|
ERIE INDEMNITY COMPANY
|
|
|
Pennsylvania
|
|
25-0466020
|
|
|
(State or other jurisdiction
|
|
(I.R.S. Employer
|
|
|
of incorporation or organization)
|
|
Identification No.)
|
|
|
|
|
|
|
|
100 Erie Insurance Place, Erie, Pennsylvania
|
|
16530
|
|
|
(Address of principal executive offices)
|
|
(Zip code)
|
|
|
(814) 870-2000
|
|
|
(Registrant's telephone number, including area code)
|
|
|
Class A common stock, stated value $0.0292 per share, listed on the NASDAQ Stock Market, LLC
|
|
|
|
(Title of each class)
|
(Name of each exchange on which registered)
|
|
Large accelerated filer
X
|
Accelerated filer
|
Non-accelerated filer
|
|
Smaller reporting company
|
Emerging growth company
|
|
|
PART
|
ITEM NUMBER AND CAPTION
|
PAGE
|
|
|
|
|
|
|
|
|
|
|
|||
|
|||
|
|||
|
|||
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|||
|
|||
|
|||
|
|||
|
|||
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|||
|
|||
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
•
|
Interest rate risk - the risk of adverse changes in the value of fixed income securities as a result of increases in market interest rates.
|
•
|
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.
|
•
|
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.
|
•
|
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.
|
|
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
||||||
Erie Indemnity Company Class A common stock
|
|
$
|
100
|
|
(1)
|
$
|
128
|
|
|
$
|
141
|
|
|
$
|
169
|
|
|
$
|
188
|
|
|
$
|
212
|
|
Standard & Poor's 500 Stock Index
|
|
100
|
|
(1)
|
114
|
|
|
115
|
|
|
129
|
|
|
157
|
|
|
150
|
|
||||||
Standard & Poor's Supercomposite Insurance Industry Group Index
|
|
100
|
|
(1)
|
109
|
|
|
113
|
|
|
134
|
|
|
155
|
|
|
140
|
|
(1)
|
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.
|
|
|
|
|
||||||||||||||||||
(in thousands, except per share data)
|
|
Years Ended December 31,
|
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
2018
|
|
2017
(4)
|
|
2016
(4)
|
|
2015
|
|
2014
|
|
||||||||||
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating revenue
(1)
|
|
$
|
2,382,212
|
|
|
$
|
1,691,774
|
|
|
$
|
1,596,631
|
|
|
$
|
1,505,508
|
|
|
$
|
1,407,119
|
|
|
Operating expenses
(1)
|
|
2,037,869
|
|
|
1,401,522
|
|
|
1,303,114
|
|
|
1,272,967
|
|
|
1,184,272
|
|
|
|||||
Investment income
|
|
25,796
|
|
|
28,592
|
|
|
27,839
|
|
|
33,708
|
|
|
28,417
|
|
|
|||||
Interest expense and other (income), net
|
|
(1,181
|
)
|
|
3,149
|
|
|
1,265
|
|
|
—
|
|
|
—
|
|
|
|||||
Income before income taxes
|
|
371,320
|
|
|
315,695
|
|
|
320,091
|
|
|
266,249
|
|
|
251,264
|
|
|
|||||
Net income
(2)
|
|
288,224
|
|
|
196,999
|
|
|
210,366
|
|
|
174,678
|
|
|
167,505
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income per Class A share – diluted
(2)
|
|
$
|
5.51
|
|
|
$
|
3.76
|
|
|
$
|
4.01
|
|
|
$
|
3.33
|
|
|
$
|
3.18
|
|
|
Book value per share – Class A common and equivalent B shares
|
|
18.62
|
|
|
16.40
|
|
|
15.62
|
|
|
14.72
|
|
|
13.45
|
|
|
|||||
Dividends declared per Class A share
|
|
3.42
|
|
|
3.1875
|
|
|
2.9725
|
|
|
2.773
|
|
|
2.586
|
|
|
|||||
Dividends declared per Class B share
|
|
513.00
|
|
|
478.125
|
|
|
445.875
|
|
|
415.95
|
|
|
387.90
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Financial Position Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Investments
|
|
$
|
795,197
|
|
|
$
|
803,835
|
|
|
$
|
771,450
|
|
|
$
|
688,476
|
|
|
$
|
702,387
|
|
|
Receivables from Erie Insurance Exchange and affiliates
|
|
449,873
|
|
|
418,328
|
|
|
378,540
|
|
|
348,055
|
|
|
335,220
|
|
|
|||||
Current and long-term borrowings
|
|
99,730
|
|
|
74,728
|
|
|
24,766
|
|
|
—
|
|
|
—
|
|
|
|||||
Total assets
|
|
1,778,327
|
|
|
1,665,859
|
|
|
1,548,955
|
|
|
1,407,296
|
|
|
1,319,198
|
|
|
|||||
Total equity
(3)
|
|
973,672
|
|
|
857,344
|
|
|
816,910
|
|
|
769,503
|
|
|
703,134
|
|
|
(1)
|
In accordance with Accounting Standards Codification 606, "Revenue from Contracts with Customers" ("ASC 606"), effective January 1, 2018, we allocate our management fee between the two performance obligations we have in the subscriber's agreement, policy issuance and renewal services and administrative services. We also present expenses we incur and the related reimbursements we receive for administrative services gross in our Statement of Operations. See Part II, Item 8. "Financial Statements and Supplementary Data - Note 2, Significant Accounting Policies, of Notes to Financial Statements" contained within this report.
|
(2)
|
The corporate tax rate was 35% for years 2014-2017 and was reduced to 21% in 2018 with the enactment of the Tax Cuts and Jobs Act. This, coupled with increased operating income, drove the increase in net income and net income per Class A share - diluted in 2018 when compared to 2017.
|
(3)
|
On January 1, 2018, we adopted ASC 606 and recorded a cumulative effect adjustment that reduced retained earnings by
$38.3 million
. See Part II, Item 8. "Financial Statements and Supplementary Data - Note 2, Significant Accounting Policies, of Notes to Financial Statements" contained within this report.
|
(4)
|
Certain amounts previously reported for years 2017 and 2016 have been reclassified for comparative purposes to conform to the current period’s presentation.
|
|
Page Number
|
•
|
dependence upon our relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange;
|
•
|
dependence upon our relationship with the Exchange and the growth of the Exchange, including:
|
◦
|
general business and economic conditions;
|
◦
|
factors affecting insurance industry competition;
|
◦
|
dependence upon the independent agency system; and
|
◦
|
ability to maintain our reputation for customer service;
|
•
|
dependence upon our relationship with the Exchange and the financial condition of the Exchange, including:
|
◦
|
the Exchange's ability to maintain acceptable financial strength ratings;
|
◦
|
factors affecting the quality and liquidity of the Exchange's investment portfolio;
|
◦
|
changes in government regulation of the insurance industry;
|
◦
|
emerging claims and coverage issues in the industry; and
|
◦
|
severe weather conditions or other catastrophic losses, including terrorism;
|
•
|
costs of providing policy issuance and renewal services to the Exchange under the subscriber's agreement;
|
•
|
credit risk from the Exchange;
|
•
|
ability to attract and retain talented management and employees;
|
•
|
ability to ensure system availability and effectively manage technology initiatives;
|
•
|
difficulties with technology or data security breaches, including cyber attacks;
|
•
|
ability to maintain uninterrupted business operations;
|
•
|
factors affecting the quality and liquidity of our investment portfolio;
|
•
|
our ability to meet liquidity needs and access capital; and
|
•
|
outcome of pending and potential litigation.
|
|
|
Years ended December 31,
|
||||||||||||||||||
(dollars in thousands, except per share data)
|
|
2018
|
|
% Change
|
|
2017
|
|
% Change
|
|
2016
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Operating income
|
|
$
|
344,343
|
|
|
18.6
|
|
%
|
|
$
|
290,252
|
|
|
(1.1
|
)
|
%
|
|
$
|
293,517
|
|
Total investment income
|
|
25,796
|
|
|
(9.8
|
)
|
|
|
28,592
|
|
|
2.7
|
|
|
|
27,839
|
|
|||
Interest expense, net
|
|
2,460
|
|
|
98.8
|
|
|
|
1,238
|
|
|
NM
|
|
|
|
101
|
|
|||
Other income (expense)
|
|
3,641
|
|
|
NM
|
|
|
|
(1,911
|
)
|
|
(64.2
|
)
|
|
|
(1,164
|
)
|
|||
Income before income taxes
|
|
371,320
|
|
|
17.6
|
|
|
|
315,695
|
|
|
(1.4
|
)
|
|
|
320,091
|
|
|||
Income tax expense
|
|
83,096
|
|
|
(30.0
|
)
|
|
|
118,696
|
|
|
8.2
|
|
|
|
109,725
|
|
|||
Net income
|
|
$
|
288,224
|
|
|
46.3
|
|
%
|
|
$
|
196,999
|
|
|
(6.4
|
)
|
%
|
|
$
|
210,366
|
|
Net income per share - diluted
|
|
$
|
5.51
|
|
|
46.4
|
|
%
|
|
$
|
3.76
|
|
|
(6.2
|
)
|
%
|
|
$
|
4.01
|
|
•
|
An active market is one in which transactions for the assets being valued occur with sufficient frequency and volume to provide reliable pricing information.
|
•
|
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.
|
•
|
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.
|
•
|
the extent and duration for 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 rating downgrades;
|
•
|
intent to sell or more likely than not we would be required to sell (debt securities); and
|
•
|
ability and intent to retain the investment for a period of time sufficient to allow for a recovery in value (equity securities prior to the adoption of Accounting Standards Update 2016-01,
"Financial Instruments-Overall"
).
