<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
EMC INSURANCE GROUP INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
EMC INSURANCE GROUP INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- -------------------------
1Set forth the amount on which the filing fee is calculated and state how it was
determined.
<PAGE> 2
[COPYWHITE]
April 27, 1994
Dear Stockholder,
I am pleased to extend to you my personal invitation to attend the 1994
Annual Meeting of Stockholders of EMC Insurance Group Inc. (the "Company") on
May 25, 1994 at 10:00 A.M. at the offices of the Company at 717 Mulberry Street,
Des Moines, Iowa 50309.
The accompanying Notice of Annual Meeting and Proxy Statement contains a
description of the formal business to be acted upon by the stockholders. At the
meeting, I intend to discuss the Company's 1993 performance and its plans for
1994. Certain members of the Company's Board of Directors and Officers of the
Company, as well as representatives of KPMG Peat Marwick, the Company's
independent accountants, will be available to answer any questions you may have.
While I am looking forward to seeing you at the meeting, it is very
important that those of you who cannot personally attend assure that your shares
be represented. I urge you, therefore, to sign and date the enclosed form of
proxy and return it promptly in the accompanying envelope. If you attend the
meeting, you may, if you wish, withdraw any proxy previously given and vote your
shares in person.
Sincerely,
Robb B. Kelley
Chairman of the Board
<PAGE> 3
EMC INSURANCE GROUP INC.
NOTICE OF
1994 ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 1994
TO THE STOCKHOLDERS OF EMC INSURANCE GROUP INC.:
Notice is hereby given that the Annual Meeting of the Stockholders of EMC
Insurance Group Inc., an Iowa corporation (the "Company"), will be held on
Wednesday, May 25, 1994 at 10:00 a.m. local time, at the Company's offices, 717
Mulberry Street, Des Moines, Iowa for the following purposes:
1. To elect a Board of Directors;
2. To ratify the appointment of KPMG Peat Marwick as the Company's
independent certified public accountants for the current fiscal year;
and
3. To transact such other business as may come before the meeting or any
adjournment thereof.
Each share of the Company's Common Stock will be entitled to one vote upon
all matters described above. Stockholders of record at the close of business on
April 4, 1994 will be entitled to notice of and to vote at the meeting. The
stock transfer books of the Company will not be closed.
April 27, 1994
BY ORDER OF THE BOARD OF DIRECTORS
PHILIP T. VAN EKEREN, Secretary
PLEASE VOTE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY. AN
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED
FOR YOUR CONVENIENCE.
<PAGE> 4
EMC INSURANCE GROUP INC.
717 MULBERRY STREET
DES MOINES, IOWA 50309
PROXY STATEMENT
1994 ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 1994
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of EMC Insurance Group Inc. (the "Company") of proxies
from the holders of the Company's $1.00 par value Common Stock (the "Common
Stock") for use at the 1994 Annual Meeting of Stockholders to be held on May 25,
1994, and at any adjournment thereof (the "Annual Meeting").
This proxy statement, the accompanying form of proxy and the Company's 1993
Annual Report to Stockholders are first being sent to the Company's stockholders
on or about April 27, 1994.
The accompanying proxy may be revoked by the person giving it at any time
prior to its being voted; such revocation may be accomplished by a letter, or by
a properly signed proxy bearing a later date, filed with the Secretary of the
Company prior to the Annual Meeting. If the person giving the proxy is present
at the meeting and wishes to vote in person, he or she may withdraw his or her
proxy at that time.
The Company has borne all costs of solicitation of proxies. In addition to
solicitation by mail, there may be incidental personal solicitations made by
directors, officers, and regular employees of the Company, its parent, Employers
Mutual Casualty Company ("Employers Mutual") and their subsidiaries. The cost of
solicitation, including payments to nominees who at the request of the Company
mail such material to their customers, will be borne by the Company.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDER
All stockholders of record of the Common Stock at the close of business on
April 4, 1994 are entitled to notice of and to vote at the Annual Meeting. The
vote of a majority of the shares voted at the Annual Meeting, at which a quorum
is present, is required to elect the Directors and to approve the other
proposals presented at the Annual Meeting. At the close of business on April 4,
1994, there were 10,389,361 shares of outstanding Common Stock, each entitled to
one vote per share on all matters to be voted upon at the Annual Meeting. The
Company's stockholders do not have cumulative voting rights. Abstentions and
broker non-votes will be treated as shares that are present and entitled to vote
for purposes of determining the presence of a quorum, but as unvoted for
purposes of determining the approval of any matter submitted to the shareholders
for a vote.
