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| 8-K - FORM 8-K - Eastern Insurance Holdings, Inc. | d8k.htm |
 Keefe,
Bruyette & Woods Insurance Conference
September 7 -
8, 2010
Eastern Insurance Holdings, Inc.
Bruce Eckert
Chief Executive Officer
Kevin Shook
Treasurer & Chief Financial Officer
Exhibit 99.1 |
 Page
2 Forward-Looking Statements
This presentation may include forward-looking statements. These forward-looking
statements include comments with respect to our objectives and strategies, and
the results of our operations and business. By their nature, however, these
forward-looking statements involve numerous assumptions, risks,
uncertainties and opportunities, both general and specific. The risk exists that these
statements may not be fulfilled. Investors should not place undue reliance on
these forward-looking statements as a number of factors could cause future
company results to differ materially from these statements. Potential risks and
uncertainties include fluctuations in interest rates and stock indices; cyclical changes in
our business; increased competition on the basis of pricing, coverage or other factors;
developments in the financial or capital markets; the loss of key personnel or
the inability to recruit additional personnel; changes in the availability, cost
or quality of reinsurance or failure of our reinsurers to pay claims timely; changes in
our relationships with the agencies and agents that distribute our products; and a
decline in our financial ratings. The foregoing list is not exhaustive.
When
relying
on
forward-looking
statements
to
make
decisions,
investors
should
carefully
consider
the
aforementioned
factors
as
well
as
other
uncertainties
and
events
including
those
discussed
in
the
“Forward-
Looking Statements”
and “Risk Factors”
sections of Eastern Insurance Holdings, Inc.’s Form 10-K for the
year ended December 31, 2009, which is on file with the SEC.
|
 Page
3 Overview of Eastern Insurance Holdings, Inc.
•
NASDAQ: EIHI
•
Workers’
Compensation Insurance Subsidiaries Rated “A”
(Excellent) by A.M. Best
•
As of June 30, 2010, Total Assets of $358.5 Million and
Shareholders’
Equity of $150.5 Million
•
June 30, 2010 Diluted Book Value per Share of $15.95
•
For the Three Months Ended June 30, 2010, $26.3 Million of
Total Revenue
•
On June 21, 2010, Closed Sale of Group Benefits Insurance
Subsidiary, Eastern Life and Health Insurance Company |
 Page
4 EIHI Business Segments
EIHI
EIHI
Segregated Portfolio Cell
Segregated Portfolio Cell
Reinsurance
Reinsurance
Third Party Administration
Third Party Administration
and Corporate
and Corporate
Workers’
Workers’
Compensation
Compensation
Specialty Reinsurance
(Currently in Run-Off)
80.5% of DWP
0.0% of DWP
19.5% of DWP |
 Page
5 What Makes EIHI Different?
INTEGRITY:
Our behavior is the benchmark to which others aspire.
•Diversity of Underwriting Risk
•Strong Balance Sheet and Conservative Loss Reserving
Practices
•Consideration of Unemployment Data
•Controlled Geographic Expansion
INNOVATION:
Our employees are committed to
identifying progressive solutions to meet
the needs of our customers.
•Specialty Underwriter with Expertise in
Niche Products
•Ease of Doing Business Enhanced
through Electronic Offerings and
Personalized Service
•Entry
into
the
“Pay
as
You
Go”
Market
RELATIONSHIPS:
Our partnerships help our clients improve
their productivity and bottom line
profitability.
•Select Agency Appointments
•Medical Cost Containment Vendor
Relationships
•Long-Term Relationships with High
Quality Reinsurance Partners
LEADERSHIP:
Our leaders are measured by their actions, not
words.
