Exhibit 99.2
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in millions, except per share data)
Three | Three | Six | Six | |||||||||||||
months | months | months | months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
Revenues | 2010 | 2009* | 2010 | 2009* | ||||||||||||
Premiums earned | $ | 989 | $ | 964 | $ | 1,967 | $ | 1,921 | ||||||||
Net investment income | 108 | 105 | 212 | 222 | ||||||||||||
Net realized investment (losses) gains | (213 | ) | 208 | (88 | ) | 53 | ||||||||||
Net impairment losses recognized in earnings | (4 | ) | (12 | ) | (6 | ) | (83 | ) | ||||||||
Equity in earnings (losses) of limited partnerships | 27 | (126 | ) | 30 | (287 | ) | ||||||||||
Other income | 9 | 10 | 17 | 18 | ||||||||||||
Total revenues | 916 | 1,149 | 2,132 | 1,844 | ||||||||||||
Benefits and expenses | ||||||||||||||||
Insurance losses and loss expenses | 737 | 660 | 1,498 | 1,463 | ||||||||||||
Policy acquisition and underwriting expenses | 230 | 231 | 457 | 463 | ||||||||||||
Total benefits and expenses | 967 | 891 | 1,955 | 1,926 | ||||||||||||
(Loss) income from operations before income taxes | ||||||||||||||||
and noncontrolling interests | (51 | ) | 258 | 177 | (82 | ) | ||||||||||
(Benefit) provision for income taxes | (20 | ) | (13 | ) | 46 | (102 | ) | |||||||||
Net (loss) income | (31 | ) | 271 | 131 | 20 | |||||||||||
Less: Net (loss) income attributable to noncontrolling | ||||||||||||||||
Interest in consolidated entity – Exchange | (80 | ) | 238 | 35 | (24 | ) | ||||||||||
Net income attributable to Indemnity | $ | 49 | $ | 33 | $ | 96 | $ | 44 | ||||||||
Earnings Per Share | ||||||||||||||||
Net income attributable to Indemnity per share | ||||||||||||||||
Class A common stock – basic | $ | 0.96 | $ | 0.63 | $ | 1.87 | $ | 0.85 | ||||||||
Class A common stock – diluted | $ | 0.86 | $ | 0.57 | $ | 1.68 | $ | 0.76 | ||||||||
Class B common stock – basic and diluted | $ | 138.21 | $ | 93.19 | $ | 271.03 | $ | 127.98 | ||||||||
Weighted average shares outstanding attributable to | ||||||||||||||||
Indemnity – Basic | ||||||||||||||||
Class A common stock | 51,013,358 | 51,240,693 | 51,099,071 | 51,255,385 | ||||||||||||
Class B common stock | 2,546 | 2,551 | 2,546 | 2,551 | ||||||||||||
Weighted average shares outstanding attributable to | ||||||||||||||||
Indemnity – Diluted | ||||||||||||||||
Class A common stock | 57,146,855 | 57,390,302 | 57,231,936 | 57,404,994 | ||||||||||||
Class B common stock | 2,546 | 2,551 | 2,546 | 2,551 | ||||||||||||
Dividends declared per share | ||||||||||||||||
Class A common stock | $ | 0.48 | $ | 0.45 | $ | 0.96 | $ | 0.90 | ||||||||
Class B common stock | $ | 72.00 | $ | 67.50 | $ | 144.00 | $ | 135.00 | ||||||||
• The 2009 results have been adjusted to reflect the retrospective adoption of new accounting guidance in ASC 810,Consolidation.
