UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 25, 2004
ERIE INDEMNITY COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 0-24000 25-0466020
------------------------------- ------------- -------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
100 Erie Insurance Place, Erie, Pennsylvania 16530
- -------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (814) 870-2000
1
Item 12. Results of Operations and Financial Condition
On February 25, 2004, Erie Indemnity Company issued a press release announcing
financial results for the quarter and year ended December 31, 2003. A copy of
this press release is attached hereto and is incorporated herein by reference as
Exhibit 99.1.
On February 26, 2004 at 10 a.m. Erie Indemnity Company will hold a telephone
conference call that will be webcast and that is complimentary to the press
release announcing financial results for the quarter and year ended December 31,
2003.
Exhibit Number Description
- -------------- -----------
99.1 Press release dated February 25, 2004
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ERIE INDEMNITY COMPANY
Erie Indemnity Company
------------------------------
(Registrant)
Date: February 25, 2004 /s/ Philip A. Garcia
-------------------------------
(Philip A. Garcia, Executive Vice President & CFO)
3
EXHIBIT 99.1
Contact: Mark Dombrowski, Corporate Communications
814-870-2285 or 1-800-458-0811, extension 2285
mark.dombrowski@erieinsurance.com
---------------------------------
Erie Indemnity Company Reports Fourth Quarter and Full Year 2003 Results
Erie, Pa., Feb. 25, 2004 - Erie Indemnity Company (Nasdaq: ERIE) today announced
results for the fourth quarter and full-year 2003.
For the fourth quarter:
o Net income increased to $43.1 million, up 27.1 percent from $33.9
million for the same period in 2002.
o Net income per share increased to $.61 per share, compared to $.48 per
share in the comparable quarter for 2002.
o Management fee revenue grew by 13.7 percent.
The increase in fourth quarter net income was due to a combination of management
fee growth and a significant improvement in investment performance compared to
the same period in 2002.
For the full-year 2003 results, Erie Indemnity reported:
o Net income was up by 16.0 percent to $199.7 million, from $172.1
million at the end of 2002.
o Net income per share increased to $2.81 per share at December 31, 2003,
from $2.42 at year-end 2002.
The Company's financial results were affected by several non-cash adjustments
recorded in the fourth quarter. A charge to net income of $.07 per share reduced
the Company's deferred acquisition cost (DAC) asset. The principle component of
DAC is the management fee paid to the Company by its wholly owned property and
casualty insurance subsidiaries, resulting from the inter-company reinsurance
pool. Prior to the fourth quarter 2003, these costs were deferred at the full
amount of the management fee incurred by the Indemnity Company's insurance
subsidiaries, which included a profit component. During the fourth quarter 2003,
the DAC was adjusted to reflect only the underlying policy acquisition costs,
excluding the profit component. The Company also recorded an adjustment to
true-up deferred income taxes during the fourth quarter, which reduced fourth
quarter earnings by $.05 per share.
4
The adjustment was made to reflect future tax obligations that will arise when
earnings from the Company's equity investment in Erie Family Life Insurance
Company (EFL) are distributed. As required by GAAP, the deferred tax provision
assumes undistributed earnings of EFL will be distributed in the form of
dividends.
"Erie Indemnity Company continues to generate strong earnings while we focus on
improving the Property & Casualty Group's underwriting profitability," noted
Jeffrey A. Ludrof, president and chief executive officer. "Our revised
underwriting guidelines have had the expected results of moderating new policy
and new premium growth rates from the accelerated rates of 2002. Ultimately, we
believe this will have a favorable impact on the steady, long-term growth and
profitability of the Company," Mr. Ludrof said.
The Company disclosed in its third quarter 2003 Form 10Q it believed, under
Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46), that
the Erie Insurance Exchange (Exchange) was a variable interest entity (VIE). The
Company also concluded that, under the interpretation, it was the primary
beneficiary of the Exchange and, therefore, must consolidate the financial
results of the Exchange with those of the Company. The Company re-evaluated its
position in response to revisions made by the FASB to FIN 46 in December 2003.
The FASB revised FIN 46 to provide that only the variability in decision-maker
fees should be included in the calculation of the primary beneficiary of a VIE.
