EXHIBIT 99.1
ERIE INDEMNITY REPORTS SOLID THIRD QUARTER EARNINGS
Erie, Pa., October 29, 2003 - Erie Indemnity Company (Nasdaq: ERIE) today
announced results for the third quarter 2003, including the following
highlighted information:
o Net income increased by 21.8 percent to $56.2 million, up from $46.2
million at September 30, 2002
o Net income per share increased by 21.9 percent to $.79 per share,
compared to $.65 per share in the comparable quarter for 2002.
o Net income, excluding net realized gains or losses on investments and
related federal income taxes, increased by 12.8 percent to $55.0
million, or $.78 per share, up from $48.8 million, or $.69 per share,
for the same period one year ago.
o Management fee revenue grew by 10.8 percent to $231.7 million, up from
$209.1 million for the same period one year ago.
"We are pleased with Erie Indemnity Company's solid financial performance in the
third quarter," said Jeffrey A. Ludrof, president and chief executive officer.
"While we maintain our focus on initiatives designed to improve our underwriting
profitability, we continue to benefit from the dedication and support of our
employees and independent agency force. Their efforts continue to produce
favorable policyholder retention."
"An unfortunately large number of claims related to severe weather events masked
the progress we are making with improving our underwriting results," Mr. Ludrof
noted. "Catastrophe losses were high for the entire insurance industry during
the quarter. Hurricane Isabel was particularly devastating for a large number of
our policyholders, and many others suffered losses due to wind and hailstorms in
western Pennsylvania. Despite these setbacks, we are making progress toward our
goals." Mr. Ludrof added: "We continue to experience solid premium growth,
primarily due to rate increases and a retention ratio of over 90 percent."
Details of Third Quarter 2003 Results
- -------------------------------------
Management operations
- ---------------------
Management fee revenue increased by 10.8 percent to $231.7 million for the
quarter ended September 30, 2003, compared to $209.1 million for the same period
one year ago. Management fee revenue continued to grow at a slower rate than the
growth in direct written premiums in the third quarter due to the continued
effect of the reduction in the management fee rate from 25 percent in 2002 to 24
percent in 2003.
The property and casualty direct written premiums of the Erie Insurance Group,
upon which management fee revenue is calculated, totaled $971.0 million in the
third quarter of 2003, an increase of 16.1 percent compared to $836.3 million in
the third quarter of 2002. Direct written premium for the quarter was impacted
by a twelve-month growth rate for policies in force of 9.0 percent and the
effect of positive rate actions implemented in 2002 and 2003. The average
written premium per policy increased by 9.9 percent for the twelve months ended
September 30, 2003, to $964, as compared to $877 for the twelve months ended
September 30, 2002.
The decline in the twelve-month growth rate of policies in force was due to a
decline in new policies written and a lower retention rate in the third quarter
of 2003. New premium written declined 20.6 percent to $125.4 million in the
third quarter of 2003 from $157.9 million in the third quarter of 2002. Personal
lines new premium written declined 13 percent, while commercial lines new
premium written declined 33.9 percent in the third quarter of 2003 compared to
the same period in 2002. The year-over-year policy retention rate declined
slightly to 90.6 percent from 91.0 percent.
Service agreement revenue increased for the third quarter of 2003 to $6.7
million from $1.2 million in the third quarter of 2002. Included in service
agreement revenue are service charges the Company collects from policyholders
for providing extended payment plans on policies. The service charge revenue for
the third quarter of 2003 was $5.0 million, compared to a charge of $2.3 million
for the same period one year ago. During the third quarter of 2002 the Company
adjusted service charge revenue which was incorrectly being recognized in full
as billing installments were created at the time of policy issuance instead of
at the time the billings were rendered. The company recorded a one-time
adjustment reducing third quarter 2002 service charge revenue by $7.4 million.
Nonaffiliated assumed voluntary reinsurance premiums of Erie Insurance Exchange,
upon which the Company receives a 6.0 percent service fee (down from 7.0 percent
in 2002), totaled $27.7 million in the third quarter of 2003, down 44.3 percent
from the $49.7 million recorded in the third quarter 2002.
