<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 / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/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, if other than the Registrant)
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(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $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 transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / 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:
- --------------------------------------------------------------------------------
<PAGE> 2
[EMC INSURANCE GROUP INC. LETTERHEAD]
April 24, 1996
Dear Stockholder,
I am pleased to extend to you my personal invitation to attend the 1996
Annual Meeting of Stockholders of EMC Insurance Group Inc. (the "Company") on
May 22, 1996, 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 1995 performance and its plans for
1996. Certain members of the Company's Board of Directors and Officers of the
Company, as well as representatives of KPMG Peat Marwick LLP, 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,
Bruce G. Kelley
Bruce G. Kelley
President and CEO
<PAGE> 3
EMC INSURANCE GROUP INC.
NOTICE OF
1996 ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 1996
TO THE STOCKHOLDERS OF EMC INSURANCE GROUP INC.:
Notice is hereby given that the Annual Meeting of the Stockholders of EMC
Insurance Group Inc. (the "Company"), an Iowa corporation, will be held on
Wednesday, May 22, 1996 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 LLP 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 2, 1996 will be entitled to notice of and to vote at the meeting. The
stock transfer books of the Company will not be closed.
April 24, 1996
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
1996 ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 1996
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 1996 Annual Meeting of Stockholders to be held on May 22,
1996, and at any adjournment thereof (the "Annual Meeting").
This proxy statement, the accompanying form of proxy and the Company's 1995
Annual Report to Stockholders are first being sent to the Company's stockholders
on or about April 24, 1996.
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
All stockholders of record of the Common Stock at the close of business on
April 2, 1996 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 2,
1996, there were 10,891,842 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.
1
<PAGE> 5
ELECTION OF DIRECTORS
NOMINEES
At the Annual Meeting, the stockholders will elect a board of seven
directors to serve for terms extending until the 1997 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............ 68 1981 Director
Elwin H. Creese.................... 64 1994 Director
David J. Fisher.................... 59 1985 Director
Bruce G. Kelley.................... 42 1991 President, Chief Executive Officer and Director
George W. Kochheiser............... 70 1974 Chairman of the Board and Director
Raymond A. Michel.................. 70 1981 Director
Fredrick A. Schiek................. 61 1994 Executive Vice President, Chief Operating
Officer and Director
</TABLE>
George C. Carpenter III was Executive Director of Iowa Public Television
from November 1985 until his retirement in April 1993. Prior to that he had
served as Vice President of Palmer Communications and as Vice President and
General Manager of WHO Broadcasting Company, a division of Palmer
Communications. He was employed by WHO Broadcasting Company for 20 years.
Elwin H. Creese was Senior Vice President and Treasurer of the Company and
of Employers Mutual from 1993 until his retirement on April 1, 1996. He was Vice
President and Treasurer of the Company and of Employers Mutual from 1985 until
1993. Mr. Creese had been employed by Employers Mutual since 1984.
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 and has been employed by that firm since 1962. Mr.
Fisher also serves as a member of the Board of Directors of Liberty Savings
Bank.
Bruce G. Kelley is President and Chief Executive Officer of the Company and
of Employers Mutual, since 1992. He was President and Chief Operating Officer of
the Company and of Employers Mutual from 1991 to 1992 and was Executive Vice
President of both companies from 1989 to 1991. Mr. Kelley has been employed with
Employers Mutual since 1985 and a director of that company since 1984. He is a
director of Brenton Bank.
George W. Kochheiser is Chairman of the Board, since 1994, and 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 and had been an employee of that company since 1949.
2
<PAGE> 6
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 1972 until his retirement in 1989. He
has been affiliated with that company in one capacity or another since 1955.
Fredrick A. Schiek has been Executive Vice President and Chief Operating
Officer of the Company and of Employers Mutual since 1992. He was Vice President
of Employers Mutual from 1983 until 1992. Mr. Schiek has been employed with
Employers Mutual since 1959.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended December 31, 1995, the Board of Directors of the
Company held four regular meetings. In 1995, 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, Fredrick A. Schiek and George W. Kochheiser. The Executive Committee
did not meet during the year ended December 31, 1995. 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 Company's 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 1995. 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 with the Company's independent auditors and internal
auditors, with and without management present, to discuss appropriate matters.
