EMC Insurance Group

 Press Release
February 25, 2010 - 11:00 AM Eastern
Fourth Quarter 2009 Earnings Conference Call 		Return



EMC Insurance Group Inc. Reports 2009 Fourth Quarter and Year-End Results


DES MOINES, Iowa----EMC Insurance Group Inc. (Nasdaq:EMCI - News):
Fourth Quarter 2009
Operating Income Per Share – $0.98
Net Income Per Share – $2.10
Catastrophe and Storm Losses Per Share – $0.03
Large Losses Per Share – $0.58
GAAP Combined Ratio – 94.7 percent
Year Ended December 31, 2009
Operating Income Per Share – $2.55
Net Income Per Share – $3.44
Catastrophe and Storm Losses Per Share – $1.55
Large Losses Per Share – $1.74
GAAP Combined Ratio – 100.2 percent

EMC Insurance Group Inc. (Nasdaq:EMCI - News) today reported operating income of $0.98 per share for the fourth quarter ended December 31, 2009, compared to operating income of $0.42 per share for the fourth quarter of 20081. Operating income for the year ended December 31, 2009 was $2.55 per share, compared to $1.05 per share in 2008.

Net income, including realized investment gains and losses, totaled $27,549,000 ($2.10 per share) for the fourth quarter of 2009 compared to $474,000 ($0.04 per share) for the fourth quarter of 2008. Net income for the year ended December 31, 2009 was $45,371,000 ($3.44 per share), compared to a net loss of $1,705,000 ($0.13 per share) in 2008.

“We are pleased with our improved performance in 2009,” stated Bruce G. Kelley, President and Chief Executive Officer. “2009 operating results for the property and casualty insurance segment were in line with our expectations,” continued Kelley. “Premium rates began stabilizing during the second quarter, but did not improve to the extent we anticipated one year ago due to the lagging effects of the weak economy. Premium rates did improve somewhat in the personal lines of business during the second half of the year, but the commercial lines of business, which account for more than 80% of our property and casualty insurance premiums, remained very competitive. Pricing in the reinsurance marketplace improved with the January 1 renewals, but declined somewhat as the year progressed. ”

Kelley went on to say that, “storm losses, while higher than average due to active Midwest weather patterns, were significantly lower than the record amount experienced in 2008. This reduction in storm losses, coupled with some favorable reserve development and a significant increase in the market value of our investment portfolio, contributed to a 22.5% increase in the book value of our stock.”

Premiums earned declined 2.6 percent to $98,726,000 for the fourth quarter of 2009, from $101,313,000 for the fourth quarter of 2008. Premiums earned for the year ended December 31, 2009 decreased 1.4 percent to $384,011,000 from $389,318,000 in 2008.

Investment income increased 2.4 percent to $12,505,000 for the fourth quarter of 2009 from $12,213,000 for the fourth quarter of 2008, primarily due to the reinvestment of short-term holdings into Build America Bonds. Investment income for the year ended December 31, 2009 decreased 1.3 percent to $47,759,000 from $48,403,000 in 2008.

The Company experienced $9,383,000 ($0.47 per share after tax) of favorable development on prior years’ reserves during the fourth quarter of 2009 compared to $5,127,000 ($0.25 per share after tax) in the fourth quarter of 2008. The amount for 2009 includes $4,160,000 ($0.21 per share after tax) of favorable reserve development in the reinsurance subsidiary that resulted from a reduction in the bulk IBNR reserve and the winding down of the MAERP Reinsurance Association. For the year ended December 31, 2009, favorable development on prior years’ reserves totaled $48,622,000 ($2.39 per share after tax) compared to $35,308,000 ($1.70 per share after tax) in 2008. Included in the above amounts is $507,000 ($0.03 per share after tax) and $3,476,000 ($0.17 per share after tax) of favorable development on prior years’ catastrophe and storm loss reserves during the fourth quarter and year ended December 31, 2009. For comparative purposes, favorable development on prior years’ catastrophe and storm loss reserves totaled $355,000 ($0.02 per share after tax) and $1,711,000 ($0.08 per share after tax) for the same periods in 2008.

