Wednesday, February 25, 2009

Employers Holdings, Inc. Reports Fourth Quarter and Full Year 2008 Earnings, Extends Stock Repurchase Program and Announces Dividend

RENO, Nev., Feb. 25 /PRNewswire-FirstCall/ -- Employers Holdings, Inc. ("EHI" or the "Company") (NYSE: EIG) today reported net income for the fourth quarter of 2008 of $15.9 million or $0.32 per share compared with $31.8 million or $0.64 per share in the fourth quarter of 2007. Net income includes amortization of the deferred reinsurance gain related to the Loss Portfolio Transfer ("LPT") Agreement. Consolidated net income before the impact of the LPT (the Company's non-GAAP measure described below) was $11.3 million or $0.23 per share in the fourth quarter of 2008 compared with $27.4 million or $0.55 per share in the fourth quarter of 2007.

Net income for the year ended December 31, 2008 decreased 15.4% to $101.8 million or $2.07 per share from $120.3 million or $2.32 per pro forma share for the same period in 2007. Net income before the impact of the LPT for the year ended December 31, 2008 was $83.4 million or $1.69 per share compared with $102.2 million or $1.98 per pro forma share for the same period in 2007.

As of December 31, 2008, total stockholders' equity increased to $444.7 million from $379.5 million at December 31, 2007. Equity, including the deferred reinsurance gain related to the LPT, increased 5.8% to $851.3 million at December 31, 2008 from $804.5 million at December 31, 2007. Consolidated stockholders' equity per share including the LPT deferred reinsurance gain increased 7.5% to $17.43 at December 31, 2008 compared to $16.21 at December 31, 2007.

Commenting on the results, President and Chief Executive Officer Douglas D. Dirks said, "Despite unprecedented uncertainty in financial markets and the downturn in national and regional economies, we delivered increased book value, a strengthened balance sheet and stable net investment income. Our results for the quarter and the year include the results of our acquired operations for November and December of 2008. With our recent acquisition, we saw fourth quarter increases in invested assets, premium and associated losses, and in underwriting expenses prior to the staffing reductions we announced in January of 2009. Our sales activities remain strong as overall organic policy count increased 7.7% since December 31, 2007 and 35.3% when 9,318 acquired policies are included. Our acquisition, including the state licenses, operations and premium, is pivotal in implementing our expansion strategy, particularly given the challenge of growing organically in a contracting economy. We will continue to integrate our expanded operations throughout 2009 with a focus on systems and best practices. Consistent with our conservative reserving philosophy, we recognized benefits from better than expected loss development related to prior years."

Fourth quarter net premiums earned increased 25.6% to $106.1 million in 2008 from $84.4 million in 2007 due to $31.6 million in acquired earned premium. Net premiums earned for the twelve months ended December 31, 2008 declined 5.2% to $328.9 million from $346.9 million for the same period in 2007. Declines in premium were largely attributable to reductions in premium rates, competition and the economic recession. These impacts were partially offset by an overall in force policy count increase of 35.3%, including 9,318 acquired policies, to 45,599 at December 31, 2008 from 33,699 at December 31, 2007.

Fourth quarter 2008 net investment income increased $2.9 million to $22.1 million from $19.2 million in the fourth quarter of 2007 primarily due to $3.6 million in additional investment income from acquired assets. Net investment income for the twelve months ended December 31, 2008 decreased slightly by 0.7% to $78.1 million. Without the acquisition, net investment income would have decreased $4.2 million or 5.3% from the previous year largely due to one-time interest income of $1.8 million received in the first quarter of 2007 from invested net proceeds related to the issuance of common stock as part of the Company's conversion from a mutual insurance holding company. The average pre-tax book yield on assets declined to 4.20% from 4.28% in 2007. Excluding acquired assets, the pre-tax book yield at year end 2008 would have been 4.08%. As part of the acquisition, the Company acquired over $400 million in fixed maturity assets resulting in $2.0 billion of total invested assets (fair value) at December 31, 2008 compared to $1.7 billion at December 31, 2007.

