ERIE, Pa., Feb. 22 /PRNewswire-FirstCall/ -- Erie Indemnity Company today announced results for the fourth quarter and full-year 2005.
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For the fourth quarter:
- Management fee revenue decreased by 3.1 percent as a result of lower
direct written premiums of the Property & Casualty Group -- which
decreased 2.0 percent -- from which the management fee is derived.
- Net income, which was affected by a decline in realized capital gains,
totaled $44.2 million, down 28.0 percent from $61.3 million for the
same period in 2004. Realized losses on investments were $0.8 million
compared to realized gains on investments of $11.7 million for the
fourth quarter of 2004.
- Net income per share-diluted decreased to $.66 per share, compared to
$.87 per share in the comparable quarter for 2004.
- Net income, excluding net realized gains on investments and related
federal income taxes, decreased by 15.8 percent to $44.7 million, or
$.67 per share in the fourth quarter of 2005, from $53.7 million, or
$.76 per share, for the same period one year ago.
- The Property and Casualty Group's adjusted statutory combined ratio for
the fourth quarter 2005 was 93.1 percent, compared to 95.4 percent a
year earlier.
- The Company's reported GAAP combined ratio was 96.1 for the fourth
quarter of 2005 versus 101.7 for the same quarter in 2004, yielding an
underwriting gain of $2.1 million for the fourth quarter 2005 compared
to an underwriting loss of $0.9 million in the fourth quarter of 2004.
For the full-year 2005 results, Erie Indemnity reported:
- Net income was up by 2.1 percent to $231.1 million, from $226.4 million
at the end of 2004.
- Net income per share-diluted increased to $3.34 per share at December
31, 2005, from $3.21 at year-end 2004.
- Net income, excluding net realized gains on investments and related
federal income taxes, increased by 3.1 percent to $221.0 million, or
$3.19 per share in 2005, from $214.4 million, or $3.04 per share, for
the same period one year ago.
- Management fee revenue for the year was $940.3 million, down 0.5
percent from 2004, based on a 1.0 percent decline in direct written
premium of the Property & Casualty Group.
- The Property and Casualty Group's adjusted statutory combined ratio for
2005 was 85.7 percent, compared to 90.1 percent a year earlier.
- The Company's reported GAAP combined ratio was 93.1 for 2005 compared
to 102.1 in 2004.
"In a challenging and competitive business environment, we've made positive strides in a number of different areas, confirming that our fundamentals are strong," noted Jeffrey A. Ludrof, president and CEO. "As a result of our continued focus on underwriting profitability, the Property & Casualty Group recorded the best adjusted combined ratio in its history in 2005, 85.7 percent. That is a tribute to the efforts of our agents and employees who undertook the challenge of improving our loss experience with a strong sense of commitment and executed the effort with their typical degree of effectiveness. Our emphasis on underwriting profitability resulted in an underwriting gain for the Erie Indemnity Company at year-end 2005, contributing nearly $15 million to the Company's bottom line as opposed to an underwriting loss of more than $4.3 million at year-end 2004."
"Our superior financial position and disciplined underwriting has allowed us to introduce additional interactions in our pricing model for auto and home insurance with our lowest price for the best risks," continued Ludrof. I believe we have a strong foundation to deliver positive results in the coming year."
The following analysis is presented on a business segment basis used internally by management to monitor and evaluate results.
Details of Fourth Quarter 2005 Results - Segment Basis
Management operations - Segment basis
Management fee revenue decreased 3.1 percent to $213.8 million for the quarter ended December 31, 2005, from $220.7 million for the same period one year ago. The direct written premiums of the Property & Casualty Group, upon which management fee revenue is calculated, decreased 2.0 percent to $894.5 million in the fourth quarter 2005, from $912.9 million in the fourth quarter of 2004.
New premium written declined 2.2 percent to $83.4 million in the fourth quarter of 2005 from $85.3 million in the fourth quarter of 2004. In the fourth quarter of 2005, personal lines new premium written declined 6.5 percent, while commercial lines new premium written increased 7.4 percent compared to the same period in 2004. The fourth quarter of 2005 policy retention rate of 88.6 percent was a slight increase from the 88.4 percent rate recorded at the end of the third quarter of 2005.