Prior to the change, FIN 46 required that the gross fees paid to the decision
maker should be included in the expected residual returns computation in
determination of the primary beneficiary. As a result of our re-computation in
accordance with the revision of FIN 46, we have concluded that the Company is
not the primary beneficiary of the Exchange. Consequently, under FIN 46 the
results of the Exchange are not to be consolidated with the results of the
Company.
The following analysis is presented on a business segment basis used internally
by management to monitor and evaluate results.
Details of Fourth Quarter 2003 Results - Segment Basis
- ------------------------------------------------------
Management operations - Segment basis
- -------------------------------------
Management fee revenue increased 13.7 percent to $206.7 million for the quarter
ended December 31, 2003, from $181.8 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 11.3 percent to $862.3
million in the fourth quarter 2003, from $774.8 million in the fourth quarter of
2002. Management fee revenue growth was affected by a reduction in the
management fee rate to 24 percent in 2003 versus the 25 percent management fee
rate in 2002. In December 2003, the Company's Board of Directors voted to reduce
the management fee rate beginning in 2004 to 23.5 percent. The Company's Board
of Directors has the authority to change the management fee rate at its
discretion; however, the maximum fee rate permissible by agreement is 25
percent. This action was taken after the Board 's consideration and review of
the relative financial position of the Erie Insurance Exchange and the Erie
Indemnity Company.
5
The fourth quarter-to-quarter comparison of management fee revenue was affected
by the reduction in fourth quarter 2002 management fee revenue of $11.9 million
due to the initial recording of an allowance for returned management fees.
As an expected consequence of the focus on improving underwriting profitability,
the Company has experienced a reduction in the twelve-month growth rate of
policies in force due to a decline in new policies written and a lower retention
rate. Policy and premium growth in 2002 were positively affected by a yearlong
agency incentive contest. The year-over-year growth in polices in force was 6.7
percent at December 31, 2003, down from 9.0 percent at September 30, 2003, and
12.8 percent at December 31, 2002. New premium written declined 32.8 percent to
$98.3 million in the fourth quarter of 2003 from $146.2 million in the fourth
quarter of 2002. Personal lines new premium written declined 25.3 percent, while
commercial lines new premium written declined 46.4 percent in the fourth quarter
of 2003 compared to the same period in 2002. The year-over-year policy retention
rate declined to 90.2 percent at December 31, 2003, from 90.6 percent at
September 30, 2003, and 91.2 at December 31, 2002. In 2003, the Company
suspended new agency appointments. In 2004, the Company plans to appoint about
50 new agencies.
Service Agreement revenue was down 48.6 percent to $1.7 million on $27.6 million
in non-affiliated assumed reinsurance premiums in the fourth quarter of 2003,
compared to $3.2 million on $46.0 million in non-affiliated assumed reinsurance
premium recorded in the fourth quarter of 2002. Service charge revenue rose 30.0
percent to $5.5 million in the fourth quarter of 2003 versus $4.2 million for
the same period in 2002.
The cost of management operations increased 15.9 percent to $158.0 million in
the fourth quarter of 2003, from $136.3 million for the same period in 2002.
Commission costs increased 18.4 percent to $113.3 million, from $95.7 million in
the fourth quarter 2002.Commission costs in the fourth quarter of 2002 were
affected by the initial recording of an allowance for returned management fees,
which also required a reduction in commission expense on the returned fees. This
adjustment reduced commission expense in the fourth quarter 2002 by $5.8
million.
Fourth quarter costs of management operations, excluding commissions, increased
10.0 percent to $44.7 million in 2003 from $40.6 million in 2002. Personnel
costs totaled $25.9 million for the fourth quarter 2003 versus $21.8 million in
the same period in 2002, an increase of 18.3 percent. Salaries and wages rose
12.3 percent to $19.3 million in the quarter. In response to lower policy
production, as a result of the Company's underwriting profitability initiatives,
the Company has substantially slowed hiring of personnel in 2004. Retirement
benefit costs increased to $1.8 million in the fourth quarter of 2003 from $1.0
million in the fourth quarter of 2002 due to increased pension expense as a
result of a lower discount rate assumption in the pension plan. Retirement
benefit costs are expected to increase about $3.1 million in 2004 over 2003
levels related to a further reduction in the discount rate assumption for the
pension plan.
