Second Quarter Ended June 30, 2019
Net Income Per Share – $0.06
Non-GAAP Operating Loss Per Share* – ($0.10)
Net Realized Investment Gains and Change in Unrealized
  Gains on Equity Investments Per Share – $0.16
Catastrophe and Storm Losses Per Share – $0.62
GAAP Combined Ratio – 108.5 percent

Six Months Ended June 30, 2019
Net Income Per Share – $1.61
Non-GAAP Operating Income Per Share* – $0.63
Net Realized Investment Gains and Change in Unrealized
  Gains on Equity Investments Per Share – $0.98
Catastrophe and Storm Losses Per Share – $0.84
GAAP Combined Ratio – 102.1 percent

2019 Non-GAAP Operating Income Guidance* of $1.35 to $1.55 per share

*Denotes financial measure not calculated in accordance with generally accepted accounting principles (non-GAAP). See “Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures” for additional information.

DES MOINES, Iowa, Aug. 08, 2019 (GLOBE NEWSWIRE) -- EMC Insurance Group Inc. (Nasdaq:EMCI) (the “Company”), today reported net income of $1.3 million ($0.06 per share) and $34.8 million ($1.61 per share) for the second quarter and first six months of 2019, compared to net losses of $5.0 million ($0.24 per share) and $5.1 million ($0.24 per share) for the same periods in 2018, respectively. Included in the net income amounts reported for the second quarter and first six months of 2019 are a $4.7 million pre-tax decrease and $15.2 million pre-tax increase, respectively, in unrealized gains on the Company’s equity investments. Also contributing to the net income amounts reported for the second quarter and first six months of 2019 are $8.9 million and $11.7 million, respectively, of pre-tax realized investment gains. Included in the net loss reported for the second quarter and first six months 2018 were $5.4 million and $952,000, respectively, of pre-tax realized investment losses and declines of $447,000 and $10.3 million, respectively, in unrealized gains on the Company’s equity investments.

Non-GAAP operating loss, which excludes net realized investment gains/losses and the change in unrealized gains on equity investments from net income/loss, totaled $2.1 million ($0.10 per share) for the second quarter of 2019, compared to $365,000 ($0.02 per share) for the second quarter of 2018. For the six months ended June 30, 2019, the Company reported non-GAAP operating income of $13.6 million ($0.63 per share), compared to $3.8 million ($0.18 per share) for the same period in 2018.

“Premium growth in the first half of the year has outpaced expectations due to better than expected commercial lines business growth and strong growth in the reinsurance segment,” stated President and Chief Executive Officer Bruce G. Kelley. “We are now expecting earned premium growth in the reinsurance segment to be in the high-single digits for 2019, up from the previous low-single digit projection.”   

Kelley continued, “The planning stage of the digital transformation project to replace our legacy systems is nearly complete. After refining the effort and scope of the project during the second quarter, we now estimate that the Company’s portion of the pre-tax expense will approximate $37.0 million over the next five years, up from the previous estimate of $28.0 million. The implementation stage of this project is expected to begin in the third quarter.”

“We continue to make progress on our transition out of personal lines business and are working to realign our resources to improve the growth and profit potential of our commercial lines business,” concluded Kelley.

The Company’s GAAP combined ratios were 108.5 percent and 102.1 percent for the second quarter and first six months of 2019, respectively, compared to 109.8 percent and 107.2 percent for the same periods in 2018. There was significant disparity by segment as the property and casualty insurance segment reported GAAP combined ratios of 113.0 percent and 105.5 percent for the second quarter and first six months of 2019, respectively, while the reinsurance segment reported GAAP combined ratios of 94.4 percent and 92.1 percent for the same periods.

