Third Quarter Ended September 30, 2015
Operating Income Per Share – $0.31
Net Income Per Share – $0.54
Net Realized Investment Gains Per Share – $0.24
Catastrophe and Storm Losses Per Share – $0.56
Large Losses Per Share – $0.32
GAAP Combined Ratio – 101.8 percent
Nine Months Ended September 30, 2015
Operating Income Per Share – $1.59
Net Income Per Share – $1.96
Net Realized Investment Gains Per Share – $0.37
Catastrophe and Storm Losses Per Share – $1.29
Large Losses Per Share – $0.68
GAAP Combined Ratio – 97.0 percent
2015 Operating Income Guidance – $1.80 to $2.00 per share
DES MOINES, Iowa, Nov. 06, 2015 (GLOBE NEWSWIRE) — EMC Insurance Group Inc. (NASDAQ:EMCI) today reported operating income of $6.3 million ($0.31 per share) for the third quarter ended September 30, 2015, compared to operating income of $2.5 million ($0.12 per share) for the third quarter of 20141. For the nine months ended September 30, 2015, the Company reported operating income of $32.8 million ($1.59 per share), compared to $11.7 million ($0.58 per share) for the same period in 2014.
Net income, including realized investment gains and losses, totaled $11.2 million ($0.54 per share) for the third quarter of 2015, compared to $2.2 million ($0.11 per share) for the third quarter of 2014. For the nine months ended September 30, 2015, the Company reported net income of $40.3 million ($1.96 per share), compared to $13.8 million ($0.69 per share) for the same period in 2014.
The Company’s GAAP combined ratio was 101.8 percent in the third quarter of 2015, compared to 107.1 percent in the third quarter of 2014. For the first nine months of 2015, the Company’s GAAP combined ratio was 97.0 percent, compared to 105.0 percent in 2014.
“Operating results for the third quarter improved in both segments, continuing the trend experienced in the first half of the year,” stated President and Chief Executive Officer Bruce G. Kelley. “Based on the good results achieved through the first nine months of the year, we now expect to achieve 2015 operating income near the high end of our guidance range.”
Based on results for the first nine months of 2015 and projections for the remainder of the year, management is reaffirming its 2015 operating income guidance in the previous range of $1.80 to $2.00 per share. This guidance is based on a projected GAAP combined ratio of 97.6 percent for the year and investment income consistent with the amount reported in 2014. The load for catastrophe and storm losses has been reduced to 8.6 points from the previous load of 9.5 points; however, the 0.9 point decline in the loss ratio attributable to this reduction was partially offset by an increase in other types of losses.
Kelley continued, “Catastrophe and storm losses are down for the year compared to our long-term average, and we expect the inter-company reinsurance programs announced earlier this week will help reduce the volatility we have historically experienced in our quarterly results due to catastrophe and storm losses.” These reinsurance programs will become effective January 1, 2016, subject to approval by regulatory authorities.
In addition, on November 4, 2015, the board of directors of the Company declared a quarterly cash dividend of $0.19 per share of common stock payable November 24, 2015 to stockholders of record as of November 17, 2015. The $0.19 per share quarterly dividend represents an 11.8 percent increase over the previous quarterly dividend of $0.17 per share, and when combined with the dividend increase implemented during the third quarter, represents a 14.0 percent increase over the previous split-adjusted dividend of $0.1667 per share.
Kelley went on to say, “This double-digit percentage increase of the dividend is a reflection of the good results achieved through the first nine months of the year, and our expectations for the fourth quarter. Our intent is to reward stockholders with an attractive return on their investment–and we have. The Company has paid a quarterly dividend since becoming publicly held in February 1982, and has never reduced its dividend. We remain confident in the strength of our balance sheet to support future dividend payments and continued profitable growth,” concluded Kelley.
In the third quarter, premiums earned increased 5.4 percent to $145.8 million, from $138.3 million in 2014. In the property and casualty insurance segment, premiums earned increased 5.4 percent, with the majority of the increase attributable to rate level increases on renewal business and growth in insured exposures and an increase in retained policies in the commercial lines of business.
