Market Overview

EMC Insurance Group Inc. Reports 2016 Third Quarter and Nine Month Results

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Third Quarter Ended September 30, 2016
Net Income Per Share – $0.20
Operating Income Per Share1 – $0.23
Net Realized Investment Losses Per Share – $0.03
Catastrophe and Storm Losses Per Share – $0.53
GAAP Combined Ratio – 102.9 percent

Nine Months Ended September 30, 2016
Net Income Per Share – $1.19
Operating Income Per Share1 – $1.21
Net Realized Investment Losses Per Share – $0.02
Catastrophe and Storm Losses Per Share – $1.41
GAAP Combined Ratio – 99.8 percent

DES MOINES, Iowa, Nov. 04, 2016 (GLOBE NEWSWIRE) -- EMC Insurance Group Inc. (NASDAQ: EMCI) (the "Company"), today reported net income of $4.1 million ($0.20 per share) for the third quarter ended September 30, 2016, compared to net income of $11.2 million ($0.54 per share) for the third quarter of 2015. For the nine months ended September 30, 2016, the Company reported net income of $24.9 million ($1.19 per share), compared to $40.3 million ($1.96 per share) for the same period in 2015.

Operating income1, which excludes realized investment gains and losses from net income, totaled $4.9 million ($0.23 per share) for the third quarter of 2016, compared to $6.3 million ($0.31 per share) for the third quarter of 2015. For the nine months ended September 30, 2016, the Company reported operating income of $25.3 million ($1.21 per share), compared to $32.8 million ($1.59 per share) for the same period in 2015.

The Company's GAAP combined ratio was 102.9 percent in the third quarter of 2016, compared to 101.8 percent in the third quarter of 2015. For the first nine months of 2016, the Company's GAAP combined ratio was 99.8 percent, compared to 97.0 percent in 2015.

"Commercial auto and personal lines continue to depress results," stated President and Chief Executive Officer Bruce G. Kelley. "We expect to see gradual improvement in the performance of these lines during 2017 from our comprehensive Accelerate Commercial Auto Profitability project and our nearly complete personal lines initiative. 

"The new intercompany reinsurance program in place for the property and casualty insurance segment is working as planned. Recoveries under the treaty covering the first half of the year reduced the volatility of our quarterly results caused by catastrophe and storm losses. While no recoveries have been made under the treaty covering the second half of the year, we are near its retention amount and therefore are expecting a minimal amount of catastrophe and storm losses in the fourth quarter," concluded Kelley.

Premiums earned increased 4.4 percent and 2.9 percent for the third quarter and first nine months of 2016. In the property and casualty insurance segment, premiums earned increased 2.3 percent and 1.6 percent for the third quarter and first nine months of 2016. The new semi-annual aggregate catastrophe excess of loss intercompany reinsurance program between the Company's three property and casualty insurance subsidiaries and Employers Mutual Casualty Company (Employers Mutual), the Company's parent organization, reduced premiums earned by $765,000 and $7.1 million for the third quarter and first nine months of 2016. Excluding this cost, premiums earned increased 3.0 percent and 3.7 percent. The majority of these increases are attributed to growth in insured exposures, an increase in new business, and small rate level increases on renewal business.

In the reinsurance segment, premiums earned increased 11.8 percent and 7.2 percent for the third quarter and first nine months of 2016. These increases reflect reductions in the total cost of the revised excess of loss reinsurance program with Employers Mutual totaling $246,000 and $2.4 million for the third quarter and first nine months of 2016. In 2016, the total cost of the reinsurance program includes the premiums paid to Employers Mutual, as well as the cost of Industry Loss Warranties (ILWs) that have been purchased from external parties to provide increased protection in peak exposure territories. During 2015, the premium paid to Employers Mutual (8 percent of total assumed reinsurance premiums written) included the cost of ILWs purchased by Employers Mutual for its benefit. Excluding the reduction in the cost of the revised reinsurance program, premiums earned increased approximately 11.0 percent and 4.7 percent for the third quarter and first nine months of 2016. The increase for the third quarter was driven by the addition of some new accounts and growth in the pro rata line of business, partially offset by a decline in the marine business attributed to the offshore energy and liability proportional account.  

