Less: Net (loss) income attributable to noncontrolling
interest in consolidated entity – Exchange
(81
)
(159
)
237
71
Net income attributable to Indemnity
$
43
$
52
$
79
$
96
Earnings Per Share
Net income attributable to Indemnity per share
Class A common stock – basic
$
0.90
$
1.05
$
1.65
$
1.93
Class A common stock – diluted
$
0.80
$
0.94
$
1.47
$
1.72
Class B common stock – basic and diluted
$
134.78
$
158.33
$
248.55
$
291.07
Weighted average shares outstanding attributable to
Indemnity – Basic
Class A common stock
47,492,305
49,250,061
47,619,852
49,518,069
Class B common stock
2,544
2,546
2,545
2,546
Weighted average shares outstanding attributable to
Indemnity – Diluted
Class A common stock
53,677,848
55,436,976
53,807,795
55,704,984
Class B common stock
2,544
2,546
2,545
2,546
Dividends declared per share
Class A common stock
$
0.5525
$
0.515
$
1.105
$
1.03
Class B common stock
$
87.8750
$
77.250
$
165.750
$
154.50
ERIE INDEMNITY COMPANY
RESULTS OF THE ERIE INSURANCE GROUP’S OPERATIONS BY INTEREST (Unaudited)
(in millions)
Eliminations of
Indemnity
shareholder
Noncontrolling interest
related party
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
2012
2011
Percent
2012
2011
2012
2011
2012
2011
Management operations:
Management fee revenue, net
100.0
%
$
308
$
285
$
—
$
—
$
(308
)
$
(285
)
$
—
$
—
Service agreement revenue
100.0
%
8
9
—
—
—
—
8
9
Total revenue from management operations
316
294
—
—
(308
)
(285
)
8
9
Cost of management operations
100.0
%
257
230
—
—
(257
)
(230
)
—
—
Income from management operations before taxes
59
64
—
—
(51
)
(55
)
8
9
Property and casualty insurance operations:
Net premiums earned
—
—
100.0
%
1,092
1,030
—
—
1,092
1,030
Losses and loss expenses
—
—
100.0
%
919
1,147
(1
)
(2
)
918
1,145
Policy acquisition and other underwriting expenses
—
—
100.0
%
332
298
(53
)
(56
)
279
242
Loss from property and casualty insurance operations before taxes
—
—
(159
)
(415
)
54
58
(105
)
(357
)
Life insurance operations: (1)
Total revenue
—
—
100.0
%
46
44
(1
)
(1
)
45
43
Total benefits and expenses
—
—
100.0
%
33
32
0
0
33
32
Income from life insurance operations before taxes
—
—
13
12
(1
)
(1
)
12
11
Investment operations:
Net investment income
4
4
87
88
(2
)
(2
)
89
90
Net realized (losses) gains on investments
(1
)
6
(110
)
30
—
—
(111
)
36
Net impairment losses recognized in earnings
0
0
0
0
—
—
0
0
Equity in earnings of limited partnerships
3
7
34
30
—
—
37
37
Income from investment operations before taxes
6
17
11
148
(2
)
(2
)
15
163
Income (loss) from operations before income taxes and noncontrolling interest
65
81
(135
)
(255
)
—
—
(70
)
(174
)
Provision for income taxes
22
29
(54
)
(96
)
—
—
(32
)
(67
)
Net income (loss)
$
43
$
52
$
(81
)
$
(159
)
$
-
$
-
$
(38
)
$
(107
)
(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.
