|
ERIE INDEMNITY COMPANY
|
|
|
(Exact name of registrant as specified in its charter)
|
|
|
PENNSYLVANIA
|
|
25-0466020
|
|
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
|
|
incorporation or organization)
|
|
Identification No.)
|
|
|
100 Erie Insurance Place, Erie, Pennsylvania
|
|
16530
|
|
|
(Address of principal executive offices)
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|
(Zip Code)
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|
|
|
|
|
|
(814) 870-2000
|
|
|
(Registrant’s telephone number, including area code)
|
|
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Not applicable
|
|
|
(Former name, former address and former fiscal year, if changed since last report)
|
|
ITEM 1.
|
FINANCIAL STATEMENTS
|
|
|
Three Months Ended
|
||||||
|
|
March 31,
|
||||||
|
|
2019
|
|
2018
|
||||
Operating revenue
|
|
|
|
|
|
|
||
Management fee revenue
-
policy
issuance
and renewal services,
net
|
|
$
|
430,983
|
|
|
$
|
405,978
|
|
Management fee revenue - administrative services, net
|
|
13,951
|
|
|
13,074
|
|
||
Administrative services reimbursement revenue
|
|
142,480
|
|
|
145,963
|
|
||
Service agreement revenue
|
|
6,692
|
|
|
7,145
|
|
||
Total operating revenue
|
|
594,106
|
|
|
572,160
|
|
||
|
|
|
|
|
||||
Operating expenses
|
|
|
|
|
||||
Cost of operations - policy issuance and renewal services
|
|
365,504
|
|
|
348,630
|
|
||
Cost of operations - administrative services
|
|
142,480
|
|
|
145,963
|
|
||
Total operating expenses
|
|
507,984
|
|
|
494,593
|
|
||
Operating income
|
|
86,122
|
|
|
77,567
|
|
||
|
|
|
|
|
||||
Investment income
|
|
|
|
|
||||
Net investment income
|
|
8,517
|
|
|
6,820
|
|
||
Net realized investment gains (losses)
|
|
2,503
|
|
|
(465
|
)
|
||
Net impairment losses recognized in earnings
|
|
(78
|
)
|
|
0
|
|
||
Equity in losses of limited partnerships
|
|
(1,147
|
)
|
|
(192
|
)
|
||
Total investment income
|
|
9,795
|
|
|
6,163
|
|
||
|
|
|
|
|
||||
Interest expense, net
|
|
449
|
|
|
553
|
|
||
Other income
|
|
47
|
|
|
44
|
|
||
Income before income taxes
|
|
95,515
|
|
|
83,221
|
|
||
Income tax expense
|
|
20,204
|
|
|
17,463
|
|
||
Net income
|
|
$
|
75,311
|
|
|
$
|
65,758
|
|
|
|
|
|
|
||||
|
|
|
|
|
||||
Net income per share
|
|
|
|
|
|
|
||
Class A common stock – basic
|
|
$
|
1.62
|
|
|
$
|
1.41
|
|
Class A common stock – diluted
|
|
$
|
1.44
|
|
|
$
|
1.26
|
|
Class B common stock – basic and diluted
|
|
$
|
243
|
|
|
$
|
212
|
|
|
|
|
|
|
||||
Weighted average shares outstanding – Basic
|
|
|
|
|
|
|
||
Class A common stock
|
|
46,188,337
|
|
|
46,187,908
|
|
||
Class B common stock
|
|
2,542
|
|
|
2,542
|
|
||
|
|
|
|
|
||||
Weighted average shares outstanding – Diluted
|
|
|
|
|
|
|
||
Class A common stock
|
|
52,312,036
|
|
|
52,310,628
|
|
||
Class B common stock
|
|
2,542
|
|
|
2,542
|
|
||
|
|
|
|
|
||||
Dividends declared per share
|
|
|
|
|
|
|
||
Class A common stock
|
|
$
|
0.90
|
|
|
$
|
0.84
|
|
Class B common stock
|
|
$
|
135.00
|
|
|
$
|
126.00
|
|
|
|
Three Months Ended
|
||||||
|
|
March 31,
|
||||||
|
|
2019
|
|
2018
|
||||
Net income
|
|
$
|
75,311
|
|
|
$
|
65,758
|
|
|
|
|
|
|
||||
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
||
Change in unrealized holding gains (losses) on available-for-sale securities
|
|
5,478
|
|
|
(5,427
|
)
|
||
Amortization of prior service costs and net actuarial loss on pension and other postretirement plans
|
|
1,232
|
|
|
0
|
|
||
Total other comprehensive income (loss), net of tax
|
|
6,710
|
|
|
(5,427
|
)
|
||
Comprehensive income
|
|
$
|
82,021
|
|
|
$
