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ERIE INDEMNITY COMPANY
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Pennsylvania
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25-0466020
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(State or other jurisdiction
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(I.R.S. Employer
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of incorporation or organization)
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Identification No.)
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100 Erie Insurance Place, Erie, Pennsylvania
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16530
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(Address of principal executive offices)
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(Zip code)
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(814) 870-2000
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Class A common stock, stated value $0.0292 per share, listed on the NASDAQ Stock Market, LLC
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(Title of each class)
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(Name of each exchange on which registered)
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Large accelerated filer
X
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Emerging growth company
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(Do not check if a smaller reporting company)
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PART
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ITEM NUMBER AND CAPTION
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PAGE
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•
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Interest rate risk - the risk of adverse changes in the value of fixed income securities as a result of increases in market interest rates.
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•
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Investment credit risk - the risk that the value of certain investments may decrease due to the deterioration in financial condition of, or the liquidity available to, one or more issuers of those securities or, in the case of asset-backed securities, due to the deterioration of the loans or other assets that underlie the securities, which, in each case, also includes the risk of permanent loss.
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Sector/Concentration risk - the risk that the portfolio may be too heavily concentrated in the securities of one or more issuers, sectors, or industries. Events or developments that have a negative impact on any particular industry, group of related industries, or geographic region may have a greater adverse effect on our investment portfolio to the extent that the portfolio is concentrated within those issuers, sectors, or industries.
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Liquidity risk - the risk that we will not be able to convert investment securities into cash on favorable terms and on a timely basis, or that we will not be able to sell them at all, when desired. Disruptions in the financial markets or a lack of buyers for the specific securities that we are trying to sell, could prevent us from liquidating securities or cause a reduction in prices to levels that are not acceptable to us.
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Number of
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Field office ownership:
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field offices
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Erie Indemnity Company
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3
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Erie Insurance Exchange
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3
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Erie Family Life Insurance Company
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1
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Unaffiliated parties
(1)
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18
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25
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2017
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2016
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Stock sales price
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Cash dividend declared
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Stock sales price
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Cash dividend declared
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Quarter ended
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High
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Low
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Class A
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Class B
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High
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Low
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Class A
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Class B
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March 31
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$
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124.73
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$
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110.34
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$
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0.7825
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$
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117.375
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$
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100.53
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$
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89.92
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$
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0.7300
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$
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109.500
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June 30
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126.46
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114.06
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0.7825
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117.375
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99.34
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90.60
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0.7300
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109.500
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September 30
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128.70
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114.29
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0.7825
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117.375
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103.69
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96.68
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0.7300
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109.500
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December 31
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124.10
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116.09
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0.8400
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126.000
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114.60
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99.39
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0.7825
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117.375
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Total
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$
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3.1875
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$
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478.125
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$
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2.9725
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$
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445.875
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2012
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2013
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2014
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2015
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2016
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2017
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Erie Indemnity Company Class A common stock
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$
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100
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(1)
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$
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108
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$
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139
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$
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152
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$
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183
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$
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204
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Standard & Poor's 500 Stock Index
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100
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(1)
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132
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150
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153
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171
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208
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Standard & Poor's Supercomposite Insurance Industry Group Index
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100
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(1)
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146
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158
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164
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195
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226
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(1)
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Assumes $100 invested at the close of trading, including reinvestment of dividends, on the last trading day preceding the first day of the fifth preceding fiscal year, in our Class A common stock, the Standard & Poor's 500 Stock Index, and the Standard & Poor's Supercomposite Insurance Industry Group Index.
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(in thousands, except per share data)
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Years Ended December 31,
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2017
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2016
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2015
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2014
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2013
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Operating Data:
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Operating revenue
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$
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1,691,774
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$
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1,596,631
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$
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1,505,508
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$
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1,407,119
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$
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1,297,331
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Operating expenses
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1,403,402
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1,304,267
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1,272,967
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1,184,272
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1,087,995
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Investment income
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28,561
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27,828
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33,708
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28,417
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37,278
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Interest expense, net
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1,238
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101
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—
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—
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—
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Income before income taxes
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315,695
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320,091
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266,249
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251,264
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246,614
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Net income
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196,999
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210,366
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174,678
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167,505
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162,611
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Per Share Data:
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Net income per Class A share – diluted
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$
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3.76
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$
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4.01
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$
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3.33
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$
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3.18
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$
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3.08
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Book value per share – Class A common and equivalent B shares
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16.40
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15.62
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14.72
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13.45
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13.96
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Dividends declared per Class A share
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3.1875
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2.9725
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2.773
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2.586
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2.4125
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Dividends declared per Class B share
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478.125
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445.875
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415.95
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387.90
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361.875
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Financial Position Data:
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Investments
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$
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803,835
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$
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771,450
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$
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688,476
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$
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702,387
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$
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721,728
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Receivables from Erie Insurance Exchange and affiliates
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418,328
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378,540
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348,055
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335,220
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300,442
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Long-term borrowings
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74,728
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24,766
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—
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—
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—
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Total assets
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1,665,859
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1,548,955
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1,407,296
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1,319,198
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1,213,042
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Total equity
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857,344
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816,910
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769,503
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703,134
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733,982
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Page Number
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•
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dependence upon our relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange;
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•
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dependence upon our relationship with the Exchange and the growth of the Exchange, including:
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◦
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general business and economic conditions;
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◦
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factors affecting insurance industry competition;
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◦
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dependence upon the independent agency system; and
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◦
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ability to maintain our reputation for customer service;
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•
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dependence upon our relationship with the Exchange and the financial condition of the Exchange, including:
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◦
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the Exchange's ability to maintain acceptable financial strength ratings;
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◦
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factors affecting the quality and liquidity of the Exchange's investment portfolio;
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◦
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changes in government regulation of the insurance industry;
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◦
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emerging claims and coverage issues in the industry; and
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◦
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severe weather conditions or other catastrophic losses, including terrorism;
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costs of providing services to the Exchange under the subscriber's agreement;
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credit risk from the Exchange;
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•
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ability to attract and retain talented management and employees;
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ability to ensure system availability and effectively manage technology initiatives;
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difficulties with technology or data security breaches, including cyber attacks;
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ability to maintain uninterrupted business operations;
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factors affecting the quality and liquidity of our investment portfolio;
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our ability to meet liquidity needs and access capital; and
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•
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outcome of pending and potential litigation.
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Years ended December 31,
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(dollars in thousands, except per share data)
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2017
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%
Change
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2016
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%
Change
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2015
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||||||||||
Total operating revenue
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$
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1,691,774
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6.0
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%
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$
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1,596,631
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6.1
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%
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$
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1,505,508
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Total operating expenses
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1,403,402
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7.6
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1,304,267
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2.5
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1,272,967
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Operating income
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288,372
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(1.4
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)
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292,364
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25.7
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232,541
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Total investment income
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28,561
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2.6
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27,828
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(17.4
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)
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33,708
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Interest expense, net
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1,238
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NM
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101
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NM
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—
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Income before income taxes
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315,695
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(1.4
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)
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320,091
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20.2
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266,249
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Income tax expense
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118,696
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8.2
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109,725
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19.8
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91,571
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Net income
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$
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196,999
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(6.4
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)
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%
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$
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210,366
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20.4
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%
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$
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174,678
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Net income per share - diluted
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$
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3.76
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(6.2
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)
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%
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$
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4.01
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20.6
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%
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$
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3.33
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•
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An active market is one in which transactions for the assets being valued occur with sufficient frequency and volume to provide reliable pricing information.
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An inactive (illiquid) market is one in which there are few and infrequent transactions, where the prices are not current, price quotations vary substantially, and/or there is little information publicly available for the asset being valued.
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Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
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•
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Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
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•
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Level 3 – Unobservable inputs for the asset or liability.
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•
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the extent and duration for which fair value is less than cost;
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•
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historical operating performance and financial condition of the issuer;
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•
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short- and long-term prospects of the issuer and its industry based upon analysts' recommendations;
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•
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specific events that occurred affecting the issuer, including rating downgrades;
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•
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intent to sell or more likely than not we would be required to sell (debt securities); and
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•
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ability and intent to retain the investment for a period of time sufficient to allow for a recovery in value (equity securities).
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Years ended December 31,
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(dollars in thousands)
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2017
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%
Change
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2016
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%
Change
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2015
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||||||||||
Management fee revenue, net
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$
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1,662,625
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6.1
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%
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$
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1,567,431
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6.2
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%
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$
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1,475,511
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Service agreement revenue
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29,149
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(0.2
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)
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29,200
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(2.7
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)
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29,997
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Total operating revenue
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1,691,774
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6.0
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1,596,631
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6.1
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1,505,508
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Total operating expenses
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1,403,402
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7.6
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1,304,267
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2.5
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1,272,967
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Operating income
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$
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288,372
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(1.4
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)
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%
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$
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292,364
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|
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25.7
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%
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$
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232,541
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Gross margin
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17.0
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%
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(1.3
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)
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pts.
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18.3
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%
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2.9
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pts.
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15.4
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%
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|
Years ended December 31,
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||||||||||||||||
(dollars in thousands)
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2017
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%
Change
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2016
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|
%
Change
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2015
|
||||||||
Direct and assumed premiums written by the Exchange
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$
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6,656,501
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6.0
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%
|
|
$
|
6,278,126
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|
|
6.2
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%
|
|
$
|
5,914,045
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|
Management fee rate
|
|
25
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%
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|
|
|
|
25
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%
|
|
|
|
|
25
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%
|
|||
Management fee revenue, gross
|
|
1,664,125
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|
|
6.0
|
|
|
1,569,531
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|
|
6.2
|
|
|
1,478,511
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|
|||
Change in allowance for management fee returned on cancelled policies
(1)
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(1,500
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)
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NM
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(2,100
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)
|
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NM
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|
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(3,000
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)
|
|||
Management fee revenue, net of allowance
|
|
$
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1,662,625
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|
|
6.1
|
%
|
|
$
|
1,567,431
|
|
|
6.2
|
%
|
|
$
|
1,475,511
|
|
|
|
Years ended December 31,
|
||||||||||||||||
(dollars in thousands)
|
|
2017
|
|
%
Change
|
|
2016
|
|
%
Change
|
|
2015
|
||||||||
Commissions:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total commissions
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$
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947,481
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|
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6.0
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%
|
|
$
|
893,800
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5.4
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%
|
|
$
|
847,880
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|
Non-commission expense:
|
|
|
|
|
|
|
|
|
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|
||||||||
Underwriting and policy processing
|
|
$
|
142,819
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|
|
5.1
|
%
|
|
$
|
135,855
|
|
|
0.8
|
%
|
|
$
|
134,837
|
|
Information technology
|
|
140,421
|
|
|
15.8
|
|
|
121,249
|
|
|
(1.7
|
)
|
|
123,362
|
|
|||
Sales and advertising
|
|
62,059
|
|
|
(2.1
|
)
|
|
63,423
|
|
|
(1.5
|
)
|
|
64,403
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|
|||
Customer service
|
|
27,827
|
|
|
13.1
|
|
|
24,604
|
|
|
(16.1
|
)
|
|
29,325
|
|
|||
Administrative and other
|
|
82,795
|
|
|
26.7
|
|
|
65,336
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|
|
(10.7
|
)
|
|
73,160
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|
|||
Total non-commission expense
|
|
455,921
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|
|
11.1
|
|
|
410,467
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|
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(3.4
|
)
|
|
425,087
|
|
|||
Total cost of management operations
|
|
$
|
1,403,402
|
|
|
7.6
|
%
|
|
$
|
1,304,267
|
|
|
2.5
|
%
|
|
$
|
1,272,967
|
|
(dollars in thousands)
|
|
2017
|
|
%
Change
|
|
2016
|
|
%
Change
|
|
2015
|
||||||||
Net investment income
|
|
$
|
24,608
|
|
|
19.8
|
%
|
|
$
|
20,547
|
|
|
15.5
|
%
|
|
$
|
17,791
|
|
Net realized investment gains
|
|
1,334
|
|
|
98.6
|
|
|
672
|
|
|
36.5
|
|
|
492
|
|
|||
Net impairment losses recognized in earnings
|
|
(182
|
)
|
|
56.4
|
|
|
(416
|
)
|
|
NM
|
|
|
(1,558
|
)
|
|||
Equity in earnings of limited partnerships
|
|
2,801
|
|
|
(60.1
|
)
|
|
7,025
|
|
|
(58.6
|
)
|
|
16,983
|
|
|||
Total investment income
|
|
$
|
28,561
|
|
|
2.6
|
%
|
|
$
|
27,828
|
|
|
(17.4
|
)%
|
|
$
|
33,708
|
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Securities sold:
|
|
|
|
|
|
|
||||||
Fixed maturities
|
|
$
|
1,385
|
|
|
$
|
(2
|
)
|
|
$
|
(193
|
)
|
Equity securities
|
|
(145
|
)
|
|
(33
|
)
|
|
685
|
|
|||
Common stock trading securities
|
|
0
|
|
|
707
|
|
|
0
|
|
|||
Miscellaneous
|
|
94
|
|
|
0
|
|
|
0
|
|
|||
Net realized investment gains
(1)
|
|
$
|
1,334
|
|
|
$
|
672
|
|
|
$
|
492
|
|
(1)
|
See Part II, Item 8. "Financial Statements and Supplementary Data – Note 5, Investments, of Notes to Financial Statements" contained within this report for additional disclosures regarding net realized investment gains (losses).