As previously reported, the Company sold its entire holdings of Verisk Analytics, Inc. common stock during the fourth quarter in connection with that company’s initial public offering. This sale resulted in a net realized investment gain of $14,608,000, or $1.11 per share.

“Other-than-temporary” investment impairment losses declined to $381,000 in the fourth quarter of 2009 from the record $9,248,000 reported in the fourth quarter of 2008. For the year ended December 31, 2009, “other-than-temporary” investment impairment losses totaled $10,108,000, compared to the record $30,921,000 recognized in 2008.

Catastrophe and storm losses totaled $520,000 ($0.03 per share after tax) in the fourth quarter of 2009 compared to $2,058,000 ($0.10 per share after tax) in the fourth quarter of 2008. Catastrophe and storm losses for the year ended December 31, 2009 totaled $31,465,000 ($1.55 per share after tax) compared to a record $52,484,000 ($2.52 per share after tax) in 2008. Catastrophe and storm losses accounted for 8.2 percentage points of the combined ratio for the year ended December 31, 2009, which is higher than the 8-year average of 6.5 percentage points for the period 2000 to 2007, but significantly lower than the record 13.5 percentage points experienced in 2008.

Large losses, which the Company defines as losses greater than $250,000, excluding catastrophe and storm losses, declined to $7,650,000 ($0.58 per share after taxes) in the fourth quarter of 2009 from $8,923,000 ($0.67 per share after taxes) in the fourth quarter of 2008. For the year ended December 31, 2009, large losses totaled $22,938,000 ($1.74 per share after taxes), compared to $24,895,000 ($1.84 per share after taxes) in 2008.

The Company’s GAAP combined ratio was 94.7 percent in the fourth quarter of 2009 compared to 105.4 percent in the fourth quarter of 2008. For the year ended December 31, 2009, the Company’s GAAP combined ratio was 100.2 percent compared to 108.3 percent in 2008.

At December 31, 2009, consolidated assets totaled $1.2 billion, including $1.0 billion in the investment portfolio; stockholders’ equity increased 21.0 percent to $342.4 million; and the net book value of the Company’s stock was $26.11 per share, an increase of 22.5 percent from $21.32 per share at December 31, 2008.

As announced on February 3, 2010, management is projecting that 2010 operating income will be within a range of $1.90 to $2.15 per share. This guidance is based on a projected GAAP combined ratio of 103.7 percent for the year.

As of December 31, 2009, 736,133 shares of the Company’s common stock have been purchased under the Company’s $25 million stock repurchase program at a cost of approximately $17.9 million. The timing and terms of the purchases are determined by management based on market conditions, and the transactions are conducted in accordance with the applicable rules of the SEC. Common stock purchased under this program is being retired by the Company. The Company’s parent organization, Employers Mutual Casualty Company, has a stock purchase program in place as well, with about $4.5 million of its $15 million authorization remaining. This program is currently dormant and will not be reactivated until the Company’s repurchase program is completed.

The Company will hold an earnings teleconference call at 11:00 a.m. eastern standard time on February 25, 2010 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company’s results for the year ended December 31, 2009, as well as its expectations for the ensuing year. Dial-in information for the call is toll-free 1-877-407-8031 (International: 1-201-689-8031). The event will be archived and available for digital replay through March 11, 2010. The replay access information is toll-free 1-877-660-6853 (International: 1-201-612-7415); passcodes required for playback: account number 286, conference ID number 342676.

Members of the news media, investors and the general public are invited to access a live webcast of the conference call via http://www.investorcalendar.com or the Company’s investor relations page at www.emcins.com/ir. The webcast will be archived and available for replay until May 25, 2010. 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 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.