|
60,331
|
|
|
|
March 31,
|
|
December 31,
|
||||
|
|
2019
|
|
2018
|
||||
Assets
|
|
(Unaudited)
|
|
|
||||
Current assets:
|
|
|
|
|
||||
Cash and cash equivalents
|
|
$
|
312,045
|
|
|
$
|
266,417
|
|
Available-for-sale securities
|
|
139,994
|
|
|
402,339
|
|
||
Receivables from Erie Insurance Exchange and affiliates
|
|
456,135
|
|
|
449,873
|
|
||
Prepaid expenses and other current assets
|
|
49,997
|
|
|
36,892
|
|
||
Federal income taxes recoverable
|
|
0
|
|
|
8,162
|
|
||
Accrued investment income
|
|
4,220
|
|
|
5,263
|
|
||
Total current assets
|
|
962,391
|
|
|
1,168,946
|
|
||
|
|
|
|
|
||||
Available-for-sale securities
|
|
534,925
|
|
|
346,184
|
|
||
Equity securities
|
|
12,410
|
|
|
11,853
|
|
||
Limited partnership investments
|
|
30,038
|
|
|
34,821
|
|
||
Fixed assets, net
|
|
144,652
|
|
|
130,832
|
|
||
Deferred income taxes, net
|
|
22,180
|
|
|
24,101
|
|
||
Other assets
|
|
92,860
|
|
|
61,590
|
|
||
Total assets
|
|
$
|
1,799,456
|
|
|
$
|
1,778,327
|
|
|
|
|
|
|
||||
Liabilities and shareholders' equity
|
|
|
|
|
||||
Current liabilities:
|
|
|
|
|
||||
Commissions payable
|
|
$
|
253,002
|
|
|
$
|
241,573
|
|
Agent bonuses
|
|
26,129
|
|
|
103,462
|
|
||
Accounts payable and accrued liabilities
|
|
123,179
|
|
|
111,291
|
|
||
Dividends payable
|
|
41,913
|
|
|
41,910
|
|
||
Contract liability
|
|
34,116
|
|
|
33,854
|
|
||
Deferred executive compensation
|
|
10,346
|
|
|
13,107
|
|
||
Federal income taxes payable
|
|
11,946
|
|
|
0
|
|
||
Current portion of long-term borrowings
|
|
1,891
|
|
|
1,870
|
|
||
Total current liabilities
|
|
502,522
|
|
|
547,067
|
|
||
|
|
|
|
|
||||
Defined benefit pension plans
|
|
123,270
|
|
|
116,866
|
|
||
Long-term borrowings
|
|
97,382
|
|
|
97,860
|
|
||
Contract liability
|
|
17,907
|
|
|
17,873
|
|
||
Deferred executive compensation
|
|
16,817
|
|
|
13,075
|
|
||
Other long-term liabilities
|
|
27,754
|
|
|
11,914
|
|
||
Total liabilities
|
|
785,652
|
|
|
804,655
|
|
||
|
|
|
|
|
||||
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
|
|
16,483
|
|
|
16,459
|
|
||
Accumulated other comprehensive loss
|
|
(123,574
|
)
|
|
(130,284
|
)
|
||
Retained earnings
|
|
2,264,815
|
|
|
2,231,417
|
|
||
Total contributed capital and retained earnings
|
|
2,159,894
|
|
|
2,119,762
|
|
||
Treasury stock, at cost; 22,110,132 shares held
|
|
(1,158,779
|
)
|
|
(1,157,625
|
)
|
||
Deferred compensation
|
|
12,689
|
|
|
11,535
|
|
||
Total shareholders’ equity
|
|
1,013,804
|
|
|
973,672
|
|
||
Total liabilities and shareholders’ equity
|
|
$
|
1,799,456
|
|
|
$
|
1,778,327
|
|
|
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, 2018
|
$
|
1,992
|
|
$
|
178
|
|
$
|
16,459
|
|
$
|
(130,284
|
)
|
$
|
2,231,417
|
|
$
|
(1,157,625
|
)
|
$
|
11,535
|
|
$
|
973,672
|
|
Net income
|
|
|
|
|
75,311
|
|
|
|
75,311
|
|
||||||||||||||
Other comprehensive income
|
|
|
|
6,710
|
|
|
|
|
6,710
|
|
||||||||||||||
Dividends declared:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Class A $0.90 per share
|
|
|
|
|
(41,570
|
)
|
|
|
(41,570
|
)
|
||||||||||||||
Class B $135.00 per share
|
|
|
|
|
(343
|
)
|
|
|
(343
|
)
|
||||||||||||||
Net purchase of treasury stock
(1)
|
|
|
24
|
|
|
|
0
|
|
|
24
|
|
|||||||||||||
Deferred compensation
|
|
|
|
|
|
(1,154
|
)
|
1,154
|
|
0
|
|
|||||||||||||
Balance, March 31, 2019
|
$
|
1,992
|
|
$
|
178
|
|
$
|
16,483
|
|
$
|
(123,574
|
)
|
$
|
2,264,815
|
|
$
|
(1,158,779
|
)
|
$
|
12,689
|
|
$
|
1,013,804
|
|
|
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, 2017
|
$
|
1,992
|
|
$
|
178
|
|
$
|
