EXHIBIT 99
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EMC INSURANCE GROUP INC. REPORTS
2004 SECOND QUARTER RESULTS
DES MOINES, Iowa (August 5, 2004) - EMC Insurance Group Inc.
(Nasdaq/NM:EMCI) today reported operating income of $0.12 per share for the
second quarter ended June 30, 2004 compared to operating income of $0.09 per
share for the second quarter of 2003(1). Operating income for the six months
ended June 30, 2004 was $0.82 per share compared to $0.76 per share for the
same period in 2003.
Net income, including realized investment gains/losses, was $3,466,000
($0.30 per share) for the second quarter of 2004 compared to $1,430,000
($0.12 per share) for the second quarter of 2003. Net income for the six
months ended June 30, 2004 was $11,815,000 ($1.02 per share) compared to
$7,876,000 ($0.69 per share) for the same period in 2003. During the second
quarter of 2004 the Company recognized $2,558,000 ($1,663,000 or $0.14 per
share after tax) of realized investment gains on its investment in MCI
Communications Corporation bonds in conjunction with a payout award received
under a bankruptcy court approved "Plan of Reorganization." These bonds had
previously been determined to be other-than-temporarily impaired during the
second quarter of 2002.
As reported on June 15, 2004, the Company strengthened its bulk loss
and settlement expense reserves during the second quarter of 2004 in response
to a recently completed actuarial evaluation of the carried reserves for the
property and casualty insurance segment. This increase in reserves amounted
to $2,940,000 and reduced second quarter earnings by $1,910,000 ($0.17 per
share) on an after tax basis. Actuarial evaluations of the Company's carried
reserves are performed on a regularly-scheduled basis and additional
evaluations will be performed during the remainder of the year. The
Company's standard practice is to adjust its carried reserves as necessary in
response to these evaluations in an effort to maintain a consistent level of
reserve adequacy. The adjustment in reserves implemented in the second
quarter of 2004 represents an increase of 0.8 percent of the total loss and
settlement expense reserves carried at March 31, 2004.
Premiums earned increased 2.4 percent to $83,984,000 for the three
months ended June 30, 2004 from $81,978,000 for the same period in 2003. For
the six-month period ended June 30, 2004, premiums earned increased 3.1
percent to $167,443,000 from $162,360,000 for the same period in 2003. These
increases are primarily attributed to rate increases implemented during the
prior two years in the property and casualty insurance business as well as
moderate growth and improved pricing in the assumed reinsurance business.
The overall market for property and casualty insurance remained firm during
the second quarter of 2004 but moderated slightly in certain lines of
business and select territories due to an increase in price competition. No
significant changes are anticipated in the commercial lines marketplace for
the remainder of the year and the Company will continue to implement rate
increases in those lines of business and/or territories where such action is
warranted; however, the overall level of these rate increases is expected to
be smaller than those implemented during the past several months.
"We are pleased with our results for the first half of 2004," stated
President and CEO Bruce G. Kelley. "As demonstrated by our recent reserve
strengthening actions, we are committed to maintaining adequate reserve
levels. This commitment, coupled with our solid book of business, has
positioned us well for the second half of the year."
Catastrophe and storm losses declined significantly to $7,197,000
($0.40 per share after tax) in the second quarter of 2004 from $10,342,000
($0.59 per share after tax) in the second quarter of 2003. For the first six
months of 2004, catastrophe and storm losses totaled $8,212,000 ($0.46 per
share after tax) compared to $11,428,000 ($0.65 per share after tax) for the
same period in 2003.
The Company's GAAP combined ratio was 107.0 percent in the second
quarter of 2004 compared to
107.3 percent in the second quarter of 2003. For the first six months of
2004, the GAAP combined ratio was 100.4 percent compared to 101.1 percent for
the same period in 2003.
Net book value of the Company's stock as of June 30, 2004 was $15.81
per share, compared to $15.72 per share at December 31, 2003.
EMC Insurance Group Inc., the publicly-held insurance holding company
of EMC Insurance Companies, owns subsidiaries with operations in property and
casualty insurance and reinsurance. EMC Insurance Companies is one of the
largest property and casualty entities in Iowa and among the top 60 insurance
entities nationwide. For more information, visit our website
www.emcinsurance.com.
The Private Securities Litigation Reform Act of 1995 provides issuers
the opportunity to make cautionary statements regarding forward-looking
statements. Accordingly, any forward-looking statement contained in this
report is based on management's current expectations and actual results of
the Company may differ materially from such expectations. 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; state and federal legislation and
regulations; rate competition; changes in interest rates and the performance
of financial markets; the adequacy of loss and settlement expense reserves,
including asbestos and environmental claims; rate agency actions and other
risks and uncertainties inherent to the Company's business. When we use the
words "believe", "expect", "anticipate", "estimate" or similar expressions,
we intend to identify forward-looking statements. You should not place undue
reliance on these forward-looking statements.