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Private equity
|
|
$
|
492
|
|
|
$
|
(2,756
|
)
|
|
$
|
12,169
|
|
Mezzanine debt
|
|
345
|
|
|
51
|
|
|
1,788
|
|
|||
Real estate
|
|
1,964
|
|
|
9,730
|
|
|
3,026
|
|
|||
Equity in earnings of limited partnerships
|
|
$
|
2,801
|
|
|
$
|
7,025
|
|
|
$
|
16,983
|
|
|
|
|
||||||||||||
|
|
Carrying value at December 31,
|
||||||||||||
(dollars in thousands)
|
|
2017
|
|
% to
total
|
|
2016
|
|
% to
total
|
||||||
Indemnity
|
|
|
|
|
|
|
|
|
||||||
Fixed maturities
|
|
$
|
745,961
|
|
|
93
|
%
|
|
$
|
707,341
|
|
|
90
|
%
|
Equity securities:
|
|
|
|
|
|
|
|
|
||||||
Preferred stock
|
|
12,752
|
|
|
2
|
|
|
0
|
|
|
0
|
|
||
Common stock
|
|
0
|
|
|
0
|
|
|
5,950
|
|
|
1
|
|
||
Limited partnerships:
|
|
|
|
|
|
|
|
|
||||||
Private equity
|
|
31,663
|
|
|
4
|
|
|
35,228
|
|
|
5
|
|
||
Mezzanine debt
|
|
3,516
|
|
|
0
|
|
|
6,010
|
|
|
1
|
|
||
Real estate
|
|
9,943
|
|
|
1
|
|
|
16,921
|
|
|
3
|
|
||
Real estate mortgage loans
|
|
136
|
|
|
0
|
|
|
213
|
|
|
0
|
|
||
Total investments
|
|
$
|
803,971
|
|
|
100
|
%
|
|
$
|
771,663
|
|
|
100
|
%
|
|
|
|
||||||||||||||||||||||
|
|
At December 31, 2017
|
||||||||||||||||||||||
(in thousands)
|
|
|
|
|
|
|
|
|
|
Non-investment
|
|
Fair
|
||||||||||||
Industry Sector
|
|
AAA
|
|
AA
|
|
A
|
|
BBB
|
|
grade
|
|
value
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Basic materials
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
13,425
|
|
|
$
|
13,425
|
|
Communications
|
|
0
|
|
|
0
|
|
|
3,990
|
|
|
7,607
|
|
|
27,095
|
|
|
38,692
|
|
||||||
Consumer
|
|
0
|
|
|
1,049
|
|
|
6,474
|
|
|
32,827
|
|
|
46,691
|
|
|
87,041
|
|
||||||
Diversified
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
348
|
|
|
348
|
|
||||||
Energy
|
|
0
|
|
|
998
|
|
|
2,995
|
|
|
9,167
|
|
|
15,897
|
|
|
29,057
|
|
||||||
Financial
|
|
0
|
|
|
3,977
|
|
|
33,853
|
|
|
48,712
|
|
|
17,698
|
|
|
104,240
|
|
||||||
Government-municipal
|
|
100,033
|
|
|
148,058
|
|
|
11,173
|
|
|
0
|
|
|
0
|
|
|
259,264
|
|
||||||
Healthcare
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
502
|
|
|
502
|
|
||||||
Industrial
|
|
0
|
|
|
0
|
|
|
6,970
|
|
|
3,374
|
|
|
24,196
|
|
|
34,540
|
|
||||||
Structured securities
(2)
|
|
69,547
|
|
|
29,798
|
|
|
14,286
|
|
|
5,873
|
|
|
8,433
|
|
|
127,937
|
|
||||||
Technology
|
|
0
|
|
|
3,971
|
|
|
2,089
|
|
|
8,952
|
|
|
14,474
|
|
|
29,486
|
|
||||||
U.S. Treasury
|
|
0
|
|
|
11,734
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
11,734
|
|
||||||
Utilities
|
|
0
|
|
|
0
|
|
|
1,988
|
|
|
4,976
|
|
|
2,731
|
|
|
9,695
|
|
||||||
Total
|
|
$
|
169,580
|
|
|
$
|
199,585
|
|
|
$
|
83,818
|
|
|
$
|
121,488
|
|
|
$
|
171,490
|
|
|
$
|
745,961
|
|
(in thousands)
|
|
2017
|
|
2016
|
||||||||||||
Industry sector
|
|
Preferred
stock |
|
Common
stock |
|
Preferred
stock |
|
Common
stock |
||||||||
Financial
|
|
$
|
11,659
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Funds
(1)
|
|
0
|
|
|
0
|
|
|
0
|
|
|
5,950
|
|
||||
Utilities
|
|
1,093
|
|
|
0
|
|
|
0
|
|
|
0
|
|
||||
Total
|
|
$
|
12,752
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
5,950
|
|
|
|
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Net cash provided by operating activities
|
|
$
|
197,126
|
|
|
$
|
254,336
|
|
|
$
|
217,378
|
|
Net cash (used in) provided by investing activities
|
|
(74,663
|
)
|
|
(136,944
|
)
|
|
622
|
|
|||
Net cash used in financing activities
|
|
(95,814
|
)
|
|
(111,209
|
)
|
|
(126,858
|
)
|
|||
Net increase in cash
|
|
$
|
26,649
|
|
|
$
|
6,183
|
|
|
$
|
91,142
|
|
(
in thousands)
|
|
Payments due by period
|
||||||||||||||||||
|
|
Total
|
|
2018
|
|
2019-2020
|
|
2021-2022
|
|
2023 and thereafter
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long-term debt
(1)
|
|
$
|
176,723
|
|
|
$
|
3,957
|
|
|
$
|
12,352
|
|
|
$
|
12,352
|
|
|
$
|
148,062
|
|
Home office expansion
(2)
|
|
88,846
|
|
|
30,139
|
|
|
58,707
|
|
|
0
|
|
|
0
|
|
|||||
Limited partnership commitments
(3)
|
|
16,340
|
|
|
16,340
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|||||
Pension contribution
(4)
|
|
80,000
|
|
|
80,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|||||
Other commitments
(5)
|
|
132,882
|
|
|
63,906
|
|
|
58,831
|
|
|
7,202
|
|
|
2,943
|
|
|||||
Operating leases – vehicles
|
|
56,355
|
|
|
25,342
|
|
|
31,013
|
|
|
0
|
|
|
0
|
|
|||||
Operating leases – real estate
(6)
|
|
11,728
|
|
|
3,557
|
|
|
4,990
|
|
|
1,769
|
|
|
1,412
|
|
|||||
Operating leases – computer equipment
|
|
11,307
|
|
|
5,298
|
|
|
6,009
|
|
|
0
|
|
|
0
|
|
|||||
Gross contractual obligations
|
|
574,181
|
|
|
228,539
|
|
|
171,902
|
|
|
21,323
|
|
|
152,417
|
|
|||||
Estimated reimbursements from affiliates
(7)
|
|
167,446
|
|
|
101,618
|
|
|
57,924
|
|
|
4,988
|
|
|
2,916
|
|
|||||
Net contractual obligations
|
|
$
|
406,735
|
|
|
$
|
126,921
|
|
|
$
|
113,978
|
|
|
$
|
16,335
|
|
|
$
|
149,501
|
|
(1)
|
Long-term debt amount differs from the balance presented on the Statements of Financial Position as the long-term debt amount in the table above includes interest and principal payments based upon total expected draw commitments and excludes commitment fees.
|
(2)
|
On July 10, 2017, we agreed to the guaranteed maximum price terms of an agreement with our construction manager for the construction of the office building that will serve as part of our principal headquarters. The expected date for substantial completion of the project is January 2020. The costs of this project are being funded by the senior secured draw term loan credit facility included in long-term debt in the table above.
|
(3)
|
Limited partnership commitments will be funded as required for capital contributions at any time prior to the agreement expiration date. The commitment amounts are presented using the expiration date as the factor by which to age when the amounts are due. At
December 31, 2017
, our total commitment to fund limited partnerships that invest in private equity securities was
$6.6 million
, mezzanine debt was
$8.2 million
, and real estate activities was
$1.5 million
.
|
(4)
|
Contributions anticipated in future years depend upon certain factors that cannot be reasonably predicted. Additional contributions may be made due to future plan changes, our business or investment strategy, or pending law changes. The obligations for our unfunded benefit plans, including the Supplemental Employee Retirement Plan (SERP) for our executive and senior management, are not included in gross contractual obligations. The recorded accumulated benefit obligation for this plan at
December 31, 2017
is
$17.1 million
. We expect to have sufficient cash flows from operations to meet the future benefit payments as these become due.
|
(5)
|
Other commitments include various agreements for services, including information technology, support, and maintenance obligations, and other obligations in the ordinary course of business. These agreements are enforceable and legally binding and specify fixed or minimum quantities to be purchased and the approximate timing of the transaction. The table above also includes agreements that contain cancellation provisions, some of which may require us to pay a termination fee. The amounts under such contracts are included in the table above as we expect to make future cash payments according to the contract terms.
|
(6)
|
Operating leases – real estate are for
18
of our
25
field offices and
two
operating leases are for office space and a warehouse facility.
|
(7)
|
We are reimbursed from the Exchange and its subsidiaries for a portion of the costs related to the pension, other commitments and operating leases.
|
(dollars in thousands)
|
|
2017
|
|
Percent of
total assets |
|
2016
|
|
Percent of
total assets |
||||||
Receivables from the Exchange and other affiliates (management fees, costs and reimbursements)
|
|
$
|
418,328
|
|
|
25.1
|
%
|
|
$
|
378,540
|
|
|
24.4
|
%
|
Note receivable from EFL
|
|
25,000
|
|
|
1.5
|
|
|
25,000
|
|
|
1.6
|
|
||
Total intercompany receivables
|
|
$
|
443,328
|
|
|
26.6
|
%
|
|
$
|
403,540
|
|
|
26.0
|
%
|
(dollars in thousands)
|
|
At December 31,
|
||||||
|
|
2017
|
|
2016
|
||||
Fair value of fixed maturity portfolio
|
|
$
|
745,961
|
|
|
$
|
707,341
|
|
Fair value assuming 100-basis point rise in interest rates
|
|
$
|
727,787
|
|
|
$
|
690,454
|
|
Effective duration (as a percentage)
|
|
2.5
|
|
|
2.4
|
|
|
|
|
||
(in thousands)
|
|
|
||
Fixed maturities:
|
|
December 31, 2016
|
||
2017
|
|
$
|
54,673
|
|
2018
|
|
104,569
|
|
|
2019
|
|
81,367
|
|
|
2020
|
|
69,165
|
|
|
2021
|
|
67,845
|
|
|
Thereafter
|
|
300,342
|
|
|
Total
(1)
|
|
$
|
677,961
|
|
Fair value
|
|
$
|
707,341
|
|
|
|
At December 31, 2017
|
|||||||||
(dollars in thousands)
|
|
Amortized cost
|
|
Fair value
|
|
Percent of total
|
|||||
AAA, AA, A
|
|
$
|
448,823
|
|
|
$
|
452,983
|
|
|
61
|
%
|
BBB
|
|
121,821
|
|
|
121,488
|
|
|
16
|
|
||
Total investment grade
|
|
570,644
|
|
|
574,471
|
|
|
77
|
|
||
BB
|
|
61,111
|
|
|
61,521
|
|
|
8
|
|
||
B
|
|
94,827
|
|
|
94,996
|
|
|
13
|
|
||
CCC, CC, C, and below
|
|
15,217
|
|
|
14,973
|
|
|
2
|
|
||
Total non-investment grade
|
|
171,155
|
|
|
171,490
|
|
|
23
|
|
||
Total
|
|
$
|
741,799
|
|
|
$
|
745,961
|
|
|
100
|
%
|
|
|
At December 31, 2016
|
|||||||||
(dollars in thousands)
|
|
Amortized cost
|
|
Fair value
|
|
Percent of total
|
|||||
AAA, AA, A
|
|
$
|
433,133
|
|
|
$
|
436,011
|
|
|
62
|
%
|
BBB
|
|
118,593
|
|
|
118,547
|
|
|
17
|
|
||
Total investment grade
|
|
551,726
|
|
|
554,558
|
|
|
79
|
|
||
BB
|
|
49,914
|
|
|
50,242
|
|
|
7
|
|
||
B
|
|
79,918
|
|
|
81,131
|
|
|
11
|
|
||
CCC, CC, C, and below
|
|
20,845
|
|
|
21,410
|
|
|
3
|
|
||
Total non-investment grade
|
|
150,677
|
|
|
152,783
|
|
|
21
|
|
||
Total
|
|
$
|
702,403
|
|
|
$
|
707,341
|
|
|
100
|
%
|
|
|
2017
|
|
2016
|
|
2015
|
||||||
Operating revenue
|
|
|
|
|
|
|
||||||
Management fee revenue, net
|
|
$
|
1,662,625
|
|
|
$
|
1,567,431
|
|
|
$
|
1,475,511
|
|
Service agreement revenue
|
|
29,149
|
|
|
29,200
|
|
|
29,997
|
|
|||
Total operating revenue
|
|
1,691,774
|
|
|
1,596,631
|
|
|
1,505,508
|
|
|||
|
|
|
|
|
|
|
||||||
Operating expenses
|
|
|
|
|
|
|
||||||
Commissions
|
|
947,481
|
|
|
893,800
|
|
|
847,880
|
|
|||
Salaries and employee benefits
|
|
240,181
|
|
|
213,356
|
|
|
226,713
|
|
|||
All other operating expenses
|
|
215,740
|
|
|
197,111
|
|
|
198,374
|
|
|||
Total operating expenses
|
|
1,403,402
|
|
|
1,304,267
|
|
|
1,272,967
|
|
|||
Operating income
|
|
288,372
|
|
|
292,364
|
|
|
232,541
|
|
|||
|
|
|
|
|
|
|
||||||
Investment income
|
|
|
|
|
|
|
||||||
Net investment income
|
|
24,608
|
|
|
20,547
|
|
|
17,791
|
|
|||
Net realized investment gains
|
|
1,334
|
|
|
672
|
|
|
492
|
|
|||
Net impairment losses recognized in earnings
|
|
(182
|
