Press Release - February 25, 2003
EMC Insurance Group Inc. Reports Results for Fourth Quarter of 2002 and Declares Quarterly Dividend
DES MOINES, Iowa, Feb 25, 2003 (BUSINESS WIRE) -- EMC Insurance Group Inc. (Nasdaq:EMCI) today reported operating income of $0.50 per share for the fourth quarter ended December 31, 2002 compared to an operating loss of $0.12 per share in the fourth quarter of 2001. Net income, including realized investment gains, was $6,511,000 ($0.57 per share) for the fourth quarter ended December 31, 2002 compared to a net loss of $1,262,000 ($0.11 per share) for the fourth quarter of 2001.
Operating income for the year ended December 31, 2002 was $1.71 per share compared to an operating loss of $0.24 per share for the year ended December 31, 2001. For the twelve months ended December 31, 2002, net income, including realized investment gains/losses, was $17,446,000 ($1.53 per share) compared to a net loss of $2,106,000 ($0.19 per share) for the same period in 2001.
“The dramatic improvement in the company’s 2002 results produced record operating income and net income that was the second best in the company’s history,” said President and Chief Executive Officer Bruce G. Kelley. “Implementation of our corporate operating plan, coupled with historically normal storm and catastrophe losses, moved us back to profitability. Because of improved pricing, controlled growth and focused underwriting, 2002 was a year of great earnings and the excellent results flowed to our bottom line. The necessary and appropriate rate changes on previously underwritten risks were implemented. Nearly all of the premium growth came from rate increases rather than new risk exposures. A few promising new risks were carefully added to our book of business, while some existing accounts with little potential for profit were eliminated. Results in 2001 were marred by sizeable storm losses, masking the underlying improvement in pricing and the loss ratio. The full effect of the initiatives we began two years ago is now being seen and I expect that trend to continue in 2003.”
Premiums earned increased 12.0 percent to $297,043,000 for the twelve months ended December 31, 2002 from $265,280,000 in 2001. This increase is primarily attributed to rate increases that were implemented during the last two years in the property and casualty insurance business and growth and improved pricing in the assumed reinsurance business. Premium rate levels for property and casualty insurance continued to improve during 2002 as rate increases ranging from five to eighteen percent were implemented in most lines of business. Management expects to implement additional rate increases during 2003; however, these increases will likely be targeted toward specific territories and lines of business. Management continues to work toward improving profitability through focused underwriting programs for the existing book of business, reviews of the agency force and controlled usage of discretionary rate modifications.
Catastrophe and storm losses declined significantly in 2002 from the storm-plagued levels experienced in 2001. For the three months ended December 31, 2002, catastrophe and storm losses totaled $2,360,000 compared to $3,574,000 in 2001. For the twelve months ended December 31, 2002, catastrophe and storm losses totaled $8,304,000 compared to $22,947,000 in 2001.
The Company's GAAP combined ratio for the fourth quarter of 2002 was 99.9 percent compared to 114.4 percent in the fourth quarter of 2001. For the twelve months ended December 31, 2002, the GAAP combined ratio was 101.2 percent compared to 113.9 percent for the same period in 2001.
Net book value of the Company's stock as of December 31, 2002 was $13.96 per share, an increase from $12.40 per share as of December 31, 2001.
The Board of Directors of EMC Insurance Group Inc. has declared a quarterly dividend of $0.15 per share of common stock payable March 14, 2003 to shareholders of record as of March 7, 2003. This is the 85th consecutive quarterly dividend paid.
EMC Insurance Group Inc., the publicly-held insurance holding company of EMC Insurance Companies, owns subsidiaries with operations in property and casualty insurance and reinsurance. EMC Insurance Companies is one of the largest property and casualty groups in Iowa and among the top 60 insurance groups nationwide. For more information, visit our website www.emcinsurance.com.
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 expectations and actual results of the Company may differ materially from such expectations. 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; state and federal legislation and regulations; rate competition; changes in interest rates and the performance of financial markets; the adequacy of loss and settlement expense reserves, including asbestos and environmental claims; rate agency actions and other risks and uncertainties inherent to the Company’s business.
