Less: Net (loss) income attributable to noncontrolling
interest in consolidated entity – Exchange
(159
)
(80
)
71
35
Net income attributable to Indemnity
$
52
$
49
$
96
$
96
Earnings Per Share
Net income attributable to Indemnity per share
Class A common stock – basic
$
1.05
$
0.96
$
1.93
$
1.87
Class A common stock – diluted
$
0.94
$
0.86
$
1.72
$
1.68
Class B common stock – basic and diluted
$
158.33
$
138.21
$
291.07
$
271.03
Weighted average shares outstanding attributable to
Indemnity – Basic
Class A common stock
49,250,061
51,013,358
49,518,069
51,099,071
Class B common stock
2,546
2,546
2,546
2,546
Weighted average shares outstanding attributable to
Indemnity – Diluted
Class A common stock
55,436,976
57,197,603
55,704,984
57,282,684
Class B common stock
2,546
2,546
2,546
2,546
Dividends declared per share
Class A common stock
$
0.515
$
0.48
$
1.03
$
0.96
Class B common stock
$
77.25
$
72.00
$
154.50
$
144.00
ERIE INDEMNITY COMPANY
RESULTS OF THE 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
June 30,
June 30,
June 30,
June 30,
Percent
2011
2010
Percent
2011
2010
2011
2010
2011
2010
Management operations:
Management fee revenue, net
100.0
%
$
285
$
270
$
0
$
0
$
(285
)
$
(270
)
$
0
$
0
Service agreement revenue
100.0
%
9
9
0
0
0
0
9
9
Total revenue from management operations
294
279
0
0
(285
)
(270
)
9
9
Cost of management operations
100.0
%
230
217
0
0
(230
)
(217
)
0
0
Income from management operations before taxes
64
62
0
0
(55
)
(53
)
9
9
Property and casualty insurance operations:(2)
��
Net premiums earned
5.5%(2)
0
53
94.5%(2)
1,030
921
0
0
1,030
974
Losses and loss expenses
5.5%(2)
0
40
94.5%(2)
1,147
677
(2
)
(2
)
1,145
715
Policy acquisition and other underwriting expenses
5.5%(2)
0
15
94.5%(2)
298
261
(56
)
(54
)
242
222
(Loss) income from property and casualty insurance operations before taxes
0
(2
)
(415
)
(17
)
58
56
(357
)
37
Life insurance operations: (1)
Total revenue
21.6%(3)
0
9
78.4%(3)
44
32
(1
)
(1
)
43
40
Total benefits and expenses
21.6%(3)
0
6
78.4%(3)
32
24
0
0
32
30
Income from life insurance operations before taxes
0
3
12
8
(1
)
(1
)
11
10
Investment operations:
Net investment income (2)
4
9
88
78
(2
)
(2
)
90
85
Net realized gains (losses) on investments (2)
6
(3
)
30
(213
)
0
0
36
(216
)
Net impairment losses recognized in earnings(2)
0
(1
)
0
(1
)
0
0
0
(2
)
Equity in earnings of limited partnerships
7
6
30
20
0
0
37
26
Income (loss) from investment operations before taxes(2)
17
11
148
(116
)
(2
)
(2
)
163
(107
)
Income (loss) from operations before income taxes and noncontrolling interest
81
74
(255
)
(125
)
0
0
(174
)
(51
)
Provision for income taxes
29
25
(96
)
(45
)
0
0
(67
)
(20
)
Net income (loss)
$
52
$
49
$
(159
)
$
(80
)
$
0
$
0
$
(107
)
$
(31
)
(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 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 interest 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 Indemnity shareholder interest, and the Exchange retained a 78.4% ownership interest in EFL, which accrued to the interest 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 interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011.