6
Insurance underwriting operations - Segment basis
- -------------------------------------------------
The Company's insurance underwriting operations recorded losses of $8.0 million
and $11.2 million in the fourth quarters of 2003 and 2002, respectively. The
statutory combined ratio for the Property & Casualty Group for the fourth
quarter was 102.1, compared to 139.9 for the fourth quarter of 2002. Results for
the fourth quarter 2002 include the effect of reserve strengthening of prior
year loss reserves.
The Company's GAAP combined ratio was 115.8 for the quarter versus 125.3 for the
same quarter in 2002. The $7.6 million adjustment to the Company's DAC is
reflected in the policy acquisition and other underwriting expenses of the
Insurance Underwriting Operations segment of the Company.
The Company's share of catastrophe losses totaled $0.8 million and $1.6 million
for the three-month periods ended December 31, 2003 and 2002, respectively.
Recoveries under the excess-of-loss reinsurance agreement with the Exchange
reversed by $.7 million in the fourth quarter 2003 versus $6.8 million in
additional recoverables recorded 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. Costs associated with the eCommerce
initiative totaled $0.5 million and $0.9 million for the fourth quarters of 2003
and 2002, respectively. These costs will continue to be incurred as the program
develops.
Investment operations - Segment basis
- -------------------------------------
Net revenue from investment operations for the fourth quarter of 2003 reflects
income of $21.8 million, compared to $8.0 million in income for the same period
in 2002. The performance of investment operations continues to benefit from
improvements in the fixed income and equity markets. Net investment income
increased by 3.7 percent to $15.3 million for the quarter ended December 31,
2003, from $14.7 million for the same period in 2002. Net realized gains on
investments of $4.6 million were recorded during the fourth quarter of 2003
compared to net realized losses of $2.6 million for the fourth quarter of 2002.
Equity in losses of limited partnerships generated losses of $0.6 and $4.8
million for the fourth quarters of 2003 and 2002, respectively.
The Company's earnings from its 21.6 percent equity ownership of EFL increased
to $2.4 million for the fourth quarter of 2003 from $0.6 million in the fourth
quarter 2002. Erie Family Life benefited from improved margins on
interest-sensitive products and improved investment results.
7
Details of 2003 Year-end Results - Segment Basis
- ------------------------------------------------
Management operations - Segment basis
- -------------------------------------
Management fee revenue for 2003 was up 13.2 percent from a year earlier to
$878.4 million. For the years ended December 31, 2003 and 2002, the property and
casualty direct written premiums of the Erie Insurance Group totaled $3.7
billion and $3.2 billion, respectively, an increase of 16.6 percent.
As an expected result of the focus on underwriting profitability, the Company
has experienced a reduction in the twelve-month growth rate of policies in force
due to a decline in new policies written in 2003. Total new premium written
declined 13.7 percent to $501.9 million in 2003 from $581.5 million in 2002.
Personal lines new premium written declined 8.6 percent to $333.3 million in
2003, while commercial lines new premium written declined 22.3 percent to $168.4
million in 2003.
The average premium per policy increased 9.3 percent to $981 in 2003 from $898
in 2002. For personal auto, the average premium per policy increased 7.7 percent
to $1,122 in 2003 from $1,042 in 2002. For commercial lines, the average premium
per policy increased 9.5 percent to $2,326 in 2003 from $2,124 in 2002.
Firming pricing for commercial and personal insurance over the last several
years has allowed the Erie Insurance Group to more adequately price its
products. Premium increases anticipated in 2004 due to pricing actions
contemplated, filed and awaiting approval, or approved through December 31,
2003, amount to approximately $320.3 million in premium for the Erie Insurance
Group, down from $343.3 million estimated at September 30, 2003. Projected
increases have been tempered as a result of changes in the Company's competitive
position in some markets.
Costs of management operations increased by 17.0 percent during 2003. Commission
costs to independent agencies - which make up over half of the Company's
expenses - rose 19.2 percent to $474.8 million in 2003 from $398.3 million for
2002.
The cost of management operations, excluding commissions, increased 11.5 percent
in 2003 to $177.5 million from $159.1 million in 2002, due primarily to
increases in personnel costs. Personnel costs increased 13.4 percent in 2003
compared to 2002 as a result of increased employee staffing levels and increased
employee benefit costs. Salaries and wages rose 7.8 percent, while employee
benefit costs rose 46.7 percent. Employee benefit costs rose as health plan
costs increased 29.3 percent in 2003, while retirement plan costs rose 89
percent to $6.7 million in 2003 from $3.5 million in 2003 as a result of a lower
assumed discount rate assumption for retirement plan obligations.
