EXHIBIT 99
EMC Insurance Group Inc. Reports 2015 Fourth Quarter
and Year-End Results and 2016 Operating Income
Guidance, and Announces a Presentation by Management
at the 20th Annual NYSSA Insurance Conference
Fourth Quarter Ended December 31, 2015
Operating Income Per Share - $0.65
Net Income Per Share - $0.48
Net Realized Investment Losses Per Share - $0.17
Catastrophe and Storm Losses Per Share - $0.11
Large Losses Per Share - $0.40
GAAP Combined Ratio - 94.1 percent
Year Ended December 31, 2015
Operating Income Per Share - $2.24
Net Income Per Share - $2.43
Net Realized Investment Gains Per Share - $0.19
Catastrophe and Storm Losses Per Share - $1.40
Large Losses Per Share - $1.08
GAAP Combined Ratio - 96.3 percent
2016 Operating Income Guidance - $1.70 to $1.90 per share
DES MOINES, Iowa (February 12, 2016) - EMC Insurance Group Inc. (NASDAQ OMX/GS:EMCI) today reported operating income of $13.4 million ($0.65 per share) for the fourth quarter ended December 31, 2015, compared to operating income of $15.4 million ($0.76 per share) for the fourth quarter of 20141. For the year ended December 31, 2015, the Company reported operating income of $46.2 million ($2.24 per share), compared to $27.2 million ($1.34 per share) for the same period in 2014.
Net income, including realized investment gains and losses, totaled $9.9 million ($0.48 per share) for the fourth quarter of 2015, compared to $16.2 million ($0.80 per share) for the fourth quarter of 2014. For the year ended December 31, 2015, the Company reported net income of $50.2 million ($2.43 per share), compared to $30.0 million ($1.48 per share) for the same period in 2014.
The Company’s GAAP combined ratio was 94.1 percent in the fourth quarter of 2015, compared to 92.5 percent in the fourth quarter of 2014. For the year ended December 31, 2015, the Company’s GAAP combined ratio was 96.3 percent, compared to 101.9 percent in 2014.
“This is our lowest annual combined ratio since 2006,” stated President and Chief Executive Officer Bruce G. Kelley. “We have strived to improve premium rate adequacy and the quality of our book of business. Seeing positive results from our efforts is satisfying.”
Management is projecting 2016 operating income will be within a 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 and investment income growth in the low- to mid-single digits. The projected GAAP combined ratio has a load of 9.1 points for catastrophe and storm losses, up from the relatively low 7.8 points experienced in 2015.
Kelley continued, “The 2016 operating income guidance reflects management’s expectations for an increasingly competitive rate environment and a slightly higher level of catastrophe and storm losses. Looking ahead to 2016, it is important to note that both the property and casualty insurance segment and the reinsurance segment have new reinsurance arrangements in place with our parent company, Employers Mutual Casualty Company, which are expected to reduce the volatility of quarterly results caused by excessive catastrophe and storm losses. This should result in more consistent quarterly operating results than in the past.” Final regulatory approval of both intercompany reinsurance programs was received on February 10, 2016.
Premiums earned increased 4.3 percent to $141.1 million for the fourth quarter of 2015, from $135.4 million in 2014. In the property and casualty insurance segment, premiums earned increased 3.9 percent, with the majority of the increase attributable to rate level increases on renewal business and growth in new business in the commercial lines of business. In the reinsurance segment, premiums earned increased 5.6 percent; however, premium adjustments made in the fourth quarters of 2015 and 2014 are impacting this percentage increase. In the fourth quarter of 2015, a negative premium adjustment of $7.2 million reported by the ceding company for the offshore energy and liability proportional account was recorded to reduce the ultimate amount of premiums expected to be earned for underwriting years 2012 through 2014. In the fourth quarter of 2014, an $8.7 million reduction in earned but not reported (EBNR) premiums was recognized on pro rata contracts. Without these adjustments, earned premiums in the reinsurance segment would have declined approximately 0.2 percent in the fourth quarter. For the year ended December 31, 2015, premiums earned increased 5.5 percent (5.9 percent in the property and casualty insurance segment and 4.0 percent in the reinsurance segment). For calendar year 2014, the total EBNR premium adjustment on pro rata accounts amounted to $7.7 million. Without this adjustment and the 2015 adjustment noted above, the reinsurance segment’s earned premiums for calendar year 2015 would have increased approximately 3.3 percent, primarily due to a significant increase in pro rata business in the Mutual Reinsurance Bureau underwriting association. The premium adjustments made in 2015 and 2014 did not have a material impact on net income because corresponding adjustments were made to incurred but not reported loss reserves, commission expense reserves and the cost of the excess of loss reinsurance protection.
Catastrophe and storm losses totaled $3.6 million ($0.11 per share after tax) in the fourth quarter of 2015, compared to $4.4 million ($0.14 per share after tax) in the fourth quarter of 2014. Fourth quarter catastrophe and storm losses accounted for 2.6 percentage points of the combined ratio, which is below the Company’s most recent 10-year average of 3.4 percentage points for this period and the 3.3 percentage points experienced in the fourth quarter of 2014. For the year ended December 31, 2015, catastrophe and storm losses totaled $44.4 million ($1.40 per share after tax), compared to $57.3 million ($1.84 per share after tax) in 2014. On a segment basis, catastrophe and storm losses amounted to $958,000 ($0.03 per share after tax) and $29.6 million ($0.93 per share after tax) in the property and casualty insurance segment, and $2.7 million ($0.08 per share after tax) and $14.8 million ($0.47 per share after tax) in the reinsurance segment, for the fourth quarter and year ended December 31, 2015, respectively.
