Edgar Filing: EMC INSURANCE GROUP INC

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended JUNE 30, 2012

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

For the transition period from ________________to __________________

Commission File Number: 0-10956

	EMC INSURANCE GROUP INC.
	(Exact name of registrant as specified in its charter)

Iowa		42-6234555
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

717 Mulberry Street, Des Moines, Iowa		50309
(Address of principal executive offices)		(Zip Code)

	(515) 345-2902
	(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at July 31, 2012
Common stock, $1.00 par value		12,887,333

TABLE OF CONTENTS

			PAGE
PART I		FINANCIAL INFORMATION
	Item 1.	Financial Statements	3
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	38
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
	Item 4.	Controls and Procedures	54

PART II		OTHER INFORMATION
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
	Item 6.	Exhibits	56

Signatures			57

Index to Exhibits			58

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,		December 31,
	2012		2011
			(As Adjusted)
ASSETS
Investments:
Fixed maturities:
Securities available-for-sale, at fair value (amortized cost $876,967,172 and $899,939,616)	$	946,645,164	$	958,203,576
Equity securities available-for-sale, at fair value (cost $109,210,769 and $90,866,131)		133,132,956		111,300,053
Other long-term investments		11,279		14,527
Short-term investments		66,294,976		42,628,926
Total investments		1,146,084,375		1,112,147,082

Cash		286,443		255,042
Reinsurance receivables due from affiliate		37,730,986		39,517,108
Prepaid reinsurance premiums due from affiliate		5,855,045		9,378,026
Deferred policy acquisition costs (affiliated $32,070,523 and $30,849,717)		32,084,672		30,849,717
Accrued investment income		10,034,337		10,256,499
Accounts receivable		1,714,663		1,644,782
Income taxes recoverable		7,386,885		9,670,459
Deferred income taxes		985,398		6,710,919
Goodwill		941,586		941,586
Other assets (affiliated $6,141,690 and $2,584,111)		6,328,823		2,659,942
Total assets	$	1,249,433,213	$	1,224,031,162

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

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,			December 31,
	2012			2011
				(As Adjusted)
LIABILITIES
Losses and settlement expenses (affiliated $589,605,980 and $588,846,586)	$	594,679,522		$	593,300,247
Unearned premiums (affiliated $183,599,425 and $180,689,377)		183,670,946			180,689,377
Other policyholders' funds (all affiliated)		5,546,575			5,061,160
Surplus notes payable to affiliate		25,000,000			25,000,000
Amounts due affiliate to settle inter-company transaction balances		7,874,551			21,033,627
Pension and postretirement benefits payable to affiliate		31,823,411			29,671,835
Other liabilities (affiliated $14,944,226 and $16,744,447)		26,096,504			16,934,321
Total liabilities		874,691,509			871,690,567

STOCKHOLDERS' EQUITY
Common stock, $1 par value, authorized 20,000,000 shares; issued and outstanding, 12,887,333 shares in 2012 and 12,875,591 shares in 2011		12,887,333			12,875,591
Additional paid-in capital		88,650,565			88,310,632
Accumulated other comprehensive income (loss):
Net unrealized gains on investments		60,840,115			51,153,622
Unrecognized pension and postretirement benefit obligations (all affiliated)		(22,944,002	)		(23,813,112	)
Total accumulated other comprehensive income		37,896,113			27,340,510
Retained earnings		235,307,693			223,813,862
Total stockholders' equity		374,741,704			352,340,595
Total liabilities and stockholders' equity	$	1,249,433,213		$	1,224,031,162

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

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three months ended June 30,
	2012			2011
				(As Adjusted)
REVENUES
Premiums earned (affiliated $108,193,102 and $97,845,857)	$	110,270,460		$	100,931,529
Investment income, net		11,148,695			11,473,108
Net realized investment gains (losses), excluding impairment losses on available-for-sale securities		(1,012,288	)		2,370,711
Total "other-than-temporary" impairment losses on available-for-sale securities		(126,048	)		(584,451	)
Portion of "other-than-temporary" impairment losses on fixed maturity available-for-sale securities reclassified from other comprehensive income (before taxes)		-			(86,017	)
Net impairment losses on available-for-sale securities		(126,048	)		(670,468	)
Net realized investment gains (losses)		(1,138,336	)		1,700,243
Other income (all affiliated)		222,751			236,483
Total revenues		120,503,570			114,341,363
LOSSES AND EXPENSES
Losses and settlement expenses (affiliated $86,077,833 and $99,128,694)		88,399,951			101,770,766
Dividends to policyholders (all affiliated)		2,260,231			(144,931	)
Amortization of deferred policy acquisition costs (affiliated $20,069,042 and $18,390,743)		20,631,011			19,222,109
Other underwriting expenses (affiliated $14,414,233 and $14,026,761)		14,330,439			13,905,536
Interest expense (all affiliated)		225,000			225,000
Other expense (affiliated $530,182 and $1,003,829)		168,742			1,023,047
Total losses and expenses		126,015,374			136,001,527
Loss before income tax benefit		(5,511,804	)		(21,660,164	)
INCOME TAX BENEFIT
Current		(1,917,316	)		(8,555,420	)
Deferred		(1,018,017	)		(202,733	)
Total income tax benefit		(2,935,333	)		(8,758,153	)
Net loss	$	(2,576,471	)	$	(12,902,011	)

Net loss per common share -basic and diluted	$	(0.20	)	$	(1.00	)

Dividend per common share	$	0.20		$	0.19

Average number of common shares outstanding -basic and diluted		12,883,333			12,958,292

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

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Six months ended June 30,
	2012			2011
				(As Adjusted)
REVENUES
Premiums earned (affiliated $216,937,082 and $194,921,739)	$	220,030,216		$	197,218,343
Investment income, net		22,305,477			23,551,703
Net realized investment gains, excluding impairment losses on available-for-sale securities		7,906,041			10,874,753
Total "other-than-temporary" impairment losses on available-for-sale securities		(126,048	)		(830,297	)
Portion of "other-than-temporary" impairment losses on fixed maturity available-for-sale securities reclassified from other comprehensive income (before taxes)		-			(86,017	)
Net impairment losses on available-for-sale securities		(126,048	)		(916,314	)
Net realized investment gains		7,779,993			9,958,439
Other income (all affiliated)		461,749			440,313
Total revenues		250,577,435			231,168,798
LOSSES AND EXPENSES
Losses and settlement expenses (affiliated $151,094,444 and $172,411,861)		153,640,240			175,140,367
Dividends to policyholders (all affiliated)		3,911,756			2,368,038
Amortization of deferred policy acquisition costs (affiliated $39,027,903 and $36,057,394)		39,845,389			36,671,191
Other underwriting expenses (affiliated $29,672,102 and $29,212,112)		29,588,308			29,090,887
Interest expense (all affiliated)		450,000			450,000
Other expense (affiliated $1,002,215 and $1,690,692)		755,259			1,955,425
Total losses and expenses		228,190,952			245,675,908
Income (loss) before income tax expense (benefit)		22,386,483			(14,507,110	)
INCOME TAX EXPENSE (BENEFIT)
Current		5,697,486			(6,938,345	)
Deferred		41,733			(406,592	)
Total income tax expense (benefit)		5,739,219			(7,344,937	)
Net income (loss)	$	16,647,264		$	(7,162,173	)

Net income (loss) per common share -basic and diluted	$	1.29		$	(0.55	)

Dividend per common share	$	0.40		$	0.38

Average number of common shares outstanding -basic and diluted		12,881,177			12,946,923

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

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three months ended June 30,
	2012			2011
				(As Adjusted)

Net loss	$	(2,576,471	)	$	(12,902,011	)

OTHER COMPREHENSIVE INCOME (LOSS)
Change in unrealized holding gains on investment securities, net of deferred income tax expense of $1,465,263 and $5,007,242		2,721,204			9,299,161

Reclassification adjustment for realized investment (gains) losses included in net loss, net of income tax (expense) benefit of $398,418 and ($625,191)		739,918			(1,161,069	)

Change in unrealized holding losses on fixed maturity securities with "other-than-temporary" impairment,net of deferred income tax benefit of ($0) and ($27,301)		-			(50,701	)

Reclassification adjustment for realized investment losses from fixed maturity securities with "other-than-temporary" impairment included in net loss, net of income tax benefit of $0 and $30,106		-			55,911

Reclassification adjustment for amounts amortized into net periodic pension and postretirement benefit cost, net of deferred income tax expense of $233,993 and $92,726:
Net actuarial loss		520,616			250,371
Prior service credit		(86,062	)		(78,167	)
Total adjustment associated with affiliate's pension and postretirement benefit plans		434,554			172,204

Other comprehensive income		3,895,676			8,315,506

Total comprehensive income (loss)	$	1,319,205		$	(4,586,505	)

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

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Six months ended June 30,
	2012			2011
				(As Adjusted)

Net income (loss)	$	16,647,264		$	(7,162,173	)

OTHER COMPREHENSIVE INCOME (LOSS)
Change in unrealized holding gains on investment securities, net of deferred income tax expense of $7,938,801 and $6,646,110		14,743,489			12,342,770

Reclassification adjustment for realized investment gains included in net income (loss), net of income tax (expense) of ($2,722,997) and ($3,515,560)		(5,056,996	)		(6,528,896	)

Change in unrealized holding gains on fixed maturity securities with "other-than-temporary" impairment, net of deferred income tax expense of $0 and $7,507		-			13,941

Reclassification adjustment for realized investment losses from fixed maturity securities with "other-than-temporary" impairment included in net income (loss), net of income tax benefit of $0 and $30,106		-			55,911

Reclassification adjustment for amounts amortized into net periodic pension and postretirement benefit cost, net of deferred income tax expense of $467,984 and $185,452:
Net actuarial loss		1,041,233			500,742
Prior service credit		(172,123	)		(156,334	)
Total adjustment associated with affiliate's pension and postretirement benefit plans		869,110			344,408

Other comprehensive income		10,555,603			6,228,134

Total comprehensive income (loss)	$	27,202,867		$	(934,039	)

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

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six months ended June 30,
	2012			2011
				(As Adjusted)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	16,647,264		$	(7,162,173	)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Losses and settlement expenses (affiliated $759,394 and $37,791,084)		1,379,275			39,337,621
Unearned premiums (affiliated $2,910,048 and $6,482,657)		2,981,569			6,513,138
Other policyholders' funds due to affilitate		485,415			(1,456,864	)
Amounts due affiliate to settle inter-company transaction balances		(13,159,076	)		(5,831,124	)
Pension and postretirement benefits payable to affiliate		3,488,670			2,026,788
Reinsurance receivables due from affiliate		1,786,122			(6,004,891	)
Prepaid reinsurance premiums due from affiliate		3,522,981			318,677
Commission payable (affiliated ($1,684,024) and ($7,013,567))		(1,733,467	)		(7,017,038	)
Interest payable to affiliate		(450,000	)		(450,000	)
Deferred policy acquisition costs (affiliated ($1,220,806) and ($1,880,841))		(1,234,955	)		(1,886,861	)
Stock-based compensation payable to affiliate		123,239			111,573
Accrued investment income		222,162			586,257
Accrued income tax:
Current		2,281,398			(6,968,495	)
Deferred		41,733			(406,592	)
Realized investment gains		(7,779,993	)		(9,958,439	)
Accounts receivable		(69,881	)		490,014
Amortization of premium/discount on fixed maturity securities		(405,141	)		(491,015	)
Other, net (affiliated ($3,221,600) and ($2,997,932))		(3,307,055	)		(2,783,077	)
Total adjustments to reconcile net income (loss) to cash provided by (used in) operating activities		(11,827,004	)		6,129,672
Net cash provided by (used in) operating activities	$	4,820,260		$	(1,032,501	)

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

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(Unaudited)

	Six months ended June 30,
	2012			2011
				(As Adjusted)
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of fixed maturity securities held-to-maturity	$	-		$	18,275
Purchases of fixed maturity securities available-for-sale		(98,683,323	)		(90,240,239	)
Disposals of fixed maturity securities available-for-sale		133,555,413			130,305,162
Purchases of equity securities available-for-sale		(63,487,572	)		(44,449,466	)
Disposals of equity securities available-for-sale		52,414,422			43,409,567
Disposals of other long-term investments		3,248			7,650
Net purchases of short-term investments		(23,666,050	)		(33,756,772	)
Net cash provided by investing activities		136,138			5,294,177

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock through affilate's stock option plans		230,612			755,235
Excess tax benefit associated with affilate's stock option plans		(2,176	)		7,584
Repurchase of common stock		-			(316,571	)
Dividends paid to stockholders (affiliated ($3,139,140) and ($2,982,184))		(5,153,433	)		(4,923,054	)
Net cash used in financing activities		(4,924,997	)		(4,476,806	)

NET INCREASE (DECREASE) IN CASH		31,401			(215,130	)
Cash at the beginning of the year		255,042			491,994

Cash at the end of the quarter	$	286,443		$	276,864

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

See accompanying Notes to Consolidated Financial Statements.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	BASIS OF PRESENTATION

EMC Insurance Group Inc., a majority owned subsidiary of Employers Mutual Casualty Company (Employers Mutual), is an insurance holding company with operations in property and casualty insurance and reinsurance. Both commercial and personal lines of insurance are written, with a focus on medium-sized commercial accounts. The term “Company” is used interchangeably to describe EMC Insurance Group Inc. (Parent Company only) and EMC Insurance Group Inc. and its subsidiaries.

The accompanying unaudited consolidated financial statements have been prepared on the basis of U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The Company has evaluated all subsequent events through the date the financial statements were issued. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the interim financial statements have been included. The results of operations for the interim periods reported are not necessarily indicative of results to be expected for the year. The consolidated balance sheet at December 31, 2011 has been derived from the audited financial statements at that date; however, certain amounts have been adjusted as discussed below. The December 31, 2011 consolidated balance sheet does not include all of the information and notes required by GAAP for complete financial statements.

