Form 8-K ERIE INDEMNITY CO For: Apr 30
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 30, 2015 | |
Erie Indemnity Company
__________________________________________
(Exact name of registrant as specified in its charter)
Pennsylvania | 0-24000 | 25-0466020 |
_____________________ (State or other jurisdiction | _____________ (Commission | ______________ (I.R.S. Employer |
of incorporation) | File Number) | Identification No.) |
100 Erie Insurance Place, Erie, Pennsylvania | 16530 | |
_______________________________ (Address of principal executive offices) | ___________ (Zip Code) | |
Registrant’s telephone number, including area code: | (814) 870-2000 | |
Not Applicable
______________________________________________
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On April 30, 2015, Erie Indemnity Company (the "Company") issued a press release announcing financial results for the quarter ended March 31, 2015. Copies of the press release and financial information are attached hereto and are incorporated herein by reference as Exhibit 99.1 and Exhibit 99.2, respectively.
On May 1, 2015 at 10:00 a.m. the 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, 2015.
Item 9.01 Financial Statements and Exhibits.
Exhibit 99.1 Press Release
Exhibit 99.2 Financial Information
SIGNATURES
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 | ||||
April 30, 2015 | By: | /s/ Marcia A. Dall | ||
Name: Marcia A. Dall | ||||
Title: Executive Vice President & CFO | ||||
Exhibit Index
Exhibit No. | Description | |
99.1 | Press Release | |
99.2 | Financial Information | |
Exhibit 99.1
Erie Indemnity Reports First Quarter 2015 Results
Net Income per Diluted Share is $0.74
Erie, Pa. - April 30, 2015 - Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending March 31, 2015. Net income per diluted share in the first quarter of 2015 was $0.74 compared to $0.88 in the first quarter of 2014.
“As we celebrate our 90th anniversary, we are proud of surpassing 5 million policies in force in the first quarter of 2015”, said Terry Cavanaugh, president and chief executive officer. “We remain committed to helping and rewarding agents for profitable growth and making it easier to do business with ERIE.”
1Q 2015 - Results of Indemnity Shareholder Interest | |||||||
(dollars in millions) | 1Q'14 | 1Q'15 | |||||
Management operations | $58 | $53 | |||||
Investment operations | 11 | 6 | |||||
Income before income taxes | 69 | 59 | |||||
Provision for income taxes | 23 | 20 | |||||
Net income | $46 | $39 | |||||
Gross margin from management operations | 17.9 | % | 14.9 | % | |||
1Q 2015 Highlights | ||||||||
Management Operations
Income from management operations before taxes decreased $5 million, or 10.3 percent, in the first quarter of 2015 compared to the first quarter of 2014.
• | Revenue from management operations increased $25 million, or 7.5 percent, in the first quarter of 2015 compared to the first quarter of 2014. |
• | Commissions increased $20 million in the first quarter of 2015, compared to the same period in 2014. The majority of the increase was driven by the 7.7% increase in direct written premiums of the Property and Casualty Group, while about one-third of the increase was due to an increase in agent incentive costs related to profitable growth, compared to the prior year quarter. The estimated agent incentive payout, at the end of each quarter, is based on actual underwriting results for the two prior years and the current year-to-date period. Therefore, fluctuations in the current quarter underwriting results can impact the estimated incentive payout on a quarter-to-quarter basis. |
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• | Non-commission expense increased $10 million in the first quarter of 2015, compared to the first quarter of 2014. Information technology costs increased $5 million while administrative and other expenses increased $4 million. |
• | The gross margin in the first quarter of 2015 was 14.9%, compared to 17.9% in the first quarter of 2014. The majority of the 3.0 point decrease in gross margin was driven by the increased estimated agent incentive payout discussed above. The remaining decrease in gross margin was the result of increased information technology and administrative and other costs. |
Investment Operations
Income from investment operations before taxes totaled $6 million in the first quarter of 2015, compared to $11 million in the first quarter of 2014. Earnings from limited partnerships were $2 million in the first quarter of 2015 compared to earnings of $6 million in the first quarter of 2014.
Webcast Information
Indemnity has scheduled a conference call and live audio broadcast on the Web for 10:00 AM ET on May 1, 2015. Investors may access the live audio broadcast by logging on to www.erieinsurance.com. Indemnity recommends visiting the website at least 15 minutes prior to the Webcast to download and install any necessary software. A Webcast audio replay will be available on the Investor Relations page of the Erie Insurance Group’s website by 12:30 PM ET.
About the Erie Insurance Group
According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 11th largest homeowners insurer and 12th largest automobile insurer in the United States based on direct premiums written and the 16th 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 5 million policies in force and operates in 12 states and the District of Columbia. Erie Insurance Group is a FORTUNE 500 and Barron’s 500 company. ERIE has been recognized by Forbes as one of America's 50 Most Trustworthy Financial Companies and is 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 (2009-2013).
