Employers (EIG) Q3 2025 Earnings Call Transcript

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DATE

Friday, October 31, 2025 at 11 a.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Katherine Holt Antonello

Chief Financial Officer — Michael Aldo Pedraja

Vice President, Investor Relations — Lori Ann Brown

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RISKS

The company increased prior year loss and loss adjustment expense (LAE) reserves by $38.2 million. This was driven mainly by a rapid rise in California cumulative trauma claims for accident years 2023 and 2024.

Adjusted net loss was $25.5 million compared to adjusted net income of $20.2 million a year earlier.

Year-to-date adjusted net income declined to $34 million for the first nine months of 2025, down from $90 million in the same period last year.

TAKEAWAYS

Reserve Strengthening -- Management identified the need for a $38.2 million reserve increase, representing 2.8% of net unpaid loss in LAE. focused on accident years 2023 ($16.1 million) and 2024 ($40.5 million) partially offset by an $18.4 million reduction for accident years 2022 and prior.

California Cumulative Trauma Claims -- Increases in reserve levels and the accident year 2025 LAE ratio (raised from 69% to 72%) were attributed solely to the escalating frequency of California cumulative trauma claims. Other states showed declining claim frequency.

Loss Ratio -- The accident year 2025 loss ratio reached 78.1%, driven by new reserve estimates and a cumulative catch-up adjustment of $11.4 million for LAE reserves as of June 30, 2025.

Premiums -- Gross written premium increased by 1.4% to $183.9 million, compared to $181.2 million in the prior year. Net premiums earned grew 3% to $192.1 million, compared to $186.6 million in the prior year. This reflected higher renewal activity and prior-year premium momentum.

Expense Ratios -- Commission expense dropped to $23 million (12% ratio) and underwriting expense fell to $39.6 million (20.6% ratio), both benefiting from increased renewal mix, lower agency incentives, and August cost reductions.

Investment Performance -- Net investment income was $26.1 million, nearly flat from the prior year. Net realized and unrealized investment gains rose to $21.2 million, compared to $10.9 million in the prior quarter.

Balance Sheet Metrics -- After dividends, book value per share (including deferred gain) rose 6.1% to $49.7 in the last twelve months. Adjusted book value per share climbed 5.5% to $51.31 in the last twelve months.

Share Repurchases -- $45.2 million of common stock was repurchased at an average price of $43.09 per share with an additional $10.2 million repurchased since September 30, 2025, at $41.77 per share expanding total authorization to $250 million following a new $125 million debt-funded plan announced in Q3 2025.

Dividend Declaration -- A dividend of $0.32 per share for Q4 2025 was announced, payable November 26, 2025, to stockholders of record on November 12, 2025.

Business Initiatives -- The company began developing an excess workers’ compensation product expected to accept submissions in early 2026, targeting diversification and leveraging automation and AI infrastructure.

SUMMARY

Employers Holdings (NYSE:EIG) implemented significant reserve strengthening actions this quarter in direct response to increased California cumulative trauma claim frequency, reflected in elevated LAE ratios for recent accident years and a $38.2 million increase to reserves. Management emphasized a conservative posture, supported by external actuarial review, and confirmed the continuation of routine reserve reviews with expectations of no further adjustment for the fourth quarter. The board approved a $125 million recapitalization plan funded by debt. This boosted share buyback capacity to $250 million and increased the leverage ratio. Book value metrics saw mid-single-digit percentage increases in the last twelve months. The company continued to deliver capital returns to shareholders through buybacks and dividend payments. Initiatives to expand through new insurance products and investments in automation and AI support a focus on growth opportunities under stable underwriting margin priorities.

CEO Antonello said, "We strongly believe these adjustments fully address the recent trends we and the industry have seen in California and want to emphasize that these adjustments are not a sign of broad deterioration in our book of business."

Katherine Holt Antonello confirmed the recapitalization is intended to "reduce our cost of capital, improve our return on equity, and expand our earnings per share and adjusted book value per share."

Discussion indicated that company investment leverage will increase as share repurchase activity is funded through new debt.

Medical and indemnity claim severities remained stable and below pre-pandemic levels in recent years, with prescription drug cost increases noted as only minor.

The company plans a methodical approach to roll out excess workers’ compensation, with management describing 2026 as a "go slow" year as new submissions start in the second quarter and binding targeted by mid-year, according to Katherine Holt Antonello.