4
The cost of management operations increased 17.2 percent to $169.8 million in
the third quarter of 2003, from $144.8 million for the same period in 2002.
Commission costs totaled $125.2 million for the third quarter of 2003, an 18.2
percent increase over the $105.9 million reported in the third quarter of 2002.
Third quarter costs of management operations, excluding commissions, increased
14.5 percent to $44.6 million in 2003 from $38.9 million in 2002.
Insurance underwriting operations
- ---------------------------------
The Company's insurance underwriting operations recorded losses of $4.9 million
and $6.3 million in the third quarters of 2003 and 2002, respectively. The
underwriting loss for the quarter was due in part to catastrophe losses
affecting the Property & Casualty Group totaling $110.1 million. This includes
losses associated with Hurricane Isabel of $70 million recorded in the third
quarter 2003. The Company's share of catastrophe losses totaled $6.1 million in
the third quarter of 2003, compared to $1.5 million in the third quarter of
2002. Offsetting these losses were reinsurance recoveries recorded under the
aggregate excess-of-loss reinsurance agreement between the Company's property
and casualty subsidiaries and the Erie Insurance Exchange. In the third quarter
2003, the Company recorded recoveries of $7.1 million under this reinsurance
agreement.
The statutory combined ratio for the Property & Casualty Group for the third
quarter was 117.0, compared to 110.7 for the third quarter of 2002. Excluding
catastrophe losses, including Hurricane Isabel, the Property & Casualty Group's
combined ratio was 105.0.
Included in the Company's policy acquisition and other underwriting expenses are
expenses stemming from the Property & Casualty Group's eCommerce initiative.
Company expenses totaled $.5 million for the third quarter 2003 compared to $.9
million for the same period one year ago. These costs will continue to be
incurred as the program develops through 2004.
Investment operations
- ---------------------
Net revenue from investment operations for the third quarter of 2003 reflects an
increase of 84.5 percent to $19.8 million, compared to $10.7 million for the
same period in 2002.
Net investment income increased by 4.4 percent to $14.5 million for the quarter
ended September 30, 2003, from $13.9 million for the same period in 2002.
Net realized gains on investments of $1.8 million were recorded during the third
quarter of 2003 compared to net realized losses of $4.0 million for the third
quarter of 2002. Net realized losses were affected by impairment charges of $7.0
million recorded during the third quarter of 2002. There were no impairment
charges in the third quarter of 2003.
Equity in earnings of limited partnerships totaled $1.3 million in the third
quarter of 2003, compared to $0.8 million in the third quarter of 2002.
The Company's earnings, net of tax, from its 21.6 percent equity ownership of
Erie Family Life increased to $2.2 million for the third quarter of 2003 from
$0.1 million in the third quarter 2002. Strong increases in policy revenue, net
investment income and net realized capital gains contributed to the significant
improvement in results for Erie Family Life in the third quarter of 2003.
Changes to Financial Reporting
- ------------------------------
Erie Indemnity Company has been evaluating the application of a recently issued
financial accounting standard, [Financial Accounting Standards Board (FASB)
Interpretation No. 46, (FIN 46)] to the Erie Insurance Group. As a result of the
analysis, the Company has determined that the Erie Insurance Exchange is a
variable interest entity (VIE) under the interpretation that should be
consolidated for financial statement purposes with the Company. As a consequence
of consolidating the Erie Insurance Exchange with the Company, Erie Family Life
will also be consolidated with the Company in its financial statements due to
the combined ownership interest in Erie Family Life. This change will be
reflected in the December 31, 2003 annual report of Erie Indemnity Company, and
subsequent quarterly reports. The Company does not expect that the reported net
income or shareholder's equity of the Company will change as a result of the
consolidation or the Exchange and Erie Family Life into the financial statements
of the Company.
Erie Indemnity Company provides management services to the member companies of
the Erie Insurance Group, which includes the Erie Insurance Exchange, Flagship
City Insurance Company, Erie Insurance Company, Erie Insurance Property and
Casualty Company, Erie Insurance Company of New York and Erie Family Life
Insurance Company.
