UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1994
----------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM to
------------------ ---------------------
Commission File Number: 0-10956
-------------
EMC INSURANCE GROUP INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Iowa 42-6234555
- - ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 Mulberry Street, Des Moines, Iowa 50309
- - --------------------------------------- ------------------
(Address of principal executive office) (Zip Code)
(515) 280-2581
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at July 31, 1994
----- -------------------------------
Common stock, $1.00 par value 10,459,453
----------
Total pages 16
------
1
PART I. FINANCIAL INFORMATION
- - ------- ---------------------
Item 1. Financial Statements
- - ------- ---------------------
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
1994 1993
------------ ------------
(Unaudited)
ASSETS
Investments:
Fixed maturities:
Securities held-to-maturity, at amortized cost
(market value $217,605,799 and $206,305,597) $211,290,244 $191,010,623
Securities available-for-sale, at market value
(amortized cost $109,577,394 and
$109,947,564) ............................. 110,000,664 113,081,580
Equity securities available-for-sale, at market
ities available-for-sale, at market
value (cost $0 and $505,000) ................. - 475,000
------------ ------------
Total investments ..................... 321,290,908 304,567,203
Cash ............................................. 732,058 675,203
Indebtedness of related party .................... 3,058,287 12,291,512
Accrued investment income ........................ 4,752,997 4,835,451
Accounts receivable .............................. 706,244 415,215
Deferred policy acquisition costs ................ 8,284,639 7,698,864
Deferred income taxes ............................ 14,161,964 13,040,693
Intangible assets, including goodwill, at cost
less accumulated amortization of $1,607,386
and $1,540,130 ................................. 1,950,434 2,017,690
Reinsurance receivables .......................... 18,222,680 18,477,406
Prepaid reinsurance premiums ..................... 2,786,226 2,832,184
Other assets ..................................... 2,176,299 2,084,102
------------ ------------
Total assets .......................... $378,122,736 $368,935,523
============ ============
See accompanying Notes to Interim Consolidated Financial Statements.
2
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
SURANCE GROUP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
1994 1993
------------ ------------
(Unaudited)
LIABILITIES
Losses and settlement expenses ................... $202,973,133 $197,121,852
Unearned premiums ................................ 47,399,396 45,941,056
Other policyholders' funds ....................... 3,260,844 2,854,793
Income taxes payable ............................. 1,013,025 550,000
Postretirement benefits .......................... 3,824,786 3,537,449
Deferred income .................................. 1,487,710 1,717,641
Other liabilities ................................ 5,682,659 7,578,963
------------ ------------
Total liabilities ............................ 265,641,553 259,301,754
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized 20,000,000
shares; issued and outstanding, 10,454,897
issued and outstanding, 10,454,897
shares in 1994 and 10,325,329 shares in 1993 ... 10,454,897 10,325,329
Additional paid-in capital ....................... 56,081,151 55,021,926
Unrealized holding gains on fixed maturity
securities available-for-sale, net of tax....... 279,358 2,068,451
Unrealized holding losses on equity securities
available-for-sale, net of tax ................. - (19,800)
Retained earnings ................................ 45,747,163 42,319,249
Treasury stock, at cost (8,090 shares in 1994
and 1993) ...................................... (81,386) (81,386)
------------ ------------
Total stockholders' equity ................... 112,481,183 109,633,769
------------ ------------
Total liabilities and
stockholders' equity ....................... $378,122,736 $368,935,523
============ ============
See accompanying Notes to Interim Consolidated Financial Statements.
