Exhibit 99.2
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Three | Three | Twelve | Twelve | |||||||||||||
months | months | months | months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
Revenues | 2010 | 2009* | 2010 | 2009 | ||||||||||||
Premiums earned | $ | 1,015 | $ | 971 | $ | 3,987 | $ | 3,869 | ||||||||
Net investment income | 111 | 109 | 433 | 433 | ||||||||||||
Net realized investment gains | 196 | 108 | 313 | 412 | ||||||||||||
Net impairment losses recognized in earnings | 0 | (27 | ) | (6 | ) | (126 | ) | |||||||||
Equity in earnings (losses) of limited partnerships | 70 | (45 | ) | 128 | (369 | ) | ||||||||||
Other income | 9 | 9 | 35 | 36 | ||||||||||||
Total revenues | 1,401 | 1,125 | 4,890 | 4,255 | ||||||||||||
Benefits and expenses | ||||||||||||||||
Insurance losses and loss expenses | 692 | 634 | 2,900 | 2,728 | ||||||||||||
Policy acquisition and underwriting expenses | 270 | 241 | 969 | 1,003 | ||||||||||||
Goodwill impairment | 22 | 0 | 22 | 0 | ||||||||||||
Total benefits and expenses | 984 | 875 | 3,891 | 3,731 | ||||||||||||
Income from operations before income taxes | ||||||||||||||||
and noncontrolling interest | 417 | 250 | 999 | 524 | ||||||||||||
Provision for income taxes | 163 | 76 | 339 | 78 | ||||||||||||
Net income | $ | 254 | $ | 174 | $ | 660 | $ | 446 | ||||||||
Less: Net income attributable to noncontrolling | ||||||||||||||||
interest in consolidated entity – Exchange | 242 | 150 | 498 | 338 | ||||||||||||
Net income attributable to Indemnity | $ | 12 | $ | 24 | $ | 162 | $ | 108 | ||||||||
Earnings Per Share | ||||||||||||||||
Net income attributable to Indemnity per share | ||||||||||||||||
Class A common stock – basic | $ | 0.25 | $ | 0.48 | $ | 3.18 | $ | 2.10 | ||||||||
Class A common stock – diluted | $ | 0.22 | $ | 0.43 | $ | 2.85 | $ | 1.89 | ||||||||
Class B common stock – basic and diluted | $ | 40.93 | $ | 72.49 | $ | 462.83 | $ | 312.45 | ||||||||
Weighted average shares outstanding attributable to | ||||||||||||||||
Indemnity – Basic | ||||||||||||||||
Class A common stock | 50,137,565 | 51,244,073 | 50,705,607 | 51,250,606 | ||||||||||||
Class B common stock | 2,546 | 2,546 | 2,546 | 2,549 | ||||||||||||
Weighted average shares outstanding attributable to | ||||||||||||||||
Indemnity – Diluted | ||||||||||||||||
Class A common stock | 56,316,852 | 57,415,266 | 56,884,894 | 57,428,999 | ||||||||||||
Class B common stock | 2,546 | 2,546 | 2,546 | 2,549 | ||||||||||||
Dividends declared per share | ||||||||||||||||
Class A common stock | $ | 0.515 | $ | 0.48 | $ | 1.955 | $ | 1.83 | ||||||||
Class B common stock | $ | 77.25 | $ | 72.00 | $ | 293.25 | $ | 274.50 | ||||||||
• 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 ERIE INSURANCE GROUP’S OPERATIONS BY INTEREST
(in millions)
Eliminations of | ||||||||||||||||||||||||||||||||||||||||
related party | ||||||||||||||||||||||||||||||||||||||||
Indemnity shareholder interest | Noncontrolling interest (Exchange) | transactions | Erie Insurance Group | |||||||||||||||||||||||||||||||||||||
Three months ended | Three months ended | Three months ended | Three months ended | |||||||||||||||||||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||||||||||||||||||||