According to A.M. Best Company, Erie Insurance Group, based in Erie,
Pennsylvania, is the 17th largest automobile insurer in the United States based
on direct premiums written and the 20th largest property/casualty insurer in the
United States based on total lines net premium written. The Group, rated A+
(Superior) by A.M. Best Company, has more than 3.7 million policies in force and
operates in 11 states and the District of Columbia. Erie Insurance Group ranked
454 on the FORTUNE 500.
5
News releases and more information about Erie Insurance Group are available at
http://www.erieinsurance.com
- ----------------------------
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995: Certain forward-looking statements contained herein involve risks and
uncertainties. These statements include certain discussions relating to
management fee revenue, cost of management operations, underwriting, premium and
investment income volume, business strategies, profitability and business
relationships and the Company's other business activities during 2003 and
beyond. In some cases, you can identify forward-looking statements by terms such
as "may," "will," "should," "could," "would," "expect," "plan," "intend,"
"anticipate," "believe," "estimate," "project," "predict," "potential" and
similar expressions. These forward-looking statements reflect the Company's
current views about future events, are based on assumptions and are subject to
known and unknown risks and uncertainties that may cause results to differ
materially from those anticipated in those statements. Many of the factors that
will determine future events or achievements are beyond our ability to control
or predict.
STATEMENTS OF OPERATIONS
AND FINANCIAL POSITION AND OTHER INFORMATION
WILL FOLLOW
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Three months ended September 30, Nine months ended September 30,
(unaudited) (unaudited)
2003 2002 2003 2002
-------------------------------- -------------------------------
OPERATING REVENUE:
Management fee revenue $ 231,747 $ 209,068 $ 671,730 $ 593,895
Premiums earned 48,358 42,171 140,759 119,824
Service agreement revenue 6,667 1,192 20,014 16,310
---------- ---------- ---------- ----------
Total operating revenue $ 286,772 $ 252,431 $ 832,503 $ 730,029
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Cost of management operations $ 169,752 $ 144,801 $ 494,212 $ 421,097
Losses and loss expenses incurred 38,723 35,044 115,587 98,431
Policy acquisition and other underwriting expenses 14,578 13,416 42,065 37,343
---------- ---------- ---------- ----------
Total operating expenses $ 223,053 $ 193,261 $ 651,864 $ 556,871
---------- ---------- ---------- ----------
OTHER INCOME AND EXPENSES:
Investment income, net of expenses $ 14,477 $ 13,867 $ 43,015 $ 40,705
Realized gains (losses) on investments 1,846 (4,047) 5,815 (8,628)
Equity in earnings (losses) of limited partnerships 1,311 803 (1,435) 1,110
---------- ---------- ---------- ----------
Total other income and expenses $ 17,634 $ 10,623 $ 47,395 $ 33,187
---------- ---------- ---------- ----------
Income before income taxes and equity in earnings of
Erie Family Life Insurance Company $ 81,353 $ 69,793 $ 228,034 $ 206,345
Less: Provision for income taxes 27,124 23,730 76,107 69,171
Equity in earnings of Erie Family Life Insurance
Company, net of tax $ 2,008 $ 99 $ 4,668 $ 1,015
---------- ---------- ---------- ----------
Net income $ 56,237 $ 46,162 $ 156,595 $ 138,189
