Press Release
Erie Indemnity Reports Second Quarter 2014 Results
"This continues to be a positive year for
Net income attributable to Indemnity was
2Q 2014 Highlights - Results of the |
||||||||||||||||||||||||
Indemnity shareholder interest |
Noncontrolling interest (Exchange) |
Elimination of related party transactions |
|
|||||||||||||||||||||
(dollars in millions) |
2Q'14 |
2Q'13 |
2Q'14 |
2Q'13 |
2Q'14 |
2Q'13 |
2Q'14 |
2Q'13 |
||||||||||||||||
Management operations |
$ |
68 |
$ |
59 |
$ |
— |
$ |
— |
$ |
(60) |
$ |
(51) |
$ |
8 |
$ |
8 |
||||||||
Property and casualty insurance operations(2) |
— |
— |
(183) |
11 |
66 |
55 |
(117) |
66 |
||||||||||||||||
Life insurance operations(2) |
— |
— |
10 |
13 |
(1) |
(1) |
9 |
12 |
||||||||||||||||
Investment operations |
7 |
8 |
245 |
172 |
(5) |
(3) |
247 |
177 |
||||||||||||||||
Income from operations before income |
75 |
67 |
72 |
196 |
— |
— |
147 |
263 |
||||||||||||||||
Provision for income taxes |
26 |
23 |
18 |
63 |
— |
— |
44 |
86 |
||||||||||||||||
Net income |
$ |
49 |
$ |
44 |
$ |
54 |
$ |
133 |
$ |
— |
$ |
— |
$ |
103 |
$ |
177 |
||||||||
(1) The consolidated financial statements of |
(2) All property and casualty and life insurance results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest. |
Management Operations
Revenue from management operations increased
Commissions increased
Non-commission expense increased
Management Operations |
||||||
Indemnity shareholder interest |
||||||
(dollars in millions) |
2Q'14 |
2Q'13 |
||||
Management fee revenue, net |
$ |
366 |
$ |
336 |
||
Service agreement revenue |
8 |
8 |
||||
Total revenue from management operations |
$ |
374 |
$ |
344 |
||
Commissions |
$ |
205 |
$ |
187 |
||
Non-commission expense |
101 |
98 |
||||
Total cost of management operations |
$ |
306 |
$ |
285 |
||
Income from management operations before taxes |
$ |
68 |
$ |
59 |
||
Gross margin |
18.2 |
% |
17.3 |
% |
||
Investment Operations
Income from investment operations before taxes totaled
Investment Operations |
||||||
Indemnity shareholder interest |
||||||
(dollars in millions) |
2Q'14 |
2Q'13 |
||||
Net investment income |
$ |
4 |
$ |
3 |
||
Net realized gains on investments |
0 |
0 |
||||
Net impairment losses recognized in earnings |
0 |
0 |
||||
Equity in earnings of limited partnerships |
3 |
5 |
||||
Income from investment operations before taxes |
$ |
7 |
$ |
8 |
||
Six Months Ended |
||||||||||||||||||||||||
Indemnity shareholder interest |
Noncontrolling interest (Exchange) |
Elimination of related party transactions |
|
|||||||||||||||||||||
(dollars in millions) |
2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
||||||||||||||||
Management operations |
$ |
126 |
$ |
108 |
$ |
— |
$ |
— |
$ |
(111) |
$ |
(93) |
$ |
15 |
$ |
15 |
||||||||
Property and casualty insurance operations(2) |
— |
— |
(287) |
22 |
120 |
100 |
(167) |
122 |
||||||||||||||||
Life insurance operations(2) |
— |
— |
23 |
24 |
(1) |
(1) |
22 |
23 |
||||||||||||||||
Investment operations |
18 |
15 |
423 |
530 |
(8) |
(6) |
433 |
539 |
||||||||||||||||
Income from operations before income taxes and noncontrolling interest |
144 |
123 |
159 |
576 |
— |
— |
303 |
699 |
||||||||||||||||
Provision for income taxes |
49 |
42 |
42 |
190 |
— |
— |
91 |
232 |
||||||||||||||||
Net income |
$ |
95 |
$ |
81 |
$ |
117 |
$ |
386 |
$ |
— |
$ |
— |
$ |
212 |
$ |
467 |
||||||||
(1) The consolidated financial statements of |
(2) All property and casualty and life insurance results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest. |
Indemnity's management operations pretax income totaled
Corporate Activity
On
In the second quarter of 2014, Indemnity repurchased 114,158 shares of its outstanding Class A nonvoting common stock at a total cost of
Webcast Information
Indemnity has scheduled a conference call and live audio broadcast on the Web for 10:00 AM ET on August 1, 2014. Investors may access the live audio broadcast by logging on to www.erieinsurance.com. Indemnity recommends visiting the website at least 15 minutes prior to the webcast to download and install any necessary software. A webcast audio replay will be available on the Investor Relations page of the
About the
According to
News releases and more information about
***
"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
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;
- 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 litigation against Indemnity.
