EMC INSURANCE GROUP INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]

For the Fiscal Year Ended December 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
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 (I.R.S. Employer
incorporation or organization) Identification No.)

717 Mulberry Street, Des Moines, Iowa 50309
- -------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)

Registrant's telephone number, including area code: (515) 280-2902
---------------
Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $1.00
-----------------------------
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 1, 2000 was $29,207,981.

The number of shares outstanding of the registrant's common stock, $1.00
par value, on March 1, 2000, were 11,266,950.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the registrant's annual report to stockholders for the year
ended December 31, 1999 are incorporated by reference under Parts II and IV.

2. Portions of the registrant's definitive proxy statement, which will be
filed with the Securities and Exchange Commission on or before April 29, 2000,
are incorporated by reference under Part III.

TABLE OF CONTENTS

Part I
Item 1. Business ........................................................ 2
Item 2. Properties ...................................................... 22
Item 3. Legal Proceedings ............................................... 22
Item 4. Submission of Matters to a Vote of Security Holders ............. 22

Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters .................................. 23
Item 6. Selected Financial Data ......................................... 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 23
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ...... 23
Item 8. Financial Statements and Supplementary Data ..................... 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .......................... 23

Part III
Item 10. Directors and Executive Officers of the Registrant .............. 24
Item 11. Executive Compensation .......................................... 24
Item 12. Security Ownership of Certain Beneficial Owners
and Management ............................................... 25
Item 13. Certain Relationships and Related Transactions .................. 25

Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K .................................................. 26
Index to Financial Statement Schedules ................................... 26
Signatures ............................................................... 29
Index to Exhibits ........................................................ 39

PART I
------
ITEM 1. BUSINESS.
- ------- ---------
GENERAL
- -------
EMC Insurance Group Inc. is an insurance holding company incorporated in
Iowa in 1974. EMC Insurance Group Inc. is approximately 72 percent owned by
Employers Mutual Casualty Company (Employers Mutual), a multiple-line property
and casualty insurance company organized as an Iowa mutual insurance company in
1911 that is licensed in all 50 states and the District of Columbia. The term
"Company" is used interchangeably to describe EMC Insurance Group Inc. (Parent
Company only) and EMC Insurance Group Inc. and its subsidiaries. Employers
Mutual and all of its subsidiaries and an affiliate (including the Company),
are referred to as the "EMC Insurance Companies."

The Company conducts its insurance business through two business segments
as follows:
...............................
: :
: EMC INSURANCE GROUP INC. :
:.............................:
:
Property and :
Casualty Insurance : Reinsurance
......................:................................
: :
: :
Illinois EMCASCO Insurance Company (Illinois EMCASCO) EMC
Dakota Fire Insurance Company (Dakota Fire) Reinsurance
Farm and City Insurance Company (Farm and City) Company
EMCASCO Insurance Company (EMCASCO)
:
:
EMC Underwriters, LLC.

Illinois EMCASCO was formed in Illinois in 1976, Dakota Fire was formed in
North Dakota in 1957 and EMCASCO was formed in Iowa in 1958 for the purpose of
writing property and casualty insurance. Farm and City was formed in Iowa in
1962 to write nonstandard risk automobile insurance and was purchased by the
Company in 1984. These companies are licensed to write insurance in a total of
35 states and are participants in a pooling agreement with Employers Mutual
(see "Property and Casualty Insurance - Pooling Agreement").

The reinsurance subsidiary was formed in 1981 to assume reinsurance
business from Employers Mutual. The company assumes a portion of Employers
Mutual's assumed reinsurance business, exclusive of certain reinsurance
contracts, and is licensed to do business in nine states.

The Company's excess and surplus lines insurance agency, EMC Underwriters,
LLC., was acquired in 1985. The company was formed in Iowa in 1975 as a broker
for excess and surplus lines insurance. Effective December 31, 1998, the
excess and surplus lines insurance agency was converted to a limited liability
company and the ownership was contributed to EMCASCO.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
- ---------------------------------------------
For information concerning the Company's revenues, operating income and
identifiable assets attributable to each of its industry segments over the past
three years, see note 8 of Notes to Consolidated Financial Statements under
Item 8 of this Form 10-K.

PROPERTY AND CASUALTY INSURANCE
- -------------------------------
POOLING AGREEMENT

The four property and casualty insurance subsidiaries of the Company and
two subsidiaries and an affiliate of Employers Mutual (Union Insurance Company
of Providence, EMC Property & Casualty Company and Hamilton Mutual Insurance
Company) are parties to reinsurance pooling agreements with Employers Mutual
(collectively the "pooling agreement"). Under the terms of the pooling
agreement, each company cedes to Employers Mutual all of its insurance
business, with the exception of any voluntary reinsurance business assumed from
nonaffiliated insurance companies, and assumes from Employers Mutual an amount
equal to its participation in the pool. All losses, settlement expenses and
other underwriting and administrative expenses, excluding the voluntary
reinsurance business assumed by Employers Mutual from nonaffiliated insurance
companies, are prorated among the parties on the basis of participation in the
pool. Operations of the pool give rise to intercompany balances with Employers
Mutual, which are settled on a quarterly basis. The investment and income tax
activities of the pool participants are not subject to the pooling agreement.

The purpose of the pooling agreement is to spread the risk of an exposure
insured by any of the pool participants among all the companies. The pooling
agreement produces a more uniform and stable underwriting result from year to
year for all companies in the pool than might be experienced individually. In
addition, each company benefits from the capacity of the entire pool, rather
than being limited to policy exposures of a size commensurate with its own
assets, and from the wide range of policy forms, lines of insurance written,
rate filings and commission plans offered by each of the companies. A single
set of reinsurance treaties is maintained for the protection of all companies
in the pool.

Effective January 1, 1998, Farm and City, a subsidiary of the Company that
writes nonstandard risk automobile insurance business, became a participant in
the pooling agreement. Farm and City assumes a 1.5 percent participation in
the pool, which increased the Company's aggregate participation in the pool
from 22 percent in 1997 to 23.5 percent in 1998 and 1999. In connection with
this change in the pooling agreement, the Company's liabilities increased
$6,224,586 and invested assets increased $5,569,567. The Company reimbursed
Employers Mutual $726,509 for expenses that were incurred to generate the
additional business assumed by the Company and Employers Mutual paid the
Company $71,490 in interest income as the actual cash transfer did not occur
until March 25, 1998.

Effective January 1, 1997, Hamilton Mutual Insurance Company (Hamilton
Mutual) became a participant in the pooling agreement. In connection with this
change in the pooling agreement, the Company's liabilities increased $6,393,063
and invested assets increased $5,674,458. The Company reimbursed Employers
Mutual $794,074 for expenses incurred to generate the additional business
assumed by the Company and Employers Mutual paid the Company $75,469 in
interest income as the actual cash transfer did not occur until March 24, 1997.

PRINCIPAL PRODUCTS

The Company's property and casualty insurance subsidiaries and the other
parties to the pooling agreement underwrite both commercial and personal lines
of insurance. The following table sets forth the aggregate direct written
premiums of all parties to the pooling agreement for the three years ended
December 31, 1999. The pooling agreement is continuous, but may be amended or
terminated at the end of any calendar year as to any one or more parties.

Percent Percent Percent
of of of
Line of Business 1999 total 1998 total 1997 total
- ---------------- ---- ----- ---- ----- ---- -----
(Dollars in thousands)
Commercial Lines:
Automobile ............ $157,095 20.8% $131,317 18.9% $118,624 18.2%
Property .............. 118,939 15.8 115,815 16.6 110,637 17.0
Workers' compensation 126,285 16.7 117,120 16.8 115,117 17.6
Liability ............. 122,528 16.2 115,377 16.6 110,647 16.9
Other ................. 16,615 2.2 15,418 2.2 15,139 2.3
-------- ----- -------- ----- -------- -----
Total commercial lines 541,462 71.7 495,047 71.1 470,164 72.0
-------- ----- -------- ----- -------- -----

Personal Lines:
Automobile ............ 138,168 18.3 130,693 18.8 119,580 18.3
Property .............. 73,380 9.7 68,365 9.8 61,569 9.4
Liability ............. 2,280 0.3 2,134 0.3 2,026 0.3
Other ................. 51 - 52 - 51 -
-------- ----- -------- ----- -------- -----
Total personal lines 213,879 28.3 201,244 28.9 183,226 28.0
-------- ----- -------- ----- -------- -----
Total ............ $755,341 100.0% $696,291 100.0% $653,390 100.0%
======== ===== ======== ===== ======== =====

MARKETING

Marketing of insurance by the parties to the pooling agreement, excluding
the nonstandard risk automobile insurance sold by Farm and City, is conducted
through 18 offices located throughout the United States and approximately 3,200
independent agencies. These offices allow the Company to respond quickly to
changes in local market conditions. Each office employs underwriting, claims,
marketing and risk improvement representatives, as well as field auditors and
branch administrative technicians. The offices are supported by Employers
Mutual technicians and specialists. Systems are in place to monitor the
underwriting results of each office and to maintain guidelines and policies
consistent with the underwriting and marketing environment in each region.

Farm and City specializes in insuring private passenger automobile risks
that are found to be unacceptable in the standard automobile insurance market.
Farm and City is licensed in a six state area that includes Iowa, Kansas,
Missouri, Nebraska, North Dakota and South Dakota. Private passenger
automobile policies are solicited through the American Agency System using
approximately 1,100 independent agencies.

The following table sets forth the geographic distribution of the
aggregate direct written premiums of all parties to the pooling agreement for
the three years ended December 31, 1999.

1999 1998 1997
------ ------ ------
Alabama ............................ 3.7% 3.7% 3.6%
Arizona ............................ 3.7 3.7 3.7
Illinois ........................... 4.8 5.2 5.3
Iowa ............................... 18.1 19.3 19.0
Kansas ............................. 7.8 7.8 8.3
Michigan ........................... 3.7 3.6 4.1
Minnesota .......................... 3.6 3.8 3.8
Nebraska ........................... 6.9 7.1 7.2
North Carolina ..................... 2.9 3.2 3.3
North Dakota ....................... 3.2 3.1 2.4
Ohio ............................... 2.3 2.3 3.2
Texas .............................. 4.9 4.4 4.4
Wisconsin .......................... 4.3 4.4 4.4
Other * ............................ 30.1 28.4 27.3
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====

* Includes all other jurisdictions, none of which accounted for more than 3%.

COMPETITION

The property and casualty insurance business is highly competitive. The
Company's property and casualty insurance subsidiaries and the other pool
members compete in the United States insurance market with numerous insurers,
many of which have greater financial resources. Competition in the types of
insurance in which the property and casualty insurance subsidiaries are engaged
is based on many factors, including the perceived overall financial strength of
the insurer, premiums charged, contract terms and conditions, services offered,
speed of claim payments, reputation and experience. In this competitive
environment, insureds have tended to favor large, financially strong insurers
and the Company faces the risk that insureds may become more selective and may
seek larger and/or more highly rated insurers.

