EMC Insurance Group Inc. Reports 2016 Fourth Quarter and Year-End Results, and Announces 2017 Non-GAAP Operating Income[1] Guidance and Participation by Management at Industry Conferences


Fourth Quarter Ended December 31, 2016
Net Income Per Share – $1.01
Non-GAAP Operating Income Per Share – $0.86
Net Realized Investment Gains Per Share – $0.15
Catastrophe and Storm Losses Per Share – $0.07
GAAP Combined Ratio – 91.7 percent

Year Ended December 31, 2016
Net Income Per Share – $2.20
Non-GAAP Operating Income Per Share – $2.07
Net Realized Investment Gains Per Share – $0.13
Catastrophe and Storm Losses Per Share – $1.48
GAAP Combined Ratio – 97.7 percent

2017 Non-GAAP Operating Income Guidance – $1.35 to $1.55 per share

DES MOINES, Iowa, Feb. 10, 2017 (GLOBE NEWSWIRE) -- EMC Insurance Group Inc. (NASDAQ:EMCI) (the “Company”), today reported net income of $21.3 million ($1.01 per share) for the fourth quarter ended December 31, 2016, compared to net income of $9.9 million ($0.48 per share) for the fourth quarter of 2015. For the year ended December 31, 2016, the Company reported net income of $46.2 million ($2.20 per share), compared to $50.2 million ($2.43 per share) for the same period in 2015.

Non-GAAP operating income, which excludes realized investment gains/losses from net income, totaled $18.2 million ($0.86 per share) for the fourth quarter of 2016, compared to $13.4 million ($0.65 per share) for the fourth quarter of 2015. For the year ended December 31, 2016, the Company reported non-GAAP operating income of $43.6 million ($2.07 per share), compared to $46.2 million ($2.24 per share) for the same period in 2015.

The Company’s GAAP combined ratio was 91.7 percent in the fourth quarter of 2016, compared to 94.1 percent in the fourth quarter of 2015. For the year ended December 31, 2016, the Company’s GAAP combined ratio was 97.7 percent, compared to 96.3 percent in 2015.

“We are pleased to report our lowest fourth quarter GAAP combined ratio since 2005,” stated President and Chief Executive Officer Bruce G. Kelley. “The property and casualty insurance segment performed better than expected, which allowed us to exceed expectations.”

“Our new intercompany reinsurance program for the property and casualty insurance segment performed as expected given the quarterly amount of catastrophe and storm losses that were reported. For 2017, we anticipate more consistency in our quarterly results as the intercompany reinsurance programs for both the property and casualty insurance segment and the reinsurance segment were renewed.”

Management is projecting 2017 non-GAAP operating income will be within a range of $1.35 to $1.55 per share. This guidance is based on a projected GAAP combined ratio of 100.3 percent for the year and investment income flat to down slightly. The projected GAAP combined ratio has a load of 9.4 points for catastrophe and storm losses, up from the relatively low 8.1 points experienced in 2016. Net realized investment gains/losses resulting from the sale of assets are not predictable due to changing market conditions and the discretionary nature of such events. As a result, management is unable to accurately project the Company’s annual net income, and therefore utilizes non-GAAP operating income in the Company’s projected annual guidance.

Kelley continued, “The 2017 guidance reflects management’s expectation for further rate softening and increased competition, which will continue to pressure margins in both segments. As we continue to gain traction from the commercial auto and personal lines initiatives we have underway, we remain optimistic that we will begin to see gradual improvement in the performance of these lines of business during 2017.”

Premiums earned increased 7.0 percent and 3.9 percent for the fourth quarter and year ended December 31, 2016. In the property and casualty insurance segment, premiums earned increased 3.4 percent and 2.1 percent for the fourth quarter and year ended December 31, 2016. The new intercompany reinsurance program between the Company’s three property and casualty insurance subsidiaries and Employers Mutual Casualty Company (Employers Mutual), the Company’s parent organization, reduced premiums earned by $765,000 and $7.8 million for the fourth quarter and year ended December 31, 2016. Excluding the cost of this program, premiums earned increased 4.1 percent and 3.8 percent, respectively. The majority of these increases are attributed to growth in insured exposures, an increase in new business, an increase in retained policies in the commercial lines of business, and small rate level increases on renewal business.