Financial Data
Other data: 2002 2001
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Book Value Per Share................................ $13.96 $12.40
Price to Book Value................................. 1.28x 1.38x
Common stock price:
High............................................. $23.50 $18.75
Low.............................................. $13.25 $10.19
Close............................................ $17.87 $17.15
Effective tax rate.................................. 27.2% (62.0%)
Statutory surplus as regards policyholders-insurance
subsidiaries (in thousands)........................ $141,668 $128,736
Annualized Data
----------------------------------------------------
Net income (loss) as a percent of beginning
stockholders' equity............................... 12.4% (1.0%)
Average ROE......................................... 11.7% (1.5%)
P/E Multiple (price/last 4 qtrs).................... 11.7x (90.3x)
Summary of Consolidated Financial Data
Three Months Ended Year Ended
December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------- -------------
Premiums earned......... $80,205,777 $72,731,765 $297,043,033 $265,279,858
Net investment income... 8,238,848 7,886,973 32,778,133 30,969,630
Other income............ 297,960 184,167 865,819 774,169
------------ ------------ ------------- -------------
Total revenues.......... 88,742,585 80,802,905 330,686,985 297,023,657
Losses and expenses..... 81,024,423 83,468,205 303,567,043 303,366,118
------------ ------------ ------------- -------------
Operating income (loss)
before income tax
expense (benefit)..... 7,718,162 (2,665,300) 27,119,942 (6,342,461)
Realized investment
gains (losses)........ 1,282,173 238,265 (3,159,201) 800,582
------------ ------------ ------------- -------------
Income (loss) before
income tax expense
(benefit).............. 9,000,335 (2,427,035) 23,960,741 (5,541,879)
Income tax expense
(benefit).............. 2,489,687 (1,165,143) 6,514,345 (3,435,747)
------------ ------------ ------------- -------------
Net income
(loss)................. $6,510,648 $(1,261,892) $17,446,396 $(2,106,132)
============ ============ ============= =============
Operating income (loss)
per share - basic and
diluted.............. $0.50 $(0.12) $1.71 $(0.24)
============ ============ ============= =============
Net income (loss) per
share - basic and
diluted.............. $0.57 $(0.11) $1.53 $(0.19)
============ ============ ============= =============
Dividend per share..... $0.15 $0.15 $0.60 $0.60
============ ============ ============= =============
Average number of
shares outstanding -
basic and diluted... 11,396,073 11,323,432 11,375,779 11,312,063
============ ============ ============= =============
Property & casualty
insurance Reinsurance
Written premiums 2002 2001 2002 2001
Three months ended:
March 31,.............. $54,843,250 $63,641,476 $17,296,985 $12,135,124
June 30,............... 62,295,162 55,052,409 17,683,733 13,832,098
September 30,.......... 70,786,649 59,729,787 18,301,894 18,149,217
December 31,........... 49,708,541 45,988,413 22,920,666 22,171,003
Year to date:.............$237,633,602 $224,412,085 $76,203,278 $66,287,442
Total
Written premiums 2002 2001
Three months ended:
March 31,......................... $72,140,235 $75,776,600
June 30,.......................... 79,978,895 68,884,507
September 30,..................... 89,088,543 77,879,004
December 31,...................... 72,629,207 68,159,416
Year to date:...............................$313,836,880 $290,699,527
Consolidated Balance Sheets
December 31, December 31,
2002 2001
------------- -------------
ASSETS
------
Investments:
Fixed maturities:
Securities held-to-maturity, at amortized
cost (fair value $61,639,037 and
$35,502,755)............................ $55,033,675 $33,572,602
Securities available-for-sale, at fair
value (amortized cost $459,844,928 and
$384,410,393)........................... 485,855,966 390,214,177
Fixed maturity securities on loan:
Securities held-to-maturity, at amortized
cost (fair value $0 and $35,962,133).... - 32,505,305
Securities available-for-sale, at fair
value (amortized cost $0 and
$27,325,968)............................ - 28,436,008
Equity securities available-for-sale, at
fair value (cost $38,444,030 and
$28,686,321)............................. 34,596,985 33,322,767
Other long-term investments at fair value
(cost $3,057,500 and $0)................. 3,057,000 -
Short-term investments, at cost........... 29,650,230 17,724,458
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Total investments.............. 608,193,856 535,775,317
Cash....................................... (119,097) 558,073
