Second Quarter Ended June 30, 2018
Net Loss Per Share – ($0.24)
Non-GAAP Operating Loss Per Share* – ($0.02)
Net Realized Investment Losses and Change in Net Unrealized 
  Investment Gains on Equity Investments Per Share – ($0.22)
Catastrophe and Storm Losses Per Share – $0.61
GAAP Combined Ratio – 109.8 percent

Six Months Ended June 30, 2018
Net Loss Per Share – ($0.24)
Non-GAAP Operating Income Per Share* – $0.18
Net Realized Investment Losses and Change in Net Unrealized
  Investment Gains on Equity Investments Per Share – ($0.42)
Catastrophe and Storm Losses Per Share – $0.78
GAAP Combined Ratio – 107.2 percent

2018 Non-GAAP Operating Income Guidance* of $0.95 to $1.15 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, Aug. 07, 2018 (GLOBE NEWSWIRE) -- EMC Insurance Group Inc. (Nasdaq:EMCI) (the “Company”), today reported a net loss of $5.0 million ($0.24 per share) and a loss and settlement expense ratio of 75.4 percent for the second quarter ended June 30, 2018, compared to net income of $5.5 million ($0.26 per share) and a loss and settlement expense ratio of 71.6 percent for the second quarter of 2017. For the six months ended June 30, 2018, the Company reported a net loss of $5.1 million ($0.24 per share) and a loss and settlement expense ratio of 73.2 percent, compared to net income of $12.3 million ($0.58 per share) and a loss and settlement expense ratio of 69.1 percent for the same period in 2017. Included in the net loss reported for the second quarter and first six months of 2018 are declines of $447,000 and $10.3 million, respectively, in unrealized investment gains on the Company’s equity investments as required by updated accounting guidance adopted by the Company on January 1, 2018. Excluding these amounts, the primary driver of the declines in net income reported for the second quarter and first six months of 2018 is a high level of non-catastrophe losses in the property and casualty insurance segment, partially offset by strong results in the reinsurance segment. Also contributing to the net losses reported for the second quarter and first six months of 2018 are $5.4 million and $952,000, respectively, of pre-tax realized investment losses, compared to $3.4 million and $2.8 million of pre-tax realized investment gains included in net income for the same periods in 2017. The income tax expense/benefit amounts reported for 2018 reflect the new 21 percent federal corporate tax rate, compared to the 35 percent federal corporate tax rate in effect in 2017.

The high level of non-catastrophe losses experienced by the property and casualty insurance segment during the second quarter of 2018 is primarily attributed to the workers’ compensation line of business, and stems from an adjustment made to the first quarter 2018 ultimate loss and settlement expense ratio projection during the second quarter. This was deemed necessary after it became apparent that the ultimate loss and settlement expense ratio established for the first quarter of 2018 needed to be revised due to unanticipated increases in both the frequency and severity of first quarter reported losses as claims emerged during second quarter. The increases in frequency and severity experienced on first quarter reported losses represents a significant departure from recent activity, and management continues to analyze the underlying data to validate the adequacy of the revised ultimate loss and settlement expense ratio established for the first quarter of 2018, and will act on a timely basis if additional revisions are deemed necessary. Based on initial observations, reported losses stemming from second quarter 2018 claims appear to be much lower than what was experienced on first quarter claims. 

“Workers’ compensation has been one of our best performing lines of business over the past few years,” stated President and Chief Executive Officer Bruce G. Kelley. “Our loss control services and various loss control programs, such as our select provider and return to work programs, helped mitigate the frequency and severity of losses during the past few years when mandatory rate decreases were being implemented. This resulted in the establishment of relatively stable ultimate loss and settlement expense ratios during those years. When the first quarter 2018 ultimate projection was determined to be inadequate, management responded swiftly and implemented a revised projection.”

Kelley continued, “The commercial auto and personal lines of business continue to under-perform expectations, but we remain committed to the initiatives we are implementing to return those lines of business to profitability.”