The cost of management operations increased 5.0 percent to $181.0 million in the fourth quarter of 2005, from $172.4 million for the same period in 2004. Commission costs increased 5.0 percent to $128.1 million from $121.9 million in the fourth quarter 2004 primarily due to an increase in the provision for agent bonuses in the fourth quarter, to $20.6 million in 2005 from $13.9 million in 2004.
Fourth quarter costs of management operations, excluding commissions, increased 4.9 percent to $52.9 million in 2005 from $50.4 million in 2004. Personnel costs totaled $31.5 million for the fourth quarter 2005 versus $29.1 million in the same period in 2004, an increase of 8.1 percent. Contributing to this increase was an increase in salaries and wages of 10.0 percent to $24.0 million in the fourth quarter of 2005 from $21.8 million in the fourth quarter of 2004.
Insurance underwriting operations - Segment basis
The Company's insurance underwriting operations recorded a gain of $2.1 million in the fourth quarter of 2005 compared to an underwriting loss of $0.9 million in the fourth quarter of 2004. The Company's reported GAAP combined ratio was 96.1 for the fourth quarter of 2005 versus 101.7 for the same quarter in 2004. The adjusted statutory combined ratio for the Property & Casualty Group for the fourth quarter was 93.1 compared to 95.4 for the fourth quarter of 2004. The adjusted statutory combined ratio removes the profit component of the management fee earned by the Company.
The Company's share of catastrophe losses totaled $0.4 million and $0.5 million for the three-month periods ended December 31, 2005 and 2004, respectively.
Development of prior accident year loss and loss adjustment expense reserves contributed 2.0 points to the fourth quarter 2005 Property and Casualty Group statutory combined ratio. The adverse development of the fourth quarter resulted from additional increases in reserves related to pre- 1986 automobile catastrophic injury and non-catastrophic injury liability claims for higher estimated costs of future attendant care services and additional workers compensation reserves for prior years.
The favorable underwriting results required reversals of previously recorded charges under the excess-of-loss reinsurance agreement with the Exchange of $0.1 million in the fourth quarter 2005 versus charges of $1.7 in the fourth quarter 2004.
Investment operations - Segment basis
Net revenue from investment operations for the fourth quarter of 2005 reflects income of $23.6 million compared to $31.6 million in income for the same period in 2004. Net investment income increased by 3.1 percent to $16.4 million for the quarter ended December 31, 2005, from $15.9 million for the same period in 2004. The Company recorded a net realized loss on investments of $0.8 million during the fourth quarter of 2005 compared to net realized gains on investments of $11.7 million in the fourth quarter of 2004. The realized losses in the fourth quarter of 2005 were the result of tax planning strategies while fourth quarter 2004 net realized gains were generated as the equity portfolio was being transferred to external equity managers. Equity in earnings of limited partnerships generated gains of $7.3 million compared to $2.9 million for the fourth quarter of 2004. Private equity, mezzanine debt and real estate limited partnerships generated earnings of $4.4 million, $1.2 million and $1.7 million in the fourth quarter of 2005, respectively.
The Company's earnings from its 21.6 percent equity ownership of EFL totaled $0.8 million for the fourth quarter of 2005 compared to $1.1 million in the fourth quarter 2004.
As part of the Company's capital management plan, the Company repurchased almost one million shares of Erie Indemnity Company Class A common stock at a cost of $52.0 million during the fourth quarter of 2005, for an average cost of $52.78 per share.
Details of 2005 Year-end Results - Segment Basis
Management operations - Segment basis
Management fee revenue for 2005 was down 0.5 percent to $940.3 million from $945.1 million in 2004. In 2005 direct written premium, upon which the management fee is based, decreased 1.0 percent from 2004 to $4.0 billion. In 2005 the management fee rate was set at 23.75 percent for the year. At its December 2005 meeting, the Company's Board of Directors set the management fee rate at 24.75 percent beginning January 1, 2006.
Premium and policy growth was slower in 2005 relative to 2004 due to the Company's increased emphasis on controlling exposure growth and improving risk selection. Policies in force decreased 0.3 percent at December 31, 2005 compared December 31, 2004. Policy retention rate was 88.6 percent at December 31, 2005, compared to 88.4 percent at December 31, 2004.
