EMC Insurance Group Inc. Reports 2016 Third Quarter And Nine Month Results

Third Quarter Ended September 30, 2016 Net Income Per Share - $0.20Operating Income Per Share 1 - $0.23Net Realized Investment Losses Per Share - $0.03Catastrophe and Storm Losses Per Share - $0.53GAAP Combined Ratio - 102.9 percent

Nine Months Ended September 30, 2016 Net Income Per Share - $1.19Operating Income Per Share 1 - $1.21Net Realized Investment Losses Per Share - $0.02Catastrophe and Storm Losses Per Share - $1.41GAAP Combined Ratio - 99.8 percent

DES MOINES, Iowa, Nov. 04, 2016 (GLOBE NEWSWIRE) -- EMC Insurance Group Inc. (NASDAQ:EMCI) (the "Company"), today reported net income of $4.1 million ($0.20 per share) for the third quarter ended September 30, 2016, compared to net income of $11.2 million ($0.54 per share) for the third quarter of 2015. For the nine months ended September 30, 2016, the Company reported net income of $24.9 million ($1.19 per share), compared to $40.3 million ($1.96 per share) for the same period in 2015.

Operating income 1, which excludes realized investment gains and losses from net income, totaled $4.9 million ($0.23 per share) for the third quarter of 2016, compared to $6.3 million ($0.31 per share) for the third quarter of 2015. For the nine months ended September 30, 2016, the Company reported operating income of $25.3 million ($1.21 per share), compared to $32.8 million ($1.59 per share) for the same period in 2015.

The Company's GAAP combined ratio was 102.9 percent in the third quarter of 2016, compared to 101.8 percent in the third quarter of 2015. For the first nine months of 2016, the Company's GAAP combined ratio was 99.8 percent, compared to 97.0 percent in 2015.

"Commercial auto and personal lines continue to depress results," stated President and Chief Executive Officer Bruce G. Kelley. "We expect to see gradual improvement in the performance of these lines during 2017 from our comprehensive Accelerate Commercial Auto Profitability project and our nearly complete personal lines initiative. 

"The new intercompany reinsurance program in place for the property and casualty insurance segment is working as planned. Recoveries under the treaty covering the first half of the year reduced the volatility of our quarterly results caused by catastrophe and storm losses. While no recoveries have been made under the treaty covering the second half of the year, we are near its retention amount and therefore are expecting a minimal amount of catastrophe and storm losses in the fourth quarter," concluded Kelley.

Premiums earned increased 4.4 percent and 2.9 percent for the third quarter and first nine months of 2016. In the property and casualty insurance segment, premiums earned increased 2.3 percent and 1.6 percent for the third quarter and first nine months of 2016. The new semi-annual aggregate catastrophe excess of loss 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 $7.1 million for the third quarter and first nine months of 2016. Excluding this cost, premiums earned increased 3.0 percent and 3.7 percent. The majority of these increases are attributed to growth in insured exposures, an increase in new business, and small rate level increases on renewal business.

In the reinsurance segment, premiums earned increased 11.8 percent and 7.2 percent for the third quarter and first nine months of 2016. These increases reflect reductions in the total cost of the revised excess of loss reinsurance program with Employers Mutual totaling $246,000 and $2.4 million for the third quarter and first nine months of 2016. In 2016, the total cost of the reinsurance program includes the premiums paid to Employers Mutual, as well as the cost of Industry Loss Warranties (ILWs) that have been 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. Excluding the reduction in the cost of the revised reinsurance program, premiums earned increased approximately 11.0 percent and 4.7 percent for the third quarter and first nine months of 2016. The increase for the third quarter was driven by the addition of some new accounts and growth in the pro rata line of business, partially offset by a decline in the marine business attributed to the offshore energy and liability proportional account.  

