ERIE INDEMNITY CO - FORM 8-K - EX-99.2

Attached files

file	filename
8-K - LIVE FILING - ERIE INDEMNITY CO	htm_43393.htm
EX-99.1 - EX-99.1 - ERIE INDEMNITY CO	exhibit1.htm

Exhibit 99.2

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(dollars in millions, except per share data)


	Three			Three		Nine			Nine
	months			months		months			months
	ended			ended		ended			ended
	September 30,			September 30,		September 30,			September 30,
Revenues	2011			2010		2011			2010
Premiums earned	$	1,061		$	1,005	$	3,138		$	2,972
Net investment income		108			110		326			322
Net realized investment (losses) gains		(422	)		205		(234	)		117
Net impairment losses recognized in earnings		0			0		0			(6	)
Equity in earnings of limited partnerships		40			28		150			58
Other income		9			9		26			26

Total revenues		796			1,357		3,406			3,489

Benefits and expenses
Insurance losses and loss expenses		848			710		2,724			2,208
Policy acquisition and underwriting expenses		253			242		749			699

Total benefits and expenses		1,101			952		3,473			2,907

(Loss) income from operations before income taxes
and noncontrolling interest		(305	)		405		(67	)		582
Provision for income taxes		(125	)		130		(54	)		176

Net (loss) income		(180	)		275		(13	)		406
Less: Net (loss) income attributable to noncontrolling
interest in consolidated entity – Exchange		(227	)		221		(156	)		256

Net income attributable to Indemnity	$	47		$	54	$	143		$	150

Earnings Per Share
Net income attributable to Indemnity per share
Class A common stock – basic	$	0.97		$	1.05	$	2.90		$	2.92

Class A common stock – diluted	$	0.87		$	0.94	$	2.59		$	2.62

Class B common stock – basic and diluted	$	146.67		$	150.87	$	439.39		$	421.91

Weighted average shares outstanding attributable to
Indemnity – Basic
Class A common stock		48,503,383			50,499,551		49,176,124			50,897,035

Class B common stock		2,546			2,546		2,546			2,546

Weighted average shares outstanding attributable to
Indemnity – Diluted
Class A common stock		54,685,021			56,678,321		55,357,762			57,075,805

Class B common stock		2,546			2,546		2,546			2,546

Dividends declared per share
Class A common stock	$	0.515		$	0.48	$	1.545		$	1.44

Class B common stock	$	77.25		$	72.00	$	231.75		$	216.00

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
				Three months ended							Three months ended					Three months ended						Three months ended
				September 30,							September 30,					September 30,						September 30,
	Percent			2011			2010		Percent		2011			2010		2011			2010			2011			2010
Management operations:

Management fee revenue, net		100.0	%	$	280		$	266			$	0		$	0	$	(280	)	$	(266	)	$	0		$	0
Service agreement revenue		100.0	%		8			9				0			0		0			0			8			9

Total revenue from management operations					288			275				0			0		(280	)		(266	)		8			9
Cost of management operations		100.0	%		226			217				0			0		(226	)		(217	)		0			0

*Income from management operations before taxes*					62			58				0			0		(54	)		(49	)		8			9

Property and casualty insurance operations: ⁽²⁾

Net premiums earned		5.5%⁽²⁾			0			55		94.5%⁽²⁾		1,045			935		0			0			1,045			990
Losses and loss expenses		5.5%⁽²⁾			0			38		94.5%⁽²⁾		823			652		(1	)		(1	)		822			689
Policy acquisition and other underwriting expenses		5.5%⁽²⁾			0			16		94.5%⁽²⁾		302			272		(56	)		(51	)		246			237

Income(loss) from property and casualty insurance operations before taxes					0			1				(80	)		11		57			52			(23	)		64

Life insurance operations:⁽¹⁾

Total revenue		21.6%⁽³⁾			0			10		78.4%⁽³⁾		46			33		0			(1	)		46			42
Total benefits and expenses		21.6%⁽³⁾			0			7		78.4%⁽³⁾		33			20		0			(1	)		33			26

*Income from life insurance operations before taxes*					0			3				13			13		0			0			13			16

Investment operations:

Net investment income ⁽²⁾					4			10				83			79		(3	)		(3	)		84			86
Net realized (losses) gains on investments ⁽²⁾					(6	)		5				(421	)		197		0			0			(427	)		202
Net impairment losses recognized in earnings⁽²⁾					0			0				0			0		0			0			0			0
Equity in earnings of limited partnerships					7			5				33			23		0			0			40			28

*Income (loss) from investment operations before taxes* ⁽²⁾					5			20				(305	)		299		(3	)		(3	)		(303	)		316

Income (loss) from operations before income taxes and noncontrolling interest					67			82				(372	)		323		0			0			(305	)		405
Provision for income taxes					20			28				(145	)		102		0			0			(125	)		130
Net income (loss)				$	47		$	54			$	(227	)	$	221	$	0		$	0		$	(180	)	$	275

(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 December 31, 2010, the underwriting results retained by EIC and ENY and the investment results of EIC, ENY and EPC accrued to the Indemnity shareholder interest. Due to the sale of Indemnity’s property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting results and all investment results for these companies accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after December 31, 2010.

(3)

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 the life insurance results of EFL accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011.