“Our reinsurance segment continues to perform well, and has achieved double-digit growth in premiums written during the first half of the year. We will continue to capitalize on opportunities for new business in the marketplace and increase participation on our best accounts whenever possible,” concluded Kelley.

Non-GAAP operating loss, which excludes net realized investment gains/losses and the change in net unrealized investment gains/losses on equity investments from net income/loss, totaled $365,000 ($0.02 per share) for the second quarter of 2018, compared to operating income of $3.3 million ($0.16 per share) for the second quarter of 2017. For the six months ended June 30, 2018, the Company reported non-GAAP operating income of $3.8 million ($0.18 per share), compared to $10.5 million ($0.49 per share) for the same period in 2017.

The Company’s GAAP combined ratio was 109.8 percent in the second quarter of 2018, compared to 105.0 percent in the second quarter of 2017. For the first six months of 2018, the Company’s GAAP combined ratio was 107.2 percent, compared to 103.2 percent in 2017. There was significant disparity by segment as the GAAP combined ratio totaled 115.0 percent and 111.3 percent in the property and casualty insurance segment, compared to 92.2 percent and 93.9 percent in the reinsurance segment for the three and six months ended June 30, 2018, respectively.

On January 1, 2018, the Company adopted updated accounting guidance issued by the FASB which prohibits including components of net periodic pension and postretirement benefit costs/income, other than the service cost component, in any capitalized asset. In conjunction with the adoption of this updated guidance, management elected to report all components of net periodic pension and postretirement benefit income, other than the service cost component, as other income in the consolidated statements of income. The service cost component continues to be reported in other underwriting expenses. This change in reporting was applied retrospectively for comparison purposes and did not impact the net income/loss or non-GAAP operating income amounts reported for the second quarter and first six months of 2018 and 2017, as other income and other underwriting expenses increased by the same amount; however, it did increase the acquisition expense ratios, and therefore the combined ratios, by 1.2 percentage points for the three and six months ended June 30, 2018 and 0.9 percentage points for the three and six months ended June 30, 2017.

Premiums earned increased 5.4 percent and 6.6 percent for the second quarter and first six months of 2018, respectively. In the property and casualty insurance segment, premiums earned increased 4.6 percent and 4.5 percent for the second quarter and first six months of 2018, respectively. These increases reflect small rate level increases on renewal business, an increase in retained policies in the commercial lines of business, and new business in both commercial and personal lines of business. In the reinsurance segment, premiums earned increased 8.3 percent and 14.1 percent for the second quarter and first six months of 2018, respectively. These increases are attributed to increases in participation on existing multi-line contracts, property per risk contracts, and a specialty casualty contract, higher estimated premiums on a large offshore energy contract within the pro rata line of business, and the addition of some new business. This was partially offset by a continued decline in Mutual Re (formerly Mutual Reinsurance Bureau) underwriting association premiums stemming from its withdrawal from non-standard automobile business.

Catastrophe and storm losses totaled $16.7 million ($0.61 per share after tax) and $21.4 million ($0.78 per share after tax) for the second quarter and first six months of 2018, compared to $15.1 million ($0.46 per share after tax) and $28.5 million ($0.87 per share after tax) for the same periods in 2017, respectively. On a segment basis, catastrophe and storm losses for the three and six months ended June 30, 2018, amounted to $15.7 million ($0.57 per share after tax) and $20.0 million ($0.73 per share after tax) in the property and casualty insurance segment, and $1.0 million ($0.04 per share after tax) and $1.4 million ($0.05 per share after tax) in the reinsurance segment, respectively.

No recoveries were made under the property and casualty insurance segment’s intercompany excess of loss reinsurance treaty with Employers Mutual Casualty Company (Employers Mutual) covering the first half of 2018, primarily due to the relatively low amount of catastrophe and storm losses incurred during the first quarter of 2018. Catastrophe and storm losses in the property and casualty insurance segment were capped at $10.2 million in the second quarter of 2017 under the intercompany reinsurance treaty covering the first half of 2017, with $16.0 million of catastrophe and storm losses ceded to Employers Mutual. Because of the cap on 2017 losses, the property and casualty insurance segment reported a higher level of catastrophe and storm losses in the second quarter of 2018 than the second quarter of 2017. This increase was partially offset by a $3.9 million decline in catastrophe and storm losses in the reinsurance segment over the same period.

