First Quarter Ended March 31, 2016

Operating Income Per Share – $0.74
Net Income Per Share – $0.70
Net Realized Investment Losses Per Share – $0.03
Catastrophe and Storm Losses Per Share – $0.19
Large Losses Per Share – $0.09
GAAP Combined Ratio – 92.7 percent

2016 Operating Income Guidance – $1.70 to $1.90 per share

DES MOINES, Iowa, May 06, 2016 (GLOBE NEWSWIRE) -- EMC Insurance Group Inc. (NASDAQ:EMCI) (the “Company”), today reported operating income of $15.4 million ($0.74 per share) for the first quarter ended March 31, 2016, compared to operating income of $19.8 million ($0.97 per share) for the first quarter of 2015¹.

Net income, including realized investment gains and losses, totaled $14.7 million ($0.70 per share) for the first quarter of 2016, compared to $20.3 million ($1.00 per share) for the first quarter of 2015.

The Company’s GAAP combined ratio was 92.7 percent in the first quarter of 2016, compared to 87.7 percent in the first quarter of 2015.

“Our year is off to an excellent start,” stated President and Chief Executive Officer Bruce G. Kelley. “We are reporting a terrific first quarter--second only to last year’s first quarter. Contributing to the strong results were catastrophe and storm losses below our 10-year average and a substantial increase in investment income.”

Kelley continued, “We continue to innovate and look for ways to better serve our agents and policyholders. For example, last month we announced a new telematics app that we are piloting with a few agents and accounts. This is one of many enhancements currently being developed to attract and retain the best business and provide more opportunity for profitable growth in the future.”

Premiums earned increased 2.9 percent to $142.7 million for the first quarter of 2016, from $138.7 million in the first quarter of 2015. In the property and casualty insurance segment, premiums earned increased 2.1 percent. The new 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 $3.2 million. Excluding this cost, premiums earned would have increased 5.0 percent. The majority of the increase is attributed to an increase in new business, small rate level increases on commercial lines renewal business and growth in insured exposures. In the reinsurance segment, premiums earned increased 5.8 percent. The revised inter-company reinsurance program between the Company’s reinsurance subsidiary and Employers Mutual resulted in a reduction of $1.7 million in the cost of the coverage. Without this reduction in the cost of the reinsurance program, premiums earned would have increased approximately 0.2 percent.  

Catastrophe and storm losses totaled $6.2 million ($0.19 per share after tax) in the first quarter of 2016, compared to $4.6 million ($0.15 per share after tax) in the first quarter of 2015. First quarter catastrophe and storm losses accounted for 4.3 percentage points of the combined ratio, which is below the Company’s most recent 10-year average of 5.5 percentage points for this period, but above the 3.3 percentage points experienced in the first quarter of 2015. On a segment basis, catastrophe and storm losses for the first quarter of 2016 amounted to $3.4 million ($0.10 per share after tax) in the property and casualty insurance segment, and $2.7 million ($0.09 per share after tax) in the reinsurance segment.

The Company reported $7.8 million ($0.24 per share after tax) of favorable development on prior years’ reserves during the first quarter of 2016, compared to $14.6 million ($0.46 per share after tax) in the first quarter of 2015. Both segments reported a decline in favorable development with the largest decline occurring in the property and casualty insurance segment.

Development amounts can 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, and should therefore not be considered a reliable factor in assessing the adequacy of the Company’s carried reserves. The most recent actuarial analysis of the Company’s carried reserves indicated that the level of reserve adequacy was consistent with other recent evaluations.

Large losses (which the Company defines as losses greater than $500,000 for the EMC Insurance Companies pool, excluding catastrophe and storm losses) decreased to $3.0 million ($0.09 per share after tax) in the first quarter of 2016 from $4.3 million ($0.14 per share after tax) in the first quarter of 2015.

Net investment income increased 9.1 percent to $12.2 million for the first quarter of 2016, from $11.2 million in the first quarter of 2015. This increase reflects a higher average invested balance in fixed maturity securities and an increase in dividend income from the common stock portfolio due to the receipt of approximately $480,000 of special dividends.

Net realized investment losses totaled $1.1 million ($0.03 per share after tax) for the first quarter of 2016 compared to net realized investment gains of $783,000 ($0.02 per share after tax) for the first quarter of 2015. Included in net realized investment gains/losses reported for the first quarters of 2016 and 2015 are $1.9 million and $1.4 million, respectively, of 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).

