective through June 30, 2025. The reinsurance program consists of one treaty covering excess of loss and catastrophic loss events in four layers of coverage.
Operating Subsidiaries' Liquidity The primary sources of cash for our operating subsidiaries, which include our insurance and other operating subsidiaries, are premium collections, investment income, sales and maturities of investments, proceeds from FHLB advances, and reinsurance recoveries.
Operating Subsidiaries' Liquidity The primary sources of cash for our operating subsidiaries, which include our insurance and other operating subsidiaries, are premium collections, investment income, sales and maturities of investments and reinsurance recoveries.
The 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 fair value of fixed maturity securities held in trust for the benefit of our ceding reinsurers was $3.0 million at both December 31, 2024 and 2023. Sources of Liquidity We monitor the cash flows of each of our subsidiaries individually, as well as collectively as a consolidated group.
Interest and financing expenses were $5.8 million, $3.5 million, and $0.5 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Interest and financing expenses were $0.1 million, $5.8 million, and $3.5 million for the years ended December 31, 2024, 2023, and 2022, 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.
Net investment income includes interest and dividends earned on our invested assets and amortization of premiums and discounts on our fixed maturity securities, less bank service charges and custodial and portfolio management fees. Net investment income was $107.0 million, $106.5 million, and $89.8 million for the years ended December 31, 2024, 2023, and 2022, respectively.
Underwriting and general and administrative expenses represent those costs that we incur to underwrite and maintain the insurance policies we issue, excluding commissions. Variable underwriting expenses, such as premium taxes, policyholder dividends, and those expenses that vary directly with the production of new or renewal business, are recognized as the associated premiums are earned.
Underwriting and general and administrative expenses represent those costs required to run the business, including costs incurred to underwrite and maintain the insurance policies we issue, excluding commissions. Variable underwriting expenses, such as premium taxes, policyholder dividends, and other expenses that vary directly with the production of new or renewal business, are recognized as the associated written premiums are earned.
The strong growth in our premiums written in 2023 was the result of higher new and renewal business premiums.
The solid growth in our premiums written in 2023 was the result of higher new and renewal business premiums and strong final audit premiums.
Net premiums earned were $721.9 million, $675.2 million, and $574.4 million for the years ended December 31, 2023, 2022, and 2021, respectively. Losses and LAE, Commission Expenses, and Underwriting Expenses The following table presents our calendar year combined ratios.
Net premiums earned were $749.5 million, $721.9 million, and $675.2 million for the years ended December 31, 2024, 2023, and 2022, respectively. Losses and LAE, Commission Expenses, and Underwriting Expenses The following table presents our calendar year combined ratios.
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.
Tax-advantaged investment income, pre-Privatization loss and LAE reserve adjustments, LPT adjustments, Deferred Gain amortization, certain other adjustments and tax credits utilized reduced our income tax expense computed at a statutory rate of 21% by $2.7 million, $0.9 million, and $4.3 million for the years ended December 31, 2024, 2023, and 2022, respectively.
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, standby letters of credit from the FHLB have been issued in lieu of $170.0 million and $70.0 million of securities on deposit at December 31, 2024 and 2023, respectively. Certain reinsurance contracts require funds owned by us to be held in trust for the benefit of the ceding reinsurer to secure the outstanding liabilities we have assumed.
The 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.
The loss and LAE ratios provided in this report are on a calendar year basis, except where they are expressly identified as accident year loss and LAE ratios. The table below reflects current and prior accident year loss and LAE reserve adjustments, the impact of the LPT, and the resulting impact to our loss ratio.
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 declaration and payment of future dividends to our stockholders, including any special dividends, will be at the discretion of our Board and will depend upon many factors, 39 including our financial position, capital requirements of our operating subsidiaries, legal and regulatory requirements, and any other factors that our Board deems relevant.
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.
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 portfolio had a weighted average quality of “A+” as of December 31, 2024. Our investment portfolio also contains equity securities.
Net premiums written were $760.6 million, $707.2 million, and $583.1 million for the years ended December 31, 2023, 2022, and 2021, respectively, which included $7.1 million, $7.0 million, and $6.6 million of reinsurance premiums ceded, respectively. 33 Net Premiums Earned Net premiums earned are primarily a function of the amount and timing of net premiums previously written.