========== ========== ========== ==========
Net income per share (basic & diluted) $ 0.79 $ 0.65 $ 2.21 $ 1.94
========== ========== ========== ==========
Weighted average shares outstanding 70,997 71,006 70,997 71,109
========== ========== ========== ==========
DIVIDENDS DECLARED
Class A non-voting common $ 0.19 $ 0.17 $ 0.57 $ 0.51
---------- ---------- ---------- ----------
Class B common $ 28.50 $ 25.50 $ 85.50 $ 76.50
---------- ---------- ---------- ----------
6
Erie Indemnity Company
CONSOLIDATED STATEMENTS OF OPERATIONS - SEGMENT BASIS
(Amounts in thousands, except per share data)
Three months ended September 30 Nine months ended September 30
(unaudited) (unaudited)
2003 2002 2003 2002
------------------------------- ------------------------------
MANAGEMENT OPERATIONS
Management fee revenue $ 231,747 $ 209,068 $ 671,730 $ 593,895
Service agreement revenue 6,667 1,192 20,014 16,310
---------- ---------- ---------- ----------
Total revenue from management operations $ 238,414 $ 210,260 $ 691,744 $ 610,205
Cost of management operations 169,752 144,801 494,212 421,097
---------- ---------- ---------- ----------
Income from management operations $ 68,662 $ 65,459 $ 197,532 $ 189,108
---------- ---------- ---------- ----------
INSURANCE UNDERWRITING OPERATIONS
Premiums earned $ 48,358 $ 42,171 $ 140,759 $ 119,824
---------- ---------- ---------- ----------
Losses and loss adjustment expenses incurred $ 38,723 $ 35,044 $ 115,587 $ 98,431
Policy acquisition and other underwriting expenses 14,578 13,416 42,065 37,343
---------- ---------- ---------- ----------
Total losses and expenses $ 53,301 $ 48,460 $ 157,652 $ 135,774
---------- ---------- ---------- ----------
Underwriting loss $ (4,943) $ (6,289) $ (16,893) $ (15,950)
---------- ---------- ---------- ----------
INVESTMENT OPERATIONS
Net investment income $ 14,477 $ 13,867 $ 43,015 $ 40,705
Net realized gains (losses) on investments 1,846 (4,047) 5,815 (8,628)
Equity in earnings (losses) of limited partnerships 1,311 803 (1,435) 1,110
Equity in earnings of Erie Family Life Insurance Company 2,160 106 5,019 1,091
---------- ---------- ---------- ----------
Net revenue from investment operations $ 19,794 $ 10,729 $ 52,414 $ 34,278
---------- ---------- ---------- ----------
Income before income taxes $ 83,513 $ 69,899 $ 233,053 $ 207,436
Provision for income taxes 27,276 23,737 76,458 69,247
---------- ---------- ---------- ----------
Net income $ 56,237 $ 46,162 $ 156,595 $ 138,189
========== ========== ========== ==========
Net income per share (basic & diluted) $ 0.79 $ 0.65 $ 2.21 $ 1.94
========== ========== ========== ==========
Net income excluding net realized gains (losses) and
related taxes $ 55,038 $ 48,793 $ 152,815 $ 143,797
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 70,997 71,006 70,997 71,109
========== ========== ========== ==========
Erie Indemnity Company
CONSOLIDATED STATEMENTS OF OPERATIONS - SEGMENT BASIS - Continued
(Amounts in thousands)
The table below reconciles the Company's GAAP-basis net income to net income
excluding net realized gains or losses and related income taxes. Management
believes this measure assists the financial statement reader in interpreting and
evaluating the financial results of the Company by removing the effects of gain
or losses from investment sales, which could significantly impact the Company's
financial results from one period to another based on the timing of investment
sales and resulting gains or losses, which may or may not be recurring.