Risk factors related to the non-controlling interest owned by the Exchange, which includes the
- 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 litigation against the Exchange; and
- dependence 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.
|
||||||||||||||||
Consolidated Statements of Operations |
||||||||||||||||
(dollars in millions, except per share data) |
||||||||||||||||
Three months ended |
Six months ended |
|||||||||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||||||
Revenues |
(Unaudited) |
(Unaudited) |
||||||||||||||
Premiums earned |
$ |
1,319 |
$ |
1,215 |
$ |
2,607 |
$ |
2,390 |
||||||||
Net investment income |
111 |
104 |
220 |
207 |
||||||||||||
Net realized investment gains |
133 |
61 |
189 |
310 |
||||||||||||
Net impairment losses recognized in earnings |
0 |
(1) |
0 |
(1) |
||||||||||||
Equity in earnings of limited partnerships |
27 |
39 |
77 |
75 |
||||||||||||
Other income |
8 |
8 |
16 |
16 |
||||||||||||
Total revenues |
1,598 |
1,426 |
3,109 |
2,997 |
||||||||||||
Benefits and expenses |
||||||||||||||||
Insurance losses and loss expenses |
1,126 |
861 |
2,160 |
1,703 |
||||||||||||
Policy acquisition and underwriting expenses |
325 |
302 |
646 |
595 |
||||||||||||
Total benefits and expenses |
1,451 |
1,163 |
2,806 |
2,298 |
||||||||||||
Income from operations before income taxes and noncontrolling interest |
147 |
263 |
303 |
699 |
||||||||||||
Provision for income taxes |
44 |
86 |
91 |
232 |
||||||||||||
Net income |
$ |
103 |
$ |
177 |
$ |
212 |
$ |
467 |
||||||||
Less: Net income attributable to noncontrolling interest in consolidated entity - Exchange |
54 |
133 |
117 |
386 |
||||||||||||
Net income attributable to Indemnity |
$ |
49 |
$ |
44 |
$ |
95 |
$ |
81 |
||||||||
Earnings Per Share |
||||||||||||||||
Net income attributable to Indemnity per share |
||||||||||||||||
Class A common stock - basic |
$ |
1.05 |
$ |
0.95 |
$ |
2.04 |
$ |
1.73 |
||||||||
Class A common stock - diluted |
$ |
0.94 |
$ |
0.84 |
$ |
1.82 |
$ |
1.54 |
||||||||
Class B common stock - basic and diluted |
$ |
158 |
$ |
142 |
$ |
307 |
$ |
259 |
||||||||
Weighted average shares outstanding attributable to Indemnity - Basic |
||||||||||||||||
Class A common stock |
46,214,153 |
46,693,333 |
46,307,659 |
46,733,925 |
||||||||||||
Class B common stock |
2,542 |
2,542 |
2,542 |
2,542 |
||||||||||||
Weighted average shares outstanding attributable to Indemnity - Diluted |
||||||||||||||||
Class A common stock |
52,411,414 |
52,886,259 |
52,504,920 |
52,926,851 |
||||||||||||
Class B common stock |
2,542 |
2,542 |
2,542 |
2,542 |
||||||||||||
Dividends declared per share |
||||||||||||||||
Class A common stock |
$ |
0.6350 |
$ |
0.5925 |
$ |
1.2700 |
$ |
1.1850 |
||||||||
Class B common stock |
$ |
95.2500 |
$ |
88.8750 |
$ |
190.5000 |
$ |
177.7500 |
|
||||||||||||||||||||||||||||
Results of the |
||||||||||||||||||||||||||||