On April 4, 1994, Employers Mutual, 717 Mulberry Street, Des Moines, Iowa,
owned 6,954,032 shares, or approximately 67 percent of the outstanding Common
Stock of the Company. Employers Mutual intends to retain ownership of a majority
of the Company's Common Stock at all times in the future. This majority stock
ownership will give Employers Mutual the right to determine whether or not all
of the proposals presented at the Annual Meeting are carried and will give it
the right to elect all of the directors of the Company. The Company is aware of
no other stockholder who owns more than 5 percent of the Company's Common Stock.
1
<PAGE> 5
The Company's operations are interrelated with the operations of Employers
Mutual and are largely dependent upon a continuing relationship with Employers
Mutual. The Company does not anticipate any disruptions in this relationship.
ELECTION OF DIRECTORS
NOMINEES
At the Annual Meeting, the stockholders will elect a board of seven
directors to serve for terms extending until the 1995 Annual Meeting of
Stockholders and until their respective successors are duly elected and
qualified. Proxies in the accompanying form which are received by the management
of the Company in response to this solicitation will, unless contrary
instructions are given therein, be voted in favor of the seven nominees for
director listed in the table below. The Board of Directors of the Company has no
reason to believe that any of such nominees may not be available to serve or
will not serve as a director if elected; however, if any nominee is not so
available at the time of the election, the proxies may be voted in the
discretion of the persons named therein for the election of a substitute
nominee.
The table below contains certain information with respect to the Board of
Directors' nominees for election as directors.
<TABLE>
<CAPTION>
DIRECTOR POSITION WITH
NAME AGE SINCE THE COMPANY
- ------------------------------------ --- -------- -----------------------------------------------
<S> <C> <C> <C>
George C. Carpenter III............. 66 1981 Director
David J. Fisher..................... 57 1985 Director
Bruce G. Kelley..................... 40 1991 President, Chief Executive Officer and Director
Robb B. Kelley...................... 77 1974 Chairman of the Board and Director
George W. Kochheiser................ 68 1974 Director and former President and Chief
Operating Officer
Raymond A. Michel................... 68 1981 Director
Therese M. Vaughan.................. 37 1992 Director
</TABLE>
George C. Carpenter III was Executive Director of Iowa Public Television
from November 1985 until his retirement in April 1993. During the period from
1984 through 1985 he was Vice President of Palmer Communications and prior to
that he was Vice President and General Manager of WHO Broadcasting Company, a
division of Palmer Communications. He was employed by WHO Broadcasting Company
for 20 years.
David J. Fisher has been Chairman of the Board and President of Onthank
Company, a Des Moines based wholesale distributor of floor, window and wall
covering products, since 1978. He is a member of the Board of Directors of the
Greater Des Moines YWCA, the Iowa Lutheran Hospital Foundation, the State of
Iowa Salary Review Commission, the University Foundation, Liberty Savings Bank
and Kirke-Van Orsdel, Inc. Mr. Fisher also serves as Chairman of the Governor's
Committee on Government Spending Reform.
Bruce G. Kelley is President, Chief Executive Officer and Director of the
Company and of Employers Mutual. He was Executive Vice President of the Company
from 1989 to 1991 when he became President and Chief Operating Officer. Mr.
Kelley was Vice President and General Counsel of Employers Mutual from 1985
until 1989 and Executive Vice President from 1989 until 1991 when he became
President and Chief Operating Officer. He was elected President and Chief
Executive Officer of the Company in August 1992. He has been
2
<PAGE> 6
employed with Employers Mutual since 1985. He is a Director of Brenton Bank,
N.A. of Des Moines. He is the son of Robb B. Kelley.
Robb B. Kelley is Chairman of the Board and Director of the Company and of
Employers Mutual. Mr. Kelley was Chief Executive Officer of the Company from
1974 until 1992 and has been Chairman of the Board since 1982. He was Chief
Executive Officer of Employers Mutual from 1963 to 1992 and has been Chairman of
that company's Board since 1982. He has been a Director of Employers Mutual
since 1956. He was employed with Employers Mutual from 1939 until his retirement
from active employment in September of 1992. He is a Director of Iowa Business
Development Credit Corporation, a Board member of the Iowa Public Employees
Retirement System (IPERS), and a life member of the Board of Trustees of Drake
University. Mr. Kelley is the father of Bruce G. Kelley.
George W. Kochheiser was President and Chief Operating Officer of the
Company and of Employers Mutual, from 1982 until his retirement in 1991. Mr.
Kochheiser also serves as a Director of Employers Mutual, Employers Modern Life
Company, Union Insurance Company of Providence, American Liberty Insurance
Company and of Dakota Fire Insurance Company.
Raymond A. Michel is a member of the Board of Directors of Koss
Construction Company, a highway and airport construction firm, and was its
Chairman and Chief Executive Officer from 1987 until his retirement in 1989. He
has been affiliated with that company in one capacity or another since 1955.