INDUSTRY GLOSSARY

Loss and LAE (Loss Adjustment Expense): The sum of insurance claims paid and the expenses associated with investigating, defending, and settling those claims.

Cumulative Trauma (CT) Claims: Workers’ compensation claims in California based on injuries occurring over time rather than from a single event, subject to complex reporting and litigation patterns.

Accident Year (AY): The calendar year in which insured losses occur, often used for tracking claims and reserve trends by underwriting period.

Underwriting Expense Ratio: A measure showing underwriting expenses as a percentage of net premiums earned, used to assess cost efficiency in insurance operations.

Excess Workers’ Compensation: Insurance coverage that protects employers or self-insured groups for loss amounts above a predetermined retention following workplace injuries.

LPT (Loss Portfolio Transfer): A risk transfer mechanism in which an insurer moves a portfolio of existing insurance liabilities to a reinsurer, improving capital flexibility or surplus.

Full Conference Call Transcript

Lori Ann Brown: Thank you, Lisa. Good morning, and welcome, everyone, to the third quarter 2025 earnings call for Employers Holdings, Inc. Today's call is being recorded and webcast from the Investors section of our website, where a replay will be available following the call. Statements made during this conference call that are not based on historical facts are considered forward-looking statements. These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission.

All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments. The company also uses its website as a means of disclosing material nonpublic information and for complying with disclosure obligations under the SEC's Regulation FD. Such disclosures will be included in the Investors section of our website. Accordingly, investors should monitor that portion of our site in addition to following our press releases, SEC filings, public conference calls, and webcasts. In our earnings press release and in our remarks or responses to questions, we may use non-GAAP financial measures.

Reconciliations of these non-GAAP measures to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation, and any other materials available in the Investor section on our website. And now I'll turn the call over to Katherine Holt Antonello, our Chief Executive Officer.

Katherine Holt Antonello: Thank you, Lori. Good morning, everyone, and again, welcome to our third quarter 2025 earnings call. Joining me today is Michael Aldo Pedraja, our Chief Financial Officer. During today's call, I'll begin by providing highlights of our third quarter 2025 results and then I'll hand it over to Michael for more details on our financials. Prior to our Q&A, I'll come back to you with some additional thoughts. I want to begin by discussing the decisive actions we took during the quarter to strengthen our loss in LAE Reserves.

When we spoke last quarter, I mentioned we had identified significant loss in LAE reserve redundancies in older years and utilized this favorable development from accident year 2021 and prior to strengthen reserves for accident years 2023 and 2024. We also provided our preliminary view of accident year 2025 and shared that the underlying driver of the need for an off-cycle third quarter reserve review was the increased frequency of California cumulative trauma claims in recent accident years. During the third quarter, we completed a thorough reserve analysis which included a detailed review of our complete book of business. And we compared our internal selections to those of an external actuarial review performed midyear.

Our comprehensive and rigorous analysis indicated the need to increase prior year reserves by $38.2 million or 2.8% of net unpaid loss in LAE. Accident years 2023 and 2024 were the primary contributors of the increase, with AY 2024 increasing by $40.5 million, AY 2023 increasing by $16.1 million, and accident years 2022 and prior decreasing by $18.4 million in total. In addition, we increased our AY 2025 loss and LAE ratio from 69% to 72%. We strongly believe these adjustments fully address the recent trends we and the industry have seen in California and want to emphasize that these adjustments are not a sign of broad deterioration in our book of business.

Without the increased frequency of California CT claims, our third quarter 2025 overall reserve position would have developed favorably. As we have discussed, the increased frequency in CT claims is a California-only issue. Frequency in other states continues to show a decreasing trend. I now want to speak to why California CT claims for accident years 2023 and 2024 are impacting our reserves this quarter. In California, older years continue to develop favorably, but more recent years have experienced a meaningful uptick in CT claim frequency.

As there is typically a significant delay in CT claim reporting, the increased CT claim frequency trend did not fully emerge until well after the first twelve months of each accident year, making it more challenging to predict or detect the trend in real-time through traditional reserving and pricing analyses. In addition, the continued declining frequency trend of non-CT claims in California initially masked the increasing trend in CT claims and further delayed its visibility. Given the uncertainty in the California CT environment, and more generally our desire to utilize a more conservative approach across our complete book of business, this quarter, we implemented refinements to our analysis of prior years.

