2011 Annual Report
EMPLOYERS MUTUAL CASUALTY COMPANY
Affiliated with
EMC National Life Company
EMPLOYERS MUTUAL CASUALTY COMPANY
EMC PROPERTY &
CASUALTY COMPANY
EMC
RISK SERVICES, LLC
EMC INSURANCE
GROUP INC.
HAMILTON MUTUAL
INSURANCE COMPANY
EMC PROPERTY &
CASUALTY COMPANY
EMC
RISK SERVICES, LLC
EMC INSURANCE
GROUP INC.
HAMILTON MUTUAL
INSURANCE COMPANY
UNION INSURANCE
COMPANY OF
PROVIDENCE
UNION INSURANCE
COMPANY OF
PROVIDENCE
DAKOTA FIRE
INSURANCE COMPANY
EMCASCO INSURANCE
COMPANY
ILLINOIS EMCASCO
INSURANCE COMPANY
EMC REINSURANCE
COMPANY
DAKOTA FIRE
INSURANCE COMPANY
EMCASCO INSURANCE
COMPANY
ILLINOIS EMCASCO
INSURANCE COMPANY
EMC REINSURANCE
COMPANY
EMC UNDERWRITERS, LLC
Affiliated with
EMC National Life Company
EMC UNDERWRITERS, LLC
Affiliated with
EMC National Life Company
CORPORATE PROFILE
CORPORATE PROFILE
CORPORATE PROFILE
EMC Insurance Group Inc. (EMCI) is a publicly held insurance holding company
EMC Insurance Group Inc. (EMCI) is a publicly held insurance holding company with operations in property and casualty
EMC Insurance Group Inc. (EMCI) is a publicly held insurance holding company
with operations in property and casualty insurance and reinsurance. EMCI was formed
insurance and reinsurance. EMCI was formed in 1974 and became publicly held in 1982. The Company’s common stock
in 1974 and became publicly held in 1982. The Company’s common stock trades on
trades on the NASDAQ OMX Global Select Market tier of the NASDAQ OMX Stock Market under the symbol EMCI. EMCI is a
with operations in property and casualty insurance and reinsurance. EMCI was formed
the NASDAQ OMX Global Select Market tier of the NASDAQ OMX Stock Market under
controlled company in that its parent owns greater than 50 percent of its outstanding stock. As of December 31, 2011, EMCI’s
in 1974 and became publicly held in 1982. The Company’s common stock trades on
the symbol EMCI. EMCI is a controlled company in that its parent owns greater than
parent company, Employers Mutual Casualty Company, owned 61 percent of EMCI’s outstanding stock and public stockholders
the NASDAQ OMX Global Select Market tier of the NASDAQ OMX Stock Market under
owned the remaining 39 percent. EMCI has no employees of its own.
the symbol EMCI. EMCI is a controlled company in that its parent owns greater than
50 percent of its outstanding stock. As of December 31, 2011, EMCI’s parent company,
50 percent of its outstanding stock. As of December 31, 2011, EMCI’s parent company,
Employers Mutual Casualty Company, owned 61 percent of EMCI’s outstanding stock
Employers Mutual Casualty Company, owned 61 percent of EMCI’s outstanding stock
and public stockholders owned the remaining 39 percent. EMCI has no employees of its own.
Employers Mutual Casualty Company (EMCC) is a mutual insurance company founded in 1911 and is headquartered
in Des Moines, Iowa. EMCC employs more than 2,100 people countrywide and markets its products exclusively through a
and public stockholders owned the remaining 39 percent. EMCI has no employees of its own.
