Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2018 | Jul. 13, 2018 | |
Entity Registrant Name | ERIE INDEMNITY CO | |
Entity Central Index Key | 922,621 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2018 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q2 | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Class A | ||
Entity Common Stock, Shares Outstanding | 46,189,068 | |
Class B | ||
Entity Common Stock, Shares Outstanding | 2,542 |
STATEMENTS OF OPERATIONS
STATEMENTS OF OPERATIONS - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Operating revenue | ||||
Operating revenue | $ 621,458 | $ 448,564 | $ 1,193,618 | $ 847,880 |
Operating expenses | ||||
Operating expenses | 526,135 | 365,116 | 1,020,728 | 697,492 |
Operating income | 95,323 | 83,448 | 172,890 | 150,388 |
Investment income | ||||
Net investment income | 7,104 | 6,239 | 13,924 | 12,220 |
Net realized investment (losses) gains | (32) | 124 | (497) | 640 |
Net impairment losses recognized in earnings | (646) | (61) | (646) | (182) |
Equity in (losses) earnings of limited partnerships | (219) | 149 | (411) | 362 |
Total investment income | 6,207 | 6,451 | 12,370 | 13,040 |
Interest expense, net | 602 | 257 | 1,155 | 423 |
Other income (expense) | 58 | (407) | 102 | (816) |
Income before income taxes | 100,986 | 89,235 | 184,207 | 162,189 |
Income tax expense | 21,280 | 30,708 | 38,743 | 55,786 |
Net income | $ 79,706 | $ 58,527 | $ 145,464 | $ 106,403 |
Class A | ||||
Net income per share | ||||
Common stock - basic (in dollars per share) | $ 1.71 | $ 1.26 | $ 3.12 | $ 2.28 |
Common stock - diluted (in dollars per share) | $ 1.52 | $ 1.12 | $ 2.78 | $ 2.03 |
Weighted average shares outstanding – Basic | ||||
Common stock - basic (in shares) | 46,188,705 | 46,180,852 | 46,188,309 | 46,184,666 |
Weighted average shares outstanding – Diluted | ||||
Common stock - diluted (in shares) | 52,312,849 | 52,299,395 | 52,311,741 | 52,355,214 |
Dividends declared per share | ||||
Common stock (in dollars per share) | $ 0.8400 | $ 0.7825 | $ 1.6800 | $ 1.5650 |
Class B | ||||
Net income per share | ||||
Common stock - basic (in dollars per share) | 257 | 189 | 469 | 343 |
Common stock - diluted (in dollars per share) | $ 257 | $ 188 | $ 468 | $ 343 |
Weighted average shares outstanding – Basic | ||||
Common stock - basic (in shares) | 2,542 | 2,542 | 2,542 | 2,542 |
Weighted average shares outstanding – Diluted | ||||
Common stock - diluted (in shares) | 2,542 | 2,542 | 2,542 | 2,542 |
Dividends declared per share | ||||
Common stock (in dollars per share) | $ 126 | $ 117.375 | $ 252 | $ 234.750 |
Management fee revenue, policy issuance and renewal services [Member] | ||||
Operating revenue | ||||
Operating revenue | $ 454,572 | $ 441,319 | $ 860,550 | $ 833,377 |
Operating expenses | ||||
Operating expenses | 379,628 | 365,116 | 728,258 | 697,492 |
Management fee revenue, administrative services [Member] | ||||
Operating revenue | ||||
Operating revenue | 13,299 | 26,373 | ||
Administrative services reimbursements [Member] | ||||
Operating revenue | ||||
Operating revenue | 146,507 | 292,470 | ||
Operating expenses | ||||
Operating expenses | 146,507 | 292,470 | ||
Service agreement revenue [Member] | ||||
Operating revenue | ||||
Operating revenue | $ 7,080 | $ 7,245 | $ 14,225 | $ 14,503 |
STATEMENTS OF COMPREHENSIVE INC
STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 79,706 | $ 58,527 | $ 145,464 | $ 106,403 |
Other comprehensive (loss) income, net of tax | ||||
Change in unrealized holding (losses) gains on available-for-sale securities | (551) | 1,092 | (5,978) | 2,613 |
Comprehensive income | $ 79,155 | $ 59,619 | $ 139,486 | $ 109,016 |
STATEMENTS OF FINANCIAL POSITIO
STATEMENTS OF FINANCIAL POSITION - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Current assets: | ||
Cash and cash equivalents | $ 198,412 | $ 215,721 |
Available-for-sale securities | 107,369 | |
Available-for-sale securities | 71,190 | |
Receivables from Erie Insurance Exchange and affiliates | 445,211 | 418,328 |
Prepaid expenses and other current assets | 45,426 | 34,890 |
Federal income taxes recoverable | 0 | 29,900 |
Note receivable from Erie Family Life Insurance Company | 25,000 | 25,000 |
Accrued investment income | 6,647 | 6,853 |
Total current assets | 828,065 | 801,882 |
Available-for-sale securities | 598,059 | |
Available-for-sale securities | 687,523 | |
Equity securities | 12,488 | |
Limited partnership investments | 39,651 | 45,122 |
Fixed assets, net | 94,651 | 83,149 |
Deferred income taxes, net | 31,527 | 19,390 |
Other assets | 47,834 | 28,793 |
Total assets | 1,652,275 | 1,665,859 |
Current liabilities: | ||
Commissions payable | 253,328 | 228,124 |
Agent bonuses | 56,482 | 122,528 |
Accounts payable and accrued liabilities | 97,139 | 104,533 |
Dividends payable | 39,119 | 39,116 |
Contract liability | 33,137 | |
Deferred executive compensation | 8,801 | 15,605 |
Federal income taxes payable | 8,933 | 0 |
Current portion of long-term borrowings | 925 | 0 |
Total current liabilities | 497,864 | 509,906 |
Defined benefit pension plans | 145,667 | 207,530 |
Employee benefit obligations | 194 | 423 |
Contract liability | 17,452 | |
Deferred executive compensation | 11,688 | 14,452 |
Long-term borrowings | 98,800 | 74,728 |
Other long-term liabilities | 422 | 1,476 |
Total liabilities | 772,087 | 808,515 |
Shareholders’ equity | ||
Additional paid-in-capital | 16,459 | 16,470 |
Accumulated other comprehensive loss | (162,037) | (156,059) |
Retained earnings | 2,169,686 | 2,140,853 |
Total contributed capital and retained earnings | 2,026,278 | 2,003,434 |
Treasury stock, at cost; 22,110,132 shares held | (1,156,999) | (1,155,668) |
Deferred compensation | 10,909 | 9,578 |
Total shareholders’ equity | 880,188 | 857,344 |
Total liabilities and shareholders’ equity | 1,652,275 | 1,665,859 |
Class A | ||
Shareholders’ equity | ||
Common stock | 1,992 | 1,992 |
Class B | ||
Shareholders’ equity | ||
Common stock | $ 178 | $ 178 |
STATEMENTS OF FINANCIAL POSITI5
STATEMENTS OF FINANCIAL POSITION (Parenthetical) - $ / shares | Jun. 30, 2018 | Dec. 31, 2017 |
Treasury stock (in shares) | 22,110,132 | 22,110,132 |
Class A | ||
Common stock, stated value per share (in dollars per share) | $ 0.0292 | $ 0.0292 |
Common stock, authorized (in shares) | 74,996,930 | 74,996,930 |
Common stock, issued (in shares) | 68,299,200 | 68,299,200 |
Common stock, outstanding (in shares) | 46,189,068 | 46,189,068 |
Class B | ||
Common stock, stated value per share (in dollars per share) | $ 70 | $ 70 |
Common stock, authorized (in shares) | 3,070 | 3,070 |
Common stock, issued (in shares) | 2,542 | 2,542 |
Common stock, outstanding (in shares) | 2,542 | 2,542 |
Ratio for converting shares of Class B common stock into shares of Class A common stock (as a percent) | 2400.00% | 2400.00% |
STATEMENTS OF CASH FLOWS
STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Cash flows from operating activities | ||
Management fee received | $ 859,694 | $ 806,129 |
Administrative services reimbursements received | 298,056 | |
Service agreement fee received | 14,225 | 14,503 |
Net investment income received | 17,279 | 15,022 |
Limited partnership distributions | 3,037 | 1,339 |
Decrease in reimbursements collected from affiliates | (5,633) | |
Commissions paid to agents | (413,880) | (386,400) |
Agents bonuses paid | (126,594) | (115,056) |
Salaries and wages paid | (102,601) | (95,462) |
Pension contribution and employee benefits paid | (99,334) | (33,737) |
General operating expenses paid | (111,381) | (113,122) |
Administrative services expenses paid | (295,635) | |
Income taxes paid | (208) | (47,767) |
Interest paid | (1,065) | (325) |
Net cash provided by operating activities | 41,593 | 39,491 |
Purchase of investments: | ||
Available-for-sale securities | (114,848) | |
Available-for-sale securities | (184,803) | |
Equity securities | (1,035) | |
Limited partnerships | (215) | (325) |
Proceeds from investments: | ||
Available-for-sale securities sales | 76,387 | |
Available-for-sale securities sales | 57,851 | |
Available-for-sale securities maturities/calls | 69,674 | 100,042 |
Equity securities | 1,157 | |
Limited partnerships | 2,682 | 4,344 |
Net purchase of fixed assets | (18,121) | (9,972) |
Net distributions on agent loans | (21,334) | (3,083) |
Net cash used in investing activities | (5,653) | (35,946) |
Cash flows from financing activities | ||
Dividends paid to shareholders | (78,235) | (72,883) |
Net proceeds from long-term borrowings | 24,986 | 24,975 |
Net cash used in financing activities | (53,249) | (47,908) |
Net decrease in cash and cash equivalents | (17,309) | (44,363) |
Cash and cash equivalents, beginning of period | 215,721 | 189,072 |
Cash and cash equivalents, end of period | $ 198,412 | $ 144,709 |
Nature of Operations
Nature of Operations | 6 Months Ended |
Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Operations | Note 1. Nature of Operations Erie Indemnity Company ("Indemnity", "we", "us", "our") is a publicly held Pennsylvania business corporation that has since its incorporation in 1925 served as the attorney-in-fact for the subscribers (policyholders) at the Erie Insurance Exchange ("Exchange"). The Exchange, which also commenced business in 1925, is a Pennsylvania-domiciled reciprocal insurer that writes property and casualty insurance. We function solely as the management company and all insurance operations are performed by the Exchange. Our primary function as attorney-in-fact is to perform policy issuance and renewal services on behalf of the subscribers at the Exchange. We also act as attorney-in-fact on behalf of the Exchange with respect to all claims handling and investment management services, as well as the service provider for all claims handling, life insurance, and investment management services for its insurance subsidiaries, collectively referred to as "administrative services". Acting as attorney-in-fact in these two capacities is done in accordance with a subscriber's agreement (a limited power of attorney) executed individually by each subscriber (policyholder), which appoints us as their common attorney-in-fact to transact certain business on their behalf. Pursuant to the subscriber's agreement for acting as attorney-in-fact in these two capacities, we earn a management fee calculated as a percentage of the direct and assumed premiums written by the Exchange. The policy issuance and renewal services we provide to the Exchange are related to the sales, underwriting and issuance of policies. The sales related services we provide include agent compensation and certain sales and advertising support services. Agent compensation includes scheduled commissions to agents based upon premiums written as well as additional commissions and bonuses to agents, which are earned by achieving targeted measures. The underwriting services we provide include underwriting and policy processing. The remaining services we provide include customer service and administrative support. We also provide information technology services that support all the functions listed above. Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions. By virtue of its legal structure as a reciprocal insurer, the Exchange does not have any employees or officers. Therefore, it enters into contractual relationships by and through an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business. Investment management services are related to investment trading activity, accounting and all other functions attributable to the investment of funds. Included in these expenses are allocations of costs for departments that support these administrative functions. The amounts incurred for these services are reimbursed to Indemnity at cost in accordance with the subscriber's agreement and the service agreements. State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department. Our results of operations are tied to the growth and financial condition of the Exchange. If any events occurred that impaired the Exchange’s ability to grow or sustain its financial condition, including but not limited to reduced financial strength ratings, disruption in the independent agency relationships, significant catastrophe losses, or products not meeting customer demands, the Exchange could find it more difficult to retain its existing business and attract new business. A decline in the business of the Exchange almost certainly would have as a consequence a decline in the total premiums paid and a correspondingly adverse effect on the amount of the management fees we receive. We also have an exposure to a concentration of credit risk related to the unsecured receivables due from the Exchange for its management fee. See Note 12, "Concentrations of Credit Risk". |
Significant Accounting Policies
Significant Accounting Policies | 6 Months Ended |
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
Significant Accounting Policies | Note 2. Significant Accounting Policies Basis of presentation The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 . For further information, refer to the financial statements and footnotes included in our Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission on February 22, 2018 . Use of estimates The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recently adopted accounting standards We adopted Accounting Standards Codification 606, "Revenue from Contracts with Customers" ("ASC 606") on January 1, 2018, using the modified retrospective method applied to all contracts. We recognized the cumulative effect of initially adopting ASC 606 as an adjustment to the opening balance of retained earnings at January 1, 2018. The comparative information for periods preceding January 1, 2018 has not been restated and continues to be reported under the accounting standards in effect for those periods. Under ASC 606, we determined that we have two performance obligations under the subscriber’s agreement. The first performance obligation is providing policy issuance and renewal services. The second performance obligation is acting as the attorney-in-fact on behalf of the Exchange, as well as the service provider for its insurance subsidiaries, with respect to all administrative services. Therefore, upon adoption of ASC 606 beginning January 1, 2018, the management fee earned per the subscriber’s agreement, currently 25% of all direct and assumed premiums written by the Exchange, will be allocated between the two performance obligations. Prior to the adoption of ASC 606, the entire management fee was allocated to the policy issuance and renewal services. Additionally, the expenses we incur and related reimbursements we receive related to the administrative services will be presented gross in our Statement of Operations effective January 1, 2018. There was no significant impact to service agreement revenue upon adoption of ASC 606. Revenue allocated to the policy issuance and renewal services continues to be recognized at the time of policy issuance or renewal because it is at the time of policy issuance or renewal when the economic benefits of the service Indemnity provides (i.e. the substantially completed policy issuance or renewal service) and the control of the promised asset (i.e. the executed insurance policy) transfers to the customer. A significant portion of the management fee is currently allocated to this performance obligation and therefore, the related revenue recognition pattern for the vast majority of our revenues will remain unchanged. The revenue allocated to the second performance obligation will be recognized over several years in correlation with the costs incurred because the economic benefit of the services provided (i.e. management of the administrative services) transfers to the customer over a period of time. The amounts incurred for these services are reimbursed to Indemnity at cost in accordance with the subscriber's agreement and the service agreements. On January 1, 2018, we established a contract liability of $48.5 million representing the portion of revenue not yet earned related to the administrative services to be provided in subsequent years. We recorded a related deferred tax asset of $10.2 million and a cumulative effect adjustment that reduced retained earnings by $38.3 million . The adoption of ASC 606 changed the presentation of our Statement of Cash Flows, but had no net impact to our cash flows. The cumulative effect of the changes made to our Statement of Financial Position at January 1, 2018 were as follows: (in thousands) Balance at December 31, 2017 Adjustments due to ASC 606 Balance at January 1, 2018 Statement of Financial Position: Assets Deferred tax asset $ 19,390 $ 10,188 $ 29,578 Liabilities Contract liability — 48,514 48,514 Equity Retained earnings 2,140,853 (38,326 ) 2,102,527 The impact of adoption on our Statement of Financial Position at June 30, 2018 was as follows: June 30, 2018 (in thousands) As Reported Balances without ASC 606 Impact of Change (Unaudited) Statement of Financial Position: Assets Deferred tax asset $ 31,527 $ 20,903 $ 10,624 Liabilities Contract liability 50,589 — 50,589 Equity Retained earnings 2,169,686 2,209,651 (39,965 ) The impact of adoption on our Statement of Operations at June 30, 2018 was as follows: Three months ended Six months ended (in thousands) As Reported Balances without ASC 606 Impact of Change As Reported Balances without ASC 606 Impact of Change (Unaudited) (Unaudited) Statement of Operations: Management fee revenue allocated to policy issuance and renewal services, gross $ 456,896 $ 471,999 $ (15,103 ) $ 864,132 $ 892,698 $ (28,566 ) Less: change in allowance for management fee returned on cancelled policies (2,324 ) (2,400 ) 76 (3,582 ) (3,700 ) 118 Management fee revenue allocated to policy issuance and renewal services, net $ 454,572 $ 469,599 $ (15,027 ) $ 860,550 $ 888,998 $ (28,448 ) Management fee revenue allocated to administrative services, gross $ 13,313 $ — $ 13,313 $ 26,401 $ — $ 26,401 Less: change in allowance for management fee returned on cancelled policies (14 ) — (14 ) (28 ) — (28 ) Management fee revenue allocated to administrative services, net 13,299 — 13,299 26,373 — 26,373 Administrative services reimbursement revenue 146,507 — 146,507 292,470 — 292,470 Total revenue allocated to administrative services $ 159,806 $ — $ 159,806 $ 318,843 $ — $ 318,843 Administrative services expenses $ 146,507 $ — $ 146,507 $ 292,470 $ — $ 292,470 In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-07, "Compensation-Retirement Benefits", which requires the service cost component of net benefit costs to be reported with other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit costs are required to be presented separately from the service cost component and outside of income from operations on a retrospective basis. This amendment also allows only the service cost component to be eligible for capitalization, when applicable, prospectively after the effective date. ASU 2017-07 is effective for interim and annual periods beginning after December 15, 2017. We adopted this guidance effective January 1, 2018 and have included the other components of net benefit costs in "Other income (expense)" in the Statements of Operations and conformed the prior-period presentation. The adoption of this guidance did not have a material impact on the presentation of our financial statements or related disclosures. In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall" . ASU 2016-01 revises the accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. We adopted this guidance on a prospective basis effective January 1, 2018. The adoption of this guidance resulted in reclassifying unrealized losses, net of tax, on equity securities from accumulated other comprehensive loss to retained earnings, which reduced retained earnings by $0.1 million at January 1, 2018. As of January 1, 2018, equity securities are presented separately in our Statement of Financial Position. Our disclosures were prepared in accordance with this guidance. Recently issued accounting standards In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses" , which requires financial assets measured at amortized cost to be presented at the net amount expected to be collected through the use of a new forward-looking expected loss model and credit losses relating to available-for-sale debt securities to be recognized through an allowance for credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption for interim and annual periods beginning after December 15, 2018 is permitted. We have evaluated the impact of this guidance on our invested assets. Our investments are not measured at amortized cost, and therefore do not require the use of a new expected loss model. Our available-for-sale