)
|
|
(416
|
)
|
|
(1,558
|
)
|
|||
Equity in earnings of limited partnerships
|
|
2,801
|
|
|
7,025
|
|
|
16,983
|
|
|||
Total investment income
|
|
28,561
|
|
|
27,828
|
|
|
33,708
|
|
|||
Interest expense, net
|
|
1,238
|
|
|
101
|
|
|
—
|
|
|||
Income before income taxes
|
|
315,695
|
|
|
320,091
|
|
|
266,249
|
|
|||
Income tax expense
|
|
118,696
|
|
|
109,725
|
|
|
91,571
|
|
|||
Net income
|
|
$
|
196,999
|
|
|
$
|
210,366
|
|
|
$
|
174,678
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
||||||
Earnings Per Share
|
|
|
|
|
|
|
||||||
Net income per share
|
|
|
|
|
|
|
||||||
Class A common stock – basic
|
|
$
|
4.23
|
|
|
$
|
4.52
|
|
|
$
|
3.75
|
|
Class A common stock – diluted
|
|
$
|
3.76
|
|
|
$
|
4.01
|
|
|
$
|
3.33
|
|
Class B common stock – basic
|
|
$
|
635
|
|
|
$
|
678
|
|
|
$
|
563
|
|
Class B common stock – diluted
|
|
$
|
634
|
|
|
$
|
677
|
|
|
$
|
562
|
|
|
|
|
|
|
|
|
||||||
Weighted average shares outstanding – Basic
|
|
|
|
|
|
|
||||||
Class A common stock
|
|
46,186,831
|
|
|
46,188,952
|
|
|
46,186,671
|
|
|||
Class B common stock
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|||
|
|
|
|
|
|
|
||||||
Weighted average shares outstanding – Diluted
|
|
|
|
|
|
|
||||||
Class A common stock
|
|
52,337,463
|
|
|
52,435,303
|
|
|
52,498,811
|
|
|||
Class B common stock
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
|
2017
|
|
2016
|
|
2015
|
||||||
Net income
|
|
$
|
196,999
|
|
|
$
|
210,366
|
|
|
$
|
174,678
|
|
|
|
|
|
|
|
|
||||||
Other comprehensive (loss) income, net of tax
|
|
|
|
|
|
|
|
|
|
|||
Change in unrealized holding (losses) gains on available-for-sale securities
|
|
(190
|
)
|
|
43
|
|
|
(4,280
|
)
|
|||
Pension and other postretirement plans
|
|
(8,105
|
)
|
|
(24,560
|
)
|
|
25,117
|
|
|||
Total other comprehensive (loss) income, net of tax
|
|
(8,295
|
)
|
|
(24,517
|
)
|
|
20,837
|
|
|||
Comprehensive income
|
|
$
|
188,704
|
|
|
$
|
185,849
|
|
|
$
|
195,515
|
|
|
|
2017
|
|
2016
|
||||
Assets
|
|
|
|
|
||||
Current assets:
|
|
|
|
|
||||
Cash and cash equivalents
|
|
$
|
215,721
|
|
|
$
|
189,072
|
|
Available-for-sale securities
|
|
71,190
|
|
|
56,138
|
|
||
Receivables from Erie Insurance Exchange and affiliates
|
|
418,328
|
|
|
378,540
|
|
||
Prepaid expenses and other current assets
|
|
34,890
|
|
|
30,169
|
|
||
Federal income taxes recoverable
|
|
29,900
|
|
|
5,260
|
|
||
Note receivable from Erie Family Life Insurance Company
|
|
25,000
|
|
|
0
|
|
||
Accrued investment income
|
|
6,853
|
|
|
6,337
|
|
||
Total current assets
|
|
801,882
|
|
|
665,516
|
|
||
|
|
|
|
|
||||
Available-for-sale securities
|
|
687,523
|
|
|
657,153
|
|
||
Limited partnership investments
|
|
45,122
|
|
|
58,159
|
|
||
Fixed assets, net
|
|
83,149
|
|
|
69,142
|
|
||
Deferred income taxes, net
|
|
19,390
|
|
|
53,889
|
|
||
Note receivable from Erie Family Life Insurance Company
|
|
0
|
|
|
25,000
|
|
||
Other assets
|
|
28,793
|
|
|
20,096
|
|
||
Total assets
|
|
$
|
1,665,859
|
|
|
$
|
1,548,955
|
|
|
|
|
|
|
||||
Liabilities and shareholders' equity
|
|
|
|
|
||||
Current liabilities:
|
|
|
|
|
||||
Commissions payable
|
|
$
|
228,124
|
|
|
$
|
210,559
|
|
Agent bonuses
|
|
122,528
|
|
|
114,772
|
|
||
Accounts payable and accrued liabilities
|
|
104,533
|
|
|
88,153
|
|
||
Dividends payable
|
|
39,116
|
|
|
36,441
|
|
||
Deferred executive compensation
|
|
15,605
|
|
|
19,675
|
|
||
Total current liabilities
|
|
509,906
|
|
|
469,600
|
|
||
|
|
|
|
|
||||
Defined benefit pension plans
|
|
207,530
|
|
|
221,827
|
|
||
Employee benefit obligations
|
|
423
|
|
|
756
|
|
||
Deferred executive compensation
|
|
14,452
|
|
|
13,233
|
|
||
Long-term borrowings
|
|
74,728
|
|
|
24,766
|
|
||
Other long-term liabilities
|
|
1,476
|
|
|
1,863
|
|
||
Total liabilities
|
|
808,515
|
|
|
732,045
|
|
||
|
|
|
|
|
||||
Shareholders' equity
|
|
|
|
|
||||
Class A common stock, stated value $0.0292 per share; 74,996,930 shares authorized; 68,299,200 shares issued; 46,189,068 shares outstanding
|
|
1,992
|
|
|
1,992
|
|
||
Class B common stock, convertible at a rate of 2,400 Class A shares for one Class B share, stated value $70 per share; 3,070 shares authorized; 2,542 shares issued and outstanding
|
|
178
|
|
|
178
|
|
||
Additional paid-in-capital
|
|
16,470
|
|
|
16,300
|
|
||
Accumulated other comprehensive loss
|
|
(156,059
|
)
|
|
(121,381
|
)
|
||
Retained earnings
|
|
2,140,853
|
|
|
2,065,911
|
|
||
Total contributed capital and retained earnings
|
|
2,003,434
|
|
|
1,963,000
|
|
||
Treasury stock, at cost; 22,110,132 shares held
|
|
(1,155,668
|
)
|
|
(1,155,846
|
)
|
||
Deferred compensation
|
|
9,578
|
|
|
9,756
|
|
||
Total shareholders' equity
|
|
857,344
|
|
|
816,910
|
|
||
Total liabilities and shareholders' equity
|
|
$
|
1,665,859
|
|
|
$
|
1,548,955
|
|
|
Class A common stock
|
Class B common stock
|
Additional paid-in-capital
|
Accumulated other comprehensive income (loss)
|
Retained earnings
|
Treasury stock
|
Deferred compensation
|
Total shareholders' equity
|
||||||||||||||||
Balance, December 31, 2014
|
$
|
1,992
|
|
$
|
178
|
|
$
|
16,317
|
|
$
|
(117,701
|
)
|
$
|
1,948,438
|
|
$
|
(1,146,090
|
)
|
$
|
—
|
|
$
|
703,134
|
|
Net income
|
|
|
|
|
174,678
|
|
|
|
174,678
|
|
||||||||||||||
Other comprehensive income
|
|
|
|
20,837
|
|
|
|
|
20,837
|
|
||||||||||||||
Dividends declared:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Class A $2.773 per share
|
|
|
|
|
(128,082
|
)
|
|
|
(128,082
|
)
|
||||||||||||||
Class B $415.95 per share
|
|
|
|
|
(1,058
|
)
|
|
|
(1,058
|
)
|
||||||||||||||
Net purchase of treasury stock
(1)
|
|
|
(6
|
)
|
|
|
0
|
|
|
(6
|
)
|
|||||||||||||
Deferred compensation
|
|
|
|
|
|
(9,018
|
)
|
9,018
|
|
0
|
|
|||||||||||||
Balance, December 31, 2015
|
$
|
1,992
|
|
$
|
178
|
|
$
|
16,311
|
|
$
|
(96,864
|
)
|
$
|
1,993,976
|
|
$
|
(1,155,108
|
)
|
$
|
9,018
|
|
$
|
769,503
|
|
Net income
|
|
|
|
|
210,366
|
|
|
|
210,366
|
|
||||||||||||||
Other comprehensive loss
|
|
|
|
(24,517
|
)
|
|
|
|
(24,517
|
)
|
||||||||||||||
Dividends declared:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Class A $2.9725 per share
|
|
|
|
|
(137,297
|
)
|
|
|
(137,297
|
)
|
||||||||||||||
Class B $445.875 per share
|
|
|
|
|
(1,134
|
)
|
|
|
(1,134
|
)
|
||||||||||||||
Net purchase of treasury stock
(1)
|
|
|
(11
|
)
|
|
|
0
|
|
|
(11
|
)
|
|||||||||||||
Deferred compensation
|
|
|
|
|
|
(738
|
)
|
738
|
|
0
|
|
|||||||||||||
Balance, December 31, 2016
|
$
|
1,992
|
|
$
|
178
|
|
$
|
16,300
|
|
$
|
(121,381
|
)
|
$
|
2,065,911
|
|
$
|
(1,155,846
|
)
|
$
|
9,756
|
|
$
|
816,910
|
|
Net income
|
|
|
|
|
196,999
|
|
|
|
196,999
|
|
||||||||||||||
Other comprehensive loss
|
|
|
|
(8,295
|
)
|
|
|
|
(8,295
|
)
|
||||||||||||||
Dividends declared:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Class A $3.1875 per share
|
|
|
|
|
(147,225
|
)
|
|
|
(147,225
|
)
|
||||||||||||||
Class B $478.125 per share
|
|
|
|
|
(1,215
|
)
|
|
|
(1,215
|
)
|
||||||||||||||
Net purchase of treasury stock
(1)
|
|
|
170
|
|
|
|
0
|
|
|
170
|
|
|||||||||||||
Deferred compensation
|
|
|
|
|
|
(1,177
|
)
|
1,177
|
|
0
|
|
|||||||||||||
Rabbi trust distribution
(2)
|
|
|
|
|
|
1,355
|
|
(1,355
|
)
|
0
|
|
|||||||||||||
AOCI reclassification
(3)
|
|
|
|
(26,383
|
)
|
26,383
|
|
|
|
0
|
|
|||||||||||||
Balance, December 31, 2017
|
$
|
1,992
|
|
$
|
178
|
|
$
|
16,470
|
|
$
|
(156,059
|
)
|
$
|
2,140,853
|
|
$
|
(1,155,668
|
)
|
$
|
9,578
|
|
$
|
857,344
|
|
|
|
2017
|
|
2016
|
|
2015
|
||||||
Cash flows from operating activities
|
|
|
|
|
|
|
||||||
Management fee received
|
|
$
|
1,627,558
|
|
|
$
|
1,536,699
|
|
|
$
|
1,454,902
|
|
Service agreement fee received
|
|
29,149
|
|
|
29,200
|
|
|
29,997
|
|
|||
Net investment income received
|
|
31,281
|
|
|
26,796
|
|
|
25,999
|
|
|||
Limited partnership distributions
|
|
5,128
|
|
|
17,837
|
|
|
14,112
|
|
|||
(Decrease) increase in reimbursements collected from affiliates
|
|
(4,720
|
)
|
|
247
|
|
|
7,775
|
|
|||
Commissions paid to agents
|
|
(800,627
|
)
|
|
(756,713
|
)
|
|
(725,714
|
)
|
|||
Agents bonuses paid
|
|
(122,743
|
)
|
|
(113,859
|
)
|
|
(96,749
|
)
|
|||
Salaries and wages paid
|
|
(171,547
|
)
|
|
(160,985
|
)
|
|
(155,303
|
)
|
|||
Pension contribution and employee benefits paid
|
|
(89,981
|
)
|
|
(44,250
|
)
|
|
(40,993
|
)
|
|||
General operating expenses paid
|
|
(199,084
|
)
|
|
(176,029
|
)
|
|
(190,301
|
)
|
|||
Income taxes paid
|
|
(106,250
|
)
|
|
(104,607
|
)
|
|
(106,347
|
)
|
|||
Interest paid
|
|
(1,038
|
)
|
|
—
|
|
|
—
|
|
|||
Net cash provided by operating activities
|
|
197,126
|
|
|
254,336
|
|
|
217,378
|
|
|||
|
|
|
|
|
|
|
||||||
Cash flows from investing activities
|
|
|
|
|
|
|
||||||
Purchase of investments:
|
|
|
|
|
|
|
||||||
Available-for-sale securities
|
|
(391,181
|
)
|
|
(369,811
|
)
|
|
(228,308
|
)
|
|||
Limited partnerships
|
|
(410
|
)
|
|
(578
|
)
|
|
(928
|
)
|
|||
Proceeds from investments:
|
|
|
|
|
|
|
||||||
Available-for-sale securities sales
|
|
144,317
|
|
|
89,498
|
|
|
102,286
|
|
|||
Available-for-sale securities maturities/calls
|
|
194,980
|
|
|
146,285
|
|
|
112,705
|
|
|||
Trading securities
|
|
—
|
|
|
5,171
|
|
|
—
|
|
|||
Limited partnerships
|
|
10,768
|
|
|
16,113
|
|
|
26,735
|
|
|||
Net purchase of fixed assets
|
|
(28,927
|
)
|
|
(25,208
|
)
|
|
(12,556
|
)
|
|||
Net (distributions) collections on agent loans
|
|
(4,210
|
)
|
|
1,586
|
|
|
688
|
|
|||
Net cash (used in) provided by investing activities
|
|
(74,663
|
)
|
|
(136,944
|
)
|
|
622
|
|
|||
|
|
|
|
|
|
|
||||||
Cash flows from financing activities
|
|
|
|
|
|
|
||||||
Dividends paid to shareholders
|
|
(145,765
|
)
|
|
(135,985
|
)
|
|
(126,858
|
)
|
|||
Net proceeds from long-term borrowings
|
|
49,951
|
|
|
24,776
|
|
|
—
|
|
|||
Net cash used in financing activities
|
|
(95,814
|
)
|
|
(111,209
|
)
|
|
(126,858
|
)
|
|||
|
|
|
|
|
|
|
||||||
Net increase in cash and cash equivalents
|
|
26,649
|
|
|
6,183
|
|
|
91,142
|
|
|||
Cash and cash equivalents, beginning of year
|
|
189,072
|
|
|
182,889
|
|
|
91,747
|
|
|||
Cash and cash equivalents, end of year
|
|
$
|
215,721
|
|
|
$
|
189,072
|
|
|
$
|
182,889
|
|
|
|
|
|
|
|
|
||||||
Supplemental disclosure of noncash transactions
|
|
|
|
|
|
|
||||||
Transfer of investments from limited partnerships to trading securities
|
|
$
|
—
|
|
|
$
|
4,464
|
|
|
$
|
—
|
|
•
|
the extent and duration to which fair value is less than cost;
|
•
|
historical operating performance and financial condition of the issuer;
|
•
|
short and long-term prospects of the issuer and its industry based upon analysts' recommendations;
|
•
|
specific events that occurred affecting the issuer, including a ratings downgrade;
|
•
|
near term liquidity position of the issuer; and
|
•
|
compliance with financial covenants.
