Market Overview

EMC Insurance Group Inc. Reports 2018 Second Quarter and Six Month Results

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Second Quarter Ended June 30, 2018
Net Loss Per Share – ($0.24)
Non-GAAP Operating Loss Per Share* – ($0.02)
Net Realized Investment Losses and Change in Net Unrealized 
  Investment Gains on Equity Investments Per Share – ($0.22)
Catastrophe and Storm Losses Per Share – $0.61
GAAP Combined Ratio – 109.8 percent

Six Months Ended June 30, 2018
Net Loss Per Share – ($0.24)
Non-GAAP Operating Income Per Share* – $0.18
Net Realized Investment Losses and Change in Net Unrealized
  Investment Gains on Equity Investments Per Share – ($0.42)
Catastrophe and Storm Losses Per Share – $0.78
GAAP Combined Ratio – 107.2 percent

2018 Non-GAAP Operating Income Guidance* of $0.95 to $1.15 per share

*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.

DES MOINES, Iowa, Aug. 07, 2018 (GLOBE NEWSWIRE) -- EMC Insurance Group Inc. (NASDAQ:EMCI) (the "Company"), today reported a net loss of $5.0 million ($0.24 per share) and a loss and settlement expense ratio of 75.4 percent for the second quarter ended June 30, 2018, compared to net income of $5.5 million ($0.26 per share) and a loss and settlement expense ratio of 71.6 percent for the second quarter of 2017. For the six months ended June 30, 2018, the Company reported a net loss of $5.1 million ($0.24 per share) and a loss and settlement expense ratio of 73.2 percent, compared to net income of $12.3 million ($0.58 per share) and a loss and settlement expense ratio of 69.1 percent for the same period in 2017. Included in the net loss reported for the second quarter and first six months of 2018 are declines of $447,000 and $10.3 million, respectively, in unrealized investment gains on the Company's equity investments as required by updated accounting guidance adopted by the Company on January 1, 2018. Excluding these amounts, the primary driver of the declines in net income reported for the second quarter and first six months of 2018 is a high level of non-catastrophe losses in the property and casualty insurance segment, partially offset by strong results in the reinsurance segment. Also contributing to the net losses reported for the second quarter and first six months of 2018 are $5.4 million and $952,000, respectively, of pre-tax realized investment losses, compared to $3.4 million and $2.8 million of pre-tax realized investment gains included in net income for the same periods in 2017. The income tax expense/benefit amounts reported for 2018 reflect the new 21 percent federal corporate tax rate, compared to the 35 percent federal corporate tax rate in effect in 2017.

The high level of non-catastrophe losses experienced by the property and casualty insurance segment during the second quarter of 2018 is primarily attributed to the workers' compensation line of business, and stems from an adjustment made to the first quarter 2018 ultimate loss and settlement expense ratio projection during the second quarter. This was deemed necessary after it became apparent that the ultimate loss and settlement expense ratio established for the first quarter of 2018 needed to be revised due to unanticipated increases in both the frequency and severity of first quarter reported losses as claims emerged during second quarter. The increases in frequency and severity experienced on first quarter reported losses represents a significant departure from recent activity, and management continues to analyze the underlying data to validate the adequacy of the revised ultimate loss and settlement expense ratio established for the first quarter of 2018, and will act on a timely basis if additional revisions are deemed necessary. Based on initial observations, reported losses stemming from second quarter 2018 claims appear to be much lower than what was experienced on first quarter claims. 

"Workers' compensation has been one of our best performing lines of business over the past few years," stated President and Chief Executive Officer Bruce G. Kelley. "Our loss control services and various loss control programs, such as our select provider and return to work programs, helped mitigate the frequency and severity of losses during the past few years when mandatory rate decreases were being implemented. This resulted in the establishment of relatively stable ultimate loss and settlement expense ratios during those years. When the first quarter 2018 ultimate projection was determined to be inadequate, management responded swiftly and implemented a revised projection."

Kelley continued, "The commercial auto and personal lines of business continue to under-perform expectations, but we remain committed to the initiatives we are implementing to return those lines of business to profitability."

"Our reinsurance segment continues to perform well, and has achieved double-digit growth in premiums written during the first half of the year. We will continue to capitalize on opportunities for new business in the marketplace and increase participation on our best accounts whenever possible," concluded Kelley.

