EXHIBIT 99
----------
EMC INSURANCE GROUP INC. REPORTS
2005 FIRST QUARTER RESULTS
First Quarter 2005
Net Income Per Share -- $0.77
Net Operating Income Per Share -- $0.74
GAAP Combined Ratio - 94.6%
DES MOINES, Iowa (April 27, 2005) - EMC Insurance Group Inc.
(Nasdaq/NM:EMCI) today reported record operating income of $0.74 per share
for the first quarter ended March 31, 2005 compared to operating income of
$0.70 per share for the first quarter of 2004(1). Net income, including
realized investment gains/losses, was $10,503,000 ($0.77 per share) for the
first quarter of 2005 compared to $8,349,000 ($0.72 per share) for the first
quarter of 2004.
"We are pleased to report a record-breaking quarter," stated President
and CEO Bruce G. Kelley. "We experienced favorable development on our prior
years' reserves and our current overall premium rate level continues to be
adequate. However, there are indications of increased rate competition
and we must adhere to our goal of achieving profitability over production.
Achieving an underwriting profit is always stressed, but has become even more
critical in this lingering low interest rate environment."
Premiums earned increased 21.4 percent to $101,294,000 for the three
months ended March 31, 2005 from $83,458,000 for the same period in 2004. The
majority of this increase is attributed to a 6.5 percentage point increase in
the Company's aggregate participation percentage in the EMC Insurance
Companies pooling arrangement that became effective January 1, 2005. As a
result of this increase, the Company's aggregate participation in the pooling
arrangement increased from 23.5 percent to 30.0 percent. The increase in
premiums earned also reflects the impact of rate increases that were
implemented in the property and casualty insurance business during 2004. On
an overall basis, rate competition increased moderately in the property and
casualty insurance marketplace during the first quarter of 2005. However,
there were indications of more intense rate competition in select territories
and lines of business and the Company expects market conditions to remain
competitive for the remainder of the year. The Company will continue to
implement rate increases in those lines of business and/or territories where
such action is warranted, but the overall level of these rate increases is
expected to be smaller than those implemented during 2004.
Investment income increased 22.8 percent to $8,932,000 for the three
months ended March 31, 2005 from $7,274,000 for the same period in 2004. This
increase is primarily attributed to additional interest income earned on
$108,076,000 of cash received from Employers Mutual Casualty Company in the
first quarter of 2005 in connection with the change in the pooling
arrangement and the $34,890,000 of net proceeds received in October 2004 from
the Company's follow-on stock offering.
Catastrophe and storm losses more than doubled to $2,625,000 ($0.13 per
share after tax) in the first quarter of 2005 from $1,015,000 ($0.06 per share
after tax) in the first quarter of 2004. Approximately $382,000 of this
increase is associated with the increased participation in the pooling
arrangement; however, the majority of the increase is attributed to European
storm losses experienced in the reinsurance segment.
The Company's GAAP combined ratio was 94.6 percent in the first quarter
of 2005 compared to 93.8 percent in the first quarter of 2004.
At March 31, 2005, consolidated assets reached $1.0 billion, including
$.9 billion in the investment portfolio; stockholders' equity was $232.7
million; and net book value of the Company's stock was $17.11 per share, an
increase of 1.6 percent from $16.84 per share at December 31, 2004.
The Company has elected to delay the expensing of stock options in
accordance with Statement of Financial Accounting Standards No. 123 (revised
2004), "Share-Based Payment", until the first quarter of 2006 as permitted by
the Securities and Exchange Commission's announcement on April 14, 2005.
While first quarter results were very strong and well above the range of
analysts' estimates, management believes it is premature to adjust 2005 core
earnings guidance of $2.15 to $2.40 per share.
The Company will host an earnings call in conjunction with today's
release. The teleconference will begin at 11:00 a.m. eastern daylight time,
April 28, 2005. Dial-in information for the call is toll-free 1-877-407-8035.
The event will be archived and available for digital replay through May 5,
2005. The replay access information is toll-free 1-877-660-6853; account
number 286; conference ID number 148746. A webcast of the teleconference will
be archived by Vcall and can be accessed from the Company's investor relations
page at www.emcinsurance.com or at www.Vcall.com after 1:00 p.m. eastern
daylight time on April 28, 2005. The archived webcast will be available for
one year. A transcript of the teleconference will also be available on the
Company's website shortly after the completion of the teleconference.
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 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 our industry, interest rates or the
performance of financial markets and the general economy; rating 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 Consolidated Statements of Income 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.