Therese M. Vaughan is Director of the Insurance Center and Chair of the
Insurance Department at Drake University in Des Moines, Iowa, a position she has
held since 1988. Prior to assuming her present position, Ms. Vaughan was a
consultant for Tillinghast, a Towers Perrin Company, in New York City. She is a
member of the Board of Directors of the Young Women's Resource Center and of the
Iowa Insurance Development Board.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended December 31, 1993, the Board of Directors of the
Company held four regular meetings. In 1993, each member of the Board of
Directors attended at least 75 percent of the aggregate of (i) the total number
of meetings of the Board of Directors held and (ii) the total number of meetings
held by all committees of the Board of Directors on which they served.
The Board of Directors has an Executive Committee and the members are Bruce
G. Kelley, Robb B. Kelley and George W. Kochheiser. The Executive Committee did
not meet during the year ended December 31, 1993. The Executive Committee has
authority to exercise all of the authority of the Board of Directors when the
Board is not in session, with the exception of certain actions which, under Iowa
law and the By-Laws, require Board action; these include amending the Company's
Articles of Incorporation, declaring dividends, adopting a plan of merger or
consolidation of the Company, appointing or removing executive officers,
designating candidates for election as directors or filling director vacancies,
approving or recommending to the Company's stockholders a voluntary dissolution
or revocation of its Charter, or amending the Company's By-Laws.
The Board has an Audit Committee, the members of which are George C.
Carpenter III, David J. Fisher and Raymond A. Michel. The Audit Committee held
two meetings in 1993. The Committee met with management and the independent
auditors in connection with its review of matters relating to the Company's
annual financial statements and the Company's system of internal accounting
controls. The Committee met
3
<PAGE> 7
with the independent auditors and the internal auditors, with and without
management present, to discuss appropriate matters.
In 1993, the Board appointed an Investment Committee, the members of which
are Bruce G. Kelley, Robb B. Kelley and George W. Kochheiser. The Committee has
the authority to monitor the investments of the Company and to make decisions on
the appropriateness of the types of securities accounts held, the amount of
Company funds to be allocated to each and when funds should be transferred from
one account to another, when it is deemed to be in the best interest of the
Company. The Investment Committee did not meet during 1993; however, the
Investment Committees of the Company's property and casualty subsidiaries held
numerous meetings during the year with respect to their individual portfolios.
An Inter-Company Committee was established in 1984 by mutual agreement of
the Boards of Directors of the Company and Employers Mutual. The three members
of the Board's Audit Committee also serve as the members of the Inter-Company
Committee. Employers Mutual is represented on the Inter-Company Committee by
three members of its Board of Directors. The primary responsibility of the
Inter-Company Committee is to review all major transactions between the two
entities. The Inter-Company Committee held two meetings during 1993.
DIRECTORS' COMPENSATION
In 1993, each member of the Company's Board of Directors who was not an
officer or employee of the Company was entitled to $700 for each board meeting
or committee meeting attended, plus expenses, and a $7,500 annual fee payable
irrespective of attendance at meetings. If two or more committee meetings are
held on one day, the maximum fee permitted is $700, except in the event of an
Audit Committee meeting and an Inter-Company Committee meeting being held on the
same day in which case two meeting fees are paid. Also, when a committee meeting
is held on the same day as a board meeting, the maximum fee paid is $700 per
day.
SECURITY OWNERSHIP OF MANAGEMENT
The following information is furnished as to the Common Stock of the
Company owned beneficially as of April 4, 1994, by each of the Company's
directors and nominees and by each executive officer of Employers Mutual. The
information concerning beneficial ownership has been furnished by the persons
listed below or
4
<PAGE> 8
was determined by the Company from reports filed by such persons with the
Securities and Exchange Commission regarding such ownership.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OWNERSHIP (1) OF CLASS
----------------- --------
<S> <C> <C>
George C. Carpenter III........................................... 2,091 (2)
David J. Fisher................................................... 1,207 (2)
Bruce G. Kelley................................................... 145,422(3) 1.4%
Robb B. Kelley.................................................... 72,081(4) (2)
George W. Kochheiser.............................................. 46,162 (2)
Raymond A. Michel................................................. 4,000 (2)
Therese M. Vaughan................................................ 1,343 (2)
Fredrick A. Schiek................................................ 18,173(5) (2)
John D. Isenhart.................................................. 18,978(6) (2)
Philip T. Van Ekeren.............................................. 20,122(7) (2)
Elwin H. Creese................................................... 21,034(8) (2)
All Directors and Executive Officers as a Group (13 persons,
including those listed above)................................... 383,893 3.7%
</TABLE>
- ---------------
(1) All named holders of the Common Stock listed in this table have sole voting
and investment power with respect to the shares held, except as stated
otherwise below.