Indebtedness of related party.............. - -
Accrued investment income.................. 9,179,555 8,659,008
Accounts receivable (net of allowance for
uncollectible accounts of $7,297 and
$573,502)................................. 772,944 1,081,024
Income taxes recoverable................... 213,504 100,614
Reinsurance receivables.................... 11,582,136 14,501,336
Deferred policy acquisition costs.......... 24,926,861 21,363,528
Deferred income taxes...................... 13,262,125 18,328,807
Goodwill, at cost less accumulated
amortization of $2,616,234 and $2,616,234. 941,586 941,586
Intangible asset, defined benefit
retirement plan........................... 1,411,716 -
Prepaid reinsurance premiums............... 2,442,899 2,275,231
Securities lending collateral.............. - 66,809,518
Other assets............................... 1,331,816 1,170,655
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Total assets.................... $674,139,901 $671,564,697
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LIABILITIES
-----------
Losses and settlement expenses............. $329,158,048 $314,518,588
Unearned premiums.......................... 115,746,814 99,382,176
Other policyholders' funds................. 1,035,622 472,952
Surplus notes payable...................... 36,000,000 25,000,000
Indebtedness to related party.............. 3,304,539 2,684,418
Employee retirement plans.................. 10,014,349 7,538,388
Securities lending payable................. - 66,809,518
Other liabilities.......................... 19,767,507 14,701,034
------------- -------------
Total liabilities.............. 515,026,879 531,107,074
------------- -------------
STOCKHOLDERS' EQUITY
--------------------
Common stock, $1 par value, authorized
20,000,000 shares; issued and outstanding,
11,399,050 shares in 2002 and 11,329,987
shares in 2001............................ 11,399,050 11,329,987
Additional paid-in capital................. 67,270,591 66,013,203
Accumulated other comprehensive income..... 14,218,330 7,507,672
Retained earnings.......................... 66,225,051 55,606,761
------------- -------------
Total stockholders' equity..... 159,113,022 140,457,623
------------- -------------
Total liabilities and stockholders' equity. $674,139,901 $671,564,697
============= =============
Segment Information
Year Ended Property and
---------- Casualty Parent
December 31, 2002 Insurance Reinsurance Company Consolidated
----------------- ------------------------------------------------
Premiums earned........... $225,013,076 $72,029,957 - $297,043,033
Losses and expenses....... 226,566,027 74,056,266 - 300,622,293
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Underwriting loss....... (1,552,951) (2,026,309) - (3,579,260)
Net investment income..... 23,517,163 9,147,127 $113,843 32,778,133
Other income.............. 865,819 - - 865,819
Interest expense.......... 1,345,153 293,563 - 1,638,716
Other expenses............ 869,346 - 436,688 1,306,034
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Operating income (loss)
before income tax
expense (benefit)...... 20,615,532 6,827,255 (322,845) 27,119,942
Realized investment
(losses) gains........... (2,154,246) (1,010,268) 5,313 (3,159,201)
------------------------------------------------
Income (loss) before
income tax expense
(benefit).............. $18,461,286 $5,816,987 $(317,532) $23,960,741
================================================
Year Ended Property and
---------- Casualty Parent
December 31, 2001 Insurance Reinsurance Company Consolidated
----------------- ------------------------------------------------
Premiums earned........... $203,392,845 $61,887,013 - $265,279,858
Losses and expenses....... 230,220,978 71,948,670 - 302,169,648
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Underwriting loss....... (26,828,133)(10,061,657) - (36,889,790)
Net investment income..... 22,457,799 8,317,505 $194,326 30,969,630
Other income.............. 695,957 78,212 - 774,169
Other expenses............ 757,783 - 438,687 1,196,470
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Operating loss before
income tax benefit..... (4,432,160) (1,665,940) (244,361) (6,342,461)
Realized investment
gains.................... 681,349 119,233 - 800,582
------------------------------------------------
Loss before income
tax benefit........ $(3,750,811)$(1,546,707)$(244,361) $(5,541,879)
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EMC Insurance Group Inc., Des Moines
Anita Novak (Investors)
515-280-2515
Lisa Hamilton (Media)
515-362-7589
717 Mulberry Street
Des Moines, IA 50309