Information technology hardware and infrastructure expenditures related to the
eCommerce program are included in the cost of management operations. These costs
totaled $0.5 million in 2003 and $2.6 million in 2002.
8
Insurance underwriting operations - Segment basis
- -------------------------------------------------
The Company's 5.5 percent share of Erie Insurance Group's underwriting losses
totaled $24.9 million in 2003 compared to $27.1 million in 2002, yielding a GAAP
combined ratio of 113.0 for 2003 compared to 116.5 in 2002. Although improved on
a year-to-year basis, underwriting losses continued to be adversely impacted by
greater than average catastrophe losses, including losses associated with
Hurricane Isabel.
The statutory combined ratio for the Property & Casualty Group was 109.5 for
2003, compared to 118.5 for 2002. Reserve strengthening recorded in 2002 and
2001 appears to have been adequate as almost no adverse development of prior
year loss reserves was experienced in 2003. Management's emphasis on controlling
exposure growth and improving underwriting risk selection contributed to the
lower 2003 result. The Group's 2003 underwriting losses resulted primarily from
increases in current claims severity and catastrophe losses.
The Company's share of catastrophe losses totaled $10.0 million and $7.1
million, for the years ended December 31, 2003 and 2002, respectively.
Recoveries under an excess-of-loss reinsurance agreement with the Exchange for
the year totaled $6.5 million and $8.8 million for 2003 and 2002, respectively.
For the 12 months ended December 31, 2003 and 2002, 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 $2.5 million and $3.9 million, respectively.
Costs in the program will continue to be incurred in 2004.
In addition to the impact of the development of eCommerce on expenses, the 2004
rollout of the new agency interface system, ERIEConnection, will require
significant training and orientation for agencies. During this orientation, an
impact on new business production is expected as agency resources are getting
acquainted with the new interface to the ERIE.
Investment operations - Segment basis
- -------------------------------------
For the year ended December 31, 2003, net revenue from investment operations
increased by 75.4 percent to $74.2 million compared to $42.3 million for the
same period in 2002. Net realized gains on investments were $10.4 million for
the year ended December 31, 2003, compared to net realized losses of $11.2
million at December 31, 2002. In 2003, impairment charges amounted to $6.0
million. 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 were related to equity securities
and $20.6 million were related to fixed income securities.
9
Net investment income totaled $58.3 million for the year ended December 31,
2003, and $55.4 million for 2002, up 5.2 percent from 2002. Included in net
investment income are primarily interest and dividends on the Company's fixed
maturity and equity security portfolios.
For the year ended December 31, 2003, equity in losses in limited partnerships
amounted to $2.0 million, compared to losses of $3.7 million 2002. Equity in
earnings of Erie Family Life was $7.4 million in 2003, compared to $1.7 million
for the same period in 2002. The higher earnings from Erie Family Life resulted
from significant increases in realized gains, reduced levels of realized losses
on investments and continued premium growth.
During 2003, John M. Petersen, former CEO and CFO of the Company, retired as
equity portfolio manager for the Erie Insurance Group. The Company completed the
transition of investment management responsibilities to an initial group of new
equity portfolio managers, including Mellon Capital Management, Pzena Investment
Management, Alliance Capital Management, Advisory Research, Private Capital
Management, Artisan Partners, TCW Asset Management and Wellington Management.
At its regular December 2003 meeting, the Board of Directors made a number of
decisions related to the Company's sound financial condition, including the
authorization of a $250 million stock repurchase plan of the Company's
outstanding Class A common stock through December 31, 2006.
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 16th 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 more than 3.7 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
- ----------------------------
10
"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 2003 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.
