EMC Insurance Group Inc. (EMCI)

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EMC Insurance Group Inc. (EMCI)

Q4 2008 Earnings Call

February 27, 2008; 11:00 am ET


Bruce Kelly - President & Chief Executive Officer

Mark Reese - Senior Vice President & Chief Financial Officer

Ron Jean - Executive Vice President of Corporate Development

William Murray - Executive Vice President & Chief Operating Officer

Steven Peck - Senior Vice President, Actuary

Ray Davis - Senior Vice President, Investments and Treasurer

Kevin Hovick - Senior Vice President, Business Development

Anita Novak - Director, Investor Relations


Paul Newsome - Sandler O’Neill & Partners

Bob Barnum - Keefe Bruyette & Woods



Greetings and welcome to the EMC Insurance Group Inc. Fourth Quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Anita Novak, Director, Investor Relations for EMC Insurance Group Inc. Thank you. Ms. Novak, you may begin.

Anita Novak

Thank you, Sherry. Good morning, everyone and welcome to EMC Insurance Group’s 2008 fourth quarter earnings call. A supplemental investor packet is available on the Investor Relations page of our web site, which can be found at www.emcinsurance.com. The webcast for replay purposes is also available at this site until February 26, 2010. The transcript of the webcast will be available for one year.

This presentation includes some forward-looking statements about our expectations for our future performance. Actual results could differ materially from those suggested by our comments today. Additional information about factors that could affect future results is addressed in our SEC filings including Forms S-1, 10-K, 10-Q and 8-K. Any information provided today should be read in conjunction with the 2008 fourth quarter earnings release with accompanying financial tables issued earlier today.

With us today are several members of EMC Insurance Group’s executive management team. They are Mr. Bruce Kelley, President and Chief Financial Officer; Mr. Ron Jean, Executive Vice President for Corporate Development; Mr. Steven Peck, Senior Vice President, Actuary; Mr. Ray Davis, Senior Vice President, Investments and Treasurer; Mr. Kevin Hovick, Senior Vice President, Business Development and Mr. Mark Reese, Senior Vice President and Chief Financial Officer.

At this time, it is my pleasure to introduce EMC’s Chief Executive Officer, Bruce Kelley.

Bruce Kelley

Thank you, Anita. I am pleased to report that even though last year presented furious challenges on several fronts, we remained financially strong and secured. It is doubtful that anyone could have completely prepared for the events of 2008, but we believe our strong financial position in our overall strategic approach helped us weather a very difficult year.

My intent today, is to describe how we addressed the challenges of 2008 and our expectations for 2009 and beyond. The entered 2008 certainly had a significant impact on EMC Insurance Group Inc. We experienced our largest amount of catastrophe and storm losses ever, recognized a record amount of investment in payment losses in our equity portfolio, had a significant decline in the amount of unrealized gains in our investment portfolio and we are confirmed with a generally competitive environment from marketing property and causality insurance.

Catastrophe and storm losses; the company has a brand structure and a risk management approach that foremost diversifying our exposures. However, even as diversified as we are catastrophe and storm losses were a major issue in 2008. Storms were unusually large and numerous in 2008, often spreading across much of the United States. Major events in 2008 include hurricane Gustav and hurricane Ike and the EF5 tornado that hit Parkersburg, Iowa.

Catastrophe and storm losses added 13 percentage points to our combined ratio in 2008, compared to an average over the last decade of 5.4 percentage points. Factoring in a normal amount Catastrophe and storm losses, our under writing results would have been in line with management’s expectation. Excess Catastrophe and storm losses alone accounted for a decline of $19.2 million in stockholders equity in 2008.

Wide spread storms generating large numbers of claims in numerous territories created serious challenges for claims adjusters. The company was able to meet those challenges by utilizing our automotive claims management system and distributing the claims processing throughout the branch offices in order to more timely and effectively facilitate the increased volume of claims, thereby expediting the final payment of claims.

The system allows the various branch offers to easily share data and check the status of all claims. We significantly decreased the burden of claims processing for any one geographic location. This was an important factor, especially with hurricane Ike claims since both our Birmingham branch and our Cincinnati branch were physically affected by the storm. 100% of all catastrophe and storm losses claims have been adjusted and nearly all have been paid.

Record impairment losses. As you know from this morning’s earnings release, the company reported a net loss for the year of $0.13 per share. The net loss was directly related to net realized investment losses, as was the case with nearly all our competitors we have felt the effects of the global recession and severely depressed equity markets.

Realized investment losses for the year totaled $24.5 million or $1.17 per share after taxes and reflect $30.9 million or $1.49 per share after taxes of other than temporary investment impairment losses. The $14.9 million of those impairment losses are attributed to perpetual preferred stocks issued by Freddy Mac and Fannie Mae.

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