Exhibit 99.2
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share data)
Three | Three | |||||||
months | months | |||||||
ended | ended | |||||||
March 31, | March 31, | |||||||
Revenues | 2011 | 2010 | ||||||
Premiums earned | $ | 1,030 | $ | 978 | ||||
Net investment income | 105 | 104 | ||||||
Net realized investment gains | 149 | 125 | ||||||
Net impairment losses recognized in earnings | 0 | (2 | ) | |||||
Equity in earnings of limited partnerships | 72 | 3 | ||||||
Other income | 9 | 8 | ||||||
Total revenues | 1,365 | 1,216 | ||||||
Benefits and expenses | ||||||||
Insurance losses and loss expenses | 706 | 761 | ||||||
Policy acquisition and underwriting expenses | 247 | 227 | ||||||
Total benefits and expenses | 953 | 988 | ||||||
Income from operations before income taxes | ||||||||
and noncontrolling interest | 412 | 228 | ||||||
Provision for income taxes | 138 | 66 | ||||||
Net income | 274 | 162 | ||||||
Less: Net income attributable to noncontrolling | ||||||||
interest in consolidated entity – Exchange | 230 | 115 | ||||||
Net income attributable to Indemnity | $ | 44 | $ | 47 | ||||
Earnings Per Share | ||||||||
Net income attributable to Indemnity per share | ||||||||
Class A common stock – basic | $ | 0.88 | $ | 0.92 | ||||
Class A common stock – diluted | $ | 0.78 | $ | 0.82 | ||||
Class B common stock – basic and diluted | $ | 126.48 | $ | 132.83 | ||||
Weighted average shares outstanding attributable to | ||||||||
Indemnity – Basic | ||||||||
Class A common stock | 49,789,056 | 51,185,736 | ||||||
Class B common stock | 2,546 | 2,546 | ||||||
Weighted average shares outstanding attributable to | ||||||||
Indemnity – Diluted | ||||||||
Class A common stock | 55,968,838 | 57,357,543 | ||||||
Class B common stock | 2,546 | 2,546 | ||||||
Dividends declared per share | ||||||||
Class A common stock | $ | 0.515 | $ | 0.48 | ||||
Class B common stock | $ | 77.25 | $ | 72.00 | ||||
ERIE INDEMNITY COMPANY
RESULTS OF THE ERIE INSURANCE GROUP’S OPERATIONS BY INTEREST (Unaudited)
(in millions)
Eliminations of | ||||||||||||||||||||||||||||||||||||||||
related party | ||||||||||||||||||||||||||||||||||||||||
Indemnity | shareholder interest | Noncontrolling interest (Exchange) | transactions | Erie Insurance Group | ||||||||||||||||||||||||||||||||||||
Three months ended | Three months ended | Three months ended | Three months ended | |||||||||||||||||||||||||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||||||||||||||||||||||||||
Percent | 2011 | 2010 | Percent | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||||
Management operations: | ||||||||||||||||||||||||||||||||||||||||
Management fee revenue, net | 100.0 | % | $ | 251 | $ | 237 | $ | 0 | $ | 0 | $ | (251 | ) | $ | (237 | ) | $ | 0 | $ | 0 | ||||||||||||||||||||
Service agreement revenue | 100.0 | % | 8 | 8 | 0 | 0 | 0 | 0 | 8 | 8 | ||||||||||||||||||||||||||||||
Total revenue from management operations | 259 | 245 | 0 | 0 | (251 | ) | (237 | ) | 8 | 8 | ||||||||||||||||||||||||||||||
Cost of management operations | 100.0 | % | 211 | 192 | 0 | 0 | (211 | ) | (192 | ) | 0 | 0 | ||||||||||||||||||||||||||||
Income from management operations before taxes | 48 | 53 | 0 | 0 | (40 | ) | (45 | ) | 8 | 8 | ||||||||||||||||||||||||||||||
Property and casualty operations:(2) | ||||||||||||||||||||||||||||||||||||||||
Net Premiums earned | 5.5%(2) | 0 | 53 | 94.5%(2) | 1,014 | 909 | 0 | 0 | 1,014 | 962 | ||||||||||||||||||||||||||||||
Losses and loss expenses | 5.5%(2) | 0 | 40 | 94.5%(2) | 683 | 698 | (1 | ) | (1 | ) | 682 | 737 | ||||||||||||||||||||||||||||
Policy acquisition and other underwriting expenses | 5.5%(2) | 0 | 15 | 94.5%(2) | 282 | 250 | (42 | ) | (46 | ) | 240 | 219 | ||||||||||||||||||||||||||||