16,470
|
|
$
|
(156,059
|
)
|
$
|
2,140,853
|
|
$
|
(1,155,668
|
)
|
$
|
9,578
|
|
$
|
857,344
|
|
Cumulative effect adjustments
(2)
|
|
|
|
|
(38,392
|
)
|
|
|
(38,392
|
)
|
||||||||||||||
Net income
|
|
|
|
|
65,758
|
|
|
|
65,758
|
|
||||||||||||||
Other comprehensive loss
|
|
|
|
(5,427
|
)
|
|
|
|
(5,427
|
)
|
||||||||||||||
Dividends declared:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Class A $0.84 per share
|
|
|
|
|
(38,799
|
)
|
|
|
(38,799
|
)
|
||||||||||||||
Class B $126.00 per share
|
|
|
|
|
(320
|
)
|
|
|
(320
|
)
|
||||||||||||||
Net purchase of treasury stock
(1)
|
|
|
(9
|
)
|
|
|
0
|
|
|
(9
|
)
|
|||||||||||||
Deferred compensation
|
|
|
|
|
|
(1,663
|
)
|
1,663
|
|
0
|
|
|||||||||||||
Balance, March 31, 2018
|
$
|
1,992
|
|
$
|
178
|
|
$
|
16,461
|
|
$
|
(161,486
|
)
|
$
|
2,129,100
|
|
$
|
(1,157,331
|
)
|
$
|
11,241
|
|
$
|
840,155
|
|
|
|
Three Months Ended
|
||||||
|
|
March 31,
|
||||||
|
|
2019
|
|
2018
|
||||
Cash flows from operating activities
|
|
|
|
|
||||
Management fee received
|
|
$
|
433,735
|
|
|
$
|
418,897
|
|
Administrative services reimbursements received
|
|
148,308
|
|
|
150,422
|
|
||
Service agreement fee received
|
|
6,692
|
|
|
7,145
|
|
||
Net investment income received
|
|
9,112
|
|
|
8,951
|
|
||
Limited partnership distributions
|
|
1,225
|
|
|
426
|
|
||
Commissions paid to agents
|
|
(204,633
|
)
|
|
(192,803
|
)
|
||
Agents bonuses paid
|
|
(104,689
|
)
|
|
(122,607
|
)
|
||
Salaries and wages paid
|
|
(50,840
|
)
|
|
(54,668
|
)
|
||
Pension contributions and employee benefits paid
|
|
(10,875
|
)
|
|
(49,199
|
)
|
||
General operating expenses paid
|
|
(60,439
|
)
|
|
(59,033
|
)
|
||
Administrative services expenses paid
|
|
(143,046
|
)
|
|
(146,935
|
)
|
||
Income taxes recovered (paid)
|
|
138
|
|
|
(276
|
)
|
||
Interest paid
|
|
(448
|
)
|
|
(550
|
)
|
||
Net cash provided by (used in) operating activities
|
|
24,240
|
|
|
(40,230
|
)
|
||
|
|
|
|
|
||||
Cash flows from investing activities
|
|
|
|
|
||||
Purchase of investments:
|
|
|
|
|
||||
Available-for-sale securities
|
|
(220,811
|
)
|
|
(77,263
|
)
|
||
Equity securities
|
|
0
|
|
|
(1,035
|
)
|
||
Limited partnerships
|
|
(9
|
)
|
|
(31
|
)
|
||
Proceeds from investments:
|
|
|
|
|
||||
Available-for-sale securities sales
|
|
149,155
|
|
|
57,717
|
|
||
Available-for-sale securities maturities/calls
|
|
154,343
|
|
|
28,473
|
|
||
Equity securities
|
|
0
|
|
|
1,055
|
|
||
Limited partnerships
|
|
2,411
|
|
|
910
|
|
||
Purchase of fixed assets
|
|
(17,411
|
)
|
|
(8,691
|
)
|
||
Distributions on agent loans
|
|
(6,233
|
)
|
|
(19,310
|
)
|
||
Collections on agent loans
|
|
2,313
|
|
|
1,436
|
|
||
Net cash provided by (used in) investing activities
|
|
63,758
|
|
|
(16,739
|
)
|
||
|
|
|
|
|
||||
Cash flows from financing activities
|
|
|
|
|
||||
Dividends paid to shareholders
|
|
(41,910
|
)
|
|
(39,116
|
)
|
||
Net payments on long-term borrowings
|
|
(460
|
)
|
|
(9
|
)
|
||
Net cash used in financing activities
|
|
(42,370
|
)
|
|
(39,125
|
)
|
||
|
|
|
|
|
||||
Net increase (decrease) in cash and cash equivalents
|
|
45,628
|
|
|
(96,094
|
)
|
||
Cash and cash equivalents, beginning of period
|
|
266,417
|
|
|
215,721
|
|
||
Cash and cash equivalents, end of period
|
|
$
|
312,045
|
|
|
$
|
119,627
|
|
|
|
|
|
|
||||
Supplemental disclosure of noncash transactions
|
|
|
|
|
||||
Operating lease assets obtained in exchange for new operating lease liabilities
|
|
$
|
32,515
|
|
|
$
|
—
|
|
|
|
Three months ended March 31,
|
|||||
(in thousands)
|
|
2019
|
