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 MARCH 31, 1997
----------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-10956
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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 April 30, 1997
----- -------------------------------
Common stock, $1.00 par value 11,149,142
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Total pages 16
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PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements
- ------- ---------------------
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS
Investments:
Fixed maturities:
Securities held-to-maturity, at amortized cost
(market value $183,719,576 and $194,655,256) $189,103,209 $188,385,721
Securities available-for-sale, at market value
(amortized cost $153,138,499 and
$146,794,158) .............................. 152,667,973 150,038,644
Equity securities available-for-sale, at market
value (cost $22,029,068 and $21,236,281) ..... 25,884,665 24,040,381
Short-term investments, at cost ................ 15,659,312 17,553,606
------------ ------------
Total investments ..................... 383,315,159 380,018,352
Cash ............................................. 2,709,816 3,500,629
Accrued investment income ........................ 5,644,692 6,567,186
Accounts receivable .............................. 744,573 740,736
Deferred policy acquisition costs ................ 9,712,697 9,021,863
Deferred income taxes ............................ 12,262,832 10,974,425
Intangible assets, including goodwill, at cost
less accumulated amortization of $1,977,297
and $1,943,669 ................................. 1,580,523 1,614,151
Reinsurance receivables .......................... 16,196,667 14,735,786
Prepaid reinsurance premiums ..................... 1,449,232 1,516,972
Other assets ..................................... 1,475,365 1,637,473
------------ ------------
Total assets .......................... $435,091,556 $430,327,573
============ ============
See accompanying Notes to Interim Consolidated Financial Statements.
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
LIABILITIES
Losses and settlement expenses ................... $213,892,260 $202,502,986
Unearned premiums ................................ 49,901,431 47,908,954
Other policyholders' funds ....................... 3,455,340 3,467,449
Indebtedness to related party .................... 2,041,091 7,000,482
Income taxes payable ............................. 1,388,000 2,942,000
Postretirement benefits .......................... 5,061,672 4,932,834
Deferred income .................................. 605,865 665,550
Other liabilities ................................ 10,949,006 12,178,290
------------ ------------
Total liabilities ............................ 287,294,665 281,598,545
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized 20,000,000
shares; issued and outstanding, 11,146,635
shares in 1997 and 11,084,461 shares in 1996 ... 11,146,635 11,084,461
Additional paid-in capital ....................... 63,442,590 62,762,613
Unrealized holding (losses) gains on fixed
maturity securities available-for-sale,
net of tax ..................................... (310,547) 2,141,361
Unrealized holding gains on equity securities
available-for-sale, net of tax ................. 2,544,693 1,850,706
Retained earnings ................................ 70,973,520 70,889,887
------------ ------------
Total stockholders' equity ................... 147,796,891 148,729,028
------------ ------------
Total liabilities and stockholders' equity ... $435,091,556 $430,327,573
============ ============
See accompanying Notes to Interim Consolidated Financial Statements.
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
Three months ended
March 31,
------------------------
1997 1996
----------- -----------
REVENUES:
Premiums earned .................................. $42,458,343 $40,480,126
Investment income, net ........................... 5,744,736 5,768,975
Realized investment gains ........................ 57,305 14,141
Other income ..................................... 59,685 74,619
----------- -----------
48,320,069 46,337,861
----------- -----------
LOSSES AND EXPENSES:
Losses and settlement expenses ................... 31,649,886 27,860,690
Dividends to policyholders ....................... 749,061 877,169
Amortization of deferred policy acquisition costs 8,172,702 7,572,686
Other underwriting expenses ...................... 5,677,868 5,653,442
----------- -----------
46,249,517 41,963,987
----------- -----------
Income before income taxes ...................... 2,070,552 4,373,874
----------- -----------
INCOME TAXES:
Current .......................................... 663,497 1,128,000
Deferred ......................................... (340,844) (86,591)
----------- -----------
322,653 1,041,409
----------- -----------
Net income ................................. $ 1,747,899 $ 3,332,465
=========== ===========
Earnings per share ................................. $.16 $.31
=========== ===========
Dividend per share ................................. $.15 $.14
=========== ===========
Average number of shares outstanding ............... 11,094,730 10,838,378
=========== ===========
See accompanying Notes to Interim Consolidated Financial Statements.
