Profile: Eastern Insurance Holdings, Inc. (EIHI.O)

Eastern Insurance Holdings, Inc. (EIHI) is an insurance holding company offering workers’ compensation and group benefits insurance and reinsurance products through its direct and indirect wholly owned subsidiaries, Eastern Holding Company, Ltd. (EHC), Eastern Alliance Insurance Company (Eastern Alliance), Allied Eastern Indemnity Company (Allied Eastern), Eastern Advantage Assurance Company (Eastern Advantage), Eastern Re, Ltd., S.P.C. (Eastern Re), Employers Security Holding Company (ESHC), Employers Security Insurance Company (ESIC), Affinity Management Services, Inc. (AMS), Eastern Life and Health Insurance Company (ELH), Employers Alliance, Inc. (Employers Alliance), Global Alliance Holdings, Ltd. (Global Alliance) and Eastern Services Corporation (Eastern Services). The Company operates in four business segments: workers’ compensation insurance, segregated portfolio cell reinsurance, group benefits insurance and corporate/other. On September 29, 2008, EIHI acquired ESHC and its wholly-owned subsidiaries, ESIC and AMS. Effective July 1, 2008, the specialty reinsurance segment was placed into run-off.

EHC 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 do business as Eastern Alliance Insurance Group (EAIG). The three insurance companies provide EAIG with increased underwriting flexibility through the use of a tiered rating structure. Eastern Re is a segregated portfolio cell reinsurance company domiciled in the Cayman Islands. ESHC is a holding company domiciled in the State of Indiana. ESIC is a stock property/casualty insurance company domiciled in the State of Indiana. ELH is a stock life and accident and health insurance company domiciled in the Commonwealth of Pennsylvania. Employers Alliance is a Pennsylvania corporation offering claims administration and risk management services to self-insured property/casualty customers. Global Alliance is a holding company domiciled in the Commonwealth of Pennsylvania. Global Alliance Statutory Trust I, which was formed by Global Alliance solely for the purpose of issuing the $8 million of fixed/floating rate trust preferred securities, was dissolved upon the repayment of the junior subordinated debentures in May 2008. Eastern Services is a Pennsylvania corporation that provides management services to EAIG, ELH, and Employers Alliance.

Workers’ Compensation Insurance

The Company offers traditional workers’ compensation insurance coverage to employers, primarily in Pennsylvania, Delaware, North Carolina, Maryland and Indiana. The Company’s workers’ compensation products include cost policies, policyholder dividend policies, retrospectively rated policies and deductible policies. Workers’ compensation insurance coverage is also underwritten through the Company’s alternative markets business unit and ceded 100% to the segregated portfolio cell reinsurance segment. The Company receives a fronting fee generally based upon a percentage of direct premiums written, a segregated portfolio cell rental fee, which is also based on a percentage of direct premiums written, and fees for claims administration and risk management services. During the year ended December 31, 2008, the segregated portfolio cells and dividend participants had provided $48 million of letters of credit to secure unfunded liabilities and collateralize reserves for unpaid losses and loss adjustment expenses (LAE) and unearned premiums.

Segregated Portfolio Cell Reinsurance

The Company provides a range of products to this marketplace, including program design, fronting, claims administration, risk management, segregated portfolio cell rental, investment and segregated portfolio management services. Direct premiums written in the segregated portfolio cell reinsurance segment totaled $29.1 million in 2008.

Group Benefits Insurance

The Company offers group benefits insurance products to employer groups, primarily in the Mid-Atlantic, Southeast and Midwest regions of the continental United States. The Company’s group benefits insurance products consist of dental, short-term and long-term disability, and term life insurance.

Corporate/Other

The corporate/other segment includes the holding company and third party administration activities of the Company, as well as certain eliminations necessary to reconcile the segment information to the consolidated statements of operations and income. The corporate/other segment also includes the Company’s 10% interest in a segregated portfolio cell with an unaffiliated primary carrier that writes insurance coverage for sprinkler contractors.

The Company competes with PMA Capital Insurance Group, Erie Insurance Group, Guard Insurance Group, Penn National Insurance Company, Selective Insurance Group, Cincinnati Insurance Company, Lackawanna Insurance Group and the Pennsylvania State Workers’ Insurance Fund.