Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015



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 Section 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.

ý 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).

ý 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	ý
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 ý 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 October 30, 2015
Common stock, $1.00 par value		20,746,326

Table of Contents

TABLE OF CONTENTS



		PAGE
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	52

PART II	OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 6.	Exhibits	54

Signatures		55

Index to Exhibits		56

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PART I.	FINANCIAL INFORMATION



ITEM 1.	FINANCIAL STATEMENTS

EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



	September 30, 2015		December 31, 2014
($ in thousands, except share and per share amounts)	(Unaudited)
ASSETS
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost $1,139,373 and $1,080,006)	$	1,177,961	$	1,127,499
Equity securities available-for-sale, at fair value (cost $142,941 and $123,972)	194,305		197,036
Other long-term investments	15,396		6,227
Short-term investments	32,798		53,262
Total investments	1,420,460		1,384,024

Cash	570		383
Reinsurance receivables due from affiliate	25,399		28,603
Prepaid reinsurance premiums due from affiliate	7,638		8,865
Deferred policy acquisition costs (affiliated $44,559 and $38,930)	44,710		39,343
Prepaid pension and postretirement benefits due from affiliate	18,162		17,360
Accrued investment income	11,716		10,295
Amounts receivable under reverse repurchase agreements	16,850		—
Accounts receivable	1,402		1,767
Income taxes recoverable	2,657		—
Goodwill	942		942
Other assets (affiliated $4,611 and $4,900)	5,019		6,238
Total assets	$	1,555,525	$	1,497,820

All affiliated balances presented above are the result of related party transactions with Employers Mutual.

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



	September 30, 2015		December 31, 2014
($ in thousands, except share and per share amounts)	(Unaudited)
LIABILITIES
Losses and settlement expenses (affiliated $675,247 and $650,652)	$	683,930	$	661,309
Unearned premiums (affiliated $263,096 and $230,460)	263,686		232,093
Other policyholders' funds (all affiliated)	8,593		10,153
Surplus notes payable to affiliate	25,000		25,000
Amounts due affiliate to settle inter-company transaction balances	7,347		8,559
Pension benefits payable to affiliate	4,082		4,162
Income taxes payable	—		3
Deferred income taxes	19,295		28,654
Other liabilities (affiliated $23,547 and $23,941)	23,659		25,001
Total liabilities	1,035,592		994,934

STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized 30,000,000 shares; issued and outstanding, 20,720,855 shares in 2015 and 20,344,409 shares in 2014	20,721		20,344
Additional paid-in capital	107,426		99,891
Accumulated other comprehensive income	60,804		81,662
Retained earnings	330,982		300,989
Total stockholders' equity	519,933		502,886
Total liabilities and stockholders' equity	$	1,555,525	$	1,497,820

All affiliated balances presented above are the result of related party transactions with Employers Mutual.

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



	Three months ended September 30,
($ in thousands, except share and per share amounts)	2015			2014
REVENUES
Premiums earned (affiliated $144,540 and $137,395)	$	145,788		$	138,316
Net investment income	11,299			11,503
Net realized investment gains, excluding impairment losses on securities available-for-sale	8,126			171
Total "other-than-temporary" impairment losses on securities available-for-sale	(628		)	(561		)
Portion of "other-than-temporary" impairment losses on fixed maturity securities available-for-sale reclassified from other comprehensive income (before taxes)	—			—
Net impairment losses on securities available-for-sale	(628		)	(561		)
Net realized investment gains (losses)	7,498			(390		)
Other income (affiliated $420 and $727)	519			1,230
Total revenues	165,104			150,659

LOSSES AND EXPENSES
Losses and settlement expenses (affiliated $101,323 and $106,090)	102,685			106,652
Dividends to policyholders (all affiliated)	3,555			2,588
Amortization of deferred policy acquisition costs (affiliated $25,835 and $24,761)	26,139			24,957
Other underwriting expenses (affiliated $16,046 and $13,907)	16,045			13,907
Interest expense (all affiliated)	84			84
Other expenses (affiliated $473 and $373)	675			588
Total losses and expenses	149,183			148,776
Income before income tax expense (benefit)	15,921			1,883

INCOME TAX EXPENSE (BENEFIT)
Current	3,081			(1,452		)
Deferred	1,651			1,106
Total income tax expense (benefit)	4,732			(346		)
Net income	$	11,189		$	2,229

Net income per common share - basic and diluted	$	0.54		$	0.11

Dividend per common share	$	0.170		$	0.153

Average number of common shares outstanding - basic and diluted	20,684,890			20,267,538

All affiliated balances presented above are the result of related party transactions with Employers Mutual.

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



	Nine months ended September 30,
($ in thousands, except share and per share amounts)	2015			2014
REVENUES
Premiums earned (affiliated $425,513, and $399,541)	$	429,124		$	405,348
Net investment income	33,946			34,434
Net realized investment gains, excluding impairment losses on securities available-for-sale	12,848			4,092
Total "other-than-temporary" impairment losses on securities available-for-sale	(1,293		)	(877		)
Portion of "other-than-temporary" impairment losses on fixed maturity securities available-for-sale reclassified from other comprehensive income (before taxes)	—			—
Net impairment losses on securities available-for-sale	(1,293		)	(877		)
Net realized investment gains (losses)	11,555			3,215
Other income (affiliated $1,119 and $1,088)	1,622			1,626
Total revenues	476,247			444,623

LOSSES AND EXPENSES
Losses and settlement expenses (affiliated $278,915 and $298,444)	280,603			301,467
Dividends to policyholders (all affiliated)	6,492			6,517
Amortization of deferred policy acquisition costs (affiliated $77,872 and $73,365)	78,823			74,690
Other underwriting expenses (affiliated $50,297 and $43,229)	50,351			42,941
Interest expense (all affiliated)	253			253
Other expenses (affiliated $1,363 and $1,082)	1,992			1,713
Total losses and expenses	418,514			427,581
Income before income tax expense (benefit)	57,733			17,042

INCOME TAX EXPENSE (BENEFIT)
Current	15,594			2,848
Deferred	1,872			356
Total income tax expense (benefit)	17,466			3,204
Net income	$	40,267		$	13,838

Net income per common share - basic and diluted	$	1.96		$	0.69

Dividend per common share	$	0.503		$	0.460

Average number of common shares outstanding - basic and diluted	20,577,493			20,165,697

All affiliated balances presented above are the result of related party transactions with Employers Mutual.

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three months ended September 30,
($ in thousands)	2015			2014
Net income	$	11,189		$	2,229

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized holding gains (losses) on investment securities, net of deferred income tax expense (benefit) of $(2,288) and $(110)	(4,252		)	(204		)
Reclassification adjustment for realized investment gains included in net income, net of income tax expense of $(89) and $(184)	(164		)	(343		)
Reclassification adjustment for amounts amortized into net periodic pension and postretirement benefit income, net of deferred income tax expense of $(169) and $(239):
Net actuarial loss	224			94
Prior service credit	(537		)	(537		)
Total reclassification adjustment associated with affiliate's pension and postretirement benefit plans	(313		)	(443		)

Other comprehensive income (loss)	(4,729		)	(990		)

Total comprehensive income	$	6,460		$	1,239




	Nine months ended September 30,
($ in thousands)	2015			2014
Net income	$	40,267		$	13,838

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized holding gains (losses) on investment securities, net of deferred income tax expense (benefit) of $(7,998) and $12,927	(14,855		)	24,007
Reclassification adjustment for realized investment gains included in net income, net of income tax expense of $(2,713) and $(1,862)	(5,039		)	(3,458		)
Reclassification adjustment for amounts amortized into net periodic pension and postretirement benefit income, net of deferred income tax expense of $(520) and $(717):
Net actuarial loss	648			282
Prior service credit	(1,612		)	(1,612		)
Total reclassification adjustment associated with affiliate's pension and postretirement benefit plans	(964		)	(1,330		)

Other comprehensive income (loss)	(20,858		)	19,219

Total comprehensive income	$	19,409		$	33,057

All affiliated balances presented above are the result of related party transactions with Employers Mutual.

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Nine months ended September 30,
($ in thousands)	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	40,267		$	13,838
Adjustments to reconcile net income to net cash provided by operating activities:
Losses and settlement expenses (affiliated $24,595 and $56,542)	22,621			55,099
Unearned premiums (affiliated $32,636 and $33,364)	31,593			32,481
Other policyholders' funds due to affiliate	(1,560		)	50
Amounts due to/from affiliate to settle inter-company transaction balances	(1,212		)	(13,272		)
Net pension and postretirement benefits due from affiliate	(2,366		)	(1,999		)
Reinsurance receivables due from affiliate	3,204			(1,363		)
Prepaid reinsurance premiums due from affiliate	1,227			(152		)
Commissions payable (affiliated $(801) and $(2,607))	(778		)	(2,787		)
Deferred policy acquisition costs (affiliated $(5,629) and $(4,594))	(5,367		)	(4,462		)
Accrued investment income	(1,421		)	(954		)
Current income tax	(2,577		)	(5,855		)
Deferred income tax	1,872			356
Net realized investment gains	(11,555		)	(3,215		)
Other, net (affiliated $704 and $(3,839))	9,092			(546		)
Total adjustments to reconcile net income to net cash provided by operating activities	42,773			53,381
Net cash provided by operating activities	83,040			67,219
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed maturity securities available-for-sale	(185,108		)	(137,283		)
Disposals of fixed maturity securities available-for-sale	118,513			97,799
Purchases of equity securities available-for-sale	(66,030		)	(35,659		)
Disposals of equity securities available-for-sale	54,411			31,036
Purchases of other long-term investments	(7,758		)	(7,007		)
Disposals of other long-term investments	1,958			344
Net disposals (purchases) of short-term investments	20,464			(13,825		)
Net disbursements under reverse repurchase agreements	(16,850		)	—
Net cash used in investing activities	(80,400		)	(64,595		)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock through affiliate’s stock plans	7,738			6,647
Excess tax benefit associated with affiliate’s stock plans	83			99
Dividends paid to stockholders (affiliated $(5,925) and $(5,415))	(10,274		)	(9,228		)
Net cash used in financing activities	(2,453		)	(2,482		)
NET INCREASE IN CASH	187			142
Cash at the beginning of the year	383			239
Cash at the end of the quarter	$	570		$	381

All affiliated balances presented above are the result of related party transactions with Employers Mutual.

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	BASIS OF PRESENTATION

EMC Insurance Group Inc., a majority owned subsidiary of Employers Mutual Casualty Company (Employers Mutual), is an insurance holding company with operations in property and casualty insurance and reinsurance. The Company writes property and casualty insurance in both commercial and personal lines of insurance, 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, 2014 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 the prior years’ consolidated financial statements have been reclassified or adjusted to conform to current year presentation.

In reading these financial statements, reference should be made to the Company’s 2014 Form 10-K or the 2014 Annual Report to Stockholders for more detailed footnote information.

Investments

During the first quarters of 2015 and 2014, the Company invested $4.0 million and $4.4 million, respectively, in a limited partnership that is designed to help protect the Company from a sudden and significant decline in the value of its equity portfolio. This investment is included in "other long-term investments" in the Company's financial statements and is carried under the equity method of accounting. Because of the nature of this investment, which is used solely to support the equity tail-risk hedging strategy, changes in the carrying value of the limited partnership are recorded as net realized investment gains (losses), rather than as a component of investment income.

During the second quarter of 2015, the Company began participating in a reverse repurchase arrangement, involving the purchase of investment securities from third-party sellers with the agreement that the purchased securities be sold back to the third-party sellers for agreed-upon prices at specified future dates. The third-party sellers are required to pledge collateral with a value greater than the amount of cash received in the transactions. In accordance with GAAP, the investment securities purchased under the reverse repurchase agreements are not reflected in the Company's consolidated balance sheets, but instead a receivable is recorded for the principal amount lent. Net proceeds/disbursements related to the reverse repurchase transactions are reported as a component of investing activities on the consolidated statements of cash flows, and the income as a component of operating activities.

Common Stock Split

On June 23, 2015, the Company completed a three-for-two stock split of its outstanding shares of common stock, effected in the form of a 50 percent stock dividend. The stock split entitled all shareholders of record at the close of business on June 16, 2015, to receive one additional share of common stock for every two shares of common stock held. In connection with the stock split, the Company's Restated Articles of Incorporation were amended to increase the number of shares of common stock the Company is authorized to issue to 30 million shares. All share and per share information has been retroactively adjusted to reflect the stock split, including the reclassification of the total par value of the additional shares issued to effect the stock split (par value was not changed for the stock split) from "Additional Paid-In Capital" to "Common Stock".

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2.	REINSURANCE

The effect of reinsurance on premiums written and earned, and losses and settlement expenses incurred, for the three and nine months ended September 30, 2015 and 2014 is presented below. The classification of the assumed and ceded reinsurance amounts between affiliates and nonaffiliates is based on the participants in the underlying reinsurance agreements, and is intended to provide an understanding of the actual source of the reinsurance activities. This presentation differs from the classifications used in the consolidated financial statements, where all amounts flowing through the pooling, quota share and excess of loss agreements with Employers Mutual are reported as “affiliated” balances.