1
ERIE INDEMNITY COMPANY
RESULTS OF THE ERIE INSURANCE GROUP’S OPERATIONS BY INTEREST (Unaudited) (in millions)
Eliminations of
Noncontrolling interest
related party
Indemnity shareholder 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
2012
2011
Percent
2012
2011
2012
2011
2012
2011
Management operations:
Management fee revenue, net
100.0
%
$
577
$
536
$
—
$
—
$
(577
)
$
(536
)
$
—
$
—
Service agreement revenue
100.0
%
15
17
—
—
—
—
15
17
Total revenue from management operations
592
553
—
—
(577
)
(536
)
15
17
Cost of management operations
100.0
%
487
441
—
—
(487
)
(441
)
—
—
Income from management operations before taxes
105
114
—
—
(90
)
(95
)
15
17
Property and casualty insurance operations:
Net premiums earned
—
—
100.0
%
2,161
2,044
—
—
2,161
2,044
Losses and loss expenses
—
—
100.0
%
1,611
1,830
(2
)
(3
)
1,609
1,827
Policy acquisition and other underwriting expenses
—
—
100.0
%
634
580
(94
)
(98
)
540
482
(Loss) income from property and casualty insurance operations before taxes
—
—
(84
)
(366
)
96
101
12
(265
)
Life insurance operations: (1) (2)
Total revenue
21.6% (2)
—
10
78.4
%
89
78
(1
)
(1
)
88
87
Total benefits and expenses
21.6% (2)
—
7
78.4
%
67
56
0
0
67
63
Income from life insurance operations before taxes
—
3
22
22
(1
)
(1
)
21
24
Investment operations:
Net investment income
8
8
170
169
(5
)
(5
)
173
172
Net realized gains on investments
2
7
183
174
—
—
185
181
Net impairment losses recognized in earnings
0
0
0
0
—
—
0
0
Equity in earnings of limited partnerships
4
18
54
91
—
—
58
109
Income from investment operations before taxes
14
33
407
434
(5
)
(5
)
416
462
Income from operations before income taxes and noncontrolling interest
119
148
345
90
—
—
464
238
Provision for income taxes
40
52
108
19
—
—
148
71
Net income
$
79
$
96
$
237
$
71
$
-
$
-
$
316
$
167
(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 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 EFL’s life insurance results 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 net income excluding 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:
Indemnity Shareholder interest
Three
Three
Six
Six
months ended
months ended
months ended
months ended
June 30,
June 30,
June 30,
June 30,
2012
2011
2012
2011
(in millions, except per share data)
(unaudited)
(unaudited)
Operating income attributable to Indemnity
$
44
$
48
$
78
$
91
Net realized (losses) gains and impairments on investments
(1
)
6
2
7
Income tax benefit (expense)
0
(2
)
(1
)
(2
)
Realized (losses) gains and impairments, net of income taxes
(1
)
4
1
5
Net income attributable to Indemnity
$
43
$
52
$
79
$
96
Per Indemnity Class A common share – diluted:
Operating income attributable to Indemnity
$
0.82
$
0.87
$
1.45
$
1.64
Net realized (losses) gains and impairments on investments
(0.03
)
0.10
0.03
0.12
Income tax benefit (expense)
0.01
(0.03
)
(0.01
)
(0.04
)
Realized (losses) gains and impairments, net of income taxes
(0.02
)
0.07
0.02
0.08
Net income attributable to Indemnity
$
0.80
$
0.94
$
1.47
$
1.72
3
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions)
June 30,
December 31,
2012
2011
Assets
(Unaudited)
Investments-Indemnity
Available-for-sale securities, at fair value:
Fixed maturities
$
510
$
548
Equity securities
26
25
Trading securities, at fair value
28
27
Limited partnerships
199
208
Other invested assets
1
1
Investments-Exchange
Available-for-sale securities, at fair value:
Fixed maturities
7,569
7,292
Equity securities
605
564
Trading securities, at fair value
2,490
2,308
Limited partnerships
1,083
1,082
Other invested assets
19
19
Total investments
12,530
12,074
Cash and cash equivalents (Exchange portion of $227 and $174, respectively)
240
185
Premiums receivable from policyholders – Exchange
1,073
976
Reinsurance recoverable – Exchange
168
166
Deferred income taxes – Indemnity
21
19
Deferred acquisition costs – Exchange
500
487
Other assets (Exchange portion of $395 and $322, respectively)
510
441
Total assets
$
15,042
$
14,348
Liabilities and shareholders’ equity
Liabilities
Indemnity liabilities
Other liabilities
$
447
$
455
Exchange liabilities
Losses and loss expense reserves
3,613
3,499
Life policy and deposit contract reserves
1,706
1,671
Unearned premiums
2,331
2,178
Deferred income taxes
235
147
Other liabilities
113
105
Total liabilities
8,445
8,055
Indemnity’s shareholders’ equity
766
781
Noncontrolling interest in consolidated entity – Exchange
5,831
5,512
Total equity
6,597
6,293
Total liabilities, shareholders’ equity and noncontrolling interest
$
15,042
$
14,348
4
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