|
|
|
Years ended December 31,
|
||||||||||||||||
(dollars in thousands)
|
|
2018
|
|
% Change
|
|
2017
|
|
% Change
|
|
2016
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Policy issuance and renewal services
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Direct and assumed premiums written by the Exchange
|
|
$
|
7,112,846
|
|
|
6.9
|
%
|
|
$
|
6,656,501
|
|
|
6.0
|
%
|
|
$
|
6,278,126
|
|
Management fee rate
|
|
24.2
|
%
|
|
|
|
|
25.0
|
%
|
|
|
|
|
25.0
|
%
|
|||
Management fee revenue
|
|
1,721,309
|
|
|
3.4
|
|
|
1,664,125
|
|
|
6.0
|
|
|
1,569,531
|
|
|||
Change in allowance for management fee returned on cancelled policies
(1)
|
|
(1,742
|
)
|
|
NM
|
|
|
(1,500
|
)
|
|
NM
|
|
|
(2,100
|
)
|
|||
Management fee revenue - policy issuance and renewal services, net
(2)
|
|
$
|
1,719,567
|
|
|
3.4
|
%
|
|
$
|
1,662,625
|
|
|
6.1
|
%
|
|
$
|
1,567,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Administrative services
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Direct and assumed premiums written by the Exchange
|
|
$
|
7,112,846
|
|
|
N/A
|
%
|
|
$
|
—
|
|
|
N/A
|
%
|
|
$
|
—
|
|
Management fee rate
|
|
0.8
|
%
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|||
Management fee revenue
|
|
56,903
|
|
|
N/A
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|||
Change in contract liability
(3)
|
|
(3,209
|
)
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|||
Change in allowance for management fee returned on cancelled policies
(1)
|
|
(62
|
)
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|||
Management fee revenue - administrative services, net
|
|
53,632
|
|
|
N/A
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|||
Administrative services reimbursement revenue
|
|
580,336
|
|
|
N/A
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|||
Total revenue from administrative services
|
|
$
|
633,968
|
|
|
N/A
|
%
|
|
$
|
—
|
|
|
N/A
|
%
|
|
$
|
—
|
|
(1)
|
Management fees are returned to the Exchange when policies are cancelled mid-term and unearned premiums are refunded. We record an estimated allowance for management fees returned on mid-term policy cancellations. This estimated allowance has been allocated between the two performance obligations consistent with the revenue allocation proportion.
|
(2)
|
The allocation of management fee revenue between the two performance obligations beginning January 1, 2018 caused the growth in management fee revenue - policy issuance and renewal services to not correspond directly with the growth in direct and assumed premiums written by the Exchange in 2018, compared to 2017.
|
(3)
|
With the adoption of ASC 606 effective January 1, 2018, management fee revenue - administrative services is recognized over time as the services are performed. See Part II, Item 8. "Financial Statements and Supplementary Data - Note 2, Significant Accounting Policies and Note 3, Revenue, of Notes to Financial Statements" contained within this report.
|
|
|
Years ended December 31,
|
||||||||||||||||||
(dollars in thousands)
|
|
2018
|
|
% Change
|
|
2017
|
|
% Change
|
|
2016
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Management fee revenue - policy issuance and renewal services, net
|
|
$
|
1,719,567
|
|
|
3.4
|
|
%
|
|
$
|
1,662,625
|
|
|
6.1
|
|
%
|
|
$
|
1,567,431
|
|
Service agreement revenue
|
|
28,677
|
|
|
(1.6
|
)
|
|
|
29,149
|
|
|
(0.2
|
)
|
|
|
29,200
|
|
|||
|
|
1,748,244
|
|
|
3.3
|
|
|
|
1,691,774
|
|
|
6.0
|
|
|
|
1,596,631
|
|
|||
Cost of policy issuance and renewal services
|
|
1,457,533
|
|
|
4.0
|
|
|
|
1,401,522
|
|
|
7.6
|
|
|
|
1,303,114
|
|
|||
Operating income - policy issuance and renewal services
|
|
$
|
290,711
|
|
|
0.2
|
|
%
|
|
$
|
290,252
|
|
|
(1.1
|
)
|
%
|
|
$
|
293,517
|
|
|
|
Years ended December 31,
|
|||||||||||||||||
(dollars in thousands)
|
|
2018
|
|
% Change
|
|
2017
|
|
% Change
|
|
2016
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total commissions
|
|
$
|
983,758
|
|
|
3.8
|
%
|
|
$
|
947,481
|
|
|
6.0
|
|
%
|
|
$
|
893,800
|
|
Non-commission expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Underwriting and policy processing
|
|
$
|
150,898
|
|
|
5.7
|
%
|
|
$
|
142,819
|
|
|
5.1
|
|
%
|
|
$
|
135,855
|
|
Information technology
|
|
145,563
|
|
|
3.7
|
|
|
140,421
|
|
|
15.8
|
|
|
|
121,249
|
|
|||
Sales and advertising
|
|
62,177
|
|
|
0.2
|
|
|
62,059
|
|
|
(2.1
|
)
|
|
|
63,423
|
|
|||
Customer service
|
|
32,232
|
|
|
15.8
|
|
|
27,827
|
|
|
13.1
|
|
|
|
24,604
|
|
|||
Administrative and other
|
|
82,905
|
|
|
2.5
|
|
|
80,915
|
|
|
26.1
|
|
|
|
64,183
|
|
|||
Total non-commission expense
|
|
473,775
|
|
|
4.3
|
|
|
454,041
|
|
|
10.9
|
|
|
|
409,314
|
|
|||
Total cost of policy issuance and renewal services
|
|
$
|
1,457,533
|
|
|
4.0
|
%
|
|
$
|
1,401,522
|
|
|
7.6
|
|
%
|
|
$
|
1,303,114
|
|
|
|
Years ended December 31,
|
||||||||||||||||
(dollars in thousands)
|
|
2018
|
|
% Change
|
|
2017
|
|
% Change
|
|
2016
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Management fee revenue - administrative services, net
|
|
$
|
53,632
|
|
|
N/A
|
%
|
|
$
|
—
|
|
|
N/A
|
%
|
|
$
|
—
|
|
Administrative services reimbursement revenue
|
|
580,336
|
|
|
N/A
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|||
Total revenue allocated to administrative services
|
|
633,968
|
|
|
N/A
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|||
Administrative services expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Claims handling services
|
|
505,843
|
|
|
N/A
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|||
Investment management services
|
|
32,065
|
|
|
N/A
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|||
Life management services
|
|
42,428
|
|
|
N/A
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|||
Operating income - administrative services
|
|
$
|
53,632
|
|
|
N/A
|
%
|
|
$
|
—
|
|
|
N/A
|
%
|
|
$
|
—
|
|
(dollars in thousands)
|
|
2018
|
|
% Change
|
|
2017
|
|
% Change
|
|
2016
|
||||||||||
Net investment income
|
|
$
|
30,209
|
|
|
22.6
|
|
%
|
|
$
|
24,639
|
|
|
19.9
|
|
%
|
|
$
|
20,558
|
|
Net realized investment (losses) gains
|
|
(2,010
|
)
|
|
NM
|
|
|
|
1,334
|
|
|
98.6
|
|
|
|
672
|
|
|||
Net impairment losses recognized in earnings
|
|
(1,581
|
)
|
|
NM
|
|
|
|
(182
|
)
|
|
56.4
|
|
|
|
(416
|
)
|
|||
Equity in (losses) earnings of limited partnerships
|
|
(822
|
)
|
|
NM
|
|
|
|
2,801
|
|
|
(60.1
|
)
|
|
|
7,025
|
|
|||
Total investment income
|
|
$
|
25,796
|
|
|
(9.8
|
)
|
%
|
|
$
|
28,592
|
|
|
2.7
|
|
%
|
|
$
|
27,839
|
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
||||||
Securities sold:
|
|
|
|
|
|
|
||||||
Fixed maturities
|
|
$
|
(1,297
|
)
|
|
$
|
1,385
|
|
|
$
|
(2
|
)
|
Equity securities
|
|
(111
|
)
|
|
(145
|
)
|
|
(33
|
)
|
|||
Common stock trading securities
|
|
—
|
|
|
0
|
|
|
707
|
|
|||
Equity securities change in fair value
(1)
|
|
(708
|
)
|
|
0
|
|
|
0
|
|
|||
Other
|
|
106
|
|
|
94
|
|
|
0
|
|
|||
Net realized investment (losses) gains
(2)
|
|
$
|
(2,010
|
)
|
|
$
|
1,334
|
|
|
$
|
672
|
|
(1)
|
The fair value of our equity portfolio is based upon exchange traded prices provided by a nationally recognized pricing service.
|
(2)
|
See Part II, Item 8. "Financial Statements and Supplementary Data - Note 6, Investments, of Notes to Financial Statements" contained within this report for additional disclosures regarding net realized investment (losses) gains.
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
||||||
Private equity
|
|
$
|
297
|
|
|
$
|
492
|
|
|
$
|
(2,756
|
)
|
Mezzanine debt
|
|
(428
|
)
|
|
345
|
|
|
51
|
|
|||
Real estate
|
|
(691
|
)
|
|
1,964
|
|
|
9,730
|
|
|||
Equity in (losses) earnings of limited partnerships
|
|
$
|
(822
|
)
|
|
$
|
2,801
|
|
|
$
|
7,025
|
|
|
|
Carrying value at December 31,
|
||||||||||||
(dollars in thousands)
|
|
2018
|
|
% to
total
|
|
2017
|
|
% to
total
|
||||||
Indemnity
|
|
|
|
|
|
|
|
|
||||||
Fixed maturities
|
|
$
|
748,523
|
|
|
88
|
%
|
|
$
|
745,961
|
|
|
90
|
%
|
Equity securities:
|
|
|
|
|
|
|
|
|
||||||
Preferred stock
|
|
11,853
|
|
|
1
|
|
|
12,752
|
|
|
2
|
|
||
Limited partnerships:
|
|
|
|
|
|
|
|
|
||||||
Private equity
|
|
28,271
|
|
|
3
|
|
|
31,663
|
|
|
4
|
|
||
Mezzanine debt
|
|
1,152
|
|
|
0
|
|
|
3,516
|
|
|
0
|
|
||
Real estate
|
|
5,398
|
|
|
1
|
|
|
9,943
|
|
|
1
|
|
||
Other investments
(1)
|
|
58,394
|
|
|
7
|
|
|
21,985
|
|
|
3
|
|
||
Total investments
|
|
$
|
853,591
|
|
|
100
|
%
|
|
$
|
825,820
|
|
|
100
|
%
|
(1)
|
Other investments primarily include agent loans. Agent loans are included with other assets in the Statements of Financial Position.