The Company reported $15.2 million ($0.47 per share after tax) of favorable development on prior years’ reserves during the fourth quarter of 2015, compared to $9.9 million ($0.32 per share after tax) in the fourth quarter of 2014. For the year ended December 31, 2015, favorable development totaled $35.1 million ($1.11 per share after tax), compared to $20.8 million ($0.67 per share after tax) in 2014. The development amounts reported for the fourth quarter and year ended 2015 include approximately $1.9 million of favorable development and $618,000 of adverse development, respectively, that resulted solely from changes in the allocation of bulk reserves between the current and prior accident years, compared to $2.2 million of favorable development for the fourth quarter and year ended 2014. Development on prior years’ reserves resulting solely from changes in the allocation of bulk reserves between the current and prior accident years does not have an impact on earnings. This is due to the fact that such development is simply a mathematical by-product of the mechanical process used to reallocate total bulk reserves to the various accident years. Earnings are only impacted by changes in the total amount of carried reserves.
Excluding the development amounts that resulted solely from changes in the allocation of bulk reserves between accident years, the implied amounts of favorable development that had an impact on earnings would be approximately $13.3 million and $35.7 million for the fourth quarter and year ended 2015, compared to $7.7 million and $18.6 million for the same periods in 2014. Favorable development on prior years’ reserves increased in the reinsurance segment due to a reduction in reserves on property treaties and one casualty treaty.
Estimating loss and settlement expense reserves for asbestos claims is very difficult due to the many uncertainties surrounding these types of claims. While the Company does not have a significant amount of exposure to asbestos claims, management has been proactive in strengthening the reserves carried for these exposures when deemed necessary. During the fourth quarter of 2015, the Company strengthened asbestos reserves by approximately $2.3 million ($0.07 per share after taxes). For the year, asbestos reserves were strengthened by approximately $4.1 million ($0.13 per share after taxes).
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 in 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 $12.8 million ($0.40 per share after tax) in the fourth quarter of 2015 from $11.9 million ($0.38 per share after tax) in the fourth quarter of 2014. For the year ended December 31, 2015, large losses decreased to $34.2 million ($1.08 per share after tax) from $35.7 million ($1.15 per share after tax) in 2014.
Net investment income declined 3.3 percent and 1.9 percent to $11.6 million and $45.6 million for the fourth quarter and year ended December 31, 2015, from $12.0 million and $46.5 million for the same periods in 2014. Net investment income for the year ended 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 declined 1.0 percent for the year ended 2015 compared to the same period in 2014.
Net realized investment losses totaled $5.4 million ($0.17 per share after tax) for the fourth quarter of 2015 compared to net realized investment gains of $1.1 million ($0.04 per share after tax) for the fourth quarter of 2014. For the year ended December 31, 2015, net realized investment gains totaled $6.2 million ($0.19 per share after tax), compared to $4.3 million ($0.14 per share after tax) for 2014. Included in net realized investment gains/losses reported for the fourth quarter and year ended December 31, 2015 are $5.3 million and $1.5 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). Included in the net realized investment gains reported for the fourth quarter and year ended December 31, 2014 are $741,000 and $2.8 million, respectively, of net realized investment losses attributed to a decline in carrying value of this limited partnership.
At December 31, 2015, consolidated assets totaled $1.5 billion, including $1.4 billion in the investment portfolio, and stockholders’ equity totaled $524.9 million, an increase of 4.4 percent from December 31, 2014. Book value of the Company’s stock increased 2.2 percent to $25.26 per share from $24.72 per share at December 31, 2014. Book value excluding accumulated other comprehensive income increased 8.5 percent to $22.45 per share from $20.70 per share at December 31, 2014.
The Company will hold an earnings teleconference call at noon Eastern time on February 12, 2016 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company’s results for the fourth quarter and year ended December 31, 2015, as well as its expectations for 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 May 12, 2016. A transcript of the teleconference will also be available on the Company’s website shortly after the completion of the teleconference.
Management Presentation:
Additionally, on Tuesday, March 22, 2016, Bruce G. Kelley and Mark E. Reese, Senior Vice President and Chief Financial Officer, will present at the 20th Annual New York Society of Security Analysts (NYSSA) Insurance Conference in New York. The presentation will occur at 12:35 p.m. Eastern time at the offices of the NYSSA, 1540 Broadway, New York, NY. Interested persons may access the presentation slides on the Company’s investor relations website at http://www.emcins.com/ir/Presentations.aspx on the day of the presentation. A live webcast of the event will not be available to the general public.
