EMC Insurance — Non-Deal Roadshow (August 2018)
37 slides from EMC Insurance's roadshow presentation, Aug 28, 2018
Slide 1: 2018 Investor Meetings September–October
2018 Investor Meetings September–October 1
Slide 2: Cautionary Note Regarding Forward-Looking Statements
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
Slide 3: Table of Contents
Table of Contents Page/Slide Number Page/Slide Number Who We Are 4 Unique and Powerful Rate Compare System 16 Corporate Structure 5 Commercial Renewal Rates 17 Benefits of Pooling Agreement – Loss Cost Trend 18 Direct Business 6 GAAP Combined Ratios 19 Benefits of Quota Share Agreement with EMCC – A
Slide 4: Who We Are
Who We Are • Downstream holding company of Employers Mutual Casualty Company (EMCC) • Trade on Nasdaq: EMCI • Enterprise began in 1911, IPO in 1982 • Property and Casualty Insurance Segment (78% of premiums earned) • 2,160 independent agency relationships • 41 state distribution network, licensed in
Slide 5: Corporate Structure
Corporate Structure Employers Mutual Casualty Company Public Stockholders (Founded in 1911) 55%* 45%* EMC Insurance Group Inc. (IPO in 1982 - Follow-on offerings in 1985 and 2004) Property and Casualty Reinsurance Segment Insurance Segment (100% Quota Share Agreement with EMCC) (Aggregate 30% pool p
Slide 6: Benefits of Pooling Agreement – Direct Business
Benefits of Pooling Agreement – Direct Business • “A” (Excellent) rating with stable outlook from A.M. Best Company • Risks spread over a wide range of geographic locations, lines of insurance written, rate filings, commission plans and policy forms • Benefits from capacity of the entire pool • $1.7
Slide 7: Benefits of Quota Share Agreement with EMCC – Assumed Reinsurance
Benefits of Quota Share Agreement with EMCC – Assumed Reinsurance • EMCC’s surplus ($1.4 billion as of Dec. 31, 2017) and financial strength exhibits ability to pay claims owed to ceding companies • Name recognition and long-standing domestic and international relationships with EMCC • Competitive a
Slide 8: Intercompany Reinsurance Programs
Intercompany Reinsurance Programs Overview • Intercompany reinsurance program between EMCI’s three insurance subsidiaries in the property and casualty insurance segment and EMCC • Intercompany reinsurance program between EMCI’s reinsurance subsidiary (EMC Reinsurance Company) and EMCC Objectives • R
Slide 9: Key Reasons to Invest in EMCI
Key Reasons to Invest in EMCI • Access to large capital base • Experienced senior • Diversified, seasoned book of management business • For our agents – focus on • Regional, decentralized innovation and differentiation operating structure • Trading at discount to book • Conservative balance sheet va
Slide 10: 2017 Premiums Earned
2017 Premiums Earned Reinsurance Segment $134.8 million EMCC & Subsidiaries $1.13 billion P&C Insurance Segment $472.4 million Total EMC premiums earned of ~$1.7 billion 10
Slide 11: Diversified Book of Business – Reinsurance Segment
Diversified Book of Business Reinsurance Segment Premiums Earned Reinsurance Segment $134.8 million Pro Rata 33.1% EMCC & Excess Subsidiaries of Loss 66.9% Domestic 87% International (mainly Europe & Japan) 13% P&C Insurance Segment 11
Slide 12: Diversified Book of Business – Property and Casualty Segment
Diversified Book of Business Property and Casualty Insurance Segment Premiums Earned Reinsurance Segment Personal Lines 8.1% Bonds EMCC & 1.8% Commercial Subsidiaries Auto Workers' 25.0% Compensation 21.3% P&C Insurance Segment Commercial Commercial $472.4 million Property Liability 22.9% 20.9% 12
Slide 13: Benefits of Local Market Presence
Benefits of Local Market Presence • Decentralized decision making/guided autonomy: • Marketing • Underwriting • Risk improvement • Claims • Strengthens agency relationships • Develop products, marketing strategies and pricing targeted to specific territories • Individual approaches within EMC risk a
Slide 14: 2017 Direct Premiums Written by Branch
2017 Direct Premiums Written by Branch Property and Casualty Insurance Segment Commercial Lines 4.5% 4.9% 6.3% 3.9% 5.3% 13.4% 4.0% 7.1% 3.6% 5.6% 14.4% 10.0% 4.7% 4.0% 3.9% 4.4% 14
