EMC Reports Q1 Net of $10.5 Million

Des Moines, Iowa-based EMC Insurance Group Inc. reported record operating income of $0.74 per share for the first quarter ended March 31, 2005 compared to operating income of $0.70 per share for the first quarter of 2004(1). Net income, including realized investment gains/losses, was $10,503,000 ($0.77 per share) for the first quarter of 2005 compared to $8,349,000 ($0.72 per share) for the first quarter of 2004.

Premiums earned increased 21.4 percent to $101,294,000 for the three months ended March 31, 2005 from $83,458,000 for the same period in 2004. The majority of this increase is attributed to a 6.5 percentage point increase in the Company’s aggregate participation percentage in the EMC Insurance Companies pooling arrangement that became effective January 1, 2005. As a result of this increase, the Company’s aggregate participation in the pooling arrangement increased from 23.5 percent to 30.0 percent. The increase in premiums earned also reflects the impact of rate increases that were implemented in the property and casualty insurance business during 2004.

On an overall basis, rate competition increased moderately in the property and casualty insurance marketplace during the first quarter of 2005. However, there were indications of more intense rate competition in select territories and lines of business and the Company expects market conditions to remain competitive for the remainder of the year.

The Company will continue to implement rate increases in those lines of business and/or territories where such action is warranted, but the overall level of these rate increases is expected to be smaller than those implemented during 2004.

Investment income increased 22.8 percent to $8,932,000 for the three months ended March 31, 2005 from $7,274,000 for the same period in 2004. This increase is primarily attributed to additional interest income earned on $108,076,000 of cash received from Employers Mutual Casualty Company in the first quarter of 2005 in connection with the change in the pooling arrangement and the $34,890,000 of net proceeds received in October 2004 from the Company’s follow-on stock offering.

Catastrophe and storm losses more than doubled to $2,625,000 ($0.13 per share after tax) in the first quarter of 2005 from $1,015,000 ($0.06 per share after tax) in the first quarter of 2004. Approximately $382,000 of this increase is associated with the increased participation in the pooling arrangement; however, the majority of the increase is attributed to European storm losses experienced in the reinsurance segment.

The Company’s GAAP combined ratio was 94.6 percent in the first quarter of 2005 compared to 93.8 percent in the first quarter of 2004.
At March 31, 2005, consolidated assets reached $1.0 billion, including $.9 billion in the investment portfolio; stockholders’ equity was $232.7 million; and net book value of the Company’s stock was $17.11 per share, an increase of 1.6 percent from $16.84 per share at December 31, 2004.