Premiums earned increased 6.4 percent and 6.9 percent for the second quarter and first six months of 2019, respectively. In the property and casualty insurance segment, premiums earned increased 4.0 percent and 4.6 percent for the second quarter and first six months of 2019, respectively. These increases are attributed to the commercial lines business primarily due to an increase in retained policies, small rate level increases on renewal business and growth of new business. Premiums earned in the personal lines of business were down 22.0 percent and 11.7 percent in the second quarter and first six months of 2019, respectively, and this decline will increase significantly during the remainder of the year as the pace of non-renewals increases. In the reinsurance segment, premiums earned increased 14.8 percent and 14.6 percent for the second quarter and first six months of 2019, respectively. These increases stem from increases in participation on existing multi-line and specialty casualty contracts, higher estimated premiums and the addition of some new business.

The property and casualty insurance segment reported a loss and settlement expense ratio of 74.1 percent for the second quarter ended June 30, 2019, which is down slightly from the 77.6 percent reported in the second quarter of 2018. This improvement was primarily driven by declines in estimated loss severity for most lines of commercial business, excluding the other liability line of business. As expected, the loss and settlement expense ratio for the personal lines of business deteriorated in the second quarter due to actions taken to exit from this line of business; however, both loss frequency and severity have been higher than expected. The reinsurance segment reported a loss and settlement expense ratio of 69.1 percent for the second quarter of 2019, which is up slightly from the 68.1 percent reported for the second quarter of 2018.

Catastrophe and storm losses totaled $17.1 million ($0.62 per share after tax) and $23.0 million ($0.84 per share after tax) for the second quarter and first six months of 2019, compared to $16.7 million ($0.61 per share after tax) and $21.4 million ($0.78 per share after tax) for the same periods in 2018, respectively. The property and casualty insurance subsidiaries ceded $1.0 million and $1.5 million of catastrophe and storm losses to Employers Mutual Casualty Company (Employers Mutual) during the second quarter and first six months of 2019 under its intercompany reinsurance program compared to $317,000 and $784,000 for the same periods in 2018, respectively. The property and casualty insurance subsidiaries have filled the $22.0 million retention amount under the 2019 January 1 to June 30 treaty; therefore, any further development on events that occurred during the first six months of 2019 will be ceded to Employers Mutual. On a segment basis, catastrophe and storm losses for the second quarter and first six months of 2019 amounted to $16.1 million ($0.58 per share after tax) and $22.0 million ($0.80 per share after tax), respectively, in the property and casualty insurance segment, and $1.0 million ($0.04 per share after tax) for both periods in the reinsurance segment.

The Company reported $2.3 million ($0.08 per share after tax) and $15.6 million ($0.57 per share after tax) of favorable development on prior years’ reserves during the second quarter and first six months of 2019, respectively, compared to $511,000 ($0.01 per share after tax) and $6.1 million ($0.22 per share after tax) for the same periods in 2018. In the property and casualty insurance segment, favorable development on prior years’ reserves totaled $4.9 million and $14.6 million for the second quarter and first six months of 2019. The favorable development is primarily attributed to reductions in prior year ultimate loss ratios for most lines of business except personal automobile liability and homeowners, with the largest contributions coming from the workers’ compensation and commercial automobile liability lines of business. The reinsurance segment reported unfavorable development of $2.6 million for the second quarter of 2019, and favorable development of $1.0 million for the first six months of 2019. The favorable development reported for the first six months of 2019 is primarily attributed to better than expected experience on global excess contracts, partially offset by unfavorable development on several large losses under a 2018 property per risk excess contract, unfavorable development on a 2014 casualty pro rata contract, and a small amount of unfavorable development on Mutual Re business.

Net investment income increased 10.0 percent and 11.1 percent to $13.0 million and $25.7 million for the second quarter and first six months of 2019, from $11.8 million and $23.1 million for the same periods in 2018. This increase is primarily the result of actions taken during 2018 to sell fixed maturity securities with lower book yields and reinvest the proceeds in fixed maturity securities with similar characteristics, but higher book yields.

The pre-tax realized investment gains of $8.9 million and $11.7 million reported for the second quarter and first six months of 2019 include pre-tax realized investment losses of $617,000 and $1.6 million, respectively, generated from changes in the carrying value of a limited partnership that helps protect the Company from a sudden and significant decline in the value of its equity portfolio (the equity tail-risk hedging strategy). Pre-tax realized investment losses of $5.4 million and $952,000 for the second quarter and first six months of 2018 include a pre-tax realized investment loss of $1.7 million and a pre-tax realized investment gain of $78,000, respectively, attributed to changes in the carrying value of this limited partnership.