The Board has an Investment Committee, the members of which are Bruce G.
Kelley, Elwin H. Creese 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 held and the amount of Company funds
to be allocated to each. The Investment Committee held three meetings during
1995.
There is an Inter-Company Committee which was established 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 one meeting during 1995.
The Board of Directors does not have a standing nominating committee. The
functions that would normally be performed by such a committee are carried out
by the Board of Directors as a whole.
3
<PAGE> 7
DIRECTORS' COMPENSATION
In 1995, each member of the Company's Board of Directors who was not an
officer or employee of the Company was entitled to $800 for each board meeting
or committee meeting attended, plus expenses, and an $8,000 annual fee payable
irrespective of attendance at meetings. If two or more committee meetings are
held on one day, the maximum fee permitted is $800, 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 $800.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding those persons
known to the Company who own beneficially more than five (5) percent of the
Company's Common Stock:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------- --------------------------------------------------------- ----------------- --------
<S> <C> <C> <C>
Common Employers Mutual Casualty Company........................ 7,297,978(1) 67.0%
717 Mulberry Street
Des Moines, Iowa 50309
Common FBL Investment Advisory Services, Inc.................... 1,036,150(2) 9.5%
5400 University Avenue
West Des Moines, Iowa 50266
</TABLE>
- ---------------
(1) On April 2, 1996, Employers Mutual owned 7,297,978 shares 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'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.
(2) The information shown is based upon a Schedule 13G, dated January 11, 1996,
filed with the Securities and Exchange Commission by FBL Investment Advisor
Services, Inc. ("FBL"), a registered investment advisor. FBL reported sole
voting power and sole disposition power with respect to all of the shares.
4
<PAGE> 8
SECURITY OWNERSHIP OF MANAGEMENT
The following information is furnished as to the Common Stock of the
Company owned beneficially as of April 2, 1996, 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 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............................................ 3,630 (2)
Elwin H. Creese.................................................... 20,149(3) (2)
David J. Fisher.................................................... 1,101 (2)
Bruce G. Kelley.................................................... 202,227(4) 1.9%
George W. Kochheiser............................................... 48,814 (2)
Raymond A. Michel.................................................. 4,000 (2)
Fredrick A. Schiek................................................. 28,314(5) (2)
John D. Isenhart................................................... 14,370(6) (2)
Philip T. Van Ekeren............................................... 18,889(7) (2)
All Directors and Executive Officers as a Group (12 persons,
including those listed above).................................... 389,664 3.6%
</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 percent of shares owned does not exceed one percent of the total shares
of Common Stock outstanding.
(3) Elwin H. Creese directly owns 16,309 shares of Common Stock and has
presently exercisable options to purchase 3,840 shares, which shares are
included in the table. See "Compensation of Management -- Stock Options."
(4) Bruce G. Kelley owns 11,977 shares of Common Stock directly and 190,250
shares indirectly. Of the 190,250 shares indirectly owned, 103,500 are owned
by a limited partnership of which he is a general partner, 1,500 are owned
by his spouse, 18,687 are owned by his children and he has power of attorney
over 3,870 shares owned by an unrelated party. In addition, he owns
presently exercisable options to purchase 62,693 shares of Common Stock,
which shares are included in the table. See "Compensation of Management --
Stock Options."
(5) Fredrick A. Schiek directly owns 10,564 shares of Common Stock and has
presently exercisable options to purchase 17,750 shares, which shares are
included in the table. See "Compensation of Management -- Stock Options."
(6) John D. Isenhart directly owns 10,825 shares of Common Stock and has
presently exercisable options to purchase 3,545 shares, which shares are
included in the table. See "Compensation of Management -- Stock Options."
(7) Philip T. Van Ekeren directly owns 11,119 shares of Common Stock and has
presently exercisable options to purchase 7,770 shares, which shares are
included in the table. See "Compensation of Management -- Stock Options."
5
<PAGE> 9
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 1995 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 1995 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 one subsidiary) 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 1995 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 collectively had
assets that totaled $1,416,051,098 at year-end 1995 and had written premiums of
$586,502,641 for the year.