(2) The Director's percent of shares owned does not exceed one percent of the
total shares of Common Stock outstanding.
(3) Bruce G. Kelley owns 9,040 shares of Common Stock directly and 100,492
shares indirectly. Of the 100,492 shares indirectly owned 91,500 are owned
by a limited partnership of which he holds power of attorney and is a
general partner, 7,912 are owned by his children and he has power of
attorney over 1,080 shares owned by an unrelated party. In addition, he owns
presently exercisable options to purchase 35,890 shares of Common Stock,
which shares are included in the table. See "Compensation of Management --
Stock Options."
(4) Robb B. Kelley owns 67,691 shares of Common Stock directly and 4,390 shares
indirectly. Of the indirectly held shares, 1,600 are owned by Mr. Kelley's
wife and 2,790 are owned by a conservatorship of which he is the
conservator.
(5) Fredrick A. Schiek directly owns 7,583 shares of Common Stock and has
presently exercisable options to purchase 10,590 shares, which shares are
included in the table. See "Compensation of Management -- Stock Options."
(6) John D. Isenhart directly owns 7,378 shares of Common Stock and has
presently exercisable options to purchase 11,600 shares, which shares are
included in the table. See "Compensation of Management -- Stock Options."
(7) Philip T. Van Ekeren directly owns 8,672 shares of Common Stock and has
presently exercisable options to purchase 11,450 shares, which shares are
included in the table. See "Compensation of Management -- Stock Options."
(8) Elwin H. Creese directly owns 12,184 shares of Common Stock and has
presently exercisable options to purchase 8,850 shares, which shares are
included in the table. See "Compensation of Management -- Stock Options."
5
<PAGE> 9
FILINGS UNDER SECTION 16(A)
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires that the Company's executive officers and directors file initial
reports of ownership and reports of changes in ownership of shares of the
Company's stock with the Securities and Exchange Commission. Based solely on a
review of copies of the filed forms furnished to the Company, or of written
representations that no reporting was required, the Company believes that all of
its executive officers and directors were in compliance with the Section 16(a)
reporting requirements during 1993.
COMPENSATION OF MANAGEMENT
The Company has no employees of its own and, consequently, it has no
payroll, no employee benefit plans and no compensation committee of its Board.
Therefore, all compensation and all benefits reported on in this proxy statement
are established by the Employers Mutual Board of Directors or by one or another
of its Committees. Approximately 12 employees of Employers Mutual devote a
portion of their time performing administrative duties for the Company. In
general, during 1993 the Company's business was conducted by employees of
Employers Mutual and of two of the Company's subsidiaries, Illinois EMCASCO
Insurance Company and Farm and City Insurance Company.
Three of the Company's property and casualty insurance subsidiaries, Dakota
Fire Insurance Company, EMCASCO Insurance Company and Illinois EMCASCO Insurance
Company, and two subsidiaries of Employers Mutual, are parties to reinsurance
pooling agreements with Employers Mutual (collectively, the "Pooling
Agreement"). The compensation of Employers Mutual's officers during 1993 was
shared by the Company's property and casualty companies in accordance with their
interests in the pool. Likewise, the compensation of the officers of the
Company's subsidiary companies (exclusive of two subsidiaries) was charged as an
expense to the Pooling Agreement and as such was shared by all of the parties to
the Pooling Agreement in accordance with their interests in the pool. The
compensation paid to officers of Farm and City Insurance Company was not
allocated to the Pooling Agreement and was consequently borne entirely by the
Company.
The participation of the Company's property and casualty insurance
subsidiaries in the Pooling Agreement during 1993 was 22 percent and this
percentage represents the portion of the compensation expenses described below
which were allocated to the Company during the year.
The compensation of the executive officers of Employers Mutual is initially
determined by a Senior Executive Compensation and Stock Option Committee
composed of four members of its Board of Directors, and subsequently approved by
the full Board of Directors of Employers Mutual.
Employers Mutual and its non-life subsidiary companies (including the
Company) collectively had assets that totaled $1,228,334,000 at year-end 1993
and had written premiums of $562,817,000 for the year.
