EX-99 2 exhibit99earnings8k2017630.htm EXHIBIT 99 Exhibit
EXHIBIT 99

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NEWS RELEASE

EMC Insurance Group Inc. Reports 2017 Second Quarter and Six Month Results

Second Quarter Ended June 30, 2017
Net Income Per Share - $0.26
Non-GAAP Operating Income Per Share* - $0.16
Net Realized Investment Gains Per Share - $0.10
Catastrophe and Storm Losses Per Share - $0.46
GAAP Combined Ratio - 104.1 percent

Six Months Ended June 30, 2017
Net Income Per Share - $0.58
Non-GAAP Operating Income Per Share* - $0.49
Net Realized Investment Gains Per Share - $0.09
Catastrophe and Storm Losses Per Share - $0.87
GAAP Combined Ratio - 102.3 percent

*Denotes financial measure not calculated in accordance with generally accepted accounting principles (non-GAAP). See “Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures” for additional information.

Reaffirming 2017 non-GAAP operating income guidance* of $1.35 to $1.55 per share

DES MOINES, Iowa (August 8, 2017) - EMC Insurance Group Inc. (NASDAQ:EMCI) (the “Company”), today reported net income of $5.5 million ($0.26 per share) for the second quarter ended June 30, 2017, compared to $6.1 million ($0.29 per share) for the second quarter of 2016. This decline is attributed to adverse development experienced on prior years’ reserves (compared to favorable development for the second quarter of 2016), which more than offset a decline in catastrophe and storm losses this quarter.

For the six months ended June 30, 2017, the Company reported net income of $12.3 million ($0.58 per share) and a loss and settlement expense ratio of 68.3 percent, compared to net income of $20.8 million ($0.99 per share) and a loss and settlement expense ratio of 64.6 percent for the same period in 2016. This decline reflects an increase in the property and casualty insurance segment’s underlying loss and settlement expense ratio*, which excludes the impact of catastrophe and storm losses and development on prior years’ reserves. This ratio was 8.8 percentage points higher in the first quarter of 2017 than the first quarter of 2016, which resulted in a 3.7 percentage point increase for the first six months of 2017. This increase does not reflect a decline in the performance of the underlying book of business. Rather, the increase is attributed to differences in how bulk reserves are calculated and allocated to the various accident years under the new and prior bulk reserving methodologies. As a result, the comparison of the 2017 ratios to the 2016 ratios is not meaningful.

“The property and casualty insurance segment’s underlying loss and settlement expense ratio has been relatively consistent since the implementation of the new bulk reserving methodology in the third quarter of 2016,” stated President and Chief Executive Officer Bruce G. Kelley. “In fact, the ratio declined in the second quarter of this year, despite the softening market.”

“Before factoring in recoveries under the intercompany reinsurance treaty, the property and casualty


insurance segment experienced a near-record level of catastrophe and storm losses during the second quarter amid an active storm season in the Midwest,” continued Kelley. “This comes on the heels of a record amount of catastrophe and storm losses incurred in the first quarter. Fortunately, the intercompany reinsurance treaty helped reduce the volatility of our second quarter results by capping these losses at $20 million for the first half of the year.”

Non-GAAP operating income, which excludes realized investment gains/losses from net income, totaled $3.3 million ($0.16 per share) for the second quarter of 2017, compared to $5.1 million ($0.24 per share) for the second quarter of 2016. For the six months ended June 30, 2017, the Company reported non-GAAP operating income of $10.5 million ($0.49 per share), compared to $20.4 million ($0.98 per share) for the same period in 2016.

The Company’s GAAP combined ratio was 104.1 percent in the second quarter of 2017, compared to 103.4 percent in the second quarter of 2016. For the first six months of 2017, the Company’s GAAP combined ratio was 102.3 percent, compared to 98.1 percent in 2016.

Premiums earned increased 2.3 percent and 1.8 percent for the second quarter and first six months of 2017, respectively. In the property and casualty insurance segment, premiums earned increased 4.0 percent and 3.4 percent for the second quarter and first six months of 2017, respectively. The majority of these increases are attributed to growth in insured exposures, an increase in retained policies in the commercial lines of business and small rate level increases on commercial lines renewal business. In the reinsurance segment, premiums earned decreased 3.0 percent and 3.7 percent for the second quarter and first six months of 2017, respectively. These decreases, which occurred in the pro rata line of business and stem from the Mutual Reinsurance Bureau underwriting association’s withdrawal from non-standard automobile business, were partially offset by increases in the excess of loss line of business.

Catastrophe and storm losses totaled $15.1 million ($0.46 per share after tax) in the second quarter of 2017, compared to $22.3 million ($0.69 per share after tax) in the second quarter of 2016. The Company experienced a record level of catastrophe and storm losses in the first quarter of 2017. As a result, the property and casualty insurance segment was further into the $20 million retention amount under its January 1 through June 30 intercompany excess of loss reinsurance treaty with Employers Mutual than it was in 2016 after completion of the first quarter. Therefore, second quarter catastrophe and storm losses in the property and casualty insurance segment were capped at $10.2 million, with $16.0 million of catastrophe and storm losses ceded to Employers Mutual. Because of the cap, second quarter catastrophe and storm losses accounted for only 10.1 percentage points of the combined ratio, which is below the Company’s most recent 10-year average of 18.4 percentage points for this period, and the 15.2 percentage points experienced in the second quarter of 2016. Catastrophe and storm losses totaled $28.5 million for the first six months of 2017 and 2016. On a segment basis, catastrophe and storm losses amounted to $10.2 million ($0.31 per share after tax) and $20.0 million ($0.61 per share after tax) in the property and casualty insurance segment, and $4.9 million ($0.15 per share after tax) and $8.5 million ($0.26 per share after tax) in the reinsurance segment for the three and six months ended June 30, 2017, respectively.

