EMC Insurance CEO Says Company Carefully Accepting New Accounts
February 13, 2016 by Renée Kiriluk-Hill, associate editor, BestWeek: renee.kiriluk-hill@ambest.com
DES MOINES, Iowa – Fourth-quarter net income dropped 39% at EMC Insurance Group Inc., but the results were still better than expected, President and Chief Executive Officer Bruce Kelley said in an earnings call.
“This was primarily attributed to the reinsurance segment, which experienced a considerable amount of favorable development on prior-year accident reserves and low levels of large losses,” Kelley said.
The fourth-quarter net fell to $9.9 million, and rose 67% to $50 million for the year.
Net written premiums increased 2% in the fourth quarter to $117.7 million. They were up 4.3 % in commercial lines and down 9.7% in personal lines, said Kelley, while EMC continues to focus on its “new strategy, which will provide greater accountability and improve the quality of our book of business.”
He said the insurer is “very carefully” accepting new accounts. New commercial lines policy counts for the year declined 5.4% and fell 13.7% in personal lines, he said, while retention levels stayed “strong at 86.5%,” with commercial retention “slightly higher” than in personal lines.
Revenues in the fourth quarter were up 2.8% to $152.9 million. For the year, revenues increased 4.7% $617.6 million.
Reinsurance premiums earned in the fourth quarter increased 5.6%, EMC said in a statement, but rate changes are having an effect. A negative premium adjustment of $7.2 million, reported by the ceding company for the offshore energy and liability proportional account, was recorded to “reduce the ultimate amount of premiums expected to be earned for underwriting years 2012 through 2014,” the company said. In the prior-year quarter an $8.7 million reduction in earned-but-not-reported premiums was recognized on pro rata contracts.
EMC’s combined ratio improved 2.2 points during the fourth quarter to 94.1.
Looking ahead, Kevin Hovick, executive vice president and chief operating officer, said new “My Home” and “My Auto” products starting this year will make personal lines in 2016 “kind of a stand-alone profit center.” He expects business to contract “before we start getting some traction. There is a strong desire for a lot of our independent agents to place personal lines with us, but the product and pricing needs to be within the ballpark.”
He anticipates stabilization and growth in 2017.
Kelley said EMC is “working every day to improve” commercial automobile results. “It definitely has our attention, it’s an industrywide problem.”
Scott Jean, executive vice president for finance and analytics, said he thinks the year will bring “very low levels” of rate increases in this area, enough to follow the loss trend although he thinks the loss ratio could worsen slightly.
“The expectation is that rates are going to continue to slide down and put a lot more pressure on loss ratios across the industry,” Jean said. He doesn’t foresee any changes in the near future to commercial auto frequency and severity.
In the fourth quarter, catastrophe and storm losses fell 18% to $3.6 million. Fourth-quarter losses accounted for 2.6 percentage points of the combined ratio, said EMC, below the company’s 10-year average for the period and the last quarter of 2014. For the year, catastrophe and storm losses declined 23% to $44.4 million.
Net investment income declined 3.3% to $11.6 million in the fourth quarter and dipped 1.9% to $45.6 million for the year, according to EMC.
New inter-company reinsurance programs this year should reduce quarterly result volatility, Kelly reiterated (Best’s News Service, Nov. 6, 2015).
Units of EMC Insurance Group Inc. have a current Best’s Financial Strength Rating of A (Excellent). EMC National Life Co. has a Best’s Financial Strength Rating of A- (Excellent).
EMC Insurance Group (NASDAQ: EMCI) was trading on the afternoon of Feb. 12 at $24.50 a share, up 2.64% from the previous close.
