0000356130-19-000075.txt : 20190808 0000356130-19-000075.hdr.sgml : 20190808 20190808085144 ACCESSION NUMBER: 0000356130-19-000075 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20190808 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20190808 DATE AS OF CHANGE: 20190808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMC INSURANCE GROUP INC CENTRAL INDEX KEY: 0000356130 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 426234555 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10956 FILM NUMBER: 191007655 BUSINESS ADDRESS: STREET 1: 717 MULBERRY ST CITY: DES MOINES STATE: IA ZIP: 50309 BUSINESS PHONE: 5153452902 MAIL ADDRESS: STREET 1: 717 MULBERRY STREET CITY: DES MOINES STATE: IA ZIP: 50309 8-K 1 earnings8k2019630.htm 8-K Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 8, 2019

EMC INSURANCE GROUP INC.
(Exact name of registrant as specified in its charter)

Iowa
 
0-10956
 
42-6234555
(State or other jurisdiction of incorporation)
 
(Commission file number)
 
(I.R.S. employer identification no.)

717 Mulberry Street, Des Moines, Iowa
 
50309
(Address of principal executive offices)
 
(Zip code)

(515) 345-2902
(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
Common Stock, Par Value $1.00
EMCI
The Nasdaq Global Select Market
(Title of class)
(Trading symbol)
(Name of each exchange on which registered)

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o



Item 2.02
Results of Operations and Financial Condition.

Item 7.01
Regulation FD Disclosure.

On August 8, 2019, EMC Insurance Group Inc. issued a press release reporting its earnings for the second quarter and six months ended June 30, 2019. The press release is furnished as Exhibit 99.

Item 9.01
Financial Statements and Exhibits.

(d)
Exhibits.

Exhibit Number
 
Description



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized, on August 8, 2019.


EMC INSURANCE GROUP INC.
Registrant
 
 
/s/ Mark E. Reese
Mark E. Reese
Senior Vice President and
Chief Financial Officer



EX-99 2 exhibit99earnings8k2019630.htm EXHIBIT 99 Exhibit
EXHIBIT 99

imagea02a06.jpg

NEWS RELEASE

EMC Insurance Group Inc. Reports 2019 Second Quarter and Six Month Results

Second Quarter Ended June 30, 2019
Net Income Per Share - $0.06
Non-GAAP Operating Loss Per Share* - ($0.10)
Net Realized Investment Gains and Change in Unrealized
Gains on Equity Investments Per Share - $0.16
Catastrophe and Storm Losses Per Share - $0.62
GAAP Combined Ratio - 108.5 percent

Six Months Ended June 30, 2019
Net Income Per Share - $1.61
Non-GAAP Operating Income Per Share* - $0.63
Net Realized Investment Gains and Change in Unrealized
Gains on Equity Investments Per Share - $0.98
Catastrophe and Storm Losses Per Share - $0.84
GAAP Combined Ratio - 102.1 percent


2019 Non-GAAP Operating Income Guidance* of $1.35 to $1.55 per share

*Denotes financial measure not calculated in accordance with generally accepted accounting principles (non-GAAP). See “Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures” for additional information.

DES MOINES, Iowa (August 8, 2019) - EMC Insurance Group Inc. (Nasdaq:EMCI) (the “Company”), today reported net income of $1.3 million ($0.06 per share) and $34.8 million ($1.61 per share) for the second quarter and first six months of 2019, compared to net losses of $5.0 million ($0.24 per share) and $5.1 million ($0.24 per share) for the same periods in 2018, respectively. Included in the net income amounts reported for the second quarter and first six months of 2019 are a $4.7 million pre-tax decrease and $15.2 million pre-tax increase, respectively, in unrealized gains on the Company’s equity investments. Also contributing to the net income amounts reported for the second quarter and first six months of 2019 are $8.9 million and $11.7 million, respectively, of pre-tax realized investment gains. Included in the net loss reported for the second quarter and first six months 2018 were $5.4 million and $952,000, respectively, of pre-tax realized investment losses and declines of $447,000 and $10.3 million, respectively, in unrealized gains on the Company’s equity investments.

Non-GAAP operating loss, which excludes net realized investment gains/losses and the change in unrealized gains on equity investments from net income/loss, totaled $2.1 million ($0.10 per share) for the second quarter of 2019, compared to $365,000 ($0.02 per share) for the second quarter of 2018. For the six months ended June 30, 2019, the Company reported non-GAAP operating income of $13.6 million ($0.63 per share), compared to $3.8 million ($0.18 per share) for the same period in 2018.

“Premium growth in the first half of the year has outpaced expectations due to better than expected commercial lines business growth and strong growth in the reinsurance segment,” stated President and Chief Executive Officer Bruce G. Kelley. “We are now expecting earned premium growth in the reinsurance segment to be in the high-single digits for 2019, up from the previous low-single digit



projection.”

Kelley continued, “The planning stage of the digital transformation project to replace our legacy systems is nearly complete. After refining the effort and scope of the project during the second quarter, we now estimate that the Company’s portion of the pre-tax expense will approximate $37.0 million over the next five years, up from the previous estimate of $28.0 million. The implementation stage of this project is expected to begin in the third quarter.”