BEST'S RATING

A.M. Best rates insurance companies based on their relative financial
strength and ability to meet their contractual obligations. The "A"
(Excellent) rating assigned to the Company's property and casualty insurance
subsidiaries and the other pool members is based on the pool members' 1998
operating results and financial condition as of December 31, 1998. A.M. Best
reevaluates its ratings from time to time (normally on an annual basis) and
there can be no assurance that the Company's property and casualty insurance
subsidiaries and the other pool members will maintain their current rating in
the future. Management believes that a Best's rating of "A" (Excellent) or
better is important to the Company's business since many insureds require that
companies with which they insure be so rated. Best's publications indicate
that these ratings are assigned to companies which A.M. Best believes have
achieved excellent overall performance and have a strong ability to meet their
obligations over a long period of time. Best's ratings are based upon factors
of concern to policyholders and insurance agents and are not necessarily
directed toward the protection of investors.

REINSURANCE CEDED

The parties to the pooling agreement cede insurance in the ordinary course
of business for the purpose of limiting their maximum loss exposure through
diversification of their risks. The pool participants also purchase
catastrophe reinsurance to cover multiple losses arising from a single event.

During 1999 and 1998, the pool participants purchased aggregate property
catastrophe excess of loss reinsurance to cover losses arising from multiple
catastrophes. Due to substantial changes in both the terms and the cost of the
coverage, this reinsurance protection has not been renewed for year 2000. If
this reinsurance protection had not been in place in 1999 the Company would
have reported $3,524,000 of additional operating losses, net of the premium
cost savings.

All major reinsurance treaties, with the exception of the pooling
agreement and a boiler treaty, are on an "excess of loss" basis whereby the
reinsurer agrees to reimburse the primary insurer for covered losses in excess
of a predetermined amount, up to a stated limit. The boiler treaty provides
for 100 percent reinsurance of the pool's direct boiler coverage written.
Facultative reinsurance from approved domestic markets, which provides
reinsurance on an individual risk basis and requires specific agreement of the
reinsurer as to the limits of coverage provided, is purchased when coverage by
an insured is required in excess of treaty capacity or where a high-risk type
policy could expose the treaty reinsurance programs.

Each type of reinsurance coverage is purchased in layers, and each layer
may have a separate retention level. Retention levels are adjusted according
to reinsurance market conditions and the surplus position of EMC Insurance
Companies. The intercompany pooling arrangement aids efficient buying of
reinsurance since it allows for higher retention levels and correspondingly
decreased dependence on the reinsurance marketplace.

A summary of the reinsurance treaties benefiting the parties to the
pooling agreement as of December 31, 1999 is presented below. Retention
amounts reflect the accumulated retentions of all layers within a treaty.

Type of Reinsurance Treaty Retention Limits
-------------------------- ----------- --------------------------
Property per risk ........... $ 2,000,000 100 percent of $18,000,000
Property catastrophe ........ $11,550,000 95 percent of $51,000,000
Aggregate property
catastrophe excess ........ $21,225,000 100 percent of $37,500,000
Casualty .................... $ 2,000,000 100 percent of $38,000,000
Workers' Compensation excess $ - $20,000,000 excess of
$40,000,000
Umbrella .................... $ 1,400,000* 100 percent of $ 8,600,000
Fidelity and Surety ......... $ 750,000 100 percent of $ 4,250,000
Surety excess .............. $ 1,450,000 100 percent of $10,550,000
Boiler ...................... $ 0 100 percent of $50,000,000

* An annual aggregate deductible of $3,600,000 must be reached before the
reinsurers may be petitioned.

Although reinsurance does not discharge the original insurer from its
primary liability to its policyholders, it is the practice of insurers for
accounting purposes to treat reinsured risks as risks of the reinsurer since
the primary insurer would only reassume liability in those situations where the
reinsurer is unable to meet the obligations it assumed under the reinsurance
agreements. The ability to collect reinsurance is subject to the solvency of
the reinsurers.

The major participants in the pool members' reinsurance programs as of
December 31, 1999 are presented below. The percentages represent the
reinsurers' share of the total reinsurance protection under all coverages.
Each type of coverage is purchased in layers, and an individual reinsurer may
participate in more than one coverage and at various layers within these
coverages. The property per risk, property catastrophe and casualty
reinsurance programs are handled by a reinsurance intermediary (broker). The
reinsurance of those programs is syndicated to approximately 50 domestic and
foreign reinsurers.

In formulating reinsurance programs, Employers Mutual is selective in its
choice of reinsurers. Employers Mutual selects reinsurers on the basis of
financial stability and long-term relationships, as well as price of the
coverage. Reinsurers are generally required to have a Best's rating of "A-" or
higher and policyholders' surplus of $50,000,000 ($100,000,000 for casualty
reinsurance).

Percent
of total 1999
Property per risk, property catastrophe reinsurance Best's
and casualty coverages: protection rating
- --------------------------------------- ----------- ------
Underwriters at Lloyd's of London .................... 20.6% A
Transatlantic Reinsurance Company .................... 8.9 A++
Zurich Reinsurance (North America), Inc .............. 6.5 A+
NAC Reinsurance Corporation .......................... 6.2 A+
X.L. Mid Ocean Reinsurance Company, Ltd .............. 5.6 (1)
AXA Reassurance ...................................... 5.1 A+
Continental Casualty Company ......................... 3.9 A

Aggregate property catastrophe excess coverage:
- -----------------------------------------------
Munich Reinsurance Company (UK) ...................... 49.5 (1)
Underwriters at Lloyd's of London .................... 33.4 A

Workers' compensation excess coverage:
- --------------------------------------
First Allmerica Financial Life Insurance Company ..... 50.0 A
Trenwick America Reinsurance Corporation ............. 50.0 A+

Umbrella coverage:
- ------------------
General Reinsurance Corporation ...................... 100.0 A++

Fidelity and surety coverages:
- ------------------------------
SCOR Reinsurance Company ............................. 42.0 A+
GE Reinsurance Corporation ........................... 20.0 A
Signet Star Reinsurance Company ...................... 20.0 A
Partner Reinsurance Company of the U.S. .............. 18.0 A

Boiler coverage:
- ----------------
Hartford Steam Boiler Inspection and Insurance Company 100.0 A+

(1) Not rated.

Premiums ceded under the pool members' reinsurance programs by all pool
members and by the Company's property and casualty insurance subsidiaries for
the year ended December 31, 1999 are presented below. Each type of reinsurance
coverage is purchased in layers, and an individual reinsurer may participate in
more than one coverage and at various layers within the coverages. Since each
layer of each coverage is priced separately, with the lower layers being more
expensive than the upper layers, a reinsurer's overall participation in a
reinsurance program does not necessarily correspond to the amount of premiums
it receives.

Premiums ceded by
------------------------
Property
and casualty
All pool insurance
Reinsurer members subsidiaries
- --------- ----------- ------------
General Reinsurance Corporation..................... $ 4,338,094 $ 1,019,452
Hartford Steam Boiler Inspection & Insurance Company 2,267,667 532,902
NAC Reinsurance Corporation ........................ 1,322,065 310,685
SCOR Reinsurance Company ........................... 902,154 212,006
Transatlantic Reinsurance Company .................. 874,276 205,455
Munchener Ruckversicherungs ........................ 758,796 178,317
Continental Casualty Company........................ 724,654 170,294
Signet Star Reinsurance Company .................... 720,956 169,425
Renaissance Reinsurance Company .................... 680,400 159,894
AXA Reassurance .................................... 649,503 152,633
Other Reinsurers ................................... 8,179,443 1,922,169
----------- ------------
Total ............................................ $21,418,008 $ 5,033,232
=========== ============
The parties to the pooling agreement also cede reinsurance on both a
voluntary and a mandatory basis to state and national organizations in
connection with various workers' compensation and assigned risk programs and to
private organizations established to handle large risks. Premiums ceded by all
pool members and by the Company's property and casualty insurance subsidiaries
for the year ended December 31, 1999 are presented below.

Premiums ceded by
------------------------
Property
and casualty
All pool insurance
Reinsurer members subsidiaries
- --------- ----------- ------------
Wisconsin Compensation Rating Bureau ............... $ 3,737,058 $ 878,209
National Workers' Compensation Reinsurance Pool .... 3,015,899 708,736
North Carolina Reinsurance Facility ................ 1,153,243 271,012
North Carolina Insurance Underwriting Association .. 754,400 177,284
Mutual Reinsurance Bureau .......................... 495,270 116,388
Other Reinsurers ................................... 365,255 85,835
----------- ------------
$ 9,521,125 $ 2,237,464
=========== ============

For information concerning amounts due the Company from reinsurers for
losses and settlement expenses and prepaid reinsurance premiums and the effect
of reinsurance on premiums written and earned, and losses and settlement
expenses incurred, see "Property and Casualty Insurance Subsidiaries and
Reinsurance Subsidiary - Reinsurance Ceded."

REINSURANCE ASSUMED

The parties to the pooling agreement also assume insurance from
involuntary pools and associations in conjunction with direct business written
in various states. Through its participation in the pooling agreement, the
Company assumes insurance business from the North Carolina Reinsurance Facility
(NCRF), which is a state run assigned risk program. Prior to 1998 the Company
had not recognized its share of certain surcharges reported by the NCRF.
During the fourth quarter of 1998, the Company received clarification regarding
such amounts and recorded its share of these cumulative surcharges. As a
result, the consolidated financial statements for the year ended December 31,
1998 reflect assumed premium income of $542,656 and assumed loss recoveries of
$661,818 related to prior years. Beginning in 1999, these surcharges are being
recorded on a quarterly basis.

RELATIONSHIP BETWEEN NET PREMIUMS WRITTEN AND SURPLUS

The amount of insurance a property and casualty insurance company writes
under industry standards is a multiple of its surplus calculated in accordance
with statutory accounting practices. Generally, a ratio of 3 to 1 or less is
considered satisfactory by regulatory authorities. The ratios of the pool
members for the past three years are as follows:
Year ended December 31,
------------------------------
1999 1998 1997
---- ---- ----
Employers Mutual .................... .86 .82 .80
EMCASCO ............................. 2.03 1.66 1.62
Illinois EMCASCO .................... 2.18 1.87 1.68
Dakota Fire ......................... 2.17 1.79 1.59
Farm and City ....................... 2.04 2.15 1.60
EMC Property & Casualty Company ..... .80 .65 1.08
Union Insurance Company of Providence .79 .75 .72
Hamilton Mutual ..................... 1.69 1.41 1.17

OUTSTANDING LOSSES AND SETTLEMENT EXPENSES

The property and casualty insurance subsidiaries' reserve information is
included in the property and casualty loss reserve development for 1999. See
"Property and Casualty Insurance Subsidiaries and Reinsurance Subsidiary -
Outstanding Losses and Settlement Expenses."

