Attached files
| file | filename |
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| 8-K - LIVE FILING - ERIE INDEMNITY CO | htm_46346.htm |
| EX-99.2 - EX-99.2 - ERIE INDEMNITY CO | exhibit2.htm |
Exhibit 99.1
Erie Indemnity Reports Third Quarter 2012 Results
3Q 2012 Highlights
Indemnity Shareholder Interest:
| • | Net income attributable to Indemnity per share-diluted was $0.96 per share in the third quarter of 2012, compared to net income per share-diluted of $0.87 per share in the third quarter of 2011. |
| • | Operating income attributable to Indemnity per share-diluted (excluding net realized gains or losses, impairments on investments and related taxes) was $0.93 per share in both the third quarter of 2012 and 2011. |
| • | Indemnity’s management operations pretax income totaled $66 million in the third quarter of 2012, compared to $62 million in the third quarter of 2011. The gross margin from management operations was 20.9 percent in the third quarter of 2012, compared to 21.7 percent in the third quarter of 2011. |
| • | Indemnity’s investment operations pretax income totaled $12 million for the third quarter of 2012, compared to $5 million for the third quarter of 2011. |
Erie, Pa. – November 1, 2012 – Erie Indemnity Company (NASDAQ: ERIE) today announced third quarter 2012 earnings of $51 million, compared to earnings of $47 million in the third quarter of 2011. Operating income was $50 million in the third quarter of 2012, compared to operating income of $51 million in the third quarter of 2011.
Note: The accompanying consolidated financial statements of Erie Indemnity Company (“Indemnity”) reflect the consolidated results of Indemnity and the Erie Insurance Exchange (“Exchange”), which we refer to collectively as the “Erie Insurance Group.”
Indemnity, or Indemnity shareholder interest, refers to the interest in Erie Indemnity Company owned by the Class A and Class B shareholders. The Exchange refers to the noncontrolling interest held for the interest of the subscribers (policyholders), and includes its interest in its property and casualty subsidiaries and Erie Family Life Insurance Company (“EFL”).
The following table shows the consolidated results of the Erie Insurance Group by operating segment:
| Results of the Erie Insurance Group’s Operations | ||||||||||||||||||||||||||||||||
| Indemnity shareholder interest | Noncontrolling interest (Exchange) | Elimination of related party transactions | Erie Insurance Group | |||||||||||||||||||||||||||||
(dollars in millions) |
3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | ||||||||||||||||||||||||
Management operations |
$ | 66 | $ | 62 | $ | - | $ | - | $ | (58 | ) | $ | (54 | ) | $ | 8 | $ | 8 | ||||||||||||||
Property and casualty insurance operations |
— | — | (101 | ) | (80 | ) | 61 | 57 | (40 | ) | (23 | ) | ||||||||||||||||||||
Life insurance operations |
— | — | 12 | 13 | 0 | 0 | 12 | 13 | ||||||||||||||||||||||||
Investment operations |
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 | ) | ||||||||||||||
The following sections highlight and discuss the segment results of the management, property and casualty insurance, life insurance, and investment operations related to the Indemnity shareholder interest.
| Management Operations | ||||||||||||||||||||||||||||||||
| Indemnity shareholder interest | Noncontrolling interest (Exchange) | Elimination of related party transactions | Erie Insurance Group | |||||||||||||||||||||||||||||
(dollars in millions) |
3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | ||||||||||||||||||||||||
Management fee revenue, net |
$ | 305 | $ | 280 | $ | — | $ | — | $ | (305 | ) | $ | (280 | ) | $ | — | $ | — | ||||||||||||||
Service agreement revenue |
8 | 8 | — | — | — | — | 8 | 8 | ||||||||||||||||||||||||
Total revenue from management operations |
313 | 288 | — | — | (305 | ) | (280 | ) | 8 | 8 | ||||||||||||||||||||||
Cost of management operations |
247 | 226 | — | - | (247 | ) | (226 | ) | - | - | ||||||||||||||||||||||
Income from management operations
before taxes |
$66 | $ | 62 | $ | — | $ | - | $ | (58 | ) | $ | (54 | ) | $ | 8 | $ | 8 | |||||||||||||||
Gross margin |
20.9 | % | 21.7 | % | ||||||||||||||||||||||||||||
| • | The management fee rate was 25 percent for both the third quarters of 2012 and 2011. Direct written premium of the property and casualty insurance operations, upon which the management fee is calculated, increased 8.6 percent in the third quarter of 2012, due to a 3.4 percent increase in policies in force and a 4.1 percent increase in the year-over-year average premium per policy for all lines of business at September 30, 2012. |
| • | Commissions increased $12 million in the third quarter of 2012, compared to the third quarter of 2011, primarily as a result of the 8.6 percent increase in direct written premium of the property and casualty insurance operations. |
| • | Non-commission expense increased $9 million in the third quarter of 2012, compared to the third quarter of 2011. Sales, policy issuance, advertising, and underwriting costs increased $2 million primarily due to increased levels of applications and policies and increased agent related advertising and support. Information technology costs increased $3 million, which included $1 million of personnel costs, $1 million of software costs and $1 million of professional fees. Personnel and all other underwriting costs, excluding information technology related costs, increased $4 million as a result of a $2 million increase related to higher staffing levels primarily associated with policy acquisition and customer service functions, a $1 million increase in pension costs, and a $1 million increase in the estimate for annual incentive plan compensation related to growth and underwriting performance. |