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 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 December 31, | Year ended December 31, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
($ in thousands) | ||||||||||||||||
Operating income | $ | 13,407 | $ | 15,417 | $ | 46,163 | $ | 27,165 | ||||||||
Net realized investment gains (losses) (after tax) | (3,512 | ) | 737 | 3,999 | 2,827 | |||||||||||
Net income | $ | 9,895 | $ | 16,154 | $ | 50,162 | $ | 29,992 | ||||||||
CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED | ||||||||||||||||
($ in thousands, except share and per share amounts) | ||||||||||||||||
Quarter ended December 31, 2015 | Property and Casualty Insurance | Reinsurance | Parent Company | Consolidated | ||||||||||||
Revenues: | ||||||||||||||||
Premiums earned | $ | 113,985 | $ | 27,157 | $ | — | $ | 141,142 | ||||||||
Investment income, net | 8,367 | 3,269 | — | 11,636 | ||||||||||||
Other income | 189 | (86 | ) | — | 103 | |||||||||||
122,541 | 30,340 | — | 152,881 | |||||||||||||
Losses and expenses: | ||||||||||||||||
Losses and settlement expenses | 76,415 | 13,718 | — | 90,133 | ||||||||||||
Dividends to policyholders | 1,213 | — | — | 1,213 | ||||||||||||
Amortization of deferred policy acquisition costs | 19,698 | 3,663 | — | 23,361 | ||||||||||||
Other underwriting expenses | 16,170 | 1,897 | — | 18,067 | ||||||||||||
Interest expense | 84 | — | — | 84 | ||||||||||||
Other expenses | 180 | — | 518 | 698 | ||||||||||||
113,760 | 19,278 | 518 | 133,556 | |||||||||||||
Operating income (loss) before income taxes | 8,781 | 11,062 | (518 | ) | 19,325 | |||||||||||
Realized investment losses | (3,703 | ) | (1,699 | ) | — | (5,402 | ) | |||||||||
Income (loss) before income taxes | 5,078 | 9,363 | (518 | ) | 13,923 | |||||||||||
Income tax expense (benefit): | ||||||||||||||||
Current | 317 | 2,880 | (180 | ) | 3,017 | |||||||||||
Deferred | 862 | 149 | — | 1,011 | ||||||||||||
1,179 | 3,029 | (180 | ) | 4,028 | ||||||||||||
Net income (loss) | $ | 3,899 | $ | 6,334 | $ | (338 | ) | $ | 9,895 | |||||||
Average shares outstanding | 20,755,198 | |||||||||||||||
Per Share Data: | ||||||||||||||||
Net income (loss) per share - basic and diluted | $ | 0.19 | $ | 0.31 | $ | (0.02 | ) | $ | 0.48 | |||||||
Catastrophe and storm losses (after tax) | $ | 0.03 | $ | 0.08 | $ | — | $ | 0.11 | ||||||||
Large losses* (after tax) | $ | 0.40 | $ | — | $ | — | $ | 0.40 | ||||||||
Reported (adverse) favorable development experienced on prior years' reserves (after tax) | $ | (0.01 | ) | $ | 0.48 | $ | — | $ | 0.47 | |||||||
Implied (adverse) favorable development that had an impact on earnings (after tax) | $ | (0.02 | ) | $ | 0.44 | $ | — | $ | 0.42 | |||||||
Dividends per share | $ | 0.190 | ||||||||||||||
Other Information of Interest: | ||||||||||||||||
Net written premiums | $ | 90,105 | $ | 27,590 | $ | — | $ | 117,695 | ||||||||
Catastrophe and storm losses | $ | 958 | $ | 2,661 | $ | — | $ | 3,619 | ||||||||
Large losses* | $ | 12,786 | $ | — | $ | — | $ | 12,786 | ||||||||
Reported adverse (favorable) development experienced on prior years' reserves | $ | 338 | $ | (15,495 | ) | $ | — | $ | (15,157 | ) | ||||||
Favorable development that had no impact on earnings | 423 | 1,454 | — | 1,877 | ||||||||||||
Implied adverse (favorable) development that had an impact on earnings | $ | 761 | $ | (14,041 | ) | $ | — | $ | (13,280 | ) | ||||||
GAAP Ratios: | ||||||||||||||||
Loss and settlement expense ratio | 67.0 | % | 50.5 | % | — | 63.9 | % | |||||||||
Acquisition expense ratio | 32.6 | % | 20.5 | % | — | 30.2 | % | |||||||||
Combined ratio | 99.6 | % | 71.0 | % | — | 94.1 | % | |||||||||
*Large losses are defined as losses greater than $500 for the EMC Insurance Companies pool, excluding catastrophe and storm losses. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
($ in thousands, except share and per share amounts) | ||||||||||||||||
Quarter ended December 31, 2014 | Property and Casualty Insurance | Reinsurance | Parent Company | Consolidated | ||||||||||||
Revenues: | ||||||||||||||||
Premiums earned | $ | 109,665 | $ | 25,709 | $ | — | $ | 135,374 | ||||||||