Catastrophe and storm losses totaled $17.1 million ($0.53 per share after tax) in the third quarter of 2016, compared to $17.8 million ($0.56 per share after tax) in the third quarter of 2015. Catastrophe and storm losses increased $4.9 million in the property and casualty insurance segment, but declined $5.6 million in the reinsurance segment. The property and casualty insurance segment recovered an additional $3.5 million of catastrophe and storm losses from Employers Mutual during the third quarter under the January 1 through June 30 excess of loss reinsurance treaty, bringing the total recovery for first nine months of 2016 to $5.1 million. No recoveries were made under the July 1 through December 31 treaty; however, only $213,000 of retention remains under that treaty, meaning catastrophe and storm losses will be capped at $213,000 in the fourth quarter, unless the $12.0 million limit of protection is exceeded. No recoveries have been made under the reinsurance segment's intercompany reinsurance program during the first nine months of 2016. Third quarter 2016 catastrophe and storm losses accounted for 11.1 percentage points of the combined ratio, which was lower than expected, and well below the Company's most recent 10-year average of 14.3 percentage points for this period. Catastrophe and storm losses accounted for 12.2 percentage points of the combined ratio in the third quarter of 2015.

For the first nine months of 2016, catastrophe and storm losses totaled $45.5 million ($1.41 per share after tax), compared to $40.8 million ($1.29 per share after tax) in 2015. On a segment basis, catastrophe and storm losses amounted to $14.8 million ($0.46 per share after tax) and $34.8 million ($1.08 per share after tax) in the property and casualty insurance segment, and $2.3 million ($0.07 per share after tax) and $10.7 million ($0.33 per share after tax) in the reinsurance segment, for the three and nine months ended September 30, 2016, respectively.

During the third quarter of 2016, management implemented a new reserving methodology for the determination of direct bulk reserves in the property and casualty insurance segment. The new methodology, which is referred to as the accident year ultimate estimate approach, better conforms to industry practices and will provide increased transparency of the drivers of the property and casualty insurance segment's performance. Although the reserves carried at September 30, 2016 were calculated under the new reserving methodology, the explicit drivers of development on prior years' reserves for the three and nine months ended September 30, 2016 cannot be identified because the reserves carried at December 31, 2015 were calculated under the old reserving methodology, and the implicit accident year ultimate assumptions underlying that methodology are not known. The explicit drivers of development on prior years' reserves will be identifiable beginning in the first quarter of 2017.

The implementation of the new reserving methodology did not have a material impact on total carried reserves for the property and casualty insurance segment at September 30, 2016; however, approximately $5.6 million of incurred but not reported (IBNR) loss reserves and settlement expense reserves were reallocated from prior accident years to the current accident year in multiple lines of business. This reduction in prior accident years' reserves is reported as favorable development; however, this development is "mechanical" in nature, and did not have any impact on earnings because the total amount of carried reserves did not change as a result of this reallocation.

During the third quarter of 2015, approximately $2.4 million of reserves on a two-year contract were reallocated from the current accident year to the prior accident year in the reinsurance segment. The increase in prior accident year reserves is reported as adverse development; however, this development is also "mechanical" in nature and did not have any impact on earnings.

The Company reported $13.2 million ($0.41 per share after tax) of favorable development on prior years' reserves during the third quarter of 2016, compared to $2.2 million ($0.07 per share after tax) in the third quarter of 2015. For the first nine months of 2016, favorable development totaled $29.1 million ($0.90 per share after tax), compared to $20.0 million ($0.63 per share after tax) in 2015. Excluding the "mechanical" development amounts described above, the implied amounts of favorable development that had an impact on earnings would be approximately $7.6 million and $23.5 million for the third quarter and first nine months of 2016, compared to $4.6 million and $22.3 million for the same periods in 2015.

Under the previous reserving methodology employed through the second quarter of 2016, development amounts could vary significantly from quarter to quarter and year to year depending on a number of factors, including the number of claims settled and the settlement terms.  With the conversion to the accident year ultimate estimate methodology as of the end of third quarter 2016, calendar year development on prior accident years is determined solely by changes in the prior accident years' ultimate loss and settlement expense ratios.  In transitioning to the new methodology, changes in the assumptions underlying the ultimate ratios previously established for accident years 2015 and prior are difficult to quantify as the implied ultimate ratios under the previous methodology were based on implicit, rather than explicit, actuarial assumptions.  Therefore, comparison of 2016 third quarter and year-to-date development amounts to the 2015 development amounts provides little meaningful information, as the prior accident year reserve allocation method lacked explicit frequency and severity assumptions.   