At March 31, 2016, consolidated assets totaled $1.6 billion, including $1.4 billion in the investment portfolio, and stockholders’ equity totaled $551.1 million, an increase of 5.0 percent from December 31, 2015. Book value of the Company’s stock increased 4.2 percent to $26.31 per share from $25.26 per share at December 31, 2015. Book value excluding accumulated other comprehensive income increased 2.3 percent to $22.97 per share from $22.45 per share at December 31, 2015.

Based on results for the first quarter of 2016 and management’s expectations for the remainder of the year, management is reaffirming its 2016 operating income guidance in the range of $1.70 to $1.90 per share. This guidance is based on a projected GAAP combined ratio of 98.7 percent for the year with nominal changes to the other assumptions utilized in the projection.

The Company will hold an earnings teleconference call at noon Eastern time on Friday, May 6, 2016 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company’s results for the first quarter, as well as its expectations for the rest of 2016. Dial-in information for the call is toll-free 1-877-407-9205 (International: 1-201-689-8054).

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 until August 6, 2016. A transcript of the teleconference will also 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 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 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.

¹The Company prepares its public financial statements in conformity with accounting principles generally accepted in the Unites States of America (GAAP). Operating income is a non-GAAP financial measure, calculated by excluding net realized investment gains/losses from net income. 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 to evaluate performance, it is not a substitute for the GAAP financial measure of net income. Therefore, the Company has provided the following reconciliation of the non-GAAP financial measure of operating income to the GAAP financial measure of net income. Management also uses non-GAAP financial measures for goal setting, determining employee and senior management awards and compensation, and evaluating performance.

The reconciliation of operating income to net income is as follows:

	Three Months Ended March 31,
		2016				2015
($ in thousands)
Operating income	$	15,359			$	19,821
Net realized investment gains (losses) (after tax)		(705	)			509
Net income	$	14,654			$	20,330

 

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
($ in thousands, except share and per share amounts)
		Property and
		Casualty								Parent
Quarter Ended March 31, 2016		Insurance				Reinsurance				Company				Consolidated
Revenues:
Premiums earned		$	110,446			$	32,291			$	-			$	142,737
Investment income, net			8,771				3,457				2				12,230
Other income (loss)			132				(143	)			-				(11	)
			119,349				35,605				2				154,956
Losses and expenses:
Losses and settlement expenses			62,098				23,011				-				85,109
Dividends to policyholders			3,853				-				-				3,853
Amortization of deferred policy acquisition costs			19,422				6,906				-				26,328
Other underwriting expenses			16,468				503				-				16,971
Interest expense			84				-				-				84
Other expenses			157				-				492				649
			102,082				30,420				492				132,994
Operating income (loss) before income taxes			17,267				5,185				(490	)			21,962
Realized investment losses			(846	)			(239	)			-				(1,085	)
Income (loss) before income taxes			16,421				4,946				(490	)			20,877
Income tax expense (benefit):
Current			6,117				1,672				(171	)			7,618
Deferred			(1,187	)			(208	)			-				(1,395	)
			4,930				1,464				(171	)			6,223
Net income (loss)		$	11,491			$	3,482			$	(319	)		$	14,654
Average shares outstanding															20,842,199
Per Share Data:
Net income (loss) per share - basic and diluted		$	0.55			$	0.17			$	(0.02	)		$	0.70
Catastrophe and storm losses (after tax)		$	0.10			$	0.09			$	-			$	0.19
Large losses* (after tax)		$	0.09			$	-			$	-			$	0.09
Reported favorable development
experienced on prior years' reserves (after tax)		$	0.12			$	0.12			$	-			$	0.24
Dividends per share														$	0.190
Book value per share														$	26.31
Effective tax rate															29.8	%
Annualized net income as a percent of beg. SH equity															11.2	%
Other Information of Interest:
Net written premiums		$	111,267			$	31,009			$	-			$	142,276
Catastrophe and storm losses		$	3,424			$	2,740			$	-			$	6,164
Large losses*		$	3,035			$	-			$	-			$	3,035
Reported favorable development
experienced on prior years' reserves		$	(3,798	)		$	(3,954	)		$	-			$	(7,752	)
GAAP Ratios:
Loss and settlement expense ratio			56.2	%			71.3	%			-				59.6	%
Acquisition expense ratio			36.0	%			22.9	%			-				33.1	%
Combined ratio			92.2	%			94.2	%			-				92.7	%
*Large losses are defined as 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
Quarter Ended March 31, 2015		Insurance				Reinsurance				Company				Consolidated
Revenues:
Premiums earned		$	108,205			$	30,526			$	-			$	138,731
Investment income, net			8,026				3,184				(4	)			11,206
Other income			182				1,433				-				1,615
			116,413				35,143				(4	)			151,552
Losses and expenses:
Losses and settlement expenses			56,675				19,110				-				75,785
Dividends to policyholders			2,900				-				-				2,900
Amortization of deferred policy acquisition costs			18,379				7,062				-				25,441
Other underwriting expenses			16,173				1,348				-				17,521
Interest expense			84				-				-				84
Other expenses			206				-				461				667
			94,417				27,520				461				122,398
Operating income (loss) before income taxes			21,996				7,623				(465	)			29,154
Realized investment gains			700				83				-				783
Income (loss) before income taxes			22,696				7,706				(465	)			29,937
Income tax expense (benefit):
Current			7,585				1,783				(163	)			9,205
Deferred			(290	)			692				-				402
			7,295				2,475				(163	)			9,607
Net income (loss)		$	15,401			$	5,231			$	(302	)		$	20,330
Average shares outstanding															20,436,302
Per Share Data:
Net income (loss) per share - basic and diluted		$	0.75			$	0.26			$	(0.01	)		$	1.00
Catastrophe and storm losses (after tax)		$	0.06			$	0.09			$	-			$	0.15
Large losses* (after tax)		$	0.14			$	-			$	-			$	0.14
Reported favorable development
experienced on prior years' reserves (after tax)		$	0.29			$	0.17			$	-			$	0.46
Dividends per share														$	0.167
Book value per share														$	25.65
Effective tax rate															32.1	%
Annualized net income as a percent of beg. SH equity															16.2	%
Other Information of Interest:
Net written premiums		$	108,796			$	34,128			$	-			$	142,924
Catastrophe and storm losses		$	1,761			$	2,809			$	-			$	4,570
Large losses*		$	4,258			$	-			$	-			$	4,258
Reported favorable development
experienced on prior years' reserves		$	(9,265	)		$	(5,328	)		$	-			$	(14,593	)
GAAP Ratios:
Loss and settlement expense ratio			52.4	%			62.6	%			-				54.6	%
Acquisition expense ratio			34.6	%			27.6	%			-				33.1	%
Combined ratio			87.0	%			90.2	%			-				87.7	%
*Large losses are defined as losses greater than $500 for the EMC Insurance Companies pool, excluding catastrophe and storm losses.