ERIE INDEMNITY COMPANY
RESULTS OF THE GROUP’S OPERATIONS BY INTEREST (Unaudited)
(in millions)
Eliminations of | ||||||||||||||||||||||||||||||||||||||||
Indemnity | shareholder | Noncontrolling interest | related party | |||||||||||||||||||||||||||||||||||||
interest | (Exchange) | transactions | Erie Insurance Group | |||||||||||||||||||||||||||||||||||||
Three months ended | Three months ended | Three months ended | Three months ended | |||||||||||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||||||||||
Percent | 2010 | 2009* | Percent | 2010 | 2009 | 2010 | 2009 | 2010 | 2009* | |||||||||||||||||||||||||||||||
Management operations | ||||||||||||||||||||||||||||||||||||||||
Management fee revenue, net | 100.0 | % | $ | 270 | $ | 259 | $ | 0 | $ | 0 | $ | (270 | ) | $ | (259 | ) | $ | 0 | $ | 0 | ||||||||||||||||||||
Service agreement revenue | 100.0 | % | 9 | 9 | 0 | 0 | 0 | 0 | 9 | 9 | ||||||||||||||||||||||||||||||
Total revenue from management operations | 279 | 268 | 0 | 0 | (270 | ) | (259 | ) | 9 | 9 | ||||||||||||||||||||||||||||||
Cost of management operations | 100.0 | % | 217 | 208 | 0 | 0 | (217 | ) | (208 | ) | 0 | 0 | ||||||||||||||||||||||||||||
Income from management operations before taxes | 62 | 60 | 0 | 0 | (53 | ) | (51 | ) | 9 | 9 | ||||||||||||||||||||||||||||||
Property and casualty operations | ||||||||||||||||||||||||||||||||||||||||
Premiums earned | 5.5 | % | 53 | 52 | 94.5 | % | 921 | 895 | 0 | 0 | 974 | 947 | ||||||||||||||||||||||||||||
Losses and loss expenses | 5.5 | % | 40 | 35 | 94.5 | % | 677 | 603 | (2 | ) | (2 | ) | 715 | 636 | ||||||||||||||||||||||||||
Underwriting expenses | 5.5 | % | 15 | 15 | 94.5 | % | 261 | 259 | (54 | ) | (52 | ) | 222 | 222 | ||||||||||||||||||||||||||
(Loss)income from property and casualty operations before taxes | (2 | ) | 2 | (17 | ) | 33 | 56 | 54 | 37 | 89 | ||||||||||||||||||||||||||||||
Life insurance operations | ||||||||||||||||||||||||||||||||||||||||
Total revenue | 21.6 | % | 9 | 8 | 78.4 | % | 32 | 31 | (1 | ) | (1 | ) | 40 | 38 | ||||||||||||||||||||||||||
Total benefits and expenses | 21.6 | % | 6 | 7 | 78.4 | % | 24 | 26 | 0 | 0 | 30 | 33 | ||||||||||||||||||||||||||||
Income from life operations before taxes | 3 | 1 | 8 | 5 | (1 | ) | (1 | ) | 10 | 5 | ||||||||||||||||||||||||||||||
Investment operations | ||||||||||||||||||||||||||||||||||||||||
Investment income, net of expenses | 9 | 9 | 78 | 75 | (2 | ) | (2 | ) | 85 | 82 | ||||||||||||||||||||||||||||||
Net realized (losses) gains on investments | (3 | ) | 4 | (213 | ) | 203 | 0 | 0 | (216 | ) | 207 | |||||||||||||||||||||||||||||
Impairment losses recognized in earnings | (1 | ) | (2 | ) | (1 | ) | (8 | ) | 0 | 0 | (2 | ) | (10 | ) | ||||||||||||||||||||||||||
Equity in earnings (losses) of limited partnerships | 6 | (27 | ) | 20 | (97 | ) | 0 | 0 | 26 | (124 | ) | |||||||||||||||||||||||||||||
Total investment income (loss) before tax | 11 | (16 | ) | (116 | ) | 173 | (2 | ) | (2 | ) | (107 | ) | 155 | |||||||||||||||||||||||||||
Income (loss) from operations before income taxes and noncontrolling interests | 74 | 47 | (125 | ) | 211 | 0 | 0 | (51 | ) | 258 | ||||||||||||||||||||||||||||||
Provision for income taxes | 25 | 14 | (45 | ) | (27 | ) | 0 | 0 | (20 | ) | (13 | ) | ||||||||||||||||||||||||||||
Net income (loss) | $ | 49 | $ | 33 | $ | (80 | ) | $ | 238 | $ | 0 | $ | 0 | $ | (31 | ) | $ | 271 | ||||||||||||||||||||||
• The 2009 results have been adjusted to reflect the retrospective adoption of new accounting guidance in ASC 810,Consolidation.
