Equity in (losses) earnings of limited partnerships
(1
)
70
149
128
Other income
8
9
34
35
Total revenues
1,418
1,401
4,824
4,890
Benefits and expenses
Insurance losses and loss expenses
720
692
3,444
2,900
Policy acquisition and underwriting expenses
273
270
1,022
969
Goodwill impairment
—
22
—
22
Total benefits and expenses
993
984
4,466
3,891
Income from operations before income taxes
and noncontrolling interest
425
417
358
999
Provision for income taxes
144
163
90
339
Net income
281
254
268
660
Less: Net income attributable to noncontrolling
interest in consolidated entity – Exchange
255
242
99
498
Net income attributable to Indemnity
$
26
$
12
$
169
$
162
Earnings Per Share
Net income attributable to Indemnity per share
Class A common stock – basic
$
0.55
$
0.25
$
3.45
$
3.18
Class A common stock – diluted
$
0.49
$
0.22
$
3.08
$
2.85
Class B common stock – basic and diluted
$
81.76
$
40.93
$
522.47
$
462.83
Weighted average shares outstanding attributable to
Indemnity – Basic
Class A common stock
47,982,703
50,137,565
48,875,316
50,705,607
Class B common stock
2,546
2,546
2,546
2,546
Weighted average shares outstanding attributable to
Indemnity – Diluted
Class A common stock
54,164,824
56,316,852
55,057,437
56,884,894
Class B common stock
2,546
2,546
2,546
2,546
Dividends declared per share
Class A common stock
$
0.5525
$
0.515
$
2.0975
$
1.955
Class B common stock
$
82.875
$
77.25
$
314.625
$
293.25
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
December 31,
December 31,
December 31,
December 31,
Percent
2011
2010
Percent
2011
2010
2011
2010
2011
2010
Management operations:
Management fee revenue, net
100.0
%
$
251
$
236
$
—
$
—
$
(251
)
$
(236
)
$
—
$
—
Service agreement revenue
100.0
%
8
8
—
—
—
—
8
8
Total revenue from management operations
259
244
—
—
(251
)
(236
)
8
8
Cost of management operations
100.0
%
225
215
—
—
(225
)
(215
)
—
—
Income from management operations before taxes
34
29
—
—
(26
)
(21
)
8
8
Property and casualty insurance operations:(2)
Net premiums earned
5.5%(2)
—
55
94.5%(2)
1,060
944
—
—
1,060
999
Losses and loss expenses
5.5%(2)
—
37
94.5%(2)
696
633
(1
)
(1
)
695
669
Policy acquisition and other underwriting expenses
5.5%(2)
—
15
94.5%(2)
296
269
(29
)
(23
)
267
261
Income from property and casualty insurance operations before taxes
—
3
68
42
30
24
98
69
Life insurance operations: (1)
Total revenue
21.6%(3)
—
9
78.4%(3)
43
36
(1
)
0
42
45
Total benefits and expenses
21.6%(3)
—
6
78.4%(3)
31
26
0
0
31
32
Income from life insurance operations before taxes
—
3
12
10
(1
)
0
11
13
Investment operations:
Net investment income (2)
4
9
83
80
(3
)
(3
)
84
86
Net realized gains (losses) on investments (2)
2
(8
)
227
202
—
—
229
194
Net impairment losses recognized in earnings(2)
0
0
(1
)
0
—
—
(1
)
0
Equity in earnings (losses) of limited partnerships
1
10
(5
)
59
—
—
(4
)
69
Goodwill impairment
—
—
—
(22
)
—
—
—
(22
)
Income from investment operations before taxes(2)
7
11
304
319
(3
)
(3
)
308
327
Income from operations before income taxes and noncontrolling interest
41
46
384
371
—
—
425
417
Provision for income taxes
15
34
129
129
—
—
144
163
Net income
$
26
$
12
$
255
$
242
$
-
$
-
$
281
$
254
(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 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
(in millions)
Eliminations of
related party
Indemnity shareholder interest
Noncontrolling interest (Exchange)
transactions
Erie Insurance Group
Years ended
Years ended
Years ended
Years ended
December 31,
December 31,
December 31,
December 31,
Percent
2011
2010
Percent
2011
2010
2011
2010
2011
2010
Management operations:
Management fee revenue, net
100.0
%
$
1,067
$
1,009
$
—
$
—
$
(1,067
)
$
(1,009
)
$
—
$
—
Service agreement revenue
100.0
%
33
34
—
—
—
—
33
34
Total revenue from management operations
1,100
1,043
—
—
(1,067
)
(1,009
)
33
34
Cost of management operations
100.0
%
892
841
—
—
(892
)
(841
)
—
—
Income from management operations before taxes
208
202
—
—
(175
)
(168
)
33
34
Property and casualty insurance operations:(2)
Net premiums earned
5.5%(2)
—
216
94.5%(2)
4,149
3,709
—
—
4,149
3,925
Losses and loss expenses
5.5%(2)
—
155
