EMC Insurance Group Inc. Reports 2013
Third Quarter and Nine Month Results and
Increases 2013 Operating Income Guidance
Third Quarter Ended September 30, 2013
Operating Income Per Share - $0.50
Net Income Per Share - $0.55
Net Realized Investment Gains Per Share - $0.05
Catastrophe and Storm Losses Per Share - $0.75
Large Losses Per Share - $0.29
GAAP Combined Ratio - 100.8 percent
Nine Months Ended September 30, 2013
Operating Income Per Share - $1.93
Net Income Per Share - $2.12
Net Realized Investment Gains Per Share - $0.19
Catastrophe and Storm Losses Per Share - $2.08
Large Losses Per Share - $0.76
GAAP Combined Ratio - 99.0 percent
2013 Operating Income Guidance - $2.60 to $2.85 per share
DES MOINES, Iowa (November 7, 2013) - EMC Insurance Group Inc. (Nasdaq OMX/GS:EMCI) today reported operating income of $6,545,000 ($0.50 per share) for the third quarter ended September 30, 2013, compared to $8,436,000 ($0.65 per share) for the third quarter of 20121. For the nine months ended September 30, 2013, the Company reported operating income of $25,182,000 ($1.93 per share), compared to $20,026,000 ($1.55 per share) for the same period in 2012.
Net income, including realized investment gains and losses, totaled $7,200,000 ($0.55 per share) for the third quarter of 2013, compared to $8,321,000 ($0.65 per share) for the third quarter of 2012. For the nine months ended September 30, 2013, net income totaled $27,684,000 ($2.12 per share), compared to $24,969,000 ($1.94 per share) for the same period in 2012.
“Operating results for the first nine months of the year are strong, and our updated operating income projection for the year exceeds our expectations at the beginning of the year. As a result, we are increasing our 2013 operating income guidance at this time,” stated President and Chief Executive Officer Bruce G. Kelley.
Kelley went on to say, “While the reinsurance segment continued to perform at a high level and we were able to continue implementing high-single-digit rate level increases in the property and casualty insurance segment, operating results for the quarter were negatively impacted by a reduction in the amount of favorable development experienced on prior years’ reserves and an increase in catastrophe and storm losses.”
Premiums earned increased 8.9 percent to $132,363,000 for the third quarter of 2013, from $121,545,000 for the third quarter of 2012. In the property and casualty insurance segment, premiums
earned increased 9.9 percent, with the majority of the increase attributable to rate level increases on renewal business and growth in insured exposures on existing accounts. In the reinsurance segment, premiums earned increased 5.9 percent as a result of growth in the offshore energy and liability proportional account, moderate rate level increases and the addition of some new business; however, it is important to note that the percentage increase is affected by a large increase in premiums earned that occurred in the third quarter of 2012 due to an acceleration in the revenue stream of the offshore energy and liability proportional account. For the first nine months of 2013, premiums earned increased 11.3 percent (10.1 percent in the property and casualty insurance segment and 15.2 percent in the reinsurance segment).
The Company’s GAAP combined ratio was 100.8 percent in the third quarter of 2013, compared to 99.3 percent in the third quarter of 2012. For the first nine months of 2013, the Company’s GAAP combined ratio was 99.0 percent, compared to 101.8 percent in 2012.
Catastrophe and storm losses totaled $15,066,000 ($0.75 per share after tax) in the third quarter of 2013, compared to $10,824,000 ($0.55 per share after tax) in the third quarter of 2012. Third quarter 2013 catastrophe and storm losses accounted for 11.4 percentage points of the combined ratio, which is below the Company’s most recent 10-year average of 14.7 percentage points, but higher than the 8.9 percentage points experienced in the third quarter of 2012. For the first nine months of 2013, catastrophe and storm losses totaled $41,812,000 ($2.08 per share after tax), compared to $45,374,000 ($2.29 per share after tax) in 2012. On a segment basis, catastrophe and storm losses amounted to $11,246,000 ($0.56 per share after tax) and $34,601,000 ($1.72 per share after tax) in the property and casualty insurance segment, and $3,819,000 ($0.19 per share after tax) and $7,211,000 ($0.36 per share after tax) in the reinsurance segment, for the third quarter and first nine months of 2013, respectively.