In the reinsurance segment, premiums earned increased 22.1 percent and 10.5 percent for the fourth quarter and year ended December 31, 2016. These increases reflect changes in the total cost of the revised intercompany reinsurance program with Employers Mutual, as well as a $7.2 million negative premium adjustment recorded in the fourth quarter of 2015.  Excluding these factors, premiums earned decreased approximately 3.0 percent for the fourth quarter, but increased approximately 2.6 percent for the year ended December 31, 2016. The decrease for the fourth quarter was driven by a decline in pro rata business, which was partially offset by an increase in excess of loss business.

The total cost of the reinsurance segment’s revised intercompany reinsurance program increased $134,000 for the fourth quarter, but declined $2.3 million for the year ended December 31, 2016. In 2016, the total cost of the intercompany reinsurance program includes the premiums paid to Employers Mutual, as well as the cost of Industry Loss Warranties (ILWs) that were purchased from external parties to provide increased protection in peak exposure territories. During 2015, the premium paid to Employers Mutual (8 percent of total assumed reinsurance premiums written) included the cost of ILWs purchased by Employers Mutual for its benefit.

Catastrophe and storm losses totaled $2.4 million ($0.07 per share after tax) in the fourth quarter of 2016, compared to $3.6 million ($0.11 per share after tax) in the fourth quarter of 2015. Catastrophe and storm losses were capped at $512,000 in the property and casualty insurance segment because the retention amount under the July 1 to December 31 treaty was reached. Fourth quarter 2016 catastrophe and storm losses accounted for 1.6 percentage points of the combined ratio, which was below the Company’s most recent 10-year average of 3.1 percentage points for this period and the 2.6 percentage points experienced in the fourth quarter of 2015.

For the year ended December 31, 2016, catastrophe and storm losses totaled $47.9 million ($1.48 per share after tax), compared to $44.4 million ($1.40 per share after tax) in 2015. The property and casualty insurance segment recovered $7.5 million of catastrophe and storm losses from Employers Mutual under the intercompany reinsurance program during 2016. No recoveries were made under the reinsurance segment’s intercompany reinsurance program during 2016.

The Company reported $11.8 million ($0.36 per share after tax) of favorable development on prior years’ reserves during the fourth quarter of 2016, compared to $15.2 million ($0.47 per share after tax) in the fourth quarter of 2015. Included in the reported amount for the fourth quarter of 2015 is $1.9 million of favorable “mechanical” development resulting from a change in the allocation of bulk reserves between the current and prior accident years. For the year ended December 31, 2016, the Company reported favorable development of $40.9 million ($1.27 per share after tax), compared to $35.1 million ($1.11 per share after tax) in 2015. Included in the reported amount for 2016 is $5.6 million of favorable “mechanical” development resulting from the change in the property and casualty insurance segment’s reserving methodology, and included in the 2015 amount is $0.6 million of adverse “mechanical” development resulting from a change in the allocation of bulk reserves between the current and prior accident years. Excluding the “mechanical” development amounts, which do not have any impact on earnings, the implied amounts of favorable development that had an impact on earnings would be approximately $11.8 million and $35.3 million for the fourth quarter and year ended December 31, 2016, compared to $13.3 million and $35.7 million for the same periods in 2015.

On a segment basis, fourth quarter 2016 favorable development totaled $7.8 million in the property and casualty insurance segment and $4.0 million in the reinsurance segment. The favorable development in the property and casualty insurance segment was primarily driven by moderate reductions in the ultimate loss ratios for several accident years in the workers’ compensation line of business and a reduction in settlement expense reserves. The favorable development in the reinsurance segment was primarily driven by a reduction in carried reserves primarily associated with the 2015 accident year.

Large losses are defined as reported current accident year losses greater than $500,000 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. Under the property and casualty insurance segment's prior reserving methodology, large losses had a direct impact on earnings. Under the new reserving methodology, large losses are taken into consideration when establishing the current accident quarter/year ultimate estimates of losses, but there is no longer a direct relationship between large losses and earnings. As a result, beginning in the third quarter of 2016, large losses are no longer being reported separately.

Net investment income totaled $11.6 million for the fourth quarter ended December 31, 2016, which is consistent with the fourth quarter of 2015. Net investment income increased 4.2 percent to $47.5 million for the year ended December 31, 2016, from $45.6 million for the same period in 2015. This increase primarily reflects growth in dividend income and income from other invested assets portfolio.

