UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): | November 3, 2011 |
Erie Indemnity Company
__________________________________________
(Exact name of registrant as specified in its charter)
Pennsylvania | 0-24000 | 25-0466020 |
_____________________ (State or other jurisdiction |
_____________ (Commission |
______________ (I.R.S. Employer |
of incorporation) | File Number) | Identification No.) |
100 Erie Insurance Place, Erie, Pennsylvania | 16530 | |
_________________________________ (Address of principal executive offices) |
___________ (Zip Code) |
Registrants telephone number, including area code: | (814)870-2000 |
Not Applicable
______________________________________________
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On November 3, 2011, Erie Indemnity Company (Company) issued a press release announcing financial results for the quarter ended September 30, 2011. A copy of the press release and financial information is attached hereto and is incorporated herein by reference as Exhibit 99.1 and Exhibit 99.2, respectively.
On November 4, 2011 at 10:00 a.m. the Company will hold a telephone conference call that will be webcast and that is complimentary to the press release announcing financial results for the quarter ended September 30, 2011.
Item 9.01 Financial Statements and Exhibits.
Exhibit 99.1 Press Release Text
Exhibit 99.2 Financial Information
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Erie Indemnity Company | ||||
November 3, 2011 | By: |
Marcia A. Dall
|
||
|
||||
Name: Marcia A. Dall | ||||
Title: Executive Vice President & CFO |
Exhibit Index
Exhibit No. | Description | |
|
|
|
99.1
|
Press Release Text | |
99.2
|
Financial Information |
Exhibit 99.1
Erie Indemnity Reports Third Quarter 2011 Results
3Q 2011 Highlights
Indemnity Shareholder Interest:
| Net income attributable to Indemnity per share-diluted was $0.87 per share in the third quarter of 2011 compared to net income per share-diluted of $0.94 per share in the third quarter of 2010. The third quarter 2010 net income amount includes $0.13 per share related to operations sold to the Exchange. |
| Operating income attributable to Indemnity per share-diluted (excluding net realized gains or losses, impairments on investments and related taxes) was $0.93 per share in the third quarter of 2011 compared to $0.89 per share in the third quarter of 2010. The third quarter 2010 operating income amount includes $0.12 per share related to operations sold to the Exchange. |
| Gross margin from management operations was 21.7 percent in the third quarter of 2011 compared to 21.1 percent in the third quarter of 2010. |
| Indemnitys investment operations pretax income totaled $5 million for the third quarter of 2011 compared to $20 million for the third quarter of 2010. |
Erie, Pa., November 3, 2011 Erie Indemnity Company (NASDAQ: ERIE) today announced third quarter 2011 earnings of $47 million, compared to earnings of $54 million in the third quarter of 2010. Operating income was $51 million in both the third quarters of 2011 and 2010.
Note: The accompanying consolidated financial statements of Erie Indemnity Company (Indemnity) reflect the consolidated results of Indemnity and the Erie Insurance Exchange (Exchange), which we refer to collectively as the Erie Insurance Group.
Indemnity or Indemnity shareholder interest refers to the interest in Erie Indemnity Company owned by the Class A and Class B shareholders. The Exchange refers to the noncontrolling interest held for the interest of the subscribers (policyholders) and includes its interest in its property and casualty subsidiaries and Erie Family Life Insurance Company (EFL).
The following table shows the consolidated results of the Erie Insurance Group by operating segment:
Results of the Erie Insurance Groups Operations | ||||||||||||||||||||||||||||||||
Indemnity shareholder interest | Noncontrolling interest (Exchange) | Elimination of related party transactions | Erie Insurance Group | |||||||||||||||||||||||||||||
(dollars in millions) |
3Q11 | 3Q10 | 3Q11 | 3Q10 | 3Q11 | 3Q10 | 3Q11 | 3Q10 | ||||||||||||||||||||||||
Management operations |
$ | 62 | $ | 58 | $ | - | $ | - | $ | (54 | ) | $ | (49 | ) | $ | 8 | $ | 9 | ||||||||||||||
Property and casualty insurance operations |
| 1 | (80 | ) | 11 | 57 | 52 | (23 | ) | 64 | ||||||||||||||||||||||
Life insurance operations |
| 3 | 13 | 13 | 0 | 0 | 13 | 16 | ||||||||||||||||||||||||
Investment operations |
5 | 20 | (305 | ) | 299 | (3 | ) | (3 | ) | (303 | ) | 316 | ||||||||||||||||||||
Income (loss) from operations before income
taxes and noncontrolling interest |
67 | 82 | (372 | ) | 323 | | | (305 | ) | 405 | ||||||||||||||||||||||
Provision for income taxes |
20 | 28 | (145 | ) | 102 | | | (125 | ) | 130 | ||||||||||||||||||||||
Net income (loss) |
$ | 47 | $ | 54 | $ | (227 | ) | $ | 221 | $ | - | $ | - | $ | (180 | ) | $ | 275 | ||||||||||||||
The following sections highlight and discuss the results of management operations, property and casualty insurance operations, life insurance operations and investment operations related to the Indemnity shareholder interest.