2018
|
||||
Management fee revenue - policy issuance and renewal services, net
|
|
$
|
430,983
|
|
$
|
405,978
|
|
|
|
|
|
||||
Management fee revenue - administrative services, net
|
|
13,951
|
|
13,074
|
|
||
Administrative services reimbursement revenue
|
|
142,480
|
|
145,963
|
|
||
Total administrative services
|
|
$
|
156,431
|
|
$
|
159,037
|
|
|
|
Three months ended March 31,
|
||||||||||||||||||||
|
|
2019
|
|
2018
|
||||||||||||||||||
(dollars in thousands, except per share data)
|
|
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
|
|
$
|
74,694
|
|
|
46,188,337
|
|
|
$
|
1.62
|
|
|
$
|
65,220
|
|
|
46,187,908
|
|
|
$
|
1.41
|
|
Dilutive effect of stock-based awards
|
|
0
|
|
|
22,899
|
|
|
—
|
|
|
0
|
|
|
21,920
|
|
|
—
|
|
||||
Assumed conversion of Class B shares
|
|
617
|
|
|
6,100,800
|
|
|
—
|
|
|
538
|
|
|
6,100,800
|
|
|
—
|
|
||||
Class A – Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Income available to Class A stockholders on Class A equivalent shares
|
|
$
|
75,311
|
|
|
52,312,036
|
|
|
$
|
1.44
|
|
|
$
|
65,758
|
|
|
52,310,628
|
|
|
$
|
1.26
|
|
Class B – Basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Income available to Class B stockholders
|
|
$
|
617
|
|
|
2,542
|
|
|
$
|
243
|
|
|
$
|
538
|
|
|
2,542
|
|
|
$
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
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 March 31, 2019
|
||||||||||||||
|
|
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)
|
|
$
|
279,956
|
|
|
$
|
0
|
|
|
$
|
279,956
|
|
|
$
|
0
|
|
States & political subdivisions
(1)
|
|
27,452
|
|
|
0
|
|
|
27,452
|
|
|
0
|
|
||||
Corporate debt securities
|
|
233,017
|
|
|
0
|
|
|
221,494
|
|
|
11,523
|
|
||||
Residential mortgage-backed securities
|
|
6,571
|
|
|
0
|
|
|
5,656
|
|
|
915
|
|
||||
Commercial mortgage-backed securities
|
|
48,144
|
|
|
0
|
|
|
46,962
|
|
|
1,182
|
|
||||
Collateralized debt obligations
|
|
63,932
|
|
|
0
|
|
|
63,932
|
|
|
0
|
|
||||
Other debt securities
|
|
15,847
|
|
|
0
|
|
|
15,847
|
|
|
0
|
|
||||
Total available-for-sale securities
|
|
674,919
|
|
|
0
|
|
|
661,299
|
|
|
13,620
|
|
||||
Equity securities:
|
|
|
|
|
|
|
|
|
||||||||
Nonredeemable preferred stock - financial services sector
|
|
12,410
|
|
|
1,966
|
|
|
10,444
|
|
|
0
|
|
||||
Total equity securities
|
|
12,410
|
|
|
1,966
|
|
|
10,444
|
|
|
0
|
|
||||
Total
|
|
$
|
687,329
|
|
|
$
|
1,966
|
|
|
$
|
671,743
|
|
|
$
|
13,620
|
|
|
|
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
|
|
(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 second quarter of 2019. We have currently invested proceeds from these sales primarily in 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 (NAV) practical expedient, which is not required to be categorized in the fair value hierarchy. The fair value of this investment is based on our proportionate share of the NAV from the most recent partners' capital statements received from the general partner, which is generally one quarter prior to our balance sheet date. We consider observable market data and perform a review validating the appropriateness of the NAV at each balance sheet date. Liquidation of this fund was completed in January 2019. There were
no
unfunded commitments related to the investment at
December 31, 2018
. During the
three months
ended
March 31, 2019
, distributions totaling
$3.2 million
were received from this investment. During the year ended
December 31, 2018
,
no
contributions were made and distributions totaling
$1.2 million
were received from this investment.