Net realized investment gains totaled $4.7 million ($0.15 per share after tax) and $4.1 million ($0.13 per share after tax) for the fourth quarter and year ended December 31, 2016, compared to net realized investment losses of $5.4 million ($0.17 per share after tax) and net realized investment gains of $6.2 million ($0.19 per share after tax) for the same periods in 2015. Included in net realized investment gains reported for the fourth quarter and year ended December 31, 2016 are $1.2 million and $6.5 million, respectively, of net realized investment losses attributed to declines 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. Included in the net realized investment gains/losses reported for the fourth quarter and year ended December 31, 2015 are net realized investment losses of $5.3 million and $1.5 million, respectively, attributed to declines in the carrying value of this limited partnership.

Income tax expense totaled $7.9 million and $17.0 million for the fourth quarter and year ended December 31, 2016, compared to $4.0 million and $21.5 million for the same periods. The effective tax rate was 27.1 percent and 26.9 percent for the fourth quarter and year ended December 31, 2016, compared to 28.9 percent and 30.0 percent for the same periods in 2015. In the fourth quarter of 2016, the Company benefited from an investment in a limited liability company that is designed to provide a return on investment through the receipt of renewable energy tax credits. The tax credits reduced the income tax expense, resulting in an increase in net income of approximately $1.3 million. Without these credits, the effective tax rate would have been 31.9 percent and 29.1 percent for the fourth quarter and year ended December 31, 2016.

At December 31, 2016, consolidated assets totaled $1.6 billion, including $1.5 billion in the investment portfolio, and stockholders’ equity totaled $553.3 million, an increase of 5.4 percent from December 31, 2015. Book value of the Company’s stock increased 3.2 percent to $26.07 per share from $25.26 per share at December 31, 2015, but declined 2.2 percent from September 30, 2016, due to a decline in the market value of the investment portfolio caused by an increase in interest rates. Book value excluding accumulated other comprehensive income increased 6.5 percent to $23.90 per share from $22.45 per share at December 31, 2015, and increased 3.5% from $23.09 on September 30, 2016. These increases were primarily driven by net income for the periods represented.

The Company will hold an earnings teleconference call at noon Eastern time on Friday, February 10, 2017, to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company’s results for the fourth quarter and year ended December 31, 2016, as well as its expectations for 2017. Dial-in information for the call is toll-free 1-866-652-5200 (International: 1-412-317-6060).

Members of the news media, investors and the general public are invited to access a live webcast of the conference call via the Company’s investor relations page at www.emcins.com/ir. The webcast will be archived and available for replay for approximately 90 days following the earnings call. A transcript of the teleconference will be available on the Company’s website shortly after the completion of the teleconference.

Participation by Management at Industry Conferences
On March 8, 2017, Mark E. Reese, Senior Vice President and Chief Financial Officer will participate in meetings with institutional investors at the RBC Capital Markets Financial Institutions Conference in New York. The conference will take place at the Lotte New York Palace Hotel, located at 455 Madison Avenue, New York, NY.

Additionally, on Tuesday, March 21, 2017, Bruce G. Kelley and Kevin J. Hovick, Executive Vice President & COO, will present at the 21st Annual New York Society of Security Analysts (NYSSA) Insurance Conference in New York. The presentation will occur at 11:20 a.m. Eastern time at the offices of the NYSSA, located at 1540 Broadway, New York, NY. Interested persons may access the presentation slides on the Company’s investor relations website at http://www.emcins.com/ir/Presentations.aspx on the day of the presentation. A live webcast of the event will not be available to the general public.

About EMCI
EMC Insurance Group Inc. is a publicly held insurance holding company with operations in property and casualty insurance and reinsurance, which was formed in 1974 and became publicly held in 1982. The Company’s common stock trades on the Global Select Market tier of the NASDAQ Stock Market under the symbol EMCI. Additional information regarding EMC Insurance Group Inc. may be found at www.emcins.com/ir. EMCI’s parent company is Employers Mutual. 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 into account all information currently available to management. These beliefs, assumptions and expectations can change as the result of many possible events or factors, not all of which are known to management. If a change occurs, the Company’s business, financial condition, liquidity, results of operations, plans and objectives may vary materially from those expressed in the forward-looking statements.

The risks and uncertainties that may affect the actual results of the Company include, but are not limited to, the following:

  • catastrophic events and the occurrence of significant severe weather conditions;
  • the adequacy of loss and settlement expense reserves;
  • state and federal legislation and regulations;
  • changes in the property and casualty insurance industry, interest rates or the performance of financial markets and the general economy;
  • rating agency actions;
  • “other-than-temporary” investment impairment losses; and
  • other risks and uncertainties inherent to the Company’s business, including those discussed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K.