Management Operations | ||||||||||||||||||||||||||||||||
Indemnity shareholder interest | Noncontrolling interest (Exchange) | Elimination of related party transactions | Erie Insurance Group | |||||||||||||||||||||||||||||
(dollars in millions) |
3Q11 | 3Q10 | 3Q11 | 3Q10 | 3Q11 | 3Q10 | 3Q11 | 3Q10 | ||||||||||||||||||||||||
Management fee revenue, net |
$ | 280 | $ | 266 | $ | | $ | | $ | (280 | ) | $ | (266 | ) | $ | | $ | | ||||||||||||||
Service agreement revenue |
8 | 9 | | | | | 8 | 9 | ||||||||||||||||||||||||
Total revenue from management operations |
288 | 275 | | | (280 | ) | (266 | ) | 8 | 9 | ||||||||||||||||||||||
Cost of management operations |
226 | 217 | | - | (226 | ) | (217 | ) | - | - | ||||||||||||||||||||||
Income from management operations
before taxes |
$62 | $ | 58 | $ | | $ | - | $ | (54 | ) | $ | (49 | ) | $ | 8 | $ | 9 | |||||||||||||||
Gross margin |
21.7 | % | 21.1 | % | ||||||||||||||||||||||||||||
| The management fee rate was 25 percent for both the third quarters of 2011 and 2010. Direct written premiums of the property and casualty insurance operations, upon which the management fee is calculated, increased 5.4 percent in the third quarter of 2011, due to a 2.6 percent increase in policies in force and increases in average premium. The year-over-year average premium per policy for all lines of business increased 2.9 percent at September 30, 2011, compared to an increase of 0.4 percent at September 30, 2010. |
| The cost of management operations increased to $226 million in the third quarter 2011 from $217 million in the third quarter of 2010. Third quarter 2011 commissions increased $2 million compared to the third quarter of 2010, while third quarter 2011 non-commission expense increased $7 million. The increase in non-commission expense was primarily due to increases in personnel costs of $2 million, professional fees of $3 million and software expenses of $2 million. |
Property and Casualty Insurance Operations | ||||||||||||||||||||||||||||||||
Indemnity shareholder interest | Noncontrolling interest (Exchange) | Elimination of related party transactions | Erie Insurance Group | |||||||||||||||||||||||||||||
(dollars in millions) |
3Q11 | 3Q10 | 3Q11 | 3Q10 | 3Q11 | 3Q10 | 3Q11 | 3Q10 | ||||||||||||||||||||||||
Net premiums earned |
$ | | $ | 55 | $ | 1,045 | $ | 935 | $ | - | $ | - | $ | 1,045 | $ | 990 | ||||||||||||||||
Losses and loss expenses |
| 38 | 823 | 652 | (1 | ) | (1 | ) | 822 | 689 | ||||||||||||||||||||||
Policy acquisition and
other underwriting expenses |
| 16 | 302 | 272 | (56 | ) | (51 | ) | 246 | 237 | ||||||||||||||||||||||
Total losses and expenses |
| 54 | 1,125 | 924 | (57 | ) | (52 | ) | 1,068 | 926 | ||||||||||||||||||||||
Income (loss) from property
and casualty insurance
operations before taxes |
$ | | $ | 1 | $ | (80 | ) | $ | 11 | $ | 57 | $ | 52 | $ | (23 | ) | $ | 64 | ||||||||||||||
Combined ratio |
| 98.7 | % | 107.7 | % | 98.7 | % | |||||||||||||||||||||||||
| Prior to and through December 31, 2010, the underwriting results retained by Erie Insurance Company (EIC) and Erie Insurance Company of New York (ENY) accrued to the Indemnity shareholder interest. Due to the sale of Indemnitys property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, beginning in the first quarter of 2011. |
| Beginning late in the first quarter and continuing through the third quarter of 2011, many of the Exchanges operating territories experienced severe weather events. For the third quarter of 2011, the Exchanges GAAP (U.S. generally accepted accounting principles) combined ratio totaled 107.7 and included 16.7 points, or $174 million of catastrophe related losses. These losses did not impact Indemnitys financial results. |
Life Insurance Operations | ||||||||||||||||||||||||||||||||
Indemnity shareholder interest | Noncontrolling interest (Exchange) | Elimination of related party transactions | Erie Insurance Group | |||||||||||||||||||||||||||||
(dollars in millions) |
3Q11 | 3Q10 | 3Q11 | 3Q10 | 3Q11 | 3Q10 | 3Q11 | 3Q10 | ||||||||||||||||||||||||
Total revenue |
