UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2002
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission file number 2-39458
ERIE FAMILY LIFE INSURANCE COMPANY
| PENNSYLVANIA | 25-1186315 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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| 100 Erie Insurance Place, Erie, Pennsylvania | 16530 | |
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (814) 870-2000
| Not applicable Former name, former address and former fiscal year, if changed since last report |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Yes | X | No |
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: 9,450,000 shares of Common Stock outstanding on October 15, 2002.
1
INDEX
ERIE FAMILY LIFE INSURANCE COMPANY
PART I. FINANCIAL INFORMATION |
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Item 1. Financial Statements (Unaudited) |
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Statements of Financial Position — September 30, 2002 and December 31, 2001 |
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Statements of Operations — Three and nine months ended September 30, 2002 and 2001 |
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Statements of Comprehensive Income — Three and nine months ended September 30, 2002 and 2001 |
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Statements of Cash Flows — Nine months ended September 30, 2002 and 2001 |
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Notes to Financial Statements — September 30, 2002 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. Controls and Procedures |
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PART II. OTHER INFORMATION |
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Item 6. Exhibits and Reports on Form 8-K |
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SIGNATURES |
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OFFICER CERTIFICATIONS |
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2
PART I. FINANCIAL INFORMATION
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
| (Dollars in thousands) | ||||||||||
| September 30, | December 31, | |||||||||
| ASSETS | 2002 | 2001 | ||||||||
| (Unaudited) | ||||||||||
Invested Assets: |
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Fixed Maturities at fair value (amortized cost
of $881,621 and $718,500, respectively) |
$ | 924,777 | $ | 730,270 | ||||||
Equity Securities at fair value
(cost of $88,251 and $86,758, respectively) |
93,292 | 103,675 | ||||||||
Limited Partnerships
(cost of $15,944 and $18,691, respectively) |
15,674 | 18,249 | ||||||||
Real Estate |
1,231 | 1,293 | ||||||||
Policy Loans |
9,351 | 8,879 | ||||||||
Real Estate Mortgage Loans |
7,222 | 7,357 | ||||||||
Total Invested Assets |
$ | 1,051,547 | $ | 869,723 | ||||||
Cash and Cash Equivalents |
61,797 | 110,503 | ||||||||
Premiums Receivable from Policyholders |
5,567 | 5,089 | ||||||||
Reinsurance Recoverable |
2,279 | 1,775 | ||||||||
Other Receivables |
1,672 | 374 | ||||||||
Accrued Investment Income |
16,640 | 11,520 | ||||||||
Deferred Policy Acquisition Costs |
102,296 | 92,015 | ||||||||
Reserve Credit for Reinsurance Ceded |
13,899 | 12,120 | ||||||||
Prepaid Federal Income Taxes |
2,993 | 8,508 | ||||||||
Other Assets |
8,242 | 8,856 | ||||||||
Total Assets |
$ | 1,266,932 | $ | 1,120,483 | ||||||
See notes to financial statements.
3
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
| (Dollars in thousands) | |||||||||||
| September 30, | December 31, | ||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | 2002 | 2001 | |||||||||
| (Unaudited) | |||||||||||
Liabilities: |
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Policy Liabilities and Accruals: |
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Future Policy Benefits |
$ | 94,486 | $ | 85,673 | |||||||
Policy and Contract Claims |
4,329 | 1,950 | |||||||||
Annuity Deposits |
735,751 | 636,850 | |||||||||
Universal Life Deposits |
132,541 | 121,560 | |||||||||
Supplementary Contracts Not
Including Life Contingencies |
623 | 605 | |||||||||
Other Policyholder Funds |
15,537 | 7,974 | |||||||||
Deferred Income Taxes |
36,733 | 31,807 | |||||||||
Reinsurance Premium Due |
267 | 1,741 | |||||||||
Accounts Payable and Accrued Expenses |
9,478 | 7,412 | |||||||||
Note Payable to Erie Indemnity Company |
15,000 | 15,000 | |||||||||
Due to Affiliates |
1,722 | 2,309 | |||||||||
Dividends Payable |
3,969 | 1,843 | |||||||||
Total Liabilities |
$ | 1,050,436 | $ | 914,724 | |||||||
Shareholders’ Equity: |
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Common Stock, $.40 Par Value Per Share;
Authorized 15,000,000 Shares; 9,450,000
Shares Issued and Outstanding |
$ | 3,780 | $ | 3,780 | |||||||
Additional Paid-In Capital |
630 | 630 | |||||||||
Accumulated Other Comprehensive Income |
31,152 | 18,359 | |||||||||
Retained Earnings |
180,934 | 182,990 | |||||||||
Total Shareholders’ Equity |
$ | 216,496 | $ | 205,759 | |||||||
Total Liabilities and Shareholders’ Equity |
$ | 1,266,932 | $ | 1,120,483 | |||||||
See notes to financial statements.