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

Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures
The Company prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Management uses certain non-GAAP financial measures for evaluating the Company’s performance. One of the primary non-GAAP financial measures utilized by management for evaluating the Company’s performance is operating income. Management’s operating income guidance is also considered a non-GAAP financial measure.

[1] Non-GAAP Operating income: Non-GAAP operating income is calculated by excluding net realized investment gains/losses (defined as realized investment gains and losses after applicable federal and state income taxes) from net income. While realized investment gains/losses are integral to the Company’s insurance operations over the long term, the decision to realize investment gains or losses in any particular period is subject to changing market conditions and management’s discretion, and is independent of the Company’s insurance operations. The Company’s calculation of non-GAAP operating income may differ from similar measures used by other companies, so investors should exercise caution when comparing the Company’s measure of non-GAAP operating income to the measure used by other companies.

Management believes non-GAAP operating income is useful to investors because it illustrates the performance of the Company’s normal, ongoing operations, which is important in understanding and evaluating the Company’s financial condition and results of operations. While this measure is consistent with measures utilized by investors and analysts to evaluate performance, it is not intended as a substitute for the GAAP financial measure of net income. Therefore, the Company has provided the following reconciliations of the GAAP financial measures of net income and net income per share, to the non-GAAP financial measures of non-GAAP operating income and non-GAAP operating income per share.

        
RECONCILIATION OF NET INCOME TO NON-GAAP OPERATING INCOME 
($ in thousands)       
 Three months ended  Year ended
 December 31, December 31,
  2016  2015   2016  2015
Net income$  21,292 $  9,895  $  46,203 $  50,162
Realized investment gains (losses)   4,717    (5,402)    4,074    6,153
Income tax expense (benefit)   1,651    (1,890)    1,426    2,154
Net realized investment gains (losses)   3,066    (3,512)    2,648    3,999
Non-GAAP operating income$  18,226 $  13,407  $  43,555 $  46,163
        
        
RECONCILIATION OF NET INCOME PER SHARE TO NON-GAAP OPERATING INCOME PER SHARE 
 Three months ended  Year ended
 December 31, December 31,
  2016  2015   2016  2015
Net income per share$  1.01 $  0.48  $  2.20 $  2.43
Realized investment gains (losses) per share   0.22    (0.26)    0.19    0.29
Income tax expense (benefit) per share   0.07    (0.09)    0.06    0.10
Net realized investment gains (losses) per share   0.15    (0.17)    0.13    0.19
Non-GAAP operating income per share$  0.86 $  0.65  $  2.07 $  2.24
 

Industry Metric – Premiums Written
[2] 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.

 
EMC INSURANCE GROUP INC.
 
 
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED        
($ in thousands, except share and per share amounts)        
  Property and      
  Casualty   Parent  
Quarter ended December 31, 2016 Insurance Reinsurance Company Consolidated
Revenues:        
Premiums earned $117,878  $33,166  $-  $151,044 
Investment income, net  8,362   3,241   4   11,607 
Other income  128   902   -   1,030 
   126,368   37,309   4   163,681 
Losses and expenses:       
Losses and settlement expenses  69,162   21,633   -   90,795 
Dividends to policyholders  2,508   -   -   2,508 
Amortization of deferred policy acquisition costs  20,364   7,299   -   27,663 
Other underwriting expenses  16,624   854   -   17,478 
Interest expense  84   -   -   84 
Other expenses  163   -   511   674 
   108,905   29,786   511   139,202 
Operating income (loss) before income taxes  17,463   7,523   (507)  24,479 
Realized investment gains  4,709   8   -   4,717 
Income (loss) before income taxes  22,172   7,531   (507)  29,196 
Income tax expense (benefit):       
Current  5,646   1,122   (147)  6,621 
Deferred  1,309   (129)  103   1,283 
   6,955   993   (44)  7,904 
Net income (loss) $15,217  $6,538  $(463) $21,292 
Average shares outstanding       21,132,500 
Per Share Data:       
Net income (loss) per share - basic and diluted $0.72  $0.31  $(0.02) $1.01 
Catastrophe and storm losses (after tax) $0.01  $0.06  $-  $0.07 
Large losses* (after tax)  N/A   N/A   N/A   N/A 
Reported favorable development       
experienced on prior years' reserves (after tax)$0.24  $0.12  $-  $0.36 
Favorable development that had no impact        
on earnings (after tax)  -   -   -   - 
Implied favorable development that had        
an impact on earnings (after tax) $0.24  $0.12  $-  $0.36 
Dividends per share      $0.210 
Other Information of Interest:       
Premiums written[2] $92,969  $32,276  $-  $125,245 
Catastrophe and storm losses $512  $1,861  $-  $2,373 
Large losses*  N/A   N/A   N/A   N/A 
Reported favorable development        
experienced on prior years' reserves $(7,784) $(4,048) $-  $(11,832)
Favorable development that had no impact        
on earnings  -   -   -   - 
Implied favorable development that had        
an impact on earnings $(7,784) $(4,048) $-  $(11,832)
GAAP Ratios:       
Loss and settlement expense ratio  58.7%  65.2%  -   60.1%
Acquisition expense ratio  33.5%  24.6%  -   31.6%
Combined ratio  92.2%  89.8%  -   91.7%
         
*Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. Under the property and casualty insurance segment's prior reserving methodology, large losses had a direct impact on earnings. Under the new reserving methodology implemented during the third quarter of 2016, large losses are taken into consideration when establishing the current accident quarter/year ultimate estimates of losses, but there is no longer a direct relationship between large losses and earnings. As a result, it is no longer meaningful to report large losses separately.


EMC INSURANCE GROUP INC.
 
 
CONSOLIDATED STATEMENTS OF INCOME        
($ in thousands, except share and per share amounts)        
  Property and      
  Casualty   Parent  
Quarter ended December 31, 2015 Insurance Reinsurance Company Consolidated
Revenues:        
Premiums earned $113,985  $27,157  $-  $141,142 
Investment income, net  8,367   3,269   -   11,636 
Other income (loss)  189   (86)  -   103 
   122,541   30,340   -   152,881 
Losses and expenses:       
Losses and settlement expenses  76,415   13,718   -   90,133 
Dividends to policyholders  1,213   -   -   1,213 
Amortization of deferred policy acquisition costs  19,698   3,663   -   23,361 
Other underwriting expenses  16,170   1,897   -   18,067 
Interest expense  84   -   -   84 
Other expenses  180   -   518   698 
   113,760   19,278   518   133,556 
Operating income (loss) before income taxes  8,781   11,062   (518)  19,325 
Realized investment losses  (3,703)  (1,699)  -   (5,402)
Income (loss) before income taxes  5,078   9,363   (518)  13,923 
Income tax expense (benefit):       
Current  317   2,880   (180)  3,017 
Deferred  862   149   -   1,011 
   1,179   3,029   (180)  4,028 
Net income (loss) $3,899  $6,334  $(338) $9,895 
Average shares outstanding       20,755,198 
Per Share Data:       
Net income (loss) per share - basic and diluted $0.19  $0.31  $(0.02) $0.48 
Catastrophe and storm losses (after tax) $0.03  $0.08  $-  $0.11 
Large losses* (after tax) $0.40  $-  $-  $0.40 
Reported (adverse) favorable development       
experienced on prior years' reserves (after tax)$(0.01) $0.48  $-  $0.47 
Favorable development that had no impact        
on earnings (after tax)  (0.01)  (0.04)  -   (0.05)
Implied (adverse) favorable development that had        
an impact on earnings (after tax) $(0.02) $0.44  $-  $0.42 
Dividends per share      $0.190 
Other Information of Interest:       
Premiums written[2] $90,105  $27,590  $-  $117,695 
Catastrophe and storm losses $958  $2,661  $-  $3,619 
Large losses* $12,786  $-  $-  $12,786 
Reported adverse (favorable) development        
experienced on prior years' reserves $338  $(15,495) $-  $(15,157)
Favorable development that had no impact        
on earnings  423   1,454   -   1,877 
Implied adverse (favorable) development that had        
an impact on earnings $761  $(14,041) $-  $(13,280)
GAAP Ratios:       
Loss and settlement expense ratio  67.0%  50.5%  -   63.9%
Acquisition expense ratio  32.6%  20.5%  -   30.2%
Combined ratio  99.6%  71.0%  -   94.1%
         
*Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses.


EMC INSURANCE GROUP INC.
 