6
<PAGE> 10
The following table sets forth information with respect to compensation
paid by Employers Mutual to its Chief Executive Officer and the four next most
highly compensated executive officers for services in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) ------------
------------------------------------------ INCENTIVE
OTHER ANNUAL STOCK OPTION ALL OTHER
NAME AND SALARY BONUS COMPENSATION GRANTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(2) (#)(3) ($)(4)
- ------------------------------- ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Bruce G. Kelley................ 1995 289,072 130,583 10,000 2,299
President & Chief 1994 245,237 110,781 10,000 2,294
Executive Officer 1993 235,075 90,106 34,000 2,898
Fredrick A. Schiek............. 1995 191,733 76,954 36,500 6,137
Executive Vice 1994 182,265 73,152 6,000 5,884
President & COO 1993 175,372 59,503 12,000 4,382
John D. Isenhart............... 1995 138,310 48,565 -- 3,705
Sr Vice President 1994 133,026 46,708 1,000 3,596
1993 127,412 37,921 1,550 3,673
Philip T. Van Ekeren........... 1995 132,369 46,477 850 4,799
Sr Vice President 1994 125,985 44,234 1,000 4,591
& Secretary 1993 120,743 35,911 2,250 4,520
Elwin H. Creese................ 1995 130,588 45,851 1,050 4,599
Sr Vice President 1994 124,910 43,856 1,000 4,342
& Treasurer 1993 119,902 35,671 2,250 4,092
</TABLE>
- ---------------
(1) Compensation deferred at election of executive includable in category and
year earned.
(2) Total of other annual compensation for each of the named executives did not
exceed the reporting thresholds during the three years covered in the table.
(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 percent 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 1995, contributions to the 401K Plan on behalf of
Messrs. Kelley, Schiek, Isenhart, Van Ekeren and Creese, respectively, were
$1,500, $1,500, $1,500, $1,500 and $1,338. Excess life insurance premiums
paid during 1995 on behalf of Messrs. Kelley, Schiek, Isenhart, Van Ekeren
and Creese were $799, $4,637, $2,205, $3,299 and $3,261 respectively.
STOCK OPTIONS
The following table sets forth details regarding stock options granted to
the named executive officers during 1995. In addition, the table shows the
hypothetical gain, or "option spreads", that would exist for the
7
<PAGE> 11
respective options. The gains are based on assumed rates of annual compound
stock appreciation of five and 10 percent over the full term of the options. The
stock option plans utilize the Common Stock of the Company, with the Company
receiving the full fair market value at the date of exercise for all stock
issued under the plans.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUES BASED ON
NUMBER ASSUMED RATES OF
OF % OF STOCK PRICE
OPTIONS/ TOTAL EXERCISE APPRECIATION (2)
GRANTED OPTIONS PRICE EXPIRATION ------------------
NAME (#) (1) GRANTED ($/SH) DATE 5% ($) 10% ($)
- ---------------------------------------- -------- ------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Bruce G. Kelley......................... 10,000 8.4 10.00 2/1/05 62,900 159,400
Fredrick A. Schiek...................... 36,500 30.5 10.00 2/1/05 229,585 581,810
John D. Isenhart........................ 0 -- -- -- -- --
Philip T. Van Ekeren.................... 850 .7 10.00 2/1/05 5,346 13,548
Elwin H. Creese......................... 1,050 .9 10.00 2/1/05 6,605 16,737
</TABLE>
- ---------------
(1) 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 percent per year commencing in the second year of the term.
(2) 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 1995, the
realized gains from those exercises, and the number of unexercised options held
as of December 31, 1995 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........................ -- -- 56,693/41,200 292,745/175,025
Fredrick A. Schiek..................... 11,150 33,601 7,800/50,950 32,475/201,225
John D. Isenhart....................... 10,825 41,734 2,695/ 2,580 11,760/ 11,744
Philip T. Van Ekeren................... 6,900 30,996 6,750/ 3,850 32,888/ 16,691
Elwin H. Creese........................ 7,550 27,031 3,500/ 4,050 16,231/ 17,441
</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 is calculated by subtracting the exercise
price/s from the market value of the stock at year-end. The year-end market
value was $13.75.