Improved underwriting results enabled the Property & Casualty Group to implement rate reductions in 2005 to be more price competitive for potential new policyholders and improve retention of existing policyholders. The effect of rate actions effective in 2005 resulted in a net decrease in written premiums of $9.9 million. The majority of the rate decreases stems from the private passenger auto and the homeowners lines of business in Pennsylvania. In the majority of states, an 8 percent rate reduction on certain coverages for new private passenger auto policyholders with no claims or violations was effective July 1, 2005. In Tennessee and West Virginia this rate reduction for policyholders with no claims or violations was 6 percent. Pricing actions approved, filed and contemplated for filing during 2006 may result in an estimated net decrease in direct written premiums of $96.7 million in 2006.
Personal lines new business premium written declined 12.4 percent in 2005 compared to 2004, while commercial lines new business premiums written rose 4.0 percent. A decrease in the year-over-year average premium per policy contributed to the decrease in direct written premium for personal lines. Average premium per policy decreased 0.7 percent to $1,052 in 2005 from $1,060 in 2004 as a result of rate decreases effective in 2005.
The cost of management operations increased by 3.8 percent during 2005. Commission costs, which are the largest component of the cost of management operations, rose 1.6 percent to $539.5 million in 2005, from $531.2 million for 2004. Included in commissions are agent bonuses that are based principally on the underwriting profitability of the direct business written within the Property and Casualty Group. The provision for Agent bonuses totaled $71.1 million in 2005 compared to $46.2 million in 2004. Normal scheduled commissions were $18.2 million lower in 2005 compared to 2004 primarily as a result of reduced commercial commission rates that became effective on premiums collected beginning January 1, 2005. New promotional incentive programs that began in 2005 aimed at stimulating premium growth contributed $1.6 million in additional costs in 2005.
The cost of management operations, excluding commissions, increased 9.8 percent in 2005 to $212.0 million from $193.1 million in 2004, mostly as a result of increased personnel and underwriting costs. Salaries and wages and other personnel costs of employees increased $10.2 million in 2005 driven by increased staffing levels and normal pay rate increases. Contract labor costs increased $3.2 million primarily related to information technology projects. In the latter part of 2004 the Company began using insurance scoring in underwriting new business as part of its plan to focus on underwriting profitability. In 2005 the cost of insurance scoring for all new and renewal policies resulted in increased costs of $3.6 million in 2005 compared to 2004.
Insurance underwriting operations - Segment basis
The Company's 5.5 percent share of the Property & Casualty Group's underwriting gains totaled $15.0 million in 2005 compared to underwriting losses of $4.4 million in 2004, yielding a reported GAAP combined ratio of 93.1 for 2005 compared to 102.1 in 2004.
The adjusted statutory combined ratio for the Property & Casualty Group was 85.7 for 2005, compared to 90.1 for 2004. The improvement in 2005 underwriting results on direct business reflects the impact of the focused management efforts on improving underwriting profitability. Catastrophe losses that are below the Property & Casualty Group's normal experience and continued favorable development of prior accident year losses also contributed to the improvement. Catastrophe losses of the Property and Casualty Group were $21.1 million and $73.3 million in 2005 and 2004, respectively. In addition, the Property & Casualty Group experienced positive development on losses on a direct basis of prior accident years of $11.0 million in 2005 and $71.6 million in 2004.
The Company's reported GAAP combined ratio was 93.1 for 2005 compared to 102.1 for 2004. The Company's share of catastrophe losses totaled $1.2 million and $4.0 million, for the years ended December 31, 2005 and 2004, respectively. Catastrophe losses in 2005 contributed 0.5 points to the Company GAAP combined ratio compared to 1.9 points in 2004.
Charges under the excess-of-loss reinsurance agreement with the Exchange for the year totaled $2.2 million in 2005 compared to charges of $7.7 million for 2004. Both the 1999 and 2000 accident years were commuted in 2005 resulting in net charges to the Company of $0.7 million. The annual premium paid to the Exchange under this agreement totaled $3.3 million and $3.6 million in 2005 and 2004, respectively.
The Policyholder surplus of the Exchange has shown steady growth in the past two years, rising from $2.1 billion in 2002 to $3.4 billion in 2005, further strengthening the Exchange's financial position.
Investment operations - Segment basis
For the year ended December 31, 2005, net revenue from investment operations increased by 26.8 percent to $118.9 million compared to $93.7 million for the same period in 2004. Net realized gains on investments were $15.6 million for the year ended December 31, 2005, compared to $18.5 million at December 31, 2004.