6
<PAGE> 10
The following table sets forth information with respect to compensation
paid by Employers Mutual to its Chief Executive Officer and the four next most
highly compensated executive officers for services in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION(1) INCENTIVE
------------------------- OTHER ANNUAL STOCK OPTION ALL OTHER
NAME AND SALARY BONUS COMPENSATION GRANTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(2) (#)(3) ($)(4)
- -------------------------------- ---- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Bruce G. Kelley................. 1993 235,075 90,106 34,000 2,898
President & Chief 1992 232,759 81,856 4,000 2,807
Executive Officer 1991 170,465 44,681 6,000 --
Frederick A. Schiek............. 1993 175,372 59,503 12,000 4,382
Executive Vice 1992 152,949 46,342 5,000 3,541
President & COO 1991 -- -- -- --
1993 127,412 37,921 1,550 3,673
John D. Isenhart................ 1992 122,178 35,115 1,000 3,312
Sr Vice President 1991 111,212 26,032 2,250 --
Philip T. Van Ekeren............ 1993 120,743 35,911 2,250 4,520
Sr Vice President 1992 -- -- -- --
& Secretary 1991 -- -- -- --
Elwin H. Creese................. 1993 119,902 35,671 2,250 4,092
Sr Vice President 1992 113,786 32,701 1,000 3,846
& Treasurer 1991 103,573 24,242 2,250 --
</TABLE>
- ---------------
(1) Compensation deferred at election of executive includable in category and
year earned.
(2) Total of all other annual compensation for each of the named executives did
not exceed the reporting thresholds.
(3) All stock options granted were at option prices equal to the fair market
value of the stock on the date of grant, have a term of ten years and vest
at a rate of 20% per year commencing in the second year of the term.
(4) The amounts shown for all other compensation include employer matching
contributions to the Employers Mutual 401K Plan and excess group life
insurance premiums. During 1993, contributions to the 401K Plan on behalf
of Messrs. Kelley, Schiek, Isenhart, Van Ekeren and Creese, respectively,
were $2,358, $1,788, $1,706, $1,652 and $1,227. Excess life insurance
premiums paid during 1993 on behalf of Messrs. Kelley, Schiek, Isenhart,
Van Ekeren and Creese were $540, $2,594, $1,967, $2,868 and $2,865,
respectively.
STOCK OPTIONS
The following table sets forth details regarding stock options granted to
the named executive officers during 1993. In addition, the table shows the
hypothetical gain, or "option spreads", that would exist for the respective
options. The gains are based on assumed rates of annual compound stock
appreciation of five and
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<PAGE> 11
10 percent over the full term of the options. The stock option plans utilize the
Common Stock of the Company, with the Company receiving the full fair market
value at the date of exercise for all stock issued under the plans.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUES BASED ON
NUMBER ASSUMED RATES OF
OF % OF EXERCISE STOCK PRICE
OPTIONS TOTAL PRICE APPRECIATION (3)
GRANTED OPTIONS ($/SH) EXPIRATION ------------------
NAME (#) (1) GRANTED (2) DATE 5% ($) 10% ($)
- --------------------------------------- -------- ------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Bruce G. Kelley........................ 34,000 20.8 9.56 6/1/03 204,340 517,820
Fredrick A. Schiek..................... 12,000 7.6 9.56 6/1/03 72,120 182,760
John D. Isenhart....................... 1,550 0.9 9.56 6/1/03 9,316 23,607
Philip T. Van Ekeren................... 2,250 1.4 9.56 6/1/03 13,523 34,268
Elwin H. Creese........................ 2,250 1.4 9.56 6/1/03 13,523 34,268
</TABLE>
- ---------------
(1) All grants of options shown are for ten year terms and the options vest at
20 percent per year commencing on the first anniversary of the grant date.
(2) The exercise price for all grants was 100 percent of the fair market value
of the stock on the date of grant.
(3) The potential realizable values indicated are based on the assumption that
the stock price appreciates at the annual rate shown from the date of grant
until the expiration date. These numbers do not reflect the historical
increase in the price of the stock and do not represent the Company's
estimate of future appreciation in the stock price.
The following table sets forth information with respect to the named
executive officers concerning the exercise of stock options during 1993, the
realized gains from those exercises, and the number of unexercised options held
as of December 31, 1993 and the amount of unrealized gains represented by them
on that date.
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
YEAR-END (#) YEAR-END ($)
VALUE
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) (1) UNEXERCISABLE UNEXERCISABLE (2)
- ---------------------------------------- --------------- -------- ------------- -----------------
<S> <C> <C> <C> <C>
Bruce G. Kelley......................... 2,911 4,165 29,540/48,350 41,562/18,025
Frederick A. Schiek..................... 1,695 4,898 7,810/19,590 9,573/ 5,650
John D. Isenhart........................ -- -- 9,890/ 5,210 12,864/ 3,519
Philip T. Van Ekeren.................... -- -- 9,700/ 5,950 12,522/ 3,603
Elwin H. Creese......................... 550 792 7,140/ 5,910 8,910/ 3,563
</TABLE>
- ---------------
(1) Value realized is the market value on the date(s) of exercise less the
exercise price(s).
(2) The value of unexercised options/SARs is calculated by subtracting the
exercise price(s) from the market value of the stock at year-end. The
year-end market value was $9.63.