Other income totaled $1.6 million and $3.1 million in the second quarter and first six months of 2019, respectively, and includes $1.3 million and $2.6 million of net periodic pension and postretirement benefit income. In the second quarter and first six months of 2018, other income totaled $2.8 million and $4.4 million, respectively, and includes $1.9 million and $3.7 million of net periodic pension and postretirement benefit income, and $678,000 and $242,000 of foreign currency exchange gains.

During the three and six months ended June 30, 2019, the holding company incurred expenses totaling $2.0 million and $2.6 million, respectively, in connection with Employers Mutual’s proposal to purchase all of the remaining shares of the Company’s common stock.

At June 30, 2019, consolidated assets totaled $1.8 billion, including $1.7 billion in the investment portfolio, and stockholders’ equity totaled $630.6 million, an increase of 11.4 percent from December 31, 2018. Book value of the Company’s common stock increased 2.3 percent to $29.10 per share from $28.44 per share at March 31, 2019, and increased 11.2 percent from $26.18 per share at December 31, 2018. The increases are primarily due to the net income reported for the first six months of 2019 and an increase in unrealized investment gains on the fixed maturity portfolio attributable to a decline in interest rates during the first half of 2019.

Based on actual results for the first six months of 2019 and updated projections for the remainder of the year, management is reaffirming its 2019 non-GAAP operating income guidance range of $1.35 to $1.55 per share. This guidance is based on a projected GAAP combined ratio of 101.7 percent for the year. The projection includes updated amounts for the anticipated expenses associated with Employers Mutual’s digital transformation project and expenses to be incurred by the Company in connection with Employers Mutual’s proposal to purchase all of the remaining shares of the Company’s common stock. Nominal changes were also made to the other assumptions utilized in the projection.  

Earnings Conference Call
The Company will not hold an earnings conference call due to the execution of a definitive merger agreement, pursuant to which Employers Mutual proposes to acquire all of the remaining shares of the Company for $36.00 per share in cash.

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 the Company may be found at investors.emcins.com. 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 all information currently available into account. 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 federal corporate tax rate;
  • 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”, “may”, “intend”, “likely” or similar expressions. Undue reliance should not be placed on these forward-looking statements. The Company disclaims any obligation to update such statements or to announce publicly the results of any revisions that it may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures
The Company prepares its public financial statements in conformity with GAAP. Management uses certain non-GAAP financial measures for evaluating the Company’s performance. These measures are considered non-GAAP financial measures under applicable Securities and Exchange Commission (SEC) rules because they are not displayed as separate line items in the consolidated financial statements or are not required to be disclosed in the notes to financial statements or, in some cases, include or exclude certain items not ordinarily included or excluded in the most comparable GAAP financial measure. The Company’s calculation of non-GAAP financial measures may differ from similar measures used by other companies, so investors should exercise caution when comparing the Company’s non-GAAP financial measures to the measures used by other companies. The following discussion includes reconciliations of the most directly comparable GAAP financial measures to the non-GAAP financial measures referenced in this report.

Non-GAAP operating income: One of the primary non-GAAP financial measures utilized by management for evaluating the Company’s performance is operating income. Non-GAAP operating income is calculated by excluding net realized investment gains/losses and the change in unrealized gains/losses on equity investments from net income/loss. While realized investment gains/losses are integral to the Company’s insurance operations over the long term, the decision to realize investment gains or losses in any particular period is subject to changing market conditions and management’s discretion, and is independent of the Company’s insurance operations. Changes in unrealized gains/losses on equity investments are not predictable due to changing market conditions and are therefore also excluded from the calculation of non-GAAP operating income.

Management’s operating income guidance is also considered a non-GAAP financial measure. For the reasons noted above, management is unable to accurately project the amount of net income/loss that will result from realized investment gains/losses and changes in the unrealized gains/losses on equity investments, and therefore utilizes non-GAAP operating income in the Company’s projected annual guidance.  