Income (loss) from property and casualty insurance operations before taxes | 0 | (2 | ) | 49 | (39 | ) | 43 | 47 | 92 | 6 | ||||||||||||||||||||||||||||||
Life insurance operations: (1) | ||||||||||||||||||||||||||||||||||||||||
Total revenue | 21.6%(3) | 10 | 9 | 78.4%(3) | 34 | 34 | 0 | 0 | 44 | 43 | ||||||||||||||||||||||||||||||
Total benefits and expenses | 21.6%(3) | 7 | 7 | 78.4%(3) | 24 | 26 | 0 | (1 | ) | 31 | 32 | |||||||||||||||||||||||||||||
Income from life insurance operations before taxes | 3 | 2 | 10 | 8 | 0 | 1 | 13 | 11 | ||||||||||||||||||||||||||||||||
Investment operations: | ||||||||||||||||||||||||||||||||||||||||
Net investment income (2) | 4 | 9 | 81 | 75 | (3 | ) | (3 | ) | 82 | 81 | ||||||||||||||||||||||||||||||
Net realized gain on investments (2) | 1 | 5 | 144 | 115 | 0 | 0 | 145 | 120 | ||||||||||||||||||||||||||||||||
Net impairment losses recognized in earnings(2) | 0 | 0 | 0 | (2 | ) | 0 | 0 | 0 | (2 | ) | ||||||||||||||||||||||||||||||
Equity in earnings of limited partnerships | 11 | 0 | 61 | 4 | 0 | 0 | 72 | 4 | ||||||||||||||||||||||||||||||||
Income from investment operations before taxes(2) | 16 | 14 | 286 | 192 | (3 | ) | (3 | ) | 299 | 203 | ||||||||||||||||||||||||||||||
Income from operations before income taxes and noncontrolling interest | 67 | 67 | 345 | 161 | 0 | 0 | 412 | 228 | ||||||||||||||||||||||||||||||||
Provision for income taxes | 23 | 20 | 115 | 46 | 0 | 0 | 138 | 66 | ||||||||||||||||||||||||||||||||
Net income | $ | 44 | $ | 47 | $ | 230 | $ | 115 | $ | 0 | $ | 0 | $ | 274 | $ | 162 | ||||||||||||||||||||||||
(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) | Prior to and through March 31, 2011, Indemnity retained a 21.6% ownership interest in EFL, which accrued to the benefit of the Indemnity shareholder interest, and the Exchange retained a 78.4% ownership interest in EFL, which accrued to the benefit of the subscribers (policyholders) of the Exchange, or noncontrolling interest. Due to the sale of Indemnity’s 21.6% ownership interest in EFL to the Exchange on March 31, 2011, 100% of the life insurance results of EFL will accrue to the benefit of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011. |
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ERIE INDEMNITY COMPANY
RECONCILIATION OF OPERATING INCOME TO NET INCOME
Reconciliation of operating income to net income(Unaudited)
We believe that an investors’ understanding of our performance related to the Indemnity shareholder interest is enhanced by the disclosure of operating income, a non-GAAP financial measure. Our method of calculating this measure may differ from those used by other companies, and therefore comparability may be limited.
Indemnity defines operating income as income generated from management operations, life insurance operations(1), property and casualty insurance underwriting operations(2), net investment income(2), and equity in earnings or losses of limited partnerships, net of related federal income taxes. It does not include realized capital gains and losses, impairment losses and related federal income taxes.
Indemnity uses operating income to evaluate the results of its operations. It reveals trends that may be obscured by the net effects of realized capital gains and losses including impairment losses. Realized capital gains and losses, including impairment losses, may vary significantly between periods and are generally driven by business decisions and economic developments such as capital market conditions which are not related to our ongoing operations. We 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 Indemnity’s overall profitability.