8
<PAGE> 12
PENSION PLAN
The Employers Mutual Retirement Annuity Plan (the "Pension Plan") has been
restated to comply with the Tax Reform Act of 1986 (TRA). The restated plan was
adopted by the Board of Directors of Employers Mutual on September 22, 1992.
All of the individuals named in the Summary Compensation Table are
participants in the Pension Plan. For Pension Plan purposes, the number of full
years of service accrued and the 1993 compensation for Messrs. Kelley, Schiek,
Isenhart, Van Ekeren, and Creese were eight and $235,840, 34 and $178,875, 30
and $170,691, 33 and $165,232, and nine and $122,767, respectively. During 1993,
Messrs. Schiek and Creese deferred bonus compensation which is not credited for
Pension Plan purposes.
The table below illustrates the approximate benefits that could be received
from the Pension Plan by the individuals referred to in the executive
compensation table.
<TABLE>
<CAPTION>
ASSUMED YEARS OF SERVICE AT NORMAL RETIREMENT DATE
ANNUAL -------------------------------------------
EARNINGS (1) 15 20 25 30
- ------------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
$120,000............................................ 24,646 33,604 42,558 47,934
150,000............................................ 30,043 41,522 52,994 61,120
200,000............................................ 42,722 58,401 74,071 83,479
250,000............................................ 54,019 73,898 93,767 105,696
300,000............................................ 65,317 89,396 113,463 127,912(2)
350,000............................................ 76,615 104,894 133,159(2) 150,128(2)
450,000............................................ 99,210 135,889(2) 172,550(2) 194,561(2)
</TABLE>
- ---------------
(1) The annual earnings shown above have been computed to reflect a range
adequate to cover the current salaries of the executives included in the
Summary Compensation Table with provision for reasonable increases in
future compensation. For 1993, pursuant to the requirements of the Internal
Revenue Code, as amended, compensation crediting under the plan was limited
to $235,840.
(2) Pursuant to the requirements of the Employee Retirement Income Security Act
of 1974, the current maximum benefit payable at normal retirement age in
any one year under qualified plans cannot exceed $118,800.
EXECUTIVE COMPENSATION REPORT
The compensation of the executive officers is initially determined by the
Senior Executive Compensation and Stock Option Committee ("Committee") of the
Board of Directors of Employers Mutual, with subsequent approval by its Board of
Directors. None of the Committee members are employees of Employers Mutual and
none are employees or directors of the Company.
COMPENSATION PHILOSOPHY
The general intent of Employers Mutual is to provide an executive
compensation structure that will allow for a level of compensation that is
competitive within the insurance industry and, more particularly, with a peer
group of companies within the property and casualty insurance industry. That
peer group is comprised of companies which are similar in size, have comparable
insurance products and which have been identified as
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<PAGE> 13
the competition with respect to such things as the quality of the products and
services provided and which tend to compete in the same targeted markets as does
Employers Mutual.
It is also the intention of Employers Mutual to provide a level of
compensation that will allow it to attract and retain highly qualified,
motivated executives who will enhance the ability of Employers Mutual to
continue its long history of steady growth and financial strength.
EXECUTIVE COMPENSATION COMPONENTS
The compensation of Employers Mutual executives is primarily provided
through the use of three major components in its compensation structure. Each of
those components is designed to achieve a particular result and to allow for
measurement of individual and collective executive performance.
The basic component of executive compensation is base salary. On an annual
basis, the Committee reviews the salary of each individual executive officer,
using as a guideline the average base pay of other industry and peer company
executives with like positions, and with strong reliance upon the Chief
Executive Officer's report on the overall performance and progress of each
executive during the past year.
Through the use of an annual incentive bonus program, the executives have
the opportunity to gain additional compensation based upon the overall
performance of Employers Mutual and its subsidiaries. That bonus program
measures performance as compared to that of the property and casualty insurance
industry as a whole with respect to such specific areas as combined loss and
expense ratio and the growth in surplus as regards policyholders for the program
year. The Committee reviews the bonus program on an annual basis and makes
changes to it if and when such changes are deemed to be appropriate.
Employers Mutual has also made available a long-term incentive compensation
opportunity for its senior executives by the use of incentive stock option
grants. The Common Stock of the Company is utilized for those grants. Because of
the Pooling Agreement that Employers Mutual has with two of its subsidiaries,
and with three subsidiary companies of the Company, the Committee believes that
superior performance by the senior executives of Employers Mutual will have a
significant impact on the performance of the Common Stock of the Company,
thereby providing long-term appreciation in the value of the options held by the
executives. The Committee has drafted formal guidelines for granting stock
options to eligible executives. Those guidelines provide for base option award
ranges for executives based upon their level of authority and responsibility, in
addition to providing for the granting of discretionary option awards to
executives based upon such factors as individual performance, attainment of
agreed goals and objectives and other contributions to overall results.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
For 1993, the Committee recommended that the base salary of Bruce G.
