Erie Indemnity Reports Fourth Quarter and Total Year 2013 Results - NBC Right Now/KNDO/KNDU Tri-Cities, Yakima, WA |

Erie Indemnity Reports Fourth Quarter and Total Year 2013 Results

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SOURCE Erie Indemnity Company

ERIE, Pa., Feb. 27, 2014 /PRNewswire/ --









4Q 2013 Highlights - Indemnity Shareholder Interest










  • Net income attributable to Indemnity per share-diluted was $0.67 per share in the fourth quarter of 2013, compared to net income per share-diluted of $0.56 per share in the fourth quarter of 2012.
  • Operating income attributable to Indemnity per share-diluted (excluding net realized gains or losses, impairments on investments and related taxes) was $0.67 per share in the fourth quarter of 2013, compared to operating income per share-diluted of $0.54 per share in the fourth quarter of 2012.
  • Indemnity's management operations pretax income totaled $41 million for the fourth quarter of 2013, compared to $34 million for the fourth quarter of 2012.  The gross margin from management operations was 13.2 percent in the fourth quarter of 2013, compared to 12.2 percent in the fourth quarter of 2012.
  • Indemnity's investment operations pretax income totaled $13 million for the fourth quarter of 2013, compared to $10 million for the fourth quarter of 2012.

 








Total Year 2013 Highlights - Indemnity Shareholder Interest









  • Net income attributable to Indemnity per share-diluted was $3.08 per share for the year ended December 31, 2013, compared to net income per share-diluted of $2.99 per share for the year ended December 31, 2012.
  • Operating income attributable to Indemnity per share-diluted (excluding net realized gains or losses, impairments on investments and related taxes) was $3.07 per share for the year ended December 31, 2013, compared to operating income per share-diluted of $2.92 per share for the year ended December 31, 2012.
  • Indemnity's management operations pretax income totaled $209 million for the year ended December 31, 2013, compared to $205 million for the year ended December 31, 2012. The gross margin from management operations was 16.1 percent for the year ended December 31, 2013, compared to 17.3 percent for the year ended December 31, 2012.
  • Indemnity's investment operations pretax income totaled $38 million for the year ended December 31, 2013, compared to $36 million for the year ended December 31, 2012.

Erie Indemnity Company (NASDAQ: ERIE) today announced fourth quarter 2013 earnings of $36 million, compared to earnings of $30 million in the fourth quarter of 2012.  Operating income was $36 million in the fourth quarter of 2013, compared to $29 million in the fourth quarter of 2012.

Erie Insurance

For the year ended December 31, 2013, Erie Indemnity Company's earnings totaled $163 million, compared to earnings of $160 million for the year ended December 31, 2012.  Operating income was $162 million for the year ended December 31, 2013, compared to operating income of $157 million or the year ended December 31, 2012.

 

4Q 2013 Results of the Erie Insurance Group's Operations(1)







Indemnity

shareholder

interest

Noncontrolling

interest

(Exchange)

Elimination of

related party

transactions

Erie
Insurance
Group

(dollars in millions)

4Q'13

4Q'12

4Q'13

4Q'12

4Q'13

4Q'12

4Q'13

4Q'12

Management operations

$

41


$

34


$

-


$

-


$

(33)


$

(26)


$

8


$

8


Property and casualty insurance operations(2)

-


-


22


(61)


37


30


59


(31)


Life insurance operations(2)

-


-


14


12


0


(1)


14


11


Investment operations

13


10


380


170


(4)


(3)


389


177


Income from operations before income

taxes and noncontrolling interest

54


44


416


121


-


-


470


165


Provision for income taxes

18


14


138


32


-


-


156


46


Net income

$

36


$

30


$

278


$

89


$

-


$

-


$

314


$

119













(1)

The 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").



(2)

All property and casualty and life insurance results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest.

 

The following tables and discussion show the operating results attributable to the Indemnity shareholder interest in the Erie Indemnity Company owned by the Class A and Class B shareholders for the fourth quarter of 2013.

 



Management Operations








Indemnity

shareholder

interest



(dollars in millions)

4Q'13

4Q'12



Management fee revenue, net

$

301


$

275




Service agreement revenue

8


8




Total revenue from management operations

$

309


$

283




Commissions

$

172


$

158




Non-commission expense

96


91




Total cost of management operations

$

268


$

249




Income from management operations before taxes

$

41


$

34




Gross margin

13.2

%

12.2

%

  • The management fee rate was 25 percent for both the fourth quarters of 2013 and 2012.  Direct written premium of the property and casualty insurance operations, upon which the management fee is calculated, increased 9.5 percent in the fourth quarter of 2013, due to a 4.8 percent increase in policies in force and a 4.5 percent increase in the year-over-year average premium per policy for all lines of business at December 31, 2013.
  • Commissions increased $14 million, or 8.8 percent, in the fourth quarter of 2013, compared to the fourth quarter of 2012, primarily due to the 9.5 percent increase in direct written premium of the property and casualty insurance operations.  All other commissions remained relatively flat compared to the fourth quarter of 2012.
  • Non-commission expense increased $5 million, or 5.4 percent, in the fourth quarter of 2013, compared to the fourth quarter of 2012.  Personnel costs increased $4 million, driven by a $1 million increase in both pension and medical expenses and by a $2 million increase in the estimate for incentive plan compensation related to growth and underwriting performance.  All other operating costs increased $1 million.