1
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
Six months
Six months ended
Six months ended
ended
Six months ended
June 30,
June 30,
June 30,
June 30,
Percent
2011
2010
Percent
2011
2010
2010
2010
2011
2010
Management operations:
Management fee revenue, net
100.0
%
$
536
$
507
$
0
$
0
$
(536
)
$
(507
)
$
0
$
0
Service agreement revenue
100.0
%
17
17
0
0
0
0
17
17
Total revenue from management operations
553
524
0
0
(536
)
(507
)
17
17
Cost of management operations
100.0
%
441
409
0
0
(441
)
(409
)
0
0
Income from management operations before taxes
112
115
0
0
(95
)
(98
)
17
17
Property and casualty insurance operations:(2)
Net premiums earned
5.5%(2)
0
106
94.5%(2)
2,044
1,830
0
0
2,044
1,936
Losses and loss expenses
5.5%(2)
0
80
94.5%(2)
1,830
1,375
(3
)
(3
)
1,827
1,452
Policy acquisition and other underwriting expenses
5.5%(2)
0
30
94.5%(2)
580
511
(98
)
(100
)
482
441
(Loss) income from property and casualty insurance operations before taxes
0
(4
)
(366
)
(56
)
101
103
(265
)
43
Life insurance operations: (1)
Total revenue
21.6%(3)
10
18
78.4%(3)
78
66
(1
)
(1
)
87
83
Total benefits and expenses
21.6%(3)
7
13
78.4%(3)
56
50
0
(1
)
63
62
Income from life insurance operations before taxes
3
5
22
16
(1
)
0
24
21
Investment operations:
Net investment income (2)
8
18
169
153
(5
)
(5
)
172
166
Net realized gains (losses) on investments (2)
7
2
174
(98
)
0
0
181
(96
)
Net impairment losses recognized in earnings(2)
0
(1
)
0
(3
)
0
0
0
(4
)
Equity in earnings of limited partnerships
18
6
91
24
0
0
109
30
Income from investment operations before taxes(2)
33
25
434
76
(5
)
(5
)
462
96
Income from operations before income taxes and noncontrolling interest
148
141
90
36
0
0
238
177
Provision for income taxes
52
45
19
1
0
0
71
46
Net income
$
96
$
96
$
71
$
35
$
0
$
0
$
167
$
131
(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 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 interest 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 Indemnity shareholder interest, and the Exchange retained a 78.4% ownership interest in EFL, which accrued to the interest 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 interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011.
2
ERIE INDEMNITY COMPANY
RECONCILIATION OF OPERATING INCOME TO NET INCOME (Unaudited)
Reconciliation of operating income to net income
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. generally accepted accounting principles (“GAAP”) and does not reflect Indemnity’s overall profitability.
The following table reconciles operating income and net income for the Indemnity shareholder interest: (1) (2)
Indemnity Shareholder interest
Three
Three
Six
Six
months ended
months ended
months ended
months ended
June 30,
June 30,
June 30,
June 30,
2011
2010
2011
2010
(in millions, except per share data)
Operating income attributable to Indemnity
$
48
$
51
$
91
$
95
Net realized gains (losses) and impairments on investments
6
(4
)
7
1
Income tax (expense) benefit
(2
)
2
(2
)
0
Realized gains (losses) and impairments, net of income taxes
4
(2
)
5
1
Net income attributable to Indemnity
$
52
$
49
$
96
$
96
Per Indemnity Class A common share – diluted:
Operating income attributable to Indemnity
$
0.87
$
0.89
$
1.64
$
1.66
Net realized gains (losses) and impairments on investments
0.10
(0.07
)
0.12
0.02
Income tax (expense) benefit
(0.03
)
0.04
(0.04
)
0.00
Realized gains (losses) and impairments, net of income taxes
0.07
(0.03
)
0.08
0.02
Net income attributable to Indemnity
$
0.94
$
0.86
$
1.72
$
1.68
(1)
Prior to and through March 31, 2011, Indemnity retained a 21.6% ownership interest in EFL, which accrued to the Indemnity shareholder interest, and the Exchange retained a 78.4% ownership interest in EFL, which accrued to the interest 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 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 interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest after December 31, 2010.
3
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions)
June 30,
December 31,
2011
2010
Assets
(Unaudited)
Investments-Indemnity
Available-for-sale securities, at fair value:
Fixed maturities
$
525
$
264
Equity securities
20
24
Trading securities, at fair value
30
28
Limited partnerships
224
216
Other invested assets
1
1
Investments-Exchange
Available-for-sale securities, at fair value:
Fixed maturities
7,380
7,279
Equity securities
610
570
Trading securities, at fair value
2,513
2,306
Limited partnerships
1,166
1,108
Other invested assets
19
19
Total investments
12,488
11,815
Cash and cash equivalents (Exchange portion of $61 and $120, respectively)
109
430
Premiums receivable from policyholders – Exchange
1,017
942
Reinsurance recoverable – Exchange
198
201
Deferred acquisition costs – Exchange
484
467
Other assets (Exchange portion of $316 and $357, respectively)
427
489
Total assets
$
14,723
$
14,344
Liabilities and shareholders’ equity
Liabilities
Indemnity liabilities
Deferred income taxes
$
1
$
26
Other liabilities
390
382
Exchange liabilities
Losses and loss expense reserves
3,791
3,584
Life policy and deposit contract reserves
1,637
1,603
Unearned premiums
2,196
2,082
Deferred income taxes
250
257
Other liabilities
76
76
Total liabilities
8,341
8,010
Indemnity’s shareholders’ equity
866
912
Noncontrolling interest in consolidated entity – Exchange
5,516
5,422
Total equity
6,382
6,334
Total liabilities, shareholders’ equity and noncontrolling interest
$
14,723
$
14,344
4
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