CONTACT: Mark Dombrowski, Public and Media Relations
1-800-458-0811 ext. 2285 or 814/870-2285
Erie Indemnity Reports First Quarter 2004 Results
Erie, Pa., April 22, 2004 - Erie Indemnity Company ( Nasdaq: ERIE) today
announced results for the first quarter 2004, including the following
highlighted information:
o Net income increased by 8.0 percent to $49.6 million, up from $45.9 million
at March 31, 2003.
o Net income per share increased by 8.1 percent to $.70 per share, compared to
$.65 per share in the comparable quarter for 2003.
o Gross management fee revenue grew by 7.1 percent to $221.9 million, up from
$207.2 million for the same period one year ago.
o The property and casualty group's direct written premium grew 11.0 percent
to $960.7 million at March 31, 2004, from $865.2 million at March 31, 2003.
"Last year we embarked on a plan to achieve peak performance by focusing on four
key areas: managing exposure growth; improving risk selection; controlling loss
severity; and maintaining appropriate pricing. This focus has had a positive
impact on our results," noted Jeffrey A. Ludrof, president and chief executive
officer of Erie Indemnity Company. "In the first quarter of 2004, the statutory
combined ratio of our property and casualty group decreased significantly to
100.2, compared to 113.2 in the first quarter of 2003. This progress is a direct
result of the combined efforts and commitment of ERIE agents and employees to
enhancing our profitability and maintaining our promise of service. While our
new business production has declined as a result of our focus on underwriting
and adequate pricing, our exceptional service and protection as well as our
financial stability continue to attract policyholders to our company. We are
confident that our balanced approach to underwriting profitability and quality
growth will positively impact our steady, long-term business model."
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Details of First Quarter 2004 Results - Segment Basis
- -----------------------------------------------------
Management operations
- ---------------------
Management fee revenue increased by 7.1 percent to $221.9 million for the
quarter ended March 31, 2004, compared to $207.2 million for the same period one
year ago. Management fee revenue grew at a slower rate than the growth in direct
written premiums in the first quarter of 2004 due to the reduction in the
management fee rate from 24 percent to 23.5 percent effective January 1, 2004.
Management fee revenue was also impacted by the allowance for returned
management fee on cancelled policies, which totaled $3.9 million in the first
quarter 2004, compared to $0.4 million in the first quarter 2003. The allowance
for returned management fees increased as a result of a higher mid-term policy
cancellation rate in 2004. Offsetting the increased allowance for returned
management fees is the related decrease in commission expense of $2.0 million at
March 31, 2004. The net effect of the increased allowance is a decrease in net
income of about $.02 per share.
The property and casualty direct written premiums of the Erie Insurance Group,
upon which management fee revenue is calculated, totaled $960.7 million in the
first quarter 2004, compared to $865.2 million in the first quarter 2003, an
11.0 percent rate of growth in the first quarter of 2004.
The year-over-year average written premium per policy increased by 8.9 percent
to $1,002 at March 31, 2004, as compared to $920 at March 31, 2003.
Year-over-year personal lines premium increased 9.8 percent, while commercial
lines increased 6.5 percent at March 31, 2004. The year-over-year growth in
policies in force was 4.7 percent at March 31, 2004, down from 6.7 percent at
December 31, 2003. New written premium declined by 30.1 percent in the first
quarter of 2004. The year-over-year policy retention rate declined to 89.8
percent at March 31, 2004, from 90.2 percent at December 31, 2003. The slower
premium growth and decline in retention rate in the first quarter is due to the
Company's continuing focus on underwriting profitability, the increased emphasis
on controlling exposure growth and improving risk selection.
The cost of management operations increased 10.9 percent to $171.2 million in
the first quarter of 2004, from $154.4 million for the same period in 2003.