In the reinsurance segment, premiums earned increased 5.5 percent, primarily due to growth in the Mutual Reinsurance Bureau underwriting association (MRB), which reported a significant increase in pro rata liability business. The increase in MRB premiums was partially offset by reduced participation in the offshore energy and liability proportional account for the 2015 contract year. It is important to note that a premium adjustment made in 2014 is inflating the percentage increase reported for the third quarter of 2015. This adjustment stemmed from a change in the premium recognition period of two large facility contracts in the pro rata property line of business that was implemented in the third quarter of 2014. For the first nine months of 2015, premiums earned increased 5.9 percent (6.6 percent in the property and casualty insurance segment and 3.5 percent in the reinsurance segment).
Catastrophe and storm losses totaled $17.8 million ($0.56 per share after tax) in the third quarter of 2015, compared to $17.5 million ($0.56 per share after tax) in the third quarter of 2014. Third quarter catastrophe and storm losses accounted for 12.2 percentage points of the combined ratio, which is below the Company’s most recent 10-year average of 14.2 percentage points for this period and consistent with the 12.6 percentage points experienced in the third quarter of 2014. For the first nine months of 2015, catastrophe and storm losses totaled $40.8 million ($1.29 per share after tax), compared to $52.8 million ($1.70 per share after tax) in 2014. On a segment basis, catastrophe and storm losses amounted to $9.9 million ($0.31 per share after tax) and $28.7 million ($0.91 per share after tax) in the property and casualty insurance segment, and $7.9 million ($0.25 per share after tax) and $12.1 million ($0.38 per share after tax) in the reinsurance segment, for the three months and nine months ended September 30, 2015, respectively.
The Company reported $2.2 million ($0.07 per share after tax) of favorable development on prior years’ reserves during the third quarter of 2015, compared to $1.7 million ($0.06 per share after tax) in the third quarter of 2014. For the first nine months of 2015, favorable development totaled $20.0 million ($0.63 per share after tax), compared to $10.9 million ($0.35 per share after tax) in 2014. 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 indicates that carried reserves remain within the top quartile of the range of reasonable reserves.
Large losses (which the Company defines as losses greater than $500,000 for the EMC Insurance Companies pool, excluding catastrophe and storm losses) increased slightly to $10.3 million ($0.32 per share after tax) in the third quarter of 2015 from $9.7 million ($0.31 per share after tax) in the third quarter of 2014. For the first nine months of 2015, large losses decreased to $21.5 million ($0.68 per share after tax) from $23.8 million ($0.77 per share after tax) in 2014.
Net investment income declined 1.8 percent and 1.4 percent to $11.3 million and $33.9 million for the three and nine months ended September 30, 2015 from $11.5 million and $34.4 million for the same periods in 2014. Net investment income for the first nine months of 2014 included approximately $442,000 that resulted from the early payoff of a commercial mortgage-backed security during the first quarter of 2014 that was purchased at a significant discount to par value, which accelerated the accretion of the discount to par value and therefore increased investment income. Excluding this amount, net investment income would have been relatively flat for the first nine months of 2015 compared to the same period in 2014.
Net realized investment gains totaled $7.5 million ($0.24 per share after tax) and $11.6 million ($0.37 per share after tax) for the third quarter and first nine months of 2015, compared to net realized investment losses of $390,000 ($0.01 per share after tax) and net realized investment gains of $3.2 million ($0.10 per share after tax) for the same periods in 2014. Included in net realized investment gains reported for the third quarter and first nine months of 2015 are $7.2 million and $3.8 million, respectively, of realized investment gains attributed to increases 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). Included in the net realized investment gains/losses reported for the third quarter and first nine months of 2014 are $917,000 and $2.1 million, respectively, of net realized investment losses attributed to the decline in carrying value of this limited partnership.
At September 30, 2015, consolidated assets totaled $1.6 billion, including $1.4 billion in the investment portfolio, and stockholders’ equity totaled $519.9 million, an increase of 3.4 percent from December 31, 2014. Book value of the Company’s stock increased 1.5 percent to $25.09 per share from $24.72 per share at December 31, 2014. Book value excluding accumulated other comprehensive income increased to $22.16 per share from $20.70 per share at December 31, 2014.