“We continue to make progress on our transition out of personal lines business and are working to realign our resources to improve the growth and profit potential of our commercial lines business,” concluded Kelley.

The Company’s GAAP combined ratios were 108.5 percent and 102.1 percent for the second quarter and first six months of 2019, respectively, compared to 109.8 percent and 107.2 percent for the same periods in 2018. There was significant disparity by segment as the property and casualty insurance segment reported GAAP combined ratios of 113.0 percent and 105.5 percent for the second quarter and first six months of 2019, respectively, while the reinsurance segment reported GAAP combined ratios of 94.4 percent and 92.1 percent for the same periods.

Premiums earned increased 6.4 percent and 6.9 percent for the second quarter and first six months of 2019, respectively. In the property and casualty insurance segment, premiums earned increased 4.0 percent and 4.6 percent for the second quarter and first six months of 2019, respectively. These increases are attributed to the commercial lines business primarily due to an increase in retained policies, small rate level increases on renewal business and growth of new business. Premiums earned in the personal lines of business were down 22.0 percent and 11.7 percent in the second quarter and first six months of 2019, respectively, and this decline will increase significantly during the remainder of the year as the pace of non-renewals increases. In the reinsurance segment, premiums earned increased 14.8 percent and 14.6 percent for the second quarter and first six months of 2019, respectively. These increases stem from increases in participation on existing multi-line and specialty casualty contracts, higher estimated premiums and the addition of some new business.

The property and casualty insurance segment reported a loss and settlement expense ratio of 74.1 percent for the second quarter ended June 30, 2019, which is down slightly from the 77.6 percent reported in the second quarter of 2018. This improvement was primarily driven by declines in estimated loss severity for most lines of commercial business, excluding the other liability line of business. As expected, the loss and settlement expense ratio for the personal lines of business deteriorated in the second quarter due to actions taken to exit from this line of business; however, both loss frequency and severity have been higher than expected. The reinsurance segment reported a loss and settlement expense ratio of 69.1 percent for the second quarter of 2019, which is up slightly from the 68.1 percent reported for the second quarter of 2018.

Catastrophe and storm losses totaled $17.1 million ($0.62 per share after tax) and $23.0 million ($0.84 per share after tax) for the second quarter and first six months of 2019, compared to $16.7 million ($0.61 per share after tax) and $21.4 million ($0.78 per share after tax) for the same periods in 2018, respectively. The property and casualty insurance subsidiaries ceded $1.0 million and $1.5 million of catastrophe and storm losses to Employers Mutual Casualty Company (Employers Mutual) during the second quarter and first six months of 2019 under its intercompany reinsurance program compared to $317,000 and $784,000 for the same periods in 2018, respectively. The property and casualty insurance subsidiaries have filled the $22.0 million retention amount under the 2019 January 1 to June 30 treaty; therefore, any further development on events that occurred during the first six months of 2019 will be ceded to Employers Mutual. On a segment basis, catastrophe and storm losses for the second quarter and first six months of 2019 amounted to $16.1 million ($0.58 per share after tax) and $22.0 million ($0.80 per share after tax), respectively, in the property and casualty insurance segment, and $1.0 million ($0.04 per share after tax) for both periods in the reinsurance segment.




The Company reported $2.3 million ($0.08 per share after tax) and $15.6 million ($0.57 per share after tax) of favorable development on prior years’ reserves during the second quarter and first six months of 2019, respectively, compared to $511,000 ($0.01 per share after tax) and $6.1 million ($0.22 per share after tax) for the same periods in 2018. In the property and casualty insurance segment, favorable development on prior years’ reserves totaled $4.9 million and $14.6 million for the second quarter and first six months of 2019. The favorable development is primarily attributed to reductions in prior year ultimate loss ratios for most lines of business except personal automobile liability and homeowners, with the largest contributions coming from the workers’ compensation and commercial automobile liability lines of business. The reinsurance segment reported unfavorable development of $2.6 million for the second quarter of 2019, and favorable development of $1.0 million for the first six months of 2019. The favorable development reported for the first six months of 2019 is primarily attributed to better than expected experience on global excess contracts, partially offset by unfavorable development on several large losses under a 2018 property per risk excess contract, unfavorable development on a 2014 casualty pro rata contract, and a small amount of unfavorable development on Mutual Re business.

Net investment income increased 10.0 percent and 11.1 percent to $13.0 million and $25.7 million for the second quarter and first six months of 2019, from $11.8 million and $23.1 million for the same periods in 2018. This increase is primarily the result of actions taken during 2018 to sell fixed maturity securities with lower book yields and reinvest the proceeds in fixed maturity securities with similar characteristics, but higher book yields.
 
The pre-tax realized investment gains of $8.9 million and $11.7 million reported for the second quarter and first six months of 2019 include pre-tax realized investment losses of $617,000 and $1.6 million, respectively, generated from changes in the carrying value of a limited partnership that helps protect the Company from a sudden and significant decline in the value of its equity portfolio (the equity tail-risk hedging strategy). Pre-tax realized investment losses of $5.4 million and $952,000 for the second quarter and first six months of 2018 include a pre-tax realized investment loss of $1.7 million and a pre-tax realized investment gain of $78,000, respectively, attributed to changes in the carrying value of this limited partnership.