Three months ended September 30 Nine months ended September 30
(unaudited) (unaudited)
2003 2002 2003 2002
--------------------------- -------------------------
Net income $ 56,237 $ 46,162 $ 156,595 $ 138,189
Net realized gains (losses) on investments 1,846 (4,047) 5,815 (8,628)
Income tax (expense) benefit on realized gains (losses) (647) 1,416 (2,035) 3,020
---------- ---------- ---------- ----------
Realized gains (losses) net of income tax (expense)
benefit 1,199 (2,631) 3,780 (5,608)
---------- ---------- ---------- ----------
Net income excluding net realized gains (losses) and
related taxes $ 55,038 $ 48,793 $ 152,815 $ 143,797
========== ========== ========== ==========
7
Erie Indemnity Company
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in thousands, except per share data)
September 30 December 31
2003 2002
(unaudited)
------------ -----------
ASSETS
Investments
Fixed maturities $ 862,962 $ 708,068
Equity securities
Preferred stock 149,287 157,563
Common stock 42,886 36,515
Other invested assets 110,825 96,613
----------- -----------
Total investments $ 1,165,960 $ 998,759
Cash and cash equivalents $ 82,102 $ 85,712
Equity in Erie Family Life Insurance Company 55,045 48,545
Premiums receivable from policyholders 279,858 239,704
Receivables from affiliates 981,063 829,049
Other assets 187,808 155,907
----------- -----------
Total assets $ 2,751,836 $ 2,357,676
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Unpaid losses and loss adjustment expenses $ 824,568 $ 717,015
Unearned premiums 463,620 393,091
Other liabilities 328,720 260,198
----------- -----------
Total liabilities $ 1,616,908 $ 1,370,304
Total shareholders' equity $ 1,134,928 $ 987,372
----------- -----------
Total liabilities and shareholders' equity $ 2,751,836 $ 2,357,676
=========== ===========
Book value per share $15.99 $13.91
Shares outstanding 70,997 70,997
8
Erie Indemnity Company
Segment Information
Management fee revenue by line of business:
Three months ended September 30 % Nine months ended September 30 %
2003 2002 Change 2003 2002 Change
(In thousands) ------------------------------------------------------------------------------------
Private passenger auto $ 121,065 $ 111,942 8.1% $ 343,820 $ 313,786 9.6%
Commercial auto 18,008 16,699 7.8 57,115 50,884 12.2
Homeowners 42,962 35,705 20.3 110,491 92,017 20.1
Commercial multi-peril 23,127 20,568 12.4 74,573 62,371 19.6
Workers' compensation 18,716 16,394 14.2 61,344 52,173 17.6
All other lines of business 9,169 7,760 18.2 27,087 22,664 19.5
---------------------------------------------------------------------------------
Total $ 233,047 $ 209,068 11.5% $ 674,430 $ 593,895 13.6%
Allowance for management
fee returned on cancelled
policies 1,300 0 0.0 2,700 0 0.0
---------------------------------------------------------------------------------
Total management fee revenue $ 231,747 $ 209,068 10.8% $ 671,730 $ 593,895 13.1%
=================================================================================
Growth rate of policies in force for Property and Casualty Group insurance operations:
All other
Private 12-mth. 12-mth. lines of 12-mth. Total 12-mth.
passenger growth growth personal growth Personal growth
Date auto rate Homeowners rate business rate Lines rate
- ------------------------------------------------------------------------------------------------------
12/31/2001 1,432,747 7.1% 1,075,816 9.0% 215,134 11.5% 2,723,697 8.2%
03/31/2002 1,469,617 8.3 1,104,806 10.1 222,061 12.2 2,796,484 9.3
06/30/2002 1,512,335 9.4 1,146,639 11.4 231,951 13.4 2,890,925 10.5
09/30/2002 1,554,425 10.4 1,190,651 13.1 240,410 14.4 2,985,486 11.8
12/31/2002 1,591,161 11.1 1,230,895 14.4 249,544 16.0 3,071,600 12.8
03/31/2003 1,623,429 10.5 1,263,118 14.3 257,327 15.9 3,143,874 12.4
06/30/2003 1,650,225 9.1 1,293,575 12.8 264,423 14.0 3,208,223 11.0
09/30/2003 1,666,285 7.2 1,316,775 10.6 269,640 12.2 3,252,700 9.0
All other
12-mth. CML* 12-mth. 12-mth. CML* 12-mth. Total 12-mth.
