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

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8-K - LIVE FILING - ERIE INDEMNITY CO	htm_46346.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	2012		2011			2012		2011
Premiums earned	$	1,137	$	1,061		$	3,333	$	3,138
Net investment income		105		108			326		326
Net realized investment gains (losses)		169		(422	)		358		(234	)
Net impairment losses recognized in earnings		0		0			0		0
Equity in earnings of limited partnerships		41		40			99		150
Other income		8		9			24		26

Total revenues		1,460		796			4,140		3,406

Benefits and expenses
Insurance losses and loss expenses		912		848			2,571		2,724
Policy acquisition and underwriting expenses		278		253			835		749

Total benefits and expenses		1,190		1,101			3,406		3,473

Income (loss) from operations before income taxes
and noncontrolling interest		270		(305	)		734		(67	)
Provision for income taxes		86		(125	)		234		(54	)

Net income (loss)		184		(180	)		500		(13	)
Less: Net income (loss) attributable to noncontrolling
interest in consolidated entity – Exchange		133		(227	)		370		(156	)

Net income attributable to Indemnity	$	51	$	47		$	130	$	143

Earnings Per Share
Net income attributable to Indemnity per share
Class A common stock – basic	$	1.08	$	0.97		$	2.73	$	2.90

Class A common stock – diluted	$	0.96	$	0.87		$	2.43	$	2.59

Class B common stock – basic and diluted	$	162.02	$	146.67		$	410.89	$	439.39

Weighted average shares outstanding attributable to
Indemnity – Basic
Class A common stock		47,188,741		48,503,383			47,476,693		49,176,124

Class B common stock		2,544		2,546			2,544		2,546

Weighted average shares outstanding attributable to
Indemnity – Diluted
Class A common stock		53,374,846		54,685,021			53,662,798		55,357,762

Class B common stock		2,544		2,546			2,544		2,546

Dividends declared per share
Class A common stock	$	0.5525	$	0.515		$	1.6575	$	1.545

Class B common stock	$	82.8750	$	77.250		$	248.6250	$	231.750

ERIE INDEMNITY COMPANY

RESULTS OF THE ERIE INSURANCE GROUP’S OPERATIONS BY INTEREST (Unaudited)

(in millions)


																		Eliminations of
	Indemnity			shareholder					Noncontrolling interest									related party
	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			2012		2011			Percent			2012			2011			2012			2011			2012			2011
Management operations:

Management fee revenue, net		100.0	%	$	305	$	280					$	—		$	—		$	(305	)	$	(280	)	$	—		$	—
Service agreement revenue		100.0	%		8		8						—			—			—			—			8			8

Total revenue from management operations					313		288						—			—			(305	)		(280	)		8			8
Cost of management operations		100.0	%		247		226						—			—			(247	)		(226	)		—			—

*Income from management operations before taxes*					66		62						—			—			(58	)		(54	)		8			8

Property and casualty insurance operations:

Net premiums earned					—		—			100.0	%		1,118			1,045			—			—			1,118			1,045
Losses and loss expenses					—		—			100.0	%		890			823			(2	)		(1	)		888			822
Policy acquisition and other underwriting expenses					—		—			100.0	%		329			302			(59	)		(56	)		270			246

*Loss from property and casualty insurance operations before taxes*					—		—						(101	)		(80	)		61			57			(40	)		(23	)

Life insurance operations:⁽¹⁾

Total revenue					—		—			100.0	%		44			46			0			0			44			46
Total benefits and expenses					—		—			100.0	%		32			33			0			0			32			33

*Income from life insurance operations before taxes*					—		—						12			13			0			0			12			13

Investment operations:

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	)

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	)

(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.

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			2012		2011		Percent			2012			2011			2012			2011			2012			2011
Management operations:

Management fee revenue, net		100.0	%	$	882	$	816				$	—		$	—		$	(882	)	$	(816	)	$	—		$	—
Service agreement revenue		100.0	%		23		25					—			—			—			—			23			25

Total revenue from management operations					905		841					—			—			(882	)		(816	)		23			25
Cost of management operations		100.0	%		734		667					—			—			(734	)		(667	)		—			—

*Income from management operations before taxes*					171		174					—			—			(148	)		(149	)		23			25

Property and casualty insurance operations:

Net premiums earned					—		—		100.0	%		3,279			3,089			—			—			3,279			3,089
Losses and loss expenses					—		—		100.0	%		2,501			2,653			(4	)		(4	)		2,497			2,649
Policy acquisition and other underwriting expenses					—		—		100.0	%		963			882			(153	)		(154	)		810			728

*Loss from property and casualty insurance operations before taxes*					—		—					(185	)		(446	)		157			158			(28	)		(288	)

Life insurance operations:^{(1) (2)}

									78.4	%
Total revenue		21.6% ⁽²⁾			—		10		⁽²⁾			133			124			(1	)		(1	)		132			133
									78.4	%
Total benefits and expenses		21.6% ⁽²⁾			—		7		⁽²⁾			99			89			0			0			99			96

*Income from life insurance operations before taxes*					—		3					34			35			(1	)		(1	)		33			37

Investment operations:

Net investment income					12		12					251			252			(8	)		(8	)		255			256
Net realized gains (losses) on investments					4		1					348			(247	)		—			—			352			(246	)
Net impairment losses recognized in earnings					0		0					0			0			—			—			0			0
Equity in earnings of limited partnerships					10		25					89			124			—			—			99			149

*Income from investment operations before taxes*					26		38					688			129			(8	)		(8	)		706			159

Income (loss) from operations before income taxes and noncontrolling interest					197		215					537			(282	)		—			—			734			(67	)
Provision for income taxes					67		72					167			(126	)		—			—			234			(54	)
Net income (loss)				$	130	$	143				$	370		$	(156	)	$	-		$	-		$	500		$	(13	)

(1)

(2)

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

ERIE INDEMNITY COMPANY

RECONCILIATION OF OPERATING INCOME TO NET INCOME

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 net income excluding 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:


	Indemnity Shareholder interest
	Three			Three			Nine			Nine
	months ended			months ended			months ended			months ended
	September 30,			September 30,			September 30,			September 30,
	2012			2011			2012			2011
(in millions, except per share data)
	(unaudited)						(unaudited)
Operating income attributable to Indemnity	$	50		$	51		$	128		$	142

Net realized gains (losses) and impairments on investments		2			(6	)		4			1
Income tax (expense) benefit		(1	)		2			(2	)		0

Realized gains (losses) and impairments, net of income taxes		1			(4	)		2			1

Net income attributable to Indemnity	$	51		$	47		$	130		$	143

Per Indemnity Class A common share – diluted:
Operating income attributable to Indemnity	$	0.93		$	0.93		$	2.38		$	2.57

Net realized gains (losses) and impairments on investments		0.05			(0.09	)		0.08			0.03
Income tax (expense) benefit		(0.02	)		0.03			(0.03	)		(0.01	)

Realized gains (losses) and impairments, net of income taxes		0.03			(0.06	)		0.05			0.02

Net income attributable to Indemnity	$	0.96		$	0.87		$	2.43		$	2.59

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in millions)


	September 30,		December 31,
	2012		2011
Assets	(Unaudited)
Investments-Indemnity
Available-for-sale securities, at fair value:
Fixed maturities	$	547	$	548
Equity securities		29		25
Trading securities, at fair value		30		27
Limited partnerships		195		208
Other invested assets		1		1
Investments-Exchange
Available-for-sale securities, at fair value:
Fixed maturities		7,623		7,292
Equity securities		624		564
Trading securities, at fair value		2,639		2,308
Limited partnerships		1,083		1,082
Other invested assets		20		19

Total investments		12,791		12,074
Cash and cash equivalents (Exchange portion of $392 and $174, respectively)		404		185
Premiums receivable from policyholders – Exchange		1,100		976
Reinsurance recoverable – Exchange		165		166
Deferred income taxes – Indemnity		16		19
Deferred acquisition costs – Exchange		505		487
Other assets (Exchange portion of $448 and $322, respectively)		563		441
Total assets	$	15,544	$	14,348

Liabilities and shareholders’ equity
Liabilities
Indemnity liabilities
Other liabilities	$	472	$	455
Exchange liabilities
Losses and loss expense reserves		3,598		3,499
Life policy and deposit contract reserves		1,721		1,671
Unearned premiums		2,420		2,178
Deferred income taxes		367		147
Other liabilities		123		105

Total liabilities		8,701		8,055

Indemnity’s shareholders’ equity		782		781
Noncontrolling interest in consolidated entity – Exchange		6,061		5,512

Total equity		6,843		6,293

Total liabilities, shareholders’ equity and noncontrolling interest	$	15,544	$	14,348

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