Realized losses on investments for the fourth quarter of 2008 totaled $8.3 million compared with realized gains of $0.5 million in the fourth quarter of 2007. For the twelve months ended December 31, 2008, realized losses on investments were $11.5 million compared with a gain of $0.2 million for the twelve months ended December 31, 2007. Net realized losses in 2008 are largely attributable to other-than-temporary-impairment in the value of common stock holdings and in primarily one fixed maturity security.

Fourth quarter losses and LAE increased to $56.2 million in 2008 from $32.0 million in 2007 largely due to $18.5 million in losses and LAE from acquired operations. Before the impact of the LPT, losses and LAE would have been $60.7 million in the fourth quarter of 2008 and $36.3 million in the fourth quarter of 2007. Favorable prior accident year development was $18.4 million in the fourth quarter of 2008 compared with $16.6 million in the fourth quarter of 2007. Losses and LAE for the twelve months ended December 31, 2008 decreased 4.7% to $136.5 million from $143.3 million in the twelve months ended December 31, 2007. Excluding the impact of the LPT, losses and LAE would have been $154.9 million and $161.3 million for the twelve months ended December 31, 2008 and 2007, respectively. The decrease in losses and LAE for the full year was primarily due to declines in net earned premiums. Favorable prior accident year loss development in 2008 was $71.7 million compared with $60.0 million in 2007. The 2008 current year loss estimate was 68.9% compared to 63.8% for 2007.

In the fourth quarter of 2008, commission expense of $13.2 million increased from $8.5 million in the fourth quarter of 2007 largely due to $3.3 million in commission expense from acquired operations. Commission expense for the full year 2008 decreased 1.6% to $43.6 million from $44.3 million for the same period in 2007.

Fourth quarter underwriting and other operating expense increased to $35.8 million from $23.6 million in 2007 largely due to acquired operating expenses of $11.6 million. For the full year 2008, underwriting and other operating expense increased to $102.5 million from $91.4 million in 2007 due to acquired underwriting expenses.

The fourth quarter 2008 income tax benefit of $3.1 million was primarily attributable to lower fourth quarter 2008 pre-tax income and the reduction in ultimate loss estimates on pre-privatization reserves that are not taxable. Income taxes in the full year 2008 decreased to $10.3 million from $30.6 million in 2007 due to a year over year change of $4.8 million related to the final reversal of the liability for previously unrecognized tax benefits including interest. The effective tax rate for the twelve months ended December 31, 2008 was 9.2% compared to 20.3% in 2007.

The fourth quarter 2008 combined ratio of 99.1% (103.4% before the LPT) increased from the fourth quarter 2007 combined ratio of 75.9% (81.1% before the LPT). The full year 2008 combined ratio increased 5.5 percentage points to 85.9% (91.5% before the LPT) from 80.4% (85.6% before the LPT) in 2007, with 2.1 percentage points of the increase related to the acquisition.

EHI also announced today that its Board of Directors has extended the Company's previously announced stock repurchase program through December 31, 2009, which program authorized the Company to repurchase up to $100 million of its common stock.

Under the program, the Company may repurchase common stock from time to time at prevailing market prices in open market purchases, privately negotiated transactions, accelerated stock repurchase programs, issuer self-tender offers or otherwise, as determined by the Company's management and in accordance with applicable laws and regulations, and subject to market conditions and other factors. The program does not obligate the Company to acquire any particular amount of common stock. The pace of repurchase activity, if any, will depend on many factors, including, without limitation, levels of cash generation from operations, cash requirements for investment in the Company's business, repayment of debt, current stock price and market conditions. The program may be suspended, modified or discontinued at any time without prior notice.

