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CST: 08/12/2019 09:40:44   

EMC Insurance Group Inc. Reports 2019 Second Quarter and Six Month Results

122 Days ago

Second Quarter Ended June 30, 2019
Net Income Per Share – $0.06
Non-GAAP Operating Loss Per Share* – ($0.10)
Net Realized Investment Gains and Change in Unrealized
  Gains on Equity Investments Per Share – $0.16
Catastrophe and Storm Losses Per Share – $0.62
GAAP Combined Ratio – 108.5 percent

Six Months Ended June 30, 2019
Net Income Per Share – $1.61
Non-GAAP Operating Income Per Share* – $0.63
Net Realized Investment Gains and Change in Unrealized
  Gains on Equity Investments Per Share – $0.98
Catastrophe and Storm Losses Per Share – $0.84
GAAP Combined Ratio – 102.1 percent

2019 Non-GAAP Operating Income Guidance* of $1.35 to $1.55 per share

*Denotes financial measure not calculated in accordance with generally accepted accounting principles (non-GAAP). See “Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures” for additional information.

DES MOINES, Iowa, Aug. 08, 2019 (GLOBE NEWSWIRE) -- EMC Insurance Group Inc. (Nasdaq:EMCI) (the “Company”), today reported net income of $1.3 million ($0.06 per share) and $34.8 million ($1.61 per share) for the second quarter and first six months of 2019, compared to net losses of $5.0 million ($0.24 per share) and $5.1 million ($0.24 per share) for the same periods in 2018, respectively. Included in the net income amounts reported for the second quarter and first six months of 2019 are a $4.7 million pre-tax decrease and $15.2 million pre-tax increase, respectively, in unrealized gains on the Company’s equity investments. Also contributing to the net income amounts reported for the second quarter and first six months of 2019 are $8.9 million and $11.7 million, respectively, of pre-tax realized investment gains. Included in the net loss reported for the second quarter and first six months 2018 were $5.4 million and $952,000, respectively, of pre-tax realized investment losses and declines of $447,000 and $10.3 million, respectively, in unrealized gains on the Company’s equity investments.

Non-GAAP operating loss, which excludes net realized investment gains/losses and the change in unrealized gains on equity investments from net income/loss, totaled $2.1 million ($0.10 per share) for the second quarter of 2019, compared to $365,000 ($0.02 per share) for the second quarter of 2018. For the six months ended June 30, 2019, the Company reported non-GAAP operating income of $13.6 million ($0.63 per share), compared to $3.8 million ($0.18 per share) for the same period in 2018.

“Premium growth in the first half of the year has outpaced expectations due to better than expected commercial lines business growth and strong growth in the reinsurance segment,” stated President and Chief Executive Officer Bruce G. Kelley. “We are now expecting earned premium growth in the reinsurance segment to be in the high-single digits for 2019, up from the previous low-single digit projection.”   

Kelley continued, “The planning stage of the digital transformation project to replace our legacy systems is nearly complete. After refining the effort and scope of the project during the second quarter, we now estimate that the Company’s portion of the pre-tax expense will approximate $37.0 million over the next five years, up from the previous estimate of $28.0 million. The implementation stage of this project is expected to begin in the third quarter.”

“We continue to make progress on our transition out of personal lines business and are working to realign our resources to improve the growth and profit potential of our commercial lines business,” concluded Kelley.

The Company’s GAAP combined ratios were 108.5 percent and 102.1 percent for the second quarter and first six months of 2019, respectively, compared to 109.8 percent and 107.2 percent for the same periods in 2018. There was significant disparity by segment as the property and casualty insurance segment reported GAAP combined ratios of 113.0 percent and 105.5 percent for the second quarter and first six months of 2019, respectively, while the reinsurance segment reported GAAP combined ratios of 94.4 percent and 92.1 percent for the same periods.

Premiums earned increased 6.4 percent and 6.9 percent for the second quarter and first six months of 2019, respectively. In the property and casualty insurance segment, premiums earned increased 4.0 percent and 4.6 percent for the second quarter and first six months of 2019, respectively. These increases are attributed to the commercial lines business primarily due to an increase in retained policies, small rate level increases on renewal business and growth of new business. Premiums earned in the personal lines of business were down 22.0 percent and 11.7 percent in the second quarter and first six months of 2019, respectively, and this decline will increase significantly during the remainder of the year as the pace of non-renewals increases. In the reinsurance segment, premiums earned increased 14.8 percent and 14.6 percent for the second quarter and first six months of 2019, respectively. These increases stem from increases in participation on existing multi-line and specialty casualty contracts, higher estimated premiums and the addition of some new business.