$ | | $ | 10 | $ | 46 | $ | 33 | $ | 0 | $ | (1 | ) | $ | 46 | $ | 42 | |||||||||||||||
Total benefits and expenses |
| 7 | 33 | 20 | 0 | (1 | ) | 33 | 26 | |||||||||||||||||||||||
Income from life insurance operations
before taxes |
$ | | $ | 3 | $ | 13 | $ | 13 | $ | 0 | $ | 0 | $ | 13 | $ | 16 | ||||||||||||||||
| Prior to and through March 31, 2011, Indemnity retained a 21.6 percent ownership interest in EFL which accrued to the Indemnity shareholder interest. Due to the sale of Indemnitys ownership interest in EFL to the Exchange on March 31, 2011, all life insurance results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, beginning in the second quarter of 2011. |
Investment Operations | ||||||||||||||||||||||||||||||||
Indemnity shareholder interest | Noncontrolling interest (Exchange) | Elimination of related party transactions | Erie Insurance Group | |||||||||||||||||||||||||||||
(dollars in millions) |
3Q11 | 3Q10 | 3Q11 | 3Q10 | 3Q11 | 3Q10 | 3Q11 | 3Q10 | ||||||||||||||||||||||||
Net investment income |
$ | 4 | $ | 10 | $ | 83 | $ | 79 | $ | (3 | ) | $ | (3 | ) | $ | 84 | $ | 86 | ||||||||||||||
Net realized (losses) gains on
investments |
(6 | ) | 5 | (421 | ) | 197 | | | (427 | ) | 202 | |||||||||||||||||||||
Net impairment losses recognized in
earnings |
0 | 0 | 0 | 0 | | | 0 | 0 | ||||||||||||||||||||||||
Equity in earnings of limited
partnerships |
7 | 5 | 33 | 23 | | | 40 | 28 | ||||||||||||||||||||||||
Income (loss) from investment
operations
before taxes |
$ | 5 | $ | 20 | $ | (305 | ) | $ | 299 | $ | (3 | ) | $ | (3 | ) | $ | (303 | ) | $ | 316 | ||||||||||||
| Net investment income, which primarily includes interest and dividends on bonds and stocks, decreased $6 million in the third quarter of 2011. The third quarter of 2010 includes $6 million of net investment income from EIC, ENY and Erie Insurance Property & Casualty Company which were sold to the Exchange on December 31, 2010. |
| Net realized losses on investments totaled $6 million in the third quarter of 2011 compared to gains of $5 million recorded in the third quarter of 2010. The realized losses generated in the third quarter of 2011 were primarily due to decreases in the valuation on the common stock portfolio. |
| Equity in earnings of limited partnerships increased $2 million in the third quarter of 2011, driven by improved performance in the mezzanine debt and private equity sectors compared to the third quarter of 2010. |
Nine-Month 2011 Results
Net income attributable to Indemnity per share-diluted was $2.59 per share for the nine months ended September 30, 2011, compared to $2.62 per share for the nine months ended September 30, 2010. The net income for 2011 and 2010 includes $0.02 and $0.33 per share, respectively, related to operations sold to the Exchange.
Operating income attributable to Indemnity per share-diluted (excluding net realized gains or losses, impairments on investments and related taxes) was $2.57 per share in the first nine months of 2011, compared to $2.55 in the first nine months of 2010. The 2011 and 2010 operating income amounts include $0.02 and $0.29 per share, respectively, related to operations sold to the Exchange.
Share Repurchase Program
In the third quarter of 2011, we repurchased 0.6 million shares of our outstanding Class A nonvoting common stock at a total cost of $42 million in conjunction with our current stock repurchase program. For the year through October 20, 2011, shares repurchased under this program totaled 2.0 million at a total cost of $141 million. In December 2010, our Board of Directors approved a continuation of the current stock repurchase program for a total of $150 million. As of October 20, 2011, we had approximately $5 million in repurchase authority remaining under the program. Additionally, on October 26, 2011, our Board of Directors approved a continuation of the current stock repurchase program for a total of $150 million, with no time limitation. This repurchase authority includes, and is not in addition to, any unspent amounts remaining under the prior authorization.