(1)The Company uses a non-GAAP financial measure called "operating
income" that management believes is useful to investors because it
illustrates the performance of our normal, ongoing operations, which is
important in understanding and evaluating our financial condition and results
of operations. While this measure is consistent with measures utilized by
investors to evaluate performance, it is not a substitute for the U.S. GAAP
financial measure of net income. Therefore, we have provided a
reconciliation of this non-GAAP financial measure to the U.S. GAAP financial
measure of net income in the Summary of Consolidated Financial Data schedule
contained in this release. Management also uses non-GAAP financial measures
for goal setting, determining employee and senior management awards and
compensation, and evaluating performance.
Summary of Consolidated Financial Data
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
----------------------- -------------------------
2004 2003 2004 2003
----------- ----------- ------------ ------------
Premiums earned ............$83,984,287 $81,977,768 $167,442,569 $162,359,666
Net investment income ...... 6,865,663 7,387,056 14,139,640 15,233,980
Other income ............... 265,112 264,328 341,591 432,158
----------- ----------- ------------ ------------
Total revenues ............. 91,115,062 89,629,152 181,923,800 178,025,804
Losses and expenses ........ 90,520,191 88,796,144 169,366,096 165,899,535
----------- ----------- ------------ ------------
Operating income before
income tax expense
(benefit)............... 594,871 833,008 12,557,704 12,126,269
Income tax expense (benefit) (803,345) (215,904) 3,070,736 3,494,318
----------- ----------- ------------ ------------
Operating income after
income tax expense
(benefit)................. 1,398,216 1,048,912 9,486,968 8,631,951
----------- ----------- ------------ ------------
Realized investment gains
(losses) ................. 3,181,108 586,584 3,581,635 (1,163,201)
Income tax expense (benefit) 1,113,388 205,304 1,253,572 (407,120)
----------- ----------- ------------ ------------
Net realized investment
gains (losses) ......... 2,067,720 381,280 2,328,063 (756,081)
----------- ----------- ------------ ------------
Net income .............$ 3,465,936 $ 1,430,192 $ 11,815,031 $ 7,875,870
=========== =========== ============ ============
Operating income per share
- - basic and diluted ........$ 0.12 $ 0.09 $ 0.82 $ 0.76
=========== =========== ============ ============
Net income per share
- - basic and diluted ........$ 0.30 $ 0.12 $ 1.02 $ 0.69
=========== =========== ============ ============
Dividend per share .........$ 0.15 $ 0.15 $ 0.30 $ 0.30
=========== =========== ============ ============
Average number of shares
outstanding
- - basic and diluted ........ 11,558,120 11,442,717 11,540,381 11,423,035
=========== =========== ============ ============
WRITTEN PREMIUMS
2004 2003
----------- -----------
Property & Casualty Insurance:
Three Months ended:
March 31,.....................$ 60,183,531 $ 60,022,622
June 30, ..................... 66,960,456 65,126,418
----------- ------------
Year to date: ..................$127,143,987 $125,149,040
============ ============
Reinsurance:
Three Months ended:
March 31,.....................$ 24,500,287 $ 23,301,452
June 30, ..................... 22,019,240 22,160,253
----------- ------------
Year to date: ..................$ 46,519,527 $ 45,461,705
============ ============
Total:
Three Months ended:
March 31,.....................$ 84,683,818 $ 83,324,074
June 30, ..................... 88,979,696 87,286,671
----------- ------------
Year to date: ..................$173,663,514 $170,610,745
============ ============
Consolidated Balance Sheet
June 30, December 31,
2004 2003
ASSETS ------------ ------------
Investments: (UNAUDITED)
Fixed maturities:
Securities held-to-maturity, at amortized cost
(fair value $17,880,055 and $21,167,655) ... $ 16,708,333 $ 19,423,013
Securities available-for-sale, at fair value
(amortized cost $418,343,084 and
$382,326,388) .............................. 429,175,916 405,758,798
Fixed maturity securities on loan:
Securities held-to-maturity, at amortized cost
(fair value $31,210,194 and $32,686,769) ... 30,042,475 30,422,335
Securities available-for-sale, at fair value
(amortized cost $95,186,307 and
$117,184,150) .............................. 95,823,261 118,026,960
Equity securities available-for-sale, at fair
value (cost $41,688,527 and $38,998,075) ..... 53,160,764 49,008,498
Other long-term investments, at cost ........... 5,535,133 4,758,019
Short-term investments, at cost ................ 61,689,723 63,568,064
------------ ------------
Total investments ..................... 692,135,605 690,965,687
Balances resulting from related party transactions
with Employers Mutual:
Reinsurance receivables ...................... 18,219,202 15,861,754
Prepaid reinsurance premiums ................. 3,705,503 3,297,228
Intangible asset, defined benefit
retirement plan ............................ 1,016,492 1,016,492
Other assets ................................. 2,692,559 1,857,284
Indebtedness of related party ................ 11,643,050 -