 

CONSOLIDATED BALANCE SHEETS
	March 31,				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 $1,116,627 and $1,130,217)	$	1,166,022			$	1,161,025
Equity securities available-for-sale, at fair value
(cost $151,046 and $144,176)		212,582				206,243
Other long-term investments		8,440				9,930
Short-term investments		48,447				38,599
Total investments		1,435,491				1,415,797
Cash		697				224
Reinsurance receivables due from affiliate		21,342				24,236
Prepaid reinsurance premiums due from affiliate		7,080				6,563
Deferred policy acquisition costs (affiliated $40,232 and $40,535)		40,462				40,720
Amounts due from affiliate to settle inter-company
transaction balances		7,309				-
Prepaid pension and postretirement benefits due from affiliate		11,754				12,133
Accrued investment income		11,939				10,789
Amounts receivable under reverse repurchase agreements		16,850				16,850
Accounts receivable		1,440				804
Income taxes recoverable		-				1,735
Goodwill		942				942
Other assets (affiliated $4,019 and $4,595)		4,938				5,162
Total assets	$	1,560,244			$	1,535,955
LIABILITIES
Losses and settlement expenses (affiliated $674,131 and $671,169)	$	681,579			$	678,774
Unearned premiums (affiliated $238,600 and $238,637)		239,609				239,435
Other policyholders' funds (all affiliated)		11,025				8,721
Surplus notes payable to affiliate		25,000				25,000
Amounts due affiliate to settle inter-company transaction balances		-				6,408
Pension benefits payable to affiliate		3,958				4,299
Income taxes payable		5,882				-
Deferred income taxes		23,818				19,029
Other liabilities (affiliated $16,968 and $28,598)		18,307				29,351
Total liabilities		1,009,178				1,011,017
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized 30,000,000
shares; issued and outstanding, 20,946,158
shares in 2016 and 20,780,439 shares in 2015		20,946				20,781
Additional paid-in capital		112,500				108,747
Accumulated other comprehensive income		69,917				58,433
Retained earnings		347,703				336,977
Total stockholders' equity		551,066				524,938
Total liabilities and stockholders' equity	$	1,560,244			$	1,535,955