News releases and more information about Erie Insurance Group are available at www.erieinsurance.com.
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“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:
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Risk factors related to the Erie Indemnity Company (“Indemnity”) shareholder interest:
• | dependence upon 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. |
Risk factors related to the non-controlling interest owned by the Erie Insurance Exchange (“Exchange”), which includes the Property and Casualty Group and Erie Family Life Insurance Company:
• | 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 and pandemic events; |
• | 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 ratings; |
• | outcome of pending and potential litigation; 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 our analysis only as of that date. We undertake 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.
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Exhibit 99.2
Erie Indemnity Company
Consolidated Statements of Operations
(dollars in millions, except per share data)
Three months ended March 31, | ||||||||
2015 | 2014 | |||||||
Revenues | (Unaudited) | |||||||
Premiums earned | $ | 1,402 | $ | 1,288 | ||||
Net investment income | 113 | 109 | ||||||
Net realized investment gains | 56 | 56 | ||||||
Net impairment losses recognized in earnings | (2 | ) | 0 | |||||
Equity in earnings of limited partnerships | 28 | 50 | ||||||
Other income | 8 | 8 | ||||||
Total revenues | 1,605 | 1,511 | ||||||
Benefits and expenses | ||||||||
Insurance losses and loss expenses | 1,060 | 1,034 | ||||||
Policy acquisition and underwriting expenses | 348 | 321 | ||||||
Total benefits and expenses | 1,408 | 1,355 | ||||||
Income from operations before income taxes and noncontrolling interest | 197 | 156 | ||||||
Provision for income taxes | 61 | 47 | ||||||
Net income | $ | 136 | $ | 109 | ||||
Less: Net income attributable to noncontrolling interest in consolidated entity – Exchange | 97 | 63 | ||||||
Net income attributable to Indemnity | $ | 39 | $ | 46 | ||||
Earnings Per Share | ||||||||
Net income attributable to Indemnity per share | ||||||||
Class A common stock – basic | $ | 0.83 | $ | 0.99 | ||||
Class A common stock – diluted | $ | 0.74 | $ | 0.88 | ||||
Class B common stock – basic and diluted | $ | 125 | $ | 149 | ||||
Weighted average shares outstanding attributable to Indemnity – Basic | ||||||||
Class A common stock | 46,189,068 | 46,402,270 | ||||||
Class B common stock | 2,542 | 2,542 | ||||||
Weighted average shares outstanding attributable to Indemnity – Diluted | ||||||||
Class A common stock | 52,634,752 | 52,598,211 | ||||||
Class B common stock | 2,542 | 2,542 | ||||||
Dividends declared per share | ||||||||
Class A common stock | $ | 0.6810 | $ | 0.6350 | ||||
Class B common stock | $ | 102.1500 | $ | 95.2500 | ||||
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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 March 31, | Three months ended March 31, | Three months ended March 31, | Three months ended March 31, | |||||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||||
Management operations: | ||||||||||||||||||||||||||||
Management fee revenue, net | $ | 343 | $ | 319 | $ | — | $ | — | $ | (343 | ) | $ | (319 | ) | $ | — | $ | — | ||||||||||
Service agreement revenue | 8 | 7 | — | — | — | — | 8 | 7 | ||||||||||||||||||||
Total revenue from management operations | 351 | 326 | — | — | (343 | ) | (319 | ) | 8 | 7 | ||||||||||||||||||
Cost of management operations | 298 | 268 | — | — | (298 | ) | (268 | ) | — | — | ||||||||||||||||||
Income from management operations before taxes | 53 | 58 | — | — | (45 | ) | (51 | ) | 8 | 7 | ||||||||||||||||||
Property and casualty insurance operations: | ||||||||||||||||||||||||||||
Net premiums earned | — | — | 1,380 | 1,268 | — | — | 1,380 | 1,268 | ||||||||||||||||||||
Losses and loss expenses | — | — | 1,033 | 1,007 | (1 | ) | (1 | ) | 1,032 | 1,006 | ||||||||||||||||||
Policy acquisition and underwriting expenses | — | — | 386 | 365 | (47 | ) | (53 | ) | 339 | 312 | ||||||||||||||||||
(Loss) income from property and casualty insurance operations before taxes | — | — | (39 | ) | (104 | ) | 48 | 54 | 9 | (50 | ) | |||||||||||||||||
Life insurance operations: (1) | ||||||||||||||||||||||||||||
Total revenue | — | — | 47 | 50 | 0 | 0 | 47 | 50 | ||||||||||||||||||||
Total benefits and expenses | — | — | 37 | 37 | 0 | 0 | 37 | 37 | ||||||||||||||||||||
Income from life insurance operations before taxes | — | — | 10 | 13 | 0 | 0 | 10 | 13 | ||||||||||||||||||||
Investment operations: (1) | ||||||||||||||||||||||||||||
Net investment income | 4 | 4 | 88 | 84 | (3 | ) | (3 | ) | 89 | 85 | ||||||||||||||||||
Net realized gains on investments | 0 | 1 | 56 | 50 | — | — | 56 | 51 | ||||||||||||||||||||
Net impairment losses recognized in earnings | 0 | 0 | (2 | ) | 0 | — | — | (2 | ) | 0 | ||||||||||||||||||
Equity in earnings of limited partnerships | 2 | 6 | 25 | 44 | — | — | 27 | 50 | ||||||||||||||||||||
Income from investment operations before taxes | 6 | 11 | 167 | 178 | (3 | ) | (3 | ) | 170 | 186 | ||||||||||||||||||
Income from operations before income taxes and noncontrolling interest | 59 | 69 | 138 | 87 | — | — | 197 | 156 | ||||||||||||||||||||
Provision for income taxes | 20 | 23 | 41 | 24 | — | — | 61 | 47 | ||||||||||||||||||||
Net income | $ | 39 | $ | 46 | $ | 97 | $ | 63 | $ | — | $ | — | $ | 136 | $ | 109 | ||||||||||||
(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.