Management believes non-GAAP operating income is useful to investors because it illustrates the performance of the Company’s normal, ongoing insurance 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/loss.

RECONCILIATION OF NET INCOME/LOSS TO NON-GAAP OPERATING INCOME/LOSS   
($ in thousands)        
 Three months ended June 30, Six months ended June 30,
 
  2019   2018   2019   2018  
Net income (loss)$  1,285  $  (4,995) $  34,816  $  (5,071) 
Realized investment (gains) losses   (8,932)    5,413     (11,746)    952  
Change in unrealized gains on equity investments   4,674     447     (15,155)    10,301  
Income tax expense (benefit)   894     (1,230)    5,649     (2,363) 
Net realized investment (gains) losses and change in        
unrealized gains on equity investments   (3,364)    4,630     (21,252)    8,890  
Non-GAAP operating income (loss)$  (2,079) $  (365) $  13,564  $  3,819  
         
RECONCILIATION OF NET INCOME/LOSS PER SHARE TO NON-GAAP OPERATING INCOME/LOSS PER SHARE    
 Three months ended June 30, Six months ended June 30,
 
  2019   2018   2019   2018  
Net income (loss)$  0.06  $  (0.24) $  1.61  $  (0.24) 
Realized investment (gains) losses   (0.41)    0.25     (0.54)    0.04  
Change in unrealized gains on equity investments   0.22     0.02     (0.70)    0.48  
Income tax expense (benefit)   0.03     (0.05)    0.26     (0.10) 
Net realized investment (gains) losses and change in         
unrealized gains on equity investments   (0.16)    0.22     (0.98)    0.42  
Non-GAAP operating income (loss)$  (0.10) $  (0.02) $  0.63  $  0.18  
         

Property and casualty insurance segment’s underlying loss and settlement expense ratio: The loss and settlement expense ratio is the ratio (expressed as a percentage) of losses and settlement expenses incurred to premiums earned, which management uses as a measure of underwriting profitability of the Company’s property and casualty insurance business. The underlying loss and settlement expense ratio is a non-GAAP financial measure which represents the loss and settlement expense ratio, excluding the impact of catastrophe and storm losses and development on prior years’ reserves. Management uses this ratio as an indicator of the property and casualty insurance segment’s underwriting discipline and performance for the current accident year. Management believes this ratio is useful for investors to understand the property and casualty insurance segment’s periodic earnings and variability of earnings caused by the unpredictable nature (i.e., the timing and amount) of catastrophe and storm losses and development on prior years’ reserves. 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 loss and settlement expense ratio.

        
RECONCILIATION OF THE PROPERTY AND CASUALTY INSURANCE SEGMENT'S LOSS AND SETTLEMENT   
EXPENSE RATIO TO THE UNDERLYING LOSS AND SETTLEMENT EXPENSE RATIO    
 Three months ended June 30, Six months ended June 30,
 2019  2018  2019  2018 
Loss and settlement expense ratio74.1% 77.6% 67.9% 74.0%
Catastrophe and storm losses  (12.8 )%   (12.9 )%   (8.8 )%   (8.3 )%
Favorable development on prior years' reserves3.9% 2.6% 5.8% 2.2%
Underlying loss and settlement expense ratio65.2% 67.3% 64.9% 67.9%
        

Industry Metric
Premiums written: Premiums written is an industry metric used in statutory accounting to quantify the amount of insurance sold during a specified reporting period. Management analyzes trends in premiums written to assess business efforts and uses it as a financial measure for goal setting and determining a portion of employee and senior management awards and compensation. Premiums earned, used in both statutory and GAAP accounting, is the recognition of the portion of premiums written directly related to the expired portion of an insurance policy for a given reporting period. The unexpired portion of premiums written is referred to as unearned premiums and represents the portion of premiums written that would be returned to a policyholder upon cancellation of a policy.                                                                                             