|
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
|||||||||||||||||||||||||||
|
|
Allocated net income (numerator)
|
|
Weighted shares (denominator)
|
|
Per- share amount
|
|
Allocated net income (numerator)
|
|
Weighted shares (denominator)
|
|
Per- share amount
|
|
Allocated net income (numerator)
|
|
Weighted shares (denominator)
|
|
Per- share amount
|
|||||||||||||||
Class A – Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income available to Class A stockholders
|
|
$
|
195,386
|
|
|
46,186,831
|
|
|
$
|
4.23
|
|
|
$
|
208,644
|
|
|
46,188,952
|
|
|
$
|
4.52
|
|
|
$
|
173,248
|
|
|
46,186,671
|
|
|
$
|
3.75
|
|
Dilutive effect of stock-based awards
|
|
0
|
|
|
49,832
|
|
|
—
|
|
|
0
|
|
|
145,551
|
|
|
—
|
|
|
0
|
|
|
211,340
|
|
|
—
|
|
||||||
Assumed conversion of Class B shares
|
|
1,613
|
|
|
6,100,800
|
|
|
—
|
|
|
1,722
|
|
|
6,100,800
|
|
|
—
|
|
|
1,430
|
|
|
6,100,800
|
|
|
—
|
|
||||||
Class A – Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income available to Class A stockholders on Class A equivalent shares
|
|
$
|
196,999
|
|
|
52,337,463
|
|
|
$
|
3.76
|
|
|
$
|
210,366
|
|
|
52,435,303
|
|
|
$
|
4.01
|
|
|
$
|
174,678
|
|
|
52,498,811
|
|
|
$
|
3.33
|
|
Class B – Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income available to Class B stockholders
|
|
$
|
1,613
|
|
|
2,542
|
|
|
$
|
635
|
|
|
$
|
1,722
|
|
|
2,542
|
|
|
$
|
678
|
|
|
$
|
1,430
|
|
|
2,542
|
|
|
$
|
563
|
|
Class B – Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income available to Class B stockholders
|
|
$
|
1,613
|
|
|
2,542
|
|
|
$
|
634
|
|
|
$
|
1,721
|
|
|
2,542
|
|
|
$
|
677
|
|
|
$
|
1,429
|
|
|
2,542
|
|
|
$
|
562
|
|
•
|
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
|
•
|
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
|
•
|
Level 3 – Unobservable inputs for the asset or liability.
|
|
|
At December 31, 2017
|
||||||||||||||
|
|
Fair value measurements using:
|
||||||||||||||
(in thousands)
|
|
Total
|
|
Quoted prices in
active markets for
identical assets
Level 1
|
|
Observable
inputs
Level 2
|
|
Unobservable
inputs
Level 3
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||
U.S. treasury
|
|
$
|
11,734
|
|
|
$
|
0
|
|
|
$
|
11,734
|
|
|
$
|
0
|
|
States & political subdivisions
|
|
259,264
|
|
|
0
|
|
|
259,264
|
|
|
0
|
|
||||
Foreign government securities
|
|
503
|
|
|
0
|
|
|
503
|
|
|
0
|
|
||||
Corporate debt securities
|
|
346,523
|
|
|
0
|
|
|
338,644
|
|
|
7,879
|
|
||||
Residential mortgage-backed securities
|
|
25,571
|
|
|
0
|
|
|
25,571
|
|
|
0
|
|
||||
Commercial mortgage-backed securities
|
|
32,804
|
|
|
0
|
|
|
32,804
|
|
|
0
|
|
||||
Collateralized debt obligations
|
|
58,034
|
|
|
0
|
|
|
55,834
|
|
|
2,200
|
|
||||
Other debt securities
|
|
11,528
|
|
|
0
|
|
|
11,528
|
|
|
0
|
|
||||
Total fixed maturities
|
|
745,961
|
|
|
0
|
|
|
735,882
|
|
|
10,079
|
|
||||
Nonredeemable preferred stock
|
|
12,752
|
|
|
2,015
|
|
|
10,737
|
|
|
0
|
|
||||
Total available-for-sale securities
|
|
758,713
|
|
|
2,015
|
|
|
746,619
|
|
|
10,079
|
|
||||
Other investments
(1)
|
|
4,816
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Total
|
|
$
|
763,529
|
|
|
$
|
2,015
|
|
|
$
|
746,619
|
|
|
$
|
10,079
|
|
|
|
At December 31, 2016
|
||||||||||||||
|
|
Fair value measurements using:
|
||||||||||||||
(in thousands)
|
|
Total
|
|
Quoted prices in
active markets for
identical assets
Level 1
|
|
Observable
inputs
Level 2
|
|
Unobservable
inputs
Level 3
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||
U.S. treasury
|
|
$
|
5,031
|
|
|
$
|
0
|
|
|
$
|
5,031
|
|
|
$
|
0
|
|
Government sponsored entities
|
|
2,026
|
|
|
0
|
|
|
2,026
|
|
|
0
|
|
||||
States & political subdivisions
|
|
253,132
|
|
|
0
|
|
|
253,132
|
|
|
0
|
|
||||
Corporate debt securities
|
|
322,948
|
|
|
0
|
|
|
313,596
|
|
|
9,352
|
|
||||
Residential mortgage-backed securities
|
|
16,102
|
|
|
0
|
|
|
16,102
|
|
|
0
|
|
||||
Commercial mortgage-backed securities
|
|
36,849
|
|
|
0
|
|
|
36,849
|
|
|
0
|
|
||||
Collateralized debt obligations
|
|
69,253
|
|
|
0
|
|
|
69,253
|
|
|
0
|
|
||||
Other debt securities
|
|
2,000
|
|
|
0
|
|
|
2,000
|
|
|
0
|
|
||||
Total fixed maturities
|
|
707,341
|
|
|
0
|
|
|
697,989
|
|
|
9,352
|
|
||||
Common stock
|
|
5,950
|
|
|
5,950
|
|
|
0
|
|
|
0
|
|
||||
Total available-for-sale securities
|
|
713,291
|
|
|
5,950
|
|
|
697,989
|
|
|
9,352
|
|
||||
Other investments
(1)
|
|
4,412
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Total
|
|
$
|
717,703
|
|
|
$
|
5,950
|
|
|
$
|
697,989
|
|
|
$
|
9,352
|
|
(1)
|
Other investments measured at fair value represent real estate funds included on the balance sheet as limited partnership investments that are reported under the fair value option using the net asset value practical expedient. These amounts are not required to be categorized in the fair value hierarchy. The investments can never be redeemed with the funds. Instead, distributions are received when liquidation of the underlying assets of the funds occur. It is estimated that the underlying assets will generally be liquidated between
5
and
10
years from the inception of the funds. The fair value of these investments is based on the net asset value (NAV) information provided by the general partner. Fair value is based on our proportionate share of the NAV based on the most recent partners' capital statements received from the general partners, which is generally one quarter prior to our balance sheet date. These values are then analyzed to determine if the NAV represents fair value at our balance sheet date, with adjustment being made where appropriate. We consider observable market data and perform a review validating the appropriateness of the NAV at each balance sheet date. It is likely that all of the investments will be redeemed at a future date for an amount different than the NAV of our ownership interest in partners' capital as of
December 31, 2017
and
December 31, 2016
. During the years ended
December 31, 2017
and 2016,
no
contributions were made and distributions totaling
$0.5 million
and
$0.9 million
, respectively, were received from these investments. There were
no
unfunded commitments related to the investments as of
December 31, 2017
and
$0.3 million
as of
December 31, 2016
.
|
(in thousands)
|
|
Beginning balance at December 31, 2016
|
|
Included in
earnings
(1)
|
|
Included
in other
comprehensive
income
|
|
Purchases
|
|
Sales
|
|
Transfers
into
Level 3
(2)
|
|
Transfers
out of Level 3
(2)
|
|
Ending balance at December 31, 2017
|
||||||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Corporate debt securities
|
|
$
|
9,352
|
|
|
$
|
(85
|
)
|
|
$
|
(41
|
)
|
|
$
|
4,954
|
|
|
$
|
(5,411
|
)
|
|
$
|
11,196
|
|
|
$
|
(12,086
|
)
|
|
$
|
7,879
|
|
Collateralized debt obligations
|
|
0
|
|
|
0
|
|
|
0
|
|
|
2,200
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
2,200
|
|
||||||||
Total fixed maturities
|
|
9,352
|
|
|
(85
|
)
|
|
(41
|
)
|
|
7,154
|
|
|
(5,411
|
)
|
|
11,196
|
|
|
(12,086
|
)
|
|
10,079
|
|
||||||||
Total available-for-sale securities
|
|
9,352
|
|
|
(85
|
)
|
|
(41
|
)
|
|
7,154
|
|
|
(5,411
|
)
|
|
11,196
|
|
|
(12,086
|
)
|
|
10,079
|
|
||||||||
Total Level 3 assets
|
|
$
|
9,352
|
|
|
$
|
(85
|
)
|
|
$
|
(41
|
)
|
|
$
|
7,154
|
|
|
$
|
(5,411
|
)
|
|
$
|
11,196
|
|
|
$
|
(12,086
|
)
|
|
$
|
10,079
|
|
(in thousands)
|
|
Beginning balance at December 31, 2015
|
|
Included in
earnings (1) |
|
Included
in other
comprehensive
income
|
|
Purchases
|
|
Sales
|
|
Transfers
into
Level 3
(2)
|
|
Transfers
out of Level 3
(2)
|
|
Ending balance at December 31, 2016
|
||||||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Corporate debt securities
|
|
$
|
69
|
|
|
$
|
173
|
|
|
$
|
107
|
|
|
$
|
13,935
|
|
|
$
|
(1,854
|
)
|
|
$
|
7,532
|
|
|
$
|
(10,610
|
)
|
|
$
|
9,352
|
|
Commercial mortgage-backed securities
|
|
0
|
|
|
0
|
|
|
3
|
|
|
1,000
|
|
|
0
|
|
|
0
|
|
|
(1,003
|
)
|
|
0
|
|
||||||||
Collateralized debt obligations
|
|
8,577
|
|
|
4
|
|
|
(5
|
)
|
|
7,722
|
|
|
(54
|
)
|
|
2,114
|
|
|
(18,358
|
)
|
|
0
|
|
||||||||
Total fixed maturities
|
|
8,646
|
|
|
177
|
|
|
105
|
|
|
22,657
|
|
|
(1,908
|
)
|
|
9,646
|
|
|
(29,971
|
)
|
|
9,352
|
|
||||||||
Total available-for-sale securities
|
|
8,646
|
|
|
177
|
|
|
105
|
|
|
22,657
|
|
|
(1,908
|
)
|
|
9,646
|
|
|
(29,971
|
)
|
|
9,352
|
|
||||||||
Total Level 3 assets
|
|
$
|
8,646
|
|
|
$
|
177
|
|
|
$
|
105
|
|
|
$
|
22,657
|
|
|
$
|
(1,908
|
)
|
|
$
|
9,646
|
|
|
$
|
(29,971
|
)
|
|
$
|
9,352
|
|
(1)
|
These amounts are reported in the Statements of Operations as net investment income and net realized investment gains (losses) for each of the periods presented above.
|
(2)
|
Transfers into and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs.
