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

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8-K - 8-K - ERIE INDEMNITY CO	erie8-k03312015.htm
EX-99.1 - EXHIBIT 99.1 - ERIE INDEMNITY CO	ex-99103312015.htm

Exhibit 99.2

Erie Indemnity Company

Consolidated Statements of Operations

(dollars in millions, except per share data)



	Three months ended March 31,
	2015			2014
Revenues	(Unaudited)
Premiums earned	$	1,402		$	1,288
Net investment income	113			109
Net realized investment gains	56			56
Net impairment losses recognized in earnings	(2		)	0
Equity in earnings of limited partnerships	28			50
Other income	8			8
Total revenues	1,605			1,511
Benefits and expenses
Insurance losses and loss expenses	1,060			1,034
Policy acquisition and underwriting expenses	348			321
Total benefits and expenses	1,408			1,355

Income from operations before income taxes and noncontrolling interest	197			156
Provision for income taxes	61			47
Net income	$	136		$	109

Less: Net income attributable to noncontrolling interest in consolidated entity – Exchange	97			63

Net income attributable to Indemnity	$	39		$	46


Earnings Per Share
Net income attributable to Indemnity per share
Class A common stock – basic	$	0.83		$	0.99
Class A common stock – diluted	$	0.74		$	0.88
Class B common stock – basic and diluted	$	125		$	149

Weighted average shares outstanding attributable to Indemnity – Basic
Class A common stock	46,189,068			46,402,270
Class B common stock	2,542			2,542

Weighted average shares outstanding attributable to Indemnity – Diluted
Class A common stock	52,634,752			52,598,211
Class B common stock	2,542			2,542

Dividends declared per share
Class A common stock	$	0.6810		$	0.6350
Class B common stock	$	102.1500		$	95.2500

Erie Indemnity Company

Results of the Erie Insurance Group's Operations by Interest (Unaudited)

(in millions)



	Indemnity shareholder interest				Noncontrolling interest (Exchange)						Eliminations of related party transactions						Erie Insurance Group
	Three months ended March 31,				Three months ended March 31,						Three months ended March 31,						Three months ended March 31,
	2015		2014		2015			2014			2015			2014			2015			2014
Management operations:
Management fee revenue, net	$	343	$	319	$	—		$	—		$	(343	)	$	(319	)	$	—		$	—
Service agreement revenue	8		7		—			—			—			—			8			7
Total revenue from management operations	351		326		—			—			(343		)	(319		)	8			7
Cost of management operations	298		268		—			—			(298		)	(268		)	—			—
Income from management operations before taxes	53		58		—			—			(45		)	(51		)	8			7
Property and casualty insurance operations:
Net premiums earned	—		—		1,380			1,268			—			—			1,380			1,268
Losses and loss expenses	—		—		1,033			1,007			(1		)	(1		)	1,032			1,006
Policy acquisition and underwriting expenses	—		—		386			365			(47		)	(53		)	339			312
(Loss) income from property and casualty insurance operations before taxes	—		—		(39		)	(104		)	48			54			9			(50		)
Life insurance operations: ⁽¹⁾
Total revenue	—		—		47			50			0			0			47			50
Total benefits and expenses	—		—		37			37			0			0			37			37
Income from life insurance operations before taxes	—		—		10			13			0			0			10			13
Investment operations: ⁽¹⁾
Net investment income	4		4		88			84			(3		)	(3		)	89			85
Net realized gains on investments	0		1		56			50			—			—			56			51
Net impairment losses recognized in earnings	0		0		(2		)	0			—			—			(2		)	0
Equity in earnings of limited partnerships	2		6		25			44			—			—			27			50
Income from investment operations before taxes	6		11		167			178			(3		)	(3		)	170			186
Income from operations before income taxes and noncontrolling interest	59		69		138			87			—			—			197			156
Provision for income taxes	20		23		41			24			—			—			61			47
Net income	$	39	$	46	$	97		$	63		$	—		$	—		$	136		$	109

(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

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 months ended March 31,
(in millions, except per share data)	2015		2014
	(Unaudited)
Operating income attributable to Indemnity	$	39	$	45
Net realized gains and impairments on investments	0		1
Income tax expense	0		0
Realized gains and impairments, net of income taxes	0		1
Net income attributable to Indemnity	$	39	$	46

Per Indemnity Class A common share-diluted:
Operating income attributable to Indemnity	$	0.74	$	0.87
Net realized gains and impairments on investments	0.00		0.02
Income tax expense	0.00		(0.01		)
Realized gains and impairments, net of income taxes	0.00		0.01
Net income attributable to Indemnity	$	0.74	$	0.88

Erie Indemnity Company

Consolidated Statements of Financial Position

(in millions)



	March 31, 2015		December 31, 2014
	(Unaudited)
Assets
Investments – Indemnity
Available-for-sale securities, at fair value:
Fixed maturities	$	556	$	564
Equity securities	25		25
Limited partnerships	100		113
Other invested assets	1		1
Investments – Exchange
Available-for-sale securities, at fair value:
Fixed maturities	9,499		9,007
Equity securities	837		850
Trading securities, at fair value	3,096		3,223
Limited partnerships	815		866
Other invested assets	21		20
Total investments	14,950		14,669

Cash and cash equivalents (Exchange portion of $362 and $422, respectively)	420		514
Premiums receivable from policyholders – Exchange	1,304		1,281
Reinsurance recoverable – Exchange	162		161
Deferred income taxes – Indemnity	40		37
Deferred acquisition costs – Exchange	589		595
Other assets (Exchange portion of $403 and $374, respectively)	528		501
Total assets	$	17,993	$	17,758

Liabilities and shareholders’ equity
Liabilities
Indemnity liabilities
Other liabilities	$	552	$	611
Exchange liabilities
Losses and loss expense reserves	3,966		3,853
Life policy and deposit contract reserves	1,827		1,812
Unearned premiums	2,845		2,834
Deferred income taxes	494		490
Other liabilities	172		175
Total liabilities	9,856		9,775

Indemnity's shareholders’ equity	710		703

Noncontrolling interest in consolidated entity – Exchange	7,427		7,280
Total equity	8,137		7,983
Total liabilities, shareholders’ equity and noncontrolling interest	$	17,993	$	17,758

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