   
CONSOLIDATED STATEMENTS OF INCOME  - UNAUDITED  
($ in thousands, except share and per share amounts)        
Quarter ended June 30, 2019 Property and Casualty Insurance Reinsurance Parent Company Consolidated
Revenues:        
Premiums earned $126,297  $41,836  $  $168,133 
Investment income, net 9,129  3,808  14  12,951 
Other income 1,551  6    1,557 
  136,977  45,650  14  182,641 
Losses and expenses:        
Losses and settlement expenses 93,594  28,923    122,517 
Dividends to policyholders 3,384      3,384 
Amortization of deferred policy acquisition costs 22,973  9,711    32,684 
Other underwriting expenses 22,826  889    23,715 
Interest expense 170      170 
Other expenses 201    2,587  2,788 
  143,148  39,523  2,587  185,258 
Operating income (loss) before income taxes (6,171) 6,127  (2,573) (2,617)
Net realized investment gains (losses) and change in unrealized gains on equity investments 2,930  1,545  (217) 4,258 
Income (loss) before income taxes (3,241) 7,672  (2,790) 1,641 
Income tax expense (benefit):        
Current 119  1,648  (227) 1,540 
Deferred (894) (261) (29) (1,184)
  (775) 1,387  (256) 356 
Net income (loss) $(2,466) $6,285  $(2,534) $1,285 
Average shares outstanding       21,670,297 
Per Share Data:        
Net income (loss) per share - basic and diluted $(0.11) $0.29  $(0.12) $0.06 
Catastrophe and storm losses (after tax) $0.58  $0.04  $  $0.62 
Favorable (unfavorable) development on prior years' reserves (after tax) $0.17  $(0.09) $  $0.08 
Dividends per share       $0.23 
Other Information of Interest:        
Premiums written $128,153  $38,208  $  $166,361 
Catastrophe and storm losses $16,112  $1,006  $  $17,118 
(Favorable) unfavorable development on prior years' reserves $(4,932) $2,606  $  $(2,326)
GAAP Ratios:        
Loss and settlement expense ratio 74.1% 69.1% % 72.9%
Acquisition expense ratio 38.9% 25.3% % 35.6%
Combined ratio 113.0% 94.4% % 108.5%


   
CONSOLIDATED STATEMENTS OF INCOME  - UNAUDITED  
($ in thousands, except share and per share amounts)        
Quarter ended June 30, 2018 Property and Casualty Insurance Reinsurance Parent Company Consolidated
Revenues:        
Premiums earned $121,495  $36,451  $  $157,946 
Investment income, net 8,410  3,360  8  11,778 
Other income 2,095  678    2,773 
  132,000  40,489  8  172,497 
Losses and expenses:        
Losses and settlement expenses 94,255  24,836    119,091 
Dividends to policyholders 2,386      2,386 
Amortization of deferred policy acquisition costs 21,173  8,256    29,429 
Other underwriting expenses 21,944  507    22,451 
Interest expense 171      171 
Other expenses 244    587  831 
  140,173  33,599  587  174,359 
Operating income (loss) before income taxes (8,173) 6,890  (579) (1,862)
Net realized investment gains (losses) and change in unrealized gains on equity investments (4,692) (1,168)   (5,860)
Income (loss) before income taxes (12,865) 5,722  (579) (7,722)
Income tax expense (benefit):        
Current (4,219) 1,081  (173) (3,311)
Deferred 496  36  52  584 
  (3,723) 1,117  (121) (2,727)
Net income (loss) $(9,142) $4,605  $(458) $(4,995)
Average shares outstanding       21,529,727 
Per Share Data:        
Net income (loss) per share - basic and diluted $(0.43) $0.21  $(0.02) $(0.24)
Catastrophe and storm losses (after tax) $0.57  $0.04  $  $0.61 
Favorable (unfavorable) development on prior years' reserves (after tax) $0.11  $(0.10) $  $0.01 
Dividends per share       $0.22 
Other Information of Interest:        
Premiums written $131,201  $31,911  $  $163,112 
Catastrophe and storm losses $15,707  $1,003  $  $16,710 
(Favorable) unfavorable development on prior years' reserves $(3,151) $2,640  $  $(511)
GAAP Ratios:        
Loss and settlement expense ratio 77.6% 68.1% % 75.4%
Acquisition expense ratio 37.4% 24.1% % 34.4%
Combined ratio 115.0% 92.2% % 109.8%