Other income totaled $1.6 million and $3.1 million in the second quarter and first six months of 2019, respectively, and includes $1.3 million and $2.6 million of net periodic pension and postretirement benefit income. In the second quarter and first six months of 2018, other income totaled $2.8 million and $4.4 million, respectively, and includes $1.9 million and $3.7 million of net periodic pension and postretirement benefit income, and $678,000 and $242,000 of foreign currency exchange gains.

During the three and six months ended June 30, 2019, the holding company incurred expenses totaling $2.0 million and $2.6 million, respectively, in connection with Employers Mutual’s proposal to purchase all of the remaining shares of the Company’s common stock.

At June 30, 2019, consolidated assets totaled $1.8 billion, including $1.7 billion in the investment portfolio, and stockholders’ equity totaled $630.6 million, an increase of 11.4 percent from December 31, 2018. Book value of the Company’s common stock increased 2.3 percent to $29.10 per share from $28.44 per share at March 31, 2019, and increased 11.2 percent from $26.18 per share at December 31, 2018. The increases are primarily due to the net income reported for the first six months of 2019 and an increase in unrealized investment gains on the fixed maturity portfolio attributable to a decline in interest rates during the first half of 2019.

Based on actual results for the first six months of 2019 and updated projections for the remainder of the year, management is reaffirming its 2019 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 101.7 percent for the year. The projection includes updated amounts for the anticipated expenses associated with Employers Mutual’s digital transformation project and expenses to be incurred by the Company in connection with Employers



Mutual’s proposal to purchase all of the remaining shares of the Company’s common stock. Nominal changes were also made to the other assumptions utilized in the projection.

Earnings Conference Call
The Company will not hold an earnings conference call due to the execution of a definitive merger agreement, pursuant to which Employers Mutual proposes to acquire all of the remaining shares of the Company for $36.00 per share in cash.

About EMCI
EMC Insurance Group Inc. is a publicly held insurance holding company with operations in property and casualty insurance and reinsurance, which was formed in 1974 and became publicly held in 1982. The Company’s common stock trades on the Global Select Market tier of the Nasdaq Stock Market under the symbol EMCI. Additional information regarding the Company may be found at investors.emcins.com. EMCI’s parent company is Employers Mutual. EMCI and Employers Mutual, together with their subsidiary and affiliated companies, conduct operations under the trade name EMC Insurance Companies.

Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides issuers the opportunity to make cautionary statements regarding forward-looking statements. Accordingly, any forward-looking statement contained in this report is based on management’s current beliefs, assumptions and expectations of the Company’s future performance, taking all information currently available into account. These beliefs, assumptions and expectations can change as the result of many possible events or factors, not all of which are known to management. If a change occurs, the Company’s business, financial condition, liquidity, results of operations, plans and objectives may vary materially from those expressed in the forward-looking statements.

The risks and uncertainties that may affect the actual results of the Company include, but are not limited to, the following:
catastrophic events and the occurrence of significant severe weather conditions;
the adequacy of loss and settlement expense reserves;
state and federal legislation and regulations;
changes in the federal corporate tax rate;
changes in the property and casualty insurance industry, interest rates or the performance of financial markets and the general economy;
rating agency actions;
“other-than-temporary” investment impairment losses; and
other risks and uncertainties inherent to the Company’s business, including those discussed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K.

Management intends to identify forward-looking statements when using the words “believe”, “expect”, “anticipate”, “estimate”, “project”, “may”, “intend”, “likely” or similar expressions. Undue reliance should not be placed on these forward-looking statements. The Company disclaims any obligation to update such statements or to announce publicly the results of any revisions that it may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures
The Company prepares its public financial statements in conformity with GAAP. Management uses certain non-GAAP financial measures for evaluating the Company’s performance. These measures are considered non-GAAP financial measures under applicable Securities and Exchange Commission (SEC) rules because they are not displayed as separate line items in the consolidated financial statements or are not required to be disclosed in the notes to financial statements or, in some cases, include or exclude certain items not ordinarily included or excluded in the most comparable GAAP financial measure. The



Company’s calculation of non-GAAP financial measures may differ from similar measures used by other companies, so investors should exercise caution when comparing the Company’s non-GAAP financial measures to the measures used by other companies. The following discussion includes reconciliations of the most directly comparable GAAP financial measures to the non-GAAP financial measures referenced in this report.

Non-GAAP operating income: One of the primary non-GAAP financial measures utilized by management for evaluating the Company’s performance is operating income. Non-GAAP operating income is calculated by excluding net realized investment gains/losses and the change in unrealized gains/losses on equity investments from net income/loss. While realized investment gains/losses are integral to the Company’s insurance operations over the long term, the decision to realize investment gains or losses in any particular period is subject to changing market conditions and management’s discretion, and is independent of the Company’s insurance operations. Changes in unrealized gains/losses on equity investments are not predictable due to changing market conditions and are therefore also excluded from the calculation of non-GAAP operating income.