	Three months ended September 30, 2015
($ in thousands)	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	117,187		$	—		$	117,187
Assumed from nonaffiliates	1,178			34,954			36,132
Assumed from affiliates	141,200			—			141,200
Ceded to nonaffiliates	(7,656		)	(774		)	(8,430		)
Ceded to affiliates	(117,187		)	(2,734		)	(119,921		)
Net premiums written	$	134,722		$	31,446		$	166,168

Premiums earned
Direct	$	92,083		$	—		$	92,083
Assumed from nonaffiliates	1,073			35,939			37,012
Assumed from affiliates	118,784			—			118,784
Ceded to nonaffiliates	(6,104		)	(1,170		)	(7,274		)
Ceded to affiliates	(92,083		)	(2,734		)	(94,817		)
Net premiums earned	$	113,753		$	32,035		$	145,788

Losses and settlement expenses incurred
Direct	$	52,220		$	—		$	52,220
Assumed from nonaffiliates	655			27,677			28,332
Assumed from affiliates	76,697			252			76,949
Ceded to nonaffiliates	(1,376		)	(877		)	(2,253		)
Ceded to affiliates	(52,220		)	(343		)	(52,563		)
Net losses and settlement expenses incurred	$	75,976		$	26,709		$	102,685

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	Three months ended September 30, 2014
($ in thousands)	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	117,508		$	—		$	117,508
Assumed from nonaffiliates	1,038			38,326			39,364
Assumed from affiliates	137,591			—			137,591
Ceded to nonaffiliates	(7,624		)	(3,735		)	(11,359		)
Ceded to affiliates	(117,508		)	(2,767		)	(120,275		)
Net premiums written	$	131,005		$	31,824		$	162,829

Premiums earned
Direct	$	93,571		$	—		$	93,571
Assumed from nonaffiliates	963			37,369			38,332
Assumed from affiliates	113,039			—			113,039
Ceded to nonaffiliates	(6,050		)	(4,238		)	(10,288		)
Ceded to affiliates	(93,571		)	(2,767		)	(96,338		)
Net premiums earned	$	107,952		$	30,364		$	138,316

Losses and settlement expenses incurred
Direct	$	55,850		$	—		$	55,850
Assumed from nonaffiliates	540			29,938			30,478
Assumed from affiliates	78,147			291			78,438
Ceded to nonaffiliates	(131		)	(2,621		)	(2,752		)
Ceded to affiliates	(55,850		)	488			(55,362		)
Net losses and settlement expenses incurred	$	78,556		$	28,096		$	106,652

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	Nine months ended September 30, 2015
($ in thousands)	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	297,974		$	—		$	297,974
Assumed from nonaffiliates	3,296			107,821			111,117
Assumed from affiliates	379,761			—			379,761
Ceded to nonaffiliates	(18,728		)	(2,480		)	(21,208		)
Ceded to affiliates	(297,974		)	(8,427		)	(306,401		)
Net premiums written	$	364,329		$	96,914		$	461,243

Premiums earned
Direct	$	273,441		$	—		$	273,441
Assumed from nonaffiliates	3,165			109,134			112,299
Assumed from affiliates	347,686			—			347,686
Ceded to nonaffiliates	(17,639		)	(4,795		)	(22,434		)
Ceded to affiliates	(273,441		)	(8,427		)	(281,868		)
Net premiums earned	$	333,212		$	95,912		$	429,124

Losses and settlement expenses incurred
Direct	$	147,843		$	—		$	147,843
Assumed from nonaffiliates	1,878			69,041			70,919
Assumed from affiliates	216,197			721			216,918
Ceded to nonaffiliates	(2,607		)	(4,065		)	(6,672		)
Ceded to affiliates	(147,843		)	(562		)	(148,405		)
Net losses and settlement expenses incurred	$	215,468		$	65,135		$	280,603

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	Nine months ended September 30, 2014
($ in thousands)	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	298,400		$	—		$	298,400
Assumed from nonaffiliates	2,818			110,346			113,164
Assumed from affiliates	362,925			—			362,925
Ceded to nonaffiliates	(19,761		)	(11,133		)	(30,894		)
Ceded to affiliates	(298,400		)	(7,937		)	(306,337		)
Net premiums written	$	345,982		$	91,276		$	437,258

Premiums earned
Direct	$	277,932		$	—		$	277,932
Assumed from nonaffiliates	2,698			113,014			115,712
Assumed from affiliates	328,317			—			328,317
Ceded to nonaffiliates	(18,299		)	(12,445		)	(30,744		)
Ceded to affiliates	(277,932		)	(7,937		)	(285,869		)
Net premiums earned	$	312,716		$	92,632		$	405,348

Losses and settlement expenses incurred
Direct	$	179,277		$	—		$	179,277
Assumed from nonaffiliates	1,626			81,921			83,547
Assumed from affiliates	233,649			828			234,477
Ceded to nonaffiliates	(8,206		)	(8,880		)	(17,086		)
Ceded to affiliates	(179,277		)	529			(178,748		)
Net losses and settlement expenses incurred	$	227,069		$	74,398		$	301,467

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 initiated by Employers Mutual) 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. The amounts reported under the caption “Losses and settlement expenses incurred” also include 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 1) the amounts ceded to nonaffiliated reinsurance companies in accordance with the terms of the reinsurance agreements providing protection to the pool and each of its participants, and 2) the amounts ceded on a mandatory basis to state organizations in connection with various programs. For the reinsurance subsidiary, this line includes reinsurance business that is ceded to other insurance companies in connection with “fronting” activities initiated 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 this line represents amounts ceded to Employers Mutual under the terms of the excess of loss reinsurance agreement.

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3.	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 environments in which they operate.

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




Three months ended September 30, 2015	Property and casualty insurance			Reinsurance			Parent company			Consolidated
($ in thousands)	Property and casualty insurance			Reinsurance			Parent company			Consolidated
Premiums earned	$	113,753		$	32,035		$	—		$	145,788

Underwriting profit (loss)	(101		)	(2,535		)	—			(2,636		)
Net investment income (loss)	8,125			3,176			(2		)	11,299
Net realized investment gains (losses)	4,889			2,609			—			7,498
Other income	210			309			—			519
Interest expense	84			—			—			84
Other expenses	196			—			479			675
Income (loss) before income tax expense (benefit)	$	12,843		$	3,559		$	(481	)	$	15,921




Three months ended September 30, 2014	Property and casualty insurance			Reinsurance			Parent company			Consolidated
($ in thousands)	Property and casualty insurance			Reinsurance			Parent company			Consolidated
Premiums earned	$	107,952		$	30,364		$	—		$	138,316

Underwriting profit (loss)	(4,414		)	(5,374		)	—			(9,788		)
Net investment income (loss)	8,230			3,275			(2		)	11,503
Net realized investment gains (losses)	(286		)	(104		)	—			(390		)
Other income	202			1,028			—			1,230
Interest expense	84			—			—			84
Other expenses	132			—			456			588
Income (loss) before income tax expense (benefit)	$	3,516		$	(1,175	)	$	(458	)	$	1,883

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Nine months ended September 30, 2015	Property and casualty insurance		Reinsurance		Parent company			Consolidated
($ in thousands)	Property and casualty insurance		Reinsurance		Parent company			Consolidated
Premiums earned	$	333,212	$	95,912	$	—		$	429,124

Underwriting profit (loss)	7,465		5,390		—			12,855
Net investment income (loss)	24,301		9,654		(9		)	33,946
Net realized investment gains (losses)	7,866		3,689		—			11,555
Other income	582		1,040		—			1,622
Interest expense	253		—		—			253
Other expenses	568		—		1,424			1,992
Income (loss) before income tax expense (benefit)	$	39,393	$	19,773	$	(1,433	)	$	57,733

Assets	$	1,108,180	$	436,681	$	520,021		$	2,064,882
Eliminations	—		—		(508,553		)	(508,553		)
Reclassifications	—		—		(804		)	(804		)
Total assets	$	1,108,180	$	436,681	$	10,664		$	1,555,525



Nine months ended September 30, 2014	Property and casualty insurance			Reinsurance			Parent company			Consolidated
($ in thousands)	Property and casualty insurance			Reinsurance			Parent company			Consolidated
Premiums earned	$	312,716		$	92,632		$	—		$	405,348

Underwriting profit (loss)	(15,868		)	(4,399		)	—			(20,267		)
Net investment income (loss)	24,818			9,624			(8		)	34,434
Net realized investment gains (losses)	2,293			922			—			3,215
Other income	584			1,042			—			1,626
Interest expense	253			—			—			253
Other expenses	540			—			1,173			1,713
Income (loss) before income tax expense (benefit)	$	11,034		$	7,189		$	(1,181	)	$	17,042

Year ended December 31, 2014
Assets	$	1,057,429		$	434,139		$	503,008		$	1,994,576
Eliminations	—			—			(495,288		)	(495,288		)
Reclassifications	(909		)	—			(559		)	(1,468		)
Total assets	$	1,056,520		$	434,139		$	7,161		$	1,497,820

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The following table displays the net premiums earned of the property and casualty insurance segment and the reinsurance segment for the three and nine months ended September 30, 2015 and 2014, by line of insurance.



	Three months ended September 30,				Nine months ended September 30,
($ in thousands)	2015		2014		2015		2014
Property and casualty insurance segment
Commercial lines:
Automobile	$	27,080	$	25,000	$	78,698	$	71,657
Property	26,526		25,111		77,518		71,756
Workers' compensation	23,777		22,209		69,150		65,172
Liability	23,449		22,090		68,952		63,600
Other	2,032		1,881		6,044		5,472
Total commercial lines	102,864		96,291		300,362		277,657

Personal lines:
Automobile	5,717		6,284		17,313		18,999
Homeowners	5,172		5,377		15,537		16,060
Total personal lines	10,889		11,661		32,850		35,059
Total property and casualty insurance	$	113,753	$	107,952	$	333,212	$	312,716

Reinsurance segment
Pro rata reinsurance:
Multiline (primarily property)	$	1,190	$	700	$	4,584	$	5,031
Property	4,162		2,622		11,877		9,929
Liability	4,787		3,148		13,955		8,661
Marine	2,898		3,502		9,738		11,721
Total pro rata reinsurance	13,037		9,972		40,154		35,342

Excess of loss reinsurance:
Property	16,249		17,248		46,425		48,507
Liability	2,749		3,144		9,333		8,783
Total excess of loss reinsurance	18,998		20,392		55,758		57,290
Total reinsurance	$	32,035	$	30,364	$	95,912	$	92,632

Consolidated	$	145,788	$	138,316	$	429,124	$	405,348

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4.	INCOME TAXES

The actual income tax expense (benefit) for the three and nine months ended September 30, 2015 and 2014 differed from the “expected” income tax expense for those periods (computed by applying the United States federal corporate tax rate of 35 percent to income before income tax expense) as follows:



	Three months ended September 30,						Nine months ended September 30,
($ in thousands)	2015			2014			2015			2014
Computed "expected" income tax expense	$	5,573		$	659		$	20,207		$	5,965
Increases (decreases) in tax resulting from:
Tax-exempt interest income	(687		)	(757		)	(2,072		)	(2,559		)
Dividends received deduction	(266		)	(247		)	(809		)	(725		)
Proration of tax-exempt interest and dividends received deduction	143			151			432			493
Other, net	(31		)	(152		)	(292		)	30
Total income tax expense (benefit)	$	4,732		$	(346	)	$	17,466		$	3,204

The Company had no provision for uncertain income tax positions at September 30, 2015 or December 31, 2014. The Company did not recognize any interest expense or other penalties related to U.S. federal or state income taxes during the three or nine months ended September 30, 2015 or 2014. It is the Company’s accounting policy to reflect income tax penalties as other expense, and interest as interest expense.

The Company files a U.S. federal income tax return, along with various state income tax returns. The Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2012.


5.	EMPLOYEE RETIREMENT PLANS

The components of net periodic benefit cost (income) for Employers Mutual’s pension and postretirement benefit plans is as follows:



	Three months ended September 30,						Nine months ended September 30,
($ in thousands)	2015			2014			2015			2014
Pension plans:
Service cost	$	3,497		$	3,216		$	10,471		$	9,647
Interest cost	2,341			2,416			6,983			7,248
Expected return on plan assets	(5,074		)	(5,183		)	(15,223		)	(15,549		)
Amortization of net actuarial loss	719			91			2,033			274
Amortization of prior service cost	8			8			23			24
Net periodic pension benefit cost	$	1,491		$	548		$	4,287		$	1,644

Postretirement benefit plans:
Service cost	$	353		$	315		$	1,059		$	945
Interest cost	537			564			1,611			1,691
Expected return on plan assets	(1,104		)	(1,099		)	(3,312		)	(3,297		)
Amortization of net actuarial loss	437			413			1,309			1,238
Amortization of prior service credit	(2,867		)	(2,867		)	(8,600		)	(8,600		)
Net periodic postretirement benefit income	$	(2,644	)	$	(2,674	)	$	(7,933	)	$	(8,023	)

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Net periodic pension benefit cost allocated to the Company amounted to $456,000 and $170,000 for the three months and $1.3 million and $510,000 for the nine months ended September 30, 2015 and 2014, respectively. Net periodic postretirement benefit income allocated to the Company amounted to $761,000 and $770,000 for the three months and $2.3 million and $2.3 million for the nine months ended September 30, 2015 and 2014, respectively.

The Company’s share of Employers Mutual’s remaining 2015 planned contribution to the pension plan, if made, will be approximately $900,000. No contributions will be made to the Voluntary Employee Beneficiary Association (VEBA) trust in 2015.


6.	STOCK-BASED COMPENSATION

The Company has no stock-based compensation plans of its own; however, Employers Mutual has several stock plans which utilize the common stock of the Company. Employers Mutual can provide the common stock required under its plans by: 1) using shares of common stock that it currently owns; 2) purchasing common stock in the open market; or 3) directly purchasing common stock from the Company at the current fair value. Employers Mutual has historically purchased common stock from the Company for use in its stock plans and its non-employee director stock plans. Beginning in the second quarter of 2014, Employers Mutual is also purchasing common stock from the Company to fulfill its obligations under its employee stock purchase plan (previously the shares needed for this plan were purchased in the open market).

Stock Plans

Employers Mutual currently maintains two separate stock plans for the benefit of officers and key employees of Employers Mutual and its subsidiaries. A total of 2,250,000 shares of the Company’s common stock have been reserved for issuance under the 2003 Employers Mutual Casualty Company Incentive Stock Option Plan (2003 Plan) and a total of 3,000,000 shares have been reserved for issuance under the 2007 Employers Mutual Casualty Company Stock Incentive Plan (2007 Plan).

