<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 [ ]
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)
[COMPANY NAME]
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 23, 1998
Dear Stockholder:
I am pleased to extend to you my personal invitation to attend the 1998
Annual Meeting of Stockholders of EMC Insurance Group Inc. on May 21, 1998, at
10:00 A.M. at the offices of the Company at 700 Walnut 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 1997 performance and its plans for
1998. 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 certified public 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, Treasurer and CEO
<PAGE> 3
EMC INSURANCE GROUP INC.
NOTICE OF
1998 ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1998
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
Thursday, May 21, 1998 at 10:00 a.m. local time, at the Company's offices, 700
Walnut 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, 1998 will be entitled to notice of and to vote at the meeting. The
stock transfer books of the Company will not be closed.
April 23, 1998
BY ORDER OF THE BOARD OF DIRECTORS
DONALD D. KLEMME, 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
1998 ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1998
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 1998 Annual Meeting of Stockholders to be held on May 21,
1998, and at any adjournment thereof (the "Annual Meeting").
The Company's 1997 Annual Report to Stockholders was sent to the Company's
stockholders on or about April 7, 1998. This proxy statement, along with the
accompanying form of proxy, will be sent to the Company's stockholders on or
about April 23, 1998.
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 and officers 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, 1998 are entitled to notice of and to vote at the Annual Meeting. At
the close of business on April 2, 1998, there were 11,400,687 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. Shares of Common Stock of the Company present in
person or represented by proxy at the Annual Meeting will be tabulated for
determination of whether or not a quorum is present. A quorum will be present if
a majority of the outstanding shares entitled to vote are represented at the
Annual Meeting. If a quorum exists, directors will be elected by a majority of
the votes cast by the shares entitled to vote in the election and action on
other matters, including appointment of auditors, will be approved if the votes
cast favoring the action exceed the votes cast opposing the action. Votes
withheld for any director, 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 will not be counted as votes cast with respect to any
matter submitted to the shareholders for a vote and will not affect the outcome
of any matter.
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 1999 Annual Meeting and until
their respective successors are duly elected and qualified. Proxies in the
accompanying form which are received by 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................... 70 1981 Director
Elwin H. Creese........................... 66 1994 Director
David J. Fisher........................... 61 1985 Director
Bruce G. Kelley........................... 44 1991 President, Treasurer, Chief Executive
Officer and Director
George W. Kochheiser...................... 72 1974 Chairman of the Board
Raymond A. Michel......................... 72 1981 Director
Fredrick A. Schiek........................ 63 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 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 serves as a member of the Board of Directors of Commercial Federal Bank
and also serves on the Iowa State Board of Regents.
Bruce G. Kelley has been President and Chief Executive Officer of the
Company and of Employers Mutual since 1992 and Treasurer of both organizations
since 1996. 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 by Employers Mutual
since 1985 and has been a director of that company since 1984.
George W. Kochheiser has been 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.
2
<PAGE> 6
Mr. Kochheiser also serves as a director of Employers Mutual and had been an
employee of that company since 1949.
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 by
Employers Mutual since 1959.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended December 31, 1997, the Board of Directors of the
Company held four regular meetings. In 1997, 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 of the Company has four standing committees: the
Executive Committee, the Audit Committee, the Investment Committee and the
Inter-Company Committee. The Board of Directors of the Company does not have a
nominating committee or a compensation committee. The functions of the
nominating committee are carried out by the Board of Directors as a whole. The
functions of the compensation committee are carried out by the Employers Mutual
Board of Directors or one of its committees.
The Executive Committee members are Bruce G. Kelley, Fredrick A. Schiek and
George W. Kochheiser. The Executive Committee did not meet during the year ended
December 31, 1997. This Committee has authority to exercise all of the authority
of the Board of Directors when the Board of Directors is not in session, with
the exception of certain actions which, under Iowa law and the Company's
By-Laws, require action by the Board of Directors; 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 members of the Audit Committee are George C. Carpenter III, David J.