Net premiums written were $769.5 million, $760.6 million, and $707.2 million for the years ended December 31, 2024, 2023, and 2022, respectively, which included $6.8 million, $7.1 million, and $7.0 million of reinsurance premiums ceded, respectively. Net Premiums Earned Net premiums earned are primarily a function of the amount and timing of net premiums previously written.
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 key factors that affected our financial performance during those years included: • Net premiums earned increased 3.8% in 2024 and 6.9% in 2023, each compared to the previous year; • Losses and LAE increased 12.4% in 2024 and 3.8% in 2023, each compared to the previous year; • Underwriting and general and administrative expenses decreased 1.9% in 2024 and increased 7.6% in 2023, each compared to the previous year; • Underwriting income was $15.6 million, $36.2 million, and $21.0 million in 2024, 2023, and 2022, respectively; • Net investment income increased 0.5% in 2024 and 18.6% in 2023, each compared to the previous year; • Net realized and unrealized gains (losses) on investments were $24.1 million, $22.7 million, and $(51.8) million in 2024, 2023, and 2022, respectively; and • Other non-recurring expenses were $11.0 million in 2023.
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.
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. Any payments of dividends by our insurance subsidiaries are restricted by state insurance laws 36 and regulations, including laws establishing minimum solvency and liquidity thresholds.
These investing cash outflows were partially offset by investment sales, maturities and redemptions whose proceeds were used to fund claims payments, underwriting and general and administrative expenses, stockholder dividend payments, and common stock repurchases.
The cash outflows used in these activities were largely offset by investment sales, maturities, and redemptions whose proceeds were used to fund claims payments, underwriting and general and administrative expenses, stockholder dividend payments, and common stock repurchases.
Net favorable prior year loss reserve development recognized in 2022 was $33.5 million versus $39.8 million recognized in 2021. The net favorable development recognized in 2023 was primarily the result of decreasing medical paid loss trends in California related to accident years 2020 and prior, partially offset by reserve strengthening related to accident year 2021.
The net favorable development recognized in 2023 was primarily the result of decreasing medical paid loss trends in California related to accident years 2020 and prior, partially offset by reserve strengthening related to accident year 2021.
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.
The growth in new business premiums experienced in 2024 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 the expansion in the classes of business that we offer.
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).
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, 2024 2023 Increase (decrease) in reserves (1) (in millions) At low end of range $ (148.8) $ (139.3) At high end of range 201.4 175.6 Increase (decrease) in stockholders' equity and net income At low end of range $ 117.6 $ 110.0 At high end of range (159.1) (138.7) (1) The range of actuarial indications captures the range of reasonable estimates and is asymmetrical (e.g., not based on a normal distribution).
In addition, EHI paid a fee on each lender's unused commitment, ranging from 0.20% to 0.50%. Total interest paid and/or fees incurred pursuant to the Amended Credit Agreement or Credit Agreement, as applicable, was $0.5 million for the year ended December 31, 2023 and $0.3 million for each of the years ended December 31, 2022 and 2021.
In addition, EHI paid a fee on each lender's unused commitment, ranging from 0.20% to 0.50%. Interest paid and/or fees incurred pursuant to the former Credit Agreement was $0.5 million and $0.3 million for the years ended December 31, 2023 and 2022, respectively.
The decrease of $1.8 million in 2023 was due to the sale of securities that previously had an allowance and the stabilization in the financial markets, which decreased our current provision.
The decrease in our CECL allowance of $1.6 million in 2024 was due to the sale of securities that previously had an allowance and the stabilization in the financial markets, which decreased our CECL provision.
Our 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.
Our consolidated financial results of operations for the three year period ending December 31, 2024 are as follows: Years Ended December 31, 2024 2023 2022 (in millions) Gross premiums written $ 776.3 $ 767.7 $ 714.2 Net premiums written $ 769.5 $ 760.6 $ 707.2 Net premiums earned $ 749.5 $ 721.9 $ 675.2 Net investment income 107.0 106.5 89.8 Net realized and unrealized gains (losses) on investments 24.1 22.7 (51.8) Other (loss) income 0.1 (0.2) 0.3 Total revenues 880.7 850.9 713.5 Underwriting expenses: Losses and LAE 456.2 405.7 391.0 Commission expense 101.2 100.0 95.9 Underwriting and general and administrative expenses 176.5 180.0 167.3 Non-underwriting expenses: Interest and financing expenses 0.1 5.8 3.5 Other expenses — 11.0 — Total expenses 734.0 702.5 657.7 Net income before income taxes 146.7 148.4 55.8 Income tax expense 28.1 30.3 7.4 Net income $ 118.6 $ 118.1 $ 48.4 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.
