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EMC Insurance Group Inc. Reports 2015 Fourth Quarter and Year-End Results and 2016 Operating Income Guidance, and Announces a Presentation by Management at the 20th Annual NYSSA Insurance Conference

Fourth Quarter Ended December 31, 2015
Operating Income Per Share – $0.65
Net Income Per Share – $0.48
Net Realized Investment Losses Per Share – $0.17
Catastrophe and Storm Losses Per Share – $0.11
Large Losses Per Share – $0.40
GAAP Combined Ratio – 94.1 percent

Year Ended December 31, 2015
Operating Income Per Share – $2.24
Net Income Per Share – $2.43
Net Realized Investment Gains Per Share – $0.19
Catastrophe and Storm Losses Per Share – $1.40
Large Losses Per Share – $1.08
GAAP Combined Ratio – 96.3 percent

2016 Operating Income Guidance – $1.70 to $1.90 per share

DES MOINES, Iowa, Feb. 12, 2016 (GLOBE NEWSWIRE) -- EMC Insurance Group Inc. (NASDAQ OMX/GS:EMCI) today reported operating income of $13.4 million ($0.65 per share) for the fourth quarter ended December 31, 2015, compared to operating income of $15.4 million ($0.76 per share) for the fourth quarter of 20141. For the year ended December 31, 2015, the Company reported operating income of $46.2 million ($2.24 per share), compared to $27.2 million ($1.34 per share) for the same period in 2014.

Net income, including realized investment gains and losses, totaled $9.9 million ($0.48 per share) for the fourth quarter of 2015, compared to $16.2 million ($0.80 per share) for the fourth quarter of 2014. For the year ended December 31, 2015, the Company reported net income of $50.2 million ($2.43 per share), compared to $30.0 million ($1.48 per share) for the same period in 2014.

The Company’s GAAP combined ratio was 94.1 percent in the fourth quarter of 2015, compared to 92.5 percent in the fourth quarter of 2014. For the year ended December 31, 2015, the Company’s GAAP combined ratio was 96.3 percent, compared to 101.9 percent in 2014.

“This is our lowest annual combined ratio since 2006,” stated President and Chief Executive Officer Bruce G. Kelley. “We have strived to improve premium rate adequacy and the quality of our book of business. Seeing positive results from our efforts is satisfying.”

Management is projecting 2016 operating income will be within a range of $1.70 to $1.90 per share. This guidance is based on a projected GAAP combined ratio of 98.7 percent for the year and investment income growth in the low- to mid-single digits. The projected GAAP combined ratio has a load of 9.1 points for catastrophe and storm losses, up from the relatively low 7.8 points experienced in 2015.

Kelley continued, “The 2016 operating income guidance reflects management’s expectations for an increasingly competitive rate environment and a slightly higher level of catastrophe and storm losses. Looking ahead to 2016, it is important to note that both the property and casualty insurance segment and the reinsurance segment have new reinsurance arrangements in place with our parent company, Employers Mutual Casualty Company, which are expected to reduce the volatility of quarterly results caused by excessive catastrophe and storm losses. This should result in more consistent quarterly operating results than in the past.” Final regulatory approval of both intercompany reinsurance programs was received on February 10, 2016.

Premiums earned increased 4.3 percent to $141.1 million for the fourth quarter of 2015, from $135.4 million in 2014. In the property and casualty insurance segment, premiums earned increased 3.9 percent, with the majority of the increase attributable to rate level increases on renewal business and growth in new business in the commercial lines of business. In the reinsurance segment, premiums earned increased 5.6 percent; however, premium adjustments made in the fourth quarters of 2015 and 2014 are impacting this percentage increase. In the fourth quarter of 2015, a negative premium adjustment of $7.2 million reported by the ceding company for the offshore energy and liability proportional account was recorded to reduce the ultimate amount of premiums expected to be earned for underwriting years 2012 through 2014. In the fourth quarter of 2014, an $8.7 million reduction in earned but not reported (EBNR) premiums was recognized on pro rata contracts. Without these adjustments, earned premiums in the reinsurance segment would have declined approximately 0.2 percent in the fourth quarter. For the year ended December 31, 2015, premiums earned increased 5.5 percent (5.9 percent in the property and casualty insurance segment and 4.0 percent in the reinsurance segment). For calendar year 2014, the total EBNR premium adjustment on pro rata accounts amounted to $7.7 million. Without this adjustment and the 2015 adjustment noted above, the reinsurance segment’s earned premiums for calendar year 2015 would have increased approximately 3.3 percent, primarily due to a significant increase in pro rata business in the Mutual Reinsurance Bureau underwriting association. The premium adjustments made in 2015 and 2014 did not have a material impact on net income because corresponding adjustments were made to incurred but not reported loss reserves, commission expense reserves and the cost of the excess of loss reinsurance protection.