|
|
|
At March 31, 2019
|
||||||||||||||
(in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||
Priced via pricing services
|
|
$
|
673,729
|
|
|
$
|
0
|
|
|
$
|
661,299
|
|
|
$
|
12,430
|
|
Priced via market comparables/broker quotes
|
|
125
|
|
|
0
|
|
|
0
|
|
|
125
|
|
||||
Priced via internal modeling
|
|
1,065
|
|
|
0
|
|
|
0
|
|
|
1,065
|
|
||||
Total available-for-sale securities
|
|
674,919
|
|
|
0
|
|
|
661,299
|
|
|
13,620
|
|
||||
Equity securities priced via pricing services
|
|
12,410
|
|
|
1,966
|
|
|
10,444
|
|
|
0
|
|
||||
Total
|
|
$
|
687,329
|
|
|
$
|
1,966
|
|
|
$
|
671,743
|
|
|
$
|
13,620
|
|
|
|
At March 31, 2019
|
|||||||
(dollars in thousands)
|
|
Fair
value
|
Valuation techniques
|
Unobservable input
|
Range
(basis points) |
Weighted
average (basis points) |
Impact of increase in input on estimated fair value
|
||
|
|
|
|
|
|
|
|
||
Corporate debt securities - bank loans
|
|
$
|
11,373
|
|
Market approach
|
Market residual yield
(1)
|
-186 - +1,479
|
+33
|
Decrease
|
Commercial mortgage-backed securities
|
|
1,057
|
|
Market approach
|
Credit spread
(2)
|
+42 - +275
|
+181
|
Decrease
|
(1)
|
Values for bank loans classified as Level 3 are determined by our pricing vendor based on model yield curves adjusted for observable inputs. The market residual yield represents a net adjustment to the model yield curve for unobservable input factors.
|
(2)
|
Values for commercial mortgage-backed securities classified as Level 3 include adjustments to the base spread over the appropriate U.S. Treasury yield assuming no prepayments until penalty provisions have expired.
|
(in thousands)
|
|
Beginning balance at December 31, 2018
|
|
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 March 31, 2019
|
||||||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Corporate debt securities
|
|
$
|
12,577
|
|
|
$
|
11
|
|
|
$
|
268
|
|
|
$
|
734
|
|
|
$
|
(431
|
)
|
|
$
|
4,813
|
|
|
$
|
(6,449
|
)
|
|
$
|
11,523
|
|
Residential mortgage-backed securities
|
|
0
|
|
|
0
|
|
|
0
|
|
|
921
|
|
|
(6
|
)
|
|
0
|
|
|
0
|
|
|
915
|
|
||||||||
Commercial mortgage-backed securities
|
|
0
|
|
|
(2
|
)
|
|
0
|
|
|
478
|
|
|
0
|
|
|
706
|
|
|
0
|
|
|
1,182
|
|
||||||||
Total Level 3 available-for-sale securities
|
|
$
|
12,577
|
|
|
$
|
9
|
|
|
$
|
268
|
|
|
$
|
2,133
|
|
|
$
|
(437
|
)
|
|
$
|
5,519
|
|
|
$
|
(6,449
|
)
|
|
$
|
13,620
|
|
(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 March 31, 2018
|
||||||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Corporate debt securities
|
|
$
|
7,879
|
|
|
$
|
(9
|
)
|
|
$
|
5
|
|
|
$
|
0
|
|
|
$
|
(493
|
)
|
|
$
|
2,412
|
|
|
$
|
(3,485
|
)
|
|
$
|
6,309
|
|
Collateralized debt obligations
|
|
2,200
|
|
|
0
|
|
|
7
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
(2,207
|
)
|
|
0
|
|
||||||||
Total Level 3 available-for-sale securities
|
|
$
|
10,079
|
|
|
$
|
(9
|
)
|
|
$
|
12
|
|
|
$
|
0
|
|
|
$
|
(493
|
)
|
|
$
|
2,412
|
|
|
$
|
(5,692
|
)
|
|
$
|
6,309
|
|
(1)
|
These amounts are reported in the Statements of Operations as net investment income and net realized investment gains (losses) for the 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.
