EXHIBIT 99
NEWS RELEASE
EMC Insurance Group Inc. Reports 2017 Second Quarter and Six Month Results
Second Quarter Ended June 30, 2017
Net Income Per Share - $0.26
Non-GAAP Operating Income Per Share* - $0.16
Net Realized Investment Gains Per Share - $0.10
Catastrophe and Storm Losses Per Share - $0.46
GAAP Combined Ratio - 104.1 percent
Six Months Ended June 30, 2017
Net Income Per Share - $0.58
Non-GAAP Operating Income Per Share* - $0.49
Net Realized Investment Gains Per Share - $0.09
Catastrophe and Storm Losses Per Share - $0.87
GAAP Combined Ratio - 102.3 percent
*Denotes financial measure not calculated in accordance with generally accepted accounting principles (non-GAAP). See “Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures” for additional information.
Reaffirming 2017 non-GAAP operating income guidance* of $1.35 to $1.55 per share
DES MOINES, Iowa (August 8, 2017) - EMC Insurance Group Inc. (NASDAQ:EMCI) (the “Company”), today reported net income of $5.5 million ($0.26 per share) for the second quarter ended June 30, 2017, compared to $6.1 million ($0.29 per share) for the second quarter of 2016. This decline is attributed to adverse development experienced on prior years’ reserves (compared to favorable development for the second quarter of 2016), which more than offset a decline in catastrophe and storm losses this quarter.
For the six months ended June 30, 2017, the Company reported net income of $12.3 million ($0.58 per share) and a loss and settlement expense ratio of 68.3 percent, compared to net income of $20.8 million ($0.99 per share) and a loss and settlement expense ratio of 64.6 percent for the same period in 2016. This decline reflects an increase in the property and casualty insurance segment’s underlying loss and settlement expense ratio*, which excludes the impact of catastrophe and storm losses and development on prior years’ reserves. This ratio was 8.8 percentage points higher in the first quarter of 2017 than the first quarter of 2016, which resulted in a 3.7 percentage point increase for the first six months of 2017. This increase does not reflect a decline in the performance of the underlying book of business. Rather, the increase is attributed to differences in how bulk reserves are calculated and allocated to the various accident years under the new and prior bulk reserving methodologies. As a result, the comparison of the 2017 ratios to the 2016 ratios is not meaningful.
“The property and casualty insurance segment’s underlying loss and settlement expense ratio has been relatively consistent since the implementation of the new bulk reserving methodology in the third quarter of 2016,” stated President and Chief Executive Officer Bruce G. Kelley. “In fact, the ratio declined in the second quarter of this year, despite the softening market.”
“Before factoring in recoveries under the intercompany reinsurance treaty, the property and casualty
insurance segment experienced a near-record level of catastrophe and storm losses during the second quarter amid an active storm season in the Midwest,” continued Kelley. “This comes on the heels of a record amount of catastrophe and storm losses incurred in the first quarter. Fortunately, the intercompany reinsurance treaty helped reduce the volatility of our second quarter results by capping these losses at $20 million for the first half of the year.”
Non-GAAP operating income, which excludes realized investment gains/losses from net income, totaled $3.3 million ($0.16 per share) for the second quarter of 2017, compared to $5.1 million ($0.24 per share) for the second quarter of 2016. For the six months ended June 30, 2017, the Company reported non-GAAP operating income of $10.5 million ($0.49 per share), compared to $20.4 million ($0.98 per share) for the same period in 2016.
The Company’s GAAP combined ratio was 104.1 percent in the second quarter of 2017, compared to 103.4 percent in the second quarter of 2016. For the first six months of 2017, the Company’s GAAP combined ratio was 102.3 percent, compared to 98.1 percent in 2016.
Premiums earned increased 2.3 percent and 1.8 percent for the second quarter and first six months of 2017, respectively. In the property and casualty insurance segment, premiums earned increased 4.0 percent and 3.4 percent for the second quarter and first six months of 2017, respectively. The majority of these increases are attributed to growth in insured exposures, an increase in retained policies in the commercial lines of business and small rate level increases on commercial lines renewal business. In the reinsurance segment, premiums earned decreased 3.0 percent and 3.7 percent for the second quarter and first six months of 2017, respectively. These decreases, which occurred in the pro rata line of business and stem from the Mutual Reinsurance Bureau underwriting association’s withdrawal from non-standard automobile business, were partially offset by increases in the excess of loss line of business.
Catastrophe and storm losses totaled $15.1 million ($0.46 per share after tax) in the second quarter of 2017, compared to $22.3 million ($0.69 per share after tax) in the second quarter of 2016. The Company experienced a record level of catastrophe and storm losses in the first quarter of 2017. As a result, the property and casualty insurance segment was further into the $20 million retention amount under its January 1 through June 30 intercompany excess of loss reinsurance treaty with Employers Mutual than it was in 2016 after completion of the first quarter. Therefore, second quarter catastrophe and storm losses in the property and casualty insurance segment were capped at $10.2 million, with $16.0 million of catastrophe and storm losses ceded to Employers Mutual. Because of the cap, second quarter catastrophe and storm losses accounted for only 10.1 percentage points of the combined ratio, which is below the Company’s most recent 10-year average of 18.4 percentage points for this period, and the 15.2 percentage points experienced in the second quarter of 2016. Catastrophe and storm losses totaled $28.5 million for the first six months of 2017 and 2016. On a segment basis, catastrophe and storm losses amounted to $10.2 million ($0.31 per share after tax) and $20.0 million ($0.61 per share after tax) in the property and casualty insurance segment, and $4.9 million ($0.15 per share after tax) and $8.5 million ($0.26 per share after tax) in the reinsurance segment for the three and six months ended June 30, 2017, respectively.
