EMC Insurance Group Inc. (EMCI)

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EMC Insurance Group Inc. (EMCI)

Q3 2009 Earnings Call Transcript

October 23, 2009 11:00 am ET


Anita Novak – Assistant Secretary, Director of IR

Bruce Kelley – President & CEO

Mark Reese – SVP, Accounting & CFO

Bill Murray – EVP and COO

Scott Jean – VP, Actuary

Kevin Hovick – SVP, Business Development

Rich Schulz – SVP, Claims


Paul Newsome – Sandler O'Neill & Partners L.P.

Bob Barnum – Keefe, Bruyette & Woods



Greetings and welcome to the EMC Insurance Group Incorporated third quarter 2009 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 Ms. Anita Novak, Director, Investor Relations for EMC Insurance Group Incorporated. Thank you. Ms. Novak, you may now begin.

Anita Novak

Thank you, Becky. Good morning everyone, and welcome to EMC Insurance Group’s 2009 third quarter earnings call. A supplemental investor packet is available on the Investor Relations page of our Web site, which can be found at www.emcins.com/ir. A webcast for replay purposes is also available at this site until January 23, 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 can 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 2009 third 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 Executive Officer; Mr. Bill Murray, Executive Vice President and Chief Operating Officer; Mr. Rich Schulz, Senior Vice President, Claims; Mr. Kevin Hovick, Senior Vice President and Business Development; Mr. Ray Davis, Senior Vice President, Investments and Treasurer; Mr. Scott Jean, Vice President, Actuary; Mr. Kelvin Sederburg, Vice President, Actuary; 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. Good morning. For the property casualty insurance sector business is proceeding despite the turmoil of current economic conditions. Our basic operations are normal. We renew existing policies, we write new business, we paid claims, we developed new products, and we compete with our peers for profitable business.

We tried various risk management strategies in the past, and we found that an emphasis on underwriting profitability is the best method for us. So we continue to market our products on that premise. We've retained post-relationships with our independent agency field force through 16 strategically located branches, growing our business organically through existing agencies, and the employment of new producers. And as of September 30, we have appointed 151 new agents and canceled 87. We maintain a financially strong balance sheet, we reserve conservatively and we invest conservatively. In a nutshell, we adhere to our corporate strategy plan whether we are encountering a soft pricing environment or a hard one. And that of course -- and that course of actions work well for us. Our objective is to emerge from the current soft market, financially sound with a profitable book of business.

Third quarter, for the most part, is right on track with our corporate objectives and expectations. Operating income was $0.24 per share and net income was $0.38 per share. Catastrophe and storm losses declined to $0.79 per share, which was again less than third quarter 2008 results but higher than company averages due to active Midwest storm patterns.

The book value of the company's stock increased 9.4% to $25.41 in third quarter and 19.2% year-to-date. Net written premiums for the third quarter increased 2.8%, which is a result of some rate increases and an increase in new business policy counts, predominantly in personal lines. Year-to-date, however, net written premiums remained flat due to competitive pricing in the first half of the year, which tends to limit our ability to grow profitably.

As we have discussed on previous calls, we have initiated a marketing strategy for personal lines, which has taken us out of some states, mostly coastal regions, and increased marketing efforts in other states, where we believe personal lines can be written profitably over the long term. Although, working off a lower base is a starting point, personal lines new business net written premiums have increased 43.1% and new business personal lines policy counts have increased 27.9%. We are generally seeing mid-single digit rate increases in most geographic locations and some double-digit increases in some areas in our personal lines. We plan to further expand this marketing strategy going forward.

Commercial lines pricing remains quite competitive. While we are seeing some firming in the workers’ compensation line of business, overall, new business net written premium for commercial lines have increased approximately 8.7% as compared to 2008, and new business commercial lines policy counts have increased 6.8%.

Across all lines of business, net written premiums on new business for the nine months ended September 30, has increased approximately 11.5% as compared to 2008, and policy counts on new business have increased 14%.

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