Catastrophe and storm losses totaled $17.1 million ($0.53 per share after tax) in the third quarter of 2016, compared to $17.8 million ($0.56 per share after tax) in the third quarter of 2015. Catastrophe and storm losses increased $4.9 million in the property and casualty insurance segment, but declined $5.6 million in the reinsurance segment. The property and casualty insurance segment recovered an additional $3.5 million of catastrophe and storm losses from Employers Mutual during the third quarter under the January 1 through June 30 excess of loss reinsurance treaty, bringing the total recovery for first nine months of 2016 to $5.1 million. No recoveries were made under the July 1 through December 31 treaty; however, only $213,000 of retention remains under that treaty, meaning catastrophe and storm losses will be capped at $213,000 in the fourth quarter, unless the $12.0 million limit of protection is exceeded. No recoveries have been made under the reinsurance segment's intercompany reinsurance program during the first nine months of 2016. Third quarter 2016 catastrophe and storm losses accounted for 11.1 percentage points of the combined ratio, which was lower than expected, and well below the Company's most recent 10-year average of 14.3 percentage points for this period. Catastrophe and storm losses accounted for 12.2 percentage points of the combined ratio in the third quarter of 2015.

For the first nine months of 2016, catastrophe and storm losses totaled $45.5 million ($1.41 per share after tax), compared to $40.8 million ($1.29 per share after tax) in 2015. On a segment basis, catastrophe and storm losses amounted to $14.8 million ($0.46 per share after tax) and $34.8 million ($1.08 per share after tax) in the property and casualty insurance segment, and $2.3 million ($0.07 per share after tax) and $10.7 million ($0.33 per share after tax) in the reinsurance segment, for the three and nine months ended September 30, 2016, respectively.

During the third quarter of 2016, management implemented a new reserving methodology for the determination of direct bulk reserves in the property and casualty insurance segment. The new methodology, which is referred to as the accident year ultimate estimate approach, better conforms to industry practices and will provide increased transparency of the drivers of the property and casualty insurance segment's performance. Although the reserves carried at September 30, 2016 were calculated under the new reserving methodology, the explicit drivers of development on prior years' reserves for the three and nine months ended September 30, 2016 cannot be identified because the reserves carried at December 31, 2015 were calculated under the old reserving methodology, and the implicit accident year ultimate assumptions underlying that methodology are not known. The explicit drivers of development on prior years' reserves will be identifiable beginning in the first quarter of 2017.

The implementation of the new reserving methodology did not have a material impact on total carried reserves for the property and casualty insurance segment at September 30, 2016; however, approximately $5.6 million of incurred but not reported (IBNR) loss reserves and settlement expense reserves were reallocated from prior accident years to the current accident year in multiple lines of business. This reduction in prior accident years' reserves is reported as favorable development; however, this development is "mechanical" in nature, and did not have any impact on earnings because the total amount of carried reserves did not change as a result of this reallocation.

During the third quarter of 2015, approximately $2.4 million of reserves on a two-year contract were reallocated from the current accident year to the prior accident year in the reinsurance segment. The increase in prior accident year reserves is reported as adverse development; however, this development is also "mechanical" in nature and did not have any impact on earnings.

The Company reported $13.2 million ($0.41 per share after tax) of favorable development on prior years' reserves during the third quarter of 2016, compared to $2.2 million ($0.07 per share after tax) in the third quarter of 2015. For the first nine months of 2016, favorable development totaled $29.1 million ($0.90 per share after tax), compared to $20.0 million ($0.63 per share after tax) in 2015. Excluding the "mechanical" development amounts described above, the implied amounts of favorable development that had an impact on earnings would be approximately $7.6 million and $23.5 million for the third quarter and first nine months of 2016, compared to $4.6 million and $22.3 million for the same periods in 2015.

Under the previous reserving methodology employed through the second quarter of 2016, development amounts could 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.  With the conversion to the accident year ultimate estimate methodology as of the end of third quarter 2016, calendar year development on prior accident years is determined solely by changes in the prior accident years' ultimate loss and settlement expense ratios.  In transitioning to the new methodology, changes in the assumptions underlying the ultimate ratios previously established for accident years 2015 and prior are difficult to quantify as the implied ultimate ratios under the previous methodology were based on implicit, rather than explicit, actuarial assumptions.  Therefore, comparison of 2016 third quarter and year-to-date development amounts to the 2015 development amounts provides little meaningful information, as the prior accident year reserve allocation method lacked explicit frequency and severity assumptions.   