The loss and settlement expense ratio increased to 71.6 percent for the second quarter of 2017, from 70.2 percent for the same period in 2016. This is attributed to an increase in the reinsurance segment’s loss and settlement expense ratio caused by adverse development experienced on prior years’ reserves during the second quarter of 2017 compared favorable development during the same period in 2016, as well as a decline in premiums earned. This increase was partially offset by a decline in the property and casualty insurance segment’s loss and settlement expense ratio, which is attributed to an increase in premiums earned as losses and settlement expenses remained relatively consistent. The loss and settlement expense ratio increased to 69.1 percent for the first six months of 2017, from 65.0 percent for the same period in 2016.
The Company reported $1.7 million ($0.05 per share after tax) of adverse development on prior years’
reserves during the second quarter of 2017, compared to $8.1 million ($0.25 per share after tax) of favorable development in the second quarter of 2016. For the first six months of 2017, favorable development totaled $13.2 million ($0.40 per share after tax), compared to $15.9 million ($0.49 per share after tax) in 2016. Included in the development amounts reported for the second quarter and first six months of 2017 are $1.8 million and $4.5 million, respectively, of adverse development in the property and casualty insurance segment stemming from the settlement of claims for past and future legal fees and losses on a multi-year asbestos exposure associated with a former insured.
Net investment income declined 8.3 percent and 9.1 percent to $11.2 million and $22.2 million for the second quarter and first six months of 2017, from $12.2 million and $24.4 million for the same periods in 2016, respectively. These decreases primarily reflect an increase in the amortization of interest-only fixed maturity securities due to prepayments of the underlying collateral, as well as a decline in dividend income.
Net realized investment gains totaled $3.4 million ($0.10 per share after tax) and $2.8 million ($0.09 per share after tax) for the second quarter and first six months of 2017, compared to $1.6 million ($0.05 per share after tax) and $549,000 ($0.01 per share after tax) for the same periods in 2016, respectively. Included in the net realized investment gains reported for the second quarter and first six months of 2017 are $1.3 million and $3.6 million, respectively, of net 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), compared to $1.4 million and $3.3 million, respectively, for the same periods in 2016.
At June 30, 2017, consolidated assets totaled $1.6 billion, including $1.5 billion in the investment portfolio, and stockholders’ equity totaled $572.5 million, an increase of 3.5 percent from December 31, 2016. Book value of the Company’s common stock increased 3.0 percent to $26.84 per share from $26.07 per share at December 31, 2016. Book value excluding accumulated other comprehensive income was relatively flat at $24.06 per share at June 30, 2017, compared to $23.90 per share at December 31, 2016.
Based on results for the first six month of 2017 and management’s expectations for the remainder of the year, management is reaffirming its 2017 non-GAAP operating income guidance range of $1.35 to $1.55 per share. This guidance is based on a projected GAAP combined ratio of 100.5 percent for the year, with nominal changes to the other assumptions utilized in the projection.
The Company will hold an earnings conference call at noon Eastern time on Tuesday, August 8, 2017 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company’s results for the second quarter, as well as its expectations for the remainder of 2017. Dial-in information for the call is toll-free 1-844-850-0550 (International: 1-412-317-5180).
Members of the news media, investors and the general public are invited to access a live webcast of the earnings conference call via the Company’s investor relations page at www.emcins.com/ir. The webcast will be archived and available for replay for approximately 90 days following the earnings conference call. A transcript will be available on the Company’s website shortly after the completion of the earnings conference call.
About EMCI
EMC Insurance Group Inc. is a publicly held insurance holding company with operations in property and casualty insurance and reinsurance, which was formed in 1974 and became publicly held in 1982. The Company’s common stock trades on the Global Select Market tier of the NASDAQ Stock Market under the symbol EMCI. Additional information regarding the Company may be found at 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 all information currently available into account. These beliefs, assumptions and expectations can change as the result of many possible events or factors, not all of which are known to management. If a change occurs, the Company’s business, financial condition, liquidity, results of operations, plans and objectives may vary materially from those expressed in the forward-looking statements.
The risks and uncertainties that may affect the actual results of the Company include, but are not limited to, the following:
• | catastrophic events and the occurrence of significant severe weather conditions; |
• | the adequacy of loss and settlement expense reserves; |
• | state and federal legislation and regulations; |
• | changes in the property and casualty insurance industry, interest rates or the performance of financial markets and the general economy; |
• | rating agency actions; |
• | “other-than-temporary” investment impairment losses; and |
• | other risks and uncertainties inherent to the Company’s business, including those discussed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K. |
Management intends to identify forward-looking statements when using the words “believe”, “expect”, “anticipate”, “estimate”, “project”, “may”, “intend”, “likely” or similar expressions. Undue reliance should not be placed on these forward-looking statements. The Company disclaims any obligation to update such statements or to announce publicly the results of any revisions that it may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures
The Company prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Management uses certain non-GAAP financial measures for evaluating the Company’s performance. These measures are considered non-GAAP financial measures under applicable Securities and Exchange Commission (SEC) rules because they are not displayed as separate line items in the consolidated financial statements or are not required to be disclosed in the notes to financial statements or, in some cases, include or exclude certain items not ordinarily included or excluded in the most comparable GAAP financial measure. The Company’s calculation of non-GAAP financial measures may differ from similar measures used by other companies, so investors should exercise caution when comparing the Company’s non-GAAP financial measures to the measures used by other companies. The following discussion includes reconciliations of the most directly comparable GAAP financial measures to the non-GAAP financial measures referenced in this report.