Large losses are defined as reported current accident year losses greater than $500,000 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. Under the property and casualty insurance segment's prior reserving methodology, large losses had a direct impact on earnings. Under the new reserving methodology, 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. The amount of large losses previously reported for the first six months of 2016 has not been carried forward and disclosed for the nine months ended September 30, 2016, because it would not be comparable to the amount reported for the first nine months of 2015.

Net investment income increased 1.5 percent and 5.7 percent to $11.5 million and $35.9 million for the third quarter and first nine months of 2016, from $11.3 million and $33.9 million for the same periods in 2015. These increases are primarily attributed to higher amounts of dividend income, and an increase in interest income resulting from a higher average invested balance in fixed maturity securities.

Net realized investment losses totaled $1.2 million ($0.03 per share after tax) and $643,000 ($0.02 per share after tax) for the third quarter and first nine months of 2016, compared to net realized investment gains of $7.5 million ($0.23 per share after tax) and $11.6 million ($0.37 per share after tax) for the same periods in 2015. Included in net realized investment losses reported for the third quarter and first nine months of 2016 are $1.9 million and $5.3 million, respectively, of net realized investment losses attributed to declines in the carrying value of a limited partnership that helps to protect the Company from a sudden and significant decline in the value of its equity portfolio. Included in the net realized investment gains reported for the third quarter and first nine months of 2015 are net realized investment gains of $7.2 million and $3.8 million, respectively, attributed to an increase in the carrying value of this limited partnership that resulted from the sharp decline in the equity markets that occurred in August of 2015.

At September 30, 2016, consolidated assets totaled $1.6 billion, including $1.5 billion in the investment portfolio, and stockholders' equity totaled $562.4 million, an increase of 7.1 percent from December 31, 2015. Book value of the Company's stock increased 5.6 percent to $26.67 per share from $25.26 per share at December 31, 2015, but declined 0.5 percent from June 30, 2016, which reflects a decline in unrealized gains on the investment portfolio. Book value excluding accumulated other comprehensive income increased 2.9 percent to $23.09 per share from $22.45 per share at December 31, 2015, and was relatively flat compared to June 30, 2016.

Based on results for the first nine months of 2016 and projections for the remainder of the year, management is reaffirming its 2016 operating income1 guidance range of $1.55 to $1.75 per share. The guidance is based on a projected GAAP combined ratio of 99.6 percent for the year and investment income growth in the low- to mid-single digits. The load for catastrophe and storm losses has been reduced to 8.7 points from the previous expectation of 10.2 points; however, the 1.5 point decline in the loss ratio attributable to this reduction was offset by an increase in the core loss ratio.

The Company will hold an earnings teleconference call at noon Eastern time on Friday, November 4, 2016 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company's results for the third quarter and nine months ended September 30, 2016, as well as its expectations for the remainder of 2016. Dial-in information for the call is toll-free 1-866-652-5200 (International: 1-412-317-6060).

Members of the news media, investors and the general public are invited to access a live webcast of the 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 call. A transcript of the teleconference will be available on the Company's website shortly after the completion of the teleconference.

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 EMC Insurance Group Inc. may be found at www.emcins.com/ir. EMCI's parent company is Employers Mutual. EMCI and Employers Mutual, 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 into account all information currently available to management. 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," 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.

Definitions 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 Unites States of America (GAAP). Management uses certain non-GAAP financial measures for goal setting, determining employee and senior management awards and compensation, and evaluating performance.

1Operating income: 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 (or 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. The Company's calculation of operating income may differ from similar measures used by other companies, so investors should exercise caution when comparing the Company's measure of operating income to the measure of other companies. Management's projected operating income guidance is also considered a non-GAAP financial measure.

Management believes operating income is useful to investors because it illustrates the performance of the Company's normal, ongoing 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. Therefore, the Company has provided the following reconciliations of the non-GAAP financial measure of operating income to the GAAP financial measure of net income.