(in millions) |
||||||||||||||||||||||||||||
Indemnity shareholder interest |
Noncontrolling interest (Exchange) |
Eliminations of related party transactions |
|
|||||||||||||||||||||||||
Three months ended June 30, |
Three months ended June 30, |
Three months ended June 30, |
Three months ended June 30, |
|||||||||||||||||||||||||
2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
|||||||||||||||||||||
Management operations: |
||||||||||||||||||||||||||||
Management fee revenue, net |
$ |
366 |
$ |
336 |
$ |
— |
$ |
— |
$ |
(366) |
$ |
(336) |
$ |
— |
$ |
— |
||||||||||||
Service agreement revenue |
8 |
8 |
— |
— |
— |
— |
8 |
8 |
||||||||||||||||||||
Total revenue from management operations |
374 |
344 |
— |
— |
(366) |
(336) |
8 |
8 |
||||||||||||||||||||
Cost of management operations |
306 |
285 |
— |
— |
(306) |
(285) |
— |
— |
||||||||||||||||||||
Income from management operations before taxes |
68 |
59 |
— |
— |
(60) |
(51) |
8 |
8 |
||||||||||||||||||||
Property and casualty insurance operations: |
||||||||||||||||||||||||||||
Net premiums earned |
— |
— |
1,298 |
1,196 |
— |
— |
1,298 |
1,196 |
||||||||||||||||||||
Losses and loss expenses |
— |
— |
1,101 |
837 |
(2) |
(2) |
1,099 |
835 |
||||||||||||||||||||
Policy acquisition and underwriting expenses |
— |
— |
380 |
348 |
(64) |
(53) |
316 |
295 |
||||||||||||||||||||
(Loss) income from property and casualty insurance operations before taxes |
— |
— |
(183) |
11 |
66 |
55 |
(117) |
66 |
||||||||||||||||||||
Life insurance operations: (1) |
||||||||||||||||||||||||||||
Total revenue |
— |
— |
46 |
46 |
(1) |
(1) |
45 |
45 |
||||||||||||||||||||
Total benefits and expenses |
— |
— |
36 |
33 |
0 |
0 |
36 |
33 |
||||||||||||||||||||
Income from life insurance operations before taxes |
— |
— |
10 |
13 |
(1) |
(1) |
9 |
12 |
||||||||||||||||||||
Investment operations: (1) |
||||||||||||||||||||||||||||
Net investment income |
4 |
3 |
89 |
81 |
(5) |
(3) |
88 |
81 |
||||||||||||||||||||
Net realized gains on investments |
0 |
0 |
133 |
58 |
— |
— |
133 |
58 |
||||||||||||||||||||
Net impairment losses recognized in earnings |
0 |
0 |
0 |
0 |
— |
— |
0 |
0 |
||||||||||||||||||||
Equity in earnings of limited partnerships |
3 |
5 |
23 |
33 |
— |
— |
26 |
38 |
||||||||||||||||||||
Income from investment operations before taxes |
7 |
8 |
245 |
172 |
(5) |
(3) |
247 |
177 |
||||||||||||||||||||
Income from operations before income taxes and noncontrolling interest |
75 |
67 |
72 |
196 |
— |
— |
147 |
263 |
||||||||||||||||||||
Provision for income taxes |
26 |
23 |
18 |
63 |
— |
— |
44 |
86 |
||||||||||||||||||||
Net income |
$ |
49 |
$ |
44 |
$ |
54 |
$ |
133 |
$ |
— |
$ |
— |
$ |
103 |
$ |
177 |
||||||||||||
(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. |
|
||||||||||||||||||||||||||||
Results of the |
||||||||||||||||||||||||||||
(in millions) |
||||||||||||||||||||||||||||