STATEMENTS OF OPERATIONS
AND FINANCIAL POSITION AND OTHER INFORMATION
WILL FOLLOW
11
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Three months ended December 31, Twelve months ended December 31,
2003 2002 2003 2002
-------------------------------- -------------------------------
OPERATING REVENUE:
Management fee revenue $ 195,284 $ 171,805 $ 830,069 $ 733,036
Premiums earned 50,833 44,134 191,592 163,958
Service agreement revenue 7,113 7,419 27,127 23,729
---------- ---------- ---------- ----------
Total operating revenue $ 253,230 $ 223,358 $1,048,788 $ 920,723
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Cost of management operations $ 149,351 $ 128,849 $ 616,382 $ 526,785
Losses and loss expenses incurred 37,397 40,794 152,984 139,225
Policy acquisition and other underwriting expenses 18,810 12,021 51,112 39,861
---------- ---------- ---------- ----------
Total operating expenses $ 205,558 $ 181,664 $ 820,478 $ 705,871
---------- ---------- ---------- ----------
OTHER INCOME AND EXPENSES:
Investment income, net of expenses $ 15,283 $ 14,735 $ 58,298 $ 55,440
Realized gains (losses) on investments 4,630 (2,609) 10,445 (11,237)
Equity in losses of limited partnerships (566) (4,764) (2,000) (3,654)
---------- ---------- ---------- ----------
Total other income and expenses $ 19,347 $ 7,362 $ 66,743 $ 40,549
---------- ---------- ---------- ----------
Income before income taxes and equity in earnings of
Erie Family Life Insurance Company $ 67,019 $ 49,056 $ 295,053 $ 255,401
Less: Provision for income taxes 26,130 15,716 102,237 84,886
Equity in earnings of Erie Family Life Insurance
Company, net of tax $ 2,241 $ 596 $ 6,909 $ 1,611
---------- ---------- ---------- ----------
Net income $ 43,130 $ 33,936 $ 199,725 $ 172,126
========== ========== ========== ==========
Net income per share (basic & diluted) $ 0.61 $ 0.48 $ 2.81 $ 2.42
========== ========== ========== ==========
Weighted average shares outstanding 70,997 70,097 70,997 71,081
========== ========== ========== ==========
DIVIDENDS DECLARED
Class A non-voting common $ 0.215 $ 0.190 $ 0.785 $ 0.700
---------- ---------- ---------- ----------
Class B common $ 32.25 $ 28.50 $ 117.75 $ 105.00
---------- ---------- ---------- ----------
12
Erie Indemnity Company
CONSOLIDATED STATEMENTS OF OPERATIONS - SEGMENT BASIS
(Amounts in thousands, except per share data)
Three months ended December 31, Twelve months ended December 31,
2003 2002 2003 2002
------------------------------- ------------------------------
MANAGEMENT OPERATIONS
Management fee revenue $ 206,651 $ 181,805 $ 878,380 $ 775,700
Service agreement revenue 7,113 7,419 27,127 23,729
---------- ---------- ---------- ----------
Total revenue from management operations $ 213,764 $ 189,224 $ 905,507 $ 799,429
Cost of management operations 158,044 136,348 652,256 557,445
---------- ---------- ---------- ----------
Income from management operations $ 55,720 $ 52,876 $ 253,251 $ 241,984
---------- ---------- ---------- ----------
INSURANCE UNDERWRITING OPERATIONS
Premiums earned $ 50,833 $ 44,134 $ 191,592 $ 163,958
---------- ---------- ---------- ----------
Losses and loss adjustment expenses incurred $ 37,397 $ 40,794 $ 152,984 $ 139,225
Policy acquisition and other underwriting expenses 21,484 14,522 63,549 51,865
---------- ---------- ---------- ----------
Total losses and expenses $ 58,881 $ 55,316 $ 216,533 $ 191,090
---------- ---------- ---------- ----------
Underwriting loss $ (8,048) $ (11,182) $ (24,941) $ (27,132)
---------- ---------- ---------- ----------
INVESTMENT OPERATIONS
Net investment income $ 15,283 $ 14,735 $ 58,298 $ 55,440
Net realized gains (losses) on investments 4,630 (2,609) 10,445 (11,237)
Equity in earnings (losses) of limited partnerships (566) (4,764) (2,000) (3,654)
Equity in earnings of Erie Family Life Insurance Company 2,410 641 7,429 1,732
---------- ---------- ---------- ----------