Fisher and Raymond A. Michel. The Audit Committee held two meetings in 1997. 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 Investment Committee members 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 one meeting during 1997.
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 Audit Committee also serve as the members of the
Inter-Company Committee. Employers Mutual is represented on the Inter-Company
3
<PAGE> 7
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 1997.
DIRECTORS' COMPENSATION
In 1997, each member of the Company's Board of Directors who was not an
officer or employee of the Company was entitled to $900 for each board meeting
or committee meeting attended, plus expenses, and a $9,000 annual fee payable
irrespective of attendance at meetings. If two or more committee meetings are
held on one day, the maximum fee permitted is $900, 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 $900.
Non-employee directors of the Company are also eligible to participate in
Employers Mutual's Non-Employee Director Stock Purchase Plan. Under this plan
directors are granted an option to purchase Common Stock in an amount up to 100
percent of their annual fee at an option price equal to 75 percent of the fair
market value of the Common Stock on the option exercise date. During 1997, one
of the Company's directors participated in the plan and exercised an option for
1,036 shares of Common Stock at a fair market price of $10.94.
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........................ 7,651,274(1) 67.1%
717 Mulberry Street
Des Moines, Iowa 50309
</TABLE>
- ---------------
(1) On April 2, 1998, Employers Mutual owned 7,651,274 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.
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, 1998, by each of the Company's
directors and nominees and by each executive officer of the Company. 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..................................... 4,393 *
Elwin H. Creese............................................. 18,649 *
Raymond W. Davis............................................ 15,251(2) *
David J. Fisher............................................. 1,446 *
Ronald W. Jean.............................................. 13,855(3) *
Bruce G. Kelley............................................. 199,269(4) 1.7%
George W. Kochheiser........................................ 51,427 *
Raymond A. Michel........................................... 4,000 *
Fredrick A. Schiek.......................................... 46,212(5) *
John D. Isenhart............................................ 14,965(6) *
All Directors and Executive Officers as a Group (15 persons,
including those listed above)............................. 433,512 3.8%
</TABLE>
- ---------------
* Less than one percent
(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) Raymond W. Davis directly owns 8,131 shares of Common Stock and has
presently exercisable options to purchase 7,120 shares, which shares are
included in the table. See "Compensation of Management-Stock Options."
(3) Ronald W. Jean directly owns 6,945 shares of Common Stock and has presently
exercisable options to purchase 6,910 shares, which shares are included in
the table. See "Compensation of Management-Stock Options."
(4) Bruce G. Kelley owns 64,370 shares of Common Stock directly and 56,499
shares indirectly. Of the 56,499 shares indirectly owned, 34,500 are owned
by a limited partnership of which he is a general partner, 1,500 are owned
by his spouse, and 20,499 are owned by his children. In addition, he owns
presently exercisable options to purchase 78,400 shares of Common Stock,
which shares are included in the table. See "Compensation of
Management-Stock Options."
(5) Fredrick A. Schiek directly owns 12,876 shares of Common Stock and has
presently exercisable options to purchase 33,336 shares, which shares are
included in the table. See "Compensation of Management-Stock Options."
(6) John D. Isenhart directly owns 11,200 shares of Common Stock and has
presently exercisable options to purchase 3,765 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 of
Directors. Therefore, all compensation and all benefits reported on in this
proxy statement are established by the Employers Mutual Board of Directors or by
one of its committees. Approximately 15 employees of Employers Mutual devote a
portion of their time performing administrative duties for the Company.
The Company's three property and casualty insurance subsidiaries; Dakota
Fire Insurance Company, EMCASCO Insurance Company and Illinois EMCASCO Insurance
Company, and two subsidiaries and an affiliate of Employers Mutual, are parties
to reinsurance pooling agreements with Employers Mutual (collectively, the
"Pooling Agreement"). The compensation of Employers Mutual's officers during
1997 was shared by the Company's property and casualty companies in accordance
with their interests in the Pooling Agreement. Likewise, the compensation of the
officers of the Company's property and casualty insurance 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
Pooling Agreement. The compensation paid to the officers of Farm and City
Insurance Company, EMC Reinsurance Company and EMC Underwriters, Ltd. was not
allocated to the Pooling Agreement and was consequently borne entirely by the
Company.