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

Management believes non-GAAP operating income is useful to investors because it illustrates the performance of the Company’s normal, ongoing insurance operations, which is important in understanding and evaluating the Company’s financial condition and results of operations. While this measure is consistent with measures utilized by investors and analysts to evaluate performance, it is not intended as a substitute for the GAAP financial measure of net income/loss.
RECONCILIATION OF NET INCOME/LOSS TO NON-GAAP OPERATING INCOME
($ in thousands)
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net income (loss)
 
$
1,285

 
$
(4,995
)
 
$
34,816

 
$
(5,071
)
Realized investment (gains) losses
 
(8,932
)
 
5,413

 
(11,746
)
 
952

Change in unrealized gains on equity investments
 
4,674

 
447

 
(15,155
)
 
10,301

Income tax expense (benefit)
 
894

 
(1,230
)
 
5,649

 
(2,363
)
Net realized investment (gains) losses and change in unrealized gains on equity investments
 
(3,364
)
 
4,630

 
(21,252
)
 
8,890

Non-GAAP operating income (loss)
 
$
(2,079
)
 
$
(365
)
 
$
13,564

 
$
3,819


RECONCILIATION OF NET INCOME/LOSS PER SHARE TO NON-GAAP OPERATING INCOME/LOSS PER SHARE
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net income (loss)
 
$
0.06

 
$
(0.24
)
 
$
1.61

 
$
(0.24
)
Realized investment (gains) losses
 
(0.41
)
 
0.25

 
(0.54
)
 
0.04

Change in unrealized gains on equity investments
 
0.22

 
0.02

 
(0.70
)
 
0.48

Income tax expense (benefit)
 
0.03

 
(0.05
)
 
0.26

 
(0.10
)
Net realized investment (gains) losses and change in unrealized gains on equity investments
 
(0.16
)
 
0.22

 
(0.98
)
 
0.42

Non-GAAP operating income (loss)
 
$
(0.10
)
 
$
(0.02
)
 
$
0.63

 
$
0.18





Property and casualty insurance segment’s underlying loss and settlement expense ratio: The loss and settlement expense ratio is the ratio (expressed as a percentage) of losses and settlement expenses incurred to premiums earned, which management uses as a measure of underwriting profitability of the Company’s property and casualty insurance business. The underlying loss and settlement expense ratio is a non-GAAP financial measure which represents the loss and settlement expense ratio, excluding the impact of catastrophe and storm losses and development on prior years’ reserves. Management uses this ratio as an indicator of the property and casualty insurance segment’s underwriting discipline and performance for the current accident year. Management believes this ratio is useful for investors to understand the property and casualty insurance segment’s periodic earnings and variability of earnings caused by the unpredictable nature (i.e., the timing and amount) of catastrophe and storm losses and development on prior years’ reserves. While this measure is consistent with measures utilized by investors and analysts to evaluate performance, it is not intended as a substitute for the GAAP financial measure of loss and settlement expense ratio.
RECONCILIATION OF THE PROPERTY AND CASUALTY INSURANCE SEGMENT'S LOSS AND SETTLEMENT EXPENSE RATIO TO THE UNDERLYING LOSS AND SETTLEMENT EXPENSE RATIO
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Loss and settlement expense ratio
 
74.1
 %
 
77.6
 %
 
67.9
 %
 
74.0
 %
Catastrophe and storm losses
 
(12.8
)%
 
(12.9
)%
 
(8.8
)%
 
(8.3
)%
Favorable development on prior years' reserves
 
3.9
 %
 
2.6
 %
 
5.8
 %
 
2.2
 %
Underlying loss and settlement expense ratio
 
65.2
 %
 
67.3
 %
 
64.9
 %
 
67.9
 %

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, 2019
 
Property and Casualty Insurance
 
Reinsurance
 
Parent Company
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
Premiums earned
 
$
126,297

 
$
41,836

 
$

 
$
168,133

Investment income, net
 
9,129

 
3,808

 
14

 
12,951

Other income
 
1,551

 
6

 

 
1,557

 
 
136,977

 
45,650

 
14

 
182,641

Losses and expenses:
 
 
 
 
 
 
 
 
Losses and settlement expenses
 
93,594

 
28,923

 

 
122,517

Dividends to policyholders
 
3,384

 

 

 
3,384

Amortization of deferred policy acquisition costs
 
22,973

 
9,711

 

 
32,684

Other underwriting expenses
 
22,826

 
889

 

 
23,715

Interest expense
 
170

 

 

 
170

Other expenses
 
201

 

 
2,587

 
2,788

 
 
143,148

 
39,523

 
2,587

 
185,258

Operating income (loss) before income taxes
 
(6,171
)
 
6,127

 
(2,573
)
 
(2,617
)
Net realized investment gains (losses) and change in unrealized gains on equity investments
 
2,930

 
1,545

 
(217
)
 
4,258

Income (loss) before income taxes
 
(3,241
)
 
7,672

 
(2,790
)
 
1,641

Income tax expense (benefit):
 
 
 
 
 
 
 
 
Current
 
119

 
1,648

 
(227
)
 
1,540

Deferred
 
(894
)
 
(261
)
 
(29
)
 
(1,184
)
 