Investment income, net | 8,691 | 3,344 | (4 | ) | 12,031 | |||||||||||
Other income | 111 | 1,194 | — | 1,305 | ||||||||||||
118,467 | 30,247 | (4 | ) | 148,710 | ||||||||||||
Losses and expenses: | ||||||||||||||||
Losses and settlement expenses | 70,964 | 13,043 | — | 84,007 | ||||||||||||
Dividends to policyholders | 2,987 | — | — | 2,987 | ||||||||||||
Amortization of deferred policy acquisition costs | 18,873 | 5,479 | — | 24,352 | ||||||||||||
Other underwriting expenses | 13,282 | 603 | — | 13,885 | ||||||||||||
Interest expense | 84 | — | — | 84 | ||||||||||||
Other expenses | 253 | — | 411 | 664 | ||||||||||||
106,443 | 19,125 | 411 | 125,979 | |||||||||||||
Operating income (loss) before income taxes | 12,024 | 11,122 | (415 | ) | 22,731 | |||||||||||
Realized investment gains | 645 | 489 | — | 1,134 | ||||||||||||
Income (loss) before income taxes | 12,669 | 11,611 | (415 | ) | 23,865 | |||||||||||
Income tax expense (benefit): | ||||||||||||||||
Current | 2,142 | 2,434 | (144 | ) | 4,432 | |||||||||||
Deferred | 1,830 | 1,449 | — | 3,279 | ||||||||||||
3,972 | 3,883 | (144 | ) | 7,711 | ||||||||||||
Net income (loss) | $ | 8,697 | $ | 7,728 | $ | (271 | ) | $ | 16,154 | |||||||
Average shares outstanding | 20,326,647 | |||||||||||||||
Per Share Data: | ||||||||||||||||
Net income (loss) per share - basic and diluted | $ | 0.43 | $ | 0.38 | $ | (0.01 | ) | $ | 0.80 | |||||||
Catastrophe and storm losses (after tax) | $ | 0.05 | $ | 0.09 | $ | — | $ | 0.14 | ||||||||
Large losses* (after tax) | $ | 0.38 | $ | — | $ | — | $ | 0.38 | ||||||||
Reported favorable development experienced on prior years' reserves (after tax) | $ | 0.07 | $ | 0.25 | $ | — | $ | 0.32 | ||||||||
Implied favorable development that had an impact on earnings (after tax) | $ | — | $ | 0.25 | $ | — | $ | 0.25 | ||||||||
Dividends per share | $ | 0.167 | ||||||||||||||
Other Information of Interest: | ||||||||||||||||
Net written premiums | $ | 87,725 | $ | 27,627 | $ | — | $ | 115,352 | ||||||||
Catastrophe and storm losses | $ | 1,725 | $ | 2,690 | $ | — | $ | 4,415 | ||||||||
Large losses* | $ | 11,891 | $ | — | $ | — | $ | 11,891 | ||||||||
Reported favorable development experienced on prior years' reserves | $ | (2,004 | ) | $ | (7,866 | ) | $ | — | $ | (9,870 | ) | |||||
Favorable development that had no impact on earnings | 2,151 | — | — | 2,151 | ||||||||||||
Implied adverse (favorable) development that had an impact on earnings | $ | 147 | $ | (7,866 | ) | $ | — | $ | (7,719 | ) | ||||||
GAAP Ratios: | ||||||||||||||||
Loss and settlement expense ratio | 64.7 | % | 50.7 | % | — | 62.1 | % | |||||||||
Acquisition expense ratio | 32.1 | % | 23.7 | % | — | 30.4 | % | |||||||||
Combined ratio | 96.8 | % | 74.4 | % | — | 92.5 | % | |||||||||
*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) | ||||||||||||||||
Year ended December 31, 2015 | Property and Casualty Insurance | Reinsurance | Parent Company | Consolidated | ||||||||||||
Revenues: | ||||||||||||||||
Premiums earned | $ | 447,197 | $ | 123,069 | $ | — | $ | 570,266 | ||||||||
Investment income, net | 32,668 | 12,923 | (9 | ) | 45,582 | |||||||||||
Other income | 771 | 954 | — | 1,725 | ||||||||||||
480,636 | 136,946 | (9 | ) | 617,573 | ||||||||||||
Losses and expenses: | ||||||||||||||||
Losses and settlement expenses | 291,883 | 78,853 | — | 370,736 | ||||||||||||
Dividends to policyholders | 7,705 | — | — | 7,705 | ||||||||||||
Amortization of deferred policy acquisition costs | 75,701 | 26,483 | — | 102,184 | ||||||||||||
Other underwriting expenses | 63,954 | 4,464 | — | 68,418 | ||||||||||||
Interest expense | 337 | — | — | 337 | ||||||||||||
Other expenses | 748 | — | 1,942 | 2,690 | ||||||||||||
440,328 | 109,800 | 1,942 | 552,070 | |||||||||||||
Operating income (loss) before income taxes | 40,308 | 27,146 | (1,951 | ) | 65,503 | |||||||||||
Realized investment gains | 4,163 | 1,990 | — | 6,153 | ||||||||||||
Income (loss) before income taxes | 44,471 | 29,136 | (1,951 | ) | 71,656 | |||||||||||
Income tax expense (benefit): | ||||||||||||||||
Current | 10,830 | 8,463 | (682 | ) | 18,611 | |||||||||||
Deferred | 2,174 | 709 | — | 2,883 | ||||||||||||