The 2003 Plan permitted the issuance of incentive stock options only, while the 2007 Plan permits the issuance of performance shares, performance units, and other stock-based awards, in addition to qualified (incentive) and non-qualified stock options, stock appreciation rights, restricted stock and restricted stock units. Both plans provide for a ten-year time limit for granting awards. No additional options can be granted under the 2003 Plan due to the expiration of the term of the plan. Options granted under the plans generally have a vesting period of five years, with options becoming exercisable in equal annual cumulative increments commencing on the first anniversary of the option grant. Option prices cannot be less than the fair value of the common stock on the date of grant. Restricted stock awards granted under the 2007 Plan generally have a vesting period of four years, with shares vesting in equal annual cumulative increments commencing on the first anniversary of the grant. Holders of unvested shares of restricted stock receive compensation income equal to the amount of any dividends declared on the common stock.

The Senior Executive Compensation Committee of Employers Mutual’s Board of Directors grants the awards and is the administrator of the plans. The Company’s Compensation Committee must consider and approve all awards granted to the Company’s executive officers.

The Company recognized compensation expense from these plans of $167,000 ($108,000 net of tax) and $65,000 ($43,000 net of tax) for the three months and $351,000 ($228,000 net of tax) and $204,000 ($133,000 net of tax) for the nine months ended September 30, 2015 and 2014, respectively. During the first nine months of 2015, 117,146 shares of restricted stock were granted under the 2007 Plan to eligible participants, 40,941 shares of restricted stock vested, and 274,219 options were exercised under the plans at a weighted average exercise price of $14.69.

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7.	DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount and the estimated fair value of the Company’s financial instruments is summarized below.



September 30, 2015	Carrying amount		Estimated fair value
($ in thousands)	Carrying amount		Estimated fair value
Assets:
Fixed maturity securities available-for-sale:
U.S. treasury	$	9,737	$	9,737
U.S. government-sponsored agencies	223,465		223,465
Obligations of states and political subdivisions	343,936		343,936
Commercial mortgage-backed	43,739		43,739
Residential mortgage-backed	89,684		89,684
Other asset-backed	18,738		18,738
Corporate	448,662		448,662
Total fixed maturity securities available-for-sale	1,177,961		1,177,961

Equity securities available-for-sale:
Common stocks:
Financial services	34,519		34,519
Information technology	26,564		26,564
Healthcare	24,118		24,118
Consumer staples	15,769		15,769
Consumer discretionary	19,150		19,150
Energy	21,170		21,170
Industrials	17,745		17,745
Other	17,003		17,003
Non-redeemable preferred stocks	18,267		18,267
Total equity securities available-for-sale	194,305		194,305

Short-term investments	32,798		32,798

Liabilities:
Surplus notes	25,000		11,269

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December 31, 2014	Carrying amount		Estimated fair value
($ in thousands)	Carrying amount		Estimated fair value
Assets:
Fixed maturity securities available-for-sale:
U.S. treasury	$	9,703	$	9,703
U.S. government-sponsored agencies	215,616		215,616
Obligations of states and political subdivisions	326,058		326,058
Commercial mortgage-backed	46,762		46,762
Residential mortgage-backed	97,953		97,953
Other asset-backed	16,005		16,005
Corporate	415,402		415,402
Total fixed maturity securities available-for-sale	1,127,499		1,127,499

Equity securities available-for-sale:
Common stocks:
Financial services	34,379		34,379
Information technology	26,865		26,865
Healthcare	26,852		26,852
Consumer staples	16,694		16,694
Consumer discretionary	22,691		22,691
Energy	22,863		22,863
Industrials	18,221		18,221
Other	16,056		16,056
Non-redeemable preferred stocks	12,415		12,415
Total equity securities available-for-sale	197,036		197,036

Short-term investments	53,262		53,262

Liabilities:
Surplus notes	25,000		12,308

The estimated fair value of fixed maturity and equity securities is based on quoted market prices, where available. In cases where quoted market prices are not available, fair values are based on a variety of valuation techniques depending on the type of security.

Short-term investments generally include money market funds, U.S. Treasury bills and commercial paper. Short-term investments are carried at fair value, which approximates cost, due to the highly liquid nature of the securities. Short-term securities are classified as Level 1 fair value measurements when the fair values can be validated by recent trades. When recent trades are not available, fair value is deemed to be the cost basis and the securities are classified as Level 2 fair value measurements.

The estimated fair value of the surplus notes is derived by discounting future expected cash flows at a rate deemed appropriate. The discount rate was set at the average of current yields-to-maturity on several insurance company surplus notes that are traded in observable markets, adjusted upward by 50 basis points to reflect illiquidity and perceived risk premium differences. Other assumptions include a 25-year term (the surplus notes have no stated maturity date) and an interest rate that continues at the current 1.35 percent interest rate. The rate is typically adjusted every five years and is based upon the then-current Federal Home Loan Bank borrowing rate for 5-year funds available to Employers Mutual.

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Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value:



	Level 1 -	Unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

	Level 2 -	Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

	Level 3 -	Prices or valuation techniques that require significant unobservable inputs because observable inputs are not available. The unobservable inputs may reflect the Company’s own judgments about the assumptions that market participants would use.

The Company uses an independent pricing source to obtain the estimated fair values of a majority of its securities, subject to an internal validation. The fair values are based on quoted market prices, where available. This is typically the case for equity securities and money market funds, which are accordingly classified as Level 1 fair value measurements. In cases where quoted market prices are not available, fair values are based on a variety of valuation techniques depending on the type of security. Fixed maturity securities, non-redeemable preferred stocks and various short-term investments in the Company’s portfolio may not trade on a daily basis; however, observable inputs are utilized in their valuations, and these securities are therefore classified as Level 2 fair value measurements. Following is a brief description of the various pricing techniques used by the independent pricing source for different asset classes.


•	U.S. Treasury securities (including bonds, notes, and bills) are priced according to a number of live data sources, including active market makers and inter-dealer brokers. Prices from these sources are reviewed based on the sources’ historical accuracy for individual issues and maturity ranges.

•

U.S. government-sponsored agencies and corporate securities (including fixed-rate corporate bonds and medium-term notes) are priced by determining a bullet (non-call) spread scale for each issuer for maturities going out to forty years. These spreads represent credit risk and are obtained from the new issue market, secondary trading, and dealer quotes. An option adjusted spread model is incorporated to adjust spreads of issues that have early redemption features. The final spread is then added to the U.S. Treasury curve.

•

Obligations of states and political subdivisions are priced by tracking and analyzing actively quoted issues and reported trades, material event notices and benchmark yields. Municipal bonds with similar characteristics are grouped together into market sectors, and internal yield curves are constructed daily for these sectors. Individual bond evaluations are extrapolated from these sectors, with the ability to make individual spread adjustments for attributes such as discounts, premiums, alternative minimum tax, and/or whether or not the bond is callable.

•

Mortgage-backed and asset-backed securities are first reviewed for the appropriate pricing speed (if prepayable), spread, yield and volatility. The securities are priced with models using spreads and other information solicited from Wall Street buy- and sell-side sources, including primary and secondary dealers, portfolio managers, and research analysts. To determine a tranche’s price, first the benchmark yield is determined and adjusted for collateral performance, tranche level attributes and market conditions. Then the cash flow for each tranche is generated (using consensus prepayment speed assumptions including, as appropriate, a prepayment projection based on historical statistics of the underlying collateral). The tranche-level yield is used to discount the cash flows and generate the price. Depending on the characteristics of the tranche, a volatility-driven, multi-dimensional single cash flow stream model or an option-adjusted spread model may be used. When cash flows or other security structure or market information is not available, broker quotes may be used.

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On a quarterly basis, the Company receives from its independent pricing service a list of fixed maturity securities, if any, that were priced solely from broker quotes. For these securities, fair value may be determined using the broker quotes, or by the Company using similar pricing techniques as the Company’s independent pricing service. Depending on the level of observable inputs, these securities would be classified as Level 2 or Level 3 fair value measurements. At September 30, 2015 and December 31, 2014, the Company had no securities priced solely from broker quotes.

A small number of the Company’s securities are not priced by the independent pricing service. One equity security is reported as a Level 3 fair value measurement at September 30, 2015 and December 31, 2014, since no reliable observable inputs are used in its valuation. This equity security continues to be reported at the fair value obtained from the Securities Valuation Office (SVO) of the National Association of Insurance Commissioners (NAIC). The SVO establishes a per share price for this security based on an annual review of that company’s financial statements, typically performed during the second quarter. The other securities not priced by the Company’s independent pricing service at September 30, 2015 include seven fixed maturity securities (ten at December 31, 2014). Two of these fixed maturity securities, classified as Level 3 fair value measurements, are corporate securities that convey premium tax benefits and are not publicly traded. The fair values for these securities are based on discounted cash flow analyses. The other fixed maturity securities are classified as Level 2 fair value measurements. The fair values for these fixed maturity securities were obtained from either the SVO, the Company's investment custodian, or the Company's investment department using similar pricing techniques as the Company’s independent pricing service.

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Presented in the table below are the estimated fair values of the Company’s financial instruments as of September 30, 2015 and December 31, 2014.



September 30, 2015			Fair value measurements using
($ in thousands)	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Financial instruments reported at fair value on recurring basis:
Assets:
Fixed maturity securities available-for-sale:
U.S. treasury	$	9,737	$	—	$	9,737	$	—
U.S. government-sponsored agencies	223,465		—		223,465		—
Obligations of states and political subdivisions	343,936		—		343,936		—
Commercial mortgage-backed	43,739		—		43,739		—
Residential mortgage-backed	89,684		—		89,684		—
Other asset-backed	18,738		—		18,738		—
Corporate	448,662		—		447,209		1,453
Total fixed maturity securities available-for-sale	1,177,961		—		1,176,508		1,453

Equity securities available-for-sale:
Common stocks:
Financial services	34,519		34,516		—		3
Information technology	26,564		26,564		—		—
Healthcare	24,118		24,118		—		—
Consumer staples	15,769		15,769		—		—
Consumer discretionary	19,150		19,150		—		—
Energy	21,170		21,170		—		—
Industrials	17,745		17,745		—		—
Other	17,003		17,003		—		—
Non-redeemable preferred stocks	18,267		11,236		7,031		—
Total equity securities available-for-sale	194,305		187,271		7,031		3

Short-term investments	32,798		32,798		—		—

Financial instruments not reported at fair value:
Liabilities:
Surplus notes	11,269		—		—		11,269

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December 31, 2014			Fair value measurements using
($ in thousands)	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Financial instruments reported at fair value on recurring basis:
Assets:
Fixed maturity securities available-for-sale:
U.S. treasury	$	9,703	$	—	$	9,703	$	—
U.S. government-sponsored agencies	215,616		—		215,616		—
Obligations of states and political subdivisions	326,058		—		326,058		—
Commercial mortgage-backed	46,762		—		46,762		—
Residential mortgage-backed	97,953		—		97,953		—
Other asset-backed	16,005		—		16,005		—
Corporate	415,402		—		413,740		1,662
Total fixed maturity securities available-for-sale	1,127,499		—		1,125,837		1,662

Equity securities available-for-sale:
Common stocks:
Financial services	34,379		34,376		—		3
Information technology	26,865		26,865		—		—
Healthcare	26,852		26,852		—		—
Consumer staples	16,694		16,694		—		—
Consumer discretionary	22,691		22,691		—		—
Energy	22,863		22,863		—		—
Industrials	18,221		18,221		—		—
Other	16,056		16,056		—		—
Non-redeemable preferred stocks	12,415		7,745		4,670		—
Total equity securities available-for-sale	197,036		192,363		4,670		3

Short-term investments	53,262		53,262		—		—

Financial instruments not reported at fair value:
Liabilities:
Surplus notes	12,308		—		—		12,308

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Presented in the table below is a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2015 and 2014. Any unrealized gains or losses on these securities are recognized in other comprehensive income. Any gains or losses from settlements, disposals or impairments of these securities are reported as realized investment gains or losses in net income.



Three months ended September 30, 2015	Fair value measurements using significant unobservable (Level 3) inputs
($ in thousands)	Fixed maturity securities available-for-sale, corporate			Equity securities available-for-sale, financial services		Total
Beginning balance	$	1,622		$	3	$	1,625
Settlements	(171		)	—		(171		)
Unrealized gains (losses) included in other comprehensive income (loss)	2			—		2
Balance at September 30, 2015	$	1,453		$	3	$	1,456

Nine months ended September 30, 2015
Beginning balance	$	1,662		$	3	$	1,665
Settlements	(214		)	—		(214		)
Unrealized gains (losses) included in other comprehensive income (loss)	5			—		5
Balance at September 30, 2015	$	1,453		$	3	$	1,456



Three months ended September 30, 2014	Fair value measurements using significant unobservable (Level 3) inputs
($ in thousands)	Fixed maturity securities available-for-sale, corporate			Equity securities available-for-sale, financial services		Total
Beginning balance	$	1,949		$	3	$	1,952
Settlements	(70		)	—		(70		)
Unrealized gains (losses) included in other comprehensive income (loss)	(3		)	—		(3		)
Balance at September 30, 2014	$	1,876		$	3	$	1,879

Nine months ended September 30, 2014
Beginning balance	$	1,976		$	3	$	1,979
Settlements	(112		)	—		(112		)
Unrealized gains (losses) included in other comprehensive income (loss)	12			—		12
Balance at September 30, 2014	$	1,876		$	3	$	1,879

There were no transfers into or out of Levels 1 or 2 during the nine months ended September 30, 2015 or 2014. It is the Company’s policy to recognize transfers between levels at the beginning of the reporting period.

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8.	INVESTMENTS

Investments of the Company’s insurance subsidiaries are subject to the insurance laws of the state of their incorporation. These laws prescribe the kind, quality and concentration of investments that may be made by insurance companies. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common stocks and real estate mortgages. The Company believes that it is in compliance with these laws.

The amortized cost and estimated fair value of securities available-for-sale as of September 30, 2015 and December 31, 2014 are as follows. All securities are classified as available-for-sale and are carried at fair value.



