First Quarter Ended March 31,
2015Operating Income Per Share – $1.45Net Income Per
Share – $1.49Net Realized Investment Gains Per Share –
$0.04Catastrophe and Storm Losses Per Share – $0.22Large Losses Per
Share – $0.20GAAP Combined Ratio – 87.7 percent
2015 Operating Income Guidance – $2.75 to $3.00 per
share
EMC Insurance Group Inc. (NASDAQ:EMCI) today reported its best
first quarter since becoming a public company in 1982. The Company
reported operating income of $19.8 million ($1.45 per share) for
the first quarter ended March 31, 2015, compared to operating
income of $9.8 million ($0.73 per share) for the first quarter of
20141.
Net income, including realized investment gains and losses,
totaled $20.3 million ($1.49 per share) for the first quarter of
2015, compared to $10.6 million ($0.79 per share) for the first
quarter of 2014.
The Company’s GAAP combined ratio was 87.7 percent in the first
quarter of 2015, compared to 98.2 percent in the first quarter of
2014.
“We are very pleased to report a record-breaking first quarter,”
stated President and Chief Executive Officer Bruce G. Kelley. “This
strong start to the year provides a solid foundation to work from
as we continue to focus on improving underwriting
profitability.
“Although the Northeast experienced severe winter weather during
the first quarter, our losses from cold weather events were not
widespread and had little impact on first quarter results. Premium
growth remained strong in the mid-single digits in the property and
casualty insurance segment. This growth continues to come from a
variety of programs and industries across our 16 branch offices. In
addition, we continue to navigate the challenging reinsurance
marketplace as it remains under pressure due to the influx of
nontraditional capital.
“Our outstanding first quarter performance lays the groundwork
for achievement of our 2015 guidance as we strive to increase the
value of our stockholders’ investment.”
In addition, the Company announced that its board of directors
has approved a three-for-two stock split of the Company’s
outstanding shares of common stock, to be effected in the form of a
50 percent stock dividend. Stockholders of record at the close of
business on June 16, 2015, will receive one additional share of EMC
Insurance Group Inc. common stock for every two shares of common
stock held. The additional shares of EMC Insurance Group Inc.
common stock will be distributed on June 23, 2015. The par value of
the common stock will remain at $1.00 per share after the
completion of the stock split. This stock split will not change the
proportionate interest that a stockholder has in the company. After
giving effect to the stock split, the number of outstanding shares
of the Company’s common stock will increase to approximately 20.6
million shares, up from approximately 13.7 million shares
outstanding prior to the split.
“In light of our strong first quarter and recent stock price
appreciation, we felt it was an appropriate time to implement a
stock split, which should enhance the liquidity of our shares and
make them more accessible and attractive to a broader range of
investors,” Kelley concluded.
Returning to the quarterly results, premiums earned increased
4.2 percent to $138.7 million for the first quarter of 2015, from
$133.1 million in the first quarter of 2014. In the property and
casualty insurance segment, premiums earned increased 6.9 percent,
with the majority of the increase attributable to rate level
increases on renewal business and, to a lesser extent, growth in
insured exposures. In the reinsurance segment, premiums earned
decreased 4.1 percent due to a non-recurring upward revision in the
estimated ultimate premium on all accounts in the pro rata property
line of business that was recognized in the first quarter of
2014.
Catastrophe and storm losses totaled $4.6 million ($0.22 per
share after tax) in the first quarter of 2015, compared to $7.4
million ($0.36 per share after tax) in the first quarter of 2014,
which included approximately $4.0 million of losses in the property
and casualty insurance segment attributed to the polar vortex that
impacted the eastern United States in early January of 2014. First
quarter 2015 catastrophe and storm losses accounted for 3.3
percentage points of the combined ratio, which is well below the
Company’s most recent 10-year average for this period of 5.5
percentage points and the 5.6 percentage points experienced in the
first quarter of 2014. On a segment basis, catastrophe and storm
losses amounted to $1.8 million ($0.09 per share after tax) in the
property and casualty insurance segment and $2.8 million ($0.13 per
share after tax) in the reinsurance segment for the first quarter
of 2015.
The Company reported $14.6 million ($0.70 per share after tax)
of favorable development on prior years’ reserves during the first
quarter of 2015, compared to $2.6 million ($0.13 per share after
tax) in the first quarter of 2014. While both segments experienced
an increase in favorable development, the majority of the increase
occurred in the property and casualty insurance segment, and is
largely attributed to a return to historically observed development
patterns on claims reported in prior accident years. Development
amounts can vary significantly from quarter to quarter and year to
year depending on a number of factors, including the number of
claims settled and the settlement terms, and should therefore not
be considered a reliable factor in assessing the adequacy of the
Company’s carried reserves. The most recent actuarial analysis of
the Company’s carried reserves indicates that carried reserves
remain within the top quartile of the range of reasonable
reserves.
