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EMC Insurance Group (EMCI)
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  • 10-Q (May 9, 2013)
  • 10-Q (Nov 8, 2012)
  • 10-Q (Aug 8, 2012)
  • 10-Q (May 9, 2012)
  • 10-Q (Nov 8, 2011)
  • 10-Q (Aug 9, 2011)

 
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EMC Insurance Group 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
form10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934
 
For the quarterly period ended JUNE 30, 2011
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________________to __________________
 
Commission File Number: 0-10956

 
EMC INSURANCE GROUP INC.
  
 
(Exact name of registrant as specified in its charter)
  

 
Iowa
  
42-6234555
  
 
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
  

 
717 Mulberry Street, Des Moines, Iowa
  
50309
  
 
(Address of principal executive offices)
  
(Zip Code)
  

 
(515) 345-2902
  
 
(Registrant’s telephone number, including area code)
  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x  Yes    o  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x  Yes    o  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
o
Accelerated filer
x
Non-accelerated filer
o
Smaller reporting company
o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o  Yes    x  No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 
Class
  
Outstanding at July 29, 2011
  
 
Common stock, $1.00 par value
  
12,893,073
  

 
 
 
 
 
   
PAGE
PART I
FINANCIAL INFORMATION
  
    Item 1.
3
    Item 2.
37
    Item 3.
53
    Item 4.
53
   
PART II
OTHER INFORMATION
  
    Item 2.
54
    Item 6.
55
   
56
   
57
 
 
PART I.             FINANCIAL INFORMATION

ITEM 1.             FINANCIAL STATEMENTS>

EMC INSURANCE GROUP INC. AND SUBSIDIARIES

(Unaudited)
 
   
June 30,
2011
    
December 31,
2010
  
ASSETS
            
Investments:
            
Fixed maturities:
            
Securities held-to-maturity, at amortized cost (fair value $371,456 and $389,679)
  $ 322,602     $ 340,803  
Securities available-for-sale, at fair value (amortized cost $877,611,517 and $909,582,782)
    920,197,839       941,537,026  
Equity securities available-for-sale, at fair value (cost $87,103,570 and $75,721,039)
    110,941,324       101,138,982  
Other long-term investments, at cost
    22,177       29,827  
Short-term investments, at cost
    70,372,883       36,616,111  
Total investments
    1,101,856,825       1,079,662,749  
                 
Cash
    276,864       491,994  
Reinsurance receivables due from affiliate
    36,261,477       30,256,586  
Prepaid reinsurance premiums due from affiliate
    9,211,749       9,530,426  
Deferred policy acquisition costs (affiliated $39,315,029 and $37,584,448)
    39,321,007       37,584,448  
Prepaid pension benefits due from affiliate
    4,260,282       5,125,701  
Accrued investment income
    10,339,597       10,925,854  
Accounts receivable
    1,226,136       1,716,150  
Income taxes recoverable
    9,326,943       2,350,864  
Deferred income taxes
    3,795,801       6,690,218  
Goodwill
    941,586       941,586  
Other assets (affiliated $3,953,355 and $2,433,445)
    4,230,738       2,517,922  
Total assets
  $ 1,221,049,005     $ 1,187,794,498  

All affiliated balances presented above are the result of related party transactions with Employers Mutual.
 
See accompanying Notes to Consolidated Financial Statements.
 
 
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(Unaudited)

   
June 30,
2011
    
December 31,
2010
  
LIABILITIES
            
Losses and settlement expenses (affiliated $590,916,267 and $553,125,183)
  $ 595,478,577     $ 556,140,956  
Unearned premiums (affiliated $174,378,776 and $167,896,119)
    174,409,257       167,896,119  
Other policyholders' funds due to affiliate  
     6,858,887       8,315,751  
Surplus notes payable to affiliate
    25,000,000       25,000,000  
Amounts due affiliate to settle inter-company transaction balances
    12,549,689       18,380,813  
Pension and postretirement benefits payable to affiliate
    21,050,225       20,418,716  
Other liabilities (affiliated $13,924,379 and $22,861,092)
    22,458,336       23,001,141  
Total liabilities
    857,804,971       819,153,496  
                 
STOCKHOLDERS' EQUITY
                
Common stock, $1 par value, authorized 20,000,000 shares; issued and outstanding, 12,945,473 shares in 2011 and 12,927,678 shares in 2010
    12,945,473       12,927,678  
Additional paid-in capital
    89,477,320       88,937,294  
Accumulated other comprehensive income (loss):
                
Net unrealized losses on fixed maturity securities with "other-than-temporary" impairments
    -       (69,852 )
Other net unrealized gains
    43,175,648       37,361,774  
Unrecognized pension and postretirement benefits (all affiliated)
    (12,452,027 )     (12,796,435 )
Total accumulated other comprehensive income
    30,723,621       24,495,487  
Retained earnings
    230,097,620       242,280,543  
Total stockholders' equity
    363,244,034       368,641,002  
Total liabilities and stockholders' equity
  $ 1,221,049,005     $ 1,187,794,498  
 
All affiliated balances presented above are the result of related party transactions with Employers Mutual.
 
