Annual Report 2011 - SNL Financial

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Annual Report 2011 - SNL Financial

PART I

Item 1—Business

Our History and Overview

Eastern Insurance Holdings, Inc. (“EIHI”) is an insurance holding company offering workers’ compensation insurance

and reinsurance products through its direct and indirect wholly-owned subsidiaries, Global Alliance Holdings, Ltd. (“Global

Alliance”), Eastern Alliance Insurance Company (“Eastern Alliance”), Allied Eastern Indemnity Company (“Allied

Eastern”), Eastern Advantage Assurance Company (“Eastern Advantage”), Employers Security Insurance Company

(“Employers Security”), Employers Alliance, Inc. (“Employers Alliance”), Eastern Re Ltd., SPC (“Eastern Re”), and Eastern

Services Corporation (“Eastern Services”), collectively referred to as the “Company”, “we” and/or “our”.

The following provides a brief description of EIHI’s direct and indirect wholly-owned subsidiaries:

• Global Alliance is a holding company domiciled in the Commonwealth of Pennsylvania;

• Eastern Alliance, Allied Eastern and Eastern Advantage are stock property/casualty insurance companies domiciled

in the Commonwealth of Pennsylvania and, along with Employers Security, conduct business as Eastern Alliance

Insurance Group (“EAIG”). The four insurance companies provide EAIG with increased underwriting and pricing

flexibility through the use of a tiered rating structure;

• Employers Security is a stock property/casualty insurance company domiciled in the State of Indiana;

• Employers Alliance is a Pennsylvania corporation offering claims administration and risk management services to

self-insured property/casualty customers;

• Eastern Re is a segregated portfolio cell reinsurance company domiciled in the Cayman Islands; and

• Eastern Services is a Pennsylvania corporation that provides certain management services to EAIG.

On December 9, 2010, EIHI completed the sale of Eastern Atlantic RE (“Atlantic RE”). Atlantic RE was a Cayman

Islands reinsurance company formed for the purpose of transferring certain assets and liabilities related to EIHI’s former

run-off specialty reinsurance segment. The run-off specialty reinsurance segment reported net premiums earned totaling

$1,000 and $1.1 million and revenue totaling $4.2 million and $1.0 million for the years ended December 31, 2010 and 2009,

respectively. Total revenue for the year ended December 31, 2010 excludes the loss on the sale of Atlantic RE of $14.0

million.

On June 21, 2010, EIHI completed the sale of Eastern Life and Health Insurance Company (“Eastern Life”), its former

group benefits insurance subsidiary. Eastern Life’s net premiums earned totaled $18.3 million (prior to the sale) and $35.9

million for the years ended December 31, 2010 and 2009, respectively. Eastern Life’s revenue totaled $20.6 million (prior to

the sale) and $40.7 million for the years ended December 31, 2010 and 2009, respectively.

The Company currently operates in three business segments: workers’ compensation insurance, segregated portfolio cell

reinsurance, and corporate/other. Prior to the sale of Atlantic RE and Eastern Life, the Company’s operations included a

run-off specialty reinsurance segment and a group benefits insurance segment. The components of the run-off specialty

reinsurance segment that were not transferred to Atlantic RE have been included in the corporate/other segment for the years

ended December 31, 2011, 2010 and 2009.

Overview of Business Segments

The following discussion provides information on each of our business segments:

Workers’ Compensation Insurance. The Company offers workers’ compensation insurance coverage to employers,

generally with 1,000 employees or less, primarily in the Mid-Atlantic, Southeast, and Midwest regions of the continental

United States. The Company’s workers’ compensation products include guaranteed cost policies, policyholder dividend

policies, retrospectively-rated policies, deductible policies and alternative market programs.

Segregated Portfolio Cell Reinsurance. The Company offers alternative market workers’ compensation solutions to

individual companies, groups and associations (referred to as “segregated portfolio cell dividend participants”) through the

creation of segregated portfolio cells. The segregated portfolio cells are segregated pools of assets that function as insurance

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