Non-GAAP operating loss, which excludes net realized investment gains/losses and the change in net unrealized investment gains/losses on equity investments from net income/loss, totaled $365,000 ($0.02 per share) for the second quarter of 2018, compared to operating income of $3.3 million ($0.16 per share) for the second quarter of 2017. For the six months ended June 30, 2018, the Company reported non-GAAP operating income of $3.8 million ($0.18 per share), compared to $10.5 million ($0.49 per share) for the same period in 2017.

The Company's GAAP combined ratio was 109.8 percent in the second quarter of 2018, compared to 105.0 percent in the second quarter of 2017. For the first six months of 2018, the Company's GAAP combined ratio was 107.2 percent, compared to 103.2 percent in 2017. There was significant disparity by segment as the GAAP combined ratio totaled 115.0 percent and 111.3 percent in the property and casualty insurance segment, compared to 92.2 percent and 93.9 percent in the reinsurance segment for the three and six months ended June 30, 2018, respectively.

On January 1, 2018, the Company adopted updated accounting guidance issued by the FASB which prohibits including components of net periodic pension and postretirement benefit costs/income, other than the service cost component, in any capitalized asset. In conjunction with the adoption of this updated guidance, management elected to report all components of net periodic pension and postretirement benefit income, other than the service cost component, as other income in the consolidated statements of income. The service cost component continues to be reported in other underwriting expenses. This change in reporting was applied retrospectively for comparison purposes and did not impact the net income/loss or non-GAAP operating income amounts reported for the second quarter and first six months of 2018 and 2017, as other income and other underwriting expenses increased by the same amount; however, it did increase the acquisition expense ratios, and therefore the combined ratios, by 1.2 percentage points for the three and six months ended June 30, 2018 and 0.9 percentage points for the three and six months ended June 30, 2017.

Premiums earned increased 5.4 percent and 6.6 percent for the second quarter and first six months of 2018, respectively. In the property and casualty insurance segment, premiums earned increased 4.6 percent and 4.5 percent for the second quarter and first six months of 2018, respectively. These increases reflect small rate level increases on renewal business, an increase in retained policies in the commercial lines of business, and new business in both commercial and personal lines of business. In the reinsurance segment, premiums earned increased 8.3 percent and 14.1 percent for the second quarter and first six months of 2018, respectively. These increases are attributed to increases in participation on existing multi-line contracts, property per risk contracts, and a specialty casualty contract, higher estimated premiums on a large offshore energy contract within the pro rata line of business, and the addition of some new business. This was partially offset by a continued decline in Mutual Re (formerly Mutual Reinsurance Bureau) underwriting association premiums stemming from its withdrawal from non-standard automobile business.

Catastrophe and storm losses totaled $16.7 million ($0.61 per share after tax) and $21.4 million ($0.78 per share after tax) for the second quarter and first six months of 2018, compared to $15.1 million ($0.46 per share after tax) and $28.5 million ($0.87 per share after tax) for the same periods in 2017, respectively. On a segment basis, catastrophe and storm losses for the three and six months ended June 30, 2018, amounted to $15.7 million ($0.57 per share after tax) and $20.0 million ($0.73 per share after tax) in the property and casualty insurance segment, and $1.0 million ($0.04 per share after tax) and $1.4 million ($0.05 per share after tax) in the reinsurance segment, respectively.

No recoveries were made under the property and casualty insurance segment's intercompany excess of loss reinsurance treaty with Employers Mutual Casualty Company (Employers Mutual) covering the first half of 2018, primarily due to the relatively low amount of catastrophe and storm losses incurred during the first quarter of 2018. Catastrophe and storm losses in the property and casualty insurance segment were capped at $10.2 million in the second quarter of 2017 under the intercompany reinsurance treaty covering the first half of 2017, with $16.0 million of catastrophe and storm losses ceded to Employers Mutual. Because of the cap on 2017 losses, the property and casualty insurance segment reported a higher level of catastrophe and storm losses in the second quarter of 2018 than the second quarter of 2017. This increase was partially offset by a $3.9 million decline in catastrophe and storm losses in the reinsurance segment over the same period.