See accompanying Notes to Consolidated Financial Statements.
 
 
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

   
Three months ended June 30,
  
   
2011
    
2010
  
REVENUES
            
Premiums earned (affiliated $97,845,857 and $95,081,018)
  $ 100,931,529     $ 96,431,111  
Investment income, net
    11,473,108       12,662,024  
Net realized investment gains, excluding impairment losses on available-for-sale securities
    2,370,711       731,153  
Total "other-than-temporary" impairment losses on available-for-sale securities
    (584,451 )     (1,576,698 )
Portion of "other-than-temporary" impairment losses on fixed maturity available-for-sale securities reclassified from other comprehensive income (before taxes)
    (86,017 )     -  
Net impairment losses on available-for-sale securities
    (670,468 )     (1,576,698 )
Net realized investment gains (losses)
    1,700,243       (845,545 )
Other income (all affiliated)
    236,483       220,361  
      114,341,363       108,467,951  
LOSSES AND EXPENSES
                
Losses and settlement expenses (affiliated $99,128,694 and $70,227,253)
    101,770,766       71,152,068  
Dividends to policyholders (all affiliated)
    (144,931 )     1,518,624  
Amortization of deferred policy acquisition costs (affiliated $23,014,610 and $22,268,128)
    23,845,162       22,641,285  
Other underwriting expenses (affiliated $8,756,337 and $9,184,909)
    8,635,112       9,134,635  
Interest expense (all affiliated)
    225,000       225,000  
Other expense (affiliated $1,003,829 and $410,526)
    1,023,047       300,707  
      135,354,156       104,972,319  
Income (loss) before income tax expense (benefit)
    (21,012,793 )     3,495,632  
                 
INCOME TAX EXPENSE (BENEFIT)
                
Current
    (8,555,420 )     382,953  
Deferred
    23,846       (185,794 )
      (8,531,574 )     197,159  
Net income (loss)
  $ (12,481,219 )   $ 3,298,473  
                 
Net income (loss) per common share-basic and diluted
  $ (0.96 )   $ 0.25  
                 
Dividend per common share
  $ 0.19     $ 0.18  
                 
Average number of common shares outstanding-basic and diluted
    12,958,292       13,129,167  

All affiliated balances presented above are the result of related party transactions with Employers Mutual.
 
See accompanying Notes to Consolidated Financial Statements.
 
 
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

   
Six months ended June 30,
  
   
2011
    
2010
  
REVENUES
            
Premiums earned (affiliated $194,921,739 and $186,536,315)
  $ 197,218,343     $ 188,776,177  
Investment income, net
    23,551,703       25,179,011  
Net realized investment gains, excluding impairment losses on available-for-sale securities
    10,874,753       1,608,461  
Total "other-than-temporary" impairment losses on available-for-sale securities
    (830,297 )     (1,808,554 )
Portion of "other-than-temporary" impairment losses on fixed maturity available-for-sale securities reclassified from other comprehensive income (before taxes)
    (86,017 )     (120,539 )
Net impairment losses on available-for-sale securities
    (916,314 )     (1,929,093 )
Net realized investment gains (losses)
    9,958,439       (320,632 )
Other income (all affiliated)
    440,313       427,047  
      231,168,798       214,061,603  
LOSSES AND EXPENSES
                
Losses and settlement expenses (affiliated $172,411,861 and $125,660,386)
    175,140,367       127,194,692  
Dividends to policyholders (all affiliated)
    2,368,038       3,873,086  
Amortization of deferred policy acquisition costs (affiliated $47,042,105 and $43,875,573)
    47,655,944       44,506,400  
Other underwriting expenses (affiliated $18,377,661 and $19,550,103)
    18,256,436       19,499,829  
Interest expense (all affiliated)
    450,000       450,000  
Other expense (affiliated $1,690,692 and $688,546)
    1,955,425       498,910  
      245,826,210       196,022,917  
Income (loss) before income tax expense (benefit)
    (14,657,412 )     18,038,686  
                 
INCOME TAX EXPENSE (BENEFIT)
                
Current
    (6,938,345 )     4,536,403  
Deferred
    (459,198 )     325,718  
      (7,397,543 )     4,862,121  
Net income (loss)
  $ (7,259,869 )   $ 13,176,565  
                 
Net income (loss) per common share -basic and diluted
  $ (0.56 )   $ 1.00  
                 
Dividend per common share
  $ 0.38     $ 0.36  
                 
Average number of common shares outstanding -basic and diluted
    12,946,923       13,126,489  

All affiliated balances presented above are the result of related party transactions with Employers Mutual.
 
