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EMC Insurance Group Inc. (EMCI - Snapshot Report) reported first-quarter 2014 operating net earnings of 73 cents a share, missing the Zacks Consensus Estimate as well as the year-ago earnings by about 25%.

Including net realized investment gains of 6 cents a share, net income of EMC Insurance came in at 79 cents per share, down 28.2% year over year.

The quarter experienced increased losses in the property and casualty insurance segment due to unusually cold temperatures that persisted across much of the country during January and February. Nonetheless, higher rates mitigated the adverse impact of winter weather losses.

Shares of this property and casualty insurer lost 0.33% in the last trading session, primarily due to a bearish sentiment induced by a soft quarter along with guidance cut.

Operational Update

Revenues of EMC Insurance totaled approximately $145.1 million, up 10.6% year over year. The increase was mainly attributable to higher premiums earned in both the Reinsurance (up 14.5% year over year) and Property and Casualty Insurance (up 9.2% year over year) segments.

Higher premiums at Property and Casualty reflected rate level increases on renewal business, growth in insured exposures and an increase in retained policies. Reinsurance premium improvement came on the back of a large increase in a pro rata casualty account that was first written in 2013 and an increase in pro rata property business due to an upward revision of total expected ultimate premiums from all accounts, as well as the addition of some new business.

Net investment income improved 13.5% attributable to a higher average invested balance in fixed maturity securities and an increase in dividend income.

Meanwhile, total losses and expenses of EMC Insurance grossed $129 million during the quarter, reflecting an increase of 16% year over year due to higher losses and settlement expenses and amortization of deferred policy acquisition costs.

The combined ratio during the quarter deteriorated 440 basis points to 98.2%. Catastrophe and storm losses came in at 36 cents per share, higher than 27 cents in the year-ago quarter.

Financial Update

As on March 31, 2014, EMC Insurance’s total investment portfolio improved to $1.27 billion from $1.26 billion at the end of 2013. Cash balance more than doubled to $568 million at quarter end from the 2013-end level.

Total shareholder equity stood at $476.6 million at March 31, 2014, up from nearly $455.2 million on Dec 31, 2013.

2014 Guidance Lowered

EMC Insurance lowered 2014 operating net earnings expectation to $2.65–$2.90 per share from $3.00–$3.25 guided previously. The guidance reflects combined ratio of 98.3%.

Zacks Rank & Other Stocks

EMC Insurance presently carries a Zacks Rank #3 (Hold). Some other property and casualty insurers such as W.R. Berkley Corporation (WRB - Analyst Report), AmTrust Financial Services Inc. (AFSI - Snapshot Report) and Allied World Assurance Company Holdings, AG (AWH - Snapshot Report) outperformed their respective Zacks Consensus Estimate in the first quarter of 2014. These are also better-ranked stocks each with a Zacks Rank #1 (Strong Buy).


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