Years Ended December 31, 2023 2022 2021 Loss and LAE ratio excluding LPT 57.2 % 59.1 % 56.9 % Loss and LAE ratio - LPT (1.0) % (1.2) % (2.0) % Commission expense ratio 13.9 14.2 13.2 Underwriting expense ratio 24.9 24.8 27.9 Combined ratio 95.0 % 96.9 % 96.0 % Combined ratio excluding LPT 96.0 % 98.1 % 98.0 % Losses and LAE represents our largest expense item and includes claim payments made, amortization of the Deferred Gain, LPT Reserve Adjustments, LPT Contingent Commission Adjustments, estimates for future claim payments and changes in those estimates for current and prior periods, and costs associated with investigating, defending, and adjusting claims.
Years Ended December 31, 2024 2023 2022 Loss and LAE ratio excluding LPT 61.6 % 57.2 % 59.1 % Loss and LAE ratio - LPT (0.7) % (1.0) % (1.2) % Commission expense ratio 13.5 13.9 14.2 Underwriting expense ratio 23.5 24.9 24.8 Combined ratio 97.9 % 95.0 % 96.9 % Combined ratio excluding LPT 98.6 % 96.0 % 98.1 % Losses and LAE represent our largest expense item and includes claim payments made, amortization of the Deferred Gain, Contingent Commission adjustments, estimates for future claim payments and changes in those estimates for current and prior accident years, and costs associated with investigating, defending, and adjusting claims.
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.
Investing Activities Net cash used in investing activities in 2024 related primarily to investments of premiums received, the receipt of the Contingent Commission, the reinvestment of funds from investment sales, maturities, redemptions, and interest income.
Overview Summary Financial Results Our net income was $118.1 million, $48.4 million, and $119.3 million in 2023, 2022, and 2021, respectively.
Overview Summary Financial Results Our net income was $118.6 million, $118.1 million, and $48.4 million in 2024, 2023, and 2022, respectively.
On July 26, 2023, our Board authorized a new stock repurchase authorization for repurchases of up to $50.0 million of our common stock from July 31, 2023 through December 31, 2024 (the 2023 Program). The 2023 Program replaced its former program (the 2021 Program) that was set to expire on December 31, 2023.
On July 26, 2023, our Board authorized a new stock repurchase authorization for repurchases of up to $50.0 million of our common stock from July 31, 2023 through December 31, 2024 (the 2023 Program).
Our underwriting and general and administrative expense ratio was 24.9%, 24.8%, and 27.9%, and our underwriting expenses were $180.0 million, $167.3 million, and $160.2 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Our underwriting and general and administrative expense ratio was 23.5%, 24.9%, and 24.8%, and our underwriting expenses were $176.5 million, $180.0 million, and $167.3 million for the years ended December 31, 2024, 2023, and 2022, respectively.
Our Investment Managers follow our written investment guidelines, which are approved by the Finance Committee of the Board. Our asset allocation is reevaluated by management and reviewed by the Finance Committee of the Board 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 Audit 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.
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.
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.
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.
Our loss reserves (gross and net of reinsurance), including the main components of such reserves, were as follows: As of December 31, 2024 2023 (in millions) Case reserves $ 938.1 $ 924.2 IBNR 611.1 695.7 LAE reserves 259.0 264.6 Gross unpaid losses and LAE reserves 1,808.2 1,884.5 Less reinsurance recoverable on unpaid losses and LAE, excluding CECL allowance 412.4 428.4 Net unpaid losses and LAE reserves $ 1,395.8 $ 1,456.1 We use actuarial methods to analyze and estimate the aggregate amount of loss reserves.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe 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.
Biggest changeAs of December 31, 2024, the par value of our commercial and residential mortgage-backed securities holdings was $727.9 million, and the amortized cost was 100.7% of par value. The commercial and residential mortgage-backed securities portion of the portfolio totaled 29.1% of total investments as of December 31, 2024.
This sensitivity analysis does not reflect the results of any action that we may take to mitigate such hypothetical losses in fair value. We use fair values to measure our potential loss in this model, which includes fixed maturity securities and short-term investments. For invested assets, we use modified duration modeling to calculate changes in fair values.