September 30, 2015	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
($ in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Securities available-for-sale:
Fixed maturity securities:
U.S. treasury	$	9,600	$	137	$	—	$	9,737
U.S. government-sponsored agencies	221,466		2,743		744		223,465
Obligations of states and political subdivisions	319,666		24,270		—		343,936
Commercial mortgage-backed	41,304		2,437		2		43,739
Residential mortgage-backed	94,411		1,660		6,387		89,684
Other asset-backed	17,738		1,066		66		18,738
Corporate	435,188		15,339		1,865		448,662
Total fixed maturity securities	1,139,373		47,652		9,064		1,177,961

Equity securities:
Common stocks:
Financial services	27,143		8,215		839		34,519
Information technology	18,956		7,845		237		26,564
Healthcare	14,969		9,388		239		24,118
Consumer staples	10,093		5,762		86		15,769
Consumer discretionary	10,471		8,705		26		19,150
Energy	16,927		4,999		756		21,170
Industrials	11,153		6,924		332		17,745
Other	15,243		2,269		509		17,003
Non-redeemable preferred stocks	17,986		546		265		18,267
Total equity securities	142,941		54,653		3,289		194,305
Total securities available-for-sale	$	1,282,314	$	102,305	$	12,353	$	1,372,266

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December 31, 2014	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
($ in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Securities available-for-sale:
Fixed maturity securities:
U.S. treasury	$	9,574	$	129	$	—	$	9,703
U.S. government-sponsored agencies	215,425		2,313		2,122		215,616
Obligations of states and political subdivisions	299,258		26,840		40		326,058
Commercial mortgage-backed	42,996		3,766		—		46,762
Residential mortgage-backed	100,296		1,402		3,745		97,953
Other asset-backed	14,798		1,213		6		16,005
Corporate	397,659		18,485		742		415,402
Total fixed maturity securities	1,080,006		54,148		6,655		1,127,499

Equity securities:
Common stocks:
Financial services	22,586		11,835		42		34,379
Information technology	15,755		11,110		—		26,865
Healthcare	14,673		12,179		—		26,852
Consumer staples	10,584		6,112		2		16,694
Consumer discretionary	11,304		11,420		33		22,691
Energy	15,837		7,458		432		22,863
Industrials	9,658		8,596		33		18,221
Other	11,493		4,563		—		16,056
Non-redeemable preferred stocks	12,082		617		284		12,415
Total equity securities	123,972		73,890		826		197,036
Total securities available-for-sale	$	1,203,978	$	128,038	$	7,481	$	1,324,535

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The following table sets forth the estimated fair value and gross unrealized losses associated with investment securities that were in an unrealized loss position as of September 30, 2015 and December 31, 2014, listed by length of time the securities were in an unrealized loss position.



September 30, 2015	Less than twelve months				Twelve months or longer				Total
($ in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Fixed maturity securities:
U.S. government-sponsored agencies	$	44,495	$	471	$	35,212	$	273	$	79,707	$	744
Commercial mortgage-backed	579		2		—		—		579		2
Residential mortgage-backed	15,102		1,873		22,393		4,514		37,495		6,387
Other asset-backed	6,136		66		—		—		6,136		66
Corporate	69,883		1,570		11,438		295		81,321		1,865
Total, fixed maturity securities	136,195		3,982		69,043		5,082		205,238		9,064
Equity securities:
Common stocks:
Financial services	9,754		831		57		8		9,811		839
Information technology	3,552		237		—		—		3,552		237
Healthcare	3,388		239		—		—		3,388		239
Consumer staples	1,762		86		—		—		1,762		86
Consumer discretionary	371		26		—		—		371		26
Energy	9,478		756		—		—		9,478		756
Industrials	3,501		332		—		—		3,501		332
Other	7,510		509		—		—		7,510		509
Non-redeemable preferred stocks	2,463		41		1,776		224		4,239		265
Total equity securities	41,779		3,057		1,833		232		43,612		3,289
Total temporarily impaired securities	$	177,974	$	7,039	$	70,876	$	5,314	$	248,850	$	12,353

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December 31, 2014	Less than twelve months				Twelve months or longer				Total
($ in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Fixed maturity securities:
U.S. government-sponsored agencies	$	24,473	$	94	$	97,446	$	2,028	$	121,919	$	2,122
Obligations of states and political subdivisions	—		—		3,757		40		3,757		40
Commercial mortgage-backed	1,102		—		—		—		1,102		—
Residential mortgage-backed	21,451		1,252		21,163		2,493		42,614		3,745
Other asset-backed	1,889		6		—		—		1,889		6
Corporate	16,740		281		28,257		461		44,997		742
Total, fixed maturity securities	65,655		1,633		150,623		5,022		216,278		6,655
Equity securities:
Common stocks:
Financial services	1,162		9		187		33		1,349		42
Consumer staples	1,051		2		—		—		1,051		2
Consumer discretionary	822		33		—		—		822		33
Energy	4,298		432		—		—		4,298		432
Industrials	1,406		33		—		—		1,406		33
Non-redeemable preferred stocks	—		—		1,716		284		1,716		284
Total equity securities	8,739		509		1,903		317		10,642		826
Total temporarily impaired securities	$	74,394	$	2,142	$	152,526	$	5,339	$	226,920	$	7,481

Unrealized losses on fixed maturity securities increased during 2015 due to an increase in interest rates. Most of these securities are considered investment grade by credit rating agencies. Because management does not intend to sell these securities, does not believe it will be required to sell these securities before recovery, and believes it will collect the amounts due on these securities, it was determined that these securities were not “other-than-temporarily” impaired at September 30, 2015.

No particular sector or individual security accounted for a material amount of unrealized losses on common stocks at September 30, 2015. The Company believes the unrealized losses on common stocks are primarily due to general fluctuations in the equity markets. Because the Company has the ability and intent to hold these securities for a reasonable amount of time to allow for recovery, it was determined that these securities were not “other-than-temporarily” impaired at September 30, 2015.

All of the Company’s preferred stock holdings are perpetual preferred stocks. The Company evaluates perpetual preferred stocks with unrealized losses for “other-than-temporary” impairment similar to fixed maturity securities since they have debt-like characteristics such as periodic cash flows in the form of dividends and call features, are rated by rating agencies and are priced like other long-term callable fixed maturity securities. There was no evidence of any credit deterioration in the issuers of the preferred stocks and the Company does not intend to sell these securities before recovery, nor does it believe it will be required to sell these securities before recovery; therefore, it was determined that these securities were not “other-than-temporarily” impaired at September 30, 2015.

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The amortized cost and estimated fair value of fixed maturity securities at September 30, 2015, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.



($ in thousands)	Amortized cost		Estimated fair value
Securities available-for-sale:
Due in one year or less	$	66,429	$	67,150
Due after one year through five years	144,462		152,924
Due after five years through ten years	280,923		286,725
Due after ten years	507,529		533,372
Securities not due at a single maturity date	140,030		137,790
Totals	$	1,139,373	$	1,177,961

A summary of realized investment gains and (losses) is as follows:



	Three months ended September 30,						Nine months ended September 30,
($ in thousands)	2015			2014			2015			2014
Fixed maturity securities available-for-sale:
Gross realized investment gains	$	61		$	129		$	642		$	495
Gross realized investment losses	—			—			—			(92		)

Equity securities available-for-sale:
Gross realized investment gains	3,345			1,140			11,681			6,456
Gross realized investment losses	(2,525		)	(181		)	(3,278		)	(662		)
"Other-than-temporary" impairments	(628		)	(561		)	(1,293		)	(877		)

Other long-term investments, net	7,245			(917		)	3,803			(2,105		)
Totals	$	7,498		$	(390	)	$	11,555		$	3,215

Gains and losses realized on the disposition of investments are included in net income. The cost of investments sold is determined on the specific identification method using the highest cost basis first. The Company did not have any outstanding cumulative credit losses on fixed maturity securities that have been recognized in earnings from “other-than-temporary” impairments during any of the reported periods. The amounts reported as “other-than-temporary” impairments on equity securities do not include any individually significant items. The net realized investment gains (losses) recognized on other long-term investments for the three and nine months ended September 30, 2015 and 2014 represent changes in the carrying value of a limited partnership that is used solely to support an equity tail-risk hedging strategy.


9.	CONTINGENT LIABILITIES

The Company and Employers Mutual and its other subsidiaries are parties to numerous lawsuits arising in the normal course of the insurance business. The Company believes that the resolution of these lawsuits will not have a material adverse effect on its financial condition or its results of operations. The companies involved have established reserves which are believed adequate to cover any potential liabilities arising out of all such pending or threatened proceedings.

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The participants in the pooling agreement have purchased annuities from life insurance companies, under which the claimant is payee, to fund future payments that are fixed pursuant to specific claim settlement provisions. The Company’s share of case loss reserves eliminated by the purchase of those annuities was $110,000 at December 31, 2014. The Company had a contingent liability for the aggregate guaranteed amount of the annuities of $183,000 at December 31, 2014 should the issuers of those annuities fail to perform. Although management is not able to verify the amount, the Company would likely have a similar contingent liability at September 30, 2015. The probability of a material loss due to failure of performance by the issuers of these annuities is considered remote.


10.	STOCK REPURCHASE PROGRAM

On November 3, 2011, the Company’s Board of Directors authorized a $15 million stock repurchase program. This program does not have an expiration date. The timing and terms of the purchases are determined by management based on board approved parameters and market conditions, and are conducted in accordance with the applicable rules of the Securities and Exchange Commission. Common stock repurchased under this program will be retired by the Company. No purchases have been made under this program.


11.	ACCUMULATED OTHER COMPREHENSIVE INCOME

The Company has available-for-sale securities and receives an allocation of the actuarial losses and net prior service credits associated with Employers Mutual’s pension and postretirement benefit plans, both of which generate accumulated other comprehensive income (loss) amounts. The following table reconciles, by component, the beginning and ending balances of accumulated other comprehensive income, net of tax.



	Accumulated other comprehensive income by component
($ in thousands)	Unrealized gains (losses) on available-for- sale securities			Unrecognized pension and postretirement benefit obligations			Total
Balance at December 31, 2014	$	78,362		$	3,300		$	81,662
Other comprehensive income (loss) before reclassifications	(14,855		)	—			(14,855		)
Amounts reclassified from accumulated other comprehensive income	(5,039		)	(964		)	(6,003		)
Other comprehensive income (loss)	(19,894		)	(964		)	(20,858		)
Balance at September 30, 2015	$	58,468		$	2,336		$	60,804

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The following tables display amounts reclassified out of accumulated other comprehensive income and into net income during the three and nine months ended September 30, 2015 and 2014, respectively.



($ in thousands)	Amounts reclassified from accumulated other comprehensive income
Accumulated other comprehensive income components	Three months ended September 30, 2015			Nine months ended September 30, 2015			Affected line item in the consolidated statements of income
Unrealized gains on investments:
Reclassification adjustment for realized investment gains included in net income	$	253		$	7,752		Net realized investment gains
Deferred income tax expense	(89		)	(2,713		)	Income tax expense, current
Net reclassification adjustment	164			5,039

Unrecognized pension and postretirement benefit obligations:
Reclassification adjustment for amounts amortized into net periodic pension and postretirement benefit income:
Net actuarial loss	(345		)	(996		)	(1)
Prior service credit	827			2,480			(1)
Total before tax	482			1,484
Deferred income tax expense	(169		)	(520		)	Income tax expense, current
Net reclassification adjustment	313			964

Total reclassification adjustment	$	477		$	6,003


(1)	These reclassified components of accumulated other comprehensive income are included in the computation of net periodic pension and postretirement benefit income (see Note 5, Employee Retirement Plans, for additional details).

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($ in thousands)	Amounts reclassified from accumulated other comprehensive income
Accumulated other comprehensive income components	Three months ended September 30, 2014			Nine months ended September 30, 2014			Affected line item in the consolidated statements of income
Unrealized gains on investments:
Reclassification adjustment for realized investment gains included in net income	$	527		$	5,320		Net realized investment gains
Deferred income tax expense	(184		)	(1,862		)	Income tax expense, current
Net reclassification adjustment	343			3,458

Unrecognized pension and postretirement benefit obligations:
Reclassification adjustment for amounts amortized into net periodic pension and postretirement benefit income:
Net actuarial loss	(144		)	(433		)	(1)
Prior service credit	826			2,480			(1)
Total before tax	682			2,047
Deferred income tax expense	(239		)	(717		)	Income tax expense, current
Net reclassification adjustment	443			1,330

Total reclassification adjustment	$	786		$	4,788


(1)	These reclassified components of accumulated other comprehensive income are included in the computation of net periodic pension and postretirement benefit income (see Note 5, Employee Retirement Plans, for additional details).


12.	NEW ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (FASB) updated its guidance related to the Revenue from Contracts with Customers Topic 606 of the Accounting Standards Codification^TM (Codification or ASC). The objective of this update is to improve the reporting of revenue by providing a more robust framework for addressing revenue issues, and improved disclosure requirements. Current revenue recognition guidance in U.S. GAAP is comprised of broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes result in different accounting for economically similar transactions. This guidance is to be applied retrospectively to annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted as of the original effective date (annual and interim reporting periods beginning after December 15, 2016). The Company will adopt this guidance during the first quarter of 2017. Since premium revenue from insurance contracts is excluded from the scope of this updated guidance, adoption is expected to have little or no impact on the consolidated financial condition or operating results of the Company. The Company's largest non-premium revenue item is service charges related to the billing of the pool participants' direct written premiums to policyholders, which is included in "Other income" in the consolidated statements of income.