These refinements, which strengthened our reserves across all states, were designed to build additional resilience on our balance sheet and significantly reduce future uncertainty. A comparison of our third quarter 2025 reserve selections to reserve estimates prepared midyear by an independent external actuarial firm reinforced our conservative reserve position. Now let's focus on accident year 2025. The increase in our 2025 loss in LAE ratio is due solely to the increasing frequency of California CT claims, as frequency in the rest of our book continues to decline.

Comparing AY 2025 to AY 2024, at three months, AY 2025's incurred loss ratio was higher than 2024's, but at both six and nine months, AY 2025's loss ratio was lower than 2024's at the same ages of maturity. Other data points on both an accident year and a policy year basis point towards AY 2025 performing better than both 2024 and 2023. This suggests the underwriting and pricing actions we've implemented are having a positive impact. While we could have held the AY 2025 loss ratios steady at our second quarter selection, given the more conservative reserving approach mentioned earlier and recognizing the increased frequency in California CT claims, we decided to increase the accident year 2025 loss ratio.

We have implemented a four-pronged approach to help mitigate the impact that CT claims may have on our book of business going forward. This includes targeted pricing actions, more aggressive claims handling and litigation management, underwriting refinements, and continued geographic diversification. We are also actively engaged in California's efforts to pursue meaningful legislative reforms to better align California's CT rules to those throughout the country. Having said that, our commitment to providing best-in-class care to all injured workers, whether their claim arose from cumulative trauma or not, is unwavering. We are confident that the actions we have made are timely, appropriate, and prudent and will better position the more recent accident years for the future.

We believe that our current reserves are more than adequate. I'll now turn to discuss other highlights from the quarter. Our third quarter gross written premium increased by 1.4% compared to 2024, due to increases in renewal business premiums. As I stated in previous quarters, in this sustained soft workers' compensation market, we are prioritizing underwriting margin over growth. And we've continued to undertake targeted pricing actions and implement enhanced risk selection to maintain underwriting margin.

While competitive pressures have impacted our desire to grow at the same pace, in certain classes, jurisdictions, and policy sizes, we remain pleased with the continued growth in our small commercial business and our strong policy retentions as evidenced by our 4% growth in policies in force this quarter. We view the small commercial growth as validation that our clients value the investments we've made in automation and ease of use. Over the last ten years, we've considerably increased our diversification by expanding geographically into a national carrier and into new distribution channels, while also expanding our appetite into new industries and classes. These initiatives are ongoing.

To further that diversification, we're excited to announce our first expansion into a new product. We have commenced the build-out of a new excess workers' compensation offering by hiring a talented, experienced underwriter and developing the infrastructure to distribute and manage this new product. We plan to start accepting submissions in early 2026. Our entry into the excess workers' compensation market leverages our existing expertise and systems capabilities, customer base, and will strengthen our relationships and offerings with our distribution partners. We earned $26.1 million of net investment income during the quarter, which was slightly lower than 2024.

Our net realized and unrealized gains on investments increased to $21.2 million for the quarter compared to $10.9 million for the prior quarter. We continue to be committed to delivering operational efficiencies and automation of the entire customer journey. In August, we made the difficult decision to undergo a reorganization which was designed to better align our resources with our current and future business needs and objectives. As a result of this action, and broader expense reduction efforts, we reduced our third quarter underwriting expense ratio significantly compared to 2024. Despite the tremendous progress we've already achieved, we now see further improvement potential as we implement our well-designed AI roadmap.

As part of our relentless focus on value creation for our shareholders, yesterday, we announced a $125 million debt-funded recapitalization plan and an associated $125 million increase to our existing share repurchase authorization. This expands our existing share repurchase authority to $250 million. In addition to a meaningful return on investment, we believe the recapitalization plan will reduce our cost of capital, improve our return on equity, and expand our earnings per share and adjusted book value per share. The recapitalization plan highlights our belief that our stock price is undervalued and our confidence in our balance sheet and future prospects.

With that, Michael will now provide a deeper dive into our financial results and then I will return to provide my closing remarks.