|
|
|
|
||||||||||||||||||||||
|
|
At December 31, 2018
|
||||||||||||||||||||||
(in thousands)
|
|
|
|
|
|
|
|
|
|
Non-investment
|
|
Fair
|
||||||||||||
Industry Sector
|
|
AAA
|
|
AA
|
|
A
|
|
BBB
|
|
grade
|
|
value
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Basic materials
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
15,330
|
|
|
$
|
15,330
|
|
Communications
|
|
0
|
|
|
1,976
|
|
|
0
|
|
|
3,489
|
|
|
22,491
|
|
|
27,956
|
|
||||||
Consumer
|
|
0
|
|
|
0
|
|
|
3,490
|
|
|
22,345
|
|
|
43,952
|
|
|
69,787
|
|
||||||
Diversified
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
1,106
|
|
|
1,106
|
|
||||||
Energy
|
|
0
|
|
|
998
|
|
|
0
|
|
|
3,619
|
|
|
15,672
|
|
|
20,289
|
|
||||||
Financial
|
|
0
|
|
|
3,981
|
|
|
16,355
|
|
|
28,286
|
|
|
15,903
|
|
|
64,525
|
|
||||||
Government-municipal
|
|
59,707
|
|
|
88,286
|
|
|
11,030
|
|
|
0
|
|
|
0
|
|
|
159,023
|
|
||||||
Healthcare
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
524
|
|
|
524
|
|
||||||
Industrial
|
|
0
|
|
|
0
|
|
|
2,481
|
|
|
4,019
|
|
|
21,634
|
|
|
28,134
|
|
||||||
Structured securities
(2)
|
|
93,369
|
|
|
26,835
|
|
|
7,940
|
|
|
2,997
|
|
|
0
|
|
|
131,141
|
|
||||||
Technology
|
|
0
|
|
|
0
|
|
|
0
|
|
|
5,644
|
|
|
12,632
|
|
|
18,276
|
|
||||||
U.S. Treasury
|
|
171,792
|
|
|
36,620
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
208,412
|
|
||||||
Utilities
|
|
0
|
|
|
0
|
|
|
0
|
|
|
1,978
|
|
|
2,042
|
|
|
4,020
|
|
||||||
Total
|
|
$
|
324,868
|
|
|
$
|
158,696
|
|
|
$
|
41,296
|
|
|
$
|
72,377
|
|
|
$
|
151,286
|
|
|
$
|
748,523
|
|
(1)
|
Ratings are supplied by S&P, Moody’s, and Fitch. The table is based upon the lowest rating for each security.
|
(2)
|
Structured securities include residential mortgage-backed securities, commercial mortgage-backed securities, collateralized debt obligations, and asset-backed securities.
|
|
|
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
||||||
Net cash provided by operating activities
|
|
$
|
263,585
|
|
|
$
|
197,126
|
|
|
$
|
254,336
|
|
Net cash used in investing activities
|
|
(81,398
|
)
|
|
(74,663
|
)
|
|
(136,944
|
)
|
|||
Net cash used in financing activities
|
|
(131,491
|
)
|
|
(95,814
|
)
|
|
(111,209
|
)
|
|||
Net increase in cash
|
|
$
|
50,696
|
|
|
$
|
26,649
|
|
|
$
|
6,183
|
|
|
|
Payments due by period
|
||||||||||||||||||
(
in thousands)
|
|
Total
|
|
2019
|
|
2020-2021
|
|
2022-2023
|
|
2024 and thereafter
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long-term debt
(1)
|
|
$
|
173,127
|
|
|
$
|
6,183
|
|
|
$
|
12,366
|
|
|
$
|
12,366
|
|
|
$
|
142,212
|
|
Home office expansion
(2)
|
|
57,725
|
|
|
29,225
|
|
|
28,500
|
|
|
0
|
|
|
0
|
|
|||||
Limited partnership commitments
(3)
|
|
12,250
|
|
|
12,250
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|||||
Other commitments
(4)
|
|
214,850
|
|
|
112,963
|
|
|
79,670
|
|
|
16,872
|
|
|
5,345
|
|
|||||
Operating leases – vehicles
|
|
26,779
|
|
|
21,482
|
|
|
5,297
|
|
|
0
|
|
|
0
|
|
|||||
Operating leases – real estate
(5)
|
|
81,093
|
|
|
22,559
|
|
|
44,838
|
|
|
4,508
|
|
|
9,188
|
|
|||||
Operating leases – computer equipment
|
|
10,241
|
|
|
5,846
|
|
|
4,395
|
|
|
0
|
|
|
0
|
|
|||||
Gross contractual obligations
(6)
|
|
576,065
|
|
|
210,508
|
|
|
175,066
|
|
|
33,746
|
|
|
156,745
|
|
|||||
Estimated reimbursements from affiliates
(7)
|
|
126,472
|
|
|
64,125
|
|
|
40,712
|
|
|
9,081
|
|
|
12,554
|
|
|||||
Net contractual obligations
|
|
$
|
449,593
|
|
|
$
|
146,383
|
|
|
$
|
134,354
|
|
|
$
|
24,665
|
|
|
$
|
144,191
|
|
(1)
|
Long-term debt amount differs from the balance presented on the Statements of Financial Position as the amount in the table above includes interest and principal payments based upon total 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. Substantial completion of the project is expected in the first half of 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, 2018
, our total commitment to fund limited partnerships that invest in private equity securities was
$4.4 million
, mezzanine debt was
$7.5 million
, and real estate activities was
$0.3 million
.
|
(4)
|
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.
|
(5)
|
Operating leases – real estate are for third party and related party office space and a warehouse facility. Commitments include minimum rental payments and related operating costs.
|
(6)
|
The obligation for our unfunded Supplemental Employee Retirement Plan (SERP) for our executive and senior management is not included in gross contractual obligations. The recorded accumulated benefit obligation for this plan at
December 31, 2018
is
$18.9 million
. We expect to have sufficient cash flows from operations to meet the future benefit payments as these become due. Additionally, a
$3.1 million
uncertain tax position related to the timing of deductibility is not included in gross contractual obligations.
|
(7)
|
We are reimbursed from the Exchange and its subsidiaries for a portion of the costs related to other commitments and operating leases.
|
(dollars in thousands)
|
|
2018
|
|
Percent of
total assets |
|
2017
|
|
Percent of
total assets |
||||||
|
|
|
|
|
|
|
|
|
||||||
Receivables from the Exchange and other affiliates (management fees, costs and reimbursements)
|
|
$
|
449,873
|
|
|
25.3
|
%
|
|
$
|
418,328
|
|
|
25.1
|
%
|
Note receivable from EFL
|
|
0
|
|
|
0.0
|
|
|
25,000
|
|
|
1.5
|
|
||
Total intercompany receivables
|
|
$
|
449,873
|
|
|
25.3
|
%
|
|
$
|
443,328
|
|
|
26.6
|
%
|
(dollars in thousands)
|
|
At December 31,
|
||||||
|
|
2018
|
|
2017
|
||||
Fair value of fixed maturity portfolio
|
|
$
|
748,523
|
|
|
$
|
745,961
|
|
Fair value assuming 100-basis point rise in interest rates
|
|
$
|
735,806
|
|
|
$
|
727,787
|
|
Effective duration (as a percentage)
(1)
|
|
1.6
|
|
|
2.5
|
|
|
|
|
||
(in thousands)
|
|
|
||
Fixed maturities:
|
|
December 31, 2017
|
||
2018
|
|
$
|
70,862
|
|
2019
|
|
86,167
|
|
|
2020
|
|
104,561
|
|
|
2021
|
|
76,970
|
|
|
2022
|
|
37,131
|
|
|
Thereafter
|
|
336,717
|
|
|
Total
(1)
|
|
$
|
712,408
|
|
Fair value
|
|
$
|
745,961
|
|
|
|
At December 31, 2018
|
|||||||||
(dollars in thousands)
|
|
Amortized cost
|
|
Fair value
|
|
Percent of total
|
|||||
AAA, AA, A
|
|
$
|
524,560
|
|
|
$
|
524,860
|
|
|
70
|
%
|
BBB
|
|
73,378
|
|
|
72,377
|
|
|
10
|
|
||
Total investment grade
|
|
597,938
|
|
|
597,237
|
|
|
80
|
|
||
BB
|
|
51,733
|
|
|
49,480
|
|
|
6
|
|
||
B
|
|
94,122
|
|
|
89,229
|
|
|
12
|
|
||
CCC, CC, C, and below
|
|
13,602
|
|
|
12,577
|
|
|
2
|
|
||
Total non-investment grade
|
|
159,457
|
|
|
151,286
|
|
|
20
|
|
||
Total
|
|
$
|
757,395
|
|
|
$
|
748,523
|
|
|
100
|
%
|
|
|
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
|
%
|
|
|
2018
|
|
2017
|
|
2016
|
||||||
Operating revenue
|
|
|
|
|
|
|
||||||
Management fee revenue - policy issuance and renewal services, net
|
|
$
|
1,719,567
|
|
|
$
|
1,662,625
|
|
|
$
|
1,567,431
|
|
Management fee revenue - administrative services, net
|
|
53,632
|
|
|
—
|
|
|
—
|
|
|||
Administrative services reimbursement revenue
|
|
580,336
|
|
|
—
|
|
|
—
|
|
|||
Service agreement revenue
|
|
28,677
|
|
|
29,149
|
|
|
29,200
|
|
|||
Total operating revenue
|
|
2,382,212
|
|
|
1,691,774
|
|
|
1,596,631
|
|
|||
|
|
|
|
|
|
|
||||||
Operating expenses
|
|
|
|
|
|
|
||||||
Cost of operations - policy issuance and renewal services
|
|
1,457,533
|
|
|
1,401,522
|
|
|
1,303,114
|
|
|||
Cost of operations - administrative services
|
|
580,336
|
|
|
—
|
|
|
—
|
|
|||
Total operating expenses
|
|
2,037,869
|
|
|
1,401,522
|
|
|
1,303,114
|
|
|||
Operating income
|
|
344,343
|
|
|
290,252
|
|
|
293,517
|
|
|||
|
|
|
|
|
|
|
||||||
Investment income
|
|
|
|
|
|
|
||||||
Net investment income
|
|
30,209
|
|
|
24,639
|
|
|
20,558
|
|
|||
Net realized investment (losses) gains
|
|
(2,010
|
)
|
|
1,334
|
|
|
672
|
|
|||
Net impairment losses recognized in earnings
|
|
(1,581
|
)
|
|
(182
|
)
|
|
(416
|
)
|
|||