The following table reconciles operating income and net income for Indemnity shareholder interest: (1) (2)
Indemnity | ||||||||
Shareholder interest | ||||||||
Three months ended | ||||||||
March 31, | ||||||||
(in millions, except per share data) | 2011 | 2010 | ||||||
Operating income attributable to Indemnity | $ | 43 | $ | 44 | ||||
Net realized gains and impairments on investments | 1 | 5 | ||||||
Income tax expense | 0 | (2 | ) | |||||
Realized gains and impairments, net of income taxes | 1 | 3 | ||||||
Net income attributable to Indemnity | $ | 44 | $ | 47 | ||||
Per Indemnity Class A common share – diluted: | ||||||||
Operating income attributable to Indemnity | $ | 0.77 | $ | 0.77 | ||||
Net realized gains and impairments on investments | 0.02 | 0.09 | ||||||
Income tax expense | (0.01 | ) | (0.04 | ) | ||||
Realized gains and impairments, net of income taxes | 0.01 | 0.05 | ||||||
Net income attributable to Indemnity | $ | 0.78 | $ | 0.82 | ||||
(1) | Prior to and through March 31, 2011, Indemnity retained a 21.6% ownership interest in EFL, which accrued to the benefit of the Indemnity shareholder interest, and the Exchange retained a 78.4% ownership interest in EFL, which accrued to the benefit of the subscribers (policyholders) of the Exchange or noncontrolling interest. Due to the sale of Indemnity’s 21.6% ownership interest in EFL to the Exchange on March 31, 2011, 100% of the life insurance results of EFL will accrue to the benefit of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011. |
(2) | Prior to and through December 31, 2010, the underwriting results retained by EIC and ENY and the investment results of EIC, ENY and EPC accrued to the 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. |
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ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Investments-Indemnity | ||||||||
Available-for-sale securities, at fair value: | ||||||||
Fixed maturities | $ | 513 | $ | 264 | ||||
Equity securities | 22 | 24 | ||||||
Trading securities, at fair value | 29 | 28 | ||||||
Limited partnerships | 222 | 216 | ||||||
Other invested assets | 1 | 1 | ||||||
Investments-Exchange | ||||||||
Available-for-sale securities, at fair value: | ||||||||
Fixed maturities | 7,254 | 7,279 | ||||||
Equity securities | 603 | 570 | ||||||
Trading securities, at fair value | 2,462 | 2,306 | ||||||
Limited partnerships | 1,153 | 1,108 | ||||||
Other invested assets | 18 | 19 | ||||||
Total investments | 12,277 | 11,815 | ||||||
Cash and cash equivalents (Exchange portion of $125 and $120, respectively) | 211 | 430 | ||||||
Premiums receivable from policyholders (Exchange portion of $959 and $942, respectively) | 959 | 942 | ||||||
Reinsurance recoverable (Exchange portion of $199 and $201, respectively) | 199 | 201 | ||||||
Deferred acquisition costs (Exchange portion of $469 and $467, respectively) | 469 | 467 | ||||||
Other assets (Exchange portion of $332 and $357, respectively) | 438 | 489 | ||||||
Total assets | $ | 14,553 | $ | 14,344 | ||||
Liabilities and shareholders’ equity | ||||||||
Liabilities | ||||||||
Indemnity liabilities | ||||||||
Deferred income taxes | $ | 14 | $ | 26 | ||||
Other liabilities | 344 | 382 | ||||||
Exchange liabilities | ||||||||
Losses and loss expense reserves | 3,559 | 3,584 | ||||||
Life policy and deposit contract reserves | 1,615 | 1,603 | ||||||
Unearned premiums | 2,093 | 2,082 | ||||||
Deferred income taxes | 309 | 257 | ||||||
Other liabilities | 68 | 76 | ||||||
Total liabilities | 8,002 | 8,010 | ||||||
Indemnity’s shareholders’ equity | 893 | 912 | ||||||
Noncontrolling interest in consolidated entity – Exchange | 5,658 | 5,422 | ||||||
Total equity | 6,551 | 6,334 | ||||||
Total liabilities, shareholders’ equity and noncontrolling interest | $ | 14,553 | $ | 14,344 | ||||
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