[May 09, 2013]

EMC Insurance Group Inc. Reports 2013 First Quarter Results

EMC Insurance Group Inc. (Nasdaq: EMCI):

First Quarter Ended March 31, 2013
Operating Income Per Share - $0.97
Net Income Per Share - $1.10
Net Realized Investment Gains Per Share - $0.13
Catastrophe and Storm Losses Per Share - $0.27
Large Losses Per Share - $0.15
GAAP Combined Ratio - 93.8 percent

EMC Insurance Group Inc. (Nasdaq OMX/GS:EMCI) today reported operating income of $12,538,000 ($0.97 per share) for the first quarter ended March 31, 2013, compared to $13,427,000 ($1.04 per share) for the first quarter of 2012¹.

Net income, including realized investment gains and losses, totaled $14,273,000 ($1.10 per share) for the first quarter of 2013, compared to $19,224,000 ($1.49 per share) for the first quarter of 2012.

"The positive pricing momentum that occurred in 2012 has extended into the first quarter of 2013 as the property and casualty insurance market continues to support ongoing rate level increases," stated Bruce G. Kelley, President and Chief Executive Officer. "We have not implemented broad-based rate level increases; instead, we continue to implement targeted increases that incorporate the loss experience and risk exposures associated with each policy. Our goal is to achieve more adequate overall rate levels. We believe this approach will allow us to retain our core book of business while improving underwriting margins," continued Kelley.

Premiums earned increased 9.8 percent to $120,497,000 for the first quarter of 2013, from $109,760,000 in the first quarter of 2012. In the property and casualty insurance segment, premium income increased 9.0 percent for the quarter, with the majority of the increase attributable to rate level increases, growth in insured exposures on existing accounts and an increase in retained policies. In the reinsurance segment, premium income increased 12.4 percent in the first quarter, reflecting a significant increase in premiums earned on policies written in the prior contract year, moderate rate level increases implemented during the January 1 renewal season and the addition of some new business.

The Company's GAAP combined ratio was 93.8 percent in the first quarter of 2013 compared to 92.4 percent in the first quarter of 2012.

"Renewal pricing continues to outpace the increase in our loss costs, allowing more of the rate level increases to positively impact our bottom line," continued Kelley.

Catastrophe and storm losses totaled $5,397,000 ($0.27 per share after tax) in the first quarter of 2013 and were down significantly from the record $9,703,000 ($0.49 per share after tax) experienced in the first quarter of 2012. First quarter 2013 catastrophe and storm losses accounted for 4.5 percentage points of the combined ratio, which was slightly less than the Company's most recent 10-year average of 5.1 percentage points and well below the prior year quarter's 8.8 percentage points. On a segment basis, catastrophe and storm losses amounted to $4,865,000 ($0.24 per share after tax) in the property and casualty insurance segment and $532,000 ($0.03 per share after tax) in the reinsurance segment.

The Company experienced $4,256,000 ($0.21 per share after tax) of favorable development on prior years' reserves during the first quarter of 2013, compared to $16,263,000 ($0.82 per share after tax) in the first quarter of 2012. The largest decline occurred in the property and casualty insurance segment, where the amount of favorable development experienced on the final settlement of claims that were closed during the quarter declined, and the amount of adverse development experienced on open claims increased. Development amounts can vary significantly from quarter to quarter and year to year depending on a number of factors, including the number of claims settled and the settlement terms, and should therefore not be considered a reliable factor in assessing the adequacy of the Company's carried reserves. The most recent actuarial analysis of the Company's carried reserves indicates a level of adequacy that is consistent with other recent evaluations.

Large losses (which the Company defines as losses greater than $500,000 for the EMC Insurance Companies' pool, excluding catastrophe and storm losses) decreased to $2,935,000 ($0.15 per share after tax) in the first quarter of 2013 compared to $6,324,000 ($0.32 per share after tax) in the first quarter of 2012.

Investment income decreased 6.4 percent to $10,443,000 in the first quarter of 2013 from $11,157,000 in the first quarter of 2012. The decline in investment income is primarily attributable to the persistent decline in the average coupon rate on fixed maturity securities during the past several years.

Net realized investment gains totaled $1,735,000 ($0.13 per share) in the first quarter of 2013, compared to $5,797,000 ($0.45 per share) in 2012.

At March 31, 2013, consolidated assets totaled $1.3 billion, including $1.2 billion in the investment portfolio, and stockholders' equity totaled $420.3 million, an increase of 4.7 percent from December 31, 2012. Net book value of the Company's stock increased to $32.35 per share from $31.08 per share at December 31, 2012. Book value excluding accumulated other comprehensive income increased to $28.25 per share from $27.38 per share at December 31, 2012.