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, 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 nine months ended September 30, 2016, because it would not be comparable to the amount reported for the first nine months of 2015.

Net investment income increased 1.5 percent and 5.7 percent to $11.5 million and $35.9 million for the third quarter and first nine months of 2016, from $11.3 million and $33.9 million for the same periods in 2015. These increases are primarily attributed to higher amounts of dividend income, and an increase in interest income resulting from a higher average invested balance in fixed maturity securities.

Net realized investment losses totaled $1.2 million ($0.03 per share after tax) and $643,000 ($0.02 per share after tax) for the third quarter and first nine months of 2016, compared to net realized investment gains of $7.5 million ($0.23 per share after tax) and $11.6 million ($0.37 per share after tax) for the same periods in 2015. Included in net realized investment losses reported for the third quarter and first nine months of 2016 are $1.9 million and $5.3 million, respectively, of net realized investment losses attributed to declines 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. Included in the net realized investment gains reported for the third quarter and first nine months of 2015 are net realized investment gains of $7.2 million and $3.8 million, respectively, attributed to an increase in the carrying value of this limited partnership that resulted from the sharp decline in the equity markets that occurred in August of 2015.

At September 30, 2016, consolidated assets totaled $1.6 billion, including $1.5 billion in the investment portfolio, and stockholders' equity totaled $562.4 million, an increase of 7.1 percent from December 31, 2015. Book value of the Company's stock increased 5.6 percent to $26.67 per share from $25.26 per share at December 31, 2015, but declined 0.5 percent from June 30, 2016, which reflects a decline in unrealized gains on the investment portfolio. Book value excluding accumulated other comprehensive income increased 2.9 percent to $23.09 per share from $22.45 per share at December 31, 2015, and was relatively flat compared to June 30, 2016.

Based on results for the first nine months of 2016 and projections for the remainder of the year, management is reaffirming its 2016 operating income 1 guidance range of $1.55 to $1.75 per share. The guidance is based on a projected GAAP combined ratio of 99.6 percent for the year and investment income growth in the low- to mid-single digits. The load for catastrophe and storm losses has been reduced to 8.7 points from the previous expectation of 10.2 points; however, the 1.5 point decline in the loss ratio attributable to this reduction was offset by an increase in the core loss ratio.

The Company will hold an earnings teleconference call at noon Eastern time on Friday, November 4, 2016 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company's results for the third quarter and nine months ended September 30, 2016, as well as its expectations for the remainder of 2016. 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.

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.

Definitions 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 Unites States of America (GAAP). Management uses certain non-GAAP financial measures for goal setting, determining employee and senior management awards and compensation, and evaluating performance.

1 Operating income: 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 (or 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 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 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 non-GAAP financial measure of operating income to the GAAP financial measure of net income.
               
RECONCILIATION OF OPERATING INCOME TO NET INCOME        
($ in thousands)              
  Three months ended    Nine months ended
  September 30,   September 30,
    2016       2015       2016       2015  
Operating income $   4,904     $   6,315     $   25,329     $   32,756  
Net realized investment gains (losses) (after tax)     (775 )       4,874         (418 )       7,511  
Net income  $   4,129     $   11,189     $   24,911     $   40,267  
               
               
RECONCILIATION OF OPERATING INCOME PER SHARE TO NET INCOME PER SHARE    
  Three months ended    Nine months ended
  September 30,   September 30,
    2016       2015       2016       2015  
Operating income $   0.23     $   0.31     $   1.21     $   1.59  
Net realized investment gains (losses) (after tax)     (0.03 )       0.23         (0.02 )       0.37  
Net income  $   0.20     $   0.54     $   1.19     $   1.96  
               

Statutory data is prepared in accordance with statutory accounting principles as defined by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual. Statutory data is publicly available, and various organizations use it to calculate aggregate industry data, study industry trends and compare insurance companies.

2 Premiums written: Under statutory accounting principles, property/casualty premiums written is the cost of insurance coverage, and refers to premiums for all policies sold during a specified reporting period. Management analyzes trends in premiums written to assess business efforts. 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.