REINSURANCE
- -----------
The reinsurance subsidiary is a property and casualty treaty reinsurer
with a concentration in property lines. The reinsurance subsidiary assumes a
quota share portion of Employers Mutual's assumed reinsurance business,
exclusive of certain reinsurance contracts. The reinsurance subsidiary assumes
its quota share portion of all premiums and related losses and settlement
expenses of this business, subject to a maximum loss per event. The
reinsurance subsidiary does not reinsure any of Employers Mutual's direct
insurance business, or any "involuntary" facility or pool business that
Employers Mutual assumes pursuant to state law. In addition, the reinsurance
subsidiary is not liable for credit risk in connection with the insolvency of
any reinsurers of Employers Mutual. Operations of the quota share agreement
give rise to intercompany balances with Employers Mutual, which are settled on
a quarterly basis.

Effective January 1, 1997, the reinsurance subsidiary's quota share
participation was increased from 95 percent to 100 percent and the maximum loss
per event assumed by the reinsurance subsidiary was increased from $1,000,000
to $1,500,000. In connection with the change in the quota share percentage,
the Company's liabilities increased $3,173,647 and invested assets increased
$3,066,705. The Company reimbursed Employers Mutual $106,942 for expenses that
were incurred to generate the additional business assumed by the Company.

PRINCIPAL PRODUCTS

The reinsurance subsidiary assumes both pro rata and excess of loss
reinsurance from Employers Mutual. The following table sets forth the assumed
written premiums of the reinsurance subsidiary for the three years ended
December 31, 1999. The amounts reported in the Company's financial statements
for the year 1997 reflect an adjustment of $354,735 related to the change in
the quota share percentage. This adjustment was made to offset the income
statement effect that resulted from the increase in the reinsurance
subsidiary's reserve for unearned premiums on January 1, 1997 in connection
with this transaction.

Percent Percent Percent
of of of
Line of Business 1999 total 1998 total 1997 total
- ---------------- ------- ----- ------- ----- ------- -----
(Dollars in thousands)
Pro rata reinsurance:
Property and Casualty .. $12,642 29.0% $15,105 38.7% $ 8,985 26.2%
Property ............... 7,461 17.1 2,601 6.7 6,546 19.0
Crop ................... 4,727 10.8 3,967 10.2 3,101 9.0
Casualty ............... 4,771 11.0 3,919 10.0 2,879 8.4
Marine/aviation ........ 2,289 5.3 1,424 3.6 1,866 5.4
Other .................. 261 0.6 1,661 4.2 2,116 6.2
------- ----- ------- ----- ------- -----
Total pro rata reinsurance 32,151 73.8 28,677 73.4 25,493 74.2
------- ----- ------- ----- ------- -----
Excess per risk reinsurance:
Property ............... 2,298 5.3 2,099 5.4 2,110 6.2
Casualty ............... 1,979 4.6 2,104 5.4 1,595 4.6
Other .................. 754 1.7 868 2.2 647 1.9
------- ----- ------- ----- ------- -----
Total excess per
risk reinsurance ...... 5,031 11.6 5,071 13.0 4,352 12.7
------- ----- ------- ----- ------- -----
Excess catastrophe/
aggregate reinsurance:
Property ............... 5,674 13.0 4,744 12.1 4,293 12.5
Crop ................... 330 0.8 284 0.7 252 0.8
Marine/aviation ........ 20 - 38 0.1 8 -
Other .................. 341 0.8 260 0.7 (62) (0.2)
------- ----- ------- ----- ------- -----
Total excess catastrophe/
aggregate reinsurance 6,365 14.6 5,326 13.6 4,491 13.1
------- ----- ------- ----- ------- -----
Total excess reinsurance 11,396 26.2 10,397 26.6 8,843 25.8
------- ----- ------- ----- ------- -----
$43,547 100.0% $39,074 100.0% $34,336 100.0%
======= ===== ======= ===== ======= =====

MARKETING

Over the last several years Employers Mutual has emphasized writing excess
of loss reinsurance business and has worked to increase its participation on
existing contracts that had favorable terms. Employers Mutual strives to be
flexible in the types of reinsurance products it offers, but generally limits
its writings to direct reinsurance business rather than providing
retrocessional covers. During the last three years there has been a trend
in the reinsurance marketplace for "across the board" participation on
excess of loss reinsurance contracts. As a result, reinsurance companies
must be willing to participate in all coverages and on all layers offered
under a specific contract in order to be considered a viable reinsurer.

COMPETITION

The reinsurance marketplace is very competitive; however, recent worldwide
catastrophe losses may help ease rate adequacy concerns. Employers Mutual
competes in the global reinsurance market with numerous reinsurers, many of
which have greater financial resources. In this competitive environment,
reinsurance brokers have tended to favor large, financially strong reinsurers
who are able to provide "mega" line capacity for all lines of business.
Employers Mutual is addressing this issue by accepting a larger share of
coverage on desirable programs and strengthening its relationships with
reinsurance intermediaries.

REINSURANCE CEDED

For information concerning amounts due the Company from reinsurers for
losses and settlement expenses and prepaid reinsurance premiums and the effect
of reinsurance on premiums written and earned and losses and settlement
expenses incurred, see "Property and Casualty Insurance Subsidiaries and
Reinsurance Subsidiary - Reinsurance Ceded."

BEST'S RATING

The most recent Best's Property Casualty Key Rating Guide gives the
reinsurance subsidiary a "B++" (Very Good) policyholders' rating. Best's
ratings are based upon factors of concern to policyholders and insurance agents
and are not necessarily directed toward the protection of investors.

OUTSTANDING LOSSES AND SETTLEMENT EXPENSES

The reinsurance subsidiary's reserve information is included in the
property and casualty loss reserve development for 1999. See "Property and
Casualty Insurance Subsidiaries and Reinsurance Subsidiary - Outstanding Losses
and Settlement Expenses."

PROPERTY AND CASUALTY INSURANCE SUBSIDIARIES AND REINSURANCE SUBSIDIARY
- -----------------------------------------------------------------------
Employers Mutual provides various services to all of its subsidiaries.
Such services include data processing, claims, financial, actuarial, auditing,
marketing and underwriting. Costs of these services are allocated to the
subsidiaries outside the pooling agreement based upon a number of criteria,
including usage and number of transactions. Costs not allocated to these
subsidiaries are charged to the pool and each pool participant shares in the
total cost in proportion to its participation percentage.

STATUTORY COMBINED RATIOS

The following table sets forth the Company's insurance subsidiaries'
statutory combined ratios and the property and casualty insurance industry
averages for the five years ended December 31, 1999. The combined ratios below
are the sum of the following: the loss ratio, calculated by dividing losses and
settlement expenses incurred by net premiums earned, and the expense ratio,
calculated by dividing underwriting expenses incurred by net premiums written
and policyholder dividends by net premiums earned.

Generally, if the combined ratio is below 100 percent, a company has an
underwriting profit; if it is above 100 percent, a company has an underwriting
loss.
Year ended December 31,
--------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Property and casualty insurance
Loss ratio ................... 83.6% 83.5% 74.3% 70.5% 67.3%
Expense ratio ................ 32.0 33.3 32.8 34.3 32.6
------ ------ ------ ------ ------
Combined ratio ............. 115.6% 116.8% 107.1% 104.8% 99.9%
====== ====== ====== ====== ======
Reinsurance
Loss ratio ................... 83.1% 75.4% 68.4% 68.7% 66.3%
Expense ratio ................ 30.6 31.1 34.1 31.5 32.3
------ ------ ------ ------ ------
Combined ratio ............. 113.7% 106.5% 102.5% 100.2% 98.6%
====== ====== ====== ====== ======
Total insurance operations
Loss ratio ................... 83.5% 81.9% 73.1% 70.0% 67.1%
Expense ratio ................ 31.7 32.9 33.1 33.6 32.5
------ ------ ------ ------ ------
Combined ratio ............. 115.2% 114.8% 106.2% 103.6% 99.6%
====== ====== ====== ====== ======

Property and casualty insurance
industry averages (1)
Loss ratio ................... 78.3% 76.3% 72.8% 78.3% 78.9%
Expense ratio ................ 29.2 29.4 28.8 27.5 26.1
------ ------ ------ ------ ------
Combined ratio ............. 107.5% 105.7% 101.6% 105.8% 105.0%
====== ====== ====== ====== ======

(1) As reported by A.M. Best Company. The ratio for 1999 is an estimate; the
actual combined ratio is not currently available.

REINSURANCE CEDED

The following table presents amounts due to the Company from reinsurers for
losses and settlement expenses and prepaid reinsurance premiums as of December
31, 1999:
1999
Amount Percent Best's
recoverable of total rating
----------- -------- ------
Wisconsin Compensation Rating Bureau .. $ 3,470,126 28.0% (1)
National Workers' Compensation
Reinsurance Pool .................... 1,813,296 14.6 (1)
General Reinsurance Corporation ....... 796,609 6.4 A++
Hartford Fire Insurance Company ....... 636,935 5.1 A+
Minnesota Workers'Comp Reins Assoc .... 574,790 4.6 (2)
PMA Reinsurance Corporation ........... 502,545 4.1 A+
American Re-Insurance Company ......... 472,057 3.8 A++
Mutual Reinsurance Bureau (MRB)........ 449,830 3.6 (3)
GE Reinsurance Corporation ............ 345,542 2.8 A
AXA Reinsurance Corporation ........... 290,479 2.3 A+
Other Reinsurers ...................... 3,057,720 24.7
----------- --------
Total ........................... $12,409,929(4) 100.0%
=========== ========
(1) Amounts recoverable reflect the property and casualty insurance
subsidiaries' pool participation percentage of amounts ceded to these
organizations by Employers Mutual in connection with its role as "service
carrier." Under these arrangements, Employers Mutual writes business for
these organizations on a direct basis and then cedes 100 percent of the
business to these organizations. Credit risk associated with these
amounts is minimal as all companies participating in these organizations
are responsible for the liabilities of such organizations on a pro rata
basis.

(2) Not rated.

(3) The amount recoverable reflects the property and casualty insurance
subsidiaries' pool participation percentage of amounts ceded to this
underwriting organization by Employers Mutual. MRB is composed of
Employers Mutual and five other nonaffiliated mutual insurance
companies. Each of the six members cede primarily property insurance
to MRB and assume equal proportionate shares of this business. Each
member benefits from the increased capacity provided by MRB. MRB is
backed by the financial strength of the six member companies. All of
the members of MRB were assigned an "A-" (Excellent) or better rating by
A.M. Best.