 






Investment Operations














Indemnity

shareholder

interest






(dollars in millions)

4Q'13

4Q'12






Net investment income

$

4


$

4







Net realized gains on investments

0


1







Net impairment losses recognized in earnings

0


0







Equity in earnings of limited partnerships

9


5







Income from investment operations before taxes

$

13


$

10


  • Income from investment operations before taxes was $13 million in the fourth quarter of 2013, compared to $10 million in the fourth quarter of 2012.  Equity in earnings of limited partnerships increased $4 million, offset by a decrease of $1 million in net realized gains on investments.

 


Total Year 2013 Results of the Erie Insurance Group's Operations(1)







Indemnity

shareholder

interest

Noncontrolling

interest

(Exchange)

Elimination of

related party

transactions

Erie

Insurance Group

(dollars in millions)

2013

2012

2013

2012

2013

2012

2013

2012

Management operations

$

209


$

205


$

-


$

-


$

(178)


$

(174)


$

31


$

31


Property and casualty insurance operations(2)

-


-


68


(246)


192


187


260


(59)


Life insurance operations(2)

-


-


48


46


(2)


(2)


46


44


Investment operations

38


36


1,204


858


(12)


(11)


1,230


883


Income from operations before income

taxes and noncontrolling interest

247


241


1,320


658


-


-


1,567


899


Provision for income taxes

84


81


435


199


-


-


519


280


Net income

$

163


$

160


$

885


$

459


$

-


$

-


$

1,048


$

619













(1)

The 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").



(2)

All property and casualty and life insurance results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest.

 













Share Repurchase Program





In the fourth quarter of 2013, Indemnity repurchased 142,132 shares of its outstanding Class A nonvoting common stock at a total cost of $10.2 million, based upon trade date, in conjunction with its current stock repurchase program.  For the year through February 14, 2014, 58,838 shares were repurchased under this program at a total cost of $4.1 million.  In October 2011, Indemnity's Board of Directors approved a continuation of the current stock repurchase program for a total of $150 million, with no time limitation.  This repurchase authority included, and was not in addition to, any unspent amounts remaining under the prior authorization.  As of February 14, 2014, Indemnity had approximately $33 million in repurchase authority remaining under the program.

According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 14th largest homeowners insurer and 12th largest automobile insurer in the United States based on direct premiums written and the 18th 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 nearly 4.8 million policies in force and operates in 11 states and the District of Columbia. Erie Insurance Group is a FORTUNE 500 and Barron's 500 company. Erie Insurance is proud to have received the J.D. Power and Associates' award for "Highest in Customer Satisfaction with the Auto Insurance Purchase Experience." Erie Insurance is also recognized on the list of Ward's 50 Group of top performing insurance companies, which analyzes the financial performance of 3,000 property and casualty companies and recognizes the top performers for achieving outstanding results in safety, consistency and financial performance over a five-year period (2008-2012).

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;
  • 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 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 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.

 

 


Erie Indemnity Company

Consolidated Statements of Operations

(dollars in millions, except per share data)




Three months ended

December 31,


Twelve months ended

December 31,



2013


2012


2013


2012

Revenues


(Unaudited)



Premiums earned


$

1,267



$

1,160



$

4,898



$

4,493


Net investment income


106



112



422



438


Net realized investment gains


270



60



771



418


Net impairment losses recognized in earnings


(3)



0



(13)