             
RECONCILIATION OF PREMIUMS WRITTEN TO PREMIUMS EARNED          
($ in thousands)            
  Property and           
Three months ended September 30, 2016 Casualty Insurance   Reinsurance   Consolidated  
Premiums written  $   138,904     $   37,339     $   176,243    
Change in unearned premiums     (22,532 )       (1,530 )       (24,062 )  
Premiums earned $   116,372     $   35,809     $   152,181    
             
  Property and           
Three months ended September 30, 2015 Casualty Insurance   Reinsurance   Consolidated  
Premiums written  $   134,722     $   31,446     $   166,168    
Change in unearned premiums     (20,969 )       589         (20,380 )  
Premiums earned $   113,753     $   32,035     $   145,788    
             
  Property and           
Nine months ended September 30, 2016 Casualty Insurance   Reinsurance   Consolidated  
Premiums written  $   370,704     $   98,754     $   469,458    
Change in unearned premiums     (32,115 )       4,021         (28,094 )  
Premiums earned $   338,589     $   102,775     $   441,364    
             
  Property and           
Nine months ended September 30, 2015 Casualty Insurance   Reinsurance   Consolidated  
Premiums written  $   364,329     $   96,914     $   461,243    
Change in unearned premiums     (31,117 )       (1,002 )       (32,119 )  
Premiums earned $   333,212     $   95,912     $   429,124    

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED            
($ in thousands, except share and per share amounts)             
    Property and             
    Casualty       Parent     
Quarter ended September 30, 2016   Insurance   Reinsurance   Company   Consolidated
Revenues:                
Premiums earned   $   116,372     $   35,809     $   -     $   152,181  
Investment income, net       8,185         3,285         4         11,474  
Other income (loss)       172         (257 )       -         (85 )
        124,729         38,837         4         163,570  
Losses and expenses:              
Losses and settlement expenses       81,643         26,530         -         108,173  
Dividends to policyholders       3,944         -         -         3,944  
Amortization of deferred policy acquisition costs       19,206         7,639         -         26,845  
Other underwriting expenses       16,690         916         -         17,606  
Interest expense        84         -         -         84  
Other expenses       190         -         489         679  
        121,757         35,085         489         157,331  
Operating income (loss) before income taxes       2,972         3,752         (485 )       6,239  
Realized investment losses       (799 )       (393 )       -         (1,192 )
Income (loss) before income taxes       2,173         3,359         (485 )       5,047  
Income tax expense (benefit):              
Current       569         1,024         (145 )       1,448  
Deferred       (264 )       (108 )       (158 )       (530 )
        305         916         (303 )       918  
Net income (loss)   $   1,868     $   2,443     $   (182 )   $   4,129  
Average shares outstanding                 21,060,665  
Per Share Data:              
Net income (loss) per share - basic and diluted   $   0.09     $   0.12     $   (0.01 )   $   0.20  
Catastrophe and storm losses (after tax)      $   0.46     $   0.07     $   -     $   0.53  
Large losses* (after tax)     N/A       N/A       N/A       N/A  
Reported favorable development              
experienced on prior years' reserves (after tax)   $   0.39     $   0.02     $   -     $   0.41  
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)   $   0.22     $   0.02     $   -     $   0.24  
Dividends per share                $   0.190  
Other Information of Interest:              
Premiums written 2   $   138,904     $   37,339     $   -     $   176,243  
Catastrophe and storm losses      $   14,787     $   2,266     $   -     $   17,053  
Large losses*     N/A       N/A       N/A       N/A  
Reported favorable development                
experienced on prior years' reserves      $   (12,442 )   $   (796 )   $   -     $   (13,238 )
Favorable development that had no impact                
on earnings        5,592         -         -         5,592  
Implied favorable development that had                
an impact on earnings   $   (6,850 )   $   (796 )   $   -     $   (7,646 )
GAAP Ratios:              
Loss and settlement expense ratio     70.2 %     74.1 %       -       71.1 %
Acquisition expense ratio     34.2 %     23.9 %       -       31.8 %
Combined ratio     104.4 %     98.0 %       -       102.9 %

* 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, 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. 