Non-GAAP operating income: One of the primary non-GAAP financial measures utilized by management for evaluating the Company’s performance is operating income. Non-GAAP operating income is calculated by excluding net realized investment gains/losses (defined as realized investment gains and losses after applicable federal and state income taxes) from net income. While realized investment gains/losses are integral to the Company’s insurance operations over the long term, the decision to realize investment gains or losses in any particular period is subject to changing market conditions and management’s discretion, and is independent of the Company’s insurance operations.
Management’s operating income guidance is also considered a non-GAAP financial measure. Net
realized investment gains/losses resulting from the sale of assets are not predictable due to changing market conditions and the discretionary nature of such events. As a result, management is unable to accurately project the Company’s annual net income and therefore utilizes non-GAAP operating income in the Company’s projected annual guidance.
Management believes non-GAAP operating income is useful to investors because it illustrates the performance of the Company’s normal, ongoing insurance operations, which is important in understanding and evaluating the Company’s financial condition and results of operations. While this measure is consistent with measures utilized by investors and analysts to evaluate performance, it is not intended as a substitute for the GAAP financial measure of net income.
RECONCILIATION OF NET INCOME TO NON-GAAP OPERATING INCOME | ||||||||||||||||
($ in thousands) | ||||||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 5,504 | $ | 6,128 | $ | 12,308 | $ | 20,782 | ||||||||
Realized investment gains | (3,387 | ) | (1,634 | ) | (2,760 | ) | (549 | ) | ||||||||
Income tax expense | 1,185 | 572 | 966 | 192 | ||||||||||||
Net realized investment gains | (2,202 | ) | (1,062 | ) | (1,794 | ) | (357 | ) | ||||||||
Non-GAAP operating income | $ | 3,302 | $ | 5,066 | $ | 10,514 | $ | 20,425 | ||||||||
RECONCILIATION OF NET INCOME PER SHARE TO NON-GAAP OPERATING INCOME PER SHARE | ||||||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 0.26 | $ | 0.29 | $ | 0.58 | $ | 0.99 | ||||||||
Realized investment gains | (0.16 | ) | (0.08 | ) | (0.13 | ) | (0.02 | ) | ||||||||
Income tax expense | 0.06 | 0.03 | 0.04 | 0.01 | ||||||||||||
Net realized investment gains | (0.10 | ) | (0.05 | ) | (0.09 | ) | (0.01 | ) | ||||||||
Non-GAAP operating income | $ | 0.16 | $ | 0.24 | $ | 0.49 | $ | 0.98 | ||||||||
Property and casualty insurance segment’s underlying loss and settlement expense ratio: The loss and settlement expense ratio is the ratio (expressed as a percentage) of losses and settlement expenses incurred to premiums earned, which management uses as a measure of underwriting profitability of the Company’s property and casualty insurance business. The underlying loss and settlement expense ratio is a non-GAAP financial measure, which represents the loss and settlement expense ratio, excluding the impact of catastrophe and storm losses and development on prior years’ reserves. Management uses this ratio as an indicator of the property and casualty insurance segment’s underwriting discipline and performance for the current accident year. Management believes this ratio is useful for investors to understand the property and casualty insurance segment’s periodic earnings and variability of earnings caused by the unpredictable nature (i.e., the timing and amount) of catastrophe and storm losses and reported development on prior years’ reserves. While this measure is consistent with measures utilized by investors and analysts to evaluate performance, it is not intended as a substitute for the GAAP financial measure of loss and settlement expense ratio.
RECONCILIATION OF THE PROPERTY AND CASUALTY INSURANCE SEGMENT'S LOSS AND SETTLEMENT EXPENSE RATIO TO THE UNDERLYING LOSS AND SETTLEMENT EXPENSE RATIO | ||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Loss and settlement expense ratio | 70.2 | % | 72.9 | % | 68.3 | % | 64.6 | % | ||||
Catastrophe and storm losses | (8.8 | )% | (14.8 | )% | (8.7 | )% | (9.0 | )% | ||||
Reported favorable development experienced on prior years' reserves | 0.7 | % | 5.4 | % | 4.1 | % | 4.4 | % | ||||
Underlying loss and settlement expense ratio | 62.1 | % | 63.5 | % | 63.7 | % | 60.0 | % | ||||
Industry Metric
Premiums written: Premiums written is an industry metric used in statutory accounting to quantify the amount of insurance sold during a specified reporting period. Management analyzes trends in premiums written to assess business efforts, and uses it as a financial measure for goal setting and determining a portion of employee and senior management awards and compensation. Premiums earned, used in both statutory and GAAP accounting, is the recognition of the portion of premiums written directly related to the expired portion of an insurance policy for a given reporting period. The unexpired portion of premiums written is referred to as unearned premiums, and represents the portion of premiums written that would be returned to a policyholder upon cancellation of a policy.