Equity in (losses) earnings of limited partnerships
|
|
(822
|
)
|
|
2,801
|
|
|
7,025
|
|
|||
Total investment income
|
|
25,796
|
|
|
28,592
|
|
|
27,839
|
|
|||
|
|
|
|
|
|
|
||||||
Interest expense, net
|
|
2,460
|
|
|
1,238
|
|
|
101
|
|
|||
Other income (expense)
|
|
3,641
|
|
|
(1,911
|
)
|
|
(1,164
|
)
|
|||
Income before income taxes
|
|
371,320
|
|
|
315,695
|
|
|
320,091
|
|
|||
Income tax expense
|
|
83,096
|
|
|
118,696
|
|
|
109,725
|
|
|||
Net income
|
|
$
|
288,224
|
|
|
$
|
196,999
|
|
|
$
|
210,366
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
||||||
Earnings Per Share
|
|
|
|
|
|
|
||||||
Net income per share
|
|
|
|
|
|
|
||||||
Class A common stock – basic
|
|
$
|
6.19
|
|
|
$
|
4.23
|
|
|
$
|
4.52
|
|
Class A common stock – diluted
|
|
$
|
5.51
|
|
|
$
|
3.76
|
|
|
$
|
4.01
|
|
Class B common stock – basic
|
|
$
|
928
|
|
|
$
|
635
|
|
|
$
|
678
|
|
Class B common stock – diluted
|
|
$
|
928
|
|
|
$
|
634
|
|
|
$
|
677
|
|
|
|
|
|
|
|
|
||||||
Weighted average shares outstanding – Basic
|
|
|
|
|
|
|
||||||
Class A common stock
|
|
46,188,637
|
|
|
46,186,831
|
|
|
46,188,952
|
|
|||
Class B common stock
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|||
|
|
|
|
|
|
|
||||||
Weighted average shares outstanding – Diluted
|
|
|
|
|
|
|
||||||
Class A common stock
|
|
52,315,213
|
|
|
52,337,463
|
|
|
52,435,303
|
|
|||
Class B common stock
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
|
2018
|
|
2017
|
|
2016
|
||||||
Net income
|
|
$
|
288,224
|
|
|
$
|
196,999
|
|
|
$
|
210,366
|
|
|
|
|
|
|
|
|
||||||
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|||
Change in unrealized holding (losses) gains on available-for-sale securities
|
|
(9,937
|
)
|
|
(190
|
)
|
|
43
|
|
|||
Pension and other postretirement plans
|
|
35,712
|
|
|
(8,105
|
)
|
|
(24,560
|
)
|
|||
Total other comprehensive income (loss), net of tax
|
|
25,775
|
|
|
(8,295
|
)
|
|
(24,517
|
)
|
|||
Comprehensive income
|
|
$
|
313,999
|
|
|
$
|
188,704
|
|
|
$
|
185,849
|
|
|
|
2018
|
|
2017
|
||||
Assets
|
|
|
|
|
||||
Current assets:
|
|
|
|
|
||||
Cash and cash equivalents
|
|
$
|
266,417
|
|
|
$
|
215,721
|
|
Available-for-sale securities
|
|
402,339
|
|
|
71,190
|
|
||
Receivables from Erie Insurance Exchange and affiliates
|
|
449,873
|
|
|
418,328
|
|
||
Prepaid expenses and other current assets
|
|
36,892
|
|
|
34,890
|
|
||
Federal income taxes recoverable
|
|
8,162
|
|
|
29,900
|
|
||
Note receivable from Erie Family Life Insurance Company
|
|
—
|
|
|
25,000
|
|
||
Accrued investment income
|
|
5,263
|
|
|
6,853
|
|
||
Total current assets
|
|
1,168,946
|
|
|
801,882
|
|
||
|
|
|
|
|
||||
Available-for-sale securities
|
|
346,184
|
|
|
687,523
|
|
||
Equity securities
|
|
11,853
|
|
|
—
|
|
||
Limited partnership investments
|
|
34,821
|
|
|
45,122
|
|
||
Fixed assets, net
|
|
130,832
|
|
|
83,149
|
|
||
Deferred income taxes, net
|
|
24,101
|
|
|
19,390
|
|
||
Other assets
|
|
61,590
|
|
|
28,793
|
|
||
Total assets
|
|
$
|
1,778,327
|
|
|
$
|
1,665,859
|
|
|
|
|
|
|
||||
Liabilities and shareholders' equity
|
|
|
|
|
||||
Current liabilities:
|
|
|
|
|
||||
Commissions payable
|
|
$
|
241,573
|
|
|
$
|
228,124
|
|
Agent bonuses
|
|
103,462
|
|
|
122,528
|
|
||
Accounts payable and accrued liabilities
|
|
111,291
|
|
|
104,533
|
|
||
Dividends payable
|
|
41,910
|
|
|
39,116
|
|
||
Contract liability
|
|
33,854
|
|
|
—
|
|
||
Deferred executive compensation
|
|
13,107
|
|
|
15,605
|
|
||
Current portion of long-term borrowings
|
|
1,870
|
|
|
—
|
|
||
Total current liabilities
|
|
547,067
|
|
|
509,906
|
|
||
|
|
|
|
|
||||
Defined benefit pension plans
|
|
116,866
|
|
|
207,530
|
|
||
Contract liability
|
|
17,873
|
|
|
—
|
|
||
Deferred executive compensation
|
|
13,075
|
|
|
14,452
|
|
||
Long-term borrowings
|
|
97,860
|
|
|
74,728
|
|
||
Other long-term liabilities
|
|
11,914
|
|
|
1,899
|
|
||
Total liabilities
|
|
804,655
|
|
|
808,515
|
|
||
|
|
|
|
|
||||
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
|
|
16,459
|
|
|
16,470
|
|
||
Accumulated other comprehensive loss
|
|
(130,284
|
)
|
|
(156,059
|
)
|
||
Retained earnings
|
|
2,231,417
|
|
|
2,140,853
|
|
||
Total contributed capital and retained earnings
|
|
2,119,762
|
|
|
2,003,434
|
|
||
Treasury stock, at cost; 22,110,132 shares held
|
|
(1,157,625
|
)
|
|
(1,155,668
|
)
|
||
Deferred compensation
|
|
11,535
|
|
|
9,578
|
|
||
Total shareholders' equity
|
|
973,672
|
|
|
857,344
|
|
||
Total liabilities and shareholders' equity
|
|
$
|
1,778,327
|
|
|
$
|
1,665,859
|
|
|
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, 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
|
|
Cumulative effect adjustments
(4)
|
|
|
|
|
(38,392
|
)
|
|
|
(38,392
|
)
|
||||||||||||||
Net income
|
|
|
|
|
288,224
|
|
|
|
288,224
|
|
||||||||||||||
Other comprehensive income
|
|
|
|
25,775
|
|
|
|
|
25,775
|
|
||||||||||||||
Dividends declared:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Class A $3.42 per share
|
|
|
|
|
(157,964
|
)
|
|
|
(157,964
|
)
|
||||||||||||||
Class B $513.00 per share
|
|
|
|
|
(1,304
|
)
|
|
|
(1,304
|
)
|
||||||||||||||
Net purchase of treasury stock
(1)
|
|
|
(11
|
)
|
|
|
0
|
|
|
(11
|
)
|
|||||||||||||
Deferred compensation
|
|
|
|
|
|
(2,566
|
)
|
2,566
|
|
0
|
|
|||||||||||||
Rabbi trust distribution
(2)
|
|
|
|
|
|
609
|
|
(609
|
)
|
0
|
|
|||||||||||||
Balance, December 31, 2018
|
$
|
1,992
|
|
$
|
178
|
|
$
|
16,459
|
|
$
|
(130,284
|
)
|
$
|
2,231,417
|
|
$
|
(1,157,625
|
)
|
$
|
11,535
|
|
$
|
973,672
|
|
|
|
2018
|
|
2017
|
|
2016
|
||||||
Cash flows from operating activities
|
|
|
|
|
|
|
||||||
Management fee received
|
|
$
|
1,751,247
|
|
|
$
|
1,627,558
|
|
|
$
|
1,536,699
|
|
Administrative services reimbursements received
|
|
574,698
|
|
|
—
|
|
|
—
|
|
|||
Service agreement fee received
|
|
28,677
|
|
|
29,149
|
|
|
29,200
|
|
|||
Net investment income received
|
|
37,489
|
|
|
31,281
|
|
|
26,796
|
|
|||
Limited partnership distributions
|
|
7,173
|
|
|
5,128
|
|
|
17,837
|
|
|||
(Decrease) increase in reimbursements collected from affiliates
|
|
—
|
|
|
(4,720
|
)
|
|
247
|
|
|||
Commissions paid to agents
|
|
(853,758
|
)
|
|
(800,627
|
)
|
|
(756,713
|
)
|
|||
Agents bonuses paid
|
|
(134,314
|
)
|
|
(122,743
|
)
|
|
(113,859
|
)
|
|||
Salaries and wages paid
|
|
(182,537
|
)
|
|
(171,547
|
)
|
|
(160,985
|
)
|
|||
Pension contributions and employee benefits paid
|
|
(115,525
|
)
|
|
(89,981
|
)
|
|
(44,250
|
)
|
|||
General operating expenses paid
|
|
(208,036
|
)
|
|
(199,084
|
)
|
|
(176,029
|
)
|
|||
Administrative services expenses paid
|
|
(580,338
|
)
|
|
—
|
|
|
—
|
|
|||
Income taxes paid
|
|
(58,814
|
)
|
|
(106,250
|
)
|
|
(104,607
|
)
|
|||
Interest paid
|
|
(2,377
|
)
|
|
(1,038
|
)
|
|
—
|
|
|||
Net cash provided by operating activities
|
|
263,585
|
|
|
197,126
|
|
|
254,336
|
|
|||
|
|
|
|
|
|
|
||||||
Cash flows from investing activities
|
|
|
|
|
|
|
||||||
Purchase of investments:
|
|
|
|
|
|
|
||||||
Available-for-sale securities
|
|
(392,895
|
)
|
|
(391,181
|
)
|
|
(369,811
|
)
|
|||
Equity securities
|
|
(4,087
|
)
|
|
—
|
|
|
—
|
|
|||
Limited partnerships
|
|
(243
|
)
|
|
(410
|
)
|
|
(578
|
)
|
|||
Proceeds from investments:
|
|
|
|
|
|
|
||||||
Available-for-sale securities sales
|
|
235,323
|
|
|
144,317
|
|
|
89,498
|
|
|||
Available-for-sale securities maturities/calls
|
|
134,396
|
|
|
194,980
|
|
|
146,285
|
|
|||
Equity securities
|
|
4,162
|
|
|
—
|
|
|
—
|
|
|||
Trading securities
|
|
—
|
|
|
—
|
|
|
5,171
|
|
|||
Limited partnerships
|
|
3,387
|
|
|
10,768
|
|
|
16,113
|
|
|||
Purchase of fixed assets
|
|
(56,297
|
)
|
|
(28,927
|
)
|
|
(25,208
|
)
|
|||
Proceeds from disposal of fixed assets
|
|
6,014
|
|
|
0
|
|
|
0
|
|
|||
Distributions on agent loans
|
|
(42,594
|
)
|
|
(9,153
|
)
|
|
(5,215
|
)
|
|||
Collections on agent loans
|
|
6,436
|
|
|
4,943
|
|
|
6,801
|
|
|||
Repayment of note receivable from Erie Family Life Insurance