Net revenue from investment operations $ 21,757 $ 8,003 $ 74,172 $ 42,281
---------- ---------- ---------- ----------
Income before income taxes $ 69,429 $ 49,697 $ 302,482 $ 257,133
Provision for income taxes 26,299 15,761 102,757 85,007
---------- ---------- ---------- ----------
Net income $ 43,130 $ 33,936 $ 199,725 $ 172,126
========== ========== ========== ==========
Net income per share (basic & diluted) $ 0.61 $ 0.48 $ 2.81 $ 2.42
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 70,997 70,997 70,997 71,081
========== ========== ========== ==========
13
Erie Indemnity Company
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in thousands, except per share data)
December 31, December 31,
2003 2002
----------- -----------
ASSETS
Investments
Fixed maturities $ 879,361 $ 708,068
Equity securities
Preferred stock 148,952 157,563
Common stock 40,451 36,515
Other invested assets 116,400 96,613
----------- -----------
Total investments $ 1,185,164 $ 998,759
Cash and cash equivalents $ 87,192 $ 85,712
Equity in Erie Family Life Insurance Company 56,072 48,545
Premiums receivable from policyholders 266,957 239,704
Receivables from affiliates 984,146 829,049
Other assets 175,076 155,907
----------- -----------
Total assets $ 2,754,607 $ 2,357,676
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Unpaid losses and loss adjustment expenses $ 845,536 $ 717,015
Unearned premiums 449,606 393,091
Other liabilities 295,295 260,198
----------- -----------
Total liabilities $ 1,590,437 $ 1,370,304
Total shareholders' equity $ 1,164,170 $ 987,372
----------- -----------
Total liabilities and shareholders' equity $ 2,754,607 $ 2,357,676
=========== ===========
Book value per share $16.40 $13.91
Shares outstanding 70,997 70,997
14
Erie Indemnity Company
Segment Information
Management fee revenue by line of business - Segment basis:
Three months ended December 31, % Twelve months ended December 31, %
2003 2002 Change 2003 2002 Change
(In thousands) ------------------------------------------------------------------------------------
Private passenger auto $ 106,408 $ 100,640 5.7% $ 450,227 $ 414,426 8.6%
Commercial auto 16,906 16,213 4.3 74,022 67,097 10.3
Homeowners 37,706 31,943 18.0 148,197 123,960 19.6
Commercial multi-peril 21,797 21,603 0.9 96,370 83,974 14.8
Workers' compensation 15,790 15,678 0.7 77,134 67,851 13.7
All other lines of business 8,344 7,628 9.4 35,430 30,292 17.0
---------------------------------------------------------------------------------
Total $ 206,951 $ 193,705 6.8 $ 881,380 $ 787,600 11.9
Allowance for management
fee returned on cancelled
policies (300) (11,900) (97.5) (3,000) (11,900) (74.8)
---------------------------------------------------------------------------------
Total management fee revenue $ 206,651 $ 181,805 13.7% $ 878,380 $ 775,700 13.2%
=================================================================================
Growth rate of policies in force for Property and Casualty Group insurance operations:
All other
Private 12-mth. 12-mth. lines of 12-mth. Total 12-mth.
passenger growth growth personal growth Personal growth
Date auto rate Homeowners rate business rate Lines rate
- ------------------------------------------------------------------------------------------------------
12/31/2001 1,432,747 7.1% 1,075,816 9.0% 215,134 11.5% 2,723,697 8.2%
03/31/2002 1,469,617 8.3 1,104,806 10.1 222,061 12.2 2,796,484 9.3
06/30/2002 1,512,335 9.4 1,146,639 11.4 231,951 13.4 2,890,925 10.5
09/30/2002 1,554,425 10.4 1,190,651 13.1 240,410 14.4 2,985,486 11.8
12/31/2002 1,591,161 11.1 1,230,895 14.4 249,544 16.0 3,071,600 12.8
03/31/2003 1,623,429 10.5 1,263,118 14.3 257,327 15.9 3,143,874 12.4
06/30/2003 1,650,225 9.1 1,293,575 12.8 264,423 14.0 3,208,223 11.0
09/30/2003 1,666,285 7.2 1,316,775 10.6 269,640 12.2 3,252,700 9.0
12/31/2003 1,672,621 5.1 1,327,842 7.9 272,547 9.2 3,273,010 6.6
All other
12-mth. CML* 12-mth. 12-mth. CML* 12-mth. Total 12-mth.
