Stock
   Information
Erie Indemnity Company
Class A Common Stock is listed on the
NASDAQ National Stock Market under the
s...
To our                                           period in 2003. This increase is partially due
                          ...
The 2004 allowance was driven by higher
management fee revenue in the first quarter
                                      ...
The cost of management operations                Also contributing to the increase was a 5.6
increased 10.9 percent for th...
The Company’s property and casualty              in the first quarter of 2004 compared to $1.2
insurance subsidiaries’ sha...
Net investment income totaled $14.7              Our first quarter results reflected continued
million and $14.3 million f...
Consolidated statements of operations—
                                                                                   ...
Consolidated statements of
                                                              comprehensive income
            ...
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erie insurance group 2004-first-quarter-report

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Transcript of "erie insurance group 2004-first-quarter-report"

  1. 1. Stock Information Erie Indemnity Company Class A Common Stock is listed on the NASDAQ National Stock Market under the symbol “ERIE.” Quotations are available via major financial news sources. Stock Transfer Information American Stock Transfer & Trust Company 59 Maiden Lane Plaza Level New York, NY 10038 (800) 937-5449 ER ERIE INDEMNITY COMPANY 1 1ST QUARTER REPORT ® 2004 ERIE INDEMNITY COMPANY Member • Erie Insurance Group www.erieinsurance.com GF-540 5/04 © 2004 Erie Indemnity Company
  2. 2. To our period in 2003. This increase is partially due to lower total impairment charges in the Shareholders first three months of 2004 of $.1 million compared to $7.3 million for the first three Net income per share increased 8.1 percent months of 2003. to $.70 per share for the first quarter 2004 compared to $.65 per share for the same Management period in 2003. For the quarter ended Operations March 31, 2004, net income increased to $49.6 million from $45.9 million for the same period one year ago. Income from Management fee revenue increased 7.1 management operations for the first three percent to $221.9 million for the quarter months of 2004 decreased 5.3 percent from ended March 31, 2004. The property and 2003. Contributing to this decrease was a casualty direct written premiums of the Erie slower growth in management operations Insurance Group, upon which management due to the lower management fee rate of fee revenue is calculated, grew 11.0 percent 23.5 percent in 2004 compared to 24.0 to $960.7 million in the first quarter of 2004 percent in 2003, despite an 11.0 percent from $865.2 million for the first quarter increase in direct written premiums of the 2003. Increases in average premium per Erie Insurance Group. Additionally, the policy, reflective of rate increases achieved allowance for management fees returned on in various lines of business, and continuing mid-term cancellations reduced management favorable policy retention rates were fee revenue by $3.9 million in the first contributing factors in the growth of direct quarter of 2004 compared to $.4 million written premiums. The slower premium in the first quarter of 2003. The service fee growth in 2004 is due to the Company’s revenue on voluntary assumed reinsurance focus on underwriting profitability through also decreased as the Company exited from increased emphasis on controlling exposure the business effective December 31, 2003. growth and improving underwriting risk The improvement in insurance underwriting selection. operations resulted as the benefits of rate increases and other underwriting actions are The management fee rate was set at 23.5 being realized. Revenue from investment percent for 2004 and 24 percent for 2003. operations increased 31.3 percent in the first This reduction in the management fee three months of 2004 compared to the same rate caused a $4.8 million decrease in 2 1 ▼ ▼
  3. 3. The 2004 allowance was driven by higher management fee revenue in the first quarter cancellation rates which are reflecting an of 2004 compared to the first quarter of upward trend as a result of the underwriting 2003, or a reduction in net income after profitability initiatives. taxes of $.04 per share. Service agreement revenue decreased to Direct written premiums of the Erie $5.6 million for the first quarter of 2004 Insurance Group grew 14.1 percent on from $6.5 million for the same period in a rolling 12-month basis. The average 2003. Included in service agreement revenue premium per policy increased 8.9 percent are service charges the Company collects to $1,002 for the 12 months ended from Policyholders for providing extended March 31, 2004, from $920 for the same payment plans on policies written by the period in 2003. Also contributing to the Erie Insurance Group. The service charge annualized premium growth were policies revenue for the first quarter of 2004 was in force growing at an annualized rate of $4.9 million, compared to a charge of $4.6 4.7 percent to 3,760,648 at March 31, million for the first quarter of 2003. 2004, from 3,590,208 at March 31, 2003. Policy retention was 89.8 percent and Also included in service agreement revenue 91.2 percent for the 12 months ended is service income received from the Exchange March 31, 2004 and 2003, respectively, for as compensation for the management all lines of business combined. While still and administration of voluntary assumed favorable, the reinforcement of underwriting reinsurance from non-affiliated insurers. and reunderwriting standards to control These fees decreased $1.2 million to $.7 exposure growth and improve risk selection million in the first quarter of 2004 from is contributing to the downward trend in the $1.9 million in the first quarter of 2003 as policy retention rate. the Exchange exited the voluntary assumed reinsurance business December 31, 2003. Management fees are returned to the The modest revenues recorded in 2004 are Exchange when Policyholders cancel their from several treaties that expire through June coverage mid-term and unearned premiums 2004. The non-affiliated voluntary assumed are refunded. The Company records an reinsurance premium written in the first estimated allowance for management fees quarter of 2004 was $12.2 million compared returned on mid-term cancellations. First to $32.4 million in the same period in 2003. quarter 2004 and 2003 revenues were reduced $3.9 million and $.4 million, respectively, in recording this allowance. 4 3 ▼ ▼