According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 12th
largest automobile and homeowners insurer in the United States based on direct premiums written and
the 20th largest property/casualty insurer in the United States based on total lines net premium
written. The Group, rated A+ (Superior) by A.M. Best Company, has over 4.3 million policies in
force and operates in 11 states and the District of Columbia. Erie Insurance Group is a FORTUNE
500 company.
Erie Insurance is proud to be named a J.D. Power and Associates 2011 Customer Service
Champion and is only one of 40 companies so named in the U.S. Erie Insurance has also been
recognized on the list of Wards 50 Group of top performing insurance companies. The Wards 50
award analyzes the financial performance of 3,000 property and casualty companies and recognizes
the top performers for achieving outstanding financial results in safety and consistency over a
five-year period (2006-2010).
News releases and more information about Erie Insurance Group are available at www.erieinsurance.com.
***
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
Statements contained herein that are not historical fact are forward-looking statements and, as
such, are subject to risks and uncertainties that could cause actual events and results to differ,
perhaps materially, from those discussed herein. Forward-looking statements relate to future
trends, events or results and include, without limitation, statements and assumptions on which such
statements are based that are related to our plans, strategies, objectives, expectations,
intentions and adequacy of resources. Examples of forward-looking statements are discussions
relating to premium and investment income, expenses, operating results, agency relationships, and
compliance with contractual and regulatory requirements. Forward-looking statements are not
guarantees of future performance and involve risks and uncertainties that are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. Among the risks and uncertainties, in addition to those set
forth in our filings with the Securities and Exchange Commission, that could cause actual results
and future events to differ from those set forth or contemplated in the forward-looking statements
include the following:
Risk factors related to the Indemnity shareholder interest:
| dependence on Indemnitys relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange; |
| costs of providing services to the Exchange under the subscribers agreement; |
| ability to attract and retain talented management and employees; |
| ability to maintain the uninterrupted operations of our business, including our information technology system; |
| factors affecting the quality and liquidity of our investment portfolio; |
| credit risk from the Exchange; |
| ability to meet liquidity needs and access capital; and |
| outcome of pending and potential litigations against us. |
Risk factors related to the non-controlling interest owned by the Exchange, which includes the Property and Casualty Group and EFL:
| general business and economic conditions; |
| dependence on the independent agency system; |
| ability to maintain our reputation for superior customer service; |
| factors affecting price competition; |
| government regulation of the insurance industry, including approval of rate increases and rating factors such as credit and prior experience, and required processes related to underwriting and claims handling; |
| the uncertain role of the Federal Government, and the ongoing role of the States, in regulating the property/casualty or life insurance industries; |
| premium rates and reserves must be established from forecasts of ultimate costs; |
| emerging claims, coverage issues in the industry, and changes in reserve estimates related to the property and casualty business; |
| changes in reserve estimates related to the life business; |
| severe weather conditions or other catastrophic losses, including terrorism; |
| ability to acquire reinsurance coverage and collectability from reinsurers; |
| factors affecting the quality and liquidity of our investment portfolio; |
| ability to meet liquidity needs and access capital; |
| ability to maintain acceptable financial strength rating; |
| outcome of pending and potential litigations against us; and |
| dependency on service provided by Indemnity. |
A forward-looking statement speaks only as of the date on which it is made and reflects Indemnitys analysis only as of that date. Indemnity undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions, or otherwise.