(4) The total amount recoverable at December 31, 1999 represented $868,550 in
paid losses and settlement expenses, $10,260,815 in unpaid losses
and settlement expenses and $1,280,564 in unearned premiums.

The effect of reinsurance on premiums written and earned, and losses and
settlement expenses incurred for the three years ended December 31, 1999 is
presented below.
Year ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
Premiums written:
Direct ........................ $228,588,440 $213,134,588 $175,350,677
Assumed from nonaffiliates .... 781,225 1,888,951 1,219,564
Assumed from affiliates ....... 221,051,986 204,964,038 178,624,357
Ceded to nonaffiliates ........ (7,270,696) (5,808,352) (5,615,772)
Ceded to affiliates ........... (228,588,440) (213,249,508) (164,978,055)
------------ ------------ ------------
Net premiums written ........ $214,562,515 $200,929,717 $184,600,771
============ ============ ============

Premiums earned:
Direct ........................ $223,593,165 $202,514,027 $169,304,584
Assumed from nonaffiliates .... 873,710 1,969,067 1,403,778
Assumed from affiliates ....... 217,416,300 197,166,272 171,514,339
Ceded to nonaffiliates ........ (7,191,869) (5,801,680) (5,937,679)
Ceded to affiliates ........... (223,593,165) (201,603,281) (159,066,776)
------------ ------------ ------------
Net premiums earned ......... $211,098,141 $194,244,405 $177,218,246
============ ============ ============

Losses and settlement expenses
incurred:
Direct ........................ $183,031,797 $171,209,604 $126,922,536
Assumed from nonaffiliates .... 429,244 1,298,167 926,403
Assumed from affiliates ....... 182,375,574 171,681,607 122,827,934
Ceded to nonaffiliates ........ (5,928,570) (7,395,934) (3,364,737)
Ceded to affiliates ........... (183,031,797) (178,917,350) (117,458,832)
------------ ------------ ------------
Net losses and settlement
expenses incurred ......... $176,876,248 $157,876,094 $129,853,304
============ ============ ============

OUTSTANDING LOSSES AND SETTLEMENT EXPENSES

The Company maintains reserves for losses and settlement expenses with
respect to both reported and unreported claims. The amount of reserves for
reported claims is primarily based upon a case-by-case evaluation of the
specific type of claim, knowledge of the circumstances surrounding each claim
and the policy provisions relating to the type of loss. Reserves on assumed
business are the amounts reported by the ceding company.

The amount of reserves for unreported claims is determined on the basis of
statistical information for each line of insurance with respect to the probable
number and nature of claims arising from occurrences which have not yet been
reported. Established reserves are closely monitored and are frequently
recomputed using a variety of formulas and statistical techniques for analyzing
actual claim costs, frequency data and other economic and social factors.

The Company does not discount reserves. Inflation is implicitly provided
for in the reserving function through analysis of cost trends, reviews of
historical reserving results and projections of future economic conditions.
Large ($100,000 and over) incurred and reported gross reserves are reviewed
regularly for adequacy. In addition, long-term and lifetime medical claims are
periodically reviewed for cost trends and the applicable reserves are
appropriately revised.

Loss reserves are estimates at a given time of what the insurer expects to
pay on incurred losses, based on facts and circumstances then known. During
the loss settlement period, which may be many years, additional facts regarding
individual claims become known, and accordingly, it often becomes necessary to
refine and adjust the estimates of liability on a claim.

Settlement expense reserves are intended to cover the ultimate cost of
investigating claims and defending lawsuits arising from claims. These
reserves are established each year based on previous years experience to
project the ultimate cost of settlement expenses. To the extent that
adjustments are required to be made in the amount of loss reserves each year,
settlement expense reserves are correspondingly revised.

Changes in reserves for losses and settlement expenses are reflected in
the operating results of the year such changes are recorded.

Despite the inherent uncertainties of estimating insurance company loss
and settlement expense reserves, management believes that the Company's
reserves are being calculated in accordance with sound actuarial practices and,
based upon current information, that the Company's reserves for losses and
settlement expenses at December 31, 1999 are adequate.

The following table sets forth a reconciliation of beginning and ending
reserves for losses and settlement expenses of the property and casualty
insurance subsidiaries and the reinsurance subsidiary. Amounts presented are
on a net basis, with a reconciliation of beginning and ending reserves to the
gross amounts presented in the consolidated financial statements.

Year ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
Gross reserves at beginning of year $245,610,323 $217,777,942 $202,502,986

Ceded reserves at beginning of year (15,563,600) (13,030,150) (13,796,769)
------------ ------------ ------------
Net reserves at beginning of year,
before adjustments ............... 230,046,723 204,747,792 188,706,217

Adjustment to beginning reserves
due to change in pooling
agreement ........................ - 3,600,220 3,795,453

Adjustment to beginning reserves
due to change in quota share
percentage ....................... - - 2,726,913
------------ ------------ ------------
Net reserves at beginning of year,
after adjustments ................ 230,046,723 208,348,012 195,228,583
------------ ------------ ------------
Incurred losses and
settlement expenses:
- ----------------------
Provision for insured events
of the current year ............ 182,609,687 168,953,309 137,300,762

Decrease in provision for
insured events of prior years .. (5,733,439) (11,077,215) (7,447,458)
------------ ------------ ------------
Total incurred losses and
settlement expenses ...... 176,876,248 157,876,094 129,853,304
------------ ------------ ------------
Payments:
- ---------
Losses and settlement expenses
attributable to insured events
of the current year ............ 72,970,531 73,228,354 57,649,830

Losses and settlement expenses
attributable to insured events
of prior years ................. 77,699,231 62,949,029 62,684,265
------------ ------------ ------------
Total payments ............. 150,669,762 136,177,383 120,334,095
------------ ------------ ------------

Net reserves at end of year ........ 256,253,209 230,046,723 204,747,792

Ceded reserves at end of year ...... 10,260,815 15,563,600 13,030,150
------------ ------------ ------------
Gross reserves at end of year ...... $266,514,024 $245,610,323 $217,777,942
============ ============ ============

The following table shows the calendar year development of loss and
settlement expense reserves of the property and casualty insurance subsidiaries
and the reinsurance subsidiary. Amounts presented are on a net basis with,
beginning in 1992, (i) a reconciliation of the net loss and settlement expense
reserves, to the gross amounts presented in the consolidated financial
statements and (ii) disclosure of the gross re-estimated loss and settlement
expense reserves and the related re-estimated reinsurance receivables.

Reflected in this table is (1) the increase in the property and casualty
insurance subsidiaries' collective participation in the pool from 17 percent to
22 percent in 1992, (2) the change in the pooling agreement whereby effective
January 1, 1993 the voluntary reinsurance business written by Employers Mutual
is no longer subject to cession to the pool members, (3) the commutation of two
reinsurance contracts under the reinsurance subsidiary's quota share agreement
in 1993, (4) the gross-up of reserve amounts associated with the National
Workers' Compensation Reinsurance Pool at December 31, 1993, (5) the
reinsurance subsidiary's commutation of all outstanding reinsurance balances
ceded to Employers Mutual under catastrophe and aggregate excess of loss
reinsurance treaties related to accident years 1991 through 1993 in 1994, and
(6) the increase in the reinsurance subsidiary's quota share assumption of
Employers Mutual's assumed reinsurance business from 95 percent to 100 percent
in 1997. The table has been restated to reflect the addition of Hamilton
Mutual to the pooling agreement effective January 1, 1997 and the addition of
Farm and City to the pooling agreement effective January 1, 1998.

In evaluating the table, it should be noted that each cumulative
redundancy (deficiency) amount includes the effects of all changes in reserves
for prior periods. Conditions and trends that have affected development of the
liability in the past, such as a time lag in the reporting of assumed
reinsurance business, the high rate of inflation associated with medical
services and supplies and the reform measures implemented by several states to
control administrative costs for workers' compensation insurance, may not
necessarily occur in the future. Accordingly, it may not be appropriate to
project future development of reserves based on this table.

During the last three years the Company has experienced favorable
development in the provision for insured events of prior years. The majority
of the favorable development has come from the property and casualty insurance
subsidiaries. Favorable development has also been experienced in the
reinsurance subsidiary, but to a lesser degree.

The Company has historically experienced favorable development in its
reserves and current reserving practices have not been relaxed; however, the
amount of favorable development experienced is expected to fluctuate from year
to year.

Year ended December 31,

(Dollars in thousands) 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Statutory reserves for losses
and settlement expenses ...... $127,870 131,623 139,317 180,797 182,072 191,514 196,293 191,892 205,606 230,937 257,201

Reclassification of reserve
amounts associated with the
National Workers' Compensation
Reinsurance Pool ............. 3,855 4,338 6,830 11,364 - - - - - - -

Retroactive restatement of
reserves in conjunction with
admittance of new participants
into the pooling agreement ... 2,182 3,334 4,364 5,314 5,248 6,603 6,809 7,018 3,600 - -
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Statutory reserves after
reclassification ............. 133,907 139,295 150,511 197,475 187,320 198,117 203,102 198,910 209,206 230,937 257,201

GAAP adjustments:
Salvage and subrogation ...... (930) (1,203) (1,284) (2,026) (1,804) (1,799) (2,369) (2,400) - - -

Reclass of statutory settlement
expense portion of
retirement benefit liability - - - - (601) (680) (729) (786) (858) (890) (948)
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Reserves for losses and
settlement expenses .......... 132,977 138,092 149,227 195,449 184,915 195,638 200,004 195,724 208,348 230,047 256,253

Paid (cumulative) as of:
One year later ............... 42,480 42,990 31,577 78,000 60,162 57,247 62,012 59,856 62,949 77,699 -
Two years later .............. 66,185 59,579 79,619 109,985 89,153 88,831 92,626 92,191 99,870 - -
Three years later ............ 77,009 96,796 97,152 127,885 107,372 106,691 112,985 113,343 - - -
Four years later ............. 107,215 106,391 107,114 137,783 116,856 118,705 124,450 - - - -
Five years later ............. 113,112 112,200 112,598 143,876 123,843 126,384 - - - - -
Six years later .............. 116,338 115,858 116,670 148,518 128,931 - - - - - -
Seven years later ............ 119,039 118,725 119,699 151,895 - - - - - - -
Eight years later ............ 120,879 120,122 121,817 - - - - - - - -
Nine years later ............. 121,758 121,763 - - - - - - - - -
Ten years later .............. 122,893 - - - - - - - - - -