|
|
25,000
|
|
|
—
|
|
|
—
|
|
|||
Net cash used in investing activities
|
|
(81,398
|
)
|
|
(74,663
|
)
|
|
(136,944
|
)
|
|||
|
|
|
|
|
|
|
||||||
Cash flows from financing activities
|
|
|
|
|
|
|
||||||
Dividends paid to shareholders
|
|
(156,474
|
)
|
|
(145,765
|
)
|
|
(135,985
|
)
|
|||
Net proceeds from long-term borrowings
|
|
24,983
|
|
|
49,951
|
|
|
24,776
|
|
|||
Net cash used in financing activities
|
|
(131,491
|
)
|
|
(95,814
|
)
|
|
(111,209
|
)
|
|||
|
|
|
|
|
|
|
||||||
Net increase in cash and cash equivalents
|
|
50,696
|
|
|
26,649
|
|
|
6,183
|
|
|||
Cash and cash equivalents, beginning of year
|
|
215,721
|
|
|
189,072
|
|
|
182,889
|
|
|||
Cash and cash equivalents, end of year
|
|
$
|
266,417
|
|
|
$
|
215,721
|
|
|
$
|
189,072
|
|
|
|
|
|
|
|
|
||||||
Supplemental disclosure of noncash transactions
|
|
|
|
|
|
|
||||||
Transfer of investments from limited partnerships to trading securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,464
|
|
Liability incurred to purchase fixed assets
|
|
$
|
8,453
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(in thousands)
|
|
Balance at December 31, 2017
|
Adjustments due to ASC 606
|
Balance at January 1, 2018
|
||||||
Statement of Financial Position:
|
|
|
|
|
||||||
Assets
|
|
|
|
|
||||||
Deferred tax asset
|
|
$
|
19,390
|
|
$
|
10,188
|
|
$
|
29,578
|
|
Liabilities
|
|
|
|
|
||||||
Contract liability
|
|
—
|
|
48,514
|
|
48,514
|
|
|||
Equity
|
|
|
|
|
||||||
Retained earnings
|
|
2,140,853
|
|
(38,326
|
)
|
2,102,527
|
|
(in thousands)
|
|
As Reported
|
Balances without ASC 606
|
Impact of Change
Higher/(Lower) |
||||||
|
|
|
||||||||
Statement of Financial Position:
|
|
|
|
|
||||||
Assets
|
|
|
|
|
||||||
Deferred tax asset
|
|
$
|
24,101
|
|
$
|
13,238
|
|
$
|
10,863
|
|
Liabilities
|
|
|
|
|
||||||
Contract liability
|
|
51,727
|
|
—
|
|
51,727
|
|
|||
Equity
|
|
|
|
|
||||||
Retained earnings
|
|
2,231,417
|
|
2,272,281
|
|
(40,864
|
)
|
(in thousands)
|
|
As Reported
|
Balances without ASC 606
|
Impact of Change
Higher/(Lower) |
||||||
|
|
|
||||||||
Statement of Operations:
|
|
|
|
|
||||||
Management fee revenue allocated to policy issuance and renewal services, gross
|
|
$
|
1,721,309
|
|
$
|
1,778,212
|
|
$
|
(56,903
|
)
|
Less: change in allowance for management fee returned on cancelled policies
|
|
(1,742
|
)
|
(1,800
|
)
|
58
|
|
|||
Management fee revenue allocated to policy issuance and renewal services, net
|
|
$
|
1,719,567
|
|
$
|
1,776,412
|
|
$
|
(56,845
|
)
|
|
|
|
|
|
||||||
|
|
|
|
|
||||||
Management fee revenue allocated to administrative services, gross
|
|
$
|
53,694
|
|
$
|
—
|
|
$
|
53,694
|
|
Less: change in allowance for management fee returned on cancelled policies
|
|
(62
|
)
|
—
|
|
(62
|
)
|
|||
Management fee revenue allocated to administrative services, net
|
|
53,632
|
|
—
|
|
53,632
|
|
|||
Administrative services reimbursement revenue
|
|
580,336
|
|
—
|
|
580,336
|
|
|||
Total revenue allocated to administrative services
|
|
$
|
633,968
|
|
$
|
—
|
|
$
|
633,968
|
|
|
|
|
|
|
||||||
|
|
|
|
|
||||||
Administrative services expenses
|
|
$
|
580,336
|
|
$
|
—
|
|
$
|
580,336
|
|
•
|
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.
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
||||||
Management fee revenue - policy issuance and renewal services, net
|
|
$
|
1,719,567
|
|
|
$
|
1,662,625
|
|
|
$
|
1,567,431
|
|
|
|
|
|
|
|
|
||||||
Management fee revenue - administrative services, net
|
|
53,632
|
|
|
—
|
|
|
—
|
|
|||
Administrative services reimbursement revenue
|
|
580,336
|
|
|
—
|
|
|
—
|
|
|||
Total administrative services
|
|
$
|
633,968
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
2018
|
|
2017
|
|
2016
|
|||||||||||||||||||||||||||
|
|
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
|
|
$
|
285,864
|
|
|
46,188,637
|
|
|
$
|
6.19
|
|
|
$
|
195,386
|
|
|
46,186,831
|
|
|
$
|
4.23
|
|
|
$
|
208,644
|
|
|
46,188,952
|
|
|
$
|
4.52
|
|
Dilutive effect of stock-based awards
|
|
0
|
|
|
25,776
|
|
|
—
|
|
|
0
|
|
|
49,832
|
|
|
—
|
|
|
0
|
|
|
145,551
|
|
|
—
|
|
||||||
Assumed conversion of Class B shares
|
|
2,360
|
|
|
6,100,800
|
|
|
—
|
|
|
1,613
|
|
|
6,100,800
|
|
|
—
|
|
|
1,722
|
|
|
6,100,800
|
|
|
—
|
|
||||||
Class A – Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income available to Class A stockholders on Class A equivalent shares
|
|
$
|
288,224
|
|
|
52,315,213
|
|
|
$
|
5.51
|
|
|
$
|
196,999
|
|
|
52,337,463
|
|
|
$
|
3.76
|
|
|
$
|
210,366
|
|
|
52,435,303
|
|
|
$
|
4.01
|
|
Class B – Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income available to Class B stockholders
|
|
$
|
2,360
|
|
|
2,542
|
|
|
$
|
928
|
|
|
$
|
1,613
|
|
|
2,542
|
|
|
$
|
635
|
|
|
$
|
1,722
|
|
|
2,542
|
|
|
$
|
678
|
|
Class B – Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income available to Class B stockholders
|
|
$
|
2,359
|
|
|
2,542
|
|
|
$
|
928
|
|
|
$
|
1,613
|
|
|
2,542
|
|
|
$
|
634
|
|
|
$
|
1,721
|
|
|
2,542
|
|
|
$
|
677
|
|
•
|
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, 2018
|
||||||||||||||
|
|
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
(1)
|
|
$
|
208,412
|
|
|
$
|
0
|
|
|
$
|
208,412
|
|
|
$
|
0
|
|
States & political subdivisions
(1)
|
|
159,023
|
|
|
0
|
|
|
159,023
|
|
|
0
|
|
||||
Corporate debt securities
|
|
249,947
|
|
|
0
|
|
|
237,370
|
|
|
12,577
|
|
||||
Residential mortgage-backed securities
|
|
4,609
|
|
|
0
|
|
|
4,609
|
|
|
0
|
|
||||
Commercial mortgage-backed securities
|
|
46,515
|
|
|
0
|
|
|
46,515
|
|
|
0
|
|
||||
Collateralized debt obligations
|
|
64,239
|
|
|
0
|
|
|
64,239
|
|
|
0
|
|
||||
Other debt securities
|
|
15,778
|
|
|
0
|
|
|
15,778
|
|
|
0
|
|
||||
Total available-for-sale securities
|
|
748,523
|
|
|
0
|
|
|
735,946
|
|
|
12,577
|
|
||||
Equity securities
|
|
|
|
|
|
|
|
|
||||||||
Nonredeemable preferred stock - financial services sector
|
|
11,853
|
|
|
1,809
|
|
|
10,044
|
|
|
0
|
|
||||
Total equity securities
|
|
11,853
|
|
|
1,809
|
|
|
10,044
|
|
|
0
|
|
||||
Other limited partnership investments
(2)
|
|
3,206
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Total
|
|
$
|
763,582
|
|
|
$
|
1,809
|
|
|
$
|
745,990
|
|
|
$
|
12,577
|
|
|
|
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 - financial services sector
|
|
11,659
|
|
|
2,015
|
|
|
9,644
|
|
|
0
|
|
||||
Nonredeemable preferred stock - utilities sector
|
|
1,093
|
|
|
0
|
|
|
1,093
|
|
|
0
|
|
||||
Total available-for-sale securities
|
|
758,713
|
|
|
2,015
|
|
|
746,619
|
|
|
10,079
|
|
||||
Other limited partnership investments
(2)
|
|
4,816
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Total
|
|
$
|
763,529
|
|
|
$
|
2,015
|
|
|
$
|
746,619
|
|
|
$
|
10,079
|
|
(1)
|
In the fourth quarter of 2018, we began selling off our municipal bonds as part of a portfolio rebalancing. We intend to sell the remaining municipal bonds in the first half of 2019. We have currently invested proceeds from these sales in short-term U.S. Treasuries.
|
(2)
|
The limited partnership investment measured at fair value represents one real estate fund included on the balance sheet as a limited partnership investment 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 investment can never be redeemed with the fund. Instead, distributions are received when liquidation of the underlying assets of the fund occurs. The fair value of this investment 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 partner, 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. During the years ended
December 31, 2018
and 2017,
no
contributions were made and distributions totaling
$1.2 million
and
$0.5 million
, respectively, were received from this investment. There were
no
unfunded commitments related to the investment as of
December 31, 2018
and 2017. In 2018, the one remaining real estate fund was in the process of liquidating the underlying assets. Liquidation of the fund was completed in January 2019.