Catastrophe and storm losses totaled $3.6 million ($0.11 per share after tax) in the fourth quarter of 2015, compared to $4.4 million ($0.14 per share after tax) in the fourth quarter of 2014. Fourth quarter catastrophe and storm losses accounted for 2.6 percentage points of the combined ratio, which is below the Company’s most recent 10-year average of 3.4 percentage points for this period and the 3.3 percentage points experienced in the fourth quarter of 2014. For the year ended December 31, 2015, catastrophe and storm losses totaled $44.4 million ($1.40 per share after tax), compared to $57.3 million ($1.84 per share after tax) in 2014. On a segment basis, catastrophe and storm losses amounted to $958,000 ($0.03 per share after tax) and $29.6 million ($0.93 per share after tax) in the property and casualty insurance segment, and $2.7 million ($0.08 per share after tax) and $14.8 million ($0.47 per share after tax) in the reinsurance segment, for the fourth quarter and year ended December 31, 2015, respectively.

The Company reported $15.2 million ($0.47 per share after tax) of favorable development on prior years’ reserves during the fourth quarter of 2015, compared to $9.9 million ($0.32 per share after tax) in the fourth quarter of 2014. For the year ended December 31, 2015, favorable development totaled $35.1 million ($1.11 per share after tax), compared to $20.8 million ($0.67 per share after tax) in 2014. The development amounts reported for the fourth quarter and year ended 2015 include approximately $1.9 million of favorable development and $618,000 of adverse development, respectively, that resulted solely from changes in the allocation of bulk reserves between the current and prior accident years, compared to $2.2 million of favorable development for the fourth quarter and year ended 2014. Development on prior years’ reserves resulting solely from changes in the allocation of bulk reserves between the current and prior accident years does not have an impact on earnings. This is due to the fact that such development is simply a mathematical by-product of the mechanical process used to reallocate total bulk reserves to the various accident years. Earnings are only impacted by changes in the total amount of carried reserves.

Excluding the development amounts that resulted solely from changes in the allocation of bulk reserves between accident years, the implied amounts of favorable development that had an impact on earnings would be approximately $13.3 million and $35.7 million for the fourth quarter and year ended 2015, compared to $7.7 million and $18.6 million for the same periods in 2014. Favorable development on prior years’ reserves increased in the reinsurance segment due to a reduction in reserves on property treaties and one casualty treaty.

Estimating loss and settlement expense reserves for asbestos claims is very difficult due to the many uncertainties surrounding these types of claims. While the Company does not have a significant amount of exposure to asbestos claims, management has been proactive in strengthening the reserves carried for these exposures when deemed necessary. During the fourth quarter of 2015, the Company strengthened asbestos reserves by approximately $2.3 million ($0.07 per share after taxes). For the year, asbestos reserves were strengthened by approximately $4.1 million ($0.13 per share after taxes).

Development amounts can vary significantly from quarter to quarter and year to year depending on a number of factors, including the number of claims settled and the settlement terms, and should therefore not be considered a reliable factor in assessing the adequacy of the Company’s carried reserves. The most recent actuarial analysis of the Company’s carried reserves indicates that carried reserves remain in the top quartile of the range of reasonable reserves.

Large losses (which the Company defines as losses greater than $500,000 for the EMC Insurance Companies pool, excluding catastrophe and storm losses) increased slightly to $12.8 million ($0.40 per share after tax) in the fourth quarter of 2015 from $11.9 million ($0.38 per share after tax) in the fourth quarter of 2014. For the year ended December 31, 2015, large losses decreased to $34.2 million ($1.08 per share after tax) from $35.7 million ($1.15 per share after tax) in 2014.

Net investment income declined 3.3 percent and 1.9 percent to $11.6 million and $45.6 million for the fourth quarter and year ended December 31, 2015, from $12.0 million and $46.5 million for the same periods in 2014. Net investment income for the year ended 2014 included approximately $442,000 that resulted from the early payoff of a commercial mortgage-backed security during the first quarter of 2014 that was purchased at a significant discount to par value, which accelerated the accretion of the discount to par value and therefore increased investment income. Excluding this amount, net investment income would have declined 1.0 percent for the year ended 2015 compared to the same period in 2014.