The aggregate participation of the Company's property and casualty
insurance subsidiaries in the Pooling Agreement during 1997 was 22 percent and
this percentage represents the portion of the compensation expenses described
below which were allocated to the Company during the year. On December 19, 1997,
the Company announced that its nonstandard risk automobile insurance subsidiary
will become a participant in the pooling agreement effective January 1, 1998.
The nonstandard risk automobile insurance subsidiary will receive a 1.5 percent
participation in the pool, which will increase the Company's aggregate
participation to 23.5 percent.
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.
6
<PAGE> 10
The following table sets forth information with respect to compensation
paid by Employers Mutual to its Chief Executive Officer and the other four most
highly compensated executive officers serving as such on December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(2) (#)(3) ($)(4)
- ------------------ ---- ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bruce G. Kelley.................. 1997 338,096 -- -- 10,000 3,914
President, Treasurer 1996 318,957 105,180 -- 6,000 2,243
& CEO 1995 289,072 130,583 -- 10,000 2,299
Fredrick A. Schiek............... 1997 219,157 -- -- -- 8,114
Executive Vice 1996 206,675 60,556 -- -- 6,361
President & COO 1995 191,733 76,954 -- 36,500 6,137
John D. Isenhart................. 1997 149,967 -- -- -- 6,685
Sr. Vice President 1996 144,120 36,942 -- -- 3,696
1995 138,310 48,565 -- -- 3,705
Ronald W. Jean................... 1997 141,360 -- -- -- 4,005
Sr. Vice President 1996 135,836 34,818 -- -- 2,266
Raymond W. Davis................. 1997 130,781 -- -- 1,500 4,412
Vice President 1996 125,676 32,211 -- 200 2,649
</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 Casualty Company 401(k) Savings Plan
(the "401(k) Plan") and excess group life insurance premiums. During 1997,
contributions to the 401(k) Plan on behalf of each of Messrs. Kelley,
Schiek, Isenhart, Jean and Davis, were $3,200. Excess life insurance
premiums paid during 1997 on behalf of Messrs. Kelley, Schiek, Isenhart,
Jean and Davis were $714, $4,914, $3,485, $805 and $1,212, respectively.
7
<PAGE> 11
STOCK OPTIONS
The following table sets forth details regarding stock options granted to
the named executive officers during 1997. In addition, the table shows the
hypothetical gain, or "option spreads", that would exist for the respective
options. The gains are based on assumed rates of annual compound stock
appreciation of five and ten percent over the full term of the options. The
stock option plans utilize the Common Stock of the Company, with the Company
receiving the full fair market value at the date of exercise for all stock
issued under the plans.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES BASED ON
NUMBER ASSUMED RATES OF
OF % OF STOCK PRICE
OPTIONS/ TOTAL EXERCISE APPRECIATION(2)
GRANTED OPTIONS PRICE EXPIRATION --------------------
NAME (#)(1) GRANTED ($/SH) DATE 5% ($) 10% ($)
---- -------- ------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bruce G. Kelley.......................... 10,000 11.4 12.25 2/1/07 77,039 195,233
Fredrick A. Schiek....................... -- -- -- -- -- --
John D. Isenhart......................... -- -- -- -- -- --
Ronald W. Jean........................... -- -- -- -- -- --
Raymond W. Davis......................... 1,500 1.7 12.25 2/1/07 11,555 29,285
</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.