The Company reported $511,000 ($0.01 per share after tax) and $6.1 million ($0.22 per share after tax) of favorable development on prior years' reserves during the second quarter and first six months of 2018, respectively, compared to $1.7 million ($0.05 per share after tax) of adverse development and $13.2 million ($0.40 per share after tax) of favorable development for the same periods in 2017. The favorable development reported for the second quarter of 2018 occurred in the property and casualty insurance segment, but was partially offset by adverse development in the reinsurance segment. In the property and casualty insurance segment, favorable development totaled $3.2 million in the second quarter of 2018, compared to $850,000 in 2017. The majority of this favorable development occurred in the commercial liability line of business, reflecting reductions in the ultimate loss ratios for several accident years due to declines in expected frequency and/or severity. This favorable development was partially offset by adverse development in the workers' compensation line of business, as the severity assumption for several prior accident years (mainly 2017) was revised upwards. 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. In the reinsurance segment, adverse development totaled $2.6 million in the second quarters of both 2018 and 2017.

Net investment income increased 5.4 percent and 4.4 percent to $11.8 million and $23.1 million for the second quarter and first six months of 2018, from $11.2 million and $22.2 million for the same periods in 2017, respectively. These increases are primarily attributed to growth in the fixed maturity portfolio and higher interest rates.

The pre-tax realized investment losses of $5.4 million and $952,000 reported for the second quarter and first six months of 2018 include a pre-tax realized investment loss of $1.7 million and a pre-tax realized investment gain of $78,000, respectively, generated from changes 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). Pre-tax realized investment gains of $3.4 million and $2.8 million for the second quarter and first six months of 2017 include $1.3 million and $3.6 million, respectively, of pre-tax realized investment losses attributed to a decline in the carrying value of this limited partnership.

Other income totaled $2.8 million and $4.4 million in the second quarter and first six months of 2018, respectively, and includes $1.9 million and $3.7 million of net periodic pension and postretirement benefit income, and $678,000 and $242,000 of foreign currency exchange gains. In the second quarter and first six months of 2017, other income totaled $1.0 million and $1.9 million, respectively, and includes $1.3 million and $2.6 million of net periodic pension and postretirement benefit income, and $529,000 and $1.1 million of foreign currency exchange losses.

At June 30, 2018, consolidated assets totaled $1.7 billion, including $1.5 billion in the investment portfolio, and stockholders' equity totaled $568.1 million, a decrease of 5.9 percent from December 31, 2017. Book value of the Company's common stock decreased 6.2 percent to $26.39 per share from $28.14 per share at December 31, 2017, primarily due to a decline in unrealized investment gains on the fixed maturity portfolio attributable to an increase in interest rates during the quarter, and the $0.22 per share quarterly dividend paid to stockholders.

During the second quarter of 2018, approximately $652,000 was used to repurchase 25,300 shares of the Company's common stock under its stock repurchase program. Approximately $14.0 million remains under this program. The amount and timing of stock repurchases depends on several factors, including, but not limited to, general market conditions, the economic environment and the rate of return that can be achieved through the repurchase of stock compared to other alternatives.  

On July 26, 2018, management announced that, based on actual results for the first six month of 2018 and projections for the remainder of the year, it was revising its 2018 non-GAAP operating income guidance from the previous range of $1.10 to $1.30 per share to a range of $0.95 to $1.15 per share. This guidance is based on a projected GAAP combined ratio of 103.6 percent for the year and investment income growth in the low-single digits. The load for catastrophe and storm losses was reduced to 7.7 percentage points from the previous expectation of 9.0 percentage points; however, the 1.3 percentage point decline in the load for catastrophe and storm losses was offset by an increase in the amount of non-catastrophe losses expected in the property and casualty insurance segment.

The Company will hold an earnings conference call at noon Eastern time on Tuesday, August 7, 2018, 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 2018. 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 investors.emcins.com. 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 investors.emcins.com. 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 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 federal corporate tax rate;
  • 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 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 and, beginning in 2018, the change in net unrealized investment gains/losses on equity investments from net income/loss. 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. Prior to 2018, investments in equity investments were classified as available-for-sale and changes in unrealized investment gains/losses on equity investments were recognized in other comprehensive income. Effective January 1, 2018, the Company adopted the updated financial instruments guidance issued by the FASB, which requires changes in the unrealized investment gains/losses on equity investments to be recognized in net income/loss rather than other comprehensive income. Changes in unrealized investment gains/losses on equity investments are not predictable due to changing market conditions and are therefore also excluded from the calculation of non-GAAP operating income.

