Employers Holdings (EIG)

Workers' compensation insurer Employers Holdings (NYSE:EIG) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 6.8% year on year to $239.3 million. Its non-GAAP loss of $0.41 per share was significantly below analysts’ consensus estimates.

Company Overview

With roots in Nevada and a strong concentration in California where 45% of its premiums are generated, Employers Holdings (NYSE:EIG) is a specialty provider of workers' compensation insurance focused on small and select businesses engaged in low-to-medium hazard industries across the United States.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

Employers Holdings competes with other workers' compensation specialists like Amerisafe (NASDAQ:AMSF) and ICW Group, as well as larger commercial insurers that offer workers' compensation among broader product lines, including The Hartford (NYSE:HIG), Travelers (NYSE:TRV), and Liberty Mutual.

Insurers earn revenue three ways. The core insurance business itself, often called underwriting and represented in the income statement as premiums earned, is one way. Investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities is the second way. Fees from various sources such as policy administration, annuities, or other value-added services is the third. Regrettably, Employers Holdings’s revenue grew at a tepid 5.8% compounded annual growth rate over the last five years. This was below our standard for the insurance sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Employers Holdings’s recent performance shows its demand has slowed as its annualized revenue growth of 3.4% over the last two years was below its five-year trend. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Employers Holdings reported year-on-year revenue growth of 6.8%, and its $239.3 million of revenue exceeded Wall Street’s estimates by 10.4%.

Net premiums earned made up 85.6% of the company’s total revenue during the last five years, meaning Employers Holdings barely relies on non-insurance activities to drive its overall growth.

Our experience and research show the market cares primarily about an insurer’s net premiums earned growth as investment and fee income are considered more susceptible to market volatility and economic cycles.

Net premiums earned are net of what’s paid to reinsurers (insurance for insurance companies), which are used by insurers to protect themselves from large losses.

Employers Holdings’s net premiums earned has grown at a 4.3% annualized rate over the last five years, worse than the broader insurance industry and slower than its total revenue.

When analyzing Employers Holdings’s net premiums earned over the last two years, we can see that growth decelerated to 3.3% annually. This performance was similar to its total revenue.

This quarter, Employers Holdings’s net premiums earned was $192.1 million, up 2.9% year on year and topping Wall Street Consensus estimates by 1.4%.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.

The combined ratio is:

• The costs of underwriting (salaries, commissions, overhead) + what an insurer pays out in claims, all divided by net premiums earned

If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations of selling insurance policies.

Given the calculation, a lower expense ratio is better. Over the last five years, Employers Holdings’s combined ratio has increased by 18.2 percentage points, going from 96.9% to 112%. It has also worsened by 15.1 percentage points on a two-year basis, showing its expenses have consistently increased at a faster rate than revenue. This usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

Employers Holdings’s combined ratio came in at 130% this quarter, falling short of analysts’ expectations by 2,515 basis points (100 basis points = 1 percentage point). This result was 29.3 percentage points worse than the same quarter last year.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Employers Holdings’s flat EPS over the last five years was below its 5.8% annualized revenue growth. We can see the difference stemmed from higher taxes as the company actually improved its combined ratio and repurchased its shares during this time.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Employers Holdings, its two-year annual EPS declines of 24.8% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.

In Q3, Employers Holdings reported adjusted EPS of negative $0.41, down from $0.81 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Employers Holdings’s full-year EPS of $2.09 to grow 26.7%.

Insurers are balance sheet businesses, collecting premiums upfront and paying out claims over time. Premiums collected but not yet paid out, often referred to as the float, are invested and create an asset base supported by a liability structure. Book value per share (BVPS) captures this dynamic by measuring these assets (investment portfolio, cash, reinsurance recoverables) less liabilities (claim reserves, debt, future policy benefits). BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality because it reflects long-term capital growth and is harder to manipulate than more commonly-used metrics like EPS.

Employers Holdings’s BVPS grew at a sluggish 2.6% annual clip over the last five years. However, BVPS growth has accelerated recently, growing by 13.2% annually over the last two years from $35.73 to $45.76 per share.

Over the next 12 months, Consensus estimates call for Employers Holdings’s BVPS to grow by 11.7% to $49.73, decent growth rate.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Employers Holdings has no debt, so leverage is not an issue here.

Return on Equity, or ROE, ties everything together and is a vital metric. It tells us how much profit the insurer generates for each dollar of shareholder equity entrusted to management. Over a long period, insurers with higher ROEs tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, Employers Holdings has averaged an ROE of 9.6%, uninspiring for a company operating in a sector where the average shakes out around 12.5%.

We were impressed by how significantly Employers Holdings blew past analysts’ revenue expectations this quarter. We were also glad its net premiums earned outperformed Wall Street’s estimates. On the other hand, its EPS missed and its book value per share fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $40.51 immediately after reporting.

Updated: December 4, 2025 at 11:12 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Employers Holdings.

Employers Holdings doesn’t pass our quality test. To begin with, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its worsening combined ratio shows the business has become less productive.

Employers Holdings’s P/B ratio based on the next 12 months is 0.8x. This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $44.50 on the company (compared to the current share price of $39.59).