Despite a rise in operating income in the first quarter, EMC Insurance Group Inc.’s net income was down due to investment losses, and the Des Moines-based insurer reaffirmed its outlook, expecting volatility to continue based on catastrophe and storm losses in recent years.

The company reported net operating income of $11.4 million, or 86 cents per share, up from $10.1 million, or 73 cents per share, in the first quarter of 2008. Net income was $5.8 million, or 44 cents per share, compared with $8.2 million, or 60 cents per share, in the year-ago period.

Profits in the first quarter were affected by $8.4 million in “other-than-temporary” investment impairment losses recorded on 24 equity securities and one fixed-maturity security. In the first quarter of 2008, impairment losses totaled $2.9 million.

However, investment income increased 2.8 percent from a year ago to $12.3 million as the company purchased commercial and residential mortgage-backed securities at significantly discounted prices and redeployed more than $165 million of proceeds from U.S. government agency securities into higher-yielding corporate securities during 2008.

Premiums earned fell 2.7 percent to $92.5 million for the quarter and President and CEO Bruce Kelley said he expects premium rates to continue to decline by about 3.5 percent through the year “due to the lagging effect of prior rate level reductions.”

“Management of the company’s investment portfolio has become increasingly challenging during the past year due to the prolonged low interest rate environment, a bearish equity market and accounting rules governing the recognition of “other-than-temporary” investment losses,” Kelley said in a release. “However, we have always maintained a conservative investment philosophy, and that philosophy has served us well during the current financial crisis.”

Catastrophe and storm losses totaled $3.7 million in the quarter, down from $5.7 million a year ago, which was consistent with the company’s expectations. However, the company reaffirmed its 2009 operating income guidance of $1.45 per share to $1.70 per share because of the high level of volatility experienced in catastrophe and storm losses in recent years.

The company will hold a teleconference today to discuss these results at 1 p.m. Iowa time. To access a live webcast, go to www.emcins.com/ir.