|
|
|
Three months ended March 31,
|
||||||
(in thousands)
|
|
2019
|
|
2018
|
||||
Available-for-sale securities:
|
|
|
|
|
||||
Corporate debt securities
|
|
$
|
157
|
|
|
$
|
10
|
|
Residential mortgage-backed securities
|
|
0
|
|
|
—
|
|
||
Commercial mortgage-backed securities
|
|
4
|
|
|
—
|
|
||
Net unrealized gains on Level 3 securities held at reporting date
|
|
$
|
161
|
|
|
$
|
10
|
|
|
|
At March 31, 2019
|
|
At December 31, 2018
|
||||||||||||
(in thousands)
|
|
Carrying value
|
|
Fair value
|
|
Carrying value
|
|
Fair value
|
||||||||
Agent loans
|
|
$
|
61,926
|
|
|
$
|
61,487
|
|
|
$
|
58,006
|
|
|
$
|
54,110
|
|
Long-term borrowings
|
|
99,273
|
|
|
95,958
|
|
|
99,730
|
|
|
94,057
|
|
|
|
At March 31, 2019
|
||||||||||||||
(in thousands)
|
|
Amortized
cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Estimated fair value
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||
U.S. Treasury
(1)
|
|
$
|
279,553
|
|
|
$
|
503
|
|
|
$
|
100
|
|
|
$
|
279,956
|
|
States & political subdivisions
(1)
|
|
26,931
|
|
|
521
|
|
|
0
|
|
|
27,452
|
|
||||
Corporate debt securities
|
|
235,546
|
|
|
985
|
|
|
3,514
|
|
|
233,017
|
|
||||
Residential mortgage-backed securities
|
|
6,513
|
|
|
67
|
|
|
9
|
|
|
6,571
|
|
||||
Commercial mortgage-backed securities
|
|
48,120
|
|
|
273
|
|
|
249
|
|
|
48,144
|
|
||||
Collateralized debt obligations
|
|
64,432
|
|
|
17
|
|
|
517
|
|
|
63,932
|
|
||||
Other debt securities
|
|
15,752
|
|
|
95
|
|
|
0
|
|
|
15,847
|
|
||||
Total available-for-sale securities
|
|
$
|
676,847
|
|
|
$
|
2,461
|
|
|
$
|
4,389
|
|
|
$
|
674,919
|
|
|
|
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 second quarter of 2019. We have currently invested proceeds from these sales primarily in U.S. Treasuries.
|
|
|
At March 31, 2019
|
||||||
|
|
Amortized
|
|
Estimated
|
||||
(in thousands)
|
|
cost
|
|
fair value
|
||||
Due in one year or less
|
|
$
|
123,334
|
|
|
$
|
123,200
|
|
Due after one year through five years
|
|
320,044
|
|
|
319,564
|
|
||
Due after five years through ten years
|
|
133,675
|
|
|
132,586
|
|
||
Due after ten years
|
|
99,794
|
|
|
99,569
|
|
||
Total available-for-sale securities
(1)
|
|
$
|
676,847
|
|
|
$
|
674,919
|
|
(1)
|
The contractual maturities of our municipal bond portfolio are included in the table. However, given our intent to sell this portfolio, municipal bond securities are classified as current assets in our Statements of Financial Position.
