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Feb 25, 2003
Erie Indemnity Reports Fourth Quarter And Full-Year 2002 Results
Erie Indemnity Reports Fourth Quarter And Full-Year 2002 Results
Erie Indemnity Reports Fourth Quarter And Full-Year 2002 Results
Erie, Pa., Feb. 25, 2003 – Erie Indemnity Company (Nasdaq: ERIE) today announced results for the fourth quarter and full-year 2002. For the fourth quarter:
For the full-year 2002 results, Erie Indemnity reported:
Details of Fourth Quarter 2002 Results
Management operations
Management fee revenue increased to $181.8 million for the quarter ended December 31, 2002, from $154.2 million for the same period one year ago. The property and casualty direct written premiums of the Erie Insurance Group, upon which management fee revenue is calculated, grew 25.7 percent to $774.8 million in the fourth quarter 2002, from $616.6 million in the fourth quarter 2001. In the fourth quarter of 2002, the Company established an estimated allowance for management fees returned on mid-term cancellations. The allowance resulted in an $11.9 million reduction in management fee revenue for the quarter ended December 31, 2002, and a reduction in net income of $4.0 million, or $.06 per share, after taxes.
Nonaffiliated assumed reinsurance premiums of Erie Insurance Exchange, upon which the Company receives a 7.0 percent service fee, increased to $46.7 million in the fourth quarter of 2002, up by 11.2 percent over the $42 million recorded in the fourth quarter 2001.
The cost of management operations increased 6.6 percent to $136.3 million in the fourth quarter of 2002, from $127.8 million for the same period in 2001. Commission costs increased 21.3 percent to $95.7 million, from $78.9 million in the fourth quarter 2001. Commission costs grew more slowly than written premium due to a $5.8 million reduction in commission expense for returned commissions related to the allowance recorded for returned management fees on mid-term policy cancellations.
Fourth quarter costs of management operations, excluding commissions, decreased 16.9 percent to $40.6 million in 2002 from $48.9 million in 2001. Included in the fourth quarter 2001 costs was a $10.7 million severance charge related to the retirement of the Company’s president and chief executive officer. Excluding this charge, these costs would have increased 6.2 percent.
Also included in the cost of management operations are technology hardware and infrastructure expenditures for the Erie Insurance Group eCommerce program. These costs amounted to $ 0.1 million and $1.1 million in the fourth quarters of 2002 and 2001, respectively.
Insurance underwriting operations
The Company’s insurance underwriting operations recorded losses of $11.2 million and $4.6 million in the fourth quarters of 2002 and 2001, respectively. During the fourth quarter of 2002, the Company’s property and casualty insurance subsidiaries strengthened their loss and loss adjustment reserves by $10.1 million.
Underwriting losses in the fourth quarter were negatively impacted by adverse development of loss reserves for prior accident years, principally in personal and commercial automobile coverages, as well as a fourth quarter increase to strengthen reserves in response to loss development trends. Reserve increases amounted to $6.6 million, or $.09 per share, after taxes, in the fourth quarter 2002. Approximately half of the reserve strengthening was in accident years prior to 2002.
The Company’s share of catastrophe losses totaled $1.6 million and $1.5 million for the three-month periods ended December 31, 2002 and 2001, respectively. These losses include catastrophe losses previously reported by the Company from tornado and hail storms in Ohio and Pennsylvania, and ice storms in North Carolina during the fourth quarter 2002.
Included in the Company’s policy acquisition and other underwriting expenses is the property and casualty insurance subsidiaries’ share of software development costs related to the eCommerce initiative and charges related to guaranty fund assessments. Costs associated with the eCommerce initiative totaled $0.9 million and $0.7 million for the fourth quarters of 2002 and 2001, respectively. These costs will continue to be incurred as the program develops through 2004. A charge of $0.6 million for state guaranty fund assessments related to the insolvency of the Pennsylvania Hospital Insurance Company (PHICO) was taken in December 2002. The 2001 expenses include a charge of $1.7 million related to the insolvency of the Reliance Insurance Company.
Investment operations
Net revenue from investment operations for the fourth quarter of 2002 reflects income of $8.0 million, compared to a loss of $19.2 million for the same period in 2001. Increases made in net investment income and equity in earnings of Erie Family Life Insurance Company (EFL), as well as decreased net realized losses on investments, were all contributing factors to the fourth quarter increase. Net investment income increased by 13.1 percent to $14.7 million for the quarter ended December 31, 2002, from $13.0 million for the same period in 2001 primarily as the result of increases in investments in taxable bonds.