8
<PAGE> 12
The following table sets forth information with respect to the named
executive officers concerning the exercise of stock options during 1997, the
realized gains from those exercises, the number of unexercised options held as
of December 31, 1997 and the amount of unrealized gains represented by them on
that date.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
VALUE YEAR END (#) YEAR END ($)
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($)(1) UNEXERCISABLE UNEXERCISABLE(2)
---- --------------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Bruce G. Kelley......................... 17,893 89,253 64,400/31,600 268,425/74,504
Fredrick A. Schiek...................... 7,214 31,589 24,836/26,700 85,156/90,742
John D. Isenhart........................ -- -- 4,565/ 710 18,623/ 2,920
Ronald W. Jean.......................... 2,322 11,482 8,063/ 1,660 33,468/ 6,071
Raymond W. Davis........................ 6,000 28,500 6,320/ 3,180 24,243/ 7,029
</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 $13.25.
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................................................ 41,022 54,696 68,370 82,044
200,000................................................ 56,022 74,696 93,370 112,044
250,000................................................ 71,022 94,696 118,370 142,044
300,000................................................ 86,022 114,696 143,370 172,044
350,000................................................ 101,022 134,696 168,370 202,044
400,000................................................ 116,022 154,696 193,370 232,044
450,000................................................ 131,022 174,696 218,370 262,044
500,000................................................ 146,022 194,696 243,370 292,044
550,000................................................ 161,022 214,696 268,370 322,044
600,000................................................ 176,022 234,696 293,370 352,044
------- ------- ------- -------
</TABLE>
The Employers Mutual Casualty Company Retirement Plan (the "Pension Plan")
is a cash balance form of defined benefit plan which covers all employees of
Employers Mutual and its subsidiaries and the
9
<PAGE> 13
subsidiaries of the Company. Under the Pension 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 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 Pension Plan's funds.
Employers Mutual also sponsors a defined contribution plan, the 401(k)
Plan. This plan is available to all employees of Employers Mutual and the
subsidiary companies of it and of the Company. Under the 401(k) Plan, the
employer matches 50 percent of the first four percent that an employee defers.
With the exception of the highly compensated group, the employee participants
can make tax qualified deferrals of up to 18 percent of their covered
compensation to this plan.
Employers Mutual also has two non-qualified 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 401(k) Plan and the SERP. For retirement
benefit purposes, during 1997 the number of full years of service accrued and
the compensation for Messrs. Kelley, Schiek, Isenhart, Jean and Davis were 12
and $444,983, 38 and $224,913, 34 and $190,395, 18 and $176,983, and 18 and
$164,205, respectively. For 1997, pursuant to the requirements of the Internal
Revenue Code, as amended, compensation crediting under the Pension Plan and the
401(k) Plan was limited to $160,000.
EXECUTIVE COMPENSATION REPORT
The compensation of the executive officers of Employers Mutual 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 full Board of Directors.
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, some of which are included in the industry index used in the
performance graph appearing later in this report, 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
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continue its long history of steady growth and financial strength. Employers
Mutual and its non-life subsidiary companies collectively had assets that
totaled $1,578,904,744 at year-end 1997 and had written premiums of $667,816,063
for the year.
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 through 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
an affiliate, and with three subsidiaries 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 1997, the Committee recommended that the base salary of Bruce G.
Kelley, Chief Executive Officer, be increased to $339,396, an increase of 6.0
percent over the base salary paid him during 1996. 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. The full Board of
Directors of Employers Mutual approved that recommendation.
The Executive Compensation Bonus Program is based on the combined loss and
expense ratio of Employers Mutual and its property and casualty insurance
subsidiaries and how it compares to the industry. Employers Mutual's combined
loss and expense ratio exceeded that of the industry and no bonus will be earned
by Mr. Kelley for this period. Mr. Kelley did receive a grant of 10,000
incentive stock options, the particulars of which are expanded upon in the
foregoing Summary Compensation Tables.
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Senior Executive Compensation and Stock Option Committee of Employers Mutual:
Blaine A. Briggs
Richard W. Booth
Lanning Macfarland, Jr.