Large losses (which the Company defines as losses greater than
$500,000 for the EMC Insurance Companies pool, excluding
catastrophe and storm losses) were relatively flat in the first
quarter of 2015 totaling $4.3 million ($0.20 per share after tax),
compared to $4.2 million ($0.20 per share after tax) in the first
quarter of 2014.
Net investment income decreased 5.5 percent to $11.2 million for
the first quarter of 2015 from $11.9 million in the first quarter
of 2014. Approximately $442,000 (3.7 percentage points) of the
decline is attributed to the early payoff of a commercial
mortgage-backed security during the first quarter of 2014 that was
purchased at a significant discount to par value. The early payoff
accelerated the accretion of the discount to par value, and
therefore increased investment income. In addition, net investment
income in the first quarter of 2014 included certain one-time
dividend payments that were not received in the first quarter of
2015.
Net realized investment gains totaled $509,000 ($0.04 per share)
for the first quarter of 2015, compared to $820,000 ($0.06 per
share) in the first quarter of 2014. Included in the net realized
investment gains reported for the first quarters of 2015 and 2014
are $909,000 and $239,000, respectively, of net realized investment
losses attributed to the decline in the carrying value of a limited
partnership that helps to protect the Company from a sudden and
significant decline in the value of its equity portfolio.
At March 31, 2015, consolidated assets totaled $1.5 billion,
including $1.4 billion in the investment portfolio, and
stockholders’ equity totaled $527.2 million, an increase of 4.8
percent from December 31, 2014. Book value of the Company’s stock
increased 3.8 percent to $38.48 per share, from $37.08 per share at
December 31, 2014. Book value excluding accumulated other
comprehensive income increased to $32.29 per share from $31.06 per
share at December 31, 2014.
Despite the record first quarter results, management is
reaffirming its 2015 operating income guidance in the range of
$2.75 to $3.00 per share on a pre-split basis. This is due to the
fact that actual first quarter operating results were only slightly
better than expectations. In addition, second and third quarter
operating results can be volatile depending on the frequency and
severity of Midwest storms, and the possibility of
hurricane-related losses. This guidance is based on a projected
GAAP combined ratio of 97.8 percent for the year and investment
income consistent with the amount reported in 2014. The projected
GAAP combined ratio has a load of 11.0 points for catastrophe and
storm losses.
The Company will hold an earnings teleconference call at noon
Eastern time on Thursday, May 7, 2015 to provide securities
analysts, stockholders and other interested parties the opportunity
to hear management discuss the Company’s results for the first
quarter, as well as its expectations for the rest of 2015. Dial-in
information for the call is toll-free 1-877-407-9205
(International: 1-201-689-8054).
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 until August 7, 2015. A
transcript of the teleconference will also be available on the
Company’s website shortly after the completion of the
teleconference.
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 OMX 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 Casualty Company (EMCC). EMCI and EMCC, 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.
1 The Company prepares its public financial statements in
conformity with accounting principles generally accepted in the
Unites States of America (GAAP). Operating income is a non-GAAP
financial measure, calculated by excluding net realized investment
gains from net income. The Company’s calculation of operating
income may differ from similar measures used by other companies, so
investors should exercise caution when comparing the Company’s
measure of operating income to the measure of other companies.
Management’s projected operating income guidance is also considered
a non-GAAP financial measure.
Management believes operating income 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 GAAP financial measure
of net income. Therefore, the Company has provided the following
reconciliation of the non-GAAP financial measure of operating
income to the 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.
