EX-99.2 3 ex-99209302015.htm EXHIBIT 99.2 Exhibit


Exhibit 99.2

Erie Indemnity Company
Consolidated Statements of Operations
(dollars in millions, except per share data)
 
 
Three months ended September 30,
Nine months ended September 30,
 
 
2015
 
2014
2015
 
2014
Revenues
 
(Unaudited)
(Unaudited)
Premiums earned
 
$
1,472

 
$
1,355

$
4,308

 
$
3,962

Net investment income
 
120

 
115

360

 
335

Net realized investment (losses) gains
 
(292
)
 
(85
)
(243
)
 
104

Net impairment losses recognized in earnings
 
(4
)
 
(1
)
(8
)
 
(1
)
Equity in earnings of limited partnerships
 
43

 
34

143

 
111

Other income
 
7

 
8

23

 
24

Total revenues
 
1,346

 
1,426

4,583

 
4,535

Benefits and expenses
 
 
 
 
 
 
 
Insurance losses and loss expenses
 
939

 
935

2,975

 
3,095

Policy acquisition and underwriting expenses
 
367

 
341

1,076

 
987

Total benefits and expenses
 
1,306

 
1,276

4,051

 
4,082

 
 
 
 
 
 
 
 
Income from operations before income taxes and noncontrolling interest
 
40

 
150

532

 
453

Provision for income taxes
 
7

 
42

166

 
133

Net income
 
$
33

 
$
108

$
366

 
$
320

 
 
 
 
 
 
 
 
Less: Net (loss) income attributable to noncontrolling interest in consolidated entity – Exchange
 
(17
)
 
61

221

 
178

 
 
 
 
 
 
 
 
Net income attributable to Indemnity
 
$
50

 
$
47

$
145

 
$
142

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings Per Share
 
 
 
 
 
 
 
Net income attributable to Indemnity per share
 
 
 
 
 
 
 
Class A common stock – basic
 
$
1.06

 
$
1.01

$
3.10

 
$
3.05

Class A common stock – diluted
 
$
0.94

 
$
0.90

$
2.75

 
$
2.71

Class B common stock – basic and diluted
 
$
160

 
$
151

$
466

 
$
458

Class B common stock – diluted
 
$
159

 
$
151

$
465

 
$
457

 
 
 
 
 
 
 
 
Weighted average shares outstanding attributable to Indemnity – Basic
 
 
 
 
 
 
 
Class A common stock
 
46,189,068

 
46,189,068

46,189,068

 
46,267,694

Class B common stock
 
2,542

 
2,542

2,542

 
2,542

 
 
 
 
 
 
 
 
Weighted average shares outstanding attributable to Indemnity – Diluted
 
 
 
 
 
 
 
Class A common stock
 
52,602,083

 
52,387,164

52,599,783

 
52,465,790

Class B common stock
 
2,542

 
2,542

2,542

 
2,542

 
 
 
 
 
 
 
 
Dividends declared per share
 
 
 
 
 
 
 
Class A common stock
 
$
0.6810

 
$
0.6350

$
2.0430

 
$
1.9050

Class B common stock
 
$
102.1500

 
$
95.2500

$
306.4500

 
$
285.7500



1



Erie Indemnity Company
Results of the Erie Insurance Group's Operations by Interest (Unaudited)
(in millions)
 
 
Indemnity
shareholder interest
 
Noncontrolling interest
(Exchange)
 
Eliminations of related party transactions
Erie Insurance Group
 
 
Three months ended September 30,
 
Three months ended September 30,
 
Three months ended September 30,
 
Three months ended September 30,
 
 
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
Management operations:
 
 
 
 
 
 
 
 
 
 
 
 
Management fee revenue, net
 
$
389

$
362

 
$

$

 
$
(389
)
$
(362
)
 
$

$

Service agreement revenue
 
7

8

 


 


 
7

8

Total revenue from management operations
 
396

370

 


 
(389
)
(362
)
 
7

8

Cost of management operations
 
328

308

 


 
(328
)
(308
)
 


Income from management operations before taxes
 
68

62

 


 
(61
)
(54
)
 
7

8

Property and casualty insurance operations:
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
 


 
1,447

1,333

 


 
1,447

1,333

Losses and loss expenses
 


 
912

908

 
(1
)
(1
)
 
911

907

Policy acquisition and underwriting expenses
 


 
420

387

 
(63
)
(56
)
 
357

331

Income from property and casualty insurance operations before taxes
 


 
115

38

 
64

57

 
179

95

Life insurance operations: (1)
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue
 


