EXHIBIT 99
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EMC INSURANCE GROUP INC. ANNOUNCES
RESTATED 2004 THIRD QUARTER AND
NINE MONTH RESULTS
RESTATED FINANCIAL HIGHLIGHTS
Third Quarter 2004
Operating Income(1) Per Share -- $0.10
Net Income Per Share -- $0.16
Nine Months Ended September 30, 2004
Operating Income(1) Per Share -- $0.92
Net Income Per Share -- $1.18
DES MOINES, Iowa (October 29, 2004) - EMC Insurance Group Inc.
(Nasdaq/NM:EMCI) today announced restated earnings for the third quarter and
nine months ended September 30, 2004 due to an error in the calculation of
investment income for the third quarter of 2004. This error was caused by an
overstatement of accrued interest income on one municipal fixed maturity
security. The restatement resulted in a reduction of $441,000 in the
previously reported third quarter investment income and a reduction of
$418,000 ($0.04 per share) in the previously reported third quarter net
income. The overstatement of accrued interest income was caused by a manual
input error on the yield of this one security. The Company currently out-
sources the investment accounting function, but will be bringing this
function in-house effective January 1, 2005.
Operating income was $0.10 per share for the third quarter ended
September 30, 2004 compared to operating income of $0.49 per share for the
third quarter of 2003(1). Operating income for the nine months ended
September 30, 2004 was $0.92 per share compared to $1.25 per share for the
same period in 2003.
Net income, including realized investment gains, was $1,858,000 ($0.16
per share) for the third quarter of 2004 compared to $6,382,000 ($0.56 per
share) for the third quarter of 2003. Net income for the nine months ended
September 30, 2004 was $13,673,000 ($1.18 per share) compared to $14,258,000
($1.25 per share) for the same period in 2003.
Net book value of the Company's stock as of September 30, 2004 was
$16.43 per share, compared to $15.72 per share at December 31, 2003.
The remaining narrative of this release restates the information contained in
the October 28, 2004 release.
_____________________________________________________________________________
As reported on October 8, 2004, third quarter results were adversely
affected by four hurricanes that hit the Southern United States in August and
September. The Company's reinsurance segment had exposure to all four
hurricanes and reached its $1.5 million cap on losses assumed per occurrence
on each of them. Hurricane losses in the property and casualty insurance
segment, the majority of which are associated with damage caused by Hurricane
Ivan in the Gulf States, totaled $2.4 million. Total losses associated with
these four hurricanes amounted to $8.4 million. On an after-tax basis, these
hurricane losses reduced third quarter earnings by $5.5 million or $0.47 per
share.
Total catastrophe and storm losses for the Company increased
significantly to $10,790,000 ($0.61 per share after tax) in the third quarter
of 2004 from $8,703,000 ($0.49 per share after tax) in the third quarter of
2003. For the first nine months of 2004, catastrophe and storm losses
totaled $19,002,000 ($1.07 per share after tax) compared to $20,131,000
($1.14 per share after tax) for the same period in 2003.
As reported on September 27, 2004, the Company strengthened its prior
years' reserves during the third 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 $588,000
and reduced third quarter earnings by $382,000 ($0.03 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.
Adverse development on prior years' reserves totaled $2,512,000 in the
third quarter of 2004 compared to favorable development of $1,437,000 in the
third quarter of 2003. For the first nine months of 2004, adverse
development on prior years' reserves totaled $4,719,000 compared to adverse
development of $2,726,000 for the same period in 2003.
"The property and casualty insurance industry has been severely impacted
by the four hurricanes that hit the Southern United States during the third
quarter," stated President and CEO Bruce G. Kelley. "Industry-wide losses are
expected to exceed those of Hurricane Andrew, which cost the industry $22
billion in 1992. Although these hurricanes impacted our third quarter results
more than we would have liked, we were able to limit our losses in the
reinsurance segment to $1.5 million per storm under the terms of the quota
share agreement with Employers Mutual Casualty Company. The adverse reserve
development experienced in 2004 is primarily the result of steps taken to
ensure that our reserves are adequate. Significant reserve strengthening has
occurred and we believe that appropriate actions have been taken to address
this issue."
Premiums earned increased 4.0 percent to $87,588,000 for the three
months ended September 30, 2004 from $84,210,000 for the same period in 2003.
For the nine months ended September 30, 2004, premiums earned increased 3.4
percent to $255,031,000 from $246,570,000 for the same period in 2003. These
increases are primarily attributed to rate increases implemented during the
last few 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 stable during
the third 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 impact of these rate increases is expected to
be smaller than those implemented during the recent past.