Employers Mutual Casualty Company (EMCC)
network of independent insurance agents. EMCI and EMCC, together with each entity’s subsidiary and affiliated companies,
Employers Mutual Casualty Company (EMCC)
is a mutual insurance company founded in 1911 and is
operate collectively under the trade name
EMC Insurance Companies.
is a mutual insurance company founded in 1911 and is
headquartered in Des Moines, Iowa. EMCC employs more
than 2,100 people countrywide and markets its products
headquartered in Des Moines, Iowa. EMCC employs more
EMC Insurance Companies (EMC)
exclusively through a network of independent insurance
than 2,100 people countrywide and markets its products
writes property and casualty insurance
agents. EMCI and EMCC, together with each entity’s
exclusively through a network of independent insurance
in both commercial and personal lines,
agents. EMCI and EMCC, together with each entity’s
subsidiary and affiliated companies, operate collectively
with a focus on medium-sized commercial
under the trade name EMC Insurance Companies.
subsidiary and affiliated companies, operate collectively
under the trade name EMC Insurance Companies.
accounts. Reinsurance business is also
written, with an emphasis on property
EMC Insurance Companies (EMC) focuses on the
business. Products and services are
sale of property and casualty insurance primarily to small
EMC Insurance Companies (EMC) focuses on the
offered through independent insurance
and midsize businesses. Products and services are offered
sale of property and casualty insurance primarily to small
agents who are supported by a network
through independent insurance agents who are supported
and midsize businesses. Products and services are offered
of 16 local branch offices. EMC is licensed
by a network of 16 local branch offices. EMC is licensed
through independent insurance agents who are supported
in all 50 states and the District of Columbia
in all 50 states and the District of Columbia and actively
by a network of 16 local branch offices. EMC is licensed
and actively markets insurance products
in all 50 states and the District of Columbia and actively
markets insurance products in 42 states; however, the
in 42 states; however, the majority
majority of its business is generated in the Midwest.
markets insurance products in 42 states; however, the
majority of its business is generated in the Midwest.
of its business is generated in the Midwest.
EMC OFFICES
EMC OFFICES
EMC OFFICES
EMC Branch Offices
EMC Service Offices
EMC Branch Offices
EMC Service Offices
E474-08474 2010 Miscellaneous Charges_v02_al.indd 1
E474-08474 2010 Miscellaneous Charges_v02_al.indd 1
3/5/12 11:23 AM
3/5/12 11:23 AM
Dear Stockholders:
If ever there was a year to step back and
contemplate the myriad of reasons for doing
what we do, it was 2011. Our parent
organization, Employers Mutual Casualty
Company, celebrated its centennial anniversary
– 100 years of continuous service to its
policyholders and independent insurance agency
partners. We, as the publicly traded arm of that
organization, prepared to celebrate our 30th
anniversary as a NASDAQ OMX – listed
company and what that degree of longevity
means to our stockholders and the value reaped
from their investment in our company.
Celebrations of both milestones have been long
in the making for what promised to be a year-
long celebration of accomplishment.
But 2011 was much more than just a time to
celebrate accomplishments – it was one of those
defining moments in time when we were
challenged to PROVE who we are and how we
add value to all our stakeholders, including our
policyholders, our independent agency partners
and our stockholders.
In 2011, there were 171 catastrophe events in the
United States of America resulting in just under
$36 billion in insured losses. These events
overwhelmingly included thunderstorms and
tornadoes such as the devastating events in
Tuscaloosa, Alabama; Joplin, Missouri; and
Springfield, Massachusetts. They also included
Hurricane Irene, which resulted in $5.5 billion in
damages over much of the eastern coast of the
United States, unusually severe winter storms
throughout the central and eastern United States
and wildfires in the southeastern and western
United States.
As devastating as the losses were in the U.S.,
there was no comparison as to the global
damage due to catastrophe losses such as
Japan’s earthquake and subsequent tsunami,
New Zealand’s earthquakes and Thailand’s
flooding. Global insured losses in 2011 totaled
$105 billion and the total global economic losses
as a result of these catastrophes were $380
billion.
For our company, catastrophe losses in 2011
totaled $80 million or $4.04 per share.