Additionally, the Board of Directors has declared a first quarter cash dividend of six cents per share. The dividend is payable on March 25, 2009, to stockholders of record as of March 11, 2009.

Conference Call and Web Cast, Form 10-K

The Company will host a conference call Thursday, February 26, 2009 at 10:30 a.m. Pacific Time. The conference call will be available via a live web cast on the Company's web site at www.employers.com. An archived version will be available following the call. The conference call replay number is (888) 286-8010 with a passcode of 87293366. International callers may dial (617) 801-6888.

EHI will file its Form 10-K for the period ended December 31, 2008, with the Securities and Exchange Commission ("SEC") on Thursday, February 26, 2009. The Form 10-K will be available without charge through the EDGAR system at the SEC's Web site and will also posted on the Company's Web site, www.employers.com, and is accessible through the "Investors" link.

Discussion of Non-GAAP Financial Measures

This earnings release includes non-GAAP financial measures used to analyze the Company's operating performance for the periods presented.

A number of these non-GAAP financial measures exclude impacts related to the LPT Agreement. The 1999 LPT Agreement was a non-recurring transaction that does not result in ongoing cash benefits and, consequently, the Company believes these non-GAAP measures are useful in providing stockholders and management a meaningful understanding of the Company's operating performance. In addition, these measures, as defined, are helpful to management in identifying trends in the Company's performance because the items excluded have limited significance in current and ongoing operations.

The Company strongly urges stockholders and other interested persons not to rely on any single financial measure to evaluate its business. These non-GAAP measures are not a substitute for GAAP measures and investors should be careful when comparing the Company's non-GAAP financial measures to similarly titled measures used by other companies.

Net Income before impact of LPT. Net income less (i) amortization of deferred reinsurance gain--LPT Agreement and (ii) adjustments to LPT Agreement ceded reserves.

Deferred reinsurance gain--LPT Agreement. This reflects the unamortized gain from the LPT Agreement. Under GAAP, this gain is deferred and amortized using the recovery method, whereby the amortization is determined by the proportion of actual reinsurance recoveries to total estimated recoveries, and the amortization is reflected in losses and LAE.

Gross Premiums Written. Gross premiums written is the sum of both direct premiums written and assumed premiums written before the effect of ceded reinsurance. Direct premiums written represents the premiums on all policies the Company's insurance subsidiaries have issued during the year. Assumed premiums written represents the premiums that the insurance subsidiaries have received from an authorized state-mandated pool.

Net Premiums Written. Net premiums written is the sum of direct premiums written and assumed premiums written less ceded premiums written. Ceded premiums written is the portion of direct premiums written that are ceded to reinsurers under reinsurance contracts. The Company uses net premiums written, primarily in relation to gross premiums written, to measure the amount of business retained after cession to reinsurers.

Losses and LAE before impact of LPT. Losses and LAE before (i) amortization of deferred reinsurance gain--LPT Agreement and (ii) adjustments to LPT Agreement ceded reserves.

Losses and LAE Ratio. The losses and LAE ratio is a measure of underwriting profitability. Expressed as a percentage, it is the ratio of losses and LAE to net premiums earned.

Commission Expense Ratio.¿ Commission expense ratio is the ratio (expressed as a percentage) of commission expense to net premiums earned.

Underwriting and Other Operating Expense Ratio.¿The underwriting and other operating expense ratio is the ratio (expressed as a percentage) of underwriting and other operating expense to net premiums earned.

Combined Ratio.¿The combined ratio represents the percentage of each premium dollar spent on claims and expenses. The combined ratio is the sum of the losses and LAE ratio, the commission expense ratio and the underwriting and other operating expense ratio.

Combined Ratio before impacts of LPT. Combined ratio before impacts of LPT is the GAAP combined ratio before (i) amortization of deferred reinsurance gain--LPT Agreement and (ii) adjustments to LPT Agreement ceded reserves.