CML* growth multi- growth Workers' growth lines of growth CML* growth
Date auto rate peril rate comp. rate business rate Lines rate
- ----------------------------------------------------------------------------------------------------------------------------
12/31/2001 96,100 9.7% 166,214 11.6% 52,033 10.3% 71,539 9.9% 385,886 10.7%
03/31/2002 98,926 10.7 171,283 12.5 53,320 10.8 73,392 10.7 396,921 11.5
06/30/2002 102,447 11.6 179,761 13.9 55,607 11.9 75,884 11.7 413,699 12.6
09/30/2002 105,353 11.8 185,608 14.4 57,375 12.5 78,131 11.5 426,467 13.0
12/31/2002 108,069 12.5 190,787 14.8 58,930 13.3 79,772 11.5 437,558 13.4
03/31/2003 109,963 11.2 194,911 13.8 60,104 12.7 81,356 10.9 446,334 12.4
06/30/2003 112,911 10.2 201,614 12.2 61,932 11.4 83,826 10.5 460,283 11.3
09/30/2003 114,339 8.5 205,127 10.5 62,396 8.8 85,789 9.8 467,651 9.7
12-mth.
Total growth
Date All lines rate
- -------------------------------
12/31/2001 3,109,583 8.5%
03/31/2002 3,193,405 9.6
06/30/2002 3,304,624 10.8
09/30/2002 3,411,953 11.9
12/31/2002 3,509,158 12.8
03/31/2003 3,590,208 12.4
06/30/2003 3,668,506 11.0
09/30/2003 3,720,351 9.0
*CML = Commercial
9
Policy retention trends for Property and Casualty Group insurance operations:
Private All other
passenger CML* CML* Workers' lines of
Date auto auto Homeowners multi-peril comp. business Total
- -------------------------------------------------------------------------------------------------------------------
12/31/2001 92.2% 90.5% 90.2% 88.0% 88.4% 88.2% 90.9%
03/31/2002 92.3 90.9 90.2 88.8 89.3 88.1 90.9
06/30/2002 92.4 91.1 90.4 89.0 89.5 88.3 91.0
09/30/2002 92.5 90.8 90.5 88.7 89.5 88.2 91.1
12/31/2002 92.6 91.0 90.5 88.7 89.4 88.5 91.2
03/31/2003 92.5 91.3 90.6 89.1 90.2 88.5 91.2
06/30/2003 92.2 91.1 90.5 88.4 89.4 88.4 91.0
09/30/2003 91.9 90.4 90.1 88.0 88.9 88.4 90.6
*CML = Commercial
Selected financial data of Erie Insurance Exchange:
The selected financial data below is derived from the Erie Insurance Exchange's
financial statements prepared in accordance with Statutory Accounting
Principles. In the opinion of management, all adjustments consisting only of
normal recurring accruals, considered necessary for a fair presentation have
been included. The financial data set forth below is only a summary.
Three months ended Nine months ended
-------------------------- --------------------------
(In thousands) September 30, September 30, September 30, September 30,
Statutory Accounting Basis 2003 2002 2003 2002
-------------------------- --------------------------
(unaudited) (unaudited)
Premiums earned $ 866,860 $ 754,220 $ 2,501,654 $ 2,140,526
-------------------------- --------------------------
Losses and loss adjustment expenses $ 793,945 $ 609,396 $ 2,116,828 $ 1,727,052
Insurance underwriting and other expenses 247,732 252,872 756,597 718,881
-------------------------- --------------------------
Net underwriting loss $ (174,817) $ (108,048) $ (371,771) $ (305,407)
-------------------------- --------------------------
Net investment income 61,138 52,569 172,313 166,568
Net realized gains (losses) 76,693 (43,497) 154,907 (118,331)
Federal income tax benefit (12,858) (32,741) (59,539) (68,925)
-------------------------- --------------------------
Net (loss) income $ (24,128) $ (66,235) $ 14,988 $ (188,245)
========================== ==========================
As of
(In thousands) September 30, December 31,
Statutory Accounting Basis 2003 2002
------------ ------------
(unaudited)
Cash and invested assets $ 6,832,949 $ 5,967,051
Total assets 7,949,783 7,007,803
=========== ===========
Claims and unearned premium reserves 4,628,520 3,962,218
Total liabilities 5,669,162 4,892,032
=========== ===========
Policyholders' surplus $ 2,280,621 $ 2,115,771
=========== ===========
10