Net realized losses on investments of $2.6 million were recorded during the fourth quarter of 2002 compared to net realized losses of $26.4 million for the fourth quarter of 2001. In the fourth quarter 2002, the Company recorded impairment charges of $7.7 million related to fixed income and equity security investments, in which declines in value were considered to be other-than-temporary. These impairment charges were offset by net realized gains from the sale of investments of $5.1 million. Included in the 2001 realized losses were sales of investments in a loss position and impairment charges totaling $26.4 million. These sales were part of a tax-selling strategy and produced a recovery of $9.1 million of federal income taxes relating to taxes paid in 2000, 1999 and 1998.
Equity in losses of limited partnerships was $4.8 million and $4.0 million for the fourth quarters of 2002 and 2001, respectively. Private equity and fixed income limited partnerships incurred realized losses of $5.4 million and $4.1 million in the fourth quarters of 2002 and 2001, respectively. Real estate limited partnerships reflected earnings of $0.6 million for the quarter ended December 31, 2002 compared to earnings of $0.1 million for the same period in 2001. Included in the private equity partnership losses are impairment charges totaling $5.5 million and $2.7 million in the fourth quarters of 2002 and 2001, respectively.
The Company’s earnings from its 21.6 percent equity ownership of EFL increased $2.4 million to $0.6 million for the fourth quarter of 2002 from a loss in the fourth quarter 2001.
Details of 2002 Year-End Results
Management operations
Management fee revenue for 2002 was up 22.2 percent to $775.7 million. For the years ended December 31, 2002 and 2001, the property and casualty direct written premiums of the Erie Insurance Group totaled $3.2 billion and $2.5 billion, respectively, an increase of 24.0 percent. Increases in average premium per policy, continued improvements in new policy growth and increased policy retention rates -- a retention ratio of 91.2 at year end -- were all contributing factors in the growth.
Firming pricing for commercial and personal insurance has allowed the Erie Insurance Group to more adequately price its products. Premium increases anticipated in 2003, due to pricing actions contemplated, filed and awaiting approval, or approved through December 31, 2002, amount to approximately $200 million in premium for the Erie Insurance Group. The majority of the anticipated increase stems from the private passenger automobile, commercial automobile, and homeowners lines of business.
Nonaffiliated assumed reinsurance premiums of Erie Insurance Exchange, upon which the Company receives a 7.0 percent service fee, increased to $183.2 million for 2002, up by 14.0 percent over the $160.7 million for 2001.
Costs of management operations increased by 16.7 percent at year-end 2002 compared to 14.9 percent a year earlier. Commission costs – which make up over half of the Company’s expenses -- rose 23.3 percent to $398.3 million in 2002, from $323.1 million for 2001.
The cost of management operations, excluding commission costs, increased 3.0 percent in 2002 to $159.1 million from $154.5 million in 2001, due primarily to increases in personnel and information technology costs. Personnel costs increased 8.4 percent in 2002 compared to 2001, excluding the $10.7 million charge related to the retirement of the Company’s president and chief executive officer in January 2002. Increased personnel costs in 2002 were driven by increased staffing levels.
As mentioned previously, information technology hardware and infrastructure expenditures related to the eCommerce program are included in the cost of management operations. These costs totaled $2.6 million in 2002 and $1.6 million in 2001.
Insurance underwriting operations
Underwriting losses for the year were greater than anticipated. The Company’s 5.5 percent share of Erie Insurance Group’s underwriting losses totaled $27.1 million in 2002, compared to $20.5 million in 2001. These losses stem from greater than average catastrophe losses, adverse development of losses from prior accident years, which are reflected in the corresponding reserve strengthening taken in the fourth quarter, as well as eCommerce program costs and the guaranty fund charge in the fourth quarter for the PHICO insolvency. The Company is addressing underwriting loss trends by controlling exposure growth, improving underwriting risk selection, instituting programs to control loss severity and obtaining additional premium on risks through rate increases.
The Company’s share of catastrophe losses totaled $7.1 million and $1.6 million, for the years ended December 31, 2002 and 2001, respectively. Recoveries under an excess-of-loss reinsurance agreement with the Exchange for the year totaled $8.8 million and $7.2 million for 2002 and 2001, respectively.
For the 12 months ended December 31, 2002 and 2001, the Company’s policy acquisition and other underwriting expenses were also impacted by the property and casualty insurance subsidiaries’ share of costs related to the eCommerce initiative. These costs totaled $3.9 million and $1.3 million, respectively.