debt securities will continue to be monitored for credit losses which would be reflected as an allowance for credit losses rather than a reduction of the carrying value of the asset. The other material financial assets subject to this guidance include our receivables from Erie Insurance Exchange and its subsidiaries. Given the financial strength of the Exchange, demonstrated by its strong surplus position and industry ratings, it is unlikely these receivables would have significant, if any, credit loss exposure. Accordingly, we do not expect a material impact on our financial statements or related disclosures as a result of this guidance. In February 2016, the FASB issued ASU 2016-02, "Leases" , which requires lessees to recognize assets and liabilities arising from operating leases on the statement of financial position and to disclose key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Currently ASU 2016-02 requires leases to be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. In January 2018, the FASB issued a proposed ASU that would allow entities to recognize the cumulative effect adjustment in the year of adoption rather than the earliest period presented. Under existing guidance, we recognize lease expense as a component of operating expenses in the Statements of Operations. We are evaluating our lease contracts to determine those that qualify for treatment as leases under the new guidance and the impact to our financial statements and disclosures. Recognition of management fee revenue We earn management fees from the Exchange under the subscriber’s agreement for services provided. Pursuant to the subscriber’s agreement, we may retain up to 25% of all direct and assumed premiums written by the Exchange. The management fee rate is set at least annually by our Board of Directors. The management fee revenue is calculated by multiplying the management fee rate by the direct and assumed premiums written by the Exchange. Upon adoption of ASC 606 beginning January 1, 2018, we determined we have two performance obligations under the subscriber’s agreement. The first performance obligation is to provide policy issuance and renewal services. The second performance obligation is acting as the attorney-in-fact with respect to the administrative services. Beginning January 1, 2018, our management fee revenue is allocated to these two performance obligations. Prior to the adoption of ASC 606, the entire management fee was allocated to the policy issuance and renewal services. Management fee revenue allocated to the policy issuance and renewal services is recognized at the time of policy issuance or renewal, because it is at the time of policy issuance or renewal when the economic benefit of the service we provide (the substantially completed policy issuance or renewal service) and the control of the promised asset (the executed insurance policy) transfers to the customer. Management fee revenue allocated to the second performance obligation relates to us acting as the attorney-in-fact on behalf of the Exchange, as well as the service provider for its insurance subsidiaries, with respect to the administrative services and is recognized over a four -year period representing the time over which the economic benefit of the services provided (i.e. management of the administrative services) transfers to the customer. Administrative services By virtue of its legal structure as a reciprocal insurer, the Exchange does not have any employees or officers. Therefore, it enters into contractual relationships by and through an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services in accordance with the subscriber's agreement. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business. Investment management services are related to investment trading activity, accounting and all other functions attributable to the investment of funds. Included in these expenses are allocations of costs for departments that support these administrative functions. Common overhead expenses and certain service department costs incurred by us on behalf of the Exchange and its insurance subsidiaries are reimbursed by the proper entity based upon appropriate utilization statistics (employee count, square footage, vehicle count, project hours, etc.) specifically measured to accomplish proportional allocations, which we believe are reasonable. Prior to the adoption of ASC 606, we recorded the reimbursements we receive for the administrative services expenses as receivables from the Exchange and its subsidiaries with a corresponding reduction to our expenses. Upon adoption of ASC 606 on January 1, 2018, the expenses we incur and related reimbursements we receive for administrative services are presented gross in our Statement of Operations. Reimbursements are settled on a monthly basis. The amounts incurred for these services are reimbursed to Indemnity at cost in accordance with the subscriber's agreement and the service agreements. State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department. Reclassifications Certain amounts previously reported in the 2017 financial statements have been reclassified for comparative purposes to conform to the current period’s presentation. Such reclassifications resulted from new accounting guidance and only affected the Statements of Operations. Most notably, "Commissions", "Salaries and employee benefits", and "All other operating expenses" have been combined within "Cost of operations - policy issuance and renewal services" in the Statements of Operations (See Note 3, "Revenue"). These reclassifications had no effect on previously reported net income. |
Revenue
Revenue | 6 Months Ended |
Jun. 30, 2018 | |
Revenue from Contract with Customer [Abstract] | |
Revenue | Note 3. Revenue The majority of our revenue is derived from the subscriber’s agreement between us and the subscribers (policyholders) at the Exchange. Pursuant to the subscriber’s agreement, we earn a management fee calculated as a percentage, not to exceed 25% , of all direct and assumed written premiums of the Exchange. We account for management fee revenue earned under the subscriber’s agreement in accordance with ASC 606, which we adopted on January 1, 2018, using the modified retrospective method. See Note 2, "Significant Accounting Policies" for further discussion of the adoption, including the impact on our financial statements. We allocate a portion of our management fee revenue, currently 25% of the direct and assumed written premiums of the Exchange, between the two performance obligations we have under the subscriber’s agreement. The first performance obligation is to provide policy issuance and renewal services to the subscribers (policyholders) at the Exchange, and the second is to act as attorney-in-fact on behalf of the Exchange, as well as the service provider for its insurance subsidiaries, with respect to all administrative services. The transaction price, including management fee revenue and administrative service reimbursement revenue, is allocated based on the estimated standalone selling prices developed using industry information and other available information for similar services. The first performance obligation is to provide policy issuance and renewal services that result in executed insurance policies between the Exchange or one of its insurance subsidiaries and the subscriber (policyholder). Our customer, the subscriber (policyholder), receives economic benefits when substantially all the policy issuance or renewal services are complete and an insurance policy is issued or renewed by the Exchange or one of its insurance subsidiaries. It is at the time of policy issuance or renewal that the allocated portion of revenue is recognized. The Exchange, by virtue of its legal structure as a reciprocal insurer, does not have any employees or officers. Therefore, it enters into contractual relationships by and through an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services in accordance with the subscriber's agreement. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Collectively, these services represent a second performance obligation under the subscriber’s agreement and the service agreements. The revenue allocated to this performance obligation is recognized over time as these services are provided. The portion of revenue not yet earned is recorded as a contract liability in the Statement of Financial Position. We recorded a contract liability of $48.5 million at January 1, 2018, upon adoption of ASC 606. The management fee revenue recognized as earned for these services for the six months ended June 30, 2018 was $26.4 million . Beginning with the adoption of ASC 606 on January 1, 2018, the administrative services expenses we incur and the related reimbursements we receive are recorded gross in the Statement of Operations. Indemnity records a receivable from the Exchange for management fee revenue when the premium is written or assumed by the Exchange. Indemnity collects the management fee from the Exchange when the Exchange collects the premiums from the subscribers (policyholders). As the Exchange issues policies with annual terms only, cash collections generally occur within one year. A constraining estimate exists around the management fee received as consideration related to the potential for management fee to be returned if a policy were to be cancelled mid-term. Management fees are returned to the Exchange when policyholders cancel their insurance coverage mid-term and unearned premiums are refunded to them. We maintain an estimated allowance to reduce the management fee to its estimated net realizable value to account for the potential of mid-term policy cancellations based on historical cancellation rates. This estimated allowance has been allocated between the two performance obligations consistent with the revenue allocation proportions. The following table disaggregates revenue by our two performance obligations: Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Management fee revenue - policy issuance and renewal services $ 454,572 $ 441,319 $ 860,550 $ 833,377 Management fee revenue - administrative services 13,299 — 26,373 — Administrative services reimbursement revenue 146,507 — 292,470 — Total administrative services $ 159,806 $ — $ 318,843 $ — |
Earnings Per Share
Earnings Per Share | 6 Months Ended |
Jun. 30, 2018 | |
Earnings Per Share [Abstract] | |
Earnings Per Share | Note 4. Earnings Per Share Class A and Class B basic earnings per share and Class B diluted earnings per share are calculated under the two-class method. The two-class method allocates earnings to each class of stock based upon its dividend rights. Class B shares are convertible into Class A shares at a conversion ratio of 2,400 to 1. See Note 10, "Capital Stock". Class A diluted earnings per share are calculated under the if-converted method, which reflects the conversion of Class B shares to Class A shares. Diluted earnings per share calculations include the dilutive effect of assumed issuance of stock-based awards under compensation plans that have the option to be paid in stock using the treasury stock method. A reconciliation of the numerators and denominators used in the basic and diluted per-share computations is presented as follows for each class of common stock: Three months ended June 30, 2018 2017 (dollars in thousands, except per share data) Allocated net income (numerator) Weighted shares (denominator) Per-share amount Allocated net income (numerator) Weighted shares (denominator) Per-share amount Class A – Basic EPS: Income available to Class A stockholders $ 79,053 46,188,705 $ 1.71 $ 58,048 46,180,852 $ 1.26 Dilutive effect of stock-based awards 0 23,344 — 0 17,743 — Assumed conversion of Class B shares 653 6,100,800 — 479 6,100,800 — Class A – Diluted EPS: Income available to Class A stockholders on Class A equivalent shares $ 79,706 52,312,849 $ 1.52 $ 58,527 52,299,395 $ 1.12 Class B – Basic EPS: Income available to Class B stockholders $ 653 2,542 $ 257 $ 479 2,542 $ 189 Class B – Diluted EPS: Income available to Class B stockholders $ 653 2,542 $ 257 $ 479 2,542 $ 188 Six months ended June 30, 2018 2017 (dollars in thousands, except per share data) Allocated net income (numerator) Weighted shares (denominator) Per-share amount Allocated net income (numerator) Weighted shares (denominator) Per-share amount Class A – Basic EPS: Income available to Class A stockholders $ 144,273 46,188,309 $ 3.12 $ 105,532 46,184,666 $ 2.28 Dilutive effect of stock-based awards 0 22,632 — 0 69,748 — Assumed conversion of Class B shares 1,191 6,100,800 — 871 6,100,800 — Class A – Diluted EPS: Income available to Class A stockholders on Class A equivalent shares $ 145,464 52,311,741 $ 2.78 $ 106,403 52,355,214 $ 2.03 Class B – Basic EPS: Income available to Class B stockholders $ 1,191 2,542 $ 469 $ 871 2,542 $ 343 Class B – Diluted EPS: Income available to Class B stockholders $ 1,191 2,542 $ 468 $ 871 2,542 $ 343 |
Fair Value
Fair Value | 6 Months Ended |
Jun. 30, 2018 | |
Fair Value Disclosures [Abstract] | |
Fair Value | Note 5. Fair Value Our available-for-sale debt securities and equity securities are recorded at fair value, which is the price that would be received to sell the asset in an orderly transaction between willing market participants as of the measurement date. Valuation techniques used to derive the fair value of our available-for-sale debt securities and equity securities are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources. Unobservable inputs reflect our own assumptions regarding fair market value for these securities. Although virtually all of our prices are obtained from third party sources, we also perform an internal pricing review on outliers, which include securities with price changes inconsistent with current market conditions. Financial instruments are categorized based upon the following characteristics or inputs to the valuation techniques: • Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. • Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3 – Unobservable inputs for the asset or liability. Estimates of fair values for our investment portfolio are obtained primarily from a nationally recognized pricing service. Our Level 1 category includes those securities valued using an exchange traded price provided by the pricing service. The methodologies used by the pricing service that support a Level 2 classification of a financial instrument include multiple verifiable, observable inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. Pricing service valuations for Level 3 securities are based upon proprietary models and are used when observable inputs are not available or in illiquid markets. In limited circumstances we adjust the price received from the pricing service when, in our judgment, a better reflection of fair value is available based upon corroborating information and our knowledge and monitoring of market conditions such as a disparity in price of comparable securities and/or non-binding broker quotes. In other circumstances, certain securities are internally priced because prices are not provided by the pricing service. We perform continuous reviews of the prices obtained from the pricing service. This includes evaluating the methodology and inputs used by the pricing service to ensure that we determine the proper classification level of the financial instrument. Price variances, including large periodic changes, are investigated and corroborated by market data. We have reviewed the pricing methodologies of our pricing service as well as other observable inputs, such as market data, and transaction volumes and believe that the prices adequately consider market activity in determining fair value. When a price from the pricing service is not available, values are determined by obtaining broker/dealer quotes and/or market comparables. When available, we obtain multiple quotes for the same security. The ultimate value for these securities is determined based upon our best estimate of fair value using corroborating market information. Our evaluation includes the consideration of benchmark yields, reported trades, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. The following tables present our fair value measurements on a recurring basis by asset class and level of input: At June 30, 2018 Fair value measurements using: (in thousands) Total Quoted prices in Level 1 Observable inputs Level 2 Unobservable inputs Level 3 Available-for-sale securities: U.S. treasury $ 36,442 $ 0 $ 36,442 $ 0 States & political subdivisions 258,491 0 258,491 0 Foreign government securities 499 0 499 0 Corporate debt securities 282,006 0 270,886 11,120 Residential mortgage-backed securities 21,869 0 21,869 0 Commercial mortgage-backed securities 32,276 0 32,276 0 Collateralized debt obligations 70,976 0 70,976 0 Other debt securities 2,869 0 2,869 0 Total available-for-sale securities 705,428 0 694,308 11,120 Equity securities: Nonredeemable preferred stock - financial services sector 12,488 1,973 10,515 0 Total equity securities 12,488 1,973 10,515 0 Other investments (1) 3,752 — — — Total $ 721,668 $ 1,973 $ 704,823 $ 11,120 At December 31, 2017 Fair value measurements using: (in thousands) Total Quoted prices in Observable inputs Unobservable inputs Available-for-sale securities: U.S. treasury $ 11,734 $ 0 $ 11,734 $ 0 States & political subdivisions 259,264 0 259,264 0 Foreign government securities 503 0 503 0 Corporate debt securities 346,523 0 338,644 7,879 Residential mortgage-backed securities 25,571 0 25,571 0 Commercial mortgage-backed securities 32,804 0 32,804 0 Collateralized debt obligations 58,034 0 55,834 2,200 Other debt securities 11,528 0 11,528 0 Total fixed maturities 745,961 0 735,882 10,079 Nonredeemable preferred stock - financial services sector 11,659 2,015 9,644 0 Nonredeemable preferred stock - utilities sector 1,093 0 1,093 0 Total available-for-sale securities 758,713 2,015 746,619 10,079 Other investments (1) 4,816 — — — Total $ 763,529 $ 2,015 $ 746,619 $ 10,079 (1) Other investments measured at fair value represent real estate funds included on the balance sheet as limited partnership investments that are reported under the fair value option using the net asset value practical expedient. These amounts are not required to be categorized in the fair value hierarchy. The investments can never be redeemed with the funds. Instead, distributions are received when liquidation of the underlying assets of the funds occur. It is estimated that the underlying assets will generally be liquidated between 5 and 10 years from the inception of the funds. The fair value of these investments is based on the net asset value (NAV) information provided by the general partner. Fair value is based on our proportionate share of the NAV based on the most recent partners' capital statements received from the general partners, which is generally one quarter prior to our balance sheet date. These values are then analyzed to determine if the NAV represents fair value at our balance sheet date, with adjustment being made where appropriate. We consider observable market data and perform a review validating the appropriateness of the NAV at each balance sheet date. It is likely that all of the investments will be redeemed at a future date for an amount different than the NAV of our ownership interest in partners' capital as of June 30, 2018 and December 31, 2017 . During the six months ended June 30, 2018 , no contributions were made and distributions totaling $0.7 million were received from these investments. During the year ended December 31, 2017 , no contributions were made and distributions totaling $0.5 million were received from these investments. There were no unfunded commitments related to the investments as of June 30, 2018 and December 31, 2017 . We review the fair value hierarchy classifications each reporting period. Transfers between hierarchy levels may occur due to changes in available market observable inputs. Transfers into and out of level classifications in 2017 are reported as having occurred at the beginning of the quarter in which the transfers occurred. Effective January 1, 2018, we changed our policy to recognize transfers as occurring at the end of the quarter in which the transfers occurred. This change is applied prospectively due to the immaterial impact on prior year disclosures. There were no transfers between Level 1 and Level 2 for the three and six months ended June 30, 2018 and 2017 . Level 3 Assets – 2018 Quarterly Change: Beginning balance at March 31, 2018 Included in earnings (1) Included Purchases Sales Transfers into Level 3 (2) Transfers out of Level 3 (2) Ending balance at June 30, 2018 Available-for-sale