|
(in thousands)
|
|
Beginning balance at December 31, 2017
|
|
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, 2018
|
||||||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Corporate debt securities
|
|
$
|
7,879
|
|
|
$
|
6
|
|
|
$
|
(312
|
)
|
|
$
|
5,550
|
|
|
$
|
(2,854
|
)
|
|
$
|
18,232
|
|
|
$
|
(15,924
|
)
|
|
$
|
12,577
|
|
Collateralized debt obligations
|
|
2,200
|
|
|
0
|
|
|
10
|
|
|
905
|
|
|
0
|
|
|
0
|
|
|
(3,115
|
)
|
|
0
|
|
||||||||
Total Level 3 available-for-sale securities
|
|
$
|
10,079
|
|
|
$
|
6
|
|
|
$
|
(302
|
)
|
|
$
|
6,455
|
|
|
$
|
(2,854
|
)
|
|
$
|
18,232
|
|
|
$
|
(19,039
|
)
|
|
$
|
12,577
|
|
(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 Level 3 available-for-sale securities
|
|
$
|
9,352
|
|
|
$
|
(85
|
)
|
|
$
|
(41
|
)
|
|
$
|
7,154
|
|
|
$
|
(5,411
|
)
|
|
$
|
11,196
|
|
|
$
|
(12,086
|
)
|
|
$
|
10,079
|
|
(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)
|
|
2018
|
|
2017
|
|
2016
|
||||||
Available-for-sale securities:
|
|
|
|
|
|
|
||||||
Corporate debt securities
|
|
$
|
(554
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Net unrealized losses on Level 3 securities held at reporting date
|
|
$
|
(554
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
(in thousands)
|
|
At December 31, 2018
|
||||||||||||||
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
(1)
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||
Priced via pricing services
|
|
$
|
748,480
|
|
|
$
|
0
|
|
|
$
|
735,946
|
|
|
$
|
12,534
|
|
Priced via market comparables/broker quotes
|
|
43
|
|
|
0
|
|
|
0
|
|
|
43
|
|
||||
Total available-for-sale securities
|
|
748,523
|
|
|
0
|
|
|
735,946
|
|
|
12,577
|
|
||||
Equity securities priced via pricing services
|
|
11,853
|
|
|
1,809
|
|
|
10,044
|
|
|
0
|
|
||||
Other limited partnership investments priced via unobservable inputs
(2)
|
|
3,206
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Total
|
|
$
|
763,582
|
|
|
$
|
1,809
|
|
|
$
|
745,990
|
|
|
$
|
12,577
|
|
(1)
|
Securities classified as Level 3 were priced using non-binding broker quotes.
|
(2)
|
Represents one real estate fund included on the Statements of Financial Position as limited partnership investments that is reported under the fair value option using the NAV practical expedient. These amounts are not required to be categorized in the fair value hierarchy.
|
|
|
At December 31, 2018
|
|
At December 31, 2017
|
||||||||||||
(in thousands)
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
||||||||
Agent loans
(1)
|
|
$
|
58,006
|
|
|
$
|
54,110
|
|
|
$
|
21,849
|
|
|
$
|
21,849
|
|
Long-term borrowings
|
|
99,730
|
|
|
94,057
|
|
|
74,728
|
|
|
72,424
|
|
(1)
|
The fair value of agent loans approximates carrying value at December 31, 2017.
|
|
|
At December 31, 2018
|
||||||||||||||
(in thousands)
|
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Estimated fair value
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||
U.S. Treasury
(1)
|
|
$
|
208,610
|
|
|
$
|
18
|
|
|
$
|
216
|
|
|
$
|
208,412
|
|
States & political subdivisions
(1)
|
|
157,003
|
|
|
2,020
|
|
|
0
|
|
|
159,023
|
|
||||
Corporate debt securities
|
|
259,362
|
|
|
139
|
|
|
9,554
|
|
|
249,947
|
|
||||
Residential mortgage-backed securities
|
|
4,603
|
|
|
38
|
|
|
32
|
|
|
4,609
|
|
||||
Commercial mortgage-backed securities
|
|
47,022
|
|
|
80
|
|
|
587
|
|
|
46,515
|
|
||||
Collateralized debt obligations
|
|
65,039
|
|
|
30
|
|
|
830
|
|
|
64,239
|
|
||||
Other debt securities
|
|
15,756
|
|
|
33
|
|
|
11
|
|
|
15,778
|
|
||||
Total available-for-sale securities
|
|
$
|
757,395
|
|
|
$
|
2,358
|
|
|
$
|
11,230
|
|
|
$
|
748,523
|
|
(1)
|
In the fourth quarter of 2018, we began selling off our municipal bonds as part of a portfolio rebalancing. We intend to sell the remaining municipal bonds in the first half of 2019. We have currently invested proceeds from these sales in short-term U.S. Treasuries.
|
|
|
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 - financial services sector
|
|
11,719
|
|
|
15
|
|
|
75
|
|
|
11,659
|
|
||||
Nonredeemable preferred stock - utilities sector
|
|
1,118
|
|
|
0
|
|
|
25
|
|
|
1,093
|
|
||||
Total available-for-sale securities
|
|
$
|
754,636
|
|
|
$
|
7,722
|
|
|
$
|
3,645
|
|
|
$
|
758,713
|
|
|
|
At December 31, 2018
|
||||||
(in thousands)
|
|
Amortized
|
|
Estimated
|
||||
|
|
cost
|
|
fair value
|
||||
Due in one year or less
|
|
$
|
263,957
|
|
|
$
|
263,837
|
|
Due after one year through five years
|
|
163,276
|
|
|
160,504
|
|
||
Due after five years through ten years
|
|
217,659
|
|
|
212,692
|
|
||
Due after ten years
|
|
112,503
|
|
|
111,490
|
|
||
Total available-for-sale securities
(1)
|
|
$
|
757,395
|
|
|
$
|
748,523
|
|
|
|
At December 31, 2018
|
|||||||||||||||||||||||||
(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
|
|
$
|
129,474
|
|
|
$
|
19
|
|
|
$
|
11,656
|
|
|
$
|
197
|
|
|
$
|
141,130
|
|
|
$
|
216
|
|
|
7
|
|
Corporate debt securities
|
|
157,300
|
|
|
6,866
|
|
|
86,586
|
|
|
2,688
|
|
|
243,886
|
|
|
9,554
|
|
|
635
|
|
||||||
Residential mortgage-backed securities
|
|
777
|
|
|
6
|
|
|
1,618
|
|
|
26
|
|
|
2,395
|
|
|
32
|
|
|
3
|
|
||||||
Commercial mortgage-backed securities
|
|
17,624
|
|
|
175
|
|
|
16,997
|
|
|
412
|
|
|
34,621
|
|
|
587
|
|
|
30
|
|
||||||
Collateralized debt obligations
|
|
55,246
|
|
|
826
|
|
|
1,248
|
|
|
4
|
|
|
56,494
|
|
|
830
|
|
|
39
|
|
||||||
Other debt securities
|
|
8,213
|
|
|
11
|
|
|
0
|
|
|
0
|
|
|
8,213
|
|
|
11
|
|
|
7
|
|
||||||
Total available-for-sale securities
|
|
$
|
368,634
|
|
|
$
|
7,903
|
|
|
$
|
118,105
|
|
|
$
|
3,327
|
|
|
$
|
486,739
|
|
|
$
|
11,230
|
|
|
721
|
|
Quality breakdown of available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investment grade
|
|
$
|
242,821
|
|
|
$
|
1,295
|
|
|
$
|
98,118
|
|
|
$
|
1,641
|
|
|
$
|
340,939
|
|
|
$
|
2,936
|
|
|
147
|
|
Non-investment grade
|
|
125,813
|
|
|
6,608
|
|
|
19,987
|
|
|
1,686
|
|
|
145,800
|
|
|
8,294
|
|
|
574
|
|
||||||
Total available-for-sale securities
|
|
$
|
368,634
|
|
|
$
|
7,903
|
|
|
$
|
118,105
|
|
|
$
|
3,327
|
|
|
$
|
486,739
|
|
|
$
|
11,230
|
|
|
721
|
|
|
|
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 - financial services sector
|
|
9,644
|
|
|
75
|
|
|
0
|
|
|
0
|
|
|
9,644
|
|
|
75
|
|
|
5
|
|
||||||
Nonredeemable preferred stock - utilities sector
|
|
1,093
|
|
|
25
|
|
|
0
|
|
|
0
|
|
|
1,093
|
|
|
25
|
|
|
1
|
|
||||||
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
|
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
||||||
Fixed maturities
(1)
|
|
$
|
24,978
|
|
|
$
|
23,587
|
|
|
$
|
20,175
|
|
Equity securities
|
|
628
|
|
|
82
|
|
|
171
|
|
|||
Cash equivalents and other
|
|
5,628
|
|
|
2,486
|
|
|
1,391
|
|
|||
Total investment income
|
|
31,234
|
|
|
26,155
|
|
|
21,737
|
|
|||
Less: investment expenses
|
|
1,025
|
|
|
1,516
|
|
|
1,179
|
|
|||
Investment income, net of expenses
|
|
$
|
30,209
|
|
|
$
|
24,639
|
|
|
$
|
20,558
|
|
(1)
|
Includes interest earned on note receivable from Erie Family Life Insurance Company ("EFL") of
$1.6 million
in 2018 and $
1.7 million
in 2017 and 2016.