The Company experienced $1,309,000 ($0.07 per share after tax) of favorable development on prior years’ reserves during the third quarter of 2013, compared to $8,329,000 ($0.42 per share after tax) in the third quarter of 2012. For the first nine months of 2013, favorable development totaled $7,628,000 ($0.38 per share after tax), compared to $25,991,000 ($1.31 per share after tax) in 2012. The decline in favorable development in the third quarter is primarily attributed to the reinsurance segment, which reported adverse development of $845,000 compared to favorable development of $7,065,000 in 2012. Both the property and casualty insurance segment and the reinsurance segment reported declines in favorable development for the first nine months of 2013.
It should be noted that the declines in favorable development reported by the reinsurance segment are primarily attributed to two factors. First, a large amount of favorable development was reported in the third quarter of 2012 due to a reduction in the amount of IBNR loss reserves carried for the unusually large number of catastrophe and storm events that occurred in 2011. Second, reported losses associated with prior accident years were approximately $2,500,000 greater in the third quarter of 2013 than the third quarter of 2012. The declines in favorable development are also partially attributed to an actuarial study completed in early 2012 that resulted in the selection of lower “expected loss ratios” (and therefore a lower amount of carried reserves) for most lines of the Home Office Reinsurance Assumed Department book of business for the 2012 contract year (prior contract years’ “expected loss ratios” were not adjusted). Lower “expected loss ratios” have been used to establish the carried loss reserves for the 2013 contract year and will continue to be used to establish carried reserves for subsequent contract years (pending actuarial review). This is expected to result in a recurring reduction in the amount of favorable development reported by the reinsurance segment.
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, but at a slightly lower level within the quartile relative to previous evaluations.
Large losses (which the Company defines as losses greater than $500,000 for the EMC Insurance Companies’ pool, excluding catastrophe and storm losses) increased to $5,802,000 ($0.29 per share after tax) in the third quarter of 2013 from $4,665,000 ($0.24 per share after tax) in the third quarter of 2012. For the first nine months of 2013, large losses decreased to $15,286,000 ($0.76 per share after tax) from $17,103,000 ($0.86 per share after tax) in 2012.
Investment income decreased 3.9 percent and 3.7 percent to $10,545,000 and $32,028,000 for the third quarter and first nine months of 2013 from $10,969,000 and $33,274,000 for the same periods in 2012. These declines are primarily attributable to the prolonged low interest rate environment, but do reflect an increase in dividend income in the equity portfolio. It should be noted that the decline in investment income reported for the first nine months of 2013 reflects a $154,000 increase in the amount of funds received from settlements of securities litigation. Excluding this amount from the calculation, the decline in investment income would have been 4.2 percent.
Net realized investment gains totaled $655,000 ($0.05 per share) in the third quarter of 2013, compared to net realized investment losses of $115,000 (less than $0.01 per share) in 2012. For the first nine months of 2013, net realized investment gains totaled $2,502,000 ($0.19 per share), compared to $4,943,000 ($0.39 per share) in 2012.
At September 30, 2013, consolidated assets totaled $1.3 billion, including $1.2 billion in the investment portfolio, and stockholders’ equity totaled $408.0 million, an increase of 1.7 percent from December 31, 2012. Net book value of the Company’s stock remained relatively steady at $31.03 per share, compared to $31.08 per share at December 31, 2012. Book value excluding accumulated other comprehensive income increased to $28.83 per share from $27.38 per share at December 31, 2012.
Based on results for the first nine months of 2013 and management’s expectations for the remainder of the year, management has revised its 2013 operating income guidance from the previous range of $2.40 to $2.65 per share to a revised range of $2.60 to $2.85 per share. This guidance is based on a projected GAAP combined ratio of 98.4 percent and a projected mid-single-digit decline in investment income for the year.
The Company will hold an earnings teleconference call at noon Eastern time on November 7, 2013 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company’s results for the quarter ended September 30, 2013, as well as its expectations for the remainder of 2013. Dial-in information for the call is toll-free 1-877-407-9205 (International: 1-201-689-8054). The event will be archived and available for digital replay through February 7, 2014. The replay access information is toll-free 1-877-660-6853 (International: 1-201-612-7415); conference ID number 100523.
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 February 7, 2014. 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.
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.