             
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED            
($ in thousands, except share and per share amounts)             
    Property and             
    Casualty       Parent     
Quarter ended September 30, 2015   Insurance   Reinsurance   Company   Consolidated
Revenues:                
Premiums earned   $   113,753     $   32,035     $   -     $   145,788  
Investment income, net       8,125         3,176         (2 )       11,299  
Other income       210         309         -         519  
        122,088         35,520         (2 )       157,606  
Losses and expenses:              
Losses and settlement expenses       75,976         26,709         -         102,685  
Dividends to policyholders       3,555         -         -         3,555  
Amortization of deferred policy acquisition costs       18,736         7,403         -         26,139  
Other underwriting expenses       15,587         458         -         16,045  
Interest expense        84         -         -         84  
Other expenses       196         -         479         675  
        114,134         34,570         479         149,183  
Operating income (loss) before income taxes       7,954         950         (481 )       8,423  
Realized investment gains       4,889         2,609         -         7,498  
Income (loss) before income taxes       12,843         3,559         (481 )       15,921  
Income tax expense (benefit):              
Current       2,743         507         (169 )       3,081  
Deferred       1,235         416         -         1,651  
        3,978         923         (169 )       4,732  
Net income (loss)   $   8,865     $   2,636     $   (312 )   $   11,189  
Average shares outstanding                 20,684,890  
Per Share Data:              
Net income (loss) per share - basic and diluted   $   0.43     $   0.12     $   (0.01 )   $   0.54  
Catastrophe and storm losses (after tax)      $   0.31     $   0.25     $   -     $   0.56  
Large losses* (after tax)   $   0.32     $   -     $   -     $   0.32  
Reported favorable (adverse) development              
experienced on prior years' reserves (after tax) $   0.15     $   (0.08 )   $   -     $   0.07  
Adverse development that had no impact                
on earnings (after tax)       -         0.07         -         0.07  
Implied favorable (adverse) development that had                
an impact on earnings (after tax)   $   0.15     $   (0.01 )   $   -     $   0.14  
Dividends per share                $   0.170  
Other Information of Interest:              
Premiums written 2   $   134,722     $   31,446     $   -     $   166,168  
Catastrophe and storm losses      $   9,920     $   7,844     $   -     $   17,764  
Large losses*   $   10,304     $   -     $   -     $   10,304  
Reported (favorable) adverse development                
experienced on prior years' reserves      $   (4,722 )   $   2,495     $   -     $   (2,227 )
Adverse development that had no impact                
on earnings        -         (2,361 )       -         (2,361 )
Implied (favorable) adverse development that had                
an impact on earnings   $   (4,722 )   $   134     $   -     $   (4,588 )
GAAP Ratios:              
Loss and settlement expense ratio     66.8 %     83.4 %       -       70.4 %
Acquisition expense ratio     33.3 %     24.5 %       -       31.4 %
Combined ratio     100.1 %     107.9 %       -       101.8 %

