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.
1
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.
2
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
3
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