In May 2015, the FASB updated its guidance related to the Financial Services-Insurance Topic 944 of the ASC. The objective of this update is to add disclosures which provide transparency of significant estimates made in measuring the liability for losses and settlement expenses, thus providing more insight into an insurance entity's ability to underwrite and anticipate costs associated with claims. The new disclosures primarily include incurred and paid claims development tables prepared net of reinsurance (not to exceed ten years), and a reconciliation of the carrying amount of the liability for losses and settlement expenses. Also included (for each accident year of incurred claims development disclosed), is disclosure of incurred but not reported (IBNR) loss reserves, claim frequency information, and average annual percentage payout of incurred claims by age. This guidance is to be applied retrospectively to annual reporting periods beginning after December 15, 2015, and certain disclosures to interim reporting periods beginning after December 15, 2016. The Company will adopt this guidance during the fourth quarter of 2016. Since the guidance only affects disclosure, adoption will have no impact on the consolidated financial condition or operating results of the Company.

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13.	SUBSEQUENT EVENTS

On October 29, 2015, the Inter-Company Committees of the boards of directors of the Company and Employers Mutual approved a change in the inter-company reinsurance program between the Company's reinsurance subsidiary and Employers Mutual for calendar year 2016, and also approved a new inter-company reinsurance program between the Company's insurance subsidiaries in the property and casualty insurance segment and Employers Mutual for calendar year 2016. These reinsurance programs are intended to reduce the volatility of the Company's quarterly results caused by catastrophe and storms losses, and will provide protection from both the frequency and severity of such losses. Approval of the Inter-Company Committees is required to ensure that the terms of the agreements are fair and equitable to both parties; however, the programs must be approved by regulatory authorities before they become effective.

The reinsurance subsidiary's reinsurance program for 2016 will consist of two treaties. The first is a per occurrence catastrophe excess of loss treaty with a retention of $10.0 million, a limit of $10.0 million, 20 percent co-participation, and no reinstatement. The cost of this treaty will be approximately $2.0 million. The second is an annual aggregate catastrophe excess of loss treaty with a retention of $20.0 million, a limit of $100.0 million, and 20 percent co-participation. The cost of this treaty will be approximately $3.1 million. Any losses retained under the per occurrence treaty will inure to the benefit of the aggregate treaty. Only catastrophe events with total losses greater than $500,000 will be subject to the terms of the aggregate treaty. The reinsurance subsidiary will purchase additional reinsurance protections (Industry Loss Warranties) in peak exposure territories from external parties in which coverage is triggered when losses experienced by the insurance industry from a catastrophic event exceed a specified threshold. Any recoveries received from external parties will reduce the amount of losses ceded to Employers Mutual. The net cost of the external reinsurance protection is estimated to be approximately $4.0 million.

The property and casualty insurance subsidiaries' reinsurance program for 2016 will consist of two semi-annual aggregate catastrophe excess of loss treaties. The first treaty will be effective from January 1, 2016 to June 30, 2016, and will have a retention of $20.0 million and a limit of $24.0 million. The cost of this treaty will be approximately $6.3 million. The second treaty will be effective from July 1, 2016 through December 31, 2016, and will have a retention of $15.0 million and a limit of $12.0 million. The cost of this treaty will be approximately $1.5 million. All catastrophe and storm losses assumed by the property and casualty insurance subsidiaries (net of applicable reinsurance recoveries from external reinsurance protections purchased by the pool participants) will be subject to the terms of these treaties, and there is no co-participation provision.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES



ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Unaudited)

The term “Company” is used below interchangeably to describe EMC Insurance Group Inc. (Parent Company only) and EMC Insurance Group Inc. and its subsidiaries. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included under Item 1 of this Form 10-Q, and the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s 2014 Form 10-K.

CAUTIONARY STATEMENT REGARDING 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 all information currently available into account. 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. The Company disclaims any obligation to update such statements or to announce publicly the results of any revisions that it may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

COMPANY OVERVIEW

The Company, a majority owned subsidiary of Employers Mutual Casualty Company (Employers Mutual), is an insurance holding company with operations in property and casualty insurance and reinsurance.

Property and casualty insurance operations are conducted through three subsidiaries and represent the most significant segment of the Company’s business, totaling 78 percent of consolidated premiums earned during the first nine months of 2015. The property and casualty insurance operations are integrated with the property and casualty insurance operations of Employers Mutual through participation in a reinsurance pooling agreement. Because the Company conducts its property and casualty insurance operations together with Employers Mutual through the reinsurance pooling agreement, the Company shares the same business philosophy, management, employees and facilities as Employers Mutual and offers the same types of insurance products.

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Reinsurance operations are conducted through EMC Reinsurance Company and accounted for 22 percent of consolidated premiums earned during the first nine months of 2015. The principal business activity of EMC Reinsurance Company is to assume, through a quota share reinsurance agreement, 100 percent of Employers Mutual’s assumed reinsurance business, subject to certain exceptions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accounting policies and estimates considered by management to be critically important in the preparation and understanding of the Company’s financial statements and related disclosures are presented in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s 2014 Form 10-K.

RESULTS OF OPERATIONS

Results of operations by segment and on a consolidated basis for the three and nine months ended September 30, 2015 and 2014 are as follows:



	Three months ended September 30,						Nine months ended September 30,
($ in thousands)	2015			2014			2015			2014
Property and casualty insurance
Premiums earned	$	113,753		$	107,952		$	333,212		$	312,716
Losses and settlement expenses	75,976			78,556			215,468			227,069
Acquisition and other expenses	37,878			33,810			110,279			101,515
Underwriting profit (loss)	$	(101	)	$	(4,414	)	$	7,465		$	(15,868	)

GAAP ratios:
Loss and settlement expense ratio	66.8		%	72.8		%	64.7		%	72.6		%
Acquisition expense ratio	33.3		%	31.3		%	33.1		%	32.5		%
Combined ratio	100.1		%	104.1		%	97.8		%	105.1		%

Losses and settlement expenses:
Insured events of current year	$	80,698		$	78,983		$	229,645		$	233,175
Decrease in provision for insured events of prior years	(4,722		)	(427		)	(14,177		)	(6,106		)

Total losses and settlement expenses	$	75,976		$	78,556		$	215,468		$	227,069

Catastrophe and storm losses	$	9,920		$	10,064		$	28,651		$	38,501

Large losses	$	10,304		$	9,673		$	21,453		$	23,782

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	Three months ended September 30,
	2015						2014
($ in thousands)	Premiums earned		Losses and settlement expenses		Loss and settlement expense ratio		Premiums earned		Losses and settlement expenses		Loss and settlement expense ratio
Property and casualty insurance
Commercial lines:
Automobile	$	27,080	$	24,555	90.7	%	$	25,000	$	21,974	87.9	%
Property	26,526		19,290		72.7	%	25,111		18,191		72.4	%
Workers' compensation	23,777		12,098		50.9	%	22,209		11,582		52.2	%
Liability	23,449		10,726		45.7	%	22,090		18,450		83.5	%
Other	2,032		348		17.1	%	1,881		220		11.7	%
Total commercial lines	102,864		67,017		65.2	%	96,291		70,417		73.1	%

Personal lines:
Automobile	5,717		4,717		82.5	%	6,284		4,287		68.2	%
Homeowners	5,172		4,242		82.0	%	5,377		3,852		71.6	%
Total personal lines	10,889		8,959		82.3	%	11,661		8,139		69.8	%
Total property and casualty insurance	$	113,753	$	75,976	66.8	%	$	107,952	$	78,556	72.8	%



	Nine months ended September 30,
	2015						2014
($ in thousands)	Premiums earned		Losses and settlement expenses		Loss and settlement expense ratio		Premiums earned		Losses and settlement expenses		Loss and settlement expense ratio
Property and casualty insurance
Commercial lines:
Automobile	$	78,698	$	61,843	78.6	%	$	71,657	$	56,864	79.4	%
Property	77,518		53,652		69.2	%	71,756		57,891		80.7	%
Workers' compensation	69,150		39,591		57.3	%	65,172		38,131		58.5	%
Liability	68,952		34,668		50.3	%	63,600		42,957		67.5	%
Other	6,044		794		13.1	%	5,472		705		12.9	%
Total commercial lines	300,362		190,548		63.4	%	277,657		196,548		70.8	%

Personal lines:
Automobile	17,313		12,013		69.4	%	18,999		14,473		76.2	%
Homeowners	15,537		12,907		83.1	%	16,060		16,048		99.9	%
Total personal lines	32,850		24,920		75.9	%	35,059		30,521		87.1	%
Total property and casualty insurance	$	333,212	$	215,468	64.7	%	$	312,716	$	227,069	72.6	%

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	Three months ended September 30,						Nine months ended September 30,
($ in thousands)	2015			2014			2015			2014
Reinsurance
Premiums earned	$	32,035		$	30,364		$	95,912		$	92,632
Losses and settlement expenses	26,709			28,096			65,135			74,398
Acquisition and other expenses	7,861			7,642			25,387			22,633
Underwriting profit (loss)	$	(2,535	)	$	(5,374	)	$	5,390		$	(4,399	)

GAAP ratios:
Loss and settlement expense ratio	83.4		%	92.5		%	67.9		%	80.3		%
Acquisition expense ratio	24.5		%	25.2		%	26.5		%	24.4		%
Combined ratio	107.9		%	117.7		%	94.4		%	104.7		%

Losses and settlement expenses:
Insured events of current year	$	24,214		$	29,360		$	70,915		$	79,214
Increase (decrease) in provision for insured events of prior years	2,495			(1,264		)	(5,780		)	(4,816		)

Total losses and settlement expenses	$	26,709		$	28,096		$	65,135		$	74,398

Catastrophe and storm losses	$	7,844		$	7,415		$	12,104		$	14,335



	Three months ended September 30,
	2015						2014
($ in thousands)	Premiums earned		Losses and settlement expenses		Loss and settlement expense ratio		Premiums earned		Losses and settlement expenses		Loss and settlement expense ratio
Reinsurance
Pro rata reinsurance:
Multiline (primarily property)	$	1,190	$	747	62.8	%	$	700	$	957	136.8	%
Property	4,162		3,894		93.6	%	2,622		3,838		146.4	%
Liability	4,787		3,137		65.6	%	3,148		1,289		40.9	%
Marine	2,898		1,889		65.2	%	3,502		3,576		102.1	%
Total pro rata reinsurance	13,037		9,667		74.2	%	9,972		9,660		96.9	%

Excess of loss reinsurance:
Property	16,249		13,524		83.2	%	17,248		16,108		93.4	%
Liability	2,749		3,518		128.0	%	3,144		2,328		74.1	%
Total excess of loss reinsurance	18,998		17,042		89.7	%	20,392		18,436		90.0	%
Total reinsurance	$	32,035	$	26,709	83.4	%	$	30,364	$	28,096	92.5	%

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	Nine months ended September 30,
	2015						2014
($ in thousands)	Premiums earned		Losses and settlement expenses		Loss and settlement expense ratio		Premiums earned		Losses and settlement expenses		Loss and settlement expense ratio
Reinsurance
Pro rata reinsurance:
Multiline (primarily property)	$	4,584	$	1,180	25.7	%	$	5,031	$	3,570	71.0	%
Property	11,877		13,151		110.7	%	9,929		10,112		101.8	%
Liability	13,955		8,701		62.4	%	8,661		4,983		57.5	%
Marine	9,738		436		4.5	%	11,721		6,700		57.2	%
Total pro rata reinsurance	40,154		23,468		58.4	%	35,342		25,365		71.8	%

Excess of loss reinsurance:
Property	46,425		32,041		69.0	%	48,507		47,240		97.4	%
Liability	9,333		9,626		103.1	%	8,783		1,793		20.4	%
Total excess of loss reinsurance	55,758		41,667		74.7	%	57,290		49,033		85.6	%
Total reinsurance	$	95,912	$	65,135	67.9	%	$	92,632	$	74,398	80.3	%

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	Three months ended September 30,						Nine months ended September 30,
($ in thousands, except per share amounts)	2015			2014			2015			2014
Consolidated
REVENUES
Premiums earned	$	145,788		$	138,316		$	429,124		$	405,348
Net investment income	11,299			11,503			33,946			34,434
Realized investment gains (losses)	7,498			(390		)	11,555			3,215
Other income	519			1,230			1,622			1,626
	165,104			150,659			476,247			444,623
LOSSES AND EXPENSES
Losses and settlement expenses	102,685			106,652			280,603			301,467
Acquisition and other expenses	45,739			41,452			135,666			124,148
Interest expense	84			84			253			253
Other expense	675			588			1,992			1,713
	149,183			148,776			418,514			427,581

Income before income tax expense (benefit)	15,921			1,883			57,733			17,042
Income tax expense (benefit)	4,732			(346		)	17,466			3,204
Net income	$	11,189		$	2,229		$	40,267		$	13,838

Net income per share	$	0.54		$	0.11		$	1.96		$	0.69

GAAP ratios:
Loss and settlement expense ratio	70.4		%	77.1		%	65.4		%	74.4		%
Acquisition expense ratio	31.4		%	30.0		%	31.6		%	30.6		%
Combined ratio	101.8		%	107.1		%	97.0		%	105.0		%

Losses and settlement expenses:
Insured events of current year	$	104,912		$	108,343		$	300,560		$	312,389
Decrease in provision for insured events of prior years	(2,227		)	(1,691		)	(19,957		)	(10,922		)

Total losses and settlement expenses	$	102,685		$	106,652		$	280,603		$	301,467

Catastrophe and storm losses	$	17,764		$	17,479		$	40,755		$	52,836

Large losses	$	10,304		$	9,673		$	21,453		$	23,782

The Company reported net income of $11.2 million ($0.54 per share) during the three months ended September 30, 2015, compared to $2.2 million ($0.11 per share) during the same period in 2014. For the nine months ended September 30, 2015, net income totaled $40.3 million ($1.96 per share) compared to $13.8 million ($0.69 per share) during the same period in 2014. Third quarter results improved in both segments, but especially in the property and casualty segment which continues to benefit from improved premium rate adequacy and a reduction in claim frequency. This improvement, combined with the record-breaking first quarter results, has the Company on track to achieve an underwriting profit for the year. An increase in realized investment gains, primarily resulting from positive performance of the equity tail-risk hedging strategy during the month of August, also contributed to the rise in net income for both the three and nine months ended September 30, 2015.