 
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED      
($ in thousands, except share and per share amounts)        
  Property and      
  Casualty   Parent  
Year ended December 31, 2016 Insurance Reinsurance Company Consolidated
Revenues:        
Premiums earned $456,467  $135,941  $-  $592,408 
Investment income, net  33,886   13,591   13   47,490 
Other income  594   417   -   1,011 
   490,947   149,949   13   640,909 
Losses and expenses:       
Losses and settlement expenses  294,369   92,528   -   386,897 
Dividends to policyholders  13,800   -   -   13,800 
Amortization of deferred policy acquisition costs  78,493   29,910   -   108,403 
Other underwriting expenses  66,463   3,149   -   69,612 
Interest expense  337   -   -   337 
Other expenses  721   -   2,006   2,727 
   454,183   125,587   2,006   581,776 
Operating income (loss) before income taxes  36,764   24,362   (1,993)  59,133 
Realized investment gains (losses)  4,082   (8)  -   4,074 
Income (loss) before income taxes  40,846   24,354   (1,993)  63,207 
Income tax expense (benefit):       
Current  12,071   6,723   (733)  18,061 
Deferred  (469)  (623)  35   (1,057)
   11,602   6,100   (698)  17,004 
Net income (loss) $29,244  $18,254  $(1,295) $46,203 
Average shares outstanding       21,006,302 
Per Share Data:       
Net income (loss) per share - basic and diluted $1.39  $0.87  $(0.06) $2.20 
Catastrophe and storm losses (after tax) $1.09  $0.39  $-  $1.48 
Large losses* (after tax)  N/A   N/A   N/A   N/A 
Reported favorable development experienced on       
prior years' reserves (after tax) $0.93  $0.34  $-  $1.27 
Favorable development that had no impact        
on earnings (after tax)  (0.17)  -   -   (0.17)
Implied favorable development that had an impact        
on earnings (after tax) $0.76  $0.34  $-  $1.10 
Dividends per share      $0.780 
Book value per share      $26.07 
Effective tax rate       26.9%
Net income as a percent of beg. SH equity        8.8%
Other Information of Interest:       
Premiums written[2] $463,673  $131,030  $-  $594,703 
Catastrophe and storm losses $35,299  $12,608  $-  $47,907 
Large losses*  N/A   N/A   N/A   N/A 
Reported favorable development experienced on        
prior years' reserves $(30,013) $(10,928) $-  $(40,941)
Favorable development that had no impact        
on earnings  5,592   -   -   5,592 
Implied favorable development that had an impact        
on earnings $(24,421) $(10,928) $-  $(35,349)
GAAP Ratios:       
Loss and settlement expense ratio  64.5%  68.1%  -   65.3%
Acquisition expense ratio  34.8%  24.3%  -   32.4%
Combined ratio  99.3%  92.4%  -   97.7%
         
*Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. Under the property and casualty insurance segment's prior reserving methodology, large losses had a direct impact on earnings. Under the new reserving methodology implemented during the third quarter of 2016, large losses are taken into consideration when establishing the current accident quarter/year ultimate estimates of losses, but there is no longer a direct relationship between large losses and earnings. As a result, it is no longer meaningful to report large losses separately. The amount of large losses previously reported for the first six months of 2016 has not been carried forward and disclosed for the year ended December 31, 2016, because it would not be comparable to the amount reported for 2015.
         


EMC INSURANCE GROUP INC.
 