¹The Company uses a non-GAAP financial measure called “operating income” that management believes is useful to investors because it illustrates the performance of our normal, ongoing operations, which is important in understanding and evaluating our financial condition and results of operations. While this measure is consistent with measures utilized by investors to evaluate performance, it is not a substitute for the 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 September 30, | | Nine Months Ended September 30, |
| | | 2013 | | 2012 | | 2013 | | 2012 |
| | | | | | | | | |
| Operating income | | $ | 6,545,000 |
| | $ | 8,436,000 |
| | $ | 25,182,000 |
| | $ | 20,026,000 |
|
| Net realized investment gains (losses) | | 655,000 |
| | (115,000 | ) | | 2,502,000 |
| | 4,943,000 |
|
| Net income | | $ | 7,200,000 |
| | $ | 8,321,000 |
| | $ | 27,684,000 |
| | $ | 24,969,000 |
|
|
| | | | | | | | | | | | | | | | |
| CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED | | | | | | |
| | | | | | | | | |
| | | Property and | | | | | | |
| | | Casualty | | | | Parent | | |
| Quarter Ended September 30, 2013 | | Insurance | | Reinsurance | | Company | | Consolidated |
| Revenues: | | | | | | | | |
| Premiums earned | | $ | 100,085,034 |
| | $ | 32,277,727 |
| | $ | — |
| | $ | 132,362,761 |
|
| Investment income, net | | 7,676,989 |
| | 2,869,612 |
| | (1,826 | ) | | 10,544,775 |
|
| Other income | | 194,732 |
| | — |
| | — |
| | 194,732 |
|
| | | 107,956,755 |
| | 35,147,339 |
| | (1,826 | ) | | 143,102,268 |
|
| Losses and expenses: | | | | | | | | |
| Losses and settlement expenses | | 65,638,170 |
| | 22,596,518 |
| | — |
| | 88,234,688 |
|
| Dividends to policyholders | | 4,219,696 |
| | — |
| | — |
| | 4,219,696 |
|
| Amortization of deferred policy acquisition costs | | 17,306,159 |
| | 6,364,743 |
| | — |
| | 23,670,902 |
|
| Other underwriting expenses | | 16,865,851 |
| | 465,924 |
| | — |
| | 17,331,775 |
|
| Interest expense | | 84,375 |
| | — |
| | — |
| | 84,375 |
|
| Other expenses | | 161,966 |
| | 557,933 |
| | 283,276 |
| | 1,003,175 |
|
| | | 104,276,217 |
| | 29,985,118 |
| | 283,276 |
| | 134,544,611 |
|
| Operating income (loss) before income taxes | | 3,680,538 |
| | 5,162,221 |
| | (285,102 | ) | | 8,557,657 |
|
| Realized investment gains | | 719,522 |
| | 287,687 |
| | — |
| | 1,007,209 |
|
| Income (loss) before income taxes | | 4,400,060 |
| | 5,449,908 |
| | (285,102 | ) | | 9,564,866 |
|
| Income tax expense (benefit): | | | | | | | | |
| Current | | 1,978,422 |
| | 1,996,529 |
| | (99,785 | ) | | 3,875,166 |
|
| Deferred | | (1,142,898 | ) | | (367,045 | ) | | — |
| | (1,509,943 | ) |
| | | 835,524 |
| | 1,629,484 |
| | (99,785 | ) | | 2,365,223 |
|
| Net income (loss) | | $ | 3,564,536 |
| | $ | 3,820,424 |
| | $ | (185,317 | ) | | $ | 7,199,643 |
|
| Average shares outstanding | | | | | | | | 13,131,323 |
|
| Per Share Data: | | | | | | | | |
| Net income (loss) per share - basic and diluted | | $ | 0.27 |
| | $ | 0.29 |
| | $ | (0.01 | ) | | $ | 0.55 |
|
| Decrease (increase) in provision for insured events of prior years (after tax) | | $ | 0.11 |
| | $ | (0.04 | ) | | $ | — |
| | $ | 0.07 |
|
| Catastrophe and storm losses (after tax) | | $ | (0.56 | ) | | $ | (0.19 | ) | | $ | — |
| | $ | (0.75 | ) |
| Dividends per share | | | | | | | | $ | 0.21 |
|
| Other Information of Interest: | | | | | | | | |