Net investment income totaled $61.6 million for the year ended December 31, 2005, and $61.0 million for 2004, up 1.0 percent from 2004. Included in net investment income are primarily interest and dividends on the Company's fixed maturity and equity security portfolios. Cash flows available for investment were affected by the Company's share repurchase program.
For the year ended December 31, 2005, equity in gains of limited partnership investments amounted to $38.1 million, compared to $8.7 million in 2004. The Company recorded a $14.2 million adjustment in 2005 to properly record market value adjustments to equity in earnings of limited partnerships in the second quarter of 2005. These valuation adjustments were recorded as a component of shareholders equity in 2004. Impairment charges on limited partnerships totaled $1.2 million in 2004. Equity in earnings of Erie Family Life was $3.6 million in 2005 compared to $5.6 million for the same period in 2004.
As part of the Company's capital management plan, 1.9 million shares of Erie Indemnity Company Class A common stock were repurchased during 2005 at a cost of $99 million, for an average cost of $52.36 per share. The move is part of a $250 million share repurchase program reauthorized by the board of directors in 2004, with about $97 million of authorization remaining at December 31, 2005. The current repurchase program expires December 31, 2006.
In December, the board of directors increased the regular quarterly dividend from $0.325 to $0.36 on each Class A share and from $48.75 to $54.00 on each Class B share. The dividend was payable January 20, 2006, to shareholders of record as of January 5, 2006, with a dividend ex-date of January 3, 2006. The dividend increase is a result of the Company's continuing strong financial results and capitalization. Based on the current market price, the new dividend results in a dividend yield of about 2.7 percent and represents a 10.8 percent increase in the payout per share over the current dividend rate.
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 15th largest automobile insurer in the United States based on direct premiums written and the 23rd 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 almost 3.8 million policies in force and operates in 11 states and the District of Columbia. Erie Insurance Group ranked 425 on the FORTUNE 500 and Erie Indemnity Company is included in Forbes Magazine's PLATINUM 400 list of the best-managed companies in America.
"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 2005 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.
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three months ended Twelve months ended
December 31 December 31
2005 2004 2005 2004
Operating Revenue:
Management Fee
Revenue - net $202,083 $208,549 $888,558 $893,087
Premiums Earned 54,102 53,626 215,824 208,202
Service Agreement
Revenue 5,128 5,649 20,568 21,855
Total operating
revenue 261,313 267,824 1,124,950 1,123,144
Operating Expenses:
Cost of Management
Operations 171,008 162,891 710,237 684,491
Losses and Loss
Adjustment Expenses
Incurred 36,927 40,579 140,385 153,220
Policy Acquisition and
Other Underwriting
Expenses 13,274 11,300 50,109 47,205
Total operating
expenses 221,209 214,770 900,731 884,916
Investment Income -
Unaffiliated
Investment Income,
net of expenses 16,397 15,940 61,555 60,988
Net Realized
(Losses) Gains
on Investments (837) 11,734 15,620 18,476
Equity in Earnings
of Limited
Partnerships 7,274 2,889 38,062 8,655
Total investment
income -
unaffiliated 22,834 30,563 115,237 88,119
Income before income
taxes and equity in
earnings of Erie Family
Life Insurance Company 62,938 83,617 339,456 326,347
Provision for Income
Taxes 19,492 23,275 111,733 105,140
Equity in Earnings
of Erie Family Life
Insurance Company,
net of tax 714 978 3,381 5,206
Net income $44,160 $61,320 $231,104 $226,413
Net income
per share -
basic
Class A
common
stock $0.72 $0.96 $3.69 $3.54
Class B
common
stock $107.45 $146.36 $558.34 $539.88
Net income
per share -
diluted $0.66 $0.87 $3.34 $3.21
Weighted average
shares
outstanding
Basic:
Class A
common
stock 60,121,604 63,046,985 62,392,860 63,508,873
Class B
common
stock 2,837 2,876 2,843 2,877
Diluted
shares 67,007,993 69,984,804 69,293,649 70,492,292
Dividends
declared per
share
Class A
non-voting
common $0.360 $0.325 $1.335 $0.97
Class B
common $54.00 $48.75 $200.25 $145.50
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS - SEGMENT BASIS
