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EMC Insurance Group Inc. Reports 2016 Third Quarter and Nine Month Results

Third Quarter Ended September 30, 2016
Net Income Per Share – $0.20
Operating Income Per Share1 – $0.23
Net Realized Investment Losses Per Share – $0.03
Catastrophe and Storm Losses Per Share – $0.53
GAAP Combined Ratio – 102.9 percent

Nine Months Ended September 30, 2016
Net Income Per Share – $1.19
Operating Income Per Share1 – $1.21
Net Realized Investment Losses Per Share – $0.02
Catastrophe and Storm Losses Per Share – $1.41
GAAP Combined Ratio – 99.8 percent

DES MOINES, Iowa, Nov. 04, 2016 (GLOBE NEWSWIRE) -- EMC Insurance Group Inc. (NASDAQ:EMCI) (the “Company”), today reported net income of $4.1 million ($0.20 per share) for the third quarter ended September 30, 2016, compared to net income of $11.2 million ($0.54 per share) for the third quarter of 2015. For the nine months ended September 30, 2016, the Company reported net income of $24.9 million ($1.19 per share), compared to $40.3 million ($1.96 per share) for the same period in 2015.

Operating income1, which excludes realized investment gains and losses from net income, totaled $4.9 million ($0.23 per share) for the third quarter of 2016, compared to $6.3 million ($0.31 per share) for the third quarter of 2015. For the nine months ended September 30, 2016, the Company reported operating income of $25.3 million ($1.21 per share), compared to $32.8 million ($1.59 per share) for the same period in 2015.

The Company’s GAAP combined ratio was 102.9 percent in the third quarter of 2016, compared to 101.8 percent in the third quarter of 2015. For the first nine months of 2016, the Company’s GAAP combined ratio was 99.8 percent, compared to 97.0 percent in 2015.

“Commercial auto and personal lines continue to depress results,” stated President and Chief Executive Officer Bruce G. Kelley. “We expect to see gradual improvement in the performance of these lines during 2017 from our comprehensive Accelerate Commercial Auto Profitability project and our nearly complete personal lines initiative.

“The new intercompany reinsurance program in place for the property and casualty insurance segment is working as planned. Recoveries under the treaty covering the first half of the year reduced the volatility of our quarterly results caused by catastrophe and storm losses. While no recoveries have been made under the treaty covering the second half of the year, we are near its retention amount and therefore are expecting a minimal amount of catastrophe and storm losses in the fourth quarter,” concluded Kelley.

Premiums earned increased 4.4 percent and 2.9 percent for the third quarter and first nine months of 2016. In the property and casualty insurance segment, premiums earned increased 2.3 percent and 1.6 percent for the third quarter and first nine months of 2016. The new semi-annual aggregate catastrophe excess of loss intercompany reinsurance program between the Company’s three property and casualty insurance subsidiaries and Employers Mutual Casualty Company (Employers Mutual), the Company’s parent organization, reduced premiums earned by $765,000 and $7.1 million for the third quarter and first nine months of 2016. Excluding this cost, premiums earned increased 3.0 percent and 3.7 percent. The majority of these increases are attributed to growth in insured exposures, an increase in new business, and small rate level increases on renewal business.

In the reinsurance segment, premiums earned increased 11.8 percent and 7.2 percent for the third quarter and first nine months of 2016. These increases reflect reductions in the total cost of the revised excess of loss reinsurance program with Employers Mutual totaling $246,000 and $2.4 million for the third quarter and first nine months of 2016. In 2016, the total cost of the reinsurance program includes the premiums paid to Employers Mutual, as well as the cost of Industry Loss Warranties (ILWs) that have been purchased from external parties to provide increased protection in peak exposure territories. During 2015, the premium paid to Employers Mutual (8 percent of total assumed reinsurance premiums written) included the cost of ILWs purchased by Employers Mutual for its benefit. Excluding the reduction in the cost of the revised reinsurance program, premiums earned increased approximately 11.0 percent and 4.7 percent for the third quarter and first nine months of 2016. The increase for the third quarter was driven by the addition of some new accounts and growth in the pro rata line of business, partially offset by a decline in the marine business attributed to the offshore energy and liability proportional account.