The property and casualty insurance segment reported a loss and settlement expense ratio of 74.1 percent for the second quarter ended June 30, 2019, which is down slightly from the 77.6 percent reported in the second quarter of 2018. This improvement was primarily driven by declines in estimated loss severity for most lines of commercial business, excluding the other liability line of business. As expected, the loss and settlement expense ratio for the personal lines of business deteriorated in the second quarter due to actions taken to exit from this line of business; however, both loss frequency and severity have been higher than expected. The reinsurance segment reported a loss and settlement expense ratio of 69.1 percent for the second quarter of 2019, which is up slightly from the 68.1 percent reported for the second quarter of 2018.

Catastrophe and storm losses totaled $17.1 million ($0.62 per share after tax) and $23.0 million ($0.84 per share after tax) for the second quarter and first six months of 2019, compared to $16.7 million ($0.61 per share after tax) and $21.4 million ($0.78 per share after tax) for the same periods in 2018, respectively. The property and casualty insurance subsidiaries ceded $1.0 million and $1.5 million of catastrophe and storm losses to Employers Mutual Casualty Company (Employers Mutual) during the second quarter and first six months of 2019 under its intercompany reinsurance program compared to $317,000 and $784,000 for the same periods in 2018, respectively. The property and casualty insurance subsidiaries have filled the $22.0 million retention amount under the 2019 January 1 to June 30 treaty; therefore, any further development on events that occurred during the first six months of 2019 will be ceded to Employers Mutual. On a segment basis, catastrophe and storm losses for the second quarter and first six months of 2019 amounted to $16.1 million ($0.58 per share after tax) and $22.0 million ($0.80 per share after tax), respectively, in the property and casualty insurance segment, and $1.0 million ($0.04 per share after tax) for both periods in the reinsurance segment.

The Company reported $2.3 million ($0.08 per share after tax) and $15.6 million ($0.57 per share after tax) of favorable development on prior years’ reserves during the second quarter and first six months of 2019, respectively, compared to $511,000 ($0.01 per share after tax) and $6.1 million ($0.22 per share after tax) for the same periods in 2018. In the property and casualty insurance segment, favorable development on prior years’ reserves totaled $4.9 million and $14.6 million for the second quarter and first six months of 2019. The favorable development is primarily attributed to reductions in prior year ultimate loss ratios for most lines of business except personal automobile liability and homeowners, with the largest contributions coming from the workers’ compensation and commercial automobile liability lines of business. The reinsurance segment reported unfavorable development of $2.6 million for the second quarter of 2019, and favorable development of $1.0 million for the first six months of 2019. The favorable development reported for the first six months of 2019 is primarily attributed to better than expected experience on global excess contracts, partially offset by unfavorable development on several large losses under a 2018 property per risk excess contract, unfavorable development on a 2014 casualty pro rata contract, and a small amount of unfavorable development on Mutual Re business.

Net investment income increased 10.0 percent and 11.1 percent to $13.0 million and $25.7 million for the second quarter and first six months of 2019, from $11.8 million and $23.1 million for the same periods in 2018. This increase is primarily the result of actions taken during 2018 to sell fixed maturity securities with lower book yields and reinvest the proceeds in fixed maturity securities with similar characteristics, but higher book yields.

The pre-tax realized investment gains of $8.9 million and $11.7 million reported for the second quarter and first six months of 2019 include pre-tax realized investment losses of $617,000 and $1.6 million, respectively, generated from changes 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). Pre-tax realized investment losses of $5.4 million and $952,000 for the second quarter and first six months of 2018 include a pre-tax realized investment loss of $1.7 million and a pre-tax realized investment gain of $78,000, respectively, attributed to changes in the carrying value of this limited partnership.