The loss and settlement expense ratio increased to 71.6 percent for the second quarter of 2017, from 70.2 percent for the same period in 2016. This is attributed to an increase in the reinsurance segment’s loss and settlement expense ratio caused by adverse development experienced on prior years’ reserves during the second quarter of 2017 compared favorable development during the same period in 2016, as well as a decline in premiums earned. This increase was partially offset by a decline in the property and casualty insurance segment’s loss and settlement expense ratio, which is attributed to an increase in premiums earned as losses and settlement expenses remained relatively consistent. The loss and settlement expense ratio increased to 69.1 percent for the first six months of 2017, from 65.0 percent for the same period in 2016.

The Company reported $1.7 million ($0.05 per share after tax) of adverse development on prior years’


reserves during the second quarter of 2017, compared to $8.1 million ($0.25 per share after tax) of favorable development in the second quarter of 2016. For the first six months of 2017, favorable development totaled $13.2 million ($0.40 per share after tax), compared to $15.9 million ($0.49 per share after tax) in 2016. Included in the development amounts reported for the second quarter and first six months of 2017 are $1.8 million and $4.5 million, respectively, of adverse development in the property and casualty insurance segment stemming from the settlement of claims for past and future legal fees and losses on a multi-year asbestos exposure associated with a former insured.

Net investment income declined 8.3 percent and 9.1 percent to $11.2 million and $22.2 million for the second quarter and first six months of 2017, from $12.2 million and $24.4 million for the same periods in 2016, respectively. These decreases primarily reflect an increase in the amortization of interest-only fixed maturity securities due to prepayments of the underlying collateral, as well as a decline in dividend income.

Net realized investment gains totaled $3.4 million ($0.10 per share after tax) and $2.8 million ($0.09 per share after tax) for the second quarter and first six months of 2017, compared to $1.6 million ($0.05 per share after tax) and $549,000 ($0.01 per share after tax) for the same periods in 2016, respectively. Included in the net realized investment gains reported for the second quarter and first six months of 2017 are $1.3 million and $3.6 million, respectively, of net realized investment losses attributed to a decline in the carrying value of a limited partnership that helps protect the Company from a sudden and significant decline in the value of its equity portfolio (the equity tail-risk hedging strategy), compared to $1.4 million and $3.3 million, respectively, for the same periods in 2016.

At June 30, 2017, consolidated assets totaled $1.6 billion, including $1.5 billion in the investment portfolio, and stockholders’ equity totaled $572.5 million, an increase of 3.5 percent from December 31, 2016. Book value of the Company’s common stock increased 3.0 percent to $26.84 per share from $26.07 per share at December 31, 2016. Book value excluding accumulated other comprehensive income was relatively flat at $24.06 per share at June 30, 2017, compared to $23.90 per share at December 31, 2016.

Based on results for the first six month of 2017 and management’s expectations for the remainder of the year, management is reaffirming its 2017 non-GAAP operating income guidance range of $1.35 to $1.55 per share. This guidance is based on a projected GAAP combined ratio of 100.5 percent for the year, with nominal changes to the other assumptions utilized in the projection.

The Company will hold an earnings conference call at noon Eastern time on Tuesday, August 8, 2017 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company’s results for the second quarter, as well as its expectations for the remainder of 2017. Dial-in information for the call is toll-free 1-844-850-0550 (International: 1-412-317-5180).

Members of the news media, investors and the general public are invited to access a live webcast of the earnings conference call via the Company’s investor relations page at www.emcins.com/ir. The webcast will be archived and available for replay for approximately 90 days following the earnings conference call. A transcript will be available on the Company’s website shortly after the completion of the earnings conference call.

About EMCI
EMC Insurance Group Inc. is a publicly held insurance holding company with operations in property and casualty insurance and reinsurance, which was formed in 1974 and became publicly held in 1982. The Company’s common stock trades on the Global Select Market tier of the NASDAQ Stock Market under the symbol EMCI. Additional information regarding the Company may be found at www.emcins.com/ir. EMCI’s parent company is Employers Mutual Casualty Company (EMCC). EMCI and EMCC, together with their subsidiary and affiliated companies, conduct operations under the trade name EMC Insurance Companies.



Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides issuers the opportunity to make cautionary statements regarding forward-looking statements. Accordingly, any forward-looking statement contained in this report is based on management’s current beliefs, assumptions and expectations of the Company’s future performance, taking all information currently available into account. These beliefs, assumptions and expectations can change as the result of many possible events or factors, not all of which are known to management. If a change occurs, the Company’s business, financial condition, liquidity, results of operations, plans and objectives may vary materially from those expressed in the forward-looking statements.