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			2011		2010			Percent		2011			2010			2010			2010			2011			2010
Management operations:

Management fee revenue, net		100.0	%	$	816	$	773				$	0		$	0		$	(816	)	$	(773	)	$	0		$	0
Service agreement revenue		100.0	%		25		26					0			0			0			0			25			26

Total revenue from management operations					841		799					0			0			(816	)		(773	)		25			26
Cost of management operations		100.0	%		667		626					0			0			(667	)		(626	)		0			0

*Income from management operations before taxes*					174		173					0			0			(149	)		(147	)		25			26

Property and casualty insurance operations: ⁽²⁾

Net premiums earned		5.5%⁽²⁾			0		161			94.5%⁽²⁾		3,089			2,765			0			0			3,089			2,926
Losses and loss expenses		5.5%⁽²⁾			0		118			94.5%⁽²⁾		2,653			2,027			(4	)		(4	)		2,649			2,141
Policy acquisition and other underwriting expenses		5.5%⁽²⁾			0		46			94.5%⁽²⁾		882			783			(154	)		(151	)		728			678

(*Loss) income from property and casualty insurance operations before taxes*					0		(3	)				(446	)		(45	)		158			155			(288	)		107

Life insurance operations:⁽¹⁾

Total revenue		21.6%⁽³⁾			10		28			78.4%⁽³⁾		124			99			(1	)		(2	)		133			125
Total benefits and expenses		21.6%⁽³⁾			7		20			78.4%⁽³⁾		89			70			0			(2	)		96			88

*Income from life insurance operations before taxes*					3		8					35			29			(1	)		0			37			37

Investment operations:

Net investment income ⁽²⁾					12		28					252			232			(8	)		(8	)		256			252
Net realized gains (losses) on investments ⁽²⁾					1		7					(247	)		99			0			0			(246	)		106
Net impairment losses recognized in earnings⁽²⁾					0		(1	)				0			(3	)		0			0			0			(4	)
Equity in earnings of limited partnerships					25		11					124			47			0			0			149			58

*Income from investment operations before taxes* ⁽²⁾					38		45					129			375			(8	)		(8	)		159			412

Income (loss) from operations before income taxes and noncontrolling interest					215		223					(282	)		359			0			0			(67	)		582
Provision for income taxes					72		73					(126	)		103			0			0			(54	)		176
Net income (loss)				$	143	$	150				$	(156	)	$	256		$	0		$	0		$	(13	)	$	406

(1)

(2)

(3)

ERIE INDEMNITY COMPANY

RECONCILIATION OF OPERATING INCOME TO NET INCOME (unaudited)

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 income generated from management operations, life insurance operations⁽¹⁾, property and casualty insurance underwriting operations⁽²⁾, net investment income⁽²⁾, and equity in earnings or losses of limited partnerships, net of related federal income taxes. It does not include 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:^{(1) (2)}


	Indemnity Shareholder interest
	Three			Three			Nine			Nine
	months ended			months ended			months ended			months ended
	September 30,			September 30,			September 30,			September 30,
	2011			2010			2011			2010
(in millions, except per share data)
Operating income attributable to Indemnity	$	51		$	51		$	142		$	146

Net realized (losses) gains and impairments on investments		(6	)		5			1			6
Income tax benefit (expense)		2			(2	)		0			(2	)

Realized (losses) gains and impairments, net of income taxes		(4	)		3			1			4

Net income attributable to Indemnity	$	47		$	54		$	143		$	150

Per Indemnity Class A common share – diluted:
Operating income attributable to Indemnity	$	0.93		$	0.89		$	2.57		$	2.55

Net realized (losses) gains and impairments on investments		(0.09	)		0.08			0.03			0.11
Income tax benefit (expense)		0.03			(0.03	)		(0.01	)		(0.04	)

Realized (losses) gains and impairments, net of income taxes		(0.06	)		0.05			0.02			0.07

Net income attributable to Indemnity	$	0.87		$	0.94		$	2.59		$	2.62

(1)

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 the life insurance results of EFL accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011.

(2)

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in millions)


	September 30,		December 31,
	2011		2010
Assets	(unaudited)
Investments-Indemnity
Available-for-sale securities, at fair value:
Fixed maturities	$	517	$	264
Equity securities		22		24
Trading securities, at fair value		26		28
Limited partnerships		223		216
Other invested assets		1		1
Investments-Exchange
Available-for-sale securities, at fair value:
Fixed maturities		7,331		7,279
Equity securities		591		570
Trading securities, at fair value		2,085		2,306
Limited partnerships		1,187		1,108
Other invested assets		19		19

Total investments		12,002		11,815
Cash and cash equivalents (Exchange portion of $42 and $120, respectively)		76		430
Premiums receivable from policyholders – Exchange		1,035		942
Reinsurance recoverable – Exchange		197		201
Deferred acquisition costs – Exchange		495		467
Other assets (Exchange portion of $349 and $357, respectively)		458		489
Total assets	$	14,263	$	14,344

Liabilities and shareholders’ equity
Liabilities
Indemnity liabilities
Deferred income taxes	$	6	$	26
Other liabilities		381		382
Exchange liabilities
Losses and loss expense reserves		3,686		3,584
Life policy and deposit contract reserves		1,659		1,603
Unearned premiums		2,249		2,082
Deferred income taxes		97		257
Other liabilities		87		76

Total liabilities		8,165		8,010

Indemnity’s shareholders’ equity		845		912
Noncontrolling interest in consolidated entity – Exchange		5,253		5,422

Total equity		6,098		6,334

Total liabilities, shareholders’ equity and noncontrolling interest	$	14,263	$	14,344

Attached files

Stock widget

Investing forum

ERIE INDEMNITY CO Reports