The Company will hold an earnings teleconference call at noon Eastern time on November 6, 2015 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company’s results for the quarter and nine months ended September 30, 2015, as well as its expectations for the remainder of 2015. 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 February 6, 2015. 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 OMX 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 our normal, ongoing operations, which is important in understanding and evaluating our 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 September 30, |
Nine Months Ended September 30, |
||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||
| ($ in thousands) | |||||||||||||||
| Operating income | $ | 6,315 | $ | 2,482 | $ | 32,756 | $ | 11,748 | |||||||
| Net realized investment gains (losses) | 4,874 | (253 | ) | 7,511 | 2,090 | ||||||||||
| Net income | $ | 11,189 | $ | 2,229 | $ | 40,267 | $ | 13,838 | |||||||
| 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 (adverse) favorable development | |||||||||||||||||
| experienced on prior years’ reserves (after tax) | $ | 0.15 | $ | (0.08 | ) | $ | – | $ | 0.07 | ||||||||
| Dividends per share | $ | 0.170 | |||||||||||||||
| Other Information of Interest: | |||||||||||||||||
| Net written premiums | $ | 134,722 | $ | 31,446 | $ | – | $ | 166,168 | |||||||||
| Catastrophe and storm losses | $ | 9,920 | $ | 7,844 | $ | – | $ | 17,764 | |||||||||
| Large losses* | $ | 10,304 | $ | – | $ | – | $ | 10,304 | |||||||||
| Reported adverse (favorable) development | |||||||||||||||||
| experienced on prior years’ reserves | $ | (4,722 | ) | $ | 2,495 | $ | – | $ | (2,227 | ) | |||||||
| 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 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 September 30, 2014 | Insurance | Reinsurance | Company | Consolidated | |||||||||||||
| Revenues: | |||||||||||||||||
| Premiums earned | $ | 107,952 | $ | 30,364 | $ | – | $ | 138,316 | |||||||||
| Investment income, net | 8,230 | 3,275 | (2 | ) | 11,503 | ||||||||||||
| Other income | 202 | 1,028 | – | 1,230 | |||||||||||||
| 116,384 | 34,667 | (2 | ) | 151,049 | |||||||||||||
| Losses and expenses: | |||||||||||||||||
| Losses and settlement expenses | 78,556 | 28,096 | – | 106,652 | |||||||||||||
| Dividends to policyholders | 2,588 | – | – | 2,588 | |||||||||||||
| Amortization of deferred policy acquisition costs | 18,143 | 6,814 | – | 24,957 | |||||||||||||
| Other underwriting expenses | 13,079 | 828 | – | 13,907 | |||||||||||||
| Interest expense | 84 | – | – | 84 | |||||||||||||
| Other expenses | 132 | – | 456 | 588 | |||||||||||||
| 112,582 | 35,738 | 456 | 148,776 | ||||||||||||||
| Operating income (loss) before income taxes | 3,802 | (1,071 | ) | (458 | ) | 2,273 | |||||||||||
| Realized investment losses | (286 | ) | (104 | ) | – | (390 | ) | ||||||||||
| Income (loss) before income taxes | 3,516 | (1,175 | ) | (458 | ) | 1,883 | |||||||||||
| Income tax expense (benefit): | |||||||||||||||||
| Current | (304 | ) | (988 | ) | (160 | ) | (1,452 | ) | |||||||||
| Deferred | 759 | 347 | – | 1,106 | |||||||||||||
| 455 | (641 | ) | (160 | ) | (346 | ) | |||||||||||
| Net Income (loss) | $ | 3,061 | $ | (534 | ) | $ | (298 | ) | $ | 2,229 | |||||||
| Average shares outstanding | 20,267,538 | ||||||||||||||||
| Per Share Data: | |||||||||||||||||
