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): April 24, 2003
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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (814) 870-2000
1
Item 9. Regulation FD Disclosure
On April 24, 2003, Erie Indemnity Company issued a press release announcing
financial results for the quarter ended March 31, 2003. A copy of this press
release is attached hereto and is incorporated herein by reference as Exhibit
99.1.
On April 25, 2003 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 ended March 31, 2003.
This information, furnished under "Item 12. Results of Operations and Financial
Condition" of Form 8-K, is being made under Item 9 persuant to SEC interim
filing guidance provided in SEC Release No. 33-8216.
Exhibit Number Description
-------------- -----------
99.1 Press release dated April 24, 2003
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: April 24, 2003 /s/ Philip A. Garcia
-------------------------------
(Philip A. Garcia, Executive Vice President & CFO)
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EXHIBIT 99.1
ERIE INDEMNITY REPORTS FIRST QUARTER 2003 RESULTS
Erie, Pa., April 24, 2003 - Erie Indemnity Company (Nasdaq: ERIE) today
announced results for the first quarter 2003:
o Net income increased by 3.8 percent or $1.7 million to $45.9 million, up from
$44.2 million at March 31, 2002.
o Net income per share increased by 4.1 percent to $.65 per share, compared to
$.62 per share in the comparable quarter for 2002.
o Net income, excluding net realized gains on investments and related federal
income taxes, increased by 4.9 percent to $45.5 million, up from $43.4 million
for the same period one year ago.
o Management fee revenue grew by 16.3 percent to $207.2 million, up from $178.3
million for the same period one year ago.
"The Company is coming off a year of accelerated growth," says Jeffrey A.
Ludrof, president and CEO. "Because of our strong retention ratio - 91.2 percent
at March 31, 2003 - we continue to see healthy growth in direct written premium
and, consequently, positive increases in management fee revenue."
Details of First Quarter 2003 Results
-------------------------------------
Management operations
---------------------
Management fee revenue increased by 16.3 percent to $207.2 million for the
quarter ended March 31, 2003, compared to $178.3 million for the same period one
year ago. Management fee revenue grew at a slower rate than the growth in direct
written premiums in the first quarter of 2003 due to the action taken by the
board of directors in December 2002 to reduce the management fee rate from 25
percent to 24 percent.
The property and casualty direct written premiums of the Erie Insurance Group,
upon which management fee revenue is calculated totaled $865.2 million in the
first quarter 2003, compared to $713.0 million in the first quarter 2002. This
represents growth rates of 21.3 percent in the first quarter of 2003, compared
to 22.4 percent in the first quarter of 2002. Direct written premium for the
quarter was positively impacted by a 12.4 percent increase in policies in force
and the effect of rate actions taken in 2001 and 2002. The average written
premium per policy increased by 10.0 percent to $920, as compared to $836 at
March 31, 2002. New written premium grew by 8.2 percent in the first quarter of
2003, a slower rate when compared to the same period in 2002. This was primarily
due to the initial effects of ERIE's underwriting profitability program and the
December 2002 close of a major sales incentive contest.
4
Nonaffiliated assumed voluntary reinsurance premiums of Erie Insurance Exchange,
upon which the Company receives a 6.0 percent service fee, totaled $1.9 million
in the first quarter of 2003, down 38.3 percent from the $3.1 million recorded
in the first quarter 2002. The decrease resulted from a combination of lower
voluntary assumed premiums, due to non-renewal of unprofitable business, and the
board's action to reduce the service fee from 7.0 percent in 2002 to 6.0 percent
for 2003.
The cost of management operations increased 19.9 percent to $154.4 million in
the first quarter of 2003, from $128.8 million for the same period in 2002.
Commission costs, which were impacted by the growth in policies and premium,
increased 22.8 percent to $110.9 million, from $90.3 million in the first
quarter 2002. First quarter costs of management operations, excluding
commissions, increased 12.9 percent to $43.4 million in 2003 from $38.5 million
in 2002.
Insurance underwriting operations
---------------------------------
The Company's insurance underwriting operations recorded losses of $5.7 million
and $3.6 million in the first quarters of 2003 and 2002, respectively. This was
due primarily to increases in catastrophe losses for the quarter, as well as
other weather-related losses. These losses resulted in increased frequency in
the private passenger automobile and homeowners lines of business in the first
quarter 2003.The Company's share of catastrophe losses totaled $1.1 million and
$0.5 million for the three-month periods ended March 31, 2003 and 2002,
respectively. These losses include catastrophe losses previously reported by the
Company as a result of severe winter storms in February 2003 affecting many of
the Company's operating territories.