¹The 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, the Company has provided the following reconciliation of this non-GAAP financial measure to the U.S. GAAP financial measure of net income. Management also uses non-GAAP financial measures for goal setting, determining employee and senior management awards and compensation, and evaluating performance.

Reconciliation of operating income to net income:

Three Months Ended Twelve Months Ended
December 31, December 31,
2009 2008 2009 2008
Operating income $ 12,801,577 $ 5,555,249 $ 33,721,138 $ 14,190,727
Net realized investment gains (losses) 14,747,267 (5,081,709 ) 11,649,476 (15,896,100 )
Net income (loss) $ 27,548,844 $ 473,540 $ 45,370,614 $ (1,705,373 )
December 31,
2009 2008
ASSETS
Investments:
Fixed maturities:
Securities held-to-maturity, at amortized cost
(fair value $460,877 and $572,852) $ 410,005 $ 534,759
Securities available-for-sale, at fair value
(amortized cost $858,129,177 and $821,306,951) 884,688,114 812,868,835
Fixed maturity securities on loan:
Securities available-for-sale, at fair value
(amortized cost $14,065,597 and $8,923,745) 14,492,872 8,950,052
Equity securities available-for-sale, at fair value
(cost $73,114,920 and $75,025,666) 90,189,979 88,372,207
Other long-term investments, at cost 47,083 66,974
Short-term investments, at cost 55,390,096 54,373,082
Total investments 1,045,218,149 965,165,909
Balances resulting from related party transactions with
Employers Mutual:
Reinsurance receivables 30,544,558 36,355,047
Prepaid reinsurance premiums 5,112,386 4,157,055
Deferred policy acquisition costs 36,650,628 34,629,429
Other assets 2,058,189 2,534,076
Cash 278,534 182,538
Accrued investment income 11,082,132 12,108,129
Accounts receivable 1,611,740 23,041
Income taxes recoverable - 11,859,539
Deferred income taxes 15,044,357 30,819,592
Goodwill 941,586 941,586
Securities lending collateral 14,941,880 9,322,863
Other assets 2,303,654 -
Total assets $ 1,165,787,793 $ 1,108,098,804
LIABILITIES
Balances resulting from related party transactions with
Employers Mutual:
Losses and settlement expenses $ 553,787,770 $ 573,031,853
Unearned premiums 159,486,096 154,446,205
Other policyholders' funds 7,918,665 6,418,870
Surplus notes payable 25,000,000 25,000,000
Indebtedness to related party 13,488,724 20,667,196
Employee retirement plans 18,176,720 19,331,007
Other liabilities 20,335,197 16,964,452
Losses and settlement expenses 2,363,807 -
Income taxes payable 5,488,760 -
Securities lending obligation 14,941,880 9,322,863
Other liabilities 2,382,489 -
Total liabilities 823,370,108 825,182,446
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized 20,000,000
shares; issued and outstanding, 13,114,481
shares in 2009 and 13,267,668 shares in 2008 13,114,481 13,267,668
Additional paid-in capital 92,804,282 95,639,349
Accumulated other comprehensive income (loss):
Unrealized net losses on fixed income securities with OTTI (104,847 ) -
Other unrealized net gains 28,744,673 3,207,576
Employee retirement plans (12,587,484 ) (13,137,688 )
Total accumulated other comprehensive income (loss) 16,052,342 (9,930,112 )
Retained earnings 220,446,580 183,939,453
Total stockholders' equity 342,417,685 282,916,358
Total liabilities and stockholders' equity $ 1,165,787,793 $ 1,108,098,804
CONSOLIDATED STATEMENTS OF INCOME
Property and
Casualty Parent
Quarter Ended December 31, 2009 Insurance Reinsurance Company Consolidated
Revenues:
Premiums earned $ 77,520,877 $ 21,204,653 $ - $ 98,725,530
Investment income, net 9,345,570 3,163,326 (4,253 ) 12,504,643
Other income 177,186 2,543 - 179,729
87,043,633 24,370,522 (4,253 ) 111,409,902
Losses and expenses:
Losses and settlement expenses 49,291,089 8,241,260 - 57,532,349
Dividends to policyholders 1,816,687 - - 1,816,687
Amortization of deferred policy acquisition costs 19,928,255 4,085,472 - 24,013,727
Other underwriting expenses 9,149,267 932,926 - 10,082,193
Interest expense 225,000 - - 225,000
Other expenses 240,999 (364,633 ) 315,755 192,121
80,651,297 12,895,025 315,755 93,862,077
Operating income (loss) before income taxes 6,392,336 11,475,497 (320,008 ) 17,547,825
Realized investment gains 22,641,978 46,126 - 22,688,104
Income (loss) before income taxes 29,034,314 11,521,623 (320,008 ) 40,235,929
Income tax expense (benefit):
Current 7,310,872 2,018,308 (112,002 ) 9,217,178
Deferred 1,818,792 1,651,115 - 3,469,907
9,129,664 3,669,423 (112,002 ) 12,687,085
Net income (loss) $ 19,904,650 $ 7,852,200 $ (208,006 ) $ 27,548,844
Average shares outstanding 13,113,534
Per Share Data:
Net income (loss) per share - basic and diluted $ 1.52 $ 0.60 $ (0.02 ) $ 2.10
Catastrophe and storm losses (after tax) $ 0.04 $ (0.07 ) $ - $ (0.03 )
Dividends per share $ 0.18
Other Information of Interest:
Net written premiums $ 63,193,817 $ 20,937,704 $ - $ 84,131,521
Catastrophe and storm losses $ (809,043 ) $ 1,328,769 $ - $ 519,726
GAAP Combined Ratio:
Loss ratio 63.6 % 38.9 % - 58.3 %
Expense ratio 39.8 % 23.6 % - 36.4 %
103.4 % 62.5 % - 94.7 %
Property and
Casualty Parent
Quarter Ended December 31, 2008 Insurance Reinsurance Company Consolidated
Revenues:
Premiums earned $ 79,084,507 $ 22,228,595 $ - $ 101,313,102
Investment income, net 9,217,233 2,971,962 23,399 12,212,594
Other income 127,440 - - 127,440
88,429,180 25,200,557 23,399 113,653,136
Losses and expenses:
Losses and settlement expenses 52,857,706 19,419,641 - 72,277,347
Dividends to policyholders 2,794,081 - - 2,794,081
Amortization of deferred policy acquisition costs 19,071,697 4,136,793 - 23,208,490
Other underwriting expenses 7,542,183 982,948 - 8,525,131
Interest expense 225,000 - - 225,000
Other expenses 156,242 (303,559 ) 333,095 185,778
82,646,909 24,235,823 333,095 107,215,827
Operating income (loss) before income taxes 5,782,271 964,734 (309,696 ) 6,437,309
Realized investment losses (5,527,907 ) (2,290,108 ) - (7,818,015 )
Income (loss) before income taxes 254,364 (1,325,374 ) (309,696 ) (1,380,706 )
Income tax benefit:
Current (3,817,402 ) (2,232,060 ) (108,394 ) (6,157,856 )
Deferred 2,925,053 1,378,557 - 4,303,610
(892,349 ) (853,503 ) (108,394 ) (1,854,246 )
Net income (loss) $ 1,146,713 $ (471,871 ) $ (201,302 ) $ 473,540
Average shares outstanding 13,290,907
Per Share Data:
Net income (loss) per share - basic and diluted $ 0.09 $ (0.04 ) $ (0.01 ) $ 0.04
Catastrophe and storm losses (after tax) $ (0.02 ) $ (0.08 ) $ - $ (0.10 )
Dividends per share $ 0.18
Other Information of Interest:
Net written premiums $ 63,312,384 $ 22,127,584 $ - $ 85,439,968
Catastrophe and storm losses $ 469,178 $ 1,588,738 $ - $ 2,057,916
GAAP Combined Ratio:
Loss ratio 66.8 % 87.4 % - 71.3 %
Expense ratio 37.2 % 23.0 % - 34.1 %
104.0 % 110.4 % - 105.4 %
Property and
Casualty Parent
Year Ended December 31, 2009 Insurance Reinsurance Company Consolidated
Revenues:
Premiums earned $ 308,079,036 $ 75,931,865 $ - $ 384,010,901
Investment income, net 35,679,586 12,069,177 10,543 47,759,306