See accompanying Notes to Consolidated Financial Statements.
 
 
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

   
Three months ended June 30,
  
   
2011
    
2010
  
             
Net income (loss)
  $ (12,481,219 )   $ 3,298,473  
                 
OTHER COMPREHENSIVE INCOME (LOSS)
                
Change in unrealized holding gains on investment securities, net of deferred income tax expense of $5,007,242 and $1,003,213
    9,299,161       1,863,110  
                 
Reclassification adjustment for realized investment (gains) losses included in net income (loss), net of income tax (expense) benefit of ($625,191) and $295,940
    (1,161,069 )     549,605  
                 
Change in unrealized holding gains (losses) on fixed maturity securities with "other-than-temporary" impairment, net of deferred income tax expense (benefit) of ($27,301) and $29,455
    (50,701 )     54,703  
                 
Reclassification adjustment for realized investment losses from fixed maturity securities with "other-than-temporary" impairment included in net income, net of income tax benefit of $30,106 and $0
    55,911       -  
                 
Adjustment associated with affiliate's pension and postretirement benefit plans, net of deferred income tax expense of $92,726 and $99,227:
                
Net actuarial loss
    250,371       262,318  
Prior service credit
    (78,167 )     (78,042 )
      172,204       184,276  
                 
Other comprehensive income
    8,315,506       2,651,694  
                 
Total comprehensive income (loss)
  $ (4,165,713 )   $ 5,950,167  

All affiliated balances presented above are the result of related party transactions with Employers Mutual.
 
See accompanying Notes to Consolidated Financial Statements.
 
 
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

   
Six months ended June 30,
  
   
2011
    
2010
  
             
Net income (loss)
  $ (7,259,869 )   $ 13,176,565  
                 
OTHER COMPREHENSIVE INCOME (LOSS)
                
Change in unrealized holding gains on investment securities, net of deferred income tax expense of $6,646,110 and $5,656,964
    12,342,770       10,505,790  
                 
Reclassification adjustment for realized investment (gains) losses included in net income (loss), net of income tax (expense) benefit of ($3,515,560) and $70,033
    (6,528,896 )     130,060  
                 
Change in unrealized holding gains on fixed maturity securities with "other-than-temporary" impairment,  net of deferred income tax expense of $7,507 and $34,842
    13,941       64,707  
                 
Reclassification adjustment for realized investment losses from fixed maturity securities with "other- than-temporary" impairment included in net income, net of income tax benefit of $30,106 and $42,188
    55,911       78,351  
                 
Adjustment associated with affiliate's pension and postretirement benefit plans, net of deferred income tax expense of $185,452 and $198,454:
                
Net actuarial loss
    500,742       524,636  
Prior service credit
    (156,334 )     (156,084 )
      344,408       368,552  
                 
Other comprehensive income
    6,228,134       11,147,460  
                 
Total comprehensive income (loss)
  $ (1,031,735 )   $ 24,324,025  

All affiliated balances presented above are the result of related party transactions with Employers Mutual.
 
See accompanying Notes to Consolidated Financial Statements.
 
 
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

   
Six months ended June 30,
  
   
2011
    
2010
  
CASH FLOWS FROM OPERATING ACTIVITIES
            
Net  income (loss)
  $ (7,259,869 )   $ 13,176,565  
                 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
                
Losses and settlement expenses (affiliated $37,791,084 and $9,191,473)
    39,337,621       9,723,885  
Unearned premiums (affiliated $6,482,657 and $5,464,904)
    6,513,138       5,483,473  
Other policyholders' funds due to affilitate
    (1,456,864 )     550,428  
Amounts due affiliate to settle inter-company transaction balances
    (5,831,124 )     (11,243,852 )
Pension and postretirement benefits payable to affiliate
    2,026,788       2,535,768  
Reinsurance receivables due from affiliate
    (6,004,891 )     (1,730,509 )
Prepaid reinsurance premiums due from affiliate
    318,677       (2,726,384 )
Commission payable (affiliated ($7,013,567) and ($4,194,748))
    (7,017,038 )     (4,194,748 )
Interest payable to affiliate
    (450,000 )     (450,000 )
Deferred policy acquisition costs (affiliated ($1,730,581) and ($677,925))
    (1,736,559 )     (682,223 )
Stock-based compensation payable to affiliate
    111,573       84,076  
Accrued investment income
    586,257       56,047  
Accrued income tax:
                
