Interview with: Kevin M. Shook, Treasurer and CFO - featuring: their subsidiaries that offers insurance and reinsurance products and services to business and organizations; EIHI owns and operates Eastern Alliance Insurance Group, Eastern Life and Health Insurance Company, Employers Alliance, Inc., and Eastern Re Ltd., S.P.C.

Eastern Insurance Holdings, Inc. (EIHI-NASDAQ)

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Eastern Insurance Holdings is a company of high integrity with an expandable strategic plan that can be duplicated in other geographic areas

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Property & Casualty

Eastern Insurance Holdings, Inc.

25 Race Avenue
Lancaster, PA 17603

Phone: 717-396-7095

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Kevin M. Shook
Treasurer and CFO

Interview conducted by:
Lynn Fosse, Senior Editor
Published – April 12, 2007

Kevin M. Shook
Treasurer and Chief Financial Officer

Mr. Shook has 12 years of insurance industry experience. He joined the Eastern family of companies in 2001 and serves as Treasurer and Chief Financial Officer of Eastern Holding Company, Ltd. and its subsidiaries. Mr. Shook serves as a board member and as the Treasurer of the Lancaster, PA division of the American Cancer Society and regularly volunteers with the National Cancer Institute. In addition, he serves on the Board Selection committee of Junior Achievement of Central PA. Mr. Shook is a graduate of Fairfield University, with a Bachelor of Science degree in Accounting. Mr. Shook is a member of the Pennsylvania Institute of Certified Public Accountants and American Institute of Certified Public Accountants.

Company Profile:

Eastern Insurance Holdings, Inc. (EIHI) is a holding company that through its subsidiaries offers insurance and reinsurance products and services to business and organizations. At EIHI, we win with integrity – for the benefit of our loyal employees, shareholders, agents, brokers, policyholders and their own employees. We win by bringing fresh perspectives to the market place and the work place that clearly differentiate us as a uniquely progressive insurer and employer.

EIHI owns and operates Eastern Alliance Insurance Group, Eastern Life and Health Insurance Company, Employers Alliance, Inc., and Eastern Re Ltd., S.P.C

: Mr. Shook, there have been some changes in the structure of the company recently. Would you tell us what has happened and why you have changed course?
Mr. Shook: “We, on June 16th of 2006, completed the first transaction of its kind in the insurance industry. We did a reverse demutualization with Educators Mutual Life Insurance Company (now known as Eastern Life and Health). Educators Mutual Life converted from a mutual to a stock form and formed a holding company, Eastern Insurance Holdings, Inc., which is the registrant listed on NASDAQ, and contemporaneously acquired the Eastern Holding Company family of companies, which includes the workers’ compensation and specialty reinsurance companies. The primary purpose of that transaction was to provide a very economical way to raise capital and profitably expand our workers’ compensation and other lines of business.”

CEOCFO: What are your main lines of business and why is this the time to do a capital raising initiative?
Mr. Shook: “We are primarily a workers’ compensation insurance company. In 2007, we will write about $90 million of workers’ compensation insurance. We historically have been very profitable in the workers’ compensation line of business. In addition, specializing in that business gives us a competitive advantage, because we believe that we handle workers’ compensation claims better than anyone else. A desire to expand this profitable line of business was one of the reasons that we entered into this capital raising initiative.”

CEOCFO: Who are your typical customers?
Mr. Shook: “Typically, we write businesses and organizations primarily in the state of Pennsylvania and we are in expanding into Maryland and Delaware. Strategically, we would also like to expand into some other contiguous states. Our typical customer is a business with very solid return-to-work controls, a desire to control safety in their business and a desire to manage their workers’ compensation premiums on a going-forward basis.”

CEOCFO: Do you sell directly to your customers?
Mr. Shook: “We have a group of about 50 independent agents that we refer to as business partners. Our belief is that we like to establish strong relationships with a smaller group of agents and do higher volume business with them. It is our intent to be the largest writer of workers’ compensation in each of these independent agencies. By doing that, we can further leverage relationships; we can provide better service to our customers, and hopefully on a perspective basis, help control workers’ comp premiums and provide great service.”

CEOCFO: Do businesses typically buy workers’ comp as a stand-alone service, not tied to other insurance?
Mr. Shook: “I think in today’s day and age there is a lot of that. I think some of the larger companies may try to package all of their insurances, but in workers’ comp, what you will find is that a lot of people buy it separately because it is a very specialized line of insurance and it is not a commodity like homeowners or automobile insurance. Another thing that is important in workers’ compensation is to have a steady marketplace, meaning we do not want to write a customer for one year and have them price shop the next year for a company that writes multiple products that may be in the workers’ compensation market for a year or two. We try to stress to our agency partners and our customers the importance of establishing a long-term relationship, because over the long haul we believe that we are going to be more competitive, help them control their costs better, and ultimately save them premium dollars. Therefore, in workers’ comp it is probably more important to be with someone that is specialized than it is to be with someone that does workers’ comp, automobile, business liability insurance, homeowners and all of those other things.”

CEOCFO: Will you explain your motto “Fresh Outlooks, Better Outcomes”?
Mr. Shook: “What we try to do is look at each account and each relationship we have on an individual basis by taking a fresh perspective on things and treating everything individually. We believe better outcomes will result from that.”