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 $0.8 million and $1.0 million for the first quarters of 2003
and 2002, respectively. These costs will continue to be incurred as the program
develops through 2004.
Investment operations
---------------------
Net revenue from investment operations for the first quarter of 2003 reflects an
increase of 15.5 percent to $14.8 million, compared to $12.8 million for the
same period in 2002. Net investment income increased by 12.7 percent to $14.3
million for the quarter ended March 31, 2003, from $12.7 million for the same
period in 2002.
5
Net realized gains on investments of $0.6 million were recorded during the first
quarter of 2003 compared to net realized gains of $1.2 million for the first
quarter of 2002. The decrease in realized gains on investments was affected by
impairment charges of $6.0 million recorded during the first quarter 2003; no
impairment charges were recorded in the first quarter of 2002.
Equity in losses of limited partnerships was $1.3 million and $1.9 million for
the first quarters of 2003 and 2002, respectively. Private equity and fixed
income limited partnerships incurred realized losses of $1.7 million and $2.9
million in the first quarters of 2003 and 2002, respectively. Real estate
limited partnerships reflected earnings of $0.4 million for the quarter ended
March 31, 2003, compared to earnings of $1.0 million for the same period in
2002.
The Company's earnings from its 21.6 percent equity ownership of EFL increased
to $1.2 million for the first quarter of 2003 from $0.8 million in the first
quarter 2002.
Erie Indemnity Company provides management services to the member companies of
the Erie Insurance Group, which includes the Erie Insurance Exchange, Flagship
City Insurance Company, Erie Insurance Company, Erie Insurance Property and
Casualty Company, Erie Insurance Company of New York and Erie Family Life
Insurance Company.
According to A.M. Best Company, Erie Insurance Group, based in Erie,
Pennsylvania, is the 17th largest automobile insurer in the United States based
on direct premiums written and the 25th largest property/casualty insurer in the
United States based on total lines net premium written. The Group, rated A+
(Superior) by A.M. Best Company, has more than 3.5 million policies in force and
operates in 11 states and the District of Columbia. Erie Insurance Group ranked
454 on the FORTUNE 500.
News releases and more information about Erie Insurance Group are available at
http://www.erieinsurance.com
----------------------------
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995: Certain forward-looking statements contained herein involve risks and
uncertainties. These statements include certain discussions relating to
management fee revenue, cost of management operations, 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
6
Erie Indemnity Company
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Three months ended March 31,
(unaudited)
2003 2002
----------------------------
OPERATING REVENUE:
Management fee revenue $ 207,246 $ 178,252
Premiums earned 45,182 37,219
Service agreement revenue 6,484 7,342
---------- ---------
Total operating revenue $ 258,912 $ 222,813
--------- ---------
OPERATING EXPENSES:
Cost of management operations $ 154,373 $ 128,791
Losses and loss expenses incurred 37,500 29,336
Policy acquisition and other underwriting expenses 13,352 11,498
--------- ---------
Total operating expenses $ 205,225 $ 169,625
--------- ---------
OTHER INCOME AND EXPENSES:
Investment income, net of expenses $ 14,319 $ 12,704
Realized gain on investments 593 1,220
Equity in losses of limited partnerships (1,326) (1,914)
--------- ---------
Total other income and expenses $ 13,586 $ 12,010
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Income before income taxes and equity in earnings of
Erie Family Life Insurance Company $ 67,273 $ 65,198
Less: Provision for income taxes 22,460 21,711
Equity in earnings of Erie Family Life Insurance
Company, net of tax 1,087 715
--------- ---------
Net income $ 45,900 $ 44,202
========= =========
Net income per share $ 0.65 $ 0.62
========= =========
Weighted average shares outstanding 70,997 71,184
========= =========
DIVIDENDS DECLARED
Class A non-voting common $ 0.19 $ 0.17
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Class B common $ 28.50 $ 25.50
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Erie Indemnity Company
CONSOLIDATED STATEMENTS OF OPERATIONS - SEGMENT BASIS
(Amounts in thousands, except per share data)
Three months ended March 31
(unaudited)
2003 2002
---------------------------
MANAGEMENT OPERATIONS:
Management fee revenue $ 207,246 $ 178,252
Service agreement revenue 6,484 7,342
-------------------------
Total revenue from management operations 213,730 185,594
Cost of management operations 154,373 128,791
-------------------------
Income from management operations $ 59,357 $ 56,803
-------------------------
INSURANCE UNDERWRITING OPERATIONS:
Premiums earned $ 45,182 $ 37,219
-------------------------
Losses and loss adjustment expenses incurred 37,500 29,336
Policy acquisition and other underwriting expenses 13,352 11,498
-------------------------
Total losses and expenses $ 50,852 $ 40,834
-------------------------
Underwriting loss $ (5,670) $ (3,615)
-------------------------
INVESTMENT OPERATIONS:
Net investment income $ 14,319 $ 12,704
Net realized gain on investments 593 1,220
Equity in losses of limited partnerships (1,326) (1,914)
Equity in earnings of Erie Family Life Insurance Company 1,169 768
-------------------------
Net revenue from investment operations $ 14,755 $ 12,778
-------------------------
Income before income taxes $ 68,442 $ 65,966
Provision for income taxes 22,542 21,764
-------------------------
Net income $ 45,900 $ 44,202
=========================
Net income per share $ 0.65 $ 0.62
=========================
Net income excluding net realized gains and related taxes $ 45,514 $ 43,409
=========================
WEIGHTED AVERAGE SHARES OUTSTANDING 70,997 71,184
=========================
The table below reconciles the Company's GAAP-basis net income to net income
excluding net realized gains and related income taxes. Management believes this
measure assists the financial statement reader in interpreting and evaluating
the financial results of the Company by removing the effects of gain and losses
from investment sales, which could significantly impact the Company's financial
results from one period to another based on the timing of investment sales and
resulting gains or losses, which may or may not be recurring.