Other income totaled $1.6 million and $3.1 million in the second quarter and first six months of 2019, respectively, and includes $1.3 million and $2.6 million of net periodic pension and postretirement benefit income. In the second quarter and first six months of 2018, other income totaled $2.8 million and $4.4 million, respectively, and includes $1.9 million and $3.7 million of net periodic pension and postretirement benefit income, and $678,000 and $242,000 of foreign currency exchange gains.

During the three and six months ended June 30, 2019, the holding company incurred expenses totaling $2.0 million and $2.6 million, respectively, in connection with Employers Mutual’s proposal to purchase all of the remaining shares of the Company’s common stock.

At June 30, 2019, consolidated assets totaled $1.8 billion, including $1.7 billion in the investment portfolio, and stockholders’ equity totaled $630.6 million, an increase of 11.4 percent from December 31, 2018. Book value of the Company’s common stock increased 2.3 percent to $29.10 per share from $28.44 per share at March 31, 2019, and increased 11.2 percent from $26.18 per share at December 31, 2018. The increases are primarily due to the net income reported for the first six months of 2019 and an increase in unrealized investment gains on the fixed maturity portfolio attributable to a decline in interest rates during the first half of 2019.

Based on actual results for the first six months of 2019 and updated projections for the remainder of the year, management is reaffirming its 2019 non-GAAP operating income guidance range of $1.35 to $1.55 per share. This guidance is based on a projected GAAP combined ratio of 101.7 percent for the year. The projection includes updated amounts for the anticipated expenses associated with Employers Mutual’s digital transformation project and expenses to be incurred by the Company in connection with Employers Mutual’s proposal to purchase all of the remaining shares of the Company’s common stock. Nominal changes were also made to the other assumptions utilized in the projection.  

Earnings Conference Call
The Company will not hold an earnings conference call due to the execution of a definitive merger agreement, pursuant to which Employers Mutual proposes to acquire all of the remaining shares of the Company for $36.00 per share in cash.

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 the Company may be found at investors.emcins.com. 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 all information currently available into account. 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 federal corporate tax rate;
  • 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”, “may”, “intend”, “likely” 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.

Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures
The Company prepares its public financial statements in conformity with GAAP. Management uses certain non-GAAP financial measures for evaluating the Company’s performance. These measures are considered non-GAAP financial measures under applicable Securities and Exchange Commission (SEC) rules because they are not displayed as separate line items in the consolidated financial statements or are not required to be disclosed in the notes to financial statements or, in some cases, include or exclude certain items not ordinarily included or excluded in the most comparable GAAP financial measure. The Company’s calculation of non-GAAP financial measures may differ from similar measures used by other companies, so investors should exercise caution when comparing the Company’s non-GAAP financial measures to the measures used by other companies. The following discussion includes reconciliations of the most directly comparable GAAP financial measures to the non-GAAP financial measures referenced in this report.

Non-GAAP operating income: One of the primary non-GAAP financial measures utilized by management for evaluating the Company’s performance is operating income. Non-GAAP operating income is calculated by excluding net realized investment gains/losses and the change in unrealized gains/losses on equity investments from net income/loss. While realized investment gains/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. Changes in unrealized gains/losses on equity investments are not predictable due to changing market conditions and are therefore also excluded from the calculation of non-GAAP operating income.

Management’s operating income guidance is also considered a non-GAAP financial measure. For the reasons noted above, management is unable to accurately project the amount of net income/loss that will result from realized investment gains/losses and changes in the unrealized gains/losses on equity investments, and therefore utilizes non-GAAP operating income in the Company’s projected annual guidance.  

Management believes non-GAAP operating income is useful to investors because it illustrates the performance of the Company’s normal, ongoing insurance 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/loss.

RECONCILIATION OF NET INCOME/LOSS TO NON-GAAP OPERATING INCOME/LOSS      
($ in thousands)                
  Three months ended June 30,   Six months ended June 30,
 
    2019       2018       2019       2018    
Net income (loss) $   1,285     $   (4,995 )   $   34,816     $   (5,071 )  
Realized investment (gains) losses     (8,932 )       5,413         (11,746 )       952    
Change in unrealized gains on equity investments     4,674         447         (15,155 )       10,301    
Income tax expense (benefit)     894         (1,230 )       5,649         (2,363 )  
Net realized investment (gains) losses and change in                
unrealized gains on equity investments     (3,364 )       4,630         (21,252 )       8,890    
Non-GAAP operating income (loss) $   (2,079 )   $   (365 )   $   13,564     $   3,819    
                 