| Net written premiums | | $ | 122,184,667 |
| | $ | 34,860,664 |
| | $ | — |
| | $ | 157,045,331 |
|
| Increase (decrease) in provision for insured events of prior years | | $ | (2,153,365 | ) | | $ | 844,609 |
| | $ | — |
| | $ | (1,308,756 | ) |
| Catastrophe and storm losses | | $ | 11,246,212 |
| | $ | 3,819,438 |
| | $ | — |
| | $ | 15,065,650 |
|
| GAAP Combined Ratio: | | | | | | | | |
| Loss and settlement expense ratio | | 65.6 | % | | 70.0 | % | | — |
| | 66.7 | % |
| Acquisition expense ratio | | 38.3 | % | | 21.2 | % | | — |
| | 34.1 | % |
| | | 103.9 | % | | 91.2 | % | | — |
| | 100.8 | % |
|
| | | | | | | | | | | | | | | | |
| CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED | | | | | | |
| | | | | | | | | |
| | | Property and | | | | | | |
| | | Casualty | | | | Parent | | |
| Quarter Ended September 30, 2012 | | Insurance | | Reinsurance | | Company | | Consolidated |
| Revenues: | | | | | | | | |
| Premiums earned | | $ | 91,059,723 |
| | $ | 30,485,064 |
| | $ | — |
| | $ | 121,544,787 |
|
| Investment income, net | | 8,000,165 |
| | 2,970,731 |
| | (1,983 | ) | | 10,968,913 |
|
| Other income | | 224,485 |
| | 341 |
| | — |
| | 224,826 |
|
| | | 99,284,373 |
| | 33,456,136 |
| | (1,983 | ) | | 132,738,526 |
|
| Losses and expenses: | | | | | | | | |
| Losses and settlement expenses | | 56,160,516 |
| | 23,164,125 |
| | — |
| | 79,324,641 |
|
| Dividends to policyholders | | 2,982,748 |
| | — |
| | — |
| | 2,982,748 |
|
| Amortization of deferred policy acquisition costs | | 15,820,777 |
| | 6,790,425 |
| | — |
| | 22,611,202 |
|
| Other underwriting expenses | | 14,940,177 |
| | 821,047 |
| | — |
| | 15,761,224 |
|
| Interest expense | | 225,000 |
| | — |
| | — |
| | 225,000 |
|
| Other expenses | | 211,601 |
| | 469,379 |
| | 226,007 |
| | 906,987 |
|
| | | 90,340,819 |
| | 31,244,976 |
| | 226,007 |
| | 121,811,802 |
|
| Operating income (loss) before income taxes | | 8,943,554 |
| | 2,211,160 |
| | (227,990 | ) | | 10,926,724 |
|
| Realized investment losses | | (82,254 | ) | | (94,114 | ) | | — |
| | (176,368 | ) |
| Income (loss) before income taxes | | 8,861,300 |
| | 2,117,046 |
| | (227,990 | ) | | 10,750,356 |
|
| Income tax expense (benefit): | | | | | | | | |
| Current | | 2,501,606 |
| | 434,888 |
| | (83,778 | ) | | 2,852,716 |
|
| Deferred | | (313,489 | ) | | (110,115 | ) | | — |
| | (423,604 | ) |
| | | 2,188,117 |
| | 324,773 |
| | (83,778 | ) | | 2,429,112 |
|
| Net income (loss) | | $ | 6,673,183 |
| | $ | 1,792,273 |
| | $ | (144,212 | ) | | $ | 8,321,244 |
|
| Average shares outstanding | | | | | | | | 12,889,628 |
|
| Per Share Data: | | | | | | | | |
| Net income (loss) per share - basic and diluted | | $ | 0.51 |
| | $ | 0.14 |
| | $ | — |
| | $ | 0.65 |
|
| Decrease in provision for insured events of prior years (after tax) | | $ | 0.07 |
| | $ | 0.35 |
| | $ | — |
| | $ | 0.42 |
|
| Catastrophe and storm losses (after tax) | | $ | (0.32 | ) | | $ | (0.23 | ) | | $ | — |
| | $ | (0.55 | ) |
| Dividends per share | | | | | | | | $ | 0.20 |
|
| Other Information of Interest: | | | | | | | | |
| Net written premiums | | $ | 111,860,251 |
| | $ | 38,123,030 |
| | $ | — |
| | $ | 149,983,281 |
|
| Decrease in provision for insured events of prior years | | $ | (1,263,327 | ) | | $ | (7,065,662 | ) | | $ | — |
| | $ | (8,328,989 | ) |
| Catastrophe and storm losses | | $ | 6,167,436 |