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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 March 31, | ||||||||
(in millions, except per share data) | 2015 | 2014 | ||||||
(Unaudited) | ||||||||
Operating income attributable to Indemnity | $ | 39 | $ | 45 | ||||
Net realized gains and impairments on investments | 0 | 1 | ||||||
Income tax expense | 0 | 0 | ||||||
Realized gains and impairments, net of income taxes | 0 | 1 | ||||||
Net income attributable to Indemnity | $ | 39 | $ | 46 | ||||
Per Indemnity Class A common share-diluted: | ||||||||
Operating income attributable to Indemnity | $ | 0.74 | $ | 0.87 | ||||
Net realized gains and impairments on investments | 0.00 | 0.02 | ||||||
Income tax expense | 0.00 | (0.01 | ) | |||||
Realized gains and impairments, net of income taxes | 0.00 | 0.01 | ||||||
Net income attributable to Indemnity | $ | 0.74 | $ | 0.88 | ||||
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Erie Indemnity Company
Consolidated Statements of Financial Position
(in millions)
March 31, 2015 | December 31, 2014 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Investments – Indemnity | ||||||||
Available-for-sale securities, at fair value: | ||||||||
Fixed maturities | $ | 556 | $ | 564 | ||||
Equity securities | 25 | 25 | ||||||
Limited partnerships | 100 | 113 | ||||||
Other invested assets | 1 | 1 | ||||||
Investments – Exchange | ||||||||
Available-for-sale securities, at fair value: | ||||||||
Fixed maturities | 9,499 | 9,007 | ||||||
Equity securities | 837 | 850 | ||||||
Trading securities, at fair value | 3,096 | 3,223 | ||||||
Limited partnerships | 815 | 866 | ||||||
Other invested assets | 21 | 20 | ||||||
Total investments | 14,950 | 14,669 | ||||||
Cash and cash equivalents (Exchange portion of $362 and $422, respectively) | 420 | 514 | ||||||
Premiums receivable from policyholders – Exchange | 1,304 | 1,281 | ||||||
Reinsurance recoverable – Exchange | 162 | 161 | ||||||
Deferred income taxes – Indemnity | 40 | 37 | ||||||
Deferred acquisition costs – Exchange | 589 | 595 | ||||||
Other assets (Exchange portion of $403 and $374, respectively) | 528 | 501 | ||||||
Total assets | $ | 17,993 | $ | 17,758 | ||||
Liabilities and shareholders’ equity | ||||||||
Liabilities | ||||||||
Indemnity liabilities | ||||||||
Other liabilities | $ | 552 | $ | 611 | ||||
Exchange liabilities | ||||||||
Losses and loss expense reserves | 3,966 | 3,853 | ||||||
Life policy and deposit contract reserves | 1,827 | 1,812 | ||||||
Unearned premiums | 2,845 | 2,834 | ||||||
Deferred income taxes | 494 | 490 | ||||||
Other liabilities | 172 | 175 | ||||||
Total liabilities | 9,856 | 9,775 | ||||||
Indemnity's shareholders’ equity | 710 | 703 | ||||||
Noncontrolling interest in consolidated entity – Exchange | 7,427 | 7,280 | ||||||
Total equity | 8,137 | 7,983 | ||||||
Total liabilities, shareholders’ equity and noncontrolling interest | $ | 17,993 | $ | 17,758 | ||||
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