| Net income (loss) per share – basic and diluted | $ | 0.15 | $ | (0.03 | ) | $ | (0.01 | ) | $ | 0.11 | |||||||
| Catastrophe and storm losses (after tax) | $ | 0.32 | $ | 0.24 | $ | – | $ | 0.56 | |||||||||
| Large losses* (after tax) | $ | 0.31 | $ | – | $ | – | $ | 0.31 | |||||||||
| Reported favorable development | |||||||||||||||||
| experienced on prior years’ reserves (after tax) | $ | 0.02 | $ | 0.04 | $ | – | $ | 0.06 | |||||||||
| Dividends per share | $ | 0.153 | |||||||||||||||
| Other Information of Interest: | |||||||||||||||||
| Net written premiums | $ | 131,005 | $ | 31,824 | $ | – | $ | 162,829 | |||||||||
| Catastrophe and storm losses | $ | 10,064 | $ | 7,415 | $ | – | $ | 17,479 | |||||||||
| Large losses* | $ | 9,673 | $ | – | $ | – | $ | 9,673 | |||||||||
| Reported favorable development | |||||||||||||||||
| experienced on prior years’ reserves | $ | (427 | ) | $ | (1,264 | ) | $ | – | $ | (1,691 | ) | ||||||
| GAAP Ratios: | |||||||||||||||||
| Loss and settlement expense ratio | 72.8 | % | 92.5 | % | – | 77.1 | % | ||||||||||
| Acquisition expense ratio | 31.3 | % | 25.2 | % | – | 30.0 | % | ||||||||||
| Combined ratio | 104.1 | % | 117.7 | % | – | 107.1 | % | ||||||||||
| *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 | ||||||||||||||||
| 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 | |||||||||
| 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: | |||||||||||||||||
| Net written premiums | $ | 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 | ) | ||||||
| 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 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, 2014 | Insurance | Reinsurance | Company | Consolidated | |||||||||||||
| Revenues: | |||||||||||||||||
| Premiums earned | $ | 312,716 | $ | 92,632 | $ | – | $ | 405,348 | |||||||||
| Investment income, net | 24,818 | 9,624 | (8 | ) | 34,434 | ||||||||||||
| Other income | 584 | 1,042 | – | 1,626 | |||||||||||||
| 338,118 | 103,298 | (8 | ) | 441,408 | |||||||||||||
| Losses and expenses: | |||||||||||||||||
| Losses and settlement expenses | 227,069 | 74,398 | – | 301,467 | |||||||||||||
| Dividends to policyholders | 6,517 | – | – | 6,517 | |||||||||||||
| Amortization of deferred policy acquisition costs | 53,895 | 20,795 | – | 74,690 | |||||||||||||
| Other underwriting expenses | 41,103 | 1,838 | – | 42,941 | |||||||||||||
| Interest expense | 253 | – | – | 253 | |||||||||||||
| Other expenses | 540 | – | 1,173 | 1,713 | |||||||||||||
| 329,377 | 97,031 | 1,173 | 427,581 | ||||||||||||||
| Operating income (loss) before income taxes | 8,741 | 6,267 | (1,181 | ) | 13,827 | ||||||||||||
| Realized investment gains | 2,293 | 922 | – | 3,215 | |||||||||||||
| Income (loss) before income taxes | 11,034 | 7,189 | (1,181 | ) | 17,042 | ||||||||||||
| Income tax expense (benefit): | |||||||||||||||||
| Current | 1,546 | 1,716 | (414 | ) | 2,848 | ||||||||||||
| Deferred | 315 | 41 | – | 356 | |||||||||||||
| 1,861 | 1,757 | (414 | ) | 3,204 | |||||||||||||
| Net Income (loss) | $ | 9,173 | $ | 5,432 | $ | (767 | ) | $ | 13,838 | ||||||||
| Average shares outstanding | 20,165,697 | ||||||||||||||||
| Per Share Data: | |||||||||||||||||
| Net income (loss) per share – basic and diluted | $ | 0.46 | $ | 0.27 | $ | (0.04 | ) | $ | 0.69 | ||||||||
| Catastrophe and storm losses (after tax) | $ | 1.24 | $ | 0.46 | $ | – | $ | 1.70 | |||||||||