(Amounts in thousands, except per share data)
Three months Twelve months
ended ended
December 31 December 31
2005 2004 2005 2004
MANAGEMENT OPERATIONS
Management fee revenue $213,845 $220,687 $940,274 $945,066
Service agreement revenue 5,128 5,649 20,568 21,855
Total revenue from management
operations 218,973 226,336 960,842 966,921
Cost of management operations 180,962 172,372 751,573 724,329
Income from management
operations 38,011 53,964 209,269 242,592
INSURANCE UNDERWRITING OPERATIONS
Premiums earned 54,102 53,626 215,824 208,202
Losses and loss adjustment
expenses incurred 36,927 40,579 140,386 153,220
Policy acquisition and other
underwriting expenses 15,081 13,956 60,488 59,346
Total losses and expenses 52,008 54,535 200,874 212,566
Underwriting gain (loss) 2,094 (909) 14,950 (4,364)
INVESTMENT OPERATIONS
Investment income, net of expenses 16,397 15,940 61,555 60,988
Net realized (losses) gains on
investments (837) 11,734 15,620 18,476
Equity in earnings of limited
partnerships 7,274 2,889 38,062 8,655
Equity in earnings of Erie Family
Life Insurance Company 768 1,053 3,636 5,598
Net revenue from investment
operations 23,602 31,616 118,873 93,717
Income before income taxes 63,707 84,671 343,092 331,945
Provision for income taxes 19,547 23,351 111,988 105,532
Net income $44,160 $61,320 $231,104 $226,413
Net income per share - Class A
basic $0.72 $0.96 $3.69 $3.54
Net income per share - Class B
basic $107.45 $146.36 $558.34 $539.88
Net income per share - diluted $0.66 $0.87 $3.34 $3.21
WEIGHTED AVERAGE SHARES
OUTSTANDING-DILUTED 67,008 69,985 69,294 70,492
Amounts presented on a segment basis are presented gross of
intercompany/intersegment items
Erie Indemnity Company
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in thousands, except per share data)
December 31 December 31
2005 2004
ASSETS
Investments
Fixed maturities $972,210 $974,512
Equity securities
Preferred stock 170,773 143,851
Common stock 95,561 58,843
Other invested assets 158,044 135,508
Total investments 1,396,588 1,312,714
Cash and cash equivalents 31,666 50,061
Equity in Erie Family Life Insurance Company 55,843 58,728
Premiums receivable from policyholders 267,632 275,721
Receivables from affiliates 1,176,419 1,144,625
Other assets 173,113 140,955
Total assets $3,101,261 $2,982,804
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Unpaid losses and loss adjustment expenses $1,019,459 $943,034
Unearned premiums 454,409 472,553
Other liabilities 348,791 300,336
Total liabilities 1,822,659 1,715,923
Total shareholders' equity 1,278,602 1,266,881
Total liabilities and
shareholders' equity $3,101,261 $2,982,804
Book value per share $18.81 $18.14
Shares outstanding 67,962 69,852
Erie Indemnity Company
Reconciliation of Operating Income to Net Income
For the Periods Ended December 31, 2005 and 2004
Definition of Non-GAAP and Operating Measures
Management believes that investors' understanding of the Company's
performance is enhanced by the disclosure of the following non-GAAP
financial measure. The Company's method of calculating this measure may
differ from those used by other companies and therefore comparability may
be limited.
Operating income is net income excluding realized capital gains and
losses and related federal income taxes. Equity in earnings or losses of
Erie Family Life Insurance Company and equity in earnings or losses of
limited partnerships are not excluded from the calculation of operating
income. Both of these categories include the respective investment's
realized capital gains and losses, as well as unrealized gains and
losses, as these investments are accounted for under the equity method.
Net income is the GAAP measure that is most directly comparable to
operating income.
The Company uses operating income to evaluate the results of operations.
It reveals trends in the Company's management services, insurance
underwriting and investment operations that may be obscured by the net
effects of realized capital gains and losses. Realized capital gains and
losses may vary significantly between periods and are generally driven by
business decisions and economic developments such as capital market
condition, the timing of which is unrelated to management services and
the insurance underwriting processes of the Company. The Company
believes it is useful for investors to evaluate these components
separately and in the aggregate when reviewing the Company's performance.