   
CONSOLIDATED STATEMENTS OF INCOME  - UNAUDITED  
($ in thousands, except share and per share amounts)        
Six months ended June 30, 2019 Property and Casualty Insurance Reinsurance Parent Company Consolidated
Revenues:        
Premiums earned $251,069  $84,366  $  $335,435 
Investment income, net 18,267  7,416  31  25,714 
Other income 3,084  8    3,092 
  272,420  91,790  31  364,241 
Losses and expenses:        
Losses and settlement expenses 170,574  56,912    227,486 
Dividends to policyholders 6,155      6,155 
Amortization of deferred policy acquisition costs 43,691  18,963    62,654 
Other underwriting expenses 44,512  1,795    46,307 
Interest expense 341      341 
Other expenses 512    3,761  4,273 
  265,785  77,670  3,761  347,216 
Operating income (loss) before income taxes 6,635  14,120  (3,730) 17,025 
Net realized investment gains (losses) and change in unrealized gains on equity investments 17,098  10,087  (284) 26,901 
Income (loss) before income taxes 23,733  24,207  (4,014) 43,926 
Income tax expense (benefit):        
Current 2,639  3,620  (460) 5,799 
Deferred 2,030  1,334  (53) 3,311 
  4,669  4,954  (513) 9,110 
Net income (loss) $19,064  $19,253  $(3,501) $34,816 
Average shares outstanding       21,654,443 
Per Share Data:        
Net income per share - basic and diluted $0.88  $0.89  $(0.16) $1.61 
Catastrophe and storm losses (after tax) $0.80  $0.04  $  $0.84 
Favorable development on prior years' reserves (after tax) $0.53  $0.04  $  $0.57 
Dividends per share       $0.46 
Book value per share       $29.10 
Effective tax rate       20.7%
Annualized net income as a percent of beg. SH equity       12.3%
Other Information of Interest:        
Premiums written $253,669  $83,657  $  $337,326 
Catastrophe and storm losses $22,000  $1,025  $  $23,025 
Favorable development on prior years' reserves $(14,575) $(1,042) $  $(15,617)
GAAP Ratios:        
Loss and settlement expense ratio 67.9% 67.5% % 67.8%
Acquisition expense ratio 37.6% 24.6% % 34.3%
Combined ratio 105.5% 92.1% % 102.1%


   
CONSOLIDATED STATEMENTS OF INCOME  - UNAUDITED  
($ in thousands, except share and per share amounts)        
Six months ended June 30, 2018 Property and Casualty Insurance Reinsurance Parent Company Consolidated
Revenues:        
Premiums earned $240,127  $73,605  $  $313,732 
Investment income, net 16,558  6,578  13  23,149 
Other income 4,146  242    4,388 
  260,831  80,425  13  341,269 
Losses and expenses:        
Losses and settlement expenses 177,756  51,963    229,719 
Dividends to policyholders 4,506      4,506 
Amortization of deferred policy acquisition costs 40,472  16,249    56,721 
Other underwriting expenses 44,430  876    45,306 
Interest expense 313      313 
Other expenses 477    1,224  1,701 
  267,954  69,088  1,224  338,266 
Operating income (loss) before income taxes (7,123) 11,337  (1,211) 3,003 
Net realized investment gains (losses) and change in unrealized gains on equity investments (7,985) (3,268)   (11,253)
Income (loss) before income taxes (15,108) 8,069  (1,211) (8,250)
Income tax expense (benefit):        
Current (4,121) 2,310  (294) (2,105)
Deferred (336) (778) 40  (1,074)
  (4,457) 1,532  (254) (3,179)
Net income (loss) $(10,651) $6,537  $(957) $(5,071)
Average shares outstanding       21,515,812 
Per Share Data:        
Net income (loss) per share - basic and diluted $(0.50) $0.30  $(0.04) $(0.24)
Catastrophe and storm losses (after tax) $0.73  $0.05  $  $0.78 
Favorable development on prior years' reserves (after tax) $0.19  $0.03  $  $0.22 
Dividends per share       $0.44 
Book value per share       $26.39 
Effective tax rate       38.5%
Annualized net income as a percent of beg. SH equity       (1.7)%
Other Information of Interest:        
Premiums written $251,470  $69,714  $  $321,184 
Catastrophe and storm losses $19,967  $1,399  $  $21,366 
Favorable development on prior years' reserves $(5,286) $(801) $  $(6,087)
GAAP Ratios:        
Loss and settlement expense ratio 74.0% 70.6% % 73.2%
Acquisition expense ratio 37.3% 23.3% % 34.0%
Combined ratio 111.3% 93.9% % 107.2%
 


