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Erie Indemnity Co (ERIE) SEC Filing 10-K Annual report for the fiscal year ending Saturday, December 31, 2011

Erie Indemnity Co

CIK: 922621 Ticker: ERIE

Exhibit 99.1

Erie Indemnity Reports Fourth Quarter 2011 Results

4Q 2011 Highlights

Indemnity Shareholder Interest:

  Net income attributable to Indemnity per share-diluted was $0.49 per share in the fourth quarter of 2011 compared to net income per share-diluted of $0.22 per share in the fourth quarter of 2010. The fourth quarter 2010 net income amount includes $0.13 per share-diluted of income related to operations sold to the Exchange and a $0.31 per share-diluted charge related to the sale of Erie Family Life.

  Operating income attributable to Indemnity per share-diluted (excluding net realized gains or losses, impairments on investments and related taxes) was $0.47 per share in the fourth quarter of 2011 compared to $0.32 per share-diluted in the fourth quarter of 2010. The fourth quarter 2010 operating income amount includes $0.13 per share-diluted of income related to operations sold to the Exchange and a $0.31 per share-diluted charge related to the sale of Erie Family Life.

  Indemnity’s management operations pretax income increased to $34 million in the fourth quarter of 2011 from $29 million in the fourth quarter of 2010. The gross margin from management operations increased to 13.0 percent in the fourth quarter of 2011 from 12.0 percent in the fourth quarter of 2010.

  Indemnity’s investment operations pretax income totaled $7 million for the fourth quarter of 2011 compared to $11 million for the fourth quarter of 2010.

Erie, Pa., February 27, 2012

– Erie Indemnity Company (NASDAQ: ERIE) today announced fourth quarter 2011 earnings of $26 million, compared to earnings of $12 million in the fourth quarter of 2010. Operating income was $25 million in the fourth quarter of 2011, compared to operating income of $17 million in the fourth quarter of 2010.

Note: The accompanying consolidated financial statements of Erie Indemnity Company (“Indemnity”) reflect the consolidated results of Indemnity and the Erie Insurance Exchange (“Exchange”), which we refer to collectively as the “Erie Insurance Group.”

Indemnity or Indemnity shareholder interest refers to the interest in Erie Indemnity Company owned by the Class A and Class B shareholders. The Exchange refers to the noncontrolling interest held for the interest of the subscribers (policyholders) and includes its interest in its property and casualty subsidiaries and Erie Family Life Insurance Company (“EFL”).

1

The following table shows the consolidated results of the Erie Insurance Group by operating segment:

                                                                 
Results of the Erie Insurance Group’s Operations
    Indemnity shareholder interest   Noncontrolling interest (Exchange)   Elimination of related party transactions   Erie Insurance Group
(dollars in millions)
  4Q’11   4Q’10   4Q’11   4Q’10   4Q’11   4Q’10   4Q’11   4Q’10
 
                                                               
Management operations
  $ 34   $ 29   $ -   $ -   $ (26 )   $ (21 )   $ 8   $ 8
Property and casualty insurance operations
    3   68   42   30   24   98   69
Life insurance operations
    3   12   10   (1 )   0   11   13
Investment operations
  7   11   304   319   (3 )   (3 )    308   327
 
                                                               
Income from operations before income taxes and noncontrolling interest
  41   46   384   371       425   417
Provision for income taxes
   15   34   129   129        144   163
 
                                                               
Net income
  $ 26   $ 12   $ 255   $ 242   $ -   $ -   $ 281   $ 254
 
                                                               

The following sections highlight and discuss the results of management operations, property and casualty insurance operations, life insurance operations and investment operations related to the Indemnity shareholder interest.

                                                                 
Management Operations
    Indemnity shareholder interest   Noncontrolling interest (Exchange)   Elimination of related party transactions   Erie Insurance Group
(dollars in millions)
  4Q’11   4Q’10   4Q’11   4Q’10   4Q’11   4Q’10   4Q’11   4Q’10
 
                                                               
Management fee revenue, net
  $ 251   $ 236   $   $   $ (251 )   $ (236 )   $   $
Service agreement revenue
  8   8           8   8
 
                                                               
Total revenue from management operations
  259   244       (251 )   (236 )   8   8
Cost of management operations
  225   215      -   (225 )   (215 )    -    -
 
                                                               
Income from management operations before taxes
   $34   $ 29   $   $  -   $ (26 )   $ (21 )   $   $
 
                                                               
Gross margin
  13.0 %   12.0 %                                                
 
                                                               

  The management fee rate was 25 percent for both the fourth quarters of 2011 and 2010. Direct written premiums of the property and casualty insurance operations, upon which the management fee is calculated, increased 6.7 percent in the fourth quarter of 2011, due to a 2.5 percent increase in policies in force and an increase in average premium. The year-over-year average premium per policy for all lines of business increased 3.3 percent at December 31, 2011, compared to an increase of 1.1 percent at December 31, 2010.