Three months ended March 31
(unaudited)
2003 2002
---------------------------
Net income $ 45,900 $ 44,202
Net realized gains on investments 593 1,220
Income tax expense on realized gains 207 427
---------------------------
Realized gains net of income tax expense 386 793
---------------------------
Net income excluding net realized gains and related taxes $ 45,514 $ 43,409
===========================
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Erie Indemnity Company
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in thousands, except per share data)
March 31 December 31
2003 2002
(unaudited)
----------- -----------
ASSETS
Investments
Fixed maturities $ 725,736 $ 708,068
Equity securities
Preferred stock 149,774 157,563
Common stock 42,180 36,515
Other invested assets 101,082 96,613
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Total investments $1,018,772 $ 998,759
Cash and cash equivalents $ 98,853 $ 85,712
Equity in Erie Family Life Insurance Company 51,468 48,545
Premiums receivable from policyholders 247,802 239,704
Receivables from affiliates 896,239 829,049
Other assets 171,905 155,907
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Total assets $2,485,039 $2,357,676
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Unpaid losses and loss adjustment expenses $ 750,569 $ 717,015
Unearned premiums 408,161 393,091
Other liabilities 295,536 260,198
---------- ----------
Total liabilities $1,454,266 $1,370,304
Total shareholders' equity $1,030,773 $ 987,372
---------- ----------
Total liabilities and shareholders' equity $2,485,039 $2,357,676
========== ==========
Book value per share $14.52 $13.91
Shares outstanding 70,997 70,997
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Erie Indemnity Company
Segment Information
Management fee revenue by line of business (before consideration of premium
cancellation allowance):
Three months ended March 31 %
2003 2002 Change
(In thousands) ------------------------------------------
Private passenger auto $ 105,206 $ 94,514 11.3%
Commercial auto 18,997 16,467 15.4
Homeowners 27,811 22,772 22.1
Commercial multi-peril 25,054 21,336 17.4
Workers' compensation 22,381 18,104 23.6
All other lines of business 8,197 5,059 62.0
------------------------------------------
Total $ 207,646 $ 178,252 16.5%
==========================================
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
All other
12-mth. CML* 12-mth. 12-mth. lines of 12-mth. Total 12-mth.
CML* growth multi- growth Workers' growth commercial growth Commercial growth
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
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
*CML = Commercial
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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
*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
-----------------------------
(In thousands) March 31, March 31,
Statutory Accounting Basis 2003 2002
-----------------------------
(unaudited)
Premiums earned $ 802,647 $ 666,429
-----------------------------
Losses and loss adjustment expenses $ 679,856 $ 515,915
Insurance underwriting and other expenses 242,670 219,330
-----------------------------
Net underwriting loss $ (119,879) $ (68,816)
Investment income, net 20,711 50,907
Federal income tax benefit (41,530) (10,375)
-----------------------------
Net loss $ (57,638) $ (7,534)
=============================
As of
(In thousands) March 31, December 31,
Statutory Accounting Basis 2003 2002
------------ ------------
(unaudited)
Cash and invested assets $ 6,144,615 $ 5,967,051
Total assets 7,188,052 7,007,803
Claims and unearned premium reserves 4,110,498 3,962,218
Total liabilities 5,114,763 4,892,032
Policyholders' surplus 2,073,289 2,115,771
11