Exhibit 99.2
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(dollars in millions, except per share data)
Three | Three | Nine | Nine | |||||||||||||
months | months | months | months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
Revenues | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Premiums earned |
$ | 1,061 | $ | 1,005 | $ | 3,138 | $ | 2,972 | ||||||||
Net investment income |
108 | 110 | 326 | 322 | ||||||||||||
Net realized investment (losses) gains |
(422 | ) | 205 | (234 | ) | 117 | ||||||||||
Net impairment losses recognized in earnings |
0 | 0 | 0 | (6 | ) | |||||||||||
Equity in earnings of limited partnerships |
40 | 28 | 150 | 58 | ||||||||||||
Other income |
9 | 9 | 26 | 26 | ||||||||||||
Total revenues |
796 | 1,357 | 3,406 | 3,489 | ||||||||||||
Benefits and expenses |
||||||||||||||||
Insurance losses and loss expenses |
848 | 710 | 2,724 | 2,208 | ||||||||||||
Policy acquisition and underwriting expenses |
253 | 242 | 749 | 699 | ||||||||||||
Total benefits and expenses |
1,101 | 952 | 3,473 | 2,907 | ||||||||||||
(Loss) income from operations before income taxes |
||||||||||||||||
and noncontrolling interest |
(305 | ) | 405 | (67 | ) | 582 | ||||||||||
Provision for income taxes |
(125 | ) | 130 | (54 | ) | 176 | ||||||||||
Net (loss) income |
(180 | ) | 275 | (13 | ) | 406 | ||||||||||
Less: Net (loss) income attributable to
noncontrolling |
||||||||||||||||
interest in consolidated entity Exchange |
(227 | ) | 221 | (156 | ) | 256 | ||||||||||
Net income attributable to Indemnity |
$ | 47 | $ | 54 | $ | 143 | $ | 150 | ||||||||
Earnings Per Share |
||||||||||||||||
Net income attributable to Indemnity per share |
||||||||||||||||
Class A common stock basic |
$ | 0.97 | $ | 1.05 | $ | 2.90 | $ | 2.92 | ||||||||
Class A common stock diluted |
$ | 0.87 | $ | 0.94 | $ | 2.59 | $ | 2.62 | ||||||||
Class B common stock basic and diluted |
$ | 146.67 | $ | 150.87 | $ | 439.39 | $ | 421.91 | ||||||||
Weighted average shares outstanding attributable
to |
||||||||||||||||
Indemnity Basic |
||||||||||||||||
Class A common stock |
48,503,383 | 50,499,551 | 49,176,124 | 50,897,035 | ||||||||||||
Class B common stock |
2,546 | 2,546 | 2,546 | 2,546 | ||||||||||||
Weighted average shares outstanding attributable
to |
||||||||||||||||
Indemnity Diluted |
||||||||||||||||
Class A common stock |
54,685,021 | 56,678,321 | 55,357,762 | 57,075,805 | ||||||||||||
Class B common stock |
2,546 | 2,546 | 2,546 | 2,546 | ||||||||||||
Dividends declared per share |
||||||||||||||||
Class A common stock |
$ | 0.515 | $ | 0.48 | $ | 1.545 | $ | 1.44 | ||||||||
Class B common stock |
$ | 77.25 | $ | 72.00 | $ | 231.75 | $ | 216.00 | ||||||||
ERIE INDEMNITY COMPANY
RESULTS OF THE ERIE INSURANCE GROUPS OPERATIONS BY INTEREST (unaudited)
(in millions)
Eliminations of | ||||||||||||||||||||||||||||||||||||||||
related party | ||||||||||||||||||||||||||||||||||||||||
Indemnity shareholder interest | Noncontrolling interest (Exchange) | transactions | Erie Insurance Group | |||||||||||||||||||||||||||||||||||||
Three months ended | Three months ended | Three months ended | Three months ended | |||||||||||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||||||||||
Percent | 2011 | 2010 | Percent | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||||
Management operations: |
||||||||||||||||||||||||||||||||||||||||
Management fee revenue, net |
100.0 | % | $ | 280 | $ | 266 | $ | 0 | $ | 0 | $ | (280 | ) | $ | (266 | ) | $ | 0 | $ | 0 | ||||||||||||||||||||
Service agreement revenue |
100.0 | % | 8 | 9 | 0 | 0 | 0 | 0 | 8 | 9 | ||||||||||||||||||||||||||||||
Total revenue from management operations |
288 | 275 | 0 | 0 | (280 | ) | (266 | ) | 8 | 9 | ||||||||||||||||||||||||||||||
Cost of management operations |
100.0 | % | 226 | 217 | 0 | 0 | (226 | ) | (217 | ) | 0 | 0 | ||||||||||||||||||||||||||||
Income from management operations before taxes |
62 | 58 | 0 | 0 | (54 | ) | (49 | ) | 8 | 9 | ||||||||||||||||||||||||||||||
Property and casualty insurance operations: (2) |