0


Equity in earnings of limited partnerships


49



32



161



131


Other income


8



8



32



32


  Total revenues


1,697



1,372



6,271



5,512


Benefits and expenses









Insurance losses and loss expenses


896



909



3,467



3,480


Policy acquisition and underwriting expenses


331



298



1,237



1,133


  Total benefits and expenses


1,227



1,207



4,704



4,613











Income from operations before income taxes and noncontrolling interest


470



165



1,567



899


Provision for income taxes


156



46



519



280


Net income


$

314



$

119



$

1,048



$

619











Less: Net income attributable to noncontrolling interest in consolidated

entity – Exchange


278



89



885



459











Net income attributable to Indemnity


$

36



$

30



$

163



$

160




















Earnings Per Share









Net income attributable to Indemnity per share









Class A common stock – basic


$

0.75



$

0.63



$

3.46



$

3.38


Class A common stock – diluted


$

0.67



$

0.56



$

3.08



$

2.99


Class B common stock – basic


$

113



$

94



$

520



$

505


Class B common stock – diluted


$

113



$

94



$

519



$

505











Weighted average shares outstanding attributable to Indemnity – Basic









Class A common stock


46,520,232



47,006,247



46,660,651



47,357,836


Class B common stock


2,542



2,543



2,542



2,544











Weighted average shares outstanding attributable to Indemnity – Diluted









Class A common stock


52,715,338



53,193,844



52,855,757



53,547,833


Class B common stock


2,542



2,543



2,542



2,544











Dividends declared per share









Class A common stock


$

0.6350



$

2.5925



$

2.4125



$

4.2500


Class B common stock


$

95.2500



$

388.8750



$

361.8750



$

637.5000


 

 


Erie Indemnity Company

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

(in millions)




Indemnity

shareholder interest


Noncontrolling interest

(Exchange)


Eliminations of related

party transactions

Erie Insurance Group



Three months ended

December 31,


Three months ended

December 31,


Three months ended

December 31,


Three months ended

December 31,



2013

2012


2013

2012


2013

2012


2013

2012

Management operations:













Management fee revenue, net


$

301


$

275



$

-


$

-



$

(301)


$

(275)



$

-


$

-


Service agreement revenue


8


8



-


-



-


-



8


8


Total revenue from management operations


309


283



-


-



(301)


(275)



8


8


Cost of management operations


268


249



-


-



(268)


(249)



-


-


   Income from management operations before taxes


41


34



-


-



(33)


(26)



8


8


Property and casualty insurance operations:













Net premiums earned


-


-



1,247


1,143



-


-



1,247


1,143


Losses and loss expenses


-


-



870


883



(1)


(1)



869


882


Policy acquisition and underwriting expenses


-


-



355


321



(36)


(29)



319


292


   Income (loss) from property and casualty insurance

      operations before taxes


-


-



22


(61)



37


30



59


(31)


Life insurance operations: (1)













Total revenue


-


-



53


45



0


(1)



53


44


Total benefits and expenses


-


-



39


33



0


0



39


33


   Income from life insurance operations before taxes


-


-



14


12



0


(1)



14


11


Investment operations: (1)













Net investment income


4


4



82


87



(4)


(3)



82


88


Net realized gains on investments


0


1



261


56



-


-



261


57


Net impairment losses recognized in earnings


0


0



(3)


0



-


-



(3)


0


Equity in earnings of limited partnerships


9


5



40


27



-


-



49


32


   Income from investment operations before taxes


13


10



380


170



(4)


(3)



389


177


Income from operations before income taxes and

   noncontrolling interest


54


44



416


121



-


-



470


165


Provision for income taxes


18


14



138


32



-


-



156


46


Net income


$

36


$

30



$

278


$

89



$

-


$

-



$

314


$

119




(1)

Earnings on life insurance related invested assets are integral to the evaluation of the life insurance operations because of the long duration of life products. On that basis, for presentation purposes, the life insurance operations in the table above include life insurance related investment results.

 

 


Erie Indemnity Company

Results of the Erie Insurance Group's Operations by Interest

(in millions)




Indemnity

shareholder interest


Noncontrolling interest

(Exchange)


Eliminations of related

party transactions

Erie Insurance Group



Years ended

 December 31,


Years ended

 December 31,


Years ended

 December 31,


Years ended

 December 31,



2013

2012


2013

2012


2013

2012


2013

2012

Management operations:













Management fee revenue, net


$

1,266


$

1,157



$

-


$

-



$

(1,266)


$

(1,157)



$

-


$

-


Service agreement revenue


31


31



-


-



-


-



31


31


Total revenue from management operations


1,297


1,188



-


-



(1,266)


(1,157)



31


31


Cost of management operations


1,088


983



-


-



(1,088)


(983)



-


-


   Income from management operations before taxes


209


205



-


-



(178)


(174)



31


31


Property and casualty insurance operations:













Net premiums earned


-


-



4,820


4,422



-


-



4,820


4,422


Losses and loss expenses


-


-



3,365


3,384



(5)


(5)



3,360


3,379


Policy acquisition and underwriting expenses


-


-



1,387


1,284



(187)


(182)



1,200


1,102


   Income (loss) from property and casualty insurance

      operations before taxes


-


-



68


(246)



192


187



260


(59)


Life insurance operations: (1)













Total revenue


-


-



192


178



(2)