securities: Corporate debt securities $ 6,309 $ 10 $ (53 ) $ 3,047 $ (472 ) $ 5,370 $ (3,091 ) $ 11,120 Total Level 3 available-for-sale securities $ 6,309 $ 10 $ (53 ) $ 3,047 $ (472 ) $ 5,370 $ (3,091 ) $ 11,120 Level 3 Assets – 2018 Year-to-Date Change: (in thousands) Beginning balance at December 31, 2017 Included in earnings (1) Included income Purchases Sales Transfers into Level 3 (2) Transfers out of Level 3 (2) Ending balance at June 30, 2018 Available-for-sale securities: Corporate debt securities $ 7,879 $ 1 $ (48 ) $ 3,047 $ (965 ) $ 7,782 $ (6,576 ) $ 11,120 Collateralized debt obligations 2,200 0 7 0 0 0 (2,207 ) 0 Total Level 3 available-for-sale securities $ 10,079 $ 1 $ (41 ) $ 3,047 $ (965 ) $ 7,782 $ (8,783 ) $ 11,120 Level 3 Assets – 2017 Quarterly Change: Beginning balance at March 31, 2017 Included in earnings (1) Included Purchases Sales Transfers into Level 3 (2) Transfers out of Level 3 (2) Ending balance at June 30, 2017 Available-for-sale securities: Corporate debt securities $ 9,803 $ 29 $ (23 ) $ 2,110 $ (1,283 ) $ 3,626 $ (4,967 ) $ 9,295 Total Level 3 available-for-sale securities $ 9,803 $ 29 $ (23 ) $ 2,110 $ (1,283 ) $ 3,626 $ (4,967 ) $ 9,295 Level 3 Assets – 2017 Year-to-Date Change: (in thousands) Beginning balance at December 31, 2016 Included in earnings (1) Included in other comprehensive income Purchases Sales Transfers into Level 3 (2) Transfers out of Level 3 (2) Ending balance at June 30, 2017 Available-for-sale securities: Corporate debt securities $ 9,352 $ (21 ) $ (48 ) $ 3,981 $ (3,132 ) $ 5,811 $ (6,648 ) $ 9,295 Total Level 3 available-for-sale securities $ 9,352 $ (21 ) $ (48 ) $ 3,981 $ (3,132 ) $ 5,811 $ (6,648 ) $ 9,295 (1) These amounts are reported in the Statements of Operations as net investment income and net realized investment gains (losses) for the each of the periods presented above. (2) Transfers into and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs. Quantitative and Qualitative Disclosures about Unobservable Inputs When a non-binding broker quote was the only input available, the security was classified within Level 3. Use of non-binding broker quotes totaled $11.1 million at June 30, 2018 . The unobservable inputs are not reasonably available to us. The following table presents our fair value measurements on a recurring basis by pricing source: At June 30, 2018 (in thousands) Total Level 1 Level 2 Level 3 Available-for-sale securities priced via pricing services $ 705,428 $ 0 $ 694,308 $ 11,120 Equity securities priced via pricing services 12,488 1,973 10,515 0 Other investments priced via unobservable inputs (1) 3,752 — — — Total $ 721,668 $ 1,973 $ 704,823 $ 11,120 (1) Other investments measured at fair value represent real estate funds included on the balance sheet as limited partnership investments that are reported under the fair value option using the NAV practical expedient. These amounts are not required to be categorized in the fair value hierarchy. The fair value of these investments is based on the NAV information provided by the general partner. There were no assets measured at fair value on a nonrecurring basis during the six months ended June 30, 2018 . |
Investments
Investments | 6 Months Ended |
Jun. 30, 2018 | |
Investments [Abstract] | |
Investments | Note 6. Investments Available-for-sale securities The following tables summarize the cost and fair value of our available-for-sale securities. See also Note 5, "Fair Value" for additional fair value disclosures. At June 30, 2018 (in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Estimated fair value Available-for-sale securities: U.S. treasury $ 36,769 $ 0 $ 327 $ 36,442 States & political subdivisions 257,498 3,443 2,450 258,491 Foreign government securities 500 0 1 499 Corporate debt securities 285,639 663 4,296 282,006 Residential mortgage-backed securities 21,739 374 244 21,869 Commercial mortgage-backed securities 32,878 5 607 32,276 Collateralized debt obligations 71,009 103 136 70,976 Other debt securities 2,863 6 0 2,869 Total available-for-sale securities $ 708,895 $ 4,594 $ 8,061 $ 705,428 At December 31, 2017 (in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Estimated fair value Available-for-sale securities: U.S. treasury $ 11,873 $ 0 $ 139 $ 11,734 States & political subdivisions 254,533 5,351 620 259,264 Foreign government securities 501 2 0 503 Corporate debt securities 346,759 1,688 1,924 346,523 Residential mortgage-backed securities 25,324 371 124 25,571 Commercial mortgage-backed securities 33,475 26 697 32,804 Collateralized debt obligations 57,838 237 41 58,034 Other debt securities 11,496 32 0 11,528 Total fixed maturities 741,799 7,707 3,545 745,961 Nonredeemable preferred stock - financial services sector 11,719 15 75 11,659 Nonredeemable preferred stock - utilities sector 1,118 0 25 1,093 Total available-for-sale securities $ 754,636 $ 7,722 $ 3,645 $ 758,713 The amortized cost and estimated fair value of available-for-sale securities at June 30, 2018 , are shown below by remaining contractual term to maturity. Mortgage-backed securities are allocated based upon stated maturity dates. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At June 30, 2018 Amortized Estimated (in thousands) cost fair value Due in one year or less $ 94,467 $ 94,408 Due after one year through five years 241,546 242,016 Due after five years through ten years 249,068 246,058 Due after ten years 123,814 122,946 Total available-for-sale securities $ 708,895 $ 705,428 Available-for-sale securities in a gross unrealized loss position are as follows. Data is provided by length of time for securities in a gross unrealized loss position. At June 30, 2018 Less than 12 months 12 months or longer Total (dollars in thousands) Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses No. of holdings Available-for-sale securities: U.S. treasury $ 34,969 $ 278 $ 1,474 $ 49 $ 36,443 $ 327 5 States & political subdivisions 99,153 1,763 13,871 687 113,024 2,450 57 Foreign government securities 499 1 0 0 499 1 1 Corporate debt securities 194,322 3,740 28,430 556 222,752 4,296 516 Residential mortgage-backed securities 4,526 98 5,416 146 9,942 244 12 Commercial mortgage-backed securities 15,500 301 8,930 306 24,430 607 22 Collateralized debt obligations 28,250 136 0 0 28,250 136 20 Other debt securities 210 0 0 0 210 0 1 Total available-for-sale securities $ 377,429 $ 6,317 $ 58,121 $ 1,744 $ 435,550 $ 8,061 634 Quality breakdown of available-for-sale securities: Investment grade $ 269,062 $ 3,554 $ 54,423 $ 1,577 $ 323,485 $ 5,131 187 Non-investment grade 108,367 2,763 3,698 167 112,065 2,930 447 Total available-for-sale securities $ 377,429 $ 6,317 $ 58,121 $ 1,744 $ 435,550 $ 8,061 634 At December 31, 2017 Less than 12 months 12 months or longer Total (dollars in thousands) Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses No. of holdings Available-for-sale securities: U.S. treasury $ 10,237 $ 110 $ 1,497 $ 29 $ 11,734 $ 139 4 States & political subdivisions 52,553 288 14,361 332 66,914 620 33 Corporate debt securities 171,154 1,585 31,113 339 202,267 1,924 331 Residential mortgage-backed securities 4,156 29 7,064 95 11,220 124 11 Commercial mortgage-backed securities 10,836 85 11,984 612 22,820 697 19 Collateralized debt obligations 21,598 41 0 0 21,598 41 12 Other debt securities 1,499 0 0 0 1,499 0 1 Total fixed maturities 272,033 2,138 66,019 1,407 338,052 3,545 411 Nonredeemable preferred stock - financial services sector 9,644 75 0 0 9,644 75 5 Nonredeemable preferred stock - utilities sector 1,093 25 0 0 1,093 25 1 Total available-for-sale securities $ 282,770 $ 2,238 $ 66,019 $ 1,407 $ 348,789 $ 3,645 417 Quality breakdown of fixed maturities: Investment grade $ 214,586 $ 1,064 $ 62,193 $ 985 $ 276,779 $ 2,049 158 Non-investment grade 57,447 1,074 3,826 422 61,273 1,496 253 Total fixed maturities $ 272,033 $ 2,138 $ 66,019 $ 1,407 $ 338,052 $ 3,545 411 The above securities have been evaluated and determined to be temporary impairments for which we expect to recover our entire principal plus interest. The primary components of this analysis include a general review of market conditions and financial performance of the issuer along with the extent and duration at which fair value is less than cost. Any securities that we intend to sell or will more likely than not be required to sell before recovery are included in other-than-temporary impairments, which are recognized in earnings. Net investment income Interest and dividend income are recognized as earned and recorded to net investment income. Investment income, net of expenses, was generated from the following portfolios: Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Fixed maturities (1) $ 6,263 $ 6,220 $ 12,373 $ 12,124 Equity securities 142 17 284 49 Cash equivalents and other 1,026 395 2,034 916 Total investment income 7,431 6,632 14,691 13,089 Less: investment expenses 327 393 767 869 Investment income, net of expenses $ 7,104 $ 6,239 $ 13,924 $ 12,220 (1) Includes interest earned on note receivable from Erie Family Life Insurance Company ("EFL") of $0.4 million and $0.8 million for the three and six months ended June 30, 2018 and 2017, respectively. Realized investment gains (losses) Realized gains and losses on sales of securities are recognized in income based upon the specific identification method. Realized gains (losses) on investments were as follows: Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Available-for-sale securities: Gross realized gains $ 235 $ 507 $ 575 $ 1,087 Gross realized losses (301 ) (381 ) (986 ) (539 ) Net realized (losses) gains on available-for-sale securities (66 ) 126 (411 ) 548 Equity securities (68 ) — (188 ) — Miscellaneous 102 (2 ) 102 92 Net realized investment (losses) gains $ (32 ) $ 124 $ (497 ) $ 640 The portion of net unrealized losses recognized during the reporting period, related to equity securities still held at the reporting date, is calculated as follows: Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Equity securities: (1) Total net realized losses $ (68 ) $ — $ (188 ) $ — Less: net losses realized on securities sold 0 — (34 ) — Net unrealized losses recognized during the period on securities held at reporting date $ (68 ) $ — $ (154 ) $ — (1) With the adoption of ASU 2016-01, effective January 1, 2018, changes in unrealized gains and losses on equity securities are included in net realized investment gains (losses) in the Statement of Operations. The adoption of this guidance resulted in a reclassification of net unrealized losses of $0.1 million from accumulated other comprehensive loss to retained earnings at January 1, 2018. Other-than-temporary impairments on available-for-sale securities recognized in earnings were $0.6 million and $0.1 million for the quarters ended June 30, 2018 and 2017, respectively, and $0.6 million and $0.2 million for the six months ended June 30, 2018 and 2017, respectively. We have the intent to sell all credit-impaired available-for-sale debt securities; therefore, the entire amount of the impairment charges were included in earnings and no non-credit impairments were recognized in other comprehensive income. Limited partnerships The majority of our limited partnership holdings are considered investment companies where the general partners record assets at fair value. These limited partnerships are recorded using the equity method of accounting and are generally reported on a one-quarter lag; therefore, our year-to-date limited partnership results through June 30, 2018 are comprised of partnership financial results for the fourth quarter of 2017 and first quarter of 2018. Given the lag in reporting, our limited partnership results do not reflect the market conditions of the second quarter of 2018 . We also own some real estate limited partnerships that do not meet the criteria of an investment company. These partnerships prepare audited financial statements on a cost basis. We have elected to report these limited partnerships under the fair value option, which is based on the NAV from our partner's capital statement reflecting the general partner's estimate of fair value for the fund's underlying assets. Fair value provides consistency in the evaluation and financial reporting for these limited partnerships and limited partnerships accounted for under the equity method. Cash contributions made to and distributions received from the partnerships are recorded in the period in which the transaction occurs. Amounts included in equity in (losses) earnings of limited partnerships by method of accounting are included below: Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Equity in (losses) earnings of limited partnerships accounted for under the equity method $ (216 ) $ 149 $ (21 ) $ 399 Change in fair value of limited partnerships accounted for under the fair value option (3 ) 0 (390 ) (37 ) Equity in (losses) earnings of limited partnerships $ (219 ) $ 149 $ (411 ) $ 362 The following table summarizes limited partnership investments by sector: (in thousands) At June 30, 2018 At December 31, 2017 Private equity $ 30,501 $ 31,663 Mezzanine debt 2,916 3,516 Real estate 2,482 5,127 Real estate - fair value option 3,752 4,816 Total limited partnership investments $ 39,651 $ 45,122 See also Note 13, "Commitments and Contingencies" for investment commitments related to limited partnerships. |
Borrowing Arrangements
Borrowing Arrangements | 6 Months Ended |
Jun. 30, 2018 | |
Debt Disclosure [Abstract] | |
Borrowing Arrangements | Note 7. Borrowing Arrangements Bank line of credit As of June 30, 2018 , we have access to a $100 million bank revolving line of credit with a $25 million letter of credit sublimit that expires on November 3, 2020 . As of June 30, 2018 , a total of $99.1 million remains available under the facility due to $0.9 million outstanding letters of credit, which reduce the availability for letters of credit to $24.1 million . We had no borrowings outstanding on our line of credit as of June 30, 2018 . Bonds with a fair value of $108.1 million were pledged as collateral on the line at June 30, 2018 . The securities pledged as collateral have no trading restrictions and are reported as available-for-sale securities in the Statements of Financial Position as of June 30, 2018 . The banks require compliance with certain covenants, which include leverage ratios and debt restrictions, for our line of credit. We are in compliance with all covenants at June 30, 2018 . Term loan credit facility In 2016, we entered into a credit agreement for a $100 million senior secured draw term loan credit facility ("Credit Facility") for the acquisition of real property and construction of an office building that will serve as part of our principal headquarters. Under the agreement, $25 million was drawn on December 1, 2016, June 1, 2017, and December 1, 2017. The final $25 million was completed on June 1, 2018, for a total drawn amount of $100 million . During the draw period from December 1, 2016 through December 31, 2018, we will make monthly interest payments under the Credit Facility. Upon the expiration of the draw period, the Credit Facility converts to a fully-amortized term loan with monthly payments of principal and interest over a period of 28 years , commencing on January 1, 2019. Borrowings under the Credit Facility bear interest at a fixed rate of 4.35% . In addition, we are required to pay a quarterly commitment fee of 0.08% on the unused portion of the Credit Facility during the draw period. Bonds with a fair value of $108.3 million were pledged as collateral for the facility and are reported as available-for-sale securities in the Statements of Financial Position as of June 30, 2018 . The bank requires compliance with certain covenants, which include leverage ratios, debt restrictions and minimum net worth, for our Credit Facility. We are in compliance with all covenants at June 30, 2018 . Amounts drawn from the Credit Facility are reported at carrying value on our Statements of Financial Position, net of unamortized loan origination and commitment fees. The estimated fair value of this borrowing at June 30, 2018 was $94.3 million . The estimated fair value was determined using estimates based upon interest rates and credit spreads and are classified as Level 3 in the fair value hierarchy as of June 30, 2018 . The scheduled maturity of the $100 million Credit Facility begins on January 1, 2019 with annual principal payments of $1.9 million in 2019 , $2.0 million in 2020 , $2.0 million in 2021 , $2.1 million in 2022 , $2.2 million in 2023 and $89.8 million thereafter. |
Postretirement Benefits
Postretirement Benefits | 6 Months Ended |
Jun. 30, 2018 | |
Retirement Benefits [Abstract] | |
Postretirement Benefits | Note 8. Postretirement Benefits Pension plans Our pension plans consist of a noncontributory defined benefit pension plan covering substantially all employees and an unfunded supplemental employee retirement plan for certain members of executive and senior management. Although we are the sponsor of these postretirement plans and record the funded status of these plans, the Exchange and its subsidiaries reimburse us for approximately 59% of the annual benefit expense of these plans, which represents pension benefits for employees performing administrative services and their allocated share of costs for employees in departments that support the administrative functions. An accelerated contribution of $40 million was made to the defined benefit pension plan in the first quarter of 2018 , and an additional $40 million contribution was made in April 2018. Prior to 2003, the employee pension plan purchased annuities from EFL for certain plan participants that were receiving benefit payments under the pension plan. These are nonparticipating annuity contracts under which EFL has unconditionally contracted to provide specified benefits to beneficiaries; however, the pension plan remains the primary obligor to the beneficiaries. A contingent liability of $18.3 million at June 30, 2018 exists in the event EFL does not honor the annuity contracts. The cost of our pension plans are as follows: Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Service cost for benefits earned $ 9,513 $ 7,776 $ 19,026 $ 15,553 Interest cost on benefits obligation 8,845 8,568 17,691 17,137 Expected return on plan assets (12,814 ) (10,316 ) (25,629 ) (20,633 ) Prior service cost amortization 338 218 676 436 Net actuarial loss amortization 3,202 2,325 6,404 4,650 Pension plan cost (1) $ 9,084 $ 8,571 $ 18,168 $ 17,143 (1) The components of pension plan costs other than the service cost component are included in the line item "Other income (expense)" in the Statements of Operations after reimbursements from the Exchange and its subsidiaries. |
Income Taxes
Income Taxes | 6 Months Ended |
Jun. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Note 9. Income Taxes The effective tax rate may differ from the statutory federal tax rate primarily due to permanent differences for tax exempt interest income. Income tax amounts are estimates based on our initial analysis and current interpretation of the Tax Cuts and Jobs Act enacted in 2017. Given the complexity of the legislation, anticipated guidance from the U.S. Treasury, and the potential for additional guidance from the Securities and Exchange Commission or the FASB, these estimates may be adjusted during 2018. |
Capital Stock
Capital Stock | 6 Months Ended |
Jun. 30, 2018 | |
Class of Stock Disclosures [Abstract] | |
