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EMC Insurance Revenues Drive Q4 Earnings Rise; Guides '15 - Analyst Blog

EMC Insurance Group Inc. (EMCI) reported fourth-quarter 2014 operating income of $1.14 a share, up 20% year over year.

Including net realized investment gains, net income of EMC Insurance came in at $1.19 per share, down by a penny year over year.

The improvement was driven by top-line improvement that was complemented by lower expenses.

This marks the best fourth quarter operating income per share since 2005.

Full-Year Review

Operating net income per share was $2.02 per share, down 30% over 2013. Both property and casualty insurance, and the reinsurance segments posted underwriting profits in the fourth quarter. Hence, operating income per share for the year exceeded the high end of the guidance.

Net income including 21 cents was $2.23 per share, down 33%.

Revenues of $590.1 million improved 5.5% over 2013.

Operational Update

Revenues of EMC Insurance totaled nearly $148.7 million, up 1.2% year over year on higher net investment income and other income.

Premiums earned were $135.4 million, flat year over year. Property and casualty insurance premiums earned improved 7.4% largely driven by rate level increases on renewal business and growth in insured exposures. However, premiums earned fell in the reinsurance segment due to a decline in the amount of earned-but-not-reported (EBNR) premiums recognized on pro rata contracts.

Net investment income improved 9.4% year over year to $12 million, attributable to higher average invested balance in fixed maturity securities and an increase in dividend income.

Meanwhile, total losses and expenses of EMC Insurance were $126 million during the quarter, down 2.2% year over year due to lower other expenses.

The GAAP combined ratio during the quarter improved 210 basis points to 92.5%. Catastrophe and storm losses came in at 21 cents per share, narrower than 33 cents incurred in the year-ago quarter.

Financial Update

As of Dec 31, 2014, EMC Insurance’s total investment portfolio improved 10% year over year to $1.4 billion. Cash balance improved 60% to $383 million at 2014 end.

Total shareholder equity was $502.9 million at Dec 31, 2014, up 10.5% from Dec 31, 2013.

Book value per share increased 8.4% to $37.08 from $34.21 at Dec 31, 2013.

2015 Guidance

Management expects operating income between $2.75 and $3.00 per share. The guidance includes GAAP combined ratio of 97.8% and investment income of the 2014 level. The projected GAAP combined ratio includes 11 points for catastrophe and storm losses.

Performance of Other Property and Casualty Insurers

The bottom lines at RLI Corporation (RLI), ACE Limited (ACE) and The Travelers Companies Inc. (TRV) outperformed their respective Zacks Consensus Estimate in the fourth quarter.


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