13,004 | 9,172 | (682 | ) | 21,494 | ||||||||||||
Net income (loss) | $ | 31,467 | $ | 19,964 | $ | (1,269 | ) | $ | 50,162 | |||||||
Average shares outstanding | 20,621,919 | |||||||||||||||
Per Share Data: | ||||||||||||||||
Net income (loss) per share - basic and diluted | $ | 1.52 | $ | 0.97 | $ | (0.06 | ) | $ | 2.43 | |||||||
Catastrophe and storm losses (after tax) | $ | 0.93 | $ | 0.47 | $ | — | $ | 1.40 | ||||||||
Large losses* (after tax) | $ | 1.08 | $ | — | $ | — | $ | 1.08 | ||||||||
Reported favorable development experienced on prior years' reserves (after tax) | $ | 0.44 | $ | 0.67 | $ | — | $ | 1.11 | ||||||||
Implied favorable development that had an impact on earnings (after tax) | $ | 0.42 | $ | 0.70 | $ | — | $ | 1.12 | ||||||||
Dividends per share | $ | 0.693 | ||||||||||||||
Book value per share | $ | 25.26 | ||||||||||||||
Effective tax rate | 30.0 | % | ||||||||||||||
Net income as a percent of beg. SH equity | 10.0 | % | ||||||||||||||
Other Information of Interest: | ||||||||||||||||
Net written premiums | $ | 454,434 | $ | 124,504 | $ | — | $ | 578,938 | ||||||||
Catastrophe and storm losses | $ | 29,609 | $ | 14,765 | $ | — | $ | 44,374 | ||||||||
Large losses* | $ | 34,239 | $ | — | $ | — | $ | 34,239 | ||||||||
Reported favorable development experienced on prior years' reserves | $ | (13,839 | ) | $ | (21,275 | ) | $ | — | $ | (35,114 | ) | |||||
Favorable (adverse) development that had no impact on earnings | 423 | (1,041 | ) | — | (618 | ) | ||||||||||
Implied favorable development that had an impact on earnings | $ | (13,416 | ) | $ | (22,316 | ) | $ | — | $ | (35,732 | ) | |||||
GAAP Ratios: | ||||||||||||||||
Loss and settlement expense ratio | 65.3 | % | 64.1 | % | — | 65.0 | % | |||||||||
Acquisition expense ratio | 32.9 | % | 25.1 | % | — | 31.3 | % | |||||||||
Combined ratio | 98.2 | % | 89.2 | % | — | 96.3 | % | |||||||||
*Large losses are defined as losses greater than $500 for the EMC Insurance Companies pool, excluding catastrophe and storm losses. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
($ in thousands, except share and per share amounts) | ||||||||||||||||
Year ended December 31, 2014 | Property and Casualty Insurance | Reinsurance | Parent Company | Consolidated | ||||||||||||
Revenues: | ||||||||||||||||
Premiums earned | $ | 422,381 | $ | 118,341 | $ | — | $ | 540,722 | ||||||||
Investment income, net | 33,509 | 12,968 | (12 | ) | 46,465 | |||||||||||
Other income | 695 | 2,236 | — | 2,931 | ||||||||||||
456,585 | 133,545 | (12 | ) | 590,118 | ||||||||||||
Losses and expenses: | ||||||||||||||||
Losses and settlement expenses | 298,033 | 87,441 | — | 385,474 | ||||||||||||
Dividends to policyholders | 9,504 | — | — | 9,504 | ||||||||||||
Amortization of deferred policy acquisition costs | 72,768 | 26,274 | — | 99,042 | ||||||||||||
Other underwriting expenses | 54,385 | 2,441 | — | 56,826 | ||||||||||||
Interest expense | 337 | — | — | 337 | ||||||||||||
Other expenses | 793 | — | 1,584 | 2,377 | ||||||||||||
435,820 | 116,156 | 1,584 | 553,560 | |||||||||||||
Operating income (loss) before income taxes | 20,765 | 17,389 | (1,596 | ) | 36,558 | |||||||||||
Realized investment gains | 2,938 | 1,411 | — | 4,349 | ||||||||||||
Income (loss) before income taxes | 23,703 | 18,800 | (1,596 | ) | 40,907 | |||||||||||
Income tax expense (benefit): | ||||||||||||||||
Current | 3,688 | 4,150 | (558 | ) | 7,280 | |||||||||||
Deferred | 2,145 | 1,490 | — | 3,635 | ||||||||||||
5,833 | 5,640 | (558 | ) | 10,915 | ||||||||||||
Net income (loss) | $ | 17,870 | $ | 13,160 | $ | (1,038 | ) | $ | 29,992 | |||||||
Average shares outstanding | 20,205,935 | |||||||||||||||
Per Share Data: | ||||||||||||||||
Net income (loss) per share - basic and diluted | $ | 0.88 | $ | 0.65 | $ | (0.05 | ) | $ | 1.48 | |||||||
Catastrophe and storm losses (after tax) | $ | 1.29 | $ | 0.55 | $ | — | $ | 1.84 | ||||||||
Large losses* (after tax) | $ | 1.15 | $ | — | $ | — | $ | 1.15 | ||||||||
Reported favorable development experienced on prior years' reserves (after tax) | $ | 0.26 | $ | 0.41 | $ | — | $ | 0.67 | ||||||||