Current
    (6,968,495 )     (10,073,747 )
Deferred
    (459,198 )     325,718  
Realized investment (gains) losses
    (9,958,439 )     320,632  
Accounts receivable
    490,014       (110,454 )
Amortization of premium/discount on fixed maturity securities
    (491,015 )     (565,087 )
Other, net (affiliated ($2,997,932) and ($3,699,801))
    (2,783,077 )     (3,819,668 )
      6,227,368       (16,516,645 )
Net cash used in operating activities
  $ (1,032,501 )   $ (3,340,080 )
 
All affiliated balances presented above are the result of related party transactions with Employers Mutual.
 
See accompanying Notes to Consolidated Financial Statements.
 
 
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

   
Six months ended June 30,
  
   
2011
    
2010
  
CASH FLOWS FROM INVESTING ACTIVITIES
            
Maturities of fixed maturity securities held-to-maturity
  $ 18,275     $ 49,278  
Purchases of fixed maturity securities available-for-sale
    (90,240,239 )     (80,277,187 )
Disposals of fixed maturity securities available-for-sale
    130,305,162       90,005,137  
Purchases of equity securities available-for-sale
    (44,449,466 )     (16,111,693 )
Disposals of equity securities available-for-sale
    43,409,567       16,088,913  
Disposals of other long-term investments
    7,650       8,111  
Net purchases of short-term investments
    (33,756,772 )     (877,013 )
Net cash provided by investing activities
    5,294,177       8,885,546  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
                
Issuance of common stock through affilate's stock option plans
    755,235       402,453  
Excess tax benefit associated with affilate's stock option plans
    7,584       528  
Repurchase of common stock
    (316,571 )     (1,237,902 )
Dividends paid to stockholders (affiliated ($2,982,184) and ($2,825,227))
    (4,923,054 )     (4,728,610 )
Net cash used in financing activities
    (4,476,806 )     (5,563,531 )
                 
NET DECREASE IN CASH
    (215,130 )     (18,065 )
Cash at the beginning of the year
    491,994       278,534  
                 
Cash at the end of the quarter
  $ 276,864     $ 260,469  
 
All affiliated balances presented above are the result of related party transactions with Employers Mutual.
 
See accompanying Notes to Consolidated Financial Statements.
 
 
EMC INSURANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
 
1.       BASIS OF PRESENTATION

EMC Insurance Group Inc., a 61 percent owned subsidiary of Employers Mutual Casualty Company (Employers Mutual), is an insurance holding company with operations in property and casualty insurance and reinsurance.  Both commercial and personal lines of insurance are written, with a focus on medium-sized commercial accounts.  The term “Company” is used interchangeably to describe EMC Insurance Group Inc. (Parent Company only) and EMC Insurance Group Inc. and its subsidiaries.

The accompanying unaudited consolidated financial statements have been prepared on the basis of U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  The Company has evaluated all subsequent events through the date the financial statements were issued.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the interim financial statements have been included.  The results of operations for the interim periods reported are not necessarily indicative of results to be expected for the year.  The consolidated balance sheet at December 31, 2010 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements.

Certain amounts previously reported in prior years’ consolidated financial statements have been reclassified to conform to current year presentation.

In reading these financial statements, reference should be made to the Company’s 2010 Form 10-K or the 2010 Annual Report to Stockholders for more detailed footnote information.
 
2.       NEW ACCOUNTING PRONOUNCEMENTS

In June 2011, the Financial Accounting Standards Board (FASB) updated its guidance related to the Comprehensive Income Topic 220 of the FASB Accounting Standards Codification TM (ASC).  The objective of this updated guidance is to increase the prominence of items reported in other comprehensive income by eliminating the option of presenting components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The guidance requires total comprehensive income (including both the net income components and other comprehensive income components) be reported in either a single continuous statement of comprehensive income, or two separate but consecutive statements (the approach currently used in the Company’s consolidated financial statements).  This guidance is to be applied retrospectively to fiscal years (and interim periods within those years) beginning after December 15, 2011.  Early adoption is permitted.  Since the Company already uses the two-statement approach for reporting comprehensive income, this guidance will not have an impact on its consolidated financial position or operating results.

In May 2011, the FASB updated its guidance related to the Fair Value Measurement Topic 820 of the ASC to achieve common fair value measurement and disclosure requirements with International Financial Reporting Standards.  The changes in this guidance both clarify the intent of application of existing fair value measurement and disclosure requirements, and change particular principles or requirements for measuring and disclosing fair value measurements.  Specifically included in this guidance is expanded disclosure of the valuation processes used for Level 3 fair value measurements, including quantitative information about unobservable inputs used.  This guidance is to be applied prospectively to interim and annual reporting periods beginning after December 15, 2011.  Adoption of this guidance is not expected to have an impact on the consolidated financial position or operating results of the Company.
 