| | $ | 4,656,274 |
| | $ | — |
| | $ | 10,823,710 |
|
| GAAP Combined Ratio: | | | | | | | | |
| Loss and settlement expense ratio | | 61.7 | % | | 76.0 | % | | — |
| | 65.3 | % |
| Acquisition expense ratio | | 37.0 | % | | 25.0 | % | | — |
| | 34.0 | % |
| | | 98.7 | % | | 101.0 | % | | — |
| | 99.3 | % |
|
| | | | | | | | | | | | | | | | |
| CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED | | | | | | |
| | | | | | | | | |
| | | Property and | | | | | | |
| | | Casualty | | | | Parent | | |
| Nine Months Ended September 30, 2013 | | Insurance | | Reinsurance | | Company | | Consolidated |
| Revenues: | | | | | | | | |
| Premiums earned | | $ | 290,606,939 |
| | $ | 89,441,354 |
| | $ | — |
| | $ | 380,048,293 |
|
| Investment income, net | | 23,422,804 |
| | 8,612,316 |
| | (7,268 | ) | | 32,027,852 |
|
| Other income | | 592,654 |
| | — |
| | — |
| | 592,654 |
|
| | | 314,622,397 |
| | 98,053,670 |
| | (7,268 | ) | | 412,668,799 |
|
| Losses and expenses: | | | | | | | | |
| Losses and settlement expenses | | 195,686,487 |
| | 54,090,539 |
| | — |
| | 249,777,026 |
|
| Dividends to policyholders | | 8,746,728 |
| | — |
| | — |
| | 8,746,728 |
|
| Amortization of deferred policy acquisition costs | | 50,946,769 |
| | 18,555,985 |
| | — |
| | 69,502,754 |
|
| Other underwriting expenses | | 46,979,906 |
| | 1,428,442 |
| | — |
| | 48,408,348 |
|
| Interest expense | | 300,000 |
| | — |
| | — |
| | 300,000 |
|
| Other expenses | | 553,165 |
| | 217,646 |
| | 990,982 |
| | 1,761,793 |
|
| | | 303,213,055 |
| | 74,292,612 |
| | 990,982 |
| | 378,496,649 |
|
| Operating income (loss) before income taxes | | 11,409,342 |
| | 23,761,058 |
| | (998,250 | ) | | 34,172,150 |
|
| Realized investment gains | | 3,068,625 |
| | 781,710 |
| | — |
| | 3,850,335 |
|
| Income (loss) before income taxes | | 14,477,967 |
| | 24,542,768 |
| | (998,250 | ) | | 38,022,485 |
|
| Income tax expense (benefit): | | | | | | | | |
| Current | | 4,293,897 |
| | 8,028,870 |
| | (349,387 | ) | | 11,973,380 |
|
| Deferred | | (1,360,221 | ) | | (275,070 | ) | | — |
| | (1,635,291 | ) |
| | | 2,933,676 |
| | 7,753,800 |
| | (349,387 | ) | | 10,338,089 |
|
| Net income (loss) | | $ | 11,544,291 |
| | $ | 16,788,968 |
| | $ | (648,863 | ) | | $ | 27,684,396 |
|
| Average shares outstanding | | | | | | | | 13,044,351 |
|
| Per Share Data: | | | | | | | | |
| Net income (loss) per share - basic and diluted | | $ | 0.89 |
| | $ | 1.29 |
| | $ | (0.06 | ) | | $ | 2.12 |
|
| Decrease in provision for insured events of prior years (after tax) | | $ | 0.20 |
| | $ | 0.18 |
| | $ | — |
| | $ | 0.38 |
|
| Catastrophe and storm losses (after tax) | | $ | (1.72 | ) | | $ | (0.36 | ) | | $ | — |
| | $ | (2.08 | ) |
| Dividends per share | | | | | | | | $ | 0.63 |
|
| Book value per share | | | | | | | | $ | 31.03 |
|
| Effective tax rate | | | | | | | | 27.2 | % |
| Annualized net income as a percent of beg. SH equity | | | | | | | | 9.2 | % |
| Other Information of Interest: | | | | | | | | |
| Net written premiums | | $ | 322,224,829 |
| | $ | 93,064,848 |
| | $ | — |
| | $ | 415,289,677 |
|
| Decrease in provision for insured events of prior years | | $ | (3,936,592 | ) | | $ | (3,691,542 | ) | | $ | — |
| | $ | (7,628,134 | ) |
| Catastrophe and storm losses | | $ | 34,600,511 |
| | $ | 7,211,293 |
| | $ | — |
| | $ | 41,811,804 |
|