Equity including deferred reinsurance gain--LPT. Equity including deferred reinsurance gain--LPT is total equity including the deferred reinsurance gain--LPT Agreement.

Forward-Looking Statements

In this press release, the Company and its management discuss and make statements based on currently available information regarding their intentions, beliefs, current expectations, and projections regarding the Company's future operations and performance. Certain of these statements may constitute "forward-looking" statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and are often identified by words such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "target," "project," "intend," "believe," "estimate," "predict," "potential," "pro forma," "seek," "likely," or "continue," or other comparable terminology and their negatives.

EHI and its management caution investors that such forward-looking statements are not guarantees of future performance. Risks and uncertainties are inherent in EHI's future performance. Factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements include, among other things, those discussed or identified from time to time in our public filings with the SEC, including the risks detailed in the Company's Quarterly Reports on Form 10-Q for the periods ended March 31, 2008, June 30, 2008 and September 30, 2008 and the Company's 2007 Annual Report on Form 10-K.

All forward-looking statements made in this news release reflect EHI's current views with respect to future events, business transactions and business performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. The business of EHI could be affected by, among other things, competition, pricing and policy term trends, the levels of new and renewal business achieved, market acceptance, changes in demand, the frequency and severity of catastrophic events, actual loss experience, uncertainties in the loss reserving and claims settlement process, new theories of liability, judicial, legislative, regulatory and other governmental developments, litigation tactics and developments, investigation developments, the amount and timing of reinsurance recoverables, credit developments among reinsurers, changes in the cost or availability of reinsurance, market developments (including adverse developments in financial markets as a result of, among other things, changes in local, regional or national economic conditions and continued volatility and further deterioration of financial markets), credit and other risks associated with EHI's investment activities, significant changes in investment yield rates, rating agency action, possible terrorism or the outbreak and effects of war and economic, political, regulatory, insurance and reinsurance business conditions, relations with and performance of employee agents, the integration of acquired operations (including the failure to realize anticipated benefits of such acquisitions and potential disruption from the acquisitions making it more difficult to maintain relationships with customers, employees, agents or producers), as well as management's response to these factors, and other factors identified in EHI's filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made.

The SEC filings for EHI can be accessed through the "Investors" link on the Company's website, www.employers.com, or through the SEC's EDGAR Database at www.sec.gov (EHI EDGAR CIK No. 0001379041). EHI assumes no obligation to update this release or the information contained herein, which speaks as of the date issued.

Copyright (C) 2009 Employers Holdings, Inc. All rights reserved. EMPLOYERS(R) and America's small business insurance specialist.(R) are registered trademarks of Employers Insurance Company of Nevada. Employers Holdings, Inc. is an insurance holding company with subsidiaries that are specialty providers of workers' compensation insurance and services focused on select, small and medium-sized businesses engaged in low to medium hazard industries. The company, through its subsidiaries, operates in 29 states from 17 office locations. Insurance subsidiaries include Employers Insurance Company of Nevada, Employers Compensation Insurance Company, Employers Preferred Insurance Company, and Employers Assurance Company, all rated A- (Excellent) by A.M. Best Company. Employers Preferred Insurance Company and Employers Assurance Company are also known as AmCOMP Preferred Insurance Company and AmCOMP Assurance Corporation, respectively. Additional information can be found at: http://www.employers.com.



                          Employers Holdings, Inc.
                      Consolidated Statements of Income
                              (In thousands)

                          Three Months Ended     Years Ended
                              December 31,       December 31,
                             2008      2007     2008       2007
                              (unaudited)
    Revenues
    Gross premiums
     written              $93,004   $79,384  $322,922  $350,696
    Net premiums written  $91,043   $76,537  $312,847  $338,569
    Net premiums earned  $106,105   $84,448  $328,947  $346,884
    Net investment income  22,147    19,237    78,062    78,623
    Realized (losses)
     gains on
     investments, net     (8,313)       502  (11,524)       180
    Other income              138     1,189     1,293     4,236
    Total revenues        120,077   105,376   396,778   429,923