•EAIG: Same Senior Management Team Since
Inception |
 Page
6 Workers’
Compensation Specialist
•
Broad Product Spectrum
•
Disciplined Underwriting Focused on Rate Adequacy
•
Extensive Medical Cost Containment Strategies
•
Proactive Claims Management, and Strategic use of Return-to-Work Initiatives
•
Value-Added Risk Management Services
•
Strategic Partnerships with Independent Agencies that Share Philosophies on
Controlling Workers’
Compensation Costs
•
Opened Southeast Office (Charlotte, NC) –
February 2008
•
Acquired Employers Security Insurance Company (Indianapolis, IN)
–
September 2008
•
Opened Nashville, TN office –
April 2010
•
Opened Pittsburgh, PA office –
June 2010 |
 Workers’
Compensation Licenses
•
Direct Written Premium of
$26.6 Million for the Three
Months Ended 06.30.10,
and $24.9 Million for the
Three Months Ended
06.30.09
-
Licenses
-
Agency Appointments
Page 7 |
 Page
8 Workers’
Compensation Direct Written Premium Geography
Delaware, 0.4%
Maryland, 0.1%
Pennsylvania,
99.5%
Pennsylvania,
73.4%
Other, 2.5%
Delaware, 1.4%
Maryland, 2.5%
Virginia, 2.4%
Indiana, 12.2%
North Carolina,
5.6% |
 Page
9 Workers’
Compensation Risk Diversification
•Active Policies = 6,083
•Over 400 Class Codes Actively Written
Top 10 Classes
Exposure Base: PA, DE, MD, VA, NC, SC
17.9%
Clerical / Office
8.1%
Doctors / Dentists
7.0%
Auto Dealers
5.0%
Salesmen
-
Outside
4.4%
Colleges / Schools
3.6%
Restaurant
3.5%
Nursing Homes -
Skilled
2.8%
Community
2.4%
Facility
2.1%
Hospital |
 Page
10 Workers’
Compensation Product Spectrum
Percentages as of June 30, 2010
•81.6% <$20K, 15.0% $20K-$100K, 3.4% $100K+
Alternative Markets -
Jointly
Owned, 15.1%
Large Deductible, 4.6%
Retrospective Rating, 2.5%
Guaranteed Cost, 55.4%
Policyholder Dividend, 11.9%
Alternative Markets, 10.5% |
 Page
11 Workers’
Compensation Direct Written Premium Growth Rates
10.4%
7.7%
8.9%
13.6%
20.6%
8.0%
7.3%
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
2003
2004
2005
2006
2007
2008
2009
YTD
2010 |
 Page
12 EIHI Workers’
Compensation Market Share in Three Core States
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Pa
In
NC |
 Page
13 Workers’
Compensation
Claim
Closing
Patterns
Results as of June 30, 2010
0
200
400
600
800
1000
1200
Number of Net Claims
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Claims Open
0
1
0
1
2
4
8
10
18
52
105
296
Claims Closed
65
204
382
595
689
686
825
732
914
933
985
845
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009 |
 Page
14 Workers’
Compensation Key Operating Statistics –
June 30, 2010
7.3%
Direct written premium growth
86.2% in guaranteed cost
Policyholder dividend management
2.2%
Renewal rate decreases
87.0%
Premium renewal retention
Underwriting:
$ 59,031
$ 33,862
Average compromise and release
14.1 weeks
11.9 weeks
Average duration of disability
$ 2,190
$ 1,506
Average medical payment per claim
$ 3,489
$ 2,117
Average benefit payment per claim
$ 3,980
$ 2,405
Average total cost per claim
Pennsylvania
EIHI
Claims: |
 Page
15 Workers’
Compensation Alternative Markets …
Alternative Options
•
Services to employers who self-insure their workers’
compensation exposure
•
Fee based revenue for EIHI
•
EIHI ownership interest in SPC’s
produced aggregate net income of $4.5 million since inception
•
14 Active Segregated Portfolio Cell Programs as of June 30, 2010
$847
$2,451
$5,082
$12,159
$17,257
$25,786
$28,512
$27,032
$26,912
$29,113
$28,661
$15,893
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
DWP
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
YTD 2010
Year
Segregated Portfolio Cell Reinsurance Direct Written Premium
|
 Page
16 Pennsylvania Workers’
Compensation Market Share (Top 20)
(dollars in thousands)
2009 Gross Written
Premium
Five Year Average
Loss Ratio
Three Year Average
Loss Ratio
1.
Liberty Mutual Insurance Company
$ 179,148
77.07%
77.94%
2.
American International Group
172,759
79.24%
73.98%
3.
Zurich Financial Services NA Group
129,235
84.15%
83.69%
4.
Travelers Group
127,772
74.09%
64.01%
5.
PMA Insurance Group
112,541
68.21%
68.53%
6.
Erie Insurance Group
108,483
53.27%
48.90%
7.
Hartford Insurance Group
105,284
71.58%
65.24%
8.
Eastern Alliance Insurance Group
88,306
41.83%
42.14%
9.