 
In October 2010, the FASB updated its guidance related to Insurance Topic 944 of the ASC to clarify which costs associated with the acquisition of insurance contracts should be capitalized and deferred for recognition during the coverage period.  This guidance specifies that only incremental costs or costs directly related to the successful acquisition of new or renewal insurance contracts are to be capitalized as a deferred acquisition cost.  Currently, industry practice is such that deferred costs typically also include costs related to unsuccessful acquisitions of insurance contracts.  This guidance is effective for annual reporting periods (and interim reporting periods of those annual reporting periods) beginning on or after December 15, 2011, and may be adopted prospectively or retrospectively.  Adoption of this guidance will have an impact on the consolidated financial position and operating results of the Company since certain costs associated with contract acquisition that are currently deferred will not likely meet the criteria for deferral under the new guidance.  The Company has not yet established an estimate of the impact this new guidance will have on its financial statements.

In July 2010, the FASB updated its guidance related to Receivables Topic 310 of the ASC to require additional disclosures regarding credit risk exposures and the allowance for credit losses, as well as a description of the accounting policies and methodology used to estimate the liability for off-balance-sheet credit risk exposures and related charges.  The additional disclosures required at the end of a reporting period were effective for interim and annual reporting periods ending on or after December 15, 2010, and the additional disclosures required about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.  Adoption of this guidance resulted in some additional disclosures at year-end 2010, but had no effect on the consolidated financial position or operating results of the Company.

In January 2010, the FASB updated its guidance related to the Fair Value Measurements and Disclosures Topic 820 of the ASC to require additional disclosures regarding transfers in and out of fair value measurement Levels 1 and 2, the display of Level 3 activity on a gross basis (rather than net), fair value measurement disclosures for each class of assets and liabilities (rather than by line item within the statement of financial position), and additional disclosures about inputs and valuation techniques.  This guidance was effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which is effective for fiscal years (and interim periods of those fiscal years) beginning after December 15, 2010.  Adoption of this guidance had no effect on the consolidated financial position or operating results of the Company.
 
 
3.       REINSURANCE

The effect of reinsurance on premiums written and earned, and losses and settlement expenses incurred, for the three months and six months ended June 30, 2011 and 2010 is presented below.

   
Three months ended June 30, 2011
  
   
Property and casualty insurance
    
Reinsurance
    
Total
  
Premiums written
                  
Direct
  $ 72,788,518     $ -     $ 72,788,518  
Assumed from nonaffiliates
    421,834       28,710,853       29,132,687  
Assumed from affiliates
    91,377,982       -       91,377,982  
Ceded to nonaffiliates
    (6,893,890 )     (3,933,414 )     (10,827,304 )
Ceded to affiliates
    (72,788,518 )     (2,477,744 )     (75,266,262 )
Net premiums written
  $ 84,905,926     $ 22,299,695     $ 107,205,621  
                         
Premiums earned
                        
Direct
  $ 69,128,153     $ -     $ 69,128,153  
Assumed from nonaffiliates
    413,912       28,606,078       29,019,990  
Assumed from affiliates
    84,798,480       -       84,798,480  
Ceded to nonaffiliates
    (6,831,184 )     (3,578,013 )     (10,409,197 )
Ceded to affiliates
    (69,128,153 )     (2,477,744 )     (71,605,897 )
Net premiums earned
  $ 78,381,208     $ 22,550,321     $ 100,931,529  
                         
Losses and settlement expenses incurred
                        
Direct
  $ 79,822,825     $ -     $ 79,822,825  
Assumed from nonaffiliates
    483,702       41,205,900       41,689,602  
Assumed from affiliates
    76,374,006       115,287       76,489,293  
Ceded to nonaffiliates
    (4,238,188 )     (5,132,816 )     (9,371,004 )
Ceded to affiliates
    (79,822,825 )     (7,037,125 )     (86,859,950 )
Net losses and settlement expenses incurred
  $ 72,619,520     $ 29,151,246     $ 101,770,766  

 
   
Three months ended June 30, 2010
  
   
Property and casualty insurance
    
Reinsurance
    
Total
  
Premiums written
                  
Direct
  $ 64,406,287     $ -     $ 64,406,287  
Assumed from nonaffiliates
    511,037       27,188,730       27,699,767  
Assumed from affiliates
    87,320,371       -       87,320,371  
Ceded to nonaffiliates
    (5,811,747 )     (7,384,611 )     (13,196,358 )
Ceded to affiliates
    (64,406,287 )     -       (64,406,287 )
Net premiums written
  $ 82,019,661     $ 19,804,119     $ 101,823,780  
                         