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
March 31,
--------------------------
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................... $ 1,747,899 $ 3,332,465
------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Losses and settlement expenses ............ 5,471,177 3,999,556
Unearned premiums ......................... (830,589) (1,846,368)
Other policyholders' funds ................ (12,109) (24,960)
Deferred policy acquisition costs ......... (690,834) (180,449)
Indebtedness of related party ............. (4,959,391) 2,274,734
Accrued investment income ................. 922,494 22,184
Accrued income taxes:
Current ................................. (1,554,000) (294,000)
Deferred ................................ (382,812) (86,591)
Provision for amortization ................ 13,498 (10,867)
Realized investment gains ................. (57,305) (14,141)
Postretirement benefits ................... 128,838 113,421
Reinsurance receivables ................... (1,460,881) (1,590,432)
Prepaid reinsurance premiums .............. 67,740 (264,697)
Amortization of deferred income ........... (59,685) (74,619)
Other, net ................................ (1,071,013) (1,741,806)
------------ ------------
(4,474,872) 280,965
Cash provided by the change in the
property and casualty insurance
subsidiaries' pooling agreement (note 3) 5,674,458 -
Cash provided by the change in the
reinsurance subsidiary's quota share
agreement (note 3) ...................... 3,066,705 -
------------ ------------
Total adjustment ......................... 4,266,291 280,965
------------ ------------
Net cash provided by
operating activities ................ $ 6,014,190 $ 3,613,430
------------ ------------
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Unaudited)
Three months ended
March 31,
--------------------------
1997 1996
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed maturity securities
held-to-maturity ............................ $ (2,499,700) $ (1,995,200)
Maturities of fixed maturity securities
held-to-maturity ............................ 1,803,525 6,870,986
Purchases of fixed maturity securities
available-for-sale .......................... (15,672,330) (8,384,681)
Maturities of fixed maturity securities
available-for-sale .......................... 9,384,110 5,386,101
Purchases of equity securities
available-for-sale .......................... (792,787) -
Net sales (purchases) of short-term investments 1,894,294 (4,925,172)
------------ ------------
Net cash used in investing activities ....... (5,882,888) (3,047,966)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock ...................... 742,151 1,058,056
Dividends paid to stockholders ................ (1,664,266) (1,517,447)
Purchase of treasury stock, net (note 2) ...... - (96,026)
------------ ------------
Net cash used in financing activities ..... (922,115) (555,417)
------------ ------------
NET (DECREASE) INCREASE IN CASH ................. (790,813) 10,047
Cash at beginning of year ....................... 3,500,629 1,198,436
------------ ------------
Cash at end of quarter .......................... $ 2,709,816 $ 1,208,483
=========== ============
Income taxes paid ............................... $ 2,099,785 $ 1,422,000
See accompanying Notes to Interim Consolidated Financial Statements.
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
(Unaudited)
March 31, 1997
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 June 30, 1996, the use of treasury stock was
discontinued and all treasury shares held at that time were
retired. Any shares of the Company's common stock repurchased
after June 30, 1996 will be retired.
Note 3
- ------
Effective January 1, 1997, a new affiliate of Employers Mutual
Casualty Company (Employers Mutual) began participating in the
pooling agreement. In connection with this change in the pooling
agreement, the Company's liabilities increased $6,393,063 and
invested assets increased $5,674,458. The Company reimbursed
Employers Mutual $794,074 for commissions incurred to generate
this business and Employers Mutual paid the Company $75,469 in
interest income as the actual cash transfer did not occur until
the end of March.
Effective January 1, 1997, the reinsurance subsidiary's quota
share participation was increased from 95 percent to 100 percent.
In connection with this change in the quota share agreement, the
Company's liabilities increased $3,173,647 and invested assets
increased $3,066,705. The Company reimbursed Employers Mutual
$106,942 for commissions incurred to generate this business.
Note 4
- ------
The Company will adopt Statement of Financial Accounting Standard
128, "Earnings Per Share" in the fourth quarter of 1997.
Adoption of this statement is not expected to have any impact on
the financial statements of the Company.
Note 5
- ------
In reviewing these financial statements, reference should be
made to the Company's 1996 Form 10K-405 or the 1996 Annual Report
to Shareholders for more detailed footnote information.
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 an excess and surplus
lines insurance agency. Property and casualty insurance is the
most significant segment, representing 75.3 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"). Effective January 1,
1997, a new affiliate of Employers Mutual, Hamilton Mutual
Insurance Company of Cincinnati, Ohio (Hamilton Mutual), began
participating in 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 and Hamilton Mutual from unaffiliated insurance
companies, are prorated among the parties on the basis of
participation in the pool. The aggregate participation of the
Company's property and casualty insurance subsidiaries in the
pool is 22 percent. Operations of the pool give rise to
intercompany balances with Employers Mutual, which are settled on
a quarterly basis. The investment activities and income tax
liabilities of the pool participants are not subject to the
pooling agreement.