Reserves reestimated as of:
End of year .................. 132,977 138,092 149,227 195,449 184,915 195,638 200,004 195,724 208,348 230,047 256,253
One year later ............... 137,442 143,884 155,537 197,008 179,527 179,818 183,760 188,579 197,271 224,313 -
Two years later .............. 140,272 145,101 152,771 192,318 170,653 173,162 182,285 185,465 194,287 - -
Three years later ............ 139,949 143,413 148,867 186,730 166,778 172,118 179,797 181,392 - - -
Four years later ............. 140,315 142,496 148,017 186,133 166,133 170,570 176,176 - - - -
Five years later ............. 139,380 143,063 148,098 186,319 165,548 167,763 - - - - -
Six years later .............. 141,133 143,638 148,686 186,095 163,406 - - - - - -
Seven years later ............ 142,650 144,318 148,991 184,174 - - - - - - -
Eight years later ............ 143,763 144,679 147,579 - - - - - - - -
Nine years later ............. 143,051 143,472 - - - - - - - - -
Ten years later .............. 141,920 - - - - - - - - - -
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Cumulative redundancy
(Deficiency) ................. $ (8,943) (5,380) 1,648 11,275 21,509 27,875 23,828 14,332 14,061 5,734 -
======== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Gross loss and settlement expense
reserves - end of year (A) .............................. $220,703 202,370 209,785 212,231 209,521 221,378 245,610 266,514

Reinsurance receivables ................................... 25,254 17,455 14,147 12,227 13,797 13,030 15,563 10,261
-------- ------- ------- ------- ------- ------- ------- -------
Net loss and settlement expense
reserves - end of year .................................. $195,449 184,915 195,638 200,004 195,724 208,348 230,047 256,253
======== ======= ======= ======= ======= ======= ======= =======
Gross re-estimated reserves - latest (B) .................. $206,278 178,876 181,805 190,981 198,572 209,794 240,911 266,514
Re-estimated reinsurance receivables - latest ............. 22,104 15,470 14,042 14,805 17,180 15,507 16,598 10,261
-------- ------- ------- ------- ------- ------- ------- -------
Net re-estimated reserves - latest ........................ $184,174 163,406 167,763 176,176 181,392 194,287 224,313 256,253
======== ======= ======= ======= ======= ======= ======= =======
Gross cumulative redundancy (deficiency) (A-B) ............ $ 14,425 23,494 27,980 21,250 10,949 11,584 4,699 -
======== ======= ======= ======= ======= ======= ======= =======

Asbestos and Environmental Claims

The Company has exposure to asbestos and environmental related claims
associated with the insurance business written by the parties to the pooling
agreement and the reinsurance business assumed from Employers Mutual by the
reinsurance subsidiary.

Estimating loss and settlement expense reserves for asbestos and
environmental claims are very difficult due to the many uncertainties
surrounding these types of claims. These uncertainties exist because the
assignment of responsibility varies widely by state and claims often emerge
long after the policy has expired, which makes assignment of damages to the
appropriate party and to the time period covered by a particular policy
difficult. In establishing reserves for these types of claims, management
monitors the relevant facts concerning each claim, the current status of the
legal environment, the social and political conditions and the claim history
and trends within the Company and the industry.

Based upon current facts, management believes the reserves established for
asbestos and environmental related claims at December 31, 1999 are adequate.
Although future changes in the legal and political environment may result in
adjustments to these reserves, management believes any adjustments will not
have a material impact on the financial condition or results of operations of
the Company.

The following table presents asbestos and environmental related losses
and settlement expenses incurred and reserves outstanding for the Company:

Year ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
Losses and settlement expenses incurred:
Asbestos:
Property and casualty insurance ......... $ 125,687 $ 34,287 $ 25,246
Reinsurance ............................. (25,971) - 394,524
---------- ---------- ----------
99,716 34,287 419,770
---------- ---------- ----------
Environmental:
Property and casualty insurance ......... 11,227 18,288 25,615
Reinsurance ............................. 223,996 - 374,822
---------- ---------- ----------
235,223 18,288 400,437
Total loss and settlement expenses ---------- ---------- ----------
incurred .......................... $ 334,939 $ 52,575 $ 820,207
========== ========== ==========
Loss and settlement expense reserves:
Asbestos:
Property and Casualty insurance ......... $ 259,148 $ 186,840 $ 170,302
Reinsurance ............................. 753,481 793,624 805,429
---------- ---------- ----------
1,012,629 980,464 975,731
---------- ---------- ----------
Environmental:
Property and casualty insurance ......... 724,662 885,578 864,043
Reinsurance ............................. 710,520 506,056 572,961
---------- ---------- ----------
1,435,182 1,391,634 1,437,004
Total loss and settlement expense ---------- ---------- ----------
reserves .......................... $2,447,811 $2,372,098 $2,412,735
========== ========== ==========

INVESTMENTS
- -----------
Securities classified as held-to-maturity are purchased with the intent
and ability to be held to maturity and are carried at amortized cost.
Unrealized holding gains and losses on securities held-to-maturity are not
reflected in the financial statements. All other securities have been
classified as securities available-for-sale and are carried at fair value, with
unrealized holding gains and losses reported as accumulated other comprehensive
income in stockholders' equity, net of deferred income taxes.

At December 31, 1999, approximately 71 percent of the Company's bonds were
invested in government or government agency issued securities. A variety of
maturities are maintained in the Company's portfolio to assure adequate
liquidity. The maturity structure of bond investments is also established by
the relative attractiveness of yields on short, intermediate and long-term
bonds. The Company does not invest in any high-yield debt investments
(commonly referred to as junk bonds).

During the second and third quarters of 1999, the Company sold
approximately $55,000,000 of investments in tax-exempt fixed maturity
securities and reinvested the proceeds into taxable fixed maturity securities
that pay a higher interest rate. This change in asset allocation was
implemented to increase the Company's after-tax rate of return on its
investment portfolio in response to the recent deterioration in the Company's
underwriting results and the expectation that underwriting results will not
improve significantly in the near future.

The Company's equity investment holdings include common stock and
preferred stock. During 1998 the Company liquidated its common stock mutual
fund portfolio and reinvested the proceeds in individual stock issues that are
being managed on a tax-aware basis.

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 it is in compliance with these laws.

The investments of EMC Insurance Group Inc. and its subsidiaries are
supervised by investment committees of each entity's respective board of
directors. The investment portfolios are managed by an internal staff that is
composed of employees of Employers Mutual.

Investment expenses are based on actual expenses incurred plus an
allocation of other investment expenses incurred by Employers Mutual, which is
based on a weighted average of total invested assets and number of investment
transactions.

The following table shows the composition of the Company's investment
portfolio (at amortized cost), by type of security, as of December 31, 1999 and
1998. In the Company's consolidated financial statements, securities
held-to-maturity are carried at amortized cost; securities available-for-sale
are carried at fair value.
Year ended December 31,
--------------------------------------------
1999 1998
--------------------- ---------------------
Amortized Amortized
cost Percent cost Percent
------------ ------- ------------ -------
Securities held-to-maturity:
Fixed maturity securities:
U.S. treasury securities
and obligations of U.S.
government corporations
and agencies ............. $109,055,239 24.8% $140,041,154 33.0%
Mortgage-backed securities 18,148,921 4.1 24,885,036 5.8
------------ ------- ------------ -------
Total securities held-
to-maturity ............ 127,204,160 28.9 164,926,190 38.8
------------ ------- ------------ -------
Securities available-for-sale:
Fixed maturity securities:
U.S. treasury securities
and obligations of U.S.
government corporations
and agencies ............. 4,419,411 1.0 3,491,259 0.8
Obligations of states and
political subdivisions ... 96,077,294 21.9 155,138,275 36.5
Mortgage-backed
securities ............... 49,440,943 11.2 - -
Debt securities issued by
foreign governments ...... 6,479,135 1.5 - -
Public utilities ........... 8,890,108 2.0 7,304,015 1.7
Corporate securities ....... 98,413,442 22.4 42,181,578 9.9
------------ ------- ------------ -------
Total fixed maturity
securities ............. 263,720,333 60.0 208,115,127 48.9
------------ ------- ------------ -------
Equity securities:
Common stock ............... 25,853,745 5.9 26,782,547 6.3
Non-redeemable preferred
stocks ................... 2,640,886 0.6 3,145,886 0.7
------------ ------- ------------ -------
Total equity securities .. 28,494,631 6.5 29,928,433 7.0
------------ ------- ------------ -------
Total securities
available-for-sale ..... 292,214,964 66.5 238,043,560 55.9
------------ ------- ------------ -------
Short-term investments ......... 20,164,210 4.6 22,660,011 5.3
------------ ------- ------------ -------
Total investments ........ $439,583,334 100.0% $425,629,761 100.0%
============ ======= ============ =======

Fixed maturity securities held by the Company generally have an investment
quality rating of "A" or better by independent rating agencies. The following
table shows the composition of the Company's fixed maturity securities, by
rating, as of December 31, 1999.

Securities Securities
held-to-maturity available-for-sale
(at amortized cost) (at fair value)
--------------------- ---------------------
Amount Percent Amount Percent
------------ ------- ------------ -------
Rating(1)
AAA ..................... $127,204,160 100.0% $108,712,161 42.5%
AA ...................... - - 56,705,280 22.1
A ....................... - - 86,180,793 33.6
BAA ..................... - - 4,583,195 1.8
------------ ------- ------------ -------
Total fixed maturities $127,204,160 100.0% $256,181,429 100.0%
============ ======= ============ =======

(1) Ratings for preferred stocks and fixed maturity securities with initial
maturities greater than one year are assigned by Moody's Investor's
Services, Inc. Moody's rating process seeks to evaluate the quality of a
security by examining the factors that affect returns to investors.
Moody's ratings are based on quantitative and qualitative factors, as
well as the economic, social and political environment in which the
issuing entity exists. The quantitative factors include debt coverage,
sales and income growth, cash flows and liquidity ratios. Qualitative
factors include management quality, access to capital markets and the
quality of earnings and balance sheet items. Ratings for securities with
initial maturities less than one year are based on an evaluation of the
underlying assets or the credit rating of the issuer's parent company.