The risks and uncertainties that may affect the actual results of the Company include, but are not limited to, the following:

•
catastrophic events and the occurrence of significant severe weather conditions;
•
the adequacy of loss and settlement expense reserves;
•
state and federal legislation and regulations;
•
changes in the property and casualty insurance industry, interest rates or the performance of financial markets and the general economy;
•
rating agency actions;
•
“other-than-temporary” investment impairment losses; and
•
other risks and uncertainties inherent to the Company’s business, including those discussed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K.

Management intends to identify forward-looking statements when using the words “believe”, “expect”, “anticipate”, “estimate”, “project”, “may”, “intend”, “likely” or similar expressions. Undue reliance should not be placed on these forward-looking statements. The Company disclaims any obligation to update such statements or to announce publicly the results of any revisions that it may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures
The Company prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Management uses certain non-GAAP financial measures for evaluating the Company’s performance. These measures are considered non-GAAP financial measures under applicable Securities and Exchange Commission (SEC) rules because they are not displayed as separate line items in the consolidated financial statements or are not required to be disclosed in the notes to financial statements or, in some cases, include or exclude certain items not ordinarily included or excluded in the most comparable GAAP financial measure. The Company’s calculation of non-GAAP financial measures may differ from similar measures used by other companies, so investors should exercise caution when comparing the Company’s non-GAAP financial measures to the measures used by other companies. The following discussion includes reconciliations of the most directly comparable GAAP financial measures to the non-GAAP financial measures referenced in this report.

Non-GAAP operating income: One of the primary non-GAAP financial measures utilized by management for evaluating the Company’s performance is operating income. Non-GAAP operating income is calculated by excluding net realized investment gains/losses (defined as realized investment gains and losses after applicable federal and state income taxes) from net income. While realized investment gains/losses are integral to the Company’s insurance operations over the long term, the decision to realize investment gains or losses in any particular period is subject to changing market conditions and management’s discretion, and is independent of the Company’s insurance operations.

Management’s operating income guidance is also considered a non-GAAP financial measure. Net


realized investment gains/losses resulting from the sale of assets are not predictable due to changing market conditions and the discretionary nature of such events. As a result, management is unable to accurately project the Company’s annual net income and therefore utilizes non-GAAP operating income in the Company’s projected annual guidance.

Management believes non-GAAP operating income is useful to investors because it illustrates the performance of the Company’s normal, ongoing insurance operations, which is important in understanding and evaluating the Company’s financial condition and results of operations. While this measure is consistent with measures utilized by investors and analysts to evaluate performance, it is not intended as a substitute for the GAAP financial measure of net income.

RECONCILIATION OF NET INCOME TO NON-GAAP OPERATING INCOME
($ in thousands)
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
5,504

 
$
6,128

 
$
12,308

 
$
20,782

Realized investment gains
 
(3,387
)
 
(1,634
)
 
(2,760
)
 
(549
)
Income tax expense
 
1,185

 
572

 
966

 
192

Net realized investment gains
 
(2,202
)
 
(1,062
)
 
(1,794
)
 
(357
)
Non-GAAP operating income
 
$
3,302

 
$
5,066

 
$
10,514

 
$
20,425


RECONCILIATION OF NET INCOME PER SHARE TO NON-GAAP OPERATING INCOME PER SHARE
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
0.26

 
$
0.29

 
$
0.58

 
$
0.99

Realized investment gains
 
(0.16
)
 
(0.08
)
 
(0.13
)
 
(0.02
)
Income tax expense
 
0.06

 
0.03

 
0.04

 
0.01

Net realized investment gains
 
(0.10
)
 
(0.05
)
 
(0.09
)
 
(0.01
)
Non-GAAP operating income
 
$
0.16

 
$
0.24

 
$
0.49

 
$
0.98


Property and casualty insurance segment’s underlying loss and settlement expense ratio: The loss and settlement expense ratio is the ratio (expressed as a percentage) of losses and settlement expenses incurred to premiums earned, which management uses as a measure of underwriting profitability of the Company’s property and casualty insurance business. The underlying loss and settlement expense ratio is a non-GAAP financial measure, which represents the loss and settlement expense ratio, excluding the impact of catastrophe and storm losses and development on prior years’ reserves. Management uses this ratio as an indicator of the property and casualty insurance segment’s underwriting discipline and performance for the current accident year. Management believes this ratio is useful for investors to understand the property and casualty insurance segment’s periodic earnings and variability of earnings caused by the unpredictable nature (i.e., the timing and amount) of catastrophe and storm losses and reported development on prior years’ reserves. While this measure is consistent with measures utilized by investors and analysts to evaluate performance, it is not intended as a substitute for the GAAP financial measure of loss and settlement expense ratio.