RECONCILIATION OF NET INCOME/LOSS PER SHARE TO NON-GAAP OPERATING INCOME/LOSS PER SHARE        
  Three months ended June 30,   Six months ended June 30,
 
    2019       2018       2019       2018    
Net income (loss) $   0.06     $   (0.24 )   $   1.61     $   (0.24 )  
Realized investment (gains) losses     (0.41 )       0.25         (0.54 )       0.04    
Change in unrealized gains on equity investments     0.22         0.02         (0.70 )       0.48    
Income tax expense (benefit)     0.03         (0.05 )       0.26         (0.10 )  
Net realized investment (gains) losses and change in                 
unrealized gains on equity investments     (0.16 )       0.22         (0.98 )       0.42    
Non-GAAP operating income (loss) $   (0.10 )   $   (0.02 )   $   0.63     $   0.18    
                 

Property and casualty insurance segment’s underlying loss and settlement expense ratio: The loss and settlement expense ratio is the ratio (expressed as a percentage) of losses and settlement expenses incurred to premiums earned, which management uses as a measure of underwriting profitability of the Company’s property and casualty insurance business. The underlying loss and settlement expense ratio is a non-GAAP financial measure which represents the loss and settlement expense ratio, excluding the impact of catastrophe and storm losses and development on prior years’ reserves. Management uses this ratio as an indicator of the property and casualty insurance segment’s underwriting discipline and performance for the current accident year. Management believes this ratio is useful for investors to understand the property and casualty insurance segment’s periodic earnings and variability of earnings caused by the unpredictable nature (i.e., the timing and amount) of catastrophe and storm losses and development on prior years’ reserves. 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 loss and settlement expense ratio.

               
RECONCILIATION OF THE PROPERTY AND CASUALTY INSURANCE SEGMENT'S LOS S AND SETTLEMENT      
EXPENSE RATIO TO THE UNDERLYING LOSS AND SETTLEMENT EXPENSE RATIO        
  Three months ended June 30,   Six months ended June 30,
  2019    2018    2019    2018 
Loss and settlement expense ratio 74.1 %   77.6 %   67.9 %   74.0 %
Catastrophe and storm losses   (12.8  )%     (12.9  )%     (8.8  )%     (8.3  )%
Favorable development on prior years' reserves 3.9 %   2.6 %   5.8 %   2.2 %
Underlying loss and settlement expense ratio 65.2 %   67.3 %   64.9 %   67.9 %
               

Industry Metric
Premiums written: Premiums written is an industry metric used in statutory accounting to quantify the amount of insurance sold during a specified reporting period. Management analyzes trends in premiums written to assess business efforts and uses it as a financial measure for goal setting and determining a portion of employee and senior management awards and compensation. 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.                                                                                             

     
CONSOLIDATED STATEMENTS OF INCOME  - UNAUDITED    
($ in thousands, except share and per share amounts)                
Quarter ended June 30, 2019   Property and Casualty Insurance   Reinsurance   Parent Company   Consolidated
Revenues:                
Premiums earned   $ 126,297     $ 41,836     $     $ 168,133  
Investment income, net   9,129     3,808     14     12,951  
Other income   1,551     6         1,557  
    136,977     45,650     14     182,641  
Losses and expenses:                
Losses and settlement expenses   93,594     28,923         122,517  
Dividends to policyholders   3,384             3,384  
Amortization of deferred policy acquisition costs   22,973     9,711         32,684  
Other underwriting expenses   22,826     889         23,715  
Interest expense   170             170  
Other expenses   201         2,587     2,788  
    143,148     39,523     2,587     185,258  
Operating income (loss) before income taxes   (6,171 )   6,127     (2,573 )   (2,617 )
Net realized investment gains (losses) and change in unrealized gains on equity investments   2,930     1,545     (217 )   4,258  
Income (loss) before income taxes   (3,241 )   7,672     (2,790 )   1,641  
Income tax expense (benefit):                
Current   119     1,648     (227 )   1,540  
Deferred   (894 )   (261 )   (29 )   (1,184 )
    (775 )   1,387     (256 )   356  
Net income (loss)   $ (2,466 )   $ 6,285     $ (2,534 )   $ 1,285  
Average shares outstanding               21,670,297  
Per Share Data:                
Net income (loss) per share - basic and diluted   $ (0.11 )   $ 0.29     $ (0.12 )   $ 0.06  
Catastrophe and storm losses (after tax)   $ 0.58     $ 0.04     $     $ 0.62  
Favorable (unfavorable) development on prior years' reserves (after tax)   $ 0.17     $ (0.09 )   $     $ 0.08  
Dividends per share               $ 0.23  
Other Information of Interest:                
Premiums written   $ 128,153     $ 38,208     $     $ 166,361  
Catastrophe and storm losses   $ 16,112     $ 1,006     $     $ 17,118  
(Favorable) unfavorable development on prior years' reserves   $ (4,932 )   $ 2,606     $     $ (2,326 )
GAAP Ratios:                
Loss and settlement expense ratio   74.1 %   69.1 %   %   72.9 %
Acquisition expense ratio   38.9 %   25.3 %   %   35.6 %
Combined ratio   113.0 %   94.4 %   %   108.5 %