Catastrophe and storm losses totaled $17.1 million ($0.53 per share after tax) in the third quarter of 2016, compared to $17.8 million ($0.56 per share after tax) in the third quarter of 2015. Catastrophe and storm losses increased $4.9 million in the property and casualty insurance segment, but declined $5.6 million in the reinsurance segment. The property and casualty insurance segment recovered an additional $3.5 million of catastrophe and storm losses from Employers Mutual during the third quarter under the January 1 through June 30 excess of loss reinsurance treaty, bringing the total recovery for first nine months of 2016 to $5.1 million. No recoveries were made under the July 1 through December 31 treaty; however, only $213,000 of retention remains under that treaty, meaning catastrophe and storm losses will be capped at $213,000 in the fourth quarter, unless the $12.0 million limit of protection is exceeded. No recoveries have been made under the reinsurance segment’s intercompany reinsurance program during the first nine months of 2016. Third quarter 2016 catastrophe and storm losses accounted for 11.1 percentage points of the combined ratio, which was lower than expected, and well below the Company’s most recent 10-year average of 14.3 percentage points for this period. Catastrophe and storm losses accounted for 12.2 percentage points of the combined ratio in the third quarter of 2015.

For the first nine months of 2016, catastrophe and storm losses totaled $45.5 million ($1.41 per share after tax), compared to $40.8 million ($1.29 per share after tax) in 2015. On a segment basis, catastrophe and storm losses amounted to $14.8 million ($0.46 per share after tax) and $34.8 million ($1.08 per share after tax) in the property and casualty insurance segment, and $2.3 million ($0.07 per share after tax) and $10.7 million ($0.33 per share after tax) in the reinsurance segment, for the three and nine months ended September 30, 2016, respectively.

During the third quarter of 2016, management implemented a new reserving methodology for the determination of direct bulk reserves in the property and casualty insurance segment. The new methodology, which is referred to as the accident year ultimate estimate approach, better conforms to industry practices and will provide increased transparency of the drivers of the property and casualty insurance segment's performance. Although the reserves carried at September 30, 2016 were calculated under the new reserving methodology, the explicit drivers of development on prior years' reserves for the three and nine months ended September 30, 2016 cannot be identified because the reserves carried at December 31, 2015 were calculated under the old reserving methodology, and the implicit accident year ultimate assumptions underlying that methodology are not known. The explicit drivers of development on prior years' reserves will be identifiable beginning in the first quarter of 2017.

The implementation of the new reserving methodology did not have a material impact on total carried reserves for the property and casualty insurance segment at September 30, 2016; however, approximately $5.6 million of incurred but not reported (IBNR) loss reserves and settlement expense reserves were reallocated from prior accident years to the current accident year in multiple lines of business. This reduction in prior accident years' reserves is reported as favorable development; however, this development is "mechanical" in nature, and did not have any impact on earnings because the total amount of carried reserves did not change as a result of this reallocation.

During the third quarter of 2015, approximately $2.4 million of reserves on a two-year contract were reallocated from the current accident year to the prior accident year in the reinsurance segment. The increase in prior accident year reserves is reported as adverse development; however, this development is also “mechanical” in nature and did not have any impact on earnings.

The Company reported $13.2 million ($0.41 per share after tax) of favorable development on prior years’ reserves during the third quarter of 2016, compared to $2.2 million ($0.07 per share after tax) in the third quarter of 2015. For the first nine months of 2016, favorable development totaled $29.1 million ($0.90 per share after tax), compared to $20.0 million ($0.63 per share after tax) in 2015. Excluding the “mechanical” development amounts described above, the implied amounts of favorable development that had an impact on earnings would be approximately $7.6 million and $23.5 million for the third quarter and first nine months of 2016, compared to $4.6 million and $22.3 million for the same periods in 2015.

Under the previous reserving methodology employed through the second quarter of 2016, development amounts could 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. With the conversion to the accident year ultimate estimate methodology as of the end of third quarter 2016, calendar year development on prior accident years is determined solely by changes in the prior accident years’ ultimate loss and settlement expense ratios. In transitioning to the new methodology, changes in the assumptions underlying the ultimate ratios previously established for accident years 2015 and prior are difficult to quantify as the implied ultimate ratios under the previous methodology were based on implicit, rather than explicit, actuarial assumptions. Therefore, comparison of 2016 third quarter and year-to-date development amounts to the 2015 development amounts provides little meaningful information, as the prior accident year reserve allocation method lacked explicit frequency and severity assumptions.