    Expenses
    Losses and loss
     adjustment expenses   56,171    31,966   136,515   143,302
    Commission expense     13,153     8,539    43,618    44,336
    Underwriting and other
     operating expenses    35,845    23,621   102,459    91,399
    Interest expense        2,135        --     2,135        --
    Total expenses        107,304    64,126   284,727   279,037

     Net income before
     income taxes          12,773    41,250   112,051   150,886
     Income tax (benefit)
      expense             (3,083)     9,486    10,266    30,603
     Net income           $15,856   $31,764  $101,785  $120,283

     Net income after date
      of conversion through
      December 31, 2007                                $113,812

    Reconciliation of net
     income and EPS to net
     income and EPS before
     impact of LPT Agreement
     Net income           $15,856   $31,764  $101,785  $120,283
    Less: Impact of LPT
     Agreement
       Amortization of
        deferred
        reinsurance gain -
        LPT Agreement       4,513     4,340    18,421    18,034
     Net income before
      LPT Agreement       $11,343   $27,424   $83,364  $102,249



                        Employers Holdings, Inc.
                   Consolidated Statements of Income
              (In thousands, except share and per share data)


                               For the                     For the
                                Three         For the      Period
                                Months         Years       Feb. 5,
                                Ended          Ended       through
                               Dec. 31,       Dec. 31,     Dec. 31,
                            2008      2007      2008         2007

                             (unaudited)

    Net Income            $15,856   $31,764   $101,785     $113,812

    Earnings per common
     share
         Basic              $0.32     $0.64      $2.07        $2.19
         Diluted            $0.32     $0.64      $2.07        $2.19

    Weighted average
     shares outstanding
         Basic         48,854,073 49,644,578 49,217,829  51,933,827
         Diluted       48,902,010 49,674,533 49,261,228  51,943,412


                                                       Pro Forma for
                                                         the Twelve
                                                        Months Ended
                                                            Dec. 31,
                                                              2007

    Net Income                                             $120,283

    Earnings per common share
         Basic                                                $2.32
         Diluted                                              $2.32

    Weighted average shares outstanding
         Basic (1)                                       51,748,392
         Diluted (1)                                     51,757,057


                                                         Pro Forma
                               For the         For the    for the
                                Three           Twelve    Twelve
                                Months          Months    Months
                                Ended           Ended     Ended
                               Dec. 31,        Dec. 31,  Dec. 31,

                            2008     2007        2008      2007

                              (unaudited)
    Earnings per common
     share for the three
     month period:
         Basic              $0.32     $0.64     $2.07     $2.32
         Diluted            $0.32     $0.64     $2.07     $2.32

    Earnings per common
     share attributable
     to the LPT Agreement
         Basic              $0.09     $0.09     $0.38     $0.34
         Diluted            $0.09     $0.09     $0.38     $0.34

    Pro forma earnings per
     common share before
     the LPT Agreement
         Basic              $0.23     $0.55     $1.69     $1.98
         Diluted            $0.23     $0.55     $1.69     $1.98



    (1) The pro forma earnings per common share for the twelve months ended
        December 31, 2007 includes shares outstanding for the period after
        the Company's conversion on February 5, 2007 (52,818,747), and for
        the period prior to the conversion assuming the common stock
        available to eligible members (50,000,002).