The Company reported $511,000 ($0.01 per share after tax) and $6.1 million ($0.22 per share after tax) of favorable development on prior years’ reserves during the second quarter and first six months of 2018, respectively, compared to $1.7 million ($0.05 per share after tax) of adverse development and $13.2 million ($0.40 per share after tax) of favorable development for the same periods in 2017. The favorable development reported for the second quarter of 2018 occurred in the property and casualty insurance segment, but was partially offset by adverse development in the reinsurance segment. In the property and casualty insurance segment, favorable development totaled $3.2 million in the second quarter of 2018, compared to $850,000 in 2017. The majority of this favorable development occurred in the commercial liability line of business, reflecting reductions in the ultimate loss ratios for several accident years due to declines in expected frequency and/or severity. This favorable development was partially offset by adverse development in the workers’ compensation line of business, as the severity assumption for several prior accident years (mainly 2017) was revised upwards. 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. In the reinsurance segment, adverse development totaled $2.6 million in the second quarters of both 2018 and 2017.

Net investment income increased 5.4 percent and 4.4 percent to $11.8 million and $23.1 million for the second quarter and first six months of 2018, from $11.2 million and $22.2 million for the same periods in 2017, respectively. These increases are primarily attributed to growth in the fixed maturity portfolio and higher interest rates.

The pre-tax realized investment losses of $5.4 million and $952,000 reported 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, 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 gains of $3.4 million and $2.8 million for the second quarter and first six months of 2017 include $1.3 million and $3.6 million, respectively, of pre-tax realized investment losses attributed to a decline in the carrying value of this limited partnership.

Other income totaled $2.8 million and $4.4 million in the second quarter and first six months of 2018, 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. In the second quarter and first six months of 2017, other income totaled $1.0 million and $1.9 million, respectively, and includes $1.3 million and $2.6 million of net periodic pension and postretirement benefit income, and $529,000 and $1.1 million of foreign currency exchange losses.

At June 30, 2018, consolidated assets totaled $1.7 billion, including $1.5 billion in the investment portfolio, and stockholders’ equity totaled $568.1 million, a decrease of 5.9 percent from December 31, 2017. Book value of the Company’s common stock decreased 6.2 percent to $26.39 per share from $28.14 per share at December 31, 2017, primarily due to a decline in unrealized investment gains on the fixed maturity portfolio attributable to an increase in interest rates during the quarter, and the $0.22 per share quarterly dividend paid to stockholders.

During the second quarter of 2018, approximately $652,000 was used to repurchase 25,300 shares of the Company’s common stock under its stock repurchase program. Approximately $14.0 million remains under this program. The amount and timing of stock repurchases depends on several factors, including, but not limited to, general market conditions, the economic environment and the rate of return that can be achieved through the repurchase of stock compared to other alternatives.  

On July 26, 2018, management announced that, based on actual results for the first six month of 2018 and projections for the remainder of the year, it was revising its 2018 non-GAAP operating income guidance from the previous range of $1.10 to $1.30 per share to a range of $0.95 to $1.15 per share. This guidance is based on a projected GAAP combined ratio of 103.6 percent for the year and investment income growth in the low-single digits. The load for catastrophe and storm losses was reduced to 7.7 percentage points from the previous expectation of 9.0 percentage points; however, the 1.3 percentage point decline in the load for catastrophe and storm losses was offset by an increase in the amount of non-catastrophe losses expected in the property and casualty insurance segment.