Large losses are defined as reported current accident year losses greater than $500,000 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. Under the property and casualty insurance segment's prior reserving methodology, large losses had a direct impact on earnings. Under the new reserving methodology, large losses are taken into consideration when establishing the current accident quarter/year ultimate estimates of losses, but there is no longer a direct relationship between large losses and earnings. As a result, it is no longer meaningful to report large losses separately. The amount of large losses previously reported for the first six months of 2016 has not been carried forward and disclosed for the nine months ended September 30, 2016, because it would not be comparable to the amount reported for the first nine months of 2015.

Net investment income increased 1.5 percent and 5.7 percent to $11.5 million and $35.9 million for the third quarter and first nine months of 2016, from $11.3 million and $33.9 million for the same periods in 2015. These increases are primarily attributed to higher amounts of dividend income, and an increase in interest income resulting from a higher average invested balance in fixed maturity securities.

Net realized investment losses totaled $1.2 million ($0.03 per share after tax) and $643,000 ($0.02 per share after tax) for the third quarter and first nine months of 2016, compared to net realized investment gains of $7.5 million ($0.23 per share after tax) and $11.6 million ($0.37 per share after tax) for the same periods in 2015. Included in net realized investment losses reported for the third quarter and first nine months of 2016 are $1.9 million and $5.3 million, respectively, of net realized investment losses attributed to declines in the carrying value of a limited partnership that helps to protect the Company from a sudden and significant decline in the value of its equity portfolio. Included in the net realized investment gains reported for the third quarter and first nine months of 2015 are net realized investment gains of $7.2 million and $3.8 million, respectively, attributed to an increase in the carrying value of this limited partnership that resulted from the sharp decline in the equity markets that occurred in August of 2015.

At September 30, 2016, consolidated assets totaled $1.6 billion, including $1.5 billion in the investment portfolio, and stockholders’ equity totaled $562.4 million, an increase of 7.1 percent from December 31, 2015. Book value of the Company’s stock increased 5.6 percent to $26.67 per share from $25.26 per share at December 31, 2015, but declined 0.5 percent from June 30, 2016, which reflects a decline in unrealized gains on the investment portfolio. Book value excluding accumulated other comprehensive income increased 2.9 percent to $23.09 per share from $22.45 per share at December 31, 2015, and was relatively flat compared to June 30, 2016.

Based on results for the first nine months of 2016 and projections for the remainder of the year, management is reaffirming its 2016 operating income1 guidance range of $1.55 to $1.75 per share. The guidance is based on a projected GAAP combined ratio of 99.6 percent for the year and investment income growth in the low- to mid-single digits. The load for catastrophe and storm losses has been reduced to 8.7 points from the previous expectation of 10.2 points; however, the 1.5 point decline in the loss ratio attributable to this reduction was offset by an increase in the core loss ratio.

The Company will hold an earnings teleconference call at noon Eastern time on Friday, November 4, 2016 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company’s results for the third quarter and nine months ended September 30, 2016, as well as its expectations for the remainder of 2016. Dial-in information for the call is toll-free 1-866-652-5200 (International: 1-412-317-6060).

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 for approximately 90 days following the earnings call. A transcript of the teleconference will be available on the Company’s website shortly after the completion of the teleconference.

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 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. EMCI and Employers Mutual, 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.

Definitions of Non-GAAP Information and Reconciliation to Comparable GAAP Measures:
The Company prepares its public financial statements in conformity with accounting principles generally accepted in the Unites States of America (GAAP). Management uses certain non-GAAP financial measures for goal setting, determining employee and senior management awards and compensation, and evaluating performance.

1Operating income: Operating income is calculated by excluding net realized investment gains/losses (defined as realized investment gains and losses after applicable federal and state income taxes) from net income. While realized investment gains (or losses) are integral to the Company’s insurance operations over the long term, the decision to realize investment gains or losses in any particular period is subject to changing market conditions and management’s discretion, and is independent of the Company’s insurance operations. 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 and analysts to evaluate performance, it is not intended as a substitute for the GAAP financial measure of net income. Therefore, the Company has provided the following reconciliations of the non-GAAP financial measure of operating income to the GAAP financial measure of net income.

