EMC Insurance — Non-Deal Roadshow (August 2017)
37 slides from EMC Insurance's roadshow presentation, Aug 17, 2017
Slide 1: 2017 Investor Meetings August–September
1 2017 Investor Meetings August–September
Slide 2: Cautionary Note Regarding Forward-Looking Statements
2 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’
Slide 3: Table of Contents
3 Table of Contents Page/Slide Number Who We Are 4 Corporate Structure 5 Benefits of Pooling Agreement – Direct Business 6 Benefits of Quota Share Agreement with EMCC – Assumed Reinsurance 7 Intercompany Reinsurance Programs 8 Key Reasons to Invest in EMCI 9 2016 Premiums Earned 10 Diversified Book
Slide 4: Who We Are
4 • 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 (77% of premiums earned) • 2,120 independent agency relationships • 41 state distribution network, licensed in all 50 s
Slide 5: Corporate Structure
5 Corporate Structure Reinsurance Segment (100% Quota Share Agreement with EMCC) Employers Mutual Casualty Company (Founded in 1911) Public Shareholders EMC Insurance Group Inc. (IPO in 1982 - Follow-on offerings in 1985 and 2004) 55%* 45%* *Ownership as of June 30, 2017 Dakota Fire Insurance Compan
Slide 6: Benefits of Pooling Agreement – Direct Business
6 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
Slide 7: Benefits of Quota Share Agreement with EMCC – Assumed Reinsurance
7 Benefits of Quota Share Agreement with EMCC – Assumed Reinsurance • EMCC’s surplus ($1.4 billion as of Dec. 31, 2016) and financial strength exhibits ability to pay claims owed to ceding companies • Name recognition and long-standing domestic and international relationships with EMCC • Competitive
Slide 8: Intercompany Reinsurance Programs
8 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 •
Slide 9: Key Reasons to Invest in EMCI
9 Key Reasons to Invest in EMCI • Dividend yield of 3.1% as of August 11, 2017 • Access to large capital base • Diversified, seasoned book of business • Regional, decentralized operating structure • Conservative balance sheet • Experienced senior management • For our agents – focus on innovation and
Slide 10: 2016 Premiums Earned
10 EMCC, Subs. & Affil. $1,094.8 million Reinsurance Segment $135.9 million P&C Insurance Segment $456.5 million 2016 Premiums Earned EMCI Total EMC premiums earned of ~$1.7 billion
Slide 11: Diversified Book of Business – Reinsurance Segment
11 Excess of Loss 58.6% Pro Rata 41.4% Diversified Book of Business Reinsurance Segment Premiums Earned Domestic 85% International (mainly Europe & Japan) 15% P&C Insurance Segment $456.5 million Reinsurance Segment $135.9 million
Slide 12: Diversified Book of Business – P&C Insurance Segment
12 Reinsurance Segment $135.9 million P&C Insurance Segment $456.5 million Diversified Book of Business Property and Casualty Insurance Segment Premiums Earned Commercial Auto 24.3% Commercial Liability 21.2% Commercial Property 23.0% Workers' Compensation 21.1% Bonds 1.8% Personal Lines 8.6%
Slide 13: Benefits of Local Market Presence
13 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 the best business generally resulting in superior loss ratio • Develop products, market
Slide 14: 2016 Direct Premiums Written by Branch
14 6.0% 4.7% 13.5% 7.2% 3.6% 4.2% 4.4% 3.8% 14.8% 4.3% 5.4% 4.3% 4.7% 5.5% 9.9% 3.7% 2016 Direct Premiums Written by Branch Property and Casualty Insurance Segment Commercial Lines
Slide 15: 2016 Premium Distribution by Account Size
15 31% 34% 35% $1-$25K $25-$100K $100K+ 2016 Premium Distribution by Account Size • Approximately 86% of commercial accounts are under $25,000 in account premium, but only represent 31% of commercial lines premiums written volume • Invest more per dollar of premium in loss control services than most
Slide 16: Unique and Powerful Rate Compare System
16 Unique and Powerful Rate Compare System Rates current exposures of commercial renewal policies at current and prior period rates Provides near real-time measure of rate increase obtained by policy, account underwriter, line of business or branch Able to target specific accounts needing more or le
Slide 17: Commercial Renewal Rates up 26.8% Since 2010
17 Commercial Renewal Rates up 26.8% Since 2010 Cumulative Rate Compare Change by Month -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 11 -1 11 -3 11 -5 11 -7 11 -9 11 -1 1 12 -1 12 -3 12 -5 12 -7 12 -9 12 -1 1 13 -1 13 -3 13 -5 13 -7 13 -9 13 -1 1 14 -1 14 -3 14 -5 14 -7 14 -9 14 -1 1 15 -1 15 -3 15
Slide 18: Loss Cost Trend
18 Loss Cost Trend • Provides a measure of the change in the Company’s losses • Calculated using the change in frequency of normalized claim counts and the change in severity of the claims adjusted for changes in rate levels Direct Business Compound Ultimate Annual Trend: 2012-2017* *Trend from July
Slide 19: GAAP Combined Ratios
19 87.9% 88.5% 91.3% 88.5% 89.6% 94.4% 11.7% 9.4% 10.6% 7.8% 8.1% 9.7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 2012 2013 2014 2015 2016 2017 Q2 YTD Catastrophe and Storm Losses GAAP Combined Ratio Excluding Catastrophe and Storm Losses 102.3% 2017 YTD GAAP Combined Ratios 99.6% 97.9% 101.9%
Slide 20: Personal Lines Focused Accountability
