Less: Net income (loss) attributable to noncontrolling
interest in consolidated entity – Exchange
133
(227
)
370
(156
)
Net income attributable to Indemnity
$
51
$
47
$
130
$
143
Earnings Per Share
Net income attributable to Indemnity per share
Class A common stock – basic
$
1.08
$
0.97
$
2.73
$
2.90
Class A common stock – diluted
$
0.96
$
0.87
$
2.43
$
2.59
Class B common stock – basic and diluted
$
162.02
$
146.67
$
410.89
$
439.39
Weighted average shares outstanding attributable to
Indemnity – Basic
Class A common stock
47,188,741
48,503,383
47,476,693
49,176,124
Class B common stock
2,544
2,546
2,544
2,546
Weighted average shares outstanding attributable to
Indemnity – Diluted
Class A common stock
53,374,846
54,685,021
53,662,798
55,357,762
Class B common stock
2,544
2,546
2,544
2,546
Dividends declared per share
Class A common stock
$
0.5525
$
0.515
$
1.6575
$
1.545
Class B common stock
$
82.8750
$
77.250
$
248.6250
$
231.750
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
September 30,
September 30,
September 30,
September 30,
Percent
2012
2011
Percent
2012
2011
2012
2011
2012
2011
Management operations:
Management fee revenue, net
100.0
%
$
305
$
280
$
—
$
—
$
(305
)
$
(280
)
$
—
$
—
Service agreement revenue
100.0
%
8
8
—
—
—
—
8
8
Total revenue from management operations
313
288
—
—
(305
)
(280
)
8
8
Cost of management operations
100.0
%
247
226
—
—
(247
)
(226
)
—
—
Income from management operations before taxes
66
62
—
—
(58
)
(54
)
8
8
Property and casualty insurance operations:
Net premiums earned
—
—
100.0
%
1,118
1,045
—
—
1,118
1,045
Losses and loss expenses
—
—
100.0
%
890
823
(2
)
(1
)
888
822
Policy acquisition and other underwriting expenses
—
—
100.0
%
329
302
(59
)
(56
)
270
246
Loss from property and casualty insurance operations before taxes
—
—
(101
)
(80
)
61
57
(40
)
(23
)
Life insurance operations: (1)
Total revenue
—
—
100.0
%
44
46
0
0
44
46
Total benefits and expenses
—
—
100.0
%
32
33
0
0
32
33
Income from life insurance operations before taxes
—
—
12
13
0
0
12
13
Investment operations:
Net investment income
4
4
81
83
(3
)
(3
)
82
84
Net realized gains (losses) on investments
2
(6
)
165
(421
)
—
—
167
(427
)
Net impairment losses recognized in earnings
0
0
0
0
—
—
0
0
Equity in earnings of limited partnerships
6
7
35
33
—
—
41
40
Income (loss) from investment operations before taxes
12
5
281
(305
)
(3
)
(3
)
290
(303
)
Income (loss) from operations before income taxes and noncontrolling interest
78
67
192
(372
)
—
—
270
(305
)
Provision for income taxes
27
20
59
(145
)
—
—
86
(125
)
Net income (loss)
$
51
$
47
$
133
$
(227
)
$
-
$
-
$
184
$
(180
)
(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
related party
Indemnity shareholder interest
Noncontrolling interest (Exchange)
transactions
Erie Insurance Group
Nine months
Nine months ended
Nine months ended
ended
Nine months ended
September 30,
September 30,
September 30,
September 30,
Percent
2012
2011
Percent
2012
2011
2012
2011
2012
2011
Management operations:
Management fee revenue, net
100.0
%
$
882
$
816
$
—
$
—
$
(882
)
$
(816
)
$
—
$
—
Service agreement revenue
100.0
%
23
25
—
—
—
—
23
25
Total revenue from management operations
905
841
—
—
(882
)
(816
)
23
25
Cost of management operations
100.0
%
734
667
—
—
(734
)
(667
)
—
—
Income from management operations before taxes
171
174
—
—
(148
)
(149
)
23
25
Property and casualty insurance operations:
Net premiums earned
—
—
100.0
%
3,279
3,089
—
—
3,279
3,089
Losses and loss expenses
—
—
100.0
%
2,501
2,653
(4
)
(4
)
2,497
2,649
Policy acquisition and other underwriting expenses