* Large losses are defined as reported current accident year 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     
Nine months ended September 30, 2016   Insurance   Reinsurance   Company   Consolidated
Revenues:                
Premiums earned      $   338,589     $   102,775     $   -     $   441,364  
Investment income, net          25,524         10,350         9         35,883  
Other income (loss)          466         (485 )       -         (19 )
        364,579         112,640         9         477,228  
Losses and expenses:              
Losses and settlement expenses          225,207         70,895         -         296,102  
Dividends to policyholders          11,292         -         -         11,292  
Amortization of deferred policy acquisition costs          58,129         22,611         -         80,740  
Other underwriting expenses          49,839         2,295         -         52,134  
Interest expense          253         -         -         253  
Other expenses          558        -         1,495         2,053  
        345,278         95,801         1,495         442,574  
Operating income (loss) before income taxes       19,301         16,839         (1,486 )       34,654  
Realized investment losses          (627 )       (16 )       -         (643 )
Income (loss) before income taxes       18,674         16,823         (1,486 )       34,011  
Income tax expense (benefit):              
Current          6,425         5,601         (586 )       11,440  
Deferred          (1,778 )       (494 )       (68 )       (2,340 )
        4,647         5,107         (654 )       9,100  
Net income (loss)      $   14,027     $   11,716     $   (832 )   $   24,911  
Average shares outstanding                    20,964,236  
Per Share Data:              
Net income (loss) per share - basic and diluted      $   0.67     $   0.56     $   (0.04 )   $   1.19  
Catastrophe and storm losses (after tax)      $   1.08     $   0.33     $   -     $   1.41  
Large losses* (after tax)     N/A       N/A       N/A       N/A  
Reported favorable development experienced on              
prior years' reserves (after tax)   $   0.69     $   0.21     $   -     $   0.90  
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)   $   0.52     $   0.21     $   -     $   0.73  
Dividends per share                $   0.570  
Book value per share                $   26.67  
Effective tax rate                  26.8 %
Annualized net income as a percent of beg. SH equity                 6.3 %
Other Information of Interest:              
Premiums written 2   $   370,704     $   98,754     $   -     $   469,458  
Catastrophe and storm losses      $   34,787     $   10,747     $   -     $   45,534  
Large losses*     N/A       N/A       N/A       N/A  
Reported favorable development experienced on                
prior years' reserves   $   (22,229 )   $   (6,880 )   $   -     $   (29,109 )
Favorable development that had no impact                
on earnings        5,592         -         -         5,592  
Implied favorable development that had an impact                
on earnings   $   (16,637 )   $   (6,880 )   $   -     $   (23,517 )
GAAP Ratios:              
Loss and settlement expense ratio     66.5 %     69.0 %       -       67.1 %
Acquisition expense ratio     35.2 %     24.2 %       -       32.7 %
Combined ratio     101.7 %     93.2 %       -       99.8 %

* 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, 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 nine months ended September 30, 2016, because it would not be comparable to the amount reported for the first nine months of 2015.

             
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED            
($ in thousands, except share and per share amounts)             
    Property and             
    Casualty       Parent     
Nine months ended September 30, 2015   Insurance   Reinsurance   Company   Consolidated
Revenues:                
Premiums earned   $   333,212     $   95,912     $   -     $   429,124  
Investment income, net       24,301         9,654         (9 )       33,946  
Other income       582         1,040         -         1,622  
        358,095         106,606         (9 )       464,692  
Losses and expenses:              
Losses and settlement expenses       215,468         65,135         -         280,603  
Dividends to policyholders       6,492         -         -         6,492  
Amortization of deferred policy acquisition costs       56,003         22,820         -         78,823  
Other underwriting expenses       47,784         2,567         -         50,351  
Interest expense        253         -         -         253  
Other expenses       568         -         1,424         1,992  
        326,568         90,522         1,424         418,514  
Operating income (loss) before income taxes       31,527         16,084         (1,433 )       46,178  
Realized investment gains       7,866         3,689         -         11,555  
Income (loss) before income taxes       39,393         19,773         (1,433 )       57,733  
Income tax expense (benefit):              
Current       10,513         5,583         (502 )       15,594  
Deferred       1,312         560         -         1,872  
        11,825         6,143         (502 )       17,466  
Net Income (loss)   $   27,568     $   13,630     $   (931 )   $   40,267  
Average shares outstanding                 20,577,493  
Per Share Data:              
Net income (loss) per share - basic and diluted      $   1.34     $   0.66     $   (0.04 )   $   1.96  
Catastrophe and storm losses (after tax)      $   0.91     $   0.38     $   -     $   1.29  
Large losses* (after tax)   $   0.68     $   -     $   -     $   0.68  
Reported favorable development              
experienced on prior years' reserves (after tax)    $   0.45     $   0.18     $   -     $   0.63  
Adverse development that had no impact                
on earnings (after tax)       -         0.07         -         0.07  
Implied favorable development that had an impact                
on earnings (after tax)   $   0.45     $   0.25     $   -     $   0.70  
Dividends per share                $   0.503  
Book value per share                $   25.09  
Effective tax rate                  30.3 %
Annualized net income as a percent of beg. SH equity                 10.7 %
Other Information of Interest:              
Premiums written 2   $   364,329     $   96,914     $   -     $   461,243  
Catastrophe and storm losses      $   28,651     $   12,104     $   -     $   40,755  
Large losses*   $   21,453     $   -     $   -     $   21,453  
Reported favorable development                
experienced on prior years' reserves      $   (14,177 )   $   (5,780 )   $   -     $   (19,957 )
Adverse development that had no impact                
on earnings        -         (2,361 )       -         (2,361 )
Implied favorable development that had an impact                
on earnings   $   (14,177 )   $   (8,141 )   $   -     $   (22,318 )
GAAP Ratios:              
Loss and settlement expense ratio     64.7 %     67.9 %       -       65.4 %
Acquisition expense ratio     33.1 %     26.5 %       -       31.6 %
Combined ratio     97.8 %     94.4 %       -       97.0 %

* Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. 

       
CONSOLIDATED BALANCE SHEETS      
  September 30,   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 $1,184,470 and $1,130,217) $   1,237,150     $   1,161,025  
Equity securities available-for-sale, at fair value (cost $151,852 and $144,176)     219,282         206,243  
Other long-term investments     9,941         9,930  
Short-term investments     42,611         38,599  
Total investments     1,508,984         1,415,797  
       
Cash     350         224  
Reinsurance receivables due from affiliate     22,590         24,236  
Prepaid reinsurance premiums due from affiliate     11,588         6,563  
Deferred policy acquisition costs (affiliated $44,320 and $40,535)     44,620         40,720  
Prepaid pension and postretirement benefits due from affiliate     11,043         12,133  
Accrued investment income     12,143         10,789  
Amounts receivable under reverse repurchase agreements     16,850         16,850  
Accounts receivable     2,958         804  
Income taxes recoverable     -         1,735  
Goodwill     942         942  
Other assets (affiliated $4,838 and $4,595)     5,437         5,162  
Total assets $   1,637,505     $   1,535,955  
       
LIABILITIES      
Losses and settlement expenses (affiliated $695,461 and $671,169) $   700,565     $   678,774  
Unearned premiums (affiliated $271,539 and $238,637)     272,900         239,435  
Other policyholders' funds (all affiliated)     11,809         8,721  
Surplus notes payable to affiliate     25,000         25,000  
Amounts due affiliate to settle inter-company transaction balances     4,025         6,408  
Pension benefits payable to affiliate     3,826         4,299  
Income taxes payable     156         -  
Deferred income taxes     25,894         19,029  
Other liabilities (affiliated $24,659 and $28,598)     30,921         29,351  
Total liabilities     1,075,096         1,011,017  
       
STOCKHOLDERS' EQUITY        
Common stock, $1 par value, authorized 30,000,000 shares; issued and outstanding, 21,084,948 shares in 2016 and 20,780,439 shares in 2015     21,085         20,781  
Additional paid-in capital     115,724         108,747  
Accumulated other comprehensive income     75,529         58,433  
Retained earnings     350,071         336,977  
Total stockholders' equity     562,409         524,938  
Total liabilities and stockholders' equity $   1,637,505     $   1,535,955  
 

LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS                  
    Three months ended September 30,  
      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   $   28,113     $   26,274         93.5 %   $   27,080     $   24,555         90.7 %  
Property       27,471         17,227         62.7 %       26,526         19,290         72.7 %  
Workers' compensation       24,536         13,510         55.1 %       23,777         12,098         50.9 %  
Liability       24,277         14,179         58.4 %       23,449         10,726         45.7 %  
Other       2,102         705         33.6 %       2,032         348         17.1 %  
Total commercial lines       106,499         71,895         67.5 %       102,864         67,017         65.2 %  
                           
Personal lines       9,873         9,748         98.7 %       10,889         8,959         82.3 %  
   Total property and casualty insurance   $   116,372     $   81,643         70.2 %   $   113,753     $   75,976         66.8 %  
                           