Philip T. Van Ekeren
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Philip T. Van Ekeren was an officer of Employers Mutual prior to his
retirement on June 1, 1996. There were no Compensation Committee interlocks
involving the members of Employers Mutual's Compensation Committee.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
On February 28, 1995, Mr. Ronnie Hallenbeck was designated as a Section 16
reporting person, however, the Company failed to inform him of this status until
February 23, 1998. Due to this lack of notice, Mr. Hallenbeck was not aware of
his obligation to file appropriate reports required by Section 16(a) of the
Securities Exchange Act of 1934. Since being advised of this designation, Mr.
Hallenbeck has filed two late reports identifying his status as a reporting
person and nine events which were not reported on a timely basis. All of Mr.
Hallenbeck's activities during this period of non-reporting involved purchases
of the Company's Common Stock through Employers Mutual's Employee Stock Purchase
Plan and the Company's Dividend Reinvestment Plan resulting in his current
holdings of 610 shares. In addition, he received periodic awards of options
under the 1993 Employers Mutual Casualty Company Incentive Stock Option Plan.
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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 over a
five-year period beginning December 31, 1992 and ending December 31, 1997. 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.
It also assumes reinvestment of all dividends for the period.
COMPARATIVE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG EMC INSURANCE GROUP INC., NASDAQ MARKET INDEX
AND INDUSTRY INDEX
<TABLE>
<CAPTION>
EMC
INSURANCE NASDAQ
MEASUREMENT PERIOD GROUP INDUSTRY MARKET
(FISCAL YEAR COVERED) INC. INDEX INDEX
<S> <C> <C> <C>
1992 100 100 100
1993 117.90 102.42 119.95
1994 124.74 101.44 125.94
1995 188.80 145.48 163.35
1996 172.50 174.79 202.99
1997 199.46 250.41 248.30
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EMC INSURANCE GROUP INC........................ 100 117.90 124.74 188.80 172.50 199.46
INDUSTRY INDEX................................. 100 102.42 101.44 145.48 174.79 250.41
NASDAQ MARKET INDEX............................ 100 119.95 125.94 163.35 202.99 248.30
</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 1997 Annual Report
to Stockholders.
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EMC Reinsurance Company ("EMC Re"), the Company's reinsurance subsidiary,
has an agreement with Employers Mutual whereby EMC Re accepts a 100 percent
quota share of Employers Mutual's assumed reinsurance business, exclusive of
certain reinsurance contracts. Under the agreement, EMC Re receives 100 percent
of the premiums and assumes 100 percent of all related loss and settlement
expenses of the business. Losses in excess of $1,500,000 per event are retained
by Employers Mutual. Employers Mutual retained ($93,621) of losses and
settlement expense under this agreement in 1997. EMC Re paid $1,821,270 to
Employers Mutual for this additional protection. EMC Re also paid 100 percent of
the outside reinsurance protection Employers Mutual purchases to protect itself
from catastrophic losses on its assumed book of business. The cost is recorded
as a reduction to premiums written and amounted to $1,841,000 in 1997.
During 1997, EMC Re assumed a total of $34,690,846 in reinsurance premiums
from Employers Mutual and, in return, paid Employers Mutual $9,955,472 as
reimbursement for its acquisition expenses.
In addition to amounts paid pursuant to the Pooling Agreement, the Company
paid Employers Mutual $667,205 in 1997 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 all of 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, 1997. The Board of
Directors has selected KPMG Peat Marwick LLP as auditors for 1998 and the
stockholders are asked to ratify that selection. During 1997, 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 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> 18
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholder proposals for inclusion in the Company's Proxy Statement for
the 1999 Annual Meeting of Stockholders must be received by the Company no later
than December 24, 1998. 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 and you
must hold the securities on the date of the meeting. Any such proposal will be
included in the Proxy Statement for the 1999 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 23, 1998
BY ORDER OF THE BOARD OF DIRECTORS
DONALD D. KLEMME, Secretary
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