EMC Insurance Group Third Quarter 2008 Earnings Conference Call

DES MOINES, Iowa--EMC Insurance Group Inc. (Nasdaq:EMCI - News) today reported that record storm losses during the third quarter of 2008 resulted in an operating loss of $295,000 ($0.02 per share) for the quarter. This compares to third quarter operating income of $6,911,000 ($0.50 per share) reported in the third quarter of 2007¹. For the first nine months of 2008, operating income was $8,635,000 ($0.63 per share), compared to $34,619,000 ($2.52 per share) in 2007.

Net loss for the third quarter of 2008, including realized investment gains/losses, totaled $9,458,000 ($0.70 per share) compared to net income of $6,728,000 ($0.49 per share) for the third quarter of 2007. For the first nine months of 2008, net loss was $2,179,000 ($0.16 per share), compared to net income of $35,420,000 ($2.57 per share) in 2007.

“Midwest storm losses continued to be the driving force behind our third quarter results,” stated President and CEO Bruce G. Kelley. “As they have all year, storms continued to ravage our underwriting territories especially Hurricane Ike, which clipped both our direct and assumed reinsurance results. As the massive hurricane advanced away from the coast, it merged with a cold front traveling across the Midwest and generated a significant amount of wind damage in Ohio and Kentucky. Total losses associated with Hurricane Ike were $5.4 million or $0.27 per share after tax, which is consistent with our estimates released on September 25, 2008.”

“An earlier storm, Hurricane Gustav, also affected third quarter earnings,” continued Kelley. “Hurricane Gustav losses totaled $3.1 million or $0.15 per share after tax. Storm losses for the quarter totaled $19.8 million or $0.96 per share after tax.”

For the first nine months of 2008, catastrophe and storm losses totaled $49,071,000 ($2.34 per share) compared to $19,474,000 ($0.92 per share) in 2007, and the combined ratio was 109.3 percent compared to 94.9 percent in 2007. Assuming normal storm activity for the remainder of the year, management is currently projecting that catastrophe and storm losses will approximate 14.2 percent of earned premiums in 2008, compared to an average of 5.4 percent of earned premiums during the period 1998 through 2007.

“It is important to note,” continued Kelley, “that our underlying book of business remains sound and is performing as expected. We are well capitalized and have the resources to handle this unprecedented level of storm activity.”

Premiums earned decreased 0.4 percent to $96,409,000 for the third quarter of 2008 from $96,815,000 for the same period in 2007. For the first nine months of 2008, premiums earned declined 1.0 percent to $288,005,000 from $290,820,000 in 2007. Premium income was down 1.9 percent in the property and casualty insurance segment during the third quarter of 2008 as new business premium was not sufficient to offset the premium lost from declining premium rates and business not renewed. Premium income for the reinsurance segment was up 6.6 percent; however, management expects premiums for the reinsurance segment to decline slightly for calendar year 2008 as compared to 2007.

Investment income was flat at $12,251,000 for the third quarter of 2008 compared to $12,252,000 for the same period in 2007. For the first nine months of 2008, investment income increased 0.8 percent to $36,191,000 from $35,895,000 in 2007.

“Our overall revenues were stable as competition for premium dollars continued,” commented Kelley. “Total revenues declined 0.3 percent for the quarter ended September 30, 2008 as compared to the same period in 2007. Year to date, revenues declined 0.7 percent compared to 2007.”

The Company experienced $4,239,000 ($0.21 per share after tax) of favorable development on prior years’ reserves in the third quarter of 2008, compared to $7,502,000 ($0.35 per share after tax) in the third quarter of 2007. For the first nine months of 2008, favorable development totaled $30,181,000 ($1.44 per share after tax), compared to $39,004,000 ($1.84 per share after tax) for the same period in 2007.

“Lack of earnings and poor investment returns combined to lower our book value,” stated Kelley. “As we reported in an earlier press release, the Company recorded an “other-than-temporary” investment impairment loss in the third quarter of 2008 on its investments in the perpetual preferred stock issued by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) as a result of the U.S. government placing these companies under conservatorship. The actual impairment of these preferred shares was $14,904,000 or $0.72 per share after tax.”