     
CONSOLIDATED STATEMENTS OF INCOME  - UNAUDITED    
($ in thousands, except share and per share amounts)                
Quarter ended June 30, 2018   Property and Casualty Insurance   Reinsurance   Parent Company   Consolidated
Revenues:                
Premiums earned   $ 121,495     $ 36,451     $     $ 157,946  
Investment income, net   8,410     3,360     8     11,778  
Other income   2,095     678         2,773  
    132,000     40,489     8     172,497  
Losses and expenses:                
Losses and settlement expenses   94,255     24,836         119,091  
Dividends to policyholders   2,386             2,386  
Amortization of deferred policy acquisition costs   21,173     8,256         29,429  
Other underwriting expenses   21,944     507         22,451  
Interest expense   171             171  
Other expenses   244         587     831  
    140,173     33,599     587     174,359  
Operating income (loss) before income taxes   (8,173 )   6,890     (579 )   (1,862 )
Net realized investment gains (losses) and change in unrealized gains on equity investments   (4,692 )   (1,168 )       (5,860 )
Income (loss) before income taxes   (12,865 )   5,722     (579 )   (7,722 )
Income tax expense (benefit):                
Current   (4,219 )   1,081     (173 )   (3,311 )
Deferred   496     36     52     584  
    (3,723 )   1,117     (121 )   (2,727 )
Net income (loss)   $ (9,142 )   $ 4,605     $ (458 )   $ (4,995 )
Average shares outstanding               21,529,727  
Per Share Data:                
Net income (loss) per share - basic and diluted   $ (0.43 )   $ 0.21     $ (0.02 )   $ (0.24 )
Catastrophe and storm losses (after tax)   $ 0.57     $ 0.04     $     $ 0.61  
Favorable (unfavorable) development on prior years' reserves (after tax)   $ 0.11     $ (0.10 )   $     $ 0.01  
Dividends per share               $ 0.22  
Other Information of Interest:                
Premiums written   $ 131,201     $ 31,911     $     $ 163,112  
Catastrophe and storm losses   $ 15,707     $ 1,003     $     $ 16,710  
(Favorable) unfavorable development on prior years' reserves   $ (3,151 )   $ 2,640     $     $ (511 )
GAAP Ratios:                
Loss and settlement expense ratio   77.6 %   68.1 %   %   75.4 %
Acquisition expense ratio   37.4 %   24.1 %   %   34.4 %
Combined ratio   115.0 %   92.2 %   %   109.8 %