||||||||||||||||||||||||||||||||||||||||
Net premiums earned |
5.5%(2) | 0 | 55 | 94.5%(2) | 1,045 | 935 | 0 | 0 | 1,045 | 990 | ||||||||||||||||||||||||||||||
Losses and loss expenses |
5.5%(2) | 0 | 38 | 94.5%(2) | 823 | 652 | (1 | ) | (1 | ) | 822 | 689 | ||||||||||||||||||||||||||||
Policy acquisition and other underwriting expenses |
5.5%(2) | 0 | 16 | 94.5%(2) | 302 | 272 | (56 | ) | (51 | ) | 246 | 237 | ||||||||||||||||||||||||||||
Income(loss) from property and casualty insurance
operations before taxes |
0 | 1 | (80 | ) | 11 | 57 | 52 | (23 | ) | 64 | ||||||||||||||||||||||||||||||
Life insurance operations: (1) |
||||||||||||||||||||||||||||||||||||||||
Total revenue |
21.6%(3) | 0 | 10 | 78.4%(3) | 46 | 33 | 0 | (1 | ) | 46 | 42 | |||||||||||||||||||||||||||||
Total benefits and expenses |
21.6%(3) | 0 | 7 | 78.4%(3) | 33 | 20 | 0 | (1 | ) | 33 | 26 | |||||||||||||||||||||||||||||
Income from life insurance operations before taxes |
0 | 3 | 13 | 13 | 0 | 0 | 13 | 16 | ||||||||||||||||||||||||||||||||
Investment operations: |
||||||||||||||||||||||||||||||||||||||||
Net investment income (2) |
4 | 10 | 83 | 79 | (3 | ) | (3 | ) | 84 | 86 | ||||||||||||||||||||||||||||||
Net realized (losses) gains on investments (2) |
(6 | ) | 5 | (421 | ) | 197 | 0 | 0 | (427 | ) | 202 | |||||||||||||||||||||||||||||
Net impairment losses recognized in
earnings(2) |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||
Equity in earnings of limited partnerships |
7 | 5 | 33 | 23 | 0 | 0 | 40 | 28 | ||||||||||||||||||||||||||||||||
Income (loss) from investment operations before taxes
(2) |
5 | 20 | (305 | ) | 299 | (3 | ) | (3 | ) | (303 | ) | 316 | ||||||||||||||||||||||||||||
Income (loss) from operations before
income taxes and noncontrolling
interest |
67 | 82 | (372 | ) | 323 | 0 | 0 | (305 | ) | 405 | ||||||||||||||||||||||||||||||
Provision for income taxes |
20 | 28 | (145 | ) | 102 | 0 | 0 | (125 | ) | 130 | ||||||||||||||||||||||||||||||
Net income (loss) |
$ | 47 | $ | 54 | $ | (227 | ) | $ | 221 | $ | 0 | $ | 0 | $ | (180 | ) | $ | 275 | ||||||||||||||||||||||
(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) | Prior to and through December 31, 2010, the underwriting results retained by EIC and ENY and the investment results of EIC, ENY and EPC accrued to the Indemnity shareholder interest. Due to the sale of Indemnitys property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting results and all investment results for these companies accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after December 31, 2010. |
(3) | Prior to and through March 31, 2011, Indemnity retained a 21.6% ownership interest in EFL, which accrued to the Indemnity shareholder interest, and the Exchange retained a 78.4% ownership interest in EFL, which accrued to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest. Due to the sale of Indemnitys 21.6% ownership interest in EFL to the Exchange on March 31, 2011, 100% of the life insurance results of EFL accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011. |
ERIE INDEMNITY COMPANY
RESULTS OF THE ERIE INSURANCE GROUPS OPERATIONS BY INTEREST (unaudited)
(in millions)
Eliminations of | ||||||||||||||||||||||||||||||||||||||||
related party | ||||||||||||||||||||||||||||||||||||||||
Indemnity shareholder interest | Noncontrolling interest (Exchange) | transactions | Erie Insurance Group | |||||||||||||||||||||||||||||||||||||
Nine months | ||||||||||||||||||||||||||||||||||||||||
Nine months ended | Nine months ended | ended | Nine months ended | |||||||||||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||||||||||
Percent | 2011 | 2010 | Percent | 2011 | 2010 | 2010 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||||
Management operations: |
||||||||||||||||||||||||||||||||||||||||
Management fee revenue, net |
100.0 | % | $ | 816 | $ | 773 | $ | 0 | $ | 0 | $ | (816 | ) | $ | (773 | ) | $ | 0 | $ | 0 | ||||||||||||||||||||
Service agreement revenue |
100.0 | % | 25 | 26 | 0 | 0 | 0 | 0 | 25 | 26 | ||||||||||||||||||||||||||||||
Total revenue from management operations |