Management's operating income guidance is also considered a non-GAAP financial measure. For the reasons noted above, management is unable to accurately project the amount of net income/loss that will result from realized investment gains/losses and changes in the unrealized investment gains/losses on equity investments, 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/loss.

                 
RECONCILIATION OF NET INCOME TO NON-GAAP OPERATING INCOME          
($ in thousands)                
  Three months ended June 30,   Six months ended June 30,  
    2018       2017       2018       2017    
Net income (loss) $   (4,995 )   $   5,504     $   (5,071 )   $   12,308    
Realized investment (gains) losses     5,413         (3,387 )       952         (2,760 )  
Change in unrealized investment gains on equity investments     447      XXX        10,301      XXX   
Income tax expense (benefit)     (1,230 )       1,185         (2,363 )       966    
Net realized investment (gains) losses and, beginning in 2018,                 
change in net unrealized investment gains on equity investments     4,630         (2,202 )       8,890         (1,794 )  
Non-GAAP operating income (loss) $   (365 )   $   3,302     $   3,819     $   10,514    
                 
RECONCILIATION OF NET INCOME PER SHARE TO NON-GAAP OPERATING INCOME PER SHARE           
  Three months ended June 30,   Six months ended June 30,  
    2018       2017       2018       2017    
Net income (loss) $   (0.24 )   $   0.26     $   (0.24 )   $   0.58    
Realized investment (gains) losses     0.25         (0.16 )       0.04         (0.13 )  
Change in unrealized investment gains on equity investments     0.02      XXX        0.48      XXX   
Income tax expense (benefit)     (0.05 )       0.06         (0.10 )       0.04    
Net realized investment (gains) losses and, beginning in 2018,                 
change in net unrealized investment gains on equity investments     0.22         (0.10 )       0.42         (0.09 )  
Non-GAAP operating income (loss) $   (0.02 )   $   0.16     $   0.18     $   0.49    
                 

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 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,
  2018     2017     2018     2017  
Loss and settlement expense ratio 77.6 %   70.2 %   74.0 %   68.3 %
Catastrophe and storm losses   (12.9  )%     (8.8  )%     (8.3  )%     (8.7  )%
Favorable development on prior years' reserves 2.6 %   0.7 %   2.2 %   4.1 %
Underlying loss and settlement expense ratio 67.3 %   62.1 %   67.9 %   63.7 %
               

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)                
    Property and             
    Casualty       Parent     
Quarter ended June 30, 2018   Insurance   Reinsurance   Company   Consolidated
Revenues:                
Premiums earned   $   121,495     $   36,451     $   -     $   157,946  
Investment income, net       8,410         3,360         8         11,778  
Other income       2,095         678         -         2,773  
        132,000         40,489         8         172,497  
Losses and expenses:              
Losses and settlement expenses       94,255         24,836         -         119,091  
Dividends to policyholders       2,386         -         -         2,386  
Amortization of deferred policy acquisition costs       21,173         8,256         -         29,429  
Other underwriting expenses       21,944         507         -         22,451  
Interest expense        171         -         -         171  
Other expenses       244         -         587         831  
        140,173         33,599         587         174,359  
Operating income (loss) before income taxes       (8,173 )       6,890         (579 )       (1,862 )
Net realized investment gains (losses)              
and change in unrealized investment gains                
on equity investments       (4,692 )       (1,168 )       -         (5,860 )
Income (loss) before income taxes       (12,865 )       5,722         (579 )       (7,722 )
Income tax expense (benefit):              
Current       (4,219 )       1,081         (173 )       (3,311 )
Deferred       496         36         52         584  
        (3,723 )       1,117         (121 )       (2,727 )
Net income (loss)   $   (9,142 )   $   4,605     $   (458 )   $   (4,995 )
Average shares outstanding                 21,529,727  
Per Share Data:              
Net income (loss) per share - basic and diluted      $   (0.43 )   $   0.21     $   (0.02 )   $   (0.24 )
Catastrophe and storm losses (after tax)      $   0.57     $   0.04     $   -     $   0.61  
Favorable (adverse) development on              
prior years' reserves (after tax)   $   0.11     $   (0.10 )   $   -     $   0.01  
Dividends per share                $   0.22  
Other Information of Interest:              
Premiums written   $   131,201     $   31,911     $   -     $   163,112  
Catastrophe and storm losses      $   15,707     $   1,003     $   -     $   16,710  
(Favorable) adverse development              
on prior years' reserves   $   (3,151 )   $   2,640     $   -     $   (511 )
GAAP Ratios:              
Loss and settlement expense ratio     77.6 %     68.1 %       -       75.4 %
Acquisition expense ratio     37.4 %     24.1 %       -       34.4 %
Combined ratio     115.0 %     92.2 %       -       109.8 %
                 


CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED            
($ in thousands, except share and per share amounts)                
    Property and             
    Casualty       Parent     
Quarter ended June 30, 2017   Insurance   Reinsurance   Company   Consolidated
Revenues:                
Premiums earned   $   116,187     $   33,650     $   -     $   149,837  
Investment income, net       7,958         3,201         12         11,171  
Other income (loss)1       1,559         (528 )       -         1,031  
        125,704         36,323         12         162,039  
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 expenses1       19,531         602         -         20,133  
Interest expense        85         -         -         85  
Other expenses       231         -         571         802  
        123,389         34,237         571         158,197  
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  
Favorable (adverse) development 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  
(Favorable) adverse development on prior years'                
reserves   $   (850 )   $   2,557     $   -     $   1,707  
GAAP Ratios:              
Loss and settlement expense ratio     70.2 %     76.4 %       -       71.6 %
Acquisition expense ratio1     35.7 %     25.3 %       -       33.4 %
Combined ratio1     105.9 %     101.7 %       -       105.0 %
                 
1  Amounts for other income (loss), other underwriting expenses and the acquisition expense and combined ratios are restated for new accounting guidance for the reporting of retirement benefit expenses that became effective January 1, 2018.


CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED              
($ in thousands, except share and per share amounts)                  
    Property and               
    Casualty       Parent       
Six months ended June 30, 2018   Insurance   Reinsurance   Company   Consolidated  
Revenues:                  
Premiums earned      $   240,127     $   73,605     $   -     $   313,732    
Investment income, net          16,558         6,578         13         23,149    
Other income       4,146         242         -         4,388    
        260,831         80,425         13         341,269    
Losses and expenses:                
Losses and settlement expenses          177,756         51,963         -         229,719    
Dividends to policyholders          4,506         -         -         4,506    
Amortization of deferred policy acquisition costs          40,472         16,249         -         56,721    
Other underwriting expenses          44,430         876         -         45,306    
Interest expense          313         -         -         313    
Other expenses       477         -         1,224         1,701    
        267,954         69,088         1,224         338,266    
Operating income (loss) before income taxes       (7,123 )       11,337         (1,211 )       3,003    
Net realized investment gains (losses)                
and change in unrealized investment gains                  
on equity investments       (7,985 )       (3,268 )       -         (11,253 )  
Income (loss) before income taxes       (15,108 )       8,069         (1,211 )       (8,250 )  
Income tax expense (benefit):                
Current       (4,121 )       2,310         (294 )       (2,105 )  
Deferred       (336 )       (778 )       40         (1,074 )  
        (4,457 )       1,532         (254 )       (3,179 )  
Net income (loss)      $   (10,651 )   $   6,537     $   (957 )   $   (5,071 )  
Average shares outstanding                    21,515,812    
Per Share Data:                
Net income (loss) per share - basic and diluted      $   (0.50 )   $   0.30     $   (0.04 )   $   (0.24 )  
Catastrophe and storm losses (after tax)      $   0.73     $   0.05     $   -     $   0.78    
Favorable development on prior years'                  
reserves (after tax)   $   0.19     $   0.03     $   -     $   0.22    
Dividends per share                $   0.44    
Book value per share                $   26.39    
Effective tax rate                  38.5 %  
Annualized net income as a percent of beg. SH equity                 -1.7 %  
Other Information of Interest:                
Premiums written   $   251,470     $   69,714     $   -     $   321,184    
Catastrophe and storm losses      $   19,967     $   1,399     $   -     $   21,366    
Favorable development on prior years' reserves   $   (5,286 )   $   (801 )   $   -     $   (6,087 )  
GAAP Ratios:                
Loss and settlement expense ratio     74.0 %     70.6 %       -       73.2 %  
Acquisition expense ratio     37.3 %     23.3 %       -       34.0 %  
Combined ratio     111.3 %     93.9 %       -       107.2 %  
                   


CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED            
($ in thousands, except share and per share amounts)                
    Property and             
    Casualty       Parent     
Six months ended June 30, 2017   Insurance   Reinsurance   Company   Consolidated
Revenues:                
Premiums earned   $   229,835     $   64,489     $   -     $   294,324  
Investment income, net       15,973         6,184         21         22,178  
Other income (loss)1       3,000         (1,099 )       -         1,901  
        248,808         69,574         21         318,403  
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 expenses1       39,741         1,026         -         40,767  
Interest expense        169         -         -         169  
Other expenses       410         -         1,153         1,563  
        242,181         62,160         1,153         305,494  
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  
Favorable development 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  
Favorable development 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 ratio1     36.8 %     24.3 %       -       34.1 %
Combined ratio1     105.1 %     96.4 %       -       103.2 %
                 
1  Amounts for other income (loss), other underwriting expenses and the acquisition expense and combined ratios are restated for new accounting guidance for the reporting of retirement benefit expenses that became effective January 1, 2018.


CONSOLIDATED BALANCE SHEETS        
  June 30,   December 31,  
    2018       2017  
($ in thousands, except share and per share amounts) (Unaudited)      
ASSETS        
Investments:        
Fixed maturity securities available-for-sale, at fair value         
(amortized cost $1,247,717 and $1,253,166) $  1,241,699     $   1,275,016  
Equity investments, at fair value         
(cost $148,866 and $144,274)     222,397         228,115  
Equity investments, at alternative measurement        
of cost less impairments     3,200         -   
Other long-term investments     16,654         13,648  
Short-term investments     23,447         23,613  
Total investments     1,507,397         1,540,392  
         
Cash     259         347  
Reinsurance receivables due from affiliate     31,929         31,650  
Prepaid reinsurance premiums due from affiliate     14,376         12,789  
Deferred policy acquisition costs (affiliated $43,634 and $40,848)     43,861         41,114  
Prepaid pension and postretirement benefits due from affiliate     22,274         20,683  
Accrued investment income     10,424         11,286  
Amounts receivable under reverse repurchase agreements     16,500         16,500  
Accounts receivable     1,700         1,604  
Income taxes recoverable     5,116         -  
Goodwill     942         942  
Other assets (affiliated $3,943 and $4,423)     4,530         4,633  
Total assets $  1,659,308     $   1,681,940  
         
LIABILITIES        
Losses and settlement expenses (affiliated $752,852 and $726,413) $   756,869     $   732,612  
Unearned premiums (affiliated $265,491 and $256,434)     266,500         257,797  
Other policyholders' funds (all affiliated)     8,027         10,013  
Surplus notes payable to affiliate     25,000         25,000  
Amounts due affiliate to settle inter-company transaction balances     588         367  
Pension benefits payable to affiliate     4,034         4,185  
Income taxes payable     -         544  
Deferred income taxes     7,807         15,020  
Other liabilities (affiliated $21,991 and $27,520)     22,416         32,556  
Total liabilities     1,091,241         1,078,094  
         
STOCKHOLDERS' EQUITY         
Common stock, $1 par value, authorized 30,000,000         
shares; issued and outstanding, 21,526,346        
shares in 2018 and 21,455,545 shares in 2017     21,526         21,455  
Additional paid-in capital     126,308         124,556  
Accumulated other comprehensive income (loss)     (5,944 )       83,384  
Retained earnings     426,177         374,451  
Total stockholders' equity     568,067         603,846  
Total liabilities and stockholders' equity $  1,659,308     $   1,681,940  
   


LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS                
    Three months ended June 30,
      2018       2017  
($ 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   $   31,660   $   26,717     84.4 %   $   29,014   $   23,744     81.8 %
Property       27,196       23,529     86.5 %       26,069       17,949     68.9 %
Workers' compensation       25,229       22,513     89.2 %       25,343       16,291     64.3 %
Other liability       25,591       11,971     46.8 %       24,254       14,319     59.0 %
Other       2,228       125     5.6 %       2,197       423     19.2 %
Total commercial lines       111,904       84,855     75.8 %       106,877       72,726     68.0 %
                         