RECONCILIATION OF OPERATING INCOME TO NET INCOME
($ in thousands)
Three months ended Nine months ended
September 30, September 30,
2016 2015 2016 2015
Operating income$ 4,904 $ 6,315 $ 25,329 $ 32,756
Net realized investment gains (losses) (after tax) (775) 4,874 (418) 7,511
Net income $ 4,129 $ 11,189 $ 24,911 $ 40,267
RECONCILIATION OF OPERATING INCOME PER SHARE TO NET INCOME PER SHARE
Three months ended Nine months ended
September 30, September 30,
2016 2015 2016 2015
Operating income$ 0.23 $ 0.31 $ 1.21 $ 1.59
Net realized investment gains (losses) (after tax) (0.03) 0.23 (0.02) 0.37
Net income $ 0.20 $ 0.54 $ 1.19 $ 1.96

Statutory data is prepared in accordance with statutory accounting principles as defined by the National Association of Insurance Commissioners’ (NAIC) Accounting Practices and Procedures Manual. Statutory data is publicly available, and various organizations use it to calculate aggregate industry data, study industry trends and compare insurance companies.

2Premiums written: Under statutory accounting principles, property/casualty premiums written is the cost of insurance coverage, and refers to premiums for all policies sold during a specified reporting period. Management analyzes trends in premiums written to assess business efforts. Premiums earned, used in both statutory and GAAP accounting, is the recognition of the portion of premiums written directly related to the expired portion of an insurance policy for a given reporting period. The unexpired portion of premiums written is referred to as unearned premiums, and represents the portion of premiums written that would be returned to a policyholder upon cancellation of a policy.

RECONCILIATION OF PREMIUMS WRITTEN TO PREMIUMS EARNED
($ in thousands)
Property and
Three months ended September 30, 2016Casualty Insurance Reinsurance Consolidated
Premiums written $ 138,904 $ 37,339 $ 176,243
Change in unearned premiums (22,532) (1,530) (24,062)
Premiums earned$ 116,372 $ 35,809 $ 152,181
Property and
Three months ended September 30, 2015Casualty Insurance Reinsurance Consolidated
Premiums written $ 134,722 $ 31,446 $ 166,168
Change in unearned premiums (20,969) 589 (20,380)
Premiums earned$ 113,753 $ 32,035 $ 145,788
Property and
Nine months ended September 30, 2016Casualty Insurance Reinsurance Consolidated
Premiums written $ 370,704 $ 98,754 $ 469,458
Change in unearned premiums (32,115) 4,021 (28,094)
Premiums earned$ 338,589 $ 102,775 $ 441,364
Property and
Nine months ended September 30, 2015Casualty Insurance Reinsurance Consolidated
Premiums written $ 364,329 $ 96,914 $ 461,243
Change in unearned premiums (31,117) (1,002) (32,119)
Premiums earned$ 333,212 $ 95,912 $ 429,124


CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
($ in thousands, except share and per share amounts)
Property and
Casualty Parent
Quarter ended September 30, 2016 Insurance Reinsurance Company Consolidated
Revenues:
Premiums earned $ 116,372 $ 35,809 $ - $ 152,181
Investment income, net 8,185 3,285 4 11,474
Other income (loss) 172 (257) - (85)
124,729 38,837 4 163,570
Losses and expenses:
Losses and settlement expenses 81,643 26,530 - 108,173
Dividends to policyholders 3,944 - - 3,944
Amortization of deferred policy acquisition costs 19,206 7,639 - 26,845
Other underwriting expenses 16,690 916 - 17,606
Interest expense 84 - - 84
Other expenses 190 - 489 679
121,757 35,085 489 157,331
Operating income (loss) before income taxes 2,972 3,752 (485) 6,239
Realized investment losses (799) (393) - (1,192)
Income (loss) before income taxes 2,173 3,359 (485) 5,047
Income tax expense (benefit):
Current 569 1,024 (145) 1,448
Deferred (264) (108) (158) (530)
305 916 (303) 918
Net income (loss) $ 1,868 $ 2,443 $ (182) $ 4,129
Average shares outstanding 21,060,665
Per Share Data:
Net income (loss) per share - basic and diluted $ 0.09 $ 0.12 $ (0.01) $ 0.20
Catastrophe and storm losses (after tax) $ 0.46 $ 0.07 $ - $ 0.53
Large losses* (after tax) N/A N/A N/A N/A
Reported favorable development
experienced on prior years' reserves (after tax) $ 0.39 $ 0.02 $ - $ 0.41
Favorable development that had no impact
on earnings (after tax) (0.17) - - (0.17)
Implied favorable development that had
an impact on earnings (after tax) $ 0.22 $ 0.02 $ - $ 0.24
Dividends per share $ 0.190
Other Information of Interest:
Premiums written2 $ 138,904 $ 37,339 $ - $ 176,243
Catastrophe and storm losses $ 14,787 $ 2,266 $ - $ 17,053
Large losses* N/A N/A N/A N/A
Reported favorable development
experienced on prior years' reserves $ (12,442) $ (796) $ - $ (13,238)
Favorable development that had no impact
on earnings 5,592 - - 5,592
Implied favorable development that had
an impact on earnings $ (6,850) $ (796) $ - $ (7,646)
GAAP Ratios:
Loss and settlement expense ratio 70.2% 74.1% - 71.1%
Acquisition expense ratio 34.2% 23.9% - 31.8%
Combined ratio 104.4% 98.0% - 102.9%


*Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. Under the property and casualty insurance segment's prior reserving methodology, large losses had a direct impact on earnings. Under the new reserving methodology, large losses are taken into consideration when establishing the current accident quarter/year ultimate estimates of losses, but there is no longer a direct relationship between large losses and earnings. As a result, it is no longer meaningful to report large losses separately.


CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
($ in thousands, except share and per share amounts)
Property and
Casualty Parent
Quarter ended September 30, 2015 Insurance Reinsurance Company Consolidated
Revenues:
Premiums earned $ 113,753 $ 32,035 $ - $ 145,788
Investment income, net 8,125 3,176 (2) 11,299
Other income 210 309 - 519
122,088 35,520 (2) 157,606
Losses and expenses:
Losses and settlement expenses 75,976 26,709 - 102,685
Dividends to policyholders 3,555 - - 3,555
Amortization of deferred policy acquisition costs 18,736 7,403 - 26,139
Other underwriting expenses 15,587 458 - 16,045
Interest expense 84 - - 84
Other expenses 196 - 479 675
114,134 34,570 479 149,183
Operating income (loss) before income taxes 7,954 950 (481) 8,423
Realized investment gains 4,889 2,609 - 7,498
Income (loss) before income taxes 12,843 3,559 (481) 15,921
Income tax expense (benefit):
Current 2,743 507 (169) 3,081
Deferred 1,235 416 - 1,651
3,978 923 (169) 4,732
Net income (loss) $ 8,865 $ 2,636 $ (312) $ 11,189
Average shares outstanding 20,684,890
Per Share Data:
Net income (loss) per share - basic and diluted $ 0.43 $ 0.12 $ (0.01) $ 0.54
Catastrophe and storm losses (after tax) $ 0.31 $ 0.25 $ - $ 0.56
Large losses* (after tax) $ 0.32 $ - $ - $ 0.32
Reported favorable (adverse) development
experienced on prior years' reserves (after tax)$ 0.15 $ (0.08) $ - $ 0.07
Adverse development that had no impact
on earnings (after tax) - 0.07 - 0.07
Implied favorable (adverse) development that had
an impact on earnings (after tax) $ 0.15 $ (0.01) $ - $ 0.14
Dividends per share $ 0.170
Other Information of Interest:
Premiums written2 $ 134,722 $ 31,446 $ - $ 166,168
Catastrophe and storm losses $ 9,920 $ 7,844 $ - $ 17,764
Large losses* $ 10,304 $ - $ - $ 10,304
Reported (favorable) adverse development
experienced on prior years' reserves $ (4,722) $ 2,495 $ - $ (2,227)
Adverse development that had no impact
on earnings - (2,361) - (2,361)
Implied (favorable) adverse development that had
an impact on earnings $ (4,722) $ 134 $ - $ (4,588)
GAAP Ratios:
Loss and settlement expense ratio 66.8% 83.4% - 70.4%
Acquisition expense ratio 33.3% 24.5% - 31.4%
Combined ratio 100.1% 107.9% - 101.8%