The amortized cost and estimated fair value of fixed maturity securities
at December 31, 1999, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
Estimated
Amortized fair
cost value
------------ ------------
Securities held-to-maturity:
Due in one year or less ................... $ 4,498,477 $ 4,562,505
Due after one year through five years ..... 32,067,841 33,088,104
Due after five years through ten years .... 63,257,577 62,077,061
Due after ten years ....................... 9,231,344 8,592,680
Mortgage-backed securities ................ 18,148,921 18,358,715
------------ ------------
Totals .................................. $127,204,160 $126,679,065
============ ============
Securities available-for-sale:
Due in one year or less ................... $ 1,753,344 $ 1,756,937
Due after one year through five years ..... 25,307,861 25,259,693
Due after five years through ten years .... 54,694,520 53,277,920
Due after ten years ....................... 132,523,665 126,452,673
Mortgage-backed securities ................ 49,440,943 49,434,206
------------ ------------
Totals .................................. $263,720,333 $256,181,429
============ ============

The mortgage-backed securities shown in the above table include
$52,661,313 of securities issued by government corporations and agencies and
$14,928,551 of collateralized mortgage obligations (CMOs). CMOs are securities
backed by mortgages on real estate, which come due at various times. The
Company has attempted to minimize the prepayment risks associated with
mortgage-backed securities by not investing in "principal only" and "interest
only" CMOs. The CMOs that the Company has invested in are designed to reduce
the risk of prepayment by providing predictable principal payment schedules
within a designated range of prepayments. Investment yields may vary from
those anticipated due to changes in prepayment patterns of the underlying
collateral.

Investment results of the Company for the periods indicated are shown in
the following table:

Year ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
Average invested assets (1) ........ $432,606,548 $412,682,091 $386,852,093
Investment income (2) .............. $ 25,760,561 $ 24,859,063 $ 23,780,303
Average yield ...................... 5.96% 6.02% 6.15%
Realized investment gains (3) ...... $ 276,673 $ 5,901,049 $ 4,100,006

(1) Average of the aggregate invested amounts (amortized cost) at the
beginning and end of the year.

(2) Investment income is net of investment expenses and does not include
realized gains or income tax provisions.

(3) The amount for 1999 reflects realized gains of $1,589,953 resulting from
the disposal of tax-exempt fixed maturity securities. The proceeds from
the disposal of these tax-exempt fixed maturity securities were reinvested
in taxable fixed maturity securities that pay a higher interest rate. This
change in asset allocation was implemented to increase the Company's after-
tax rate of return on its investment portfolio. The amount for 1998
reflects realized gains of $7,585,293 resulting from the liquidation of the
Company's common stock mutual fund portfolio. The proceeds from the
disposal of the common stock mutual fund portfolio were reinvested in
individual stock issues that are being managed on a tax-aware basis. The
amount for 1997 reflects a capital gains distribution of $4,010,683 related
to the Company's common stock mutual fund portfolio.

EMPLOYEES
- ---------
EMC Insurance Group Inc. has no employees of its own, although
approximately 15 employees of Employers Mutual perform administrative duties on
a part-time basis. Otherwise, the Company's business activities are conducted
by employees of Employers Mutual and one of the property and casualty insurance
subsidiaries, which have 1,980 and 68 employees, respectively. The property
and casualty insurance subsidiaries share the costs charged to the pooling
agreement in accordance with their pool participation percentages. See
"Property and Casualty Insurance - Pooling Agreement."

REGULATION
- ----------
The Company's insurance subsidiaries are subject to extensive regulation
and supervision by their home states, as well as those in which they do
business. The purpose of such regulation and supervision is primarily to
provide safeguards for policyholders rather than to protect the interests of
stockholders. The insurance laws of the various states establish regulatory
agencies with broad administrative powers, including the power to grant or
revoke operating licenses and to regulate trade practices, investments, premium
rates, deposits of securities, the form and content of financial statements and
insurance policies, accounting practices and the maintenance of specified
reserves and capital for the protection of policyholders.

Premium rate regulation varies greatly among jurisdictions and lines of
insurance. In most states in which the Company's subsidiaries write insurance,
premium rates for their lines of insurance are subject to either prior approval
or limited review upon implementation. States require rates for property and
casualty insurance that are adequate, not excessive, and not unfairly
discriminatory.

The Company's insurance subsidiaries are required to file detailed annual
reports with the appropriate regulatory agency in each state where they do
business based on applicable statutory regulations, which differ from generally
accepted accounting principles. Their businesses and accounts are subject to
examination by such agencies at any time. Since EMC Insurance Group Inc. and
Employers Mutual are domiciled in Iowa, the State of Iowa exercises principal
regulatory supervision, and Iowa law requires periodic examination. The
Company's insurance subsidiaries are subject to examination by state insurance
departments on a periodic basis, as applicable law requires.

State laws governing insurance holding companies also impose standards on
certain transactions with related companies, which include, among other
requirements, that all transactions be fair and reasonable and that an
insurer's surplus as regards policyholders be reasonable and adequate in
relation to its liabilities. Under Iowa law, dividends or distributions made
by registered insurers are restricted in amount and may be subject to approval
from the Iowa Commissioner of Insurance. "Extraordinary" dividends or
distributions are subject to prior approval and are defined as dividends or
distributions made within a 12 month period which exceed the greater of 10
percent of statutory surplus as regards policyholders as of the preceding
December 31, or net income of the preceding calendar year on a statutory basis.
Both Illinois and North Dakota impose restrictions, which are similar to those
of Iowa, on the payment of dividends and distributions. At December 31, 1999,
$11,505,996 was available for distribution in 2000 to the Company without prior
approval. See note 6 of Notes to Consolidated Financial Statements under Item
8 of this Form 10-K.

The National Association of Insurance Commissioners (NAIC) utilizes a
risk-based capital model to help state regulators assess the capital adequacy
of insurance companies and identify property/casualty insurers that are in (or
are perceived as approaching) financial difficulty by establishing minimum
capital needs based on the risks applicable to the operations of the individual
insurer. The risk-based capital requirements for property and casualty
insurance companies measure three major areas of risk: asset risk, credit risk
and underwriting risk. Companies having less statutory surplus than required
by the risk-based capital requirements are subject to varying degrees of
regulatory scrutiny and intervention, depending on the severity of the
inadequacy. At December 31, 1999, each of the Company's insurance subsidiaries
ratio of total adjusted capital to risk-based capital is well in excess of the
minimum level required.

ITEM 2. PROPERTIES.
- ------- -----------
The Company does not own any real property. Lease costs of the Company's
office facilities in Oak Brook, Illinois, and Bismarck, North Dakota, which
total approximately $293,000 and $300,000 annually, are included as expenses
under the pooling agreement. Expenses of office facilities owned and leased by
Employers Mutual are borne by the parties to the pooling agreement, less the
rent received from the space used and paid for by non-insurance subsidiaries
and outside tenants. See "Property and Casualty Insurance - Pooling Agreement"
under Item 1 of this Form 10-K.

ITEM 3. LEGAL PROCEEDINGS.
- ------- ------------------
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 reserves that are believed adequate to cover any
potential liabilities arising out of all such pending or threatened
proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ----------------------------------------------------
None.

PART II
-------

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ------- -------------------------------------------------
STOCKHOLDER MATTERS.
--------------------
The "Stockholder Information" section from the Company's Annual Report to
Stockholders for the year ended December 31, 1999, which is included as Exhibit
13(d) to this Form 10-K, is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA.
- ------- ------------------------
The "Selected Consolidated Financial Data" section from the Company's
Annual Report to Stockholders for the year ended December 31, 1999, which is
included as Exhibit 13(a) to this Form 10-K, is incorporated herein by
reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section from the Company's Annual Report to Stockholders
for the year ended December 31, 1999, which is included as Exhibit 13(b) to
this Form 10-K, is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- -------- -----------------------------------------------------------
The information under the caption "Market Risk" in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section from the Company's Annual Report to Stockholders for the year ended
December 31, 1999, which is included as Exhibit 13(b) to this Form 10-K, is
incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------- --------------------------------------------
The consolidated financial statements from the Company's Annual Report to
Stockholders for the year ended December 31, 1999, which is included as Exhibit
13(c) to this Form 10-K, are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------- ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE.
------------------------------------
None.

PART III
--------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------- ---------------------------------------------------
See the information under the caption "Election of Directors" in the
Company's Proxy Statement in connection with its Annual Meeting to be held on
May 25, 2000, which information is incorporated herein by reference.

The following sets forth information regarding all executive officers of
the Company.

NAME AGE POSITION

Bruce G. Kelley 46 President and Chief Executive Officer of the
Company and of Employers Mutual since 1992
and Treasurer of both organizations since
1996. He was elected President of the
Company and Employers Mutual in 1991.
Mr. Kelley was Executive Vice President of
the Company and Employers Mutual from 1989
to 1991. He has been employed by Employers
Mutual since 1985.

Fred A. Schiek 65 Executive Vice President and Chief Operating
Officer of the Company and of Employers
Mutual since 1992. He was Vice President of
Employers Mutual from 1983 until 1992. He
has been employed by Employers Mutual since
1959.

John D. Isenhart 62 Senior Vice President of the Company since
1997 and of Employers Mutual since 1992.
He has been employed by Employers Mutual
since 1963.

Margaret A. Ball 61 Senior Vice President of the Company since
1998 and of Employers Mutual since 1997.
She was Vice President of the Company from
1995 until 1998. She has been employed by
Employers Mutual since 1971.

Ronald W. Jean 51 Senior Vice President of the Company and
Employers Mutual since 1997. He was Vice
President of the Company from 1985 until 1997.
He has been employed by Employers Mutual since
1979.

Raymond W. Davis 54 Senior Vice President of the Company and
Employers Mutual since 1998. He was Vice
President of the Company from 1985 until 1998.
He has been employed by Employers Mutual since
1979.

Donald D. Klemme 54 Senior Vice President and Secretary of the
Company since 1998. Senior Vice President
of Employers Mutual since 1998. He was Vice
President and Secretary of the Company from
1996 until 1998. He has been employed by
Employers Mutual since 1972.

David O. Narigon 47 Senior Vice President of the Company and of
Employers Mutual since 1998. He was Vice
President of the Company from 1989 until 1998.
He has been employed by Employers Mutual since
1983.

Mark E. Reese 42 Vice President of the Company and Employers
Mutual since 1996 and Chief Financial Officer
of the Company and Employers Mutual since
1997. He has been employed by Employers
Mutual since 1984.

ITEM 11. EXECUTIVE COMPENSATION.
- -------- -----------------------
See the information under the caption "Compensation of Management" in the
Company's Proxy Statement in connection with its Annual Meeting to be held on
May 25, 2000, which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------- ---------------------------------------------------------------
See the information under the captions "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the Company's
Proxy Statement in connection with its Annual Meeting to be held on May 25,
2000, which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- -----------------------------------------------
See the information under the caption "Certain Relationships and Related
Transactions" in the Company's Proxy Statement in connection with its Annual
Meeting to be held on May 25, 2000, which information is incorporated herein
by reference.