        
RECONCILIATION OF OPERATING INCOME TO NET INCOME    
($ in thousands)       
 Three months ended  Nine months ended
 September 30, September 30,
  2016   2015   2016   2015 
Operating income$  4,904  $  6,315  $  25,329  $  32,756 
Net realized investment gains (losses) (after tax)   (775)    4,874     (418)    7,511 
Net income $  4,129  $  11,189  $  24,911  $  40,267 
        
        
RECONCILIATION OF OPERATING INCOME PER SHARE TO NET INCOME PER SHARE  
 Three months ended  Nine months ended
 September 30, September 30,
  2016   2015   2016   2015 
Operating income$  0.23  $  0.31  $  1.21  $  1.59 
Net realized investment gains (losses) (after tax)   (0.03)    0.23     (0.02)    0.37 
Net income $  0.20  $  0.54  $  1.19  $  1.96 
        

Statutory data is prepared in accordance with statutory accounting principles as defined by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual. Statutory data is publicly available, and various organizations use it to calculate aggregate industry data, study industry trends and compare insurance companies.

2Premiums written: Under statutory accounting principles, property/casualty premiums written is the cost of insurance coverage, and refers to premiums for all policies sold during a specified reporting period. Management analyzes trends in premiums written to assess business efforts. 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.

       
RECONCILIATION OF PREMIUMS WRITTEN TO PREMIUMS EARNED     
($ in thousands)      
 Property and      
Three months ended September 30, 2016Casualty Insurance Reinsurance Consolidated 
Premiums written $  138,904  $  37,339  $  176,243  
Change in unearned premiums   (22,532)    (1,530)    (24,062) 
Premiums earned$  116,372  $  35,809  $  152,181  
       
 Property and      
Three months ended September 30, 2015Casualty Insurance Reinsurance Consolidated 
Premiums written $  134,722  $  31,446  $  166,168  
Change in unearned premiums   (20,969)    589     (20,380) 
Premiums earned$  113,753  $  32,035  $  145,788  
       
 Property and      
Nine months ended September 30, 2016Casualty Insurance Reinsurance Consolidated 
Premiums written $  370,704  $  98,754  $  469,458  
Change in unearned premiums   (32,115)    4,021     (28,094) 
Premiums earned$  338,589  $  102,775  $  441,364  
       
 Property and      
Nine months ended September 30, 2015Casualty Insurance Reinsurance Consolidated 
Premiums written $  364,329  $  96,914  $  461,243  
Change in unearned premiums   (31,117)    (1,002)    (32,119) 
Premiums earned$  333,212  $  95,912  $  429,124  


CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED      
($ in thousands, except share and per share amounts)       
  Property and       
  Casualty   Parent   
Quarter ended September 30, 2016 Insurance Reinsurance Company Consolidated
Revenues:        
Premiums earned $  116,372  $  35,809  $  -  $  152,181 
Investment income, net    8,185     3,285     4     11,474 
Other income (loss)    172     (257)    -     (85)
     124,729     38,837     4     163,570 
Losses and expenses:       
Losses and settlement expenses    81,643     26,530     -     108,173 
Dividends to policyholders    3,944     -     -     3,944 
Amortization of deferred policy acquisition costs    19,206     7,639     -     26,845 
Other underwriting expenses    16,690     916     -     17,606 
Interest expense     84     -     -     84 
Other expenses    190     -     489     679 
     121,757     35,085     489     157,331 
Operating income (loss) before income taxes    2,972     3,752     (485)    6,239 
Realized investment losses    (799)    (393)    -     (1,192)
Income (loss) before income taxes    2,173     3,359     (485)    5,047 
Income tax expense (benefit):       
Current    569     1,024     (145)    1,448 
Deferred    (264)    (108)    (158)    (530)
     305     916     (303)    918 
Net income (loss) $  1,868  $  2,443  $  (182) $  4,129 
Average shares outstanding         21,060,665 
Per Share Data:       
Net income (loss) per share - basic and diluted $  0.09  $  0.12  $  (0.01) $  0.20 
Catastrophe and storm losses (after tax)    $  0.46  $  0.07  $  -  $  0.53 
Large losses* (after tax)  N/A   N/A   N/A   N/A 
Reported favorable development       
experienced on prior years' reserves (after tax) $  0.39  $  0.02  $  -  $  0.41 
Favorable development that had no impact        
on earnings (after tax)    (0.17)    -     -     (0.17)
Implied favorable development that had        
an impact on earnings (after tax) $  0.22  $  0.02  $  -  $  0.24 
Dividends per share         $  0.190 
Other Information of Interest:       
Premiums written2 $  138,904  $  37,339  $  -  $  176,243 
Catastrophe and storm losses    $  14,787  $  2,266  $  -  $  17,053 
Large losses*  N/A   N/A   N/A   N/A 
Reported favorable development        
experienced on prior years' reserves    $  (12,442) $  (796) $  -  $  (13,238)
Favorable development that had no impact        
on earnings     5,592     -     -     5,592 
Implied favorable development that had        
an impact on earnings $  (6,850) $  (796) $  -  $  (7,646)
GAAP Ratios:       
Loss and settlement expense ratio  70.2%  74.1%    -   71.1%
Acquisition expense ratio  34.2%  23.9%    -   31.8%
Combined ratio  104.4%  98.0%    -   102.9%