1
ERIE INDEMNITY COMPANY
RESULTS OF THE GROUP’S OPERATIONS BY INTEREST (Unaudited)
(in millions)
Eliminations of | ||||||||||||||||||||||||||||||||||||||||
Indemnity | shareholder | Noncontrolling interest | related party | |||||||||||||||||||||||||||||||||||||
interest | (Exchange) | transactions | Erie Insurance Group | |||||||||||||||||||||||||||||||||||||
Six months | ||||||||||||||||||||||||||||||||||||||||
Six months ended | Six months ended | ended | Six months ended | |||||||||||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||||||||||
Percent | 2010 | 2009* | Percent | 2010 | 2009 | 2010 | 2009 | 2010 | 2009* | |||||||||||||||||||||||||||||||
Management operations | ||||||||||||||||||||||||||||||||||||||||
Management fee revenue, net | 100.0 | % | $ | 507 | $ | 489 | $ | 0 | $ | 0 | $ | (507 | ) | $ | (489 | ) | $ | 0 | $ | 0 | ||||||||||||||||||||
Service agreement revenue | 100.0 | % | 17 | 17 | 0 | 0 | 0 | 0 | 17 | 17 | ||||||||||||||||||||||||||||||
Total revenue from management operations | 524 | 506 | 0 | 0 | (507 | ) | (489 | ) | 17 | 17 | ||||||||||||||||||||||||||||||
Cost of management operations | 100.0 | % | 409 | 401 | 0 | 0 | (409 | ) | (401 | ) | 0 | 0 | ||||||||||||||||||||||||||||
Income from management operations before taxes | 115 | 105 | 0 | 0 | (98 | ) | (88 | ) | 17 | 17 | ||||||||||||||||||||||||||||||
Property and casualty operations | ||||||||||||||||||||||||||||||||||||||||
Premiums earned | 5.5 | % | 106 | 104 | 94.5 | % | 1,830 | 1,784 | 0 | 0 | 1,936 | 1,888 | ||||||||||||||||||||||||||||
Losses and loss expenses | 5.5 | % | 80 | 78 | 94.5 | % | 1,375 | 1,342 | (3 | ) | (3 | ) | 1,452 | 1,417 | ||||||||||||||||||||||||||
Underwriting expenses | 5.5 | % | 30 | 30 | 94.5 | % | 511 | 509 | (100 | ) | (90 | ) | 441 | 449 | ||||||||||||||||||||||||||
(Loss)income from property and casualty operations before taxes | (4 | ) | (4 | ) | (56 | ) | (67 | ) | 103 | 93 | 43 | 22 | ||||||||||||||||||||||||||||
Life insurance operations | ||||||||||||||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||||
Total revenue | 21.6 | % | 18 | 13 | 78.4 | % | 66 | 48 | (1 | ) | (1 | ) | 83 | 60 | ||||||||||||||||||||||||||
Total benefits and expenses | 21.6 | % | 13 | 13 | 78.4 | % | 50 | 48 | (1 | ) | (1 | ) | 62 | 60 | ||||||||||||||||||||||||||
Income from life operations before taxes | 5 | 0 | 16 | 0 | 0 | 0 | 21 | 0 | ||||||||||||||||||||||||||||||||
Investment operations | ||||||||||||||||||||||||||||||||||||||||
Investment income, net of expenses | 18 | 22 | 153 | 158 | (5 | ) | (5 | ) | 166 | 175 | ||||||||||||||||||||||||||||||
Net realized gains (losses) on investments | 2 | 0 | (98 | ) | 54 | 0 | 0 | (96 | ) | 54 | ||||||||||||||||||||||||||||||
Impairment losses recognized in earnings | (1 | ) | (7 | ) | (3 | ) | (61 | ) | 0 | 0 | (4 | ) | (68 | ) | ||||||||||||||||||||||||||
Equity in earnings (losses) of limited partnerships | 6 | (55 | ) | 24 | (227 | ) | 0 | 0 | 30 | (282 | ) | |||||||||||||||||||||||||||||
Total investment income (loss) before tax | 25 | (40 | ) | 76 | (76 | ) | (5 | ) | (5 | ) | 96 | (121 | ) | |||||||||||||||||||||||||||
Income (loss) from operations before income taxes and noncontrolling interests | 141 | 61 | 36 | (143 | ) | 0 | 0 | 177 | (82 | ) | ||||||||||||||||||||||||||||||
Provision for income taxes | 45 | 17 | 1 | (119 | ) | 0 | 0 | 46 | (102 | ) | ||||||||||||||||||||||||||||||
Net income (loss) | $ | 96 | $ | 44 | $ | 35 | $ | (24 | ) | $ | 0 | $ | 0 | $ | 131 | $ | 20 | |||||||||||||||||||||||
• The 2009 results have been adjusted to reflect the retrospective adoption of new accounting guidance in ASC 810,Consolidation.
2
ERIE INDEMNITY COMPANY
RECONCILIATION OF OPERATING INCOME TO NET INCOME
Definition of non-GAAP and operating measures
We believe that investors’ understanding of our performance related to the Indemnity shareholder interest is enhanced by the disclosure of the following non-GAAP financial measure. Our method of calculating this measure may differ from those used by other companies and therefore comparability may be limited.
Operating incomeis net income excluding realized capital gains and losses, impairment losses and related federal income taxes. Our common stock portfolio is measured at fair value. As such, changes in fair value related to common stocks are reported in earnings. These unrealized gains or losses are included in the net realized gains and losses on investments in our Consolidated Statements of Operations that is used to calculate operating income. Equity in earnings or losses of EFL and equity in earnings or losses of limited partnerships are included in the calculation of operating income. Equity in earnings or losses of limited partnerships includes the respective investment’s realized capital gains and losses, as well as unrealized gains and losses.