Kelley, Chief Executive Officer, be increased to $235,572, an increase of 4.7
percent over the base salary paid him during 1992. The full Board of Directors
of Employers Mutual approved that recommendation. The Committee arrived at that
figure as a minimum for the position based upon a salary range imputed from
surveys of base salaries being paid to Chief Executive Officers of bonus paying
insurance industry and peer group companies.
Under the Bonus Program, Mr. Kelley has received a bonus of $90,106 for
1993 performance and, in addition, the Committee and the Board of Directors
approved a grant of 34,000 incentive stock options, the particulars of which are
expanded upon in the foregoing Summary Compensation and Stock Option tables.
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Based on preliminary estimates of the results for the countrywide property
and casualty industry during 1993, the combined companies' loss and expense
ratio was 2.2 percent better than the industry. For the year, there was an
addition to the companies' surplus of $16,436,675 and net premiums written
increased to $562,817,000 as compared with $538,410,000 for 1992.
Senior Executive Compensation and Stock Option Committee:
William H. Brenton, Chairman
Richard W. Booth
Blaine A. Briggs
Lanning Macfarland, Jr.
COMPENSATION COMMITTEE INTERLOCKS
William H. Brenton is Chairman of the Executive Committee and Vice Chairman
of the Board of Brenton Banks, Inc. and a member of the Board of Brenton Bank,
N.A. of Des Moines. Employers Mutual and certain of its subsidiaries, including
the Company, maintain a number of accounts in banks owned by Brenton Banks, Inc.
and its subsidiaries.
Bruce G. Kelley also serves as a member of the Board of Directors of
Brenton Bank, N.A. of Des Moines.
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<PAGE> 15
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Common Stock to the NASDAQ Total Return Index for U.S. companies and
the Peer Group Index, which is the Media General Industry Group 262 as adjusted
to remove life insurance companies, over a five-year period beginning December
31, 1988 and ending December 31, 1993. The total stockholder return assumes
$100.00 invested at the beginning of the period in the Company's Common Stock,
the NASDAQ Index and the Peer Group Index, as adjusted. It also assumes
reinvestment of all dividends for the period.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG EMC INSURANCE GROUP INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
<TABLE>
<CAPTION>
EMC IN-
MEASUREMENT PERIOD SURANCE GROUP PEER GROUP NASDAQ MARKET
(FISCAL YEAR COVERED) INC. INDEX INDEX
<S> <C> <C> <C>
1988 100 100 100
1989 109.59 128.02 112.89
1990 101.19 108.68 91.57
1991 148.37 137.88 117.56
1992 140.35 162.57 118.71
1993 165.47 166.51 142.40
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The operations of the Company are directly interrelated with the operations
of Employers Mutual. Under the terms of the Pooling Agreement, each
participating company cedes to Employers Mutual all of its insurance business
and assumes from Employers Mutual an amount equal to its participation in the
pool. All losses, settlement expenses and other underwriting and administrative
expenses are prorated among the parties on the basis of participation in the
pool. The aggregate participation of the Company's property and casualty
insurance subsidiaries was 17 percent during 1991 and 22 percent during 1992 and
1993. The pool participants limit the maximum net loss which can arise from
large risks or risks in concentrated areas of exposure by reinsuring with other
insurers and reinsurers.
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<PAGE> 16
Effective January 1, 1993 the Pooling Agreement was amended so that the
voluntary assumed reinsurance business written by Employers Mutual is no longer
subject to cession to the pool members. In connection with this change in the
pooling agreement, Employers Mutual reimbursed the Company $43,259 for
commissions for this business.
EMC Reinsurance Company ("EMC Re") has an agreement with Employers Mutual
whereby EMC Re accepts a 95 percent quota share of Employers Mutual's assumed
reinsurance business, exclusive of certain reinsurance contracts. Under the
agreement, EMC Re receives 95 percent of the premiums and assumes 95 percent of
all related loss and settlement expenses of the business.
Effective January 1, 1993 the quota share agreement was amended to provide
that losses in excess of $1,000,000 per event are retained by Employers Mutual.
During 1993, EMC Re paid $1,808,527 to Employers Mutual for this additional
protection.
Effective June 30, 1993 Employers Mutual commuted the portion of the quota
share agreement that pertains to a casualty pool that is in a run-off position.
During 1993, the Company recognized income in the amount of $259,217 as a result
of this change.
As of October 31, 1993, Employers Mutual commuted the portion of the quota
share agreement that pertains to a voluntary pool of reinsurance business. As a
result of this change, Employers Mutual paid the Company $1,207,425 for
commissions incurred in the generation of that business.