Lackawanna Insurance Group
64,685
50.23%
46.08%
10.
Selective Insurance Group
52,408
79.98%
74.81%
11.
Cincinnati Insurance Companies
46,283
84.11%
92.03%
12.
Companion Property and Casualty Group
45,259
55.34%
62.29%
13.
Penn National Insurance
44,298
57.30%
59.19%
14.
Highmark Casualty Group
41,130
53.29%
50.99%
15.
Chubb Group of Insurance Companies
39,397
43.77%
34.75%
16.
School Boards Insurance Co. of PA, Inc.
36,206
0.00%
76.30%
17.
Argo Group
36,060
52.34%
49.71%
18.
W. R. Berkley Group
35,104
66.12%
68.45%
19.
CNA Insurance Companies
33,936
109.41%
100.42%
20.
ACE INA Group
30,728
57.12%
38.80%
Source: 2009 Best’s State/Line (P/C Lines). |
 Page
17 Indiana Workers’
Compensation Market Share (Top 20)
(dollars in thousands)
2009 Gross Written
Premium
Five Year Average
Loss Ratio
Three Year Average
Loss Ratio
1.
Liberty Mutual Insurance Company
$ 98,443
57.47%
61.15%
2.
Travelers Group
44,312
50.05%
52.02%
3.
American International Group
36,429
69.01%
63.03%
4.
Accident Fund Group
35,428
66.89%
75.51%
5.
Cincinnati Insurance Companies
26,257
77.47%
79.90%
6.
Auto-Owners Insurance Group
25,440
84.57%
88.03%
7.
Zurich Financial Services NA Group
22,992
69.49%
69.34%
8.
Hartford Insurance Group
17,652
64.23%
50.19%
9.
Amerisure
Companies
17,015
52.17%
59.64%
10.
QBE Americas Group
12,796
56.91%
48.16%
11.
FCCI Insurance Group
11,587
65.75%
74.47%
12.
Employers Insurance Group
11,062
66.35%
82.56%
13.
United Farm Bureau of Indiana Group
10,980
65.67%
70.28%
14.
Old Republic Insurance Group
10,929
82.88%
76.88%
15.
CNA Insurance Companies
10,906
76.75%
70.75%
16.
W. R. Berkley Group
10,663
60.35%
49.68%
17.
ACUITY A Mutual Insurance Company
9,251
76.54%
88.98%
18.
Eastern Alliance Insurance Group
9,050
37.90%
34.00%
19.
ACE INA Group
8,870
15.63%
10.43%
20.
Westfield Group
8,528
61.08%
60.83%
Source: 2009 Best’s State/Line (P/C Lines). |
 Page
18 North Carolina Workers’
Compensation Market Share (Top 20)
Source: 2009 Best’s State/Line (P/C Lines).
31.65%
31.65%
5,045
Eastern Alliance Insurance Group
39.
(dollars in thousands)
2009 Gross Written
Premium
Five Year Average
Loss Ratio
Three Year Average
Loss Ratio
1.
Liberty Mutual Insurance Company
$ 127,864
80.85%
74.12%
2.
Hartford Insurance Group
108,948
69.06%
64.19%
3.
American International Group
94,863
78.87%
74.02%
4.
Travelers Group
79,283
67.94%
63.38%
5.
W. R. Berkley Group
75,857
67.49%
67.10%
6.
Zurich Financial Services NA Group
59,855
79.18%
77.24%
7.
Builders Mutual Insurance Group
49,241
43.81%
32.24%
8.
Franklin Holdings Group
36,048
50.18%
49.55%
9.
Accident Fund Group
28,336
66.82%
58.94%
10.
ACE INA Group
25,888
51.03%
52.19%
11.
Cincinnati Insurance Companies
25,329
78.49%
77.59%
12.
Auto-Owners Insurance Group
20,773
80.28%
85.48%
13.
Amerisafe
Insurance Group
18,447
69.94%
76.73%
14.
Chubb Group of Insurance Companies
18,308
52.08%
49.19%
15.
PMA Insurance Group
17,311
85.53%
78.36%
16.
North Carolina FB Insurance Group
17,244
68.55%
73.92%
17.
Erie Insurance Group
16,869
37.47%
27.56%
18.
Old Republic Insurance Group
16,517
77.87%
84.49%
19.