Implied favorable development that had an impact on earnings (after tax) | $ | 0.19 | $ | 0.41 | $ | — | $ | 0.60 | ||||||||
Dividends per share | $ | 0.627 | ||||||||||||||
Book value per share | $ | 24.72 | ||||||||||||||
Effective tax rate | 26.7 | % | ||||||||||||||
Net income as a percent of beg. SH equity | 6.6 | % | ||||||||||||||
Other Information of Interest: | ||||||||||||||||
Net written premiums | $ | 433,707 | $ | 118,903 | $ | — | $ | 552,610 | ||||||||
Catastrophe and storm losses | $ | 40,226 | $ | 17,025 | $ | — | $ | 57,251 | ||||||||
Large losses* | $ | 35,673 | $ | — | $ | — | $ | 35,673 | ||||||||
Reported favorable development experienced on prior years' reserves | $ | (8,110 | ) | $ | (12,682 | ) | $ | — | $ | (20,792 | ) | |||||
Favorable development that had no impact on earnings | 2,151 | — | — | 2,151 | ||||||||||||
Implied favorable development that had an impact on earnings | $ | (5,959 | ) | $ | (12,682 | ) | $ | — | $ | (18,641 | ) | |||||
GAAP Ratios: | ||||||||||||||||
Loss and settlement expense ratio | 70.6 | % | 73.9 | % | — | 71.3 | % | |||||||||
Acquisition expense ratio | 32.3 | % | 24.3 | % | — | 30.6 | % | |||||||||
Combined ratio | 102.9 | % | 98.2 | % | — | 101.9 | % | |||||||||
*Large losses are defined as losses greater than $500 for the EMC Insurance Companies pool, excluding catastrophe and storm losses. | ||||||||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
December 31, 2015 | December 31, 2014 | |||||||
($ in thousands, except share and per share amounts) | (Unaudited) | |||||||
ASSETS | ||||||||
Investments: | ||||||||
Fixed maturity securities available-for-sale, at fair value (amortized cost $1,130,217 and $1,080,006) | $ | 1,161,025 | $ | 1,127,499 | ||||
Equity securities available-for-sale, at fair value (cost $144,176 and $123,972) | 206,243 | 197,036 | ||||||
Other long-term investments | 9,930 | 6,227 | ||||||
Short-term investments | 38,599 | 53,262 | ||||||
Total investments | 1,415,797 | 1,384,024 | ||||||
Cash | 224 | 383 | ||||||
Reinsurance receivables due from affiliate | 24,236 | 28,603 | ||||||
Prepaid reinsurance premiums due from affiliate | 6,563 | 8,865 | ||||||
Deferred policy acquisition costs (affiliated $40,535 and $38,930) | 40,720 | 39,343 | ||||||
Prepaid pension and postretirement benefits due from affiliate | 12,133 | 17,360 | ||||||
Accrued investment income | 10,789 | 10,295 | ||||||
Amounts receivable under reverse repurchase agreements | 16,850 | — | ||||||
Accounts receivable | 804 | 1,767 | ||||||
Income taxes recoverable | 1,735 | — | ||||||
Goodwill | 942 | 942 | ||||||
Other assets (affiliated $4,595 and $4,900) | 5,162 | 6,238 | ||||||
Total assets | $ | 1,535,955 | $ | 1,497,820 | ||||
LIABILITIES | ||||||||
Losses and settlement expenses (affiliated $671,169 and $650,652) | $ | 678,774 | $ | 661,309 | ||||
Unearned premiums (affiliated $238,637 and $230,460) | 239,435 | 232,093 | ||||||
Other policyholders' funds (all affiliated) | 8,721 | 10,153 | ||||||
Surplus notes payable to affiliate | 25,000 | 25,000 | ||||||
Amounts due affiliate to settle inter-company transaction balances | 6,408 | 8,559 | ||||||
Pension benefits payable to affiliate | 4,299 | 4,162 | ||||||
Income taxes payable | — | 3 | ||||||
Deferred income taxes | 19,029 | 28,654 | ||||||
Other liabilities (affiliated $28,598 and $23,941) | 29,351 | 25,001 | ||||||
Total liabilities | 1,011,017 | 994,934 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock, $1 par value, authorized 30,000,000 shares; issued and outstanding, 20,780,439 shares in 2015 and 20,344,409 shares in 2014 | 20,781 | 20,344 | ||||||
Additional paid-in capital | 108,747 | 99,891 | ||||||
Accumulated other comprehensive income | 58,433 | 81,662 | ||||||
Retained earnings | 336,977 | 300,989 | ||||||
Total stockholders' equity | 524,938 | 502,886 | ||||||
Total liabilities and stockholders' equity | $ | 1,535,955 | $ | 1,497,820 | ||||
LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS | ||||||||||||||||||||||
Three months ended December 31, | ||||||||||||||||||||||
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 | $ | 27,206 | $ | 24,291 | 89.3 | % | $ | 25,251 | $ | 22,974 | 91.0 | % | ||||||||||
