EMC Insurance — Non-Deal Roadshow (March 2018)
36 slides from EMC Insurance's roadshow presentation, Mar 15, 2018
Slide 1: 2018 Investor Meetings March-April
1 2018 Investor Meetings March-April
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 2017 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 (78% of premiums earned) • 2,160 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 December 31, 2017 Dakota Fire Insurance Co
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, 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
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 • Access to large capital base • Diversified, seasoned book of business • Regional, decentralized operating structure • Dividend yield of 3.2% as of March 13, 2018 • 8 consecutive years of dividend increases • Dividend has never been reduced $- $0.15 $0.30 $0.45 $0.60
Slide 10: 2017 Premiums Earned
10 EMCC, Subs. & Affil. $1,131.5 million Reinsurance Segment $134.8 million P&C Insurance Segment $472.4 million 2017 Premiums Earned Total EMC premiums earned of ~$1.7 billion
Slide 11: Diversified Book of Business – Reinsurance Segment
11 Diversified Book of Business Reinsurance Segment Premiums Earned Excess of Loss 66.9% Pro Rata 33.1% EMCC, Subs. & Affil. Reinsurance Segment $134.8 million P&C Insurance Segment Domestic 87% International (mainly Europe & Japan) 13%
Slide 12: Diversified Book of Business – P&C Insurance Segment
12 EMCC, Subs. & Affil. Reinsurance Segment P&C Insurance Segment $472.4 million Diversified Book of Business Property and Casualty Insurance Segment Premiums Earned Commercial Auto 25.0% Commercial Liability 20.9% Commercial Property 22.9% Workers' Compensation 21.3% Bonds 1.8% Personal Lines 8.1%
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 agent’s best business • Develop products, marketing strategies and pricing targeted to
Slide 14: 2017 Direct Premiums Written by Branch
14 6.3% 4.9% 13.4% 7.1% 3.6% 4.5% 4.7% 4.0% 14.4% 4.0% 5.3% 4.4% 3.9% 5.6% 10.0% 3.9% 2017 Direct Premiums Written by Branch Property and Casualty Insurance Segment Commercial Lines
Slide 15: 2017 Premium Distribution by Account Size
15 30% 34% 36% $1-$25K $25-$100K $100K+ 2017 Premium Distribution by Account Size • Approximately 86% of commercial accounts are under $25,000 in account premium, but only represent 30% 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
17 Commercial Renewal Rates -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 2010 2011 2012 2013 2014 2015 2016 2017 P r i o r P e r i o d P e r c e n t a g e C h a n g e • Commercial lines renewal rates up 24.1% since 2010 on a cumulative rate compare change by month basis
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: 2013-2017* *Excludes catast
Slide 19: GAAP Combined Ratios
19 88.5% 91.3% 88.5% 89.6% 91.4% 9.4% 10.6% 7.8% 8.1% 9.9% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 2013 2014 2015 2016 2017 Catastrophe and Storm Losses GAAP Combined Ratio Excluding Catastrophe and Storm Losses 101.3%97.7% GAAP Combined Ratios 97.9% 96.3% 101.9%
Slide 20: Personal Lines Focused Accountability
20 Premiums Written Less than $600,000 $600,001 - $1,500,000 $1,500,001 - $3,000,000 $3,000,001 - $4,500,000 Over $4,500,000 None 3.4% 6.6% 20.4% 5.9% 4.2% 5.9% 7.3% 2.8% 4.3% 2.5% 6.3% 1.0% 2.3% 7.3% 1.8% Personal Lines Focused Accountability 2017 Direct Premiums Written by State • Centralized acco
Slide 21: Commercial Auto Trends
21 Commercial Auto Trends • Commercial auto represents ~25% of 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 • 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 $1.54 billion* at December 31, 2017 *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 commercia
Slide 25: Increasing Stockholder Value
25 $- $5 $10 $15 $20 $25 $30 $35 2013 2014 2015 2016 2017* Book Value Per Share Cumulative Dividends Per Share *Approximately $0.42 per share of the book value per share increase in 2017 it attributable to a one-time deferred income tax benefit resulting from the enactment of the Tax Cuts and Jobs A
Slide 26: Appendix
MV EMC INSURANCE GROUP INC. ~~ Appendix lil, ot teed D te 7 wail
Slide 27: Local Service Focus
27 Local Service Focus Agencies Represented by Territory z64 117 139 117 147 112 102 91 68 134 138 151 85172 284 239 • Feedback from annual agent survey drives future product and service enhancements • Formal tiering program ties compensation to performance
Slide 28: Strength in Group Programs
28 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 2013 2014 2015 2016 2017 Target Market Safety Group ( $ i n t h o u s a n d s ) Strength in Group Programs Direct Premiums WrittenTarget Markets Branch and industry specific programs such as: • Schools • Municipalities • Petroleum Markete
Slide 29: 2018 Intercompany Reinsurance Treaties
29 2018 Intercompany Reinsurance Treaties $22M $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 ONE‐T IME PER OCCUR
Slide 30: Award-Winning Workplace
30 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 31: Experienced Executive Management Team
31 Experienced Executive Management Team Vicki L. Freese CPCU, ARe President of EMC Reinsurance Co. 40 years with EMC Mick A. Lovell CPCU Executive Vice President of Operations 27 years in P&C industry, 14 of those years with EMC Bruce G. Kelley J.D., CPCU, CLU President, Chief Executive Officer and
Slide 32: Fixed Income Portfolio
32 17% 18% 17% 28% 20% Expected Maturities 0-2 Years 2-5 Years 5-7 Years 7-10 Years 10+ Years Fixed Income Portfolio December 31, 2017 Bond Ratings AAA 46.3% AA 20.7% A 27.0% BAA 5.8% BA and below 0.2% Total 100.0% Portfolio Characteristics Average Life: 6.9 Years Duration: 5.0 Pre-tax Book Yield: 3
Slide 33: Selected Financial Results
33 Selected Financial Results (1) The 2017 amount includes a $9.1 million deferred income tax benefit resulting from the decline in the U.S. federal corporate tax rate from 35 percent to 21 percent that was enacted on December 22, 2017. (2) Operating income and operating income per share are non-GAA
Slide 34: Non-GAAP Information
34 Non-GAAP Information Definition of Non-GAAP Information and Reconciliation to Comparable GAAP Measures • The Company prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Management uses certain non-GAAP financ
Slide 35: Reconciliations of Non-GAAP Financial Measures
35 Year Ended December 31, ($ in thousands) 2017 2016 2015 Net income $39,238 $ 46,203 $ 50,162 Realized investment gains (6,556) (4,074) (6,153) Income tax expense 2,295 1,426 2,154 Net realized investment gains (4,261) (2,648) (3,999) Impact of TCJA at enactment (9,057) - - Non-GAAP operating inco
Slide 36: Industry Metric – Premiums Written
36 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