Premiums earned
                        
Direct
  $ 61,918,077     $ -     $ 61,918,077  
Assumed from nonaffiliates
    493,350       26,935,970       27,429,320  
Assumed from affiliates
    81,175,580       -       81,175,580  
Ceded to nonaffiliates
    (5,832,031 )     (6,341,758 )     (12,173,789 )
Ceded to affiliates
    (61,918,077 )     -       (61,918,077 )
Net premiums earned
  $ 75,836,899     $ 20,594,212     $ 96,431,111  
                         
Losses and settlement expenses incurred
                        
Direct
  $ 37,804,647     $ -     $ 37,804,647  
Assumed from nonaffiliates
    434,305       16,789,003       17,223,308  
Assumed from affiliates
    58,904,188       176,266       59,080,454  
Ceded to nonaffiliates
    (2,541,467 )     (2,610,227 )     (5,151,694 )
Ceded to affiliates
    (37,804,647 )     -       (37,804,647 )
Net losses and settlement expenses incurred
  $ 56,797,026     $ 14,355,042     $ 71,152,068  

 
   
Six months ended June 30, 2011
  
   
Property and casualty insurance
    
Reinsurance
    
Total
  
Premiums written
                  
Direct
  $ 140,178,033     $ -     $ 140,178,033  
Assumed from nonaffiliates (1)
    570,109       55,745,642       56,315,751  
Assumed from affiliates
    173,267,736       -       173,267,736  
Ceded to nonaffiliates
    (12,303,619 )     (8,571,685 )     (20,875,304 )
Ceded to affiliates (1)
    (140,178,033 )     (4,717,396 )     (144,895,429 )
Net premiums written
  $ 161,534,226     $ 42,456,561     $ 203,990,787  
                         
Premiums earned
                        
Direct
  $ 134,604,796     $ -     $ 134,604,796  
Assumed from nonaffiliates
    627,596       55,072,571       55,700,167  
Assumed from affiliates
    167,429,553       -       167,429,553  
Ceded to nonaffiliates
    (12,364,649 )     (8,829,332 )     (21,193,981 )
Ceded to affiliates
    (134,604,796 )     (4,717,396 )     (139,322,192 )
Net premiums earned
  $ 155,692,500     $ 41,525,843     $ 197,218,343  
                         
Losses and settlement expenses incurred
                        
Direct
  $ 134,962,647     $ -     $ 134,962,647  
Assumed from nonaffiliates
    784,692       71,874,491       72,659,183  
Assumed from affiliates
    129,604,858       340,347       129,945,205  
Ceded to nonaffiliates
    (6,602,342 )     (8,825,707 )     (15,428,049 )
Ceded to affiliates
    (134,962,647 )     (12,035,972 )     (146,998,619 )
Net losses and settlement expenses incurred
  $ 123,787,208     $ 51,353,159     $ 175,140,367  
 
(1)
The “Reinsurance” and “Total” amounts include $1,022,885 associated with a portfolio adjustment related to the January 1, 2011 increase in participation in the MRB pool.  Ten percent of this amount ($102,288) is included in the ceded to affiliates amounts for the cost of the $3,000,000 excess-of-loss reinsurance protection provided by Employers Mutual.
 
 
   
Six months ended June 30, 2010
  
   
Property and casualty insurance
    
Reinsurance
    
Total
  
Premiums written
                  
Direct
  $ 123,143,551     $ -     $ 123,143,551  
Assumed from nonaffiliates
    1,059,286       51,012,525       52,071,811  
Assumed from affiliates
    164,659,825       -       164,659,825  
Ceded to nonaffiliates
    (11,143,808 )     (13,212,277 )     (24,356,085 )
Ceded to affiliates
    (123,143,551 )     -       (123,143,551 )
Net premiums written
  $ 154,575,303     $ 37,800,248     $ 192,375,551  
                         
Premiums earned
                        
Direct
  $ 120,756,527     $ -     $ 120,756,527  
Assumed from nonaffiliates
    1,118,778       48,429,646       49,548,424  
Assumed from affiliates
    160,857,474       -       160,857,474  
Ceded to nonaffiliates
    (11,351,990 )     (10,277,731 )     (21,629,721 )
Ceded to affiliates
    (120,756,527 )     -       (120,756,527 )
Net premiums earned
  $ 150,624,262     $ 38,151,915     $ 188,776,177  
                         
Losses and settlement expenses incurred
                        
Direct
  $ 79,578,113     $ -     $ 79,578,113  
Assumed from nonaffiliates
    1,041,721       30,106,343       31,148,064  
Assumed from affiliates
    103,093,079       359,917       103,452,996  
Ceded to nonaffiliates
    (3,323,486 )     (4,082,882 )     (7,406,368 )
Ceded to affiliates
    (79,578,113 )     -       (79,578,113 )
Net losses and settlement expenses incurred
  $ 100,811,314     $ 26,383,378     $ 127,194,692  
 
Individual lines in the above tables are defined as follows:
 
 
·
“Direct” represents business produced by the property and casualty insurance subsidiaries.
 