Property | 26,785 | 12,154 | 45.4 | % | 25,399 | 9,553 | 37.6 | % | ||||||||||||||
Workers' compensation | 23,678 | 18,212 | 76.9 | % | 23,184 | 14,406 | 62.1 | % | ||||||||||||||
Liability | 23,713 | 13,731 | 57.9 | % | 22,508 | 14,912 | 66.3 | % | ||||||||||||||
Other | 2,035 | 60 | 3.0 | % | 1,944 | 1,008 | 51.8 | % | ||||||||||||||
Total commercial lines | 103,417 | 68,448 | 66.2 | % | 98,286 | 62,853 | 63.9 | % | ||||||||||||||
Personal lines: | ||||||||||||||||||||||
Automobile | 5,542 | 5,546 | 100.1 | % | 6,095 | 6,284 | 103.1 | % | ||||||||||||||
Homeowners | 5,026 | 2,421 | 48.2 | % | 5,284 | 1,827 | 34.6 | % | ||||||||||||||
Total personal lines | 10,568 | 7,967 | 75.4 | % | 11,379 | 8,111 | 71.3 | % | ||||||||||||||
Total property and casualty insurance | $ | 113,985 | $ | 76,415 | 67.0 | % | $ | 109,665 | $ | 70,964 | 64.7 | % | ||||||||||
Reinsurance | ||||||||||||||||||||||
Pro rata reinsurance: | ||||||||||||||||||||||
Multiline (primarily property) | $ | 2,505 | $ | 2,096 | 83.7 | % | $ | 3,521 | $ | 3,436 | 97.6 | % | ||||||||||
Property | 3,447 | 336 | 9.8 | % | (1,447 | ) | 533 | (36.9 | )% | |||||||||||||
Liability | 6,674 | 4,154 | 62.2 | % | 1,258 | 732 | 58.2 | % | ||||||||||||||
Marine | (5,359 | ) | (621 | ) | 11.6 | % | 3,209 | 6,355 | 198.0 | % | ||||||||||||
Total pro rata reinsurance | 7,267 | 5,965 | 82.1 | % | 6,541 | 11,056 | 169.0 | % | ||||||||||||||
Excess of loss reinsurance: | ||||||||||||||||||||||
Property | 16,991 | 9,084 | 53.5 | % | 16,449 | 2,082 | 12.7 | % | ||||||||||||||
Liability | 2,899 | (1,331 | ) | (45.9 | )% | 2,719 | (95 | ) | (3.5 | )% | ||||||||||||
Total excess of loss reinsurance | 19,890 | 7,753 | 39.0 | % | 19,168 | 1,987 | 10.4 | % | ||||||||||||||
Total reinsurance | $ | 27,157 | $ | 13,718 | 50.5 | % | $ | 25,709 | $ | 13,043 | 50.7 | % | ||||||||||
Consolidated | $ | 141,142 | $ | 90,133 | 63.9 | % | $ | 135,374 | $ | 84,007 | 62.1 | % | ||||||||||
LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS | ||||||||||||||||||||||
Year ended December 31, | ||||||||||||||||||||||
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 | $ | 105,904 | $ | 86,134 | 81.3 | % | $ | 96,908 | $ | 79,838 | 82.4 | % | ||||||||||
Property | 104,303 | 65,806 | 63.1 | % | 97,155 | 67,444 | 69.4 | % | ||||||||||||||
Workers' compensation | 92,828 | 57,803 | 62.3 | % | 88,356 | 52,537 | 59.5 | % | ||||||||||||||
Liability | 92,665 | 48,399 | 52.2 | % | 86,108 | 57,869 | 67.2 | % | ||||||||||||||
Other | 8,079 | 854 | 10.6 | % | 7,416 | 1,713 | 23.1 | % | ||||||||||||||
Total commercial lines | 403,779 | 258,996 | 64.1 | % | 375,943 | 259,401 | 69.0 | % | ||||||||||||||
Personal lines: | ||||||||||||||||||||||
Automobile | 22,855 | 17,559 | 76.8 | % | 25,094 | 20,757 | 82.7 | % | ||||||||||||||
Homeowners | 20,563 | 15,328 | 74.5 | % | 21,344 | 17,875 | 83.7 | % | ||||||||||||||
Total personal lines | 43,418 | 32,887 | 75.7 | % | 46,438 | 38,632 | 83.2 | % | ||||||||||||||
Total property and casualty insurance | $ | 447,197 | $ | 291,883 | 65.3 | % | $ | 422,381 | $ | 298,033 | 70.6 | % | ||||||||||
Reinsurance | ||||||||||||||||||||||
Pro rata reinsurance: | ||||||||||||||||||||||
Multiline (primarily property) | $ | 7,089 | $ | 3,276 | 46.2 | % | $ | 8,552 | $ | 7,006 | 81.9 | % | ||||||||||
Property | 15,324 | 13,487 | 88.0 | % | 8,482 | 10,645 | 125.5 | % | ||||||||||||||
Liability | 20,629 | 12,855 | 62.3 | % | 9,919 | 5,715 | 57.6 | % | ||||||||||||||
Marine | 4,379 | (185 | ) | (4.2 | )% | 14,930 | 13,055 | 87.4 | % | |||||||||||||
Total pro rata reinsurance | 47,421 | 29,433 | 62.1 | % | 41,883 | 36,421 | 87.0 | % | ||||||||||||||
Excess of loss reinsurance: | ||||||||||||||||||||||
Property | 63,416 | 41,125 | 64.8 | % | 64,956 | 49,322 | 75.9 | % | ||||||||||||||
Liability | 12,232 | 8,295 | 67.8 | % | 11,502 | 1,698 | 14.8 | % | ||||||||||||||
Total excess of loss reinsurance | 75,648 | 49,420 | 65.3 | % | 76,458 | 51,020 | 66.7 | % | ||||||||||||||
Total reinsurance | $ | 123,069 | $ | 78,853 | 64.1 | % | $ | 118,341 | $ | 87,441 | 73.9 | % | ||||||||||
Consolidated | $ | 570,266 | $ | 370,736 | 65.0 | % | $ | 540,722 | $ | 385,474 | 71.3 | % | ||||||||||