 
(775
)
 
1,387

 
(256
)
 
356

Net income (loss)
 
$
(2,466
)
 
$
6,285

 
$
(2,534
)
 
$
1,285

Average shares outstanding
 
 
 
 
 
 
 
21,670,297

Per Share Data:
 
 
 
 
 
 
 
 
Net income (loss) per share - basic and diluted
 
$
(0.11
)
 
$
0.29

 
$
(0.12
)
 
$
0.06

Catastrophe and storm losses (after tax)
 
$
0.58

 
$
0.04

 
$

 
$
0.62

Favorable (unfavorable) development on prior years'
reserves (after tax)
 
$
0.17

 
$
(0.09
)
 
$

 
$
0.08

Dividends per share
 
 
 
 
 
 
 
$
0.23

Other Information of Interest:
 
 
 
 
 
 
 
 
Premiums written
 
$
128,153

 
$
38,208

 
$

 
$
166,361

Catastrophe and storm losses
 
$
16,112

 
$
1,006

 
$

 
$
17,118

(Favorable) unfavorable development on
prior years' reserves
 
$
(4,932
)
 
$
2,606

 
$

 
$
(2,326
)
GAAP Ratios:
 
 
 
 
 
 
 
 
Loss and settlement expense ratio
 
74.1
%
 
69.1
%
 
%
 
72.9
%
Acquisition expense ratio
 
38.9
%
 
25.3
%
 
%
 
35.6
%
Combined ratio
 
113.0
%
 
94.4
%
 
%
 
108.5
%



CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
 
 
($ in thousands, except share and per share amounts)
 
 
 
 
 
 
 
 
Quarter ended June 30, 2018
 
Property and Casualty Insurance
 
Reinsurance
 
Parent Company
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
Premiums earned
 
$
121,495

 
$
36,451

 
$

 
$
157,946

Investment income, net
 
8,410

 
3,360

 
8

 
11,778

Other income
 
2,095

 
678

 

 
2,773

 
 
132,000

 
40,489

 
8

 
172,497

Losses and expenses:
 
 
 
 
 
 
 
 
Losses and settlement expenses
 
94,255

 
24,836

 

 
119,091

Dividends to policyholders
 
2,386

 

 

 
2,386

Amortization of deferred policy acquisition costs
 
21,173

 
8,256

 

 
29,429

Other underwriting expenses
 
21,944

 
507

 

 
22,451

Interest expense
 
171

 

 

 
171

Other expenses
 
244

 

 
587

 
831

 
 
140,173

 
33,599

 
587

 
174,359

Operating income (loss) before income taxes
 
(8,173
)
 
6,890

 
(579
)
 
(1,862
)
Net realized investment gains (losses) and change in unrealized gains on equity investments
 
(4,692
)
 
(1,168
)
 

 
(5,860
)
Income (loss) before income taxes
 
(12,865
)
 
5,722

 
(579
)
 
(7,722
)
Income tax expense (benefit):
 
 
 
 
 
 
 
 
Current
 
(4,219
)
 
1,081

 
(173
)
 
(3,311
)
Deferred
 
496

 
36

 
52

 
584

 
 
(3,723
)
 
1,117

 
(121
)
 
(2,727
)
Net income (loss)
 
$
(9,142
)
 
$
4,605

 
$
(458
)
 
$
(4,995
)
Average shares outstanding
 
 
 
 
 
 
 
21,529,727

Per Share Data:
 
 
 
 
 
 
 
 
Net income (loss) per share - basic and diluted
 
$
(0.43
)
 
$
0.21

 
$
(0.02
)
 
$
(0.24
)
Catastrophe and storm losses (after tax)
 
$
0.57

 
$
0.04

 
$

 
$
0.61

Favorable (unfavorable) development on prior years'
reserves (after tax)
 
$
0.11

 
$
(0.10
)
 
$

 
$
0.01

Dividends per share
 
 
 
 
 
 
 
$
0.22

Other Information of Interest:
 
 
 
 
 
 
 
 
Premiums written
 
$
131,201

 
$
31,911

 
$

 
$
163,112

Catastrophe and storm losses
 
$
15,707

 
$
1,003

 
$

 
$
16,710

(Favorable) unfavorable development on
prior years' reserves
 
$
(3,151
)
 
$
2,640

 
$

 
$
(511
)
GAAP Ratios:
 
 
 
 
 
 
 
 
Loss and settlement expense ratio
 
77.6
%
 
68.1
%
 
%
 
75.4
%
Acquisition expense ratio
 
37.4
%
 
24.1
%
 
%
 
34.4
%
Combined ratio
 
115.0
%
 
92.2
%
 
%
 
109.8
%




CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
 
 
($ in thousands, except share and per share amounts)
 
 
 
 
 
 
 
 
Six months ended June 30, 2019
 
Property and Casualty Insurance
 
Reinsurance
 
Parent Company
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
Premiums earned
 
$
251,069

 
$
84,366

 
$

 
$
335,435

Investment income, net
 
18,267

 
7,416

 
31

 
25,714

Other income
 
3,084

 
8

 

 
3,092

 
 
272,420

 
91,790

 
31

 
364,241

Losses and expenses:
 