| Property and Casualty Insurance Operations * | ||||||||||||||||||||||||||||||||
| Indemnity shareholder interest | Noncontrolling interest (Exchange) | Elimination of related party transactions | Erie Insurance Group | |||||||||||||||||||||||||||||
(dollars in millions) |
3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | ||||||||||||||||||||||||
Net premiums earned |
$ | — | $ | — | $ | 1,118 | $ | 1,045 | $ | - | $ | - | $ | 1,118 | $ | 1,045 | ||||||||||||||||
Losses and loss expenses |
— | — | 890 | 823 | (2 | ) | (1 | ) | 888 | 822 | ||||||||||||||||||||||
Policy acquisition and other
underwriting expenses |
— | — | 329 | 302 | (59 | ) | (56 | ) | 270 | 246 | ||||||||||||||||||||||
Total losses and expenses |
— | — | 1,219 | 1,125 | (61 | ) | (57 | ) | 1,158 | 1,068 | ||||||||||||||||||||||
Loss from property and casualty
insurance operations before taxes |
$ | — | $ | — | $ | (101 | ) | $ | (80 | ) | $ | 61 | $ | 57 | $ | (40 | ) | $ | (23 | ) | ||||||||||||
Combined ratio |
— | — | 108.9 | % | 107.7 | % | ||||||||||||||||||||||||||
| * | All property and casualty insurance underwriting results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest. |
| Life Insurance Operations * | ||||||||||||||||||||||||||||||||
| Indemnity shareholder interest | Noncontrolling interest (Exchange) | Elimination of related party transactions | Erie Insurance Group | |||||||||||||||||||||||||||||
(dollars in millions) |
3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | ||||||||||||||||||||||||
Total revenue |
$ | — | $ | — | $ | 44 | $ | 46 | $ | 0 | $ | 0 | $ | 44 | $ | 46 | ||||||||||||||||
Total benefits and expenses |
— | — | 32 | 33 | 0 | 0 | 32 | 33 | ||||||||||||||||||||||||
Income from life insurance operations
before taxes |
$ | — | $ | — | $ | 12 | $ | 13 | $ | 0 | $ | 0 | $ | 12 | $ | 13 | ||||||||||||||||
| * | All life insurance underwriting results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest. |
| Investment Operations | ||||||||||||||||||||||||||||||||
| Indemnity shareholder interest | Noncontrolling interest (Exchange) | Elimination of related party transactions | Erie Insurance Group | |||||||||||||||||||||||||||||
(dollars in millions) |
3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | 3Q’12 | 3Q’11 | ||||||||||||||||||||||||
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 | ) | ||||||||||||
| • | Net investment income, which primarily includes interest and dividends on Indemnity’s fixed maturity and equity security portfolios, was $4 million in both the third quarter of 2012 and 2011. |
| • | Net realized gains on investments totaled $2 million, compared to losses of $6 million in the third quarter of 2011, due to common stock valuation gains experienced in the third quarter of 2012, compared to valuation losses experienced in the third quarter of 2011. |
| • | There were no net impairment losses recognized in earnings for Indemnity in the third quarter of 2012 and 2011. |
| • | Equity in earnings of limited partnerships decreased to $6 million in the third quarter of 2012, from $7 million in the third quarter of 2011. |
Nine-Months Ended September 30, 2012 Highlights
Indemnity Shareholder Interest:
| • | Net income attributable to Indemnity per share-diluted was $2.43 per share for the nine months ended September 30, 2012, compared to net income per share-diluted of $2.59 per share for the nine months ended September 30, 2011. The nine months ended September 30, 2011 net income amount includes $0.02 per share-diluted related to the life insurance operations sold to the Exchange. |
| • | Operating income attributable to Indemnity per share-diluted (excluding net realized gains or losses, impairments on investments and related taxes) was $2.38 per share for the nine months ended September 30, 2012, compared to $2.57 per share-diluted for the nine months ended September 30, 2011. The nine months ended September 30, 2011 operating income amount includes $0.02 per share-diluted related to the life insurance operations sold to the Exchange. |
| • | Indemnity’s management operations pretax income totaled $171 million for the nine months ended September 30, 2012, compared to $174 million for the nine months ended September 30, 2011. The gross margin from management operations was 18.8 percent for the nine months ended September 30, 2012, compared to 20.7 percent for the nine months ended September 30, 2011. |
| • | Indemnity’s investment operations pretax income totaled $26 million for the nine months ended September 30, 2012, compared to $38 million for the nine months ended September 30, 2011. |
Share Repurchase Program
In the third quarter of 2012, we repurchased 160,848 shares of our outstanding Class A nonvoting common stock at a total cost of $11 million in conjunction with our current stock repurchase program. For the year through October 17, 2012, shares repurchased under this program totaled 795,547 at a total cost of $57 million. In October 2011, our Board of Directors approved a continuation of the current stock repurchase program for a total of $150 million, with no time limitation. This repurchase authority included, and was not in addition to, any unspent amounts remaining under the prior authorization. As of October 17, 2012, we had approximately $80 million in repurchase authority remaining under the program.