·
“Assumed from nonaffiliates” for the property and casualty insurance subsidiaries represents their aggregate 30 percent pool participation percentage of involuntary business assumed by the pool participants pursuant to state law.  For the reinsurance subsidiary, this line represents the reinsurance business assumed through the quota share agreement (including “fronting” activities performed by Employers Mutual, which were expanded significantly during 2010, most notably with MRB) and the business assumed outside the quota share agreement.
 
·
“Assumed from affiliates” for the property and casualty insurance subsidiaries represents their aggregate 30 percent pool participation percentage of all the pool members’ direct business.  Losses and settlement expenses incurred also includes claim-related services provided by Employers Mutual that are allocated to the property and casualty insurance subsidiaries and the reinsurance subsidiary.
 
·
“Ceded to nonaffiliates” for the property and casualty insurance subsidiaries represents their aggregate 30 percent pool participation percentage of the ceded reinsurance agreements that provide protection to the pool and each of its participants.  For the reinsurance subsidiary, this line includes reinsurance business that is ceded to other insurance companies in connection with the above referenced “fronting” activities performed by Employers Mutual.
 
·
“Ceded to affiliates” for the property and casualty insurance subsidiaries represents the cession of their direct business to Employers Mutual under the terms of the pooling agreement.  For the reinsurance subsidiary, starting in 2011 this line includes amounts ceded to Employers Mutual in connection with the stand-alone $3,000,000 excess-of-loss reinsurance agreement.
 
 
4.       SEGMENT INFORMATION

The Company’s operations consist of a property and casualty insurance segment and a reinsurance segment.  The property and casualty insurance segment writes both commercial and personal lines of insurance, with a focus on medium-sized commercial accounts.  The reinsurance segment provides reinsurance for other insurers and reinsurers.  The segments are managed separately due to differences in the insurance products sold and the business environment in which they operate.

Summarized financial information for the Company’s segments is as follows:

Three months ended
June 30, 2011
  
Property and casualty insurance
    
Reinsurance
    
Parent company
    
Consolidated
  
Premiums earned
  $ 78,381,208     $ 22,550,321     $ -     $ 100,931,529  
                                 
Underwriting loss
    (21,956,392 )     (11,218,188 )     -       (33,174,580 )
Net investment income
    8,385,878       3,087,022       208       11,473,108  
Realized investment gains
    1,303,670       396,573       -       1,700,243  
Other income
    236,483       -       -       236,483  
Interest expense
    225,000       -       -       225,000  
Other expenses
    163,725       520,562       338,760       1,023,047  
Loss before income tax expense (benefit)
  $ (12,419,086 )   $ (8,255,155 )   $ (338,552 )   $ (21,012,793 )
 
Three months ended
June 30, 2010
  
Property and casualty insurance
    
Reinsurance
    
Parent company
    
Consolidated
  
Premiums earned
  $ 75,836,899     $ 20,594,212     $ -     $ 96,431,111  
                                 
Underwriting profit (loss)
    (9,601,772 )     1,586,271       -       (8,015,501 )
Net investment income
    9,469,605       3,194,077       (1,658 )     12,662,024  
Realized investment losses
    (611,369 )     (234,176 )     -       (845,545 )
Other income
    220,361       -       -       220,361  
Interest expense
    225,000       -       -       225,000  
Other expenses
    199,084       (343,097 )     444,720       300,707  
Income (loss) before income tax expense (benefit)
  $ (947,259 )   $ 4,889,269     $ (446,378 )   $ 3,495,632  

 
Six months ended
June 30, 2011
  
Property and casualty insurance
    
Reinsurance
    
Parent company
    
Consolidated
  
Premiums earned
  $ 155,692,500     $ 41,525,843     $ -     $ 197,218,343  
                                 
Underwriting loss
    (27,149,061 )     (19,053,381 )     -       (46,202,442 )
Net investment income
    17,283,528       6,267,569       606       23,551,703  
Realized investment gains
    7,657,024       2,301,415       -       9,958,439  
Other income
    440,313       -       -       440,313  
Interest expense
    450,000       -       -       450,000  
Other expenses
    326,441       941,848       687,136       1,955,425  
Loss before income tax expense (benefit)
  $ (2,544,637 )   $ (11,426,245 )   $ (686,530 )   $ (14,657,412 )
                                 