(2)



190


176


Total benefits and expenses


-


-



144


132



0


0



144


132


   Income from life insurance operations before taxes


-


-



48


46



(2)


(2)



46


44


Investment operations: (1)













Net investment income


15


16



325


338



(12)


(11)



328


343


Net realized gains on investments


1


5



753


404



-


-



754


409


Net impairment losses recognized in earnings


0


0



(12)


0



-


-



(12)


0


Equity in earnings of limited partnerships


22


15



138


116



-


-



160


131


   Income from investment operations before taxes


38


36



1,204


858



(12)


(11)



1,230


883


Income from operations before income taxes and

   noncontrolling interest


247


241



1,320


658



-


-



1,567


899


Provision for income taxes


84


81



435


199



-


-



519


280


Net income


$

163


$

160



$

885


$

459



$

-


$

-



$

1,048


$

619




(1)

Earnings on life insurance related invested assets are integral to the evaluation of the life insurance operations because of the long duration of life products. On that basis, for presentation purposes, the life insurance operations in the table above include life insurance related investment results.

 

Erie Indemnity Company
Reconciliation of Operating Income to Net Income

Reconciliation of operating income to net income

We disclose operating income, a non-GAAP financial measure, to enhance our investors' understanding of our performance related to the Indemnity shareholder interest.  Our method of calculating this measure may differ from those used by other companies, and therefore comparability may be limited.

Indemnity defines operating income as net income excluding realized capital gains and losses, impairment losses and related federal income taxes.

Indemnity uses operating income to evaluate the results of its operations.  It reveals trends that may be obscured by the net effects of realized capital gains and losses including impairment losses.  Realized capital gains and losses, including impairment losses, may vary significantly between periods and are generally driven by business decisions and economic developments such as capital market conditions which are not related to our ongoing operations.  We are aware that the price to earnings multiple commonly used by investors as a forward-looking valuation technique uses operating income as the denominator.  Operating income should not be considered as a substitute for net income prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and does not reflect Indemnity's overall profitability.

The following table reconciles operating income and net income for the Indemnity shareholder interest:




Indemnity Shareholder Interest



Three months ended

December 31,


Years ended

December 31,

(in millions, except per share data)


2013


2012


2013


2012



(Unaudited)



Operating income attributable to Indemnity


$

36



$

29



$

162



$

157


Net realized gains and impairments on investments


0



1



1



5


Income tax expense


0



0



0



(2)


  Realized gains and impairments, net of income taxes


0



1



1



3


Net income attributable to Indemnity


$

36



$

30



$

163



$

160











Per Indemnity Class A common share-diluted:









Operating income attributable to Indemnity


$

0.67



$

0.54



$

3.07



$

2.92


Net realized gains and impairments on investments


0.00



0.02



0.01



0.10


Income tax expense


0.00



0.00



0.00



(0.03)


  Realized gains and impairments, net of income taxes


0.00



0.02



0.01



0.07


Net income attributable to Indemnity


$

0.67



$

0.56



$

3.08



$

2.99


 

 

Erie Indemnity Company

Consolidated Statements of Financial Position

(in millions)




December 31,

2013


December 31,

2012






Assets





Investments – Indemnity





Available-for-sale securities, at fair value:





   Fixed maturities


$

526



$

452


   Equity securities


50



55


Limited partnerships


146



180


Other invested assets


1



1


Investments – Exchange





Available-for-sale securities, at fair value:





   Fixed maturities


8,162



7,707


   Equity securities


819



945


Trading securities, at fair value


3,202



2,417


Limited partnerships


940



1,037


Other invested assets


20



20


      Total investments


13,866



12,814







Cash and cash equivalents (Exchange portion of $403 and $388, respectively)


452



400


Premiums receivable from policyholders – Exchange


1,167



1,062


Reinsurance recoverable – Exchange


172



168


Deferred income taxes – Indemnity


2



37


Deferred acquisition costs – Exchange


566



504


Other assets (Exchange portion of $337 and $339, respectively)


451



456


      Total assets


$

16,676



$

15,441







Liabilities and shareholders' equity





Liabilities





Indemnity liabilities





   Other liabilities


$

476



$

515


Exchange liabilities





   Losses and loss expense reserves


3,747



3,598


   Life policy and deposit contract reserves


1,758



1,708


   Unearned premiums


2,598



2,365


   Deferred income taxes


450



365


   Other liabilities


97



99


      Total liabilities


9,126



8,650







Indemnity's shareholders' equity


734



642







Noncontrolling interest in consolidated entity – Exchange


6,816



6,149


      Total equity


7,550



6,791


      Total liabilities, shareholders' equity and noncontrolling interest


$

16,676



$

15,441


 

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