| GAAP Combined Ratio: | | | | | | | | |
| Loss and settlement expense ratio | | 67.3 | % | | 60.5 | % | | — |
| | 65.7 | % |
| Acquisition expense ratio | | 36.7 | % | | 22.3 | % | | — |
| | 33.3 | % |
| | | 104.0 | % | | 82.8 | % | | — |
| | 99.0 | % |
|
| | | | | | | | | | | | | | | | |
| CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED | | | | | | |
| | | | | | | | | |
| | | Property and | | | | | | |
| | | Casualty | | | | Parent | | |
| Nine Months Ended September 30, 2012 | | Insurance | | Reinsurance | | Company | | Consolidated |
| Revenues: | | | | | | | | |
| Premiums earned | | $ | 263,916,398 |
| | $ | 77,658,605 |
| | $ | — |
| | $ | 341,575,003 |
|
| Investment income, net | | 24,314,494 |
| | 8,965,935 |
| | (6,039 | ) | | 33,274,390 |
|
| Other income | | 686,234 |
| | 341 |
| | — |
| | 686,575 |
|
| | | 288,917,126 |
| | 86,624,881 |
| | (6,039 | ) | | 375,535,968 |
|
| Losses and expenses: | | | | | | | | |
| Losses and settlement expenses | | 178,799,153 |
| | 54,165,728 |
| | — |
| | 232,964,881 |
|
| Dividends to policyholders | | 6,894,504 |
| | — |
| | — |
| | 6,894,504 |
|
| Amortization of deferred policy acquisition costs | | 46,627,282 |
| | 15,829,309 |
| | — |
| | 62,456,591 |
|
| Other underwriting expenses | | 43,931,413 |
| | 1,418,119 |
| | — |
| | 45,349,532 |
|
| Interest expense | | 675,000 |
| | — |
| | — |
| | 675,000 |
|
| Other expenses | | 609,041 |
| | 96,829 |
| | 956,376 |
| | 1,662,246 |
|
| | | 277,536,393 |
| | 71,509,985 |
| | 956,376 |
| | 350,002,754 |
|
| Operating income (loss) before income taxes | | 11,380,733 |
| | 15,114,896 |
| | (962,415 | ) | | 25,533,214 |
|
| Realized investment gains | | 7,069,647 |
| | 533,978 |
| | — |
| | 7,603,625 |
|
| Income (loss) before income taxes | | 18,450,380 |
| | 15,648,874 |
| | (962,415 | ) | | 33,136,839 |
|
| Income tax expense (benefit): | | | | | | | | |
| Current | | 5,360,406 |
| | 3,530,622 |
| | (340,826 | ) | | 8,550,202 |
|
| Deferred | | (1,261,632 | ) | | 879,761 |
| | — |
| | (381,871 | ) |
| | | 4,098,774 |
| | 4,410,383 |
| | (340,826 | ) | | 8,168,331 |
|
| Net income (loss) | | $ | 14,351,606 |
| | $ | 11,238,491 |
| | $ | (621,589 | ) | | $ | 24,968,508 |
|
| Average shares outstanding | | | | | | | | 12,884,327 |
|
| Per Share Data: | | | | | | | | |
| Net income (loss) per share - basic and diluted | | $ | 1.11 |
| | $ | 0.87 |
| | $ | (0.04 | ) | | $ | 1.94 |
|
| Decrease in provision for insured events of prior years (after tax) | | $ | 0.82 |
| | $ | 0.49 |
| | $ | — |
| | $ | 1.31 |
|
| Catastrophe and storm losses (after tax) | | $ | (1.59 | ) | | $ | (0.70 | ) | | $ | — |
| | $ | (2.29 | ) |
| Dividends per share | | | | | | | | $ | 0.60 |
|
| Book value per share | | | | | | | | $ | 30.46 |
|
| Effective tax rate | | | | | | | | 24.7 | % |
| Annualized net income as a percent of beg. SH equity | | | | | | | | 9.5 | % |
| Other Information of Interest: | | | | | | | | |
| Net written premiums | | $ | 294,266,246 |
| | $ | 82,006,480 |
| | $ | — |
| | $ | 376,272,726 |
|
| Decrease in provision for insured events of prior years | | $ | (16,227,480 | ) | | $ | (9,763,158 | ) | | $ | — |
| | $ | (25,990,638 | ) |
| Catastrophe and storm losses | | $ | 31,494,456 |
| | $ | 13,879,487 |
| | $ | — |
| | $ | 45,373,943 |
|
| GAAP Combined Ratio: | | | | | | | | |
| Loss and settlement expense ratio | | 67.7 | % | | 69.7 | % | | — |