  The cost of management operations increased to $225 million in the fourth quarter 2011 from $215 million in the fourth quarter of 2010. Fourth quarter 2011 commissions increased $2 million compared to the fourth quarter of 2010, while fourth quarter 2011 non-commission expense increased $8 million. The increase in non-commission expense was primarily due to increases in professional fees and software expenses of $6 million, and agent related expenses of $2 million.

   

2

                                                                 
Property and Casualty Insurance Operations
    Indemnity shareholder interest   Noncontrolling interest (Exchange)   Elimination of related party transactions   Erie Insurance Group
(dollars in millions)
  4Q’11   4Q’10   4Q’11   4Q’10   4Q’11   4Q’10   4Q’11   4Q’10
 
                                                               
Net premiums earned
  $   $ 55   $ 1,060   $ 944   $ -   $ -   $ 1,060   $ 999
 
                                                               
Losses and loss expenses
    37   696   633   (1 )   (1 )   695   669
Policy acquisition and other underwriting expenses
    15   296   269   (29 )   (23 )   267   261
 
                                                               
Total losses and expenses
    52   992   902    (30 )   (24 )    962   930 
 
                                                               
Income from property and casualty insurance operations before taxes
  $   $ 3   $ 68   $ 42   $ 30   $ 24   $ 98   $ 69
 
                                                               
Combined ratio
    95.3 %   93.5 %   95.3 %                                
 
                                                               

  Prior to and through December 31, 2010, the underwriting results retained by Erie Insurance Company (“EIC”) and Erie Insurance Company of New York (“ENY”) accrued to the Indemnity shareholder interest. Due to the sale of Indemnity’s property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, beginning in the first quarter of 2011.
                                                                 
Life Insurance Operations
    Indemnity shareholder interest   Noncontrolling interest (Exchange)   Elimination of related party transactions   Erie Insurance Group
(dollars in millions)
  4Q’11   4Q’10   4Q’11   4Q’10   4Q’11   4Q’10   4Q’11   4Q’10
 
                                                               
Total revenue
  $   $ 9   $ 43   $ 36   $ (1 )   $ 0   $ 42   $ 45
Total benefits and expenses
    6   31    26   0   0    31    32
 
                                                               
Income from life insurance operations before taxes
  $   $ 3   $ 12   $ 10   $ (1 )   $ 0   $ 11   $ 13
 
                                                               

  Prior to and through March 31, 2011, Indemnity retained a 21.6 percent ownership interest in EFL which accrued to the Indemnity shareholder interest. Due to the sale of Indemnity’s ownership interest in EFL to the Exchange on March 31, 2011, 100 percent of the life insurance results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, beginning in the second quarter of 2011.

         

3

                                                                 
Investment Operations
    Indemnity shareholder interest   Noncontrolling interest (Exchange)   Elimination of related party transactions   Erie Insurance Group
(dollars in millions)
  4Q’11   4Q’10   4Q’11   4Q’10   4Q’11   4Q’10   4Q’11   4Q’10
 
                                                               
Net investment income
  $ 4   $ 9   $ 83   $ 80   $ (3 )   $ (3 )   $ 84   $ 86
Net realized gains (losses) on investments
  2   (8 )   227   202       229   194
Net impairment losses recognized in earnings
  0   0   (1 )   0       (1 )   0
Equity in earnings (losses) of limited partnerships
  1   10   (5 )   59       (4 )   69
Goodwill Impairment
        (22 )         (22 )
Income from investment operations before taxes
  $ 7   $ 11   $ 304   $ 319   $ (3 )   $ (3 )   $ 308   $ 327
 
                                                               

  Net investment income, which primarily includes interest and dividends on bonds and stocks, decreased $5 million in the fourth quarter of 2011. The fourth quarter of 2010 includes $6 million of net investment income from EIC, ENY and Erie Insurance Property & Casualty Company which were sold to the Exchange on December 31, 2010.

  Net realized gains on investments totaled $2 million in the fourth quarter of 2011, compared to losses of $8 million recorded in the fourth quarter of 2010. The net realized gains generated in the fourth quarter of 2011 were primarily due to increases in the valuation on the common stock portfolio. The net realized losses generated in the fourth quarter of 2010 were primarily due to the sale of limited partnership holdings as a part of a tax planning strategy to recapture tax paid on previous period capital gains that were due to expire.