Investment operations
For the year ended December 31, 2002, net revenue from investment operations increased by $23.5 million to $42.3 million compared to $18.8 million for the same period in 2001. The increase in net revenue from investment operations from 2001 to 2002 is primarily due to the $17.9 million decrease in realized losses from 2001 to 2002. Net realized losses on investments were $11.2 million and $29.1 million for the years ended December 31, 2002 and 2001, respectively. In 2002, net realized losses included $25.4 million in impairment charges related primarily to bonds in the communications and energy segments. Of the $25.4 million in impairments, $4.8 million related to equity securities and $20.6 million related to fixed income securities.
Net investment income totaled $55.4 million for the year ended December 31, 2002 and $49.9 million for 2001, up 11.1 percent from 2001. Included in net investment income are primarily interest and dividends on the Company’s fixed maturity and equity security portfolios. Increases in investments in taxable bonds contributed to the growth in net investment income in 2002.
For the year ended December 31, 2002, equity in losses in limited partnerships amounted to $3.7 million, compared to losses of $2.7 million 2001. Equity in earnings of EFL was $1.7 million in 2002, compared to $0.8 million for the same period in 2001.
Erie Indemnity Company provides management services to the member companies of the Erie Insurance Group, which includes the Erie Insurance Exchange, Flagship City Insurance Company, Erie Insurance Company, Erie Insurance Property and Casualty Company, Erie Insurance Company of New York and Erie Family Life Insurance Company.
According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 17th largest automobile insurer in the United States based on direct premiums written and the 25th 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 more than 3.5 million policies in force and operates in 11 states and the District of Columbia.
News releases and more information about Erie Insurance Group are available at http://www.erieinsurance.com
“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: Certain forward-looking statements contained herein involve risks and uncertainties. These statements include certain discussions relating to underwriting, premium and investment income volume, business strategies, profitability and business relationships and the Company’s other business activities during 2002 and beyond. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expect," "plan," "intend," "anticipate," "believe," "estimate," "project," "predict," "potential" and similar expressions. These forward-looking statements reflect the Company’s current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that may cause results to differ materially from those anticipated in those statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict.
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- Net income increased to $33.9 million, up from $5.9 million for the same period in 2001.
- Net income per share increased to $.48 per share, compared to $.08 per share in the comparable quarter for 2001.
- Net income, excluding net realized losses on investments and related federal income taxes, increased to $35.6 million, up from $23.1 million for the same period one year ago.
- Management fee revenue grew by 17.9 percent to $181.8 million, up from $154.2 million for the same period one year ago.
For the full-year 2002 results, Erie Indemnity reported:
- Net income was up by 40.8 percent to $172.1 million, from $122.3 million at the end of 2001.
- Net income per share increased to $2.42 per share at December 31, 2002, from $1.71 at year-end 2001.
- Net income, excluding net realized losses on investments and related federal income taxes, grew 27.1 percent to $179.4 million.
Details of Fourth Quarter 2002 Results
Management operations
Management fee revenue increased to $181.8 million for the quarter ended December 31, 2002, from $154.2 million for the same period one year ago. The property and casualty direct written premiums of the Erie Insurance Group, upon which management fee revenue is calculated, grew 25.7 percent to $774.8 million in the fourth quarter 2002, from $616.6 million in the fourth quarter 2001. In the fourth quarter of 2002, the Company established an estimated allowance for management fees returned on mid-term cancellations. The allowance resulted in an $11.9 million reduction in management fee revenue for the quarter ended December 31, 2002, and a reduction in net income of $4.0 million, or $.06 per share, after taxes.
Nonaffiliated assumed reinsurance premiums of Erie Insurance Exchange, upon which the Company receives a 7.0 percent service fee, increased to $46.7 million in the fourth quarter of 2002, up by 11.2 percent over the $42 million recorded in the fourth quarter 2001.
The cost of management operations increased 6.6 percent to $136.3 million in the fourth quarter of 2002, from $127.8 million for the same period in 2001. Commission costs increased 21.3 percent to $95.7 million, from $78.9 million in the fourth quarter 2001. Commission costs grew more slowly than written premium due to a $5.8 million reduction in commission expense for returned commissions related to the allowance recorded for returned management fees on mid-term policy cancellations.
Fourth quarter costs of management operations, excluding commissions, decreased 16.9 percent to $40.6 million in 2002 from $48.9 million in 2001. Included in the fourth quarter 2001 costs was a $10.7 million severance charge related to the retirement of the Company’s president and chief executive officer. Excluding this charge, these costs would have increased 6.2 percent.