|
(in thousands)
|
|
At December 31, 2017
|
||||||||||||||
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Fixed maturities:
|
|
|
|
|
|
|
|
|
||||||||
Priced via pricing services
|
|
$
|
743,761
|
|
|
$
|
0
|
|
|
$
|
735,882
|
|
|
$
|
7,879
|
|
Priced via market comparables/broker quotes
|
|
2,200
|
|
|
0
|
|
|
0
|
|
|
2,200
|
|
||||
Total fixed maturities
|
|
745,961
|
|
|
0
|
|
|
735,882
|
|
|
10,079
|
|
||||
Nonredeemable preferred stock:
|
|
|
|
|
|
|
|
|
||||||||
Priced via pricing services
|
|
12,752
|
|
|
2,015
|
|
|
10,737
|
|
|
0
|
|
||||
Total nonredeemable preferred stock
|
|
12,752
|
|
|
2,015
|
|
|
10,737
|
|
|
0
|
|
||||
Other investments:
|
|
|
|
|
|
|
|
|
||||||||
Priced via unobservable inputs
(1)
|
|
4,816
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Total other investments
|
|
4,816
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Total
|
|
$
|
763,529
|
|
|
$
|
2,015
|
|
|
$
|
746,619
|
|
|
$
|
10,079
|
|
(1)
|
Other investments measured at fair value represent real estate funds included on the balance sheet as limited partnership investments that are reported under the fair value option using the NAV practical expedient. These amounts are not required to be categorized in the fair value hierarchy. The fair value of these investments is based on the NAV information provided by the general partner.
|
|
|
At December 31, 2017
|
||||||||||||||
(in thousands)
|
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Estimated fair value
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||
U.S. treasury
|
|
$
|
11,873
|
|
|
$
|
0
|
|
|
$
|
139
|
|
|
$
|
11,734
|
|
States & political subdivisions
|
|
254,533
|
|
|
5,351
|
|
|
620
|
|
|
259,264
|
|
||||
Foreign government securities
|
|
501
|
|
|
2
|
|
|
0
|
|
|
503
|
|
||||
Corporate debt securities
|
|
346,759
|
|
|
1,688
|
|
|
1,924
|
|
|
346,523
|
|
||||
Residential mortgage-backed securities
|
|
25,324
|
|
|
371
|
|
|
124
|
|
|
25,571
|
|
||||
Commercial mortgage-backed securities
|
|
33,475
|
|
|
26
|
|
|
697
|
|
|
32,804
|
|
||||
Collateralized debt obligations
|
|
57,838
|
|
|
237
|
|
|
41
|
|
|
58,034
|
|
||||
Other debt securities
|
|
11,496
|
|
|
32
|
|
|
0
|
|
|
11,528
|
|
||||
Total fixed maturities
|
|
741,799
|
|
|
7,707
|
|
|
3,545
|
|
|
745,961
|
|
||||
Nonredeemable preferred stock
|
|
12,837
|
|
|
15
|
|
|
100
|
|
|
12,752
|
|
||||
Total available-for-sale securities
|
|
$
|
754,636
|
|
|
$
|
7,722
|
|
|
$
|
3,645
|
|
|
$
|
758,713
|
|
|
|
At December 31, 2016
|
||||||||||||||
(in thousands)
|
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Estimated fair value
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||
U.S. treasury
|
|
$
|
5,093
|
|
|
$
|
0
|
|
|
$
|
62
|
|
|
$
|
5,031
|
|
Government sponsored entities
|
|
2,004
|
|
|
22
|
|
|
0
|
|
|
2,026
|
|
||||
States & political subdivisions
|
|
249,312
|
|
|
6,113
|
|
|
2,293
|
|
|
253,132
|
|
||||
Corporate debt securities
|
|
321,041
|
|
|
3,293
|
|
|
1,386
|
|
|
322,948
|
|
||||
Residential mortgage-backed securities
|
|
16,232
|
|
|
61
|
|
|
191
|
|
|
16,102
|
|
||||
Commercial mortgage-backed securities
|
|
37,723
|
|
|
59
|
|
|
933
|
|
|
36,849
|
|
||||
Collateralized debt obligations
|
|
68,998
|
|
|
351
|
|
|
96
|
|
|
69,253
|
|
||||
Other debt securities
|
|
2,000
|
|
|
0
|
|
|
0
|
|
|
2,000
|
|
||||
Total fixed maturities
|
|
702,403
|
|
|
9,899
|
|
|
4,961
|
|
|
707,341
|
|
||||
Common stock
|
|
6,152
|
|
|
0
|
|
|
202
|
|
|
5,950
|
|
||||
Total available-for-sale securities
|
|
$
|
708,555
|
|
|
$
|
9,899
|
|
|
$
|
5,163
|
|
|
$
|
713,291
|
|
|
|
At December 31, 2017
|
||||||
(in thousands)
|
|
Amortized
|
|
Estimated
|
||||
|
|
cost
|
|
fair value
|
||||
Due in one year or less
|
|
$
|
71,109
|
|
|
$
|
71,190
|
|
Due after one year through five years
|
|
313,305
|
|
|
315,436
|
|
||
Due after five years through ten years
|
|
240,614
|
|
|
242,739
|
|
||
Due after ten years
|
|
116,771
|
|
|
116,596
|
|
||
Total fixed maturities
|
|
$
|
741,799
|
|
|
$
|
745,961
|
|
|
|
At December 31, 2017
|
|||||||||||||||||||||||||
(dollars in thousands)
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|||||||||||||||||||||
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
No. of
|
|||||||||||||
|
|
value
|
|
losses
|
|
value
|
|
losses
|
|
value
|
|
losses
|
|
holdings
|
|||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
U.S. treasury
|
|
$
|
10,237
|
|
|
$
|
110
|
|
|
$
|
1,497
|
|
|
$
|
29
|
|
|
$
|
11,734
|
|
|
$
|
139
|
|
|
4
|
|
States & political subdivisions
|
|
52,553
|
|
|
288
|
|
|
14,361
|
|
|
332
|
|
|
66,914
|
|
|
620
|
|
|
33
|
|
||||||
Corporate debt securities
|
|
171,154
|
|
|
1,585
|
|
|
31,113
|
|
|
339
|
|
|
202,267
|
|
|
1,924
|
|
|
331
|
|
||||||
Residential mortgage-backed securities
|
|
4,156
|
|
|
29
|
|
|
7,064
|
|
|
95
|
|
|
11,220
|
|
|
124
|
|
|
11
|
|
||||||
Commercial mortgage-backed securities
|
|
10,836
|
|
|
85
|
|
|
11,984
|
|
|
612
|
|
|
22,820
|
|
|
697
|
|
|
19
|
|
||||||
Collateralized debt obligations
|
|
21,598
|
|
|
41
|
|
|
0
|
|
|
0
|
|
|
21,598
|
|
|
41
|
|
|
12
|
|
||||||
Other debt securities
|
|
1,499
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
1,499
|
|
|
0
|
|
|
1
|
|
||||||
Total fixed maturities
|
|
272,033
|
|
|
2,138
|
|
|
66,019
|
|
|
1,407
|
|
|
338,052
|
|
|
3,545
|
|
|
411
|
|
||||||
Nonredeemable preferred stock
|
|
10,737
|
|
|
100
|
|
|
0
|
|
|
0
|
|
|
10,737
|
|
|
100
|
|
|
6
|
|
||||||
Total available-for-sale securities
|
|
$
|
282,770
|
|
|
$
|
2,238
|
|
|
$
|
66,019
|
|
|
$
|
1,407
|
|
|
$
|
348,789
|
|
|
$
|
3,645
|
|
|
417
|
|
Quality breakdown of fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investment grade
|
|
$
|
214,586
|
|
|
$
|
1,064
|
|
|
$
|
62,193
|
|
|
$
|
985
|
|
|
$
|
276,779
|
|
|
$
|
2,049
|
|
|
158
|
|
Non-investment grade
|
|
57,447
|
|
|
1,074
|
|
|
3,826
|
|
|
422
|
|
|
61,273
|
|
|
1,496
|
|
|
253
|
|
||||||
Total fixed maturities
|
|
$
|
272,033
|
|
|
$
|
2,138
|
|
|
$
|
66,019
|
|
|
$
|
1,407
|
|
|
$
|
338,052
|
|
|
$
|
3,545
|
|
|
411
|
|
|
|
At December 31, 2016
|
|||||||||||||||||||||||||
(dollars in thousands)
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|||||||||||||||||||||
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
No. of
|
|||||||||||||
|
|
value
|
|
losses
|
|
value
|
|
losses
|
|
value
|
|
losses
|
|
holdings
|
|||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
U.S. treasury
|
|
$
|
5,031
|
|
|
$
|
62
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
5,031
|
|
|
$
|
62
|
|
|
1
|
|
States & political subdivisions
|
|
84,611
|
|
|
2,293
|
|
|
0
|
|
|
0
|
|
|
84,611
|
|
|
2,293
|
|
|
40
|
|
||||||
Corporate debt securities
|
|
112,453
|
|
|
987
|
|
|
8,692
|
|
|
399
|
|
|
121,145
|
|
|
1,386
|
|
|
155
|
|
||||||
Residential mortgage-backed securities
|
|
7,451
|
|
|
60
|
|
|
4,974
|
|
|
131
|
|
|
12,425
|
|
|
191
|
|
|
13
|
|
||||||
Commercial mortgage-backed securities
|
|
26,509
|
|
|
437
|
|
|
4,319
|
|
|
496
|
|
|
30,828
|
|
|
933
|
|
|
28
|
|
||||||
Collateralized debt obligations
|
|
27,470
|
|
|
75
|
|
|
4,208
|
|
|
21
|
|
|
31,678
|
|
|
96
|
|
|
15
|
|
||||||
Total fixed maturities
|
|
263,525
|
|
|
3,914
|
|
|
22,193
|
|
|
1,047
|
|
|
285,718
|
|
|
4,961
|
|
|
252
|
|
||||||
Common stock
|
|
5,950
|
|
|
202
|
|
|
0
|
|
|
0
|
|
|
5,950
|
|
|
202
|
|
|
1
|
|
||||||
Total available-for-sale securities
|
|
$
|
269,475
|
|
|
$
|
4,116
|
|
|
$
|
22,193
|
|
|
$
|
1,047
|
|
|
$
|
291,668
|
|
|
$
|
5,163
|
|
|
253
|
|
Quality breakdown of fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investment grade
|
|
$
|
239,041
|
|
|
$
|
3,605
|
|
|
$
|
16,061
|
|
|
$
|
399
|
|
|
$
|
255,102
|
|
|
$
|
4,004
|
|
|
136
|
|
Non-investment grade
|
|
24,484
|
|
|
309
|
|
|
6,132
|
|
|
648
|
|
|
30,616
|
|
|
957
|
|
|
116
|
|
||||||
Total fixed maturities
|
|
$
|
263,525
|
|
|
$
|
3,914
|
|
|
$
|
22,193
|
|
|
$
|
1,047
|
|
|
$
|
285,718
|
|
|
$
|
4,961
|
|
|
252
|
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Fixed maturities
(1)
|
|
$
|
23,587
|
|
|
$
|
20,175
|
|
|
$
|
16,457
|
|
Equity securities
|
|
82
|
|
|
171
|
|
|
1,045
|
|
|||
Cash equivalents and other
|
|
2,486
|
|
|
1,391
|
|
|
1,174
|
|
|||
Total investment income
|
|
26,155
|
|
|
21,737
|
|
|
18,676
|
|
|||
Less: investment expenses
|
|
1,547
|
|
|
1,190
|
|
|
885
|
|
|||
Investment income, net of expenses
|
|
$
|
24,608
|
|
|
$
|
20,547
|
|
|
$
|
17,791
|
|
(1)
|
Includes interest earned on note receivable from EFL of $
1.7 million
in 2017, 2016 and 2015.
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Available-for-sale securities:
|
|
|
|
|
|
|
||||||
Fixed maturities:
|
|
|
|
|
|
|
||||||
Gross realized gains
|
|
$
|
2,996
|
|
|
$
|
2,111
|
|
|
$
|
1,571
|
|
Gross realized losses
|
|
(1,611
|
)
|
|
(2,113
|
)
|
|
(1,764
|
)
|
|||
Net realized gains (losses)
|
|
1,385
|
|
|
(2
|
)
|
|
(193
|
)
|
|||
Equity securities:
|
|
|
|
|
|
|
|
|
||||
Gross realized gains
|
|
0
|
|
|
1
|
|
|
759
|
|
|||
Gross realized losses
|
|
(145
|
)
|
|
(34
|
)
|
|
(74
|
)
|
|||
Net realized (losses) gains
|
|
(145
|
)
|
|
(33
|
)
|
|
685
|
|
|||
Trading securities:
|
|
|
|
|
|
|
|
|
||||
Common stock:
|
|
|
|
|
|
|
|
|
||||
Gross realized gains
|
|
0
|
|
|
707
|
|
|
0
|
|
|||
Net realized gains
|
|
0
|
|
|
707
|
|
|
0
|
|
|||
Miscellaneous
|
|
|
|
|
|
|
||||||
Gross realized gains
|
|
96
|
|
|
0
|
|
|
0
|
|
|||
Gross realized losses
|
|
(2
|
)
|
|
0
|
|
|
0
|
|
|||
Net realized gains
|
|
94
|
|
|
0
|
|
|
0
|
|
|||
Net realized investment gains
|
|
$
|
1,334
|
|
|
$
|
672
|
|
|
$
|
492
|
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Equity in earnings of limited partnerships accounted for under the equity method
|
|
$
|
1,925
|
|
|
$
|
6,273
|
|
|
$
|
16,545
|
|
Change in fair value of limited partnerships accounted for under the fair value option
|
|
876
|
|
|
752
|
|
|
438
|
|
|||
Equity in earnings of limited partnerships
|
|
$
|
2,801
|
|
|
$
|
7,025
|
|
|
$
|
16,983
|
|
(in thousands)
|
|
2017
|
|
2016
|
||||
Private equity
|
|
$
|
31,663
|
|
|
$
|
35,228
|
|
Mezzanine debt
|
|
3,516
|
|
|
6,010
|
|
||
Real estate
|
|
5,127
|
|
|
12,509
|
|
||
Real estate - fair value option
|
|
4,816
|
|
|
4,412
|
|
||
Total limited partnerships
|
|
$
|
45,122
|
|
|
$
|
58,159
|
|
|
|
|
|
|
|
(in thousands)
|
|
2017
|
|
2016
|
||||
Software
|
|
$
|
129,553
|
|
|
$
|
124,093
|
|
Equipment
|
|
13,858
|
|
|
11,771
|
|
||
Land, buildings, and building improvements
|
|
7,627
|
|
|
7,627
|
|
||
Leasehold improvements
|
|
1,375
|
|
|
1,375
|
|
||
Projects in progress
|
|
21,898
|
|
|
17,812
|
|
||
Construction in progress
|
|
26,312
|
|
|
9,622
|
|
||
Total fixed assets, gross
|
|
200,623
|
|
|
172,300
|
|
||
Less: Accumulated depreciation
|
|
(117,474
|
)
|
|
(103,158
|
)
|
||
Fixed assets, net
|
|
$
|
83,149
|
|
|
$
|
69,142
|
|
(1)
|
The final SERP benefit for
two
former executives was settled with lump sum payments in 2017.