Assets
  $ 886,926,747     $ 327,903,626     $ 363,559,985     $ 1,578,390,358  
Eliminations
    -       -       (357,341,353 )     (357,341,353 )
Net assets
  $ 886,926,747     $ 327,903,626     $ 6,218,632     $ 1,221,049,005  
 
Six months ended
June 30, 2010
  
Property and casualty insurance
    
Reinsurance
    
Parent company
    
Consolidated
  
Premiums earned
  $ 150,624,262     $ 38,151,915     $ -     $ 188,776,177  
                                 
Underwriting profit (loss)
    (8,485,176 )     2,187,346       -       (6,297,830 )
Net investment income
    18,886,101       6,298,177       (5,267 )     25,179,011  
Realized investment losses
    (205,858 )     (114,774 )     -       (320,632 )
Other income
    427,047       -       -       427,047  
Interest expense
    450,000       -       -       450,000  
Other expenses
    426,808       (653,292 )     725,394       498,910  
Income (loss) before income tax expense (benefit)
  $ 9,745,306     $ 9,024,041     $ (730,661 )   $ 18,038,686  
                                 
Year ended December 31, 2010
                                
Assets
  $ 876,034,367     $ 310,104,843     $ 369,116,425     $ 1,555,255,635  
Eliminations
    -       -       (363,926,907 )     (363,926,907 )
Reclassifications
    -       (3,534,230 )     -       (3,534,230 )
Net assets
  $ 876,034,367     $ 306,570,613     $ 5,189,518     $ 1,187,794,498  
 
 
The following table displays the net premiums earned of the property and casualty insurance segment and the reinsurance segment for the three months and six months ended June 30, 2011 and 2010, by line of insurance.

   
Three months ended June 30,
    
Six months ended June 30,
  
   
2011
    
2010
    
2011
    
2010
  
Property and casualty insurance segment
                        
Commercial lines:
                        
Automobile
  $ 16,512,538     $ 16,861,112     $ 32,655,708     $ 32,732,281  
Property
    16,564,164       16,438,401       33,254,043       32,247,576  
Workers' compensation
    16,616,494       15,757,860       33,101,602       31,411,232  
Liability
    14,813,392       14,429,073       29,385,219       28,829,075  
Other
    1,897,035       2,038,326       3,816,728       4,228,513  
Total commercial lines
    66,403,623       65,524,772       132,213,300       129,448,677  
                                 
Personal lines:
                                
Automobile
    6,821,057       6,408,729       13,251,238       12,489,080  
Property
    5,020,245       3,766,358       9,957,997       8,416,680  
Liability
    136,283       137,040       269,965       269,825  
Total personal lines
    11,977,585       10,312,127       23,479,200       21,175,585  
Total property and casualty insurance
  $ 78,381,208     $ 75,836,899     $ 155,692,500     $ 150,624,262  
                                 
Reinsurance segment
                                
Pro rata reinsurance:
                                
Property and casualty
  $ 2,763,535     $ 2,106,979     $ 4,549,652     $ 3,651,657  
Property
    3,707,329       4,344,037       6,595,169       6,725,099  
Marine/Aviation
    211,062       65,483       433,045       301,487  
Casualty
    245,325       (33,862 )     522,390       510,901  
Crop
    451,365       511,304       669,152       577,571  
Total pro rata reinsurance
    7,378,616       6,993,941       12,769,408       11,766,715  
                                 
Excess-of-loss reinsurance:
                                
Property
    12,693,520       11,044,057       23,929,217       20,918,720  
Casualty
    2,478,164       2,553,579       4,823,464       5,463,619  
Surety
    21       2,635       3,754       2,861  
Total excess-of-loss reinsurance
    15,171,705       13,600,271       28,756,435       26,385,200  
Total reinsurance
  $ 22,550,321     $ 20,594,212     $ 41,525,843     $ 38,151,915  
                                 
Consolidated
  $ 100,931,529     $ 96,431,111     $ 197,218,343     $ 188,776,177  
 
 
5.       INCOME TAXES

The actual income tax expense (benefit) for the three months and six months ended June 30, 2011 and 2010 differed from the “expected” income tax expense (benefit) for those periods (computed by applying the United States federal corporate tax rate of 35 percent to income (loss) before income tax expense (benefit)) as follows:

   
Three months ended June 30,
    
Six months ended June 30,
  
   
2011
    
2010
    
2011
    
2010
  
Computed "expected" income tax expense (benefit)
  $ (7,354,477 )   $ 1,223,471