     
CONSOLIDATED STATEMENTS OF INCOME  - UNAUDITED    
($ in thousands, except share and per share amounts)                
Six months ended June 30, 2019   Property and Casualty Insurance   Reinsurance   Parent Company   Consolidated
Revenues:                
Premiums earned   $ 251,069     $ 84,366     $     $ 335,435  
Investment income, net   18,267     7,416     31     25,714  
Other income   3,084     8         3,092  
    272,420     91,790     31     364,241  
Losses and expenses:                
Losses and settlement expenses   170,574     56,912         227,486  
Dividends to policyholders   6,155             6,155  
Amortization of deferred policy acquisition costs   43,691     18,963         62,654  
Other underwriting expenses   44,512     1,795         46,307  
Interest expense   341             341  
Other expenses   512         3,761     4,273  
    265,785     77,670     3,761     347,216  
Operating income (loss) before income taxes   6,635     14,120     (3,730 )   17,025  
Net realized investment gains (losses) and change in unrealized gains on equity investments   17,098     10,087     (284 )   26,901  
Income (loss) before income taxes   23,733     24,207     (4,014 )   43,926  
Income tax expense (benefit):                
Current   2,639     3,620     (460 )   5,799  
Deferred   2,030     1,334     (53 )   3,311  
    4,669     4,954     (513 )   9,110  
Net income (loss)   $ 19,064     $ 19,253     $ (3,501 )   $ 34,816  
Average shares outstanding               21,654,443  
Per Share Data:                
Net income per share - basic and diluted   $ 0.88     $ 0.89     $ (0.16 )   $ 1.61  
Catastrophe and storm losses (after tax)   $ 0.80     $ 0.04     $     $ 0.84  
Favorable development on prior years' reserves (after tax)   $ 0.53     $ 0.04     $     $ 0.57  
Dividends per share               $ 0.46  
Book value per share               $ 29.10  
Effective tax rate               20.7 %
Annualized net income as a percent of beg. SH equity               12.3 %
Other Information of Interest:                
Premiums written   $ 253,669     $ 83,657     $     $ 337,326  
Catastrophe and storm losses   $ 22,000     $ 1,025     $     $ 23,025  
Favorable development on prior years' reserves   $ (14,575 )   $ (1,042 )   $     $ (15,617 )
GAAP Ratios:                
Loss and settlement expense ratio   67.9 %   67.5 %   %   67.8 %
Acquisition expense ratio   37.6 %   24.6 %   %   34.3 %
Combined ratio   105.5 %   92.1 %   %   102.1 %


     
CONSOLIDATED STATEMENTS OF INCOME  - UNAUDITED    
($ in thousands, except share and per share amounts)                
Six months ended June 30, 2018   Property and Casualty Insurance   Reinsurance   Parent Company   Consolidated
Revenues:                
Premiums earned   $ 240,127     $ 73,605     $     $ 313,732  
Investment income, net   16,558     6,578     13     23,149  
Other income   4,146     242         4,388  
    260,831     80,425     13     341,269  
Losses and expenses:                
Losses and settlement expenses   177,756     51,963         229,719  
Dividends to policyholders   4,506             4,506  
Amortization of deferred policy acquisition costs   40,472     16,249         56,721  
Other underwriting expenses   44,430     876         45,306  
Interest expense   313             313  
Other expenses   477         1,224     1,701  
    267,954     69,088     1,224     338,266  
Operating income (loss) before income taxes   (7,123 )   11,337     (1,211 )   3,003  
Net realized investment gains (losses) and change in unrealized gains on equity investments   (7,985 )   (3,268 )       (11,253 )
Income (loss) before income taxes   (15,108 )   8,069     (1,211 )   (8,250 )
Income tax expense (benefit):                
Current   (4,121 )   2,310     (294 )   (2,105 )
Deferred   (336 )   (778 )   40     (1,074 )
    (4,457 )   1,532     (254 )   (3,179 )
Net income (loss)   $ (10,651 )   $ 6,537     $ (957 )   $ (5,071 )
Average shares outstanding               21,515,812  
Per Share Data:                
Net income (loss) per share - basic and diluted   $ (0.50 )   $ 0.30     $ (0.04 )   $ (0.24 )
Catastrophe and storm losses (after tax)   $ 0.73     $ 0.05     $     $ 0.78  
Favorable development on prior years' reserves (after tax)   $ 0.19     $ 0.03     $     $ 0.22  
Dividends per share               $ 0.44  
Book value per share               $ 26.39  
Effective tax rate               38.5 %
Annualized net income as a percent of beg. SH equity               (1.7 )%
Other Information of Interest:                
Premiums written   $ 251,470     $ 69,714     $     $ 321,184  
Catastrophe and storm losses   $ 19,967     $ 1,399     $     $ 21,366  
Favorable development on prior years' reserves   $ (5,286 )   $ (801 )   $     $ (6,087 )
GAAP Ratios:                
Loss and settlement expense ratio   74.0 %   70.6 %   %   73.2 %
Acquisition expense ratio   37.3 %   23.3 %   %   34.0 %
Combined ratio   111.3 %   93.9 %   %   107.2 %
 