Capital Stock | Note 10. Capital Stock Class A and B common stock Holders of Class B shares may, at their option, convert their shares into Class A shares at the rate of 2,400 Class A shares per Class B share. There were no shares of Class B common stock converted into Class A common stock during the six months ended June 30, 2018 and the year ended December 31, 2017 . There is no provision for conversion of Class A shares to Class B shares, and Class B shares surrendered for conversion cannot be reissued. Stock repurchases In 2011 , our Board of Directors approved a continuation of the current stock repurchase program of $150 million , with no time limitation. There were no shares repurchased under this program during the six months ended June 30, 2018 and the year ended December 31, 2017 . We had approximately $17.8 million of repurchase authority remaining under this program at June 30, 2018 . During the six months ended June 30, 2018 , we purchased 22,247 shares of our outstanding Class A nonvoting common stock outside of our publicly announced share repurchase program at a total cost of $2.6 million . Of this amount, we purchased 5,830 shares for $0.7 million , or $117.39 per share, for stock-based awards in conjunction with our equity compensation plan, for which the shares were delivered to plan participants in January and May 2018. We purchased 4,576 shares for $0.5 million , or $115.69 per share, to fund the rabbi trust for the outside director deferred stock compensation plan. The shares were transferred to the rabbi trust in March and May 2018. The remaining 11,841 shares were purchased at a total cost of $1.4 million , or $119.14 per share, to fund the rabbi trust for the incentive compensation deferral plan. The shares were transferred to the rabbi trust in March and May 2018. During the year ended December 31, 2017 , we purchased 60,332 shares of our outstanding Class A nonvoting common stock outside of our publicly announced share repurchase program at a total cost of $7.3 million . Of this amount, we purchased 3,785 shares for $0.4 million , or $111.55 per share, for stock-based awards in conjunction with our equity compensation plan. We purchased 9,663 shares for $1.2 million , or $121.85 per share, to fund the rabbi trust for the outside director deferred stock compensation plan. The remaining 46,884 shares were purchased at a total cost of $5.7 million , or $122.40 per share, for stock-based awards in conjunction with our long-term incentive plan. These shares were delivered in 2017. |
Accumulated Other Comprehensive
Accumulated Other Comprehensive Income (Loss) | 6 Months Ended |
Jun. 30, 2018 | |
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |
Accumulated Other Comprehensive Income (Loss) | Note 11. Accumulated Other Comprehensive Income (Loss) Changes in accumulated other comprehensive income ("AOCI") (loss) by component, including amounts reclassified to other comprehensive income ("OCI") (loss) and the related line item in the Statements of Operations where net income is presented, are as follows: Three months ended Three months ended June 30, 2018 June 30, 2017 (in thousands) Before Tax Income Tax (1) Net Before Tax Income Tax (1) Net Investment securities: AOCI (loss), beginning of period $ (3,460 ) $ (727 ) $ (2,733 ) $ 6,293 $ 2,202 $ 4,091 OCI (loss) before reclassifications (1,409 ) (296 ) (1,113 ) 1,746 611 1,135 Realized investment losses (gains) 66 14 52 (126 ) (44 ) (82 ) Impairment losses 646 136 510 61 22 39 OCI (loss) (697 ) (146 ) (551 ) 1,681 589 1,092 AOCI (loss), end of period $ (4,157 ) $ (873 ) $ (3,284 ) $ 7,974 $ 2,791 $ 5,183 Pension and other postretirement plans: (2) AOCI (loss), beginning of period $ (200,954 ) $ (42,201 ) $ (158,753 ) $ (190,695 ) $ (66,744 ) $ (123,951 ) AOCI (loss), end of period $ (200,954 ) $ (42,201 ) $ (158,753 ) $ (190,695 ) $ (66,744 ) $ (123,951 ) Total AOCI (loss), beginning of period $ (204,414 ) $ (42,928 ) $ (161,486 ) $ (184,402 ) $ (64,542 ) $ (119,860 ) Investment securities (697 ) (146 ) (551 ) 1,681 589 1,092 Pension and other postretirement plans 0 0 0 0 0 0 OCI (loss) (697 ) (146 ) (551 ) 1,681 589 1,092 AOCI (loss), end of period $ (205,111 ) $ (43,074 ) $ (162,037 ) $ (182,721 ) $ (63,953 ) $ (118,768 ) Six months ended Six months ended June 30, 2018 June 30, 2017 (in thousands) Before Tax Income Tax (1) Net Before Tax Income Tax (1) Net Investment securities: AOCI, beginning of period $ 3,410 $ 716 $ 2,694 $ 3,954 $ 1,384 $ 2,570 OCI (loss) before reclassifications (8,539 ) (1,793 ) (6,746 ) 4,386 1,535 2,851 Realized investment losses (gains) 411 86 325 (548 ) (192 ) (356 ) Impairment losses 646 136 510 182 64 118 Cumulative effect of adopting ASU 2016-01 (3) (85 ) (18 ) (67 ) — — — OCI (loss) (7,567 ) (1,589 ) (5,978 ) 4,020 1,407 2,613 AOCI (loss), end of period $ (4,157 ) $ (873 ) $ (3,284 ) $ 7,974 $ 2,791 $ 5,183 Pension and other postretirement plans: (2) AOCI (loss), beginning of period $ (200,954 ) $ (42,201 ) $ (158,753 ) $ (190,695 ) $ (66,744 ) $ (123,951 ) AOCI (loss), end of period $ (200,954 ) $ (42,201 ) $ (158,753 ) $ (190,695 ) $ (66,744 ) $ (123,951 ) Total AOCI (loss), beginning of period $ (197,544 ) $ (41,485 ) $ (156,059 ) $ (186,741 ) $ (65,360 ) $ (121,381 ) Investment securities (7,567 ) (1,589 ) (5,978 ) 4,020 1,407 2,613 Pension and other postretirement plans 0 0 0 0 0 0 OCI (loss) (7,567 ) (1,589 ) (5,978 ) 4,020 1,407 2,613 AOCI (loss), end of period $ (205,111 ) $ (43,074 ) $ (162,037 ) $ (182,721 ) $ (63,953 ) $ (118,768 ) (1) Deferred taxes were recognized at the corporate rate of 21% for the three and six months ended June 30, 2018 and 35% for the three and six months ended June 30, 2017. (2) There are no comprehensive income items or amounts reclassified out of accumulated other comprehensive loss related to postretirement plan items during interim periods. (3) ASU 2016-01 required a reclassification of unrealized losses of equity securities from AOCI to retained earnings at January 1, 2018. See Note 2, "Significant Accounting Policies". |
Concentrations of Credit Risk
Concentrations of Credit Risk | 6 Months Ended |
Jun. 30, 2018 | |
Risks and Uncertainties [Abstract] | |
Concentrations of Credit Risk | Note 12. Concentrations of Credit Risk Financial instruments could potentially expose us to concentrations of credit risk, including unsecured receivables from the Exchange. A large majority of our revenue and receivables are from the Exchange and its subsidiaries. See also Note 1, "Nature of Operations". Management fee amounts and other reimbursements due from the Exchange and its subsidiaries were $445.2 million and $418.3 million at June 30, 2018 and December 31, 2017 , respectively. |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Note 13. Commitments and Contingencies We have contractual commitments to invest up to $13.9 million related to our limited partnership investments at June 30, 2018 . These commitments are split among private equity securities of $5.5 million , mezzanine debt securities of $8.1 million , and real estate activities of $0.3 million . These commitments will be funded as required by the limited partnership agreements. We are involved in litigation arising in the ordinary course of conducting business. In accordance with current accounting standards for loss contingencies and based upon information currently known to us, we establish reserves for litigation when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss or range of loss can be reasonably estimated. When no amount within the range of loss is a better estimate than any other amount, we accrue the minimum amount of the estimable loss. To the extent that such litigation against us may have an exposure to a loss in excess of the amount we have accrued, we believe that such excess would not be material to our financial condition, results of operations, or cash flows. Legal fees are expensed as incurred. We believe that our accruals for legal proceedings are appropriate and, individually and in the aggregate, are not expected to be material to our financial condition, results of operations, or cash flows. We review all litigation on an ongoing basis when making accrual and disclosure decisions. For certain legal proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are in their early stages of development or where the plaintiffs seek indeterminate damages. Various factors, including, but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions, may need to be determined before probability can be established or before a loss or range of loss can be reasonably estimated. If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. In the event that a legal proceeding results in a substantial judgment against, or settlement by, us, there can be no assurance that any resulting liability or financial commitment would not have a material adverse effect on the financial condition, results of operations, or cash flows. |
Subsequent Events
Subsequent Events | 6 Months Ended |
Jun. 30, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 14. Subsequent Events No items were identified in this period subsequent to the financial statement date that required adjustment or additional disclosure. |
Significant Accounting Polici21
Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
Basis of presentation | Basis of presentation The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 . For further information, refer to the financial statements and footnotes included in our Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission on February 22, 2018 . |
Use of estimates | Use of estimates The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Recent accounting standards | Recently adopted accounting standards We adopted Accounting Standards Codification 606, "Revenue from Contracts with Customers" ("ASC 606") on January 1, 2018, using the modified retrospective method applied to all contracts. We recognized the cumulative effect of initially adopting ASC 606 as an adjustment to the opening balance of retained earnings at January 1, 2018. The comparative information for periods preceding January 1, 2018 has not been restated and continues to be reported under the accounting standards in effect for those periods. Under ASC 606, we determined that we have two performance obligations under the subscriber’s agreement. The first performance obligation is providing policy issuance and renewal services. The second performance obligation is acting as the attorney-in-fact on behalf of the Exchange, as well as the service provider for its insurance subsidiaries, with respect to all administrative services. Therefore, upon adoption of ASC 606 beginning January 1, 2018, the management fee earned per the subscriber’s agreement, currently 25% of all direct and assumed premiums written by the Exchange, will be allocated between the two performance obligations. Prior to the adoption of ASC 606, the entire management fee was allocated to the policy issuance and renewal services. Additionally, the expenses we incur and related reimbursements we receive related to the administrative services will be presented gross in our Statement of Operations effective January 1, 2018. There was no significant impact to service agreement revenue upon adoption of ASC 606. Revenue allocated to the policy issuance and renewal services continues to be recognized at the time of policy issuance or renewal because it is at the time of policy issuance or renewal when the economic benefits of the service Indemnity provides (i.e. the substantially completed policy issuance or renewal service) and the control of the promised asset (i.e. the executed insurance policy) transfers to the customer. A significant portion of the management fee is currently allocated to this performance obligation and therefore, the related revenue recognition pattern for the vast majority of our revenues will remain unchanged. The revenue allocated to the second performance obligation will be recognized over several years in correlation with the costs incurred because the economic benefit of the services provided (i.e. management of the administrative services) transfers to the customer over a period of time. The amounts incurred for these services are reimbursed to Indemnity at cost in accordance with the subscriber's agreement and the service agreements. On January 1, 2018, we established a contract liability of $48.5 million representing the portion of revenue not yet earned related to the administrative services to be provided in subsequent years. We recorded a related deferred tax asset of $10.2 million and a cumulative effect adjustment that reduced retained earnings by $38.3 million . The adoption of ASC 606 changed the presentation of our Statement of Cash Flows, but had no net impact to our cash flows. The cumulative effect of the changes made to our Statement of Financial Position at January 1, 2018 were as follows: (in thousands) Balance at December 31, 2017 Adjustments due to ASC 606 Balance at January 1, 2018 Statement of Financial Position: Assets Deferred tax asset $ 19,390 $ 10,188 $ 29,578 Liabilities Contract liability — 48,514 48,514 Equity Retained earnings 2,140,853 (38,326 ) 2,102,527 The impact of adoption on our Statement of Financial Position at June 30, 2018 was as follows: June 30, 2018 (in thousands) As Reported Balances without ASC 606 Impact of Change (Unaudited) Statement of Financial Position: Assets Deferred tax asset $ 31,527 $ 20,903 $ 10,624 Liabilities Contract liability 50,589 — 50,589 Equity Retained earnings 2,169,686 2,209,651 (39,965 ) The impact of adoption on our Statement of Operations at June 30, 2018 was as follows: Three months ended Six months ended (in thousands) As Reported Balances without ASC 606 Impact of Change As Reported Balances without ASC 606 Impact of Change (Unaudited) (Unaudited) Statement of Operations: Management fee revenue allocated to policy issuance and renewal services, gross $ 456,896 $ 471,999 $ (15,103 ) $ 864,132 $ 892,698 $ (28,566 ) Less: change in allowance for management fee returned on cancelled policies (2,324 ) (2,400 ) 76 (3,582 ) (3,700 ) 118 Management fee revenue allocated to policy issuance and renewal services, net $ 454,572 $ 469,599 $ (15,027 ) $ 860,550 $ 888,998 $ (28,448 ) Management fee revenue allocated to administrative services, gross $ 13,313 $ — $ 13,313 $ 26,401 $ — $ 26,401 Less: change in allowance for management fee returned on cancelled policies (14 ) — (14 ) (28 ) — (28 ) Management fee revenue allocated to administrative services, net 13,299 — 13,299 26,373 — 26,373 Administrative services reimbursement revenue 146,507 — 146,507 292,470 — 292,470 Total revenue allocated to administrative services $ 159,806 $ — $ 159,806 $ 318,843 $ — $ 318,843 Administrative services expenses $ 146,507 $ — $ 146,507 $ 292,470 $ — $ 292,470 In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-07, "Compensation-Retirement Benefits", which requires the service cost component of net benefit costs to be reported with other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit costs are required to be presented separately from the service cost component and outside of income from operations on a retrospective basis. This amendment also allows only the service cost component to be eligible for capitalization, when applicable, prospectively after the effective date. ASU 2017-07 is effective for interim and annual periods beginning after December 15, 2017. We adopted this guidance effective January 1, 2018 and have included the other components of net benefit costs in "Other income (expense)" in the Statements of Operations and conformed the prior-period presentation. The adoption of this guidance did not have a material impact on the presentation of our financial statements or related disclosures. In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall" . ASU 2016-01 revises the accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. We adopted this guidance on a prospective basis effective January 1, 2018. The adoption of this guidance resulted in reclassifying unrealized losses, net of tax, on equity securities from accumulated other comprehensive loss to retained earnings, which reduced retained earnings by $0.1 million at January 1, 2018. As of January 1, 2018, equity securities are presented separately in our Statement of Financial Position. Our disclosures were prepared in accordance with this guidance. Recently issued accounting standards In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses" , which requires financial assets measured at amortized cost to be presented at the net amount expected to be collected through the use of a new forward-looking expected loss model and credit losses relating to available-for-sale debt securities to be recognized through an allowance for credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption for interim and annual periods beginning after December 15, 2018 is permitted. We have evaluated the impact of this guidance on our invested assets. Our investments are not measured at amortized cost, and therefore do not require the use of a new expected loss model. Our available-for-sale debt securities will continue to be monitored for credit losses which would be reflected as an allowance for credit losses rather than a reduction of the carrying value of the asset. The other material financial assets subject to this guidance include our receivables from Erie Insurance Exchange and its subsidiaries. Given the financial strength of the Exchange, demonstrated by its strong surplus position and industry ratings, it is unlikely these receivables would have significant, if any, credit loss exposure. Accordingly, we do not expect a material impact on our financial statements or related disclosures as a result of this guidance. In February 2016, the FASB issued ASU 2016-02, "Leases" , which requires lessees to recognize assets and liabilities arising from operating leases on the statement of financial position and to disclose key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Currently ASU 2016-02 requires leases to be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. In January 2018, the FASB issued a proposed ASU that would allow entities to recognize the cumulative effect adjustment in the year of adoption rather than the earliest period presented. Under existing guidance, we recognize lease expense as a component of operating expenses in the Statements of Operations. We are evaluating our lease contracts to determine those that qualify for treatment as leases under the new guidance and the impact to our financial statements and disclosures. |
Recognition of management fee revenue | Recognition of management fee revenue We earn management fees from the Exchange under the subscriber’s agreement for services provided. Pursuant to the subscriber’s agreement, we may retain up to 25% of all direct and assumed premiums written by the Exchange. The management fee rate is set at least annually by our Board of Directors. The management fee revenue is calculated by multiplying the management fee rate by the direct and assumed premiums written by the Exchange. Upon adoption of ASC 606 beginning January 1, 2018, we determined we have two performance obligations under the subscriber’s agreement. The first performance obligation is to provide policy issuance and renewal services. The second performance obligation is acting as the attorney-in-fact with respect to the administrative services. Beginning January 1, 2018, our management fee revenue is allocated to these two performance obligations. Prior to the adoption of ASC 606, the entire management fee was allocated to the policy issuance and renewal services. Management fee revenue allocated to the policy issuance and renewal services is recognized at the time of policy issuance or renewal, because it is at the time of policy issuance or renewal when the economic benefit of the service we provide (the substantially completed policy issuance or renewal service) and the control of the promised asset (the executed insurance policy) transfers to the customer. Management fee revenue allocated to the second performance obligation relates to us acting as the attorney-in-fact on behalf of the Exchange, as well as the service provider for its insurance subsidiaries, with respect to the administrative services and is recognized over a four -year period representing the time over which the economic benefit of the services provided (i.e. management of the administrative services) transfers to the customer. |
Administrative services | Administrative services By virtue of its legal structure as a reciprocal insurer, the Exchange does not have any employees or officers. Therefore, it enters into contractual relationships by and through an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services in accordance with the subscriber's agreement. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business. Investment management services are related to investment trading activity, accounting and all other functions attributable to the investment of funds. Included in these expenses are allocations of costs for departments that support these administrative functions. Common overhead expenses and certain service department costs incurred by us on behalf of the Exchange and its insurance subsidiaries are reimbursed by the proper entity based upon appropriate utilization statistics (employee count, square footage, vehicle count, project hours, etc.) specifically measured to accomplish proportional allocations, which we believe are reasonable. Prior to the adoption of ASC 606, we recorded the reimbursements we receive for the administrative services expenses as receivables from the Exchange and its subsidiaries with a corresponding reduction to our expenses. Upon adoption of ASC 606 on January 1, 2018, the expenses we incur and related reimbursements we receive for administrative services are presented gross in our Statement of Operations. Reimbursements are settled on a monthly basis. The amounts incurred for these services are reimbursed to Indemnity at cost in accordance with the subscriber's agreement and the service agreements. State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department. |