| Large losses* (after tax) | $ | 0.77 | $ | – | $ | – | $ | 0.77 | |||||||||
| Reported favorable development | |||||||||||||||||
| experienced on prior years’ reserves (after tax) | $ | 0.20 | $ | 0.15 | $ | – | $ | 0.35 | |||||||||
| Dividends per share | $ | 0.460 | |||||||||||||||
| Book value per share | $ | 23.93 | |||||||||||||||
| Effective tax rate | 18.8 | % | |||||||||||||||
| Annualized net income as a percent of beg. SH equity | 3.9 | % | |||||||||||||||
| Other Information of Interest: | |||||||||||||||||
| Net written premiums | $ | 345,982 | $ | 91,276 | $ | – | $ | 437,258 | |||||||||
| Catastrophe and storm losses | $ | 38,501 | $ | 14,335 | $ | – | $ | 52,836 | |||||||||
| Large losses* | $ | 23,782 | $ | – | $ | – | $ | 23,782 | |||||||||
| Reported favorable development | |||||||||||||||||
| experienced on prior years’ reserves | $ | (6,106 | ) | $ | (4,816 | ) | $ | – | $ | (10,922 | ) | ||||||
| GAAP Ratios: | |||||||||||||||||
| Loss and settlement expense ratio | 72.6 | % | 80.3 | % | – | 74.4 | % | ||||||||||
| Acquisition expense ratio | 32.5 | % | 24.4 | % | – | 30.6 | % | ||||||||||
| Combined ratio | 105.1 | % | 104.7 | % | – | 105.0 | % | ||||||||||
| *Large losses are defined as losses greater than $500 for the EMC Insurance Companies pool, excluding catastrophe and storm losses. | |||||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| September 30, | December 31, | |||||||
| 2015 | 2014 | |||||||
| ($ in thousands, except share and per share amounts) | (Unaudited) | |||||||
| ASSETS | ||||||||
| Investments: | ||||||||
| Fixed maturity securities available-for-sale, at fair value | ||||||||
| (amortized cost $1,139,373 and $1,080,006) | $ | 1,177,961 | $ | 1,127,499 | ||||
| Equity securities available-for-sale, at fair value | ||||||||
| (cost $142,941 and $123,972) | 194,305 | 197,036 | ||||||
| Other long-term investments | 15,396 | 6,227 | ||||||
| Short-term investments | 32,798 | 53,262 | ||||||
| Total investments | 1,420,460 | 1,384,024 | ||||||
| Cash | 570 | 383 | ||||||
| Reinsurance receivables due from affiliate | 25,399 | 28,603 | ||||||
| Prepaid reinsurance premiums due from affiliate | 7,638 | 8,865 | ||||||
| Deferred policy acquisition costs (affiliated $44,559 and $38,930) | 44,710 | 39,343 | ||||||
| Prepaid pension and postretirement benefits due from affiliate | 18,162 | 17,360 | ||||||
| Accrued investment income | 11,716 | 10,295 | ||||||
| Amounts receivable under reverse repurchase agreements | 16,850 | – | ||||||
| Accounts receivable | 1,402 | 1,767 | ||||||
| Income taxes recoverable | 2,657 | – | ||||||
| Goodwill | 942 | 942 | ||||||
| Other assets (affiliated $4,611 and $4,900) | 5,019 | 6,238 | ||||||
| Total assets | $ | 1,555,525 | $ | 1,497,820 | ||||
| LIABILITIES | ||||||||
| Losses and settlement expenses (affiliated $675,247 and $650,652) | $ | 683,930 | $ | 661,309 | ||||
| Unearned premiums (affiliated $263,096 and $230,460) | 263,686 | 232,093 | ||||||
| Other policyholders’ funds (all affiliated) | 8,593 | 10,153 | ||||||
| Surplus notes payable to affiliate | 25,000 | 25,000 | ||||||
| Amounts due affiliate to settle inter-company transaction balances | 7,347 | 8,559 | ||||||
| Pension benefits payable to affiliate | 4,082 | 4,162 | ||||||
| Income taxes payable | – | 3 | ||||||
| Deferred income taxes | 19,295 | 28,654 | ||||||
| Other liabilities (affiliated $23,547 and $23,941) | 23,659 | 25,001 | ||||||