Michael Aldo Pedraja: Thank you, Kathy. Gross premiums written were $183.9 million compared to $181.2 million for the prior year, an increase of 1.4%, due primarily to renewal business premium growth. Net premiums earned were $192.1 million compared to $186.6 million for the prior year, an increase of 3%, due primarily to larger levels of 2024 written premium earning in 2025. During the period, our losses and loss adjustment expenses were $186.6 million versus $117.7 million a year ago. As Kathy just summarized, we increased our current accident year loss in LAE estimates in response to the rapid rise in cumulative trauma claim frequency in California.

The current quarter loss in LAE includes a cumulative catch-up adjustment of $11.4 million to the carry 2025 accident year loss in LAE reserves at 06/30/2025 to reflect the 72% current accident year loss and LAE ratio. As a result, the 2025 accident year loss ratio for the quarter was 78.1%. In addition, we strengthened our reserves related to prior years by $38.2 million due to the increased frequency of California CT claims and our desire to utilize an even more conservative approach across our complete book of business. Commission expense was $23 million for the quarter, versus $25.8 million for the prior year. Our commission expense ratio for the corresponding quarters was 12% and 13.8%, respectively.

The commission expense and ratio decreases were primarily related to the increased proportion of renewal business which has a lower commission rate compared to new business and lower agency incentive accruals. Underwriting expenses were $39.6 million for the quarter, versus $43.8 million for the prior year. Our underwriting expense ratios for the corresponding quarters were 20.6% and 23.5%, respectively. The underwriting expense decrease was primarily a result of lower compensation-related expenses, including reductions associated with the August reorganization Kathy mentioned, along with year-over-year declines in policyholder dividends and bad debt expense. Higher net premiums earned also contributed to the lower underwriting expense ratio.

Net investment income of $26.1 million for the quarter was relatively flat compared to the prior year, despite a lower yield environment. The current quarter net income results included after-tax realized and unrealized gains from our investments in equity securities and other invested assets of $17.8 million and $6.3 million, respectively. The market value of our fixed maturity holdings has benefited from the lower interest rate environment, reducing our accumulated other comprehensive loss, included in our shareholders' equity by $16.6 million. Our fixed maturities currently have a modified duration of 4.4 and an average credit quality of A+. Our weighted average book yield was 4.6% at quarter-end compared to 4.4% for the prior year.

During the quarter, our average new money investment yield was 5.5%, versus 5.7% a year ago. Our adjusted net loss, which excludes net realized and unrealized investment gains and losses, and the benefit of our LPT deferred gain amortization, was $25.5 million compared to adjusted net income of $20.2 million a year ago. Our nine-month year-to-date adjusted net income was $34 million versus $90 million last year. Due to market opportunities, we increased our level of common stock repurchases to $45.2 million in the quarter.

We achieved the repurchases at an average price of $43.09 per share, which represents a 17% and 13% discount for our 06/30/2025 adjusted book value per share and our book value per share plus the LPT gain, respectively. Since September 30, we have repurchased an additional 243,000 shares of our common stock at an average price of $41.77 per share, for a total of $10.2 million. As Kathy highlighted, we announced the Board's approval of a recapitalization plan authorizing a $125 million increase to the existing 2025 share repurchase program. Initially, we will utilize a combination of three-year debt funding sources, including our existing borrowing facility at the Federal Home Loan Bank.

We ultimately plan to fund the recapitalization with long-term debt. With that, I'll turn the call back to Kathy.

Katherine Holt Antonello: Thank you, Michael. Yesterday, our Board of Directors declared a fourth quarter 2025 quarterly dividend of $0.32 per share. The dividend is payable on November 26, to stockholders of record on November 12. As evidenced by the recapitalization plan Michael just discussed, we remain confident in Employers Holdings, Inc.'s financial strength and prospects and will continue to manage our capital strategically. After considering dividends declared, our book value per share, including the deferred gain, increased 6.1% to $49.7 and our adjusted book value per share increased by 5.5% to $51.31 over the last twelve months.

We returned $52.7 million to our stockholders this quarter, through a combination of regular quarterly dividends and share repurchases, at an average price that was highly accretive to our book value per share. While our third quarter results were heavily impacted by the California CT claims trends, we believe our current loss in LAE reserves reflect the level of conservatism to which we are accustomed. We are relentlessly pursuing refinements in our underwriting and pricing approaches and seeking new opportunities like excess workers' compensation, that will enable us to generate profitable growth in both new and renewal business. I am confident that the steps we've taken this quarter will position Employers Holdings, Inc. well into the future.