 
 
 
 
 
 
 
Losses and settlement expenses
 
170,574

 
56,912

 

 
227,486

Dividends to policyholders
 
6,155

 

 

 
6,155

Amortization of deferred policy acquisition costs
 
43,691

 
18,963

 

 
62,654

Other underwriting expenses
 
44,512

 
1,795

 

 
46,307

Interest expense
 
341

 

 

 
341

Other expenses
 
512

 

 
3,761

 
4,273

 
 
265,785

 
77,670

 
3,761

 
347,216

Operating income (loss) before income taxes
 
6,635

 
14,120

 
(3,730
)
 
17,025

Net realized investment gains (losses) and change in unrealized gains on equity investments
 
17,098

 
10,087

 
(284
)
 
26,901

Income (loss) before income taxes
 
23,733

 
24,207

 
(4,014
)
 
43,926

Income tax expense (benefit):
 
 
 
 
 
 
 
 
Current
 
2,639

 
3,620

 
(460
)
 
5,799

Deferred
 
2,030

 
1,334

 
(53
)
 
3,311

 
 
4,669

 
4,954

 
(513
)
 
9,110

Net income (loss)
 
$
19,064

 
$
19,253

 
$
(3,501
)
 
$
34,816

Average shares outstanding
 
 
 
 
 
 
 
21,654,443

Per Share Data:
 
 
 
 
 
 
 
 
Net income per share - basic and diluted
 
$
0.88

 
$
0.89

 
$
(0.16
)
 
$
1.61

Catastrophe and storm losses (after tax)
 
$
0.80

 
$
0.04

 
$

 
$
0.84

Favorable development on prior years'
reserves (after tax)
 
$
0.53

 
$
0.04

 
$

 
$
0.57

Dividends per share
 
 
 
 
 
 
 
$
0.46

Book value per share
 
 
 
 
 
 
 
$
29.10

Effective tax rate
 
 
 
 
 
 
 
20.7
%
Annualized net income as a percent of beg. SH equity
 
 
 
 
 
 
 
12.3
%
Other Information of Interest:
 
 
 
 
 
 
 
 
Premiums written
 
$
253,669

 
$
83,657

 
$

 
$
337,326

Catastrophe and storm losses
 
$
22,000

 
$
1,025

 
$

 
$
23,025

Favorable development on
prior years' reserves
 
$
(14,575
)
 
$
(1,042
)
 
$

 
$
(15,617
)
GAAP Ratios:
 
 
 
 
 
 
 
 
Loss and settlement expense ratio
 
67.9
%
 
67.5
%
 
%
 
67.8
%
Acquisition expense ratio
 
37.6
%
 
24.6
%
 
%
 
34.3
%
Combined ratio
 
105.5
%
 
92.1
%
 
%
 
102.1
%




CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
 
 
($ in thousands, except share and per share amounts)
 
 
 
 
 
 
 
 
Six months ended June 30, 2018
 
Property and Casualty Insurance
 
Reinsurance
 
Parent Company
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
Premiums earned
 
$
240,127

 
$
73,605

 
$

 
$
313,732

Investment income, net
 
16,558

 
6,578

 
13

 
23,149

Other income
 
4,146

 
242

 

 
4,388

 
 
260,831

 
80,425

 
13

 
341,269

Losses and expenses:
 
 
 
 
 
 
 
 
Losses and settlement expenses
 
177,756

 
51,963

 

 
229,719

Dividends to policyholders
 
4,506

 

 

 
4,506

Amortization of deferred policy acquisition costs
 
40,472

 
16,249

 

 
56,721

Other underwriting expenses
 
44,430

 
876

 

 
45,306

Interest expense
 
313

 

 

 
313

Other expenses
 
477

 

 
1,224

 
1,701

 
 
267,954

 
69,088

 
1,224

 
338,266

Operating income (loss) before income taxes
 
(7,123
)
 
11,337

 
(1,211
)
 
3,003

Net realized investment gains (losses) and change in unrealized gains on equity investments
 
(7,985
)
 
(3,268
)
 

 
(11,253
)
Income (loss) before income taxes
 
(15,108
)
 
8,069

 
(1,211
)
 
(8,250
)
Income tax expense (benefit):
 
 
 
 
 
 
 
 
Current
 
(4,121
)
 
2,310

 
(294
)
 
(2,105
)
Deferred
 
(336
)
 
(778
)
 
40

 
(1,074
)
 
 
(4,457
)
 
1,532

 
(254
)
 
(3,179
)
Net income (loss)
 
$
(10,651
)
 
$
6,537

 
$
(957
)
 
$
(5,071
)
Average shares outstanding
 
 
 
 
 
 
 
21,515,812

Per Share Data:
 
 
 
 
 
 
 
 
Net income (loss) per share - basic and diluted
 
$
(0.50
)
 
$
0.30

 
$
(0.04
)
 
$
(0.24
)
Catastrophe and storm losses (after tax)
 
$
0.73

 
$
0.05

 
$

 
$
0.78

Favorable development on prior years'
reserves (after tax)
 
$
0.19

 
$
0.03

 
$

 
$
0.22

Dividends per share
 
 
 