  Equity in earnings of limited partnerships decreased $9 million in the fourth quarter of 2011. Losses on private equity limited partnerships totaled $3 million in the fourth quarter of 2011, compared to earnings of $5 million in the fourth quarter of 2010.

Year-to-Date 2011 Results

                                                                 
Results of the Erie Insurance Group’s Operations
                                                    Erie
    Indemnity   Noncontrolling   Elimination of related   Insurance
    shareholder interest   interest (Exchange)   party transactions   Group
(dollars in millions)   2011   2010   2011   2010   2011   2010   2011   2010
Management operations
  $ 208     $ 202     $ -     $ -     $ (175 )   $ (168 )   $ 33     $ 34  
Property and casualty insurance operations
          0       (378 )     (3 )     188       179       (190 )     176  
Life insurance operations
    3       11       47       39       (2 )     0       48       50  
Investment operations
    45       56       433       694       (11 )     (11 )      467       739  
 
                                                               
Income from operations before income taxes and noncontrolling interest
    256       269       102       730                   358       999  
Provision for income taxes
     87       107       3       232                    90       339  
 
                                                               
Net income
  $ 169     $ 162     $ 99     $ 498     $     $     $ 268     $ 660  
 
                                                               

  Net income attributable to Indemnity per share-diluted was $3.08 per share for the year ending December 31, 2011 compared to net income per share-diluted of $2.85 per share for the year ending December 31, 2010. The year ending December 31, 2011 net income amount includes $0.02 per share-diluted related to operations sold to the Exchange compared to $0.47 per share-diluted for the year ending December 31, 2010. Also, Indemnity’s 2010 provision for income taxes reflects a charge of $18 million, or $0.31 per share-diluted, for a deferred tax expense related to the sale of its 21.6 percent ownership interest in EFL to the Exchange.

  Operating income attributable to Indemnity per share-diluted (excluding net realized gains or losses, impairments on investments and related taxes) was $3.04 per share for the year ending December 31, 2011 compared to $2.88 per share-diluted for the year ending December 31, 2010. The year ending December 31, 2011, operating income amount includes $0.02 per share-diluted related to operations sold to the Exchange compared to $0.42 per share-diluted for the year ending December 31, 2010. Also, Indemnity’s 2010 provision for income taxes reflects a charge of $18 million, or $0.31 per share-diluted, for a deferred tax expense related to the sale of its 21.6 percent ownership interest in EFL to the Exchange.

  Indemnity’s management operations pretax income increased to $208 million for the year ending December 31, 2011, from $202 million for the year ending December 31, 2010, driven primarily by a 5.9 percent increase in direct written premiums of the Property and Casualty Group. The gross margin from management operations decreased to 18.9 percent for the year ending December 31, 2011, from 19.4 percent for the year ending December 31, 2010, as a result of expense growth slightly outpacing revenue growth.

  Indemnity’s investment operations pretax income totaled $45 million for the year ending December 31, 2011 compared to $56 million for the year ending December 31, 2010.

Share Repurchase Program

In the fourth quarter of 2011, we repurchased 0.3 million shares of our outstanding Class A nonvoting common stock at a total cost of $23 million in conjunction with our current stock repurchase program. For the year, we repurchased 2.2 million shares at a total cost of $155 million. In October 2011, our Board of Directors approved a continuation of the current stock repurchase program for a total of $150 million, with no time limitation. As of February 17, 2012, we had approximately $128 million in repurchase authority remaining under the program.

According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 12th largest automobile and 14th homeowners 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 over 4.3 million policies in force and operates in 11 states and the District of Columbia.  Erie Insurance Group is a FORTUNE 500 company.

Erie Insurance is proud to be named a J.D. Power and Associates’ 2011 Customer Service Champion and is one of only 40 companies so named in the U.S.  Erie Insurance has also been recognized on the list of Ward’s 50 Group of top performing insurance companies.  The Ward’s 50 award analyzes the financial performance of 3,000 property and casualty companies and nearly 800 life and health insurance companies and recognizes the top performers for achieving outstanding financial results in safety and consistency over a five-year period (2006-2010).

News releases and more information about Erie Insurance Group are available at www.erieinsurance.com.

***

“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 Securities and Exchange Commission, that could cause actual results and future events to differ from those set forth or contemplated in the forward-looking statements include the following:

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, including information technology systems;

    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 litigations against Indemnity.