Commission costs increased 10.8 percent to $122.9 million, from $110.9 million
in the first quarter 2003. As noted, commission costs were reduced as a result
of the increase in the allowance for returned commission of $ 2.0 million
related to the increase in the allowance for returned management fee. First
quarter costs of management operations, excluding commissions, increased 11.2
percent to $48.3 million in 2004 from $43.5 million in 2003.
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Insurance underwriting operations
- ---------------------------------
The Company's insurance underwriting operations recorded losses of $1.5 million
and $5.7 million in the first quarters of 2004 and 2003, respectively. The
Company's share of catastrophe losses totaled $0.4 million and $1.1 million for
the three-month periods ended March 31, 2004 and 2003, respectively. The GAAP
combined ratio for the Company was 102.9 in the first quarter 2004 compared to
112.6 for the same period in 2003.
The statutory combined ratio for the Property and Casualty Group for the first
quarter 2004 was 100.2, compared to 113.2 for the first quarter 2003.
Catastrophe losses contributed .8 points to the first quarter statutory combined
ratio of the property and casualty group compared to 2.4 points in catastrophe
losses for the same period in 2003. The improvement in the statutory combined
ratio is also attributable to the consistent and disciplined focus of agents and
employees on underwriting profitability and profitable growth.
Investment operations
- ---------------------
Net revenue from investment operations for the first quarter of 2004 reflects an
increase of 31.3 percent to $19.4 million, compared to $14.8 million for the
same period in 2003. Net investment income increased by 2.6 percent to $14.7
million for the quarter ended March 31, 2004, from $14.3 million for the same
period in 2003.
Net realized gains on investments of $2.9 million were recorded during the first
quarter 2004 compared to net realized gains of $0.6 million for the first
quarter 2003. No impairment charges were recorded in the first quarter of 2004
while impairment charges of $6.0 million were recorded during the first quarter
2003.
Equity in earnings of limited partnerships was $0.4 million in the first quarter
2004 compared to losses of $1.3 million for the first quarter 2003. Private
equity and fixed income limited partnerships recorded earnings of $0.1 million
in the first quarter 2004 compared to losses of $1.7 million in the first
quarter 2003. Real estate limited partnerships reflected earnings of $0.3
million and $0.4 million for the quarters ended March 31, 2004 and 2003,
respectively.
The Company purchased 139,059 shares of its stock under the Company stock
repurchase program during the first quarter 2004 at an average price of $45.61
per share.
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.
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According to A.M. Best Company, Erie Insurance Group, based in Erie,
Pennsylvania, is the 16th 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
368 on the FORTUNE 500 and is included in Forbes Magazine's PLATINUM 400 list of
the best-managed companies in America.
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 2004 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
7
Erie Indemnity Company
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Three months ended March 31,
(unaudited)
2004 2003
----------------------------
OPERATING REVENUE:
Management fee revenue $ 209,664 $ 195,848
Premiums earned 50,649 45,182
Service agreement revenue 5,598 6,484
---------- ---------
Total operating revenue $ 265,911 $ 247,514
--------- ---------
OPERATING EXPENSES:
Cost of management operations $ 161,821 $ 145,882
Losses and loss expenses incurred 38,037 37,500
Policy acquisition and other underwriting expenses 11,318 10,445
--------- ---------
Total operating expenses $ 211,176 $ 193,827
--------- ---------
OTHER INCOME AND EXPENSES:
Investment income, net of expenses $ 14,686 $ 14,319
Realized gains on investments 2,853 593
Equity in earnings (losses) of limited partnerships 418 (1,326)
--------- ---------
Total other income and expenses $ 17,957 $ 13,586
--------- ---------
Income before income taxes and equity in earnings of
Erie Family Life Insurance Company $ 72,692 $ 67,273
Less: Provision for income taxes 24,435 22,460
Equity in earnings of Erie Family Life Insurance
Company, net of tax 1,315 1,087
--------- ---------
Net income $ 49,572 $ 45,900
========= =========
Net income per share $ 0.70 $ 0.65
========= =========