 
 
 
 
$
0.44

Book value per share
 
 
 
 
 
 
 
$
26.39

Effective tax rate
 
 
 
 
 
 
 
38.5
 %
Annualized net income as a percent of beg. SH equity
 
 
 
 
 
 
 
(1.7
)%
Other Information of Interest:
 
 
 
 
 
 
 
 
Premiums written
 
$
251,470

 
$
69,714

 
$

 
$
321,184

Catastrophe and storm losses
 
$
19,967

 
$
1,399

 
$

 
$
21,366

Favorable development on prior years' reserves
 
$
(5,286
)
 
$
(801
)
 
$

 
$
(6,087
)
GAAP Ratios:
 
 
 
 
 
 
 
 
Loss and settlement expense ratio
 
74.0
%
 
70.6
%
 
%
 
73.2
 %
Acquisition expense ratio
 
37.3
%
 
23.3
%
 
%
 
34.0
 %
Combined ratio
 
111.3
%
 
93.9
%
 
%
 
107.2
 %
 




CONSOLIDATED BALANCE SHEETS
 
 
 
 
 
 
June 30, 
 2019
 
December 31, 
 2018
($ in thousands, except share and per share amounts)
 
(Unaudited)
 

ASSETS
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at fair value (amortized cost $1,280,928 and $1,273,132)
 
$
1,340,066

 
$
1,282,909

Equity investments, at fair value (cost $179,359 and $160,371)
 
249,507

 
215,363

Equity investments, at alternative measurement of cost less impairments
 
1,200

 
1,200

Other long-term investments
 
17,352

 
19,316

Short-term investments
 
46,857

 
28,204

Total investments
 
1,654,982

 
1,546,992

 
 
 
 
 
Cash
 
276

 
337

Reinsurance receivables due from affiliate
 
35,470

 
37,361

Prepaid reinsurance premiums due from affiliate
 
10,718

 
8,789

Deferred policy acquisition costs (affiliated $47,019 and $44,440)
 
47,019

 
44,760

Amounts due from affiliate to settle inter-company transaction balances
 

 
5,154

Prepaid pension and postretirement benefits due from affiliate
 
17,090

 
17,691

Accrued investment income
 
10,394

 
10,468

Accounts receivable
 
63

 
1,658

Income taxes recoverable
 
8,077

 
6,697

Goodwill
 
942

 
942

Other assets (affiliated $2,989 and $4,510)
 
3,120

 
4,629

Total assets
 
$
1,788,151

 
$
1,685,478

 
 
 
 
 
LIABILITIES
 
 
 
 
Losses and settlement expenses (affiliated $792,205 and $771,872)
 
$
798,706

 
$
777,190

Unearned premiums (affiliated $272,373 and $267,064)
 
272,373

 
268,511

Other policyholders' funds (all affiliated)
 
8,150

 
8,807

Surplus notes payable to affiliate
 
25,000

 
25,000

Amounts due affiliate to settle inter-company transaction balances
 
5,296

 

Pension benefits payable to affiliate
 
3,788

 
4,070

Deferred income taxes
 
18,415

 
4,908

Other liabilities (affiliated $24,623 and $31,121)
 
25,861

 
31,210

Total liabilities
 
1,157,589

 
1,119,696

 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
Common stock, $1 par value, authorized 30,000,000 shares; issued and outstanding, 21,672,325 shares in 2019 and 21,615,105 shares in 2018
 
21,672

 
21,615

Additional paid-in capital
 
129,961

 
128,451

Accumulated other comprehensive income
 
39,976

 
1,620

Retained earnings
 
438,953

 
414,096

Total stockholders' equity
 
630,562

 
565,782

Total liabilities and stockholders' equity
 
$
1,788,151

 
$
1,685,478







LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS
 
 
 
 
 
 
Three months ended June 30,
 
 
2019
 
2018
($ 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
 
$
34,260

 
$
25,606

 
74.7
 %
 
$
31,660

 
$
26,717

 
84.4
%
Property
 
28,853

 
23,594

 
81.8
 %
 
27,196

 
23,529

 
86.5
%
Workers' compensation
 
24,032

 
15,009

 
62.5
 %
 
25,229

 
22,513

 
89.2
%
Other liability
 
29,170

 
18,504

 
63.4
 %
 
25,591

 
11,971

 
46.8
%
Other
 
2,501

 
220

 
8.8
 %
 
2,228

 
125

 
5.6
%
Total commercial lines
 
118,816

 
82,933

 
69.8
 %
 
111,904

 
84,855

 
75.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal lines
 
7,481

 
10,661

 
142.5
 %
 
9,591

 
9,400

 
98.0
%
Total property and casualty insurance
 
$
126,297

 
$
93,594

 
74.1
 %
 
$
121,495

 
$
94,255

 
77.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Reinsurance
 
 
 
 
 
 
 
 
 
 
 