 
49

48

 
0

0

 
49

48

Total benefits and expenses
 


 
38

38

 
0

0

 
38

38

Income from life insurance operations before taxes
 


 
11

10

 
0

0

 
11

10

Investment operations: (1)
 
 
 
 
 
 
 
 
 
 
 
 
Net investment income
 
4

4

 
95

90

 
(3
)
(3
)
 
96

91

Net realized investment losses
 
0

0

 
(292
)
(88
)
 


 
(292
)
(88
)
Net impairment losses recognized in earnings
 
(1
)
0

 
(3
)
0

 


 
(4
)
0

Equity in earnings of limited partnerships
 
4

4

 
39

30

 


 
43

34

Income (loss) from investment operations before taxes
 
7

8

 
(161
)
32

 
(3
)
(3
)
 
(157
)
37

Income (loss) from operations before income taxes and noncontrolling interest
 
75

70

 
(35
)
80

 


 
40

150

Provision for income taxes
 
25

23

 
(18
)
19

 


 
7

42

Net income (loss)
 
$
50

$
47

 
$
(17
)
$
61

 
$

$

 
$
33

$
108


(1)    Earnings on life insurance related invested assets are integral to the evaluation of the life insurance operations because of the long duration of life products. On that basis, for presentation purposes, the life insurance operations in the table above include life insurance related investment results.



2



Erie Indemnity Company
Results of the Erie Insurance Group's Operations by Interest (Unaudited)
(in millions)
 
 
Indemnity
shareholder interest
 
Noncontrolling interest
(Exchange)
 
Eliminations of related party transactions
Erie Insurance Group
 
 
Nine months ended September 30,
 
Nine months ended September 30,
 
Nine months ended September 30,
 
Nine months ended September 30,
 
 
2015
2014
 
2015
2014
 
2015
2014
 
2015
2014
Management operations:
 
 
 
 
 
 
 
 
 
 
 
 
Management fee revenue, net
 
$
1,127

$
1,047

 
$

$

 
$
(1,127
)
$
(1,047
)
 
$

$

Service agreement revenue
 
22

23

 


 


 
22

23

Total revenue from management operations
 
1,149

1,070

 


 
(1,127
)
(1,047
)
 
22

23

Cost of management operations
 
958

882

 


 
(958
)
(882
)
 


Income from management operations before taxes
 
191

188

 


 
(169
)
(165
)
 
22

23

Property and casualty insurance operations:
 
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
 


 
4,239

3,899

 


 
4,239

3,899

Losses and loss expenses
 


 
2,897

3,016

 
(3
)
(4
)
 
2,894

3,012

Policy acquisition and underwriting expenses
 


 
1,222

1,132

 
(175
)
(173
)
 
1,047

959

Income (loss) from property and casualty insurance operations before taxes
 


 
120

(249
)
 
178

177

 
298

(72
)
Life insurance operations: (1)
 
 
 
 
 
 
 
 
 
 
144

143

Total revenue
 


 
144

144

 
0

(1
)
 
144

143

Total benefits and expenses
 


 
110

111

 
0

0

 
110

111

Income from life insurance operations before taxes
 


 
34

33

 
0

(1
)
 
34

32

Investment operations: (1)
 
 
 
 
 
 
 
 
 
 
 
 
Net investment income
 
13

12

 
284

263

 
(9
)
(11
)
 
288

264

Net realized investment gains (losses)
 
0

1

 
(244
)
95

 


 
(244
)
96

Net impairment losses recognized in earnings
 
(1
)
0

 
(7
)
0

 


 
(8
)
0

Equity in earnings of limited partnerships
 
17

13

 
125

97

 


 
142

110

Income from investment operations before taxes
 
29

26

 
158

455

 
(9
)
(11
)
 
178

470

Income from operations before income taxes and noncontrolling interest
 
220

214

 
312

239

 


 
532

453

Provision for income taxes
 
75

72

 
91

61

 


 
166

133

Net income
 
$
145

$
142

 
$
221

$
178

 
$

$

 
$
366

$
320


(1)    Earnings on life insurance related invested assets are integral to the evaluation of the life insurance operations because of the long duration of life products. On that basis, for presentation purposes, the life insurance operations in the table above include life insurance related investment results.


3




Erie Indemnity Company
Reconciliation of Operating Income to Net Income



Reconciliation of operating income to net income (unaudited)

We disclose operating income, a non-GAAP financial measure, to enhance our investors’ understanding of our performance related to the Indemnity shareholder interest.  Our method of calculating this measure may differ from those used by other companies, and therefore comparability may be limited.
 