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Certain amounts previously reported in the prior year’s consolidated financial statements have been reclassified or adjusted to conform to current year presentation. Most notable is a retrospective adjustment resulting from adoption of new accounting guidance related to deferred policy acquisition costs (see note 2 to these interim consolidated financial statements). The following tables provide a summary of the adjusted financial information.

	December 31, 2011
	As						Effect
	previously			As			of
	reported			adjusted			change
Balance Sheet
Deferred policy acquisition costs	$	40,738,565		$	30,849,717		$	(9,888,848	)
Deferred income taxes		3,249,821			6,710,919			3,461,098
Total assets		1,230,458,912			1,224,031,162			(6,427,750	)
Retained earnings		230,241,612			223,813,862			(6,427,750	)
Total stockholders' equity		358,768,345			352,340,595			(6,427,750	)
Total liabilities and stockholders' equity		1,230,458,912			1,224,031,162			(6,427,750	)

	Three months ended June 30, 2011
	As						Effect
	previously			As			of
	reported			adjusted			change
Income Statement
Amortization of deferred policy acquisition costs	$	23,845,162		$	19,222,109		$	(4,623,053	)
Other underwriting expenses		8,635,112			13,905,536			5,270,424
Loss before income tax benefit		(21,012,793	)		(21,660,164	)		(647,371	)
Income tax benefit		(8,531,574	)		(8,758,153	)		(226,579	)
Net loss		(12,481,219	)		(12,902,011	)		(420,792	)
Net loss per common share, basic and diluted		(0.96	)		(1.00	)		(0.04	)

	Six months ended June 30, 2011
	As						Effect
	previously			As			of
	reported			adjusted			change
Income Statement
Amortization of deferred policy acquisition costs	$	47,655,944		$	36,671,191		$	(10,984,753	)
Other underwriting expenses		18,256,436			29,090,887			10,834,451
Loss before income tax benefit		(14,657,412	)		(14,507,110	)		150,302
Income tax benefit		(7,397,543	)		(7,344,937	)		52,606
Net loss		(7,259,869	)		(7,162,173	)		97,696
Net loss per common share, basic and diluted		(0.56	)		(0.55	)		0.01

In reading these financial statements, reference should be made to the Company’s 2011 Form 10-K or the 2011 Annual Report to Stockholders for more detailed footnote information.

2.	TRANSACTIONS WITH AFFILIATES

Due to the large number of catastrophic events that exceeded the $3,000,000 retention amount contained in the excess of loss agreement between EMC Reinsurance Company and Employers Mutual in 2011, the terms of the agreement have been changed for fiscal year 2012. Effective January 1, 2012, the retention amount increased to $4,000,000 per event, while the cost of the protection remained at 10.0 percent of total assumed reinsurance premiums written.

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3.	REINSURANCE

The effect of reinsurance on premiums written and earned, and losses and settlement expenses incurred, for the three months and six months ended June 30, 2012 and 2011 is presented below. The classification of the assumed and ceded reinsurance amounts between affiliates and nonaffiliates is based on the participants in the underlying reinsurance agreements, and is intended to provide a better understanding of the actual source of the reinsurance activities. This presentation differs from the classification used in the consolidated financial statements, where “affiliated balances” represent the net amount of all transactions flowing through the pooling and quota share agreements with Employers Mutual.

	Three months ended June 30, 2012
	Property and
	casualty
	insurance			Reinsurance			Total
Premiums written
Direct	$	85,475,102		$	-		$	85,475,102
Assumed from nonaffiliates (1)		629,166			24,330,820			24,959,986
Assumed from affiliates		100,988,467			-			100,988,467
Ceded to nonaffiliates		(5,106,734	)		(101,057	)		(5,207,791	)
Ceded to affiliates (1)		(85,475,102	)		(2,422,976	)		(87,898,078	)
Net premiums written	$	96,510,899		$	21,806,787		$	118,317,686

Premiums earned
Direct	$	80,728,225		$	-		$	80,728,225
Assumed from nonaffiliates (1)		566,213			25,963,256			26,529,469
Assumed from affiliates		92,648,120			-			92,648,120
Ceded to nonaffiliates		(5,389,048	)		(1,095,105	)		(6,484,153	)
Ceded to affiliates (1)		(80,728,225	)		(2,422,976	)		(83,151,201	)
Net premiums earned	$	87,825,285		$	22,445,175		$	110,270,460

Losses and settlement expenses incurred
Direct	$	60,175,887		$	-		$	60,175,887
Assumed from nonaffiliates (1)		422,298			18,769,976			19,192,274
Assumed from affiliates		72,306,985			246,580			72,553,565
Ceded to nonaffiliates		(2,108,899	)		(1,651,925	)		(3,760,824	)
Ceded to affiliates		(60,175,887	)		414,936			(59,760,951	)
Net losses and settlement expenses incurred	$	70,620,384		$	17,779,567		$	88,399,951

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	Three months ended June 30, 2011
	Property and
	casualty
	insurance			Reinsurance			Total
Premiums written
Direct	$	72,788,518		$	-		$	72,788,518
Assumed from nonaffiliates		421,834			28,710,853			29,132,687
Assumed from affiliates		91,377,982			-			91,377,982
Ceded to nonaffiliates		(6,893,890	)		(3,933,414	)		(10,827,304	)
Ceded to affiliates		(72,788,518	)		(2,477,744	)		(75,266,262	)
Net premiums written	$	84,905,926		$	22,299,695		$	107,205,621

Premiums earned
Direct	$	69,128,153		$	-		$	69,128,153
Assumed from nonaffiliates		413,912			28,606,078			29,019,990
Assumed from affiliates		84,798,480			-			84,798,480
Ceded to nonaffiliates		(6,831,184	)		(3,578,013	)		(10,409,197	)
Ceded to affiliates		(69,128,153	)		(2,477,744	)		(71,605,897	)
Net premiums earned	$	78,381,208		$	22,550,321		$	100,931,529

Losses and settlement expenses incurred
Direct	$	79,822,825		$	-		$	79,822,825
Assumed from nonaffiliates		483,702			41,205,900			41,689,602
Assumed from affiliates		76,374,006			115,287			76,489,293
Ceded to nonaffiliates		(4,238,188	)		(5,132,816	)		(9,371,004	)
Ceded to affiliates		(79,822,825	)		(7,037,125	)		(86,859,950	)
Net losses and settlement expenses incurred	$	72,619,520		$	29,151,246		$	101,770,766

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	Six months ended June 30, 2012
	Property and
	casualty
	insurance			Reinsurance			Total
Premiums written
Direct	$	165,243,694		$	-		$	165,243,694
Assumed from nonaffiliates (2)		987,792			49,645,507			50,633,299
Assumed from affiliates		191,533,210			-			191,533,210
Ceded to nonaffiliates		(10,115,007	)		(886,118	)		(11,001,125	)
Ceded to affiliates (2)		(165,243,694	)		(4,875,939	)		(170,119,633	)
Net premiums written	$	182,405,995		$	43,883,450		$	226,289,445

Premiums earned
Direct	$	158,255,916		$	-		$	158,255,916
Assumed from nonaffiliates		959,009			55,361,326			56,320,335
Assumed from affiliates		183,109,927			-			183,109,927
Ceded to nonaffiliates		(11,212,261	)		(3,311,846	)		(14,524,107	)
Ceded to affiliates		(158,255,916	)		(4,875,939	)		(163,131,855	)
Net premiums earned	$	172,856,675		$	47,173,541		$	220,030,216

Losses and settlement expenses incurred
Direct	$	101,198,850		$	-		$	101,198,850
Assumed from nonaffiliates		706,357			33,836,168			34,542,525
Assumed from affiliates		125,650,482			420,184			126,070,666
Ceded to nonaffiliates		(3,718,202	)		(3,605,544	)		(7,323,746	)
Ceded to affiliates		(101,198,850	)		350,795			(100,848,055	)
Net losses and settlement expenses incurred	$	122,638,637		$	31,001,603		$	153,640,240

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	Six months ended June 30, 2011
	Property and
	casualty
	insurance			Reinsurance			Total
Premiums written
Direct	$	140,178,033		$	-		$	140,178,033
Assumed from nonaffiliates (3)		570,109			55,745,642			56,315,751
Assumed from affiliates		173,267,736			-			173,267,736
Ceded to nonaffiliates		(12,303,619	)		(8,571,685	)		(20,875,304	)
Ceded to affiliates (3)		(140,178,033	)		(4,717,396	)		(144,895,429	)
Net premiums written	$	161,534,226		$	42,456,561		$	203,990,787

Premiums earned
Direct	$	134,604,796		$	-		$	134,604,796
Assumed from nonaffiliates		627,596			55,072,571			55,700,167
Assumed from affiliates		167,429,553			-			167,429,553
Ceded to nonaffiliates		(12,364,649	)		(8,829,332	)		(21,193,981	)
Ceded to affiliates		(134,604,796	)		(4,717,396	)		(139,322,192	)
Net premiums earned	$	155,692,500		$	41,525,843		$	197,218,343

Losses and settlement expenses incurred
Direct	$	134,962,647		$	-		$	134,962,647
Assumed from nonaffiliates		784,692			71,874,491			72,659,183
Assumed from affiliates		129,604,858			340,347			129,945,205
Ceded to nonaffiliates		(6,602,342	)		(8,825,707	)		(15,428,049	)
Ceded to affiliates		(134,962,647	)		(12,035,972	)		(146,998,619	)
Net losses and settlement expenses incurred	$	123,787,208		$	51,353,159		$	175,140,367

(1)

Effective January 1, 2012, Employers Mutual began participating in a new offshore energy and liability proportional account. During the first quarter of 2012, the reinsurance segment recognized $3,975,000 of earned but not reported (EBNR) premiums on this account. However, based on more refined actuarial projections, and the fact that the 2012 earnings stream on this account is somewhat back-loaded because it is a new account and the majority of the underlying policies are expected to have effective dates in the months of June and July, a total of $990,000 of EBNR premiums was recognized on this account for the six months ended June 30, 2012. Accordingly, “Reinsurance” and “Total” premiums written and earned for the three months ended June 30, 2012 reflect $2,985,000 of negative EBNR premiums associated with this account. Ten percent of this amount ($298,500) was deducted from the corresponding “ceded to affiliates” amounts in accordance with the terms of the excess of loss reinsurance agreement with Employers Mutual. A corresponding decrease in incurred but not reported (IBNR) reserves of $2,239,000 was also recorded and is reflected in the losses and settlement expenses incurred amounts for the three months ended June 30, 2012.

(2)

The “Reinsurance” and “Total” amounts include a $3,405,866 negative portfolio adjustment related to the January 1, 2012 cancellation of a large pro rata account. Ten percent of this amount ($340,587) is included in the corresponding “ceded to affiliates” amounts in accordance with the terms of the excess of loss reinsurance agreement with Employers Mutual.

(3)

The “Reinsurance” and “Total” amounts include $1,022,885 associated with a portfolio adjustment related to the January 1, 2011 increase in participation in the Mutual Reinsurance Bureau underwriting association (MRB). Ten percent of this amount ($102,288) is included in the corresponding “ceded to affiliates” amounts in accordance with the terms of the excess of loss reinsurance agreement with Employers Mutual.

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Individual lines in the above tables are defined as follows:

“Direct” represents business produced by the property and casualty insurance subsidiaries.

“Assumed from nonaffiliates” for the property and casualty insurance subsidiaries represents their aggregate 30 percent pool participation percentage of involuntary business assumed by the pool participants pursuant to state law. For the reinsurance subsidiary, this line represents the reinsurance business assumed through the quota share agreement (including “fronting” activities initiated by Employers Mutual, most notably with MRB) and the business assumed outside the quota share agreement.

“Assumed from affiliates” for the property and casualty insurance subsidiaries represents their aggregate 30 percent pool participation percentage of all the pool members’ direct business. “Losses and settlement expenses incurred” also includes claim-related services provided by Employers Mutual that are allocated to the property and casualty insurance subsidiaries and the reinsurance subsidiary.

“Ceded to nonaffiliates” for the property and casualty insurance subsidiaries represents their aggregate 30 percent pool participation percentage of the amounts ceded to nonaffiliated reinsurance companies in accordance with the terms of the reinsurance agreements providing protection to the pool and each of its participants. For the reinsurance subsidiary, this line includes reinsurance business that is ceded to other insurance companies in connection with “fronting” activities initiated by Employers Mutual.

“Ceded to affiliates” for the property and casualty insurance subsidiaries represents the cession of their direct business to Employers Mutual under the terms of the pooling agreement. For the reinsurance subsidiary this line represents amounts ceded to Employers Mutual under the terms of the excess of loss reinsurance agreement.

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4.	SEGMENT INFORMATION

The Company’s operations consist of a property and casualty insurance segment and a reinsurance segment. The property and casualty insurance segment writes both commercial and personal lines of insurance, with a focus on medium-sized commercial accounts. The reinsurance segment provides reinsurance for other insurers and reinsurers. The segments are managed separately due to differences in the insurance products sold and the business environment in which they operate.

