Employers Holdings net up three-fold since 2000 start

Earnings at Employers Holdings Inc., the Reno-based workers compensation company that plans to go public, have grown steadily since the company began business in 2000.

In a preliminary prospectus filed with the Securities and Exchange Commission, the company said its earnings totaled $137.6 million in 2005 and $116 million for the first nine months of 2006.

The 2006 profits were on track to triple the $50 million that the company earned in 2001.

Employers was established as a mutual insurance company one owned by its customers when it took over the troubled Nevada State Industrial Insurance System seven years ago.

It's won state approval to become a shareholder-owned company and plans an initial public offering with Morgan Stanley.

Pricing of the shares hasn't been set, but the prospectus estimates that they might be priced at $15, raising between $305 million and $353 million for Employers.

In the prospectus, the company says it ranked in 2005 as the largest workers compensation insurer in Nevada, seventh largest in California and 17th largest non-government workers comp company in the nation.

California accounts for about three quarters of the company's business, and Nevada for about a fifth.

In the SEC filing, Employers said its success has come because it targets small businesses in low- to medium-risk industries. This niche, the company said, has been characterized by less competition and better pricing than other segments of the workers compensation industry.

Even so, the company said price competition has heated since 2003 in its target markets.

But Employers said it won't get involved in money-losing price wars to preserve its top line.

"We employ a disciplined, conservative and highly automated underwriting approach," the company said, adding that it won't sacrifice profitability in order to preserve revenue growth.

Another strength, Employers said, lies in distribution deals is has with ADP, the big payroll company, and Wellpoint, a health benefits provider. Between them, those two arrangements accounted for $126.9 million in gross premiums nearly 28 percent of Employers' total in 2005.

Among the risks cited in the prospectus are the company's reliance on a single line of insurance as well as the effects of changing state regulation.

In California, for instance, Employers has cut its rates by 60 percent since 2003 as the result of workers compensation reform measures, and it expects more rate cutting to come.

As a mutual, the insurance company now known as Employers Insurance Group it's changing its its name as part of the conversion currently is owned by about 6,500 small businesses that purchase workers compensation coverage through the company.

They have approved a plan to exchange their membership interests in the company for publicly traded stock.

The company's plan calls for it to offer cash or stock at least equal to the surplus on its books. That surplus totaled $554 million on June 30. Owners of policies that were in effect on August 17 are eligible to participate in the conversion.