The Company will hold an earnings conference call at noon Eastern time on Tuesday, August 7, 2018, 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 2018. 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 investors.emcins.com. 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 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, beginning in 2018, the change in net unrealized investment 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. Prior to 2018, investments in equity investments were classified as available-for-sale and changes in unrealized investment gains/losses on equity investments were recognized in other comprehensive income. Effective January 1, 2018, the Company adopted the updated financial instruments guidance issued by the FASB, which requires changes in the unrealized investment gains/losses on equity investments to be recognized in net income/loss rather than other comprehensive income. Changes in unrealized investment 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 investment 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 TO NON-GAAP OPERATING INCOME     
($ in thousands)        
 Three months ended June 30, Six months ended June 30, 
  2018   2017   2018   2017  
Net income (loss)$  (4,995) $  5,504  $  (5,071) $  12,308  
Realized investment (gains) losses   5,413     (3,387)    952     (2,760) 
Change in unrealized investment gains on equity investments   447   XXX     10,301   XXX  
Income tax expense (benefit)   (1,230)    1,185     (2,363)    966  
Net realized investment (gains) losses and, beginning in 2018,         
change in net unrealized investment gains on equity investments   4,630     (2,202)    8,890     (1,794) 
Non-GAAP operating income (loss)$  (365) $  3,302  $  3,819  $  10,514  
         
RECONCILIATION OF NET INCOME PER SHARE TO NON-GAAP OPERATING INCOME PER SHARE      
 Three months ended June 30, Six months ended June 30, 
  2018   2017   2018   2017  
Net income (loss)$  (0.24) $  0.26  $  (0.24) $  0.58  
Realized investment (gains) losses   0.25     (0.16)    0.04     (0.13) 
Change in unrealized investment gains on equity investments   0.02   XXX     0.48   XXX  
Income tax expense (benefit)   (0.05)    0.06     (0.10)    0.04  
Net realized investment (gains) losses and, beginning in 2018,         
change in net unrealized investment gains on equity investments   0.22     (0.10)    0.42     (0.09) 
Non-GAAP operating income (loss)$  (0.02) $  0.16  $  0.18  $  0.49  
         

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,
 2018  2017  2018  2017 
Loss and settlement expense ratio77.6% 70.2% 74.0% 68.3%
Catastrophe and storm losses  (12.9 )%   (8.8 )%   (8.3 )%   (8.7 )%
Favorable development on prior years' reserves2.6% 0.7% 2.2% 4.1%
Underlying loss and settlement expense ratio67.3% 62.1% 67.9% 63.7%
        

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)        
  Property and       
  Casualty   Parent   
Quarter ended June 30, 2018 Insurance Reinsurance 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 investment 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 (adverse) 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) adverse 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)        
  Property and       
  Casualty   Parent   
Quarter ended June 30, 2017 Insurance Reinsurance Company Consolidated
Revenues:        
Premiums earned $  116,187  $  33,650  $  -  $  149,837 
Investment income, net    7,958     3,201     12     11,171 
Other income (loss)1    1,559     (528)    -     1,031 
     125,704     36,323     12     162,039 
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 expenses1    19,531     602     -     20,133 
Interest expense     85     -     -     85 
Other expenses    231     -     571     802 
     123,389     34,237     571     158,197 
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 
Favorable (adverse) development 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 
(Favorable) adverse development on prior years'        
reserves $  (850) $  2,557  $  -  $  1,707 
GAAP Ratios:       
Loss and settlement expense ratio  70.2%  76.4%    -   71.6%
Acquisition expense ratio1  35.7%  25.3%    -   33.4%
Combined ratio1  105.9%  101.7%    -   105.0%
         
1  Amounts for other income (loss), other underwriting expenses and the acquisition expense and combined ratios are restated for new accounting guidance for the reporting of retirement benefit expenses that became effective January 1, 2018.


CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED       
($ in thousands, except share and per share amounts)         
  Property and        
  Casualty   Parent    
Six months ended June 30, 2018 Insurance Reinsurance 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 investment 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 STATEMENTS OF INCOME-UNAUDITED      
($ in thousands, except share and per share amounts)        
  Property and       
  Casualty   Parent   
Six months ended June 30, 2017 Insurance Reinsurance Company Consolidated
Revenues:        
Premiums earned $  229,835  $  64,489  $  -  $  294,324 
Investment income, net    15,973     6,184     21     22,178 
Other income (loss)1    3,000     (1,099)    -     1,901 
     248,808     69,574     21     318,403 
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 expenses1    39,741     1,026     -     40,767 
Interest expense     169     -     -     169 
Other expenses    410     -     1,153     1,563 
     242,181     62,160     1,153     305,494 
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 
Favorable development 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 
Favorable development 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 ratio1  36.8%  24.3%    -   34.1%
Combined ratio1  105.1%  96.4%    -   103.2%
         
1  Amounts for other income (loss), other underwriting expenses and the acquisition expense and combined ratios are restated for new accounting guidance for the reporting of retirement benefit expenses that became effective January 1, 2018.


CONSOLIDATED BALANCE SHEETS    
 June 30, December 31, 
  2018   2017 
($ in thousands, except share and per share amounts)(Unaudited)   
ASSETS    
Investments:    
Fixed maturity securities available-for-sale, at fair value     
(amortized cost $1,247,717 and $1,253,166)$ 1,241,699  $  1,275,016 
Equity investments, at fair value     
(cost $148,866 and $144,274)   222,397     228,115 
Equity investments, at alternative measurement    
of cost less impairments   3,200     -  
Other long-term investments   16,654     13,648 
Short-term investments   23,447     23,613 
Total investments   1,507,397     1,540,392 
     
Cash   259     347 
Reinsurance receivables due from affiliate   31,929     31,650 
Prepaid reinsurance premiums due from affiliate   14,376     12,789 
Deferred policy acquisition costs (affiliated $43,634 and $40,848)   43,861     41,114 
Prepaid pension and postretirement benefits due from affiliate   22,274     20,683 
Accrued investment income   10,424     11,286 
Amounts receivable under reverse repurchase agreements   16,500     16,500 
Accounts receivable   1,700     1,604 
Income taxes recoverable   5,116     - 
Goodwill   942     942 
Other assets (affiliated $3,943 and $4,423)   4,530     4,633 
Total assets$ 1,659,308  $  1,681,940 
     
LIABILITIES    
Losses and settlement expenses (affiliated $752,852 and $726,413)$  756,869  $  732,612 
Unearned premiums (affiliated $265,491 and $256,434)   266,500     257,797 
Other policyholders' funds (all affiliated)   8,027     10,013 
Surplus notes payable to affiliate   25,000     25,000 
Amounts due affiliate to settle inter-company transaction balances   588     367 
Pension benefits payable to affiliate   4,034     4,185 
Income taxes payable   -     544 
Deferred income taxes   7,807     15,020 
Other liabilities (affiliated $21,991 and $27,520)   22,416     32,556 
Total liabilities   1,091,241     1,078,094 
     
STOCKHOLDERS' EQUITY     
Common stock, $1 par value, authorized 30,000,000     
shares; issued and outstanding, 21,526,346    
shares in 2018 and 21,455,545 shares in 2017   21,526     21,455 
Additional paid-in capital   126,308     124,556 
Accumulated other comprehensive income (loss)   (5,944)    83,384 
Retained earnings   426,177     374,451 
Total stockholders' equity   568,067     603,846 
Total liabilities and stockholders' equity$ 1,659,308  $  1,681,940 
  


LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS        
  Three months ended June 30,
   2018   2017 
($ 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 $  31,660 $  26,717   84.4% $  29,014 $  23,744   81.8%
Property    27,196    23,529   86.5%    26,069    17,949   68.9%
Workers' compensation    25,229    22,513   89.2%    25,343    16,291   64.3%
Other liability    25,591    11,971   46.8%    24,254    14,319   59.0%
Other    2,228    125   5.6%    2,197    423   19.2%
Total commercial lines    111,904    84,855   75.8%    106,877    72,726   68.0%
             
Personal lines    9,591    9,400   98.0%    9,310    8,782   94.3%
Total property and casualty            
insurance $  121,495 $  94,255   77.6% $  116,187 $  81,508   70.2%
             