Cash ............................................. 54,270 (14,069,102)
Accrued investment income ........................ 8,182,567 7,821,652
Accounts receivable (net of allowance for
uncollectible accounts of $0 and $0) ........... 855,846 379,423
Income taxes recoverable ......................... 2,751,391 -
Deferred policy acquisition costs ................ 28,107,899 26,737,784
Deferred income taxes ............................ 14,304,125 10,345,429
Goodwill, at cost less accumulated amortization
of $2,616,234 and $2,616,234 ................... 941,586 941,586
Securities lending collateral .................... 130,530,274 154,556,758
------------ ------------
Total assets .......................... $915,140,369 $899,711,975
============ ============
LIABILITIES
Balances resulting from related party transactions
with Employers Mutual:
Losses and settlement expenses ............... $393,049,602 $367,923,881
Unearned premiums ............................ 131,468,678 124,832,607
Other policyholders' funds ................... 1,608,747 1,390,594
Surplus notes payable ........................ 36,000,000 36,000,000
Indebtedness to related party ................ - 2,175,118
Employee retirement plans .................... 9,472,736 9,965,600
Other liabilities ............................ 30,188,682 19,336,366
Income taxes payable ............................. - 2,780,500
Securities lending obligation .................... 130,530,274 154,556,758
------------ ------------
Total liabilities ......................... 732,318,719 718,961,424
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized 20,000,000
shares; issued and outstanding, 11,560,632
shares in 2004 and 11,501,065 shares in 2003 ... 11,560,632 11,501,065
Additional paid-in capital ....................... 70,409,648 69,113,228
Accumulated other comprehensive income ........... 14,912,315 22,285,668
Retained earnings ................................ 85,939,055 77,850,590
------------ ------------
Total stockholders' equity ................ 182,821,650 180,750,551
------------ ------------
Total liabilities and stockholders' equity $915,140,369 $899,711,975
============ ============
Segment Information
(UNAUDITED)
Property
Six Months Ended and Casualty Parent
June 30, 2004 Insurance Reinsurance Company Consolidated
- ----------------- ------------ ------------ ------------ ------------
Premiums earned ......... $123,569,319 $ 43,873,250 $ - $167,442,569
Underwriting (loss) gain (4,020,260) 3,395,888 - (624,372)
Net investment income ... 9,520,781 4,592,964 25,895 14,139,640
Other income ............ 341,591 - - 341,591
Interest expense ........ 386,250 169,950 - 556,200
Other expenses .......... 408,463 - 334,492 742,955
------------ ------------ ------------ ------------
Operating income
(loss) before income
tax expense (benefit) 5,047,399 7,818,902 (308,597) 12,557,704
Realized investment gains 2,742,033 839,602 - 3,581,635
------------ ------------ ------------ ------------
Income (loss) before
income tax expense
(benefit) ........... $ 7,789,432 $ 8,658,504 $ (308,597)$ 16,139,339
============ ============ ============ ============
Property
Six Months Ended and Casualty Parent
June 30, 2003 Insurance Reinsurance Company Consolidated
- ----------------- ------------ ------------ ------------ ------------
Premiums earned ......... $119,547,945 $ 42,811,721 $ - $162,359,666
Underwriting loss ....... (1,214,328) (604,269) - (1,818,597)
Net investment income ... 10,738,318 4,439,732 55,930 15,233,980
Other income ............ 432,158 - - 432,158
Interest expense ........ 533,112 230,954 - 764,066
Other expenses .......... 610,422 - 346,784 957,206
------------ ------------ ------------ ------------
Operating income
(loss) before income
tax expense (benefit) 8,812,614 3,604,509 (290,854) 12,126,269
Realized investment
losses ............... (943,531) (219,670) - (1,163,201)
------------ ------------ ------------ ------------
Income (loss) before
income tax expense
(benefit) ........... $ 7,869,083 $ 3,384,839 $ (290,854)$ 10,963,068
============ ============ ============ ============
June 30,
Other data: 2004 2003
- --------------------------------------------------------------------
(UNAUDITED)
Book Value Per Share .............. $15.81 $14.93
Price to Book Value ............... 1.49x 1.24x
Common stock price:
High ......................... $25.51 $20.85
Low .......................... $19.11 $18.00
Close ........................ $23.64 $18.53
Effective tax rate ................ 26.8% 28.2%
Statutory surplus* as regards
policyholders-insurance
subsidiaries (in thousands) ..... $178,737 $153,626
Annualized Data
- -----------------------------------
Net income as a percent of
beginning stockholders' equity .. 13.1% 10.0%
Average ROE ....................... 13.0% 9.6%
P/E Multiple (price/last 4 qtrs) .. 11.2x 12.2x
* Statutory data rather than GAAP. However, this data is prepared in
accordance with statutory accounting rules as defined by the National
Association of Insurance Commissioners' Accounting Practices and Procedures
Manual. Consequently, no reconciliation to GAAP is required by the SEC's
Regulation G.