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED | ||||||||||||||||
($ in thousands, except share and per share amounts) | ||||||||||||||||
Quarter ended June 30, 2017 | Property and Casualty Insurance | Reinsurance | Parent Company | Consolidated | ||||||||||||
Revenues: | ||||||||||||||||
Premiums earned | $ | 116,187 | $ | 33,650 | $ | — | $ | 149,837 | ||||||||
Investment income, net | 7,958 | 3,201 | 12 | 11,171 | ||||||||||||
Other income (loss) | 283 | (528 | ) | — | (245 | ) | ||||||||||
124,428 | 36,323 | 12 | 160,763 | |||||||||||||
Losses and expenses: | ||||||||||||||||
Losses and settlement expenses | 81,508 | 25,720 | — | 107,228 | ||||||||||||
Dividends to policyholders | 2,416 | — | — | 2,416 | ||||||||||||
Amortization of deferred policy acquisition costs | 19,618 | 7,915 | — | 27,533 | ||||||||||||
Other underwriting expenses | 18,255 | 602 | — | 18,857 | ||||||||||||
Interest expense | 85 | — | — | 85 | ||||||||||||
Other expenses | 231 | — | 571 | 802 | ||||||||||||
122,113 | 34,237 | 571 | 156,921 | |||||||||||||
Operating income (loss) before income taxes | 2,315 | 2,086 | (559 | ) | 3,842 | |||||||||||
Realized investment gains (losses) | 3,738 | (351 | ) | — | 3,387 | |||||||||||
Income (loss) before income taxes | 6,053 | 1,735 | (559 | ) | 7,229 | |||||||||||
Income tax expense (benefit): | ||||||||||||||||
Current | 1,646 | 684 | (261 | ) | 2,069 | |||||||||||
Deferred | (88 | ) | (322 | ) | 66 | (344 | ) | |||||||||
1,558 | 362 | (195 | ) | 1,725 | ||||||||||||
Net income (loss) | $ | 4,495 | $ | 1,373 | $ | (364 | ) | $ | 5,504 | |||||||
Average shares outstanding | 21,276,627 | |||||||||||||||
Per Share Data: | ||||||||||||||||
Net income (loss) per share - basic and diluted | $ | 0.21 | $ | 0.06 | $ | (0.01 | ) | $ | 0.26 | |||||||
Catastrophe and storm losses (after tax) | $ | 0.31 | $ | 0.15 | $ | — | $ | 0.46 | ||||||||
Large losses1 (after tax) | N/A | N/A | N/A | N/A | ||||||||||||
Reported (adverse) favorable development experienced on prior years' reserves (after tax) | $ | 0.03 | $ | (0.08 | ) | $ | — | $ | (0.05 | ) | ||||||
Dividends per share | $ | 0.21 | ||||||||||||||
Other Information of Interest: | ||||||||||||||||
Premiums written | $ | 126,591 | $ | 28,554 | $ | — | $ | 155,145 | ||||||||
Catastrophe and storm losses | $ | 10,214 | $ | 4,909 | $ | — | $ | 15,123 | ||||||||
Large losses1 | N/A | N/A | N/A | N/A | ||||||||||||
Reported adverse (favorable) development experienced on prior years' reserves | $ | (850 | ) | $ | 2,557 | $ | — | $ | 1,707 | |||||||
GAAP Ratios: | ||||||||||||||||
Loss and settlement expense ratio | 70.2 | % | 76.4 | % | — | 71.6 | % | |||||||||
Acquisition expense ratio | 34.6 | % | 25.3 | % | — | 32.5 | % | |||||||||
Combined ratio | 104.8 | % | 101.7 | % | — | 104.1 | % | |||||||||
1 Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. Under the property and casualty insurance segment's prior bulk reserving methodology, large losses had a direct impact on earnings. Under the new bulk reserving methodology implemented during the third quarter of 2016, large losses are taken into consideration when establishing the current accident quarter/year ultimate estimates of losses, but there is no longer a direct relationship between large losses and earnings. As a result, it is no longer meaningful to report large losses separately. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED | ||||||||||||||||
($ in thousands, except share and per share amounts) | ||||||||||||||||
Quarter ended June 30, 2016 | Property and Casualty Insurance | Reinsurance | Parent Company | Consolidated | ||||||||||||
Revenues: | ||||||||||||||||
Premiums earned | $ | 111,771 | $ | 34,675 | $ | — | $ | 146,446 | ||||||||
Investment income, net | 8,568 | 3,608 | 3 | 12,179 | ||||||||||||
Other income (loss) | 162 | (85 | ) | — | 77 | |||||||||||
120,501 | 38,198 | 3 | 158,702 | |||||||||||||
Losses and expenses: | ||||||||||||||||
Losses and settlement expenses | 81,466 | 21,354 | — | 102,820 | ||||||||||||
Dividends to policyholders | 3,495 | — | — | 3,495 | ||||||||||||
Amortization of deferred policy acquisition costs | 19,501 | 8,066 | — | 27,567 | ||||||||||||