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

	Property and
Three months ended	casualty						Parent
June 30, 2012	insurance			Reinsurance			company			Consolidated
Premiums earned (1)	$	87,825,285		$	22,445,175		$	-		$	110,270,460

Underwriting loss		(15,391,481	)		40,309			-			(15,351,172	)
Net investment income		8,139,202			3,011,279			(1,786	)		11,148,695
Realized investment losses		(752,888	)		(385,448	)		-			(1,138,336	)
Other income		222,751			-			-			222,751
Interest expense		225,000			-			-			225,000
Other expenses		178,276			(392,315	)		382,781			168,742
Income (loss) before income tax expense (benefit)	$	(8,185,692	)	$	3,058,455		$	(384,567	)	$	(5,511,804	)

	Property and
Three months ended	casualty						Parent
June 30, 2011	insurance			Reinsurance			company			Consolidated
Premiums earned	$	78,381,208		$	22,550,321		$	-		$	100,931,529

Underwriting loss		(22,471,209	)		(11,350,742	)		-			(33,821,951	)
Net investment income		8,385,878			3,087,022			208			11,473,108
Realized investment gains		1,303,670			396,573			-			1,700,243
Other income		236,483			-			-			236,483
Interest expense		225,000			-			-			225,000
Other expenses		163,725			520,562			338,760			1,023,047
Loss before income tax expense (benefit)	$	(12,933,903	)	$	(8,387,709	)	$	(338,552	)	$	(21,660,164	)

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	Property and
Six months ended	casualty						Parent
June 30, 2012	insurance			Reinsurance			company			Consolidated
Premiums earned	$	172,856,675		$	47,173,541		$	-		$	220,030,216

Underwriting profit (loss)		(13,491,459	)		6,535,982			-			(6,955,477	)
Net investment income		16,314,329			5,995,204			(4,056	)		22,305,477
Realized investment gains		7,151,901			628,092			-			7,779,993
Other income		461,749			-			-			461,749
Interest expense		450,000			-			-			450,000
Other expenses		397,440			(372,550	)		730,369			755,259
Income (loss) before income tax expense (benefit)	$	9,589,080		$	13,531,828		$	(734,425	)	$	22,386,483

Assets	$	914,680,364		$	330,486,840		$	374,311,658		$	1,619,478,862
Eliminations		-			-			(367,700,878	)		(367,700,878	)
Reclassifications		-			(1,936,106	)		(408,665	)		(2,344,771	)
Net assets	$	914,680,364		$	328,550,734		$	6,202,115		$	1,249,433,213

	Property and
Six months ended	casualty						Parent
June 30, 2011	insurance			Reinsurance			company			Consolidated
Premiums earned	$	155,692,500		$	41,525,843		$	-		$	197,218,343

Underwriting loss		(26,891,874	)		(19,160,266	)		-			(46,052,140	)
Net investment income		17,283,528			6,267,569			606			23,551,703
Realized investment gains		7,657,024			2,301,415			-			9,958,439
Other income		440,313			-			-			440,313
Interest expense		450,000			-			-			450,000
Other expenses		326,441			941,848			687,136			1,955,425
Loss before income tax expense (benefit)	$	(2,287,450	)	$	(11,533,130	)	$	(686,530	)	$	(14,507,110	)

Year ended December 31, 2011
Assets	$	894,566,764		$	325,952,038		$	352,625,304		$	1,573,144,106
Eliminations		-			-			(349,112,944	)		(349,112,944	)
Net assets	$	894,566,764		$	325,952,038		$	3,512,360		$	1,224,031,162

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The following table displays the net premiums earned of the property and casualty insurance segment and the reinsurance segment for the three months and six months ended June 30, 2012 and 2011, by line of business.

	Three months ended June 30,					Six months ended June 30,
	2012			2011		2012		2011
Property and casualty insurance segment
Commercial lines:
Automobile	$	19,053,727		$	16,512,538	$	36,909,397	$	32,655,708
Property		18,749,310			16,564,164		37,087,621		33,254,043
Workers' compensation		18,564,240			16,616,494		36,725,157		33,101,602
Liability		16,786,689			14,813,392		32,970,176		29,385,219
Other		1,873,690			1,897,035		3,765,469		3,816,728
Total commercial lines		75,027,656			66,403,623		147,457,820		132,213,300

Personal lines:
Automobile		7,119,459			6,821,057		14,094,368		13,251,238
Property		5,524,351			5,020,245		11,002,952		9,957,997
Liability		153,819			136,283		301,535		269,965
Total personal lines		12,797,629			11,977,585		25,398,855		23,479,200
Total property and casualty insurance	$	87,825,285		$	78,381,208	$	172,856,675	$	155,692,500

Reinsurance segment
Pro rata reinsurance:
Property and casualty	$	2,115,547		$	2,763,535	$	3,562,142	$	4,549,652
Property		4,308,272			3,707,329		6,767,632		6,595,169
Crop		195,609			451,365		472,559		669,152
Casualty		295,324			245,325		639,376		522,390
Marine/Aviation (1)		(1,459,630	)		211,062		2,402,316		433,045
Total pro rata reinsurance		5,455,122			7,378,616		13,844,025		12,769,408

Excess of loss reinsurance:
Property		13,770,698			12,693,520		27,314,458		23,929,217
Casualty		3,218,590			2,478,164		6,006,901		4,823,464
Surety		765			21		8,157		3,754
Total excess of loss reinsurance		16,990,053			15,171,705		33,329,516		28,756,435
Total reinsurance	$	22,445,175		$	22,550,321	$	47,173,541	$	41,525,843

Consolidated	$	110,270,460		$	100,931,529	$	220,030,216	$	197,218,343

(1)

Effective January 1, 2012, Employers Mutual began participating in a new offshore energy and liability proportional account. During the first quarter of 2012, the reinsurance segment recognized $3,577,500 of EBNR premiums on this account, net of the ten percent charge for the cost of the excess of loss reinsurance protection provided by Employers Mutual. However, based on more refined actuarial projections, and the fact that the 2012 earnings stream on this account is somewhat back-loaded because it is a new account and the majority of the underlying policies are expected to have effective dates in the months of June and July, a total of $891,000 of EBNR premiums was recognized on this account for the six months ended June 30, 2012. Accordingly, net premiums earned for the second quarter reflects $2,686,500 of negative EBNR premiums associated with this account.

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5.	INCOME TAXES

The actual income tax expense (benefit) for the three months and six months ended June 30, 2012 and 2011 differed from the “expected” income tax expense (benefit) for those periods (computed by applying the United States federal corporate tax rate of 35 percent to income (loss) before income tax expense (benefit)) as follows:

	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
Computed "expected" income tax expense (benefit)	$	(1,929,132	)	$	(7,581,056	)	$	7,835,268		$	(5,077,488	)
Increases (decreases) in tax resulting from:
Tax-exempt interest income		(1,126,316	)		(1,197,180	)		(2,281,477	)		(2,405,272	)
Dividends received deduction		(158,109	)		(132,881	)		(286,445	)		(273,360	)
Proration of tax-exempt interest and dividends received deduction		192,663			199,509			385,188			401,795
Other, net		85,561			(46,545	)		86,685			9,388
Income tax expense (benefit)	$	(2,935,333	)	$	(8,758,153	)	$	5,739,219		$	(7,344,937	)

The Company had no provision for uncertain tax positions at June 30, 2012 or December 31, 2011. The Company did not recognize any interest or other penalties related to U.S. federal or state income taxes during the three months or six months ended June 30, 2012 or 2011. It is the Company’s accounting policy to reflect income tax penalties as other expense, and interest as interest expense.

The Company files a U.S. federal tax return, along with various state income tax returns. The Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2009.

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6.	EMPLOYEE RETIREMENT PLANS

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

	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
Pension plans:
Service cost	$	2,849,900		$	3,112,182		$	6,219,484		$	6,224,364
Interest cost		2,213,713			2,406,393			4,413,838			4,812,786
Expected return on plan assets		(3,731,361	)		(3,876,511	)		(7,462,722	)		(7,753,022	)
Amortization of net actuarial loss		1,745,644			840,282			3,414,404			1,680,564
Amortization of prior service cost		72,788			112,370			145,576			224,740
Net periodic pension benefit cost	$	3,150,684		$	2,594,716		$	6,730,580		$	5,189,432

Postretirement benefit plans:
Service cost	$	1,537,530		$	1,150,622		$	3,075,060		$	2,301,244
Interest cost		1,634,210			1,499,645			3,268,420			2,999,290
Expected return on plan assets		(804,794	)		(732,473	)		(1,609,588	)		(1,464,947	)
Amortization of net actuarial loss		1,002,154			444,212			2,004,308			888,424
Amortization of prior service credit		(532,814	)		(532,814	)		(1,065,628	)		(1,065,628	)
Net periodic postretirement benefit cost	$	2,836,286		$	1,829,192		$	5,672,572		$	3,658,383

Net periodic pension benefit cost allocated to the Company amounted to $970,632 and $797,972 for the three months and $2,070,030 and $1,595,945 for the six months ended June 30, 2012 and 2011, respectively. Net periodic postretirement benefit cost allocated to the Company amounted to $821,798 and $527,797 for the three months and $1,643,594 and $1,055,591 for the six months ended June 30, 2012 and 2011, respectively.

During the first six months of 2012, Employers Mutual contributed $1,000,000 to its pension plan. Employers Mutual plans to contribute approximately $22,000,000 to the pension plan, and $5,500,000 to the Voluntary Employee Beneficiary trust in 2012. The Company’s share of these contributions, if made, will be approximately $6,731,000 and $1,590,000, respectively.

7.	STOCK-BASED COMPENSATION

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

Stock Option Plans

Employers Mutual maintains three separate stock option plans for the benefit of officers and key employees of Employers Mutual and its subsidiaries. A total of 1,000,000 shares of the Company’s common stock have been reserved for issuance under the 1993 Employers Mutual Casualty Company Incentive Stock Option Plan (1993 Plan), a total of 1,500,000 shares have been reserved for issuance under the 2003 Employers Mutual Casualty Company Incentive Stock Option Plan (2003 Plan) and a total of 2,000,000 shares have been reserved for issuance under the 2007 Employers Mutual Casualty Company Stock Incentive Plan (2007 Plan).

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The 1993 Plan and the 2003 Plan permitted the issuance of incentive stock options only, while the 2007 Plan permits the issuance of performance shares, performance units, and other stock-based awards, in addition to qualified (incentive) and non-qualified stock options, stock appreciation rights, restricted stock and restricted stock units. All three plans provide for a ten-year time limit for granting awards. Options can no longer be granted under the 1993 Plan and no additional options will be granted under the 2003 Plan now that Employers Mutual is utilizing the 2007 Plan. Options granted under the plans generally have a vesting period of five years, with options becoming exercisable in equal annual cumulative increments commencing on the first anniversary of the option grant. Option prices cannot be less than the fair value of the common stock on the date of grant.

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

The Company recognized compensation expense from these plans of $45,952 ($40,322 net of tax) and $41,330 ($29,616 net of tax) for the three months and $123,239 ($93,017 net of tax) and $111,573 ($79,720 net of tax) for the six months ended June 30, 2012 and 2011, respectively. During the first six months of 2012, 263,161 non-qualified stock options were granted under the 2007 Plan to eligible participants at a price of $20.98, and 19,306 options were exercised under the plans at prices ranging from $16.88 to $19.35.

The weighted average fair value of options granted during the six months ended June 30, 2012 and 2011 amounted to $3.83 and $4.44, respectively. Employers Mutual estimated the fair value of each option grant on the date of grant using the Black-Scholes-Merton option-pricing model and the following weighted-average assumptions:

	2012			2011
Weighted-average dividend yield		3.81	%		3.11	%
Expected volatility		25.2% - 44.7	%		20.9% - 51.2	%
Weighted-average volatility		35.61	%		32.76	%
Risk-free interest rate		0.06% - 1.51	%		0.17% - 2.75	%
Expected term (years)		0.25 - 6.40			0.25 - 6.40

The expected term of the options granted in 2012 to individuals who were not eligible to retire as of the grant date was estimated using historical data that excluded certain option exercises that occurred prior to the normal vesting period due to the retirement of the option holders. The expected term used for options granted to individuals who were eligible to retire as of the grant date was three months, reflecting the fact that upon retirement all unvested options immediately become vested, and the option holder has 90 days to exercise his or her outstanding options. This produced a weighted-average expected term of 3.53 years.

The expected volatility of options granted in 2012 to individuals who were not eligible to retire as of the grant date was computed by using the historical daily prices of the Company’s common stock for a period covering the most recent 6.4 years, which approximates the average term of the options. This produced an expected volatility of 44.7 percent. The expected volatility of options granted to individuals who were eligible to retire as of the grant date was computed by using the historical daily prices for the most recent three-month period. This produced an expected volatility of 25.2 percent. The weighted-average volatility of the 2012 option grant was 35.61 percent.

Stock Appreciation Rights (SAR) agreement

No compensation expense was recognized during the three months or six months ended June 30, 2012 and 2011 related to a separate stock appreciation rights agreement that is accounted for as a liability-classified award because the fair value of the award did not exceed the floor amount contained in the agreement.

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8.	DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

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

	Carrying		Estimated
	amount		fair value
June 30, 2012
Assets:
Fixed maturity securities available-for-sale:
U.S. treasury	$	4,997,893	$	4,997,893
U.S. government-sponsored agencies		114,948,613		114,948,613
Obligations of states and political subdivisions		386,445,210		386,445,210
Commercial mortgage-backed		86,658,008		86,658,008
Residential mortgage-backed		26,634,733		26,634,733
Other asset-backed		11,238,835		11,238,835
Corporate		315,721,872		315,721,872
Total fixed maturity securities available-for-sale		946,645,164		946,645,164

Equity securities available-for-sale:
Common stocks:
Financial services		13,807,395		13,807,395
Information technology		17,459,523		17,459,523
Healthcare		19,636,264		19,636,264
Consumer staples		13,124,427		13,124,427
Consumer discretionary		17,040,973		17,040,973
Energy		18,994,673		18,994,673
Industrials		9,475,356		9,475,356
Other		16,896,945		16,896,945
Non-redeemable preferred stocks		6,697,400		6,697,400
Total equity securities available-for-sale		133,132,956		133,132,956

Short-term investments		66,294,976		66,294,976
Other long-term investments		11,279		11,279

Liabilities:
Surplus notes		25,000,000		17,473,917

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	Carrying		Estimated
	amount		fair value
December 31,2011
Assets:
Fixed maturity securities available-for-sale:
U.S. treasury	$	5,011,250	$	5,011,250
U.S. government-sponsored agencies		152,179,684		152,179,684
Obligations of states and political subdivisions		401,127,528		401,127,528
Commercial mortgage-backed		99,106,059		99,106,059
Residential mortgage-backed		21,902,112		21,902,112
Other asset-backed		11,942,191		11,942,191
Corporate		266,934,752		266,934,752
Total fixed maturity securities available-for-sale		958,203,576		958,203,576

Equity securities available-for-sale:
Common stocks:
Financial services		9,518,685		9,518,685
Information technology		17,818,367		17,818,367
Healthcare		16,237,164		16,237,164
Consumer staples		10,460,870		10,460,870
Consumer discretionary		13,710,379		13,710,379
Energy		19,947,029		19,947,029
Industrials		5,742,518		5,742,518
Other		12,916,041		12,916,041
Non-redeemable preferred stocks		4,949,000		4,949,000
Total equity securities available-for-sale		111,300,053		111,300,053

Short-term investments		42,628,926		42,628,926
Other long-term investments		14,527		14,527

Liabilities:
Surplus notes		25,000,000		17,285,170

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

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

Other long-term investments consist of holdings in limited partnerships and limited liability companies designed for the allocation of tax credits. These investments are carried at amortized cost, which in management’s opinion approximates fair value.