At September 30, 2008, consolidated assets totaled $1.1 billion, including $956.8 million in the investment portfolio; stockholders’ equity was $303.4 million; and the net book value of the Company’s stock was $22.72 per share, a decrease of 13.1 percent from $26.15 per share at December 31, 2007.

On September 25, 2008, the Company lowered its annual operating income guidance to a range of $0.65 per share to $0.95 per share. Management affirms that guidance.

On March 10, 2008, the Company’s Board of Directors authorized a $15 million stock repurchase program. This program became effective immediately and does not have an expiration date. The timing and terms of the purchases are determined by management based on market conditions and are conducted in accordance with the applicable rules of the SEC. Common stock purchased under this program is being retired by the Company. As of September 30, 2008, 475,458 shares of stock had been repurchased at a cost of approximately $12.3 million. Additional repurchases have been made during October, bringing the total, as of October 20, 2008, to 508,488 shares at a cost of approximately $13.1 million. The Company’s parent organization, Employers Mutual Casualty Company, has a stock purchase program in effect as well with about $4.5 million of its $15 million authorization remaining. This program will remain dormant while the Company’s repurchase program is active.

The Company will host an earnings call in conjunction with today’s release. The teleconference will begin at 11:00 a.m. eastern daylight time, October 24, 2008, to allow securities analysts, shareholders and other interested parties the opportunity to hear management discuss the Company’s quarterly results, as well as its expectations for the remainder of 2008. Dial-in information for the call is toll-free 1-877-407-8031 (International: 201-689-8031). The event will be archived and available for digital replay through November 7, 2008. The replay access information is toll-free 1-877-660-6853 (International: 201-612-7415); passcodes (both required for playback) are account no. 286; conference ID no. 300010. A webcast of the teleconference will be presented by PrecisionIR and can be accessed at http://www.investorcalendar.com or from the Company’s investor relations page at www.emcinsurance.com. The archived webcast will be available until January 24, 2008. A transcript of the teleconference will also be available on the Company’s website shortly after the completion of the teleconference.

EMC Insurance Group Inc., the publicly-held insurance holding company of EMC Insurance Companies, owns subsidiaries with operations in property and casualty insurance and reinsurance. EMC Insurance Companies is one of the largest property and casualty entities in Iowa and among the top 60 insurance entities nationwide based on premium volume. For more information, visit our website www.emcinsurance.com.

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 our industry, interest rates or the performance of financial markets and the general economy; rating agency actions 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.

ąThe Company uses a non-GAAP financial measure called “operating income” that management believes is useful to investors because it illustrates the performance of our normal, ongoing operations, which is important in understanding and evaluating our financial condition and results of operations. While this measure is consistent with measures utilized by investors to evaluate performance, it is not a substitute for the U.S. GAAP financial measure of net income. Therefore, we have provided a reconciliation of this non-GAAP financial measure to the U.S. GAAP financial measure of net income in the Consolidated Statements of Income schedule contained in this release. Management also uses non-GAAP financial measures for goal setting, determining employee and senior management awards and compensation, and evaluating performance.

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

Property and

Casualty Parent

Quarter Ended September 30, 2008 Insurance Reinsurance Company Consolidated

Revenues:

Premiums earned $ 78,959,188 $ 17,450,027 $ - $ 96,409,215

Investment income, net 9,174,650 3,017,725 58,817 12,251,192

Other income 191,161 - - 191,161

88,324,999 20,467,752 58,817 108,851,568

Losses and expenses:

Losses and settlement expenses 65,502,605 16,141,656 - 81,644,261

Dividends to policyholders 752,432 - - 752,432

Amortization of deferred policy acquisition costs 16,715,247 3,534,945 - 20,250,192

Other underwriting expenses 7,447,269 596,420 - 8,043,689

Interest expense 225,000 - - 225,000

Other expenses 113,730 (247,243 ) 362,045 228,532

90,756,283 20,025,778 362,045 111,144,106

Operating income (loss) before income taxes (2,431,284 ) 441,974 (303,228 ) (2,292,538 )