The purpose of the pooling agreement is to spread the risk
of an exposure insured by any of the pool participants 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, lines of insurance written, rate filings and
commission plans offered by each of the companies. A single set
of reinsurance treaties is maintained for the protection of all
seven companies in the pool.
The Company's reinsurance subsidiary assumes a quota share
portion of Employers Mutual's assumed reinsurance business,
exclusive of certain reinsurance contracts. In order to take
advantage of the reinsurance subsidiary's current surplus level,
the following changes were made to the quota share agreement
effective January 1, 1997: an increase in the quota share
percentage from 95 percent to 100 percent and an increase in the
maximum amount of losses retained per event from $1,000,000 to
$1,500,000. The reinsurance subsidiary receives all premiums and
assumes all related losses and settlement expenses of this
business, subject to the maximum loss per event noted above. The
reinsurance subsidiary does not reinsure any of Employers
Mutual's direct insurance business, nor any "involuntary"
facility or pool business that Employers Mutual assumes pursuant
to state law. In addition, the reinsurance subsidiary is not
liable for credit risk in connection with the insolvency of any
reinsurers of Employers Mutual.
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations, Continued
(Unaudited)
The Company's nonstandard risk automobile insurance
subsidiary specializes in insuring private passenger automobile
risks that are found to be unacceptable in the standard
automobile insurance market.
The excess and surplus lines insurance agency provides
insurance agents access to the excess and surplus lines markets
and also functions as managing underwriter for such lines for
Employers Mutual and several of the pool members.
The results of operations for the interim periods reported
are not necessarily indicative of results to be expected for the
year. The information reflects all adjustments which are, in the
opinion of management, necessary to a fair statement of the
results for the interim periods.
CONSOLIDATED RESULTS OF OPERATIONS
Operating results for the three months ended March 31, 1997
and 1996 are as follows:
($ in thousands) 1997 1996
-------- --------
Premiums earned .......................... $ 42,458 $ 40,480
Losses and settlement expenses ........... 31,649 27,861
Other underwriting expenses .............. 14,600 14,103
-------- --------
Underwriting loss ........................ (3,791) (1,484)
Net investment income .................... 5,745 5,769
Realized investment gains ................ 57 14
Other income ............................. 60 75
-------- --------
Operating income before income taxes ..... $ 2,071 $ 4,374
======== ========
Losses and settlement expenses:
Insured events of the current year ..... $ 32,789 $ 33,289
Decrease in provision for insured
events of prior years ................ (1,140) (5,428)
-------- --------
Total losses and settlement expenses $ 31,649 $ 27,861
======== ========
Catastrophe and storm losses ............. $ 963 $ 1,146
======== ========
Operating income before income taxes decreased 52.7 percent
for the three months ended March 31, 1997 from the same period in
1996. This decrease is primarily due to a decline in the
operating results of the nonstandard risk automobile and property
and casualty insurance subsidiaries. Operating results of the
reinsurance subsidiary and the excess and surplus lines insurance
agency also declined, but to a lesser degree.
Premiums earned increased 4.9 percent for the three months
ended March 31, 1997 from the same period in 1996. Production
increases in the property and casualty insurance and nonstandard
risk automobile insurance subsidiaries were partially offset by a
production decrease in the reinsurance subsidiary.
Losses and settlement expenses increased 13.6 percent for
the three months ended March 31, 1997 from the same period in
1996. This increase is primarily related to a decline in the
amount of benefit realized from the downward development of the
provision for insured events of prior years. Additionally, the
nonstandard risk automobile insurance subsidiary experienced an
increase in both the frequency and severity of losses due to
severe winter driving conditions in the Midwest.
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations, Continued
(Unaudited)
Other underwriting expenses increased 3.5 percent for the
three months ended March 31, 1997 from the same period in 1996.
The property and casualty insurance subsidiaries experienced an
increase in expenses in the first quarter of 1997 due to the
addition of Hamilton Mutual to the pooling agreement. This
increase was partially offset by a decrease in expenses in the
reinsurance subsidiary.