|
(2)
|
Pension plan costs represent the total cost before reimbursements to Indemnity from the Exchange and its subsidiaries.
|
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
||||
Employee pension plan:
|
|
|
|
|
|
|
|
|
|
||||
Discount rate
|
|
3.73
|
%
|
|
4.24
|
%
|
|
4.57
|
%
|
|
4.17
|
%
|
|
Expected return on assets
|
|
6.75
|
|
|
7.00
|
|
|
7.00
|
|
|
7.00
|
|
|
Compensation increases
(1)
|
|
3.32
|
|
|
3.32
|
|
|
3.32
|
|
|
3.32
|
|
|
SERP:
|
|
|
|
|
|
|
|
|
|
|
|||
Discount rate – pre-retirement/post-retirement
|
|
3.73/3.23
|
|
|
4.24/3.74
|
|
|
4.57/4.07
|
|
|
4.17/3.67
|
|
|
Rate of compensation increase
|
|
5.00
|
|
|
5.00
|
|
|
5.00
|
|
|
5.00
|
|
|
(1)
|
The rate of compensation increase for the employee plan is age-graded. An equivalent single compensation increase rate of
3.32%
in
2017
,
2016
and
2015
would produce similar results.
|
(1)
|
The final SERP benefit for
two
former executives was settled with lump sum payments in
2017
.
|
(1)
|
Effective December 31, 2016, a plan amendment was adopted to enhance the surviving spouse's death benefits, which increased the pension plan obligation by
$3.6 million
and the SERP obligation by
$0.3 million
in 2017. In
2016
, a plan amendment was adopted to allow part time employees to participant in the pension plan, which added prior service cost of
$1.7 million
in
2016
. Additionally, there were
two
new SERP participants in
2017
and
one
new participant in
2016
, which contributed
$1.2 million
and
$0.4 million
, respectively.
|
(2)
|
The final SERP benefit for
two
former executives was settled with lump sum payments in
2017
.
|
|
|
|
|
||||||||||
|
|
Target asset
allocation
|
|
Target asset
allocation
|
|
Actual asset
allocation
|
|
Actual asset
allocation
|
|
||||
Asset allocation:
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
||||
Equity securities:
|
|
|
|
|
|
|
|
|
|
||||
U.S. equity securities
|
|
35
|
%
|
(1)
|
35
|
%
|
|
39
|
%
|
|
38
|
%
|
|
Non-U.S. equity securities
|
|
20
|
|
(2)
|
20
|
|
|
19
|
|
|
18
|
|
|
Total equity securities
|
|
55
|
|
|
55
|
|
|
58
|
|
|
56
|
|
|
Debt securities
|
|
44
|
|
(3)
|
44
|
|
|
41
|
|
|
43
|
|
|
Other
|
|
1
|
|
(4)
|
1
|
|
|
1
|
|
|
1
|
|
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
(1)
|
U.S. equity securities
–
22%
seek to achieve excess returns relative to the Russell 2000 Index, while
30%
seek to achieve excess returns relative to the S&P 500. The remaining
48%
of the allocation to U.S. equity securities are comprised of equity index funds that track the S&P 500.
|
(2)
|
Non-U.S. equity securities
–
11%
are allocated to international small cap investments, while another
11%
are allocated to international emerging market investments. The remaining
78%
of the Non-U.S. equity securities are allocated to investments seeking to achieve excess returns relative to an international market index.
|
(3)
|
Debt securities
–
44%
are allocated to long U.S. Treasury Strips,
44%
are allocated to U.S. corporate bonds with an emphasis on long duration bonds rated A or better, while the remaining
12%
are allocated to floating rate high income leverage loans.
|
(4)
|
Institutional money market fund.
|
|
|
|
|
||||||||||||||
|
|
At December 31, 2017
|
|
||||||||||||||
|
|
Fair value measurements of plan assets using:
|
|
||||||||||||||
(in thousands)
|
|
Total
|
|
Quoted prices in
active markets for
identical assets
Level 1
|
|
Significant
observable
inputs
Level 2
|
|
Significant
unobservable
inputs
Level 3
|
|
||||||||
Equity securities:
|
|
|
|
|
|
|
|
|
|
||||||||
U.S. equity securities
|
|
$
|
288,861
|
|
|
$
|
0
|
|
|
$
|
288,861
|
|
|
$
|
0
|
|
|
Non-U.S. equity securities
|
|
145,238
|
|
|
0
|
|
|
145,238
|
|
|
0
|
|
|
||||
Total equity securities
|
|
434,099
|
|
|
0
|
|
|
434,099
|
|
|
0
|
|
|
||||
Debt securities
|
|
303,331
|
|
|
0
|
|
|
303,331
|
|
|
0
|
|
|
||||
Other
|
|
6,470
|
|
|
6,470
|
|
|
0
|
|
|
0
|
|
|
||||
Total
|
|
$
|
743,900
|
|
|
$
|
6,470
|
|
|
$
|
737,430
|
|
|
$
|
0
|
|
|
|
|
|
|
||||||||||||||
|
|
At December 31, 2016
|
|
||||||||||||||
|
|
Fair value measurements of plan assets using:
|
|
||||||||||||||
(in thousands)
|
|
Total
|
|
Quoted prices in
active markets for
identical assets
Level 1
|
|
Significant
observable
inputs
Level 2
|
|
Significant
unobservable
inputs
Level 3
|
|
||||||||
Equity securities:
|
|
|
|
|
|
|
|
|
|
||||||||
U.S. equity securities
|
|
$
|
225,446
|
|
|
$
|
0
|
|
|
$
|
225,446
|
|
|
$
|
0
|
|
|
Non-U.S. equity securities
|
|
107,953
|
|
|
0
|
|
|
107,953
|
|
|
0
|
|
|
||||
Total equity securities
|
|
333,399
|
|
|
0
|
|
|
333,399
|
|
|
0
|
|
|
||||
Debt securities
|
|
253,197
|
|
|
0
|
|
|
253,197
|
|
|
0
|
|
|
||||
Other
|
|
5,948
|
|
|
5,948
|
|
|
0
|
|
|
0
|
|
|
||||
Total
|
|
$
|
592,544
|
|
|
$
|
5,948
|
|
|
$
|
586,596
|
|
|
$
|
0
|
|
|
(in thousands)
|
|
|
||||||||||
|
|
2017
|
|
2016
|
|
2015
|
||||||
Current income tax expense
|
|
$
|
81,689
|
|
|
$
|
109,727
|
|
|
$
|
106,155
|
|
Deferred income tax expense (benefit)
|
|
26,912
|
|
|
(2
|
)
|
|
(14,584
|
)
|
|||
Other income tax expense
(1)
|
|
10,095
|
|
|
—
|
|
|
—
|
|
|||
Income tax expense
|
|
$
|
118,696
|
|
|
$
|
109,725
|
|
|
$
|
91,571
|
|
(1)
|
The income tax expense for 2017 was impacted by the re-measurement of our deferred tax assets and liabilities due to the enactment of the TCJA on December 22, 2017, which reduced the corporate tax rate from
35%
to
21%
effective January 1, 2018.
|
(1)
|
Deferred tax balances were tax effected at
21%
in 2017, the corporate tax rate effective January 1, 2018, as a result of the enactment of the TCJA on December 22, 2017. For 2016, balances were tax effected at the then effective tax rate of
35%
.
|
(2)
|
Decrease in tax assets of pension and other postretirement benefits are primarily due to the
$39.9 million
of unplanned additional contributions in 2017, as well as accelerated contributions in 2018. We contributed
$40 million
in January 2018 and plan to contribute an additional
$40 million
in April 2018.
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
||||||||||||||||||||||||
|
|
Before Tax
|
Income Tax
|
Net
|
|
Before Tax
|
Income Tax
|
Net
|
|
Before Tax
|
Income Tax
|
Net
|
||||||||||||||||||
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
AOCI, beginning of year
|
|
$
|
3,954
|
|
$
|
1,384
|
|
$
|
2,570
|
|
|
$
|
3,888
|
|
$
|
1,361
|
|
$
|
2,527
|
|
|
$
|
10,473
|
|
$
|
3,666
|
|
$
|
6,807
|
|
OCI (loss) before reclassifications - pre TCJA
(1)
|
|
(648
|
)
|
(227
|
)
|
(421
|
)
|
|
(385
|
)
|
(135
|
)
|
(250
|
)
|
|
(7,651
|
)
|
(2,678
|
)
|
(4,973
|
)
|
|||||||||
OCI before reclassifications - post TCJA
(1)
|
|
1,162
|
|
243
|
|
919
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|||||||||
Realized investment (gains) losses
|
|
(1,240
|
)
|
(434
|
)
|
(806
|
)
|
|
35
|
|
12
|
|
23
|
|
|
(492
|
)
|
(172
|
)
|
(320
|
)
|
|||||||||
Impairment losses
|
|
182
|
|
64
|
|
118
|
|
|
416
|
|
146
|
|
270
|
|
|
1,558
|
|
545
|
|
1,013
|
|
|||||||||
OCI (loss)
|
|
(544
|
)
|
(354
|
)
|
(190
|
)
|
|
66
|
|
23
|
|
43
|
|
|
(6,585
|
)
|
(2,305
|
)
|
(4,280
|
)
|
|||||||||
Reclassification adjustment
(2)
|
|
—
|
|
(314
|
)
|
314
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|||||||||
AOCI, end of year
|
|
$
|
3,410
|
|
$
|
716
|
|
$
|
2,694
|
|
|
$
|
3,954
|
|
$
|
1,384
|
|
$
|
2,570
|
|
|
$
|
3,888
|
|
$
|
1,361
|
|
$
|
2,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Pension and other postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
AOCI (loss), beginning of year
|
|
$
|
(190,695
|
)
|
$
|
(66,744
|
)
|
$
|
(123,951
|
)
|
|
$
|
(152,910
|
)
|
$
|
(53,519
|
)
|
$
|
(99,391
|
)
|
|
$
|
(191,552
|
)
|
$
|
(67,044
|
)
|
$
|
(124,508
|
)
|
OCI (loss) before reclassifications
|
|
(20,314
|
)
|
(7,111
|
)
|
(13,203
|
)
|
|
(46,244
|
)
|
$
|
(16,185
|
)
|
(30,059
|
)
|
|
24,094
|
|
8,433
|
|
15,661
|
|
||||||||
Amortization of prior service costs
(3)
|
|
871
|
|
306
|
|
565
|
|
|
695
|
|
243
|
|
452
|
|
|
668
|
|
234
|
|
434
|
|
|||||||||
Amortization of net actuarial loss
(3)
|
|
8,882
|
|
3,109
|
|
5,773
|
|
|
7,764
|
|
2,717
|
|
5,047
|
|
|
13,880
|
|
4,858
|
|
9,022
|
|
|||||||||
Settlement loss
(3)
|
|
302
|
|
106
|
|
196
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|||||||||
Impact of change in tax rate
(4)
|
|
—
|
|
1,436
|
|
(1,436
|
)
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|||||||||
OCI (loss)
|
|
(10,259
|
)
|
(2,154
|
)
|
(8,105
|
)
|
|
(37,785
|
)
|
(13,225
|
)
|
(24,560
|
)
|
|
38,642
|
|
13,525
|
|
25,117
|
|
|||||||||
Reclassification adjustment
(2)
|
|
—
|
|
26,697
|
|
(26,697
|
)
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|||||||||
AOCI (loss), end of year
|
|
$
|
(200,954
|
)
|
$
|
(42,201
|
)
|
$
|
(158,753
|
)
|
|
$
|
(190,695
|
)
|
$
|
(66,744
|
)
|
$
|
(123,951
|
)
|
|
$
|
(152,910
|
)
|
$
|
(53,519
|
)
|
$
|
(99,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
AOCI (loss), beginning of year
|
|
$
|
(186,741
|
)
|
$
|
(65,360
|
)
|
$
|
(121,381
|
)
|
|
$
|
(149,022
|
)
|
$
|
(52,158
|
)
|
$
|
(96,864
|
)
|
|
$
|
(181,079
|
)
|
$
|
(63,378
|
)
|
$
|
(117,701
|
)
|
Investment securities
|
|
(544
|
)
|
(354
|
)
|
(190
|
)
|
|
66
|
|
23
|
|
43
|
|
|
(6,585
|
)
|
(2,305
|
)
|
(4,280
|
)
|
|||||||||
Pension and other postretirement plans
|
|
(10,259
|
)
|
(2,154
|
)
|
(8,105
|
)
|
|
(37,785
|
)
|
(13,225
|
)
|
(24,560
|
)
|
|
38,642
|
|
13,525
|
|
25,117
|
|
|||||||||
OCI (loss)
|
|
(10,803
|
)
|
(2,508
|
)
|
(8,295
|
)
|
|
(37,719
|
)
|
(13,202
|
)
|
(24,517
|
)
|
|
32,057
|
|
11,220
|
|
20,837
|
|
|||||||||
Reclassification adjustment
(2)
|
|
—
|
|
26,383
|
|
(26,383
|
)
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|||||||||
AOCI (loss), end of year
|
|
$
|
(197,544
|
)
|
$
|
(41,485
|
)
|
$
|
(156,059
|
)
|
|
$
|
(186,741
|
)
|
$
|
(65,360
|
)
|
$
|
(121,381
|
)
|
|
$
|
(149,022
|
)
|
$
|
(52,158
|
)
|
$
|
(96,864
|
)
|
(1)
|
Deferred taxes related to unrealized gains and losses for the period from December 23, 2017 through December 31, 2017 were recognized at the
21%
corporate rate following enactment of the TCJA. Prior to enactment, they were recognized at the
35%
corporate rate.