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Premium income

Premiums earned increased 5.4 percent and 5.9 percent to $145.8 million and $429.1 million for the three and nine months ended September 30, 2015 from $138.3 million and $405.3 million for the same periods in 2014. The property and casualty insurance segment continued to report an increase in premiums earned due to rate level increases on renewal business, growth in insured exposures and an increase in retained policies. Premiums earned also increased in the reinsurance segment, due largely to growth in the Mutual Reinsurance Bureau underwriting association (MRB). Rate levels for both segments continue to be restrained by increased competition, especially for quality accounts with good loss experience. Average rate level increases were in the low single-digits in the property and casualty insurance segment during the first nine months of 2015, and are expected to remain at that level during the remainder of the year. Rates-on-line for excess of loss reinsurance renewal business declined approximately 3.0 percent during the January 1 renewal season, but those declines were partially offset by a slight increase in retentions and an increase in limits purchased.

Premiums earned for the property and casualty insurance segment increased 5.4 percent and 6.6 percent to $113.8 million and $333.2 million for the three and nine months ended September 30, 2015 from $108.0 million and $312.7 million for the same periods in 2014. These increases are primarily associated with renewal business, which increased five percent during the first nine months of 2015 due to a combination of rate level increases, growth in insured exposures and an increase in retained policies in the commercial lines of business. Renewal rates across both commercial and personal lines of business increased approximately two and a half percent during the first nine months of 2015, and are expected to continue at a low single-digit pace through the remainder of the year due to competition restraints. New business premium (at 13 percent of the pool participants’ direct written premiums) is nearly unchanged from the amount reported in the first nine months of 2014, with a slight increase in commercial lines new business premium being offset by a decline in personal lines new business premium. Commercial lines new business continued to be in the desired range of growth, and was strongest outside of the core Midwest market. This growth helps diversify the pool participants' book of business geographically, while staying consistent with the industry and line of business mix of the existing book of business. While retention levels for personal lines of business remained stable, new business written premiums were down as management continued to focus on the development and implementation of its new personal lines strategy. During the first nine months of 2015, the overall policy retention rate remained strong at 86.2 percent (commercial lines at 86.9 percent and personal lines at 85.2 percent). These retention rates approximate those at the end of 2014.

Premiums earned for the reinsurance segment increased 5.5 percent and 3.5 percent to $32.0 million and $95.9 million for the three and nine months ended September 30, 2015 from $30.4 million and $92.6 million for the same periods in 2014. As noted above, these increases are largely attributed to MRB, which reported a significant increase in pro rata liability business. The increase in MRB premiums was partially offset by reduced participation in the offshore energy and liability proportional account for the 2015 contract year. It is important to note that two premium adjustments made in 2014 are inflating the percentage increases reported for 2015. The largest of these adjustments was from a change in the premium recognition period of two large facility contracts in the pro rata property line of business that was implemented in the third quarter of 2014. Upon completion of the 2014 renewal of these facility contracts, a detailed analysis of the underlying contracts in these facilities was completed, and it was determined that the vast majority of them did not attach until January 1, 2015, or later. Therefore, most of the premium associated with the 2014 facility contracts did not begin to be recognized until calendar year 2015. As these renewals occurred mid-year, the impact is largest when comparing the three months ended September 30, 2015 to the same period in 2014. This change in premium recognition did not have a material impact on results because corresponding adjustments were made to incurred but not reported (IBNR) loss reserves, commission expense reserves and the cost of the excess of loss reinsurance protection. The other adjustment was a non-recurring upward revision in the estimated ultimate premium for all accounts in the pro rata property line of business that was recognized in the first quarter of 2014. Competition in the reinsurance market began to increase during 2014 due to the entrance of non-traditional capital into the marketplace. This trend has continued into 2015, but at a more moderate level. As a result, total premiums earned for excess of loss business is down slightly for both the three months and nine months ended September 30, 2015 compared to the same periods in 2014. Expectations for the upcoming January 1 renewal season, when approximately 70 percent of the reinsurance segment's business renews, is for continued pricing pressure on contracts that have not had recent loss activity.

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Losses and settlement expenses

Losses and settlement expenses decreased 3.7 percent and 6.9 percent to $102.7 million and $280.6 million for the three and nine months ended September 30, 2015 from $106.7 million and $301.5 million for the same periods in 2014. The loss and settlement expense ratios decreased to 70.4 percent and 65.4 percent for the three and nine months ended September 30, 2015 from 77.1 percent and 74.4 percent for the same periods in 2014. Both segments experienced substantial improvements in their loss and settlement expense ratios for the three and nine months ended September 30, 2015. While the improvement in the property and casualty insurance segment was driven by a decline in claim frequency and continued improvements in premium rate adequacy, the improvement in the reinsurance segment primarily reflects a reduction in incurred losses from the unusually high levels experienced in 2014 due to several large fire losses and a high level of catastrophe and storm losses. The actuarial analysis of the Company’s carried reserves as of June 30, 2015 indicated that the level of reserve adequacy was consistent with other recent evaluations. From management’s perspective, this measure is more relevant to an understanding of the Company’s results of operations than the composition of the underwriting results between the current and prior accident years.

The loss and settlement expense ratios for the property and casualty insurance segment decreased to 66.8 percent and 64.7 percent for the three and nine months ended September 30, 2015 from 72.8 percent and 72.6 percent for the same periods in 2014. The decline in the ratio for the three months ended September 30, 2015 reflects lower claim frequency and continued improvement in premium rate adequacy. These factors, combined with lower catastrophe and storm losses, produced an even larger decline in the loss and settlement expense ratio for the nine months ended September 30, 2015. The decline in overall claim frequency is across many of the major lines of business, and is partially driven by the unusually high level of losses experienced during the first quarter of 2014 from severe winter weather. Catastrophe and storm losses accounted for 8.7 and 8.6 percentage points of the loss and settlement expense ratios for the three and nine months ended September 30, 2015, down from 9.3 and 12.3 percentage points during the same periods in 2014, and lower than the most recent 10-year averages of 13.1 and 12.4 percentage points for those periods. Large losses (which the Company defines as losses greater than $500,000 for the EMC Insurance Companies' pool, excluding catastrophe losses) accounted for 9.1 and 6.4 percentage points of the loss and settlement expense ratios for the three and nine months ended September 30, 2015, compared to 9.0 and 7.6 percentage points for the same periods in 2014. Included in the large loss amount reported for the nine months ended September 30, 2014 is $1.5 million stemming from a fire at an adjacent building being renovated that damaged two office buildings owned by the Company's parent, Employers Mutual. At the time of the loss, Employers Mutual was self-insured for the first $5.0 million of loss to its campus, and the loss was subject to the EMC Insurance Companies' inter-company pooling agreement. Overall claims severity increased during the first nine months of 2015, after remaining fairly steady throughout 2014. Increased claims severity has been the primary driver of the high loss and settlement expense ratios reported for the commercial auto line of business in both 2015 and 2014, which is consistent with industry results. Favorable development on prior years' reserves increased for both the three and nine months ended September 30, 2015 compared to the same periods in 2014. 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.

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The loss and settlement expense ratios for the reinsurance segment decreased to 83.4 percent and 67.9 percent for the three and nine months ended September 30, 2015 from 92.5 percent and 80.3 percent for the same periods in 2014. These decreases reflect a decline in reported large losses (losses greater than $100,000), and for the nine months ended September 30, 2015, a decline in catastrophe and storm losses. Results for the three months ended September 30, 2015 reflect $4.1 million of catastrophe and storm losses from the Tianjin, China explosion, which is net of $400,000 of reinsurance recovery under the excess of loss protection provided by Employers Mutual. Approximately $1.0 million of this loss is from the MRB book of business and is reflected in the pro rata property line of business, while the remaining $3.1 million of this loss is reflected in the excess of loss property line of business. This loss is the primary driver of the high loss and settlement expense ratios reported for the property lines of business. The high loss and settlement expense ratio reported for the excess of loss liability line of business for the three months ended September 30, 2015 was caused by poor experience in two facility contracts, while the high ratio reported for the nine months ended September 30, 2015 is attributed to an increase in reported losses for contract years 2010 through 2014, and a corresponding increase in the amount of bulk IBNR loss reserves allocated to these relatively immature years of this long-tailed coverage. Two large reductions made to carried reserves during the second quarter of 2015 are having an impact on the loss and settlement expense ratios reported for two lines of business for the nine months ended September 30, 2015. First, revised ultimate loss ratio information was received for several contract years from the ceding company for the offshore energy and liability proportional account. This revised information reduced the carried amount of IBNR loss reserves, which resulted in a 4.5 percent loss and settlement expense ratio for the marine line of business. Second, a large estimated loss reserve that was established on a German account in the fourth quarter of 2014 was taken down because of favorable development contained in the account statement received in April. This resulted in a 25.7 percent loss and settlement expense ratio for the multiline business. Catastrophe and storm losses accounted for 24.5 percentage points of the loss and settlement expense ratio for the three months ended September 30, 2015, which approximates the 24.4 percentage points reported for the same period in 2014. For the nine months ended September 30, 2015, catastrophe and storm losses accounted for 12.6 percentage points of the loss and settlement expense ratio, down from 15.5 percentage points during the same period in 2014. The most recent 10-year averages for these periods are 18.2 and 14.1 percentage points, respectively. The adverse development reported for the three months ended September 30, 2015 is primarily the result of a reallocation of reserves on a two-year casualty contract from the current accident year to the prior accident year, and therefore does not have an impact on earnings.

Acquisition and other expenses

Acquisition and other expenses increased 10.3 percent and 9.3 percent to $45.7 million and $135.7 million for the three and nine months ended September 30, 2015 from $41.5 million and $124.1 million for the same periods in 2014. The acquisition expense ratios increased to 31.4 percent and 31.6 percent for the three and nine months ended September 30, 2015 from 30.0 percent and 30.6 percent for the same periods in 2014. These increases are primarily attributed to an increase in variable expenses such as agent contingent commissions and bonus accruals that are based on the improved underwriting results reported in 2015. Acquisition and other expenses reported for all periods include net periodic postretirement benefit income resulting from the amortization of a large prior service credit that resulted from an amendment of Employers Mutual's postretirement benefit plan in the fourth quarter of 2013. This prior service credit was recognized in accumulated other comprehensive income in the fourth quarter of 2013, and is being amortized out of accumulated other comprehensive income and into net income over 10 years.

The acquisition expense ratios for the property and casualty insurance segment increased to 33.3 percent and 33.1 percent for the three and nine months ended September 30, 2015 from 31.3 percent and 32.5 percent for the same periods in 2014. The higher acquisition expense ratios in 2015 are primarily attributed to an increase in variable expenses such as agent contingent commissions and bonus accruals that are based on the improved underwriting results reported for 2015. Policyholder dividend expense, another variable expense based upon the underwriting results of individual policies and the safety dividend groups, also contributed to the increase in the acquisition expense ratio for the three months ended September 30, 2015.

The acquisition expense ratios for the reinsurance segment decreased to 24.5 percent for the three months ended September 30, 2015 from 25.2 percent for the same period in 2014, but increased to 26.5 percent for the nine months ended September 30, 2015 from 24.4 percent for the same period in 2014. The increase for the nine months is primarily attributed to growth in pro rata business, which carries higher commission rates than excess of loss business. A large decrease in contingent commission expense during the third quarter of 2015 more than offset the higher commission expense produced by the pro rata business, resulting in a small decline in the acquisition expense ratio for the three months ended September 30, 2015.

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Investment results

Net investment income decreased 1.8 percent and 1.4 percent to $11.3 million and $33.9 million for the three and nine months ended September 30, 2015 from $11.5 million and $34.4 million for the same periods in 2014. Net investment income for the nine months ended September 30, 2014 included approximately $442,000 that resulted from the early payoff of a commercial mortgage-backed security during the first quarter that was purchased at a significant discount to par value, which accelerated the accretion of the discount to par value and therefore increased investment income. Excluding this amount, net investment income would have been relatively flat for the first nine months of 2015 compared to the same period in 2014. Current interest rate levels remain below the average book yield of the fixed maturity portfolio, and will therefore likely continue to limit future growth in net investment income. The average coupon rate on the fixed maturity portfolio, excluding interest-only securities, has remained relatively steady at 3.9 percent since December 31, 2014, and is up just slightly from 3.8 percent at September 30, 2014. The effective duration of the fixed maturity portfolio, excluding interest-only securities, has also remained relatively steady at 4.6 at September 30, 2015 and December 31, 2014. The Company’s equity portfolio produced dividend income of $1.3 million and $4.0 million during the three and nine months ended September 30, 2015 compared to $1.3 million and $4.1 million during the same periods in 2014.

The Company had net realized investment gains of $7.5 million and $11.6 million during the three and nine months ended September 30, 2015 compared to a net realized investment loss of $390,000 during the three months ended September 30, 2014, and a net realized investment gain of $3.2 million during the nine months ended September 30, 2014. The reported amounts include $7.2 million and $3.8 million of realized gains generated during the three and nine months ended September 30, 2015 from increases in the carrying value of a limited partnership that helps protect the Company from a sudden and significant decline in the value of its equity portfolio (the equity tail-risk hedging strategy). For the same periods in 2014, this investment generated losses of $917,000 and $2.1 million, respectively. The Company recognized "other-than-temporary" impairment losses of $628,000 and $1.3 million during the three and nine months ended September 30, 2015, compared to $561,000 and $877,000 during the same periods in 2014. These impairment losses were recognized on securities held in the Company's equity portfolio.

Other income

Included in other income are foreign currency exchange gains and losses recognized on the reinsurance segment’s foreign currency denominated reinsurance business. For the three and nine months ended September 30, 2015, the reinsurance segment had foreign currency exchange gains of $254,000 and $984,000, respectively, compared to $1.0 million for both the three and nine months ended September 30, 2014.