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

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

Level 1 -

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

Level 2 -

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

Level 3 -

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

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

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

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

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

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

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On a quarterly basis, the Company receives from its independent pricing service a list of fixed maturity securities, if any, that were priced solely from broker quotes. For these securities, fair value may be determined using the broker quotes, or by the Company using similar pricing techniques as the Company’s independent pricing service. Depending on the level of observable inputs, these securities would be classified as Level 2 or Level 3 fair value measurements. At June 30, 2012 and December 31, 2011, the Company did not hold any fixed maturity securities that were priced solely from broker quotes.

A small number of the Company’s securities are not priced by the independent pricing service. One is an equity security that is reported as a Level 3 fair value measurement at June 30, 2012 and December 31, 2011, since no reliable observable inputs are used in its valuation. This equity security continues to be reported at the fair value obtained from the Securities Valuation Office (SVO) of the National Association of Insurance Commissioners (NAIC). The SVO establishes a per share price for this security based on an annual review of that company’s financial statements. This review is typically performed during the second quarter, and resulted in a fair value for the shares held by the Company of $2,401 and $2,250 at June 30, 2012 and December 31, 2011, respectively. The other securities not priced by the Company’s independent pricing service at June 30, 2012 are two fixed maturity securities (one fixed maturity security was not priced by the Company’s independent pricing service at December 31, 2011). These fixed maturity securities are classified as Level 2 fair value measurements. The fair values for these fixed maturity securities were obtained from the Company’s investment custodian using independent pricing services which utilize similar pricing techniques as the Company’s independent pricing service.

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The Company’s fixed maturity and equity securities available-for-sale are measured and reported in the Consolidated Balance Sheets at fair value on a recurring basis. No assets or liabilities are currently measured at fair value on a non-recurring basis. Presented in the table below are the estimated fair values of the Company’s financial instruments, as of June 30, 2012 and December 31, 2011.

			Fair value measurements at June 30, 2012 using
			Quoted
			prices in		Significant
			active markets		other		Significant
			for identical		observable		unobservable
			assets		inputs		inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturity securities available-for-sale:
U.S. treasury	$	4,997,893	$	-	$	4,997,893	$	-
U.S. government-sponsored agencies		114,948,613		-		114,948,613		-
Obligations of states and political subdivisions		386,445,210		-		386,445,210		-
Commercial mortgage-backed		86,658,008		-		86,658,008		-
Residential mortgage-backed		26,634,733		-		26,634,733		-
Other asset-backed		11,238,835		-		11,238,835		-
Corporate		315,721,872		-		315,721,872		-
Total fixed maturity securities available-for-sale		946,645,164		-		946,645,164		-

Equity securities available-for-sale:
Common stocks:
Financial services		13,807,395		13,804,994		-		2,401
Information technology		17,459,523		17,459,523		-		-
Healthcare		19,636,264		19,636,264		-		-
Consumer staples		13,124,427		13,124,427		-		-
Consumer discretionary		17,040,973		17,040,973		-		-
Energy		18,994,673		18,994,673		-		-
Industrials		9,475,356		9,475,356		-		-
Other		16,896,945		16,896,945		-		-
Non-redeemable preferred stocks		6,697,400		6,697,400		-		-
Total equity securities available-for-sale		133,132,956		133,130,555		-		2,401

Short-term investments		66,294,976		54,938,726		11,356,250		-
Other long-term investments		11,279		-		-		11,279

Liabilities:
Surplus notes		17,473,917		-		-		17,473,917

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			Fair value measurements at December 31, 2011 using
			Quoted
			prices in		Significant
			active markets		other		Significant
			for identical		observable		unobservable
			assets		inputs		inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Assets
Fixed maturity securities available-for-sale:
U.S. treasury	$	5,011,250	$	-	$	5,011,250	$	-
U.S. government-sponsored agencies		152,179,684		-		152,179,684		-
Obligations of states and political subdivisions		401,127,528		-		401,127,528		-
Commercial mortgage-backed		99,106,059		-		99,106,059		-
Residential mortgage-backed		21,902,112		-		21,902,112		-
Other asset-backed		11,942,191		-		11,942,191		-
Corporate		266,934,752		-		266,934,752		-
Total fixed maturity securities available-for-sale		958,203,576		-		958,203,576		-

Equity securities available-for-sale:
Common stocks:
Financial services		9,518,685		9,516,435		-		2,250
Information technology		17,818,367		17,818,367		-		-
Healthcare		16,237,164		16,237,164		-		-
Consumer staples		10,460,870		10,460,870		-		-
Consumer discretionary		13,710,379		13,710,379		-		-
Energy		19,947,029		19,947,029		-		-
Industrials		5,742,518		5,742,518		-		-
Other		12,916,041		12,916,041		-		-
Non-redeemable preferred stocks		4,949,000		4,949,000		-		-
Total equity securities available-for-sale		111,300,053		111,297,803		-		2,250

Short-term investments		42,628,926		42,628,926		-		-
Other long-term investments		14,527		-		-		14,527

Liabilities:
Surplus notes		17,285,170		-		-		17,285,170

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Presented in the table below is a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months and six months ended June 30, 2012 and 2011. Any unrealized gains or losses on these securities are recognized in other comprehensive income. Any gains or losses from disposals or impairments of these securities are reported as realized investment gains or losses in net income.

	Fair value measurements using significant
	unobservable inputs (Level 3)
	Equity securities
	available-for-sale,
Three months ended June 30, 2012	financial services		Total
Balance at March 31, 2012	$	2,250	$	2,250
Total unrealized gains included in other comprehensive income		151		151
Balance at June 30, 2012	$	2,401	$	2,401

Six months ended June 30, 2012
Balance at December 31, 2011	$	2,250	$	2,250
Total unrealized gains included in other comprehensive income		151		151
Balance at June 30, 2012	$	2,401	$	2,401

	Fair value measurements using significant
	unobservable inputs (Level 3)
	Equity securities
	available-for-sale,
Three months ended June 30, 2011	financial services		Total
Balance at March 31, 2011	$	2,130	$	2,130
Total unrealized gains included in other comprehensive income		116		116
Balance at June 30, 2011	$	2,246	$	2,246

Six months ended June 30, 2011
Balance at December 31, 2010	$	2,130	$	2,130
Total unrealized gains included in other comprehensive income		116		116
Balance at June 30, 2011	$	2,246	$	2,246

There were no transfers into or out of Levels 1 or 2 during the three months or six months ended June 30, 2012 or 2011. It is the Company’s policy to recognize transfers between levels at the beginning of the reporting period.

9.	INVESTMENTS

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

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The amortized cost and estimated fair value of securities available-for-sale as of June 30, 2012 and December 31, 2011 are as follows. All securities are classified as available-for-sale and are carried at fair value.

			Gross		Gross
	Amortized		unrealized		unrealized		Estimated
June 30, 2012	cost		gains		losses		fair value
Securities available-for-sale:
Fixed maturity securities:
U.S. treasury	$	4,689,624	$	308,269	$	-	$	4,997,893
U.S. government-sponsored agencies		112,325,551		2,676,348		53,286		114,948,613
Obligations of states and political subdivisions		352,612,188		33,833,022		-		386,445,210
Commercial mortgage-backed		77,000,661		9,681,603		24,256		86,658,008
Residential mortgage-backed		25,506,028		1,189,209		60,504		26,634,733
Other asset-backed		9,870,219		1,368,616		-		11,238,835
Corporate		294,962,901		21,324,279		565,308		315,721,872
Total fixed maturity securities		876,967,172		70,381,346		703,354		946,645,164

Equity securities:
Common stocks:
Financial services		11,919,885		2,109,151		221,641		13,807,395
Information technology		12,187,066		5,366,834		94,377		17,459,523
Healthcare		16,283,857		3,360,900		8,493		19,636,264
Consumer staples		11,371,277		1,763,793		10,643		13,124,427
Consumer discretionary		11,497,234		5,603,309		59,570		17,040,973
Energy		15,294,008		3,742,128		41,463		18,994,673
Industrials		8,931,652		553,474		9,770		9,475,356
Other		15,225,790		1,729,692		58,537		16,896,945
Non-redeemable preferred stocks		6,500,000		565,400		368,000		6,697,400
Total equity securities		109,210,769		24,794,681		872,494		133,132,956
Total securities available-for-sale	$	986,177,941	$	95,176,027	$	1,575,848	$	1,079,778,120

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			Gross		Gross
	Amortized		unrealized		unrealized		Estimated
December 31, 2011	cost		gains		losses		fair value
Securities available-for-sale:
Fixed maturity securities:
U.S. treasury	$	4,681,611	$	329,639	$	-	$	5,011,250
U.S. government-sponsored agencies		149,016,862		3,162,822		-		152,179,684
Obligations of states and political subdivisions		373,597,081		27,530,447		-		401,127,528
Commercial mortgage-backed		89,452,202		9,694,648		40,791		99,106,059
Residential mortgage-backed		20,740,802		1,191,625		30,315		21,902,112
Other asset-backed		10,440,167		1,502,024		-		11,942,191
Corporate		252,010,891		16,438,873		1,515,012		266,934,752
Total fixed maturity securities		899,939,616		59,850,078		1,586,118		958,203,576

Equity securities:
Common stocks:
Financial services		8,479,330		1,055,486		16,131		9,518,685
Information technology		12,757,833		5,165,021		104,487		17,818,367
Healthcare		13,150,669		3,090,110		3,615		16,237,164
Consumer staples		9,572,447		896,769		8,346		10,460,870
Consumer discretionary		9,054,299		4,675,095		19,015		13,710,379
Energy		15,932,242		4,029,892		15,105		19,947,029
Industrials		4,983,996		802,862		44,340		5,742,518
Other		11,774,715		1,164,832		23,506		12,916,041
Non-redeemable preferred stocks		5,160,600		232,400		444,000		4,949,000
Total equity securities		90,866,131		21,112,467		678,545		111,300,053
Total securities available-for-sale	$	990,805,747	$	80,962,545	$	2,264,663	$	1,069,503,629

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The following table sets forth the estimated fair value and gross unrealized losses associated with investment securities that were in an unrealized loss position as of June 30, 2012 and December 31, 2011, listed by length of time the securities were in an unrealized loss position.

June 30, 2012	Less than twelve months				Twelve months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses
Fixed maturity securities:
U.S. government-sponsored agencies	$	18,417,391	$	53,286	$	-	$	-	$	18,417,391	$	53,286
Commercial mortgage-backed		4,661,911		24,256		-		-		4,661,911		24,256
Residential mortgage-backed		7,323,763		37,100		356,132		23,404		7,679,895		60,504
Corporate		14,447,861		437,050		872,000		128,258		15,319,861		565,308
Total, fixed maturity securities		44,850,926		551,692		1,228,132		151,662		46,079,058		703,354

Equity securities:
Common stocks:
Financial services		2,183,292		221,641		-		-		2,183,292		221,641
Information technology		1,718,758		94,377		-		-		1,718,758		94,377
Healthcare		246,813		8,493		-		-		246,813		8,493
Consumer staples		681,844		10,643		-		-		681,844		10,643
Consumer discretionary		2,440,878		59,570		-		-		2,440,878		59,570
Energy		2,063,029		41,463		-		-		2,063,029		41,463
Industrials		911,974		9,770		-		-		911,974		9,770
Other		2,421,357		58,537		-		-		2,421,357		58,537
Non-redeemable preferred stocks		-		-		1,632,000		368,000		1,632,000		368,000
Total, equity securities		12,667,945		504,494		1,632,000		368,000		14,299,945		872,494
Total temporarily impaired securities	$	57,518,871	$	1,056,186	$	2,860,132	$	519,662	$	60,379,003	$	1,575,848

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December 31, 2011	Less than twelve months				Twelve months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses
Fixed maturity securities:
Commercial mortgage-backed	$	8,865,991	$	30,729	$	2,987,967	$	10,062	$	11,853,958	$	40,791
Residential mortgage-backed		-		-		471,941		30,315		471,941		30,315
Corporate		40,789,555		1,332,242		817,500		182,770		41,607,055		1,515,012
Total, fixed maturity securities		49,655,546		1,362,971		4,277,408		223,147		53,932,954		1,586,118

Equity securities:
Common stocks:
Financial services		853,572		16,131		-		-		853,572		16,131
Information technology		3,074,796		101,096		49,324		3,391		3,124,120		104,487
Healthcare		1,912,273		3,615		-		-		1,912,273		3,615
Consumer staples		1,259,440		8,346		-		-		1,259,440		8,346
Consumer discretionary		191,508		19,015		-		-		191,508		19,015
Energy		712,268		15,105						712,268		15,105
Industrials		1,486,762		44,340		-		-		1,486,762		44,340
Other		1,053,572		23,506		-		-		1,053,572		23,506
Non-redeemable preferred stocks		-		-		1,556,000		444,000		1,556,000		444,000
Total, equity securities		10,544,191		231,154		1,605,324		447,391		12,149,515		678,545
Total temporarily impaired securities	$	60,199,737	$	1,594,125	$	5,882,732	$	670,538	$	66,082,469	$	2,264,663

Unrealized losses on fixed maturity securities totaled $703,354 at June 30, 2012 and were primarily associated with corporate securities. Of all the securities that are in an unrealized loss position, all but one residential mortgage-backed security are considered investment grade by credit rating agencies. Because management does not intend to sell these securities, does not believe it will be required to sell these securities before recovery, and believes it will collect the amounts due on these securities, it was determined that these securities were not “other-than-temporarily” impaired at June 30, 2012.