4
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS (Unaudited)
| (Dollars in thousands, except per share data) | ||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30 | September 30 | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Revenues: |
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Policy Revenue: |
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Life Premiums |
$ | 11,532 | $ | 10,573 | $ | 35,879 | $ | 32,101 | ||||||||||
Group and Other Premiums |
779 | 722 | 2,279 | 2,051 | ||||||||||||||
Total Policy Revenue |
$ | 12,311 | $ | 11,295 | $ | 38,158 | $ | 34,152 | ||||||||||
Investment Income |
16,517 | 14,744 | 48,025 | 45,318 | ||||||||||||||
Equity in Earnings of Limited Partnerships |
151 | 614 | 3,733 | 1,416 | ||||||||||||||
Net Realized Losses on Investments |
(5,235 | ) | (2,034 | ) | (10,878 | ) | (2,507 | ) | ||||||||||
Other Income |
139 | 317 | 560 | 687 | ||||||||||||||
Total Revenues |
$ | 23,883 | $ | 24,936 | $ | 79,598 | $ | 79,066 | ||||||||||
Benefits and Expenses: |
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Death Benefits |
$ | 3,758 | $ | 4,022 | $ | 11,186 | $ | 9,306 | ||||||||||
Interest on Annuity Deposits |
10,050 | 9,172 | 29,007 | 26,319 | ||||||||||||||
Interest on Universal Life Deposits |
1,823 | 1,695 | 5,422 | 5,028 | ||||||||||||||
Surrender and Other Benefits |
304 | 268 | 871 | 733 | ||||||||||||||
Increase in Future Life Policy Benefits |
2,328 | 1,245 | 7,034 | 4,382 | ||||||||||||||
Amortization of Deferred Policy Acquisition Costs |
1,233 | 1,610 | 5,254 | 5,448 | ||||||||||||||
Commissions |
1,008 | 707 | 2,470 | 1,618 | ||||||||||||||
General Expenses |
2,007 | 1,854 | 7,511 | 6,921 | ||||||||||||||
Taxes, Licenses and Fees |
622 | 502 | 1,849 | 1,547 | ||||||||||||||
Total Benefits and Expenses |
$ | 23,133 | $ | 21,075 | $ | 70,604 | $ | 61,302 | ||||||||||
Income Before Income Taxes |
$ | 750 | $ | 3,861 | $ | 8,994 | $ | 17,764 | ||||||||||
Provision for Federal Income Tax (Benefit): |
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Current |
292 | 3,107 | 5,075 | 7,640 | ||||||||||||||
Deferred |
(32 | ) | (1,765 | ) | (1,963 | ) | (1,493 | ) | ||||||||||
Total Provision for Federal Income Tax |
260 | 1,342 | 3,112 | 6,147 | ||||||||||||||
Net Income |
$ | 490 | $ | 2,519 | $ | 5,882 | $ | 11,617 | ||||||||||
Net Income Per Share |
$ | 0.05 | $ | 0.27 | $ | 0.62 | $ | 1.23 | ||||||||||
Dividends Declared Per Share |
$ | 0.21 | $ | 0.195 | $ | 0.84 | $ | 0.78 | ||||||||||
See notes to financial statements.
5
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| (Amounts in thousands) | ||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30 | September 30 | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Net Income |
$ | 490 | $ | 2,519 | $ | 5,882 | $ | 11,617 | ||||||||||
Unrealized Gains on Securities: |
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Unrealized Holding Gains Arising
During Period |
19,677 | 3,103 | 8,804 | 13,911 | ||||||||||||||
Plus: Losses Included in Net Income |
5,235 | 2,034 | 10,878 | 2,507 | ||||||||||||||
Net Unrealized Holding Gains
Arising During Period |
$ | 24,912 | $ | 5,137 | $ | 19,682 | $ | 16,418 | ||||||||||
Income Tax Expense Related to
Unrealized Gains |
8,719 | 1,802 | 6,889 | 5,750 | ||||||||||||||
Unrealized Appreciation of
Investments, Net of Tax |
$ | 16,193 | $ | 3,335 | $ | 12,793 | $ | 10,668 | ||||||||||
Comprehensive Income |
$ | 16,683 | $ | 5,854 | $ | 18,675 | $ | 22,285 | ||||||||||
See notes to financial statements.
6
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
| (Dollars in thousands) | ||||||||||||
| Nine Months Ended | Nine Months Ended | |||||||||||
| September 30, 2002 | September 30, 2001 | |||||||||||
Cash flows from operating activities: |
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Net income |
$ | 5,882 | $ | 11,617 | ||||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
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Net amortization of bond and mortgage
(discount) premium |
(19 | ) | 175 | |||||||||
Amortization of deferred policy acquisition costs |
5,254 | 5,448 | ||||||||||
Real estate depreciation |
62 | 62 | ||||||||||
Software amortization |
187 | 187 | ||||||||||
Deferred federal income tax benefit |
(1,963 | ) | (1,493 | ) | ||||||||
Realized losses on investments |
10,878 | 2,507 | ||||||||||
Equity in earnings of limited partnerships |
(3,733 | ) | (1,416 | ) | ||||||||
Increase in premiums receivable |
(478 | ) | (156 | ) | ||||||||
Increase in other receivables |
(1,298 | ) | (54 | ) | ||||||||
Increase in accrued investment income |
(5,120 | ) | (3,009 | ) | ||||||||
Increase in policy acquisition costs deferred |
(15,535 | ) | (10,062 | ) | ||||||||
Decrease in other assets |
427 | 86 | ||||||||||
Increase in reinsurance recoverables
and reserve credits |
(2,284 | ) | (1,810 | ) | ||||||||
Decrease in prepaid federal income taxes |
5,516 | 2,955 | ||||||||||
Increase in future policy benefits and claims |
11,192 | 6,775 | ||||||||||
Increase in other Policyholder funds |
7,564 | 1,541 | ||||||||||
Decrease in reinsurance premium due |
(1,474 | ) | (268 | ) | ||||||||
Increase in accounts payable and due to affiliates |
1,478 | 4,723 | ||||||||||
Net cash provided by operating activities |
$ | 16,536 | $ | 17,808 | ||||||||
Cash flows from investing activities: |
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Purchase of investments: |
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Fixed maturities |
($ | 368,994 | ) | ($ | 203,681 | ) | ||||||
Equity securities |
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