Realized investment losses (9,516,502 ) (4,580,015 ) - (14,096,517 )

Loss before income taxes (11,947,786 ) (4,138,041 ) (303,228 ) (16,389,055 )

Income tax benefit:

Current (2,331,754 ) (533,162 ) (106,130 ) (2,971,046 )

Deferred (2,668,411 ) (1,292,029 ) - (3,960,440 )

(5,000,165 ) (1,825,191 ) (106,130 ) (6,931,486 )

Net loss $ (6,947,621 ) $ (2,312,850 ) $ (197,098 ) $ (9,457,569 )

Average shares outstanding 13,413,718

Per Share Data:

Net loss per share - basic and diluted $ (0.52 ) $ (0.17 ) $ (0.01 ) $ (0.70 )

(Increase) decrease in provision for insured events of prior years (after tax)
$ (0.01 ) $ 0.22 $ - $ 0.21

Catastrophe and storm losses (after tax) $ (0.73 ) $ (0.23 ) $ - $ (0.96 )

Dividends per share $ 0.18

Other Information of Interest:

Net Written Premiums $ 95,377,772 $ 17,942,428 $ - $ 113,320,200

Increase (decrease) in provision for insured events of prior years
$ 228,987 $ (4,468,010 ) $ - $ (4,239,023 )

Catastrophe and storm losses $ 14,998,906 $ 4,824,128 $ - $ 19,823,034

GAAP Combined Ratio:

Loss ratio 83.0 % 92.5 % - 84.7 %

Expense ratio 31.5 % 23.7 % - 30.1 %

114.5 % 116.2 % - 114.8 %

Property and

Casualty Parent

Quarter Ended September 30, 2007 Insurance Reinsurance Company Consolidated

Revenues:

Premiums earned $ 80,451,433 $ 16,363,233 $ - $ 96,814,666

Investment income, net 9,056,171 3,142,939 53,324 12,252,434

Other income 111,646 - - 111,646

89,619,250 19,506,172 53,324 109,178,746

Losses and expenses:

Losses and settlement expenses 52,198,985 12,336,487 - 64,535,472

Dividends to policyholders 2,443,572 - - 2,443,572

Amortization of deferred policy acquisition costs 17,494,753 3,454,065 - 20,948,818

Other underwriting expenses 10,283,831 899,528 - 11,183,359

Interest expense 193,125 84,975 - 278,100

Other expenses 168,647 305,399 246,312 720,358

82,782,913 17,080,454 246,312 100,109,679

Operating income (loss) before income taxes 6,836,337 2,425,718 (192,988 ) 9,069,067

Realized investment losses (136,583 ) (144,609 ) - (281,192 )

Income (loss) before income taxes 6,699,754 2,281,109 (192,988 ) 8,787,875

Income tax expense (benefit):

Current 1,485,673 573,706 (67,546 ) 1,991,833

Deferred 172,496 (104,491 ) - 68,005

1,658,169 469,215 (67,546 ) 2,059,838

Net income (loss) $ 5,041,585 $ 1,811,894 $ (125,442 ) $ 6,728,037

Average shares outstanding 13,764,763

Per Share Data:

Net income (loss) per share - basic and diluted $ 0.37 $ 0.13 $ (0.01 ) $ 0.49

Decrease in provision for insured events of prior years (after tax)
$ 0.30 $ 0.05 $ - $ 0.35

Catastrophe and storm losses (after tax) $ (0.31 ) $ (0.03 ) $ - $ (0.34 )

Dividends per share $ 0.17

Other Information of Interest:

Net Written Premiums $ 94,319,209 $ 16,937,515 $ - $ 111,256,724

Decrease in provision for insured events of prior years
$ (6,307,280 ) $ (1,195,050 ) $ - $ (7,502,330 )

Catastrophe and storm losses $ 6,634,984 $ 578,028 $ - $ 7,213,012

GAAP Combined Ratio:

Loss ratio 64.9 % 75.4 % - 66.7 %

Expense ratio 37.5 % 26.6 % - 35.7 %

102.4 % 102.0 % - 102.4 %

Property and

Casualty Parent

Nine Months Ended September 30, 2008 Insurance Reinsurance Company Consolidated

Revenues:

Premiums earned $ 236,513,542 $ 51,491,154 $ - $ 288,004,696

Investment income, net 27,112,376 8,940,490 137,913 36,190,779

Other income 499,059 - - 499,059

264,124,977 60,431,644 137,913 324,694,534

Losses and expenses:

Losses and settlement expenses 179,680,545 42,307,401 - 221,987,946

Dividends to policyholders 3,028,440 - - 3,028,440

Amortization of deferred policy acquisition costs 53,993,008 10,662,451 - 64,655,459

Other underwriting expenses 23,447,432 1,726,158 - 25,173,590

Interest expense 664,375 - - 664,375

Other expenses 412,606 46,960 996,982 1,456,548

261,226,406 54,742,970 996,982 316,966,358

Operating income (loss) before income taxes 2,898,571 5,688,674 (859,069 ) 7,728,176

Realized investment losses (11,283,993 ) (5,353,531 ) - (16,637,524 )

Income (loss) before income taxes (8,385,422 ) 335,143 (859,069 ) (8,909,348 )

Income tax expense (benefit):

Current (3,016,027 ) 1,426,153 (300,674 ) (1,890,548 )

Deferred (2,402,894 ) (2,436,993 ) - (4,839,887 )

(5,418,921 ) (1,010,840 ) (300,674 ) (6,730,435 )

Net income (loss) $ (2,966,501 ) $ 1,345,983 $ (558,395 ) $ (2,178,913 )

Average shares outstanding 13,615,224

Per Share Data:

Net income (loss) per share - basic and diluted $ (0.22 ) $ 0.10 $ (0.04 ) $ (0.16 )

Decrease in provision for insured events of prior years (after tax)
$ 0.93 $ 0.51 $ - $ 1.44

Catastrophe and storm losses (after tax) $ (2.03 ) $ (0.31 ) $ - $ (2.34 )

Dividends per share $ 0.54

Book value per share $ 22.72

Effective tax rate (75.5 )%

Annualized net loss as a percent of beg. SH equity (0.9 )%

Other Information of Interest:

Net Written Premiums $ 249,674,985 $ 51,490,156 $ - $ 301,165,141

Decrease in provision for insured events of prior years
$ (19,480,355 ) $ (10,700,503 ) $ - $ (30,180,858 )

Catastrophe and storm losses $ 42,614,357 $ 6,456,438 $ - $ 49,070,795

GAAP Combined Ratio:

Loss ratio 76.0 % 82.2 % - 77.1 %

Expense ratio 34.0 % 24.0 % - 32.2 %

110.0 % 106.2 % - 109.3 %

Property and

Casualty Parent

Nine Months Ended September 30, 2007 Insurance Reinsurance Company Consolidated

Revenues:

Premiums earned $ 239,458,912 $ 51,360,823 $ - $ 290,819,735

Investment income, net 26,617,782 9,090,610 186,582 35,894,974

Other income 382,547 - - 382,547

266,459,241 60,451,433 186,582 327,097,256

Losses and expenses:

Losses and settlement expenses 139,932,347 34,493,197 - 174,425,544

Dividends to policyholders 6,180,287 - - 6,180,287

Amortization of deferred policy acquisition costs 55,125,324 10,095,122 - 65,220,446

Other underwriting expenses 28,266,278 1,897,892 - 30,164,170

Interest expense 579,375 254,925 - 834,300

Other expenses 641,873 481,199 730,338 1,853,410

230,725,484 47,222,335 730,338 278,678,157

Operating income (loss) before income taxes 35,733,757 13,229,098 (543,756 ) 48,419,099

Realized investment gains 1,189,693 42,406 - 1,232,099

Income (loss) before income taxes 36,923,450 13,271,504 (543,756 ) 49,651,198

Income tax expense (benefit):

Current 11,397,574 4,021,905 (190,315 ) 15,229,164

Deferred (567,055 ) (430,776 ) - (997,831 )