Under the quota share agreement in 1993, EMC Re assumed a total of
$34,445,978 in reinsurance premiums from Employers Mutual and, in return, it
paid Employers Mutual $8,979,309 as reimbursement for its acquisition expenses.
In conjunction with the above noted changes to the quota share agreement, a
catastrophe reinsurance treaty between EMC Re and Employers Mutual was
terminated. That treaty called for the payment of losses in excess of $1,000,000
from any one catastrophe, subject to a maximum of $3,000,000, and with a maximum
recovery under the treaty limited to $6,000,000. During 1993, EMC Re recovered
$306,250 under the treaty and it paid no premiums to Employers Mutual.
EMC Re also has an aggregate excess of loss treaty with Employers Mutual
which provides protection against losses resulting from multiple catastrophes.
The coverage provided by this treaty is $2,000,000 in excess of $2,500,000 of
losses retained by EMC Re, excess of $200,000 per single catastrophe. The
Maximum recovery under this treaty in any one year is $4,000,000. During 1993,
EMC Re recovered $143,501 and it paid reinstatement premiums of $208,470. Total
premiums paid to Employers Mutual during the year under this treaty amounted to
$708,445.
In addition to amounts paid pursuant to the Pooling Agreement, the Company
paid Employers Mutual $397,501 in 1993 to cover administrative overhead incurred
by Employers Mutual in providing investment services. The allocation of charges
to the Company is based on both the number of the Company's investment
transactions and the dollar value of the Company's investment portfolio in
relation to the corresponding number of transactions in, and value of, the
investment portfolios of Employers Mutual and its property and casualty
subsidiaries. Based on this allocation, the Company believes such fees to be
reasonable.
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<PAGE> 17
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
KPMG Peat Marwick, independent certified public accountants, audited the
accounts of the Company for the year ended December 31, 1993. The Board of
Directors has selected KPMG Peat Marwick as auditors for 1994 and the
stockholders are asked to ratify that selection. During 1993, in connection with
its audit function, KPMG Peat Marwick provided services to the Company which
included the examination of the annual consolidated financial statements,
assistance with requirements of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, auditing certain employee benefit plans and
consultation regarding various financial and accounting matters.
A representative of KPMG Peat Marwick will be present at the Annual
Meeting, and will be given an opportunity to make a statement and to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THIS
APPOINTMENT. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE
ABSENCE OF DIRECTION TO THE CONTRARY.
OTHER MATTERS
The Board of Directors knows of no matters other than those described above
that may come before the Annual Meeting. As to other matters, if any, that
properly may come before the Annual Meeting, the Board of Directors intends that
proxies in the accompanying form will be voted in respect thereof in accordance
with the judgment of the person or persons voting the proxies.
STOCKHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
Stockholder proposals for inclusion in the Company's Proxy Statement for
the 1995 Annual Meeting of Stockholders must be received by the Company not
later than December 28, 1994. The person submitting the proposal must have been
a record or beneficial owner of the Company's Common Stock for at least one
year, and the securities so held must have a market value of at least $1,000.
Any such proposal will be included in the Proxy Statement for the 1995 Annual
Meeting, if the rules of the Securities and Exchange Commission are satisfied
with respect to the timing and form of such proposal, and if the content of such
stockholder's proposal is determined by the Company to be appropriate under
rules promulgated by the Commission.
April 27, 1994
BY ORDER OF THE BOARD OF DIRECTORS
Philip T. Van Ekeren, Secretary
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EMC INSURANCE GROUP INC.
PROXY FOR COMMON STOCK
ANNUAL MEETING OF STOCKHOLDERS--MAY 25,1994
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Robb B. Kelley, Bruce G. Kelley
and George W. Kochheiser, or any of them, Proxies, each with the
power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all the shares of stock
of EMC Insurance Group Inc. held of record by the undersigned on
April 4, 1994, at the Annual Meeting of Stockholders to be held on
May 25, 1994 or any adjournment thereof.
<TABLE>
<S> <C> <C>
1. ELECTION OF / / FOR all nominees listed below / / WITHHOLD AUTHORITY
DIRECTORS (except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
George C. Carpenter III, David J. Fisher, Bruce G. Kelley, Robb B.
Kelley, George W. Kochheiser, Raymond A. Michel, Therese M. Vaughan
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the space provided below.)
---------------------------------------------------------------------
2. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK AS THE
INDEPENDENT AUDITORS OF THE COMPANY.
/ / FOR / / AGAINST / / ABSTAIN
3. OTHER BUSINESS
In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation, please
sign in full corporate name by
President or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
Dated: , 1994
--------------------------
----------------------------------
Signature
----------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND
RETURN THE PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.