The Company is 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 and does not reflect the overall profitability
of the Company's business.
The following table reconciles operating income and net income for the
periods ended December 31, 2005 and 2004:
Three months ended Twelve months ended
December 31 December 31
(in thousands) 2005 2004 2005 2004
(unaudited) (unaudited)
Operating income $44,704 $53,693 $220,951 $214,404
Net realized (losses) gains on
investments (837) 11,734 15,620 18,476
Income tax benefit (expense) on
realized (losses) gains 293 (4,107) (5,467) (6,467)
Realized (losses) gains, net
of income tax benefit (expense) (544) 7,627 10,153 12,009
Net income $44,160 $61,320 $231,104 $226,413
Three months ended Twelve months ended
December 31 December 31
Per Share Information-Diluted 2005 2004 2005 2004
(unaudited) (unaudited)
Operating income $0.67 $0.76 $3.19 $3.04
Net realized (losses) gains on
investments (0.02) 0.17 0.23 0.26
Income tax benefit (expense) on
realized (losses) gains 0.01 (0.06) (0.08) (0.09)
Realized (losses) gains, net
of income tax benefit (expense) (0.01) 0.11 0.15 0.17
Net income $0.66 $0.87 $3.34 $3.21
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
Statutory Accounting Basis 2005 2004 2005 2004
Premiums earned $925,833 $930,526 $3,762,260 $3,672,486
Losses and loss adjustment
expenses 640,099 671,462 2,371,660 2,502,313
Insurance underwriting and
other expenses 240,649 251,620 1,034,139 1,041,843
Total underwriting operations
expenses 880,748 923,082 3,405,799 3,544,156
Net underwriting gain 45,085 7,444 356,461 128,330
Net investment income 85,620 80,209 370,977 282,388
Net realized (losses) gains (3,086) 86,355 438,487 162,905
Federal income tax expense (30,393) (61,099) (379,563) (180,824)
Net income $97,226 $112,909 $786,362 $392,799
As of
(In thousands) December 31
Statutory Accounting Basis 2005 2004
Cash and invested assets $7,917,615 $7,199,447
Other assets 1,152,648 1,070,315
Total assets $9,070,263 $8,269,762
Claims and unearned premium reserves $5,058,764 $4,973,136
Other liabilities 629,749 492,568
Total liabilities 5,688,513 5,465,704
Policyholders' surplus 3,381,750 2,804,058
Total liabilities and
policyholders' surplus $9,070,263 $8,269,762
Erie Indemnity Company
Reconciliation of Property and Casualty Group to
Indemnity Results
(Dollars in Thousands) Three months ended Twelve months ended
December 31 December 31
2005 2004 2005 2004
Property & Casualty Group
Insurance Underwriting
Operations (SAP Basis)
Direct underwriting results
Direct written premium $894,504 $912,859 $3,956,942 $3,997,330
Premiums earned 975,151 977,254 3,984,648 3,877,844
Loss and loss adjustment
expenses incurred 696,336 712,609 2,561,504 2,623,731
Policy acquisition and
other underwriting
expenses 255,684 263,340 1,100,772 1,105,028
Total losses and
expense 952,020 975,949 3,662,276 3,728,759
Direct underwriting
income 23,131 1,305 322,372 149,085
Nonaffiliated reinsurance
underwriting results
Assumed voluntary-less
ceded retrocessions 8,488 12,857 59,289 22,731
Assumed involuntary 3,381 (11,888) (12,508) (26,748)
Ceded reinsurance (12,130) (3,866) (2,646) 20,521
Nonaffiliated
reinsurance
underwriting gain
(loss) 23,999 4,835 49,427 (24,538)
Net Underwriting Gain (SAP
Basis) $47,130 $6,140 $371,799 $124,547
Erie Indemnity Insurance
Underwriting Operations (SAP
to GAAP Basis)
Percent of pool assumed by
the Indemnity Company 5.50% 5.50% 5.50% 5.50%
Indemnity preliminary
underwriting gain (SAP
Basis) $2,592 $338 $20,449 $6,850
Excess-of-loss premiums
ceded to the Exchange (731) (1,104) (3,262) (3,628)