AmTrust
Financial Group
15,808
36.40%
36.28%
20.
Companion Property and Casualty Group
15,770
79.53%
61.18% |
 Page
19 Eastern Insurance Holdings, Inc. Financial Model
•
Active Capital Management
–
Geographic Expansion
–
Stock Repurchases
–
Shareholder Dividends
–
M&A Opportunities
•
Underwriting Profit
–
Underwriting, Risk
Management and Claims
Philosophy
–
Financial Underwriting
–
Low Expense Ratio
•
Investment Results
•
Strong Balance Sheet
–
Asset Quality
–
Credit Risk Management
–
Reserves |
 Page
20 Workers’
Compensation Combined Ratio History
79.1%
65.6%
80.2%
87.7%
92.4%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2006
2007
2008
2009
YTD 2010 |
 Page
21 Investment Portfolio Mix
Total Cash and Invested Assets: $267.7 Million
as of June 30, 2010
7%
4%
7%
24%
58%
Fixed Income Securities
Convertible Bonds
Equity Securities
Other Long-Term Investments
Cash and Cash Equivalents |
 Page
22 Balance Sheet Strength
•
74.7% of June 30, 2010 Assets are in Cash and Invested
Assets
•
Excellent Collection History on Premiums Receivable
•
Strong Reinsurer
Security
•
Unpaid Loss and Loss Adjustment Expense
–
Reserves Recorded Near High End of Actuarial Range
–
History of Favorable Workers’
Compensation Loss Reserve
Development
–
Strong Base Case Reserves |
 Page
23 Workers’
Compensation Loss Reserving Practices
(in thousands)
6-30-10
3-31-10
12-31-09
9-30-09
6-30-09
Case reserves
$ 36,230
$ 35,622
$ 33,073
$ 36,496
$ 34,324
IBNR
24,659
24,854
27,451
26,756
26,333
Discount
(3,059)
(3,027)
(3,097)
(3,161)
(3,033)
Subtotal
57,830
57,449
57,427
60,091
57,624
Purchase accounting
391
442
514
578
688
Total
$ 58,221
$ 57,891
$ 57,941
$ 60,669
$ 58,312 |
 Page
24 Eastern Insurance Holdings, Inc. Capital Position
Reported
Implied
(in thousands)
Target
Implied Capital
6/30/2010
Book Value
Book Value
Unallocated
Tangible BV
NPW (1)
NPW/ Surplus
Requirement
GAAP Equity
Per Share
Per Share
Capital
Per Share
Workers' compensation insurance
81,283
$
1.25
65,026
$
82,075
$
8.76
$
6.94
$
1.82
$
8.76
$
Specialty reinsurance
20,300
22,308
2.38
2.17
0.21
2.38
Total required capital
85,326
104,383
11.14
9.10
2.03
11.14
Goodwill and other
15,175
15,175
1.62
1.62
-
-
Total allocated capital
100,502
119,558
12.76
10.72
2.03
11.14
Holding company tangible equity
-
30,932
3.30
-
3.30
3.30
Total shareholders' equity
150,490
150,490
16.06
$
10.72
$
5.33
$
14.44
$
Stock option dilution
(0.11)
(0.01)
Diluted earnings per share
15.95
$
14.43
$
Total unallocated capital
49,988
$
5.33
$
(1)
Net written premium represents a rolling twelve months. |
 Page
25 EIHI Fully Diluted Book Value Performance
$14.50
$14.95
$14.92
$15.16
$15.57
$16.27
$16.43
$16.33
$15.80
$14.13
$14.16
$14.82
$15.55
$15.78
$16.07
$15.95
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
$15.50
$16.00
$16.50
Fully Diluted
Book Value
Quarter |
 Page
26 Workers’
Compensation Historical Diluted Earnings Per Share
$0.04
$0.19
$0.27
$0.31
$0.23
$0.21
$0.16
$0.46
$0.59
$0.30
$0.32
$0.06
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70 |
 Page
27 Sale of Eastern Life and Health Insurance Co.
•
Closed June 21, 2010
•
Consideration equal to:
–
GAAP book value plus $250,000 = $34.1 million
•
Pre merger distribution = $31.8 million
•
$1.75 million note
•
Cash = $0.5 million
•
Proceeds used to:
–
Grow workers’
compensation business
–
Repurchase stock
–
M&A opportunities |
 Page
28 |