     
CONSOLIDATED BALANCE SHEETS    
  June 30,
 2019
 December 31,
 2018
($ in thousands, except share and per share amounts) (Unaudited)  
ASSETS    
Investments:    
Fixed maturity securities available-for-sale, at fair value (amortized cost $1,280,928 and $1,273,132) $1,340,066  $1,282,909 
Equity investments, at fair value (cost $179,359 and $160,371) 249,507  215,363 
Equity investments, at alternative measurement of cost less impairments 1,200  1,200 
Other long-term investments 17,352  19,316 
Short-term investments 46,857  28,204 
Total investments 1,654,982  1,546,992 
     
Cash 276  337 
Reinsurance receivables due from affiliate 35,470  37,361 
Prepaid reinsurance premiums due from affiliate 10,718  8,789 
Deferred policy acquisition costs (affiliated $47,019 and $44,440) 47,019  44,760 
Amounts due from affiliate to settle inter-company transaction balances   5,154 
Prepaid pension and postretirement benefits due from affiliate 17,090  17,691 
Accrued investment income 10,394  10,468 
Accounts receivable 63  1,658 
Income taxes recoverable 8,077  6,697 
Goodwill 942  942 
Other assets (affiliated $2,989 and $4,510) 3,120  4,629 
Total assets $1,788,151  $1,685,478 
     
LIABILITIES    
Losses and settlement expenses (affiliated $792,205 and $771,872) $798,706  $777,190 
Unearned premiums (affiliated $272,373 and $267,064) 272,373  268,511 
Other policyholders' funds (all affiliated) 8,150  8,807 
Surplus notes payable to affiliate 25,000  25,000 
Amounts due affiliate to settle inter-company transaction balances 5,296   
Pension benefits payable to affiliate 3,788  4,070 
Deferred income taxes 18,415  4,908 
Other liabilities (affiliated $24,623 and $31,121) 25,861  31,210 
Total liabilities 1,157,589  1,119,696 
     
STOCKHOLDERS' EQUITY    
Common stock, $1 par value, authorized 30,000,000 shares; issued and outstanding, 21,672,325 shares in 2019 and 21,615,105 shares in 2018 21,672  21,615 
Additional paid-in capital 129,961  128,451 
Accumulated other comprehensive income 39,976  1,620 
Retained earnings 438,953  414,096 
Total stockholders' equity 630,562  565,782 
Total liabilities and stockholders' equity $1,788,151  $1,685,478 


     
LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS    
  Three months ended June 30,
  2019 2018
($ 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 $34,260  $25,606  74.7% $31,660  $26,717  84.4%
Property 28,853  23,594  81.8% 27,196  23,529  86.5%
Workers' compensation 24,032  15,009  62.5% 25,229  22,513  89.2%
Other liability 29,170  18,504  63.4% 25,591  11,971  46.8%
Other 2,501  220  8.8% 2,228  125  5.6%
Total commercial lines 118,816  82,933  69.8% 111,904  84,855  75.8%
             
Personal lines 7,481  10,661  142.5% 9,591  9,400  98.0%
Total property and casualty insurance $126,297  $93,594  74.1% $121,495  $94,255  77.6%
             
Reinsurance            
Pro rata reinsurance $11,147  $10,175  91.3% $10,070  $5,116  50.8%
Excess of loss reinsurance 30,689  18,748  61.1% 26,381  19,720  74.8%
Total reinsurance $41,836  $28,923  69.1% $36,451  $24,836  68.1%
             