PART IV
-------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- -------- -----------------------------------------------------------------
(a) List of Financial Statements and Schedules.
Page
----
1. Financial Statements

Independent Auditors' Report ................................ 15*
Consolidated Balance Sheets, December 31, 1999 and 1998 ..... 16*
Consolidated Statements of Income for the Years ended
December 31, 1999, 1998 and 1997 ......................... 17*
Consolidated Statements of Comprehensive Income for the
Years ended December 31, 1999, 1998 and 1997 ............. 17*
Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 1999, 1998 and 1997 ............. 18*
Consolidated Statements of Cash Flows for the Years ended
December 31, 1999, 1998 and 1997 ......................... 19*
Notes to Consolidated Financial Statements .................. 21-40*

Form 10-K
2. Schedules Page
----
Independent Auditors' Report on Schedules ................... 30
Schedule I - Summary of Investments ....................... 31
Schedule II - Condensed Financial Information of Registrant 32
Schedule III - Supplementary Insurance Information .......... 35
Schedule IV - Reinsurance .................................. 36
Schedule VI - Supplemental Information Concerning
Property-Casualty Insurance Operations ..... 37

All other schedules have been omitted for the reason that the items
required by such schedules are not present in the consolidated
financial statements, are covered in the notes to the consolidated
financial statements or are not significant in amount.

* Refers to the respective page of the financial information insert of
EMC Insurance Group Inc.'s 1999 Annual Report to Stockholders. The
Consolidated Financial Statements and Independent Auditors' Report,
which are included as Exhibit 13(c), are incorporated by reference.
With the exception of the portions of such Annual Report specifically
incorporated by reference in this Item and Items 5, 6, 7 and 8, such
Annual Report shall not be deemed filed as part of this Form 10-K or
otherwise subject to the liabilities of Section 18 of the Securities
Exchange Act of 1934.

3. Management contracts and compensatory plan arrangements

Exhibit 10(b). 1999 Senior Executive Compensation Bonus Program.
Exhibit 10(d). 1982 Employers Mutual Casualty Company Incentive
Stock Option Plan, as amended.
Exhibit 10(e). Deferred Bonus Compensation Plans.
Exhibit 10(f). EMC Reinsurance Company Executive Bonus Program.
Exhibit 10(h). Employers Mutual Casualty Company Excess Retirement
Benefit Agreement.
Exhibit 10(i). Employers Mutual Casualty Company 1993 Employee
Stock Purchase Plan.
Exhibit 10(j). 1993 Employers Mutual Casualty Company Incentive
Stock Option Plan, as amended.
Exhibit 10(k). Employers Mutual Casualty Company Non-Employee
Director Stock Option Plan.
Exhibit 10(l). Employers Mutual Casualty Company Supplemental
Executive Retirement Plan.

(b) Reports on Form 8-K.

None

(c) Exhibits.

3. Articles of incorporation and bylaws:

(a) Articles of Incorporation of the Company, as amended.
(Incorporated by reference to the Company's Form 10-K
for the calendar year ended December 31, 1998.)

(b) Bylaws of the Company, as amended. (Incorporated by reference
to the Company's Form 10-K for the calendar year ended December
31, 1998.)

10. Material contracts.

(a) Quota Share Reinsurance Contract between Employers Mutual
Casualty Company and EMC Reinsurance Company. (Incorporated
by reference to the Company's Form 10-K for the calendar year
ended December 31, 1997.)

(b) 1999 Senior Executive Compensation Bonus Program.

(c) EMC Insurance Companies reinsurance pooling agreements
between Employers Mutual Casualty Company and certain of its
affiliated companies, as amended. (Incorporated by reference
to the Company's Form 10-K for the calendar year ended December
31, 1998.)

(d) 1982 Employers Mutual Casualty Company Incentive Stock Option
Plan, as amended. (Incorporated by reference to the Company's
Form 10-K for the calendar year ended December 31, 1998.)

(e) Deferred Bonus Compensation Plans. (Incorporated by reference
to the Company's Form 10-K for the calendar year ended December
31, 1998.)

(f) EMC Reinsurance Company Executive Bonus Program. (Incorporated
by reference to the Company's Form 10-K for the calendar year
ended December 31, 1998.)

(g) EMC Insurance Group Inc. Amended and Restated Dividend
Reinvestment and Common Stock Purchase Plan. (Incorporated by
reference to Registration No. 33-34499.)

(h) Employers Mutual Casualty Company Excess Retirement Benefit
Agreement. (Incorporated by reference to the Company's
Form 10-K for the calendar year ended December 31, 1998.)

(i) Employers Mutual Casualty Company 1993 Employee Stock Purchase
Plan. (Incorporated by reference to Registration No. 33-49335.)

(j) 1993 Employers Mutual Casualty Company Incentive Stock Option
Plan. (Incorporated by reference to Registration Nos.33-49337
and 333-45279.)

(k) Employers Mutual Casualty Company Non-Employee Director Stock
Option Plan. (Incorporated by reference to Registration No.
33-49339.)

(l) Employers Mutual Casualty Company Supplemental Executive
Retirement Plan. (Incorporated by reference to the Company's
Form 10-K for the calendar year ended December 31, 1995.)

13. Annual Report to Security Holders.

(a) Selected Financial Data from the Company's 1999 Annual Report to
Stockholders.

(b) Management's Discussion and Analysis of Financial Condition and
Results of Operations from the Company's 1999 Annual Report to
Stockholders.

(c) Consolidated Financial Statements from the Company's 1999
Annual Report to Stockholders.

(d) Stockholder Information from the Company's 1999 Annual Report to
Stockholders.

21. Subsidiaries of the Registrant.

23. Consent of KPMG LLP with respect to Forms S-8 (Registration
Nos. 2-93738, 33-49335, 33-49337, 33-49339 and (333-45279) and
Form S-3 (Registration No. 33-34499).

24. Power of Attorney.

(d) Financial statements required by Regulation S-X which are excluded from
the Annual Report to Stockholders by Rule 14a-3(b)(1).

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 March 28, 2000.

EMC INSURANCE GROUP INC.

/s/ Bruce G. Kelley
------------------------
Bruce G. Kelley
President, Treasurer and
Chief Executive Officer

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 28, 2000.

/s/ Mark E. Reese
------------------------
George C. Carpenter III*
Director

/s/ Mark E. Reese
------------------------
E. H. Creese*
Director

/s/ Mark E. Reese
------------------------
David J. Fisher*
Director

/s/ Bruce G. Kelley
------------------------
Bruce G. Kelley
Director

/s/ Mark E. Reese
------------------------
George W. Kochheiser*
Chairman of the Board

/s/ Mark E. Reese
------------------------
Raymond A. Michel*
Director

/s/ Mark E. Reese
------------------------
Fredrick A. Schiek*
Director

* by power of attorney

INDEPENDENT AUDITORS' REPORT ON SCHEDULES

The Board of Directors and Stockholders
EMC Insurance Group Inc.:

Under date of February 24, 2000, we reported on the consolidated balance
sheets of EMC Insurance Group Inc. and Subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of income, comprehensive
income, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1999, as contained in Part II, Item 8 of
Form 10-K for the year 1999. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedules listed in Part IV, Item 14(a)2.
These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP
Des Moines, Iowa
February 24, 2000

EMC INSURANCE GROUP INC. AND SUBSIDIARIES

Schedule I - Summary of Investments -
Other Than Investments in Related Parties

December 31, 1999

Amount at
which shown
Fair in the
Type of investment Cost value balance sheet
------------------ ------------ ------------ -------------
Securities held-to-maturity:
Fixed maturities:
United States Government
and government agencies
and authorities .............. $109,055,239 $108,320,350 $109,055,239
Mortgage-backed securities ..... 18,148,921 18,358,715 18,148,921
------------ ------------ ------------
Total fixed maturity securities 127,204,160 126,679,065 127,204,160
------------ ------------ ------------
Securities available-for-sale:
Fixed maturities:
United States Government
and government agencies
and authorities .............. 4,419,411 4,361,084 4,361,084
States, municipalities and
political subdivisions ....... 96,077,294 93,213,764 93,213,764
Mortgage-backed securities ..... 49,440,943 49,434,206 49,434,206
Debt securities issued by
foreign governments .......... 6,479,135 6,569,030 6,569,030
Public utilities ............... 8,890,108 8,837,456 8,837,456
Corporate securities ........... 98,413,442 93,765,889 93,765,889
------------ ------------ ------------
Total fixed maturity securities 263,720,333 256,181,429 256,181,429
------------ ------------ ------------
Equity securities:
Common stocks .................. 25,853,745 29,803,765 29,803,765
Non-redeemable preferred stocks 2,640,886 2,604,507 2,604,507
------------ ------------ ------------
Total equity securities ...... 28,494,631 32,408,272 32,408,272
------------ ------------ ------------
Short-term investments ............. 20,164,210 20,164,210 20,164,210
------------ ------------ ------------

Total investments ...... $439,583,334 $435,432,976 $435,958,071
============ ============ ============

EMC INSURANCE GROUP INC. AND SUBSIDIARIES

Schedule II - Condensed Financial Information of Registrant

Condensed Balance Sheets

December 31,
--------------------------
1999 1998
------------ ------------
ASSETS
- ------
Investment in common stock of
subsidiaries (equity method) .................. $138,167,388 $157,416,941
Fixed maturity investments:
Securities held-to-maturity, at amortized cost 1,999,431 3,999,138
Securities available-for-sale, at market value 1,467,525 -
Short-term investments .......................... 337,525 2,552,944
Cash ............................................ 5,008 62,448
Accrued investment income ....................... 78,409 50,417
Income taxes recoverable ........................ 12,000 -
Accounts receivable ............................. 2,568 216
Deferred tax asset .............................. 6,252 3,850
------------ ------------
Total assets ............................... $142,076,106 $164,085,954
============ ============

LIABILITIES
- -----------
Accounts payable ................................ $ 127,548 $ 128,245
Income taxes payable ............................ - 18,000
Indebtedness to related party ................... 32,281 1,869
------------ ------------
Total liabilities .......................... 159,829 148,114
------------ ------------

STOCKHOLDERS' EQUITY
- --------------------
Common stock, $1 par value,
authorized 20,000,000 shares;
issued and outstanding, 11,265,232 shares
in 1999 and 11,496,389 shares in 1998 ......... 11,265,232 11,496,389
Additional paid-in capital ...................... 65,333,686 67,822,412
Accumulated other comprehensive (loss) income ... (3,625,263) 8,079,371
Retained earnings ............................... 68,942,622 76,539,668
------------ ------------
Total stockholders' equity ................. 141,916,277 163,937,840
------------ ------------
Total liabilities and stockholders' equity $142,076,106 $164,085,954
============ ============