|
(2)
|
A one-time adjustment was made in the fourth quarter of 2017 to reclassify stranded tax effects of the components of AOCI resulting from enactment of TCJA from AOCI to retained earnings. As a result, the ending AOCI balances now reflect the new
21%
corporate rate, which represents the rate in which the amounts are expected to be settled. See Note 2, "Significant Accounting Policies".
|
(3)
|
These components of accumulated other comprehensive income (loss) are included in the computation of net periodic pension cost. See Note 8, "Postretirement Benefits", for additional information.
|
(4)
|
Deferred taxes related to the December 31, 2017 portion of the pension and other postretirement component recognized in AOCI of
$10.3 million
were recognized at the
21%
corporate rate following the enactment of the TCJA.
|
(in thousands)
|
|
2017
|
|
2016
|
||||
Erie Insurance Exchange
(1)
|
|
|
|
|
||||
Operating expenses
|
|
$
|
447,953
|
|
|
$
|
429,985
|
|
Investment expenses
|
|
30,393
|
|
|
27,240
|
|
||
|
|
478,346
|
|
|
457,225
|
|
||
Erie Family Life Insurance
|
|
|
|
|
||||
Operating expenses
|
|
$
|
41,793
|
|
|
$
|
36,818
|
|
Investment expenses
|
|
2,196
|
|
|
2,070
|
|
||
|
|
43,989
|
|
|
38,888
|
|
||
Total cash settlements
|
|
$
|
522,335
|
|
|
$
|
496,113
|
|
(in thousands)
|
|
|
||||||||||
|
|
2017
|
|
2016
|
|
2015
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
|
||||||
Net income
|
|
$
|
196,999
|
|
|
$
|
210,366
|
|
|
$
|
174,678
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
||||||
Depreciation and amortization
|
|
14,929
|
|
|
15,154
|
|
|
16,461
|
|
|||
Deferred income tax expense (benefit)
|
|
26,912
|
|
|
(2
|
)
|
|
(14,584
|
)
|
|||
Other income tax expense
(1)
|
|
10,095
|
|
|
—
|
|
|
—
|
|
|||
Realized (gains) losses and impairments on investments
|
|
(1,152
|
)
|
|
(256
|
)
|
|
1,066
|
|
|||
Equity in earnings of limited partnerships
|
|
(2,801
|
)
|
|
(7,025
|
)
|
|
(16,983
|
)
|
|||
Net amortization of bond premium
|
|
7,038
|
|
|
7,436
|
|
|
8,160
|
|
|||
Decrease in deferred compensation
|
|
(2,681
|
)
|
|
(4,561
|
)
|
|
(1,526
|
)
|
|||
Limited partnership distributions
|
|
5,128
|
|
|
17,837
|
|
|
14,112
|
|
|||
Increase in receivables from affiliates
|
|
(39,788
|
)
|
|
(30,485
|
)
|
|
(12,835
|
)
|
|||
(Increase) decrease in accrued investment income
|
|
(516
|
)
|
|
(846
|
)
|
|
47
|
|
|||
(Increase) decrease in federal income taxes recoverable
|
|
(24,640
|
)
|
|
6,687
|
|
|
(499
|
)
|
|||
(Increase) decrease in prepaid pension
|
|
(27,265
|
)
|
|
10,524
|
|
|
20,307
|
|
|||
(Increase) decrease in prepaid expenses and other assets
|
|
(7,636
|
)
|
|
(4,674
|
)
|
|
1,193
|
|
|||
Increase in accounts payable and accrued expenses
|
|
17,183
|
|
|
11,144
|
|
|
3,633
|
|
|||
Increase in commissions payable
|
|
17,565
|
|
|
15,017
|
|
|
5,624
|
|
|||
Increase in accrued agent bonuses
|
|
7,756
|
|
|
8,020
|
|
|
18,524
|
|
|||
Net cash provided by operating activities
|
|
$
|
197,126
|
|
|
$
|
254,336
|
|
|
$
|
217,378
|
|
(1)
|
Due to the enactment of the TCJA on December 22, 2017, income tax expense increased by
$10.1 million
, which included an increase of
$19.9 million
related to the re-measurement of our net deferred tax asset partially offset by a deferred tax benefit of
$9.8 million
primarily related to the acceleration of pension contributions.
|
|
|
Year ended December 31, 2017
|
||||||||||||||||||
(in thousands, except per share data)
|
|
First
quarter
|
|
Second
quarter
|
|
Third
quarter
|
|
Fourth
quarter
|
|
Year
|
||||||||||
Operating revenue
|
|
$
|
399,316
|
|
|
$
|
448,564
|
|
|
$
|
442,492
|
|
|
$
|
401,402
|
|
|
$
|
1,691,774
|
|
Operating expenses
|
|
332,782
|
|
|
365,520
|
|
|
361,656
|
|
|
343,444
|
|
|
1,403,402
|
|
|||||
Investment income
|
|
6,586
|
|
|
6,448
|
|
|
8,406
|
|
|
7,121
|
|
|
28,561
|
|
|||||
Interest expense, net
|
|
166
|
|
|
257
|
|
|
377
|
|
|
438
|
|
|
1,238
|
|
|||||
Income before income taxes
|
|
72,954
|
|
|
89,235
|
|
|
88,865
|
|
|
64,641
|
|
|
315,695
|
|
|||||
Net income
|
|
$
|
47,876
|
|
|
$
|
58,527
|
|
|
$
|
58,543
|
|
|
$
|
32,053
|
|
|
$
|
196,999
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings per share
(1)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net income per share
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Class A common stock – basic
|
|
$
|
1.03
|
|
|
$
|
1.26
|
|
|
$
|
1.26
|
|
|
$
|
0.69
|
|
|
$
|
4.23
|
|
Class A common stock – diluted
(2)
|
|
$
|
0.91
|
|
|
$
|
1.12
|
|
|
$
|
1.12
|
|
|
$
|
0.61
|
|
|
$
|
3.76
|
|
Class B common stock – basic
|
|
$
|
154
|
|
|
$
|
189
|
|
|
$
|
189
|
|
|
$
|
103
|
|
|
$
|
635
|
|
Class B common stock – diluted
|
|
$
|
154
|
|
|
$
|
188
|
|
|
$
|
189
|
|
|
$
|
103
|
|
|
$
|
634
|
|
(
1)
|
The cumulative sum of quarterly basic and diluted net income per share amounts may not equal total basic and diluted net income per share for the year due to differences in weighted average shares and equivalent shares outstanding for each of the periods presented.
|
(2)
|
Class A diluted earnings per share was reduced by
$0.19
for the fourth quarter and total year as a result of increased income tax expense from enactment of the TCJA of
$10.1 million
. See Note 3, "Earnings Per Share" and Note 10, "Income Taxes".
|
|
|
Year ended December 31, 2016
|
||||||||||||||||||
(in thousands, except per share data)
|
|
First
quarter
|
|
Second
quarter
|
|
Third
quarter
|
|
Fourth
quarter
|
|
Year
|
||||||||||
Operating revenue
|
|
$
|
374,728
|
|
|
$
|
423,884
|
|
|
$
|
418,406
|
|
|
$
|
379,613
|
|
|
$
|
1,596,631
|
|
Operating expenses
|
|
307,063
|
|
|
338,125
|
|
|
336,151
|
|
|
322,928
|
|
|
1,304,267
|
|
|||||
Investment income
|
|
2,559
|
|
|
7,404
|
|
|
4,326
|
|
|
13,539
|
|
|
27,828
|
|
|||||
Interest expense, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
101
|
|
|
101
|
|
|||||
Income before income taxes
|
|
70,224
|
|
|
93,163
|
|
|
86,581
|
|
|
70,123
|
|
|
320,091
|
|
|||||
Net income
|
|
$
|
45,895
|
|
|
$
|
61,309
|
|
|
$
|
57,376
|
|
|
$
|
45,786
|
|
|
$
|
210,366
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings per share
(1)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net income per share
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Class A common stock – basic
|
|
$
|
0.99
|
|
|
$
|
1.32
|
|
|
$
|
1.23
|
|
|
$
|
0.98
|
|
|
$
|
4.52
|
|
Class A common stock –
diluted
|
|
$
|
0.87
|
|
|
$
|
1.17
|
|
|
$
|
1.09
|
|
|
$
|
0.87
|
|
|
$
|
4.01
|
|
Class B common stock – basic
|
|
$
|
148
|
|
|
$
|
197
|
|
|
$
|
185
|
|
|
$
|
147
|
|
|
$
|
678
|
|
Class B common stock – diluted
|
|
$
|
148
|
|
|
$
|
197
|
|
|
$
|
185
|
|
|
$
|
147
|
|
|
$
|
677
|
|
(
1)
|
The cumulative sum of quarterly basic and diluted net income per share amounts may not equal total basic and diluted net income per share for the year due to differences in weighted average shares and equivalent shares outstanding for each of the periods presented.
|
/s/ Timothy G. NeCastro
|
|
/s/ Gregory J. Gutting
|
|
/s/ Julie M. Pelkowski
|
|
Timothy G. NeCastro
|
|
Gregory J. Gutting
|
|
Julie M. Pelkowski
|
|
President and
|
|
Executive Vice President
|
|
Senior Vice President
|
|
Chief Executive Officer
|
|
and Chief Financial Officer
|
|
and Controller
|
|
February 22, 2018
|
|
February 22, 2018
|
|
February 22, 2018
|
|
Name
|
|
Age as of 12/31/2017
|
|
Principal Occupation and Positions for Past Five Years
|
|
|
|
|
|
President & Chief Executive Officer:
|
|
|
|
|
Timothy G. NeCastro
|
|
57
|
|
President and Chief Executive Officer since January 2017; Chief Executive Officer, August 2016 through December 2016; President and Chief Executive Officer Designate, June 2016 through July 2016; Senior Vice President, West Region, February 2010 through June 2016; Director, Erie Family Life Insurance Company ("EFL"), Erie Insurance Company ("EIC"), Flagship City Insurance Company ("Flagship"), Erie Insurance Company of New York ("ENY") and Erie Insurance Property & Casualty Company ("EPC").
|
Executive Vice Presidents:
|
|
|
|
|
Lorianne Feltz
|
|
48
|
|
Executive Vice President, Claims & Customer Service since November 2016; Senior Vice President, Customer Service, January 2011 through November 2016.
|
|
|
|
|
|
Gregory J. Gutting
|
|
54
|
|
Executive Vice President and Chief Financial Officer since August 2016; Interim Executive Vice President and Chief Financial Officer, October 2015 through July 2016; Senior Vice President and Controller, March 2009 through September 2015; Director, EFL, EIC, Flagship, ENY and EPC.
|
|
|
|
|
|
Robert C. Ingram, III
|
|
59
|
|
Executive Vice President and Chief Information Officer since August 2012; Director, EFL, EIC, Flagship, ENY and EPC.
|
|
|
|
|
|
Sean J. McLaughlin
|
|
62
|
|
Executive Vice President and General Counsel since January 2016; Executive Vice President, Secretary and General Counsel, August 2013 through December 2015; Chief Judge, United States District Court for the Western District of Pennsylvania, April 2013 through August 2013; United States District Judge for the Western District of Pennsylvania, October 1994 through April 2013; Director, EFL, EIC, Flagship, ENY and EPC.
|
|
|
|
|
|
Douglas E. Smith
|
|
43
|
|
Executive Vice President, Sales & Products since November 2016; Senior Vice President, Personal Lines, November 2008 through October 2016.
|
|
|
|
|
|
Dionne Wallace Oakley
|
|
50
|
|
Executive Vice President, Human Resources & Strategy since January 2018; Senior Vice President, Human Resources, September 2012 through December 2017.