Reclassifications | Reclassifications Certain amounts previously reported in the 2017 financial statements have been reclassified for comparative purposes to conform to the current period’s presentation. Such reclassifications resulted from new accounting guidance and only affected the Statements of Operations. Most notably, "Commissions", "Salaries and employee benefits", and "All other operating expenses" have been combined within "Cost of operations - policy issuance and renewal services" in the Statements of Operations (See Note 3, "Revenue"). These reclassifications had no effect on previously reported net income. |
Earnings per share | Class A and Class B basic earnings per share and Class B diluted earnings per share are calculated under the two-class method. The two-class method allocates earnings to each class of stock based upon its dividend rights. Class B shares are convertible into Class A shares at a conversion ratio of 2,400 to 1. See Note 10, "Capital Stock". Class A diluted earnings per share are calculated under the if-converted method, which reflects the conversion of Class B shares to Class A shares. Diluted earnings per share calculations include the dilutive effect of assumed issuance of stock-based awards under compensation plans that have the option to be paid in stock using the treasury stock method. |
Fair value of financial instruments | Our available-for-sale debt securities and equity securities are recorded at fair value, which is the price that would be received to sell the asset in an orderly transaction between willing market participants as of the measurement date. Valuation techniques used to derive the fair value of our available-for-sale debt securities and equity securities are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources. Unobservable inputs reflect our own assumptions regarding fair market value for these securities. Although virtually all of our prices are obtained from third party sources, we also perform an internal pricing review on outliers, which include securities with price changes inconsistent with current market conditions. Financial instruments are categorized based upon the following characteristics or inputs to the valuation techniques: • Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. • Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3 – Unobservable inputs for the asset or liability. Estimates of fair values for our investment portfolio are obtained primarily from a nationally recognized pricing service. Our Level 1 category includes those securities valued using an exchange traded price provided by the pricing service. The methodologies used by the pricing service that support a Level 2 classification of a financial instrument include multiple verifiable, observable inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. Pricing service valuations for Level 3 securities are based upon proprietary models and are used when observable inputs are not available or in illiquid markets. In limited circumstances we adjust the price received from the pricing service when, in our judgment, a better reflection of fair value is available based upon corroborating information and our knowledge and monitoring of market conditions such as a disparity in price of comparable securities and/or non-binding broker quotes. In other circumstances, certain securities are internally priced because prices are not provided by the pricing service. We perform continuous reviews of the prices obtained from the pricing service. This includes evaluating the methodology and inputs used by the pricing service to ensure that we determine the proper classification level of the financial instrument. Price variances, including large periodic changes, are investigated and corroborated by market data. We have reviewed the pricing methodologies of our pricing service as well as other observable inputs, such as market data, and transaction volumes and believe that the prices adequately consider market activity in determining fair value. When a price from the pricing service is not available, values are determined by obtaining broker/dealer quotes and/or market comparables. When available, we obtain multiple quotes for the same security. The ultimate value for these securities is determined based upon our best estimate of fair value using corroborating market information. Our evaluation includes the consideration of benchmark yields, reported trades, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. |
Fair value of financial instruments, transfers between levels | We review the fair value hierarchy classifications each reporting period. Transfers between hierarchy levels may occur due to changes in available market observable inputs. Transfers into and out of level classifications in 2017 are reported as having occurred at the beginning of the quarter in which the transfers occurred. Effective January 1, 2018, we changed our policy to recognize transfers as occurring at the end of the quarter in which the transfers occurred. This change is applied prospectively due to the immaterial impact on prior year disclosures. |
Realized investment gains (losses) | Realized investment gains (losses) Realized gains and losses on sales of securities are recognized in income based upon the specific identification method. |
Investments - Limited partnerships | Limited partnerships The majority of our limited partnership holdings are considered investment companies where the general partners record assets at fair value. These limited partnerships are recorded using the equity method of accounting and are generally reported on a one-quarter lag; therefore, our year-to-date limited partnership results through June 30, 2018 are comprised of partnership financial results for the fourth quarter of 2017 and first quarter of 2018. Given the lag in reporting, our limited partnership results do not reflect the market conditions of the second quarter of 2018 . We also own some real estate limited partnerships that do not meet the criteria of an investment company. These partnerships prepare audited financial statements on a cost basis. We have elected to report these limited partnerships under the fair value option, which is based on the NAV from our partner's capital statement reflecting the general partner's estimate of fair value for the fund's underlying assets. Fair value provides consistency in the evaluation and financial reporting for these limited partnerships and limited partnerships accounted for under the equity method. Cash contributions made to and distributions received from the partnerships are recorded in the period in which the transaction occurs. |
Commitments and contingencies | We are involved in litigation arising in the ordinary course of conducting business. In accordance with current accounting standards for loss contingencies and based upon information currently known to us, we establish reserves for litigation when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss or range of loss can be reasonably estimated. When no amount within the range of loss is a better estimate than any other amount, we accrue the minimum amount of the estimable loss. To the extent that such litigation against us may have an exposure to a loss in excess of the amount we have accrued, we believe that such excess would not be material to our financial condition, results of operations, or cash flows. Legal fees are expensed as incurred. We believe that our accruals for legal proceedings are appropriate and, individually and in the aggregate, are not expected to be material to our financial condition, results of operations, or cash flows. We review all litigation on an ongoing basis when making accrual and disclosure decisions. For certain legal proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are in their early stages of development or where the plaintiffs seek indeterminate damages. Various factors, including, but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions, may need to be determined before probability can be established or before a loss or range of loss can be reasonably estimated. If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. In the event that a legal proceeding results in a substantial judgment against, or settlement by, us, there can be no assurance that any resulting liability or financial commitment would not have a material adverse effect on the financial condition, results of operations, or cash flows. |
Significant Accounting Polici22
Significant Accounting Policies (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
Schedule of the impact of adoption of ASC 606 on our Statement of Financial Position and Statement of Operations | The cumulative effect of the changes made to our Statement of Financial Position at January 1, 2018 were as follows: (in thousands) Balance at December 31, 2017 Adjustments due to ASC 606 Balance at January 1, 2018 Statement of Financial Position: Assets Deferred tax asset $ 19,390 $ 10,188 $ 29,578 Liabilities Contract liability — 48,514 48,514 Equity Retained earnings 2,140,853 (38,326 ) 2,102,527 The impact of adoption on our Statement of Financial Position at June 30, 2018 was as follows: June 30, 2018 (in thousands) As Reported Balances without ASC 606 Impact of Change (Unaudited) Statement of Financial Position: Assets Deferred tax asset $ 31,527 $ 20,903 $ 10,624 Liabilities Contract liability 50,589 — 50,589 Equity Retained earnings 2,169,686 2,209,651 (39,965 ) The impact of adoption on our Statement of Operations at June 30, 2018 was as follows: Three months ended Six months ended (in thousands) As Reported Balances without ASC 606 Impact of Change As Reported Balances without ASC 606 Impact of Change (Unaudited) (Unaudited) Statement of Operations: Management fee revenue allocated to policy issuance and renewal services, gross $ 456,896 $ 471,999 $ (15,103 ) $ 864,132 $ 892,698 $ (28,566 ) Less: change in allowance for management fee returned on cancelled policies (2,324 ) (2,400 ) 76 (3,582 ) (3,700 ) 118 Management fee revenue allocated to policy issuance and renewal services, net $ 454,572 $ 469,599 $ (15,027 ) $ 860,550 $ 888,998 $ (28,448 ) Management fee revenue allocated to administrative services, gross $ 13,313 $ — $ 13,313 $ 26,401 $ — $ 26,401 Less: change in allowance for management fee returned on cancelled policies (14 ) — (14 ) (28 ) — (28 ) Management fee revenue allocated to administrative services, net 13,299 — 13,299 26,373 — 26,373 Administrative services reimbursement revenue 146,507 — 146,507 292,470 — 292,470 Total revenue allocated to administrative services $ 159,806 $ — $ 159,806 $ 318,843 $ — $ 318,843 Administrative services expenses $ 146,507 $ — $ 146,507 $ 292,470 $ — $ 292,470 |
Revenue (Tables)
Revenue (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Revenue from Contract with Customer [Abstract] | |
Schedule of disaggregation of revenue by performance obligation | The following table disaggregates revenue by our two performance obligations: Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Management fee revenue - policy issuance and renewal services $ 454,572 $ 441,319 $ 860,550 $ 833,377 Management fee revenue - administrative services 13,299 — 26,373 — Administrative services reimbursement revenue 146,507 — 292,470 — Total administrative services $ 159,806 $ — $ 318,843 $ — |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Earnings Per Share [Abstract] | |
Schedule of reconciliation of the numerators and denominators used in the basic and diluted per-share computations | A reconciliation of the numerators and denominators used in the basic and diluted per-share computations is presented as follows for each class of common stock: Three months ended June 30, 2018 2017 (dollars in thousands, except per share data) Allocated net income (numerator) Weighted shares (denominator) Per-share amount Allocated net income (numerator) Weighted shares (denominator) Per-share amount Class A – Basic EPS: Income available to Class A stockholders $ 79,053 46,188,705 $ 1.71 $ 58,048 46,180,852 $ 1.26 Dilutive effect of stock-based awards 0 23,344 — 0 17,743 — Assumed conversion of Class B shares 653 6,100,800 — 479 6,100,800 — Class A – Diluted EPS: Income available to Class A stockholders on Class A equivalent shares $ 79,706 52,312,849 $ 1.52 $ 58,527 52,299,395 $ 1.12 Class B – Basic EPS: Income available to Class B stockholders $ 653 2,542 $ 257 $ 479 2,542 $ 189 Class B – Diluted EPS: Income available to Class B stockholders $ 653 2,542 $ 257 $ 479 2,542 $ 188 Six months ended June 30, 2018 2017 (dollars in thousands, except per share data) Allocated net income (numerator) Weighted shares (denominator) Per-share amount Allocated net income (numerator) Weighted shares (denominator) Per-share amount Class A – Basic EPS: Income available to Class A stockholders $ 144,273 46,188,309 $ 3.12 $ 105,532 46,184,666 $ 2.28 Dilutive effect of stock-based awards 0 22,632 — 0 69,748 — Assumed conversion of Class B shares 1,191 6,100,800 — 871 6,100,800 — Class A – Diluted EPS: Income available to Class A stockholders on Class A equivalent shares $ 145,464 52,311,741 $ 2.78 $ 106,403 52,355,214 $ 2.03 Class B – Basic EPS: Income available to Class B stockholders $ 1,191 2,542 $ 469 $ 871 2,542 $ 343 Class B – Diluted EPS: Income available to Class B stockholders $ 1,191 2,542 $ 468 $ 871 2,542 $ 343 |
Fair Value (Tables)
Fair Value (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Fair Value Disclosures [Abstract] | |
Schedule of fair value measurements on a recurring basis by asset class and level of input | The following tables present our fair value measurements on a recurring basis by asset class and level of input: At June 30, 2018 Fair value measurements using: (in thousands) Total Quoted prices in Level 1 Observable inputs Level 2 Unobservable inputs Level 3 Available-for-sale securities: U.S. treasury $ 36,442 $ 0 $ 36,442 $ 0 States & political subdivisions 258,491 0 258,491 0 Foreign government securities 499 0 499 0 Corporate debt securities 282,006 0 270,886 11,120 Residential mortgage-backed securities 21,869 0 21,869 0 Commercial mortgage-backed securities 32,276 0 32,276 0 Collateralized debt obligations 70,976 0 70,976 0 Other debt securities 2,869 0 2,869 0 Total available-for-sale securities 705,428 0 694,308 11,120 Equity securities: Nonredeemable preferred stock - financial services sector 12,488 1,973 10,515 0 Total equity securities 12,488 1,973 10,515 0 Other investments (1) 3,752 — — — Total $ 721,668 $ 1,973 $ 704,823 $ 11,120 At December 31, 2017 Fair value measurements using: (in thousands) Total Quoted prices in Observable inputs Unobservable inputs Available-for-sale securities: U.S. treasury $ 11,734 $ 0 $ 11,734 $ 0 States & political subdivisions 259,264 0 259,264 0 Foreign government securities 503 0 503 0 Corporate debt securities 346,523 0 338,644 7,879 Residential mortgage-backed securities 25,571 0 25,571 0 Commercial mortgage-backed securities 32,804 0 32,804 0 Collateralized debt obligations 58,034 0 55,834 2,200 Other debt securities 11,528 0 11,528 0 Total fixed maturities 745,961 0 735,882 10,079 Nonredeemable preferred stock - financial services sector 11,659 2,015 9,644 0 Nonredeemable preferred stock - utilities sector 1,093 0 1,093 0 Total available-for-sale securities 758,713 2,015 746,619 10,079 Other investments (1) 4,816 — — — Total $ 763,529 $ 2,015 $ 746,619 $ 10,079 (1) Other investments measured at fair value represent real estate funds included on the balance sheet as limited partnership investments that are reported under the fair value option using the net asset value practical expedient. These amounts are not required to be categorized in the fair value hierarchy. The investments can never be redeemed with the funds. Instead, distributions are received when liquidation of the underlying assets of the funds occur. It is estimated that the underlying assets will generally be liquidated between 5 and 10 years from the inception of the funds. The fair value of these investments is based on the net asset value (NAV) information provided by the general partner. Fair value is based on our proportionate share of the NAV based on the most recent partners' capital statements received from the general partners, which is generally one quarter prior to our balance sheet date. These values are then analyzed to determine if the NAV represents fair value at our balance sheet date, with adjustment being made where appropriate. We consider observable market data and perform a review validating the appropriateness of the NAV at each balance sheet date. It is likely that all of the investments will be redeemed at a future date for an amount different than the NAV of our ownership interest in partners' capital as of June 30, 2018 and December 31, 2017 . During the six months ended June 30, 2018 , no contributions were made and distributions totaling $0.7 million were received from these investments. During the year ended December 31, 2017 , no contributions were made and distributions totaling $0.5 million were received from these investments. There were no unfunded commitments related to the investments as of June 30, 2018 and December 31, 2017 . |
Schedule of roll forward of Level 3 fair value measurements on a recurring basis | Level 3 Assets – 2018 Quarterly Change: Beginning balance at March 31, 2018 Included in earnings (1) Included Purchases Sales Transfers into Level 3 (2) Transfers out of Level 3 (2) Ending balance at June 30, 2018 Available-for-sale securities: Corporate debt securities $ 6,309 $ 10 $ (53 ) $ 3,047 $ (472 ) $ 5,370 $ (3,091 ) $ 11,120 Total Level 3 available-for-sale securities $ 6,309 $ 10 $ (53 ) $ 3,047 $ (472 ) $ 5,370 $ (3,091 ) $ 11,120 Level 3 Assets – 2018 Year-to-Date Change: (in thousands) Beginning balance at December 31, 2017 Included in earnings (1) Included income Purchases Sales Transfers into Level 3 (2) Transfers out of Level 3 (2) Ending balance at June 30, 2018 Available-for-sale securities: Corporate debt securities $ 7,879 $ 1 $ (48 ) $ 3,047 $ (965 ) $ 7,782 $ (6,576 ) $ 11,120 Collateralized debt obligations 2,200 0 7 0 0 0 (2,207 ) 0 Total Level 3 available-for-sale securities $ 10,079 $ 1 $ (41 ) $ 3,047 $ (965 ) $ 7,782 $ (8,783 ) $ 11,120 Level 3 Assets – 2017 Quarterly Change: Beginning balance at March 31, 2017 Included in earnings (1) Included Purchases Sales Transfers into Level 3 (2) Transfers out of Level 3 (2) Ending balance at June 30, 2017 Available-for-sale securities: Corporate debt securities $ 9,803 $ 29 $ (23 ) $ 2,110 $ (1,283 ) $ 3,626 $ (4,967 ) $ 9,295 Total Level 3 available-for-sale securities $ 9,803 $ 29 $ (23 ) $ 2,110 $ (1,283 ) $ 3,626 $ (4,967 ) $ 9,295 Level 3 Assets – 2017 Year-to-Date Change: (in thousands) Beginning balance at December 31, 2016 Included in earnings (1) Included in other comprehensive income Purchases Sales Transfers into Level 3 (2) Transfers out of Level 3 (2) Ending balance at June 30, 2017 Available-for-sale securities: Corporate debt securities $ 9,352 $ (21 ) $ (48 ) $ 3,981 $ (3,132 ) $ 5,811 $ (6,648 ) $ 9,295 Total Level 3 available-for-sale securities $ 9,352 $ (21 ) $ (48 ) $ 3,981 $ (3,132 ) $ 5,811 $ (6,648 ) $ 9,295 (1) These amounts are reported in the Statements of Operations as net investment income and net realized investment gains (losses) for the each of the periods presented above. (2) Transfers into and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs. |
Schedule of fair value measurements on a recurring basis by pricing source | The following table presents our fair value measurements on a recurring basis by pricing source: At June 30, 2018 (in thousands) Total Level 1 Level 2 Level 3 Available-for-sale securities priced via pricing services $ 705,428 $ 0 $ 694,308 $ 11,120 Equity securities priced via pricing services 12,488 1,973 10,515 0 Other investments priced via unobservable inputs (1) 3,752 — — — Total $ 721,668 $ 1,973 $ 704,823 $ 11,120 (1) Other investments measured at fair value represent real estate funds included on the balance sheet as limited partnership investments that are reported under the fair value option using the NAV practical expedient. These amounts are not required to be categorized in the fair value hierarchy. The fair value of these investments is based on the NAV information provided by the general partner. |
Investments (Tables)
Investments (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Investments [Abstract] | |