And with that, Lisa, we will now take questions.

Operator: Thank you. We also ask that you please wait for your name and company to be announced before proceeding with your question. The first question today will be coming from the line of Mark Douglas Hughes of Truist. Your line is open.

Mark Douglas Hughes: Yes. Thank you. Good morning.

Katherine Holt Antonello: Good morning, Mark.

Mark Douglas Hughes: You mentioned one of your strategies would be to perhaps be more assertive on the litigation front. Is this something you can make yourself a harder target and so the plaintiff's attorneys are not as enthusiastic about pursuing you as opposed to others, or is that more of an administrative process that you can't really control, so to speak?

Katherine Holt Antonello: Yeah. It's a good question, Mark. You know, when I talk about our targeted litigation strategies, it's internal. We're using analytics to determine the best course of action, and those analytics are based on individual claim facts. So we have a multi-discipline team that we've developed internally that's focused solely on managing the CT exposure. We've established some really aggressive targets to reduce the defense and cost containment portion of the claim to also reduce, if possible, the litigation, because CT claims are more highly litigated than other claims. In fact, about 90% of them are litigated. And then also just to focus on the average cost per claim and bringing that down if possible.

We've identified and we've developed several defense tactics that are targeting specific firms that represent numerous hundreds and hundreds of CT claims, thousands across the industry, that have no medical associated with them. You know? And then as I've said in the past, we're taking a leadership role in pursuing some legislative reform working with different industry groups and so forth to really present some meaningful language to legislative committees that would bring California's CT legislation in line with other states across the country. So we really are sort of trying to attack this from a lot of different angles. When you talk about the claim perspective.

But as I said in my prepared remarks, we also want the industry to know that we're committed to paying cumulative trauma claims. There are legitimate cumulative trauma claims out there, and it's something that's very important to us to provide the best service to injured workers.

Mark Douglas Hughes: Yeah. The trend in terms of those claims, I think you talked about how you take underwriting pricing actions and that has helped the improvement or helped for the 2025 accident year. How do we think about, say, going into 2026 and loss picks, do you feel like you have enough of a handle on the trend that the trend is predictable at this point? I'm kind of mixing different ideas in this question. So I apologize for that. But I'm just trying to figure out whether is the trend stable enough? Have you taken enough actions, pricing, underwriting? That you can get to a more predictable loss pick or what kind of loss pick can we expect?

Is it gonna be 72% from here? So like I said, I'm groping a little bit, but pick and choose among those topics would be I would appreciate your feedback.

Katherine Holt Antonello: Sure. So on the pricing side, we took action earlier than the California filing that went in was effective 9/1. So we were ahead of the curve on that, and then we've taken a couple of targeted actions after that. We feel like we're in a nice position on the pricing side and have taken more rate than what the WCIRB filed with the bureau. So that's what we found on the pricing side. On the underwriting side, we have more underwriters looking at risks that are flowing through as submissions, and putting eyes on these risks to determine whether they have a higher exposure to CT claims.

So we've lowered we have a straight-through quote processing system where, you know, our underwriters really only touch the more complex risks. But we've lowered that threshold for California. So we have more eyes on it from an underwriter standpoint. From a trend perspective, I feel like the trend is settling. You know, it is very difficult to know what will happen in the future. I don't expect our accident year pick to be much changed from what it is this year until we see these results flow through. So when I say these results, I mean the pricing actions, the underwriting actions, any changes that are made within California and so forth.

We're going to continue to be conservative and hopefully be ahead of that trend.

Mark Douglas Hughes: On the buyback, what is the interest rate that you expect on the borrowings? I think of the federal home loan line that you've got. What is the rate on that?

Michael Aldo Pedraja: Yeah, Mark. That's why it's very exciting. The current rate is 3.7%.

Mark Douglas Hughes: Okay. And is that float is it No. That number's fixed.

Michael Aldo Pedraja: Okay. And then how much capital do you have at the holding company at the point?