                          Employers Holdings, Inc.
                        Consolidated Balance Sheets
                      (In thousands, except share data)

                                        December 31, December 31,
                                             2008         2007
    Assets
    Available for Sale:
    Fixed maturity investments at fair
     value (amortized cost $1,870,227 in
     2008 and $1,594,159 in 2007)          $1,909,391  $1,618,903
    Equity securities at fair value
     (cost of $43,014 in 2008 and
     $60,551 in 2007)
    Short-term investments at fair value
     (amortized cost $74,952 at
     December 31, 2008)                       58,526     107,377
                                              75,024          --
    Total investments                      2,042,941   1,726,280
    Cash and cash equivalents                202,893     149,703
    Accrued investment income                 24,201      19,345
    Premiums receivable, less bad debt
     allowance of $7,911 in 2008 and
       $6,037 in  2007                        91,273      36,402
    Reinsurance recoverable for:
       Paid losses                            12,723      10,218
       Unpaid losses, less allowance of
        $1,335 in 2008 and $1,308 in 2007  1,075,015   1,051,333
    Funds held by or deposited with
     reinsureds                               88,163      95,884
    Deferred policy acquisition costs         32,365      14,901
    Federal income taxes recoverable          11,042          --
    Deferred income taxes, net                80,968      59,730
    Property and equipment, net               14,098      14,133
    Intangible assets, net                    18,218          --
    Goodwill                                  36,192          --
    Other assets                              26,621      13,299
    Total assets                          $3,756,713  $3,191,228

    Liabilities and stockholders' equity
    Claims and policy liabilities:
    Unpaid losses and loss adjustment
     expenses                             $2,506,478  $2,269,710
    Unearned premiums                        139,310      63,924
    Policyholders' dividends accrued           8,737         386
    Total claims and policy liabilities    2,654,525   2,334,020

    Commissions and premium taxes payable     12,691       7,493
    Federal income taxes payable                  --      13,884
    Accounts payable and accrued expenses     24,192      20,682
    Deferred reinsurance gain-LPT Agreement  406,581     425,002
    Notes payable                            182,000          --
    Other liabilities                         31,996      10,694
    Total liabilities                      3,311,985   2,811,775


    Commitments and contingencies:
          Stockholders' equity
     Common stock, $0.01 par value;
      150,000,000 shares authorized;
      53,528,207 and 53,527,907 issued
      and 48,830,140 and 49,616,635 shares
      outstanding at December 31, 2008 and
      December 31, 2007 respectively             535         535
    Preferred stock, $0.01 par value;
     25,000,000 shares authorized;
     none issued                                  --          --
    Additional paid-in capital               306,032     302,862
      Retained earnings                      194,509     104,536
    Accumulated other comprehensive income,
      net                                     32,804      46,520
     Treasury stock, at cost (4,698,067
      shares at December 31, 2008 and
      3,911,272 shares at
      December 31, 2007)                     (89,152)    (75,000)
     Total stockholders' equity              444,728     379,453
     Total liabilities and stockholders'
     equity                               $3,756,713  $3,191,228


                                          December 31,  December 31,
                                              2008        2007
    Equity including deferred reinsurance
     gain - LPT
       Total stockholders' equity           $444,728    $379,453
       Deferred reinsurance gain -
         LPT Agreement                       406,581     425,002
        Total equity including deferred
         reinsurance gain - LPT Agreement   $851,309    $804,455



                         Employers Holdings, Inc.
                    Consolidated Statements of Cash Flows
                             (In thousands)

                                                  Years Ended
                                                  December 31,
                                                2008        2007

    Operating activities
    Net income                              $101,785    $120,283
    Adjustments to reconcile net income to
     net cash provided by
    operating activities:
    Depreciation and amortization              7,226       6,406
    Stock-based compensation                   3,161       1,720
    Amortization of premium on investments,
     net                                       6,226       6,430
    Allowance for doubtful accounts -
     premiums receivable                       (705)       (874)
          Allowance for doubtful accounts -
           unpaid reinsurance recoverable         27          32
          Deferred income tax expense          4,511       4,779
          Realized losses  (gains) on
           investments, net                   11,524       (180)
          Realized losses on retirement
           of assets                              22          23
          Change in operating assets and
           liabilities, net of effect of
           acquisition:
    Accrued investment income                  (469)       (914)
    Premiums receivable                       23,203      15,783
    Reinsurance recoverable on paid and
     unpaid losses                            37,938      46,317
    Funds held by or deposited with
     reinsureds                                7,721       7,071
    Unpaid losses and loss adjustment
     expenses                               (71,980)    (38,045)
    Unearned premiums                       (20,471)     (9,331)
    Federal income taxes payable            (20,672)    (10,378)
    Accounts payable, accrued expenses and
     other liabilities                       (3,527)     (9,428)
    Deferred reinsurance gain -
     LPT Agreement                          (18,421)    (18,034)
    Other                                        215     (1,506)
    Net cash provided by operating
     activities                               67,314     120,154