Approximately half of the unrealized losses on common stocks at June 30, 2012 are associated with a JP Morgan Chase security in the financial services sector. The Company believes the unrealized losses on common stocks are primarily due to general fluctuations in the equity markets. Because the Company has the ability and intent to hold these securities for a reasonable amount of time to allow for recovery, it was determined that these securities were not “other-than-temporarily” impaired at June 30, 2012.

All of the Company’s preferred stock holdings are perpetual preferred stocks. The Company evaluates perpetual preferred stocks with unrealized losses for “other-than-temporary” impairment similar to fixed maturity securities since they have debt-like characteristics such as periodic cash flows in the form of dividends and call features, are rated by rating agencies and are priced like other long-term callable fixed maturity securities. There was no evidence of any credit deterioration in the issuers of the preferred stocks and the Company does not intend to sell these securities before recovery, nor does it believe it will be required to sell these securities before recovery; therefore, it was determined that these securities were not “other-than-temporarily” impaired at June 30, 2012.

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The amortized cost and estimated fair value of fixed maturity securities at June 30, 2012, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.

	Amortized		Estimated
	cost		fair value
Securities available-for-sale:
Due in one year or less	$	16,749,828	$	17,343,063
Due after one year through five years		125,488,992		130,778,418
Due after five years through ten years		158,210,799		174,802,462
Due after ten years		474,010,864		510,428,480
Mortgage-backed securities		102,506,689		113,292,741
Totals	$	876,967,172	$	946,645,164

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

	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
Fixed maturity securities available-for-sale:
Gross realized investment gains	$	108,016		$	155,097		$	508,507		$	184,056
Gross realized investment losses		-			(346,294	)		-			(346,294	)
"Other-than-temporary" impairments		-			(221,956	)		-			(221,956	)

Equity securities available-for-sale:
Gross realized investment gains		348,743			2,899,971			8,954,418			11,454,251
Gross realized investment losses		(1,469,047	)		(338,063	)		(1,556,884	)		(417,260	)
"Other-than-temporary" impairments		(126,048	)		(448,512	)		(126,048	)		(694,358	)
Totals	$	(1,138,336	)	$	1,700,243		$	7,779,993		$	9,958,439

Gains and losses realized on the disposition of investments are included in net income. The cost of investments sold is determined on the specific identification method using the highest cost basis first. The amounts reported as “other-than-temporary” impairments for both the three and six months ended June 30, 2012 reflect the impairment of two equity securities. The Company impaired four fixed maturity securities and four equity securities during the second quarter of 2011, and four fixed maturity and seven equity securities during the first six months of 2011.

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The following table is a roll forward of the cumulative credit losses on fixed maturity securities that have been recognized in earnings from “other-than-temporary” impairments. Note that this table only includes the credit loss component of “other-than-temporary” impairments, and does not include the non-credit loss component of impairments (which is recognized through “other comprehensive income”) or impairments that are recognized through earnings in their entirety (not subject to bifurcation between credit and non-credit components). During the second quarter of 2011, management determined that it would sell four residential mortgage-backed securities that were in an unrealized loss position, resulting in the recognition of the non-credit loss component of the impairments through earnings.

	Three months ended June 30,
	2012		2011
Balance at March 31	$	-	$	207,854

Reduction for credit loss associated with previously recognized "other-than-temporary" impairment due to management's intent to sell the security		-		(207,854	)
Balance at June 30	$	-	$	-

	Six months ended June 30,
	2012		2011
Balance at beginning of year	$	-	$	207,854

Reduction for credit loss associated with previously recognized "other-than-temporary" impairment due to management's intent to sell the security		-		(207,854	)
Balance at June 30	$	-	$	-

10.	CONTINGENT LIABILITIES

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

The participants in the pooling agreement have purchased annuities from life insurance companies, under which the claimant is payee, to fund future payments that are fixed pursuant to specific claim settlement provisions. The Company’s share of case loss reserves eliminated by the purchase of those annuities was $162,144 at December 31, 2011. The Company had a contingent liability for the aggregate guaranteed amount of the annuities of $239,486 at December 31, 2011 should the issuers of those annuities fail to perform. Although management is not able to verify the amount, the Company would likely have a similar contingent liability at June 30, 2012. The probability of a material loss due to failure of performance by the issuers of these annuities is considered remote.

11.	STOCK REPURCHASE PROGRAM

On March 10, 2008, the Company’s Board of Directors authorized a $15,000,000 stock repurchase program. On October 31, 2008, the Company’s Board of Directors announced an extension of the stock repurchase program, authorizing an additional $10,000,000. During 2011, the Company completed the program with the repurchase of 98,200 shares of its common stock at an average cost of $18.84 per share (16,700 shares at an average cost of $18.96 during the first six months of 2011). In total, the Company repurchased 1,078,733 shares of its common stock at a cost of $24,998,330 under the program.

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On November 3, 2011, the Company’s Board of Directors authorized a new $15,000,000 stock repurchase program. This program became effective immediately and does not have an expiration date. The timing and terms of the purchases are determined by management based on market conditions and are conducted in accordance with the applicable rules of the Securities and Exchange Commission. Common stock repurchased under this program will be retired by the Company. No purchases have been made under this program.

12.	NEW ACCOUNTING PRONOUNCEMENTS

In September 2011, the Financial Accounting Standards Board (FASB) updated its guidance related to the Intangibles-Goodwill and Other Topic 350 of the FASB Accounting Standards Codification TM (ASC). The objective of this updated guidance is to simplify the process of testing goodwill for impairment. The guidance allows an initial qualitative assessment to determine whether it is more likely than not that the fair value of a reporting entity is less than its carrying amount. If an entity concludes that it is more likely than not that the fair value is greater than its carrying amount, then performing the two-step goodwill impairment test is unnecessary. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted this guidance during the fourth quarter of 2011. Adoption of this guidance had no impact on the consolidated financial position or operating results of the Company.

In June 2011, the FASB updated its guidance related to the Comprehensive Income Topic 220 of the ASC. The objective of this updated guidance is to increase the prominence of items reported in other comprehensive income by eliminating the option of presenting components of other comprehensive income as part of the statement of changes in stockholders’ equity. The guidance requires total comprehensive income (including both the net income components and other comprehensive income components) to be reported in either a single continuous statement of comprehensive income, or two separate but consecutive statements (the approach already used in the Company’s consolidated financial statements). This guidance is to be applied retrospectively to fiscal years (and interim periods within those years) beginning after December 15, 2011. Early adoption is permitted. The Company adopted this guidance during the fourth quarter of 2011. Adoption of this guidance had no impact on the consolidated financial position or operating results of the Company.

In May 2011, the FASB updated its guidance related to the Fair Value Measurement Topic 820 of the ASC to achieve common fair value measurement and disclosure requirements with International Financial Reporting Standards. The changes in this guidance both clarify the intent of application of existing fair value measurement and disclosure requirements, and change particular principles or requirements for measuring and disclosing fair value measurements. Specifically included in this guidance is expanded disclosure of the valuation processes used for Level 3 fair value measurements, including quantitative information about unobservable inputs used. This guidance is to be applied prospectively to interim and annual reporting periods beginning after December 15, 2011. Adoption of this guidance had no impact on the consolidated financial position or operating results of the Company.

In October 2010, the FASB updated its guidance related to the Insurance Topic 944 of the ASC to clarify which costs associated with the acquisition of insurance contracts should be capitalized and deferred for recognition during the coverage period. This guidance specifies that only incremental costs or costs directly related to the successful acquisition of new or renewal insurance contracts are to be capitalized as a deferred policy acquisition cost. Industry practice was such that deferred costs typically also included costs related to unsuccessful acquisitions of insurance contracts. This guidance is effective for annual reporting periods (and interim reporting periods of those annual reporting periods) beginning on or after December 15, 2011, and may be adopted prospectively or retrospectively. Adoption of this guidance had an impact on the consolidated financial position and operating results of the Company since certain costs associated with contract acquisitions that were previously deferred no longer meet the criteria for deferral under the new guidance. The Company adopted this guidance retrospectively on January 1, 2012, resulting in the adjustment of certain balances in the prior year’s Consolidated Financial Statements, including a decline in consolidated stockholders’ equity of $6,427,750 at December 31, 2011.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Unaudited)

The term “Company” is used below interchangeably to describe EMC Insurance Group Inc. (Parent Company only) and EMC Insurance Group Inc. and its subsidiaries. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included under Item 1 of this Form 10-Q, and the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s 2011 Form 10-K.

As discussed in Note 1 of Notes to the Consolidated Financial Statements, effective January 1, 2012 the Company adopted new accounting guidance related to deferred policy acquisition costs that resulted in a retrospective adjustment of certain amounts reported in the prior year’s consolidated financial statements. Certain financial information presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations has also been adjusted.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides issuers the opportunity to make cautionary statements regarding forward-looking statements. Accordingly, any forward-looking statement contained in this report is based on management’s current beliefs, assumptions and expectations of the Company’s future performance, taking all information currently available into account. These beliefs, assumptions and expectations can change as the result of many possible events or factors, not all of which are known to management. If a change occurs, the Company’s business, financial condition, liquidity, results of operations, plans and objectives may vary materially from those expressed in the forward-looking statements. The risks and uncertainties that may affect the actual results of the Company include, but are not limited to, the following:

catastrophic events and the occurrence of significant severe weather conditions;

the adequacy of loss and settlement expense reserves;

state and federal legislation and regulations;

changes in the property and casualty insurance industry, interest rates or the performance of financial markets and the general economy;

rating agency actions;

“other-than-temporary” investment impairment losses; and

other risks and uncertainties inherent to the Company’s business, including those discussed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K.

Management intends to identify forward-looking statements when using the words “believe”, “expect”, “anticipate”, “estimate”, “project” or similar expressions. Undue reliance should not be placed on these forward-looking statements.

COMPANY OVERVIEW

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

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Property and casualty insurance operations are conducted through three subsidiaries and represent the most significant segment of the Company’s business, totaling 79 percent of consolidated premiums earned during the first six months of 2012. The property and casualty insurance operations are integrated with the property and casualty insurance operations of Employers Mutual through participation in a reinsurance pooling agreement. Because the Company conducts its property and casualty insurance operations together with Employers Mutual through the reinsurance pooling agreement, the Company shares the same business philosophy, management, employees and facilities as Employers Mutual and offers the same types of insurance products.

Reinsurance operations are conducted through EMC Reinsurance Company, totaling 21 percent of consolidated premiums earned during the first six months of 2011. The principal business activity of EMC Reinsurance Company is to assume, through a quota share reinsurance agreement, 100 percent of Employers Mutual’s assumed reinsurance business (with certain exceptions).

CRITICAL ACCOUNTING POLICIES

The accounting policies considered by management to be critically important in the preparation and understanding of the Company’s financial statements and related disclosures are presented in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s 2011

Form 10-K.

RESULTS OF OPERATIONS

Results of operations by segment and on a consolidated basis for the three and six months ended June 30, 2012 and 2011 are as follows.