Slide 15: 2017 Premium Distribution by Account Size
2017 Premium Distribution by Account Size Property and Casualty Insurance Segment Commercial Lines 30% 36% $1-$25K $25-$100K $100K+ 34% • Approximately 86% of commercial accounts are under $25,000 in account premium, but only represent 30% of commercial lines premiums written volume • Invest more pe
Slide 16: Unique and Powerful Rate Compare System
Unique and Powerful Rate Compare System Provides near real-time measure Rates current exposures of of rate increase obtained by commercial renewal policies policy, account underwriter, at current and prior period rates line of business or branch Rate Compare System Able to target specific accounts C
Slide 17: Commercial Renewal Rates
Commercial Renewal Rates 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% Prior Period Percentage Change Percentage Period Prior -2% 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q2 YTD • Commercial lines renewal rates up 23.9% since 2010 on a cumulative rate compare change by month basis 17
Slide 18: Loss Cost Trend
Loss Cost Trend Direct Business Compound Ultimate • Provides a Annual Trend: 2013-2018* measure of the change in the 6% Company’s losses 4.8% • Calculated using 4% the change in 2.2% frequency of 2% normalized claim counts and the change in severity 0% of the claims Frequency adjusted for -2% change
Slide 19: GAAP Combined Ratios
GAAP Combined Ratios 120% 107.2%* 105% 103.1% 102.2% 97.9% 97.3% 98.5% 6.8% 10.6% 8.1% 9.9% 90% 9.4% 7.8% 75% 60% 100.4% 45% 88.5% 92.5% 89.5% 90.4% 92.3% 30% 15% 0% 2013 2014 2015 2016 2017 2018 Catastrophe and Storm Losses Q2 YTD GAAP Combined Ratio Excluding Catastrophe and Storm Losses *Based on
Slide 20: 2018 Six Month Results by Segment
2018 Six Month Results by Segment Property and Casualty Insurance Segment 120% 111.3% 107.2% • Extremely cold temperatures 8.3% persisted across much of our footprint 100% 6.8% during the first quarter of 2018, which 93.9% resulted in a high level of non- catastrophe losses, primarily from 80% 1.9%
Slide 21: Personal Lines Focused Accountability
Personal Lines Focused Accountability 2017 Direct Premiums Written by State 2.7% 5.9% 6.6% 1.8% 0.8% 2.1% 3.4% 0.7% 20.4% 5.9% 6.3% 4.2% 2.4% 2.8% 4.3% 1.5% 7.3% 1.0% 7.3% 2.5% 7.8% 2.3% Premiums Written Less than $600,000 $600,001 - $1,500,000 • Centralized accountability for personal lines profita
Slide 22: Commercial Auto Trends
Commercial Auto Trends • Commercial auto represents ~25% of the property and casualty insurance segment’s commercial business • Implemented multi-year “Accelerate Commercial Auto Profitability” project in 2016 with goal of returning to underwriting profitability by mid-2019 • Eight teams complement
Slide 23: Innovation Pipeline at EMC
Innovation Pipeline at EMC INPUTS PILOTS OUTPUTS Defining Objectives Production • AI • Drones • IoT • Chatbots • AR/VR • Automation/ • Blockchain RPA • Platforms Internal Innovation Strategic Partnerships • Data analytics • Machine learning • Business intelligence Insurtech 23
Slide 24: Investment Portfolio
Investment Portfolio $1.51 billion* at June 30, 2018 • Economic cycle in mid- to late-stage • Increase in interest rates has improved relative value of fixed income • Security selection remains critical • Equity valuations close to long-term averages as earnings and volatility increase • Tail-risk h
Slide 25: Increasing Stockholder Value – 7.2% CAGR
Increasing Stockholder Value – 7.2% CAGR $35 $30 $25 $20 $15 $10 $5 $- 2013 2014 2015 2016 2017 2018 * Q2 YTD Book Value Per Share Cumulative Dividends Per Share *Book value per share declined 6.2 percent from year-end 2017, primarily due to a decline in unrealized investment gains on the fixed matu
Slide 26: Stock Repurchase Program
Stock Repurchase Program • Recently approved changes to common stock repurchase metrics • Continue to focus on achieving appropriate rate of return, but designed to provide management more discretion in stock repurchase decisions • Approximately $652,000 was used to repurchase 25,300 shares during s
Slide 27: EMC Insurance Group Inc.