Michael Aldo Pedraja: So it varies over time. As you imagine, we manage capital effectively through the dividends from our insurance companies. But we have a sufficient level of capital at the holding company. We don't publish that number, but it's plenty to cover a decent portion of our expenses, including repurchases and dividends at the holding company.

Mark Douglas Hughes: Okay. How much is available under the share repurchases 150 in total. How much of that has been used though?

Michael Aldo Pedraja: So today, on the existing plan, we've used $65 million.

Mark Douglas Hughes: Was that $65 million?

Michael Aldo Pedraja: $6.05. Yep.

Mark Douglas Hughes: $6.05. Okay. And then what would you anticipate in terms of the pacing on the $125 million with the $45 million this quarter? Is that a preview of things to come? Until you use the $125 million or how would you characterize it?

Michael Aldo Pedraja: I think I've mentioned on previous calls, so we really look at the repurchases as on a return on investment basis. And so we're going to be very disciplined. And when if the stock, you know, goes down below and creates further opportunity, we'll increase that activity. And so we will we're very focused on affecting this 01/2025 recapitalization plan. So it's going to be market dependent, but we're disciplined and intend to affect it as soon as we can.

Mark Douglas Hughes: Yeah, then one final question. Top line growth here, kind of steady. Some puts and takes, obviously, some expansion, the excess, you know, but the tighter underwriting your rate increases. Is this kind of steady state for top line dynamics? I mean, would we assume maybe flat to up slightly? Would that be consistent with where you were at in terms of taking these actions to help control the loss trajectory here?

Katherine Holt Antonello: Yeah. I mean, I think you categorized it well by saying puts and takes. There are areas in which we are wanting to grow, and then there are areas in which we're perfectly fine turning down business. And that varies by state. It varies by policy size. We are having a lot of success on the smaller policy size, and that's why you're continuing to see the growth in policy count. But it's putting pressure on the top line because of the average policy size that we're writing is lower. So I would not expect tremendous growth over the next twelve months. Because as I said in my prepared remarks, underwriting margin is what we are focusing on right now.

Mark Douglas Hughes: Okay. Very good. Thank you.

Katherine Holt Antonello: Mhmm.

Operator: Thank you. One moment for the next question. And the next question will be coming from the line of Carol Schmoe of Citizens. Your line is open.

Carol Schmoe: Yes. Hi. Good morning. I got two questions. The first one is really just regarding the cumulative trauma claims statute of limitations and date of injury, that is kind of part of the legal issue here. Can you comment on that?

Katherine Holt Antonello: Yeah. So, you know, the real issue underlying CT and this is my opinion in California is the fact that an injured worker can file a cumulative trauma claim post-termination. And the claim itself can stretch over multiple years. And multiple carriers can be involved in that claim. So what we're seeing is a lot of these claims are being filed post-termination now. They have much more indemnity on them than they used to. It used to be more of a medical phenomenon. But that's the real issue in terms of what's going on with California CT.

Carol Schmoe: Hi, thank you. And then just a follow-up question in regard to the buybacks. I'm just looking at the model. And I'm just curious, will your investment leverage technically go up and maintain the investment you know, balance as you buy back the shares?

Michael Aldo Pedraja: Well, because our investment balance should not be impacted, right, because we're gonna fund the repurchases through debt. So the investment leverage will stay so investments compared to equity will increase. So if that's what you're asking, yes, the investment leverage will increase.

Carol Schmoe: Perfect. Thank you very much.

Operator: Thank you. If you would like to ask a question, please press 11 on your telephone. Our next question will be coming from the line of Robert Edward Farnam of Janney Montgomery Scott. Your line is open.

Robert Edward Farnam: Hey there, and good morning. So what happens with the are you gonna have a traditional fourth quarter reserve review as well, like internal and external? Or is this third quarter review kind of taking your annual look-see?

Katherine Holt Antonello: Yeah. That's a good question, Bob. We are going to have a full fourth quarter review and get back on track. Third quarter was off-cycle. We usually just look at actual versus expected then, but we wanted to definitively come out with something and look at it with a fresh eye. But we'll get back on track in fourth quarter we'll have an internal review. It will also, because this is the year that we've hired an external actuarial firm, to review our reserves. They will also do a fourth quarter review but we do not expect an impact from that fourth quarter review.

Robert Edward Farnam: Right. Is the firm that's looking at the fourth quarters, are they the same one that looked at them at midyear?