3
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
REVENUES:
Premiums earned ........... $39,496,469 $39,982,544 $79,805,384 $76,935,240
Investment income, net .... 5,041,213 5,361,033 9,966,790 10,736,802
Realized investment gains 99,445 137,076 406,649 178,002
Other income .............. 111,250 - 229,931 -
----------- ----------- ----------- -----------
44,748,377 45,480,653 90,408,754 87,850,044
----------- ----------- ----------- -----------
LOSSES AND EXPENSES:
Losses and settlement
expenses ................ 27,493,983 31,773,122 58,079,881 58,975,806
Dividends to policyholders 372,199 678,266 1,402,355 1,261,995
Amortization of deferred
policy acquisition costs 7,779,174 9,233,947 15,066,701 16,893,360
Other underwriting expenses 3,995,141 3,319,256 7,692,166 6,867,677
----------- ----------- ----------- -----------
39,640,497 45,004,591 82,241,103 83,998,838
----------- ----------- ----------- -----------
Income before income taxes
and cumulative effect of
changes in accounting
principles ............. 5,107,880 476,062 8,167,651 3,851,206
----------- ----------- ----------- -----------
INCOME TAXES:
Current ................... 1,133,432 (901,800) 2,255,182 218,832
Deferred .................. 154,705 (61,826) (209,818) 79,747
----------- ----------- ----------- -----------
1,288,137 (963,626) 2,045,364 298,579
----------- ----------- ----------- -----------
Income before cumulative
effect of changes in
accounting principles... 3,819,743 1,439,688 6,122,287 3,552,627
CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING
PRINCIPLES FOR:
Income taxes ............ - - - 5,595,177
Postretirement benefits - - - (2,165,900)
Unearned premiums ....... - - - (807,933)
----------- ----------- ----------- -----------
Net income .......... $ 3,819,743 $ 1,439,688 $ 6,122,287 $ 6,173,971
=========== =========== =========== ===========
See accompanying Notes to Interim Consolidated Financial Statements.
4
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Income, Continued
(Unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
EARNINGS PER COMMON SHARE:
Income before cumulative
effect of changes in
accounting principles..... $.37 $.14 $.59 $.35
Cumulative effect of
changes in accounting
principles for:
Income taxes ........... - - - .55
Postretirement benefits - - - (.21)
Unearned premiums ...... - - - (.08)
----------- ----------- ----------- -----------
Net income ........... $.37 $.14 $.59 $.61
=========== =========== =========== ===========
Cash dividend per common share $.13 $.13 $.26 $.26
=========== =========== =========== ===========
Average number of
shares outstanding ......... 10,396,080 10,176,042 10,366,131 10,146,614
=========== =========== =========== ===========
See accompanying Notes to Interim Consolidated Financial Statements.
5
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
June 30,
--------------------------
1994 1993
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................... $ 6,122,287 $ 6,173,971
------------ ------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Cumulative effect of changes in accounting
principles, net of tax .................. - (2,621,344)
Losses and settlement expenses ............ 5,851,281 1,707,799
Unearned premiums ......................... 1,458,340 692,427
Other policyholders' funds ................ 406,051 (386,033)
Deferred policy acquisition costs ......... (585,775) 108,967
Indebtedness of related party ............. 9,233,225 6,028,836
Accrued investment income ................. 82,454 78,464
Accrued income taxes:
Current ................................. 463,025 (1,820,000)
Deferred ................................ (209,818) 79,747
Provision for amortization ................ (1,652) (12,671)
Realized investment gains ................. (406,649) (178,002)
Postretirement benefits ................... 287,337 179,874
Reinsurance receivables ................... 254,726 8,924,357
Prepaid reinsurance premiums .............. 45,958 189,840
Amortization of deferred income ........... (229,931) -
Other, net ................................ (2,279,531) (620,788)
------------ ------------
14,369,041 12,351,473
Cash used in the change in the property
and casualty insurance subsidiaries'
pooling agreement ....................... - (4,426,945)
Cash used in the commutation of a portion
of the reinsurance subsidiary's quota
share agreement ......................... - (17,806,179)
------------ ------------
Total adjustment ...................... 14,369,041 (9,881,651)
------------ ------------
Net cash provided by (used in)
operating activities ................ $ 20,491,328 $ (3,707,680)
------------ ------------
6
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Unaudited)
Six months ended
June 30,
--------------------------
1994 1993
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed maturity securities
held-to-maturity ............................ $(41,261,502) $ -
Maturities of fixed maturity securities
held-to-maturity ............................ 25,695,244 -
Purchases of fixed maturity securities
available-for-sale .......................... (210,730,211) -
Maturities of fixed maturity securities
available-for-sale .......................... 132,826,050 -
Sales of fixed maturity securities
available-for-sale (note 3) ................. 74,041,526 -
Sales of equity securities available-for-sale 500,000 540,750
Purchases of fixed maturities ................. - (23,434,165)
Maturities of fixed maturities ................ - 32,281,497
Purchases of short-term investments ........... - (158,343,305)
Sales of short-term investments ............... - 154,008,295
------------ ------------
Net cash (used in) provided by
investing activities .................... (18,928,893) 5,053,072
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock ...................... 240,467 161,929
Dividends paid to stockholders ................ (1,746,047) (1,713,174)
------------ ------------
Net cash used in financing activities ..... (1,505,580) (1,551,245)
------------ ------------
NET INCREASE (DECREASE) IN CASH ................. 56,855 (205,853)
Cash at beginning of year ....................... 675,203 2,009,512
------------ ------------
Cash at end of quarter .......................... $ 732,058 $ 1,803,659
============ ============
Income taxes paid ............................... $ 1,792,157 $ 4,063,332
See accompanying Notes to Interim Consolidated Financial Statements.
