A.M. Best Upwardly Revises Outlooks for Employers and Subsidiaries in Nevada

A.M. Best has revised the outlooks to stable from negative and affirmed, the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” of Employers Insurance Group

Employers Insurance Company of Nevada, Employers Compensation Insurance Co., Employers Assurance Co. and Employers Preferred Insurance Co. are collectively referred to as the Employers Insurance Group.

A.M. Best has also revised the outlook to stable from negative and affirmed the Long-Term ICR of “bbb-” of Employers Holdings Inc. (EHI) [NYSE: EIG], the publicly traded parent of the Employers. All companies are headquartered in Reno, NV.

The outlook revisions and Credit Ratings reflect the consolidated group’s excellent risk-adjusted capitalization, improving operating earnings and significant market expertise operating as a workers’ compensation writer. The ratings also reflect the financial flexibility afforded by its publicly traded parent, EHI, according to A.M. Best.

Improved underwriting margins in recent years reflect the pricing flexibility afforded through the use of multiple writing companies, combined with ongoing underwriting initiatives focused on under-performing classes of business, according to A.M. Best.

Partially offsetting these positive rating factors are the underwriting losses reported during 2011 and 2013. This weakened the group’s five-year pre-tax operating return on revenue measures, which have trailed the industry composite over the past five-year period. Employers also maintains business concentration risk operating as a mono-line workers’ comp insurer, with a relatively high concentration of premium volume in a select number of states. While this concentration exposes results to the potential impact of regulatory, legislative and economic changes, this concern is partially mitigated by management’s market expertise, according to A.M. Best.

While recent improvement in underwriting performance has benefited from Employers’ multi-year strategy to non-renew poor performing business and increase pricing on underperforming business, challenges associated with softening market conditions, increased loss costs in some states, and the execution risk associated with entering new states remain a challenge over the near term, A.M. Best stated.

While A.M. Best said it believes the ratings are properly positioned at the current level, positive rating actions could occur if underwriting and operating results improve and are sustained at a level in line with higher-rated peers. Alternatively, negative rating action on the members of Employers may occur if there is a reduction in risk-adjusted capitalization to a level that is not in line with A.M. Best’s expectation. In addition, the ratings could also be impacted by deterioration in operating performance driven by weakened underwriting performance or deterioration in the group’s reserving position.

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