*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 reserving methodology, large losses had a direct impact on earnings. Under the new reserving methodology, 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)       
  Property and       
  Casualty   Parent   
Quarter ended September 30, 2015 Insurance Reinsurance Company Consolidated
Revenues:        
Premiums earned $  113,753  $  32,035  $  -  $  145,788 
Investment income, net    8,125     3,176     (2)    11,299 
Other income    210     309     -     519 
     122,088     35,520     (2)    157,606 
Losses and expenses:       
Losses and settlement expenses    75,976     26,709     -     102,685 
Dividends to policyholders    3,555     -     -     3,555 
Amortization of deferred policy acquisition costs    18,736     7,403     -     26,139 
Other underwriting expenses    15,587     458     -     16,045 
Interest expense     84     -     -     84 
Other expenses    196     -     479     675 
     114,134     34,570     479     149,183 
Operating income (loss) before income taxes    7,954     950     (481)    8,423 
Realized investment gains    4,889     2,609     -     7,498 
Income (loss) before income taxes    12,843     3,559     (481)    15,921 
Income tax expense (benefit):       
Current    2,743     507     (169)    3,081 
Deferred    1,235     416     -     1,651 
     3,978     923     (169)    4,732 
Net income (loss) $  8,865  $  2,636  $  (312) $  11,189 
Average shares outstanding         20,684,890 
Per Share Data:       
Net income (loss) per share - basic and diluted $  0.43  $  0.12  $  (0.01) $  0.54 
Catastrophe and storm losses (after tax)    $  0.31  $  0.25  $  -  $  0.56 
Large losses* (after tax) $  0.32  $  -  $  -  $  0.32 
Reported favorable (adverse) development       
experienced on prior years' reserves (after tax)$  0.15  $  (0.08) $  -  $  0.07 
Adverse development that had no impact        
on earnings (after tax)    -     0.07     -     0.07 
Implied favorable (adverse) development that had        
an impact on earnings (after tax) $  0.15  $  (0.01) $  -  $  0.14 
Dividends per share         $  0.170 
Other Information of Interest:       
Premiums written2 $  134,722  $  31,446  $  -  $  166,168 
Catastrophe and storm losses    $  9,920  $  7,844  $  -  $  17,764 
Large losses* $  10,304  $  -  $  -  $  10,304 
Reported (favorable) adverse development        
experienced on prior years' reserves    $  (4,722) $  2,495  $  -  $  (2,227)
Adverse development that had no impact        
on earnings     -     (2,361)    -     (2,361)
Implied (favorable) adverse development that had        
an impact on earnings $  (4,722) $  134  $  -  $  (4,588)
GAAP Ratios:       
Loss and settlement expense ratio  66.8%  83.4%    -   70.4%
Acquisition expense ratio  33.3%  24.5%    -   31.4%
Combined ratio  100.1%  107.9%    -   101.8%