|
|
|
At March 31, 2019
|
|||||||||||||||||||||||||
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|||||||||||||||||||||
(dollars in thousands)
|
|
Fair
value
|
|
Unrealized losses
|
|
Fair
value
|
|
Unrealized losses
|
|
Fair
value
|
|
Unrealized losses
|
|
No. of holdings
|
|||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
U.S. Treasury
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
11,748
|
|
|
$
|
100
|
|
|
$
|
11,748
|
|
|
$
|
100
|
|
|
4
|
|
Corporate debt securities
|
|
82,879
|
|
|
1,647
|
|
|
94,393
|
|
|
1,867
|
|
|
177,272
|
|
|
3,514
|
|
|
471
|
|
||||||
Residential mortgage-backed securities
|
|
1,208
|
|
|
4
|
|
|
388
|
|
|
5
|
|
|
1,596
|
|
|
9
|
|
|
2
|
|
||||||
Commercial mortgage-backed securities
|
|
9,491
|
|
|
17
|
|
|
19,023
|
|
|
232
|
|
|
28,514
|
|
|
249
|
|
|
27
|
|
||||||
Collateralized debt obligations
|
|
59,394
|
|
|
468
|
|
|
3,231
|
|
|
49
|
|
|
62,625
|
|
|
517
|
|
|
45
|
|
||||||
Other debt securities
|
|
100
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
100
|
|
|
0
|
|
|
1
|
|
||||||
Total available-for-sale securities
|
|
$
|
153,072
|
|
|
$
|
2,136
|
|
|
$
|
128,783
|
|
|
$
|
2,253
|
|
|
$
|
281,855
|
|
|
$
|
4,389
|
|
|
550
|
|
Quality breakdown of available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Investment grade
|
|
$
|
77,871
|
|
|
$
|
534
|
|
|
$
|
94,217
|
|
|
$
|
807
|
|
|
$
|
172,088
|
|
|
$
|
1,341
|
|
|
124
|
|
Non-investment grade
|
|
75,201
|
|
|
1,602
|
|
|
34,566
|
|
|
1,446
|
|
|
109,767
|
|
|
3,048
|
|
|
426
|
|
||||||
Total available-for-sale securities
|
|
$
|
153,072
|
|
|
$
|
2,136
|
|
|
$
|
128,783
|
|
|
$
|
2,253
|
|
|
$
|
281,855
|
|
|
$
|
4,389
|
|
|
550
|
|
|
|
At December 31, 2018
|
|||||||||||||||||||||||||
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|||||||||||||||||||||
(dollars in thousands)
|
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
|
Fair
value
|
|
Unrealized
losses
|
|
No. of
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
|
|
|
|
Three months ended March 31,
|
||||||
(in thousands)
|
|
2019
|
|
2018
|
||||
Fixed maturities
(1)
|
|
$
|
6,161
|
|
|
$
|
6,110
|
|
Equity securities
|
|
141
|
|
|
142
|
|
||
Cash equivalents and other
|
|
2,465
|
|
|
1,008
|
|
||
Total investment income
|
|
8,767
|
|
|
7,260
|
|
||
Less: investment expenses
|
|
250
|
|
|
440
|
|
||
Investment income, net of expenses
|
|
$
|
8,517
|
|
|
$
|
6,820
|
|
(1)
|
Includes interest earned on note receivable from Erie Family Life Insurance Company of
$0.4 million
for the three months ended March 31,
2018
. The note was repaid in full in December 2018.
|
|
|
Three months ended March 31,
|
||||||
(in thousands)
|
|
2019
|
|
2018
|
||||
Available-for-sale securities:
|
|
|
|
|
|
|
||
Gross realized gains
|
|
$
|
2,258
|
|
|
$
|
340
|
|
Gross realized losses
|
|
(340
|
)
|
|
(685
|
)
|
||
Net realized gains (losses) on available-for-sale securities
|
|
1,918
|
|
|
(345
|
)
|
||
Equity securities
|
|
585
|
|
|
(120
|
)
|
||
Net realized investment gains (losses)
|
|
$
|
2,503
|
|
|
$
|
(465
|
)
|
|
|
Three months ended March 31,
|
||||||
(in thousands)
|
|
2019
|
|
2018
|
||||
Equity securities:
|
|
|
|
|
||||
Net gains (losses) recognized during the period
|
|
$
|
585
|
|
|
$
|
(120
|
)
|
Less: net losses recognized on securities sold
|
|
0
|
|
|
(34
|
)
|
||
Net unrealized gains (losses) recognized on securities held at reporting date
|
|
$
|
585
|
|
|
$
|
(86
|
)
|
|
|
Three months ended March 31,
|
||||||
(in thousands)
|
|
2019
|
|
2018
|
||||
Equity in (losses) earnings of limited partnerships - equity method
|
|
$
|
(1,147
|
)
|
|
$
|
195
|
|
Change in fair value of limited partnerships - fair value option
|
|
0
|
|
|
(387
|
)
|
||
Equity in losses of limited partnerships
|
|
$
|
(1,147
|
)
|
|
$
|
(192
|
)
|
(in thousands)
|
|
At March 31, 2019
|
|
At December 31, 2018
|
||||
Private equity
|
|
$
|
26,691
|
|
|
$
|
28,271
|
|
Mezzanine debt
|
|
1,118
|
|
|
1,152
|
|
||
Real estate
|
|
2,229
|
|
|
2,192
|
|
||
Real estate - fair value option
|
|
0
|
|
|
3,206
|
|
||
Total limited partnership investments
|
|
$
|
30,038
|
|
|
$
|
34,821
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2019
|
||
Operating lease assets
|
|
$
|
28,611
|
|
|
|
|
||
Operating lease liabilities - current
|
|
$
|
12,466
|
|
Operating lease liabilities - long-term
|
|
16,589
|
|
|
Total operating lease liabilities
|
|
$
|
29,055
|
|
|
|
Three months ended March 31,
|
||||||
(in thousands)
|
|
2019
|
|
2018
|
||||
Service cost for benefits earned
|
|
$
|
8,463
|
|
|
$
|
9,513
|
|
Interest cost on benefits obligation
|
|
9,827
|
|
|
8,846
|
|
||
Expected return on plan assets
|
|
(11,871
|
)
|
|
(12,815
|
)
|
||
Prior service cost amortization
|
|
349
|
|
|
338
|
|
||
Net actuarial loss amortization
|
|
1,278
|
|
|
3,202
|
|
||
Pension plan cost
(1)
|
|
$
|
8,046
|
|
|
$
|
9,084
|
|
(1)
|
The components of pension plan costs other than the service cost component are included in the line item "Other income" in the Statements of Operations after reimbursements from the Exchange and its subsidiaries.