Net realized investment losses totaled $5.4 million ($0.17 per share after tax) for the fourth quarter of 2015 compared to net realized investment gains of $1.1 million ($0.04 per share after tax) for the fourth quarter of 2014. For the year ended December 31, 2015, net realized investment gains totaled $6.2 million ($0.19 per share after tax), compared to $4.3 million ($0.14 per share after tax) for 2014. Included in net realized investment gains/losses reported for the fourth quarter and year ended December 31, 2015 are $5.3 million and $1.5 million, respectively, of realized investment losses attributed to a decline in the carrying value of a limited partnership that helps protect the Company from a sudden and significant decline in the value of its equity portfolio (the equity tail-risk hedging strategy). Included in the net realized investment gains reported for the fourth quarter and year ended December 31, 2014 are $741,000 and $2.8 million, respectively, of net realized investment losses attributed to a decline in carrying value of this limited partnership.

At December 31, 2015, consolidated assets totaled $1.5 billion, including $1.4 billion in the investment portfolio, and stockholders’ equity totaled $524.9 million, an increase of 4.4 percent from December 31, 2014. Book value of the Company’s stock increased 2.2 percent to $25.26 per share from $24.72 per share at December 31, 2014. Book value excluding accumulated other comprehensive income increased 8.5 percent to $22.45 per share from $20.70 per share at December 31, 2014.

The Company will hold an earnings teleconference call at noon Eastern time on February 12, 2016 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company’s results for the fourth quarter and year ended December 31, 2015, as well as its expectations for 2016. Dial-in information for the call is toll-free 1-877-407-9205 (International: 1-201-689-8054).

Members of the news media, investors and the general public are invited to access a live webcast of the conference call via the Company’s investor relations page at www.emcins.com/ir. The webcast will be archived and available for replay until May 12, 2016. A transcript of the teleconference will also be available on the Company’s website shortly after the completion of the teleconference.

Management Presentation:

Additionally, on Tuesday, March 22, 2016, Bruce G. Kelley and Mark E. Reese, Senior Vice President and Chief Financial Officer, will present at the 20th Annual New York Society of Security Analysts (NYSSA) Insurance Conference in New York. The presentation will occur at 12:35 p.m. Eastern time at the offices of the NYSSA, 1540 Broadway, New York, NY. Interested persons may access the presentation slides on the Company’s investor relations website at http://www.emcins.com/ir/Presentations.aspx on the day of the presentation. A live webcast of the event will not be available to the general public.

About EMCI:

EMC Insurance Group Inc. is a publicly held insurance holding company with operations in property and casualty insurance and reinsurance, which was formed in 1974 and became publicly held in 1982. The Company’s common stock trades on the Global Select Market tier of the NASDAQ OMX Stock Market under the symbol EMCI. Additional information regarding EMC Insurance Group Inc. may be found at www.emcins.com/ir. EMCI’s parent company is Employers Mutual Casualty Company (EMCC). EMCI and EMCC, together with their subsidiary and affiliated companies, conduct operations under the trade name EMC Insurance Companies.

Cautionary Note Regarding Forward-Looking Statements:

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 the property and casualty insurance industry, interest rates or the performance of financial markets and the general economy;
  • rating agency actions;
  • “other-than-temporary” investment impairment losses; and
  • other risks and uncertainties inherent to the Company’s business, including those discussed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K.

Management intends to identify forward-looking statements when using the words “believe,” “expect,” “anticipate,” “estimate,” “project,” or similar expressions. Undue reliance should not be placed on these forward-looking statements. The Company disclaims any obligation to update such statements or to announce publicly the results of any revisions that it may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

¹The Company prepares its public financial statements in conformity with accounting principles generally accepted in the Unites States of America (GAAP). Operating income is a non-GAAP financial measure, calculated by excluding net realized investment gains/losses from net income. The Company’s calculation of operating income may differ from similar measures used by other companies, so investors should exercise caution when comparing the Company’s measure of operating income to the measure of other companies. Management’s projected operating income guidance is also considered a non-GAAP financial measure.

Management believes operating income is useful to investors because it illustrates the performance of the Company’s normal, ongoing operations, which is important in understanding and evaluating the Company’s 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 GAAP financial measure of net income. Therefore, the Company has provided the following reconciliation of the non-GAAP financial measure of operating income to the GAAP financial measure of net income. Management also uses non-GAAP financial measures for goal setting, determining employee and senior management awards and compensation, and evaluating performance.