 
CONSOLIDATED STATEMENTS OF INCOME        
($ in thousands, except share and per share amounts)        
  Property and      
  Casualty   Parent  
Year ended December 31, 2015 Insurance Reinsurance Company Consolidated
Revenues:        
Premiums earned $447,197  $123,069  $-  $570,266 
Investment income, net  32,668   12,923   (9)  45,582 
Other income  771   954   -   1,725 
   480,636   136,946   (9)  617,573 
Losses and expenses:       
Losses and settlement expenses  291,883   78,853   -   370,736 
Dividends to policyholders  7,705   -   -   7,705 
Amortization of deferred policy acquisition costs  75,701   26,483   -   102,184 
Other underwriting expenses  63,954   4,464   -   68,418 
Interest expense  337   -   -   337 
Other expenses  748   -   1,942   2,690 
   440,328   109,800   1,942   552,070 
Operating income (loss) before income taxes  40,308   27,146   (1,951)  65,503 
Realized investment gains  4,163   1,990   -   6,153 
Income (loss) before income taxes  44,471   29,136   (1,951)  71,656 
Income tax expense (benefit):       
Current  10,830   8,463   (682)  18,611 
Deferred  2,174   709   -   2,883 
   13,004   9,172   (682)  21,494 
Net Income (loss) $31,467  $19,964  $(1,269) $50,162 
Average shares outstanding       20,621,919 
Per Share Data:       
Net income (loss) per share - basic and diluted $1.52  $0.97  $(0.06) $2.43 
Catastrophe and storm losses (after tax) $0.93  $0.47  $-  $1.40 
Large losses* (after tax) $1.08  $-  $-  $1.08 
Reported favorable development       
experienced on prior years' reserves (after tax)$0.44  $0.67  $-  $1.11 
(Favorable) adverse development that had no impact       
on earnings (after tax)  (0.02)  0.03   -   0.01 
Implied favorable development that had an impact        
on earnings (after tax) $0.42  $0.70  $-  $1.12 
Dividends per share      $0.693 
Book value per share      $25.26 
Effective tax rate       30.0%
Net income as a percent of beg. SH equity        10.0%
Other Information of Interest:       
Premiums written[2] $454,434  $124,504  $-  $578,938 
Catastrophe and storm losses $29,609  $14,765  $-  $44,374 
Large losses* $34,239  $-  $-  $34,239 
Reported favorable development        
experienced on prior years' reserves $(13,839) $(21,275) $-  $(35,114)
Favorable (adverse) development that had no impact       
on earnings  423   (1,041)  -   (618)
Implied favorable development that had an impact        
on earnings $(13,416) $(22,316) $-  $(35,732)
GAAP Ratios:       
Loss and settlement expense ratio  65.3%  64.1%  -   65.0%
Acquisition expense ratio  32.9%  25.1%  -   31.3%
Combined ratio  98.2%  89.2%  -   96.3%
         
*Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses.


EMC INSURANCE GROUP INC.
 
 
CONSOLIDATED BALANCE SHEETS   
 December 31, December 31,
  2016  2015
($ in thousands, except share and per share amounts)(Unaudited)  
ASSETS   
Investments:   
Fixed maturity securities available-for-sale, at fair value   
(amortized cost $1,189,525 and $1,130,217)$1,199,699 $1,161,025
Equity securities available-for-sale, at fair value   
(cost $147,479 and $144,176) 213,839  206,243
Other long-term investments 12,506  9,930
Short-term investments 39,670  38,599
Total investments 1,465,714  1,415,797
    
Cash 307  224
Reinsurance receivables due from affiliate 21,326  24,236
Prepaid reinsurance premiums due from affiliate 9,309  6,563
Deferred policy acquisition costs (affiliated $40,660 and $40,535) 40,939  40,720
Prepaid pension and postretirement benefits due from affiliate 12,314  12,133
Accrued investment income 11,050  10,789
Amounts receivable under reverse repurchase agreements 20,000  16,850
Accounts receivable 2,076  804
Income taxes recoverable -  1,735
Goodwill 942  942
Other assets (affiliated $4,632 and $4,595) 4,836  5,162
Total assets$1,588,813 $1,535,955
    
LIABILITIES   
Losses and settlement expenses (affiliated $685,533 and $671,169)$690,532 $678,774
Unearned premiums (affiliated $243,682 and $238,637) 244,885  239,435
Other policyholders' funds (all affiliated) 13,068  8,721
Surplus notes payable to affiliate 25,000  25,000
Amounts due affiliate to settle inter-company transaction balances 11,222  6,408
Pension benefits payable to affiliate 4,097  4,299
Income taxes payable 2,359  -
Deferred income taxes 11,321  19,029
Other liabilities (affiliated $27,871 and $28,598) 32,987  29,351
Total liabilities 1,035,471  1,011,017
    
STOCKHOLDERS' EQUITY    
Common stock, $1 par value, authorized 30,000,000   
shares; issued and outstanding, 21,222,535   
shares in 2016 and 20,780,439 shares in 2015 21,223  20,781
Additional paid-in capital 119,054  108,747
Accumulated other comprehensive income 46,081  58,433
Retained earnings 366,984  336,977
Total stockholders' equity 553,342  524,938
Total liabilities and stockholders' equity$1,588,813 $1,535,955
 


EMC INSURANCE GROUP INC.
 