Also included in the cost of management operations are technology hardware and infrastructure expenditures for the Erie Insurance Group eCommerce program. These costs amounted to $ 0.1 million and $1.1 million in the fourth quarters of 2002 and 2001, respectively.
Insurance underwriting operations
The Company’s insurance underwriting operations recorded losses of $11.2 million and $4.6 million in the fourth quarters of 2002 and 2001, respectively. During the fourth quarter of 2002, the Company’s property and casualty insurance subsidiaries strengthened their loss and loss adjustment reserves by $10.1 million.
Underwriting losses in the fourth quarter were negatively impacted by adverse development of loss reserves for prior accident years, principally in personal and commercial automobile coverages, as well as a fourth quarter increase to strengthen reserves in response to loss development trends. Reserve increases amounted to $6.6 million, or $.09 per share, after taxes, in the fourth quarter 2002. Approximately half of the reserve strengthening was in accident years prior to 2002.
The Company’s share of catastrophe losses totaled $1.6 million and $1.5 million for the three-month periods ended December 31, 2002 and 2001, respectively. These losses include catastrophe losses previously reported by the Company from tornado and hail storms in Ohio and Pennsylvania, and ice storms in North Carolina during the fourth quarter 2002.
Included in the Company’s policy acquisition and other underwriting expenses is the property and casualty insurance subsidiaries’ share of software development costs related to the eCommerce initiative and charges related to guaranty fund assessments. Costs associated with the eCommerce initiative totaled $0.9 million and $0.7 million for the fourth quarters of 2002 and 2001, respectively. These costs will continue to be incurred as the program develops through 2004. A charge of $0.6 million for state guaranty fund assessments related to the insolvency of the Pennsylvania Hospital Insurance Company (PHICO) was taken in December 2002. The 2001 expenses include a charge of $1.7 million related to the insolvency of the Reliance Insurance Company.
Investment operations
Net revenue from investment operations for the fourth quarter of 2002 reflects income of $8.0 million, compared to a loss of $19.2 million for the same period in 2001. Increases made in net investment income and equity in earnings of Erie Family Life Insurance Company (EFL), as well as decreased net realized losses on investments, were all contributing factors to the fourth quarter increase. Net investment income increased by 13.1 percent to $14.7 million for the quarter ended December 31, 2002, from $13.0 million for the same period in 2001 primarily as the result of increases in investments in taxable bonds.
Net realized losses on investments of $2.6 million were recorded during the fourth quarter of 2002 compared to net realized losses of $26.4 million for the fourth quarter of 2001. In the fourth quarter 2002, the Company recorded impairment charges of $7.7 million related to fixed income and equity security investments, in which declines in value were considered to be other-than-temporary. These impairment charges were offset by net realized gains from the sale of investments of $5.1 million. Included in the 2001 realized losses were sales of investments in a loss position and impairment charges totaling $26.4 million. These sales were part of a tax-selling strategy and produced a recovery of $9.1 million of federal income taxes relating to taxes paid in 2000, 1999 and 1998.
Equity in losses of limited partnerships was $4.8 million and $4.0 million for the fourth quarters of 2002 and 2001, respectively. Private equity and fixed income limited partnerships incurred realized losses of $5.4 million and $4.1 million in the fourth quarters of 2002 and 2001, respectively. Real estate limited partnerships reflected earnings of $0.6 million for the quarter ended December 31, 2002 compared to earnings of $0.1 million for the same period in 2001. Included in the private equity partnership losses are impairment charges totaling $5.5 million and $2.7 million in the fourth quarters of 2002 and 2001, respectively.
The Company’s earnings from its 21.6 percent equity ownership of EFL increased $2.4 million to $0.6 million for the fourth quarter of 2002 from a loss in the fourth quarter 2001.
Details of 2002 Year-End Results
Management operations
Management fee revenue for 2002 was up 22.2 percent to $775.7 million. For the years ended December 31, 2002 and 2001, the property and casualty direct written premiums of the Erie Insurance Group totaled $3.2 billion and $2.5 billion, respectively, an increase of 24.0 percent. Increases in average premium per policy, continued improvements in new policy growth and increased policy retention rates -- a retention ratio of 91.2 at year end -- were all contributing factors in the growth.
Firming pricing for commercial and personal insurance has allowed the Erie Insurance Group to more adequately price its products. Premium increases anticipated in 2003, due to pricing actions contemplated, filed and awaiting approval, or approved through December 31, 2002, amount to approximately $200 million in premium for the Erie Insurance Group. The majority of the anticipated increase stems from the private passenger automobile, commercial automobile, and homeowners lines of business.