  4. 4. The cost of management operations Also contributing to the increase was a 5.6 increased 10.9 percent for the first quarter percent increase in staffing levels as well as of 2004 to $171.2 million from $154.4 pay rate increases. million for the same period in 2003. Income from the Company’s management Commission costs totaled $122.9 million operations was $56.2 million and $59.4 for the first quarter of 2004, a 10.8 percent million for the three months ended increase over the $110.9 million for the first March 31, 2004 and 2003, respectively. quarter of 2003. Commission costs include The gross margins from management scheduled commissions, contingency awards, operations were 24.7 percent and 27.8 accelerated commissions and promotional percent in the first quarters of 2004 and incentives earned by independent Agents. 2003, respectively. If the management fee Scheduled commissions, including Agent rate, which is currently 23.5 percent, had contingency awards, increased 11.7 percent remained consistent with the 2003 rates of to $116.6 million for the quarter ended 24 percent, gross margin for the first quarter March 31, 2004. Charges incurred for 2004 would have been 26.3 percent. accelerated commissions above normal scheduled rate commissions decreased $.7 million to $1.9 million for the quarter ended Insurance Underwriting March 31, 2004. Operations Other operating costs, excluding Insurance underwriting operations of the commissions, increased 11.2 percent in Company’s property and casualty insurance the first quarter of 2004 to $48.3 million subsidiaries, Erie Insurance Company and from $43.5 million recorded in the same Erie Insurance Company of New York, period of 2003. Personnel costs, including which together assume a 5.5 percent share salaries, employee benefits and payroll taxes, of the underwriting results of the Erie increased 17.6 percent to $29.8 million Insurance Group under an intercompany for the three months ended March 31, reinsurance pooling agreement, reported 2004, compared to $25.3 million for the underwriting losses of $1.5 million and $5.7 same period in 2003. The increase was million for the first quarters of 2004 and the result of total employee benefit costs 2003, respectively. increasing 29.3 percent related to increases in health and retirement plan benefit costs. 6 5 ▼ ▼
  5. 5. The Company’s property and casualty in the first quarter of 2004 compared to $1.2 insurance subsidiaries’ share of the Erie million in the first quarter of 2003. There Insurance Group’s direct business generated were no recoveries during the first quarter a $.2 million net underwriting income for of 2004 under this agreement. Recoveries the first quarter of 2004 compared to a net during the first quarter of 2003 amounted to underwriting loss of $7.0 million in the $2.0 million. No cash payments have been first quarter of 2003. In the first quarter made between companies in 2004 or 2003 of 2004, the Property and Casualty Group for recoveries under this agreement since experienced improved frequency trends, loss related losses are reserved but not yet paid. catastrophes and improvement in average Included in the Company’s policy premium per policy. The improvement in acquisition and other underwriting expenses 2004 underwriting results on direct business are the property and casualty insurance reflects the impact of the underwriting subsidiaries’ share of eCommerce initiative profitability initiatives implemented in 2003. expenses covered under a technology cost The 2003 underwriting losses resulted sharing agreement totaling $.4 million and primarily from rapid increases in claims $.8 million for the quarters ended March 31, severity and increased catastrophe losses. 2004 and 2003, respectively. The Company’s property and casualty insurance subsidiaries’ unaffiliated assumed Investment reinsurance business generated net Operations underwriting income of $.1 million and $.9 million in the first quarters of 2004 and Net revenue from investment operations 2003, respectively. for the first quarter of 2004 increased to $19.4 million from $14.8 million in the Underwriting results are net of premiums first quarter of 2003. The increase in net paid and recoveries recorded under the revenue from investment operations in aggregate excess of loss agreement with 2004 is primarily due to net realized gains the Exchange. The premium paid to the of $2.9 million in the first quarter of 2004, Exchange for the agreement totaled $1.7 compared to net realized gains of $.6 million million during the quarter ended March 31, in the first quarter of 2003, as well as 2004, and $1.2 million during the quarter income generated from limited partnership ended March 31, 2003. The portion of this investments. premium recorded as earned was $.8 million 8 7 ▼ ▼