—
—
100.0
%
963
882
(153
)
(154
)
810
728
Loss from property and casualty insurance operations before taxes
—
—
(185
)
(446
)
157
158
(28
)
(288
)
Life insurance operations: (1) (2)
78.4
%
Total revenue
21.6% (2)
—
10
(2)
133
124
(1
)
(1
)
132
133
78.4
%
Total benefits and expenses
21.6% (2)
—
7
(2)
99
89
0
0
99
96
Income from life insurance operations before taxes
—
3
34
35
(1
)
(1
)
33
37
Investment operations:
Net investment income
12
12
251
252
(8
)
(8
)
255
256
Net realized gains (losses) on investments
4
1
348
(247
)
—
—
352
(246
)
Net impairment losses recognized in earnings
0
0
0
0
—
—
0
0
Equity in earnings of limited partnerships
10
25
89
124
—
—
99
149
Income from investment operations before taxes
26
38
688
129
(8
)
(8
)
706
159
Income (loss) from operations before income taxes and noncontrolling interest
197
215
537
(282
)
—
—
734
(67
)
Provision for income taxes
67
72
167
(126
)
—
—
234
(54
)
Net income (loss)
$
130
$
143
$
370
$
(156
)
$
-
$
-
$
500
$
(13
)
(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
Nine
Nine
months ended
months ended
months ended
months ended
September 30,
September 30,
September 30,
September 30,
2012
2011
2012
2011
(in millions, except per share data)
(unaudited)
(unaudited)
Operating income attributable to Indemnity
$
50
$
51
$
128
$
142
Net realized gains (losses) and impairments on investments
2
(6
)
4
1
Income tax (expense) benefit
(1
)
2
(2
)
0
Realized gains (losses) and impairments, net of income taxes
1
(4
)
2
1
Net income attributable to Indemnity
$
51
$
47
$
130
$
143
Per Indemnity Class A common share – diluted:
Operating income attributable to Indemnity
$
0.93
$
0.93
$
2.38
$
2.57
Net realized gains (losses) and impairments on investments
0.05
(0.09
)
0.08
0.03
Income tax (expense) benefit
(0.02
)
0.03
(0.03
)
(0.01
)
Realized gains (losses) and impairments, net of income taxes
0.03
(0.06
)
0.05
0.02
Net income attributable to Indemnity
$
0.96
$
0.87
$
2.43
$
2.59
3
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in millions)
September 30,
December 31,
2012
2011
Assets
(Unaudited)
Investments-Indemnity
Available-for-sale securities, at fair value:
Fixed maturities
$
547
$
548
Equity securities
29
25
Trading securities, at fair value
30
27
Limited partnerships
195
208
Other invested assets
1
1
Investments-Exchange
Available-for-sale securities, at fair value:
Fixed maturities
7,623
7,292
Equity securities
624
564
Trading securities, at fair value
2,639
2,308
Limited partnerships
1,083
1,082
Other invested assets
20
19
Total investments
12,791
12,074
Cash and cash equivalents (Exchange portion of $392 and $174, respectively)
404
185
Premiums receivable from policyholders – Exchange
1,100
976
Reinsurance recoverable – Exchange
165
166
Deferred income taxes – Indemnity
16
19
Deferred acquisition costs – Exchange
505
487
Other assets (Exchange portion of $448 and $322, respectively)
563
441
Total assets
$
15,544
$
14,348
Liabilities and shareholders’ equity
Liabilities
Indemnity liabilities
Other liabilities
$
472
$
455
Exchange liabilities
Losses and loss expense reserves
3,598
3,499
Life policy and deposit contract reserves
1,721
1,671
Unearned premiums
2,420
2,178
Deferred income taxes
367
147
Other liabilities
123
105
Total liabilities
8,701
8,055
Indemnity’s shareholders’ equity
782
781
Noncontrolling interest in consolidated entity – Exchange
6,061
5,512
Total equity
6,843
6,293
Total liabilities, shareholders’ equity and noncontrolling interest
$
15,544
$
14,348
4
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