7
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
(Unaudited)
June 30, 1994
Note 1
- - ------
The results of operations for the interim periods reported are not
necessarily indicative of results to be expected for the year. The
information reflects all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the interim
periods.
Note 2
- - ------
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits". Adoption of this statement did not have a material effect on
the operations of the Company.
Note 3
- - ------
The "fixed maturity securities available-for-sale" classification includes
short-term investments. Sales of fixed maturity securities available-for-
sale for the six months ended June 30, 1994 reflects the sale of money
market funds.
Note 4
- - ------
Certain amounts previously reported in prior year consolidated financial
statements have been reclassified to conform to current year presentation.
8
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
- - ------- Condition and Results of Operations
(Unaudited)
OVERVIEW
EMC Insurance Group Inc. (the "Company"), an approximately 67 percent
owned subsidiary of Employers Mutual Casualty Company ("Employers Mutual"),
is an insurance holding company with operations in property and casualty
insurance, reinsurance, nonstandard risk automobile insurance and excess
and surplus lines insurance management. Property and casualty insurance is
the most significant segment, representing 72.2 percent of consolidated
premium income.
The three property and casualty insurance subsidiaries of the Company
and two subsidiaries of Employers Mutual are parties to reinsurance pooling
agreements with Employers Mutual (collectively the "pooling agreement").
Under the terms of the pooling agreement, each company cedes to Employers
Mutual all of its insurance business and assumes from Employers Mutual an
amount equal to its participation in the pool. All losses, settlement
expenses and other underwriting and administrative expenses, excluding the
voluntary reinsurance business assumed by Employers Mutual from
unaffiliated insurance companies, are prorated among the parties on the
basis of participation in the pool. Since 1992, the property and casualty
insurance subsidiaries' participation in the pool has been 22 percent. The
investment programs and income tax liabilities of the pool participants are
not subject to the pooling agreement.
The purpose of the pooling agreement is to reduce the risk of an
exposure insured by any of the pool participants by spreading it among all
the companies. The pooling agreement produces a more uniform and stable
underwriting result from year to year for all companies in the pool than
might be experienced individually. In addition, each company benefits from
the capacity of the entire pool, rather than being limited to policy
exposures of a size commensurate with its own assets, and from the wide
range of policy forms and lines of insurance written and the variety of
rate filings and commission plans offered by each of the companies. A
single set of reinsurance treaties is maintained for the protection of all
six companies in the pool.
Employers Mutual cedes 95 percent of the voluntary reinsurance business it
assumes from nonaffiliated insurance companies to the Company's reinsurance
subsidiary, exclusive of certain reinsurance contracts. The reinsurance
subsidiary receives 95 percent of all premiums and assumes 95 percent of all
related losses and settlement expenses of this business. The reinsurance
subsidiary does not reinsure any of Employers Mutual's direct insurance
business, nor any "involuntary" facility or pool business that Employers Mutual
assumes pursuant to state law. In addition, the reinsurance subsidiary is not
liable for credit risk in connection with the insolvency of any reinsurers of
Employers Mutual.