| Total liabilities | 1,035,592 | 994,934 | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $1 par value, authorized 30,000,000 | ||||||||
| shares; issued and outstanding, 20,720,855 | ||||||||
| shares in 2015 and 20,344,409 shares in 2014 | 20,721 | 20,344 | ||||||
| Additional paid-in capital | 107,426 | 99,891 | ||||||
| Accumulated other comprehensive income | 60,804 | 81,662 | ||||||
| Retained earnings | 330,982 | 300,989 | ||||||
| Total stockholders’ equity | 519,933 | 502,886 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,555,525 | $ | 1,497,820 | ||||
| LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS | ||||||||||||||||||||||||
| Three months ended September 30, | ||||||||||||||||||||||||
| 2015 | 2014 | |||||||||||||||||||||||
| ($ 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 | $ | 27,080 | $ | 24,555 | 90.7 | % | $ | 25,000 | $ | 21,974 | 87.9 | % | ||||||||||||
| Property | 26,526 | 19,290 | 72.7 | % | 25,111 | 18,191 | 72.4 | % | ||||||||||||||||
| Workers’ compensation | 23,777 | 12,098 | 50.9 | % | 22,209 | 11,582 | 52.2 | % | ||||||||||||||||
| Liability | 23,449 | 10,726 | 45.7 | % | 22,090 | 18,450 | 83.5 | % | ||||||||||||||||
| Other | 2,032 | 348 | 17.1 | % | 1,881 | 220 | 11.7 | % | ||||||||||||||||
| Total commercial lines | 102,864 | 67,017 | 65.2 | % | 96,291 | 70,417 | 73.1 | % | ||||||||||||||||
| Personal lines: | ||||||||||||||||||||||||
| Automobile | 5,717 | 4,717 | 82.5 | % | 6,284 | 4,287 | 68.2 | % | ||||||||||||||||
| Homeowners | 5,172 | 4,242 | 82.0 | % | 5,377 | 3,852 | 71.6 | % | ||||||||||||||||
| Total personal lines | 10,889 | 8,959 | 82.3 | % | 11,661 | 8,139 | 69.8 | % | ||||||||||||||||
| Total property and casualty | ||||||||||||||||||||||||
| insurance | $ | 113,753 | $ | 75,976 | 66.8 | % | $ | 107,952 | $ | 78,556 | 72.8 | % | ||||||||||||
| Reinsurance | ||||||||||||||||||||||||
| Pro rata reinsurance: | ||||||||||||||||||||||||
| Multiline (primarily property) | $ | 1,190 | $ | 747 | 62.8 | % | $ | 700 | $ | 957 | 136.8 | % | ||||||||||||
| Property | 4,162 | 3,894 | 93.6 | % | 2,622 | 3,838 | 146.4 | % | ||||||||||||||||
| Liability | 4,787 | 3,137 | 65.6 | % | 3,148 | 1,289 | 40.9 | % | ||||||||||||||||
| Marine | 2,898 | 1,889 | 65.2 | % | 3,502 | 3,576 | 102.1 | % | ||||||||||||||||
| Total pro rata reinsurance | 13,037 | 9,667 | 74.2 | % | 9,972 | 9,660 | 96.9 | % | ||||||||||||||||
| Excess of loss reinsurance: | ||||||||||||||||||||||||
| Property | 16,249 | 13,524 | 83.2 | % | 17,248 | 16,108 | 93.4 | % | ||||||||||||||||
| Liability | 2,749 | 3,518 | 128.0 | % | 3,144 | 2,328 | 74.1 | % | ||||||||||||||||
| Total excess of loss reinsurance | 18,998 | 17,042 | 89.7 | % | 20,392 | 18,436 | 90.0 | % | ||||||||||||||||
| Total reinsurance | $ | 32,035 | $ | 26,709 | 83.4 | % | $ | 30,364 | $ | 28,096 | 92.5 | % | ||||||||||||
| Consolidated | $ | 145,788 | $ | 102,685 | 70.4 | % | $ | 138,316 | $ | 106,652 | 77.1 | % | ||||||||||||
| LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS | ||||||||||||||||||||||||
| Nine months ended September 30, | ||||||||||||||||||||||||
| 2015 | 2014 | |||||||||||||||||||||||
| ($ 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 | $ | 78,698 | $ | 61,843 | 78.6 | % | $ | 71,657 | $ | 56,864 | 79.4 | % | ||||||||||||
| Property | 77,518 | 53,652 | 69.2 | % | 71,756 | 57,891 | 80.7 | % | ||||||||||||||||