The reconciliation of operating income to net income is as follows:


Three Months Ended Year Ended
December 31, December 31,
2015 2014 2015 2014
($ in thousands)
Operating income$ 13,407 $ 15,417 $ 46,163 $ 27,165
Net realized investment gains (losses) (after tax) (3,512) 737 3,999 2,827
Net income $ 9,895 $ 16,154 $ 50,162 $ 29,992

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
($ in thousands, except share and per share amounts)
Property and
Casualty Parent
Quarter Ended December 31, 2015 Insurance Reinsurance Company Consolidated
Revenues:
Premiums earned $ 113,985 $ 27,157 $ - $ 141,142
Investment income, net 8,367 3,269 - 11,636
Other income 189 (86) - 103
122,541 30,340 - 152,881
Losses and expenses:
Losses and settlement expenses 76,415 13,718 - 90,133
Dividends to policyholders 1,213 - - 1,213
Amortization of deferred policy acquisition costs 19,698 3,663 - 23,361
Other underwriting expenses 16,170 1,897 - 18,067
Interest expense 84 - - 84
Other expenses 180 - 518 698
113,760 19,278 518 133,556
Operating income (loss) before income taxes 8,781 11,062 (518) 19,325
Realized investment losses (3,703) (1,699) - (5,402)
Income (loss) before income taxes 5,078 9,363 (518) 13,923
Income tax expense (benefit):
Current 317 2,880 (180) 3,017
Deferred 862 149 - 1,011
1,179 3,029 (180) 4,028
Net income (loss) $ 3,899 $ 6,334 $ (338) $ 9,895
Average shares outstanding 20,755,198
Per Share Data:
Net income (loss) per share - basic and diluted $ 0.19 $ 0.31 $ (0.02) $ 0.48
Catastrophe and storm losses (after tax) $ 0.03 $ 0.08 $ - $ 0.11
Large losses* (after tax) $ 0.40 $ - $ - $ 0.40
Reported (adverse) favorable development
experienced on prior years' reserves (after tax) $ (0.01) $ 0.48 $ - $ 0.47
Implied (adverse) favorable development that had
an impact on earnings (after tax) $ (0.02) $ 0.44 $ - $ 0.42
Dividends per share $ 0.190
Other Information of Interest:
Net written premiums $ 90,105 $ 27,590 $ - $ 117,695
Catastrophe and storm losses $ 958 $ 2,661 $ - $ 3,619
Large losses* $ 12,786 $ - $ - $ 12,786
Reported adverse (favorable) development
experienced on prior years' reserves $ 338 $ (15,495) $ - $ (15,157)
Favorable development that had no impact
on earnings 423 1,454 - 1,877
Implied adverse (favorable) development that had
an impact on earnings $ 761 $ (14,041) $ - $ (13,280)
GAAP Ratios:
Loss and settlement expense ratio 67.0% 50.5% - 63.9%
Acquisition expense ratio 32.6% 20.5% - 30.2%
Combined ratio 99.6% 71.0% - 94.1%
*Large losses are defined as losses greater than $500 for the EMC Insurance Companies pool, excluding catastrophe and storm losses.

CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except share and per share amounts)
Property and
Casualty Parent
Quarter Ended December 31, 2014 Insurance Reinsurance Company Consolidated
Revenues:
Premiums earned $ 109,665 $ 25,709 $ - $ 135,374
Investment income, net 8,691 3,344 (4) 12,031
Other income 111 1,194 - 1,305
118,467 30,247 (4) 148,710
Losses and expenses:
Losses and settlement expenses 70,964 13,043 - 84,007
Dividends to policyholders 2,987 - - 2,987
Amortization of deferred policy acquisition costs 18,873 5,479 - 24,352
Other underwriting expenses 13,282 603 - 13,885
Interest expense 84 - - 84
Other expenses 253 - 411 664
106,443 19,125 411 125,979
Operating income (loss) before income taxes 12,024 11,122 (415) 22,731
Realized investment gains 645 489 - 1,134
Income (loss) before income taxes 12,669 11,611 (415) 23,865
Income tax expense (benefit):
Current 2,142 2,434 (144) 4,432
Deferred 1,830 1,449 - 3,279
3,972 3,883 (144) 7,711
Net income (loss) $ 8,697 $ 7,728 $ (271) $ 16,154
Average shares outstanding 20,326,647
Per Share Data:
Net income (loss) per share - basic and diluted $ 0.43 $ 0.38 $ (0.01) $ 0.80
Catastrophe and storm losses (after tax) $ 0.05 $ 0.09 $ - $ 0.14
Large losses* (after tax) $ 0.38 $ - $ - $ 0.38
Reported favorable development
experienced on prior years' reserves (after tax) $ 0.07 $ 0.25 $ - $ 0.32
Implied favorable development that had an impact
on earnings (after tax) $ - $ 0.25 $ - $ 0.25
Dividends per share $ 0.167
Other Information of Interest:
Net written premiums $ 87,725 $ 27,627 $ - $ 115,352
Catastrophe and storm losses $ 1,725 $ 2,690 $ - $ 4,415
Large losses* $ 11,891 $ - $ - $ 11,891
Reported favorable development
experienced on prior years' reserves $ (2,004) $ (7,866) $ - $ (9,870)
Favorable development that had no impact
on earnings 2,151 - - 2,151
Implied adverse (favorable) development that had
an impact on earnings $ 147 $ (7,866) $ - $ (7,719)
GAAP Ratios:
Loss and settlement expense ratio 64.7% 50.7% - 62.1%
Acquisition expense ratio 32.1% 23.7% - 30.4%
Combined ratio 96.8% 74.4% - 92.5%
*Large losses are defined as losses greater than $500 for the EMC Insurance Companies pool, excluding catastrophe and storm losses.

CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
($ in thousands, except share and per share amounts)
Property and
Casualty Parent
Year Ended December 31, 2015 Insurance Reinsurance Company Consolidated
Revenues:
Premiums earned $ 447,197 $ 123,069 $ - $ 570,266
Investment income, net 32,668 12,923 (9) 45,582
Other income 771 954 - 1,725
480,636 136,946 (9) 617,573
Losses and expenses:
Losses and settlement expenses 291,883 78,853 - 370,736
Dividends to policyholders 7,705 - - 7,705
Amortization of deferred policy acquisition costs 75,701 26,483 - 102,184
Other underwriting expenses 63,954 4,464 - 68,418
Interest expense 337 - - 337
Other expenses 748 - 1,942 2,690
440,328 109,800 1,942 552,070
Operating income (loss) before income taxes 40,308 27,146 (1,951) 65,503
Realized investment gains 4,163 1,990 - 6,153
Income (loss) before income taxes 44,471 29,136 (1,951) 71,656
Income tax expense (benefit):
Current 10,830 8,463 (682) 18,611
Deferred 2,174 709 - 2,883
13,004 9,172 (682) 21,494
Net income (loss) $ 31,467 $ 19,964 $ (1,269) $ 50,162
Average shares outstanding 20,621,919
Per Share Data:
Net income (loss) per share - basic and diluted $ 1.52 $ 0.97 $ (0.06) $ 2.43
Catastrophe and storm losses (after tax) $ 0.93 $ 0.47 $ - $ 1.40
Large losses* (after tax) $ 1.08 $ - $ - $ 1.08
Reported favorable development experienced on
prior years' reserves (after tax) $ 0.44 $ 0.67 $ - $ 1.11
Implied favorable development that had an impact
on earnings (after tax) $ 0.42 $ 0.70 $ - $ 1.12
Dividends per share $ 0.693
Book value per share $ 25.26
Effective tax rate 30.0%
Net income as a percent of beg. SH equity 10.0%
Other Information of Interest:
Net written premiums $ 454,434 $ 124,504 $ - $ 578,938
Catastrophe and storm losses $ 29,609 $ 14,765 $ - $ 44,374
Large losses* $ 34,239 $ - $ - $ 34,239
Reported favorable development experienced on
prior years' reserves $ (13,839) $ (21,275) $ - $ (35,114)
Favorable (adverse) development that had
no impact on earnings 423 (1,041) - (618)
Implied favorable development that had an impact
on earnings $ (13,416) $ (22,316) $ - $ (35,732)
GAAP Ratios:
Loss and settlement expense ratio 65.3% 64.1% - 65.0%
Acquisition expense ratio 32.9% 25.1% - 31.3%
Combined ratio 98.2% 89.2% - 96.3%
*Large losses are defined as losses greater than $500 for the EMC Insurance Companies pool, excluding catastrophe and storm losses.

CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except share and per share amounts)
Property and
Casualty Parent
Year Ended December 31, 2014 Insurance Reinsurance Company Consolidated
Revenues:
Premiums earned $ 422,381 $ 118,341 $ - $ 540,722
Investment income, net 33,509 12,968 (12) 46,465
Other income 695 2,236 - 2,931
456,585 133,545 (12) 590,118
Losses and expenses:
Losses and settlement expenses 298,033 87,441 - 385,474
Dividends to policyholders 9,504 - - 9,504
Amortization of deferred policy acquisition costs 72,768 26,274 - 99,042
Other underwriting expenses 54,385 2,441 - 56,826
Interest expense 337 - - 337
Other expenses 793 - 1,584 2,377
435,820 116,156 1,584 553,560
Operating income (loss) before income taxes 20,765 17,389 (1,596) 36,558
Realized investment gains 2,938 1,411 - 4,349
Income (loss) before income taxes 23,703 18,800 (1,596) 40,907
Income tax expense (benefit):
Current 3,688 4,150 (558) 7,280
Deferred 2,145 1,490 - 3,635
5,833 5,640 (558) 10,915
Net Income (loss) $ 17,870 $ 13,160 $ (1,038) $ 29,992
Average shares outstanding 20,205,935
Per Share Data:
Net income (loss) per share - basic and diluted $ 0.88 $ 0.65 $ (0.05) $ 1.48
Catastrophe and storm losses (after tax) $ 1.29 $ 0.55 $ - $ 1.84
Large losses* (after tax) $ 1.15 $ - $ - $ 1.15
Reported favorable development
experienced on prior years' reserves (after tax) $ 0.26 $ 0.41 $ - $ 0.67
Implied favorable development that had an impact
on earnings (after tax) $ 0.19 $ 0.41 $ - $ 0.60
Dividends per share $ 0.627
Book value per share $ 24.72
Effective tax rate 26.7%
Net income as a percent of beg. SH equity 6.6%
Other Information of Interest:
Net written premiums $ 433,707 $ 118,903 $ - $ 552,610
Catastrophe and storm losses $ 40,226 $ 17,025 $ - $ 57,251
Large losses* $ 35,673 $ - $ - $ 35,673
Reported favorable development
experienced on prior years' reserves $ (8,110) $ (12,682) $ - $ (20,792)
Favorable development that had no impact
on earnings 2,151 - - 2,151
Implied favorable development that had an impact
on earnings $ (5,959) $ (12,682) $ - $ (18,641)
GAAP Ratios:
Loss and settlement expense ratio 70.6% 73.9% - 71.3%
Acquisition expense ratio 32.3% 24.3% - 30.6%
Combined ratio 102.9% 98.2% - 101.9%
*Large losses are defined as losses greater than $500 for the EMC Insurance Companies pool, excluding catastrophe and storm losses.

CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2015 2014
($ in thousands, except share and per share amounts)(Unaudited)
ASSETS
Investments:
Fixed maturity securities available-for-sale, at fair value
(amortized cost $1,130,217 and $1,080,006)$ 1,161,025 $ 1,127,499
Equity securities available-for-sale, at fair value
(cost $144,176 and $123,972) 206,243 197,036
Other long-term investments 9,930 6,227
Short-term investments 38,599 53,262
Total investments 1,415,797 1,384,024
Cash 224 383
Reinsurance receivables due from affiliate 24,236 28,603
Prepaid reinsurance premiums due from affiliate 6,563 8,865
Deferred policy acquisition costs (affiliated $40,535 and $38,930) 40,720 39,343
Prepaid pension and postretirement benefits due from affiliate 12,133 17,360
Accrued investment income 10,789 10,295
Amounts receivable under reverse repurchase agreements 16,850 -
Accounts receivable 804 1,767
Income taxes recoverable 1,735 -
Goodwill 942 942
Other assets (affiliated $4,595 and $4,900) 5,162 6,238
Total assets$ 1,535,955 $ 1,497,820
LIABILITIES
Losses and settlement expenses (affiliated $671,169 and $650,652)$ 678,774 $ 661,309
Unearned premiums (affiliated $238,637 and $230,460) 239,435 232,093
Other policyholders' funds (all affiliated) 8,721 10,153
Surplus notes payable to affiliate 25,000 25,000
Amounts due affiliate to settle inter-company transaction balances 6,408 8,559
Pension benefits payable to affiliate 4,299 4,162
Income taxes payable - 3
Deferred income taxes 19,029 28,654
Other liabilities (affiliated $28,598 and $23,941) 29,351 25,001
Total liabilities 1,011,017 994,934
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized 30,000,000
shares; issued and outstanding, 20,780,439
shares in 2015 and 20,344,409 shares in 2014 20,781 20,344
Additional paid-in capital 108,747 99,891
Accumulated other comprehensive income 58,433 81,662
Retained earnings 336,977 300,989
Total stockholders' equity 524,938 502,886
Total liabilities and stockholders' equity$ 1,535,955 $ 1,497,820

LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS
Three months ended December 31,
2015 2014
($ in thousands) Premiums
earned
Losses and
settlement
expenses
Loss and
settlement
expense
ratio
Premiums
earned
Losses and
settlement
expenses
Loss and
settlement
expense
ratio
Property and casualty insurance
Commercial lines:
Automobile $ 27,206 $ 24,291 89.3% $ 25,251 $ 22,974 91.0%
Property 26,785 12,154 45.4% 25,399 9,553 37.6%
Workers' compensation 23,678 18,212 76.9% 23,184 14,406 62.1%
Liability 23,713 13,731 57.9% 22,508 14,912 66.3%
Other 2,035 60 3.0% 1,944 1,008 51.8%
Total commercial lines 103,417 68,448 66.2% 98,286 62,853 63.9%
Personal lines:
Automobile 5,542 5,546 100.1% 6,095 6,284 103.1%
Homeowners 5,026 2,421 48.2% 5,284 1,827 34.6%
Total personal lines 10,568 7,967 75.4% 11,379 8,111 71.3%
Total property and casualty
insurance $ 113,985 $ 76,415 67.0% $ 109,665 $ 70,964 64.7%
Reinsurance
Pro rata reinsurance:
Multiline (primarily property) $ 2,505 $ 2,096 83.7% $ 3,521 $ 3,436 97.6%
Property 3,447 336 9.8% (1,447) 533 (36.9)%
Liability 6,674 4,154 62.2% 1,258 732 58.2%
Marine (5,359) (621) 11.6% 3,209 6,355 198.0%
Total pro rata reinsurance 7,267 5,965 82.1% 6,541 11,056 169.0%
Excess of loss reinsurance:
Property 16,991 9,084 53.5% 16,449 2,082 12.7%
Liability 2,899 (1,331) (45.9)% 2,719 (95) (3.5)%
Total excess of loss reinsurance 19,890 7,753 39.0% 19,168 1,987 10.4%
Total reinsurance $ 27,157 $ 13,718 50.5% $ 25,709 $ 13,043 50.7%
Consolidated $ 141,142 $ 90,133 63.9% $ 135,374 $ 84,007 62.1%

LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS
Year ended December 31,
2015 2014
($ in thousands) Premiums earned Losses and
settlement
expenses
Loss and
settlement
expense
ratio
Premiums
earned
Losses and
settlement
expenses
Loss and
settlement
expense
ratio
Property and casualty insurance
Commercial lines:
Automobile $ 105,904 $ 86,134 81.3% $ 96,908 $ 79,838 82.4%
Property 104,303 65,806 63.1% 97,155 67,444 69.4%
Workers' compensation 92,828 57,803 62.3% 88,356 52,537 59.5%
Liability 92,665 48,399 52.2% 86,108 57,869 67.2%
Other 8,079 854 10.6% 7,416 1,713 23.1%
Total commercial lines 403,779 258,996 64.1% 375,943 259,401 69.0%
Personal lines:
Automobile 22,855 17,559 76.8% 25,094 20,757 82.7%
Homeowners 20,563 15,328 74.5% 21,344 17,875 83.7%
Total personal lines 43,418 32,887 75.7% 46,438 38,632 83.2%
Total property and casualty
insurance $ 447,197 $ 291,883 65.3% $ 422,381 $ 298,033 70.6%
Reinsurance
Pro rata reinsurance:
Multiline (primarily property) $ 7,089 $ 3,276 46.2% $ 8,552 $ 7,006 81.9%
Property 15,324 13,487 88.0% 8,482 10,645 125.5%
Liability 20,629 12,855 62.3% 9,919 5,715 57.6%
Marine 4,379 (185) (4.2)% 14,930 13,055 87.4%
Total pro rata reinsurance 47,421 29,433 62.1% 41,883 36,421 87.0%
Excess of loss reinsurance:
Property 63,416 41,125 64.8% 64,956 49,322 75.9%
Liability 12,232 8,295 67.8% 11,502 1,698 14.8%
Total excess of loss reinsurance 75,648 49,420 65.3% 76,458 51,020 66.7%
Total reinsurance $ 123,069 $ 78,853 64.1% $ 118,341 $ 87,441 73.9%
Consolidated $ 570,266 $ 370,736 65.0% $ 540,722 $ 385,474 71.3%