Percent | 2010 | 2009 | Percent | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||||
Management operations | ||||||||||||||||||||||||||||||||||||||||
Management fee revenue, net | 100.0 | % | $ | 236 | $ | 223 | $ | 0 | $ | 0 | $ | (236 | ) | $ | (223 | ) | $ | 0 | $ | 0 | ||||||||||||||||||||
Service agreement revenue | 100.0 | % | 8 | 9 | 0 | 0 | 0 | 0 | 8 | 9 | ||||||||||||||||||||||||||||||
Total revenue from management operations | 244 | 232 | 0 | 0 | (236 | ) | (223 | ) | 8 | 9 | ||||||||||||||||||||||||||||||
Cost of management operations | 100.0 | % | 215 | 198 | 0 | 0 | (215 | ) | (198 | ) | 0 | 0 | ||||||||||||||||||||||||||||
Income from management operations before taxes | 29 | 34 | 0 | 0 | (21 | ) | (25 | ) | 8 | 9 | ||||||||||||||||||||||||||||||
Property and casualty insurance operations | ||||||||||||||||||||||||||||||||||||||||
Net premiums earned | 5.5%(2) | 55 | 52 | 94.5%(2) | 944 | 904 | 0 | 0 | 999 | 956 | ||||||||||||||||||||||||||||||
Losses and loss expenses | 5.5%(2) | 37 | 33 | 94.5%(2) | 633 | 578 | (1 | ) | (1 | ) | 669 | 610 | ||||||||||||||||||||||||||||
Policy acquisition and other underwriting expenses | 5.5%(2) | 15 | 15 | 94.5%(2) | 269 | 246 | (23 | ) | (27 | ) | 261 | 234 | ||||||||||||||||||||||||||||
Income from property and casualty insurance operations before taxes | 3 | 4 | 42 | 80 | 24 | 28 | 69 | 112 | ||||||||||||||||||||||||||||||||
Life insurance operations (1) | ||||||||||||||||||||||||||||||||||||||||
Total revenue | 21.6%(3) | 9 | 7 | 78.4%(3) | 36 | 26 | 0 | 0 | 45 | 33 | ||||||||||||||||||||||||||||||
Total benefits and expenses | 21.6%(3) | 6 | 7 | 78.4%(3) | 26 | 24 | 0 | 0 | 32 | 31 | ||||||||||||||||||||||||||||||
Income from life insurance operations before taxes | 3 | 0 | 10 | 2 | 0 | 0 | 13 | 2 | ||||||||||||||||||||||||||||||||
Investment operations | ||||||||||||||||||||||||||||||||||||||||
Net investment income (2) | 9 | 10 | 80 | 80 | (3 | ) | (3 | ) | 86 | 87 | ||||||||||||||||||||||||||||||
Net realized (losses) gains on investments (2) | (8 | ) | 5 | 202 | 99 | 0 | 0 | 194 | 104 | |||||||||||||||||||||||||||||||
Net impairment losses recognized in earnings (2) | 0 | (2 | ) | 0 | (20 | ) | 0 | 0 | 0 | (22 | ) | |||||||||||||||||||||||||||||
Equity in earnings (losses) of limited partnerships | 10 | (12 | ) | 59 | (30 | ) | 0 | 0 | 69 | (42 | ) | |||||||||||||||||||||||||||||
Goodwill impairment | 0 | 0 | (22 | ) | 0 | 0 | 0 | (22 | ) | 0 | ||||||||||||||||||||||||||||||
Income from investment operations before taxes (2) | 11 | 1 | 319 | 129 | (3 | ) | (3 | ) | 327 | 127 | ||||||||||||||||||||||||||||||
Income from operations before income taxes and noncontrolling interest | 46 | 39 | 371 | 211 | 0 | 0 | 417 | 250 | ||||||||||||||||||||||||||||||||
Provision for income taxes | 34 | 15 | 129 | 61 | 0 | 0 | 163 | 76 | ||||||||||||||||||||||||||||||||
Net income | $ | 12 | $ | 24 | $ | 242 | $ | 150 | $ | 0 | $ | 0 | $ | 254 | $ | 174 | ||||||||||||||||||||||||