10,830,519 3,591,129 (190,315 ) 14,231,333

Net income (loss) $ 26,092,931 $ 9,680,375 $ (353,441 ) $ 35,419,865

Average shares outstanding 13,759,465

Per Share Data:

Net income (loss) per share - basic and diluted $ 1.90 $ 0.70 $ (0.03 ) $ 2.57

Decrease in provision for insured events of prior years (after tax)
$ 1.50 $ 0.34 $ - $ 1.84

Catastrophe and storm losses (after tax) $ (0.87 ) $ (0.05 ) $ - $ (0.92 )

Dividends per share $ 0.51

Book value per share $ 25.14

Effective tax rate 28.7 %

Annualized net income as a percent of beg. SH equity 15.3 %

Other Information of Interest:

Net Written Premiums $ 253,260,789 $ 51,310,636 $ - $ 304,571,425

Decrease in provision for insured events of prior years
$ (31,817,037 ) $ (7,186,640 ) $ - $ (39,003,677 )

Catastrophe and storm losses $ 18,486,880 $ 987,162 $ - $ 19,474,042

GAAP Combined Ratio:

Loss ratio 58.4 % 67.2 % - 60.0 %

Expense ratio 37.4 % 23.3 % - 34.9 %

95.8 % 90.5 % - 94.9 %

CONSOLIDATED BALANCE SHEETS - UNAUDITED

September 30, December 31,

2008 2007

ASSETS

Investments:

Fixed maturities:

Securities held-to-maturity, at amortized cost (fair value $667,640 and $688,728)
$ 613,036 $ 636,969

Securities available-for-sale, at fair value (amortized cost $802,768,974 and $766,462,351)
785,615,615 785,253,286

Fixed maturity securities on loan:

Securities available-for-sale, at fair value (amortized cost $1,044,805 and $58,865,232)
937,957 58,994,666

Equity securities available-for-sale, at fair value (cost $83,457,209 and $97,847,545)
105,931,049 139,427,726

Other long-term investments, at cost 75,727 101,988

Short-term investments, at cost 63,600,655 53,295,310

Total investments 956,774,039 1,037,709,945

Balances resulting from related party transactions with

Employers Mutual:

Reinsurance receivables 37,440,114 33,272,405

Prepaid reinsurance premiums 4,793,915 4,465,836

Deferred policy acquisition costs 37,979,430 34,687,804

Defined benefit retirement plan, prepaid asset 10,525,477 11,451,758

Other assets 3,834,031 2,488,309

Indebtedness of related party 11,403,530 -

Cash 428,764 262,963

Accrued investment income 11,282,159 11,288,005

Accounts receivable 146,024 81,141

Income taxes recoverable 5,701,683 3,595,645

Deferred income taxes 26,128,999 1,682,597

Goodwill 941,586 941,586

Securities lending collateral 999,786 60,785,148

Total assets $ 1,108,379,537 $ 1,202,713,142

LIABILITIES

Balances resulting from related party transactions with Employers Mutual:

Losses and settlement expenses $ 576,131,898 $ 551,602,006

Unearned premiums 171,191,039 158,156,683

Other policyholders' funds 4,493,372 8,273,187

Surplus notes payable 25,000,000 25,000,000

Indebtedness to related party - 5,918,396

Employee retirement plans 11,694,384 10,518,351

Other liabilities 15,465,590 22,107,379

Securities lending obligation 999,786 60,785,148

Total liabilities 804,976,069 842,361,150

STOCKHOLDERS' EQUITY

Common stock, $1 par value, authorized 20,000,000 shares; issued and outstanding, 13,354,329 shares in 2008 and 13,777,880 shares in 2007
13,354,329 13,777,880

Additional paid-in capital 97,418,888 108,030,228

Accumulated other comprehensive income 6,773,412 42,961,904

Retained earnings 185,856,839 195,581,980

Total stockholders' equity 303,403,468 360,351,992

Total liabilities and stockholders' equity $ 1,108,379,537 $ 1,202,713,142

The Company had total cash and invested assets with a carrying value of $957.2 million as of September 30, 2008 and $1.0 billion December 31, 2007. The following table summarizes the Company's cash and invested assets as of the dates indicated:

September 30, 2008

Percent of

Amortized Fair Total Carrying

($ in thousands) Cost Value Fair Value Value

Fixed maturity securities held-to-maturity $ 613 $ 667 0.1 % $ 613

Fixed maturity securities available-for-sale 803,814 786,554 82.2 % 786,554

Equity securities available-for-sale 83,457 105,931 11.1 % 105,931

Cash 429 429 - 429

Short-term investments 63,600 63,600 6.6 % 63,600

Other long-term investments 76 76 - 76

$ 951,989 $ 957,257 100.0 % $ 957,203

December 31, 2007

Percent of

Amortized Fair Total Carrying

($ in thousands) Cost Value Fair Value Value

Fixed maturity securities held-to-maturity $ 637 $ 689 0.1 % $ 637

Fixed maturity securities available-for-sale 825,328 844,248 81.4 % 844,248

Equity securities available-for-sale 97,847 139,428 13.4 % 139,428

Cash 263 263 - 263

Short-term investments 53,295 53,295 5.1 % 53,295

Other long-term investments 102 102 - 102

$ 977,472 $ 1,038,025 100.0 % $ 1,037,973

The amortized cost and estimated fair value of securities held-to-maturity and available-for-sale as of September 30, 2008 are as follows:

Held-to-Maturity

Gross Gross

Amortized Unrealized Unrealized Estimated

($ in thousands) Cost Gains Losses Fair Value

Mortgage-backed securities $ 613 $ 54 $ - $ 667

Total securities held-to-maturity $ 613 $ 54 $ - $ 667

Available-for-Sale

Gross Gross

Amortized Unrealized Unrealized Estimated

($ in thousands) Cost Gains Losses Fair Value

U.S. treasury securities $ 4,729 $ 333 $ - $ 5,062

U.S. government-sponsored agencies 297,334 1,388 1,929 296,793

Obligations of states and political subdivisions 303,236 3,894 12,324 294,806

Mortgage-backed securities 51,348 158 2,111 49,395

Public utility securities 6,002 80 - 6,082

Debt securities issued by foreign governments 6,641 15 63 6,593

Corporate securities 134,524 960 7,661 127,823

Total fixed maturity securities 803,814 6,828 24,088 786,554

Common stocks 72,861 28,883 3,822 97,922

Non-redeemable preferred stocks 10,596 - 2,587 8,009

Total equity securities 83,457 28,883 6,409 105,931

Total securities available-for-sale $ 887,271 $ 35,711 $ 30,497 $ 892,485

NET WRITTEN PREMIUMS

Three Months Ended Nine Months Ended

September 30, 2008 September 30, 2008

Percent of Percent of

Increase/ Increase/

Percent of (Decrease) in Percent of (Decrease) in

Net Written Net Written Net Written Net Written

Premiums Premiums Premiums Premiums

Property and Casualty Insurance

Commercial Lines:

Automobile 16.7 % (0.3) % 17.8 % (4.3) %

Liability 16.8 % (2.6) % 17.9 % (4.9) %

Property 17.2 % (0.3) % 16.3 % (0.3) %

Workers' Compensation 21.3 % 8.4 % 17.9 % 4.9 %

Other 2.3 % 11.2 % 2.3 % 5.2 %

Total Commercial Lines 74.3 % 1.8 % 72.2 % (1.1) %

Personal Lines:

Automobile 5.0 % (2.1) % 5.7 % (2.5) %

Property 4.7 % (5.9) % 4.8 % (4.0) %

Liability 0.2 % (3.3) % 0.2 % (5.4) %

Total Personal Lines 9.9 % (4.0) % 10.7 % (3.2) %

Total Property and Casualty Insurance 84.2 % 1.1 % 82.9 % (1.4) %

Reinsurance 15.8 % 5.9 % 17.1 % 0.3 %

Total 100.0 % 1.9 % 100.0 % (1.1) %