| Workers’ compensation | 69,150 | 39,591 | 57.3 | % | 65,172 | 38,131 | 58.5 | % | ||||||||||||||||
| Liability | 68,952 | 34,668 | 50.3 | % | 63,600 | 42,957 | 67.5 | % | ||||||||||||||||
| Other | 6,044 | 794 | 13.1 | % | 5,472 | 705 | 12.9 | % | ||||||||||||||||
| Total commercial lines | 300,362 | 190,548 | 63.4 | % | 277,657 | 196,548 | 70.8 | % | ||||||||||||||||
| Personal lines: | ||||||||||||||||||||||||
| Automobile | 17,313 | 12,013 | 69.4 | % | 18,999 | 14,473 | 76.2 | % | ||||||||||||||||
| Homeowners | 15,537 | 12,907 | 83.1 | % | 16,060 | 16,048 | 99.9 | % | ||||||||||||||||
| Total personal lines | 32,850 | 24,920 | 75.9 | % | 35,059 | 30,521 | 87.1 | % | ||||||||||||||||
| Total property and casualty | ||||||||||||||||||||||||
| insurance | $ | 333,212 | $ | 215,468 | 64.7 | % | $ | 312,716 | $ | 227,069 | 72.6 | % | ||||||||||||
| Reinsurance | ||||||||||||||||||||||||
| Pro rata reinsurance: | ||||||||||||||||||||||||
| Multiline (primarily property) | $ | 4,584 | $ | 1,180 | 25.7 | % | $ | 5,031 | $ | 3,570 | 71.0 | % | ||||||||||||
| Property | 11,877 | 13,151 | 110.7 | % | 9,929 | 10,112 | 101.8 | % | ||||||||||||||||
| Liability | 13,955 | 8,701 | 62.4 | % | 8,661 | 4,983 | 57.5 | % | ||||||||||||||||
| Marine | 9,738 | 436 | 4.5 | % | 11,721 | 6,700 | 57.2 | % | ||||||||||||||||
| Total pro rata reinsurance | 40,154 | 23,468 | 58.4 | % | 35,342 | 25,365 | 71.8 | % | ||||||||||||||||
| Excess of loss reinsurance: | ||||||||||||||||||||||||
| Property | 46,425 | 32,041 | 69.0 | % | 48,507 | 47,240 | 97.4 | % | ||||||||||||||||
| Liability | 9,333 | 9,626 | 103.1 | % | 8,783 | 1,793 | 20.4 | % | ||||||||||||||||
| Total excess of loss reinsurance | 55,758 | 41,667 | 74.7 | % | 57,290 | 49,033 | 85.6 | % | ||||||||||||||||
| Total reinsurance | $ | 95,912 | $ | 65,135 | 67.9 | % | $ | 92,632 | $ | 74,398 | 80.3 | % | ||||||||||||
| Consolidated | $ | 429,124 | $ | 280,603 | 65.4 | % | $ | 405,348 | $ | 301,467 | 74.4 | % | ||||||||||||
| NET WRITTEN PREMIUMS | ||||||||||||||||||||
| Three months ended | Three months ended | |||||||||||||||||||
| September 30, 2015 | September 30, 2014 | |||||||||||||||||||
| Percent of | Percent of | Change in | ||||||||||||||||||
| Written | net written | Written | net written | net written | ||||||||||||||||
| ($ in thousands) | premiums | premiums | premiums | premiums | premiums | |||||||||||||||
| Property and casualty insurance | ||||||||||||||||||||
| Commercial lines: | ||||||||||||||||||||
| Automobile | $ | 28,904 | 17.4 | % | $ | 27,792 | 17.1 | % | 4.0 | % | ||||||||||
| Property | 32,891 | 19.8 | % | 31,735 | 19.5 | % | 3.6 | % | ||||||||||||
| Workers’ compensation | 33,385 | 20.1 | % | 32,236 | 19.8 | % | 3.6 | % | ||||||||||||
| Liability | 26,556 | 16.0 | % | 25,072 | 15.4 | % | 5.9 | % | ||||||||||||
| Other | 2,213 | 1.3 | % | 2,352 | 1.4 | % | (5.9 | )% | ||||||||||||
| Total commercial lines | 123,949 | 74.6 | % | 119,187 | 73.2 | % | 4.0 | % | ||||||||||||
| Personal lines: | ||||||||||||||||||||
| Automobile | 5,333 | 3.2 | % | 5,962 | 3.7 | % | (10.5 | )% | ||||||||||||
| Homeowners | 5,440 | 3.3 | % | 5,856 | 3.6 | % | (7.1 | )% | ||||||||||||
| Total personal lines | 10,773 | 6.5 | % | 11,818 | 7.3 | % | (8.8 | )% | ||||||||||||
| Total property and | ||||||||||||||||||||
| casualty insurance | $ | 134,722 | 81.1 | % | $ | 131,005 | 80.5 | % | 2.8 | % | ||||||||||
| Reinsurance | ||||||||||||||||||||