Other underwriting expenses | 16,681 | 876 | — | 17,557 | ||||||||||||
Interest expense | 85 | — | — | 85 | ||||||||||||
Other expenses | 211 | — | 514 | 725 | ||||||||||||
121,439 | 30,296 | 514 | 152,249 | |||||||||||||
Operating income (loss) before income taxes | (938 | ) | 7,902 | (511 | ) | 6,453 | ||||||||||
Realized investment gains | 1,018 | 616 | — | 1,634 | ||||||||||||
Income (loss) before income taxes | 80 | 8,518 | (511 | ) | 8,087 | |||||||||||
Income tax expense (benefit): | ||||||||||||||||
Current | (261 | ) | 2,905 | (270 | ) | 2,374 | ||||||||||
Deferred | (327 | ) | (178 | ) | 90 | (415 | ) | |||||||||
(588 | ) | 2,727 | (180 | ) | 1,959 | |||||||||||
Net income (loss) | $ | 668 | $ | 5,791 | $ | (331 | ) | $ | 6,128 | |||||||
Average shares outstanding | 20,989,844 | |||||||||||||||
Per Share Data: | ||||||||||||||||
Net income (loss) per share - basic and diluted | $ | 0.03 | $ | 0.27 | $ | (0.01 | ) | $ | 0.29 | |||||||
Catastrophe and storm losses (after tax) | $ | 0.51 | $ | 0.18 | $ | — | $ | 0.69 | ||||||||
Large losses1 (after tax) | $ | 0.31 | $ | — | $ | — | $ | 0.31 | ||||||||
Reported favorable development experienced on prior years' reserves (after tax) | $ | 0.18 | $ | 0.07 | $ | — | $ | 0.25 | ||||||||
Dividends per share | $ | 0.19 | ||||||||||||||
Other Information of Interest: | ||||||||||||||||
Premiums written | $ | 120,533 | $ | 30,406 | $ | — | $ | 150,939 | ||||||||
Catastrophe and storm losses | $ | 16,576 | $ | 5,741 | $ | — | $ | 22,317 | ||||||||
Large losses1 | $ | 10,000 | $ | — | $ | — | $ | 10,000 | ||||||||
Reported favorable development experienced on prior years' reserves | $ | (5,989 | ) | $ | (2,130 | ) | $ | — | $ | (8,119 | ) | |||||
GAAP Ratios: | ||||||||||||||||
Loss and settlement expense ratio | 72.9 | % | 61.6 | % | — | 70.2 | % | |||||||||
Acquisition expense ratio | 35.5 | % | 25.8 | % | — | 33.2 | % | |||||||||
Combined ratio | 108.4 | % | 87.4 | % | — | 103.4 | % | |||||||||
1 Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED | ||||||||||||||||
($ in thousands, except share and per share amounts) | ||||||||||||||||
Six months ended June 30, 2017 | Property and Casualty Insurance | Reinsurance | Parent Company | Consolidated | ||||||||||||
Revenues: | ||||||||||||||||
Premiums earned | $ | 229,835 | $ | 64,489 | $ | — | $ | 294,324 | ||||||||
Investment income, net | 15,973 | 6,184 | 21 | 22,178 | ||||||||||||
Other income (loss) | 444 | (1,099 | ) | — | (655 | ) | ||||||||||
246,252 | 69,574 | 21 | 315,847 | |||||||||||||
Losses and expenses: | ||||||||||||||||
Losses and settlement expenses | 157,028 | 46,485 | — | 203,513 | ||||||||||||
Dividends to policyholders | 5,138 | — | — | 5,138 | ||||||||||||
Amortization of deferred policy acquisition costs | 39,695 | 14,649 | — | 54,344 | ||||||||||||
Other underwriting expenses | 37,185 | 1,026 | — | 38,211 | ||||||||||||
Interest expense | 169 | — | — | 169 | ||||||||||||
Other expenses | 410 | — | 1,153 | 1,563 | ||||||||||||
239,625 | 62,160 | 1,153 | 302,938 | |||||||||||||
Operating income (loss) before income taxes | 6,627 | 7,414 | (1,132 | ) | 12,909 | |||||||||||
Realized investment gains (losses) | 3,141 | (381 | ) | — | 2,760 | |||||||||||
Income (loss) before income taxes | 9,768 | 7,033 | (1,132 | ) | 15,669 | |||||||||||
Income tax expense (benefit): | ||||||||||||||||
Current | 2,137 | 2,429 | (451 | ) | 4,115 | |||||||||||
Deferred | (258 | ) | (551 | ) | 55 | (754 | ) | |||||||||
1,879 | 1,878 | (396 | ) | 3,361 | ||||||||||||
Net income (loss) | $ | 7,889 | $ | 5,155 | $ | (736 | ) | $ | 12,308 | |||||||
Average shares outstanding | 21,265,529 | |||||||||||||||
Per Share Data: | ||||||||||||||||
Net income (loss) per share - basic and diluted | $ | 0.37 | $ | 0.24 | $ | (0.03 | ) | $ | 0.58 | |||||||
Catastrophe and storm losses (after tax) | $ | 0.61 | $ | 0.26 | $ | — | $ | 0.87 | ||||||||
Large losses1 (after tax) | N/A | N/A | N/A | N/A | ||||||||||||
Reported favorable development experienced on prior years' reserves (after tax) | $ | 0.28 | $ | 0.12 | $ | — | $ | 0.40 | ||||||||
Dividends per share | $ | 0.42 | ||||||||||||||
Book value per share | $ | 26.84 | ||||||||||||||