8
<PAGE> 12
RETIREMENT PLANS
The following table reflects the estimated annual retirement benefit that
will be available to the executives named in the Summary Compensation Table. It
assumes that all retirement plans remain in effect as they are currently
structured and a normal retirement age of 65. The assumed annual earnings shown
have been computed to reflect a range adequate to cover the current salaries of
the named executives with provision for reasonable increases in future
compensation.
<TABLE>
<CAPTION>
ASSUMED YEARS OF SERVICE AT NORMAL RETIREMENT DATE
ANNUAL -------------------------------------------
EARNINGS 15 20 25 30
- ---------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$150,000............................................ 41,358 55,147 68,927 82,716
200,000............................................ 56,358 75,148 93,926 112,716
250,000............................................ 71,358 95,149 118,925 142,716
300,000............................................ 86,358 115,150 143,924 172,716
350,000............................................ 101,358 135,151 168,923 202,716
400,000............................................ 116,358 155,152 193,922 232,716
450,000............................................ 131,358 175,153 218,921 262,716
500,000............................................ 146,358 195,154 243,920 292,716
550,000............................................ 161,358 215,155 268,919 322,716
</TABLE>
The Employers Mutual Retirement Annuity Plan (the "Pension Plan") is a cash
balance form of defined benefit plan and it covers all employees of Employers
Mutual and its subsidiaries and of the subsidiaries of the Company. Under the
plan, each individual participant's retirement benefit is expressed as an
account balance, similar to that of a defined contribution plan.
The formula for determination of the retirement benefit of participants is
based on a combination of covered compensation and interest paid on a
participant's accumulated account balance. Each year a participant's account is
credited with; 1) a plan defined percentage of their covered compensation for
the year and 2) interest on the prior year-end account balance at the rate
established by the Pension Benefit Guaranty Corporation (PBGC). The
participant's account balance is "defined" annually based on these factors
without regard to the actual investment performance of the plan's funds.
Employers Mutual also sponsors a defined contribution plan, the Employers
Mutual Casualty Company 401K Savings Plan (the "401K Plan"). This plan is
available to all employees of Employers Mutual and the subsidiary companies of
it and of the Company. Under the 401K Plan, the employer matches 50 percent of
the first two percent that an employee defers. With the exception of the highly
compensated group, the employee participants can make tax qualified deferrals of
up to 19 percent of their covered compensation to this plan.
Employers Mutual also has two non-qualifying supplemental retirement plans,
the Excess Retirement Benefit Agreement and the Supplemental Executive
Retirement Plan (the "SERP"), the purpose of which is to restore retirement
benefits to those employees who are prevented from receiving full benefits from
the Pension Plan because of their deferral of bonus income or the restrictions
imposed on the amount of covered compensation that can be credited to, and the
maximum benefits that can be received from, qualified pension plans. These plans
are unfunded and any payments made to participants will be from the general
accounts of the sponsoring companies.
All of the individuals named in the Summary Compensation Table are
participants in the Pension Plan, the 401K Plan and the SERP. For retirement
benefit purposes, during 1995 the number of full years of service
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<PAGE> 13
accrued and the compensation for Messrs. Kelley, Schiek, Isenhart, Van Ekeren,
and Creese were 10 and $401,325, 36 and $270,780, 32 and $187,223, 35 and
$183,418, and 11 and $177,705 respectively. For 1995, pursuant to the
requirements of the Internal Revenue Code, as amended, compensation crediting
under the Pension Plan and the 401K Plan was limited to $150,000.
EXECUTIVE COMPENSATION REPORT
The compensation of the executive officers is initially determined by the
Senior Executive Compensation and Stock Option Committee (the "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 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
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<PAGE> 14
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 1995, the Committee recommended that the base salary of Bruce G.
Kelley, Chief Executive Officer, be increased to $290,180, an increase of 17.9
percent over the base salary paid him during 1994. The Committee arrived at that
figure as an appropriate salary 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, and upon the very good
results attained by Employers Mutual for 1994. The full Board of Directors of
Employers Mutual approved that recommendation.
Under the Bonus Program, Mr. Kelley has received a bonus of $130,583 for
1995 performance. In addition, the Committee and the Board of Directors approved
a grant of 10,000 incentive stock options for him, the particulars of which are
expanded upon in the foregoing Summary Compensation and Stock Option tables.