Excess-of-loss changes to
recoveries under the
agreement 114 (1,652) (2,226) (7,740)
SAP to GAAP adjustments 119 1,509 (11) 154
Indemnity Underwriting Gain
(Loss) before tax (GAAP
Basis) $2,094 $(909) $14,950 $(4,364)
Net Property & Casualty Group
(SAP Basis)
Loss and LAE ratio 69.2% 72.4% 63.2% 68.4%
Underwriting ratio 26.7 28.0 26.7 26.8
Policyholder Dividends ratio 0.9 0.3 0.6 0.4
Statutory combined ratio 96.8 100.7 90.5 95.6
Adjusted combined ratio,
excluding profit component 93.1 95.4 85.7 90.1
Loss ratio points from
prior accident year
reserve development -
deficiency (redundancy) 2.0 1.6 (1.9) (1.5)
Loss ratio points from
salvage and subrogation
recoveries collected (0.8) (0.7) (1.5) (1.5)
Total loss ratio point
impact from prior accident
years-deficiency
(redundancy) 1.2 0.9 (3.4) (3.0)
Loss ratio points from
catastrophes 0.7 0.9 0.5 1.9
Erie Indemnity Company
GAAP combined ratio 96.1 101.7 93.1 102.1
GAAP loss ratio points from
catastrophes 0.7 0.9 0.5 1.9
SAP Basis represents statutory accounting principles as codified by the
National Association of Insurance Commissioners (NAIC)
Management fee revenue by line of business (Segment basis):
Three months ended
December 31 %
(In thousands) 2005 2004 Change
Private passenger auto $102,926 $109,137 -5.7 %
Commercial auto 17,390 17,692 -1.7
Homeowners 40,945 42,241 -3.1
Commercial multi-peril 24,065 23,535 2.3
Workers' compensation 17,377 17,071 1.8
All other lines of business 9,742 9,411 3.5
212,445 219,087 -3.0 %
Change in allowance for
management fee returned on
cancelled policies 1,400 1,600 -12.5
Management fee revenue, after
change in allowance $213,845 $220,687 -3.1 %
Management fee revenue by line of business (Segment basis):
Twelve months ended
December 31 %
(In thousands) 2005 2004 Change
Private passenger auto $456,948 $471,809 -3.1 %
Commercial auto 78,416 77,648 1.0
Homeowners 174,770 174,856 0.0
Commercial multi-peril 105,727 103,837 1.8
Workers' compensation 82,945 81,390 1.9
All other lines of business 40,968 39,626 3.4
939,774 949,166 -1.0 %
Change in allowance for
management fee returned on
cancelled policies 500 (4,100) N/A
Management fee revenue, after
change in allowance $940,274 $945,066 -0.5 %
Growth rate of policies in force for Property and Casualty Group
insurance operations:
Private 12-mth. 12-mth.
passenger growth growth
Date auto rate Homeowners rate
12/31/2003 1,672,621 5.1 1,327,842 7.9
03/31/2004 1,678,496 3.4 1,335,763 5.8
06/30/2004 1,686,524 2.2 1,347,409 4.2
09/30/2004 1,682,561 1.0 1,350,899 2.6
12/31/2004 1,670,804 (0.1) 1,347,671 1.5
03/31/2005 1,661,955 (1.0) 1,343,803 0.6
06/30/2005 1,658,278 (1.7) 1,350,491 0.2
09/30/2005 1,651,629 (1.8) 1,354,487 0.3
12/31/2005 1,640,563 (1.8) 1,353,912 0.5
All other
personal 12-mth. Total 12-mth.
lines of growth Personal growth
Date business rate lines rate
12/31/2003 272,547 9.2 3,273,010 6.6
03/31/2004 275,970 7.2 3,290,229 4.7
06/30/2004 278,547 5.3 3,312,480 3.3
09/30/2004 278,707 3.4 3,312,167 1.9
12/31/2004 278,974 2.4 3,297,449 0.8
03/31/2005 279,927 1.4 3,285,685 (0.1)
06/30/2005 282,670 1.5 3,291,439 (0.6)
09/30/2005 285,134 2.3 3,291,250 (0.6)
12/31/2005 286,604 2.7 3,281,079 (0.5)
12-mth. 12-mth.
growth CML* growth
Date CML* auto rate multi-peril rate
12/31/2003 115,171 6.6 206,533 8.3
03/31/2004 115,760 5.3 206,937 6.2
06/30/2004 117,060 3.7 209,795 4.1
09/30/2004 117,090 2.4 210,012 2.4
12/31/2004 117,287 1.8 209,623 1.5
03/31/2005 117,382 1.4 209,619 1.3
06/30/2005 118,445 1.2 212,100 1.1
09/30/2005 118,555 1.3 212,939 1.4
12/31/2005 118,728 1.2 213,347 1.8
12-mth. All other 12-mth.