As previously disclosed, on November 3, 2011, the Company's Board of Directors authorized a $15 million stock repurchase program. This program became effective immediately and does not have an expiration date. No shares have been repurchased under this program. Employers Mutual Casualty Company's (the Company's parent organization) $15 million stock purchase program, which is 70 percent complete, is dormant and will remain so while the Company's stock repurchase program is in effect.

Based on results for the first quarter of 2013 and management's expectations for the remainder of the year, management is reaffirming its 2013 operating income guidance in the range of $2.40 to $2.65 per share. This guidance is based on a projected GAAP combined ratio of 99.2 percent and a projected mid-single-digit decline in investment income for the year. Despite strong first quarter operating results, management is not revising its 2013 operating earnings guidance at this time because operating results in the second and third quarters can be volatile depending on the frequency and severity of Midwest storms, and the possibility of hurricane losses.

On April 24, 2013, A.M. Best Company upgraded the financial strength ratings for EMC Insurance Companies pool members and EMC Reinsurance Company to "A" (Excellent) with a stable outlook from their previous rating of "A-" (Excellent) with a positive outlook. A.M. Best Company cited the Companies' strong level of risk-adjusted capital, consistently favorable development on prior years' loss and loss adjustment expense reserves, favorable core underwriting results and the benefits derived from strategic actions taken over the past several years associated with pricing, risk selection, claims management and reserving methodology as support for the upgrade.

The Company will hold an earnings teleconference call at 11:00 a.m. Eastern time on May 9, 2013 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company's results for the first quarter, as well as its expectations for the rest of 2013. Dial-in information for the call is toll-free 1-877-407-9205 (International: 1-201-689-8054). The event will be archived and available for digital replay through August 7, 2013. The replay access information is toll-free 1-877-660-6853 (International: 1-201-612-7415); conference ID number 412186.

Members of the news media, investors and the general public are invited to access a live webcast of the conference call via the Company's investor relations page at www.emcins.com/ir. The webcast will be archived and available for replay until August 7, 2013. A transcript of the teleconference will also be available on the Company's website shortly after the completion of the teleconference.

About EMCI:
EMC Insurance Group Inc. is a publicly held insurance holding company with operations in property and casualty insurance and reinsurance, which was formed in 1974 and became publicly held in 1982. The Company's common stock trades on the Global Select Market tier of the NASDAQ OMX Stock Market under the symbol EMCI. EMCI's parent company is Employers Mutual Casualty Company (EMCC). EMCI and EMCC, together with their subsidiary and affiliated companies, conduct operations under the trade name EMC Insurance Companies. Additional information regarding EMC Insurance Companies may be found at www.emcins.com.

Forward-Looking Statements:
The Private Securities Litigation Reform Act of 1995 provides issuers the opportunity to make cautionary statements regarding forward-looking statements. Accordingly, any forward-looking statement contained in this report is based on management's current beliefs, assumptions and expectations of the Company's future performance, taking into account all information currently available to management. These beliefs, assumptions and expectations can change as the result of many possible events or factors, not all of which are known to management. If a change occurs, the Company's business, financial condition, liquidity, results of operations, plans and objectives may vary materially from those expressed in the forward-looking statements. The risks and uncertainties that may affect the actual results of the Company include, but are not limited to, the following:

• catastrophic events and the occurrence of significant severe weather conditions;
• the adequacy of loss and settlement expense reserves;
• state and federal legislation and regulations;
• changes in the property and casualty insurance industry, interest rates or the performance of financial markets and the general economy;
• rating agency actions;
• "other-than-temporary" investment impairment losses; and
• other risks and uncertainties inherent to the Company's business, including those discussed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K.

Management intends to identify forward-looking statements when using the words "believe," "expect," "anticipate," "estimate," "project," or similar expressions. Undue reliance should not be placed on these forward-looking statements.

¹The Company uses a non-GAAP financial measure called "operating income" that management believes is useful to investors because it illustrates the performance of our normal, ongoing operations, which is important in understanding and evaluating our financial condition and results of operations. While this measure is consistent with measures utilized by investors to evaluate performance, it is not a substitute for the GAAP financial measure of net income. Therefore, the Company has provided the following reconciliation of the non-GAAP financial measure of operating income to the GAAP financial measure of net income. Management also uses non-GAAP financial measures for goal setting, determining employee and senior management awards and compensation, and evaluating performance.

The reconciliation of operating income to net income is as follows:

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