 
Pro rata reinsurance
 
$
11,147

 
$
10,175

 
91.3
 %
 
$
10,070

 
$
5,116

 
50.8
%
Excess of loss reinsurance
 
30,689

 
18,748

 
61.1
 %
 
26,381

 
19,720

 
74.8
%
Total reinsurance
 
$
41,836

 
$
28,923

 
69.1
 %
 
$
36,451

 
$
24,836

 
68.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
168,133

 
$
122,517

 
72.9
 %
 
$
157,946

 
$
119,091

 
75.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
 
2019
 
2018
($ 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
 
$
67,167

 
$
47,021

 
70.0
 %
 
$
62,304

 
$
53,173

 
85.3
%
Property
 
56,524

 
41,022

 
72.6
 %
 
53,788

 
42,252

 
78.6
%
Workers' compensation
 
47,575

 
28,744

 
60.4
 %
 
50,131

 
35,044

 
69.9
%
Other liability
 
58,075

 
35,845

 
61.7
 %
 
50,553

 
29,672

 
58.7
%
Other
 
5,007

 
(164
)
 
(3.3
)%
 
4,414

 
619

 
14.0
%
Total commercial lines
 
234,348

 
152,468

 
65.1
 %
 
221,190

 
160,760

 
72.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal lines
 
16,721

 
18,106

 
108.3
 %
 
18,937

 
16,996

 
89.7
%
Total property and casualty insurance
 
$
251,069

 
$
170,574

 
67.9
 %
 
$
240,127

 
$
177,756

 
74.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Reinsurance
 
 
 
 
 
 
 
 
 
 
 
 
Pro rata reinsurance
 
$
24,153

 
$
16,089

 
66.6
 %
 
$
23,143

 
$
9,781

 
42.3
%
Excess of loss reinsurance
 
60,213

 
40,823

 
67.8
 %
 
50,462

 
42,182

 
83.6
%
Total reinsurance
 
$
84,366

 
$
56,912

 
67.5
 %
 
$
73,605

 
$
51,963

 
70.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
335,435

 
$
227,486

 
67.8
 %
 
$
313,732

 
$
229,719

 
73.2
%



PREMIUMS WRITTEN
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended 
 June 30, 2019
 
Three months ended 
 June 30, 2018
 
 
($ 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
 
$
40,507

 
24.4
 %
 
$
36,977

 
22.7
%
 
9.5%
Property
 
33,467

 
20.1
 %
 
30,326

 
18.5
%
 
10.4%
Workers' compensation
 
21,542

 
13.0
 %
 
22,781

 
14.0
%
 
(5.4)%
Other liability
 
30,838

 
18.5
 %
 
27,881

 
17.1
%
 
10.6%
Other
 
2,858

 
1.7
 %
 
2,713

 
1.7
%
 
5.3%
Total commercial lines
 
129,212

 
77.7
 %
 
120,678

 
74.0
%
 
7.1%
 
 
 
 
 
 
 
 
 
 
 
Personal lines
 
(1,059
)
 
(0.7
)%
 
10,523

 
6.4
%
 
(110.1)%
Total property and casualty insurance
 
$
128,153

 
77.0
 %
 
$
131,201

 
80.4
%
 
(2.3)%
 
 
 
 
 
 
 
 
 
 
 
Reinsurance
 
 
 
 
 
 
 
 
 
 
Pro rata reinsurance
 
$
11,740

 
7.1
 %
 
$
10,138

 
6.2
%
 
15.8%
Excess of loss reinsurance
 
26,468

 
15.9
 %
 
21,773

 
13.4
%
 
21.6%
Total reinsurance
 
$
38,208

 
23.0
 %
 
$
31,911

 
19.6
%
 
19.7%
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
166,361

 
100.0
 %
 
$
163,112

 
100.0
%
 
2.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended 
 June 30, 2019
 
Six months ended 
 June 30, 2018
 
 
($ 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
 
$
76,400

 
22.6
 %
 
$
69,933

 
21.8
%
 
9.2%
Property
 
63,432

 
18.8
 %
 
57,053

 
17.8
%
 
11.2%
Workers' compensation
 
43,670

 
13.0
 %
 
45,366

 
14.1
%
 
(3.7)%
Other liability
 
60,001

 
17.8
 %
 
54,606

 
17.0
%
 
9.9%
Other
 
5,431

 
1.6
 %
 
4,907

 
1.5
%
 
10.7%
Total commercial lines
 
248,934

 
73.8
 %
 
231,865

 
72.2
%
 
7.4%
 
 
 
 
 
 
 
 
 
 
 
Personal lines
 
4,735

 
1.4
 %
 
19,605

 
6.1
%
 
(75.8)%
Total property and casualty insurance
 
$
253,669

 
75.2
 %
 
$
251,470

 
78.3
%
 
0.9%
 
 
 
 
 
 
 
 
 
 
 
Reinsurance
 
 
 
 
 
 
 
 
 
 
Pro rata reinsurance
 
$
25,621

 
7.6
 %
 
$
21,827

 
6.8
%
 
17.4%
Excess of loss reinsurance
 
58,036

 
17.2
 %
 
47,887

 
14.9
%
 
21.2%
Total reinsurance
 
$
83,657

 
24.8
 %
 
$
69,714

 
21.7
%
 
20.0%
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
337,326

 
100.0
 %
 
$
321,184

 
100.0
%
 
5.0%




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



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