EMCI EMC Insurance Group Inc

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 CallThe 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 EMCIEMC 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 MeasuresThe 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 LOSS 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	%

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