Risk factors related to the non-controlling interest owned by the Exchange, which includes the Property and Casualty Group and EFL:

    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 litigations against the Exchange; and

    dependency 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.

4


The following information was filed by Erie Indemnity Co (ERIE) on Monday, February 27, 2012 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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Inside this 10-K Annual Report

Document And Entity Information
Consolidated Statements Of Cash Flows
Consolidated Statements Of Financial Position
Consolidated Statements Of Financial Position (parenthetical)
Consolidated Statements Of Operations
Consolidated Statements Of Shareholders' Equity And Noncontrolling Interest
Consolidated Statements Of Shareholders' Equity And Noncontrolling Interest (parenthetical)
Bank Line Of Credit
Bank Line Of Credit (details)
Capital Stock
Capital Stock (details 2)
Capital Stock (details)
Capitalized Software Development Costs
Capitalized Software Development Costs (details)
Capitalized Software Development Costs (tables)
Commitments And Contingencies
Commitments And Contingencies (details)
Comprehensive Income
Comprehensive Income (details 2)
Comprehensive Income (details 3)
Comprehensive Income (details)
Comprehensive Income (tables)
Deferred Policy Acquisition Costs
Deferred Policy Acquisition Costs (details)
Deferred Policy Acquisition Costs (tables)
Earnings Per Share
Earnings Per Share (details)
Earnings Per Share (tables)
Fair Value
Fair Value (details 2)
Fair Value (details 3)
Fair Value (details)
Fair Value (tables)
Goodwill Impairment
Goodwill Impairment (details)
Incentive Plans And Deferred Compensation
Incentive Plans And Deferred Compensation (details)
Incentive Plans And Deferred Compensation (tables)
Income Taxes
Income Taxes (details 2)
Income Taxes (details)
Income Taxes (tables)
Indemnity Supplemental Information
Indemnity Supplemental Information (details 2)
Indemnity Supplemental Information (details 3)
Indemnity Supplemental Information (details)
Indemnity Supplemental Information (tables)
Investments
Investments (details 2)
Investments (details 3)
Investments (details 4)
Investments (details 5)
Investments (details 6)
Investments (details)
Investments (tables)
Life Policy And Deposit Contract Reserves
Life Policy And Deposit Contract Reserves (details)
Life Policy And Deposit Contract Reserves (tables)
Nature Of Operations
Nature Of Operations (details 2)
Nature Of Operations (details)
Postretirement Benefits
Postretirement Benefits (details 2)
Postretirement Benefits (details 3)
Postretirement Benefits (details 4)
Postretirement Benefits (details 5)
Postretirement Benefits (details 6)
Postretirement Benefits (details)
Postretirement Benefits (tables)
Property And Casualty Unpaid Losses And Loss Expenses
Property And Casualty Unpaid Losses And Loss Expenses (details)
Property And Casualty Unpaid Losses And Loss Expenses (tables)
Quarterly Results Of Operations (unaudited)
Quarterly Results Of Operations (unaudited) (details)
Quarterly Results Of Operations (unaudited) (tables)
Reinsurance
Reinsurance (details 2)
Reinsurance (details)
Reinsurance (tables)
Schedule I - Summary Of Investments - Other Than Investments In Related Parties
Schedule I Summary Of Investments - Other Than Investments In Related Parties (details)
Schedule Iii - Supplementary Insurance Information
Schedule Iii Supplementary Insurance Information (details)
Schedule Iv - Reinsurance
Schedule Iv Reinsurance (details)
Schedule Vi - Supplemental Information Concerning Property-casualty Insurance Operations
Schedule Vi Supplemental Information Concerning Property-casualty Insurance Operations (details)
Segment Information
Segment Information (details)
Segment Information (tables)
Significant Accounting Policies
Significant Accounting Policies (details 2)
Significant Accounting Policies (details 3)
Significant Accounting Policies (details)
Significant Accounting Policies (policies)
Statutory Information
Statutory Information (details)
Statutory Information (tables)
Subsequent Events
Supplementary Data On Cash Flows
Supplementary Data On Cash Flows (details)
Supplementary Data On Cash Flows (tables)
Variable Interest Entity
Variable Interest Entity (details)
Ticker: ERIE
CIK: 922621
Form Type: 10-K Annual Report
Accession Number: 0001104659-12-013263
Submitted to the SEC: Mon Feb 27 2012 4:57:12 PM EST
Accepted by the SEC: Mon Feb 27 2012
Period: Saturday, December 31, 2011
Industry: Insurance Agents Brokers And Service

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