The results of operations for the interim periods reported are not
necessarily indicative of results to be expected for the year. The
information reflects all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the interim
periods.
9
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
- - ------- Condition and Results of Operations, Continued
(Unaudited)
CONSOLIDATED RESULTS OF OPERATIONS
Operating income before income taxes for the six months ended June 30,
1994 increased 112.1 percent to $8,168,000 from $3,851,000 for the same
period in 1993. Operating results improved in all the subsidiaries with
substantial improvement occurring in the property and casualty insurance
subsidiaries and the nonstandard risk automobile insurance subsidiary.
Net income for the six months ended June 30, 1994 was $6,122,000 ($.59
per share) compared to $6,174,000 ($.61 per share) for the same period in
1993. Results for 1993 include $2,621,000 ($.26 per share) of income from
the implementation of two new accounting standards and a change in
accounting principle.
Premiums earned totaled $79,805,000 for the six months ended June 30,
1994, an increase of 3.7 percent over the $76,935,000 reported for the same
period in 1993. Increased premium volume in the property and casualty
insurance subsidiaries was partially offset by declines in the reinsurance
subsidiary and the nonstandard risk automobile insurance subsidiary.
Net investment income decreased $770,000 (7.2 percent) to $9,967,000
for the six months ended June 30, 1994 from $10,737,000 for the same period
in 1993. This decrease is due to a decline in invested assets resulting
from the transfer of $24,853,000 to Employers Mutual during 1993 in
connection with the change in the property and casualty insurance
subsidiaries' pooling agreement relating to the voluntary assumed
reinsurance business and the commutation of two reinsurance contracts under
the reinsurance subsidiary's quota share agreement.
Realized investment gains totaled $407,000 for the six months ended
June 30, 1994 compared to $178,000 for the same period in 1993. The
increase is the result of calls and prepayments on fixed maturity
securities.
Other income totaled $230,000 for the six months ended June 30, 1994
compared to none for the same period in 1993. This amount represents the
amortization of deferred income related to reserve discounting in
connection with the commutation of a reinsurance contract under the
reinsurance subsidiary's quota share agreement in 1993.
Losses and expenses decreased $1,758,000 (2.1 percent) to $82,241,000
for the six months ended June 30, 1994 from $83,999,000 for the same period
in 1993. The decrease is due to improved loss experience in the property
and casualty insurance subsidiaries and the nonstandard risk automobile
insurance subsidiary and a decline in commission expense in the reinsurance
subsidiary.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits". Adoption of this statement did not have a material effect on the
operations of the Company.
10
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
- - ------- Condition and Results of Operations, Continued
(Unaudited)
Operating income before income taxes for the second quarter of 1994
was $5,108,000, compared to $476,000 for the same period in 1993 and
$3,060,000 for the first quarter of 1994. Second quarter operating results
improved significantly for the property and casualty insurance subsidiaries
while the reinsurance subsidiary showed a slight improvement and the
nonstandard risk automobile insurance subsidiary showed a slight decline.
SEGMENT RESULTS
Property and Casualty Insurance
Operating income before income taxes increased to $7,842,000 for the
six months ended June 30, 1994 from $4,791,000 for the same period in 1993.
Pretax operating income for the second quarter of 1994 was $4,932,000
compared to $1,494,000 for the same period in 1993 and $2,910,000 for the
first quarter of 1994. Underwriting results improved in the commercial
lines of business while the personal lines remained relatively flat.
Premiums earned increased 7.5 percent to $57,627,000 for the six
months ended June 30, 1994 from $53,592,000 for the same period in 1993.
This increase primarily reflects new commercial property business generated
from marketing programs started during 1992 and 1993. Future production
increases are likely to be dependent upon the continued success of these
marketing programs due to the soft market conditions for commercial lines
of business and the continued shift of large commercial insureds to
alternative risk mechanisms. This is the seventh year of a soft market
that has depressed commercial rates each year while costs have continued to
increase, and many insurance analysts speculate that no change will occur
in the near future.
Underwriting gain for the six months ended June 30, 1994 was $794,000
compared to an underwriting loss of $2,057,000 for the same period in 1993.