This sensitivity analysis does not reflect the results of any action that we may take to mitigate such hypothetical losses in fair value. 46 We use fair values to measure our potential loss in this model, which includes fixed maturity securities and short-term investments. For invested assets, we use modified duration modeling to calculate changes in fair values.
To the extent inflation causes these costs to increase above established reserves, we will be required to increase those reserves for losses and LAE, reducing our earnings in the period in which our assumptions are revised.
To 47 the extent inflation causes these costs to increase above established reserves, we will be required to increase those reserves for losses and LAE, reducing our earnings in the period in which our assumptions are revised.
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.
Our fixed maturity investments (excluding cash and cash equivalents) had a duration of 4.5 at December 31, 2024. 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.
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.
Credit Risk Our fixed maturity securities, equity securities, other invested assets and cash and cash equivalents are exposed to credit risk, which we attempt to mitigate through issuer and industry diversification. Our investment guidelines include limitations on the minimum rating of fixed maturity securities and concentrations of a single issuer.
Higher levels of wage inflation can specifically impact the payrolls of our insureds, which is the basis for the premiums we charge, as well as amount of future indemnity losses we may incur. Higher levels of inflation could also impact our operating expenses and, in the case of wage inflation, could impact our payroll expenses.
Higher levels of wage inflation can specifically impact the payrolls of our insureds, which is the basis for the premiums we charge, as well as amount of future indemnity losses we may incur. Higher levels of inflation could also adversely impact certain of our operating expenses and, in the case of wage inflation, could adversely impact our payroll expenses.
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.
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, 2024.
The rates at which the mortgages underlying mortgage-backed securities are prepaid, and therefore the average life of mortgage-backed securities, can vary depending on changes in interest rates (for example, mortgages are prepaid faster and the average life of mortgage-backed securities falls when interest rates decline).
The rates at which the mortgages underlying mortgage-backed securities are prepaid, and therefore the average life of mortgage-backed securities, can vary depending on changes in interest rates (for example, mortgages tend to prepay faster and the average life of mortgage-backed securities falls when interest rates decline).
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 our market sensitive investments are subject to potential losses in future earnings resulting from changes in interest rates and other market conditions.
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.
See Note 6 in the Notes to our Consolidated Financial Statements. Interest Rate Risk Investments Our fixed maturity securities are exposed to interest rate risk, which is the risk of a change in fair value resulting from changes in prevailing interest rates, which we manage through duration.
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 estimated changes in fair values on our fixed maturity securities and short-term investments, which had an aggregate value of $2,097.5 million as of December 31, 2024, 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 $ (256.6) (12.2) % 200 basis point rise (174.8) (8.3) 100 basis point rise (88.7) (4.2) 50 basis point decline 44.8 2.1 100 basis point decline 89.5 4.3 200 basis point decline 177.8 8.5 300 basis point decline 264.0 12.6 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 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.
Economic disruptions caused by ongoing financial market volatility, inflationary pressures, and heightened geo-political conditions, have impacted the credit risk associated with certain of our investment holdings. As a result, we maintained a $1.1 million and $2.7 million allowance for CECL on our fixed maturity portfolio as of December 31, 2024 and 2023, respectively.
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.
The table below shows the sensitivity of our equity securities at fair value to price changes as of December 31, 2024: (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 $ 145.0 $ 254.1 $ 228.7 $ (25.4) $ 279.5 $ 25.4 Effects of Inflation In recent years, 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.
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.
Economic and market disruptions caused by geo-political conditions, inflationary pressures and credit concerns in certain financial and banking markets, 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.
Equity Price Risk Equity price risk is the risk that we may incur losses in the fair value of the equity securities we hold in our investment portfolio.
Agency-backed residential mortgage pass-throughs totaled $463.8 million, or 74.8%, of the residential mortgage-backed securities portion of the portfolio as of December 31, 2024. Equity Price Risk Equity price risk is the risk that we may incur losses in the fair value of the equity securities we hold in our investment portfolio.
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.
Increases in market interest rates that have occurred in recent years, which were intended to aid in the suppression of inflation, continue to negatively impact the market value of our existing fixed maturity investments while also having the effect of increasing our net investment income.
Removed
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.
Removed
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.

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