EMC Upgrades Fourth-quarter Guidance on Improved Prior-year, Catastrophe Outlook
January 27, 2017 by David Pilla
DES MOINES, Iowa – EMC Insurance Group Inc. said it raised its guidance for fourth-quarter and 2016 results ahead of its Feb. 10 earnings release on favorable prior-year reserve development and low property/casualty catastrophe losses.
“We exceeded our expectations for 2016,” said Bruce G. Kelley, president and chief executive officer, in a statement. “Our strong fourth quarter capped an excellent year, especially given the softening rate environment and increasing competition for quality accounts.”
EMC said in a statement the increase in guidance is due mainly to the property/casualty insurance segment, which the insurer said is expected to report a fourth-quarter GAAP combined ratio of about 92.2, “much lower than previously anticipated.” The combined ratio improvement was mainly from favorable development on prior years’ reserves and a low amount of catastrophe and storm losses.
“The favorable development on prior years’ reserves primarily reflects moderate reductions in the ultimate loss ratios for several accident years in the workers’ compensation line of business and a reduction in settlement expense reserves,” EMC said.
The insurer added the low amount of catastrophe and storm losses stems from a new semi-annual aggregate catastrophe excess of loss intercompany reinsurance program between the property/casualty insurance subsidiaries of the group and Employers Mutual Casualty Co.
That program capped losses at $512,000 in the fourth quarter, the insurer said. The reinsurance segment’s GAAP combined ratio is estimated to be about 89.8 for the fourth quarter.
The GAAP combined ratio for the year is expected to be about 97.7.
“These results are significantly better than the company’s most recent guidance, which anticipated non-GAAP operating income in the range of $1.55 to $1.75 per share and a GAAP combined ratio of 99.6,” EMC said.
EMC last November said it was looking to solve ongoing problems in its commercial automobile and personal lines insurance segments while keeping catastrophe losses under control (Best’s News Service, Nov. 4, 2016). Kelley also said at the time the intercompany reinsurance program “is working as planned” as recoveries under the treaty covering the first half of the year “reduced the volatility of our quarterly results caused by catastrophe and storm losses.”
Most affiliates of EMC Insurance Group Inc. have current Best’s Financial Strength Ratings of A (Excellent).
Shares of EMC Insurance Group Inc. (NASDAQ: EMCI) were trading at $29.59 on the afternoon of Jan. 27, up 2.21% from the previous close.
(By David Pilla, news editor, BestWeek: David.Pilla@ambest.com)