The Company's GAAP combined ratio was 107.6 percent in the third quarter
of 2004 compared to 98.6 percent in the third quarter of 2003. For the first
nine months of 2004, the GAAP combined ratio was 102.8 percent compared to
100.3 percent for the same period in 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 Nine months ended
September 30, September 30,
----------------------- -------------------------
2004 2003 2004 2003
----------- ----------- ------------ ------------
Premiums earned ............$87,587,991 $84,210,207 $255,030,560 $246,569,873
Net investment income ...... 7,683,052 7,013,882 21,822,692 22,247,862
Other income ............... 136,227 195,993 477,818 628,151
----------- ----------- ------------ ------------
Total revenues ............. 95,407,270 91,420,082 277,331,070 269,445,886
Losses and expenses ........ 94,813,638 83,671,446 264,179,734 249,570,981
----------- ----------- ------------ ------------
Operating income before
income tax (benefit)
expense ................ 593,632 7,748,636 13,151,336 19,874,905
Income tax (benefit) expense (583,551) 2,129,748 2,487,184 5,624,066
----------- ----------- ------------ ------------
Operating income after
income tax (benefit)
expense .................. 1,177,183 5,618,888 10,664,152 14,250,839
----------- ----------- ------------ ------------
Realized investment gains .. 1,048,118 1,174,178 4,629,753 10,977
Income tax expense ......... 366,841 410,962 1,620,414 3,842
----------- ----------- ------------ ------------
Net realized investment
gains .................. 681,277 763,216 3,009,339 7,135
----------- ----------- ------------ ------------
Net income .............$ 1,858,460 $ 6,382,104 $ 13,673,491 $ 14,257,974
=========== =========== ============ ============
Operating income per share
- - basic and diluted ........$ 0.10 $ 0.49 $ 0.92 $ 1.25
=========== =========== ============ ============
Net income per share
- - basic and diluted ........$ 0.16 $ 0.56 $ 1.18 $ 1.25
=========== =========== ============ ============
Dividend per share .........$ 0.15 $ 0.15 $ 0.45 $ 0.45
=========== =========== ============ ============
Average number of shares
outstanding
- - basic and diluted ........ 11,561,870 11,471,458 11,547,544 11,439,176
=========== =========== ============ ============
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
September 30, ................ 76,232,406 73,490,595
----------- ------------
Year to date: ..................$203,376,393 $198,639,635
============ ============
Reinsurance:
Three Months ended:
March 31,.....................$ 24,500,287 $ 23,301,452
June 30, ..................... 22,019,240 22,160,253
September 30, ................ 23,793,866 22,159,616
----------- ------------
Year to date: ..................$ 70,313,393 $ 67,621,321
============ ============
Total:
Three Months ended:
March 31,.....................$ 84,683,818 $ 83,324,074
June 30, ..................... 88,979,696 87,286,671
September 30, ................ 100,026,272 95,650,211
----------- ------------
Year to date: ..................$273,689,786 $266,260,956
============ ============
Consolidated Balance Sheet
September 30, December 31,
2004 2003
ASSETS ------------ ------------
Investments: (UNAUDITED)
Fixed maturities:
Securities held-to-maturity, at amortized cost
(fair value $16,541,150 and $21,167,655) ... $ 15,454,308 $ 19,423,013
Securities available-for-sale, at fair value
(amortized cost $470,364,157 and
$382,326,388) .............................. 492,665,562 405,758,798
Fixed maturity securities on loan:
Securities held-to-maturity, at amortized cost
(fair value $23,925,936 and $32,686,769) ... 23,064,082 30,422,335
Securities available-for-sale, at fair value
(amortized cost $68,298,857 and
$117,184,150) .............................. 68,696,468 118,026,960
Equity securities available-for-sale, at fair
value (cost $42,105,590 and $38,998,075) ..... 53,037,428 49,008,498
Other long-term investments, at cost ........... 5,233,448 4,758,019
Short-term investments, at cost ................ 49,334,579 63,568,064
------------ ------------
Total investments ..................... 707,485,875 690,965,687
Balances resulting from related party transactions
with Employers Mutual:
Reinsurance receivables ...................... 18,907,928 15,861,754
Prepaid reinsurance premiums ................. 4,068,335 3,297,228
Intangible asset, defined benefit
retirement plan ............................ 1,016,492 1,016,492
Other assets ................................. 2,915,555 1,857,284
Indebtedness of related party ................ 21,332,660 -
Cash ............................................. 139,137 (14,069,102)
Accrued investment income ........................ 8,009,927 7,821,652