|
•
|
Report of Independent Registered Public Accounting Firm on the Effectiveness of Internal Control over Financial Reporting
|
•
|
Report of Independent Registered Public Accounting Firm on the Financial Statements
|
•
|
Statements of Operations for the three years ended
December 31, 2017
,
2016
and
2015
|
•
|
Statements of Comprehensive Income for the three years ended
December 31, 2017
,
2016
and
2015
|
•
|
Statements of Financial Position as of
December 31, 2017
and
2016
|
•
|
Statements of Shareholders' Equity for the three years ended
December 31, 2017
,
2016
and
2015
|
•
|
Statements of Cash Flows for the three years ended
December 31, 2017
,
2016
and
2015
|
•
|
Notes to Financial Statements
|
|
Page
|
February 22, 2018
|
ERIE INDEMNITY COMPANY
|
|
|
(Registrant)
|
|
|
|
|
By:
|
/s/ Timothy G. NeCastro
|
|
|
Timothy G. NeCastro, President and CEO
|
|
|
(Principal Executive Officer)
|
|
February 22, 2018
|
/s/ Timothy G. NeCastro
|
|
||
|
Timothy G. NeCastro, President and CEO
|
|
||
|
(Principal Executive Officer)
|
|
||
|
|
|
|
|
|
|
/s/ Gregory J. Gutting
|
|
|
|
Gregory J. Gutting, Executive Vice President and CFO
|
|
||
|
(Principal Financial Officer)
|
|
||
|
|
|
||
|
/s/ Julie M. Pelkowski
|
|
||
|
Julie M. Pelkowski, Senior Vice President and Controller
|
|
||
|
(Principal Accounting Officer)
|
|
/s/ J. Ralph Borneman, Jr.
|
|
/s/ Claude C. Lilly, III
|
J. Ralph Borneman, Jr.
|
|
Claude C. Lilly, III
|
|
|
|
/s/ Eugene C. Connell
|
|
/s/ George R. Lucore
|
Eugene C. Connell
|
|
George R. Lucore
|
|
|
|
/s/ LuAnn Datesh
|
|
/s/ Thomas W. Palmer
|
LuAnn Datesh
|
|
Thomas W. Palmer
|
|
|
|
/s/ Jonathan Hirt Hagen
|
|
/s/ Martin P. Sheffield
|
Jonathan Hirt Hagen
|
|
Martin P. Sheffield
|
|
|
|
/s/ Thomas B. Hagen
|
|
/s/ Richard L. Stover
|
Thomas B. Hagen, Chairman
|
|
Richard L. Stover
|
|
|
|
/s/ C. Scott Hartz
|
|
/s/ Elizabeth Hirt Vorsheck
|
C. Scott Hartz
|
|
Elizabeth Hirt Vorsheck
|
|
|
|
/s/ Brian A. Hudson, Sr.
|
|
|
Brian A. Hudson, Sr.
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
3.8
|
|
|
|
|
|
3.9*
|
|
|
|
|
|
10.12
|
|
|
|
|
|
10.104
|
|
|
|
|
|
10.145
|
|
|
|
|
|
10.146
|
|
|
|
|
|
10.152
|
|
|
|
|
|
10.153
|
|
|
|
|
|
10.154
|
|
|
|
|
|
10.156
|
|
|
|
|
|
10.157
|
|
|
|
|
|
10.158
|
|
|
|
|
|
10.159
|
|
|
|
|
|
10.160
|
|
|
|
|
|
10.162
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
10.163
|
|
|
|
|
|
10.164
|
|
|
|
|
|
10.165
|
|
|
|
|
|
10.166
|
|
|
|
|
|
10.167
|
|
|
|
|
|
10.168
|
|
|
|
|
|
10.169
|
|
|
|
|
|
10.170
|
|
|
|
|
|
10.171
|
|
|
|
|
|
10.172
|
|
|
|
|
|
10.173
|
|
|
|
|
|
10.174
|
|
|
|
|
|
10.175
|
|
|
|
|
|
10.176
|
|
|
|
|
|
10.177
|
|
|
|
|
|
10.178
|
|
|
|
|
|
10.179
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
10.180
|
|
|
|
|
|
10.181
|
|
|
|
|
|
10.182
|
|
|
|
|
|
10.183
|
|
|
|
|
|
10.184
|
|
|
|
|
|
10.185*
|
|
|
|
|
|
10.186*
|
|
|
|
|
|
10.187
|
|
|
|
|
|
10.188
|
|
|
|
|
|
10.189
|
|
|
|
|
|
14.3
|
|
|
|
|
|
14.4
|
|
|
|
|
|
23*
|
|
|
|
|
|
31.1*
|
|
|
|
|
|
31.2*
|
|
|
|
|
|
32*
|
|
|
|
|
|
101.INS*
|
|
XBRL Instance Document.
|
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document.
|
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
(1)
|
the Chairman of the Board,
|
(2)
|
the Chief Executive Officer,
|
(3)
|
the Board of Directors,
|
(4)
|
the Chairman of the Executive Committee, or
|
(5)
|
Shareholders entitled to cast at least twenty percent (20%) of the votes that all Shareholders are entitled to cast at the particular meeting.
|
(1)
|
ten (10) days prior to the day named for a meeting called to consider a fundamental transaction under 15 Pa.C.S. Chapter 19; or
|
(2)
|
five (5) days prior to the day named for the meeting in any other case.
|
(1)
|
if only one (1) or more of such persons is present in person or by proxy, all of the shares standing in the names of such persons shall be deemed to be represented for the purpose of determining a quorum and the corporation shall accept as the vote of all the shares the vote cast by a joint owner or a majority of them; and
|
(2)
|
if the persons are equally divided upon whether the shares held by them shall be voted or upon the manner of voting the shares, the voting of the shares shall be divided equally among the persons without prejudice to the rights of the joint owners or the beneficial owners thereof among themselves.
|
(1)
|
The record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held.
|
(2)
|
The record date for determining Shareholders entitled to express consent or dissent to corporate action in writing without a meeting, when prior action by the Board of Directors is not necessary, shall be the close of business on the day on which the first written consent or dissent is filed with the Secretary of the corporation.
|
(3)
|
The record date for determining Shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
|
(1)
|
One (1) or more officers or employees of the corporation whom the Director reasonably believes to be reliable and competent in the matters present, or
|
(2)
|
Counsel, public accountants or other persons as to matters which the Director reasonably believes to be within the professional or expert competence of such persons, or
|
(3)
|
A committee of the Board of Directors upon which he does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the Director reasonably believes to merit confidence.
|
(1)
|
The Director has breached or failed to perform his duties of his office under subsections (a), (b) and (c) of this Section 3.06, and
|
(2)
|
The breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.
|
(1)
|
The responsibility or liability of a Director pursuant to any criminal statute, or
|
(2)
|
The liability of a Director for the payment of taxes pursuant to local, state or federal law.
|
(1)
|
The submission to Shareholders of any action requiring approval of Shareholders under the Business Corporation Law.
|
(2)
|
The creation or filling of vacancies in the Board of Directors.
|
(3)
|
The adoption, amendment or repeal of these bylaws.
|
(4)
|
The amendment or repeal of any resolution of the Board that by its terms is amendable or repealable only by the Board.
|
(5)
|
Action on matters committed by these bylaws or a resolution of the Board of Directors to another committee of the Board.
|
(1)
|
the three (3) highest paid officers of the corporation,
|
(2)
|
the President if he or she is not among the three (3) highest paid officers, and
|
(3)
|
such other officers as the Board of Directors from time to time may designate by resolution.
|
1.
|
Section 2.1(b) of the Plan is hereby amended in its entirety and shall now read as follows:
|
(b)
|
A Covered Employee who is hired on or after March 1, 2013 and who does not make an affirmative election to participate in the Plan pursuant to paragraph (a) above within the 30-day period following notice of his eligibility shall be enrolled automatically to participate in the Plan effective as of the beginning of the first pay period following the expiration of such 30-day period. Such automatic enrollment shall be at the rate of five percent (5%) of Compensation and, except as provided in Section 3.1(c) with respect to automatic increases in rates of Elective Deferrals applicable to Participants hired on and after January 2, 2018, such five percent (5%) rate shall remain in effect during such Participant’s period of employment until such time as the Participant affirmatively acts to change such percentage. The Administrator shall comply with the notice requirements of Section 414(w)(4) of the Code and may establish additional procedures, in its discretion, to administer the automatic enrollment of Covered Employees. For all purposes hereunder, contributions made pursuant to automatic enrollment hereunder shall be treated as Tax Deferred Contributions.
|
2.
|
The second-to-last sentence of Section 2.1(c) of the Plan shall be amended in its entirety and shall now read as follows:
|
3.
|
The last sentence of Section 2.2 of the Plan shall be amended in its entirety and shall now read as follows:
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4.
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Section 2.3(b) of the Plan is hereby amended in its entirety and shall now read as follows:
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(b)
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Upon the transfer of an individual from other employment with an Employer or Affiliate such that the individual becomes a Covered Employee hereunder, such individual shall be eligible to participate in the Plan as provided in Section 2.1 hereof and, except for individuals who transfer to the employment classification described in Section 2.1(c), the automatic enrollment provisions of Section 2.1(b) and the automatic increase provisions of Section 3.1(c) shall apply following such transfer.
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5.
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A new section shall be added to Article Two of the Plan and such new section, designated as Section 2.4, shall read as follows.
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2.4
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Covered Employees Returning from Leave
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6.
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The first paragraph of Section 3.1(a) of the Plan shall be amended in its entirety and shall now read as follows:
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7.
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A new paragraph (c) shall be added to Section 3.1, as follows, and current Section 3.1(c) shall be re-designated as Section 3.1(d).
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(c)
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The Elective Deferrals of a Participant who is hired on or after January 2, 2018 and who is making Elective Deferrals at a rate greater than 0% and less than 10% shall be increased automatically as of the March 1 that next follows such Participant’s date of hire by at least six months, and as of each subsequent March 1 thereafter. Such automatic rate of increase shall be one percent (1.0%) of the Participant’s Compensation as of the given March 1 and such automatic rate of increase shall remain in effect for each subsequent March 1 until the Participant’s rate of Elective Deferrals is equal to ten percent (10%) of Compensation; provided, however, that the Participant may affirmatively elect to change such automatic rate of increase, or to decline an automatic increase, at any time in accordance with the provisions of Section 3.8(a).
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8.
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A new sentence shall be added to the end of Section 7.3 and shall read as follows:
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ERIE INDEMNITY COMPANY
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ATTEST:
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/s/ Patrick Simpson
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By:
/s/ Sean J. McLaughlin
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Title:
Executive Vice President and General Counsel
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8.1
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Death Prior to Retirement or Severance
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(a)
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Upon the death of a Participant prior to his Date of Severance and prior to the date on which the Participant has attained either Normal Retirement Age or eligibility for an early retirement pension under Section 5.2, the Participant’s surviving Spouse, if any, shall be eligible to receive a monthly surviving Spouse’s benefit under the assumption that the Participant had retired the day prior to his death with an Accrued Pension under the Plan as determined in accordance with the provisions of Section 6.2(a), and under the further assumption that the automatic election of a surviving Spouse’s benefit pursuant to subsection 7.5 was in effect at the time of death. Such surviving Spouse’s benefit shall commence as of the first day of the month following the Participant’s death, shall be unreduced for early commencement and shall be payable for the lifetime of the surviving Spouse.
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(b)
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Upon the death of a Participant prior to his Date of Severance and on or after the date on which the Participant has attained either Normal Retirement Age or eligibility for an early retirement pension under Section 5.2, the Participant’s surviving Spouse, if any, shall be eligible to receive a monthly surviving Spouse’s benefit equal to the larger of (i) and (ii) below:
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(i)
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the surviving Spouse’s benefit provided under Section 8.1(a); and
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(ii)
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the surviving Spouse’s benefit under the assumption that the Participant had retired the day prior to his death with an Accrued Pension under the Plan as determined in accordance with the provisions of Section 6.1 or Section 6.2(b), as applicable, and under the further assumption that the Participant had elected Option E, the 100% Joint and Survivor Option under Section 7.7 with his Spouse as Beneficiary thereunder immediately prior to his death. Such surviving Spouse’s benefit shall commence as of the first day of the month following the Participant’s death, shall be reduced for commencement prior to the Participant’s Normal Retirement Date in accordance with the factors set forth in Section 6.2(b), and shall be payable for the lifetime of the surviving Spouse.
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(c)
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For purposes of Sections 8.1, 8.2 and 8.3, the interest that is payable to the Participant’s surviving Spouse shall be distributed over a period not in excess of the life expectancy of such surviving Spouse and shall commence no later than the December 31 of the calendar year in which the Participant would have attained age 65 (or the December 31 of the calendar year immediately following the calendar year of the Participant’s death, if later).
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ERIE INDEMNITY COMPANY
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ATTEST:
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/s/ Patrick Simpson
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By:
/s/ Sean J. McLaughlin
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Title:
Executive Vice President and General Counsel
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(1)
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Registration Statement (Form S-8 No. 333-218739) pertaining to the Erie Indemnity Company Incentive Compensation Deferral Plan,
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(2)
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Registration Statement (Form S-8 No. 333-188244) pertaining to the Erie Indemnity Company Equity Compensation Plan,
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(3)
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Registration Statement (Form S-8 No. 333-148705) pertaining to the Erie Indemnity Company 2004 Long-Term Incentive Plan, Erie Indemnity Company 1997 Long-Term Incentive Plan, and Erie Indemnity Company Deferred Compensation Plan for Outside Directors,
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(4)
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Registration Statement (Form S-8 No. 333-82062) pertaining to the Erie Indemnity Company Long-Term Incentive Plan, and
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(5)
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Registration Statement (Form S-8 No. 333-53318) pertaining to the Erie Indemnity Company Long-Term Incentive Plan
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Date:
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February 22, 2018
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/s/ Timothy G. NeCastro
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Timothy G. NeCastro
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President & CEO
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Date:
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February 22, 2018
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/s/ Gregory J. Gutting
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Gregory J. Gutting
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Executive Vice President & CFO
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(1)
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The
Annual
Report on Form
10-K
of the Company for the
annual
period ended
December 31, 2017
(the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Timothy G. NeCastro
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Timothy G. NeCastro
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President & CEO
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/s/ Gregory J. Gutting
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Gregory J. Gutting
|
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Executive Vice President & CFO
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February 22, 2018
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