Other income 752,635 2,543 - 755,178
344,511,257 88,003,585 10,543 432,525,385
Losses and expenses:
Losses and settlement expenses 199,124,285 49,625,174 - 248,749,459
Dividends to policyholders 9,090,655 - - 9,090,655
Amortization of deferred policy acquisition costs 73,409,970 14,582,779 - 87,992,749
Other underwriting expenses 36,841,268 2,175,711 - 39,016,979
Interest expense 900,000 - - 900,000
Other expenses 855,846 (29,237 ) 1,346,388 2,172,997
320,222,024 66,354,427 1,346,388 387,922,839
Operating income (loss) before income taxes 24,289,233 21,649,158 (1,335,845 ) 44,602,546
Realized investment gains (losses) 19,581,814 (1,659,543 ) - 17,922,271
Income (loss) before income taxes 43,871,047 19,989,615 (1,335,845 ) 62,524,817
Income tax expense (benefit):
Current 11,296,988 4,886,576 (467,545 ) 15,716,019
Deferred 735,709 702,475 - 1,438,184
12,032,697 5,589,051 (467,545 ) 17,154,203
Net income (loss) $ 31,838,350 $ 14,400,564 $ (868,300 ) $ 45,370,614
Average shares outstanding 13,207,105
Per Share Data:
Net income (loss) per share - basic and diluted $ 2.41 $ 1.09 $ (0.06 ) $ 3.44
Catastrophe and storm losses (after tax) $ (1.37 ) $ (0.18 ) $ - $ (1.55 )
Dividends per share $ 0.72
Book value per share $ 26.11
Effective tax rate 27.4 %
Annualized net income as a percent of beg. SH equity 16.0 %
Other Information of Interest:
Net written premiums $ 312,814,883 $ 75,901,429 $ - $ 388,716,312
Catastrophe and storm losses $ 27,898,729 $ 3,565,791 $ - $ 31,464,520
GAAP Combined Ratio:
Loss ratio 64.6 % 65.4 % - 64.8 %
Expense ratio 38.8 % 22.0 % - 35.4 %
103.4 % 87.4 % - 100.2 %
Property and
Casualty Parent
Year Ended December 31, 2008 Insurance Reinsurance Company Consolidated
Revenues:
Premiums earned $ 315,598,049 $ 73,719,749 $ - $ 389,317,798
Investment income, net 36,329,609 11,912,452 161,312 48,403,373
Other income 626,499 - - 626,499
352,554,157 85,632,201 161,312 438,347,670
Losses and expenses:
Losses and settlement expenses 232,538,251 61,727,042 - 294,265,293
Dividends to policyholders 5,822,521 - - 5,822,521
Amortization of deferred policy acquisition costs 73,064,705 14,799,244 - 87,863,949
Other underwriting expenses 30,989,615 2,709,106 - 33,698,721
Interest expense 889,375 - - 889,375
Other expenses 568,848 (256,599 ) 1,330,077 1,642,326
343,873,315 78,978,793 1,330,077 424,182,185
Operating income (loss) before income taxes 8,680,842 6,653,408 (1,168,765 ) 14,165,485
Realized investment losses (16,811,900 ) (7,643,639 ) - (24,455,539 )
Loss before income taxes (8,131,058 ) (990,231 ) (1,168,765 ) (10,290,054 )
Income tax expense (benefit):
Current (6,833,429 ) (805,907 ) (409,068 ) (8,048,404 )
Deferred 522,159 (1,058,436 ) - (536,277 )
(6,311,270 ) (1,864,343 ) (409,068 ) (8,584,681 )
Net income (loss) $ (1,819,788 ) $ 874,112 $ (759,697 ) $ (1,705,373 )
Average shares outstanding 13,534,147
Per Share Data:
Net income (loss) per share - basic and diluted $ (0.14 ) $ 0.06 $ (0.05 ) $ (0.13 )
Catastrophe and storm losses (after tax) $ (2.13 ) $ (0.39 ) $ - $ (2.52 )
Dividends per share $ 0.72
Book value per share $ 21.32
Effective tax rate (83.4 )%
Annualized net income as a percent of beg. SH equity (0.5 )%
Other Information of Interest:
Net written premiums $ 312,987,369 $ 73,617,740 $ - $ 386,605,109
Catastrophe and storm losses $ 44,439,082 $ 8,045,176 $ - $ 52,484,258
GAAP Combined Ratio:
Loss ratio 73.7 % 83.7 % - 75.6 %
Expense ratio 34.8 % 23.8 % - 32.7 %
108.5 % 107.5 % - 108.3 %