The reconciliation of operating income to net income is as
follows:
Three Months Ended March 31, 2015 2014
($ in thousands) Operating income $ 19,821 $ 9,775 Net realized
investment gains 509 820 Net income $ 20,330 $ 10,595
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
($ in thousands, except share and per share amounts)
Property and
Casualty Parent Quarter Ended March 31, 2015
Insurance Reinsurance
Company
Consolidated
Revenues:
Premiums earned $ 108,205 $ 30,526 $ - $ 138,731 Investment income,
net 8,026 3,184 (4 ) 11,206 Other income 182
1,433 - 1,615 116,413
35,143 (4 ) 151,552
Losses and
expenses:
Losses and settlement expenses 56,675 19,110 - 75,785 Dividends to
policyholders 2,900 - - 2,900 Amortization of deferred policy
acquisition costs 18,379 7,062 - 25,441 Other underwriting expenses
16,173 1,348 - 17,521 Interest expense 84 - - 84 Other expenses
206 - 461 667
94,417 27,520 461
122,398 Operating income (loss) before income taxes
21,996 7,623 (465 )
29,154 Realized investment gains 700 83
- 783 Income (loss) before
income taxes 22,696 7,706 (465 )
29,937
Income tax expense
(benefit):
Current 7,585 1,783 (163 ) 9,205 Deferred (290 ) 692
- 402 7,295
2,475 (163 ) 9,607 Net Income (loss) $
15,401 $ 5,231 $ (302 ) $ 20,330 Average
shares outstanding 13,624,201
Per Share
Data:
Net income (loss) per share - basic and diluted $ 1.13 $ 0.38 $
(0.02 ) $ 1.49 Catastrophe and storm losses (after tax) $ 0.09 $
0.13 $ - $ 0.22 Large losses* (after tax) $ 0.20 $ - $ - $ 0.20
Reported favorable development experienced
on prior years' reserves (after tax)
$ 0.44 $ 0.26 $ - $ 0.70 Dividends per share $ 0.25 Book value per
share $ 38.48 Effective tax rate 32.1 % Annualized net income as a
percent of beg. SH equity 16.2 %
Other Information of
Interest:
Net written premiums $ 108,796 $ 34,128 $ - $ 142,924 Catastrophe
and storm losses $ 1,761 $ 2,809 $ - $ 4,570 Large losses* $ 4,258
$ - $ - $ 4,258
Reported favorable development experienced
on prior years' reserves
$ (9,265 ) $ (5,328 ) $ - $ (14,593 )
GAAP
Ratios:
Loss and settlement expense ratio 52.4 % 62.6 % - 54.6 %
Acquisition expense ratio 34.6 % 27.6 % -
33.1 % Combined ratio 87.0 % 90.2 %
- 87.7 % *Large losses are defined as
losses greater than $500 for the EMC Insurance Companies pool,
excluding catastrophe and storm losses.
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED ($ in
thousands, except share and per share amounts)
Property and Casualty
Parent Quarter Ended March 31, 2014 Insurance
Reinsurance
Company
Consolidated
Revenues:
Premiums earned $ 101,247 $ 31,833 $ - $ 133,080 Investment income,
net 8,616 3,243 (4 ) 11,855 Other income 201
(167 ) - 34 110,064
34,909 (4 ) 144,969
Losses and
expenses:
Losses and settlement expenses 67,726 21,243 - 88,969 Dividends to
policyholders 1,716 - - 1,716 Amortization of deferred policy
acquisition costs 17,741 6,874 - 24,615 Other underwriting expenses
14,539 891 - 15,430 Interest expense 84 - - 84 Other expenses
174 - 354 528
101,980 29,008 354
131,342 Operating income (loss) before income taxes
8,084 5,901 (358 ) 13,627
Realized investment gains 1,011 251
- 1,262 Income (loss) before
income taxes 9,095 6,152 (358 )
14,889
Income tax expense
(benefit):
Current 2,217 2,010 (125 ) 4,102 Deferred 326
(134 ) - 192 2,543
1,876 (125 ) 4,294 Net Income (loss) $
6,552 $ 4,276 $ (233 ) $ 10,595 Average shares
outstanding 13,348,730
Per Share
Data:
Net income (loss) per share - basic and diluted $ 0.49 $ 0.32 $
(0.02 ) $ 0.79 Catastrophe and storm losses (after tax) $ 0.34 $
0.02 $ - $ 0.36 Large losses* (after tax) $ 0.20 $ - $ - $ 0.20
Reported favorable development experienced
on prior years' reserves (after tax)
$ 0.05 $ 0.08 $ - $ 0.13 Dividends per share $ 0.23 Book value per
share $ 35.42 Effective tax rate 28.8 % Annualized net income as a
percent of beg. SH equity 9.3 %
Other Information of
Interest:
Net written premiums $ 102,513 $ 32,892 $ - $ 135,405 Catastrophe
and storm losses $ 6,972 $ 440 $ - $ 7,412 Large losses* $ 4,196 $
- $ - $ 4,196
Reported favorable development experienced
on prior years' reserves
$ (939 ) $ (1,649 ) $ - $ (2,588 )
GAAP
Ratios:
Loss and settlement expense ratio 66.9 % 66.7 % - 66.9 %
Acquisition expense ratio 33.6 % 24.4 % -
31.3 % Combined ratio 100.5 % 91.1 %
- 98.2 % *Large losses are defined as
losses greater than $500 for the EMC Insurance Companies pool,
excluding catastrophe and storm losses.