94.5%(2)
3,349
2,660
(5
)
(5
)
3,344
2,810
Policy acquisition and other underwriting expenses
5.5%(2)
—
61
94.5%(2)
1,178
1,052
(183
)
(174
)
995
939
Income (loss) from property and casualty insurance operations before taxes
—
0
(378
)
(3
)
188
179
(190
)
176
Life insurance operations: (1)
Total revenue
21.6%(3)
10
37
78.4%(3)
167
135
(2
)
(2
)
175
170
Total benefits and expenses
21.6%(3)
7
26
78.4%(3)
120
96
0
(2
)
127
120
Income from life insurance operations before taxes
3
11
47
39
(2
)
0
48
50
Investment operations:
Net investment income (2)
16
37
335
312
(11
)
(11
)
340
338
Net realized gains (losses) on investments (2)
3
(1
)
(20
)
301
—
—
(17
)
300
Net impairment losses recognized in earnings(2)
0
(1
)
(1
)
(3
)
—
—
(1
)
(4
)
Equity in earnings of limited partnerships
26
21
119
106
—
—
145
127
Goodwill impairment
—
—
—
(22
)
—
—
—
(22
)
Income from investment operations before taxes(2)
45
56
433
694
(11
)
(11
)
467
739
Income from operations before income taxes and noncontrolling interest
256
269
102
730
—
—
358
999
Provision for income taxes
87
107
3
232
—
—
90
339
Net income
$
169
$
162
$
99
$
498
$
-
$
-
$
268
$
660
(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 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
Reconciliation of operating income to net income
We disclose operating income, a non-GAAP financial measure, to enhance our investors’ understanding of our performance related to the Indemnity shareholder interest. 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 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
Year
Year
months ended
months ended
ended
ended
December 31,
December 31,
December 31,
December 31,
2011
2010
2011
2010
(in millions, except per share data)
(unaudited)
(unaudited)
Operating income attributable to Indemnity
$
25
$
17
$
167
$
163
Net realized gains (losses) and impairments on investments
2
(8
)
3
(2
)
Income tax (expense) benefit
(1
)
3
(1
)
1
Realized gains (losses) and impairments, net of income taxes
1
(5
)
2
(1
)
Net income attributable to Indemnity
$
26
$
12
$
169
$
162
Per Indemnity Class A common share – diluted:
Operating income attributable to Indemnity
$
0.47
$
0.32
$
3.04
$
2.88
Net realized gains (losses) and impairments on investments
0.03
(0.15
)
0.06
(0.04
)
Income tax (expense) benefit
(0.01
)
0.05
(0.02
)
0.01
Realized gains (losses) and impairments, net of income taxes
0.02
(0.10
)
0.04
(0.03
)
Net income attributable to Indemnity
$
0.49
$
0.22
$
3.08
$
2.85
(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 accrue to the interest 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)
December 31,
December 31,
Assets
2011
2010
Investments-Indemnity
Available-for-sale securities, at fair value:
Fixed maturities
$
548
$
264
Equity securities
25
24
Trading securities, at fair value
27
28
Limited partnerships
208
216
Other invested assets
1
1
Investments-Exchange
Available-for-sale securities, at fair value:
Fixed maturities
7,292
7,279
Equity securities
564
570
Trading securities, at fair value
2,308
2,306
Limited partnerships
1,082
1,108
Other invested assets
19
19
Total investments
12,074
11,815
Cash and cash equivalents (Exchange portion of $174 and $120, respectively)
185
430
Premiums receivable from policyholders – Exchange
976
942
Reinsurance recoverable – Exchange
166
201
Deferred income taxes – Indemnity
19
0
Deferred acquisition costs – Exchange
487
467
Other assets (Exchange portion of $322 and $357, respectively)
441
489
Total assets
$
14,348
$
14,344
Liabilities and shareholders’ equity
Liabilities
Indemnity liabilities
Deferred income taxes
$
0
$
26
Other liabilities
455
382
Exchange liabilities
Losses and loss expense reserves
3,499
3,584
Life policy and deposit contract reserves
1,671
1,603
Unearned premiums
2,178
2,082
Deferred income taxes
147
257
Other liabilities
105
76
Total liabilities
8,055
8,010
Indemnity’s shareholders’ equity
781
912
Noncontrolling interest in consolidated entity-Exchange
5,512
5,422
Total equity
6,293
6,334
Total liabilities, shareholders’ equity and noncontrolling interest
$
14,348
$
14,344
4
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