Employers, Fremont Note Q2 2003 Results

September 30, 2003

Employers Insurance Company of Nevada, A Mutual Company (“EICN”) and its wholly-owned subsidiary Fremont Employers Insurance Company (“FEIC”) (collectively “the Company”), leading providers of workers’ compensation products and services in the Western United States, reported statutory financial results for the second quarter of 2003.

For the three months ended June 30, 2003, the company reported consolidated net income of $24.8 million on consolidated net premiums earned of $45.5 million. These results compare to a net loss of $4.9 million on net premiums earned of $32.4 million in the same quarter a year earlier.

“I am very pleased with our company’s strong performance during the second quarter,” said Douglas Dirks, CEO of EICN. “Despite a sluggish national economy, our company continues to perform well in our selected markets.

“Although volatility continues in the California workers’ compensation market, our company’s strong financial position ensures that we will continue to provide quality service and products to our policyholders in that state. Market conditions in Nevada remain, for the most part, unchanged from the previous quarter.”

The significant increase in net income in the second quarter of 2003 was due primarily to realized investment gains of $10.2 million, as compared to realized investment losses of $5.6 million in the year ago quarter. During the second quarter of 2003, the company also reported income of $7.2 million resulting from a non-recurring reinsurance transaction.

The growth in net premiums earned is due primarily to the acquisition of an ongoing book of business based in California. That acquisition, completed in June 2002, resulted in the formation of Fremont Employers Insurance Company (FEIC).

The company posted a combined ratio of 95.5 percent for the three months ended June 30, 2003, compared to a combined ratio of 143.3 percent for the same respective prior year period. The improvement in the combined ratio is due mainly to lower loss ratios and a lower premiums charged-off ratio, offset partially by higher commissions and policyholder dividend ratios.

During the second quarter, the company novated a reinsurance contract originally entered into on June 30, 1999. The agreement provides reinsurance protection for substantially all of Employers Insurance Company losses with dates of injury prior to July 1, 1995. The cost of the novation to the company was approximately $32.8 million, and was recorded as a reduction of net premiums earned. The company also reduced loss reserves by approximately $40 million, representing the amount the company’s estimated at year-end to novate the agreement. The net effect of the premium cost and loss reserve reduction is a pre-tax income of $7.2 million.

Excluding the novation transaction, the company’s net premiums earned would have been $78.3 million for the three months ended June 30, 2003. Excluding the loss reserve reduction of $40 million associated with the novation transaction, the company’s combined ratios would have increased to 103.0 percent for the second quarter of 2003. The net premiums earned, excluding the novation transaction, represent a growth rate of 141.4 percent for the second quarter of 2003 compared to the year ago quarter.

The company reported net investment income of $16.7 million in the three months ended June 30, 2003 compared to $4.8 million for the same respective prior year period. Lower investment income resulting from declining interest rates was offset by increases in net realized capital gains.

The company’s financial position remains strong, with assets of $1.3 billion, and policyholder surplus of $273.6 million, a $58.2 million increase from the policyholder surplus reported on Dec. 31, 2002.

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