Indemnity shareholder interest |
Noncontrolling interest (Exchange) |
Eliminations of related party transactions |
|
|||||||||||||||||||||||||
Six months ended |
Six months ended |
Six months ended |
Six months ended |
|||||||||||||||||||||||||
2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
|||||||||||||||||||||
Management operations: |
||||||||||||||||||||||||||||
Management fee revenue, net |
$ |
685 |
$ |
632 |
$ |
— |
$ |
— |
$ |
(685) |
$ |
(632) |
$ |
— |
$ |
— |
||||||||||||
Service agreement revenue |
15 |
15 |
— |
— |
— |
— |
15 |
15 |
||||||||||||||||||||
Total revenue from management operations |
700 |
647 |
— |
— |
(685) |
(632) |
15 |
15 |
||||||||||||||||||||
Cost of management operations |
574 |
539 |
— |
— |
(574) |
(539) |
— |
— |
||||||||||||||||||||
Income from management operations before taxes |
126 |
108 |
— |
— |
(111) |
(93) |
15 |
15 |
||||||||||||||||||||
Property and casualty insurance operations: |
||||||||||||||||||||||||||||
Net premiums earned |
— |
— |
2,566 |
2,352 |
— |
— |
2,566 |
2,352 |
||||||||||||||||||||
Losses and loss expenses |
— |
— |
2,108 |
1,654 |
(3) |
(3) |
2,105 |
1,651 |
||||||||||||||||||||
Policy acquisition and underwriting expenses |
— |
— |
745 |
676 |
(117) |
(97) |
628 |
579 |
||||||||||||||||||||
(Loss) income from property and casualty insurance operations before taxes |
— |
— |
(287) |
22 |
120 |
100 |
(167) |
122 |
||||||||||||||||||||
Life insurance operations: (1) |
||||||||||||||||||||||||||||
Total revenue |
— |
— |
96 |
92 |
(1) |
(1) |
95 |
91 |
||||||||||||||||||||
Total benefits and expenses |
— |
— |
73 |
68 |
0 |
0 |
73 |
68 |
||||||||||||||||||||
Income from life insurance operations before taxes |
— |
— |
23 |
24 |
(1) |
(1) |
22 |
23 |
||||||||||||||||||||
Investment operations: (1) |
||||||||||||||||||||||||||||
Net investment income |
8 |
7 |
173 |
160 |
(8) |
(6) |
173 |
161 |
||||||||||||||||||||
Net realized gains on investments |
1 |
0 |
183 |
304 |
— |
— |
184 |
304 |
||||||||||||||||||||
Net impairment losses recognized in earnings |
0 |
0 |
0 |
0 |
— |
— |
0 |
0 |
||||||||||||||||||||
Equity in earnings of limited partnerships |
9 |
8 |
67 |
66 |
— |
— |
76 |
74 |
||||||||||||||||||||
Income from investment operations before taxes |
18 |
15 |
423 |
530 |
(8) |
(6) |
433 |
539 |
||||||||||||||||||||
Income from operations before income taxes and noncontrolling interest |
144 |
123 |
159 |
576 |
— |
— |
303 |
699 |
||||||||||||||||||||
Provision for income taxes |
49 |
42 |
42 |
190 |
— |
— |
91 |
232 |
||||||||||||||||||||
Net income |
$ |
95 |
$ |
81 |
$ |
117 |
$ |
386 |
$ |
— |
$ |
— |
$ |
212 |
$ |
467 |
||||||||||||
(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. |
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 |
Six months ended |
|||||||||||||||
(in millions, except per share data) |
2014 |
2013 |
2014 |
2013 |
||||||||||||
(Unaudited) |
(Unaudited) |