Catastrophe losses added an astonishing and
unprecedented 19.3 percentage points to our
combined ratio – the second new record in four
years. Both our property and casualty segment
and our reinsurance segment were affected by
record-setting losses in 2011. As a result, the
Company experienced a net loss of $2 million or
$0.16 per share and reported a GAAP combined
ratio of 115.1 percent.
Though we never enjoy reporting net losses, we
are very proud of the fact we were there to assist
our policyholders in putting the pieces of their
lives back together again. We were in
Tuscaloosa; we were in Joplin; we were in
Springfield; and we were in many of the eastern
communities affected by Hurricane Irene. We
also had claims from Japan as that nation dealt
with its greatest disaster in a very long time.
Despite claim counts being up significantly in
2011, our claims staff increased less than one
percent with no decline in claims efficiency or
service. As a result of our local presence and de-
centralized structure, our claims representatives
were quickly on site following all major events
and readily available - providing expeditious
service to our claimants. To us, exceptional
service remains a crucial part of our core values.
It’s what we do – it’s who we are.
Catastrophes certainly dominated our discussion
in 2011, but it clearly was not the only topic on
our radar screen. The industry as a whole has
been somewhat depressed due to weak economic
conditions and declining premium rates for
several years. In 2011, however, we achieved
rate level increases across all lines of business,
especially in our personal lines. Personal lines
rates have been increasing for several quarters
and have begun to move rates to more adequate
levels. Commercial lines rate increases have not
been as prominent, but are currently moving in a
positive direction. For the first time in six years,
our overall rate levels increased for all major
commercial lines of business.
Net written premiums increased 8.6 percent in
2011. In the property and casualty insurance
segment, commercial lines net written premiums
increased 7.5 percent for the year, and in
personal lines, net written premiums increased
6.0 percent for the year. The greatest increase in
net written premiums was in the reinsurance
segment. Those premiums increased 13.7
percent for the year as a result of increased
participation in the MRB pool, an increase in
both facility business and reinstatement income,
and improved pricing.
Retention remained high in all lines of business.
Commercial lines retention averaged 88 percent
and personal lines retention averaged 89 percent.
Our investment income decreased 6.8 percent in
2011 due to a decline in the annualized yield of
the Company’s fixed maturity portfolio over the
last few years and an increase in short-term
investments. We are actively addressing this
issue by investing in new types of securities,
such as master limited partnerships, which
yielded approximately six percent in 2011. We
continue to monitor potential investments
carefully. We have no direct European sovereign
debt exposure. We do, however, have some
European exposures within our investment
portfolio, including investments in highly rated
European banks in Great Britain, Switzerland
and Germany, but we have no investments in
France, Portugal, Italy, Ireland, Greece and
Spain.
Our balance sheet remains strong with invested
assets of $1.1 billion, total assets of $1.2 billion
and stockholders’ equity of $359 million.
Sincerely,
In 2011, the Board of Directors increased our
quarterly dividend to $0.20 per share and
authorized a new $15 million stock repurchase
plan to enhance stockholder value.
Looking ahead, we expect personal lines rates to
continue increasing at a moderate pace,
especially in the homeowners’ line of business.
Despite the high level of catastrophe losses
experienced by the industry in 2011 and the
continuing low interest rate environment, we do
not expect a quick turn-around in commercial
lines premium rate levels, but rather, we expect
steady, meaningful improvement throughout the
year. Reinsurance rates are expected to increase
for the January 1 renewals and then remain
steady for the remainder of the year. Our overall
expectation is that net written premium growth
will be in the mid- to upper-single digit range.
On the economic front, we expect the economy
to continue to improve moderately in 2012.
Investment income will likely decline again in
2012 due to the persistent rate environment, but
we expect the decline to be less than what we
experienced in 2011. And, we expect to return to
profitability assuming we don’t have a
recurrence in catastrophe losses similar to 2011.
2011 was a time of personal celebration for past
accomplishments, but more importantly, it was a
time to shine at what we do best – provide the
financial assistance to rebuild the businesses,
homes, and lives of the people we serve when
they are faced with devastating challenges.