CEOCFO: What is the financial picture of the company?
Mr. Shook: “We just released our 4th Quarter 2006 earnings on February 16, 2006. The earnings release is posted on our Web site, We had a very good quarter and our earnings per share was .41 cents for the three months ended on a fully diluted basis, which is very competitive. We are very happy with our earnings. As we entered into this transaction trying to secure additional capital, the nature of the transaction got us a little bit more capital than we needed immediately; we are in the process of putting that capital to use. We are actively seeking candidates for us to purchase and profitably expand from that perspective. From an expansion perspective, you will see us grow organically, look at acquiring books of business and look at acquiring other companies in order to use that capital. Therefore, 2006 ended very strong. We are excited for 2007 and some of those initiatives that I just mentioned are points of focus from a financial perspective.”

CEOCFO: Do you need to add to your management team for your growth?
Mr. Shook: “We will take that one step at a time. Right now, we have the systems in place. We have an excellent chief information officer, Harry Talbert, who enables us to grow through technology without having to add as many people as you might think. We take it on a one off basis. We are extremely customer service focused and we will continue to maintain that high customer service focus prospectively. It is going to depend on the situation and we will evaluate that on a day-by-day basis.”

CEOCFO: What is new in the workers’ comp industry?
Mr. Shook: “With regard to workers’ compensation, we are entering what we refer to as a soft market, which is typically characterized by increased price competition. Workers’ compensation is regulated on a state-by-state basis; we are primarily a Pennsylvania corporation, and there is really nothing new from a regulatory perspective. We just need to adhere to our underwriting standards entering into the soft market. We will not write those accounts on which we do not think we can achieve an acceptable return on equity. I think the key in 2007 for workers’ compensation is underwriting discipline.”

CEOCFO: You mention that you win with integrity; what sets you apart?
Mr. Shook: “For us, winning with integrity means doing the right thing all of the time, whether you’re looking at the situation from an underwriting, a financial reporting, or a claims perspective. That is what we have taught our employees and how we operate our companies. I think “winning with integrity” best describes our employee base, how we treat our employees, how we treat our shareholders and the great relationship we have with our board.”

CEOCFO: It is a difficult time since Sarbanes-Oxley; will you give us your take on the role of CFO?
Mr. Shook: “I just read an article that they are expecting high turnover in the CFO ranks again in 2007, somewhere in the range of 20 to 30%, which is staggering. When we were a private company (I came from the Eastern Holding Company side, not the Educators Mutual, now Eastern Life and Health, side), our CEO Bruce M. Eckert had always challenged me to run the company as if it were a public company from a financial reporting and internal controls perspective. Therefore, going public for us was tedious, but not as tedious as it can be for some other private companies in making that transition. I think from a Sarbanes-Oxley perspective, we are well under way with this project. We need to be compliant by December 31, 2007, and we do not anticipate any problems with that because we had many of the protocols in place prior to going public. It was a matter of formalizing a lot of those policies and integrating the Eastern Life and Health business as part of that process. From being a CFO in a public environment, when you have increased scrutiny, increased corporate governance and Sarbanes-Oxley, I am all for it. I would rather work more collaboratively with the audit committee and the board of directors. A lot of these things can be viewed as positives, and as long as you have high integrity and you are willing to do the right thing, I do not see any of it as being incredibly intrusive on what I do on a daily basis.”

CEOCFO: Will you tell us about Eastern’s other product lines?
Mr. Shook: “We are primarily a workers’ comp insurance company. The other product offerings we have are with Eastern Life and Health, our group benefits company, where we offer dental insurance and short and long-term disability coverage. Eastern Life and Health also has a small group term-life book of business. In the Cayman Islands, we own Eastern Re, Ltd., SPC, a re-insurance company. A reinsurance company is an insurance company of insurance companies that reinsures certain environmental lines of business from a large unaffiliated insurance company.”

CEOCFO: There is certainly lot going on!
Mr. Shook: “Yes and it has been a lot of fun. I spent ten years at PricewaterhouseCooper (PwC) in a very competitive environment. Things have not slowed down at all in the five years that I have been here, so I could not be happier.”

CEOCFO: Why should investors be interested in Eastern Insurance Holdings?
Mr. Shook: “First of all, we are trading under our book value. We believe that we have a strong balance sheet, so when you look at our book value per share, we think it is a high quality book value per share and we continue to trade underneath that book value. Having said that, June 16th was the close of the transaction, which was a Friday, and on June 19th, the Monday when we began trading, the stock went out at $10.00 a share and is right now in the $14.00 to $15.00 a share range. Therefore, in a matter of six or seven months, our investors that were part of the IPO were up about 40%. If you look at our core businesses and you look at the capital that we have allocated to those core businesses, we have very impressive returns on equity. Therefore, it is only a matter of time between now and when we effectively utilize our capital that I believe the book value of the company is going to increase nicely over the next couple of years. We also have a company of high integrity, as I said earlier, and a very expandable strategic plan that can be duplicated in other geographic areas and other product lines, which I also think will be attractive to investors.”

CEOCFO: In closing, what should our readers remember most about Eastern Insurance Holdings?
Mr. Shook: “I think they should remember that we are very employee and shareholder focused. We treat our shareholders’ money as if it is our own. We have an excellent track record and we are certainly poised for profitable growth in all lines of business.”


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“From an expansion perspective, you will see us grow organically, look at acquiring books of business and look at acquiring other companies in order to use that capital. Therefore, 2006 ended very strong. We are excited for 2007 and some of those initiatives that I just mentioned are points of focus from a financial perspective.” - Kevin M. Shook does not purchase or make
recommendation on stocks based on the interviews published.