EMC Insurance Group Notes Best-Ever Q3 Results

Iowa-based EMC Insurance Group Inc. reported operating income of $0.49 per share for the third quarter ended Sept. 30, 2003 compared to $0.46 per share for the third quarter of 2002. Operating income for the nine months ended Sept. 30, 2003 was $1.25 per share compared to $1.21 per share for the same period in 2002.

Net income, including realized investment gains/losses, was $6,382,000 ($0.56 per share) for the third quarter of 2003 compared to $4,301,000 ($0.38 per share) for the third quarter of 2002. Net income for the nine-month period ended Sept. 30, 2003 totaled $14,258,000 ($1.25 per share) compared to $10,936,000 ($0.96 per share) for the same period in 2002.

Results for the third quarter of 2003 were driven by unusually good loss experience in the reinsurance segment, which benefited from a significant decline in reported losses and favorable development on prior year reserves. This improvement in the operating results of the reinsurance segment more than offset a continued high level of storm losses and the previously reported reserve strengthening that occurred in the property and casualty insurance segment during the third quarter.

As a result of the high level of storm losses experienced in the third quarter, storm losses for the first nine months of 2003 are greater than those experienced during the storm-plagued first nine months of 2001; however, the impact of these losses is not as severe because premium rate levels are much more adequate now than they were in 2001.

As reported on Sept. 19, 2003, the company strengthened its bulk loss and settlement expense reserves during the third quarter of 2003 in response to a recently completed actuarial evaluation of the carried reserves for the property and casualty insurance segment. This increase in reserves amounted to $4,583,000 and reduced third quarter earnings by $2,979,000 ($0.26 per share) on an after tax basis. Actuarial evaluations of the company’s carried reserves are performed on a regularly-scheduled basis and it is the company’s standard practice to adjust its carried reserves as necessary in response to these evaluations in an effort to maintain a consistent level of reserve adequacy. The adjustment in reserves implemented in the third quarter of 2003 represents an increase of only 1.3 percent of the total loss and settlement expense reserves carried at June 30, 2003.

Premiums earned increased 12.3 percent to $84,210,000 for the three months ended Sept. 30, 2003 from $74,979,000 for the same period in 2002. For the nine-month period ended Sept. 30, 2003, premiums earned increased 13.7 percent to $246,570,000 from $216,837,000 for the same period in 2002. These increases are primarily attributed to rate increases implemented during the last two years in the property and casualty insurance business as well as significant growth and improved pricing in the assumed reinsurance business.

The market for property and casualty insurance remained firm during the third quarter of 2003 and this trend is expected to continue into 2004. The company has been able to implement moderate rate increases during the first nine months of 2003 and additional rate increases are anticipated for the remainder of the year. These increases will be targeted to specific accounts, territories and lines of business where rates remain inadequate.

“We experienced our most profitable third quarter ever and are on track to surpass our 2002 full year results, despite a continued high level of storm losses and some necessary reserve strengthening,” stated President and CEO Bruce Kelley. “Implementation of our long-term strategic plan has resulted in an improved book of business that is more properly priced. We enjoyed the strong performance of our reinsurance segment this quarter and are well positioned for substantially improved results from our property and casualty insurance segment in the future.”

Catastrophe and storm losses amounted to $8,703,000 ($0.49 per share after tax) in the third quarter of 2003 compared to $1,124,000 ($0.06 per share after tax) in the third quarter of 2002. Approximately $1,625,000 ($0.10 per share after tax) of the third quarter catastrophe and storm losses is attributable to Hurricane Isabel. For the first nine months of 2003, catastrophe and storm losses totaled $20,131,000 ($1.14 per share after tax) compared to $5,943,000 ($0.34 per share after tax) for the same period in 2002.

The company’s GAAP combined ratio was 98.6 percent in the third quarter of 2003 compared to 100.0 percent in the third quarter of 2002. For the first nine months of 2003, the GAAP combined ratio was 100.3 percent compared to 101.7 percent for the first nine months of 2002.