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
||||||
Available-for-sale securities:
|
|
|
|
|
|
|
||||||
Gross realized gains
|
|
$
|
1,892
|
|
|
$
|
2,996
|
|
|
$
|
2,112
|
|
Gross realized losses
|
|
(3,189
|
)
|
|
(1,756
|
)
|
|
(2,147
|
)
|
|||
Net realized (losses) gains on available-for-sale securities
|
|
(1,297
|
)
|
|
1,240
|
|
|
(35
|
)
|
|||
Equity securities
|
|
(819
|
)
|
|
—
|
|
|
—
|
|
|||
Common stock trading securities
|
|
—
|
|
|
0
|
|
|
707
|
|
|||
Other
|
|
106
|
|
|
94
|
|
|
0
|
|
|||
Net realized investment (losses) gains
|
|
$
|
(2,010
|
)
|
|
$
|
1,334
|
|
|
$
|
672
|
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
||||||
Equity securities:
(1)
|
|
|
|
|
|
|
||||||
Net losses recognized during the period
|
|
$
|
(819
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Less: net losses recognized on securities sold
|
|
(86
|
)
|
|
—
|
|
|
—
|
|
|||
Net unrealized losses recognized on securities held at reporting date
|
|
$
|
(733
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)
|
With the adoption of ASU 2016-01 effective January 1, 2018, changes in unrealized gains and losses on equity securities are included in net realized investment gains (losses) in the Statement of Operations. The adoption of this guidance resulted in a reclassification of net unrealized losses of
$0.1 million
from accumulated other comprehensive loss to retained earnings at January 1, 2018.
|
(in thousands)
|
|
2018
|
|
2017
|
|
2016
|
||||||
Equity in (losses) earnings of limited partnerships - equity method
|
|
$
|
(448
|
)
|
|
$
|
1,925
|
|
|
$
|
6,273
|
|
Change in fair value of limited partnerships - fair value option
|
|
(374
|
)
|
|
876
|
|
|
752
|
|
|||
Equity in (losses) earnings of limited partnerships
|
|
$
|
(822
|
)
|
|
$
|
2,801
|
|
|
$
|
7,025
|
|
(in thousands)
|
|
2018
|
|
2017
|
||||
Private equity
|
|
$
|
28,271
|
|
|
$
|
31,663
|
|
Mezzanine debt
|
|
1,152
|
|
|
3,516
|
|
||
Real estate
|
|
2,192
|
|
|
5,127
|
|
||
Real estate - fair value option
|
|
3,206
|
|
|
4,816
|
|
||
Total limited partnership investments
|
|
$
|
34,821
|
|
|
$
|
45,122
|
|
|
|
|
|
|
|
(in thousands)
|
|
2018
|
|
2017
|
||||
Land, buildings, and building improvements
|
|
$
|
—
|
|
|
$
|
7,627
|
|
Leasehold improvements
|
|
617
|
|
|
1,375
|
|
||
Software
|
|
163,735
|
|
|
129,553
|
|
||
Equipment
|
|
15,075
|
|
|
13,858
|
|
||
Projects in progress
|
|
10,392
|
|
|
21,898
|
|
||
Construction in progress
|
|
66,088
|
|
|
26,312
|
|
||
Total fixed assets, gross
|
|
255,907
|
|
|
200,623
|
|
||
Less: Accumulated depreciation and amortization
|
|
(125,075
|
)
|
|
(117,474
|
)
|
||
Fixed assets, net
|
|
$
|
130,832
|
|
|
$
|
83,149
|
|
(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.
|
|
|
2018
|
|
2017
|
|
2016
|
|
2015
|
|
||||
Employee pension plan:
|
|
|
|
|
|
|
|
|
|
||||
Discount rate
|
|
4.47
|
%
|
|
3.73
|
%
|
|
4.24
|
%
|
|
4.57
|
%
|
|
Expected return on assets
|
|
6.75
|
|
|
6.75
|
|
|
7.00
|
|
|
7.00
|
|
|
Compensation increases
(1)
|
|
3.32
|
|
|
3.32
|
|
|
3.32
|
|
|
3.32
|
|
|
SERP:
|
|
|
|
|
|
|
|
|
|
|
|||
Discount rate – pre-retirement/post-retirement
|
|
4.47/3.97
|
|
|
3.73/3.23
|
|
|
4.24/3.74
|
|
|
4.57/4.07
|
|
|
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
2018
,
2017
and
2016
would produce similar results.
|
(in thousands)
|
|
Projected Benefit Obligation in Excess of Plan Assets
|
|
||||||
|
|
2018
|
|
2017
|
|
||||
Projected benefit obligation
|
|
$
|
886,165
|
|
|
$
|
951,666
|
|
|
Plan assets
|
|
767,569
|
|
|
743,900
|
|
|
(in thousands)
|
|
Accumulated Benefit Obligation in Excess of Plan Assets
|
|
||||||
|
|
2018
|
|
2017
|
|
||||
Accumulated benefit obligation
|
|
$
|
18,908
|
|
|
$
|
767,527
|
|
|
Plan assets
|
|
—
|
|
|
743,900
|
|
|
(1)
|
The final SERP benefit for
two
former executives was settled with lump sum payments in
2017
.
|
(1)
|
In 2018, there were
five
new SERP participants. In
2017
, amendments include an enactment to the surviving spouse's death benefits, which increased the pension plan obligation by
$3.6 million
and the SERP obligation by
$0.3 million
, additionally there were
two
new SERP participants in
2017
, which contributed
$1.2 million
.
|
(2)
|
The final SERP benefit for
two
former executives was settled with lump sum payments in
2017
.
|
|
|
|
|
||||||||||
|
|
Target asset
allocation
(1)
|
|
Target asset
allocation
|
|
Actual asset
allocation
|
|
Actual asset
allocation
|
|
||||
Asset allocation:
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
||||
Equity securities:
|
|
|
|
|
|
|
|
|
|
||||
U.S. equity securities
|
|
25
|
%
|
(2)
|
35
|
%
|
|
24
|
%
|
|
39
|
%
|
|
Non-U.S. equity securities
|
|
16
|
|
(3)
|
20
|
|
|
14
|
|
|
19
|
|
|
Total equity securities
|
|
41
|
|
|
55
|
|
|
38
|
|
|
58
|
|
|
Debt securities
|
|
58
|
|
(4)
|
44
|
|
|
61
|
|
|
41
|
|
|
Other
|
|
1
|
|
(5)
|
1
|
|
|
1
|
|
|
1
|
|
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
(1)
|
Changes to the target asset allocation in 2018 were made to reduce investment risk by shifting portfolio assets from equity securities to debt securities.
|
(2)
|
U.S. equity securities
–
21%
seek to achieve excess returns relative to the Russell 2000 Index. The remaining
79%
of the allocation to U.S. equity securities are comprised of equity index funds that track the S&P 500.
|
(3)
|
Non-U.S. equity securities
–
11%
are allocated to international small cap investments, while another
20%
are allocated to international emerging market investments. The remaining
69%
of the Non-U.S. equity securities are allocated to investments seeking to achieve excess returns relative to an international market index.
|
(4)
|
Debt securities
–
32%
are allocated to long U.S. Treasury Strips,
62%
are allocated to U.S. corporate bonds with an emphasis on long duration bonds rated A or better, while the remaining
6%
are allocated to floating rate high income leverage loans.
|
(5)
|
Institutional money market fund.
|
|
|
|
|
||||||||||||||
|
|
At December 31, 2018
|
|
||||||||||||||
|
|
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
|
|
$
|
182,495
|
|
|
$
|
0
|
|
|
$
|
182,495
|
|
|
$
|
0
|
|
|
Non-U.S. equity securities
|
|
110,942
|
|
|
0
|
|
|
110,942
|
|
|
0
|
|
|
||||
Total equity securities
|
|
293,437
|
|
|
0
|
|
|
293,437
|
|
|
0
|
|
|
||||
Debt securities
|
|
464,613
|
|
|
0
|
|
|
464,613
|
|
|
0
|
|
|
||||
Other
|
|
9,519
|
|
|
9,519
|
|
|
0
|
|
|
0
|
|
|
||||
Total
|
|
$
|
767,569
|
|
|
$
|
9,519
|
|
|
$
|
758,050
|
|
|
$
|
0
|
|
|
|
|
|
|
||||||||||||||
|
|
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
|
|
|
(in thousands)
|
|
|
||||||||||
|
|
2018
|
|
2017
|
|
2016
|
||||||
Current income tax expense
|
|
$
|
84,454
|
|
|
$
|
81,689
|
|
|
$
|
109,727
|
|
Deferred income tax (benefit) expense
|
|
(1,358
|
)
|
|
26,912
|
|
|
(2
|
)
|
|||
Other income tax expense
|
|
—
|
|
|
10,095
|
|
|
—
|
|
|||
Income tax expense
|
|
$
|
83,096
|
|
|
$
|
118,696
|
|
|
$
|
109,725
|
|
(1)
|
The change in tax rate represents the tax effect of the re-measurement of deferred tax assets and liabilities due to the enactment of the TCJA.
|
(1)
|
Deferred taxes related to unrealized gains and losses for the period from December 23, 2017 through December 31, 2018 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 reclassification of unrealized losses of equity securities from AOCI to retained earnings was required at January 1, 2018 due to the implementation of ASU 2016-01. See Note 2, "Significant Accounting Policies".
|
(3)
|
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, resulting in the ending AOCI balances now reflected at the
21%
corporate rate, which represents the rate in which the amounts are expected to be settled. See Note 2, "Significant Accounting Policies".
|
(4)
|
These components of accumulated other comprehensive income (loss) are included in the computation of net periodic pension cost. See Note 9, "Postretirement Benefits", for additional information.
|
(5)
|
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)
|
|
2018
|
|
2017
|
|
2016
|
||||||
|
|
|
|
|
|
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
|
||||||
Net income
|
|
$
|
288,224
|
|
|
$
|
196,999
|
|
|
$
|
210,366
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
||||||
Depreciation and amortization
|
|
13,368
|
|
|
14,831
|
|
|
15,095
|
|
|||
Deferred income tax (benefit) expense
|
|
(1,358
|
)
|
|
26,912
|
|
|
(2
|
)
|
|||
Other income tax expense
(1)
|
|
—
|
|
|
10,095
|
|
|
—
|
|
|||
Realized losses (gains) and impairments on investments
|
|
3,591
|
|
|
(1,152
|
)
|
|
(256
|
)
|
|||
Equity in losses (earnings) of limited partnerships
|
|
822
|
|
|
(2,801
|
)
|
|
(7,025
|
)
|
|||
(Gain) loss on disposal of fixed assets
|
|
(3,047
|
)
|
|
98
|
|
|
59
|
|
|||
Net amortization of bond premium
|
|
5,601
|
|
|
7,038
|
|
|
7,436
|
|
|||
Decrease in deferred compensation
|
|
(3,886
|
)
|
|
(2,681
|
)
|
|
(4,561
|
)
|
|||
Limited partnership distributions
|
|
7,173
|
|
|
5,128
|
|
|
17,837
|
|
|||
Increase in receivables from affiliates
|
|
(30,804
|
)
|
|
(39,788
|
)
|
|
(30,485
|
)
|
|||
Decrease (increase) in accrued investment income
|
|
1,590
|
|
|
(516
|
)
|
|
(846
|
)
|
|||
Decrease (increase) in federal income taxes recoverable
|
|
21,738
|
|
|
(24,640
|
)
|
|
6,687
|
|
|||
(Increase) decrease in prepaid pension
|
|
(47,335
|
)
|
|
(27,265
|
)
|
|
10,524
|
|
|||
Increase in prepaid expenses and other assets
|
|
(727
|
)
|
|
(7,636
|
)
|
|
(4,674
|
)
|
|||
Increase in accounts payable and accrued expenses
|
|
11,039
|
|
|
17,183
|
|
|
11,144
|
|
|||
Increase in commissions payable
|
|
13,449
|
|
|
17,565
|
|
|
15,017
|
|
|||
(Decrease) increase in accrued agent bonuses
|
|
(19,066
|
)
|
|
7,756
|
|
|
8,020
|
|
|||
Increase in contract liability
|
|
3,213
|
|
|
—
|
|
|
—
|
|
|||
Net cash provided by operating activities
|
|
$
|
263,585
|
|
|
$
|
197,126
|
|
|
$
|
254,336
|
|
(1)
|
Other 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.