RECONCILIATION OF THE PROPERTY AND CASUALTY INSURANCE SEGMENT'S LOSS AND SETTLEMENT EXPENSE RATIO TO THE UNDERLYING LOSS AND SETTLEMENT EXPENSE RATIO
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Loss and settlement expense ratio
 
70.2
 %
 
72.9
 %
 
68.3
 %
 
64.6
 %
Catastrophe and storm losses
 
(8.8
)%
 
(14.8
)%
 
(8.7
)%
 
(9.0
)%
Reported favorable development experienced on prior years' reserves
 
0.7
 %
 
5.4
 %
 
4.1
 %
 
4.4
 %
Underlying loss and settlement expense ratio
 
62.1
 %
 
63.5
 %
 
63.7
 %
 
60.0
 %


Industry Metric
Premiums written: Premiums written is an industry metric used in statutory accounting to quantify the amount of insurance sold during a specified reporting period. Management analyzes trends in premiums written to assess business efforts, and uses it as a financial measure for goal setting and determining a portion of employee and senior management awards and compensation. Premiums earned, used in both statutory and GAAP accounting, is the recognition of the portion of premiums written directly related to the expired portion of an insurance policy for a given reporting period. The unexpired portion of premiums written is referred to as unearned premiums, and represents the portion of premiums written that would be returned to a policyholder upon cancellation of a policy.



CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
 
 
 
 
 
 
($ in thousands, except share and per share amounts)
 
 
 
 
 
 
 
 
Quarter ended June 30, 2017
 
Property and Casualty Insurance
 
Reinsurance
 
Parent Company
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
Premiums earned
 
$
116,187

 
$
33,650

 
$
—

 
$
149,837

Investment income, net
 
7,958

 
3,201

 
12

 
11,171

Other income (loss)
 
283

 
(528
)
 
—

 
(245
)
 
 
124,428

 
36,323

 
12

 
160,763

Losses and expenses:
 
 
 
 
 
 
 
 
Losses and settlement expenses
 
81,508

 
25,720

 
—

 
107,228

Dividends to policyholders
 
2,416

 
—

 
—

 
2,416

Amortization of deferred policy acquisition costs
 
19,618

 
7,915

 
—

 
27,533

Other underwriting expenses
 
18,255

 
602

 
—

 
18,857

Interest expense
 
85

 
—

 
—

 
85

Other expenses
 
231

 
—

 
571

 
802

 
 
122,113

 
34,237

 
571

 
156,921

Operating income (loss) before income taxes
 
2,315

 
2,086

 
(559
)
 
3,842

Realized investment gains (losses)
 
3,738

 
(351
)
 
—

 
3,387

Income (loss) before income taxes
 
6,053

 
1,735

 
(559
)
 
7,229

Income tax expense (benefit):
 
 
 
 
 
 
 
 
Current
 
1,646

 
684

 
(261
)
 
2,069

Deferred
 
(88
)
 
(322
)
 
66

 
(344
)
 
 
1,558

 
362

 
(195
)
 
1,725

Net income (loss)
 
$
4,495

 
$
1,373

 
$
(364
)
 
$
5,504

Average shares outstanding
 
 
 
 
 
 
 
21,276,627

Per Share Data:
 
 
 
 
 
 
 
 
Net income (loss) per share - basic and diluted
 
$
0.21

 
$
0.06

 
$
(0.01
)
 
$
0.26

Catastrophe and storm losses (after tax)
 
$
0.31

 
$
0.15

 
$
—

 
$
0.46

Large losses1 (after tax)
 
N/A

 
N/A

 
N/A

 
N/A

Reported (adverse) favorable development experienced on prior years' reserves (after tax)
 
$
0.03

 
$
(0.08
)
 
$
—

 
$
(0.05
)
Dividends per share
 
 
 
 
 
 
 
$
0.21

Other Information of Interest:
 
 
 
 
 
 
 
 
Premiums written
 
$
126,591

 
$
28,554

 
$
—

 
$
155,145

Catastrophe and storm losses
 
$
10,214

 
$
4,909

 
$
—

 
$
15,123

Large losses1
 
N/A

 
N/A

 
N/A

 
N/A

Reported adverse (favorable) development experienced on prior years' reserves
 
$
(850
)
 
$
2,557

 
$
—

 
$
1,707

GAAP Ratios:
 
 
 
 
 
 
 
 
Loss and settlement expense ratio
 
70.2
%
 
76.4
%
 
—

 
71.6
%
Acquisition expense ratio
 
34.6
%
 
25.3
%
 
—

 
32.5
%
Combined ratio
 
104.8
%
 
101.7
%
 
—

 
104.1
%
 
 
 
 
 
 
 
 
 
1 Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. Under the property and casualty insurance segment's prior bulk reserving methodology, large losses had a direct impact on earnings. Under the new bulk reserving methodology implemented during the third quarter of 2016, large losses are taken into consideration when establishing the current accident quarter/year ultimate estimates of losses, but there is no longer a direct relationship between large losses and earnings. As a result, it is no longer meaningful to report large losses separately.


CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
 
 
 
 
 
 
($ in thousands, except share and per share amounts)
 
 
 
 
 
 
 
 
Quarter ended June 30, 2016
 
Property and Casualty Insurance
 
Reinsurance
 
Parent Company
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
Premiums earned
 
$
111,771

 
$
34,675

 
$
—

 
$
146,446

Investment income, net
 
8,568

 
3,608

 
3

 
12,179

Other income (loss)
 
162

 
(85
)
 
—

 
77

 
 
120,501

 
38,198

 
3

 
158,702

Losses and expenses:
 
 
 
 
 
 
 
 
Losses and settlement expenses
 
81,466

 
21,354

 
—

 
102,820

Dividends to policyholders
 
3,495

 
—

 
—

 
3,495

Amortization of deferred policy acquisition costs
 
19,501

 
8,066

 
—

 
27,567

Other underwriting expenses
 
16,681

 
876

 
—

 
17,557

Interest expense
 
85

 
—

 
—

 
85

Other expenses
 
211

 
—

 
514

 
725

 
 
121,439

 
30,296

 
514

 
152,249

Operating income (loss) before income taxes
 
(938
)
 
7,902

 
(511
)
 
6,453

Realized investment gains
 
1,018

 
616

 
—

 
1,634

Income (loss) before income taxes
 
80

 
8,518

 
(511
)
 
8,087

Income tax expense (benefit):
 
 
 
 
 
 
 
 
Current
 
(261
)
 
2,905

 
(270
)
 
2,374

Deferred
 
(327
)
 
(178
)
 
90

 
(415
)
 
 
(588
)
 
2,727

 
(180
)
 
1,959

Net income (loss)
 
$
668

 
$
5,791

 
$
(331
)
 
$
6,128

Average shares outstanding
 
 
 
 
 
 
 
20,989,844

Per Share Data:
 
 
 
 
 
 
 
 
Net income (loss) per share - basic and diluted
 
$
0.03

 
$
0.27

 
$
(0.01
)
 
$
0.29

Catastrophe and storm losses (after tax)
 
$
0.51

 
$
0.18

 
$
—

 
$
0.69

Large losses1 (after tax)
 
$
0.31

 
$
—

 
$
—

 
$
0.31

Reported favorable development experienced on prior years' reserves (after tax)
 
$
0.18

 
$
0.07

 
$
—

 
$
0.25

Dividends per share
 
 
 
 
 
 
 
$
0.19

Other Information of Interest:
 
 
 
 
 
 
 
 
Premiums written
 
$
120,533

 
$
30,406

 
$
—

 
$
150,939

Catastrophe and storm losses
 
$
16,576

 
$
5,741

 
$
—

 
$
22,317

Large losses1
 
$
10,000

 
$
—

 
$
—

 
$
10,000

Reported favorable development experienced on prior years' reserves
 
$
(5,989
)
 
$
(2,130
)
 
$
—

 
$
(8,119
)
GAAP Ratios:
 
 
 
 
 
 
 
 
Loss and settlement expense ratio
 
72.9
%
 
61.6
%
 
—

 
70.2
%
Acquisition expense ratio
 
35.5
%
 
25.8
%
 
—

 
33.2
%
Combined ratio
 
108.4
%
 
87.4
%
 
—

 
103.4
%
 
 
 
 
 
 
 
 
 
1 Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses.

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
 
 
 
 
 
 
($ in thousands, except share and per share amounts)
 
 
 
 
 
 
 
 


Six months ended June 30, 2017
 
Property and Casualty Insurance
 
Reinsurance
 
Parent Company
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
Premiums earned
 
$
229,835

 
$
64,489

 
$
—

 
$
294,324

Investment income, net
 
15,973

 
6,184

 
21

 
22,178

Other income (loss)
 
444

 
(1,099
)
 
—

 
(655
)
 
 
246,252

 
69,574

 
21

 
315,847

Losses and expenses:
 
 
 
 
 
 
 
 
Losses and settlement expenses
 
157,028

 
46,485

 
—

 
203,513

Dividends to policyholders
 
5,138

 
—

 
—

 
5,138

Amortization of deferred policy acquisition costs
 
39,695

 
14,649

 
—

 
54,344

Other underwriting expenses
 
37,185

 
1,026

 
—

 
38,211

Interest expense
 
169

 
—

 
—

 
169

Other expenses
 
410

 
—

 
1,153

 
1,563

 
 
239,625

 
62,160

 
1,153

 
302,938

Operating income (loss) before income taxes
 
6,627

 
7,414

 
(1,132
)
 
12,909

Realized investment gains (losses)
 
3,141

 
(381
)
 
—

 
2,760

Income (loss) before income taxes
 
9,768

 
7,033

 
(1,132
)
 
15,669

Income tax expense (benefit):
 
 
 
 
 
 
 
 
Current
 
2,137

 
2,429

 
(451
)
 
4,115

Deferred
 
(258
)
 
(551
)
 
55

 
(754
)
 
 
1,879

 
1,878

 
(396
)
 
3,361

Net income (loss)
 
$
7,889

 
$
5,155

 
$
(736
)
 
$
12,308

Average shares outstanding
 
 
 
 
 
 
 
21,265,529

Per Share Data:
 
 
 
 
 
 
 
 
Net income (loss) per share - basic and diluted
 
$
0.37

 
$
0.24

 
$
(0.03
)
 
$
0.58

Catastrophe and storm losses (after tax)
 
$
0.61

 
$
0.26

 
$
—

 
$
0.87

Large losses1 (after tax)
 
N/A

 
N/A

 
N/A

 
N/A

Reported favorable development experienced on prior years' reserves (after tax)
 
$
0.28

 
$
0.12

 
$
—

 
$
0.40

Dividends per share
 
 
 
 
 
 
 
$
0.42

Book value per share
 
 
 
 
 
 
 