  6. 6. Net investment income totaled $14.7 Our first quarter results reflected continued million and $14.3 million for the quarters progress toward improving underwriting ended March 31, 2004 and 2003, profitability. The statutory combined ratio of respectively. the Property and Casualty Group improved significantly to 100.2 in the first quarter of The Company realized net gains on 2004, compared to 113.2 in the first quarter investments of $2.9 million in the first of 2003. While new business production quarter of 2004 compared to $.6 million has declined as a result of the focus on for the same period in 2003. There were no underwriting and rate actions, we remain impairment charges on investments in the competitive in our markets. We are confident first quarter of 2004. The first quarter 2003 that our balanced approach to underwriting net realized gains included $6.0 million in profitability and quality growth will positively impairment charges for write-downs of fixed position the Company for the future. maturity, nonredeemable preferred stock and common stock investments in the energy and financial services sectors. Jeffrey A. Ludrof Equity in earnings of limited partnerships President and Chief Executive Officer was $.4 million for the quarter ended March 31, 2004, compared to losses of $1.3 million for the same period one year ago. “Safe Harbor” Statement Under the Private Private equity and fixed income limited Securities Litigation Reform Act of 1995: Certain forward-looking statements contained herein involve partnerships realized earnings of $.1 million risks and uncertainties. These statements include for the three months ended March 31, certain discussions relating to management fee revenue, cost of management operations, underwriting, 2004, compared to losses of $1.7 million in premium and investment income volume, business 2003. In the first quarter of 2004, there were strategies, profitability and business relationships and impairment charges related to private equity the Company’s other business activities during 2004 and beyond. In some cases, you can identify forward- limited partnerships of $.1 million compared looking statements by terms such as “may,” “will,” to impairment charges of $1.3 million in “should,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” the first quarter of 2003. Real estate limited “potential” and similar expressions. These forward- partnerships reflected earnings of $.3 million looking statements reflect the Company’s current views for the three months ended March 31, 2004, about future events, are based on assumptions and are subject to known and unknown risks and uncertainties compared to earnings of $.4 million for the that may cause results to differ materially from those same period in 2003. anticipated in those statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict. 10 9 ▼ ▼
  7. 7. Consolidated statements of operations— segment basis (Amounts in thousands, except per share data) Three months ended March 31 (unaudited) 2004 2003 Management operations Management fee revenue $ 221,867 $ 207,246 Service agreement revenue 5,598 6,484 Total revenue from management operations $ 227,465 $ 213,730 Cost of management operations 171,239 154,373 Income from management operations $ 56,226 $ 59,357 Insurance underwriting operations Premiums earned $ 50,649 $ 45,182 Losses and loss adjustment expenses incurred $ 38,037 $ 37,500 Policy acquisition and other underwriting expenses 14,103 13,352 Total losses and expenses $ 52,140 $ 50,852 Underwriting loss $ ( 1,491) $ ( 5,670) Investment operations Net investment income $ 14,686 $ 14,319 Net realized gain on investments 2,853 593 Equity in earnings (losses) of limited partnerships 418 ( 1,326) Equity in earnings of Erie Family Life Insurance Company 1,414 1,169 Net revenue from investment operations $ 19,371 $ 14,755 Income before income taxes $ 74,106 $ 68,442 Provision for income taxes 24,534 22,542 Net income $ 49,572 $ 45,900 Net income per share—basic and diluted $ 0.70 $ 0.65 Weighted average shares outstanding 70,947 70,997 Dividends declared Class A non-voting common $ 0.215 $ 0.190 Class B common $ 32.25 $ 28.50 NOTES: (1) The Consolidated Statements of Operations and Exchange Commission on Form 10-Q. Shareholders may Comprehensive Income have been prepared from accounts obtain a copy of the Form 10-Q report without charge by without audit. (2) Net income for the period ended March 31, writing to the Chief Financial Officer, Erie Indemnity Company, 2004, is not necessarily indicative of the results that may 100 Erie Insurance Place, Erie, Pennsylvania, 16530 or by be expected for the year ending December 31, 2004. (3) The visiting the Company’s website at www.erieinsurance.com. Company submits a quarterly report to the Securities and 12 11 ▼ ▼
  8. 8. Consolidated statements of comprehensive income (Dollars in thousands) Three months ended March 31 (unaudited) 2004 2003 Net income $ 49,572 $ 45,900 Unrealized holding gains arising during period, net of reclassification adjustment for gains included in net income, net of tax 13,058 9,755 Comprehensive income $ 62,630 $ 55,655 Consolidated statements of financial position (Amounts in thousands, except per share data) December 31 March 31 2004 2003 Assets (unaudited) Investments Fixed maturities $ 927,537 $ 879,361 Equity securities Preferred stock 151,413 148,952 Common stock 40,853 40,451 Other invested assets 119,034 116,400 Total investments $ 1,238,837 $ 1,185,164 Cash and cash equivalents $ 80,891 $ 87,192 Equity in Erie Family Life Insurance Company 60,287 56,072 Premiums receivable from Policyholders 267,596 266,957 Receivables from affiliates 1,018,348 984,146 Other assets 185,767 175,076 Total assets $ 2,851,726 $ 2,754,607 Liabilities and shareholders’ equity Liabilities Unpaid losses and loss adjustment expenses $ 867,702 $ 845,536 Unearned premiums 453,659 449,606 Other liabilities 323,750 295,295 Total liabilities $ 1,645,111 $ 1,590,437 Total shareholders’ equity 1,206,615 1,164,170 Total liabilities and shareholders’ equity $ 2,851,726 $ 2,754,607 Book value per share $ 17.03 $ 16.40 Shares outstanding 70,858 70,997 14 13 ▼ ▼

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