Schedule of reconciliation of cost to fair value of available-for-sale securities | The following tables summarize the cost and fair value of our available-for-sale securities. See also Note 5, "Fair Value" for additional fair value disclosures. At June 30, 2018 (in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Estimated fair value Available-for-sale securities: U.S. treasury $ 36,769 $ 0 $ 327 $ 36,442 States & political subdivisions 257,498 3,443 2,450 258,491 Foreign government securities 500 0 1 499 Corporate debt securities 285,639 663 4,296 282,006 Residential mortgage-backed securities 21,739 374 244 21,869 Commercial mortgage-backed securities 32,878 5 607 32,276 Collateralized debt obligations 71,009 103 136 70,976 Other debt securities 2,863 6 0 2,869 Total available-for-sale securities $ 708,895 $ 4,594 $ 8,061 $ 705,428 At December 31, 2017 (in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Estimated fair value Available-for-sale securities: U.S. treasury $ 11,873 $ 0 $ 139 $ 11,734 States & political subdivisions 254,533 5,351 620 259,264 Foreign government securities 501 2 0 503 Corporate debt securities 346,759 1,688 1,924 346,523 Residential mortgage-backed securities 25,324 371 124 25,571 Commercial mortgage-backed securities 33,475 26 697 32,804 Collateralized debt obligations 57,838 237 41 58,034 Other debt securities 11,496 32 0 11,528 Total fixed maturities 741,799 7,707 3,545 745,961 Nonredeemable preferred stock - financial services sector 11,719 15 75 11,659 Nonredeemable preferred stock - utilities sector 1,118 0 25 1,093 Total available-for-sale securities $ 754,636 $ 7,722 $ 3,645 $ 758,713 |
Schedule of amortized cost and estimated fair value of available-for-sale securities by remaining contractual term to maturity | The amortized cost and estimated fair value of available-for-sale securities at June 30, 2018 , are shown below by remaining contractual term to maturity. Mortgage-backed securities are allocated based upon stated maturity dates. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At June 30, 2018 Amortized Estimated (in thousands) cost fair value Due in one year or less $ 94,467 $ 94,408 Due after one year through five years 241,546 242,016 Due after five years through ten years 249,068 246,058 Due after ten years 123,814 122,946 Total available-for-sale securities $ 708,895 $ 705,428 |
Schedule of available-for-sale securities in a gross unrealized loss position by length of time | Available-for-sale securities in a gross unrealized loss position are as follows. Data is provided by length of time for securities in a gross unrealized loss position. At June 30, 2018 Less than 12 months 12 months or longer Total (dollars in thousands) Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses No. of holdings Available-for-sale securities: U.S. treasury $ 34,969 $ 278 $ 1,474 $ 49 $ 36,443 $ 327 5 States & political subdivisions 99,153 1,763 13,871 687 113,024 2,450 57 Foreign government securities 499 1 0 0 499 1 1 Corporate debt securities 194,322 3,740 28,430 556 222,752 4,296 516 Residential mortgage-backed securities 4,526 98 5,416 146 9,942 244 12 Commercial mortgage-backed securities 15,500 301 8,930 306 24,430 607 22 Collateralized debt obligations 28,250 136 0 0 28,250 136 20 Other debt securities 210 0 0 0 210 0 1 Total available-for-sale securities $ 377,429 $ 6,317 $ 58,121 $ 1,744 $ 435,550 $ 8,061 634 Quality breakdown of available-for-sale securities: Investment grade $ 269,062 $ 3,554 $ 54,423 $ 1,577 $ 323,485 $ 5,131 187 Non-investment grade 108,367 2,763 3,698 167 112,065 2,930 447 Total available-for-sale securities $ 377,429 $ 6,317 $ 58,121 $ 1,744 $ 435,550 $ 8,061 634 At December 31, 2017 Less than 12 months 12 months or longer Total (dollars in thousands) Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses No. of holdings Available-for-sale securities: U.S. treasury $ 10,237 $ 110 $ 1,497 $ 29 $ 11,734 $ 139 4 States & political subdivisions 52,553 288 14,361 332 66,914 620 33 Corporate debt securities 171,154 1,585 31,113 339 202,267 1,924 331 Residential mortgage-backed securities 4,156 29 7,064 95 11,220 124 11 Commercial mortgage-backed securities 10,836 85 11,984 612 22,820 697 19 Collateralized debt obligations 21,598 41 0 0 21,598 41 12 Other debt securities 1,499 0 0 0 1,499 0 1 Total fixed maturities 272,033 2,138 66,019 1,407 338,052 3,545 411 Nonredeemable preferred stock - financial services sector 9,644 75 0 0 9,644 75 5 Nonredeemable preferred stock - utilities sector 1,093 25 0 0 1,093 25 1 Total available-for-sale securities $ 282,770 $ 2,238 $ 66,019 $ 1,407 $ 348,789 $ 3,645 417 Quality breakdown of fixed maturities: Investment grade $ 214,586 $ 1,064 $ 62,193 $ 985 $ 276,779 $ 2,049 158 Non-investment grade 57,447 1,074 3,826 422 61,273 1,496 253 Total fixed maturities $ 272,033 $ 2,138 $ 66,019 $ 1,407 $ 338,052 $ 3,545 411 |
Schedule of investment income, net of expenses, from portfolios | Interest and dividend income are recognized as earned and recorded to net investment income. Investment income, net of expenses, was generated from the following portfolios: Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Fixed maturities (1) $ 6,263 $ 6,220 $ 12,373 $ 12,124 Equity securities 142 17 284 49 Cash equivalents and other 1,026 395 2,034 916 Total investment income 7,431 6,632 14,691 13,089 Less: investment expenses 327 393 767 869 Investment income, net of expenses $ 7,104 $ 6,239 $ 13,924 $ 12,220 (1) Includes interest earned on note receivable from Erie Family Life Insurance Company ("EFL") of $0.4 million and $0.8 million for the three and six months ended June 30, 2018 and 2017, respectively. |
Schedule of realized gains and losses on sales of securities recognized in income based upon the specific identification method and net unrealized losses recognized during the reporting period, related to equity securities still held at the reporting date | Realized gains and losses on sales of securities are recognized in income based upon the specific identification method. Realized gains (losses) on investments were as follows: Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Available-for-sale securities: Gross realized gains $ 235 $ 507 $ 575 $ 1,087 Gross realized losses (301 ) (381 ) (986 ) (539 ) Net realized (losses) gains on available-for-sale securities (66 ) 126 (411 ) 548 Equity securities (68 ) — (188 ) — Miscellaneous 102 (2 ) 102 92 Net realized investment (losses) gains $ (32 ) $ 124 $ (497 ) $ 640 The portion of net unrealized losses recognized during the reporting period, related to equity securities still held at the reporting date, is calculated as follows: Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Equity securities: (1) Total net realized losses $ (68 ) $ — $ (188 ) $ — Less: net losses realized on securities sold 0 — (34 ) — Net unrealized losses recognized during the period on securities held at reporting date $ (68 ) $ — $ (154 ) $ — (1) With the adoption of ASU 2016-01, effective January 1, 2018, changes in unrealized gains and losses on equity securities are included in net realized investment gains (losses) in the Statement of Operations. The adoption of this guidance resulted in a reclassification of net unrealized losses of $0.1 million from accumulated other comprehensive loss to retained earnings at January 1, 2018. |
Schedule of limited partnership results, generally reported on a one-quarter lag | Amounts included in equity in (losses) earnings of limited partnerships by method of accounting are included below: Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Equity in (losses) earnings of limited partnerships accounted for under the equity method $ (216 ) $ 149 $ (21 ) $ 399 Change in fair value of limited partnerships accounted for under the fair value option (3 ) 0 (390 ) (37 ) Equity in (losses) earnings of limited partnerships $ (219 ) $ 149 $ (411 ) $ 362 The following table summarizes limited partnership investments by sector: (in thousands) At June 30, 2018 At December 31, 2017 Private equity $ 30,501 $ 31,663 Mezzanine debt 2,916 3,516 Real estate 2,482 5,127 Real estate - fair value option 3,752 4,816 Total limited partnership investments $ 39,651 $ 45,122 |
Postretirement Benefits (Tables
Postretirement Benefits (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Retirement Benefits [Abstract] | |
Schedule of cost of pension plans | The cost of our pension plans are as follows: Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Service cost for benefits earned $ 9,513 $ 7,776 $ 19,026 $ 15,553 Interest cost on benefits obligation 8,845 8,568 17,691 17,137 Expected return on plan assets (12,814 ) (10,316 ) (25,629 ) (20,633 ) Prior service cost amortization 338 218 676 436 Net actuarial loss amortization 3,202 2,325 6,404 4,650 Pension plan cost (1) $ 9,084 $ 8,571 $ 18,168 $ 17,143 (1) The components of pension plan costs other than the service cost component are included in the line item "Other income (expense)" in the Statements of Operations after reimbursements from the Exchange and its subsidiaries. |
Accumulated Other Comprehensi28
Accumulated Other Comprehensive Income (Loss) (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |
Schedule of changes in accumulated other comprehensive income (loss) by component, including amounts reclassified to other comprehensive income (loss) and the related line item in the Statements of Operations where net income is presented | Changes in accumulated other comprehensive income ("AOCI") (loss) by component, including amounts reclassified to other comprehensive income ("OCI") (loss) and the related line item in the Statements of Operations where net income is presented, are as follows: Three months ended Three months ended June 30, 2018 June 30, 2017 (in thousands) Before Tax Income Tax (1) Net Before Tax Income Tax (1) Net Investment securities: AOCI (loss), beginning of period $ (3,460 ) $ (727 ) $ (2,733 ) $ 6,293 $ 2,202 $ 4,091 OCI (loss) before reclassifications (1,409 ) (296 ) (1,113 ) 1,746 611 1,135 Realized investment losses (gains) 66 14 52 (126 ) (44 ) (82 ) Impairment losses 646 136 510 61 22 39 OCI (loss) (697 ) (146 ) (551 ) 1,681 589 1,092 AOCI (loss), end of period $ (4,157 ) $ (873 ) $ (3,284 ) $ 7,974 $ 2,791 $ 5,183 Pension and other postretirement plans: (2) AOCI (loss), beginning of period $ (200,954 ) $ (42,201 ) $ (158,753 ) $ (190,695 ) $ (66,744 ) $ (123,951 ) AOCI (loss), end of period $ (200,954 ) $ (42,201 ) $ (158,753 ) $ (190,695 ) $ (66,744 ) $ (123,951 ) Total AOCI (loss), beginning of period $ (204,414 ) $ (42,928 ) $ (161,486 ) $ (184,402 ) $ (64,542 ) $ (119,860 ) Investment securities (697 ) (146 ) (551 ) 1,681 589 1,092 Pension and other postretirement plans 0 0 0 0 0 0 OCI (loss) (697 ) (146 ) (551 ) 1,681 589 1,092 AOCI (loss), end of period $ (205,111 ) $ (43,074 ) $ (162,037 ) $ (182,721 ) $ (63,953 ) $ (118,768 ) Six months ended Six months ended June 30, 2018 June 30, 2017 (in thousands) Before Tax Income Tax (1) Net Before Tax Income Tax (1) Net Investment securities: AOCI, beginning of period $ 3,410 $ 716 $ 2,694 $ 3,954 $ 1,384 $ 2,570 OCI (loss) before reclassifications (8,539 ) (1,793 ) (6,746 ) 4,386 1,535 2,851 Realized investment losses (gains) 411 86 325 (548 ) (192 ) (356 ) Impairment losses 646 136 510 182 64 118 Cumulative effect of adopting ASU 2016-01 (3) (85 ) (18 ) (67 ) — — — OCI (loss) (7,567 ) (1,589 ) (5,978 ) 4,020 1,407 2,613 AOCI (loss), end of period $ (4,157 ) $ (873 ) $ (3,284 ) $ 7,974 $ 2,791 $ 5,183 Pension and other postretirement plans: (2) AOCI (loss), beginning of period $ (200,954 ) $ (42,201 ) $ (158,753 ) $ (190,695 ) $ (66,744 ) $ (123,951 ) AOCI (loss), end of period $ (200,954 ) $ (42,201 ) $ (158,753 ) $ (190,695 ) $ (66,744 ) $ (123,951 ) Total AOCI (loss), beginning of period $ (197,544 ) $ (41,485 ) $ (156,059 ) $ (186,741 ) $ (65,360 ) $ (121,381 ) Investment securities (7,567 ) (1,589 ) (5,978 ) 4,020 1,407 2,613 Pension and other postretirement plans 0 0 0 0 0 0 OCI (loss) (7,567 ) (1,589 ) (5,978 ) 4,020 1,407 2,613 AOCI (loss), end of period $ (205,111 ) $ (43,074 ) $ (162,037 ) $ (182,721 ) $ (63,953 ) $ (118,768 ) (1) Deferred taxes were recognized at the corporate rate of 21% for the three and six months ended June 30, 2018 and 35% for the three and six months ended June 30, 2017. (2) There are no comprehensive income items or amounts reclassified out of accumulated other comprehensive loss related to postretirement plan items during interim periods. (3) ASU 2016-01 required a reclassification of unrealized losses of equity securities from AOCI to retained earnings at January 1, 2018. See Note 2, "Significant Accounting Policies". |
Nature of Operations (Details)
Nature of Operations (Details) | 6 Months Ended |
Jun. 30, 2018 | |
Revenue, Performance Obligation [Abstract] | |
Number of performance obligations recognized by Indemnity acting as attorney-in-fact for the subscribers of the Exchange | 2 |
Significant Accounting Polici30
Significant Accounting Policies (Details) | 6 Months Ended |
Jun. 30, 2018 | |
Revenue, Performance Obligation [Abstract] | |
Number of performance obligations recognized by Indemnity acting as attorney-in-fact for the subscribers of the Exchange | 2 |
Indemnity's management fee rate as a percent of premiums written and assumed by the Exchange (as a percent) | 25.00% |
Period of time over which management fee revenue allocated to administrative services will be recognized (in years) | 4 years |
Significant Accounting Polici31
Significant Accounting Policies (Details 2) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Jan. 01, 2018 | Dec. 31, 2017 | |
Impact of adoption on our Statement of Financial Position | ||||||
Deferred tax asset | $ 31,527 | $ 31,527 | $ 29,578 | |||
Contract liability | 50,589 | 50,589 | 48,514 | |||
Retained earnings | 2,169,686 | 2,169,686 | 2,102,527 | $ 2,140,853 | ||
Impact of adoption on our Statement of Operations | ||||||
Operating revenue | 621,458 | $ 448,564 | 1,193,618 | $ 847,880 | ||
Operating expenses | 526,135 | 365,116 | 1,020,728 | 697,492 | ||
Calculated under revenue guidance in effect before ASC 606 [Member] | ||||||
Impact of adoption on our Statement of Financial Position | ||||||
Deferred tax asset | 20,903 | 20,903 | 19,390 | |||
Retained earnings | 2,209,651 | 2,209,651 | $ 2,140,853 | |||
Difference between revenue guidance in effect before and after ASC 606 [Member] | Accounting Standards Update 2014-09 [Member] | ||||||
Impact of adoption on our Statement of Financial Position | ||||||
Deferred tax asset | 10,624 | 10,624 | 10,188 | |||
Contract liability | 50,589 | 50,589 | 48,514 | |||
Retained earnings | (39,965) | (39,965) | $ (38,326) | |||
Management fee revenue, policy issuance and renewal services [Member] | ||||||
Impact of adoption on our Statement of Operations | ||||||
Management fee revenue, gross | 456,896 | 864,132 | ||||
Less: change in allowance for management fee returned on cancelled policies | (2,324) | (3,582) | ||||
Operating revenue | 454,572 | 441,319 | 860,550 | 833,377 | ||
Operating expenses | 379,628 | $ 365,116 | 728,258 | $ 697,492 | ||
Management fee revenue, policy issuance and renewal services [Member] | Calculated under revenue guidance in effect before ASC 606 [Member] | ||||||
Impact of adoption on our Statement of Operations | ||||||
Management fee revenue, gross | 471,999 | 892,698 | ||||
Less: change in allowance for management fee returned on cancelled policies | (2,400) | (3,700) | ||||
Operating revenue | 469,599 | 888,998 | ||||
Management fee revenue, policy issuance and renewal services [Member] | Difference between revenue guidance in effect before and after ASC 606 [Member] | Accounting Standards Update 2014-09 [Member] | ||||||
Impact of adoption on our Statement of Operations | ||||||
Management fee revenue, gross | (15,103) | (28,566) | ||||
Less: change in allowance for management fee returned on cancelled policies | 76 | 118 | ||||
Operating revenue | (15,027) | (28,448) | ||||
Management fee revenue, administrative services [Member] | ||||||
Impact of adoption on our Statement of Operations | ||||||
Management fee revenue, gross | 13,313 | 26,401 | ||||
Less: change in allowance for management fee returned on cancelled policies | (14) | (28) | ||||
Operating revenue | 13,299 | 26,373 | ||||
Management fee revenue, administrative services [Member] | Difference between revenue guidance in effect before and after ASC 606 [Member] | Accounting Standards Update 2014-09 [Member] | ||||||
Impact of adoption on our Statement of Operations | ||||||
Management fee revenue, gross | 13,313 | 26,401 | ||||
Less: change in allowance for management fee returned on cancelled policies | (14) | (28) | ||||
Operating revenue | 13,299 | 26,373 | ||||
Administrative services reimbursements [Member] | ||||||
Impact of adoption on our Statement of Operations | ||||||
Operating revenue | 146,507 | 292,470 | ||||
Operating expenses | 146,507 | 292,470 | ||||
Administrative services reimbursements [Member] | Difference between revenue guidance in effect before and after ASC 606 [Member] | Accounting Standards Update 2014-09 [Member] | ||||||
Impact of adoption on our Statement of Operations | ||||||
Operating revenue | 146,507 | 292,470 | ||||
Operating expenses | 146,507 | 292,470 | ||||
Administrative services [Member] | ||||||
Impact of adoption on our Statement of Operations | ||||||
Operating revenue | 159,806 | 318,843 | ||||
Administrative services [Member] | Difference between revenue guidance in effect before and after ASC 606 [Member] | Accounting Standards Update 2014-09 [Member] | ||||||
Impact of adoption on our Statement of Operations | ||||||
Operating revenue | $ 159,806 | $ 318,843 |
Significant Accounting Polici32
Significant Accounting Policies (Details 3) $ in Millions | Jan. 01, 2018USD ($) |
Nonredeemable preferred stock | Accounting Standards Update 2016-01 [Member] | |
New Accounting Pronouncements | |
Cumulative effect adjustment due to ASU 2016-01 | $ 0.1 |
Revenue (Details)
Revenue (Details) | 6 Months Ended |
Jun. 30, 2018 | |
Revenue, Performance Obligation [Abstract] | |
Indemnity's management fee rate as a percent of premiums written and assumed by the Exchange (as a percent) | 25.00% |
Number of performance obligations recognized by Indemnity acting as attorney-in-fact for the subscribers of the Exchange | 2 |
Revenue (Details 2)
Revenue (Details 2) - USD ($) $ in Thousands | Jun. 30, 2018 | Jan. 01, 2018 |
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||
Contract liability recorded upon adoption of ASC 606 | $ 50,589 | $ 48,514 |
Difference between revenue guidance in effect before and after ASC 606 [Member] | Accounting Standards Update 2014-09 [Member] | ||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||
Contract liability recorded upon adoption of ASC 606 | $ 50,589 | $ 48,514 |
Revenue (Details 3)
Revenue (Details 3) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Disaggregation of revenue by performance obligation | ||||
Operating revenue | $ 621,458 | $ 448,564 | $ 1,193,618 | $ 847,880 |
Management fee revenue, policy issuance and renewal services [Member] | ||||
Disaggregation of revenue by performance obligation | ||||
Operating revenue | 454,572 | 441,319 | 860,550 | 833,377 |
Management fee revenue, policy issuance and renewal services [Member] | Transferred at point in time [Member] | ||||
Disaggregation of revenue by performance obligation | ||||
Operating revenue | 454,572 | $ 441,319 | 860,550 | $ 833,377 |
Management fee revenue, administrative services [Member] | ||||
Disaggregation of revenue by performance obligation | ||||
Operating revenue | 13,299 | 26,373 | ||
Management fee revenue, administrative services [Member] | Transferred over time [Member] | ||||
Disaggregation of revenue by performance obligation | ||||
Operating revenue | 13,299 | 26,373 | ||
Administrative services reimbursements [Member] | ||||
Disaggregation of revenue by performance obligation | ||||
Operating revenue | 146,507 | 292,470 | ||
Administrative services reimbursements [Member] | Transferred over time [Member] | ||||
Disaggregation of revenue by performance obligation | ||||
Operating revenue | 146,507 | 292,470 | ||
Administrative services [Member] | ||||
Disaggregation of revenue by performance obligation | ||||
Operating revenue | 159,806 | 318,843 | ||
Administrative services [Member] | Transferred over time [Member] | ||||
Disaggregation of revenue by performance obligation | ||||
Operating revenue | $ 159,806 | $ 318,843 |
Earnings Per Share (Details)
Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | |
Class A | |||||
Income available to stockholders (Basic EPS:) | |||||
Allocated net income (numerator) (in dollars) | $ 79,053 | $ 58,048 | $ 144,273 | $ 105,532 | |