|
|
|
Year ended December 31, 2018
|
||||||||||||||||||
(in thousands, except per share data)
|
|
First
quarter
|
|
Second
quarter
|
|
Third
quarter
|
|
Fourth
quarter
|
|
Year
|
||||||||||
Operating revenue
(1)
|
|
$
|
572,160
|
|
|
$
|
621,458
|
|
|
$
|
612,126
|
|
|
$
|
576,468
|
|
|
$
|
2,382,212
|
|
Operating expenses
(1)
|
|
494,593
|
|
|
526,135
|
|
|
515,431
|
|
|
501,710
|
|
|
2,037,869
|
|
|||||
Investment income
|
|
6,163
|
|
|
6,207
|
|
|
8,431
|
|
|
4,995
|
|
|
25,796
|
|
|||||
Interest expense and other (income), net
(2)
|
|
509
|
|
|
544
|
|
|
655
|
|
|
(2,889
|
)
|
|
(1,181
|
)
|
|||||
Income before income taxes
|
|
83,221
|
|
|
100,986
|
|
|
104,471
|
|
|
82,642
|
|
|
371,320
|
|
|||||
Net income
|
|
$
|
65,758
|
|
|
$
|
79,706
|
|
|
$
|
80,446
|
|
|
$
|
62,314
|
|
|
$
|
288,224
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings per share
(3)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net income per share
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Class A common stock – basic
|
|
$
|
1.41
|
|
|
$
|
1.71
|
|
|
$
|
1.73
|
|
|
$
|
1.34
|
|
|
$
|
6.19
|
|
Class A common stock – diluted
|
|
$
|
1.26
|
|
|
$
|
1.52
|
|
|
$
|
1.54
|
|
|
$
|
1.19
|
|
|
$
|
5.51
|
|
Class B common stock – basic and diluted
|
|
$
|
212
|
|
|
$
|
257
|
|
|
$
|
259
|
|
|
$
|
201
|
|
|
$
|
928
|
|
(1)
|
In accordance with ASC 606, "Revenue from Contracts with Customers", effective January 1, 2018, we allocate our management fee between the
two
performance obligations we have in the subscriber's agreement, policy issuance and renewal services and administrative services. We also present expenses we incur and the related reimbursements we receive for administrative services gross in our Statement of Operations. See Note 2, "Significant Accounting Policies".
|
(2)
|
The decrease in interest expense and other (income), net in the fourth quarter is driven by the
$3.4 million
gain recognized on the sale of the field offices we owned to Exchange. See Note 7, "Fixed Assets".
|
(3)
|
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.
|
|
|
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
(1)
|
|
332,376
|
|
|
365,116
|
|
|
361,253
|
|
|
342,777
|
|
|
1,401,522
|
|
|||||
Investment income
(1)
|
|
6,589
|
|
|
6,451
|
|
|
8,418
|
|
|
7,134
|
|
|
28,592
|
|
|||||
Interest expense and other, net
(1)
|
|
575
|
|
|
664
|
|
|
792
|
|
|
1,118
|
|
|
3,149
|
|
|||||
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
(2)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net income per share
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Class A common stock – basic
|
|
$
|
1.03
|
|
|
$
|
1.26
|
|
|
$
|
1.26
|
|
|
$
|
0.69
|
|
|
$
|
4.23
|
|
Class A common stock – diluted
(3)
|
|
$
|
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)
|
Amounts presented have been reclassified from previously reported amounts as a result of the adoption of ASU 2017-07, "Compensation-Retirement Benefits". See Note 2, "Significant Accounting Policies".
|
(2)
|
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.
|
(3)
|
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 4, "Earnings Per Share" and Note 11, "Income Taxes".
|
/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 21, 2019
|
|
February 21, 2019
|
|
February 21, 2019
|
|
Name
|
|
Age as of 12/31/2018
|
|
Principal Occupation and Positions for Past Five Years
|
|
|
|
|
|
President & Chief Executive Officer:
|
|
|
|
|
Timothy G. NeCastro
|
|
58
|
|
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
|
|
49
|
|
Executive Vice President, Claims & Customer Service since November 2016; Senior Vice President, Customer Service, January 2011 through November 2016.
|
|
|
|
|
|
Gregory J. Gutting
|
|
55
|
|
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
|
|
60
|
|
Executive Vice President and Chief Information Officer since August 2012; Director, EFL, EIC, Flagship, ENY and EPC.
|
|
|
|
|
|
Sean J. McLaughlin *
|
|
63
|
|
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
|
|
44
|
|
Executive Vice President, Sales & Products since November 2016; Senior Vice President, Personal Lines, November 2008 through October 2016.
|
|
|
|
|
|
Dionne Wallace Oakley
|
|
51
|
|
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, 2018
,
2017
and
2016
|
•
|
Statements of Comprehensive Income for the three years ended
December 31, 2018
,
2017
and
2016
|
•
|
Statements of Financial Position as of
December 31, 2018
and
2017
|
•
|
Statements of Shareholders' Equity for the three years ended
December 31, 2018
,
2017
and
2016
|
•
|
Statements of Cash Flows for the three years ended
December 31, 2018
,
2017
and
2016
|
•
|
Notes to Financial Statements
|
|
Page
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
3.8
|
|
|
|
|
|
3.9
|
|
|
|
|
|
10.12
|
|
|
|
|
|
10.104
|
|
|
|
|
|
10.145
|
|
|
|
|
|
10.152
|
|
|
|
|
|
10.153
|
|
|
|
|
|
10.154
|
|
|
|
|
|
10.156
|
|
|
|
|
|
10.157
|
|
|
|
|
|
10.158
|
|
|
|
|
|
10.159
|
|
|
|
|
|
10.162
|
|
|
|
|
|
10.163
|
|
|
|
|
|
10.166
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
10.168
|
|
|
|
|
|
10.169
|
|
|
|
|
|
10.170
|
|
|
|
|
|
10.171
|
|
|
|
|
|
10.172
|
|
|
|
|
|
10.173
|
|
|
|
|
|
10.174
|
|
|
|
|
|
10.175
|
|
|
|
|
|
10.177
|
|
|
|
|
|
10.178
|
|
|
|
|
|
10.179
|
|
|
|
|
|
10.180
|
|
|
|
|
|
10.181
|
|
|
|
|
|
10.182
|
|
|
|
|
|
10.183
|
|
|
|
|
|
10.184
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
10.185
|
|
|
|
|
|
10.186
|
|
|
|
|
|
10.187
|
|
|
|
|
|
10.188
|
|
|
|
|
|
10.190
|
|
|
|
|
|
10.191
|
|
|
|
|
|
10.192
|
|
|
|
|
|
10.193
|
|
|
|
|
|
10.194*
|
|
|
|
|
|
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.
|
February 21, 2019
|
ERIE INDEMNITY COMPANY
|
|
|
(Registrant)
|
|
|
|
|
By:
|
/s/ Timothy G. NeCastro
|
|
|
Timothy G. NeCastro, President and CEO
|
|
|
(Principal Executive Officer)
|
|
February 21, 2019
|
/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/ Brian A. Hudson, Sr.
|
J. Ralph Borneman, Jr.
|
|
Brian A. Hudson, Sr.
|
|
|
|
/s/ Eugene C. Connell
|
|
/s/ Claude C. Lilly, III
|
Eugene C. Connell
|
|
Claude C. Lilly, III
|
|
|
|
/s/ Salvatore Correnti
|
|
/s/ George R. Lucore
|
Salvatore Correnti
|
|
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/ Elizabeth Hirt Vorsheck
|
Thomas B. Hagen, Chairman
|
|
Elizabeth Hirt Vorsheck
|
|
|
|
/s/ C. Scott Hartz
|
|
|
C. Scott Hartz
|
|
|
1.
|
Section 2.36 of the Plan is amended and restated in its entirety to read as follows, effective December 31, 2017:
|
2.36
|
“Total and Permanent Disability” shall mean such condition of disability which results in a Covered Employee being eligible for disability benefits under the Erie Insurance Group Long Term Disability Income Benefits Program.
|
2.
|
Section 5.3 of the Plan is amended and restated in its entirety to read as follows, effective December 31, 2017:
|
5.3
|
Disability Retirement
|
|
|
ERIE INDEMNITY COMPANY
|
|
|
|
ATTEST:
|
|
|
|
|
|
/s/ William D. Gheres
|
|
By: /s/ Gregory Gutting
|
|
|
Gregory Gutting
|
|
|
|
|
|
|
|
|
Title: Executive Vice President &
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
(1)
|
Registration Statement (Form S-8 No. 333-218739) pertaining to the Erie Indemnity Company Incentive Compensation Deferral Plan,
|
(2)
|
Registration Statement (Form S-8 No. 333-188244) pertaining to the Erie Indemnity Company Equity Compensation Plan,
|
(3)
|
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,
|
(4)
|
Registration Statement (Form S-8 No. 333-82062) pertaining to the Erie Indemnity Company Long-Term Incentive Plan, and
|
(5)
|
Registration Statement (Form S-8 No. 333-53318) pertaining to the Erie Indemnity Company Long-Term Incentive Plan
|
Date:
|
February 21, 2019
|
|
|
|
|
|
|
/s/ Timothy G. NeCastro
|
|
|
Timothy G. NeCastro
|
|
|
President & CEO
|
Date:
|
February 21, 2019
|
|
|
|
|
|
|
/s/ Gregory J. Gutting
|
|
|
Gregory J. Gutting
|
|
|
Executive Vice President & CFO
|
(1)
|
The
Annual
Report on Form
10-K
of the Company for the
annual
period ended
December 31, 2018
(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
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Timothy G. NeCastro
|
|
Timothy G. NeCastro
|
|
President & CEO
|
|
|
|
/s/ Gregory J. Gutting
|
|
Gregory J. Gutting
|
|
Executive Vice President & CFO
|
|
|
|
|
|
February 21, 2019
|
|