Employers Holdings’ second quarter results were met with a notably negative market reaction, driven by a sharp decline in non-GAAP profit despite double-digit revenue growth. Management attributed pressure on margins to a surge in cumulative trauma (CT) claims in California, a trend that has recently accelerated and demanded immediate action. CEO Katherine Antonello described the phenomenon as a “rapid rise in cumulative trauma claims in California in the most recent accident years,” explaining that the company responded by increasing its loss and loss adjustment expense ratio and reallocating reserves to address the evolving risk landscape. Management also implemented targeted underwriting changes to prioritize profitability over growth, particularly in the middle market segment.

Is now the time to buy EIG? Find out in our full research report (it’s free).

While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions From Employers Holdings’s Q2 Earnings Call

• Mark Douglas Hughes (Truist Securities) pressed CEO Katherine Antonello about the timing and drivers of the CT claims surge, asking if remote hearings and attorney advertising contributed. Antonello confirmed remote hearings started during COVID and have expanded the claims’ geographic reach.

• Mark Douglas Hughes (Truist Securities) probed whether the claims spike was a frequency or severity issue. Antonello clarified, “it is really a frequency phenomenon,” noting claim severity has remained stable, but the volume of new filings has increased.

• Mark Douglas Hughes (Truist Securities) questioned the adequacy of reserves and whether Employers Holdings is fully reflecting new risk trends. Antonello stated management is confident in its current reserving but will conduct a full actuarial study in the next quarter.

• Matthew John Carletti (Citizens Capital Markets) asked whether CT claims are concentrated in specific industries, classes, or geographies. Antonello responded the trend is “broad-based” except for a geographic expansion from Los Angeles to the Bay Area and Sacramento.

• Robert Edward Farnam (Janney Montgomery Scott) inquired if the CT claim frequency increase is unique to California or present in other states. Antonello confirmed California’s broad legal definition is the primary factor, with no similar trend observed elsewhere.

Catalysts in Upcoming Quarters

Going forward, the StockStory team will monitor (1) the results of Employers Holdings’ actuarial study on CT claim reserves, (2) the pace and effectiveness of legislative reform initiatives in California, and (3) continued improvements in underwriting and operational efficiency. Additionally, any unexpected shifts in claim trends or cost structures could significantly influence future results.

Employers Holdings currently trades at $42.15, down from $45.59 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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