NET WRITTEN PREMIUMS | ||||||||||||||||
Three months ended December 31, 2015 | Three months ended December 31, 2014 | |||||||||||||||
($ in thousands) | Written premiums | Percent of net written premiums | Written premiums | Percent of net written premiums | Change in net written premiums | |||||||||||
Property and casualty insurance | ||||||||||||||||
Commercial lines: | ||||||||||||||||
Automobile | $ | 21,735 | 18.5 | % | $ | 21,423 | 18.6 | % | 1.5% | |||||||
Property | 20,818 | 17.7 | % | 19,924 | 17.3 | % | 4.5% | |||||||||
Workers' compensation | 17,717 | 15.0 | % | 16,316 | 14.1 | % | 8.6% | |||||||||
Liability | 19,095 | 16.2 | % | 18,274 | 15.8 | % | 4.5% | |||||||||
Other | 1,619 | 1.4 | % | 1,684 | 1.5 | % | (3.9)% | |||||||||
Total commercial lines | 80,984 | 68.8 | % | 77,621 | 67.3 | % | 4.3% | |||||||||
Personal lines: | ||||||||||||||||
Automobile | 4,825 | 4.1 | % | 5,366 | 4.6 | % | (10.1)% | |||||||||
Homeowners | 4,296 | 3.7 | % | 4,738 | 4.1 | % | (9.3)% | |||||||||
Total personal lines | 9,121 | 7.8 | % | 10,104 | 8.7 | % | (9.7)% | |||||||||
Total property and casualty insurance | $ | 90,105 | 76.6 | % | $ | 87,725 | 76.0 | % | 2.7% | |||||||
Reinsurance | ||||||||||||||||
Pro rata reinsurance: | ||||||||||||||||
Multiline (primarily property) | $ | 2,416 | 2.1 | % | $ | 4,253 | 3.7 | % | (43.2)% | |||||||
Property | 4,062 | 3.4 | % | (833 | ) | (0.7 | )% | (587.8)% | ||||||||
Liability | 7,229 | 6.1 | % | 2,257 | 1.9 | % | 220.3% | |||||||||
Marine | (5,287 | ) | (4.5 | )% | 3,760 | 3.3 | % | (240.6)% | ||||||||
Total pro rata reinsurance | 8,420 | 7.1 | % | 9,437 | 8.2 | % | (10.8)% | |||||||||
Excess of loss reinsurance: | ||||||||||||||||
Property | 16,186 | 13.8 | % | 15,426 | 13.4 | % | 4.9% | |||||||||
Liability | 2,984 | 2.5 | % | 2,764 | 2.4 | % | 7.9% | |||||||||
Total excess of loss reinsurance | 19,170 | 16.3 | % | 18,190 | 15.8 | % | 5.4% | |||||||||
Total reinsurance | $ | 27,590 | 23.4 | % | $ | 27,627 | 24.0 | % | (0.1)% | |||||||
Consolidated | $ | 117,695 | 100.0 | % | $ | 115,352 | 100.0 | % | 2.0% | |||||||
NET WRITTEN PREMIUMS | ||||||||||||||||
Year ended December 31, 2015 | Year ended December 31, 2014 | |||||||||||||||
($ in thousands) | Written premiums | Percent of net written premiums | Written premiums | Percent of net written premiums | Change in net written premiums | |||||||||||
Property and casualty insurance | ||||||||||||||||
Commercial lines: | ||||||||||||||||
Automobile | $ | 108,682 | 18.7 | % | $ | 101,758 | 18.4 | % | 6.8% | |||||||
Property | 106,671 | 18.4 | % | 100,916 | 18.3 | % | 5.7% | |||||||||
Workers' compensation | 94,629 | 16.4 | % | 90,019 | 16.3 | % | 5.1% | |||||||||
Liability | 94,860 | 16.4 | % | 88,640 | 16.0 | % | 7.0% | |||||||||
Other | 8,032 | 1.4 | % | 7,591 | 1.4 | % | 5.8% | |||||||||
Total commercial lines | 412,874 | 71.3 | % | 388,924 | 70.4 | % | 6.2% | |||||||||
Personal lines: | ||||||||||||||||
Automobile | 21,769 | 3.8 | % | 23,949 | 4.3 | % | (9.1)% | |||||||||
Homeowners | 19,791 | 3.4 | % | 20,834 | 3.8 | % | (5.0)% | |||||||||
Total personal lines | 41,560 | 7.2 | % | 44,783 | 8.1 | % | (7.2)% | |||||||||
Total property and casualty insurance | $ | 454,434 | 78.5 | % | $ | 433,707 | 78.5 | % | 4.8% | |||||||
Reinsurance | ||||||||||||||||
Pro rata reinsurance: | ||||||||||||||||
Multiline (primarily property) | $ | 5,610 | 1.0 | % | $ | 9,463 | 1.7 | % | (40.7)% | |||||||
Property | 15,423 | 2.6 | % | 7,531 | 1.4 | % | 104.8% | |||||||||
Liability | 26,500 | 4.6 | % | 12,055 | 2.2 | % | 119.8% | |||||||||
Marine | 1,119 | 0.2 | % | 13,528 | 2.4 | % | (91.7)% | |||||||||
Total pro rata reinsurance | 48,652 | 8.4 | % | 42,577 | 7.7 | % | 14.3% | |||||||||
Excess of loss reinsurance: | ||||||||||||||||
Property | 63,542 | 11.0 | % | 64,768 | 11.7 | % | (1.9)% | |||||||||
Liability | 12,310 | 2.1 | % | 11,558 | 2.1 | % | 6.5% | |||||||||
Total excess of loss reinsurance | 75,852 | 13.1 | % | 76,326 | 13.8 | % | (0.6)% | |||||||||
Total reinsurance | $ | 124,504 | 21.5 | % | $ | 118,903 | 21.5 | % | 4.7% | |||||||
Consolidated | $ | 578,938 | 100.0 | % | $ | 552,610 | 100.0 | % | 4.8% | |||||||