Weighted average shares outstanding 70,947 70,997
========= =========
DIVIDENDS DECLARED
Class A non-voting common $ 0.215 $ 0.190
--------- ---------
Class B common $ 32.25 $ 28.50
--------- ---------
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Erie Indemnity Company
CONSOLIDATED STATEMENTS OF OPERATIONS - SEGMENT BASIS
(Amounts in thousands, except per share data)
Three months ended March 31
(unaudited)
2004 2003
---------------------------
MANAGEMENT OPERATIONS:
Management fee revenue $ 221,867 $ 207,246
Service agreement revenue 5,598 6,484
-------------------------
Total revenue from management operations 227,465 213,730
Cost of management operations 171,239 154,373
-------------------------
Income from management operations $ 56,226 $ 59,357
-------------------------
INSURANCE UNDERWRITING OPERATIONS:
Premiums earned $ 50,649 $ 45,182
-------------------------
Losses and loss adjustment expenses incurred 38,037 37,500
Policy acquisition and other underwriting expenses 14,103 13,352
-------------------------
Total losses and expenses $ 52,140 $ 50,852
-------------------------
Underwriting loss $ (1,491) $ (5,670)
-------------------------
INVESTMENT OPERATIONS:
Net investment income $ 14,686 $ 14,319
Net realized gain on investments 2,853 593
Equity in earnings (losses) of limited partnerships 418 (1,326)
Equity in earnings of Erie Family Life Insurance Company 1,414 1,169
-------------------------
Net revenue from investment operations $ 19,371 $ 14,755
-------------------------
Income before income taxes $ 74,106 $ 68,442
Provision for income taxes 24,534 22,542
-------------------------
Net income $ 49,572 $ 45,900
=========================
Net income per share $ 0.70 $ 0.65
=========================
WEIGHTED AVERAGE SHARES OUTSTANDING 70,947 70,997
=========================
Amounts presented on a segment basis are not presented net of intercompany/intersegment items.
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Erie Indemnity Company
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in thousands, except per share data)
March 31 December 31
2004 2003
(unaudited)
----------- -----------
ASSETS
Investments
Fixed maturities $ 927,537 $ 879,361
Equity securities
Preferred stock 151,413 148,952
Common stock 40,853 40,451
Other invested assets 119,034 116,400
---------- -----------
Total investments $1,238,837 $ 1,185,164
Cash and cash equivalents $ 80,891 $ 87,192
Equity in Erie Family Life Insurance Company 60,287 56,072
Premiums receivable from policyholders 267,596 266,957
Receivables from affiliates 1,018,348 984,146
Other assets 185,767 175,076
---------- -----------
Total assets $2,851,726 $ 2,754,607
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Unpaid losses and loss adjustment expenses $ 867,702 $ 845,536
Unearned premiums 453,659 449,606
Other liabilities 323,750 295,295
---------- -----------
Total liabilities $1,645,111 $ 1,590,437
Total shareholders' equity $1,206,615 $ 1,164,170
---------- -----------
Total liabilities and shareholders' equity $2,851,726 $ 2,754,607
========== ===========
Book value per share $17.03 $16.40
Shares outstanding 70,858 70,997
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Management fee revenue by line of business - segment basis:
Three months ended March 31 %
2004 2003 Change
(In thousands) -----------------------------------------
Private passenger auto $ 113,010 $ 105,206 7.4%
Commercial auto 19,962 18,997 5.1
Homeowners 34,337 27,811 23.5
Commercial multi-peril 26,554 25,054 6.0
Workers' compensation 22,586 22,381 0.9
All other lines of business 9,318 8,197 13.7
-----------------------------------------
Total $ 225,767 $ 207,646 8.7%
Allowance for management
fee returned on cancelled
policies 3,900 400 N/A
----------------------------------------
Total management fee revenue $ 221,867 $ 207,246 7.1%
========================================
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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
- ------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/31/2002 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
12/31/2003 1,672,621 5.1 1,327,842 7.9 272,547 9.2 3,273,010 6.6
03/31/2004 1,678,496 3.4 1,335,763 5.8 275,970 7.2 3,290,229 4.7
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
- ----------------------------------------------------------------------------------------------------------------------------
12/31/2002 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
12/31/2003 115,171 6.6 206,533 8.3 62,282 5.7 86,409 8.3 470,395 7.5
03/31/2004 115,760 5.3 206,937 6.2 61,378 2.1 86,344 6.1 470,419 5.4
12-mth.