According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 15th largest homeowners insurer and 12th 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 nearly 4.5 million policies in force and operates in 11 states and the District of Columbia. Erie Insurance Group is a FORTUNE 500 company. Erie Insurance is proud to be named a J.D. Power and Associates’ 2012 Customer Service Champion. ERIE is one of only 50 U.S. companies so named. Erie Insurance is also recognized on the list of Ward’s 50 Group of top performing insurance companies, which analyzes the financial performance of 3,000 property and casualty companies and recognizes the top performers for achieving outstanding results in safety, consistency and financial performance over a five-year period (2007-2011).
News releases and more information about Erie Insurance Group are available at www.erieinsurance.com.
***
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:
Statements contained herein that are not historical fact are forward-looking statements and, as
such, are subject to risks and uncertainties that could cause actual events and results to differ,
perhaps materially, from those discussed herein. Forward-looking statements relate to future
trends, events or results and include, without limitation, statements and assumptions on which such
statements are based that are related to our plans, strategies, objectives, expectations,
intentions and adequacy of resources. Examples of forward-looking statements are discussions
relating to premium and investment income, expenses, operating results, agency relationships, and
compliance with contractual and regulatory requirements. Forward-looking statements are not
guarantees of future performance and involve risks and uncertainties that are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. Among the risks and uncertainties, in addition to those set
forth in our filings with the Securities and Exchange Commission, that could cause actual results
and future events to differ from those set forth or contemplated in the forward-looking statements
include the following:
Risk factors related to the Indemnity shareholder interest:
| • | dependence on Indemnity’s relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange; |
| • | costs of providing services to the Exchange under the subscriber’s agreement; |
| • | ability to attract and retain talented management and employees; |
| • | ability to maintain uninterrupted business operations, including information technology systems; |
| • | factors affecting the quality and liquidity of Indemnity’s investment portfolio; |
| • | credit risk from the Exchange; |
| • | Indemnity’s ability to meet liquidity needs and access capital; and |
| • | outcome of pending and potential litigations against Indemnity. |
Risk factors related to the non-controlling interest owned by the Exchange, which includes the Property and Casualty Group and EFL:
| • | general business and economic conditions; |
| • | dependence upon the independent agency system; |
| • | ability to maintain our reputation for customer service; |
| • | factors affecting insurance industry competition; |
| • | changes in government regulation of the insurance industry; |
| • | premium rates and reserves must be established from forecasts of ultimate costs; |
| • | emerging claims, coverage issues in the industry, and changes in reserve estimates related to the property and casualty business; |
| • | changes in reserve estimates related to the life business; |
| • | severe weather conditions or other catastrophic losses, including terrorism; |
| • | the Exchange’s ability to acquire reinsurance coverage and collectability from reinsurers; |
| • | factors affecting the quality and liquidity of the Exchange’s investment portfolio; |
| • | the Exchange’s ability to meet liquidity needs and access capital; |
| • | the Exchange’s ability to maintain acceptable financial strength rating; |
| • | outcome of pending and potential litigations against the Exchange; and |
| • | dependency upon the service provided by Indemnity. |
A forward-looking statement speaks only as of the date on which it is made and reflects Indemnity’s analysis only as of that date. Indemnity undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions, or otherwise.