Consolidated $168,133  $122,517  72.9% $157,946  $119,091  75.4%
             
  Six months ended June 30,
  2019 2018
($ 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 $67,167  $47,021  70.0% $62,304  $53,173  85.3%
Property 56,524  41,022  72.6% 53,788  42,252  78.6%
Workers' compensation 47,575  28,744  60.4% 50,131  35,044  69.9%
Other liability 58,075  35,845  61.7% 50,553  29,672  58.7%
Other 5,007  (164) (3.3)% 4,414  619  14.0%
Total commercial lines 234,348  152,468  65.1% 221,190  160,760  72.7%
             
Personal lines 16,721  18,106  108.3% 18,937  16,996  89.7%
Total property and casualty insurance $251,069  $170,574  67.9% $240,127  $177,756  74.0%
             
Reinsurance            
Pro rata reinsurance $24,153  $16,089  66.6% $23,143  $9,781  42.3%
Excess of loss reinsurance 60,213  40,823  67.8% 50,462  42,182  83.6%
Total reinsurance $84,366  $56,912  67.5% $73,605  $51,963  70.6%
             
Consolidated $335,435  $227,486  67.8% $313,732  $229,719  73.2%



           
PREMIUMS WRITTEN          
  Three months ended
 June 30, 2019
 Three months ended
 June 30, 2018
  
($ in thousands) Premiums
written
 Percent of
premiums
written
 Premiums
written
 Percent of
premiums
written
 Change in
premiums
written
Property and casualty insurance          
Commercial lines:          
Automobile $40,507  24.4% $36,977  22.7% 9.5%
Property 33,467  20.1% 30,326  18.5% 10.4%
Workers' compensation 21,542  13.0% 22,781  14.0% (5.4)%
Other liability 30,838  18.5% 27,881  17.1% 10.6%
Other 2,858  1.7% 2,713  1.7% 5.3%
Total commercial lines 129,212  77.7% 120,678  74.0% 7.1%
           
Personal lines (1,059) (0.7)% 10,523  6.4% (110.1)%
Total property and casualty insurance $128,153  77.0% $131,201  80.4% (2.3)%
           
Reinsurance          
Pro rata reinsurance $11,740  7.1% $10,138  6.2% 15.8%
Excess of loss reinsurance 26,468  15.9% 21,773  13.4% 21.6%
Total reinsurance $38,208  23.0% $31,911  19.6% 19.7%
           
Consolidated $166,361  100.0% $163,112  100.0% 2.0%
           
  Six months ended
 June 30, 2019
 Six months ended
 June 30, 2018
  
($ in thousands) Premiums
written
 Percent of
premiums
written
 Premiums
written
 Percent of
premiums
written
 Change in
premiums
written
Property and casualty insurance          
Commercial lines:          
Automobile $76,400  22.6% $69,933  21.8% 9.2%
Property 63,432  18.8% 57,053  17.8% 11.2%
Workers' compensation 43,670  13.0% 45,366  14.1% (3.7)%
Other liability 60,001  17.8% 54,606  17.0% 9.9%
Other 5,431  1.6% 4,907  1.5% 10.7%
Total commercial lines 248,934  73.8% 231,865  72.2% 7.4%
           
Personal lines 4,735  1.4% 19,605  6.1% (75.8)%
Total property and casualty insurance $253,669  75.2% $251,470  78.3% 0.9%
           
Reinsurance          
Pro rata reinsurance $25,621  7.6% $21,827  6.8% 17.4%
Excess of loss reinsurance 58,036  17.2% 47,887  14.9% 21.2%
Total reinsurance $83,657  24.8% $69,714  21.7% 20.0%
           
Consolidated $337,326  100.0% $321,184  100.0% 5.0%

Contacts
Investors:                                                                      Media:
Steve Walsh, 515-345-2515                                         Lisa Hamilton, 515-345-7589
steve.t.walsh@emcins.com                                          lisa.l.hamilton@emcins.com