| Pro rata reinsurance: | ||||||||||||||||||||
| Multiline (primarily property) | $ | 930 | 0.6 | % | $ | 1,228 | 0.8 | % | (24.3 | )% | ||||||||||
| Property | 4,678 | 2.8 | % | 2,172 | 1.3 | % | 115.4 | % | ||||||||||||
| Liability | 5,925 | 3.6 | % | 3,351 | 2.1 | % | 76.8 | % | ||||||||||||
| Marine | 570 | 0.3 | % | 3,980 | 2.4 | % | (85.7 | )% | ||||||||||||
| Total pro rata reinsurance | 12,103 | 7.3 | % | 10,731 | 6.6 | % | 12.8 | % | ||||||||||||
| Excess of loss reinsurance: | ||||||||||||||||||||
| Property | 16,614 | 10.0 | % | 17,929 | 11.0 | % | (7.3 | )% | ||||||||||||
| Liability | 2,729 | 1.6 | % | 3,164 | 1.9 | % | (13.7 | )% | ||||||||||||
| Total excess of loss reinsurance | 19,343 | 11.6 | % | 21,093 | 12.9 | % | (8.3 | )% | ||||||||||||
| Total reinsurance | $ | 31,446 | 18.9 | % | $ | 31,824 | 19.5 | % | (1.2 | )% | ||||||||||
| Consolidated | $ | 166,168 | 100.0 | % | $ | 162,829 | 100.0 | % | 2.1 | % | ||||||||||
| NET WRITTEN PREMIUMS | ||||||||||||||||||||
| Nine months ended | Nine months ended | |||||||||||||||||||
| September 30, 2015 | September 30, 2014 | |||||||||||||||||||
| Percent of | Percent of | Change in | ||||||||||||||||||
| Written | net written | Written | net written | net written | ||||||||||||||||
| ($ in thousands) | premiums | premiums | premiums | premiums | premiums | |||||||||||||||
| Property and casualty insurance | ||||||||||||||||||||
| Commercial lines: | ||||||||||||||||||||
| Automobile | $ | 86,947 | 18.9 | % | $ | 80,335 | 18.4 | % | 8.2 | % | ||||||||||
| Property | 85,853 | 18.6 | % | 80,992 | 18.5 | % | 6.0 | % | ||||||||||||
| Workers’ compensation | 76,912 | 16.7 | % | 73,703 | 16.9 | % | 4.4 | % | ||||||||||||
| Liability | 75,765 | 16.4 | % | 70,366 | 16.1 | % | 7.7 | % | ||||||||||||
| Other | 6,413 | 1.4 | % | 5,907 | 1.3 | % | 8.6 | % | ||||||||||||
| Total commercial lines | 331,890 | 72.0 | % | 311,303 | 71.2 | % | 6.6 | % | ||||||||||||
| Personal lines: | ||||||||||||||||||||
| Automobile | 16,944 | 3.7 | % | 18,583 | 4.2 | % | (8.8 | )% | ||||||||||||
| Homeowners | 15,495 | 3.3 | % | 16,096 | 3.7 | % | (3.7 | )% | ||||||||||||
| Total personal lines | 32,439 | 7.0 | % | 34,679 | 7.9 | % | (6.5 | )% | ||||||||||||
| Total property and | ||||||||||||||||||||
| casualty insurance | $ | 364,329 | 79.0 | % | $ | 345,982 | 79.1 | % | 5.3 | % | ||||||||||
| Reinsurance | ||||||||||||||||||||
| Pro rata reinsurance: | ||||||||||||||||||||
| Multiline (primarily property) | $ | 3,194 | 0.7 | % | $ | 5,210 | 1.2 | % | (38.7 | )% | ||||||||||
| Property | 11,361 | 2.4 | % | 8,364 | 1.9 | % | 35.8 | % | ||||||||||||
| Liability | 19,271 | 4.2 | % | 9,798 | 2.3 | % | 96.7 | % | ||||||||||||
| Marine | 6,406 | 1.4 | % | 9,768 | 2.2 | % | (34.4 | )% | ||||||||||||
| Total pro rata reinsurance | 40,232 | 8.7 | % | 33,140 | 7.6 | % | 21.4 | % | ||||||||||||
| Excess of loss reinsurance: | ||||||||||||||||||||
| Property | 47,356 | 10.3 | % | 49,342 | 11.3 | % | (4.0 | )% | ||||||||||||
| Liability | 9,326 | 2.0 | % | 8,794 | 2.0 | % | 6.1 | % | ||||||||||||
| Total excess of loss reinsurance | 56,682 | 12.3 | % | 58,136 | 13.3 | % | (2.5 | )% | ||||||||||||
| Total reinsurance | $ | 96,914 | 21.0 | % | $ | 91,276 | 20.9 | % | 6.2 | % | ||||||||||
| Consolidated | $ | 461,243 | 100.0 | % | $ | 437,258 | 100.0 | % | 5.5 | % | ||||||||||
CONTACT: Contact: Steve Walsh (Investors) 515-345-2515 Lisa Hamilton (Media) 515-345-7589