Indemnity defines operating income as net income excluding realized capital gains and losses, impairment losses and related federal income taxes.
 
Indemnity uses operating income to evaluate the results of its operations.  It reveals trends that may be obscured by the net effects of realized capital gains and losses including impairment losses.  Realized capital gains and losses, including impairment losses, may vary significantly between periods and are generally driven by business decisions and economic developments such as capital market conditions which are not related to our ongoing operations.  We are aware that the price to earnings multiple commonly used by investors as a forward-looking valuation technique uses operating income as the denominator.  Operating income should not be considered as a substitute for net income prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and does not reflect Indemnity’s overall profitability.
 
The following table reconciles operating income and net income for the Indemnity shareholder interest:
 
 
Indemnity Shareholder Interest
 
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions, except per share data)
 
2015
 
2014
 
2015
 
2014
 
 
(Unaudited)
 
(Unaudited)
Operating income attributable to Indemnity
 
$
51

 
$
47

 
$
146

 
$
141

Net realized investment (losses) gains and impairments
 
(1
)
 
0

 
(1
)
 
1

Income tax benefit (expense)
 
0

 
0

 
0

 
0

Realized (losses) gains and impairments, net of income taxes
 
(1
)
 
0

 
(1
)
 
1

Net income attributable to Indemnity
 
$
50

 
$
47

 
$
145

 
$
142

 
 
 
 
 
 
 
 
 
Per Indemnity Class A common share-diluted:
 
 
 
 
 
 
 
 
Operating income attributable to Indemnity
 
$
0.95

 
$
0.90

 
$
2.76

 
$
2.70

Net realized investment (losses) gains and impairments
 
(0.01
)
 
0.00

 
(0.01
)
 
0.02

Income tax benefit (expense)
 
0.00

 
0.00

 
0.00

 
(0.01
)
Realized (losses) gains and impairments, net of income taxes
 
(0.01
)
 
0.00

 
(0.01
)
 
0.01

Net income attributable to Indemnity
 
$
0.94

 
$
0.90

 
$
2.75

 
$
2.71



4



Erie Indemnity Company
Consolidated Statements of Financial Position
(in millions)
 
 
September 30, 2015
 
December 31, 2014
 
 
(Unaudited)
 
 
Assets
 
 
 
 
Investments – Indemnity
 
 
 
 
Available-for-sale securities, at fair value:
 
 
 
 
Fixed maturities
 
$
588

 
$
564

Equity securities
 
20

 
25

Limited partnerships
 
95

 
113

Other invested assets
 
1

 
1

Investments – Exchange
 
 

 
 

Available-for-sale securities, at fair value:
 
 

 
 

Fixed maturities
 
9,392

 
9,007

Equity securities
 
720

 
850

Trading securities, at fair value
 
2,981

 
3,223

Limited partnerships
 
832

 
866

Other invested assets
 
21

 
20

Total investments
 
14,650

 
14,669

 
 
 
 
 
Cash and cash equivalents (Exchange portion of $496 and $422, respectively)
 
618

 
514

Premiums receivable from policyholders – Exchange
 
1,417

 
1,281

Reinsurance recoverable – Exchange
 
162

 
161

Deferred income taxes – Indemnity
 
51

 
37

Deferred acquisition costs – Exchange
 
656

 
595

Other assets (Exchange portion of $451 and $374, respectively)
 
561

 
501

Total assets
 
$
18,115

 
$
17,758

 
 
 
 
 
Liabilities and shareholders’ equity
 
 
 
 
Liabilities
 
 
 
 
Indemnity liabilities
 
 
 
 
Other liabilities
 
$
644

 
$
611

Exchange liabilities
 
 

 
 

Losses and loss expense reserves
 
3,923

 
3,853

Life policy and deposit contract reserves
 
1,848

 
1,812

Unearned premiums
 
3,109

 
2,834

Deferred income taxes
 
283

 
490

Other liabilities
 
183

 
175

Total liabilities
 
9,990

 
9,775

 
 
 
 
 
Indemnity's shareholders’ equity
 
750

 
703

 
 
 
 
 
Noncontrolling interest in consolidated entity – Exchange
 
7,375

 
7,280

Total equity
 
8,125

 
7,983

Total liabilities, shareholders’ equity and noncontrolling interest
 
$
18,115

 
$
17,758




5