20 Personal Lines Focused Accountability 2016 Direct Premiums Written by State NOTE: Premiums written amounts represent entire PL business for pool. EMCI is 30% participant in pool. Premiums Written • Centralized accountability for personal lines profitability and growth began in 2016 • Implemented
Slide 21: Commercial Auto Trends
21 Commercial Auto Trends • Commercial auto represents ~24% of property and casualty insurance segment’s commercial business • Projected combined ratio of 110.8%* for industry in 2017 • Increase in loss frequency driven by distracted drivers and increase in miles driven due to lower gas prices • Inc
Slide 22: Investing in Innovation
22 Investing in Innovation International business accelerator focused on developing and growing early-stage innovative InsurTech startups Innovation Lab Customer Focus and Collaboration Cutting-Edge Analytics Connected/ Real-Time Feedback + + Superior Agency Relationships/Services that Improve Compa
Slide 23: Innovative Loss Control Services
23 Innovative Loss Control Services App that allows organizations to easily identify and report hazards that can lead to slip and fall incidents––leading cause of unintentional injuries in U.S. Partnered with MākuSafe, an innovative startup that developed patent-pending wearable technology that moni
Slide 24: Investment Portfolio
24 Investment Portfolio June 30, 2017 ($ in millions) *Investment securities purchased under reverse repurchase agreements of $16.5 million are not reflected in total investments; however, income from these agreements is included in net investment income. **Securitized assets include commercial mort
Slide 25: Stockholder Dividends
25 $- $0.03 $0.06 $0.09 $0.12 $0.15 $0.18 $0.21 2012 2013 2014 2015 2016 2017 Quarterly Cash Dividend 1Q 2Q 3Q 4Q Stockholder Dividends • Paid consecutive quarterly dividend since IPO in 1982 • Dividend has never been reduced • Increased quarterly dividend 10.5% in 2016, demonstrating: • Confidence
Slide 26: Maximizing Stockholder Value
26 $- $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 2012 2013 2014 2015 2016 2017 YTD Book Value Per Share Cumulative Dividends Per Share * Approximately $0.88 per share of the book value per share increase in 2013 is attributable to a change in EMCC’s postretirement healthcare plan. Maximizing St
Slide 27: Appendix
INSURANCE GROUP INC. MEMC oe ~~ Appendix
Slide 28: Local Service Focus
28 Local Service Focus Agencies Represented by Territory z61 112 141 108 142 101 100 90 71 146 129 146 86174 286 228 • Feedback from annual agent survey drives future product and service enhancements • Formal tiering program ties compensation to performance
Slide 29: Strength in Group Programs
29 Strength in Group Programs Direct Premiums WrittenTarget Markets Branch and industry specific programs such as: • Schools • Municipalities • Petroleum Marketers • Manufactured Housing • Water Well Drillers Safety Groups • Similar to Target Markets, except offer dividends for favorable loss experi
Slide 30: 2017 Intercompany Reinsurance Treaties
30 2017 Intercompany Reinsurance Treaties $20M $15M $24M $12M JANUARY 1 - JUNE 30 AGGREGATE TREATY JULY 1 - DECEMBER 31 AGGREGATE TREATY Retention Limit Cost: $6.0M Property and Casualty Insurance Segment Catastrophe Treaties Between EMCI and EMCC Cost: $1.4M $10M $20M $10M $100M O NE-T IME PER O CC
Slide 31: Award-Winning Workplace
31 Award-Winning Workplace • No. 2 Ranking on Best Companies for Leaders (Chief Executive) • No. 16 Top Workplaces in Iowa (The Des Moines Register) • Best Property/Casualty Company in Des Moines (Business Record) • Plan Sponsor of the Year (PLANSPONSOR) • American Heart Association’s Platinum Level
Slide 32: Experienced Executive Management Team
32 Kevin J. Hovick CPCU Executive Vice President & Chief Operating Officer 38 years with EMC Experienced Executive Management Team Scott R. Jean FCAS, MAAA Executive Vice President for Finance & Analytics 26 years with EMC Mick A. Lovell CPCU Executive Vice President for Corporate Development 14 yea
Slide 33: Fixed Income Portfolio
33 Fixed Income Portfolio June 30, 2017 Bond Ratings AAA 39.9% AA 23.1% A 30.5% BAA 6.3% BA and below 0.2% Total 100.0% Portfolio Characteristics Average Life: 6.2 Years Duration: 4.9 Pre-tax Book Yield: 3.5% 23% 18% 18% 23% 18% Expected Maturities 0-2 Years 2-5 Years 5-7 Years 7-10 Years 10+ Years
Slide 34: Selected Financial Results
34 Selected Financial Results (1) Operating income and operating income per share are non-GAAP financial measures. See pps.35-36 for additional information regarding their calculation. (2) Based on PLRB event occurrence numbers for the P&C insurance segment and PCS catastrophe serial numbers for the
Slide 35: Non-GAAP Information
35 Non-GAAP Information Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures • The Company prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Management uses certain non-GAAP financ
Slide 36: Reconciliations of Non-GAAP Financial Measures
36 Six Months Ended June 30, Year Ended December 31, ($ in thousands) 2017 2016 2016 2015 2014 Net income $ 12,308 $ 20,782 $ 46,203 $ 50,162 $ 29,992 Realized investment gains (2,760) (549) (4,074) (6,153) (4,349) Income tax expense 966 192 1,426 2,154 1,522 Net realized investment gains (1,794) (3
Slide 37: Industry Metric – Premiums Written
37 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
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