Net investment income decreased 0.4 percent for the three
months ended March 31, 1997 from the same period in 1996. This
decrease primarily reflects a lower average rate of return on
bonds and short-term investments.
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations, Continued
(Unaudited)
SEGMENT RESULTS
Property and Casualty Insurance
Operating results for the three months ended March 31, 1997
and 1996 are as follows:
($ in thousands) 1997 1996
-------- --------
Premiums earned .......................... $ 31,974 $ 29,523
Losses and settlement expenses ........... 23,122 20,466
Other underwriting expenses .............. 11,230 10,242
-------- --------
Underwriting loss ........................ (2,378) (1,185)
Net investment income .................... 3,763 3,833
Realized investment gains ................ 45 9
-------- --------
Operating income before income taxes ..... $ 1,430 $ 2,657
======== ========
Losses and settlement expenses:
Insured events of the current year ..... $ 24,577 $ 25,185
Decrease in provision for insured
events of prior years ................ (1,455) (4,719)
-------- --------
Total losses and settlement expenses $ 23,122 $ 20,466
======== ========
Catastrophe and storm losses ............. $ 460 $ 521
======== ========
Premiums earned increased substantially for the three months
ended March 31, 1997 from the same period in 1996. This increase
reflects growth from the existing branch offices as well as an
increase in the size of the pool with the addition of Hamilton
Mutual on January 1, 1997. The property and casualty insurance
subsidiaries experienced strong production increases in both
personal and commercial lines of business. Growth in the
commercial lines of business continues to be concentrated in the
property products offered under the Medallion series. The
workers' compensation line of business continues to be hampered
by rate reductions in several states.
Underwriting results for the three months ended March 31,
1997 declined substantially from the same period in 1996. This
decline is primarily related to a large decrease in the amount of
benefit realized from the downward development of the provision
for insured events of prior years. In addition, underwriting
results for the pool were negatively impacted with the addition
of Hamilton Mutual due to severe storms in the Ohio/Kentucky
area. Hamilton Mutual is expected to contribute to the
operations of the pool once they have been fully integrated into
EMC's underwriting guidelines. Other underwriting expenses
reflect the increase in the size of the pool as well as legal and
administrative expenses incurred in connection with the
affiliation of Hamilton Mutual. Expenses for the first three
months of 1997 also include $64,000 of nondeferrable commissions
associated with the addition of Hamilton Mutual to the pool.
In connection with the addition of Hamilton Mutual to the
pool, Employers Mutual transferred $5,599,000 and $75,000 of
interest thereon, to the property and casualty insurance
subsidiaries on March 24, 1997. The transfer was completed upon
approval of the affiliation by Hamilton Mutual's policyholders
and the Ohio Insurance Department.
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations, Continued
(Unaudited)
Reinsurance
Operating results for the three months ended March 31, 1997
and 1996 are as follows:
($ in thousands) 1997 1996
-------- --------
Premiums earned ............................ $ 8,141 $ 8,679
Losses and settlement expenses ............. 5,833 5,709
Other underwriting expenses ................ 2,681 3,276
-------- --------
Underwriting loss .......................... (373) (306)
Net investment income ...................... 1,581 1,537
Realized investment gains .................. 8 5
Other income ............................... 60 75
-------- --------
Operating income before income taxes ....... $ 1,276 $ 1,311
======== ========
Losses and settlement expenses:
Insured events of the current year ....... $ 5,560 $ 5,877
Increase (decrease) in provision for
insured events of prior years .......... 273 (168)
-------- --------
Total losses and settlement expenses $ 5,833 $ 5,709
======== ========
Catastrophe losses ......................... $ 503 $ 625
======== ========
Premiums earned decreased for the three months ended March
31, 1997 from the same period in 1996. This decrease is
primarily attributable to competitive market conditions and a
general decline in rate levels for catastrophe coverage. The
company is addressing these market conditions by accepting larger
lines on desirable programs and strengthening its relationships
with reinsurance intermediaries.
Underwriting results for the three months ended March 31,
1997 declined slightly from the same period in 1996. The
decrease in premium income noted above was more than offset by a
decline in other underwriting expenses, which were inflated in
the first quarter of 1996 due to the recognition of additional
contingent commissions. Losses and settlement expenses increased
slightly in 1997 due to a small increase in the provision for
insured events of prior years. Other underwriting expenses for
the first three months of 1997 include $21,000 of nondeferrable
commissions associated with the increase in the quota share
participation from 95 percent to 100 percent.
