The management of EMC Insurance Group Inc. and Subsidiaries is responsible for the preparation and for the integrity and objectivity of the accompanying financial statements and other financial information in this report. The financial statements have been prepared in accordance with generally accepted accounting principles and include amounts that are based on management's estimates and judgments where necessary.
We have audited the accompanying consolidated balance sheets of EMC Insurance Group Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EMC Insurance Group Inc. and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles.
UNREALIZED HOLDING GAINS (LOSSES) ON EQUITY SECURITIES AVAILABLE-FOR-SALE, NET OF TAX: Beginning of year .................. - (19,800) (142,000) Gains on revaluation of equity securities available-for-sale, net of tax (notes 1 and 10) .......... 817,965 19,800 122,200
Year ended December 31, ---------------------------------------- 1995 1994 1993 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed maturity securities held-to-maturity ..... $(46,384,530) $(93,131,676) $ - Maturities of fixed maturity securities held-to-maturity ..... 18,257,425 41,099,534 - Purchases of fixed maturity securities available for sale ... (27,866,616) (193,422,946) - Maturities of fixed maturity securities available-for-sale ... 49,104,032 208,880,152 - Net purchases of mutual funds invested in equity securities available-for-sale .............. (13,785,451) - - Sales of equity securities available-for-sale .............. - 500,000 1,043,068 Purchases of fixed maturity securities ...................... - - (266,682,915) Maturities of fixed maturity securities ...................... - - 274,909,330
The following table sets forth a reconciliation of beginning and ending reserves for losses and settlement expenses of the Company. Amounts presented are on a net basis, with a reconciliation of beginning and ending reserves to the gross amounts presented in the consolidated financial statements in accordance with SFAS 113 (see note 1).
Year ended December 31, ---------------------------------------- 1995 1994 1993 ------------ ------------ ------------
Statutory surplus ................... $105,583,848 $ 94,317,215 $ 85,830,140 Deferred policy acquisition costs ... 8,714,769 8,393,635 7,698,864 Accrued salvage and subrogation ..... 2,368,362 1,799,443 1,793,592 Other policyholders' funds payable .. (3,593,328) (3,102,609) (2,854,793) Pension asset ....................... 835,652 1,407,714 1,705,735 GAAP postretirement benefit liability in excess of statutory liability ......................... (1,908,372) (1,672,780) (1,358,197) Deferred income tax asset ........... 11,921,182 14,190,499 13,040,693 Goodwill ............................ 1,748,664 1,883,177 2,017,690 Excess statutory reserves over statement reserves............ 6,685,303 2,044,268 - GAAP basis reserve discount on commutation of reinsurance contract in excess of statutory recognition ....................... (940,009) (1,283,662) (1,717,641) Unrealized holding gains (losses) on fixed maturity securities available-for-sale ................ 5,260,630 (1,316,596) 3,134,016 Other ............................... 212,057 66,385 343,670 ------------ ------------ ------------ Stockholders' equity, GAAP basis .... $136,888,758 $116,726,689 $109,633,769 ============ ============ ============
Equity securities available-for-sale: Proceeds from sales ............... 985,971 500,000 1,043,068 Gross realized investment gains ... 985,971 - 18,068 Gross realized investment losses .. - 5,000 30,000
The Company participates in Employers Mutual's defined benefit retirement plan covering substantially all employees. The plan is funded by employer contributions and provides benefits based on the employee's years of service and compensation level. Benefits generally vest after five years of service.
Service cost - benefits earned during the period ................. $ 3,124,494 $ 2,965,867 $ 2,347,984 Interest cost on projected benefit obligation ................ 4,827,694 2,925,086 2,533,587 Actual gain on plan assets .......... (10,414,728) (1,606,902) (5,229,721) Net amortization and deferral ....... 5,071,784 (3,078,202) 647,291 ------------ ------------ ------------ Net periodic pension cost .... $ 2,609,244 $ 1,205,849 $ 299,141 ============ ============ ============