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Slide 28: Local Service Focus
Local Service Focus Agencies Represented by Territory 117 117 64z 91 172 85 284 112 139 138 239 151 147 102 134 68 • Feedback from annual agent survey drives future product and service enhancements • Formal tiering program ties compensation to performance 28
Slide 29: Strength in Group Programs
Strength in Group Programs Direct Premiums Written Target Markets Branch and industry specific $70,000 programs such as: $60,000 • Schools • Municipalities $50,000 • Petroleum Marketers $40,000 • Manufactured Housing ($ thousands) in $30,000 • Water Well Drillers $20,000 Safety Groups $10,000 • Simi
Slide 30: 2018 Intercompany Reinsurance Treaties
2018 Intercompany Reinsurance Treaties Property and Casualty Insurance Segment Reinsurance Segment Catastrophe Treaties Between EMCI and EMCC Catastrophe Treaties Between EMCI and EMCC Retention Limit Retention Limit Cost: $6.0M Cost: $3.6M $24M Cost: $1.4M $100M $12M $22M Cost: $1.6M $15M $10M $20M
Slide 31: Award-Winning Workplace
Award-Winning Workplace • No. 2 Ranking on Best Companies for Leaders (Chief Executive) Forbes 2017 America’s • No. 16 Top Workplaces in Iowa 50 Most Trustworthy Financial Companies (The Des Moines Register) • Five-Star Insurance Carrier (Insurance Business America) • Best Property/Casualty Company
Slide 32: Experienced Executive Management Team
Experienced Executive Management Team Bruce G. Kelley Mick A. Lovell J.D., CPCU, CLU Scott R. Jean CPCU President, Chief Executive FCAS, MAAA Executive Vice President Officer and Treasurer Executive Vice President of Operations 32 years with EMC of Finance & Strategy 27 years in P&C industry, 26 yea
Slide 33: Fixed Income Portfolio
Fixed Income Portfolio June 30, 2018 Bond Ratings Expected Maturities AAA 47.2% 14% AA 20.4% 21% A 25.9% BAA 6.2% BA and below 0.3% 25% Total 100.0% 24% 16% Portfolio Characteristics 0-2 Years Average Life: 6.8 Years 2-5 Years 5-7 Years Duration: 5.2 7-10 Years 10+ Years Pre-tax Book Yield: 3.5% 33
Slide 34: Selected Financial Results
Selected Financial Results Six Months Ended June 30, Year Ended December 31, ($ in thousands, except per share amounts) 2018 2017 2017 2016 2015 Revenues $ 341,269 $ 318,403 $ 657,401 $ 645,718 $ 623,563 Net realized investment gains (losses) and, beginning in 2018, change in net unrealized investme
Slide 35: Non-GAAP Information
Non-GAAP Information Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures • The Company prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Management uses certain non-GAAP financial
Slide 36: Reconciliations of Non-GAAP Financial Measures
Reconciliations of Non-GAAP Financial Measures The reconciliations of net income (loss) to non-GAAP operating income, and net income (loss) per share to non-GAAP operating income per share, are as follows: Six Months Ended June 30, Year Ended December 31, ($ in thousands) 2018 2017 2017 2016 2015 Ne
Slide 37: Industry Metric – Premiums Written
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 goa
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