Underwriting results improved for the commercial lines of business and
remained relatively flat for the personal lines despite an increase in
catastrophe losses, which totaled $2,033,000 for the six months ended June
30, 1994 and $1,160,000 for the same period in 1993. The workers'
compensation line of business showed significant improvement over 1993.
Reform measures implemented by several states to control costs appear to
be working. By monitoring this reform on a state by state basis and writing
business only in states that show a potential for profit, management has
been able to achieve improved results. The commercial property and
liability lines also showed improved results for the first six months of
1994 while the commercial auto line deteriorated. Although the overall
results for the personal lines of business remained relatively flat from
1993, the homeowners line continues to be a problem for this segment
and the industry. Management continues to review the marketing and
underwriting of the personal lines of business in order to improve future
performance.
11
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
- - ------- Condition and Results of Operations, Continued
(Unaudited)
Reinsurance
Operating loss before income taxes decreased to $462,000 for the six
months ended June 30, 1994 from $1,050,000 for the same period in 1993.
Underwriting results improved significantly for the first half of 1994
while investment income declined 22.8 percent due to the transfer of
$20,426,000 to Employers Mutual during 1993 in connection with the
commutation of two reinsurance contracts under the quota share agreement.
This decline in investment income was partially offset by the recognition
of $230,000 of deferred income related to reserve discounting on one of the
commuted contracts. Pretax operating loss for the second quarter of 1994
decreased to $98,000 from $1,044,000 for the second quarter of 1993 and
$364,000 for the first quarter of 1994. This decrease reflects the improved
underwriting results noted above.
Premiums earned decreased 5.7 percent to $15,747,000 for the six
months ended June 30, 1994 from $16,697,000 for the same period in 1993.
This decrease primarily reflects premium income associated with a voluntary
pool that was commuted by Employers Mutual in the fourth quarter of 1993
and is therefore no longer ceded to the reinsurance subsidiary. The decrease
in 1994 premium volume was partially offset by increased participation in
another voluntary pool effective January 1, 1994.
Underwriting loss decreased 24.0 percent to $3,297,000 for the six
months ended June 30, 1994 from $4,341,000 for the same period in 1993.
This decrease reflects a substantial decline in commission expense
associated with a voluntary pool that was commuted by Employers Mutual in
the fourth quarter of 1993. Overall loss experience remained fairly
constant despite a significant decline in catastrophe losses, which totaled
$1,005,000 for the six months ended June 30, 1994 and $1,983,000 for the
same period in 1993. Other items impacting the first six months of 1994
included $800,000 of crop hail losses and $550,000 of loss associated with
the settlement of a large claim.
Nonstandard Risk Automobile Insurance
Operating income before income taxes increased to $655,000 for the six
months ended June 30, 1994 from $184,000 for the same period in 1993. This
increase reflects improved loss experience as well as rate increases that
were implemented in all states during the later part of 1993 and first part
of 1994. Second quarter 1994 results show a pretax operating income of
$238,000 compared to $84,000 for the same period in 1993 and $417,000 in
the first quarter of 1994. The deterioration of results in the second
quarter over the first quarter of 1994 is due to an increase in the
frequency and severity of losses.
Premiums earned decreased 3.2 percent to $6,432,000 for the six months
ended June 30, 1994 from $6,646,000 for the same period in 1993. This
decrease reflects a decline in renewal business caused by the rate
increases implemented, a softening of underwriting standards in the
standard market and rate competition in the nonstandard market.
12
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
- - ------- Condition and Results of Operations, Continued
(Unaudited)
Underwriting gain for the first six months of 1994 was $65,000 compared
to an underwriting loss of $419,000 for the same period in 1993. This
improvement reflects the rate increases implemented, a more seasoned book of
business and a decline in storm related losses.
Excess and Surplus Lines Insurance Management
Operating income before income taxes increased to $230,000 for the six
months ended June 30, 1994 from $40,000 for the same period in 1993.
Second quarter 1994 results show pretax operating income of $106,000
compared to $34,000 for the same period in 1993 and $124,000 in the first
quarter of 1994. This increase is the result of a new management plan put
into effect which places more emphasis on writing excess and surplus lines
business through Employers Mutual's agency force.