*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)       
  Property and       
  Casualty   Parent   
Nine months ended September 30, 2016 Insurance Reinsurance Company Consolidated
Revenues:        
Premiums earned    $  338,589  $  102,775  $  -  $  441,364 
Investment income, net       25,524     10,350     9     35,883 
Other income (loss)       466     (485)    -     (19)
     364,579     112,640     9     477,228 
Losses and expenses:       
Losses and settlement expenses       225,207     70,895     -     296,102 
Dividends to policyholders       11,292     -     -     11,292 
Amortization of deferred policy acquisition costs       58,129     22,611     -     80,740 
Other underwriting expenses       49,839     2,295     -     52,134 
Interest expense       253     -     -     253 
Other expenses       558    -     1,495     2,053 
     345,278     95,801     1,495     442,574 
Operating income (loss) before income taxes    19,301     16,839     (1,486)    34,654 
Realized investment losses       (627)    (16)    -     (643)
Income (loss) before income taxes    18,674     16,823     (1,486)    34,011 
Income tax expense (benefit):       
Current       6,425     5,601     (586)    11,440 
Deferred       (1,778)    (494)    (68)    (2,340)
     4,647     5,107     (654)    9,100 
Net income (loss)    $  14,027  $  11,716  $  (832) $  24,911 
Average shares outstanding            20,964,236 
Per Share Data:       
Net income (loss) per share - basic and diluted    $  0.67  $  0.56  $  (0.04) $  1.19 
Catastrophe and storm losses (after tax)    $  1.08  $  0.33  $  -  $  1.41 
Large losses* (after tax)  N/A   N/A   N/A   N/A 
Reported favorable development experienced on       
prior years' reserves (after tax) $  0.69  $  0.21  $  -  $  0.90 
Favorable development that had no impact        
on earnings (after tax)    (0.17)    -     -     (0.17)
Implied favorable development that had an impact        
on earnings (after tax) $  0.52  $  0.21  $  -  $  0.73 
Dividends per share         $  0.570 
Book value per share         $  26.67 
Effective tax rate          26.8%
Annualized net income as a percent of beg. SH equity        6.3%
Other Information of Interest:       
Premiums written2 $  370,704  $  98,754  $  -  $  469,458 
Catastrophe and storm losses    $  34,787  $  10,747  $  -  $  45,534 
Large losses*  N/A   N/A   N/A   N/A 
Reported favorable development experienced on        
prior years' reserves $  (22,229) $  (6,880) $  -  $  (29,109)
Favorable development that had no impact        
on earnings     5,592     -     -     5,592 
Implied favorable development that had an impact        
on earnings $  (16,637) $  (6,880) $  -  $  (23,517)
GAAP Ratios:       
Loss and settlement expense ratio  66.5%  69.0%    -   67.1%
Acquisition expense ratio  35.2%  24.2%    -   32.7%
Combined ratio  101.7%  93.2%    -   99.8%


*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 reserving methodology, large losses had a direct impact on earnings. Under the new reserving methodology, 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. The amount of large losses previously reported for the first six months of 2016 has not been carried forward and disclosed for the nine months ended September 30, 2016, because it would not be comparable to the amount reported for the first nine months of 2015.


       
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED      
($ in thousands, except share and per share amounts)       
  Property and       
  Casualty   Parent   
Nine months ended September 30, 2015 Insurance Reinsurance Company Consolidated
Revenues:        
Premiums earned $  333,212  $  95,912  $  -  $  429,124 
Investment income, net    24,301     9,654     (9)    33,946 
Other income    582     1,040     -     1,622 
     358,095     106,606     (9)    464,692 
Losses and expenses:       
Losses and settlement expenses    215,468     65,135     -     280,603 
Dividends to policyholders    6,492     -     -     6,492 
Amortization of deferred policy acquisition costs    56,003     22,820     -     78,823 
Other underwriting expenses    47,784     2,567     -     50,351 
Interest expense     253     -     -     253 
Other expenses    568     -     1,424     1,992 
     326,568     90,522     1,424     418,514 
Operating income (loss) before income taxes    31,527     16,084     (1,433)    46,178 
Realized investment gains    7,866     3,689     -     11,555 
Income (loss) before income taxes    39,393     19,773     (1,433)    57,733 
Income tax expense (benefit):       
Current    10,513     5,583     (502)    15,594 
Deferred    1,312     560     -     1,872 
     11,825     6,143     (502)    17,466 
Net Income (loss) $  27,568  $  13,630  $  (931) $  40,267 
Average shares outstanding         20,577,493 
Per Share Data:       
Net income (loss) per share - basic and diluted    $  1.34  $  0.66  $  (0.04) $  1.96 
Catastrophe and storm losses (after tax)    $  0.91  $  0.38  $  -  $  1.29 
Large losses* (after tax) $  0.68  $  -  $  -  $  0.68 
Reported favorable development       
experienced on prior years' reserves (after tax)   $  0.45  $  0.18  $  -  $  0.63 
Adverse development that had no impact        
on earnings (after tax)    -     0.07     -     0.07 
Implied favorable development that had an impact        
on earnings (after tax) $  0.45  $  0.25  $  -  $  0.70 
Dividends per share         $  0.503 
Book value per share         $  25.09 
Effective tax rate          30.3%
Annualized net income as a percent of beg. SH equity        10.7%
Other Information of Interest:       
Premiums written2 $  364,329  $  96,914  $  -  $  461,243 
Catastrophe and storm losses    $  28,651  $  12,104  $  -  $  40,755 
Large losses* $  21,453  $  -  $  -  $  21,453 
Reported favorable development        
experienced on prior years' reserves    $  (14,177) $  (5,780) $  -  $  (19,957)
Adverse development that had no impact        
on earnings     -     (2,361)    -     (2,361)
Implied favorable development that had an impact        
on earnings $  (14,177) $  (8,141) $  -  $  (22,318)
GAAP Ratios:       
Loss and settlement expense ratio  64.7%  67.9%    -   65.4%
Acquisition expense ratio  33.1%  26.5%    -   31.6%
Combined ratio  97.8%  94.4%    -   97.0%