Investment income for the three months ended March 31, 1997
reflects $29,000 of interest income earned on $3,067,000
transferred to the reinsurance subsidiary in connection with the
increase in the quota share participation from 95 percent to 100
percent.
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations, Continued
(Unaudited)
Nonstandard Risk Automobile Insurance
Operating results for the three months ended March 31, 1997
and 1996 are as follows:
($ in thousands) 1997 1996
-------- --------
Premiums earned ........................... $ 2,343 $ 2,278
Losses and settlement expenses ............ 2,694 1,686
Other underwriting expenses ............... 670 650
-------- --------
Underwriting loss ......................... (1,021) (58)
Net investment income ..................... 269 277
Realized investment gains ................. 4 -
-------- --------
Operating (loss) income before income taxes $ (748) $ 219
======== ========
Losses and settlement expenses:
Insured events of the current year ...... $ 2,652 $ 2,227
Increase (decrease) in provision for
insured events of prior years ......... 42 (541)
-------- --------
Total losses and settlement expenses $ 2,694 $ 1,686
======== ========
Premiums earned increased for the three months ended March
31, 1997 from the same period in 1996. This is the first
increase in premiums that the company has experienced since 1993
and reflects rate increases that were implemented in the states
of Iowa and South Dakota in late 1996. Additionally, the company
continues to appoint new agents and improve its marketing and
business relationships with its agency force.
Underwriting results for the first three months of 1997
deteriorated significantly from the same period in 1996. The
company experienced an increase in both the frequency and
severity of losses due to severe winter driving conditions in the
Midwest. In addition, the underwriting results for the three
months ended March 31, 1997 did not benefit from a substantial
decrease in the provision for insured events of prior years as
occurred in the first three months of 1996.
Excess and Surplus Lines Insurance Agency
Operating income before income taxes decreased to $83,000
for the three months ended March 31, 1997 from $157,000 for the
same period in 1996. Intense competition in the property and
casualty insurance marketplace has resulted in a growing number
of insurance carriers pursuing opportunities in the excess and
surplus lines market. As a result, the amount of business placed
by the excess and surplus lines agency has declined.
Parent Company
Operating income before income taxes was steady at $30,000
for both the three months ended March 31, 1996 and 1997.
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations, Continued
(Unaudited)
OTHER INFORMATION
The majority of the Company's assets are invested in fixed
maturities. These investments provide a substantial amount of
income which supplements underwriting results and contributes to
net earnings. As these investments mature the proceeds will be
reinvested at current rates, which may be higher or lower than
those now being earned; therefore, more or less investment income
may be available to contribute to net earnings depending on the
interest rate 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. Net unrealized holding losses on fixed
maturity securities available-for-sale totaled $311,000 at March
31, 1997. This compares to net unrealized holding gains of
$2,141,000 at December 31, 1996. Since the Company does not
actively trade in the bond market, such fluctuations in the fair
value of these investments are not expected to have a material
impact on the operations of the Company, as forced liquidations
of investments are not anticipated. The Company closely monitors
the bond market and makes appropriate adjustments in investment
policy as changing conditions warrant.
Net unrealized holding gains on equity securities totaled
$2,545,000 at March 31, 1997 and $1,851,000 at December 31, 1996.
The overall liquidity position of the Company is not affected by
the equity investments.
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 March 31, 1997, the Company had no material
commitments for capital expenditures.
NEW ACCOUNTING PRONOUNCEMENT
The Company will adopt Statement of Financial Accounting
Standards 128, "Earnings Per Share", in the fourth quarter of
1997. The adoption of this statement is not expected to have any
impact on the financial statements of the Company.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
The 1995 Private Securities Litigation Reform Act provides
issuers the opportunity to make cautionary statements regarding
forward-looking statements. Accordingly, any forward-looking
statement contained herein or in any other oral or written
statement by the Company or any of its officers, directors or
employees is qualified by the fact that actual results of the
Company may differ materially from such statement due to the
following important factors, among other risks and uncertainties
inherent in the Company's business: catastrophic events, state
insurance regulations, rate competition, adverse changes in
interest rates, unforeseen losses with respect to loss and
settlement expense reserves for unreported and reported claims,
including asbestos and environmental claims.
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
- -------- -----------------
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 March 31, 1997.
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
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Bruce G. Kelley
President & Chief Executive Officer
/s/ Mark Reese
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Mark Reese
Chief Accounting Officer
Date: May 15, 1997