$
26.84

Effective tax rate
 
 
 
 
 
 
 
21.4
%
Annualized net income as a percent of beg. SH equity
 
 
 
 
 
 
 
4.5
%
Other Information of Interest:
 
 
 
 
 
 
 
 
Premiums written
 
$
241,198

 
$
58,822

 
$
—

 
$
300,020

Catastrophe and storm losses
 
$
20,000

 
$
8,497

 
$
—

 
$
28,497

Large losses1
 
N/A

 
N/A

 
N/A

 
N/A

Reported favorable development experienced on prior years' reserves
 
$
(9,313
)
 
$
(3,884
)
 
$
—

 
$
(13,197
)
GAAP Ratios:
 
 
 
 
 
 
 
 
Loss and settlement expense ratio
 
68.3
%
 
72.1
%
 
—

 
69.1
%
Acquisition expense ratio
 
35.7
%
 
24.3
%
 
—

 
33.2
%
Combined ratio
 
104.0
%
 
96.4
%
 
—

 
102.3
%
 
 
 
 
 
 
 
 
 
1 Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. Under the property and casualty insurance segment's prior bulk reserving methodology, large losses had a direct impact on earnings. Under the new bulk reserving methodology implemented during the third quarter of 2016, large losses are taken into consideration when establishing the current accident quarter/year ultimate estimates of losses, but there is no longer a direct relationship between large losses and earnings. As a result, it is no longer meaningful to report large losses separately.


CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
 
 
 
 
 
 
($ in thousands, except share and per share amounts)
 
 
 
 
 
 
 
 
Six months ended June 30, 2016
 
Property and Casualty Insurance
 
Reinsurance
 
Parent Company
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
Premiums earned
 
$
222,217

 
$
66,966

 
$
—

 
$
289,183

Investment income, net
 
17,339

 
7,065

 
5

 
24,409

Other income (loss)
 
294

 
(228
)
 
—

 
66

 
 
239,850

 
73,803

 
5

 
313,658

Losses and expenses:
 
 
 
 
 
 
 
 
Losses and settlement expenses
 
143,564

 
44,365

 
—

 
187,929

Dividends to policyholders
 
7,348

 
—

 
—

 
7,348

Amortization of deferred policy acquisition costs
 
38,923

 
14,972

 
—

 
53,895

Other underwriting expenses
 
33,149

 
1,379

 
—

 
34,528

Interest expense
 
169

 
—

 
—

 
169

Other expenses
 
368

 
—

 
1,006

 
1,374

 
 
223,521

 
60,716

 
1,006

 
285,243

Operating income (loss) before income taxes
 
16,329

 
13,087

 
(1,001
)
 
28,415

Realized investment gains
 
172

 
377

 
—

 
549

Income (loss) before income taxes
 
16,501

 
13,464

 
(1,001
)
 
28,964

Income tax expense (benefit):
 
 
 
 
 
 
 
 
Current
 
5,856

 
4,577

 
(441
)
 
9,992

Deferred
 
(1,514
)
 
(386
)
 
90

 
(1,810
)
 
 
4,342

 
4,191

 
(351
)
 
8,182

Net income (loss)
 
$
12,159

 
$
9,273

 
$
(650
)
 
$
20,782

Average shares outstanding
 
 
 
 
 
 
 
20,916,022

Per Share Data:
 
 
 
 
 
 
 
 
Net income (loss) per share - basic and diluted
 
$
0.58

 
$
0.44

 
$
(0.03
)
 
$
0.99

Catastrophe and storm losses (after tax)
 
$
0.63

 
$
0.26

 
$
—

 
$
0.89

Large losses1 (after tax)
 
$
0.41

 
$
—

 
$
—

 
$
0.41

Reported favorable development experienced on prior years' reserves (after tax)
 
$
0.30

 
$
0.19

 
$
—

 
$
0.49

Dividends per share
 
 
 
 
 
 
 
$
0.38

Book value per share
 
 
 
 
 
 
 
$
26.81

Effective tax rate
 
 
 
 
 
 
 
28.2
%
Annualized net income as a percent of beg. SH equity
 
 
 
 
 
 
 
7.9
%
Other Information of Interest:
 
 
 
 
 
 
 
 
Premiums written
 
$
231,800

 
$
61,415

 
$
—

 
$
293,215

Catastrophe and storm losses
 
$
20,000

 
$
8,481

 
$
—

 
$
28,481

Large losses1
 
$
13,035

 
$
—

 
$
—

 
$
13,035

Reported favorable development experienced on prior years' reserves
 
$
(9,787
)
 
$
(6,084
)
 
$
—

 
$
(15,871
)
GAAP Ratios:
 
 
 
 
 
 
 
 
Loss and settlement expense ratio
 
64.6
%
 
66.2
%
 
—

 
65.0
%
Acquisition expense ratio
 
35.7
%
 
24.5
%
 
—

 
33.1
%
Combined ratio
 
100.3
%
 
90.7
%
 
—

 
98.1
%
 
 
 
 
 
 
 
 
 
1 Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses.



CONSOLIDATED BALANCE SHEETS
 
 
 
 
 
 
June 30, 
 2017
 
December 31, 
 2016
($ in thousands, except share and per share amounts)
 
(Unaudited)
 

ASSETS
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at fair value (amortized cost $1,200,799 and $1,189,525)
 
$
1,225,128

 
$
1,199,699

Equity securities available-for-sale, at fair value (cost $148,148 and $147,479)
 
221,651

 
213,839

Other long-term investments
 
14,929

 
12,506

Short-term investments
 
36,135

 
39,670

Total investments
 
1,497,843

 
1,465,714

 
 
 
 
 
Cash
 
315

 
307

Reinsurance receivables due from affiliate
 
21,163

 
21,326

Prepaid reinsurance premiums due from affiliate
 
14,927

 
9,309

Deferred policy acquisition costs (affiliated $40,875 and $40,660)
 
41,044

 
40,939

Prepaid pension and postretirement benefits due from affiliate
 
11,709

 
12,314

Accrued investment income
 
10,901

 
11,050

Amounts receivable under reverse repurchase agreements
 
16,500

 
20,000

Accounts receivable
 
1,892

 
2,076

Income taxes recoverable
 
543

 
—

Goodwill
 
942

 
942

Other assets (affiliated $3,504 and $4,632)
 
4,618

 
4,836

Total assets
 
$
1,622,397

 
$
1,588,813

 
 
 
 
 
LIABILITIES
 
 
 
 
Losses and settlement expenses (affiliated $704,790 and $685,533)
 
$
709,491

 
$
690,532

Unearned premiums (affiliated $255,588 and $243,682)
 
256,362

 
244,885

Other policyholders' funds (all affiliated)
 
12,465

 
13,068

Surplus notes payable to affiliate
 
25,000

 
25,000

Amounts due affiliate to settle inter-company transaction balances
 
4,826

 
11,222

Pension benefits payable to affiliate
 
3,751

 
4,097

Income taxes payable
 
—

 
2,359

Deferred income taxes
 
17,728

 
11,321

Other liabilities (affiliated $19,571 and $27,871)
 
20,292

 
32,987

Total liabilities
 
1,049,915

 
1,035,471

 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
Common stock, $1 par value, authorized 30,000,000 shares; issued and outstanding, 21,327,147 shares in 2017 and 21,222,535 shares in 2016
 
21,327

 
21,223

Additional paid-in capital
 
121,351

 
119,054

Accumulated other comprehensive income
 
59,380

 
46,081

Retained earnings
 
370,424

 
366,984

Total stockholders' equity
 
572,482

 
553,342

Total liabilities and stockholders' equity
 
$
1,622,397

 
$
1,588,813






LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
 
2017
 
2016
($ in thousands)
 
Premiums earned
 
Losses and settlement expenses
 
Loss and settlement expense ratio
 
Premiums earned
 
Losses and settlement expenses
 
Loss and settlement expense ratio
Property and casualty insurance
 
 
 
 
 
 
 
 
 
 
 
 
Commercial lines:
 
 
 
 
 
 
 
 
 
 
 
 
Automobile
 
$
29,014

 
$
23,744

 
81.8
%
 
$
27,409

 
$
24,684

 
90.1
%
Property
 
26,069

 
17,949

 
68.9
%
 
25,073

 
23,078

 
92.0
%
Workers' compensation
 
25,343

 
16,291

 
64.3
%
 
23,489

 
12,764

 
54.3
%
Other liability
 
24,254

 
14,319

 
59.0
%
 
24,139

 
11,313

 
46.9
%
Other
 
2,197

 
423

 
19.2
%
 
2,073

 
9

 
0.5
%
Total commercial lines
 
106,877

 
72,726

 
68.0
%
 
102,183

 
71,848

 
70.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal lines
 
9,310

 
8,782

 
94.3
%
 
9,588

 
9,618

 
100.3
%
Total property and casualty insurance
 
$
116,187

 
$
81,508

 
70.2
%
 
$
111,771

 
$
81,466

 
72.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Reinsurance
 
 
 
 
 
 
 
 
 
 
 
 
Pro rata reinsurance
 
$
12,016

 
$
7,674

 
63.9
%
 
$
15,468

 
$
6,256

 
40.4
%
Excess of loss reinsurance
 
21,634

 
18,046

 
83.4
%
 
19,207

 
15,098

 
78.6
%
Total reinsurance
 
$
33,650

 
$
25,720

 
76.4
%
 
$
34,675

 
$
21,354

 
61.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
149,837

 
$
107,228

 
71.6
%
 
$
146,446

 
$
102,820

 
70.2
%


 
 
Six months ended June 30,
 
 
2017
 
2016
($ in thousands)
 
Premiums earned
 
Losses and settlement expenses
 
Loss and settlement expense ratio
 
Premiums earned
 
Losses and settlement expenses
 
Loss and settlement expense ratio
Property and casualty insurance
 
 
 
 
 
 
 
 
 
 
 
 
Commercial lines:
 
 
 
 
 
 
 
 
 
 
 
 
Automobile
 
$
57,046

 
$
50,633

 
88.8
%
 
$
54,336

 
$
43,489

 
80.0
 %
Property
 
51,571

 
35,488

 
68.8
%
 
49,821

 
35,460

 
71.2
 %
Workers' compensation
 
50,046

 
30,065

 
60.1
%
 
46,736

 
26,170

 
56.0
 %
Other liability
 
48,382

 
25,031

 
51.7
%
 
47,809

 
23,866

 
49.9
 %
Other
 
4,306

 
330

 
7.7
%
 
4,144

 
(57
)
 