CONSOLIDATED STATEMENT OF INCOME - UNAUDITED
Property
Quarter Ended and Casualty Parent
March 31,2005 Insurance Reinsurance Company Consolidated
- -----------------------------------------------------------------------------
Revenues:
Premiums earned ..... $ 79,718,272 $ 21,575,798 $ - $ 101,294,070
Investment income,
net ............... 6,341,481 2,495,277 94,952 8,931,710
Other income ........ 96,096 - - 96,096
------------ ------------ ------------ --------------
86,155,849 24,071,075 94,952 110,321,876
------------ ------------ ------------ --------------
Losses and expenses:
Losses and settlement
expenses .......... 47,130,911 15,712,097 - 62,843,008
Dividends to
policyholders ..... 1,550,859 - - 1,550,859
Amortization of
deferred policy
acquisition costs 18,214,990 4,271,721 - 22,486,711
Other underwriting
expenses .......... 7,617,038 1,283,038 - 8,900,076
Interest expense .... 193,125 84,975 - 278,100
Other expenses ...... 171,329 - 234,801 406,130
------------ ------------ ------------ --------------
74,878,252 21,351,831 234,801 96,464,884
------------ ------------ ------------ --------------
Operating income
(loss) before
income taxes .... 11,277,597 2,719,244 (139,849) 13,856,992
------------ ------------ ------------ --------------
Realized investment
gain (loss) ......... 867,114 (138,672) - 728,442
------------ ------------ ------------ --------------
Income (loss)
before income
taxes ........... 12,144,711 2,580,572 (139,849) 14,585,434
------------ ------------ ------------ --------------
Income tax expense
(benefit):
Current ........... 5,426,166 121,308 (69,081) 5,478,393
Deferred .......... (1,856,022) 441,481 18,986 (1,395,555)
------------ ------------ ------------ --------------
3,570,144 562,789 (50,095) 4,082,838
------------ ------------ ------------ --------------
Net income (loss) $ 8,574,567 $ 2,017,783 $ (89,754)$ 10,502,596
============ ============ ============ ==============
Average shares
outstanding ......... 13,585,110
Per Share Data:
- ---------------
Net income per share
- basic and diluted $ 0.63 $ 0.15 $ (0.01)$ 0.77
(Increase) decrease
in provision for
insured events of
prior years (after
tax) .............. $ 0.31 $ (0.03)$ - $ 0.28
Catastrophe and storm
losses (after tax) $ (0.09)$ (0.04)$ - $ (0.13)
Dividends per share $ 0.15
Book value per share $ 17.11
Effective tax rate .... 28.0%
Net income (loss) as a
percent of beg. SH
equity (annualized) 18.4%
Other Information of
Interest:
- --------------------
Increase (decrease)
in provision for
insured events of
prior years ....... $ (6,593,093)$ 706,770 $ - $ (5,886,323)
Catastrophe and storm
losses ............ $ 1,763,717 $ 861,585 $ - $ 2,625,302
GAAP Combined Ratio:
Loss Ratio .......... 59.1% 72.8% - 62.0%
Expense Ratio ....... 34.4% 25.8% - 32.6%
------------ ------------ ------------ --------------
93.5% 98.6% - 94.6%
============ ============ ============ ==============
Property
Quarter Ended and Casualty Parent
March 31, 2004 Insurance Reinsurance Company Consolidated
- -----------------------------------------------------------------------------
Revenues:
Premiums earned ..... $ 61,360,228 $ 22,098,054 $ - $ 83,458,282
Investment income,
net ............... 4,966,371 2,295,483 12,123 7,273,977
Other income ........ 76,479 - - 76,479
------------ ------------ ------------ --------------
66,403,078 24,393,537 12,123 90,808,738
------------ ------------ ------------ --------------
Losses and expenses:
Losses and settlement
expenses .......... 36,395,142 14,566,035 - 50,961,177
Dividends to
policyholders ..... 768,042 - - 768,042
Amortization of
deferred policy
acquisition costs 13,839,758 4,579,769 - 18,419,527
Other underwriting
expenses .......... 6,316,937 1,778,384 - 8,095,321
Interest expense .... 193,125 84,975 - 278,100
Other expenses ...... 180,397 - 143,341 323,738
------------ ------------ ------------ --------------
57,693,401 21,009,163 143,341 78,845,905
------------ ------------ ------------ --------------
Operating income
(loss) before
income taxes .... 8,709,677 3,384,374 (131,218) 11,962,833
------------ ------------ ------------ --------------
Realized investment
gain ................ 289,967 110,560 - 400,527
------------ ------------ ------------ --------------
Income (loss)
before income
taxes ........... 8,999,644 3,494,934 (131,218) 12,363,360
------------ ------------ ------------ --------------
Income tax expense
(benefit):
Current ........... 3,275,482 787,151 (252,149) 3,810,484
Deferred .......... (268,873) 266,430 206,224 203,781
------------ ------------ ------------ --------------
3,006,609 1,053,581 (45,925) 4,014,265
------------ ------------ ------------ --------------
Net income (loss) $ 5,993,035 $ 2,441,353 $ (85,293)$ 8,349,095
============ ============ ============ ==============
Average shares
outstanding ......... 11,522,643
Per Share Data:
- ---------------
Net income per share
- basic and diluted $ 0.52 $ 0.21 $ (0.01)$ 0.72
Decrease in provision
for insured events
of prior years
(after tax) ....... $ 0.19 $ 0.02 $ - $ 0.21
Catastrophe and storm
losses (after tax) $ (0.05)$ (0.01)$ - $ (0.06)
Dividends per share $ 0.15
Book value per share $ 16.58
Effective tax rate .... 32.5%
Net income (loss) as a
percent of beg. SH
equity (annualized) 18.5%
Other Information of
Interest:
- --------------------
Decrease in provision
for insured events
of prior years .... $ (3,424,903)$ (364,748)$ - $ (3,789,651)
Catastrophe and storm
losses ............ $ 870,174 $ 144,543 $ - $ 1,014,717
GAAP Combined Ratio:
Loss Ratio .......... 59.3% 65.9% - 61.1%
Expense Ratio ....... 34.1% 28.8% - 32.7%
------------ ------------ ------------ --------------
93.4% 94.7% - 93.8%
============ ============ ============ ==============
NET WRITTEN PREMIUMS
Percent of
Increase/(Decrease)
Percent of Net in Net Written
Written Premium (a) Premiums (a)
------------------ ------------------
Property and Casualty
Insurance
Commercial Lines:
Automobile .................. 18.5% 2.7%
Liability ................... 16.9% 7.1%
Property .................... 14.0% (1.7%)
Workers' Compensation ....... 14.2% (3.1%)
Other ....................... 1.6% 30.4%
--------
Total ..................... 65.2% 0.4%
Personal Lines:
Automobile .................. 7.8% (13.3%)
Property .................... 4.9% (5.5%)
Liability ................... 0.2% 7.0%
--------
Total ..................... 12.9% (10.3%)
Reinsurance .................... 21.9% (13.3%)
--------
Total ..................... 100.0%
(a) Excludes portfolio adjustment of $29,630,612 related to the change in the
Company's aggregate participation in the pooling arrangement.
CONSOLIDATED BALANCE SHEETS - UNAUDITED
March 31, December 31,
2005 2004
-------------- ------------
ASSETS
Investments:
Fixed maturities:
Securities held-to-maturity, at amortized
cost (fair value $17,720,250 and
$16,908,726) ............................. $ 16,893,257 $ 15,895,607
Securities available-for-sale, at fair value
(amortized cost $693,107,458 and
$541,401,950) ............................. 709,388,705 565,000,931
Fixed maturity securities on loan:
Securities held-to-maturity, at amortized
cost (fair value $3,299,513 and
$13,684,880) ............................. 3,164,466 13,310,264
Securities available-for-sale, at fair value
(amortized cost $1,366,976 and
$54,389,046) ............................ 1,524,960 54,653,472
Equity securities available-for-sale, at fair
value (cost $60,570,541 and $59,589,434) ... 79,854,556 78,692,893
Other long-term investments, at cost ......... 5,541,923 5,550,093
Short-term investments, at cost .............. 85,339,244 46,238,853
-------------- ------------
Total investments ........................ 901,707,111 779,342,113
Balances resulting from related party
transactions with Employers Mutual:
Reinsurance receivables ................... 33,196,375 26,316,358
Prepaid reinsurance premiums .............. 4,768,035 3,682,676
Deferred policy acquisition costs ......... 33,668,539 27,940,583
Defined benefit retirement plan, prepaid
asset ................................... 2,819,822 2,684,463
Other assets .............................. 9,572,170 1,877,564
Cash ........................................... 118,753 61,088
Accrued investment income ...................... 8,341,383 8,726,292
Accounts receivable (net of allowance for
uncollectible accounts of $0 and $0) ......... 201,605 216,836
Income taxes recoverable ....................... - 3,399,485
Deferred income taxes .......................... 13,435,017 9,504,193
Goodwill, at cost less accumulated amortization
of $2,616,234 and $2,616,234 ................. 941,586 941,586
Securities lending collateral .................. 5,012,693 70,122,695
-------------- ------------
Total assets ............................ $1,013,783,089 $934,815,932
============== ============
LIABILITIES
Balances resulting from related party
transactions with Employers Mutual:
Losses and settlement expenses ........... $ 520,249,140 $429,677,302
Unearned premiums ........................ 158,695,371 131,589,365
Other policyholders' funds ............... 3,977,424 2,825,809
Surplus notes payable .................... 36,000,000 36,000,000
Indebtedness to related party ............ 1,889,490 6,058,848
Employee retirement plans ................ 12,716,691 9,764,406
Other liabilities ........................ 38,326,255 20,304,475
Income taxes payable ........................... 4,265,930 -
Securities lending obligation .................. 5,012,693 70,122,695
-------------- ------------
Total liabilities ...................... 781,132,994 706,342,900
-------------- ------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value,
authorized 20,000,000 shares;
issued and outstanding, 13,595,398 shares
in 2005 and 13,568,945 shares in 2004 ........ 13,595,398 13,568,945
Additional paid-in capital ..................... 103,969,027 103,467,293
Accumulated other comprehensive income ......... 23,220,109 27,928,463
Retained earnings .............................. 91,865,561 83,508,331
-------------- ------------
Total stockholders' equity ............... 232,650,095 228,473,032
-------------- ------------
Total liabilities and stockholders' equity $1,013,783,089 $934,815,932
============== ============
The Company had total cash and invested assets with a carrying value of
$901.8 million and $779.4 million as of March 31, 2005 and December 31, 2004,
respectively. The following table summarizes the Company's cash and invested
assets as of the dates indicated:
Percent of
($ in thousands) Amortized Total at Carrying
March 31, 2005 Cost Fair Value Fair Value Value
- ------------------- --------- ---------- ---------- --------
Fixed maturities,
held-to-maturity .... $ 20,058 $ 21,020 2.3% $ 20,058
Fixed maturities,
available-for-sale .. 694,474 710,914 78.8% 710,914
Equity securities,
available-for-sale .. 60,571 79,855 8.8% 79,855
Cash .................. 119 119 - 119
Short-term investments 85,339 85,339 9.5% 85,339
Other long-term
investments ......... 5,542 5,542 0.6% 5,542
-------- -------- ----- --------
$866,103 $902,789 100.0% $901,827
======== ======== ===== ========
Percent of
Amortized Total at Carrying
December 31, 2004 Cost Fair Value Fair Value Value
- ------------------- --------- ---------- ---------- --------
Fixed maturities,
held-to-maturity .... $ 29,206 $ 30,594 3.9% $ 29,206
Fixed maturities,
available-for-sale .. 595,791 619,654 79.4% 619,654
Equity securities,
available-for-sale .. 59,589 78,693 10.1% 78,693
Cash .................. 61 61 - 61
Short-term investments 46,239 46,239 5.9% 46,239
Other long-term
investments ......... 5,550 5,550 0.7% 5,550
-------- -------- ----- --------
$736,436 $780,791 100.0% $779,403
======== ======== ===== ========
The amortized cost and estimated fair value of fixed maturity and equity
securities at March 31, 2005 were as follows:
Held-to maturity
----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
($ in thousands) cost gains losses value
--------- ---------- ---------- ---------
U.S. treasury securities and
obligations of U.S.
government corporations
and agencies ............. $ 19,031 $ 877 $ - $ 19,908
Mortgage-backed securities 1,027 85 - 1,112
--------- ---------- ---------- ---------
Total securities
held-to-maturity ..... $ 20,058 $ 962 $ - $ 21,020
========= ========== ========== =========
Available-for sale
----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
U.S. treasury securities and
obligations of U.S.
government corporations
and agencies ............. $ 273,088 $ 138 $ 1,037 $ 272,189
Obligations of states and
political subdivisions ... 255,293 8,660 452 263,501
Mortgage-backed securities 10,893 588 - 11,481
Public utilities ........... 9,196 1,054 - 10,250
Debt securities issued by
foreign governments ...... 7,145 149 - 7,294
Corporate securities ....... 138,859 8,094 754 146,199
---------- ---------- ---------- ---------
Total fixed maturity
securities ........... 694,474 18,683 2,243 710,914
---------- ---------- ---------- ---------
Equity securities
Common stocks ............ 60,071 19,887 619 79,339
Non-redeemable preferred
stocks ................. 500 16 - 516
---------- ---------- ---------- ---------
Total equity securities .. 60,571 19,903 619 79,855
---------- ---------- ---------- ---------
Total securities
available-for-sale $ 755,045 $ 38,586 $ 2,862 $ 790,769
========== ========== ========== =========