Income tax

Income tax expense increased to $4.7 million and $17.5 million for the three and nine months ended September 30, 2015, from an income tax benefit of $346,000 for the the three months ended September 30, 2014 and income tax expense of $3.2 million for the nine months ended September 30, 2014. The effective tax rates for the three and nine months ended September 30, 2015 were 29.7 percent and 30.3 percent, respectively, compared to a negative 18.4 percent for the three months ended September 30, 2014 (income tax benefit in relation to income before tax) and 18.8 percent for the nine months ended September 30, 2014. The primary contributor to the differences between these effective tax rates and the United States federal corporate tax rate of 35 percent is tax-exempt interest income earned.

Subsequent events

Inter-Company Reinsurance Programs

On October 29, 2015, the Inter-Company Committees of the boards of directors of the Company and Employers Mutual approved a change in the inter-company reinsurance program between the Company's reinsurance subsidiary and Employers Mutual for calendar year 2016, and also approved a new inter-company reinsurance program between the Company's three insurance subsidiaries in the property and casualty insurance segment and Employers Mutual for calendar year 2016. These reinsurance programs are intended to reduce the volatility of the Company's quarterly results caused by catastrophe and storms losses, and will provide protection from both the frequency and severity of such losses. Approval by the Inter-Company Committees is required to ensure that the terms of the agreements are fair and equitable to both parties; however, the programs must be approved by regulatory authorities before they become effective.

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The reinsurance subsidiary's reinsurance program for 2016 will consist of two treaties. The first is a per occurrence catastrophe excess of loss treaty with a retention of $10.0 million, a limit of $10.0 million, 20 percent co-participation, and no reinstatement. The cost of this treaty will be approximately $2.0 million. The second is an annual aggregate catastrophe excess of loss treaty with a retention of $20.0 million, a limit of $100.0 million, and 20 percent co-participation. The cost of this treaty will be approximately $3.1 million. Any losses retained under the per occurrence treaty will inure to the benefit of the aggregate treaty. Only catastrophic events with total losses greater than $500,000 will be subject to the terms of the aggregate treaty. The reinsurance subsidiary will purchase additional reinsurance protections (Industry Loss Warranties) in peak exposure territories from external parties in which coverage is triggered when losses experienced by the insurance industry from a catastrophic event exceed a specified threshold (i.e., $20.0 billion). Any recoveries received from external parties will reduce the amount of losses ceded to Employers Mutual. The net cost of the external reinsurance protection is estimated to be approximately $4.0 million.

The property and casualty insurance subsidiaries' reinsurance program for 2016 will consist of two semi-annual aggregate catastrophe excess of loss treaties. The first treaty will be effective from January 1, 2016 through June 30, 2016, and will have a retention of $20.0 million and a limit of $24.0 million. The cost of this treaty will be approximately $6.3 million. The second treaty will be effective from July 1, 2016 through December 31, 2016, and will have a retention of $15.0 million and a limit of $12.0 million. The cost of this treaty will be approximately $1.5 million. All catastrophe and storm losses assumed by the property and casualty insurance subsidiaries (net of applicable reinsurance recoveries from external reinsurance protections purchased by the pool participants) will be subject to the terms of these treaties, and there is no co-participation provision.

Stock Repurchase Program

On November 4, 2015, the Company's board of directors approved a change in the metrics utilized to make decisions regarding repurchases of the Company's common stock. The new metrics will continue to focus on the rate of return that can be achieved through the repurchase of stock compared to other alternatives, but are intended to give management more discretion in stock repurchase decisions.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet cash obligations. The Company had positive cash flows from operations of $83.0 million and $67.2 million during the first nine months of 2015 and 2014, respectively. The Company typically generates substantial positive cash flows from operations because cash from premium payments is generally received in advance of cash payments made to settle claims. These positive cash flows provide the foundation of the Company’s asset/liability management program and are the primary driver of the Company’s liquidity. The Company invests in high quality, liquid securities to match the anticipated payments of losses and settlement expenses of the underlying insurance policies. Because the timing of the losses is uncertain, the majority of the portfolio is maintained in short to intermediate maturity securities that can be easily liquidated or that generate adequate cash flow to meet liabilities.

The Company is a holding company whose principal asset is its investment in its property and casualty insurance subsidiaries and its reinsurance subsidiary (“insurance subsidiaries”). As a holding company, the Company is dependent upon cash dividends from its insurance subsidiaries to meet all its obligations, including cash dividends to stockholders and the funding of the Company’s stock repurchase programs. State insurance regulations restrict the maximum amount of dividends insurance companies can pay without prior regulatory approval. The maximum amount of dividends that the insurance subsidiaries can pay to the Company in 2015 without prior regulatory approval is approximately $45.5 million. The Company received $7.1 million and $351,000 of dividends from its insurance subsidiaries and paid cash dividends to its stockholders totaling $10.3 million and $9.2 million during the first nine months of 2015 and 2014, respectively.

The Company’s insurance subsidiaries must maintain adequate liquidity to ensure that their cash obligations are met; however, because of the property and casualty insurance subsidiaries’ participation in the pooling agreement and the reinsurance subsidiary’s participation in the quota share agreement, they do not have the daily liquidity concerns normally associated with an insurance company. This is because under the terms of the pooling and quota share agreements, Employers Mutual receives all premiums and pays all losses and expenses associated with the insurance business produced by the pool participants and the assumed reinsurance business ceded to the Company’s reinsurance subsidiary, and then settles inter-company balances generated by these transactions with the participating companies on a monthly (pool participants) or quarterly (reinsurance subsidiary) basis.

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At the insurance subsidiary level, the primary sources of cash are premium income, investment income and proceeds from called or matured investments. The principal outflows of cash are payments of claims, commissions, premium taxes, operating expenses, income taxes, dividends, interest and principal payments on debt, and investment purchases. Cash outflows vary because of uncertainties regarding settlement dates for unpaid losses and the potential for large losses, either individually or in the aggregate. Accordingly, the insurance subsidiaries maintain investment and reinsurance programs intended to provide adequate funds to pay claims without forced sales of investments. The insurance subsidiaries also have the ability to borrow funds on a short-term basis (180 days) from Employers Mutual and its subsidiaries and affiliate under an Inter-Company Loan Agreement. In addition, Employers Mutual maintains access to a line of credit with the Federal Home Loan Bank that could be used to provide the insurance subsidiaries additional liquidity if needed.

The Company maintains a portion of its investment portfolio in relatively short-term and highly liquid investments to ensure the availability of funds to pay claims and expenses. A variety of maturities are maintained in the Company’s investment portfolio to assure adequate liquidity. The maturity structure of the fixed maturity portfolio is also established by the relative attractiveness of yields on short, intermediate and long-term securities. The Company does not invest in non-investment grade debt securities. Any non-investment grade securities held by the Company are the result of rating downgrades subsequent to their purchase.

The Company invests for the long term and generally purchases fixed maturity securities with the intent to hold them to maturity. Despite this intent, the Company currently classifies fixed maturity securities as available-for-sale to provide flexibility in the management of its investment portfolio. At September 30, 2015 and December 31, 2014, the Company had net unrealized holding gains, net of deferred taxes, on its fixed maturity securities available-for-sale of $25.1 million and $30.9 million, respectively. The fluctuation in the fair value of these investments is primarily due to changes in the interest rate environment during this time period, but also reflects fluctuations in risk premium spreads over U.S. Treasuries. Since the Company intends to hold fixed maturity securities to maturity, such fluctuations in the fair value of these investments are not expected to have a material impact on the operations of the Company, as forced liquidations of investments are not anticipated. The Company closely monitors the bond market and makes appropriate adjustments in its portfolio as conditions warrant.

The majority of the Company’s assets are invested in fixed maturity securities. These investments provide a substantial amount of investment income that supplements underwriting results and contributes to net earnings. As these investments mature, or are called, the proceeds are reinvested at current interest rates, which may be higher or lower than those now being earned; therefore, more or less investment income may be available to contribute to net earnings. Due to the prolonged low interest rate environment, proceeds from calls and maturities in recent years have been reinvested at lower yields, which has had a negative impact on investment income.

The Company held $15.4 million and $6.2 million in minority ownership interests in limited partnerships and limited liability companies at September 30, 2015 and December 31, 2014, respectively. During the first quarters of 2015 and 2014, the Company invested $4.0 million and $4.4 million, respectively, in a limited partnership that is designed to help protect the Company from a sudden and significant decline in the value of its equity portfolio. This investment is included in "other long-term investments" in the Company's financial statements and is carried under the equity method of accounting.

During the second quarter of 2015, the Company began participating in a reverse repurchase arrangement, involving the purchase of investment securities from third-party sellers with the agreement that the purchased securities be sold back to the third-party sellers for agreed-upon prices at specified future dates. The third-party sellers are required to pledge collateral with a value greater than the amount of cash received in the transactions. In accordance with GAAP, the investment securities purchased under the reverse repurchase agreements are not reflected in the Company's consolidated balance sheets, but instead a receivable is recorded for the principal amount lent. The Company's receivable under reverse repurchase agreements was $16.9 million at September 30, 2015.

The Company’s cash balance was $570,000 and $383,000 at September 30, 2015 and December 31, 2014, respectively.

During the first nine months of 2015, Employers Mutual contributed $4.0 million to its qualified pension plan ($1.2 million allocated to the Company), but made no contributions to its postretirement benefit plans. The Company’s share of Employers Mutual’s 2015 remaining planned contribution to its pension plan, if made, will be approximately $900,000. No contributions will be made to the VEBA trust in 2015.

During the first nine months of 2014, Employers Mutual made no contributions to its qualified pension plan or postretirement benefit plans. The Company reimbursed Employers Mutual $2.2 million for its share of the total 2014 pension contribution (no contributions were made to the postretirement benefit plans during 2014).

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Capital Resources

Capital resources consist of stockholders’ equity and debt, representing funds deployed or available to be deployed to support business operations. For the Company’s insurance subsidiaries, capital resources are required to support premium writings. Regulatory guidelines suggest that the ratio of a property and casualty insurer’s annual net premiums written to its statutory surplus should not exceed three to one. On an annualized basis, all of the Company’s property and casualty insurance subsidiaries were well under this guideline at September 30, 2015.

The Company’s insurance subsidiaries are required to maintain a certain minimum level of surplus on a statutory basis, and are subject to regulations under which the payment of dividends from statutory surplus is restricted and may require prior approval of their domiciliary insurance regulatory authorities. The Company’s insurance subsidiaries are also subject to annual Risk Based Capital (RBC) requirements that may further impact their ability to pay dividends. RBC requirements attempt to measure minimum statutory capital needs based upon the risks in a company’s mix of products and investment portfolio. At December 31, 2014, the Company’s insurance subsidiaries had total adjusted statutory capital of $454.8 million, which is well in excess of the minimum risk-based capital requirement of $73.2 million.

The Company’s total cash and invested assets at September 30, 2015 and December 31, 2014 are summarized as follows:



	September 30, 2015
($ in thousands)	Amortized cost		Fair value		Percent of total fair value		Carrying value
Fixed maturity securities available-for-sale	$	1,139,373	$	1,177,961	82.9	%	$	1,177,961
Equity securities available-for-sale	142,941		194,305		13.7		194,305
Cash	570		570		—		570
Short-term investments	32,798		32,798		2.3		32,798
Other long-term investments	15,396		15,396		1.1		15,396
	$	1,331,078	$	1,421,030	100.0	%	$	1,421,030



	December 31, 2014
($ in thousands)	Amortized cost		Fair value		Percent of total fair value		Carrying value
Fixed maturity securities available-for-sale	$	1,080,006	$	1,127,499	81.5	%	$	1,127,499
Equity securities available-for-sale	123,972		197,036		14.2		197,036
Cash	383		383		—		383
Short-term investments	53,262		53,262		3.9		53,262
Other long-term investments	6,227		6,227		0.4		6,227
	$	1,263,850	$	1,384,407	100.0	%	$	1,384,407

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The amortized cost and estimated fair value of fixed maturity and equity securities at September 30, 2015 were as follows:



($ in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Securities available-for-sale:
Fixed maturity securities:
U.S. treasury	$	9,600	$	137	$	—	$	9,737
U.S. government-sponsored agencies	221,466		2,743		744		223,465
Obligations of states and political subdivisions	319,666		24,270		—		343,936
Commercial mortgage-backed	41,304		2,437		2		43,739
Residential mortgage-backed	94,411		1,660		6,387		89,684
Other asset-backed	17,738		1,066		66		18,738
Corporate	435,188		15,339		1,865		448,662
Total fixed maturity securities	1,139,373		47,652		9,064		1,177,961

Equity securities:
Common stocks:
Financial services	27,143		8,215		839		34,519
Information technology	18,956		7,845		237		26,564
Healthcare	14,969		9,388		239		24,118
Consumer staples	10,093		5,762		86		15,769
Consumer discretionary	10,471		8,705		26		19,150
Energy	16,927		4,999		756		21,170
Industrials	11,153		6,924		332		17,745
Other	15,243		2,269		509		17,003
Non-redeemable preferred stocks	17,986		546		265		18,267
Total equity securities	142,941		54,653		3,289		194,305
Total securities available-for-sale	$	1,282,314	$	102,305	$	12,353	$	1,372,266

The Company’s property and casualty insurance subsidiaries have $25.0 million of surplus notes issued to Employers Mutual. The interest rate on the surplus notes is 1.35 percent. Reviews of the interest rate are conducted by the Inter-Company Committees of the boards of directors of the Company and Employers Mutual every five years, with the next review due in 2018. Payments of interest and repayments of principal can only be made out of the applicable subsidiary’s statutory surplus and are subject to prior approval by the insurance commissioner of the respective states of domicile. The surplus notes are subordinate and junior in right of payment to all obligations or liabilities of the applicable insurance subsidiaries. Total interest expense incurred on these surplus notes was $253,000 during the first nine months of 2015 and 2014. During the first quarter of 2015, the Company’s property and casualty insurance subsidiaries paid Employers Mutual for the interest that had been accrued on the surplus notes during 2014.