|||||||||||||||
Operating income attributable to Indemnity |
$ |
49 |
$ |
44 |
$ |
94 |
$ |
81 |
||||||||
Net realized gains and impairments on investments |
0 |
0 |
1 |
0 |
||||||||||||
Income tax expense |
0 |
0 |
0 |
0 |
||||||||||||
Realized gains and impairments, net of income taxes |
0 |
0 |
1 |
0 |
||||||||||||
Net income attributable to Indemnity |
$ |
49 |
$ |
44 |
$ |
95 |
$ |
81 |
||||||||
Per Indemnity Class A common share-diluted: |
||||||||||||||||
Operating income attributable to Indemnity |
$ |
0.94 |
$ |
0.84 |
$ |
1.81 |
$ |
1.54 |
||||||||
Net realized gains and impairments on investments |
0.00 |
0.00 |
0.02 |
0.00 |
||||||||||||
Income tax expense |
0.00 |
0.00 |
(0.01) |
0.00 |
||||||||||||
Realized gains and impairments, net of income taxes |
0.00 |
0.00 |
0.01 |
0.00 |
||||||||||||
Net income attributable to Indemnity |
$ |
0.94 |
$ |
0.84 |
$ |
1.82 |
$ |
1.54 |
|
||||||||
Consolidated Statements of Financial Position |
||||||||
(in millions) |
||||||||
|
|
|||||||
(Unaudited) |
||||||||
Assets |
||||||||
Investments - Indemnity |
||||||||
Available-for-sale securities, at fair value: |
||||||||
Fixed maturities |
$ |
497 |
$ |
526 |
||||
Equity securities |
26 |
50 |
||||||
Limited partnerships |
141 |
146 |
||||||
Other invested assets |
1 |
1 |
||||||
Investments - Exchange |
||||||||
Available-for-sale securities, at fair value: |
||||||||
Fixed maturities |
8,701 |
8,162 |
||||||
Equity securities |
914 |
819 |
||||||
Trading securities, at fair value |
3,377 |
3,202 |
||||||
Limited partnerships |
931 |
940 |
||||||
Other invested assets |
20 |
20 |
||||||
Total investments |
14,608 |
13,866 |
||||||
Cash and cash equivalents (Exchange portion of |
300 |
452 |
||||||
Premiums receivable from policyholders - Exchange |
1,287 |
1,167 |
||||||
Reinsurance recoverable - Exchange |
168 |
172 |
||||||
Deferred income taxes - Indemnity |
1 |
2 |
||||||
Deferred acquisition costs - Exchange |
579 |
566 |
||||||
Other assets (Exchange portion of |
517 |
451 |
||||||
Total assets |
$ |
17,460 |
$ |
16,676 |
||||
Liabilities and shareholders' equity |
||||||||
Liabilities |
||||||||
Indemnity liabilities |
||||||||
Other liabilities |
$ |
451 |
$ |
476 |
||||
Exchange liabilities |
||||||||
Losses and loss expense reserves |
3,964 |
3,747 |
||||||
Life policy and deposit contract reserves |
1,789 |
1,758 |
||||||
Unearned premiums |
2,788 |
2,598 |
||||||
Deferred income taxes |
557 |
450 |
||||||
Other liabilities |
90 |
97 |
||||||
Total liabilities |
9,639 |
9,126 |
||||||
Indemnity's shareholders' equity |
755 |
734 |
||||||
Noncontrolling interest in consolidated entity - Exchange |
7,066 |
6,816 |
||||||
Total equity |
7,821 |
7,550 |
||||||
Total liabilities, shareholders' equity and noncontrolling interest |
$ |
17,460 |
$ |
16,676 |
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SOURCE
News Provided by Acquire Media