EX-99 2 ex99.htm EXHIBIT 99 ex99.htm
 
 
 
September 27,
 
 
 
Legal Disclaimer
 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.
 
 
 
Bruce G. Kelley
 
President &
Chief Executive Officer
 
 
 
Company Overview 
 
• Regional Property and Casualty Insurer; Headquartered in Des Moines, IA
 
 – Midwestern focus
• Long History
 
 – 1911 parent company formed (Employers Mutual Casualty Company (EMCC))
 – 1982 IPO (net proceeds: $2,516,665)
 – 1985 follow-on offering (net proceeds: $21,416,014)
 – 2004 follow-on offering (net proceeds: $34,890,000)
• Property and Casualty Insurance Segment
 
 – 30% participation in EMCC pool
 – Benefit from capacity of the entire pool
 – Diversified writings (86% commercial / 14% personal)
 – Represents approximately 80% of total written premium in 2009
• Reinsurance Segment
 
 – 100% Quota Share Agreement with EMCC
 – Losses capped at $3.0 million per event (effective January 1, 2010), at a cost of 10.5% of written
 premiums
 – German contracts written outside the Quota Share Agreement with EMCC (approx. $5 million in
 written premium)
 – EMCC has been assuming reinsurance business since 1951
 – Represents approximately 20% of total written premium in 2009
COMPANY OVERVIEW
 
 
 
Corporate Structure
 
COMPANY OVERVIEW
*As of June 30, 2010
EMC Insurance
Group Inc.
Employers Mutual
Casualty Company
Public Shareholders
60%*
40%*
Property and Casualty
Insurance Segment
Reinsurance Segment
(100% of Employers Mutual’s
Assumed Reinsurance Business -
Some direct writings beginning
In 2009)
 
 
Pooling Mechanism
- Cede 100% of direct
 business to inter-company
 pool
- Receive 30% of the
 pooled underwriting
 results
 
In May 2005, EMCC’s Board
Authorized a $15 million stock
purchase program, which is
70% complete.
Currently, $25 million stock
repurchase program authorized.
As of 9-21-10, $23.0 million
has been used to repurchase
974,633 shares.
 
 
 
Average Years w/ EMC: 23 years
Average Years in Industry: 29 years
Experienced Management Team
 
COMPANY OVERVIEW
 
 
 
Benefits of the Pooling Agreement
 
• Spread risk over a wide range of geographic locations, lines of insurance
 written, rate filings, commission plans and policy forms
• Benefit from capacity of the entire pool: $1.1 billion in direct premiums
 written in 2009 and $1.0 billion of statutory surplus as of 6/30/10
• The achievement of an “A-” (Excellent) rating from A.M. Best with
 positive outlook
• Network of 2,300 insurance agencies in 41 state distribution network
• Merger and acquisition flexibility
• Economies of scale in operations and purchase of reinsurance
COMPANY OVERVIEW
 
 
 
Note: Percentages are
Direct Written Premium
in 2009
5.5%
4.4%
6.3%
3.4%
5.7%
15.9%
6.2%
4.7%
3.4%
8.2%
3.1%
3.5%
3.3%
6.3%
3.5%
Midwestern Focus
 
 
 
Local Market Presence
• 16 branch offices and 5 service offices
• Decentralized: each branch office performs its own marketing,
 underwriting, risk management and claims functions
• Higher expenses, but this local presence allows us to enhance
 relationships with agents and customers
• Structure allows us to develop products, develop marketing,
 and develop pricing targeted to individual territories
COMPANY OVERVIEW
 
 
 
Diversified Book of Business
COMPANY OVERVIEW
2009 Net Premiums
Earned - Total
2009 Net Premiums
Earned - P&C only
$384.0 million
Note: P&C breakdown represents business produced by pool participants.
 
 
 
Commercial Lines Business
COMPANY OVERVIEW
COUNTRY-WIDE COMMERCIAL LINES WRITTEN PREMIUM
(Program business constitutes 40.5% of commercial lines written premium)
Program
Written
Premium Increase
Ratio of Incurred Losses
to Earned Premiums
Program Details
EMC Choice
8.5%
61.0%
(13 select business coverages, including auto services,
boat dealers, artisan contractors, equipment dealers,
financial institutions, metal manufacturers, motels,
hospitals, dry cleaners, wholesalers, printers, auto repair,
and religious institutions - local agents take the lead)
Target Markets
5.9%
67.4%
(schools, municipalities, auto/rv dealers,
telecommunications, local towing, milk haulers,
petroleum dealers, water/sanitation distribution,
manufactured housing - branch specific)
Safety Groups
1.8%
47.5%
(target markets offering dividends)
Note: As of June 30, 2010
 
 
 
12/31/1995
12/31/2009
Split of Business
International business is 5.5% Property XS; 7.0% Property Pro Rata
EMC Reinsurance
COMPANY OVERVIEW
 
 
 
Premiums Earned
COMPANY OVERVIEW
Annual Growth 8.7% 9.6% 14.6% 11.9% 11.3% 4.5% 20.3% -5.8% 0.4% -1.0% -1.4% 0.7%
1Reflects increase in participation percentage in the inter-
company pool
2Reflects reduction in MRB premiums and revised terms of
quota share agreement for the reinsurance segment
Projected
$ in millions
 
 
 
Jason R. Bogart
 
Vice President -
Branch Operations
 
 
 
EMC Agency Relations
 
AGENCY RELATIONS
Our mission is to create stockholder value through
 customer satisfaction and employee commitment to
 excellence, and is designed to directly coincide
 with our parent organization’s mission - to grow
 profitably through partnership with independent
 insurance agents and to enhance the ability of our
 partners to deliver quality financial protection to
 the people and businesses we mutually serve.
 
 
 
Benefits of Doing Business with EMC
 
AGENCY RELATIONS
EMC is represented
through local
independent insurance
agents and is committed
to the independent
agency system. We
believe independent
agents bring a superior
level of personalized
service to our insurance
customers.
 
 
 
Local Service
AGENCY RELATIONS
Our strategically located
branch offices provide local
service in the areas of
underwriting, claims,
marketing and loss control,
and our local market presence
allows us to meet the needs of
each unique territory.
 
 
 
Local Service
EMC Territories & Independent Agents
AGENCY RELATIONS
 
 
 
EMC Agency Relations
 
• 17.2% of EMC’s 2,300 member agency force consists of Premier
 and Leading Partner agencies
 ― These Premier and Leading Partner agencies produced over 38% of the
 pool’s new business volume in 2009
• EMC continues to seek out and appoint top-quality agents
 ― More than 150 new agencies joined EMC Insurance Companies in 2009 and
 118 new agencies have been added in 2010.
 • Some of which are located in the northwestern region where expansion initiatives are
 being accomplished through our branch office structure.
AGENCY RELATIONS
 
 
 
Time-Saving Technology
 
AGENCY RELATIONS
EMC strives to provide exceptional service and efficient online services,
and is also a leader in real-time and download technology.
 
 
 
Quick, Efficient Business
 
Our secure, online environment for agents lets them conduct business quickly and efficiently,
from submitting an online quote to reporting claims to viewing past due account reports.
AGENCY RELATIONS
 
 
 
Agency Testimonials
 
AGENCY RELATIONS
A Winning Website
“I can tell you, as insurance websites go, yours in one of the nicest I have ever had the pleasure to work with.
You’ve definitely got a winner here. From an administrative point of view, it is awesome. Very easy to figure
out, even when I logged in the first time. Everything was very logical, clearly accessible and it made sense! I
work with over a hundred insurance websites and I only wish I could send your website design people to visit a
lot of them and show them how a great website should work.
The ease with which I was able to add the different roles to our employees was truly appreciated. From large
commercial to small business, to risk management, to claims, to accounting, each role was spelled out clearly
and, again, it made sense. I can already see that our producers are going to have no problems working with
your site, as I noticed several very handy tools to assist them. Our claims and accounting people are going to
appreciate the parts of your website that allow them to do their jobs with less work on their parts.
Thanks you very much for providing us with a clean and extremely efficient website to use. We are looking
forward to doing a lot of business with your company.”
 Rosanna I, Krenn
 Web Portal & Online Administration
 Henderson Brothers, Inc.
 Pittsburgh, Pennsylvania
 
 
 
 
Agency Testimonials
 
AGENCY RELATIONS
Ease and Efficiency
“The new EMC site is a perfect example of what we expect from the companies we represent - a comprehensive
and easy-to-navigate experience for our agency and customers.
What impresses us most about the new EMC site is its maneuverability. It’s easy for us to get to the
information we need - marketing manuals, policy snapshots complete with endorsements and forms, and loss
control information. The online training and certification is something we have been looking to proved to
customers, and we are happy to direct them to emcins.com for this valuable service.
We may not access company sites on a daily basis and often times, when we return to those sites, it’s difficult
for us to remember how to navigate them. This will not be the case with emcins.com. It’s clean, simple to
understand and will be a welcome asset to improving the efficiency of our agency.”
 Amy W. Smith, CPCU, CIC, AU
 Vice President
 Ross & Yerger Insurance, Inc.
 Jackson, Mississippi
 
 
 
 
Agency Testimonials
 
AGENCY RELATIONS
Design and Function
“We use our agency website to market the resources of Van Wyk Corporation, but we depend on our carriers’
sites to help us service that business. The new EMC website will be of tremendous value in responding to our
customers’ needs.
Go to emcins.com and you’ll see what I mean:
•The clean look of the home page makes it simple to quickly locate the information you need
•The choice of soothing colors makes this site easy on your eyes
•Go from page to page and you’ll soon realize how effortlessly you can navigate through the new site
From design to functionality, EMC has done an outstanding job of streamlining every aspect of the website,
which streamlines our agency’s ability to serve our EMC policyholders.”
 Max Van Wyk
 Chief Executive Officer
 Van Wyk Corporation
 Grand Rapids, Michigan
 
 
 
 
Loss Control Services
AGENCY RELATIONS
EMC offers a wide range of
loss control services
to protect our commercial
customers from losses,
including an online training
system, loss prevention
information, industry
specific resources and
safety tools and resources.
 
 
 
Online Training
 
AGENCY RELATIONS
EMC’s online training
system allows managers to
administer training at their
convenience and track
employee progress.
 
 
 
Experienced Staff
 
AGENCY RELATIONS
EMC’s high employee retention rate and dedication
to professional development and continuing
education for employees means our customers can
count on a highly experienced staff.
 
 
 
Kelvin B. Sederburg
 
 
 
 
Actuarial Perspective: Loss/LAE Reserves
 
• Reserving Philosophy
• Loss Reserving Methodology
• Reserve Adequacy
• EMCI vs. Industry Loss Development
• Composition of Accident Year Reserves
• Distribution of Bulk IBNR Reserves
ACTUARIAL REVIEW
 
 
 
Reserving Philosophy
 
Consistency of Focus and Execution
Focus:
• Consistent Level of Overall Reserve Adequacy
Execution:
• Consistent approach to reserving reported claims
• Consistent actuarial evaluations of reserve adequacy
• Consistent allocation of Bulk Reserves to Accident
 Quarter
ACTUARIAL REVIEW
 
 
 
Loss Reserving Methodology - Direct
 
ACTUARIAL REVIEW
1. Claims department establishes individual case reserves.
2. Overall bulk reserve level established on basis of
 actuarial reserve evaluations.
3. Bulk reserves allocated to accident years on basis of
 consistent methodology.
4. Allocated accident year bulk reserves added to accident
 year individual case reserves.
5. Accident year reserve levels are NOT determined by
 “explicit” or “targeted” accident year “loss picks”.
 
 
 
Loss and LAE Reserve Adequacy
 
ACTUARIAL REVIEW
 
 
 
Development of Accident Year Reserves
through 12/31/20091
 
Standard Deviation
EMC Group Inc: 11.2%
Industry Peers2: 19.9%
1 1998 & 1999 Development as of 12/31/2007
2 A M Best Commercial Casualty Composite
ACTUARIAL REVIEW
Average Developed Adequacy
EMC Group Inc: +8.0%
Industry Peers2 : -4.4%
 
 
 
Accident Year Direct Loss Reserves
ACTUARIAL REVIEW
 
 
 
Direct IBNR Loss Reserves
Distribution by Accident Year @ 12/31/2009
ACTUARIAL REVIEW
 
 
 
Reserves
ACTUARIAL REVIEW
 
 
 
Indicated Reserve Adequacy
 
($ in millions)
ACTUARIAL REVIEW
 
 
 
Scott R. Jean
Vice President -
Chief Actuary
 
 
 
ACTUARIAL REVIEW
Best’s Capital Adequacy Ratio
 
Source: A. M. Best
Adjusted Policyholder Surplus
Net Required Capital
 
 
 
ACTUARIAL REVIEW
Best’s Capital Adequacy Ratio
 
EMC BCAR: 67th Percentile of A Rated
Companies
Includes Group or un-affiliated singles with >$250,000 of premium and a BCAR between 100 and 998
EMC BCAR: 78th Percentile of A- Rated
Companies
 
 
 
Market Barometer
6/30/2010
ACTUARIAL REVIEW
Source: MarketScout
 
 
 
ACTUARIAL REVIEW
Countrywide Cumulative Rate Changes
 
*Projected
 
 
 
June 2010 vs. June 2009
Business Owners
Commercial Property
Workers’ Compensation
General Liability
Commercial Auto
Home Owners
Personal Auto
+2.5%
+2.0%
-1.4%
-2.6%
 -0.8%
  0.0%
Estimated Changes in Rate Levels on P&C
Insurance Policies
ACTUARIAL REVIEW
Sources for Industry Data: Market Scout and Conning
 
 
 
P&C Insurance Segment Written Premiums
 
FINANCIAL REVIEW
Note: Direct business only; excludes assumed
and ceded premiums.
New premium year over year: 4% increase
 
 
 
ACTUARIAL REVIEW
Loss Trends
 
 
 
ACTUARIAL REVIEW
Loss Trends
 
 
 
ACTUARIAL REVIEW
Storm Prediction Center
Severe Storms
 
 
 
ACTUARIAL REVIEW
Storm Prediction Center
EMC Premium Weighted Storms
Source: Storm Prediction Center and SNL Financial
Storm counts by individual state were weighted with
EMC state level property premium to arrive at the
EMC Premium Weighted Storm counts displayed on
this slide.
 
 
 
ACTUARIAL REVIEW
Storm Prediction Center
EMC Premium Weighted Storms
5 Year Trends
Source: Storm Prediction Center and SNL Financial
Storm counts by individual state were weighted with
EMC state level property premium to arrive at the
EMC Premium Weighted Storm counts displayed on
this slide.
 
 
 
Lisa A. Stange
 
Vice President - Investments
 & Treasurer
 
 
 
INVESTMENTS
Invested Assets of $1.1 Billion
EQUITIES
Focus on lower volatility/ more
downside protection
5 yr avg portfolio ROR = -0.51%
5 yr avg S&P 500 ROR = -0.79%
BONDS & CASH
Effective Duration 5.6 yrs.
Yield of 5.12%
Avg Quality AA
As of 6/30/2010
 
 
 
Investment Portfolio
As of June 30, 2010
Fair Values
($ in thousands)
 
 
 
INVESTMENTS
Investment Income
$ in thousands
* Change in Pool Participation effective 1/1/2005
Projected
 
 
 
INVESTMENTS
Bond Quality vs. Industry - 12/31/2009
NAIC Ratings
*Source: SNL; 12/31/2009 data is most
recent available for industry
 
 
 
Bond Quality*
as of June 30, 2010
INVESTMENTS
 
 
 
INVESTMENTS
Equity Portfolio
 
As of June 30, 2010
 
 
 
Mark E. Reese
Senior Vice President &
Chief Financial Officer
 
 
 
Catastrophe and Storm Losses - $20.0 million ($14.9 million in 2009) 
 • $0.99 per share after tax ($0.73 per share after tax in 2009)  
Large Losses - $7.0 million ($7.5 million in 2009)
 • $0.35 per share after tax ($0.37 per share after tax in second quarter 2009)
Realized Investment Losses/Gains - $0.3 million ($7.7 million in 2009)
 • $0.02 per share after tax ($0.38 per share after tax in 2009)
Investment Impairment Losses - $1.9 million ($9.1 million in 2009)
 • $0.10 per share after tax ($0.45 per share after tax in 2009)
Premiums Earned - $188.8 million ($188.6 million in 2009)
GAAP Combined Ratio - 103.3 percent  (99.5 percent in 2009)
Net Operating Income - $1.02 per share ($1.34 per share in 2009)
Net Income - $1.00 per share ($0.96 per share in 2009)
Book Value - $27.62 per share ($23.22 at June 30, 2009)
First Six Months of 2010 - At a Glance
SHAREHOLDER VALUE
 
 
 
Selected Financial Results
 
 
 
Source: Bloomberg
The Company has paid 115 consecutive quarterly dividends
since the Company’s inception in 1982; current quarterly
dividend is $0.18 per share.
Peer Comparison of
Returns to Shareholders
SHAREHOLDER VALUE
 