         
CONSOLIDATED BALANCE SHEETS        
    June 30,
 2019
  December 31,
 2018
($ in thousands, except share and per share amounts)   (Unaudited)    
ASSETS        
Investments:        
Fixed maturity securities available-for-sale, at fair value (amortized cost $1,280,928 and $1,273,132)   $ 1,340,066     $ 1,282,909  
Equity investments, at fair value (cost $179,359 and $160,371)   249,507     215,363  
Equity investments, at alternative measurement of cost less impairments   1,200     1,200  
Other long-term investments   17,352     19,316  
Short-term investments   46,857     28,204  
Total investments   1,654,982     1,546,992  
         
Cash   276     337  
Reinsurance receivables due from affiliate   35,470     37,361  
Prepaid reinsurance premiums due from affiliate   10,718     8,789  
Deferred policy acquisition costs (affiliated $47,019 and $44,440)   47,019     44,760  
Amounts due from affiliate to settle inter-company transaction balances       5,154  
Prepaid pension and postretirement benefits due from affiliate   17,090     17,691  
Accrued investment income   10,394     10,468  
Accounts receivable   63     1,658  
Income taxes recoverable   8,077     6,697  
Goodwill   942     942  
Other assets (affiliated $2,989 and $4,510)   3,120     4,629  
Total assets   $ 1,788,151     $ 1,685,478  
         
LIABILITIES        
Losses and settlement expenses (affiliated $792,205 and $771,872)   $ 798,706     $ 777,190  
Unearned premiums (affiliated $272,373 and $267,064)   272,373     268,511  
Other policyholders' funds (all affiliated)   8,150     8,807  
Surplus notes payable to affiliate   25,000     25,000  
Amounts due affiliate to settle inter-company transaction balances   5,296      
Pension benefits payable to affiliate   3,788     4,070  
Deferred income taxes   18,415     4,908  
Other liabilities (affiliated $24,623 and $31,121)   25,861     31,210  
Total liabilities   1,157,589     1,119,696  
         
STOCKHOLDERS' EQUITY        
Common stock, $1 par value, authorized 30,000,000 shares; issued and outstanding, 21,672,325 shares in 2019 and 21,615,105 shares in 2018   21,672     21,615  
Additional paid-in capital   129,961     128,451  
Accumulated other comprehensive income   39,976     1,620  
Retained earnings   438,953     414,096  
Total stockholders' equity   630,562     565,782  
Total liabilities and stockholders' equity   $ 1,788,151     $ 1,685,478  


         
LOSS AND SETTLEMENT EXPENSE BY LINE OF BUSINESS        
    Three months ended June 30,
    2019   2018
($ 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   $ 34,260     $ 25,606     74.7 %   $ 31,660     $ 26,717     84.4 %
Property   28,853     23,594     81.8 %   27,196     23,529     86.5 %
Workers' compensation   24,032     15,009     62.5 %   25,229     22,513     89.2 %
Other liability   29,170     18,504     63.4 %   25,591     11,971     46.8 %
Other   2,501     220     8.8 %   2,228     125     5.6 %
Total commercial lines   118,816     82,933     69.8 %   111,904     84,855     75.8 %
                         
Personal lines   7,481     10,661     142.5 %   9,591     9,400     98.0 %
Total property and casualty insurance   $ 126,297     $ 93,594     74.1 %   $ 121,495     $ 94,255     77.6 %
                         
Reinsurance                        
Pro rata reinsurance   $ 11,147     $ 10,175     91.3 %   $ 10,070     $ 5,116     50.8 %
Excess of loss reinsurance   30,689     18,748     61.1 %   26,381     19,720     74.8 %
Total reinsurance   $ 41,836     $ 28,923     69.1 %   $ 36,451     $ 24,836     68.1 %
                         
Consolidated   $ 168,133     $ 122,517     72.9 %   $ 157,946     $ 119,091     75.4 %
                         