Effective tax rate | 21.4 | % | ||||||||||||||
Annualized net income as a percent of beg. SH equity | 4.5 | % | ||||||||||||||
Other Information of Interest: | ||||||||||||||||
Premiums written | $ | 241,198 | $ | 58,822 | $ | — | $ | 300,020 | ||||||||
Catastrophe and storm losses | $ | 20,000 | $ | 8,497 | $ | — | $ | 28,497 | ||||||||
Large losses1 | N/A | N/A | N/A | N/A | ||||||||||||
Reported favorable development experienced on prior years' reserves | $ | (9,313 | ) | $ | (3,884 | ) | $ | — | $ | (13,197 | ) | |||||
GAAP Ratios: | ||||||||||||||||
Loss and settlement expense ratio | 68.3 | % | 72.1 | % | — | 69.1 | % | |||||||||
Acquisition expense ratio | 35.7 | % | 24.3 | % | — | 33.2 | % | |||||||||
Combined ratio | 104.0 | % | 96.4 | % | — | 102.3 | % | |||||||||
1 Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. Under the property and casualty insurance segment's prior bulk reserving methodology, large losses had a direct impact on earnings. Under the new bulk reserving methodology implemented during the third quarter of 2016, large losses are taken into consideration when establishing the current accident quarter/year ultimate estimates of losses, but there is no longer a direct relationship between large losses and earnings. As a result, it is no longer meaningful to report large losses separately. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED | ||||||||||||||||
($ in thousands, except share and per share amounts) | ||||||||||||||||
Six months ended June 30, 2016 | Property and Casualty Insurance | Reinsurance | Parent Company | Consolidated | ||||||||||||
Revenues: | ||||||||||||||||
Premiums earned | $ | 222,217 | $ | 66,966 | $ | — | $ | 289,183 | ||||||||
Investment income, net | 17,339 | 7,065 | 5 | 24,409 | ||||||||||||
Other income (loss) | 294 | (228 | ) | — | 66 | |||||||||||
239,850 | 73,803 | 5 | 313,658 | |||||||||||||
Losses and expenses: | ||||||||||||||||
Losses and settlement expenses | 143,564 | 44,365 | — | 187,929 | ||||||||||||
Dividends to policyholders | 7,348 | — | — | 7,348 | ||||||||||||
Amortization of deferred policy acquisition costs | 38,923 | 14,972 | — | 53,895 | ||||||||||||
Other underwriting expenses | 33,149 | 1,379 | — | 34,528 | ||||||||||||
Interest expense | 169 | — | — | 169 | ||||||||||||
Other expenses | 368 | — | 1,006 | 1,374 | ||||||||||||
223,521 | 60,716 | 1,006 | 285,243 | |||||||||||||
Operating income (loss) before income taxes | 16,329 | 13,087 | (1,001 | ) | 28,415 | |||||||||||
Realized investment gains | 172 | 377 | — | 549 | ||||||||||||
Income (loss) before income taxes | 16,501 | 13,464 | (1,001 | ) | 28,964 | |||||||||||
Income tax expense (benefit): | ||||||||||||||||
Current | 5,856 | 4,577 | (441 | ) | 9,992 | |||||||||||
Deferred | (1,514 | ) | (386 | ) | 90 | (1,810 | ) | |||||||||
4,342 | 4,191 | (351 | ) | 8,182 | ||||||||||||
Net income (loss) | $ | 12,159 | $ | 9,273 | $ | (650 | ) | $ | 20,782 | |||||||
Average shares outstanding | 20,916,022 | |||||||||||||||
Per Share Data: | ||||||||||||||||
Net income (loss) per share - basic and diluted | $ | 0.58 | $ | 0.44 | $ | (0.03 | ) | $ | 0.99 | |||||||
Catastrophe and storm losses (after tax) | $ | 0.63 | $ | 0.26 | $ | — | $ | 0.89 | ||||||||
Large losses1 (after tax) | $ | 0.41 | $ | — | $ | — | $ | 0.41 | ||||||||
Reported favorable development experienced on prior years' reserves (after tax) | $ | 0.30 | $ | 0.19 | $ | — | $ | 0.49 | ||||||||
Dividends per share | $ | 0.38 | ||||||||||||||
Book value per share | $ | 26.81 | ||||||||||||||
Effective tax rate | 28.2 | % | ||||||||||||||
Annualized net income as a percent of beg. SH equity | 7.9 | % | ||||||||||||||
Other Information of Interest: | ||||||||||||||||
Premiums written | $ | 231,800 | $ | 61,415 | $ | — | $ | 293,215 | ||||||||
Catastrophe and storm losses | $ | 20,000 | $ | 8,481 | $ | — | $ | 28,481 | ||||||||
Large losses1 | $ | 13,035 | $ | — | $ | — | $ | 13,035 | ||||||||
Reported favorable development experienced on prior years' reserves | $ | (9,787 | ) | $ | (6,084 | ) | $ | — | $ | (15,871 | ) | |||||
GAAP Ratios: | ||||||||||||||||
Loss and settlement expense ratio | 64.6 | % | 66.2 | % | — | 65.0 | % | |||||||||