Net income is the generally accepted accounting principle (GAAP) measure that is most directly comparable to operating income. We use operating income to evaluate the results of operations. It reveals trends in our management services, insurance underwriting and investment operations that may be obscured by the net effects of realized capital gains and losses including impairment losses. Realized capital gains and losses including impairment losses, may vary significantly between periods and are generally driven by business decisions and economic developments such as capital market conditions, the timing of which is unrelated to our management services and insurance underwriting processes. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. We are aware that the price to earnings multiple commonly used by investors as a forward-looking valuation technique uses operating income as the denominator. Operating income should not be considered as a substitute for net income and does not reflect our overall profitability.
The following table reconciles operating income and net income for Indemnity shareholder interest for the three and six months ended June 30:
Indemnity Shareholder interest | ||||||||||||||||
Three | Three | Six | Six | |||||||||||||
months ended | months ended | months ended | months ended | |||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in millions, except per share data) | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Operating income attributable to Indemnity | $ | 51 | $ | 32 | $ | 95 | $ | 49 | ||||||||
Net realized (losses) gains and impairments on investments | (4 | ) | 2 | 1 | (7 | ) | ||||||||||
Income tax benefit (expense) | 2 | (1 | ) | 0 | 2 | |||||||||||
Realized (losses) gains and impairments, net of income taxes | (2 | ) | 1 | 1 | (5 | ) | ||||||||||
Net income attributable to Indemnity | $ | 49 | $ | 33 | $ | 96 | $ | 44 | ||||||||
Three | Three | Six | Six | |||||||||||||
months ended | months ended | months ended | months ended | |||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Per Indemnity Class A common share – diluted: | ||||||||||||||||
Operating income attributable to Indemnity | $ | 0.89 | $ | 0.56 | $ | 1.66 | $ | 0.85 | ||||||||
Net realized (losses) gains and impairments on investments | (0.07 | ) | 0.02 | 0.02 | (0.13 | ) | ||||||||||
Income tax benefit (expense) | 0.04 | (0.01 | ) | 0.00 | 0.04 | |||||||||||
Realized (losses) gains and impairments, net of income taxes | (0.03 | ) | 0.01 | 0.02 | (0.09 | ) | ||||||||||
Net income attributable to Indemnity | $ | 0.86 | $ | 0.57 | $ | 1.68 | $ | 0.76 | ||||||||
3
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(dollars in millions, except per share data)
June 30, | December 31, | |||||||
2010 | ||||||||
(Unaudited) | 2009 | |||||||
Assets | ||||||||
Investments-Indemnity | ||||||||
Available-for-sale securities, at fair value: | ||||||||
Fixed maturities | $ | 671 | $ | 664 | ||||
Equity securities | 45 | 38 | ||||||
Trading securities, at fair value | 40 | 42 | ||||||
Limited partnerships | 234 | 235 | ||||||
Other invested assets | 1 | 1 | ||||||
Investments-Exchange | ||||||||
Available-for-sale securities, at fair value: | ||||||||
Fixed maturities | 6,789 | 6,517 | ||||||
Equity securities | 523 | 472 | ||||||
Trading securities, at fair value | 1,712 | 1,835 | ||||||
Limited partnerships | 1,123 | 1,116 | ||||||
Other invested assets | 19 | 20 | ||||||
Total investments | 11,157 | 10,940 | ||||||
Cash and cash equivalents (Exchange portion of $189 and $158, respectively) | 223 | 234 | ||||||
Premiums receivable from policyholders (Exchange portion of $770 and $715, respectively) | 977 | 906 | ||||||
Reinsurance recoverable (Exchange portion of $198 and $212, respectively) | 201 | 215 | ||||||
Deferred income taxes (Exchange portion of $72 and $75, respectively) | 101 | 116 | ||||||
Deferred acquisition costs (Exchange portion of $417 and $416, respectively) | 473 | 467 | ||||||
Other assets (Exchange portion of $322 and $306, respectively) | 438 | 409 | ||||||
Total assets | $ | 13,570 | $ | 13,287 | ||||
Liabilities and shareholders’ equity | ||||||||
Liabilities | ||||||||
Indemnity liabilities | ||||||||
Losses and loss expense reserves | $ | 739 | $ | 752 | ||||
Unearned premiums | 345 | 325 | ||||||
Other liabilities | 350 | 387 | ||||||
Exchange liabilities | ||||||||
Losses and loss expense reserves | 2,883 | 2,846 | ||||||
Life policy and deposit contract reserves | 1,574 | 1,540 | ||||||
Unearned premiums | 1,748 | 1,656 | ||||||
Other liabilities | 62 | 56 | ||||||
Total liabilities | 7,701 | 7,562 | ||||||
Indemnity’s shareholders’ equity | 940 | 902 | ||||||
Noncontrolling interest in consolidated entity – Exchange | 4,929 | 4,823 | ||||||
Total equity | 5,869 | 5,725 | ||||||
Total liabilities, shareholders’ equity and noncontrolling interest | $ | 13,570 | $ | 13,287 | ||||
4