EMC INSURANCE GROUP INC. AND SUBSIDIARIES

Condensed Statements of Income

Years ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------

Equity in undistributed (loss) earnings
of subsidiaries ..................... $(7,577,404) $ 1,685,244 $ 9,377,037
Dividends received from subsidiaries .. 6,800,055 4,275,035 3,750,032
Investment income ..................... 364,042 463,889 445,816
Other income .......................... 52 - -
----------- ----------- -----------
(413,255) 6,424,168 13,572,885

Operating expenses .................... 390,894 387,056 313,762
----------- ----------- -----------
(Loss) income from operations before
income tax (benefit) expense ..... (804,149) 6,037,112 13,259,123

Income tax (benefit) expense .......... (164) 24,247 42,556
----------- ----------- -----------
Net (loss) income ....... $ (803,985) $ 6,012,865 $13,216,567
=========== =========== ===========

Condensed Statements of Comprehensive Income

Years ended December 31,
-------------------------------------
1999 1998 1997
------------ ----------- -----------

Net (loss) income ..................... $ (803,985) $ 6,012,865 $13,216,567
------------ ----------- -----------
Other Comprehensive Income:
Unrealized holding (losses) gains
arising during the period, net of
deferred income tax (benefit)
expense ........................... (11,527,264) 4,264,242 6,399,757

Reclassification adjustment for gains
included in net (loss) income, net
of income tax expense ............. (177,370) (3,871,963) (2,704,732)
------------ ----------- -----------
Other comprehensive (loss) income (11,704,634) 392,279 3,695,025
------------ ----------- -----------
Total comprehensive (loss) income $(12,508,619) $ 6,405,144 $16,911,592
============ =========== ===========

EMC INSURANCE GROUP INC. AND SUBSIDIARIES

Condensed Statements of Cash Flows

Years ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
Net cash provided by
operating activities ................ $ 6,740,085 $ 4,015,569 $ 3,702,567
----------- ----------- -----------
Cash flows from investing activities:
Purchases of fixed maturity
securities held-to-maturity ....... - - (3,999,340)
Disposals of fixed maturity
securities held-to-maturity ....... 2,000,000 2,500,000 2,000,000
Purchases of fixed maturity
securities available-for-sale ..... (1,500,000) - -
Net sales (purchases) of short-term
investments ...................... 2,215,419 (1,643,245) 1,413,904
----------- ----------- -----------
Net cash provided by (used in)
investing activities ........... 2,715,419 856,755 (585,436)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock ........... 278,794 823,927 1,019,919
Dividends paid to stockholders ..... (6,793,061) (5,637,687) (4,314,083)
Repurchase of common stock ......... (2,998,677) - -
----------- ----------- -----------
Net cash used in financing
activities ..................... (9,512,944) (4,813,760) (3,294,164)
----------- ----------- -----------

Net (decrease) increase in cash ....... (57,440) 58,564 (177,033)

Cash at beginning of year ............. 62,448 3,884 180,917
----------- ----------- -----------

Cash at end of year ................... $ 5,008 $ 62,448 $ 3,884
=========== =========== ===========

Income taxes paid ..................... $ 31,952 $ 50,229 $ 40,000
Interest paid ......................... $ 285 $ - $ -

EMC INSURANCE GROUP INC. AND SUBSIDIARIES

Schedule III - Supplementary Insurance Information

For Years Ended December 31, 1999, 1998 and 1997

Deferred Losses and
policy settlement
acquisition expense Unearned
Segment costs reserves premiums
------- ----------- ------------ -----------
Year ended December 31, 1999:
Property and casualty insurance $11,992,874 $194,872,984 $57,598,773
Reinsurance ................... 1,626,318 71,641,040 7,392,356
Parent company ................ - - -
----------- ------------ -----------
Consolidated ............. $13,619,192 $266,514,024 $64,991,129
=========== ============ ===========

Year ended December 31, 1998:
Property and casualty insurance $10,666,188 $182,529,015 $53,785,443
Reinsurance ................... 1,689,294 63,081,308 7,678,608
Parent company ................ - - -
----------- ------------ -----------
Consolidated ............. $12,355,482 $245,610,323 $61,464,051
=========== ============ ===========

Year ended December 31, 1997:
Property and casualty insurance $ 8,949,126 $159,403,277 $47,532,320
Reinsurance ................... 1,611,531 58,374,665 7,325,143
Parent company ................ - - -
----------- ------------ -----------
Consolidated ............. $10,560,657 $217,777,942 $54,857,463
=========== ============ ===========

Losses and
Net settlement
Premium investment expenses
Segment revenue income incurred
------------ ----------- ------------
Year ended December 31, 1999:
Property and casualty insurance $167,265,093 $18,282,642 $140,481,323
Reinsurance ................... 43,833,048 7,113,877 36,394,925
Parent company ................ - 364,042 -
------------ ----------- ------------
Consolidated ............. $211,098,141 $25,760,561 $176,876,248
============ =========== ============

Year ended December 31, 1998:
Property and casualty insurance $155,523,486 $17,635,076 $128,666,666
Reinsurance ................... 38,720,919 6,760,098 29,209,428
Parent company ................ - 463,889 -
------------ ----------- ------------
Consolidated ............. $194,244,405 $24,859,063 $157,876,094
============ =========== ============

Year ended December 31, 1997:
Property and casualty insurance $143,112,560 $16,719,458 $106,547,480
Reinsurance ................... 34,105,686 6,615,029 23,305,824
Parent company ................ - 445,816 -
------------ ----------- ------------
Consolidated ............. $177,218,246 $23,780,303 $129,853,304
============ =========== ============

Amortization
of deferred
policy Other
acquisition underwriting Premiums
Segment costs expenses written
------- ----------- ----------- ------------
Year ended December 31, 1999:
Property and casualty insurance $38,374,266 $13,698,660 $171,015,719
Reinsurance ................... 9,682,652 3,767,162 43,546,796
Parent company ................ - - -
----------- ----------- ------------
Consolidated ............. $48,056,918 $17,465,822 $214,562,515
=========== =========== ============

Year ended December 31, 1998:
Property and casualty insurance $35,754,919 $13,829,886 $161,855,333
Reinsurance ................... 8,907,722 3,186,535 39,074,384
Parent company ................ - - -
----------- ----------- ------------
Consolidated ............. $44,662,641 $17,016,421 $200,929,717
=========== =========== ============

Year ended December 31, 1997:
Property and casualty insurance $27,688,763 $16,557,572 $149,909,925
Reinsurance ................... 8,253,329 3,498,497 34,690,846
Parent company ................ - - -
----------- ----------- ------------
Consolidated ............. $35,942,092 $20,056,069 $184,600,771
=========== =========== ============

EMC INSURANCE GROUP INC. AND SUBSIDIARIES

Schedule IV - Reinsurance

For years ended December 31, 1999, 1998 and 1997

Percentage
Ceded to Assumed of amount
Gross other from other Net assumed
amount companies companies amount to net
------------ ------------ ------------ ------------ ----------

Year ended December 31, 1999:
Earned premiums:
Consolidated property and casualty
insurance .......................... $223,593,165 $230,785,034 $218,290,010 $211,098,141 103.4%
============ ============ ============ ============ ==========
Year ended December 31, 1998:
Earned premiums:
Consolidated property and casualty
insurance .......................... $202,514,027 $207,404,961 $199,135,339 $194,244,405 102.5%
============ ============ ============ ============ ==========
Year ended December 31, 1997:
Earned premiums:
Consolidated property and casualty
insurance .......................... $169,304,584 $165,004,455 $172,918,117 $177,218,246 97.6%
============ ============ ============ ============ ==========

EMC INSURANCE GROUP INC. AND SUBSIDIARIES

Schedule VI - Supplemental Insurance Information Concerning
Property-Casualty Insurance Operations

For Years Ended December 31, 1999, 1998 and 1997

Discount,
Deferred Reserves for if any,
policy losses and deducted Net
Consolidated property- acquisition settlement from Unearned Earned investment
casualty entities costs expenses reserves premiums premiums income
- ---------------------- ----------- ------------ -------- ----------- ------------ -----------

Year ended December 31, 1999: $13,619,192 $266,514,024 $ -0- $64,991,129 $211,098,141 $25,760,561
=========== ============ ======== =========== ============ ===========
Year ended December 31, 1998: $12,355,482 $245,610,323 $ -0- $61,464,051 $194,244,405 $24,395,174
=========== ============ ======== =========== ============ ===========
Year ended December 31, 1997: $10,560,657 $217,777,942 $ -0- $54,857,463 $177,218,246 $23,334,487
=========== ============ ======== =========== ============ ===========

Losses and Amortization
settlement expenses of deferred Paid
incurred related to policy losses and
Consolidated property- Current Prior acquisition settlement Premiums
casualty entities Year Years costs expenses (1) Written
- ---------------------- ------------ ----------- ------------ ------------ ------------

Year ended December 31, 1999: $182,609,687 ($ 5,733,439) $ 48,056,918 $150,669,762 $214,562,515
============ =========== ============ ============ ============
Year ended December 31, 1998: $168,953,309 ($11,077,215) $ 44,662,641 $132,577,163 $200,929,717
============ =========== ============ ============ ============
Year ended December 31, 1997: $137,300,762 ($ 7,447,458) $ 35,942,092 $113,811,729 $184,600,771
============ =========== ============ ============ ============

(1) The amount for 1998 reflects an adjustment of ($3,600,220) related to the
1998 change in the property and casualty insurance subsidiaries' pooling
agreement. This adjustment was made to offset the income statement
effect that resulted from the $3,600,220 increase in reserves for losses
and settlement expenses on January 1, 1998 related to this transaction.

The 1997 amount reflects an adjustment of ($3,795,453) related to the
1997 change in the property and casualty insurance subsidiaries' pooling
agreement and ($2,726,913) related to the change in the reinsurance
subsidiary's quota share percentage. These adjustments were made to
offset the income statement effect that resulted from the $6,522,366
increase in reserves for losses and settlement expenses on January 1,
1997 related to these transactions.

The index to exhibits in the electronic format indicates the exhibits are
included in the direct transmission. The circulated document contains the page
numbers of the exhibits.

EMC Insurance Group Inc. and Subsidiaries

Index to Exhibits

Exhibit
number Item
------ ----
10(b) 1999 Senior Executive Compensation Included in
Bonus Program. direct transmission

13(a) Selected Financial Data. Included in
direct transmission

13(b) Management's Discussion and Analysis
of Financial Condition and Results Included in
of Operations. direct transmission

13(c) Consolidated Financial Statements. Included in
direct transmission

13(d) Stockholder Information. Included in
direct transmission

21 Subsidiaries of the Registrant. Included in
direct transmission

23 Consent of KPMG LLP with respect to Included in
Forms S-8 and Form S-3. direct transmission

24 Power of Attorney. Included in
direct transmission