CML* growth multi- growth Workers' growth lines of growth CML* growth
Date auto rate peril rate comp. rate business rate Lines rate
- ----------------------------------------------------------------------------------------------------------------------------
12/31/2001 96,100 9.7% 166,214 11.6% 52,033 10.3% 71,539 9.9% 385,886 10.7%
03/31/2002 98,926 10.7 171,283 12.5 53,320 10.8 73,392 10.7 396,921 11.5
06/30/2002 102,447 11.6 179,761 13.9 55,607 11.9 75,884 11.7 413,699 12.6
09/30/2002 105,353 11.8 185,608 14.4 57,375 12.5 78,131 11.5 426,467 13.0
12/31/2002 108,069 12.5 190,787 14.8 58,930 13.3 79,772 11.5 437,558 13.4
03/31/2003 109,963 11.2 194,911 13.8 60,104 12.7 81,356 10.9 446,334 12.4
06/30/2003 112,911 10.2 201,614 12.2 61,932 11.4 83,826 10.5 460,283 11.3
09/30/2003 114,339 8.5 205,127 10.5 62,396 8.8 85,789 9.8 467,651 9.7
12/31/2003 115,171 6.6 206,533 8.3 62,282 5.7 86,409 8.3 470,395 7.5
12-mth.
Total growth
Date All lines rate
- -------------------------------
12/31/2001 3,109,583 8.5%
03/31/2002 3,193,405 9.6
06/30/2002 3,304,624 10.8
09/30/2002 3,411,953 11.9
12/31/2002 3,509,158 12.8
03/31/2003 3,590,208 12.4
06/30/2003 3,668,506 11.0
09/30/2003 3,720,351 9.0
12/31/2003 3,743,405 6.7
*CML = Commercial
15
Policy retention trends for Property and Casualty Group insurance operations:
Private All other
passenger CML* CML* Workers' lines of
Date auto auto Homeowners multi-peril comp. business Total
- -------------------------------------------------------------------------------------------------------------------
12/31/2001 92.2% 90.5% 90.2% 88.0% 88.4% 88.2% 90.9%
03/31/2002 92.3 90.9 90.2 88.8 89.3 88.1 90.9
06/30/2002 92.4 91.1 90.4 89.0 89.5 88.3 91.0
09/30/2002 92.5 90.8 90.5 88.7 89.5 88.2 91.1
12/31/2002 92.6 91.0 90.5 88.7 89.4 88.5 91.2
03/31/2003 92.5 91.3 90.6 89.1 90.2 88.5 91.2
06/30/2003 92.2 91.1 90.5 88.4 89.4 88.4 91.0
09/30/2003 91.9 90.4 90.1 88.0 88.9 88.4 90.6
12/31/2003 91.6 89.8 89.5 87.5 88.1 88.2 90.2
*CML = Commercial
Selected financial data of Erie Insurance Exchange:
The selected financial data below is derived from the Erie Insurance Exchange's
financial statements prepared in accordance with Statutory Accounting
Principles. In the opinion of management, all adjustments consisting only of
normal recurring accruals, considered necessary for a fair presentation have
been included. The financial data set forth below is only a summary.
Three months ended Twelve months ended
-------------------------- --------------------------
(In thousands) December 31, December 31, December 31, December 31,
Statutory Accounting Basis 2003 2002 2003 2002
-------------------------- --------------------------
Premiums earned $ 870,654 $ 771,621 $ 3,372,308 $ 2,912,147
-------------------------- --------------------------
Losses and loss adjustment expenses $ 656,112 $ 839,672 $ 2,772,940 $ 2,566,724
Insurance underwriting and other expenses 226,757 250,716 983,354 969,597
-------------------------- --------------------------
Net underwriting loss $ (12,215) $ (318,767) $ (383,986) $ (624,174)
-------------------------- --------------------------
Net investment income 60,364 49,463 232,677 216,031
Net realized gains (losses) 579,941 (64,050) 734,848 (182,381)
Federal income tax expense (benefit) 201,645 (104,137) 142,106 (173,062)
-------------------------- --------------------------
Net income (loss) $ 426,445 $ (229,217) $ 441,433 $ (417,462)
========================== ==========================
As of
(In thousands) December 31, December 31,
Statutory Accounting Basis 2003 2002
------------ ------------
Cash and invested assets $ 7,024,796 $ 5,967,051
Total assets 8,045,626 7,007,803
=========== ===========
Claims and unearned premium reserves 4,616,687 3,962,218
Total liabilities 5,616,541 4,892,032
=========== ===========
Policyholders' surplus $ 2,429,085 $ 2,115,771
=========== ===========
16