(1.4
)%
Total commercial lines
 
211,351

 
141,547

 
67.0
%
 
202,846

 
128,928

 
63.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal lines
 
18,484

 
15,481

 
83.8
%
 
19,371

 
14,636

 
75.6
 %
Total property and casualty insurance
 
$
229,835

 
$
157,028

 
68.3
%
 
$
222,217

 
$
143,564

 
64.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Reinsurance
 
 
 
 
 
 
 
 
 
 
 
 
Pro rata reinsurance
 
$
22,451

 
$
13,820

 
61.6
%
 
$
29,109

 
$
16,132

 
55.4
 %
Excess of loss reinsurance
 
42,038

 
32,665

 
77.7
%
 
37,857

 
28,233

 
74.6
 %
Total reinsurance
 
$
64,489

 
$
46,485

 
72.1
%
 
$
66,966

 
$
44,365

 
66.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
294,324

 
$
203,513

 
69.1
%
 
$
289,183

 
$
187,929

 
65.0
 %



PREMIUMS WRITTEN
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended 
 June 30, 2017
 
Three months ended 
 June 30, 2016
 
 
($ in thousands)
 
Premiums written
 
Percent of premiums written
 
Premiums written
 
Percent of premiums written
 
Change in premiums written
Property and casualty insurance
 
 
 
 
 
 
 
 
 
 
Commercial lines:
 
 
 
 
 
 
 
 
 
 
Automobile
 
$
34,645

 
22.3
%
 
$
31,584

 
20.9
%
 
9.7%
Property
 
28,525

 
18.4
%
 
27,046

 
17.9
%
 
5.5%
Workers' compensation
 
23,680

 
15.3
%
 
22,863

 
15.2
%
 
3.6%
Other liability
 
27,078

 
17.4
%
 
26,453

 
17.5
%
 
2.4%
Other
 
2,414

 
1.6
%
 
2,328

 
1.5
%
 
3.7%
Total commercial lines
 
116,342

 
75.0
%
 
110,274

 
73.0
%
 
5.5%
 
 
 
 
 
 
 
 
 
 
 
Personal lines
 
10,249

 
6.6
%
 
10,259

 
6.8
%
 
(0.1)%
Total property and casualty insurance
 
$
126,591

 
81.6
%
 
$
120,533

 
79.8
%
 
5.0%
 
 
 
 
 
 
 
 
 
 
 
Reinsurance
 
 
 
 
 
 
 
 
 
 
Pro rata reinsurance
 
$
10,813

 
7.0
%
 
$
14,779

 
9.8
%
 
(26.8)%
Excess of loss reinsurance
 
17,741

 
11.4
%
 
15,627

 
10.4
%
 
13.5%
Total reinsurance
 
$
28,554

 
18.4
%
 
$
30,406

 
20.2
%
 
(6.1)%
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
155,145

 
100.0
%
 
$
150,939

 
100.0
%
 
2.8%

 
 
Six months ended 
 June 30, 2017
 
Six months ended 
 June 30, 2016
 
 
($ in thousands)
 
Premiums written
 
Percent of premiums written
 
Premiums written
 
Percent of premiums written
 
Change in premiums written
Property and casualty insurance
 
 
 
 
 
 
 
 
 
 
Commercial lines:
 
 
 
 
 
 
 
 
 
 
Automobile
 
$
65,081

 
21.7
%
 
$
60,325

 
20.6
%
 
7.9%
Property
 
53,867

 
18.0
%
 
51,472

 
17.6
%
 
4.7%
Workers' compensation
 
46,759

 
15.6
%
 
45,273

 
15.4
%
 
3.3%
Other liability
 
52,005

 
17.3
%
 
51,396

 
17.5
%
 
1.2%
Other
 
4,697

 
1.5
%
 
4,534

 
1.6
%
 
3.6%
Total commercial lines
 
222,409

 
74.1
%
 
213,000

 
72.7
%
 
4.4%
 
 
 
 
 
 
 
 
 
 
 
Personal lines
 
18,789

 
6.3
%
 
18,800

 
6.4
%
 
(0.1)%
Total property and casualty insurance
 
$
241,198

 
80.4
%
 
$
231,800

 
79.1
%
 
4.1%
 
 
 
 
 
 
 
 
 
 
 
Reinsurance
 
 
 
 
 
 
 
 
 
 
Pro rata reinsurance
 
$
19,505

 
6.5
%
 
$
26,963

 
9.1
%
 
(27.7)%
Excess of loss reinsurance
 
39,317

 
13.1
%
 
34,452

 
11.8
%
 
14.1%
Total reinsurance
 
$
58,822

 
19.6
%
 
$
61,415

 
20.9
%
 
(4.2)%
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
300,020

 
100.0
%
 
$
293,215

 
100.0
%
 
2.3%




Contacts
 
 
Investors:
 
Media:
Steve Walsh, 515-345-2515
 
Lisa Hamilton, 515-345-7589
steve.t.walsh@emcins.com
 
lisa.l.hamilton@emcins.com