Nonaffiliated assumed reinsurance premiums of Erie Insurance Exchange, upon which the Company receives a 7.0 percent service fee, increased to $183.2 million for 2002, up by 14.0 percent over the $160.7 million for 2001.
Costs of management operations increased by 16.7 percent at year-end 2002 compared to 14.9 percent a year earlier. Commission costs – which make up over half of the Company’s expenses -- rose 23.3 percent to $398.3 million in 2002, from $323.1 million for 2001.
The cost of management operations, excluding commission costs, increased 3.0 percent in 2002 to $159.1 million from $154.5 million in 2001, due primarily to increases in personnel and information technology costs. Personnel costs increased 8.4 percent in 2002 compared to 2001, excluding the $10.7 million charge related to the retirement of the Company’s president and chief executive officer in January 2002. Increased personnel costs in 2002 were driven by increased staffing levels.
As mentioned previously, information technology hardware and infrastructure expenditures related to the eCommerce program are included in the cost of management operations. These costs totaled $2.6 million in 2002 and $1.6 million in 2001.
Insurance underwriting operations
Underwriting losses for the year were greater than anticipated. The Company’s 5.5 percent share of Erie Insurance Group’s underwriting losses totaled $27.1 million in 2002, compared to $20.5 million in 2001. These losses stem from greater than average catastrophe losses, adverse development of losses from prior accident years, which are reflected in the corresponding reserve strengthening taken in the fourth quarter, as well as eCommerce program costs and the guaranty fund charge in the fourth quarter for the PHICO insolvency. The Company is addressing underwriting loss trends by controlling exposure growth, improving underwriting risk selection, instituting programs to control loss severity and obtaining additional premium on risks through rate increases.
The Company’s share of catastrophe losses totaled $7.1 million and $1.6 million, for the years ended December 31, 2002 and 2001, respectively. Recoveries under an excess-of-loss reinsurance agreement with the Exchange for the year totaled $8.8 million and $7.2 million for 2002 and 2001, respectively.
For the 12 months ended December 31, 2002 and 2001, the Company’s policy acquisition and other underwriting expenses were also impacted by the property and casualty insurance subsidiaries’ share of costs related to the eCommerce initiative. These costs totaled $3.9 million and $1.3 million, respectively.
Investment operations
For the year ended December 31, 2002, net revenue from investment operations increased by $23.5 million to $42.3 million compared to $18.8 million for the same period in 2001. The increase in net revenue from investment operations from 2001 to 2002 is primarily due to the $17.9 million decrease in realized losses from 2001 to 2002. Net realized losses on investments were $11.2 million and $29.1 million for the years ended December 31, 2002 and 2001, respectively. In 2002, net realized losses included $25.4 million in impairment charges related primarily to bonds in the communications and energy segments. Of the $25.4 million in impairments, $4.8 million related to equity securities and $20.6 million related to fixed income securities.
Net investment income totaled $55.4 million for the year ended December 31, 2002 and $49.9 million for 2001, up 11.1 percent from 2001. Included in net investment income are primarily interest and dividends on the Company’s fixed maturity and equity security portfolios. Increases in investments in taxable bonds contributed to the growth in net investment income in 2002.
For the year ended December 31, 2002, equity in losses in limited partnerships amounted to $3.7 million, compared to losses of $2.7 million 2001. Equity in earnings of EFL was $1.7 million in 2002, compared to $0.8 million for the same period in 2001.
Erie Indemnity Company provides management services to the member companies of the Erie Insurance Group, which includes the Erie Insurance Exchange, Flagship City Insurance Company, Erie Insurance Company, Erie Insurance Property and Casualty Company, Erie Insurance Company of New York and Erie Family Life Insurance Company.
According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 17th largest automobile insurer in the United States based on direct premiums written and the 25th 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 more than 3.5 million policies in force and operates in 11 states and the District of Columbia.
News releases and more information about Erie Insurance Group are available at http://www.erieinsurance.com
“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: Certain forward-looking statements contained herein involve risks and uncertainties. These statements include certain discussions relating to underwriting, premium and investment income volume, business strategies, profitability and business relationships and the Company’s other business activities during 2002 and beyond. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expect," "plan," "intend," "anticipate," "believe," "estimate," "project," "predict," "potential" and similar expressions. These forward-looking statements reflect the Company’s current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that may cause results to differ materially from those anticipated in those statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict.