Reno-based insurer's quarterly income up

Earnings at Employers Insurance Co.

of Nevada were up sharply in the quarter ended June 30, and a deal involving a reinsurance contract was a major contributor to the improvement.

The Reno-based mutual company said it earned $24.8 million on net premiums of $45.5 million in the quarter.

In the same quarter a year ago, Employers Insurance lost $4.9 million on net premiums of $32.4 million.

The company provides workers compensation insurance in Nevada.

A wholly owned subsidiary, Fremont Employers Insurance Co., provides workers compensation coverage in California.

A deal known as a "novation" contributed $7.2 million to the company's bottom line.

Novation, an Employers Insurance official explained, means that a new party substitutes itself for the original party in a transaction.

The original party is released from its obligations, and the underlying agreement usually remains the same.

This summer's deal at Employers Insurance involved a contract dating from 1999 that provided reinsurance coverage to Employers Insurance for claims before July 1, 1995.

The novation cost the company $32.8 million, but it offset those costs by reducing its loss reserves by about $40 million.

The net effect was the $7.2 million contribution to profits.

Also contributing to the higher profits was increased investment income.

Employers Insurance said it earned $16.7 million from its investments during the quarter compared with $4.8 million a year earlier.

Although interest rates remained low, the company said it realized capital gains of $10.2 million in the quarter.

Douglas Dirks, chief executive officer of the insurer, said he was particularly pleased with the quarterly improvement because the workers compensation market in California remain volatile.

The company said its combined ratio losses compared to premiums earned was 95.5 percent for the quarter, a figure that means it turned a profit on its underwriting.

In the same quarter a year ago, the company's combined ratio was an unprofitable 143.3 percent.

But the most recent quarter's combined ratio was improved by the novation agreement.Without that transaction, the company's combined

ratio would have stood at 103 percent.