Katherine Holt Antonello: Yes.

Robert Edward Farnam: Okay. And was there you know, I know you've had to discuss this thing these types of things with AM Best. Like, what kind of commentary have you gotten from rating agencies in regards to the whole situation and with the cumulative trauma in California?

Michael Aldo Pedraja: Yeah. Thanks, Bob. So we're very active and engaged with our rating agency partners, and we've discussed and keep them posted as far as the process. Of what's from an operating perspective as well as the capital perspective. And they all continue to be quite supportive of where we're at the actions we're taking both from an operation perspective as well as from a capital perspective.

Robert Edward Farnam: Okay. All right. Good. Have you seen any change in medical cost trends? I know you probably asked every quarter about it, what's going on with medical cost? You know, I know we've been talking a lot about claim frequency, but how about the severity side?

Katherine Holt Antonello: Yeah. The severity side, you know, what we're seeing, our overall claims severity values have generally held steady in the most recent years. They continue to be, generally speaking, below pre-pandemic levels. And that's both indemnity and medical severity in that number that or in that severity that I'm speaking to, but it's driven by lower medical severity. I've talked about in several calls that we monitor our own prescription drug costs. We've seen slight increases in drug costs versus those that were in place pre-pandemic. But nothing that is really alarming on pharmaceuticals. So severity is not something that we are currently concerned about. We did have some large losses in 2024. Those are more than adequately reserved for.

But we're not seeing anything that is concerning to us right now.

Robert Edward Farnam: Okay. So if in a recessionary environment, you know, with the increase in unemployment or terminations and stuff, I understand they can file claims in California, but will you see some similar issues in other states if unemployment starts to become, you know, starts to go up?

Katherine Holt Antonello: You know, it's something that has been researched in the past, and there have been studies that show that could and has happened. The most prominent one was the study research that was done after the Great Recession. Of course, that was a huge impact to the economy and unemployment and so forth. So I wouldn't expect anything like that. Know, recessions are just very specific in terms of the industries and jobs that they tend to impact. So it's very difficult to answer your other than generally. But the answer is it could, it just depends on the type of recession.

Robert Edward Farnam: Yeah. I didn't expect an exact detailed answer for you on that one. It was just more of a broad question. So I get I'm sorry to kind of monopolize the questions here, but I guess one last thing I want just can you talk a little bit more about the excess workers' comp product? What size of market is that? Who competes in that market? And where you can add value?

Katherine Holt Antonello: Sure. So, you know, our entry into excess workers' compensation is part of our diversification effort. And as I said earlier, it's our first new product expansion. We've been researching new products for about a year now and excess was the right place to start for us. Given our expertise in workers' compensation, it's just a natural extension of what we do now and leverages the talent and the systems capabilities and so forth. That we already have in place. So we're spinning this up in a very efficient way. By hiring a team of underwriters and then we're utilizing AgenTeq AI to build out the underwriting platform and the CRM platform. We're going to go slow here.

We don't We're not expecting something huge in 2026. Because we're gonna learn as we go. But we do expect to get submissions in the door in early second quarter and binding by 07/01/2026. There aren't a lot of excess workers' compensation providers that are large and have an extensive book of business. So we feel like this is a good place for us to enter. It's a good time in the market for us to enter it. And we're really excited about it.

Robert Edward Farnam: And you're saying your producers are basically saying this would be a nice add-on just because you know, they're not taking any trouble placing any type of that type of risk to others that have the main driver that failed me to.

Katherine Holt Antonello: Yeah. We feel like there's just an opportunity for another entrant in the market and that we can provide some services that potentially don't exist right now. And we can absolutely leverage our extensive agency plan that we have in place. So there's not a lot of friction there for us to enter the market.

Robert Edward Farnam: Right. Okay. Thanks a lot for all the color.

Katherine Holt Antonello: Thanks, Bob.

Operator: Thank you. If you would like to ask a question, please press 1 on your telephone. And at this time, I'm not seeing any more questions in the queue. I would like to go ahead and turn the call back over to Katherine Holt Antonello. Please go ahead.

Katherine Holt Antonello: Okay. Thank you, Lisa. Thank you all for joining us this morning, and I look forward to meeting with you again in February. Have a good weekend.

Operator: This concludes today's program. You may all disconnect.

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