Acquisition expense ratio | 35.7 | % | 24.5 | % | — | 33.1 | % | |||||||||
Combined ratio | 100.3 | % | 90.7 | % | — | 98.1 | % | |||||||||
1 Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. | ||||||||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
June 30, 2017 | December 31, 2016 | |||||||
($ in thousands, except share and per share amounts) | (Unaudited) | |||||||
ASSETS | ||||||||
Investments: | ||||||||
Fixed maturity securities available-for-sale, at fair value (amortized cost $1,200,799 and $1,189,525) | $ | 1,225,128 | $ | 1,199,699 | ||||
Equity securities available-for-sale, at fair value (cost $148,148 and $147,479) | 221,651 | 213,839 | ||||||
Other long-term investments | 14,929 | 12,506 | ||||||
Short-term investments | 36,135 | 39,670 | ||||||
Total investments | 1,497,843 | 1,465,714 | ||||||
Cash | 315 | 307 | ||||||
Reinsurance receivables due from affiliate | 21,163 | 21,326 | ||||||
Prepaid reinsurance premiums due from affiliate | 14,927 | 9,309 | ||||||
Deferred policy acquisition costs (affiliated $40,875 and $40,660) | 41,044 | 40,939 | ||||||
Prepaid pension and postretirement benefits due from affiliate | 11,709 | 12,314 | ||||||
Accrued investment income | 10,901 | 11,050 | ||||||
Amounts receivable under reverse repurchase agreements | 16,500 | 20,000 | ||||||
Accounts receivable | 1,892 | 2,076 | ||||||
Income taxes recoverable | 543 | — | ||||||
Goodwill | 942 | 942 | ||||||
Other assets (affiliated $3,504 and $4,632) | 4,618 | 4,836 | ||||||
Total assets | $ | 1,622,397 | $ | 1,588,813 | ||||
LIABILITIES | ||||||||
Losses and settlement expenses (affiliated $704,790 and $685,533) | $ | 709,491 | $ | 690,532 | ||||
Unearned premiums (affiliated $255,588 and $243,682) | 256,362 | 244,885 | ||||||
Other policyholders' funds (all affiliated) | 12,465 | 13,068 | ||||||
Surplus notes payable to affiliate | 25,000 | 25,000 | ||||||
Amounts due affiliate to settle inter-company transaction balances | 4,826 | 11,222 | ||||||
Pension benefits payable to affiliate | 3,751 | 4,097 | ||||||
Income taxes payable | — | 2,359 | ||||||
Deferred income taxes | 17,728 | 11,321 | ||||||
Other liabilities (affiliated $19,571 and $27,871) | 20,292 | 32,987 | ||||||
Total liabilities | 1,049,915 | 1,035,471 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock, $1 par value, authorized 30,000,000 shares; issued and outstanding, 21,327,147 shares in 2017 and 21,222,535 shares in 2016 | 21,327 | 21,223 | ||||||
Additional paid-in capital | 121,351 | 119,054 | ||||||
Accumulated other comprehensive income | 59,380 | 46,081 | ||||||
Retained earnings | 370,424 | 366,984 | ||||||
Total stockholders' equity | 572,482 | 553,342 | ||||||
Total liabilities and stockholders' equity | $ | 1,622,397 | $ | 1,588,813 | ||||
LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS | ||||||||||||||||||||||
Three months ended June 30, | ||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||
($ 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 | $ | 29,014 | $ | 23,744 | 81.8 | % | $ | 27,409 | $ | 24,684 | 90.1 | % | ||||||||||
Property | 26,069 | 17,949 | 68.9 | % | 25,073 | 23,078 | 92.0 | % | ||||||||||||||
Workers' compensation | 25,343 | 16,291 | 64.3 | % | 23,489 | 12,764 | 54.3 | % | ||||||||||||||
Other liability | 24,254 | 14,319 | 59.0 | % | 24,139 | 11,313 | 46.9 | % | ||||||||||||||
Other | 2,197 | 423 | 19.2 | % | 2,073 | 9 | 0.5 | % | ||||||||||||||
Total commercial lines | 106,877 | 72,726 | 68.0 | % | 102,183 | 71,848 | 70.3 | % | ||||||||||||||
Personal lines | 9,310 | 8,782 | 94.3 | % | 9,588 | 9,618 | 100.3 | % | ||||||||||||||
Total property and casualty insurance | $ | 116,187 | $ | 81,508 | 70.2 | % | $ | 111,771 | $ | 81,466 | 72.9 | % | ||||||||||
Reinsurance | ||||||||||||||||||||||
Pro rata reinsurance | $ | 12,016 | $ | 7,674 | 63.9 | % | $ | 15,468 | $ | 6,256 | 40.4 | % | ||||||||||
Excess of loss reinsurance | 21,634 | 18,046 | 83.4 | % | 19,207 | 15,098 | 78.6 | % | ||||||||||||||
Total reinsurance | $ | 33,650 | $ | 25,720 | 76.4 | % | $ | 34,675 | $ | 21,354 | 61.6 | % | ||||||||||
Consolidated | $ | 149,837 | $ | 107,228 | 71.6 | % | $ | 146,446 | $ | 102,820 | 70.2 | % | ||||||||||