*Large losses are defined as reported current accident year 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
Nine months ended September 30, 2016 Insurance Reinsurance Company Consolidated
Revenues:
Premiums earned $ 338,589 $ 102,775 $ - $ 441,364
Investment income, net 25,524 10,350 9 35,883
Other income (loss) 466 (485) - (19)
364,579 112,640 9 477,228
Losses and expenses:
Losses and settlement expenses 225,207 70,895 - 296,102
Dividends to policyholders 11,292 - - 11,292
Amortization of deferred policy acquisition costs 58,129 22,611 - 80,740
Other underwriting expenses 49,839 2,295 - 52,134
Interest expense 253 - - 253
Other expenses 558 - 1,495 2,053
345,278 95,801 1,495 442,574
Operating income (loss) before income taxes 19,301 16,839 (1,486) 34,654
Realized investment losses (627) (16) - (643)
Income (loss) before income taxes 18,674 16,823 (1,486) 34,011
Income tax expense (benefit):
Current 6,425 5,601 (586) 11,440
Deferred (1,778) (494) (68) (2,340)
4,647 5,107 (654) 9,100
Net income (loss) $ 14,027 $ 11,716 $ (832) $ 24,911
Average shares outstanding 20,964,236
Per Share Data:
Net income (loss) per share - basic and diluted $ 0.67 $ 0.56 $ (0.04) $ 1.19
Catastrophe and storm losses (after tax) $ 1.08 $ 0.33 $ - $ 1.41
Large losses* (after tax) N/A N/A N/A N/A
Reported favorable development experienced on
prior years' reserves (after tax) $ 0.69 $ 0.21 $ - $ 0.90
Favorable development that had no impact
on earnings (after tax) (0.17) - - (0.17)
Implied favorable development that had an impact
on earnings (after tax) $ 0.52 $ 0.21 $ - $ 0.73
Dividends per share $ 0.570
Book value per share $ 26.67
Effective tax rate 26.8%
Annualized net income as a percent of beg. SH equity 6.3%
Other Information of Interest:
Premiums written2 $ 370,704 $ 98,754 $ - $ 469,458
Catastrophe and storm losses $ 34,787 $ 10,747 $ - $ 45,534
Large losses* N/A N/A N/A N/A
Reported favorable development experienced on
prior years' reserves $ (22,229) $ (6,880) $ - $ (29,109)
Favorable development that had no impact
on earnings 5,592 - - 5,592
Implied favorable development that had an impact
on earnings $ (16,637) $ (6,880) $ - $ (23,517)
GAAP Ratios:
Loss and settlement expense ratio 66.5% 69.0% - 67.1%
Acquisition expense ratio 35.2% 24.2% - 32.7%
Combined ratio 101.7% 93.2% - 99.8%


*Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses. Under the property and casualty insurance segment's prior reserving methodology, large losses had a direct impact on earnings. Under the new reserving methodology, large losses are taken into consideration when establishing the current accident quarter/year ultimate estimates of losses, but there is no longer a direct relationship between large losses and earnings. As a result, it is no longer meaningful to report large losses separately. The amount of large losses previously reported for the first six months of 2016 has not been carried forward and disclosed for the nine months ended September 30, 2016, because it would not be comparable to the amount reported for the first nine months of 2015.


CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
($ in thousands, except share and per share amounts)
Property and
Casualty Parent
Nine months ended September 30, 2015 Insurance Reinsurance Company Consolidated
Revenues:
Premiums earned $ 333,212 $ 95,912 $ - $ 429,124
Investment income, net 24,301 9,654 (9) 33,946
Other income 582 1,040 - 1,622
358,095 106,606 (9) 464,692
Losses and expenses:
Losses and settlement expenses 215,468 65,135 - 280,603
Dividends to policyholders 6,492 - - 6,492
Amortization of deferred policy acquisition costs 56,003 22,820 - 78,823
Other underwriting expenses 47,784 2,567 - 50,351
Interest expense 253 - - 253
Other expenses 568 - 1,424 1,992
326,568 90,522 1,424 418,514
Operating income (loss) before income taxes 31,527 16,084 (1,433) 46,178
Realized investment gains 7,866 3,689 - 11,555
Income (loss) before income taxes 39,393 19,773 (1,433) 57,733
Income tax expense (benefit):
Current 10,513 5,583 (502) 15,594
Deferred 1,312 560 - 1,872
11,825 6,143 (502) 17,466
Net Income (loss) $ 27,568 $ 13,630 $ (931) $ 40,267
Average shares outstanding 20,577,493
Per Share Data:
Net income (loss) per share - basic and diluted $ 1.34 $ 0.66 $ (0.04) $ 1.96
Catastrophe and storm losses (after tax) $ 0.91 $ 0.38 $ - $ 1.29
Large losses* (after tax) $ 0.68 $ - $ - $ 0.68
Reported favorable development
experienced on prior years' reserves (after tax) $ 0.45 $ 0.18 $ - $ 0.63
Adverse development that had no impact
on earnings (after tax) - 0.07 - 0.07
Implied favorable development that had an impact
on earnings (after tax) $ 0.45 $ 0.25 $ - $ 0.70
Dividends per share $ 0.503
Book value per share $ 25.09
Effective tax rate 30.3%
Annualized net income as a percent of beg. SH equity 10.7%
Other Information of Interest:
Premiums written2 $ 364,329 $ 96,914 $ - $ 461,243
Catastrophe and storm losses $ 28,651 $ 12,104 $ - $ 40,755
Large losses* $ 21,453 $ - $ - $ 21,453
Reported favorable development
experienced on prior years' reserves $ (14,177) $ (5,780) $ - $ (19,957)
Adverse development that had no impact
on earnings - (2,361) - (2,361)
Implied favorable development that had an impact
on earnings $ (14,177) $ (8,141) $ - $ (22,318)
GAAP Ratios:
Loss and settlement expense ratio 64.7% 67.9% - 65.4%
Acquisition expense ratio 33.1% 26.5% - 31.6%
Combined ratio 97.8% 94.4% - 97.0%


*Large losses are defined as reported current accident year losses greater than $500 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses.


CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2016 2015
($ in thousands, except share and per share amounts)(Unaudited)
ASSETS
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost $1,184,470 and $1,130,217)$ 1,237,150 $ 1,161,025
Equity securities available-for-sale, at fair value (cost $151,852 and $144,176) 219,282 206,243
Other long-term investments 9,941 9,930
Short-term investments 42,611 38,599
Total investments 1,508,984 1,415,797
Cash 350 224
Reinsurance receivables due from affiliate 22,590 24,236
Prepaid reinsurance premiums due from affiliate 11,588 6,563
Deferred policy acquisition costs (affiliated $44,320 and $40,535) 44,620 40,720
Prepaid pension and postretirement benefits due from affiliate 11,043 12,133
Accrued investment income 12,143 10,789
Amounts receivable under reverse repurchase agreements 16,850 16,850
Accounts receivable 2,958 804
Income taxes recoverable - 1,735
Goodwill 942 942
Other assets (affiliated $4,838 and $4,595) 5,437 5,162
Total assets$ 1,637,505 $ 1,535,955
LIABILITIES
Losses and settlement expenses (affiliated $695,461 and $671,169)$ 700,565 $ 678,774
Unearned premiums (affiliated $271,539 and $238,637) 272,900 239,435
Other policyholders' funds (all affiliated) 11,809 8,721
Surplus notes payable to affiliate 25,000 25,000
Amounts due affiliate to settle inter-company transaction balances 4,025 6,408
Pension benefits payable to affiliate 3,826 4,299
Income taxes payable 156 -
Deferred income taxes 25,894 19,029
Other liabilities (affiliated $24,659 and $28,598) 30,921 29,351
Total liabilities 1,075,096 1,011,017
STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized 30,000,000 shares; issued and outstanding, 21,084,948 shares in 2016 and 20,780,439 shares in 2015 21,085 20,781
Additional paid-in capital 115,724 108,747
Accumulated other comprehensive income 75,529 58,433
Retained earnings 350,071 336,977
Total stockholders' equity 562,409 524,938
Total liabilities and stockholders' equity$ 1,637,505 $ 1,535,955


LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS
Three months ended September 30,
2016 2015
($ 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 $ 28,113 $ 26,274 93.5% $ 27,080 $ 24,555 90.7%
Property 27,471 17,227 62.7% 26,526 19,290 72.7%
Workers' compensation 24,536 13,510 55.1% 23,777 12,098 50.9%
Liability 24,277 14,179 58.4% 23,449 10,726 45.7%
Other 2,102 705 33.6% 2,032 348 17.1%
Total commercial lines 106,499 71,895 67.5% 102,864 67,017 65.2%
Personal lines 9,873 9,748 98.7% 10,889 8,959 82.3%
Total property and casualty insurance $ 116,372 $ 81,643 70.2% $ 113,753 $ 75,976 66.8%
Reinsurance
Pro rata reinsurance $ 15,066 $ 10,235 67.9% $ 13,037 $ 9,667 74.2%
Excess of loss reinsurance 20,743 16,295 78.6% 18,998 17,042 89.7%
Total reinsurance $ 35,809 $ 26,530 74.1% $ 32,035 $ 26,709 83.4%
Consolidated $ 152,181 $ 108,173 71.1% $ 145,788 $ 102,685 70.4%


Nine months ended September 30,
2016 2015
($ 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 $ 82,449 $ 69,763 84.6% $ 78,698 $ 61,843 78.6%
Property 77,292 52,687 68.2% 77,518 53,652 69.2%
Workers' compensation 71,272 39,680 55.7% 69,150 39,591 57.3%
Liability 72,086 38,045 52.8% 68,952 34,668 50.3%
Other 6,246 648 10.4% 6,044 794 13.1%
Total commercial lines 309,345 200,823 64.9% 300,362 190,548 63.4%
Personal lines 29,244 24,384 83.4% 32,850 24,920 75.9%
Total property and casualty insurance $ 338,589 $ 225,207 66.5% $ 333,212 $ 215,468 64.7%
Reinsurance
Pro rata reinsurance $ 44,175 $ 26,367 59.7% $ 40,154 $ 23,468 58.4%
Excess of loss reinsurance 58,600 44,528 76.0% 55,758 41,667 74.7%
Total reinsurance $ 102,775 $ 70,895 69.0% $ 95,912 $ 65,135 67.9%
Consolidated $ 441,364 $ 296,102 67.1% $ 429,124 $ 280,603 65.4%


PREMIUMS WRITTEN2
Three months ended Three months ended
September 30, 2016 September 30, 2015
Percent of Percent of Change in
Premiums premiums Premiums premiums premiums
($ in thousands)written written written written written
Property and casualty insurance
Commercial lines:
Automobile$ 29,649 16.8% $ 28,904 17.4% 2.6%
Property 34,062 19.3% 32,891 19.8% 3.6%
Workers' compensation 35,623 20.2% 33,385 20.1% 6.7%
Liability 27,060 15.4% 26,556 16.0% 1.9%
Other 2,329 1.3% 2,213 1.3% 5.2%
Total commercial lines 128,723 73.0% 123,949 74.6% 3.9%
Personal lines 10,181 5.8% 10,773 6.5% (5.5)%
Total property and casualty insurance$ 138,904 78.8% $ 134,722 81.1% 3.1%
Reinsurance
Pro rata reinsurance$ 15,115 8.6% $ 12,103 7.3% 24.9%
Excess of loss reinsurance 22,224 12.6% 19,343 11.6% 14.9%
Total reinsurance$ 37,339 21.2% $ 31,446 18.9% 18.7%
Consolidated$ 176,243 100.0% $ 166,168 100.0% 6.1%
Nine months ended Nine months ended
September 30, 2016 September 30, 2015
Percent of Percent of Change in
Premiums premiums Premiums premiums premiums
($ in thousands)written written written written written
Property and casualty insurance
Commercial lines:
Automobile$ 89,974 19.2% $ 86,947 18.9% 3.5%
Property 85,534 18.2% 85,853 18.6% (0.4)%
Workers' compensation 80,896 17.2% 76,912 16.7% 5.2%
Liability 78,456 16.7% 75,765 16.4% 3.6%
Other 6,863 1.5% 6,413 1.4% 7.0%
Total commercial lines 341,723 72.8% 331,890 72.0% 3.0%
Personal lines 28,981 6.2% 32,439 7.0% (10.7)%
Total property and casualty insurance$ 370,704 79.0% $ 364,329 79.0% 1.7%
Reinsurance
Pro rata reinsurance$ 42,078 9.0% $ 40,232 8.7% 4.6%
Excess of loss reinsurance 56,676 12.0% 56,682 12.3% -
Total reinsurance$ 98,754 21.0% $ 96,914 21.0% 1.9%
Consolidated$ 469,458 100.0% $ 461,243 100.0% 1.8%

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

Source:EMC Insurance Group Inc.