The Company had total cash and invested assets with a carrying value of $1.0 billion and $965.3 million as of December 31, 2009 and December 31, 2008, respectively. The following table summarizes the Company's cash and invested assets as of the dates indicated:

December 31, 2009
Percent of
Amortized Fair Total Carrying
($ in thousands) Cost Value Fair Value Value
Fixed maturity securities held-to-maturity $ 410 $ 461 0.1 % $ 410
Fixed maturity securities available-for-sale 872,195 899,181 86.0 % 899,181
Equity securities available-for-sale 73,115 90,190 8.6 % 90,190
Cash 279 279 - 279
Short-term investments 55,390 55,390 5.3 % 55,390
Other long-term investments 47 47 - 47
$ 1,001,436 $ 1,045,548 100.0 % $ 1,045,497
December 31, 2008
Percent of
Amortized Fair Total Carrying
($ in thousands) Cost Value Fair Value Value
Fixed maturity securities held-to-maturity $ 535 $ 573 0.1 % $ 535
Fixed maturity securities available-for-sale 830,231 821,819 85.1 % 821,819
Equity securities available-for-sale 75,026 88,372 9.2 % 88,372
Cash 182 182 - 182
Short-term investments 54,373 54,373 5.6 % 54,373
Other long-term investments 67 67 - 67
$ 960,414 $ 965,386 100.0 % $ 965,348
NET WRITTEN PREMIUMS
Three Months Ended Twelve Months Ended
December 31, 2009 December 31, 2009
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 15.9 % (1.1 ) % 16.7 % (3.3 ) %
Liability 13.8 % (12.4 ) % 15.9 % (7.9 ) %
Property 14.9 % 2.3 % 16.4 % 4.0 %
Workers' Compensation 13.6 % (8.1 ) % 17.1 % - %
Other 2.2 % (1.0 ) % 2.2 % (2.7 ) %
Total Commercial Lines 60.4 % (4.8 ) % 68.3 % (2.0 ) %
Personal Lines:
Automobile 9.3 % 40.0 % 7.2 % 22.3 %
Property 5.3 % 5.3 % 4.9 % 0.4 %
Liability 0.1 % (10.7 ) % 0.1 % (6.9 ) %
Total Personal Lines 14.7 % 24.6 % 12.2 % 12.1 %
Total Property and Casualty Insurance 75.1 % (0.2 ) % 80.5 % (0.1 ) %
Reinsurance 24.9 % (5.4 ) % 19.5 % 3.1 %
Total 100.0 % (1.5 ) % 100.0 % 0.5 %


 
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