Reinsurance            
Pro rata reinsurance $  10,070 $  5,116   50.8% $  12,016 $  7,674   63.9%
Excess of loss reinsurance    26,381    19,720   74.8%    21,634    18,046   83.4%
Total reinsurance $  36,451 $  24,836   68.1% $  33,650 $  25,720   76.4%
             
Consolidated $  157,946 $  119,091   75.4% $  149,837 $  107,228   71.6%
             


LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS        
  Six months ended June 30,
   2018   2017 
($ 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 $  62,304 $  53,173   85.3% $  57,046 $  50,633   88.8%
Property    53,788    42,252   78.6%    51,571    35,488   68.8%
Workers' compensation    50,131    35,044   69.9%    50,046    30,065   60.1%
Other liability    50,553    29,672   58.7%    48,382    25,031   51.7%
Other    4,414    619   14.0%    4,306    330   7.7%
Total commercial lines    221,190    160,760   72.7%    211,351    141,547   67.0%
             
Personal lines    18,937    16,996   89.7%    18,484    15,481   83.8%
Total property and casualty            
insurance $  240,127 $  177,756   74.0% $  229,835 $  157,028   68.3%
             
Reinsurance            
Pro rata reinsurance $  23,143 $  9,781   42.3% $  22,451 $  13,820   61.6%
Excess of loss reinsurance    50,462    42,182   83.6%    42,038    32,665   77.7%
Total reinsurance $  73,605 $  51,963   70.6% $  64,489 $  46,485   72.1%
             
Consolidated $  313,732 $  229,719   73.2% $  294,324 $  203,513   69.1%
             


          
PREMIUMS WRITTEN         
 Three months ended  Three months ended   
 June 30, 2018 June 30, 2017  
   Percent of   Percent of Change in
 Premiums premiums Premiums premiums premiums
($ in thousands)written written written written written
Property and casualty insurance         
Commercial lines:         
Automobile$  36,977   22.7% $  34,645   22.3%   6.7%
Property   30,326   18.5%    28,525   18.4%   6.3%
Workers' compensation   22,781   14.0%    23,680   15.3%   (3.8)%
Other liability   27,881   17.1%    27,078   17.4%   3.0%
Other   2,713   1.7%    2,414   1.6%   12.4%
Total commercial lines   120,678   74.0%    116,342   75.0%   3.7%
          
Personal lines   10,523   6.4%    10,249   6.6%   2.7%
Total property and casualty insurance$  131,201   80.4% $  126,591   81.6%   3.6%
          
Reinsurance         
Pro rata reinsurance$  10,138   6.2% $  10,813   7.0%   (6.2)%
Excess of loss reinsurance   21,773   13.4%    17,741   11.4%   22.7%
Total reinsurance$  31,911   19.6% $  28,554   18.4%   11.8%
          
Consolidated$  163,112 100.0% $  155,145 100.0%   5.1%
          
 Six months ended Six months ended  
 June 30, 2018 June 30, 2017  
   Percent of   Percent of Change in
 Premiums premiums Premiums premiums premiums
($ in thousands)written written written written written
Property and casualty insurance         
Commercial lines:         
Automobile$  69,933   21.8% $  65,081   21.7%   7.5%
Property   57,053   17.8%    53,867   18.0%   5.9%
Workers' compensation   45,366   14.1%    46,759   15.6%   (3.0)%
Other liability   54,606   17.0%    52,005   17.3%   5.0%
Other   4,907   1.5%    4,697   1.5%   4.5%
Total commercial lines   231,865   72.2%    222,409   74.1%   4.3%
          
Personal lines   19,605   6.1%    18,789   6.3%   4.3%
Total property and casualty insurance$  251,470   78.3% $  241,198   80.4%   4.3%
          
Reinsurance         
Pro rata reinsurance$  21,827   6.8% $  19,505   6.5%   11.9%
Excess of loss reinsurance   47,887   14.9%    39,317   13.1%   21.8%
Total reinsurance$  69,714   21.7% $  58,822   19.6%   18.5%
          
Consolidated$  321,184 100.0% $  300,020 100.0%   7.1%
          


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