	Three months ended						Six months ended
	June 30,						June 30,
($ in thousands)	2012			2011			2012			2011
Property and casualty insurance
Premiums earned	$	87,825		$	78,381		$	172,857		$	155,692
Losses and settlement expenses		70,621			72,619			122,639			123,787
Acquisition and other expenses		32,597			28,233			63,710			58,797
Underwriting loss	$	(15,393	)	$	(22,471	)	$	(13,492	)	$	(26,892	)

Loss and settlement expense ratio		80.4	%		92.6	%		70.9	%		79.5	%
Acquisition expense ratio		37.1	%		36.1	%		36.9	%		37.8	%
Combined ratio		117.5	%		128.7	%		107.8	%		117.3	%

Losses and settlement expenses:
Insured events of current year	$	75,080		$	81,344		$	137,603		$	137,194
Decrease in provision for insured events of prior years		(4,459	)		(8,725	)		(14,964	)		(13,407	)

Total losses and settlement expenses	$	70,621		$	72,619		$	122,639		$	123,787

Catastrophe losses	$	19,773		$	29,535		$	25,327		$	32,958

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	Three months ended						Six months ended
	June 30,						June 30,
($ in thousands)	2012			2011			2012			2011
Reinsurance
Premiums earned	$	22,445		$	22,550		$	47,173		$	41,526
Losses and settlement expenses		17,779			29,151			31,001			51,353
Acquisition and other expenses		4,625			4,750			9,636			9,333
Underwriting profit (loss)	$	41		$	(11,351	)	$	6,536		$	(19,160	)

Loss and settlement expense ratio		79.2	%		129.3	%		65.7	%		123.7	%
Acquisition expense ratio		20.6	%		21.0	%		20.4	%		22.4	%
Combined ratio		99.8	%		150.3	%		86.1	%		146.1	%

Losses and settlement expenses:
Insured events of current year	$	14,719		$	29,616		$	33,699		$	51,043
Increase (decrease) in provision for insured events of prior years		3,060			(465	)		(2,698	)		310

Total losses and settlement expenses	$	17,779		$	29,151		$	31,001		$	51,353

Catastrophe losses	$	5,074		$	11,529		$	9,223		$	17,511

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	Three months ended						Six months ended
	June 30,						June 30,
($ in thousands)	2012			2011			2012			2011
Consolidated
REVENUES
Premiums earned	$	110,270		$	100,931		$	220,030		$	197,218
Net investment income		11,148			11,474			22,305			23,552
Realized investment gains (losses)		(1,138	)		1,700			7,780			9,958
Other income		223			236			462			440
		120,503			114,341			250,577			231,168
LOSSES AND EXPENSES
Losses and settlement expenses		88,400			101,770			153,640			175,140
Acquisition and other expenses		37,222			32,983			73,346			68,130
Interest expense		225			225			450			450
Other expense		168			1,023			755			1,955
		126,015			136,001			228,191			245,675
Income (loss) before income tax
expense (benefit)		(5,512	)		(21,660	)		22,386			(14,507	)
Income tax expense (benefit)		(2,935	)		(8,758	)		5,739			(7,345	)
Net income (loss)	$	(2,577	)	$	(12,902	)	$	16,647		$	(7,162	)

Net income (loss) per share	$	(0.20	)	$	(1.00	)	$	1.29		$	(0.55	)

Loss and settlement expense ratio		80.2	%		100.8	%		69.8	%		88.8	%
Acquisition expense ratio		33.7	%		32.7	%		33.4	%		34.6	%
Combined ratio		113.9	%		133.5	%		103.2	%		123.4	%

Losses and settlement expenses:
Insured events of current year	$	89,799		$	110,960		$	171,302		$	188,237
Decrease in provision for insured events of prior years		(1,399	)		(9,190	)		(17,662	)		(13,097	)

Total losses and settlement expenses	$	88,400		$	101,770		$	153,640		$	175,140

Catastrophe losses	$	24,847		$	41,064		$	34,550		$	50,469

The Company had net losses of $2,577,000 ($0.20 per share) and $12,902,000 ($1.00 per share) during the three months ended June 30, 2012 and 2011, respectively. For the six months ended June 30, 2012, the Company had net income of $16,647,000 ($1.29 per share) compared to a net loss of $7,162,000 ($0.55 per share) during the same period in 2011. The improvement in 2012 results is primarily attributed to a double-digit increase in premium income and a significant decline in catastrophe losses from the unprecedented amount experienced in the second quarter of 2011. Management has expended a great deal of time and resources into implementing much needed rate level increases in the commercial lines of business during the first six months of the year, and those efforts have been successful. Unfortunately, the positive impact those rate increases had on second quarter results was overshadowed by a high level of catastrophe losses and a decline in the amount of favorable development experienced on prior years’ reserves. Management continues to believe that the persistent level of above-average catastrophe losses is an aberration attributed to an active weather cycle, and does not reflect a permanent change in weather patterns. Future operating results should benefit from the rate level increases being implemented now.

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Premium income

Premiums earned increased 9.3 percent and 11.6 percent to $110,270,000 and $220,030,000 for the three months and six months ended June 30, 2012 from $100,931,000 and $197,218,000 for the same periods in 2011. A number of factors contributed to these increases in premium income. In the property and casualty insurance segment, the majority of the increase is attributed to rate level increases, growth in insured exposures and an increase in retained policies. In the reinsurance segment, the increase for the six months ended is attributed to rate level increases, and to a lesser extent new marine business. Premium rate levels increased moderately in the property and casualty insurance segment during the first half of 2012, and rate level increases continue to accelerate each month. Double-digit premium rate levels increases were obtained in the reinsurance segment during the January 1 renewal season, but have slowed somewhat subsequently. Premium rates improved in all lines of business, and are expected to continue to improve during the remainder of the year and into 2013.

Premiums earned for the property and casualty insurance segment increased 12.0 percent and 11.0 percent to $87,825,000 and $172,857,000 for the three months and six months ended June 30, 2012 from $78,381,000 and $155,692,000 for the same periods in 2011. This growth is the result of several factors, including rate level increases, growth in insured exposures, and strong retention of policies. During the first half of 2012, renewal rates on the six major lines of commercial business were up 4.8 percent, and the size of the rate increases has continued to increase each month. Rates for personal lines of business were up as well. Renewal business premium increased approximately nine percent during the first half of 2012 compared to the same period in 2011, and new business premium was up approximately 13 percent. While new business premium grew significantly, it continues to account for a relatively small portion of the pool participants’ direct written premiums, at just 15 percent during the first half of 2012. Overall policy retention remained stable at approximately 88 percent.

Premiums earned for the reinsurance segment decreased 0.5 percent to $22,445,000 for the three months ended June 30, 2012 from $22,550,000 for the same period in 2011. For the six months ended June 30, 2012 premiums earned increased 13.6 percent to $47,173,000 from $41,526,000 for the same period in 2011. The decrease for the three months ended June 30, 2012 is attributed to a negative earned but not reported (EBNR) premium adjustment recorded during the second quarter (see discussion below). The increase for the six months ended June 30, 2012 is primarily attributed to rate level increases implemented during the January 1 renewal season. Rate levels, which had previously been declining, began trending higher during 2011 due to the large number of severe catastrophic events that occurred during the year. This improved pricing continued through the January 1, 2012 renewal season. Rate increases averaged approximately 10 percent, with larger increases on contracts containing catastrophe exposures. The pace of rate increases has slowed somewhat during 2012, with July 1 renewal rates increasing approximately five to seven percent. Effective January 1, 2012, Employers Mutual began participating in a new offshore energy and liability proportional account written through a specialty marine underwriter. This account is expected to generate between $17,000,000 and $21,000,000 of annual premiums on an underwriting year basis; however, since the underlying policies will have effective dates throughout the 2012 underwriting year, approximately one-half of this range of annual premiums is currently projected to be earned during calendar year 2012 with the balance to be earned during calendar year 2013. Worldwide, the account covers oil rigs, platforms and floating production, storage and offloading systems, with 56 percent of the premiums coming from the United States and United Kingdom. The focus is on small to medium-sized enterprises involved with energy exploration and production, which comprises 75 percent of the account. The account also includes a small number of larger enterprises and a number of state-owned oil and gas companies. Specialized underwriting and engineering areas work closely together to technically analyze each risk. Gulf of Mexico windstorm exposure is minimal and first party removal of wreck is restricted in liability policies. The Company’s maximum exposure is limited to $4,000,000 per event under the terms of the excess of loss reinsurance agreement with Employers Mutual. During the first quarter of 2012, the reinsurance segment recognized $3,975,000 of EBNR premiums on this account. However, based on more refined actuarial projections, and the fact that the 2012 earnings stream on this account is somewhat back-loaded because it is a new account and the majority of the underlying policies are expected to have effective dates in the months of June and July, a total of $990,000 of EBNR premiums was recognized on this account for the six months ended June 30, 2012. Accordingly, results for the second quarter of 2012 reflect $2,985,000 of negative EBNR premiums associated with this account. Corresponding decreases in incurred but not reported (IBNR) reserves ($2,239,000), commission expense reserves ($597,000) and the cost of the excess of loss reinsurance protection ($299,000) were also recorded, resulting in an after-tax impact on second quarter results of less than $100,000.

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Effective January 1, 2012, the Mutual Reinsurance Bureau (MRB) underwriting association cancelled a large pro rata account with poor experience. As a result, the reinsurance segment recorded a $3,406,000 portfolio adjustment decrease in premiums written in the first quarter of 2012 that offset a corresponding decrease in unearned premiums. Ten percent of this amount ($341,000) was recorded as a reduction in the cost of the excess of loss reinsurance protection provided by Employers Mutual, and the reinsurance segment recognized $1,362,000 of negative commission allowance (commission income) to compensate for the acquisition costs incurred to generate this business.

Effective January 1, 2011, Country Mutual Insurance Company (Country Mutual) discontinued its participation in the MRB underwriting association. As a result, Employers Mutual became a one-fourth participant in MRB, up from its previous approximate one-fifth participation. In connection with Employers Mutual’s increased participation in MRB, the reinsurance segment recorded a $1,023,000 portfolio adjustment increase in premiums written in the first quarter of 2011 that offset a corresponding increase in unearned premium. The reinsurance segment ceded ten percent of this amount ($102,000) to Employers Mutual under the terms of the excess of loss reinsurance agreement, and recognized $399,000 of commission expense to compensate Country Mutual for the acquisition costs incurred to generate this business.

Losses and settlement expenses

Losses and settlement expenses decreased 13.1 percent and 12.3 percent to $88,400,000 and $153,640,000 for the three months and six months ended June 30, 2012 from $101,770,000 and $175,140,000 for the same periods in 2011. The loss and settlement expense ratios decreased to 80.2 percent and 69.8 percent for the three months and six months ended June 30, 2012 from 100.8 percent and 88.8 percent for the same periods in 2011. The significant improvement in the 2012 loss and settlement expense ratios is primarily attributed to a decline in catastrophe losses, as well as the increases in premium income previously noted. Catastrophe losses declined from the unprecedented amount experienced in 2011, but were still substantially higher than the Company’s long-term average. For the Company, the second quarter of any given year has the potential for significant catastrophe losses due to the changing of the seasons. This is especially true in the Midwest, where the majority of the Company’s business is conducted, because the change in seasons is often the catalyst for wind and hail storms, and tornados. During the second quarter of 2012, catastrophe losses accounted for 22.5 percentage points of the loss and settlement expense ratio. The most recent 10-year average for the second quarter, including the record catastrophe losses experienced in 2011, is 16.6 percentage points of the loss and settlement expense ratio. Since premiums earned are utilized in the calculation of the loss and settlement expense ratio, the rate level increases recognized during the first half of 2012 are having a positive impact on the ratios. The actuarial analysis of the Company’s carried reserves as of March 31, 2012 indicates that the level of reserve adequacy is consistent with other recent evaluations. From management’s perspective, this measure is more relevant to an understanding of the Company’s results of operations than the composition of the underwriting results between the current and prior accident years.

The loss and settlement expense ratios for the property and casualty insurance segment decreased to 80.4 percent and 70.9 percent for the three months and six months ended June 30, 2012 from 92.6 percent and 79.5 percent for the same periods in 2011. These decreases are primarily attributed to a significant decline in catastrophe losses and an increase in premium income; however, catastrophe losses continue to exceed the long-term averages. For the three months and six months ended June 30, 2012, catastrophe losses accounted for 22.5 and 14.7 percentage points, respectively, of the loss and settlement expense ratio. The most recent 10-year averages for these periods, including the record catastrophe losses experienced in the first half of 2011, is 17.5 and 10.8 percentage points, respectively. Large losses (which the Company defines as losses greater than $500,000 for the EMC Insurance Companies’ pool, excluding catastrophe losses) increased to $6,114,000 in the second quarter of 2012 from $4,144,000 in the second quarter of 2011. For the first six months of 2012, large losses increased to $12,439,000 from $8,181,000 in 2011. A decline in claim frequency was experienced in nearly all lines of business, but the benefit of this decline was more than offset by the increases in catastrophe and large losses. The property and casualty insurance segment experienced $4,459,000 of favorable development on prior years’ reserves during the second quarter of 2012, compared to $8,725,000 in the second quarter of 2011. For the first six months of 2012, favorable development totaled $14,964,000 compared to $13,407,000 in 2011. Development amounts can vary significantly from quarter-to-quarter and year-to-year depending on a number of factors, including the number of claims settled and the settlement terms.

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The loss and settlement expense ratios for the reinsurance segment decreased to 79.2 percent and 65.7 percent for the three months and six months ended June 30, 2012 from 129.3 percent and 123.7 percent for the same periods in 2011. These decreases are primarily attributed to a decline in catastrophe losses and the rate level increases previously noted. The adjustments made to the EBNR premiums and IBNR reserves associated with the new offshore energy and liability proportional account during the second quarter also contributed to the decrease in the ratio for the three months ended June 30, 2012, while favorable development on prior years’ reserves, compared to the adverse development experienced in 2011, contributed to the decrease in the ratio for the six months ended June 30, 2012. The favorable development experienced in 2012 is from the Home Office Reinsurance Assumed Department (HORAD) book of business, and reflects a reduction in IBNR reserves for prior accident years that was greater than the actual losses reported for those accident years. The adverse development experienced during the second quarter of 2012 is primarily associated with the 2011 accident year in the HORAD book of business. For both the three months and six months ended June 30, 2011, the reinsurance subsidiary had relatively little development on prior years’ reserves. During the first six months of 2011, the reinsurance segment experienced an unprecedented four events (three during the second quarter alone) with losses greater than the $3,000,000 retention amount under excess of loss reinsurance agreement. Losses from those four events totaled $24,000,000 at June 30, 2011, with $12,000,000 retained by the reinsurance segment and the remaining $12,000,000 ceded to Employers Mutual. During the first six months of 2012, the reinsurance segment had one event, a severe weather outbreak in the Ohio Valley, which exceeded the current $4,000,000 retention amount.

Acquisition and other expenses

Acquisition and other expenses increased 12.9 percent and 7.7 percent to $37,222,000 and $73,346,000 for the three months and six months ended June 30, 2012 from $32,983,000 and $68,130,000 for the same periods in 2011. For the three months ended June 30, 2012, the acquisition expense ratio increased to 33.7 percent from 32.7 percent for the same period in 2011. For the six months ended June 30, 2012, the acquisition expense ratio declined to 33.4 percent from 34.6 percent for the same period in 2011. The increase in the acquisition expense ratio for the three months ended June 30, 2012 is primarily attributed to a low level of policyholder dividend expense in the property and casualty insurance segment in 2011, while the decrease in the acquisition expense ratio for the six months ended June 30, 2012 is primarily attributed to the growth in premium, and a negative commission allowance recorded by the reinsurance subsidiary during the first quarter.