 

LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS
		Three months ended March 31,
		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		$	26,927			$	18,805				69.8	%		$	25,396			$	16,851				66.4	%
Property			24,748				12,382				50.0	%			25,066				12,333				49.2	%
Workers' compensation			23,247				13,406				57.7	%			22,367				11,511				51.5	%
Liability			23,670				12,553				53.0	%			22,416				10,936				48.8	%
Other			2,071				(66	)			(3.2	)%			1,966				97				4.9	%
Total commercial lines			100,663				57,080				56.7	%			97,211				51,728				53.2	%
Personal lines:
Automobile			5,217				2,636				50.5	%			5,817				2,453				42.2	%
Homeowners			4,566				2,382				52.2	%			5,177				2,494				48.2	%
Total personal lines			9,783				5,018				51.3	%			10,994				4,947				45.0	%
Total property and casualty
insurance		$	110,446			$	62,098				56.2	%		$	108,205			$	56,675				52.4	%
Reinsurance
Pro rata reinsurance:
Multiline (primarily property)		$	690			$	159				23.0	%		$	1,238			$	455				36.8	%
Property			6,257				4,602				73.5	%			3,856				6,028				156.3	%
Liability			5,351				4,238				79.2	%			3,801				2,140				56.3	%
Marine			1,343				877				65.3	%			3,410				1,105				32.4	%
Total pro rata reinsurance			13,641				9,876				72.4	%			12,305				9,728				79.1	%
Excess of loss reinsurance:
Property			15,280				12,937				84.7	%			14,462				7,940				54.9	%
Liability			3,370				198				5.9	%			3,759				1,442				38.4	%
Total excess of loss reinsurance			18,650				13,135				70.4	%			18,221				9,382				51.5	%
Total reinsurance		$	32,291			$	23,011				71.3	%		$	30,526			$	19,110				62.6	%
Consolidated		$	142,737			$	85,109				59.6	%		$	138,731			$	75,785				54.6	%

 

NET WRITTEN PREMIUMS
	Three months ended								Three months ended
	March 31, 2016								March 31, 2015
					Percent of								Percent of				Change
	Written				net written				Written				net written				in net written
($ in thousands)	premiums				premiums				premiums				premiums				premiums
Property and casualty insurance
Commercial lines:
Automobile	$	28,741				20.1	%		$	27,353				19.1	%			5.1	%
Property		24,426				17.2	%			24,555				17.2	%			(0.5	)%
Workers' compensation		22,410				15.8	%			21,238				14.9	%			5.5	%
Liability		24,943				17.5	%			23,790				16.6	%			4.8	%
Other		2,206				1.6	%			1,962				1.4	%			12.4	%
Total commercial lines		102,726				72.2	%			98,898				69.2	%			3.9	%
Personal lines:
Automobile		4,909				3.4	%			5,568				3.9	%			(11.8	)%
Homeowners		3,632				2.6	%			4,330				3.0	%			(16.1	)%
Total personal lines		8,541				6.0	%			9,898				6.9	%			(13.7	)%
Total property and casualty																		2.3	%
insurance	$	111,267				78.2	%		$	108,796				76.1	%
Reinsurance
Pro rata reinsurance:
Multiline (primarily property)	$	660				0.5	%		$	1,185				0.8	%			(44.3	)%
Property		4,908				3.5	%			3,882				2.7	%			26.4	%
Liability		5,277				3.7	%			5,967				4.2	%			(11.6	)%
Marine		1,339				0.9	%			3,759				2.7	%			(64.4	)%
Total pro rata reinsurance		12,184				8.6	%			14,793				10.4	%			(17.6	)%
Excess of loss reinsurance:
Property		15,373				10.8	%			15,535				10.9	%			(1.0	)%
Liability		3,452				2.4	%			3,800				2.6	%			(9.2	)%
Total excess of loss reinsurance		18,825				13.2	%			19,335				13.5	%			(2.6	)%
Total reinsurance	$	31,009				21.8	%		$	34,128				23.9	%			(9.1	)%
Consolidated	$	142,276				100.0	%		$	142,924				100.0	%			(0.5	)%

Contact: 
Steve Walsh (Investors)
515-345-2515
Lisa Hamilton (Media)
515-345-7589

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