EMC Insurance — Non-Deal Roadshow (May 2018)
37 slides from EMC Insurance's roadshow presentation, May 22, 2018
Slide 1: 2018 Investor Meetings May–June
2018 Investor Meetings May–June 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 2017 Premium distribution by Account Size (CL) 16 Corporate Structure 5 Unique and Powerful Rate Compare System 17 M&A Flexibility Within Corporate Structure 6 Commercial Renewal Rates 18 Benefits of Pooling Agreement – Loss Cost Tre
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 Shareholders (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: M&A Flexibility Within Corporate Structure
M&A Flexibility Within Corporate Structure • Merger and acquisition flexibility • EMCC could merge with another mutual insurance company with little capital outlay from EMCI • Use stock as currency in acquisition • Within property and casualty or reinsurance industries • Executive management team pl
Slide 7: 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 8: 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 9: 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 10: 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 11: 2017 Premiums Earned
2017 Premiums Earned Reinsurance Segment $134.8 million EMCC & Subsidiaries $1,131.5 million P&C Insurance Segment $472.4 million Total EMC premiums earned of ~$1.7 billion 11
Slide 12: 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 12
Slide 13: Diversified Book of Business – Property and Casualty Insurance 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% 13
Slide 14: Benefits of Local Market Presence
Benefits of Local Market Presence • Decentralized decision making/guided autonomy: • Marketing • Underwriting • Risk improvement • Claims • Strengthens agency relationships, which we believe allows us to quote agent’s best business • Develop products, marketing strategies and pricing targeted to spe
Slide 15: 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% 15
Slide 16: 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 17: 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 18: Commercial Renewal Rates
Commercial Renewal Rates 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% Prior Period Percentage Change Percentage Period Prior -3% 2010 2011 2012 2013 2014 2015 2016 2017 1Q2018 2018 • Commercial lines renewal rates up 20.2% since 2010 on a cumulative rate compare change by month basis 18
Slide 19: Loss Cost Trend – Direct Business
Loss Cost Trend Direct Business Compound Ultimate • Provides a Annual Trend: 2013-2018* measure of the change in the 8% Company’s losses 6.3% 6% • Calculated using the change in 4% 3.4% frequency of normalized claim counts and the 2% change in severity 0% of the claims Frequency adjusted for changes
Slide 20: GAAP Combined Ratios
GAAP Combined Ratios 110% 103.1% 102.2% 104.6% 97.9% 98.5% 3.0% 100% 10.6% 97.3% 8.1% 9.9% 90% 9.4% 7.8% 80% 70% 60% 50% 101.6%* 88.5% 92.5% 89.5% 90.4% 92.3% 40% 30% 20% 10% 0% 2013 2014 2015 2016 2017 1Q 2018 Catastrophe and Storm Losses GAAP Combined Ratio Excluding Catastrophe and Storm Losses N
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 Update
Commercial Auto Update • Commercial auto represents ~25% of the property and casualty insurance segment’s commercial business • Projected combined ratio of 109.3%* for industry in 2018 • Increase in loss frequency driven by distracted drivers and increase in miles driven due to lower gas prices • In
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 $1.52 billion* at March 31, 2018 • Increase in interest rates has improved fixed income valuations • Equity valuations have declined closer to historical levels subsequent to recent market downturn • Tail-risk hedge alleviates downside risk but reduces annual equity portfolio re
Slide 25: Increasing Stockholder Value
Increasing Stockholder Value $35 $30 $25 $20 $15 $10 $5 $- 2013 2014 2015 2016 2017 1Q 2018* Book Value Per Share Cumulative Dividends Per Share *Book value per share declined approximately 4 percent from year-end 2017, primarily due to declines in the equity markets and the value of the fixed matur
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 • Repurchase stock at or below book value, but subject to additional f
Slide 27: Appendix
M@EMC Cth INSURANCE GROUP INC. jamie Appendix es
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 $20M
Slide 31: Award-Winning Workplace
Award-Winning Workplace • No. 2 Ranking on Best Companies for Leaders (Chief Executive) Forbes 2017 America’s • No. 16 Top Workplaces in Iowa 50 Most Trustworthy Financial Companies (The Des Moines Register) • Best Property/Casualty Company in Des Moines (Business Record) • Plan Sponsor of the Year
Slide 32: Experienced Executive Management Team
Experienced Executive Management Team Bruce G. Kelley Mick A. Lovell J.D., CPCU, CLU Scott R. Jean CPCU President, Chief Executive FCAS, MAAA Executive Vice President Officer and Treasurer Executive Vice President of Operations 32 years with EMC of Finance & Strategy 27 years in P&C industry, 26 yea
Slide 33: Fixed Income Portfolio
Fixed Income Portfolio March 31, 2018 Expected Maturities Bond Ratings AAA 47.4% 14% AA 20.3% 21% A 26.7% BAA 5.3% 22% BA and below 0.3% Total 100.0% 27% 16% Portfolio Characteristics 0-2 Years Average Life: 7.0 Years 2-5 Years 5-7 Years Duration: 5.3 7-10 Years Pre-tax Book Yield: 3.5% 10+ Years 33
Slide 34: Selected Financial Results
Selected Financial Results Three Months Ended March 31, Year Ended December 31, ($ in thousands, except per share amounts) 2018 2017 2017 2016 2015 Revenues $ 168,772 $ 156,364 $ 657,401 $ 645,718 $ 623,563 Net realized investment gains (losses) and, beginning in 2018, change in net unrealized inves
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 to non-GAAP operating income, and net income per share to non-GAAP operating income per share, are as follows: Three Months Ended March 31, Year Ended December 31, ($ in thousands) 2018 2017 2017 2016 2015 Net income (l
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