As of September 30, 2015, the Company had no material commitments for capital expenditures.

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Off-Balance Sheet Arrangements

Employers Mutual collects from agents, policyholders and ceding companies all written premiums associated with the insurance business produced by the pool participants and the assumed reinsurance business ceded to the reinsurance subsidiary. Employers Mutual also collects from its reinsurers all losses and settlement expenses recoverable under the reinsurance contracts covering the pool participants and the fronting business ceded to the reinsurance subsidiary. Employers Mutual settles with the pool participants (monthly) and the reinsurance subsidiary (quarterly) the premiums written from these insurance policies and the paid losses and settlement expenses recoverable under the reinsurance contracts, providing full credit for the premiums written and the paid losses and settlement expenses recoverable under the reinsurance contracts generated during the period (not just the collected portion). Due to this arrangement, and since a significant portion of the premium balances are collected over the course of the coverage period, Employers Mutual carries a substantial receivable balance for insurance and reinsurance premiums in process of collection and, to a lesser extent, paid losses and settlement expenses recoverable from the reinsurance companies. Any of these receivable amounts that are ultimately deemed to be uncollectible are charged-off by Employers Mutual and the expense is charged to the reinsurance subsidiary or allocated to the pool members on the basis of pool participation. As a result, the Company has off-balance sheet arrangements with an unconsolidated entity that results in credit-risk exposures (Employers Mutual’s insurance and reinsurance premium receivable balances, and paid loss and settlement expense recoverable amounts) that are not reflected in the Company’s financial statements. The average annual expense for such charge-offs allocated to the Company over the past ten years is $354,000. Based on this historical data, this credit-risk exposure is not considered to be material to the Company’s results of operations or financial position and, accordingly, no loss contingency liability has been recorded.

Investment Impairments and Considerations

The Company recorded $628,000 of "other-than-temporary" investment impairment losses during the three months ended September 30, 2015 compared to $561,000 during the same period in 2014. For the nine months ended September 30, 2015, the Company recognized $1.3 million of "other-than-temporary" investment impairment losses, compared to $877,000 during the same period in 2014. These impairment losses were recognized on securities held in the Company's equity portfolio.

At September 30, 2015, the Company had unrealized losses on available-for-sale securities as presented in the following table. The estimated fair value is based on quoted market prices, where available. In cases where quoted market prices are not available, fair values are based on a variety of valuation techniques depending on the type of security. None of these securities are considered to be in concentrations by either security type or industry. The Company uses several factors to determine whether the carrying value of an individual security has been “other-than-temporarily” impaired. Such factors include, but are not limited to, the security’s value and performance in the context of the overall markets, length of time and extent the security’s fair value has been below carrying value, key corporate events and, for fixed maturity securities, the amount of collateral available. Based on these factors, the absence of management’s intent to sell these securities prior to recovery or maturity, and the fact that management does not anticipate that it will be forced to sell these securities prior to recovery or maturity, it was determined that the carrying value of these securities were not “other-than-temporarily” impaired at September 30, 2015. Risks and uncertainties inherent in the methodology utilized in this evaluation process include interest rate risk, equity price risk, and the overall performance of the economy, all of which have the potential to adversely affect the value of the Company’s investments. Should a determination be made at some point in the future that these unrealized losses are “other-than-temporary”, the Company’s earnings would be reduced by approximately $8.0 million, net of tax; however, the Company’s financial position would not be affected because unrealized losses on available-for-sale securities are reflected in the Company’s financial statements as a component of stockholders’ equity, net of deferred taxes.

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Following is a schedule of the length of time securities have continuously been in an unrealized loss position as of September 30, 2015.



	Less than twelve months				Twelve months or longer				Total
($ in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Fixed maturity securities:
U.S. government-sponsored agencies	$	44,495	$	471	$	35,212	$	273	$	79,707	$	744
Commercial mortgage-backed	579		2		—		—		579		2
Residential mortgage-backed	15,102		1,873		22,393		4,514		37,495		6,387
Other asset-backed	6,136		66		—		—		6,136		66
Corporate	69,883		1,570		11,438		295		81,321		1,865
Total, fixed maturity securities	136,195		3,982		69,043		5,082		205,238		9,064
Equity securities:
Common stocks:
Financial services	9,754		831		57		8		9,811		839
Information technology	3,552		237		—		—		3,552		237
Healthcare	3,388		239		—		—		3,388		239
Consumer staples	1,762		86		—		—		1,762		86
Consumer discretionary	371		26		—		—		371		26
Energy	9,478		756		—		—		9,478		756
Industrials	3,501		332		—		—		3,501		332
Other	7,510		509		—		—		7,510		509
Non-redeemable preferred stocks	2,463		41		1,776		224		4,239		265
Total equity securities	41,779		3,057		1,833		232		43,612		3,289
Total temporarily impaired securities	$	177,974	$	7,039	$	70,876	$	5,314	$	248,850	$	12,353

The Company does not purchase non-investment grade fixed maturity securities. Any non-investment grade fixed maturity securities held are the result of rating downgrades that occurred subsequent to their purchase. At September 30, 2015, the Company held $3.3 million of non-investment grade fixed maturity securities in a net unrealized gain position of $75,000.

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Following is a schedule of gross realized losses recognized in the first nine months of 2015. The schedule is aged according to the length of time the underlying securities were in an unrealized loss position.



	Realized losses from sales						"Other-than- temporary" impairment losses		Total gross realized losses
($ in thousands)	Book value		Sales price		Gross realized losses		"Other-than- temporary" impairment losses		Total gross realized losses
Fixed maturity securities:
Three months or less	$	—	$	—	$	—	$	—	$	—
Over three months to six months	—		—		—		—		—
Over six months to nine months	—		—		—		—		—
Over nine months to twelve months	—		—		—		—		—
Over twelve months	—		—		—		—		—
Subtotal, fixed maturity securities	—		—		—		—		—

Equity securities:
Three months or less	24,190		21,625		2,565		717		3,282
Over three months to six months	1,252		982		270		179		449
Over six months to nine months	1,604		1,293		311		285		596
Over nine months to twelve months	—		—		—		47		47
Over twelve months	367		235		132		65		197
Subtotal, equity securities	27,413		24,135		3,278		1,293		4,571

Total realized losses	$	27,413	$	24,135	$	3,278	$	1,293	$	4,571

LEASES, COMMITMENTS AND CONTINGENT LIABILITIES

One of the Company’s property and casualty insurance subsidiaries leases office facilities in Bismarck, North Dakota with lease terms expiring in 2024. Employers Mutual has entered into various leases for branch and service office facilities with lease terms expiring through 2024. All of these lease costs are included as expenses under the pooling agreement. The Company’s contractual obligations as of September 30, 2015 did not change materially from those presented in the Company’s 2014 Form 10-K.

The participants in the pooling agreement are subject to guaranty fund assessments by states in which they write business. Guaranty fund assessments are used by states to pay policyholder liabilities of insolvent insurers domiciled in those states. Many states allow assessments to be recovered through premium tax offsets. The Company has accrued estimated guaranty fund assessments of $1.0 million and $931,000 as of September 30, 2015 and December 31, 2014, respectively. Premium tax offsets of $1.1 million and $969,000, which are related to prior guarantee fund payments and current assessments, have been accrued as of September 30, 2015 and December 31, 2014, respectively. The guaranty fund assessments are expected to be paid over the next two years and the premium tax offsets are expected to be realized within ten years of the payments. The participants in the pooling agreement are also subject to second-injury fund assessments, which are designed to encourage employers to employ workers with pre-existing disabilities. The Company had accrued estimated second-injury fund assessments of $1.7 million at both September 30, 2015 and December 31, 2014. The second-injury fund assessment accruals are based on projected loss payments. The periods over which the assessments will be paid is not known.

The participants in the pooling agreement have purchased annuities from life insurance companies, under which the claimant is payee, to fund future payments that are fixed pursuant to specific claim settlement provisions. Based on information provided by the life insurance companies on an annual basis, the Company’s share of case loss reserves eliminated by the purchase of those annuities was $110,000 at December 31, 2014. The Company had a contingent liability for the aggregate guaranteed amount of the annuities of $183,000 at December 31, 2014 should the issuers of those annuities fail to perform. Although management is not able to verify the amount, the Company would likely have a similar contingent liability at September 30, 2015. The probability of a material loss due to failure of performance by the issuers of these annuities is considered remote.

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ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The main objectives in managing the Company’s investment portfolios are to maximize after-tax investment return while minimizing risk, in order to provide maximum support for the underwriting operations. Investment strategies are developed based upon many factors including underwriting results, regulatory requirements, fluctuations in interest rates and consideration of other market risks. Investment decisions are centrally managed by investment professionals and are supervised by the investment committees of the respective boards of directors for each of the Company’s subsidiaries.

Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments, and is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded. The market risks of the financial instruments owned by the Company relate to the investment portfolio, which exposes the Company to interest rate (inclusive of credit spreads) and equity price risk and, to a lesser extent, credit quality and prepayment risk. Monitoring systems and analytical tools are in place to assess each of these elements of market risk; however, there can be no assurance that future changes in interest rates, creditworthiness of issuers, prepayment activity, liquidity available in the market and other general market conditions will not have a material adverse impact on the Company’s results of operations, liquidity or financial position.

Two categories of influences on market risk exist as it relates to financial instruments. First are systematic aspects, which relate to the investing environment and are out of the control of the investment manager. Second are non-systematic aspects, which relate to the construction of the investment portfolio through investment policies and decisions, and are under the direct control of the investment manager. The Company is committed to controlling non-systematic risk through sound investment policies and diversification.

Further analysis of the components of the Company’s market risk (including interest rate risk, equity price risk, credit quality risk, and prepayment risk) can be found in the Company’s 2014 Form 10-K.



ITEM 4.	CONTROLS AND PROCEDURES

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely making known to them material information relating to the Company and the Company’s consolidated subsidiaries required to be disclosed in the Company’s reports filed or submitted under the Exchange Act.

There were no changes in the Company’s internal control over financial reporting that occurred during the third quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II.	OTHER INFORMATION



ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information regarding purchases of equity securities by the Company and affiliated purchasers for the three months ended September 30, 2015:



Period	(a) Total number of shares (or units) purchased (1)	(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs (2)	(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs ($ in thousands) (2) (3)
7/1/2015 - 7/31/2015	144	$	25.90	—	$	19,491
8/1/2015 - 8/31/2015	24	24.58		—	19,491
9/1/2015 - 9/30/2015	1,211	24.39		—	19,491
Total	1,379	$	24.55	—


(1)	Included in this column are shares purchased in the open market to fulfill the Company's obligations under its dividend reinvestment and common stock purchase plan.


(2)	On November 3, 2011, the Company’s Board of Directors authorized a $15 million stock repurchase program. This program does not have an expiration date. No purchases have been made under this program.

(3)

On May 12, 2005, the Company announced that its parent company, Employers Mutual, had initiated a $15 million stock purchase program under which Employers Mutual would purchase shares of the Company’s common stock in the open market. This purchase program does not have an expiration date; however, this program has been dormant while the Company’s repurchase programs have been in effect. A total of $4.5 million remains in this program.

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ITEM 6.	EXHIBITS



31.1		Certification of President, Chief Executive Officer and Treasurer as required by Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Senior Vice President and Chief Financial Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of President, Chief Executive Officer and Treasurer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 6, 2015.

EMC INSURANCE GROUP INC.

Registrant

/s/ Bruce G. Kelley

Bruce G. Kelley

President, Chief Executive Officer and Treasurer

(Principal Executive Officer)

/s/ Mark E. Reese

Mark E. Reese

Senior Vice President and Chief Financial Officer

(Principal Accounting Officer)

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

INDEX TO EXHIBITS



Exhibit number	Item

31.1*	Certification of President, Chief Executive Officer and Treasurer as required by Section 302 of the Sarbanes-Oxley Act of 2002

31.2*	Certification of Senior Vice President and Chief Financial Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002

32.1*	Certification of the President, Chief Executive Officer and Treasurer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*	Certification of the Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**	XBRL Instance Document

101.SCH**	XBRL Taxonomy Extension Schema Document

101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**	XBRL Taxonomy Extension Label Linkbase Document

101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document



*	Filed herewith
**	Furnished, not filed

EXHIBIT 31.1

CERTIFICATIONS

I, Bruce G. Kelley, certify that:


1.	I have reviewed this report on Form 10-Q of EMC Insurance Group Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 6, 2015



/s/ Bruce G. Kelley
Bruce G. Kelley, President,
Chief Executive Officer and Treasurer

EXHIBIT 31.2

CERTIFICATIONS

I, Mark E. Reese, certify that:


1.	I have reviewed this report on Form 10-Q of EMC Insurance Group Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 6, 2015



/s/ Mark E. Reese
Mark E. Reese, Senior Vice President
and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report of EMC Insurance Group Inc. on Form 10-Q for the period ended September 30, 2015, the undersigned hereby certifies, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of EMC Insurance Group Inc. that:


(1)	The report fully complies with the requirements of Section 13(a) or 15(d) of Securities Exchange Act of 1934, and


(2)	The information contained in this report fairly presents, in all material respects, the company’s financial condition and results of operations.



EMC INSURANCE GROUP INC.
Registrant

/s/ Bruce G. Kelley
Bruce G. Kelley, President,
Chief Executive Officer and Treasurer

Date: November 6, 2015

EXHIBIT 32.2

CERTIFICATION OF SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


(1)	The report fully complies with the requirements of Section 13(a) or15(d) of Securities Exchange Act of 1934, and


(2)	The information contained in this report fairly presents, in all material respects, the company’s financial condition and results of operations.



EMC INSURANCE GROUP INC.
Registrant

/s/ Mark E. Reese
Mark E. Reese
Senior Vice President and
Chief Financial Officer

Date: November 6, 2015

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