Reinsurance                          
Pro rata reinsurance   $   15,066     $   10,235         67.9 %   $   13,037     $   9,667         74.2 %  
Excess of loss reinsurance       20,743         16,295         78.6 %       18,998         17,042         89.7 %  
   Total reinsurance   $   35,809     $   26,530         74.1 %   $   32,035     $   26,709         83.4 %  
                           
      Consolidated   $   152,181     $   108,173         71.1 %   $   145,788     $   102,685         70.4 %  
                           

                         
    Nine months ended September 30,
      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   $   82,449     $   69,763         84.6 %   $   78,698     $   61,843         78.6 %
Property       77,292         52,687         68.2 %       77,518         53,652         69.2 %
Workers' compensation       71,272         39,680         55.7 %       69,150         39,591         57.3 %
Liability       72,086         38,045         52.8 %       68,952         34,668         50.3 %
Other       6,246         648         10.4 %       6,044         794         13.1 %
Total commercial lines       309,345         200,823         64.9 %       300,362         190,548         63.4 %
                         
Personal lines       29,244         24,384         83.4 %       32,850         24,920         75.9 %
   Total property and casualty insurance   $   338,589     $   225,207         66.5 %   $   333,212     $   215,468         64.7 %
                         
Reinsurance                        
Pro rata reinsurance   $   44,175     $   26,367         59.7 %   $   40,154     $   23,468         58.4 %
Excess of loss reinsurance       58,600         44,528         76.0 %       55,758         41,667         74.7 %
   Total reinsurance   $   102,775     $   70,895         69.0 %   $   95,912     $   65,135         67.9 %
                         
      Consolidated   $   441,364     $   296,102         67.1 %   $   429,124     $   280,603         65.4 %
                         

PREMIUMS WRITTEN 2                  
  Three months ended    Three months ended     
  September 30, 2016   September 30, 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 $   29,649         16.8 %   $   28,904         17.4 %       2.6 %
Property     34,062         19.3 %       32,891         19.8 %       3.6 %
Workers' compensation     35,623         20.2 %       33,385         20.1 %       6.7 %
Liability     27,060         15.4 %       26,556         16.0 %       1.9 %
Other     2,329         1.3 %       2,213         1.3 %       5.2 %
Total commercial lines     128,723         73.0 %       123,949         74.6 %       3.9 %
                   
Personal lines     10,181         5.8 %       10,773         6.5 %       (5.5 )%
   Total property and casualty insurance $   138,904         78.8 %   $   134,722         81.1 %       3.1 %
                   
Reinsurance                  
Pro rata reinsurance $   15,115         8.6 %   $   12,103         7.3 %       24.9 %
Excess of loss reinsurance     22,224         12.6 %       19,343         11.6 %       14.9 %
   Total reinsurance $   37,339         21.2 %   $   31,446         18.9 %       18.7 %
                   
      Consolidated $   176,243       100.0 %   $   166,168       100.0 %       6.1 %
                   
                   
  Nine months ended    Nine months ended     
  September 30, 2016   September 30, 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 $   89,974         19.2 %   $   86,947         18.9 %       3.5 %
Property     85,534         18.2 %       85,853         18.6 %       (0.4 )%
Workers' compensation     80,896         17.2 %       76,912         16.7 %       5.2 %
Liability     78,456         16.7 %       75,765         16.4 %       3.6 %
Other     6,863         1.5 %       6,413         1.4 %       7.0 %
Total commercial lines     341,723         72.8 %       331,890         72.0 %       3.0 %
                   
Personal lines     28,981         6.2 %       32,439         7.0 %       (10.7 )%
   Total property and casualty insurance $   370,704         79.0 %   $   364,329         79.0 %       1.7 %
                   
Reinsurance                  
Pro rata reinsurance $   42,078         9.0 %   $   40,232         8.7 %       4.6 %
Excess of loss reinsurance     56,676         12.0 %       56,682         12.3 %       -   
   Total reinsurance $   98,754         21.0 %   $   96,914         21.0 %       1.9 %
                   
      Consolidated $   469,458       100.0 %   $   461,243       100.0 %       1.8 %
                   
Contact:Steve Walsh (Investors)515-345-2515Lisa Hamilton (Media)515-345-7589

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