Weighted shares (denominator) (in shares) | 46,188,705 | 46,180,852 | 46,188,309 | 46,184,666 | |
Per-share amount (in dollars per share) | $ 1.71 | $ 1.26 | $ 3.12 | $ 2.28 | |
Dilutive effect of stock-based awards | |||||
Allocated net income (numerator) (in dollars) | $ 0 | $ 0 | $ 0 | $ 0 | |
Weighted shares (denominator) (in shares) | 23,344 | 17,743 | 22,632 | 69,748 | |
Assumed conversion of Class B shares | |||||
Allocated net income (numerator) (in dollars) | $ 653 | $ 479 | $ 1,191 | $ 871 | |
Weighted shares (denominator) (in shares) | 6,100,800 | 6,100,800 | 6,100,800 | 6,100,800 | |
Income available to stockholders on equivalent shares (Diluted EPS:) | |||||
Allocated net income (numerator) (in dollars) | $ 79,706 | $ 58,527 | $ 145,464 | $ 106,403 | |
Weighted shares (denominator) (in shares) | 52,312,849 | 52,299,395 | 52,311,741 | 52,355,214 | |
Per-share amount (in dollars per share) | $ 1.52 | $ 1.12 | $ 2.78 | $ 2.03 | |
Class B | |||||
Reconciliation of the numerators and denominators used in the basic and diluted per-share computations | |||||
Ratio for converting shares of Class B common stock into shares of Class A common stock (as a percent) | 2400.00% | 2400.00% | 2400.00% | ||
Income available to stockholders (Basic EPS:) | |||||
Allocated net income (numerator) (in dollars) | $ 653 | $ 479 | $ 1,191 | $ 871 | |
Weighted shares (denominator) (in shares) | 2,542 | 2,542 | 2,542 | 2,542 | |
Per-share amount (in dollars per share) | $ 257 | $ 189 | $ 469 | $ 343 | |
Income available to stockholders on equivalent shares (Diluted EPS:) | |||||
Allocated net income (numerator) (in dollars) | $ 653 | $ 479 | $ 1,191 | $ 871 | |
Weighted shares (denominator) (in shares) | 2,542 | 2,542 | 2,542 | 2,542 | |
Per-share amount (in dollars per share) | $ 257 | $ 188 | $ 468 | $ 343 |
Fair Value (Details)
Fair Value (Details) - USD ($) $ in Thousands | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | |
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | $ 705,428 | ||
Equity securities | 12,488 | ||
Total available-for-sale securities | 705,428 | $ 758,713 | |
Other investments: | |||
Contributions made to the funds | 215 | $ 325 | |
Distributions received from the funds | 2,682 | $ 4,344 | |
Fixed maturities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 745,961 | ||
U.S. treasury | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 36,442 | 11,734 | |
States & political subdivisions | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 258,491 | 259,264 | |
Foreign government securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 499 | 503 | |
Corporate debt securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 282,006 | 346,523 | |
Residential mortgage-backed securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 21,869 | 25,571 | |
Commercial mortgage-backed securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 32,276 | 32,804 | |
Collateralized debt obligations | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 70,976 | 58,034 | |
Other debt securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 2,869 | 11,528 | |
Nonredeemable preferred stock | Financial services sector | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale equity securities | 11,659 | ||
Nonredeemable preferred stock | Utilities sector | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale equity securities | 1,093 | ||
Fair value measurements on a recurring basis | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Total available-for-sale securities | 758,713 | ||
Total | 721,668 | 763,529 | |
Fair value measurements on a recurring basis | Fixed maturities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 705,428 | 745,961 | |
Fair value measurements on a recurring basis | U.S. treasury | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 36,442 | 11,734 | |
Fair value measurements on a recurring basis | States & political subdivisions | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 258,491 | 259,264 | |
Fair value measurements on a recurring basis | Foreign government securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 499 | 503 | |
Fair value measurements on a recurring basis | Corporate debt securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 282,006 | 346,523 | |
Fair value measurements on a recurring basis | Residential mortgage-backed securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 21,869 | 25,571 | |
Fair value measurements on a recurring basis | Commercial mortgage-backed securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 32,276 | 32,804 | |
Fair value measurements on a recurring basis | Collateralized debt obligations | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 70,976 | 58,034 | |
Fair value measurements on a recurring basis | Other debt securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 2,869 | 11,528 | |
Fair value measurements on a recurring basis | Equity securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Equity securities | 12,488 | ||
Fair value measurements on a recurring basis | Nonredeemable preferred stock | Financial services sector | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Equity securities | 12,488 | ||
Available-for-sale equity securities | 11,659 | ||
Fair value measurements on a recurring basis | Nonredeemable preferred stock | Utilities sector | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale equity securities | 1,093 | ||
Fair value measurements on a recurring basis | Real estate | |||
Other investments: | |||
Contributions made to the funds | 0 | 0 | |
Distributions received from the funds | 700 | 500 | |
Unfunded commitments | $ 0 | $ 0 | |
Fair value measurements on a recurring basis | Real estate | Minimum | |||
Other investments: | |||
Underlying assets, liquidation period from inception of fund (in years) | 5 years | 5 years | |
Fair value measurements on a recurring basis | Real estate | Maximum | |||
Other investments: | |||
Underlying assets, liquidation period from inception of fund (in years) | 10 years | 10 years | |
Fair value measurements on a recurring basis | Level 1 | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Total available-for-sale securities | $ 2,015 | ||
Total | $ 1,973 | 2,015 | |
Fair value measurements on a recurring basis | Level 1 | Fixed maturities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 1 | U.S. treasury | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 1 | States & political subdivisions | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 1 | Foreign government securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 1 | Corporate debt securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 1 | Residential mortgage-backed securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 1 | Commercial mortgage-backed securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 1 | Collateralized debt obligations | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 1 | Other debt securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 1 | Equity securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Equity securities | 1,973 | ||
Fair value measurements on a recurring basis | Level 1 | Nonredeemable preferred stock | Financial services sector | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Equity securities | 1,973 | ||
Available-for-sale equity securities | 2,015 | ||
Fair value measurements on a recurring basis | Level 1 | Nonredeemable preferred stock | Utilities sector | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale equity securities | 0 | ||
Fair value measurements on a recurring basis | Level 2 | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Total available-for-sale securities | 746,619 | ||
Total | 704,823 | 746,619 | |
Fair value measurements on a recurring basis | Level 2 | Fixed maturities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 694,308 | 735,882 | |
Fair value measurements on a recurring basis | Level 2 | U.S. treasury | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 36,442 | 11,734 | |
Fair value measurements on a recurring basis | Level 2 | States & political subdivisions | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 258,491 | 259,264 | |
Fair value measurements on a recurring basis | Level 2 | Foreign government securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 499 | 503 | |
Fair value measurements on a recurring basis | Level 2 | Corporate debt securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 270,886 | 338,644 | |
Fair value measurements on a recurring basis | Level 2 | Residential mortgage-backed securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 21,869 | 25,571 | |
Fair value measurements on a recurring basis | Level 2 | Commercial mortgage-backed securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 32,276 | 32,804 | |
Fair value measurements on a recurring basis | Level 2 | Collateralized debt obligations | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 70,976 | 55,834 | |
Fair value measurements on a recurring basis | Level 2 | Other debt securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 2,869 | 11,528 | |
Fair value measurements on a recurring basis | Level 2 | Equity securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Equity securities | 10,515 | ||
Fair value measurements on a recurring basis | Level 2 | Nonredeemable preferred stock | Financial services sector | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Equity securities | 10,515 | ||
Available-for-sale equity securities | 9,644 | ||
Fair value measurements on a recurring basis | Level 2 | Nonredeemable preferred stock | Utilities sector | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale equity securities | 1,093 | ||
Fair value measurements on a recurring basis | Level 3 | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Total available-for-sale securities | 10,079 | ||
Total | 11,120 | 10,079 | |
Fair value measurements on a recurring basis | Level 3 | Fixed maturities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 11,120 | 10,079 | |
Fair value measurements on a recurring basis | Level 3 | U.S. treasury | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 3 | States & political subdivisions | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 3 | Foreign government securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 3 | Corporate debt securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 11,120 | 7,879 | |
Fair value measurements on a recurring basis | Level 3 | Residential mortgage-backed securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 3 | Commercial mortgage-backed securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 3 | Collateralized debt obligations | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 2,200 | |
Fair value measurements on a recurring basis | Level 3 | Other debt securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale debt securities | 0 | 0 | |
Fair value measurements on a recurring basis | Level 3 | Equity securities | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Equity securities | 0 | ||
Fair value measurements on a recurring basis | Level 3 | Nonredeemable preferred stock | Financial services sector | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Equity securities | 0 | ||
Available-for-sale equity securities | 0 | ||
Fair value measurements on a recurring basis | Level 3 | Nonredeemable preferred stock | Utilities sector | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Available-for-sale equity securities | 0 | ||
Fair value measurements on a recurring basis | Net Asset Value (NAV) | Real estate | |||
Fair value measurements on a recurring basis by asset class and level of input | |||
Other investments | $ 3,752 | $ 4,816 |
Fair Value (Details 2)
Fair Value (Details 2) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Fair value transfers due to changes in available market observable inputs | ||||
Transfers from level 1 to level 2 | $ 0 | $ 0 | $ 0 | $ 0 |
Transfers from level 2 to level 1 | 0 | 0 | 0 | 0 |
Level 3 | Available-for-sale securities | ||||
Roll forward of level 3 fair value measurements on a recurring basis | ||||
Beginning balance | 6,309 | 9,803 | 10,079 | 9,352 |
Included in earnings | 10 | 29 | 1 | (21) |
Included in other comprehensive income | (53) | (23) | (41) | (48) |
Purchases | 3,047 | 2,110 | 3,047 | 3,981 |
Sales | (472) | (1,283) | (965) | (3,132) |
Transfers into Level 3 | 5,370 | 3,626 | 7,782 | 5,811 |
Transfers out of Level 3 | (3,091) | (4,967) | (8,783) | (6,648) |
Ending balance | 11,120 | 9,295 | 11,120 | 9,295 |
Level 3 | Corporate debt securities | Available-for-sale securities | ||||
Roll forward of level 3 fair value measurements on a recurring basis | ||||
Beginning balance | 6,309 | 9,803 | 7,879 | 9,352 |
Included in earnings | 10 | 29 | 1 | (21) |
Included in other comprehensive income | (53) | (23) | (48) | (48) |
Purchases | 3,047 | 2,110 | 3,047 | 3,981 |
Sales | (472) | (1,283) | (965) | (3,132) |
Transfers into Level 3 | 5,370 | 3,626 | 7,782 | 5,811 |
Transfers out of Level 3 | (3,091) | (4,967) | (6,576) | (6,648) |
Ending balance | 11,120 | $ 9,295 | 11,120 | $ 9,295 |
Level 3 | Collateralized debt obligations | Available-for-sale securities | ||||
Roll forward of level 3 fair value measurements on a recurring basis | ||||
Beginning balance | 2,200 | |||
Included in earnings | 0 | |||
Included in other comprehensive income | 7 | |||
Purchases | 0 | |||
Sales | 0 | |||
Transfers into Level 3 | 0 | |||
Transfers out of Level 3 | (2,207) | |||
Ending balance | $ 0 | $ 0 |
Fair Value (Details 3)
Fair Value (Details 3) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Fair value by pricing source | ||
Available-for-sale debt securities | $ 705,428 | |
Equity securities | 12,488 | |
Fixed maturities | ||
Fair value by pricing source | ||
Available-for-sale debt securities | $ 745,961 | |
Fair value measurements on a recurring basis | ||
Fair value by pricing source | ||
Total | 721,668 | 763,529 |
Fair value measurements on a recurring basis | Fixed maturities | ||
Fair value by pricing source | ||
Available-for-sale debt securities | 705,428 | 745,961 |
Fair value measurements on a recurring basis | Fixed maturities | Priced via pricing services | ||
Fair value by pricing source | ||
Available-for-sale debt securities | 705,428 | |
Fair value measurements on a recurring basis | Equity securities | ||
Fair value by pricing source | ||
Equity securities | 12,488 | |
Fair value measurements on a recurring basis | Equity securities | Priced via pricing services | ||
Fair value by pricing source | ||
Equity securities | 12,488 | |
Fair value measurements on a recurring basis | Level 1 | ||
Fair value by pricing source | ||
Total | 1,973 | 2,015 |
Fair value measurements on a recurring basis | Level 1 | Fixed maturities | ||
Fair value by pricing source | ||
Available-for-sale debt securities | 0 | 0 |
Fair value measurements on a recurring basis | Level 1 | Fixed maturities | Priced via pricing services | ||
Fair value by pricing source | ||
Available-for-sale debt securities | 0 | |
Fair value measurements on a recurring basis | Level 1 | Equity securities | ||
Fair value by pricing source | ||
Equity securities | 1,973 | |
Fair value measurements on a recurring basis | Level 1 | Equity securities | Priced via pricing services | ||
Fair value by pricing source | ||
Equity securities | 1,973 | |
Fair value measurements on a recurring basis | Level 2 | ||
Fair value by pricing source | ||
Total | 704,823 | 746,619 |
Fair value measurements on a recurring basis | Level 2 | Fixed maturities | ||
Fair value by pricing source | ||
Available-for-sale debt securities | 694,308 | 735,882 |
Fair value measurements on a recurring basis | Level 2 | Fixed maturities | Priced via pricing services | ||
Fair value by pricing source | ||
Available-for-sale debt securities | 694,308 | |
Fair value measurements on a recurring basis | Level 2 | Equity securities | ||
Fair value by pricing source | ||
Equity securities | 10,515 | |
Fair value measurements on a recurring basis | Level 2 | Equity securities | Priced via pricing services | ||
Fair value by pricing source | ||
Equity securities | 10,515 | |
Fair value measurements on a recurring basis | Level 3 | ||
Fair value by pricing source | ||
Total | 11,120 | 10,079 |
Fair value measurements on a recurring basis | Level 3 | Non-binding broker quotes classified within Level 3 | ||
Fair value by pricing source | ||
Available-for-sale debt securities | 11,100 | |
Fair value measurements on a recurring basis | Level 3 | Fixed maturities | ||
Fair value by pricing source | ||
Available-for-sale debt securities | 11,120 | 10,079 |
Fair value measurements on a recurring basis | Level 3 | Fixed maturities | Priced via pricing services | ||
Fair value by pricing source | ||
Available-for-sale debt securities | 11,120 | |
Fair value measurements on a recurring basis | Level 3 | Equity securities | ||
Fair value by pricing source | ||
Equity securities | 0 | |
Fair value measurements on a recurring basis | Level 3 | Equity securities | Priced via pricing services | ||
Fair value by pricing source | ||
Equity securities | 0 | |
Fair value measurements on a recurring basis | Net Asset Value (NAV) | Real estate | ||
Fair value by pricing source | ||
Other investments | 3,752 | $ 4,816 |
Fair value measurements on a recurring basis | Net Asset Value (NAV) | Real estate | Priced via unobservable inputs | ||
Fair value by pricing source | ||
Other investments | 3,752 | |
Fair value measurements on a nonrecurring basis | ||
Fair value by pricing source | ||
Total | $ 0 |
Investments (Details)
Investments (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Available-for-sale securities | ||
Amortized cost, fixed maturities | $ 708,895 | |
Amortized cost | 708,895 | $ 754,636 |
Gross unrealized gains | 4,594 | 7,722 |
Gross unrealized losses | 8,061 | 3,645 |
Estimated fair value, fixed maturities | 705,428 | |
Estimated fair value | 705,428 | 758,713 |
Fixed maturities | ||
Available-for-sale securities | ||
Amortized cost, fixed maturities | 741,799 | |
Gross unrealized gains, fixed maturities | 7,707 | |
Gross unrealized losses, fixed maturities | 3,545 | |
Estimated fair value, fixed maturities | 745,961 | |
U.S. treasury | ||
Available-for-sale securities | ||
Amortized cost, fixed maturities | 36,769 | 11,873 |
Gross unrealized gains, fixed maturities | 0 | 0 |
Gross unrealized losses, fixed maturities | 327 | 139 |
Estimated fair value, fixed maturities | 36,442 | 11,734 |
States & political subdivisions | ||
Available-for-sale securities | ||
Amortized cost, fixed maturities | 257,498 | 254,533 |
Gross unrealized gains, fixed maturities | 3,443 | 5,351 |
Gross unrealized losses, fixed maturities | 2,450 | 620 |
Estimated fair value, fixed maturities | 258,491 | 259,264 |
Foreign government securities | ||
Available-for-sale securities | ||
Amortized cost, fixed maturities | 500 | 501 |
Gross unrealized gains, fixed maturities | 0 | 2 |
Gross unrealized losses, fixed maturities | 1 | 0 |
Estimated fair value, fixed maturities | 499 | 503 |
Corporate debt securities | ||
Available-for-sale securities | ||
Amortized cost, fixed maturities | 285,639 | 346,759 |
Gross unrealized gains, fixed maturities | 663 | 1,688 |
Gross unrealized losses, fixed maturities | 4,296 | 1,924 |
Estimated fair value, fixed maturities | 282,006 | 346,523 |
Residential mortgage-backed securities | ||
Available-for-sale securities | ||
Amortized cost, fixed maturities | 21,739 | 25,324 |
Gross unrealized gains, fixed maturities | 374 | 371 |
Gross unrealized losses, fixed maturities | 244 | 124 |
Estimated fair value, fixed maturities | 21,869 | 25,571 |
Commercial mortgage-backed securities | ||
Available-for-sale securities | ||
Amortized cost, fixed maturities | 32,878 | 33,475 |
Gross unrealized gains, fixed maturities | 5 | 26 |
Gross unrealized losses, fixed maturities | 607 | 697 |
Estimated fair value, fixed maturities | 32,276 | 32,804 |
Collateralized debt obligations | ||
Available-for-sale securities | ||
Amortized cost, fixed maturities | 71,009 | 57,838 |
Gross unrealized gains, fixed maturities | 103 | 237 |
Gross unrealized losses, fixed maturities | 136 | 41 |
Estimated fair value, fixed maturities | 70,976 | 58,034 |
Other debt securities | ||
Available-for-sale securities | ||
Amortized cost, fixed maturities | 2,863 | 11,496 |
Gross unrealized gains, fixed maturities | 6 | 32 |
Gross unrealized losses, fixed maturities | 0 | 0 |
Estimated fair value, fixed maturities | $ 2,869 | 11,528 |
Nonredeemable preferred stock | Financial services sector | ||
Available-for-sale securities | ||