Based on published preliminary results for the countrywide property and
casualty industry during 1995, the combined companies' loss and expense ratio
was 7.0 percent better than the industry. For the year, there was an addition to
the companies' statutory surplus of $75,145,847 and net premiums written
increased to $586,502,641 as compared with $583,288,995 for 1994.
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 Directors of
Brenton Bank. 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.
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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
a published Industry Index, which is the Media General Industry Group 262 as
adjusted to remove life insurance companies, over a five-year period beginning
December 31, 1990 and ending December 31, 1995. The total stockholder return
assumes $100.00 invested at the beginning of the period in the Company's Common
Stock, the NASDAQ Market Index and the Industry Index, as adjusted. It also
assumes reinvestment of all dividends for the period.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG EMC INSURANCE GROUP INC., NASDAQ MARKET INDEX
AND INDUSTRY INDEX
<TABLE>
<CAPTION>
EMC IN-
MEASUREMENT PERIOD SURANCE GROUP INDUSTRY NASDAQ MARKET
(FISCAL YEAR COVERED) INC. INDEX INDEX
<S> <C> <C> <C>
1990 100 100 100
1991 146.62 126.87 128.38
1992 138.70 149.59 129.64
1993 163.52 153.21 155.50
1994 173.02 151.75 163.26
1995 261.86 217.63 211.77
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The operations of the Company are directly interrelated with the operations
of Employers Mutual. Because of this operational relationship, there are a
number of transactions between the two companies and their subsidiary companies
that occur on an ongoing basis. For a discussion of those transactions, see the
"Notes to Consolidated Financial Statements" in the Company's 1995 Annual Report
to Stockholders.
EMC Reinsurance Company ("EMC Re"), the Company's reinsurance subsidiary,
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. Since 1993, losses in excess of $1,000,000 per event are retained
by Employers Mutual. Employers Mutual retained $1,103,442 of losses and
settlement expense under this agreement in 1995. EMC Re paid $1,912,756
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<PAGE> 16
to Employers Mutual for this additional protection. EMC Re also paid 95 percent
of the outside reinsurance protection Employers Mutual purchases to protect
itself from catastrophic losses. The cost is recorded as a reduction to premiums
written and it amounted to $1,983,579 in 1995.
During 1995, EMC Re assumed a total of $36,433,443 in reinsurance premiums
from Employers Mutual and, in return, paid Employers Mutual $10,136,816 as
reimbursement for its acquisition expenses.
EMC Re 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 $3,000,000 of losses
retained by EMC Re, excess of $200,000 per single catastrophe. The maximum
recovery under this treaty in any one year is $2,000,000. During 1995, EMC Re
did not recover any losses under this agreement. Total premiums paid to
Employers Mutual during the year under this treaty amounted to $499,950.
In addition to amounts paid pursuant to the Pooling Agreement, the Company
paid Employers Mutual $450,440 in 1995 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.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, independent certified public accountants, audited
the accounts of the Company for the year ended December 31, 1995. The Board of
Directors has selected KPMG Peat Marwick LLP as auditors for 1996 and the
stockholders are asked to ratify that selection. During 1995 in connection with
its audit function, KPMG Peat Marwick LLP 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 LLP 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.
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<PAGE> 17
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Stockholder proposals for inclusion in the Company's Proxy Statement for
the 1997 Annual Meeting of Stockholders must be received by the Company not
later than December 26, 1996. 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 1997 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 Securities and Exchange Commission.
April 24, 1996
BY ORDER OF THE BOARD OF DIRECTORS
Philip T. Van Ekeren, Secretary
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<PAGE> 18
EMC INSURANCE GROUP INC.
PROXY FOR COMMON STOCK
ANNUAL MEETING OF STOCKHOLDERS--MAY 22, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Bruce G. Kelley and George W.
Kochheiser, or either 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 2,
1996, at the Annual Meeting of Stockholders to be held on May 22,
1996 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, Elwin H. Creese, David J. Fisher, Bruce G.
Kelley, George W. Kochheiser, Raymond A. Michel, Fredrick A. Schiek
(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 LLP 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: , 1996
----------------------
----------------------------
Signature
----------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.