 
 
Book Value Per Share
SHAREHOLDER VALUE
* 10/20/2004 follow-on stock offering resulted in an increase of 2,000,000 shares of common
stock and an increase in additional paid-in capital of $32,890,058.
*
 Annual Growth 4.3% -5.6% 11.6% 13.6% 7.1% 14.0% 16.9% 16.5% -18.4% 22.5%
June
 
 
 
Retention Ratios
NOTE: At 06/30/2010, Commercial Lines
retention, excluding bonds, was 86% and
Personal Lines retention was 84.4%.
FINANCIAL REVIEW
 
 
 
GAAP Combined Ratios
*Note: As of June 30, 2010
FINANCIAL REVIEW
Total
Combined Ratio
115.2%  113.5%  112.4%  101.3%  99.8%  104.2%  94.7%  92.8%  96.8%  109.1%  100.3%  103.3%
 
 
 
COMPANY OVERVIEW
Source: Company statutory filings and A.M. Best.
 EMC Insurance Group has outperformed the property and casualty insurance industry
 annually on a statutory basis by an average of 4.1 percentage points since 1990.
Total Loss Ratio includes Loss Ratio and LAE Ratio
Reserve Strengthening
Heavy Midwest storms
Hurricane Andrew
Average 4.1%
Record Midwest Storms
Significantly Lower Total Statutory Loss Ratio
 
 
 
 
FINANCIAL REVIEW
Net Income (Loss) Per Share
* Other-than-temporary impairments (OTTI) were not reportable before 2002
June
 
 
 
FINANCIAL REVIEW
June
 
 
 
EMCI Historical Results/Returns
SHAREHOLDER VALUE
8.3%
 Net ROE -0.5 % 1.6% -1.5% 10.8% 12.0% 6.4% 17.5% 18.8% 12.7% -0.5% 14.5% 7.5%
*Annualized as of June 30, 2010
 Op ROE -0.6 % 0.9% -1.8% 12.2% 11.6% 5.1% 16.5% 17.8% 12.0% 4.4% 10.8% 7.6%
NOTE: Net ROE equals net income for the periods presented divided by average stockholders’
equity for the year-to-date period, and the return in annualized if necessary.; Operating ROE
substitutes operating income for net income in the calculation.
 
 
 
Note: Average cat & storm losses as a percent of earned premium for the
period 1999-2009 was 6.6%. Excluding the excess cat & storm losses
incurred in 2008, 2009 and 2010, the results and returns are as follows:
EMCI Historical Results/Returns
SHAREHOLDER VALUE
8.3%
Net ROE -0.5% 14.5% 7.5%*
10.1%
Net ROE 4.8% 15.3% 10.2%*
*Annualized as of June 30, 2010
 8.9%
Op ROE     4.4% 10.8% 7.6%*
Op ROE    9.6% 11.7% 10.3%*
 
 
 
Selected Balance Sheet Amounts
FINANCIAL REVIEW
 
 
 
Balance Sheet
June 30, 2010
• Investments
 – $1.1 billion invested assets
 – 86.6% fixed maturity securities (based on amortized cost)
 • 98.6% investment grade
 • Effective duration : 5.60 years
 • Annualized yield on bond portfolio and cash: 5.12%
 – 5-yr average total rate of return on equity portfolio: - 0.51%
 • 5-yr average S&P 500 total rate of return: - 0.79%
• Loss and Settlement Expense Reserves
 – Quarterly internal actuarial reviews
 – Any necessary adjustments are made on a timely basis
• Debt
 – Only debt is $25 million of surplus notes issued by the property and casualty insurance
 subsidiaries to Employers Mutual - annual interest rate of 3.60%
FINANCIAL REVIEW
 
 
 
2010 Guidance
FINANCIAL REVIEW
Operating Income of $1.65 to $1.90 per share
 
 
 
Investment Highlights
• Access to a large capital base and a diversified book
 of business through participation in the EMCC pool
• Regional, decentralized operating structure (Midwest focus)
• Proven ability to deliver attractive returns to shareholders:
 – Compound annual total shareholder return of
 13.2% over the past ten years and 10.0% over the past twenty years*
 – Dividend yield of 3.29 percent as of 6/30/2010
• Conservative balance sheet
• Experienced senior management team
FINANCIAL REVIEW
* Source: Bloomberg
 
 
 
Thank You!