Parent Company
Operating loss before income taxes decreased to $97,000 for the six
months ended June 30, 1994 from $114,000 for the same period in 1993. A
decrease in operating expenses was partially offset by a decrease in
investment income. Second quarter 1994 results showed a pretax loss of
$70,000 compared to $92,000 for the same period in 1993 and $27,000 for the
first quarter of 1994.
OTHER INFORMATION
The majority of the Company's assets are invested in fixed maturities.
These investments provide a substantial amount of income which offsets
underwriting losses and contributes to net earnings. As these investments
mature the proceeds will be reinvested at current rates, which are lower
than those now being earned; therefore, less investment income will be
available to contribute to net earnings if interest rates continue at their
current level.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a portion of the investment portfolio in
relatively short-term and highly liquid investments to ensure the
availability of funds to meet claims and expenses. The remainder of the
investment portfolio is invested in securities with maturities that
approximate the anticipated liabilities of the insurance issued.
Unrealized holding gains on fixed maturity securities available-for-sale
decreased to $279,000 at June 30, 1994 from $509,000 at March 31, 1994 and
$2,068,000 at December 31, 1993. This decrease is primarily due to higher
interest rates imposed by the Federal Reserve Board during the first and
second quarters of 1994, which caused bond values to decline. Since the
Company does not actively trade in the bond market, such fluctuations in
the market value of available-for-sale securities are not expected to have
a material impact on the operations of the Company as forced liquidation of
investments are not anticipated. The Company closely monitors the bond
market and makes appropriate adjustments in investment policy as changing
conditions warrant.
13
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
- - ------- Condition and Results of Operations, Continued
(Unaudited)
The major ongoing sources of the Company's liquidity are insurance
premium income, investment income and cash provided from maturing or
liquidated investments. The principal outflows of cash are payments of
claims, commissions, premium taxes, operating expenses, income taxes,
dividends and investment purchases.
As of June 30, 1994, the Company had no material commitments for capital
expenditures.
PART II. OTHER INFORMATION
- - -------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders
- - ------- ---------------------------------------------------
(a) Annual Meeting of Stockholders
EMC Insurance Group Inc.
May 25, 1994
(b) The following seven persons were elected to serve as directors of the
Company for the ensuing year:
George C. Carpenter III George W. Kochheiser
David J. Fisher Raymond A. Michel
Robb B. Kelley Therese M. Vaughan*
Bruce G. Kelley
* Effective July 15, 1994, Therese M. Vaughan resigned as a director
of the Company. Her resignation is due to her appointment as the
Insurance Commissioner of the State of Iowa. As of August 11,
1994, a replacement has not been named.
(c) Items voted upon and number of votes cast:
1. Election of directors
Broker
Votes Votes Non
Nominee Cast for Withheld Votes
------------- ----------- -------- --------
George C. Carpenter III 9,516,225 9,169 390,400
David J. Fisher 9,515,225 10,169 390,400
Robb B. Kelley 9,514,881 10,513 390,400
Bruce G. Kelley 9,515,602 9,792 390,400
George W. Kochheiser 9,515,224 10,170 390,400
Raymond A. Michel 9,515,240 10,154 390,400
Therese M. Vaughan 9,514,753 10,641 390,400
14
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 4. Submission of Matters to a Vote of Security Holders, Continued
- - ------- --------------------------------------------------------------
2. Proposal to ratify the appointment of KPMG Peat Marwick as the
independent auditors of the Company:
For 9,507,387 Against 961 Abstain 7,672
--------- --- -----
Broker Non-Votes 390,400 Withheld 0
------- -----
THE TOTAL NUMBER OF QUALIFIED SHARES VOTED BY PROXY IS: 9,471,686
---------
(d) None.
Item 6. Exhibits and Reports on Form 8-K
- - ------- --------------------------------
(a) None.
(b) No Form 8-K was filed by the registrant during the quarter ended
June 30, 1994.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
EMC INSURANCE GROUP INC.
Registrant
/s/ Bruce G. Kelley
-----------------------------------
Bruce G. Kelley
President & Chief Executive Officer
Date: August 12, 1994
16