    Investing activities
    Purchase of fixed maturities           (113,587)   (252,275)
    Purchase of equity securities              (558)     (1,037)
    Proceeds from sale of fixed maturities    42,467     208,697
    Proceeds from sale of equity securities    4,010       4,264
    Proceeds from maturities and
     redemptions of investments              105,424      55,475
    Cash paid for acquisition, net of cash
     and cash equivalents acquired         (168,903)          --
    Capital expenditures and other, net      (3,926)     (4,964)
    Net cash (used in) provided by
     investing activities                  (135,073)      10,160

    Financing activities
    Issuance of common stock, net                 --     486,670
    Cash paid to eligible policyholders
     under plan of conversion                     --   (462,989)
    Acquisition of treasury stock           (14,152)    (75,000)
    Dividends paid to stockholders          (11,808)     (9,276)
    Debt issuance costs                        (375)          --
    Payments on notes payable                (2,678)          --
    Proceeds from notes payable              150,000          --
    Other                                       (38)          --
    Net cash provided by (used in) financing
     activities                              120,949    (60,595)

    Net increase in cash and cash
     equivalents                              53,190      69,719
    Cash and cash equivalents at the
     beginning of the year                   149,703      79,984
    Cash and cash equivalents at the
     end of the year                        $202,893    $149,703

    Cash paid for income taxes               $22,526     $36,200
    Cash paid for interest                     1,782          --

    Schedule of non-cash transactions
    Stock issued in exchange for
     membership interest                         $--    $281,073



                           Employers Holdings, Inc.
                Calculation of Combined Ratio before the Impact
                            of the LPT Agreement
                     (In thousands, except for percentages)


                          Three Months Ended      Years Ended
                              December 31,        December 31,
                             2008      2007      2008      2007
                              (unaudited)

    Net Premiums Earned  $106,105   $84,448  $328,947  $346,884

    Losses and Loss
     Adjustment Expenses  $56,171   $31,966  $136,515  $143,302
    Loss & LAE Ratio        52.9%     37.9%     41.5%     41.3%

    Losses and Loss
     Adjustment Expenses  $56,171   $31,966  $136,515  $143,302
    Impacts of LPT          4,513     4,340    18,421    18,034
    Loss & LAE before
     impacts of LPT       $60,684   $36,306  $154,936  $161,336
          LPT Impacts to
           the Loss &
            LAE Ratio        4.3%      5.1%      5.6%      5.2%
    Loss & LAE Ratio before
     impacts of LPT         57.2%     43.0%     47.1%     46.5%

    Commission Expense    $13,153    $8,539   $43,618   $44,336
          Commission
           Expense Ratio    12.4%     10.1%     13.3%     12.8%

    Underwriting & Other
     Operating Expenses   $35,845   $23,621  $102,459   $91,399
    Underwriting & Other
     Operating Expenses
     Ratio                  33.8%     28.0%     31.1%     26.3%

    Total Expense        $105,169   $64,126  $282,592  $279,037
    Combined Ratio          99.1%     75.9%     85.9%     80.4%

    Total Expense before
     impacts of the LPT  $109,682   $68,466  $301,013  $297,071
    Combined Ratio before
     impacts of LPT        103.4%     81.1%     91.5%     85.6%


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