841 | 799 | 0 | 0 | (816 | ) | (773 | ) | 25 | 26 | ||||||||||||||||||||||||||||||
Cost of management operations |
100.0 | % | 667 | 626 | 0 | 0 | (667 | ) | (626 | ) | 0 | 0 | ||||||||||||||||||||||||||||
Income from management operations before taxes |
174 | 173 | 0 | 0 | (149 | ) | (147 | ) | 25 | 26 | ||||||||||||||||||||||||||||||
Property and casualty insurance operations: (2) |
||||||||||||||||||||||||||||||||||||||||
Net premiums earned |
5.5%(2) | 0 | 161 | 94.5%(2) | 3,089 | 2,765 | 0 | 0 | 3,089 | 2,926 | ||||||||||||||||||||||||||||||
Losses and loss expenses |
5.5%(2) | 0 | 118 | 94.5%(2) | 2,653 | 2,027 | (4 | ) | (4 | ) | 2,649 | 2,141 | ||||||||||||||||||||||||||||
Policy acquisition and other underwriting expenses |
5.5%(2) | 0 | 46 | 94.5%(2) | 882 | 783 | (154 | ) | (151 | ) | 728 | 678 | ||||||||||||||||||||||||||||
(Loss) income from property and casualty insurance
operations before taxes |
0 | (3 | ) | (446 | ) | (45 | ) | 158 | 155 | (288 | ) | 107 | ||||||||||||||||||||||||||||
Life insurance operations: (1) |
||||||||||||||||||||||||||||||||||||||||
Total revenue |
21.6%(3) | 10 | 28 | 78.4%(3) | 124 | 99 | (1 | ) | (2 | ) | 133 | 125 | ||||||||||||||||||||||||||||
Total benefits and expenses |
21.6%(3) | 7 | 20 | 78.4%(3) | 89 | 70 | 0 | (2 | ) | 96 | 88 | |||||||||||||||||||||||||||||
Income from life insurance operations before taxes |
3 | 8 | 35 | 29 | (1 | ) | 0 | 37 | 37 | |||||||||||||||||||||||||||||||
Investment operations: |
||||||||||||||||||||||||||||||||||||||||
Net investment income (2) |
12 | 28 | 252 | 232 | (8 | ) | (8 | ) | 256 | 252 | ||||||||||||||||||||||||||||||
Net realized gains (losses) on investments (2) |
1 | 7 | (247 | ) | 99 | 0 | 0 | (246 | ) | 106 | ||||||||||||||||||||||||||||||
Net impairment losses recognized in
earnings(2) |
0 | (1 | ) | 0 | (3 | ) | 0 | 0 | 0 | (4 | ) | |||||||||||||||||||||||||||||
Equity in earnings of limited partnerships |
25 | 11 | 124 | 47 | 0 | 0 | 149 | 58 | ||||||||||||||||||||||||||||||||
Income from investment operations before taxes
(2) |
38 | 45 | 129 | 375 | (8 | ) | (8 | ) | 159 | 412 | ||||||||||||||||||||||||||||||
Income (loss) from operations before
income taxes and noncontrolling
interest |
215 | 223 | (282 | ) | 359 | 0 | 0 | (67 | ) | 582 | ||||||||||||||||||||||||||||||
Provision for income taxes |
72 | 73 | (126 | ) | 103 | 0 | 0 | (54 | ) | 176 | ||||||||||||||||||||||||||||||
Net income (loss) |
$ | 143 | $ | 150 | $ | (156 | ) | $ | 256 | $ | 0 | $ | 0 | $ | (13 | ) | $ | 406 | ||||||||||||||||||||||
(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) | Prior to and through December 31, 2010, the underwriting results retained by EIC and ENY and the investment results of EIC, ENY and EPC accrued to the Indemnity shareholder interest. Due to the sale of Indemnitys property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting results and all investment results for these companies accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after December 31, 2010. |
(3) | Prior to and through March 31, 2011, Indemnity retained a 21.6% ownership interest in EFL, which accrued to the Indemnity shareholder interest, and the Exchange retained a 78.4% ownership interest in EFL, which accrued to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest. Due to the sale of Indemnitys 21.6% ownership interest in EFL to the Exchange on March 31, 2011, 100% of the life insurance results of EFL accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011. |
ERIE INDEMNITY COMPANY
RECONCILIATION OF OPERATING INCOME TO NET INCOME (unaudited)
Reconciliation of operating income to net income
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 income generated from management operations, life insurance operations(1), property and casualty insurance underwriting operations(2), net investment income(2), and equity in earnings or losses of limited partnerships, net of related federal income taxes. It does not include 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 Indemnitys overall profitability.