Total growth
Date All lines rate
- -------------------------------
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
12/31/2003 3,743,405 6.7
03/31/2004 3,760,648 4.7
*CML = Commercial
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Private All other
passenger CML* CML* Workers' lines of
Date auto auto Homeowners multi-peril comp. business Total
- -------------------------------------------------------------------------------------------------------------------
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
12/31/2003 91.6 89.8 89.5 87.5 88.1 88.2 90.2
03/31/2004 91.2 89.7 89.0 87.6 88.1 87.5 89.8
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
--------------------------
(In thousands) March 31, March 31,
Statutory Accounting Basis 2004 2003
(unaudited)
--------------------------
Premiums earned $ 890,243 $ 802,647
--------------------------
Losses and loss adjustment expenses $ 656,772 $ 679,856
Insurance underwriting and other expenses* 244,972 242,676
--------------------------
Net underwriting loss $ (11,501) $ (119,885)
--------------------------
Net investment income 62,729 54,072
Net realized gains (losses) 17,156 (33,355)
Federal income tax expense (benefit) 18,020 (41,530)
--------------------------
Net income (loss) $ 50,364 $ (57,638)
==========================
<FN>
* Includes management fees incurred
</FN>
As of
(In thousands) March 31, December 31,
Statutory Accounting Basis 2004 2003
(unaudited)
------------ ------------
Cash and invested assets $ 6,814,665 $ 7,024,796
Total assets 7,887,788 8,045,626
=========== ===========
Claims and unearned premium reserves 4,699,129 4,616,687
Total liabilities 5,400,549 5,616,541
=========== ===========
Policyholders' surplus $ 2,487,239 $ 2,429,085
=========== ===========
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Erie Indemnity Company
RECONCILIATION OF OPERATING INCOME TO NET INCOME
(Amounts in thousands, except per share data)
Definition on Non-GAAP and Operating Measures
- ---------------------------------------------
Operating income, a non-GAAP measure, is income excluding realized capital gains
and losses, after tax. Net income is the GAAP measure that is most directly
comparable to operating income. Realized capital gains and losses which are
included in the Company's equity in earnings of Erie Family Life Insurance
Company and equity in earnings of limited partnerships are not excluded from net
income to compute operating income. The Company's method of calculating this
measure may differ from those used by other companies and therefore
comparability may be limited.
The Company uses operating income to evaluate their results of operations. It
reveals trends in the Company's management services, insurance underwriting and
investment operations that may be obscured by the net effects of realized
capital gains and losses. These items may vary significantly between periods and
are generally driven by business decisions and economic developments such as
capital market conditions, the timing of which is unrelated to management
services and insurance underwriting processes of the Company. The Company
believes operating income is useful for investors to evaluate these components
separately and in the aggregate when reviewing the Company's performance. The
Company is 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 and does not reflect the overall profitability of the Company's business.
The following table reconciles operating income and net income for the three
months ended March 31, 2004 and 2003.
Per share information
Three months ended March 31 Three months ended March 31
(unaudited) (unaudited)
2004 2003 2004 2003
-------------------------- ---------------------------
Operating income $ 47,718 $ 45,514 $ 0.67 $ 0.64
Net realized gains on investments 2,853 593 0.04 0.01
Income tax expense on realized gains 999 207 0.01 0.00
-------------------------- ---------------------------
Realized gains net of income tax expense 1,854 386 0.03 0.01
--------------------------------------------------------
Net income $ 49,572 $ 45,900 $ 0.70 $ 0.65
========================================================
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