(1) | Earnings on life insurance related invested assets are integral to the evaluation of the life insurance operations because of the long duration of life products. On that basis, for presentation purposes, the life insurance operations in the table above include life insurance related investment results. |
(2) | Prior to and through December 31, 2010, the underwriting results retained by EIC and ENY and the investment results of EIC, ENY and EPC accrued to the benefit of the Indemnity shareholder interest. Due to the sale of Indemnity’s property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting results and all investment results for these companies accrue to the benefit of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after December 31, 2010. |
(3) | As a result of the pending sale of Indemnity’s 21.6% ownership interest in EFL to the Exchange, which is scheduled to close by March 31, 2011, all earnings of EFL will accrue to the benefit of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011. |
ERIE INDEMNITY COMPANY
RESULTS OF THE ERIE INSURANCE GROUP’S OPERATIONS BY INTEREST
(in millions)
Eliminations of | ||||||||||||||||||||||||||||||||||||||||
related party | ||||||||||||||||||||||||||||||||||||||||
Indemnity shareholder interest | Noncontrolling interest (Exchange) | transactions | Erie Insurance Group | |||||||||||||||||||||||||||||||||||||
Twelve months | ||||||||||||||||||||||||||||||||||||||||
Twelve months ended | Twelve months ended | ended | Twelve months ended | |||||||||||||||||||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||||||||||||||||||||
Percent | 2010 | 2009 | Percent | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||||
Management operations | ||||||||||||||||||||||||||||||||||||||||
Management fee revenue, net | 100.0 | % | $ | 1,009 | $ | 965 | 0 | $ | 0 | $ | (1,009 | ) | $ | (965 | ) | $ | 0 | $ | 0 | |||||||||||||||||||||
Service agreement revenue | 100.0 | % | 34 | 35 | 0 | 0 | 0 | 0 | 34 | 35 | ||||||||||||||||||||||||||||||
Total revenue from management operations | 1,043 | 1,000 | 0 | 0 | (1,009 | ) | (965 | ) | 34 | 35 | ||||||||||||||||||||||||||||||
Cost of management operations | 100.0 | % | 841 | 813 | 0 | 0 | (841 | ) | (813 | ) | 0 | 0 | ||||||||||||||||||||||||||||
Income from management operations before taxes | 202 | 187 | 0 | 0 | (168 | ) | (152 | ) | 34 | 35 | ||||||||||||||||||||||||||||||
Property and casualty insurance operations | ||||||||||||||||||||||||||||||||||||||||
Net premiums earned | 5.5%(2) | 216 | 209 | 94.5%(2) | 3,709 | 3,599 | 0 | 0 | 3,925 | 3,808 | ||||||||||||||||||||||||||||||
Losses and loss expenses | 5.5%(2) | 155 | 145 | 94.5%(2) | 2,660 | 2,499 | (5 | ) | (5 | ) | 2,810 | 2,639 | ||||||||||||||||||||||||||||
Policy acquisition and other underwriting expenses | 5.5%(2) | 61 | 63 | 94.5%(2) | 1,052 | 1,072 | (174 | ) | (158 | ) | 939 | 977 | ||||||||||||||||||||||||||||
Income(loss) from property and casualty insurance operations before taxes | 0 | 1 | (3 | ) | 28 | 179 | 163 | 176 | 192 | |||||||||||||||||||||||||||||||
Life insurance operations (1) | ||||||||||||||||||||||||||||||||||||||||
Total revenue | 21.6%(3) | 37 | 27 | 78.4%(3) | 135 | 100 | (2 | ) | (2 | ) | 170 | 125 | ||||||||||||||||||||||||||||