| | 68.2 | % |
| Acquisition expense ratio | | 37.0 | % | | 22.3 | % | | — |
| | 33.6 | % |
| | | 104.7 | % | | 92.0 | % | | — |
| | 101.8 | % |
|
| | | | | | | | |
| CONSOLIDATED BALANCE SHEETS | | | | |
| | | September 30,
2013 | | December 31,
2012 |
| | | (Unaudited) | | (As Audited) |
| ASSETS | | | | |
| Investments: | | | | |
| Fixed maturity securities available-for-sale, at fair value (amortized cost $960,804,064 and $920,843,939) | | $ | 990,480,349 |
| | $ | 999,794,857 |
|
| Equity securities available-for-sale, at fair value (cost $118,448,584 and $111,851,963) | | 165,485,789 |
| | 140,293,825 |
|
| Other long-term investments | | 1,255,793 |
| | 863,257 |
|
| Short-term investments | | 64,570,999 |
| | 53,418,914 |
|
| Total investments | | 1,221,792,930 |
| | 1,194,370,853 |
|
| | | | | |
| Cash | | 600,852 |
| | 330,392 |
|
| Reinsurance receivables due from affiliate | | 30,597,732 |
| | 34,277,728 |
|
| Prepaid reinsurance premiums due from affiliate | | 9,535,847 |
| | 5,195,892 |
|
| Deferred policy acquisition costs (affiliated $39,871,899 and $34,425,593) | | 39,892,340 |
| | 34,425,593 |
|
| Amounts due from affiliate to settle inter-company transaction balances | | 9,477,746 |
| | — |
|
| Prepaid pension benefits due from affiliate | | 679,538 |
| | 1,413,104 |
|
| Accrued investment income | | 10,348,127 |
| | 9,938,714 |
|
| Accounts receivable | | 3,013,752 |
| | 2,390,955 |
|
| Income taxes recoverable | | — |
| | 1,588,089 |
|
| Deferred income taxes | | 5,446,398 |
| | — |
|
| Goodwill | | 941,586 |
| | 941,586 |
|
| Other assets (affiliated $5,301,600 and $5,760,369) | | 5,418,414 |
| | 5,836,200 |
|
| Total assets | | $ | 1,337,745,262 |
| | $ | 1,290,709,106 |
|
| | | | | |
| LIABILITIES | | | | |
| Losses and settlement expenses (affiliated $595,690,009 and $577,476,988) | | $ | 604,647,885 |
| | $ | 583,096,965 |
|
| Unearned premiums (affiliated $236,805,957 and $196,215,465) | | 236,906,305 |
| | 196,215,465 |
|
| Other policyholders' funds (all affiliated) | | 8,344,571 |
| | 6,055,111 |
|
| Surplus notes payable to affiliate | | 25,000,000 |
| | 25,000,000 |
|
| Amounts due affiliate to settle inter-company transaction balances | | — |
| | 19,127,010 |
|
| Pension and postretirement benefits payable to affiliate | | 32,503,795 |
| | 30,714,633 |
|
| Income taxes payable | | 394,886 |
| | — |
|
| Deferred income taxes | | — |
| | 6,352,690 |
|
| Other liabilities (affiliated $20,271,470 and $22,794,304) | | 21,952,260 |
| | 22,938,068 |
|
| Total liabilities | | 929,749,702 |
| | 889,499,942 |
|
| | | | | |
| STOCKHOLDERS' EQUITY | | | | |
| Common stock, $1 par value, authorized 20,000,000 shares; issued and outstanding, 13,148,361 shares in 2013 and 12,909,457 shares in 2012 | | 13,148,361 |
| | 12,909,457 |
|
| Additional paid-in capital | | 95,179,454 |
| | 89,205,881 |
|
| Accumulated other comprehensive income | | 28,876,757 |
| | 47,752,375 |
|
| Retained earnings | | 270,790,988 |
| | 251,341,451 |
|
| Total stockholders' equity | | 407,995,560 |
| | 401,209,164 |
|
| Total liabilities and stockholders' equity | | $ | 1,337,745,262 |
| | $ | 1,290,709,106 |
|
INVESTMENTS
The Company had total cash and invested assets with a carrying value of $1.2 billion as of September 30, 2013 and December 31, 2012. The following table summarizes the Company's cash and invested assets as of the dates indicated:
|
| | | | | | | | | | | | | | | |
| | | September 30, 2013 |
| | | | | | | Percent of | | |
| | | Amortized | | Fair | | Total | | Carrying |
| ($ in thousands) | | Cost | | Value | | Fair Value | | Value |
| Fixed maturity securities available-for-sale | | $ | 960,804 |
| | $ | 990,480 |
| | 81.1 | % | | $ | 990,480 |
|
| Equity securities available-for-sale | | 118,449 |
| | 165,486 |
| | 13.5 | % | | 165,486 |
|
| Cash | | 601 |
| | 601 |
| | — | % | | 601 |
|
| Short-term investments | | 64,571 |
| | 64,571 |
| | 5.3 | % | | 64,571 |
|
| Other long-term investments | | 1,256 |
| | 1,256 |
| | 0.1 | % | | 1,256 |
|
| | | $ | 1,145,681 |
| | $ | 1,222,394 |
| | 100.0 | % | | $ | 1,222,394 |
|
| | | | | | | | | |
| | | December 31, 2012 |
| | | | | | | Percent of | | |
| | | Amortized | | Fair | | Total | | Carrying |
| ($ in thousands) | | Cost | | Value | | Fair Value | | Value |
| Fixed maturity securities available-for-sale | | $ | 920,844 |
| | $ | 999,795 |
| | 83.7 | % | | $ | 999,795 |
|
| Equity securities available-for-sale | | 111,852 |
| | 140,294 |
| | 11.7 | % | | 140,294 |
|
| Cash | | 330 |
| | 330 |
| | — | % | | 330 |
|
| Short-term investments | | 53,419 |
| | 53,419 |
| | 4.5 | % | | 53,419 |
|
| Other long-term investments | | 863 |
| | 863 |
| | 0.1 | % | | 863 |
|
| | | $ | 1,087,308 |
| | $ | 1,194,701 |
| | 100.0 | % | | $ | 1,194,701 |
|
|
| | | | | | | | | | | | |
| NET WRITTEN PREMIUMS | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | September 30, 2013 | | September 30, 2013 |
| | | | | Percent of | | | | Percent of |
| | | Percent of | | Increase/(Decrease) | | Percent of | | Increase/(Decrease) |
| | | Net Written | | in Net Written | | Net Written | | in Net Written |
| | | Premiums | | Premiums | | Premiums | | Premiums |
| Property and Casualty Insurance | | | | | | | | | | |
| Commercial Lines: | | | | | | | | | | |
| Automobile | | 16.1 | % | 15.4 |
| % | | 17.2 | % | 13.5 |
| % |
| Liability | | 14.7 | % | 13.5 |
| % | | 15.4 | % | 12.6 |
| % |
| Property | | 18.3 | % | 13.9 |
| % | | 17.6 | % | 13.5 |
| % |
| Workers' compensation | | 19.2 | % | 5.8 |
| % | | 16.8 | % | 8.6 |
| % |
| Other | | 1.4 | % | 2.4 |
| % | | 1.4 | % | 0.1 |
| % |
| Total commercial lines | | 69.7 | % | 11.5 |
| % | | 68.4 | % | 11.7 |
| % |
| | | | | | | | | | | |
| Personal Lines: | | | | | | | | | | |
| Automobile | | 4.2 | % | (7.0 | ) | % | | 4.9 | % | (5.8 | ) | % |
| Property | | 3.8 | % | (8.1 | ) | % | | 4.1 | % | (4.1 | ) | % |
| Liability | | 0.1 | % | 11.5 |
| % | | 0.2 | % | 11.7 |
| % |
| Total personal lines | | 8.1 | % | (7.3 | ) | % | | 9.2 | % | (4.8 | ) | % |
| Total property and casualty insurance | | 77.8 | % | 9.2 |
| % | | 77.6 | % | 9.5 |
| % |
| | | | | | | | | | | |
| Reinsurance: | | | | | | | | | | |
| Pro rata (1) (2) | | 9.7 | % | (17.9 | ) | % | | 8.7 | % | 25.8 |
| % |
| Excess of loss (1) | | 12.5 | % | 0.3 |
| % | | 13.7 | % | 6.9 |
| % |
| Total reinsurance | | 22.2 | % | (8.6 | ) | % | | 22.4 | % | 13.5 |
| % |
| Total | | 100.0 | % | 4.7 |
| % | | 100.0 | % | 10.4 |
| % |
(1) Includes $532,146 negative portfolio adjustment related to the January 1, 2013 decreased participation in the MRB pool.
(2) Reflects $3,065,279 negative portfolio adjustment related to the January 1, 2012 cancellation of a large pro rata account.