Six months ended June 30, | ||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||
($ 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 | $ | 57,046 | $ | 50,633 | 88.8 | % | $ | 54,336 | $ | 43,489 | 80.0 | % | ||||||||||
Property | 51,571 | 35,488 | 68.8 | % | 49,821 | 35,460 | 71.2 | % | ||||||||||||||
Workers' compensation | 50,046 | 30,065 | 60.1 | % | 46,736 | 26,170 | 56.0 | % | ||||||||||||||
Other liability | 48,382 | 25,031 | 51.7 | % | 47,809 | 23,866 | 49.9 | % | ||||||||||||||
Other | 4,306 | 330 | 7.7 | % | 4,144 | (57 | ) | (1.4 | )% | |||||||||||||
Total commercial lines | 211,351 | 141,547 | 67.0 | % | 202,846 | 128,928 | 63.6 | % | ||||||||||||||
Personal lines | 18,484 | 15,481 | 83.8 | % | 19,371 | 14,636 | 75.6 | % | ||||||||||||||
Total property and casualty insurance | $ | 229,835 | $ | 157,028 | 68.3 | % | $ | 222,217 | $ | 143,564 | 64.6 | % | ||||||||||
Reinsurance | ||||||||||||||||||||||
Pro rata reinsurance | $ | 22,451 | $ | 13,820 | 61.6 | % | $ | 29,109 | $ | 16,132 | 55.4 | % | ||||||||||
Excess of loss reinsurance | 42,038 | 32,665 | 77.7 | % | 37,857 | 28,233 | 74.6 | % | ||||||||||||||
Total reinsurance | $ | 64,489 | $ | 46,485 | 72.1 | % | $ | 66,966 | $ | 44,365 | 66.2 | % | ||||||||||
Consolidated | $ | 294,324 | $ | 203,513 | 69.1 | % | $ | 289,183 | $ | 187,929 | 65.0 | % | ||||||||||
PREMIUMS WRITTEN | ||||||||||||||||
Three months ended June 30, 2017 | Three months ended June 30, 2016 | |||||||||||||||
($ in thousands) | Premiums written | Percent of premiums written | Premiums written | Percent of premiums written | Change in premiums written | |||||||||||
Property and casualty insurance | ||||||||||||||||
Commercial lines: | ||||||||||||||||
Automobile | $ | 34,645 | 22.3 | % | $ | 31,584 | 20.9 | % | 9.7% | |||||||
Property | 28,525 | 18.4 | % | 27,046 | 17.9 | % | 5.5% | |||||||||
Workers' compensation | 23,680 | 15.3 | % | 22,863 | 15.2 | % | 3.6% | |||||||||
Other liability | 27,078 | 17.4 | % | 26,453 | 17.5 | % | 2.4% | |||||||||
Other | 2,414 | 1.6 | % | 2,328 | 1.5 | % | 3.7% | |||||||||
Total commercial lines | 116,342 | 75.0 | % | 110,274 | 73.0 | % | 5.5% | |||||||||
Personal lines | 10,249 | 6.6 | % | 10,259 | 6.8 | % | (0.1)% | |||||||||
Total property and casualty insurance | $ | 126,591 | 81.6 | % | $ | 120,533 | 79.8 | % | 5.0% | |||||||
Reinsurance | ||||||||||||||||
Pro rata reinsurance | $ | 10,813 | 7.0 | % | $ | 14,779 | 9.8 | % | (26.8)% | |||||||
Excess of loss reinsurance | 17,741 | 11.4 | % | 15,627 | 10.4 | % | 13.5% | |||||||||
Total reinsurance | $ | 28,554 | 18.4 | % | $ | 30,406 | 20.2 | % | (6.1)% | |||||||
Consolidated | $ | 155,145 | 100.0 | % | $ | 150,939 | 100.0 | % | 2.8% | |||||||
Six months ended June 30, 2017 | Six months ended June 30, 2016 | |||||||||||||||
($ in thousands) | Premiums written | Percent of premiums written | Premiums written | Percent of premiums written | Change in premiums written | |||||||||||
Property and casualty insurance | ||||||||||||||||
Commercial lines: | ||||||||||||||||
Automobile | $ | 65,081 | 21.7 | % | $ | 60,325 | 20.6 | % | 7.9% | |||||||
Property | 53,867 | 18.0 | % | 51,472 | 17.6 | % | 4.7% | |||||||||
Workers' compensation | 46,759 | 15.6 | % | 45,273 | 15.4 | % | 3.3% | |||||||||
Other liability | 52,005 | 17.3 | % | 51,396 | 17.5 | % | 1.2% | |||||||||
Other | 4,697 | 1.5 | % | 4,534 | 1.6 | % | 3.6% | |||||||||
Total commercial lines | 222,409 | 74.1 | % | 213,000 | 72.7 | % | 4.4% | |||||||||
Personal lines | 18,789 | 6.3 | % | 18,800 | 6.4 | % | (0.1)% | |||||||||
Total property and casualty insurance | $ | 241,198 | 80.4 | % | $ | 231,800 | 79.1 | % | 4.1% | |||||||
Reinsurance | ||||||||||||||||
Pro rata reinsurance | $ | 19,505 | 6.5 | % | $ | 26,963 | 9.1 | % | (27.7)% | |||||||
Excess of loss reinsurance | 39,317 | 13.1 | % | 34,452 | 11.8 | % | 14.1% | |||||||||
Total reinsurance | $ | 58,822 | 19.6 | % | $ | 61,415 | 20.9 | % | (4.2)% | |||||||
Consolidated | $ | 300,020 | 100.0 | % | $ | 293,215 | 100.0 | % | 2.3% | |||||||
Contacts | ||
Investors: | Media: | |
Steve Walsh, 515-345-2515 | Lisa Hamilton, 515-345-7589 | |
steve.t.walsh@emcins.com | lisa.l.hamilton@emcins.com | |