Accounts receivable (net of allowance for
uncollectible accounts of $0 and $0) ........... 352,243 379,423
Income taxes recoverable ......................... 2,377,884 -
Deferred policy acquisition costs ................ 30,821,003 26,737,784
Deferred income taxes ............................ 11,018,838 10,345,429
Goodwill, at cost less accumulated amortization
of $2,616,234 and $2,616,234 ................... 941,586 941,586
Securities lending collateral .................... 95,076,692 154,556,758
------------ ------------
Total assets .......................... $904,464,155 $899,711,975
============ ============
LIABILITIES
Balances resulting from related party transactions
with Employers Mutual:
Losses and settlement expenses ............... $408,575,101 $367,923,881
Unearned premiums ............................ 144,163,805 124,832,607
Other policyholders' funds ................... 2,094,794 1,390,594
Surplus notes payable ........................ 36,000,000 36,000,000
Indebtedness to related party ................ - 2,175,118
Employee retirement plans .................... 10,051,235 9,965,600
Other liabilities ............................ 18,559,689 19,336,366
Income taxes payable ............................. - 2,780,500
Securities lending obligation .................... 95,076,692 154,556,758
------------ ------------
Total liabilities ......................... 714,521,316 718,961,424
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized 20,000,000
shares; issued and outstanding, 11,563,694
shares in 2004 and 11,501,065 shares in 2003 ... 11,563,694 11,501,065
Additional paid-in capital ....................... 70,468,709 69,113,228
Accumulated other comprehensive income ........... 21,860,055 22,285,668
Retained earnings ................................ 86,050,381 77,850,590
------------ ------------
Total stockholders' equity ................ 189,942,839 180,750,551
------------ ------------
Total liabilities and stockholders' equity $904,464,155 $899,711,975
============ ============
Segment Information
(UNAUDITED)
Property
Nine Months Ended and Casualty Parent
September 30, 2004 Insurance Reinsurance Company Consolidated
- ------------------ ------------ ------------ ------------ ------------
Premiums earned ......... $186,908,651 $ 68,121,909 $ - $255,030,560
Underwriting (loss) gain (13,553,017) 6,293,346 - (7,259,671)
Net investment income ... 14,841,998 6,922,873 57,821 21,822,692
Other income ............ 477,818 - - 477,818
Interest expense ........ 579,375 254,925 - 834,300
Other expenses .......... 580,422 - 474,781 1,055,203
------------ ------------ ------------ ------------
Operating income
(loss) before income
tax expense (benefit) 607,002 12,961,294 (416,960) 13,151,336
Realized investment gains 3,527,524 1,102,229 - 4,629,753
------------ ------------ ------------ ------------
Income (loss) before
income tax expense
(benefit) ........... $ 4,134,526 $ 14,063,523 $ (416,960)$ 17,781,089
============ ============ ============ ============
Property
Nine Months Ended and Casualty Parent
September 30, 2003 Insurance Reinsurance Company Consolidated
- ------------------ ------------ ------------ ------------ ------------
Premiums earned ......... $180,870,135 $ 65,699,738 $ - $246,569,873
Underwriting (loss) gain (5,946,040) 5,280,747 - (665,293)
Net investment income ... 15,619,265 6,608,422 20,175 22,247,862
Other income ............ 628,151 - - 628,151
Interest expense ........ 726,237 315,929 - 1,042,166
Other expenses .......... 811,645 - 482,004 1,293,649
------------ ------------ ------------ ------------
Operating income
(loss) before income
tax expense (benefit) 8,763,494 11,573,240 (461,829) 19,874,905
Realized investment gains
(losses) ............. 114,645 (103,668) - 10,977
------------ ------------ ------------ ------------
Income (loss) before
income tax expense
(benefit) ........... $ 8,878,139 $ 11,469,572 $ (461,829)$ 19,885,882
============ ============ ============ ============
September 30,
Other data: 2004 2003
- --------------------------------------------------------------------
(UNAUDITED)
Book Value Per Share .............. $16.43 $15.13
Price to Book Value ............... 1.28x 1.17x
Common stock price ................ $21.01 $17.66
Effective tax rate ................ 23.1% 28.3%
Statutory surplus* as regards
policyholders-insurance
subsidiaries (in thousands) ..... $178,307 $159,486
Annualized Data
- -----------------------------------
Net income as a percent of
beginning stockholders' equity .. 10.1% 12.1%
Average ROE ....................... 9.8% 11.5%
P/E Multiple (price/last 4 qtrs) .. 12.3x 10.4x
* 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
Security and Exchange Commission's Regulation G.