Thank you for your continued interest in EMC
Insurance Group Inc.
Bruce G. Kelley
President &
Chief Executive Officer
Ronald W. Jean
Executive Vice President of
Corporate Development
Kevin J. Hovick
Executive Vice President &
Chief Operating Officer
Financial Highlights
($ in thousands)
Revenues
Realized Investment Gains (Losses)
Income (Loss) Before Income Taxes
Net Income (Loss)
2011
2010
2009
2008
2007
$
$
$
$
463,341
9,303
(10,007)
(2,098)
$
$
$
$
439,395
3,869
42,445
31,346
$
$
$
$
432,525
17,922
62,525
45,371
$
$
$
$
438,348
(24,456)
(10,290)
(1,705)
$
$
$
$
442,086
3,724
58,919
42,478
(per share)
Net Income (Loss)
Catastrophe Losses
Dividend Paid
Book Value
$
$
$
$
(0.16)
4.04
0.77
27.86
$
$
$
$
2.40
2.10
0.73
28.52
$
$
$
$
3.44
1.55
0.72
26.11
$
$
$
$
(0.13)
2.52
0.72
21.32
$
$
$
$
3.09
1.37
0.69
26.15
($ in thousands)
Average Return on Equity (ROE)
Total Assets
Stockholders' Equity
-0.6%
1,230,459
358,768
$
$
8.8%
1,187,795
368,641
$
$
14.5%
1,165,788
342,418
$
$
-0.5%
1,108,099
282,916
$
$
12.7%
1,202,713
360,352
$
$
Common Stock History
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Close at Dec. 31
High
2011
Low
Dividend
High
2010
Low
Dividend
$
25.90
$
21.48
$
0.19
$
23.08
$
19.96
$
0.18
25.40
20.38
21.41
20.57
18.59
16.45
17.10
0.19
0.19
0.20
24.89
22.75
23.39
22.64
20.84
20.11
21.00
0.18
0.18
0.19
Cautionary Statement
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.
Stockholder Services
Corporate Headquarters
717 Mulberry Street
Des Moines, IA 50309
Phone: 515.280.2511
Transfer Agent
American Stock Transfer & Trust Company, L5.L5.r2(
C)4o550e
Common Stock
EMC Insurance Group Inc.’s common stock
trades on the NASDAQ OMX Global Select
Market tier of the NASDAQ OMX Stock
Market under the symbol EMCI. As of February
24, 2012, the number of registered stockholders
was 867.
There are certain regulatory restrictions relating
to the payment of dividends by the Company’s
insurance subsidiaries. (See note 6 of Notes to
Consolidated Financial Statements in the
Company’s 2011 Form 10-K) It is the present
intention of the Company’s Board of Directors
to declare quarterly cash dividends, but the
amount and timing thereof, if any, are
determined by the Board of Directors at its
discretion.
Dividend Reinvestment and
Common Stock Purchase Plan
A dividend reinvestment and common stock
purchase plan provides stockholders with the
option of receiving additional shares of common
stock instead of cash dividends. Participants may
also purchase additional shares of common stock
without incurring broker commissions by
making optional cash contributions to the plan
and may sell shares of common stock through
the plan. (See note 13 of Notes to Consolidated
Financial Statements in the Company’s 2011
Form 10-K) Effective March 14, 2012, the
Company has temporarily suspended the
issuance of shares of common stock under the
dividend reinvestment and common stock
purchase plan due to the late filing of an
amendment to a Current Report on Form 8-K
with the Securities and Exchange Commission.
The Company intends to resume the issuance of
shares of common stock under the plan at such
time that all required reports have been filed in a
timely manner with the Securities and Exchange
Commission. More information about the plan
can be obtained by calling American Stock
Transfer & Trust Company, LLC, the
Company’s stock transfer agent and plan
administrator.
717 Mulberry Street
Des Moines, Iowa 50309
515-280-2511
800-447-2295
Email: EMCIns.Group@EMCIns.com
www.emcins.com/ir