Earnings release tables
Erie, Pa., February 27, 2012 - Erie Indemnity Company (NASDAQ: ERIE) today announced fourth quarter 2011 earnings of $26 million, compared to earnings of $12 million in the fourth quarter of 2010. Operating income was $25 million in the fourth quarter of 2011, compared to operating income of $17 million in the fourth quarter of 2010.
Note: The accompanying consolidated financial statements of Erie Indemnity Company ("Indemnity") reflect the consolidated results of Indemnity and the Erie Insurance Exchange ("Exchange"), which we refer to collectively as the "Erie Insurance Group."
Indemnity or Indemnity shareholder interest refers to the interest in Erie Indemnity Company owned by the Class A and Class B shareholders. The Exchange refers to the noncontrolling interest held for the interest of the subscribers (policyholders) and includes its interest in its property and casualty subsidiaries and Erie Family Life Insurance Company ("EFL").
The following table shows the consolidated results of the Erie Insurance Group by operating segment:
The following sections highlight and discuss the results of management operations, property and casualty insurance operations, life insurance operations and investment operations related to the Indemnity shareholder interest.
The management fee rate was 25 percent for both the fourth quarters of 2011 and 2010. Direct written premiums of the property and casualty insurance operations, upon which the management fee is calculated, increased 6.7 percent in the fourth quarter of 2011, due to a 2.5 percent increase in policies in force and an increase in average premium. The year-over-year average premium per policy for all lines of business increased 3.3 percent at December 31, 2011, compared to an increase of 1.1 percent at December 31, 2010.
The cost of management operations increased to $225 million in the fourth quarter 2011 from $215 million in the fourth quarter of 2010. Fourth quarter 2011 commissions increased $2 million compared to the fourth quarter of 2010, while fourth quarter 2011 non-commission expense increased $8 million. The increase in non-commission expense was primarily due to increases in professional fees and software expenses of $6 million, and agent related expenses of $2 million.
Prior to and through December 31, 2010, the underwriting results retained by Erie Insurance Company ("EIC") and Erie Insurance Company of New York ("ENY") accrued to the Indemnity shareholder interest. Due to the sale of Indemnity's property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, beginning in the first quarter of 2011.
Prior to and through March 31, 2011, Indemnity retained a 21.6 percent ownership interest in EFL which accrued to the Indemnity shareholder interest. Due to the sale of Indemnity's ownership interest in EFL to the Exchange on March 31, 2011, 100 percent of the life insurance results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, beginning in the second quarter of 2011.
Net investment income, which primarily includes interest and dividends on bonds and stocks, decreased $5 million in the fourth quarter of 2011. The fourth quarter of 2010 includes $6 million of net investment income from EIC, ENY and Erie Insurance Property & Casualty Company which were sold to the Exchange on December 31, 2010.
Net realized gains on investments totaled $2 million in the fourth quarter of 2011, compared to losses of $8 million recorded in the fourth quarter of 2010. The net realized gains generated in the fourth quarter of 2011 were primarily due to increases in the valuation on the common stock portfolio. The net realized losses generated in the fourth quarter of 2010 were primarily due to the sale of limited partnership holdings as a part of a tax planning strategy to recapture tax paid on previous period capital gains that were due to expire.
Equity in earnings of limited partnerships decreased $9 million in the fourth quarter of 2011. Losses on private equity limited partnerships totaled $3 million in the fourth quarter of 2011, compared to earnings of $5 million in the fourth quarter of 2010.
Year-to-Date 2011 Results
Net income attributable to Indemnity per share-diluted was $3.08 per share for the year ending December 31, 2011 compared to net income per share-diluted of $2.85 per share for the year ending December 31, 2010. The year ending December 31, 2011 net income amount includes $0.02 per share-diluted related to operations sold to the Exchange compared to $0.47 per share-diluted for the year ending December 31, 2010. Also, Indemnity's 2010 provision for income taxes reflects a charge of $18 million, or $0.31 per share-diluted, for a deferred tax expense related to the sale of its 21.6 percent ownership interest in EFL to the Exchange.
Share Repurchase Program
In the fourth quarter of 2011, we repurchased 0.3 million shares of our outstanding Class A nonvoting common stock at a total cost of $23 million in conjunction with our current stock repurchase program. For the year, we repurchased 2.2 million shares at a total cost of $155 million. In October 2011, our Board of Directors approved a continuation of the current stock repurchase program for a total of $150 million, with no time limitation. As of February 17, 2012, we had approximately $128 million in repurchase authority remaining under the program.
According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 12th largest automobile and 14th homeowners insurer in the United States based on direct premiums written and the 20th 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 over 4.3 million policies in force and operates in 11 states and the District of Columbia. Erie Insurance Group is a FORTUNE 500 company.
Erie Insurance is proud to be named a J.D. Power and Associates' 2011 Customer Service Champion and is one of only 40 companies so named in the U.S. Erie Insurance has also been recognized on the list of Ward's 50 Group of top performing insurance companies. The Ward's 50 award analyzes the financial performance of 3,000 property and casualty companies and nearly 800 life and health insurance companies and recognizes the top performers for achieving outstanding financial results in safety and consistency over a five-year period (2006-2010).
News releases and more information about Erie Insurance Group are available at www.erieinsurance.com.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:
Statements contained herein that are not historical fact are forward-looking statements and, as such, are subject to risks and uncertainties that could cause actual events and results to differ, perhaps materially, from those discussed herein. Forward-looking statements relate to future trends, events or results and include, without limitation, statements and assumptions on which such statements are based that are related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Examples of forward-looking statements are discussions relating to premium and investment income, expenses, operating results, agency relationships, and compliance with contractual and regulatory requirements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Among the risks and uncertainties, in addition to those set forth in our filings with the Securities and Exchange Commission, that could cause actual results and future events to differ from those set forth or contemplated in the forward-looking statements include the following:
Risk factors related to the Indemnity shareholder interest:
dependence on Indemnity's relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange;
Risk factors related to the non-controlling interest owned by the Exchange, which includes the Property and Casualty Group and EFL:
general business and economic conditions;
A forward-looking statement speaks only as of the date on which it is made and reflects Indemnity's analysis only as of that date. Indemnity undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions, or otherwise.
Karen Kraus Phillips, Investor Relations
1-800-458-0811 ext. 4665 or 814/870-4665