 
LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS
  Three months ended December 31,
   2016   2015 
($ 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 $28,492 $23,601  82.8% $27,206  $24,291  89.3%
Property  27,720  11,822  42.6%  26,785   12,154  45.4%
Workers' compensation  25,245  11,691  46.3%  23,678   18,212  76.9%
Liability  24,544  18,693  76.2%  23,713   13,731  57.9%
Other  2,128  (660) (31.0)%  2,035   60  3.0%
Total commercial lines  108,129  65,147  60.2%  103,417   68,448  66.2%
             
Personal lines  9,749  4,015  41.2%  10,568   7,967  75.4%
Total property and casualty            
insurance $117,878 $69,162  58.7% $113,985  $76,415  67.0%
             
Reinsurance            
Pro rata reinsurance $12,142 $5,131  42.3% $7,267  $5,965  82.1%
Excess of loss reinsurance  21,024  16,502  78.5%  19,890   7,753  39.0%
Total reinsurance $33,166 $21,633  65.2% $27,157  $13,718  50.5%
             
Consolidated $151,044 $90,795  60.1% $141,142  $90,133  63.9%
 
             
  Year ended December 31,
   2016   2015 
($ 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 $110,941 $93,364  84.2% $105,904  $86,134  81.3%
Property  105,012  64,509  61.4%  104,303   65,806  63.1%
Workers' compensation  96,517  51,371  53.2%  92,828   57,803  62.3%
Liability  96,630  56,738  58.7%  92,665   48,399  52.2%
Other  8,374  (12) (0.1)%  8,079   854  10.6%
Total commercial lines  417,474  265,970  63.7%  403,779   258,996  64.1%
             
Personal lines  38,993  28,399  72.8%  43,418   32,887  75.7%
Total property and casualty            
insurance $456,467 $294,369  64.5% $447,197  $291,883  65.3%
             
Reinsurance            
Pro rata reinsurance $56,317 $31,498  55.9% $47,421  $29,433  62.1%
Excess of loss reinsurance  79,624  61,030  76.6%  75,648   49,420  65.3%
Total reinsurance $135,941 $92,528  68.1% $123,069  $78,853  64.1%
             
Consolidated $592,408 $386,897  65.3% $570,266  $370,736  65.0%
             


EMC INSURANCE GROUP INC.
 
 
PREMIUMS WRITTEN[2]         
 Three months ended Three months ended  
 December 31, 2016 December 31, 2015  
   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$23,199 18.5% $21,735 18.5% 6.7%
Property 21,066 16.8%  20,818 17.7% 1.2%
Workers' compensation 18,613 14.9%  17,717 15.0% 5.1%
Liability 19,359 15.5%  19,095 16.2% 1.4%
Other 1,783 1.4%  1,619 1.4% 10.1%
Total commercial lines 84,020 67.1%  80,984 68.8% 3.7%
          
Personal lines 8,949 7.1%  9,121 7.8% (1.9)%
Total property and casualty insurance$92,969 74.2% $90,105 76.6% 3.2%
          
Reinsurance         
Pro rata reinsurance$10,918 8.7% $8,420 7.1% 29.7%
Excess of loss reinsurance 21,358 17.1%  19,170 16.3% 11.4%
Total reinsurance$32,276 25.8% $27,590 23.4% 17.0%
          
Consolidated$125,245 100.0% $117,695 100.0% 6.4%
          
          
 Year ended Year ended  
 December 31, 2016 December 31, 2015  
   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$113,173 19.1% $108,682 18.7% 4.1%
Property 106,600 17.9%  106,671 18.4% (0.1)%
Workers' compensation 99,509 16.7%  94,629 16.4% 5.2%
Liability 97,815 16.5%  94,860 16.4% 3.1%
Other 8,646 1.4%  8,032 1.4% 7.6%
Total commercial lines 425,743 71.6%  412,874 71.3% 3.1%
          
Personal lines 37,930 6.4%  41,560 7.2% (8.7)%
Total property and casualty insurance$463,673 78.0% $454,434 78.5% 2.0%
          
Reinsurance         
Pro rata reinsurance$52,996 8.9% $48,652 8.4% 8.9%
Excess of loss reinsurance 78,034 13.1%  75,852 13.1% 2.9%
Total reinsurance$131,030 22.0% $124,504 21.5% 5.2%
          
Consolidated$594,703 100.0% $578,938 100.0% 2.7%
          



            

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