For the property and casualty insurance segment, the acquisition expense ratio increased to 37.1 percent for the three months ended June 30, 2012 from 36.1 percent for the same period in 2011, but decreased to 36.9 percent for the six months ended June 30, 2012 from 37.8 percent for the same period in 2011. The increase for the three months ended June 30, 2012 reflects a decline in policyholder dividend expense for three months ended June 30, 2011, while the decrease for the six months ended June 30, 2012 is primarily attributed to growth in premium income.

For the reinsurance segment, the acquisition expense ratios decreased to 20.6 percent and 20.4 percent for the three months and six months ended June 30, 2012 from 21.0 percent and 22.4 percent for the same periods in 2011. These decreases are primarily attributed to the growth in premium income. The adjustments made to the EBNR premiums and commission expense reserves associated with the new offshore energy and liability proportional account during the second quarter also contributed to the decrease in the ratio for the three months ended June 30, 2012. The decline for the six months ended June 30, 2012 also reflects a negative commission allowance of $1,362,000 recorded in the first quarter in connection with the cancellation of a large MRB account. However, a portion of this negative commission allowance was offset by the resulting release (amortization) of the related deferred policy acquisition cost asset, resulting in an immediate expense reduction of approximately $654,000 during the first quarter of 2012. In the first quarter of 2011, the reinsurance segment recognized $399,000 of commission expense in conjunction with Country Mutual’s withdrawal from MRB. A portion of this commission expense was capitalized as part of the deferred policy acquisition cost asset (to be expensed as the related premiums are earned), resulting in an immediate expense recognition of approximately $181,000 during the first quarter of 2011.

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Investment results

Net investment income decreased 2.8 percent and 5.3 percent to $11,148,000 and $22,305,000 for the three months and six months ended June 30, 2012 from $11,474,000 and $23,552,000 for the same periods in 2011. These decreases are primarily attributed to the low interest rate environment that has persisted for the past several years. During this time period, available cash flow has been invested in fixed maturity securities with progressively lower yields, resulting in a decline in the annualized yield of the fixed maturity portfolio. The average coupon on the fixed maturity portfolio was 4.43 percent at June 30, 2012, compared to 4.64 percent at December 31, 2011 and 4.70 percent at June 30, 2011. Management is actively pursuing ways to minimize the decline in investment income without increasing overall risk, such as the implementation of a new equity strategy that emphasizes dividend income (see discussion below). Those efforts have been successful, and management is currently projecting that the year-to-year decline in investment income will be less than two percent by the end of the year. A decrease in the par value of the fixed maturity portfolio also contributed to the decline in investment income. The effective duration of the Company’s fixed maturity portfolio was 4.54 years at June 30, 2012, compared to 4.65 years at December 31, 2011.

At the end of the first quarter of 2012, management reinvested approximately $35,000,000 from the current equity portfolio and $10,000,000 of cash into a new equity portfolio with an emphasis on dividend income. In addition to a higher dividend return, this new equity strategy is expected to carry less market volatility. The Company’s equity security holdings produced dividend income of $954,000 and $1,692,000 for the three months and six months ended June 30, 2012, compared to $545,000 and $1,099,000 for the same periods in 2011.

The Company had net realized investment losses of $1,138,000 for the three months ended June 30, 2012, compared to net realized investment gains of $1,700,000 for the same period in 2011. For the six months ended June 30, 2012, net realized investment gains totaled $7,780,000, compared to $9,958,000 for the same period in 2011. The Company experienced an unusually large amount of realized investment gains in the first quarters of 2012 and 2011, totaling $8,918,000 and $8,258,000, respectively. The realized investment gains recognized in the first quarter of 2012 primarily resulted from the sale of equity securities. Proceeds from those sales were used to fund the purchase of equity securities in the new portfolio that emphasizes dividend income. The realized investment gains recognized during the first quarter of 2011 resulted from normal activity in the equity portfolio when market prices were at elevated levels. “Other-than-temporary” investment impairment losses of $126,000 and $670,000 were recognized in the second quarters of 2012 and 2011, respectively. The impairment losses in the second quarter of 2012 were recognized on two equity securities, while the impairment losses in the second quarter of 2011 were recognized on four residential mortgage-backed securities (all resulting from an intent to sell) and four equity securities. During the first six months of 2012, “other-than-temporary” impairment losses totaled $126,000, compared to $916,000 in the same period of 2011. The 2011 impairment losses were recognized on four residential mortgage-backed securities (all resulting from the intent to sell) and seven equity securities.

Other expense

The decrease in other expense for the three months and six months ended June 30, 2012 are attributed to changes in the foreign currency exchange gains and losses recognized on the reinsurance segment’s foreign currency denominated reinsurance business. Foreign currency exchange gains of $393,000 and $373,000 are included in the amounts for the three months and six months ended June 30, 2012, respectively. In comparison, foreign currency exchange losses of $521,000 and $942,000 were recognized during the same periods in 2011.

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Income tax

The Company had an income tax benefit of $2,935,000 and $8,758,000 for the three months ended June 30, 2012 and 2011, respectively. For the six months ended June 30, 2012 the Company had income tax expense of $5,739,000, compared to an income tax benefit of $7,345,000 for the same period in 2011. The effective tax rates for the three months and six months ended June 30, 2012 were 53.3 percent and 25.6 percent, respectively, compared to 40.6 percent and 50.5 percent for the same periods in 2011. Note that the effective tax rates for all but the six months ended June 30, 2012 are based on tax benefits relative to pre-tax losses, thus an effective tax rate greater than the United States federal corporate tax rate of 35 percent is indicative of a favorable or “low” effective tax rate. The fluctuations in the effective tax rates primarily reflect variations in the amount of pre-tax income (loss) reported during the respective periods relative to the amount of tax-exempt interest income earned.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet cash obligations. The Company had positive cash flows from operations of $4,820,000 during the first six months of 2012 compared to negative cash flows from operations of $1,033,000 during the same period of 2011. It is not unusual for the Company to generate negative cash flows from operations during the first half of the year; however, on an annual basis, the Company typically generates substantial positive cash flows from operations because cash from premium payments is generally received in advance of cash payments made to settle claims. These positive cash flows provide the foundation of the Company’s asset/liability management program and are the primary drivers of the Company’s liquidity. The Company invests in high quality, liquid securities to match the anticipated payments of losses and settlement expenses of the underlying insurance policies. Because the timing of these losses is uncertain, the majority of the portfolio is maintained in short to intermediate maturity securities that can be easily liquidated or that generate adequate cash flow to meet liabilities.

The Company is a holding company whose principal asset is its investment in its property and casualty insurance subsidiaries and its reinsurance subsidiary (“insurance subsidiaries”). As a holding company, the Company is dependent upon cash dividends from its insurance subsidiaries to meet all its obligations, including cash dividends to stockholders and the funding of the Company’s stock repurchase programs. State insurance regulations restrict the maximum amount of dividends insurance companies can pay without prior regulatory approval. The maximum amount of dividends that the insurance subsidiaries can pay to the Company in 2012 without prior regulatory approval is approximately $32,522,000. The Company received $8,500,000 and $6,000,000 of dividends from its insurance subsidiaries and paid cash dividends to its stockholders totaling $5,153,000 and $4,923,000 during the first six months of 2012 and 2011, respectively.

The Company’s insurance subsidiaries must maintain adequate liquidity to ensure that their cash obligations are met; however, because of the property and casualty insurance subsidiaries’ participation in the pooling agreement and the reinsurance subsidiary’s participation in the quota share agreement, they do not have the daily liquidity concerns normally associated with an insurance company. This is because under the terms of the pooling and quota share agreements, Employers Mutual receives all premiums and pays all losses and expenses associated with the insurance business produced by the pool participants and the assumed reinsurance business ceded to the Company’s reinsurance subsidiary, and then settles inter-company balances generated by these transactions with the participating companies on a monthly (pool participants) or quarterly (reinsurance subsidiary) basis. Prior to the second quarter of 2011, all inter-company balances were settled on a quarterly basis.

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At the insurance subsidiary level, the primary sources of cash are premium income, investment income and proceeds from called or matured investments. The principal outflows of cash are payments of claims, commissions, premium taxes, operating expenses, income taxes, dividends, interest and principal payments on debt, and investment purchases. Cash outflows vary because of uncertainties regarding settlement dates for unpaid losses and the potential for large losses, either individually or in the aggregate. Accordingly, the insurance subsidiaries maintain investment and reinsurance programs intended to provide adequate funds to pay claims without forced sales of investments. In addition, the insurance subsidiaries have access to a line of credit maintained by Employers Mutual with the Federal Home Loan Bank to provide additional liquidity if needed. Beginning in 2012, the insurance subsidiaries also have the ability to borrow funds on a short-term basis (180 days) from Employers Mutual and its subsidiaries and affiliate under a newly implemented Inter-Company Loan agreement.

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

The Company invests for the long term and generally purchases fixed maturity securities with the intent to hold them to maturity. Despite this intent, the Company currently classifies purchases of fixed maturity securities as available-for-sale to provide flexibility in the management of its investment portfolio. At June 30, 2012 and December 31, 2011, the Company had net unrealized holding gains, net of deferred taxes, on its fixed maturity securities available-for-sale of $45,291,000 and $37,872,000, respectively. The fluctuation in the fair value of these investments is primarily due to changes in the interest rate environment during this time period, but also reflects fluctuations in risk premium spreads over U.S. Treasuries. Since the Company does not actively trade in the bond market, such fluctuations in the fair value of these investments are not expected to have a material impact on the operations of the Company, as forced liquidations of investments are not anticipated. The Company closely monitors the bond market and makes appropriate adjustments in its portfolio as conditions warrant.

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

The Company held $11,000 and $15,000 in minority ownership interests in limited partnerships and limited liability companies at June 30, 2012 and December 31, 2011, respectively. The Company does not hold any other unregistered securities.

The Company’s cash balance was $286,000 and $255,000 at June 30, 2012 and December 31, 2011, respectively.

During the first six months of 2012, Employers Mutual contributed $1,000,000 to its qualified pension plan ($306,000 for the Company’s share of the contribution), and made no contribution to the postretirement benefit plans. Employers Mutual plans to contribute approximately $22,000,000 to the pension plan and $5,500,000 to the Voluntary Employee Beneficiary trust in 2012. The Company’s share of these contributions, if made, will be approximately $6,731,000 and $1,590,000, respectively.

Employers Mutual contributed $17,400,000 to its qualified pension plan and $8,000,000 to its postretirement benefit plans in 2011. During the first six months of 2011, Employers Mutual contributed $2,000,000 to its postretirement benefit plans, and made no contribution to its qualified pension plan. The Company reimbursed Employers Mutual $5,348,000 for its share of the 2011 qualified pension plan contribution and $2,244,000 for its share of the 2011 postretirement benefit plans contribution (includes $561,000 for its share of the contribution to the postretirement benefit plans during the first six months of 2011).

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Capital Resources

Capital resources consist of stockholders’ equity and debt, representing funds deployed or available to be deployed to support business operations. For the Company’s insurance subsidiaries, capital resources are required to support premium writings. Regulatory guidelines suggest that the ratio of a property and casualty insurer’s annual net premiums written to its statutory surplus should not exceed three to one. On an annualized basis, all of the Company’s property and casualty insurance subsidiaries were well under this guideline at June 30, 2012.

The Company’s insurance subsidiaries are required to maintain a certain minimum level of surplus on a statutory basis, and are subject to regulations under which the payment of dividends from statutory surplus is restricted and may require prior approval of their domiciliary insurance regulatory authorities. The Company’s insurance subsidiaries are also subject to annual Risk Based Capital (RBC) requirements that may further impact their ability to pay dividends. RBC requirements attempt to measure minimum statutory capital needs based upon the risks in a company’s mix of products and investment portfolio. At December 31, 2011, the Company’s insurance subsidiaries had total adjusted statutory capital well in excess of the minimum RBC requirement.

The Company’s total cash and invested assets at June 30, 2012 and December 31, 2011 are summarized as follows:

	June 30, 2012
					Percent of
	Amortized		Fair		total			Carrying
($ in thousands)	cost		value		fair value			value
Fixed maturity securities available-for-sale	$	876,967	$	946,645		82.6	%	$	946,645
Equity securities available-for-sale		109,211		133,133		11.6			133,133
Cash		286		286		-			286
Short-term investments		66,295		66,295		5.8			66,295
Other long-term investments		11		11		-			11
	$	1,052,770	$	1,146,370		100.0	%	$	1,146,370

	December 31, 2011
					Percent of
	Amortized		Fair		total			Carrying
($ in thousands)	cost		value		fair value			value
Fixed maturity securities available-for-sale	$	899,940	$	958,204		86.1	%	$	958,204
Equity securities available-for-sale		90,866		111,300		10.0			111,300
Cash		255		255		-			255
Short-term investments		42,629		42,629		3.9			42,629
Other long-term investments		14		14		-			14
	$	1,033,704	$	1,112,402		100.0	%	$	1,112,402

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The amortized cost and estimated fair value of fixed maturity and equity securities at June 30, 2012 were as follows:

			Gross		Gross
	Amortized		unrealized		unrealized		Estimated
($ in thousands)	cost		gains		losses		fair value
Securities available-for-sale:
Fixed maturity securities:
U.S. treasury	$	4,690	$	308	$	-	$	4,998
US government-sponsored agencies		112,326		2,676		53		114,949
Obligations of states and
political subdivisions		352,612		33,833		-		386,445
Commercial mortgage-backed		77,000		9,682		24		86,658
Residential mortgage-backed		25,506		1,189		61		26,634
Other asset-backed		9,870		1,369		-		11,239
Corporate		294,963		21,324		565		315,722
Total fixed maturity securities		876,967		70,381		703		946,645

Equity securities:
Common stocks:
Financial services		11,920		2,109		222		13,807
Information technology		12,187		5,367		94		17,460
Healthcare		16,284		3,361		8		19,637
Consumer staples		11,371		1,764		11		13,124
Consumer discretionary		11,497		5,604		60		17,041
Energy		15,294		3,742		41		18,995
Industrials		8,932		553		10		9,475
Other		15,226		1,730		59		16,897
Non-redeemable preferred stocks		6,500		565		368		6,697
Total equity securities		109,211		24,795		873		133,133
Total securities available-for-sale	$	986,178	$	95,176	$	1,576	$	1,079,778

The Company’s property and casualty insurance subsidiaries have $25,000,000 of surplus notes issued to Employers Mutual at an interest rate of 3.60 percent. Reviews of the interest rate are conducted by the Inter-Company Committees of the boards of directors of the Company and Employers Mutual every five years, with the next review due in 2013. Payments of interest and repayments of principal can only be made out of the applicable subsidiary’s statutory surplus and is subject to prior approval by the insurance commissioner of the respective states of domicile. The surplus notes are subordinate and junior in right of payment to all obligations or liabilities of the applicable insurance subsidiaries. Total interest expense incurred on these surplus notes was $450,000 during the first six months of both 2012 and 2011. During the first quarter of 2012, the Company’s property and casualty insurance subsidiaries paid Employers Mutual for the interest that had been accrued on the surplus notes during 2011.

As of June 30, 2012, the Company had no material commitments for capital expenditures.

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Off-Balance Sheet Arrangements

Employers Mutual collects from agents, policyholders and ceding reinsurance companies all premiums associated with the insurance business produced by the pool participants and the assumed reinsurance business ceded to the reinsurance subsidiary. Employers Mutual settles with the pool participants (monthly) and the reinsurance subsidiary (quarterly) the premiums written from these insurance policies and reinsurance contracts, providing full credit for the premiums written during the period (not just the collected portion). Due to this arrangement, and since a significant portion of these premium balances are collected over the course of the coverage period, Employers Mutual carries a substantial receivable balance for insurance and reinsurance premiums in process of collection. Any of these receivable amounts that are ultimately deemed to be uncollectible are charged-off by Employers Mutual and the expense is charged to the reinsurance subsidiary or allocated to the pool members on the basis of pool participation. As a result, the Company has an off-balance sheet arrangement with an unconsolidated entity that results in a credit-risk exposure (Employers Mutual’s insurance and reinsurance premium receivable balances) that is not reflected in the Company’s financial statements. The average annual expense for such charge-offs allocated to the Company over the past ten years is $319,000. Based on this historical data, this credit-risk exposure is not considered to be material to the Company’s results of operations or financial position, and accordingly, no loss contingency liability has been recorded.

Investment Impairments and Considerations

The Company recorded “other-than-temporary” investment impairment losses totaling $126,000 on two equity securities during the second quarter of 2012, compared to $670,000 on four residential mortgage-backed securities (all resulting from an intent to sell) and four equity securities during the second quarter of 2011. For the six months ended June 30, 2012, the Company recognized “other-than-temporary” investment impairment losses totaling $126,000, compared to $916,000 on four residential mortgage-backed securities (all resulting from an intent to sell) and seven equity securities during the same period of 2011.

The Company has no direct exposure to sub-prime residential lending, and holds no sub-prime residential collateralized debt obligations or sub-prime collateralized mortgage obligations. The Company does have indirect exposure to sub-prime residential lending markets as it has significant holdings of government agency securities, prime and Alt-A collateralized mortgage obligations, as well as fixed maturity and equity securities in both the banking and financial services sectors. While these holdings do not include companies engaged in originating residential lending as their primary business, they do include companies that may be indirectly engaged in this type of lending.

The Company has no direct exposure to European sovereign debt, but does have indirect exposure to European sovereign debt through its holdings of dollar-denominated fixed maturity securities issued by European-based financial institutions. This includes (at par value) $8,000,000 from Great Britain, $14,500,000 from Switzerland, and $4,750,000 from Germany.

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At June 30, 2012, the Company had unrealized losses on available-for-sale securities as presented in the table below. The estimated fair value is based on quoted market prices, where available. In cases where quoted market prices are not available, fair values are based on a variety of valuation techniques depending on the type of security. None of these securities are considered to be in concentrations by either security type or industry. The Company uses several factors to determine whether the carrying value of an individual security has been “other-than-temporarily” impaired. Such factors include, but are not limited to, the security’s value and performance in the context of the overall markets, length of time and extent the security’s fair value has been below carrying value, key corporate events and collateralization of fixed maturity securities. Based on these factors, the absence of management’s intent to sell these securities prior to recovery or maturity, and the fact that management does not anticipate that it will be forced to sell these securities prior to recovery or maturity, it was determined that the carrying value of these securities were not “other-than-temporarily” impaired at June 30, 2012. Risks and uncertainties inherent in the methodology utilized in this evaluation process include interest rate risk, equity price risk, and the overall performance of the economy, all of which have the potential to adversely affect the value of the Company’s investments. Should a determination be made at some point in the future that these unrealized losses are “other-than-temporary”, the Company’s earnings would be reduced by approximately $1,024,000, net of tax; however, the Company’s financial position would not be affected because unrealized losses on available-for-sale securities are reflected in the Company’s financial statements as a component of stockholders’ equity, net of deferred taxes.

Following is a schedule of the length of time securities have continuously been in an unrealized loss position as of June 30, 2012.

	Less than twelve months				Twelve months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
($ in thousands)	value		losses		value		losses		value		losses
Fixed maturity securities:
U.S. government-sponsored agencies	$	18,417	$	53	$	-	$	-	$	18,417	$	53
Commercial mortgage-backed		4,662		24		-		-		4,662		24
Residential mortgage-backed		7,324		37		356		24		7,680		61
Corporate		14,448		437		872		128		15,320		565
Subtotal, fixed maturity securities		44,851		551		1,228		152		46,079		703

Equity securities:
Common stocks:
Financial services		2,183		222		-		-		2,183		222
Information technology		1,719		94		-		-		1,719		94
Healthcare		247		8		-		-		247		8
Consumer staples		682		11		-		-		682		11
Consumer discretionary		2,441		60		-		-		2,441		60
Energy		2,063		41		-		-		2,063		41
Industrials		912		10		-		-		912		10
Other		2,421		59		-		-		2,421		59
Non-redeemable preferred stocks		-		-		1,632		368		1,632		368
Subtotal, equity securities		12,668		505		1,632		368		14,300		873
Total temporarily impaired securities	$	57,519	$	1,056	$	2,860	$	520	$	60,379	$	1,576

The Company does not purchase non-investment grade securities. Any non-investment grade securities held are the result of rating downgrades that occurred subsequent to their purchase. At June 30, 2012, non-investment grade fixed maturity securities held by the Company included fourteen securities, twelve of which were residential mortgage-backed securities. Of these securities, just one residential mortgage-backed security was in an unrealized loss position, with an unrealized loss of $23,000.

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Following is a schedule of gross realized losses recognized in the first six months of 2012 from the sale of securities and from “other-than-temporary” investment impairments. The schedule is aged according to the length of time the underlying securities were in an unrealized loss position. This schedule does not include realized losses stemming from corporate actions such as calls, pay-downs, redemptions, etc.

	Realized losses from sales						"Other-than-		Total
					Gross		temporary"		gross
	Book		Sales		realized		impairment		realized
($ in thousands)	value		price		losses		losses		losses
Equity securities:
Three months or less	$	16,896	$	15,364	$	1,532	$	126	$	1,658
Over three months to six months		68		60		8		-		8
Over six months to nine months		-		-		-		-		-
Over nine months to twelve months		137		120		17		-		17
Over twelve months		-		-		-		-		-
	$	17,101	$	15,544	$	1,557	$	126	$	1,683

LEASES, COMMITMENTS AND CONTINGENT LIABILITIES

One of the Company’s property and casualty insurance subsidiaries leases office facilities in Bismarck, North Dakota with lease terms expiring in 2014. Employers Mutual has entered into various leases for branch and service office facilities with lease terms expiring through 2021. All of these lease costs are included as expenses under the pooling agreement. The Company’s contractual obligations as of June 30, 2012 did not change materially from those presented in the Company’s 2011 Form 10-K.

The participants in the pooling agreement are subject to guaranty fund assessments by states in which they write business. Guaranty fund assessments are used by states to pay policyholder liabilities of insolvent insurers domiciled in those states. Many states allow assessments to be recovered through premium tax offsets. Estimated guaranty fund assessments of $1,031,000 and $1,039,000 have been accrued as of June 30, 2012 and December 31, 2011, respectively. Premium tax offsets of $670,000 and $666,000, which are related to prior guarantee fund payments and current assessments, have been accrued as of June 30, 2012 and December 31, 2011, respectively. The guaranty fund assessments are expected to be paid over the next two years and the premium tax offsets are expected to be realized within ten years of the payments. The participants in the pooling agreement are also subject to second-injury fund assessments, which are designed to encourage employers to employ workers with pre-existing disabilities. Estimated second-injury fund assessments of $1,735,000 and $1,873,000 have been accrued as of June 30, 2012 and December 31, 2011, respectively. The second-injury fund assessment accruals are based on projected loss payments. The periods over which the assessments will be paid is not known.

The participants in the pooling agreement have purchased annuities from life insurance companies, under which the claimant is payee, to fund future payments that are fixed pursuant to specific claim settlement provisions. Based on information provided by the life insurance companies on an annual basis, the Company’s share of case loss reserves eliminated by the purchase of those annuities was $162,000 at December 31, 2011. The Company had a contingent liability for the aggregate guaranteed amount of the annuities of $239,000 at December 31, 2011 should the issuers of those annuities fail to perform. Although management is not able to verify the amount, the Company would likely have a similar contingent liability at June 30, 2012. The probability of a material loss due to failure of performance by the issuers of these annuities is considered remote.

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NEW ACCOUNTING GUIDANCE

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

Further analysis of the components of the Company’s market risk (including interest rate risk, equity price risk, credit quality risk, and prepayment risk) can be found in the Company’s 2011 Form 10-K.

ITEM 4.

CONTROLS AND PROCEDURES

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

There were no changes in the Company’s internal control over financial reporting that occurred during the second quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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EMC INSURANCE GROUP INC. AND SUBSIDIARIES

PART II.

OTHER INFORMATION

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information regarding purchases of equity securities by the Company and affiliated purchasers for the three months ended June 30, 2012:

					(c) Total number		(d) Maximum number
	(a) Total		(b) Average		of shares (or		(or approximate dollar
	number of		price		units) purchased		value) of shares
	shares		paid		as part of publicly		(or units) that may yet
	(or units)		per share		announced plans		be purchased under the
Period	purchased (1)		(or unit)		or programs (2)		plans or programs (2 & 3)

4/1/12 - 4/30/12		-	$	-		-	$	19,490,561

5/1/12 - 5/31/12		-		-		-		19,490,561

6/1/12 - 6/30/12		8,494		20.41		-		19,490,561

Total		8,494	$	-		-

(1)	This represents shares that were purchased in the open market during the month of June under the Employers Mutual Casualty Company Employee Stock Purchase Plan.

Effective March 14, 2012, the Company’s Board of Directors temporarily suspended the issuance of shares of common stock under the Company’s Dividend Reinvestment and Common Stock Purchase Plan (the “Plan”). As a result, dividend reinvestments and optional cash purchases are not currently permitted under the Plan. The temporary suspension of the issuance of shares of common stock under the Plan was due to a late filing of an amendment to a Current Report on Form 8-K. In late 2011, the Company determined that it had inadvertently failed to file, on a timely basis, an amendment to a Current Report on Form 8-K filed on June 1, 2011 (which disclosed the results of voting at the 2011 Annual Meeting of Stockholders) to disclose the final determination by the Board of Directors regarding the frequency on which future “say-on-pay” votes would be held. The required amendment to the Current Report on Form 8-K was filed on November 8, 2011, resulting in the amendment being filed late by approximately 22 days. The late filing precluded the updating of the S-3 Registration Statement for the Plan because the updating and continued use of the S-3 Registration Statement is conditioned upon the requirement that the Company has filed all required reports in a timely manner during the twelve months, and any portion of a month, immediately preceding the filing of the Annual Report on Form 10-K for the year ended December 31, 2011, a condition the Company did not meet. It is the intent of the Board of Directors to reinstate the issuance of shares of common stock under the Plan at such time that the Company is once again in compliance with the S-3 eligibility requirements regarding the timely filing of the required reports.

(2)	On November 3, 2011, the Company’s Board of Directors authorized a $15,000,000 stock repurchase program. This program was effective immediately and does not have an expiration date. No purchases have yet been made under this program.

(3)

On May 12, 2005, the Company announced that its parent company, Employers Mutual Casualty Company, had initiated a $15,000,000 stock purchase program under which Employers Mutual would purchase shares of the Company’s common stock in the open market. This purchase program was effective immediately and does not have an expiration date; however, this program has been dormant while the Company’s repurchase programs have been active. A total of $4,490,561 remains in this plan.

Table of Contents

ITEM6.

EXHIBITS

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

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

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

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

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Table of Contents

EMC INSURANCE GROUP INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 8, 2012.

	EMC INSURANCE GROUP INC.
	Registrant

	/s/ Bruce G. Kelley
	Bruce G. Kelley
	President and Chief Executive Officer
	(Principal Executive Officer)

	/s/ Mark E. Reese
	Mark E. Reese
	Senior Vice President and
	Chief Financial Officer
	(Principal Accounting Officer)

Table of Contents

EMC INSURANCE GROUP INC. AND SUBSIDIARIES

INDEX TO EXHIBITS

Exhibit number	Item

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

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

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

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

101.INS**	XBRL Instance Document

101.SCH**	XBRL Taxonomy Extension Schema Document

101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB**	XBRL Taxonomy Extension Label Linkbase Document

101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document


*	Filed herewith
**	Furnished, not filed