Total benefits and expenses | 21.6%(3) | 26 | 25 | 78.4%(3) | 96 | 92 | (2 | ) | (2 | ) | 120 | 115 | ||||||||||||||||||||||||||||
Income from life insurance operations before taxes | 11 | 2 | 39 | 8 | 0 | 0 | 50 | 10 | ||||||||||||||||||||||||||||||||
Investment operations | ||||||||||||||||||||||||||||||||||||||||
Net investment income (2) | 37 | 42 | 312 | 311 | (11 | ) | (11 | ) | 338 | 342 | ||||||||||||||||||||||||||||||
Net realized (losses) gains on investments (2) | (1 | ) | 10 | 301 | 397 | 0 | 0 | 300 | 407 | |||||||||||||||||||||||||||||||
Net impairment losses recognized in earnings (2) | (1 | ) | (12 | ) | (3 | ) | (91 | ) | 0 | 0 | (4 | ) | (103 | ) | ||||||||||||||||||||||||||
Equity in earnings (losses) of limited partnerships | 21 | (76 | ) | 106 | (283 | ) | 0 | 0 | 127 | (359 | ) | |||||||||||||||||||||||||||||
Goodwill impairment | 0 | 0 | (22 | ) | 0 | 0 | 0 | (22 | ) | 0 | ||||||||||||||||||||||||||||||
Income (loss) from investment operations before taxes (2) | 56 | (36 | ) | 694 | 334 | (11 | ) | (11 | ) | 739 | 287 | |||||||||||||||||||||||||||||
Income from operations before income taxes and noncontrolling interest | 269 | 154 | 730 | 370 | 0 | 0 | 999 | 524 | ||||||||||||||||||||||||||||||||
Provision for income taxes | 107 | 46 | 232 | 32 | 0 | 0 | 339 | 78 | ||||||||||||||||||||||||||||||||
Net income | $ | 162 | $ | 108 | $ | 498 | $ | 338 | $ | 0 | $ | 0 | $ | 660 | $ | 446 | ||||||||||||||||||||||||
(1) | Earnings on life insurance related invested assets are integral to the evaluation of the life insurance operations because of the long duration of life products. On that basis, for presentation purposes, the life insurance operations in the table above include life insurance related investment results. |
(2) | Prior to and through December 31, 2010, the underwriting results retained by EIC and ENY and the investment results of EIC, ENY and EPC accrued to the benefit of the Indemnity shareholder interest. Due to the sale of Indemnity’s property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting results and all investment results for these companies accrue to the benefit of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after December 31, 2010. |
(3) | As a result of the pending sale of Indemnity’s 21.6% ownership interest in EFL to the Exchange, which is scheduled to close by March 31, 2011, all earnings of EFL will accrue to the benefit of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011. |
ERIE INDEMNITY COMPANY
RECONCILIATION OF OPERATING INCOME TO NET INCOME
Reconciliation of operating income to net income
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 are 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, but does not include the realized gain or loss when a limited partnership is sold in the secondary market.
We use operating income to evaluate the results of our operations. It reveals trends in our management services, property and casualty insurance underwriting(1) 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 property and casualty insurance underwriting processes.(1) 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 prepared in accordance with U.S.GAAP and does not reflect our overall profitability.