Workers' growth CML* lines growth
Date comp. rate of business rate
12/31/2003 62,282 5.7 86,409 8.3
03/31/2004 61,378 2.1 86,344 6.1
06/30/2004 60,735 (1.9) 87,172 4.0
09/30/2004 59,863 (4.1) 87,921 2.5
12/31/2004 58,931 (5.4) 87,815 1.6
03/31/2005 57,949 (5.6) 87,877 1.8
06/30/2005 57,398 (5.5) 88,981 2.1
09/30/2005 56,877 (5.0) 90,074 2.4
12/31/2005 56,218 (4.6) 90,227 2.7
Total 12-mth.
CML* growth
Date lines rate
12/31/2003 470,395 7.5
03/31/2004 470,419 5.4
06/30/2004 474,762 3.1
09/30/2004 474,886 1.5
12/31/2004 473,656 0.7
03/31/2005 472,827 0.5
06/30/2005 476,924 0.5
09/30/2005 478,445 0.7
12/31/2005 478,520 1.0
12-mth.
Total growth
Date All lines rate
12/31/2003 3,743,405 6.7
03/31/2004 3,760,648 4.7
06/30/2004 3,787,242 3.2
09/30/2004 3,787,053 1.8
12/31/2004 3,771,105 0.7
03/31/2005 3,758,512 (0.1)
06/30/2005 3,768,363 (0.5)
09/30/2005 3,769,695 (0.5)
12/31/2005 3,759,599 (0.3)
CML* = Commercial
Policy retention trends for Property and Casualty Group
insurance operations:
Private
passenger
Date auto CML* auto Homeowners
12/31/2003 91.6 89.8 89.5
03/31/2004 91.2 89.7 89.0
06/30/2004 90.7 89.0 88.4
09/30/2004 90.3 88.5 87.9
12/31/2004 90.0 88.3 87.6
03/31/2005 89.9 88.2 87.6
06/30/2005 89.8 87.8 87.8
09/30/2005 89.9 88.0 88.0
12/31/2005 90.0 87.9 88.2
CML* = Commercial
Policy retention trends for Property and Casualty Group
insurance operations:
All other
CML* Workers' lines of
Date multi-peril comp. business Total
12/31/2003 87.5 88.1 88.2 90.2
03/31/2004 87.6 88.1 87.5 89.8
06/30/2004 86.7 86.7 86.8 89.2
09/30/2004 86.0 86.2 86.0 88.7
12/31/2004 85.3 85.8 85.8 88.4
03/31/2005 85.5 85.9 85.5 88.3
06/30/2005 85.0 85.8 85.5 88.3
09/30/2005 85.1 86.0 85.6 88.4
12/31/2005 85.4 86.2 86.0 88.6
CML* = Commercial
Property & Casualty Group Adjusted
Combined Ratio by Major Lines of
Business (SAP Basis) - Direct Business
Three months Twelve months
ended ended
Dec 31 Dec 31 Dec 31 Dec 31
2005 2004 2005 2004
Private Passenger Auto 107.5% 103.9% 95.9% 94.8%
Home Protector 73.0% 61.3% 70.0% 73.1%
Other Personal Lines 108.4% 80.4% 80.8% 79.3%
Total Personal 98.4% 92.1% 88.5% 88.9%
Commercial Multi-Peril 81.6% 81.5% 75.9% 78.7%
Commercial Auto 94.0% 94.5% 85.7% 91.0%
Workers' Compensation 89.3% 146.2% 94.7% 114.2%
Other Commercial Lines 62.8% 59.3% 57.7% 71.4%
Total Commercial 86.3% 102.8% 83.1% 92.3%
Grand Total-Direct Business Only * 94.7% 95.2% 86.8% 89.9%
* The adjusted statutory combined ratio removes the profit component
of the management fee earned by the Company.
First Call Analyst:
FCMN Contact: karen.krausphillips@erieinsurance.com
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