Amortized cost, equity securities | 11,719 | |
Gross unrealized gains, equity securities | 15 | |
Gross unrealized losses, equity securities | 75 | |
Estimated fair value, equity securities | 11,659 | |
Nonredeemable preferred stock | Utilities sector | ||
Available-for-sale securities | ||
Amortized cost, equity securities | 1,118 | |
Gross unrealized gains, equity securities | 0 | |
Gross unrealized losses, equity securities | 25 | |
Estimated fair value, equity securities | $ 1,093 |
Investments (Details 2)
Investments (Details 2) $ in Thousands | Jun. 30, 2018USD ($) |
Amortized cost | |
Due in one year or less | $ 94,467 |
Due after one year through five years | 241,546 |
Due after five years through ten years | 249,068 |
Due after ten years | 123,814 |
Amortized cost, fixed maturities | 708,895 |
Estimated fair value | |
Due in one year or less | 94,408 |
Due after one year through five years | 242,016 |
Due after five years through ten years | 246,058 |
Due after ten years | 122,946 |
Estimated fair value, fixed maturities | $ 705,428 |
Investments (Details 3)
Investments (Details 3) $ in Thousands | Jun. 30, 2018USD ($)Holdings | Dec. 31, 2017USD ($)Holdings |
Fair value | ||
Less than 12 months | $ 377,429 | |
Less than 12 months | $ 282,770 | |
12 months or longer | 58,121 | |
12 months or longer | 66,019 | |
Total | 435,550 | |
Total | 348,789 | |
Unrealized losses | ||
Less than 12 months | 6,317 | |
Less than 12 months | 2,238 | |
12 months or longer | 1,744 | |
12 months or longer | 1,407 | |
Total | $ 8,061 | |
Total | $ 3,645 | |
No. of holdings | Holdings | 634 | |
No. of holdings | Holdings | 417 | |
Investment grade | ||
Fair value | ||
Less than 12 months | $ 269,062 | $ 214,586 |
12 months or longer | 54,423 | 62,193 |
Total | 323,485 | 276,779 |
Unrealized losses | ||
Less than 12 months | 3,554 | 1,064 |
12 months or longer | 1,577 | 985 |
Total | $ 5,131 | $ 2,049 |
No. of holdings | Holdings | 187 | 158 |
Non-investment grade | ||
Fair value | ||
Less than 12 months | $ 108,367 | $ 57,447 |
12 months or longer | 3,698 | 3,826 |
Total | 112,065 | 61,273 |
Unrealized losses | ||
Less than 12 months | 2,763 | 1,074 |
12 months or longer | 167 | 422 |
Total | $ 2,930 | $ 1,496 |
No. of holdings | Holdings | 447 | 253 |
Fixed maturities | ||
Fair value | ||
Less than 12 months | $ 377,429 | $ 272,033 |
12 months or longer | 58,121 | 66,019 |
Total | 435,550 | 338,052 |
Unrealized losses | ||
Less than 12 months | 6,317 | 2,138 |
12 months or longer | 1,744 | 1,407 |
Total | $ 8,061 | $ 3,545 |
No. of holdings | Holdings | 634 | 411 |
U.S. treasury | ||
Fair value | ||
Less than 12 months | $ 34,969 | $ 10,237 |
12 months or longer | 1,474 | 1,497 |
Total | 36,443 | 11,734 |
Unrealized losses | ||
Less than 12 months | 278 | 110 |
12 months or longer | 49 | 29 |
Total | $ 327 | $ 139 |
No. of holdings | Holdings | 5 | 4 |
States & political subdivisions | ||
Fair value | ||
Less than 12 months | $ 99,153 | $ 52,553 |
12 months or longer | 13,871 | 14,361 |
Total | 113,024 | 66,914 |
Unrealized losses | ||
Less than 12 months | 1,763 | 288 |
12 months or longer | 687 | 332 |
Total | $ 2,450 | $ 620 |
No. of holdings | Holdings | 57 | 33 |
Foreign government securities | ||
Fair value | ||
Less than 12 months | $ 499 | |
12 months or longer | 0 | |
Total | 499 | |
Unrealized losses | ||
Less than 12 months | 1 | |
12 months or longer | 0 | |
Total | $ 1 | |
No. of holdings | Holdings | 1 | |
Corporate debt securities | ||
Fair value | ||
Less than 12 months | $ 194,322 | $ 171,154 |
12 months or longer | 28,430 | 31,113 |
Total | 222,752 | 202,267 |
Unrealized losses | ||
Less than 12 months | 3,740 | 1,585 |
12 months or longer | 556 | 339 |
Total | $ 4,296 | $ 1,924 |
No. of holdings | Holdings | 516 | 331 |
Residential mortgage-backed securities | ||
Fair value | ||
Less than 12 months | $ 4,526 | $ 4,156 |
12 months or longer | 5,416 | 7,064 |
Total | 9,942 | 11,220 |
Unrealized losses | ||
Less than 12 months | 98 | 29 |
12 months or longer | 146 | 95 |
Total | $ 244 | $ 124 |
No. of holdings | Holdings | 12 | 11 |
Commercial mortgage-backed securities | ||
Fair value | ||
Less than 12 months | $ 15,500 | $ 10,836 |
12 months or longer | 8,930 | 11,984 |
Total | 24,430 | 22,820 |
Unrealized losses | ||
Less than 12 months | 301 | 85 |
12 months or longer | 306 | 612 |
Total | $ 607 | $ 697 |
No. of holdings | Holdings | 22 | 19 |
Collateralized debt obligations | ||
Fair value | ||
Less than 12 months | $ 28,250 | $ 21,598 |
12 months or longer | 0 | 0 |
Total | 28,250 | 21,598 |
Unrealized losses | ||
Less than 12 months | 136 | 41 |
12 months or longer | 0 | 0 |
Total | $ 136 | $ 41 |
No. of holdings | Holdings | 20 | 12 |
Other debt securities | ||
Fair value | ||
Less than 12 months | $ 210 | $ 1,499 |
12 months or longer | 0 | 0 |
Total | 210 | 1,499 |
Unrealized losses | ||
Less than 12 months | 0 | 0 |
12 months or longer | 0 | 0 |
Total | $ 0 | $ 0 |
No. of holdings | Holdings | 1 | 1 |
Nonredeemable preferred stock | Financial services sector | ||
Fair value | ||
Less than 12 months | $ 9,644 | |
12 months or longer | 0 | |
Total | 9,644 | |
Unrealized losses | ||
Less than 12 months | 75 | |
12 months or longer | 0 | |
Total | $ 75 | |
No. of holdings | Holdings | 5 | |
Nonredeemable preferred stock | Utilities sector | ||
Fair value | ||
Less than 12 months | $ 1,093 | |
12 months or longer | 0 | |
Total | 1,093 | |
Unrealized losses | ||
Less than 12 months | 25 | |
12 months or longer | 0 | |
Total | $ 25 | |
No. of holdings | Holdings | 1 |
Investments (Details 4)
Investments (Details 4) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Investment income from portfolios | ||||
Total investment income | $ 7,431 | $ 6,632 | $ 14,691 | $ 13,089 |
Less: investment expenses | 327 | 393 | 767 | 869 |
Investment income, net of expenses | 7,104 | 6,239 | 13,924 | 12,220 |
Fixed maturities | ||||
Investment income from portfolios | ||||
Total investment income | 6,263 | 6,220 | 12,373 | 12,124 |
Equity securities | ||||
Investment income from portfolios | ||||
Total investment income | 142 | 17 | 284 | 49 |
Cash equivalents and other | ||||
Investment income from portfolios | ||||
Total investment income | 1,026 | 395 | 2,034 | 916 |
Erie Family Life Insurance Company (EFL) | ||||
Investment income from portfolios | ||||
Note receivable from EFL, interest income recognized by Indemnity | $ 400 | $ 400 | $ 800 | $ 800 |
Investments (Details 5)
Investments (Details 5) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Net realized investment (losses) gains | ||||
Net realized investment (losses) gains | $ (32) | $ 124 | $ (497) | $ 640 |
Available-for-sale securities | ||||
Available-for-sale securities: | ||||
Gross realized gains | 235 | 507 | 575 | 1,087 |
Gross realized losses | (301) | (381) | (986) | (539) |
Net realized (losses) gains on available-for-sale securities | (66) | 126 | (411) | 548 |
Equity securities | ||||
Equity securities | ||||
Equity securities | (68) | (188) | ||
Other investments | ||||
Miscellaneous | ||||
Miscellaneous | $ 102 | $ (2) | $ 102 | $ 92 |
Investments (Details 6)
Investments (Details 6) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Jan. 01, 2018 | |
Other-than-temporary impairments on available-for-sale securities | |||||
Other-than-temporary impairments on available-for-sale securities recognized in earnings | $ (646) | $ (61) | $ (646) | $ (182) | |
Other-than-temporary impairments on available-for-sale securities recognized in other comprehensive income | 0 | $ 0 | 0 | $ 0 | |
Equity securities | |||||
Equity securities: | |||||
Total net realized losses | (68) | (188) | |||
Less: net losses realized on securities sold | 0 | (34) | |||
Net unrealized losses recognized during the period on securities held at reporting date | $ (68) | $ (154) | |||
Nonredeemable preferred stock | Accounting Standards Update 2016-01 [Member] | |||||
Equity securities: | |||||
Cumulative effect adjustment due to ASU 2016-01 | $ 100 |
Investments (Details 7)
Investments (Details 7) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Investments in limited partnerships | ||||
Equity in (losses) earnings of limited partnerships | $ (219) | $ 149 | $ (411) | $ 362 |
Equity method of accounting | ||||
Investments in limited partnerships | ||||
Equity in (losses) earnings of limited partnerships | (216) | 149 | (21) | 399 |
Fair value option | ||||
Investments in limited partnerships | ||||
Equity in (losses) earnings of limited partnerships | $ (3) | $ 0 | $ (390) | $ (37) |
Investments (Details 8)
Investments (Details 8) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Investments in limited partnerships | ||
Asset recorded | $ 39,651 | $ 45,122 |
Private equity | ||
Investments in limited partnerships | ||
Asset recorded | 30,501 | 31,663 |
Mezzanine debt | ||
Investments in limited partnerships | ||
Asset recorded | 2,916 | 3,516 |
Real estate | ||
Investments in limited partnerships | ||
Asset recorded | 2,482 | 5,127 |
Fair value option | Real estate | ||
Investments in limited partnerships | ||
Asset recorded | $ 3,752 | $ 4,816 |
Borrowing Arrangements (Details
Borrowing Arrangements (Details) - Revolving line of credit $ in Millions | 6 Months Ended |
Jun. 30, 2018USD ($) | |
Bank Line of Credit | |
Maximum borrowing capacity under the bank revolving line of credit | $ 100 |
Maximum letter of credit sublimit under the bank revolving line of credit | $ 25 |
Expiration date of the bank revolving line of credit | Nov. 3, 2020 |
Available borrowing capacity under the bank revolving line of credit, due to outstanding letters of credit | $ 99.1 |
Outstanding amount of letters of credit under the bank revolving line of credit | 0.9 |
Available amount of letters of credit under the bank revolving line of credit | 24.1 |
Borrowings outstanding under the bank revolving line of credit | 0 |
Fair value of bonds pledged as collateral on the bank revolving line of credit | $ 108.1 |
Borrowing Arrangements (Detai49
Borrowing Arrangements (Details 2) - Secured debt - USD ($) $ in Millions | Jun. 01, 2018 | Dec. 01, 2017 | Jun. 01, 2017 | Dec. 01, 2016 | Jun. 30, 2018 |
Term loan credit facility | |||||
Amount of senior secured draw term loan credit facility | $ 100 | ||||
Scheduled draws on the credit facility | $ 25 | $ 25 | $ 25 | $ 25 | |
Total amount drawn on the credit facility | $ 100 | ||||
Repayment period of credit facility (in years) | 28 years | ||||
Fixed interest rate of credit facility (as a percent) | 4.35% | ||||
Quarterly commitment fee on the unused portion of the credit facility (as a percent) | 0.08% | ||||
Fair value of bonds pledged as collateral on the credit facility | $ 108.3 | ||||
Estimated fair value of the credit facility | 94.3 | ||||
Principal payments due in 2019 | 1.9 | ||||
Principal payments due in 2020 | 2 | ||||
Principal payments due in 2021 | 2 | ||||
Principal payments due in 2022 | 2.1 | ||||
Principal payments due in 2023 | 2.2 | ||||
Principal payments due in 2024 and thereafter | $ 89.8 |
Postretirement Benefits (Detail
Postretirement Benefits (Details) - USD ($) $ in Thousands | Apr. 24, 2018 | Jan. 19, 2018 | Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 |
Cost of pension plans: | ||||||
Service cost for benefits earned | $ 9,513 | $ 7,776 | $ 19,026 | $ 15,553 | ||
Interest cost on benefits obligation | 8,845 | 8,568 | 17,691 | 17,137 | ||
Expected return on plan assets | (12,814) | (10,316) | (25,629) | (20,633) | ||
Prior service cost amortization | 338 | 218 | 676 | 436 | ||
Net actuarial loss amortization | 3,202 | 2,325 | 6,404 | 4,650 | ||
Pension plan cost | 9,084 | $ 8,571 | $ 18,168 | $ 17,143 | ||
Erie Insurance Exchange (EIE) | ||||||
Postretirement Benefits | ||||||
Postretirement annual benefit expense reimbursed to Indemnity from the Exchange and its subsidiaries (as a percent) | 59.00% | |||||
Employee pension plan | Qualified plan | Funded plan | ||||||
Postretirement Benefits | ||||||
Employer contribution | $ 40,000 | $ 40,000 | ||||
Employee pension plan | Qualified plan | Funded plan | Erie Family Life Insurance Company (EFL) | ||||||
Postretirement Benefits | ||||||
Contingent liability for amount of nonparticipating annuity contracts the employee pension plan purchased from EFL | $ 18,300 | $ 18,300 |
Capital Stock (Details)
Capital Stock (Details) - Class B - shares | 6 Months Ended | 12 Months Ended |
Jun. 30, 2018 | Dec. 31, 2017 | |
Common Stock | ||
Ratio for converting shares of Class B common stock into shares of Class A common stock (as a percent) | 2400.00% | 2400.00% |
Class B common stock shares converted into Class A common stock shares (in shares) | 0 | 0 |
Capital Stock (Details 2)
Capital Stock (Details 2) - Class A - USD ($) $ / shares in Units, $ in Millions | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2018 | Dec. 31, 2017 | Oct. 31, 2011 | |
Shares purchased outside of stock repurchase program | |||
Total cost of shares purchased outside of publicly announced stock repurchase program | $ 2.6 | $ 7.3 | |
Performance shares | |||
Shares purchased outside of stock repurchase program | |||
Shares purchased outside of publicly announced stock repurchase program for share-based compensation awards (in shares) | 22,247 | 60,332 | |
Equity compensation plan | |||
Shares purchased outside of stock repurchase program | |||
Total cost of shares purchased outside of publicly announced stock repurchase program | $ 0.7 | $ 0.4 | |
Average price per share for shares purchased (in dollars per share) | $ 117.39 | $ 111.55 | |
Equity compensation plan | Performance shares | |||
Shares purchased outside of stock repurchase program | |||
Shares purchased outside of publicly announced stock repurchase program for share-based compensation awards (in shares) | 5,830 | 3,785 | |
Stock compensation plan for outside directors | |||
Shares purchased outside of stock repurchase program | |||
Total cost of shares purchased outside of publicly announced stock repurchase program | $ 0.5 | $ 1.2 | |
Average price per share for shares purchased (in dollars per share) | $ 115.69 | $ 121.85 | |
Stock compensation plan for outside directors | Performance shares | |||
Shares purchased outside of stock repurchase program | |||
Shares purchased outside of publicly announced stock repurchase program for share-based compensation awards (in shares) | 4,576 | 9,663 | |
Incentive compensation deferral plan | |||
Shares purchased outside of stock repurchase program | |||
Total cost of shares purchased outside of publicly announced stock repurchase program | $ 1.4 | ||
Average price per share for shares purchased (in dollars per share) | $ 119.14 | ||
Incentive compensation deferral plan | Performance shares | |||
Shares purchased outside of stock repurchase program | |||
Shares purchased outside of publicly announced stock repurchase program for share-based compensation awards (in shares) | 11,841 | ||
Long-term incentive plan | |||
Shares purchased outside of stock repurchase program | |||
Total cost of shares purchased outside of publicly announced stock repurchase program | $ 5.7 | ||
Average price per share for shares purchased (in dollars per share) | $ 122.40 | ||
Long-term incentive plan | Performance shares | |||
Shares purchased outside of stock repurchase program | |||
Shares purchased outside of publicly announced stock repurchase program for share-based compensation awards (in shares) | 46,884 | ||
Stock repurchase program | |||
Stock repurchases | |||
Amount of authorized stock repurchases approved for continuation under the current program | $ 150 | ||
Shares repurchased under stock repurchase program (in shares) | 0 | 0 | |
Approximate amount of repurchase authority remaining under the current stock repurchase program | $ 17.8 |
Accumulated Other Comprehensi53
Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Accumulated other comprehensive income (loss), net of tax | ||||
AOCI (loss), beginning of period | $ (156,059) | |||
OCI (loss) | $ (551) | $ 1,092 | (5,978) | $ 2,613 |
AOCI (loss), end of period | $ (162,037) | $ (162,037) | ||
Federal statutory income tax rate | ||||
Corporate tax rate | 21.00% | 35.00% | 21.00% | 35.00% |
Investment securities: | ||||
Accumulated other comprehensive income (loss), before tax | ||||
AOCI (loss), beginning of period | $ (3,460) | $ 6,293 | $ 3,410 | $ 3,954 |
OCI (loss) before reclassifications | (1,409) | 1,746 | (8,539) | 4,386 |
Realized investment losses (gains) | 66 | (126) | 411 | (548) |
Impairment losses | 646 | 61 | 646 | 182 |
Cumulative effect of adopting ASU 2016-01 | (85) | |||
OCI (loss) | (697) | 1,681 | (7,567) | 4,020 |
AOCI (loss), end of period | (4,157) | 7,974 | (4,157) | 7,974 |
Accumulated other comprehensive income (loss), tax | ||||
AOCI (loss), beginning of period | (727) | 2,202 | 716 | 1,384 |
OCI (loss) before reclassifications | (296) | 611 | (1,793) | 1,535 |
Realized investment losses (gains) | 14 | (44) | 86 | (192) |
Impairment losses | 136 | 22 | 136 | 64 |
Cumulative effect of adopting ASU 2016-01 | (18) | |||
OCI (loss) | (146) | 589 | (1,589) | 1,407 |
AOCI (loss), end of period | (873) | 2,791 | (873) | 2,791 |
Accumulated other comprehensive income (loss), net of tax | ||||
AOCI (loss), beginning of period | (2,733) | 4,091 | 2,694 | 2,570 |
OCI (loss) before reclassifications | (1,113) | 1,135 | (6,746) | 2,851 |
Realized investment losses (gains) | 52 | (82) | 325 | (356) |
Impairment losses | 510 | 39 | 510 | 118 |
Cumulative effect of adopting ASU 2016-01 | (67) | |||
OCI (loss) | (551) | 1,092 | (5,978) | 2,613 |
AOCI (loss), end of period | (3,284) | 5,183 | (3,284) | 5,183 |
Pension and other postretirement plans: | ||||
Accumulated other comprehensive income (loss), before tax | ||||
AOCI (loss), beginning of period | (200,954) | (190,695) | (200,954) | (190,695) |
AOCI (loss), end of period | (200,954) | (190,695) | (200,954) | (190,695) |
Accumulated other comprehensive income (loss), tax | ||||
AOCI (loss), beginning of period | (42,201) | (66,744) | (42,201) | (66,744) |
AOCI (loss), end of period | (42,201) | (66,744) | (42,201) | (66,744) |
Accumulated other comprehensive income (loss), net of tax | ||||
AOCI (loss), beginning of period | (158,753) | (123,951) | (158,753) | (123,951) |
AOCI (loss), end of period | (158,753) | (123,951) | (158,753) | (123,951) |
Amount reclassified out of accumulated other comprehensive loss related to postretirement plan items | 0 | 0 | 0 | 0 |
Total | ||||
Accumulated other comprehensive income (loss), before tax | ||||
AOCI (loss), beginning of period | (204,414) | (184,402) | (197,544) | (186,741) |
OCI (loss) | (697) | 1,681 | (7,567) | 4,020 |
OCI (loss) | 0 | 0 | 0 | 0 |
OCI (loss) | (697) | 1,681 | (7,567) | 4,020 |
AOCI (loss), end of period | (205,111) | (182,721) | (205,111) | (182,721) |
Accumulated other comprehensive income (loss), tax | ||||
AOCI (loss), beginning of period | (42,928) | (64,542) | (41,485) | (65,360) |
OCI (loss) | (146) | 589 | (1,589) | 1,407 |
OCI (loss) | 0 | 0 | 0 | 0 |
OCI (loss) | (146) | 589 | (1,589) | 1,407 |
AOCI (loss), end of period | (43,074) | (63,953) | (43,074) | (63,953) |
Accumulated other comprehensive income (loss), net of tax | ||||
AOCI (loss), beginning of period | (161,486) | (119,860) | (156,059) | (121,381) |
OCI (loss) | (551) | 1,092 | (5,978) | 2,613 |
OCI (loss) | 0 | 0 | 0 | 0 |
OCI (loss) | (551) | 1,092 | (5,978) | 2,613 |
AOCI (loss), end of period | $ (162,037) | $ (118,768) | $ (162,037) | $ (118,768) |
Concentrations of Credit Risk (
Concentrations of Credit Risk (Details) - USD ($) $ in Thousands | Jun. 30, 2018 | Dec. 31, 2017 |
Concentrations of credit risk from unsecured receivables | ||
Receivables from Erie Insurance Exchange and its subsidiaries | $ 445,211 | $ 418,328 |
Commitments and Contingencies (
Commitments and Contingencies (Details) $ in Millions | 6 Months Ended |
Jun. 30, 2018USD ($) | |
Contractual commitments | |
Represents the entity's maximum contractual commitments to invest in its limited partnership investments | $ 13.9 |
Description of commitment: contractual commitment to invest in limited partnership investments | Contractual commitments to invest in limited partnership investments, consisting of private equity securities, mezzanine debt securities, and real estate activities. |
Private equity | |
Contractual commitments | |
Represents the entity's maximum contractual commitments to invest in its limited partnership investments | $ 5.5 |
Mezzanine debt | |
Contractual commitments | |
Represents the entity's maximum contractual commitments to invest in its limited partnership investments | 8.1 |
Real estate | |
Contractual commitments | |
Represents the entity's maximum contractual commitments to invest in its limited partnership investments | $ 0.3 |