The following table reconciles operating income and net income for the Indemnity shareholder interest: (1) (2)
Indemnity Shareholder interest | ||||||||||||||||
Three | Three | Nine | Nine | |||||||||||||
months ended | months ended | months ended | months ended | |||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in millions, except per share data) | ||||||||||||||||
Operating income attributable to Indemnity |
$ | 51 | $ | 51 | $ | 142 | $ | 146 | ||||||||
Net realized (losses) gains and impairments on investments |
(6 | ) | 5 | 1 | 6 | |||||||||||
Income tax benefit (expense) |
2 | (2 | ) | 0 | (2 | ) | ||||||||||
Realized (losses) gains and impairments, net of income
taxes |
(4 | ) | 3 | 1 | 4 | |||||||||||
Net income attributable to Indemnity |
$ | 47 | $ | 54 | $ | 143 | $ | 150 | ||||||||
Per Indemnity Class A common share diluted: |
||||||||||||||||
Operating income attributable to Indemnity |
$ | 0.93 | $ | 0.89 | $ | 2.57 | $ | 2.55 | ||||||||
Net realized (losses) gains and impairments on investments |
(0.09 | ) | 0.08 | 0.03 | 0.11 | |||||||||||
Income tax benefit (expense) |
0.03 | (0.03 | ) | (0.01 | ) | (0.04 | ) | |||||||||
Realized (losses) gains and impairments, net of
income taxes |
(0.06 | ) | 0.05 | 0.02 | 0.07 | |||||||||||
Net income attributable to Indemnity |
$ | 0.87 | $ | 0.94 | $ | 2.59 | $ | 2.62 | ||||||||
(1) | Prior to and through March 31, 2011, Indemnity retained a 21.6% ownership interest in EFL, which accrued to the Indemnity shareholder interest, and the Exchange retained a 78.4% ownership interest in EFL, which accrued to the interest of the subscribers (policyholders) of the Exchange or noncontrolling interest. Due to the sale of Indemnitys 21.6% ownership interest in EFL to the Exchange on March 31, 2011, 100% of the life insurance results of EFL accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011. |
(2) | Prior to and through December 31, 2010, the underwriting results retained by EIC and ENY and the investment results of EIC, ENY and EPC accrued to the Indemnity shareholder interest. Due to the sale of Indemnitys property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting results and all investment results for these companies accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest after December 31, 2010. |
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets |
(unaudited) | |||||||
Investments-Indemnity |
||||||||
Available-for-sale securities, at fair value: |
||||||||
Fixed maturities |
$ | 517 | $ | 264 | ||||
Equity securities |
22 | 24 | ||||||
Trading securities, at fair value |
26 | 28 | ||||||
Limited partnerships |
223 | 216 | ||||||
Other invested assets |
1 | 1 | ||||||
Investments-Exchange |
||||||||
Available-for-sale securities, at fair value: |
||||||||
Fixed maturities |
7,331 | 7,279 | ||||||
Equity securities |
591 | 570 | ||||||
Trading securities, at fair value |
2,085 | 2,306 | ||||||
Limited partnerships |
1,187 | 1,108 | ||||||
Other invested assets |
19 | 19 | ||||||
Total investments |
12,002 | 11,815 | ||||||
Cash and cash equivalents (Exchange portion of $42 and $120, respectively) |
76 | 430 | ||||||
Premiums receivable from policyholders Exchange |
1,035 | 942 | ||||||
Reinsurance recoverable Exchange |
197 | 201 | ||||||
Deferred acquisition costs Exchange |
495 | 467 | ||||||
Other assets (Exchange portion of $349 and $357, respectively) |
458 | 489 | ||||||
Total assets |
$ | 14,263 | $ | 14,344 | ||||
Liabilities and shareholders equity |
||||||||
Liabilities |
||||||||
Indemnity liabilities |
||||||||
Deferred income taxes |
$ | 6 | $ | 26 | ||||
Other liabilities |
381 | 382 | ||||||
Exchange liabilities |
||||||||
Losses and loss expense reserves |
3,686 | 3,584 | ||||||
Life policy and deposit contract reserves |
1,659 | 1,603 | ||||||
Unearned premiums |
2,249 | 2,082 | ||||||
Deferred income taxes |
97 | 257 | ||||||
Other liabilities |
87 | 76 | ||||||
Total liabilities |
8,165 | 8,010 | ||||||
Indemnitys shareholders equity |
845 | 912 | ||||||
Noncontrolling interest in consolidated entity Exchange |
5,253 | 5,422 | ||||||
Total equity |
6,098 | 6,334 | ||||||
Total liabilities, shareholders equity and noncontrolling interest |
$ | 14,263 | $ | 14,344 | ||||