EMC Insurance Expects Q2 Loss on Higher CAT Loss


EMC Insurance Group Inc. (EMCI) has disclosed its preliminary estimates for second-quarter 2014. The property and casualty insurer expects to incur operating loss of 2 cents per share due to higher level of catastrophe (CAT). This compares unfavorably with 47 cents per share earned in the year ago quarter. 

The Zacks Consensus Estimate is currently pegged at 23 cents per share. We expect the estimate to trend lower as analysts take into account the effect of higher losses.

Increased CAT losses in the quarter largely stemmed from hail, wind and tornado damage from several severe Midwest storms. Catastrophic and storm losses in the quarter are expected to increase 27.3% year over year to $1.35 per share. Consequently, the combined ratio is expected to deteriorate 740 basis points to 109.6 in the second quarter of 2014.

Segment-wise, the property and casualty segment is expected to experience CAT and storm loss of $21.5 million or $1.04 per share, while the reinsurance segment will incur a CAT and storm loss of $6.5 million or 31 cents per share. In the year-ago quarter, the property and casualty segment reported CAT and storm loss of $18.5 million while the reinsurance segment reported a loss of $2.9 million.

Apart from these, EMC Insurance’s losses are expected to increase 52% year over year to $9.9 million or 48 cents per share in second-quarter 2014.

EMC Insurance stated that it continues to implement modest rate increase in the property and casualty insurance segment. However, it noted that the rate was declining in the reinsurance segment due to excess capital in the industry.

Based on its year-to-date performance, EMC Insurance slashed its 2014 earnings expectation. It now expects operating income in the range of $2.00–$2.25 from $2.65–$2.90 per share guided earlier. The guidance also compares unfavorably with operating income of 2.88 per share earned in 2013.

The Zacks Consensus Estimate for 2014 is currently pegged at $2.70 per share. We expect the figure to be revised downward as analysts incorporate the EMC Insurance’s guidance in their estimates.

The 2014 guidance includes a mid single-digit increase in investment income, comparing favorably with a decline of 1% in 2013. GAAP combined ratio for 2014 is expected to be 101.0%, a deterioration from 97.9% in 2013.

EMC Insurance Group is scheduled to report second-quarter 2014 earnings on Aug 7. With respect to earnings performance, EMC Insurance delivered positive earnings surprises in two of the last four quarters with trailing four-quarter average surprise of 118%. The company missed earnings estimates in the last reported quarter.

Zacks Rank

There was no earnings momentum over the last 60 days. With the news of company expecting to incur loss in to be reported quarter and lowering guidance, we expect analysts to lower their estimates, hence putting downward pressure on Zacks Rank.

EMC Insurance Group currently has a Zacks Rank #3 (Hold). Better-ranked property and casualty insurers include Greenlight Capital Re, Ltd. (GLRE), AmTrust Financial Services, Inc. (AFSI) and Endurance Specialty Holdings Ltd. (ENH). All of these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on EMCI
Read the Full Research Report on GLRE
Read the Full Research Report on AFSI
Read the Full Research Report on ENH

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