Employers Holdings, Inc. (“EHI” or the “Company”) (NYSE:EIG) today reported second quarter 2012 net income of $5.0 million or $0.16 per diluted share. Net income in the second quarter of 2011 was $8.3 million or $0.21 per diluted share. As expected, during the second quarter of 2012, we recorded a $2.2 million or $0.07 per diluted share addition to underwriting and other operating expense as a result of our prospective adoption of the Financial Accounting Standards Board's change in accounting methods for deferred acquisition costs (DAC). This change in accounting method, which became effective in 2012, alters the definition of acquisition costs which may be capitalized and lowered our reported net income as a result of having to expense certain costs that were previously capitalized. Adjusted for the change in DAC accounting, non-GAAP net income was $7.3 million or $0.23 per diluted share, an increase of $0.02 per share compared with last year's second quarter. We continue to estimate that our underwriting and other operating expenses in 2012 will increase further by approximately $2 million, in addition to the year-to-date expense of $5 million, as a result of the new DAC accounting, with approximately 16% of the total $7 million to be recorded in Q3 and the remaining 6% to be recorded in Q4.
Net income includes amortization of the deferred reinsurance gain related to the Loss Portfolio Transfer (“LPT”) Agreement. Consolidated net income before the impact of the LPT deferred reinsurance gain (the Company's non-GAAP measure described below) was $1.2 million or $0.04 per diluted share in the second quarter of 2012 and $4.0 million or $0.10 per diluted share in the second quarter of 2011. Adjusted for the change in DAC accounting, net income before the impact of the LPT deferred reinsurance gain was $3.5 million or $0.11 per diluted share in the second quarter of 2012, which was $0.5 million or $0.01 per diluted share higher than the second quarter of 2011.
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