NET WRITTEN PREMIUMS
Three months ended Three months ended
December 31, 2015 December 31, 2014
Percent of Percent of Change in
Written net written Written net written net written
($ in thousands)premiums premiums premiums premiums premiums
Property and casualty insurance
Commercial lines:
Automobile$ 21,735 18.5% $ 21,423 18.6% 1.5%
Property 20,818 17.7% 19,924 17.3% 4.5%
Workers' compensation 17,717 15.0% 16,316 14.1% 8.6%
Liability 19,095 16.2% 18,274 15.8% 4.5%
Other 1,619 1.4% 1,684 1.5% (3.9)%
Total commercial lines 80,984 68.8% 77,621 67.3% 4.3%
Personal lines:
Automobile 4,825 4.1% 5,366 4.6% (10.1)%
Homeowners 4,296 3.7% 4,738 4.1% (9.3)%
Total personal lines 9,121 7.8% 10,104 8.7% (9.7)%
Total property and
casualty insurance$ 90,105 76.6% $ 87,725 76.0% 2.7%
Reinsurance
Pro rata reinsurance:
Multiline (primarily property)$ 2,416 2.1% $ 4,253 3.7% (43.2)%
Property 4,062 3.4% (833) (0.7)% (587.8)%
Liability 7,229 6.1% 2,257 1.9% 220.3%
Marine (5,287) (4.5)% 3,760 3.3% (240.6)%
Total pro rata reinsurance 8,420 7.1% 9,437 8.2% (10.8)%
Excess of loss reinsurance:
Property 16,186 13.8% 15,426 13.4% 4.9%
Liability 2,984 2.5% 2,764 2.4% 7.9%
Total excess of loss reinsurance 19,170 16.3% 18,190 15.8% 5.4%
Total reinsurance$ 27,590 23.4% $ 27,627 24.0% (0.1)%
Consolidated$ 117,695 100.0% $ 115,352 100.0% 2.0%
NET WRITTEN PREMIUMS
Year ended Year ended
December 31, 2015 December 31, 2014
Percent of Percent of Change in
Written net written Written net written net written
($ in thousands)premiums premiums premiums premiums premiums
Property and casualty insurance
Commercial lines:
Automobile$ 108,682 18.7% $ 101,758 18.4% 6.8%
Property 106,671 18.4% 100,916 18.3% 5.7%
Workers' compensation 94,629 16.4% 90,019 16.3% 5.1%
Liability 94,860 16.4% 88,640 16.0% 7.0%
Other 8,032 1.4% 7,591 1.4% 5.8%
Total commercial lines 412,874 71.3% 388,924 70.4% 6.2%
Personal lines:
Automobile 21,769 3.8% 23,949 4.3% (9.1)%
Homeowners 19,791 3.4% 20,834 3.8% (5.0)%
Total personal lines 41,560 7.2% 44,783 8.1% (7.2)%
Total property and
casualty insurance$ 454,434 78.5% $ 433,707 78.5% 4.8%
Reinsurance
Pro rata reinsurance:
Multiline (primarily property)$ 5,610 1.0% $ 9,463 1.7% (40.7)%
Property 15,423 2.6% 7,531 1.4% 104.8%
Liability 26,500 4.6% 12,055 2.2% 119.8%
Marine 1,119 0.2% 13,528 2.4% (91.7)%
Total pro rata reinsurance 48,652 8.4% 42,577 7.7% 14.3%
Excess of loss reinsurance:
Property 63,542 11.0% 64,768 11.7% (1.9)%
Liability 12,310 2.1% 11,558 2.1% 6.5%
Total excess of loss reinsurance 75,852 13.1% 76,326 13.8% (0.6)%
Total reinsurance$ 124,504 21.5% $ 118,903 21.5% 4.7%
Consolidated$ 578,938 100.0% $ 552,610 100.0% 4.8%

Contact: Steve Walsh (Investors) 515-345-2515 Lisa Hamilton (Media) 515-345-7589

Source:EMC Insurance Group Inc.