    Six months ended June 30,
    2019   2018
($ 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   $ 67,167     $ 47,021     70.0 %   $ 62,304     $ 53,173     85.3 %
Property   56,524     41,022     72.6 %   53,788     42,252     78.6 %
Workers' compensation   47,575     28,744     60.4 %   50,131     35,044     69.9 %
Other liability   58,075     35,845     61.7 %   50,553     29,672     58.7 %
Other   5,007     (164 )   (3.3 )%   4,414     619     14.0 %
Total commercial lines   234,348     152,468     65.1 %   221,190     160,760     72.7 %
                         
Personal lines   16,721     18,106     108.3 %   18,937     16,996     89.7 %
Total property and casualty insurance   $ 251,069     $ 170,574     67.9 %   $ 240,127     $ 177,756     74.0 %
                         
Reinsurance                        
Pro rata reinsurance   $ 24,153     $ 16,089     66.6 %   $ 23,143     $ 9,781     42.3 %
Excess of loss reinsurance   60,213     40,823     67.8 %   50,462     42,182     83.6 %
Total reinsurance   $ 84,366     $ 56,912     67.5 %   $ 73,605     $ 51,963     70.6 %
                         
Consolidated   $ 335,435     $ 227,486     67.8 %   $ 313,732     $ 229,719     73.2 %



                     
PREMIUMS WRITTEN                    
    Three months ended
 June 30, 2019
  Three months ended
 June 30, 2018
   
($ in thousands)   Premiums
written
  Percent of
premiums
written
  Premiums
written
  Percent of
premiums
written
  Change in
premiums
written
Property and casualty insurance                    
Commercial lines:                    
Automobile   $ 40,507     24.4 %   $ 36,977     22.7 %   9.5 %
Property   33,467     20.1 %   30,326     18.5 %   10.4 %
Workers' compensation   21,542     13.0 %   22,781     14.0 %   (5.4 )%
Other liability   30,838     18.5 %   27,881     17.1 %   10.6 %
Other   2,858     1.7 %   2,713     1.7 %   5.3 %
Total commercial lines   129,212     77.7 %   120,678     74.0 %   7.1 %
                     
Personal lines   (1,059 )   (0.7 )%   10,523     6.4 %   (110.1 )%
Total property and casualty insurance   $ 128,153     77.0 %   $ 131,201     80.4 %   (2.3 )%
                     
Reinsurance                    
Pro rata reinsurance   $ 11,740     7.1 %   $ 10,138     6.2 %   15.8 %
Excess of loss reinsurance   26,468     15.9 %   21,773     13.4 %   21.6 %
Total reinsurance   $ 38,208     23.0 %   $ 31,911     19.6 %   19.7 %
                     
Consolidated   $ 166,361     100.0 %   $ 163,112     100.0 %   2.0 %
                     
    Six months ended
 June 30, 2019
  Six months ended
 June 30, 2018
   
($ in thousands)   Premiums
written
  Percent of
premiums
written
  Premiums
written
  Percent of
premiums
written
  Change in
premiums
written
Property and casualty insurance                    
Commercial lines:                    
Automobile   $ 76,400     22.6 %   $ 69,933     21.8 %   9.2 %
Property   63,432     18.8 %   57,053     17.8 %   11.2 %
Workers' compensation   43,670     13.0 %   45,366     14.1 %   (3.7 )%
Other liability   60,001     17.8 %   54,606     17.0 %   9.9 %
Other   5,431     1.6 %   4,907     1.5 %   10.7 %
Total commercial lines   248,934     73.8 %   231,865     72.2 %   7.4 %
                     
Personal lines   4,735     1.4 %   19,605     6.1 %   (75.8 )%
Total property and casualty insurance   $ 253,669     75.2 %   $ 251,470     78.3 %   0.9 %
                     
Reinsurance                    
Pro rata reinsurance   $ 25,621     7.6 %   $ 21,827     6.8 %   17.4 %
Excess of loss reinsurance   58,036     17.2 %   47,887     14.9 %   21.2 %
Total reinsurance   $ 83,657     24.8 %   $ 69,714     21.7 %   20.0 %
                     
Consolidated   $ 337,326     100.0 %   $ 321,184     100.0 %   5.0 %

Contacts
Investors:                                                                      Media:
Steve Walsh, 515-345-2515                                         Lisa Hamilton, 515-345-7589
steve.t.walsh@emcins.com                                          lisa.l.hamilton@emcins.com

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