The following table reconciles operating income and net income for Indemnity shareholder interest:
Indemnity Shareholder interest | ||||||||||||||||
Three | Three | Twelve | Twelve | |||||||||||||
months ended | months ended | months ended | months ended | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in millions, except per share data) | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Operating income attributable to Indemnity | $ | 17 | $ | 22 | $ | 163 | $ | 109 | ||||||||
Net realized (losses) gains and impairments on investments | (8 | ) | 3 | (2 | ) | (2 | ) | |||||||||
Income tax benefit (expense) | 3 | (1 | ) | 1 | 1 | |||||||||||
Realized (losses) gains and impairments, net of income taxes | (5 | ) | 2 | (1 | ) | (1 | ) | |||||||||
Net income attributable to Indemnity | $ | 12 | $ | 24 | $ | 162 | $ | 108 | ||||||||
Per Indemnity Class A common share – diluted: | ||||||||||||||||
Operating income attributable to Indemnity | $ | 0.32 | $ | 0.39 | $ | 2.88 | $ | 1.91 | ||||||||
Net realized (losses) gains and impairments on investments | (0.15 | ) | 0.06 | (0.04 | ) | (0.03 | ) | |||||||||
Income tax benefit (expense) | 0.05 | (0.02 | ) | 0.01 | 0.01 | |||||||||||
Realized (losses) gains and impairments, net of income taxes | (0.10 | ) | 0.04 | (0.03 | ) | (0.02 | ) | |||||||||
Net income attributable to Indemnity | $ | 0.22 | $ | 0.43 | $ | 2.85 | $ | 1.89 | ||||||||
(1) | Prior to and through December 31, 2010, the underwriting results retained by EIC and ENY and the investment results of EIC, ENY and EPC accrued to the benefit of the Indemnity shareholder interest. Due to the sale of Indemnity’s property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting results and all investment results for these companies accrue to the benefit of the subscribers (policyholders) of the Exchange, or noncontrolling interest after December 31, 2010. |
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions)
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Assets | ||||||||
Investments-Indemnity | ||||||||
Available-for-sale securities, at fair value: | ||||||||
Fixed maturities(1) | $ | 264 | $ | 664 | ||||
Equity securities(1) | 24 | 38 | ||||||
Trading securities, at fair value | 28 | 42 | ||||||
Limited partnerships | 216 | 235 | ||||||
Other invested assets | 1 | 1 | ||||||
Investments-Exchange | ||||||||
Available-for-sale securities, at fair value: | ||||||||
Fixed maturities(1) | 7,279 | 6,517 | ||||||
Equity securities(1) | 570 | 472 | ||||||
Trading securities, at fair value | 2,306 | 1,835 | ||||||
Limited partnerships | 1,108 | 1,116 | ||||||
Other invested assets | 19 | 20 | ||||||
Total investments | 11,815 | 10,940 | ||||||
Cash and cash equivalents (Exchange portion of $120 and $158, respectively) | 430 | 234 | ||||||
Premiums receivable from policyholders (Exchange portion of $942 and $715, respectively)(1) | 942 | 906 | ||||||
Reinsurance recoverable (Exchange portion of $201 and $212, respectively)(1) | 201 | 215 | ||||||
Deferred income taxes (Exchange portion of $0 and $75, respectively) | 0 | 116 | ||||||
Deferred acquisition costs (Exchange portion of $467 and $416, respectively)(1) | 467 | 467 | ||||||
Other assets (Exchange portion of $357 and $306, respectively) | 489 | 409 | ||||||
Total assets | $ | 14,344 | $ | 13,287 | ||||
Liabilities and shareholders’ equity | ||||||||
Liabilities | ||||||||
Indemnity liabilities | ||||||||
Losses and loss expense reserves(1) | $ | 0 | $ | 752 | ||||
Unearned premiums(1) | 0 | 325 | ||||||
Deferred income taxes | 26 | 0 | ||||||
Other liabilities | 382 | 387 | ||||||
Exchange liabilities | ||||||||
Losses and loss expense reserves(1) | 3,584 | 2,846 | ||||||
Life policy and deposit contract reserves | 1,603 | 1,540 | ||||||
Unearned premiums(1) | 2,082 | 1,656 | ||||||
Deferred income taxes | 257 | 0 | ||||||
Other liabilities | 76 | 56 | ||||||
Total liabilities | 8,010 | 7,562 | ||||||
Indemnity’s shareholders’ equity | 912 | 902 | ||||||
Noncontrolling interest in consolidated entity – Exchange | 5,422 | 4,823 | ||||||
Total equity | 6,334 | 5,725 | ||||||
Total liabilities, shareholders’ equity and noncontrolling interest | $ | 14,344 | $ | 13,287 | ||||
(1) | Prior to December 31, 2010, the underwriting assets and liabilities retained by EIC and ENY were the responsibility of the Indemnity shareholder interest. Due to the sale of Indemnity’s property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting assets and liabilities are the responsibility of the subscribers (policyholders) of the Exchange, or noncontrolling interest beginning December 31, 2010. |