CONSOLIDATED BALANCE SHEETS ($ in thousands, except share
and per share amounts)
March 31,
December 31, 2015 2014
(Unaudited)
ASSETS Investments:
Fixed maturity securities
available-for-sale, at fair value (amortized cost $1,084,305 and
$1,080,006)
$ 1,138,223 $ 1,127,499
Equity securities available-for-sale, at
fair value (cost $127,418 and $123,972)
199,557 197,036 Other long-term investments 9,717 6,227 Short-term
investments 47,233 53,262 Total investments 1,394,730
1,384,024 Cash 404 383 Reinsurance receivables due from
affiliate 27,304 28,603 Prepaid reinsurance premiums due from
affiliate 7,098 8,865 Deferred policy acquisition costs (affiliated
$40,605 and $38,930) 41,128 39,343
Amounts due from affiliate to settle
inter-company transaction balances
7,594 - Prepaid pension and postretirement benefits due from
affiliate 17,134 17,360 Accrued investment income 11,403 10,295
Accounts receivable 2,179 1,767 Goodwill 942 942 Other assets
(affiliated $3,966 and $4,900) 4,043 6,238 Total
assets $ 1,513,959 $ 1,497,820
LIABILITIES Losses and
settlement expenses (affiliated $647,663 and $650,652) $ 657,285 $
661,309 Unearned premiums (affiliated $232,814 and $230,460)
234,471 232,093 Other policyholders' funds (all affiliated) 11,109
10,153 Surplus notes payable to affiliate 25,000 25,000 Amounts due
affiliate to settle inter-company transaction balances - 8,559
Pension benefits payable to affiliate 3,963 4,162 Income taxes
payable 8,671 3 Deferred income taxes 30,791 28,654 Other
liabilities (affiliated $15,394 and $23,941) 15,470
25,001 Total liabilities 986,760 994,934
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized
20,000,000 shares; issued and outstanding, 13,700,025 shares in
2015 and 13,562,980 shares in 2014
13,700 13,563 Additional paid-in capital 110,684 106,672
Accumulated other comprehensive income 84,884 81,662 Retained
earnings 317,931 300,989 Total stockholders' equity
527,199 502,886 Total liabilities and stockholders'
equity $ 1,513,959 $ 1,497,820
INVESTMENTS
The Company had total cash and invested assets with a carrying
value of $1.4 billion as of March 31, 2015, and December 31, 2014,
respectively. The following table summarizes the Company's cash and
invested assets as of the dates indicated:
March 31,
2015 Percent of Amortized Fair Total Carrying ($ in thousands) Cost
Value Fair Value Value Fixed maturity securities available-for-sale
$ 1,084,305 $ 1,138,223 81.6 % $ 1,138,223 Equity securities
available-for-sale 127,418 199,557 14.3 % 199,557 Cash 404 404 -
404 Short-term investments 47,233 47,233 3.4 % 47,233 Other
long-term investments 9,717 9,717 0.7 %
9,717 $ 1,269,077 $ 1,395,134 100.0 % $
1,395,134 December 31, 2014 Percent of Amortized Fair Total
Carrying ($ in thousands) Cost Value Fair Value Value Fixed
maturity securities available-for-sale $ 1,080,006 $ 1,127,499 81.5
% $ 1,127,499 Equity securities available-for-sale 123,972 197,036
14.2 % 197,036 Cash 383 383 - 383 Short-term investments 53,262
53,262 3.9 % 53,262 Other long-term investments 6,227
6,227 0.4 % 6,227 $ 1,263,850 $
1,384,407 100.0 % $ 1,384,407
NET WRITTEN
PREMIUMS Three Months Ended March 31, 2015 Percent of Percent
of Increase/(Decrease) Net Written in Net Written Premiums Premiums
Property and Casualty Insurance Commercial Lines: Automobile 19.1 %
9.7 % Liability 16.6 % 7.3 % Property 17.2 % 5.5 % Workers'
compensation 14.9 % 5.4 % Other 1.4 % 39.6 % Total
commercial lines 69.2 % 7.6 % Personal Lines:
Automobile 3.9 % (9.0 )% Property 2.9 % (3.5 )% Liability
0.1 % 7.7 % Total personal lines 6.9 % (6.5 )% Total
property and casualty insurance 76.1 % 6.1 %
Reinsurance: Pro rata 10.4 % 5.5 % Excess of loss 13.5 % 2.5
% Total reinsurance 23.9 % 3.8 % Total 100.0 % 5.6 %
EMC Insurance Group Inc.Investors:Steve Walsh,
515-345-2515orMedia:Lisa Hamilton, 515-345-7589
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