Personal lines       9,591       9,400     98.0 %       9,310       8,782     94.3 %
Total property and casualty                        
insurance   $   121,495   $   94,255     77.6 %   $   116,187   $   81,508     70.2 %
                         
Reinsurance                        
Pro rata reinsurance   $   10,070   $   5,116     50.8 %   $   12,016   $   7,674     63.9 %
Excess of loss reinsurance       26,381       19,720     74.8 %       21,634       18,046     83.4 %
Total reinsurance   $   36,451   $   24,836     68.1 %   $   33,650   $   25,720     76.4 %
                         
Consolidated   $   157,946   $   119,091     75.4 %   $   149,837   $   107,228     71.6 %
                         


LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS                
    Six months ended June 30,
      2018       2017  
($ 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   $   62,304   $   53,173     85.3 %   $   57,046   $   50,633     88.8 %
Property       53,788       42,252     78.6 %       51,571       35,488     68.8 %
Workers' compensation       50,131       35,044     69.9 %       50,046       30,065     60.1 %
Other liability       50,553       29,672     58.7 %       48,382       25,031     51.7 %
Other       4,414       619     14.0 %       4,306       330     7.7 %
Total commercial lines       221,190       160,760     72.7 %       211,351       141,547     67.0 %
                         
Personal lines       18,937       16,996     89.7 %       18,484       15,481     83.8 %
Total property and casualty                        
insurance   $   240,127   $   177,756     74.0 %   $   229,835   $   157,028     68.3 %
                         
Reinsurance                        
Pro rata reinsurance   $   23,143   $   9,781     42.3 %   $   22,451   $   13,820     61.6 %
Excess of loss reinsurance       50,462       42,182     83.6 %       42,038       32,665     77.7 %
Total reinsurance   $   73,605   $   51,963     70.6 %   $   64,489   $   46,485     72.1 %
                         
Consolidated   $   313,732   $   229,719     73.2 %   $   294,324   $   203,513     69.1 %
                         


                   
PREMIUMS WRITTEN                  
  Three months ended    Three months ended     
  June 30, 2018   June 30, 2017    
      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 $   36,977     22.7 %   $   34,645     22.3 %     6.7 %
Property     30,326     18.5 %       28,525     18.4 %     6.3 %
Workers' compensation     22,781     14.0 %       23,680     15.3 %     (3.8 )%
Other liability     27,881     17.1 %       27,078     17.4 %     3.0 %
Other     2,713     1.7 %       2,414     1.6 %     12.4 %
Total commercial lines     120,678     74.0 %       116,342     75.0 %     3.7 %
                   
Personal lines     10,523     6.4 %       10,249     6.6 %     2.7 %
Total property and casualty insurance $   131,201     80.4 %   $   126,591     81.6 %     3.6 %
                   
Reinsurance                  
Pro rata reinsurance $   10,138     6.2 %   $   10,813     7.0 %     (6.2 )%
Excess of loss reinsurance     21,773     13.4 %       17,741     11.4 %     22.7 %
Total reinsurance $   31,911     19.6 %   $   28,554     18.4 %     11.8 %
                   
Consolidated $   163,112   100.0 %   $   155,145   100.0 %     5.1 %
                   
  Six months ended   Six months ended    
  June 30, 2018   June 30, 2017    
      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 $   69,933     21.8 %   $   65,081     21.7 %     7.5 %
Property     57,053     17.8 %       53,867     18.0 %     5.9 %
Workers' compensation     45,366     14.1 %       46,759     15.6 %     (3.0 )%
Other liability     54,606     17.0 %       52,005     17.3 %     5.0 %
Other     4,907     1.5 %       4,697     1.5 %     4.5 %
Total commercial lines     231,865     72.2 %       222,409     74.1 %     4.3 %
                   
Personal lines     19,605     6.1 %       18,789     6.3 %     4.3 %
Total property and casualty insurance $   251,470     78.3 %   $   241,198     80.4 %     4.3 %
                   
Reinsurance                  
Pro rata reinsurance $   21,827     6.8 %   $   19,505     6.5 %     11.9 %
Excess of loss reinsurance     47,887     14.9 %       39,317     13.1 %     21.8 %
Total reinsurance $   69,714     21.7 %   $   58,822     19.6 %     18.5 %
                   
Consolidated $   321,184   100.0 %   $   300,020   100.0 %     7.1 %
                   


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

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