*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   
 September 30, December 31,
  2016   2015 
($ in thousands, except share and per share amounts)(Unaudited)  
ASSETS   
Investments:   
Fixed maturity securities available-for-sale, at fair value (amortized cost $1,184,470 and $1,130,217)$  1,237,150  $  1,161,025 
Equity securities available-for-sale, at fair value (cost $151,852 and $144,176)   219,282     206,243 
Other long-term investments   9,941     9,930 
Short-term investments   42,611     38,599 
Total investments   1,508,984     1,415,797 
    
Cash   350     224 
Reinsurance receivables due from affiliate   22,590     24,236 
Prepaid reinsurance premiums due from affiliate   11,588     6,563 
Deferred policy acquisition costs (affiliated $44,320 and $40,535)   44,620     40,720 
Prepaid pension and postretirement benefits due from affiliate   11,043     12,133 
Accrued investment income   12,143     10,789 
Amounts receivable under reverse repurchase agreements   16,850     16,850 
Accounts receivable   2,958     804 
Income taxes recoverable   -     1,735 
Goodwill   942     942 
Other assets (affiliated $4,838 and $4,595)   5,437     5,162 
Total assets$  1,637,505  $  1,535,955 
    
LIABILITIES   
Losses and settlement expenses (affiliated $695,461 and $671,169)$  700,565  $  678,774 
Unearned premiums (affiliated $271,539 and $238,637)   272,900     239,435 
Other policyholders' funds (all affiliated)   11,809     8,721 
Surplus notes payable to affiliate   25,000     25,000 
Amounts due affiliate to settle inter-company transaction balances   4,025     6,408 
Pension benefits payable to affiliate   3,826     4,299 
Income taxes payable   156     - 
Deferred income taxes   25,894     19,029 
Other liabilities (affiliated $24,659 and $28,598)   30,921     29,351 
Total liabilities   1,075,096     1,011,017 
    
STOCKHOLDERS' EQUITY    
Common stock, $1 par value, authorized 30,000,000 shares; issued and outstanding, 21,084,948 shares in 2016 and 20,780,439 shares in 2015   21,085     20,781 
Additional paid-in capital   115,724     108,747 
Accumulated other comprehensive income   75,529     58,433 
Retained earnings   350,071     336,977 
Total stockholders' equity   562,409     524,938 
Total liabilities and stockholders' equity$  1,637,505  $  1,535,955 
 


LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS         
  Three months ended September 30, 
   2016   2015  
($ 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 $  28,113  $  26,274     93.5% $  27,080  $  24,555     90.7% 
Property    27,471     17,227     62.7%    26,526     19,290     72.7% 
Workers' compensation    24,536     13,510     55.1%    23,777     12,098     50.9% 
Liability    24,277     14,179     58.4%    23,449     10,726     45.7% 
Other    2,102     705     33.6%    2,032     348     17.1% 
Total commercial lines    106,499     71,895     67.5%    102,864     67,017     65.2% 
              
Personal lines    9,873     9,748     98.7%    10,889     8,959     82.3% 
   Total property and casualty insurance $  116,372  $  81,643     70.2% $  113,753  $  75,976     66.8% 
              
Reinsurance             
Pro rata reinsurance $  15,066  $  10,235     67.9% $  13,037  $  9,667     74.2% 
Excess of loss reinsurance    20,743     16,295     78.6%    18,998     17,042     89.7% 
   Total reinsurance $  35,809  $  26,530     74.1% $  32,035  $  26,709     83.4% 
              
      Consolidated $  152,181  $  108,173     71.1% $  145,788  $  102,685     70.4% 
              


             
  Nine months ended September 30,
   2016   2015 
($ 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 $  82,449  $  69,763     84.6% $  78,698  $  61,843     78.6%
Property    77,292     52,687     68.2%    77,518     53,652     69.2%
Workers' compensation    71,272     39,680     55.7%    69,150     39,591     57.3%
Liability    72,086     38,045     52.8%    68,952     34,668     50.3%
Other    6,246     648     10.4%    6,044     794     13.1%
Total commercial lines    309,345     200,823     64.9%    300,362     190,548     63.4%
             
Personal lines    29,244     24,384     83.4%    32,850     24,920     75.9%
   Total property and casualty insurance $  338,589  $  225,207     66.5% $  333,212  $  215,468     64.7%
             
Reinsurance            
Pro rata reinsurance $  44,175  $  26,367     59.7% $  40,154  $  23,468     58.4%
Excess of loss reinsurance    58,600     44,528     76.0%    55,758     41,667     74.7%
   Total reinsurance $  102,775  $  70,895     69.0% $  95,912  $  65,135     67.9%
             
      Consolidated $  441,364  $  296,102     67.1% $  429,124  $  280,603     65.4%
             


PREMIUMS WRITTEN2         
 Three months ended  Three months ended   
 September 30, 2016 September 30, 2015  
   Percent of   Percent of Change in
 Premiums premiums Premiums premiums premiums
($ in thousands)written written written written written
Property and casualty insurance         
Commercial lines:         
Automobile$  29,649     16.8% $  28,904     17.4%    2.6%
Property   34,062     19.3%    32,891     19.8%    3.6%
Workers' compensation   35,623     20.2%    33,385     20.1%    6.7%
Liability   27,060     15.4%    26,556     16.0%    1.9%
Other   2,329     1.3%    2,213     1.3%    5.2%
Total commercial lines   128,723     73.0%    123,949     74.6%    3.9%
          
Personal lines   10,181     5.8%    10,773     6.5%    (5.5)%
   Total property and casualty insurance$  138,904     78.8% $  134,722     81.1%    3.1%
          
Reinsurance         
Pro rata reinsurance$  15,115     8.6% $  12,103     7.3%    24.9%
Excess of loss reinsurance   22,224     12.6%    19,343     11.6%    14.9%
   Total reinsurance$  37,339     21.2% $  31,446     18.9%    18.7%
          
      Consolidated$  176,243   100.0% $  166,168   100.0%    6.1%
          
          
 Nine months ended  Nine months ended   
 September 30, 2016 September 30, 2015  
   Percent of   Percent of Change in
 Premiums premiums Premiums premiums premiums
($ in thousands)written written written written written
Property and casualty insurance         
Commercial lines:         
Automobile$  89,974     19.2% $  86,947     18.9%    3.5%
Property   85,534     18.2%    85,853     18.6%    (0.4)%
Workers' compensation   80,896     17.2%    76,912     16.7%    5.2%
Liability   78,456     16.7%    75,765     16.4%    3.6%
Other   6,863     1.5%    6,413     1.4%    7.0%
Total commercial lines   341,723     72.8%    331,890     72.0%    3.0%
          
Personal lines   28,981     6.2%    32,439     7.0%    (10.7)%
   Total property and casualty insurance$  370,704     79.0% $  364,329     79.0%    1.7%
          
Reinsurance         
Pro rata reinsurance$  42,078     9.0% $  40,232     8.7%    4.6%
Excess of loss reinsurance   56,676     12.0%    56,682     12.3%    -  
   Total reinsurance$  98,754     21.0% $  96,914     21.0%    1.9%
          
      Consolidated$  469,458   100.0% $  461,243   100.0%    1.8%
          
Contact: Steve Walsh (Investors) 515-345-2515 Lisa Hamilton (Media) 515-345-7589

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