|
|
|
Three months ended
|
|
Three months ended
|
||||||||||||||||
|
|
March 31, 2019
|
|
March 31, 2018
|
||||||||||||||||
(in thousands)
|
|
Before Tax
|
Income Tax
|
Net
|
|
Before Tax
|
Income Tax
|
Net
|
||||||||||||
Investment securities:
|
|
|
|
|
|
|
|
|
||||||||||||
AOCI (loss), beginning of period
|
|
$
|
(9,169
|
)
|
$
|
(1,926
|
)
|
$
|
(7,243
|
)
|
|
$
|
3,410
|
|
$
|
716
|
|
$
|
2,694
|
|
OCI (loss) before reclassifications
|
|
8,774
|
|
1,843
|
|
6,931
|
|
|
(7,130
|
)
|
(1,497
|
)
|
(5,633
|
)
|
||||||
Realized investment (gains) losses
|
|
(1,918
|
)
|
(403
|
)
|
(1,515
|
)
|
|
345
|
|
72
|
|
273
|
|
||||||
Impairment losses
|
|
78
|
|
16
|
|
62
|
|
|
0
|
|
0
|
|
0
|
|
||||||
Cumulative effect of adopting ASU 2016-01
(1)
|
|
—
|
|
—
|
|
—
|
|
|
(85
|
)
|
(18
|
)
|
(67
|
)
|
||||||
OCI (loss)
|
|
6,934
|
|
1,456
|
|
5,478
|
|
|
(6,870
|
)
|
(1,443
|
)
|
(5,427
|
)
|
||||||
AOCI (loss), end of period
|
|
$
|
(2,235
|
)
|
$
|
(470
|
)
|
$
|
(1,765
|
)
|
|
$
|
(3,460
|
)
|
$
|
(727
|
)
|
$
|
(2,733
|
)
|
|
|
|
|
|
|
|
|
|
||||||||||||
Pension and other postretirement plans:
|
|
|
|
|
|
|
|
|
||||||||||||
AOCI (loss), beginning of period
|
|
$
|
(155,749
|
)
|
$
|
(32,708
|
)
|
$
|
(123,041
|
)
|
|
$
|
(200,954
|
)
|
$
|
(42,201
|
)
|
$
|
(158,753
|
)
|
Amortization of prior service costs
(2)
|
|
349
|
|
73
|
|
276
|
|
|
0
|
|
0
|
|
0
|
|
||||||
Amortization of net actuarial loss
(2)
|
|
1,210
|
|
254
|
|
956
|
|
|
0
|
|
0
|
|
0
|
|
||||||
OCI
|
|
1,559
|
|
327
|
|
1,232
|
|
|
0
|
|
0
|
|
0
|
|
||||||
AOCI (loss), end of period
|
|
$
|
(154,190
|
)
|
$
|
(32,381
|
)
|
$
|
(121,809
|
)
|
|
$
|
(200,954
|
)
|
$
|
(42,201
|
)
|
$
|
(158,753
|
)
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total
|
|
|
|
|
|
|
|
|
||||||||||||
AOCI (loss), beginning of period
|
|
$
|
(164,918
|
)
|
$
|
(34,634
|
)
|
$
|
(130,284
|
)
|
|
$
|
(197,544
|
)
|
$
|
(41,485
|
)
|
$
|
(156,059
|
)
|
Investment securities
|
|
6,934
|
|
1,456
|
|
5,478
|
|
|
(6,870
|
)
|
(1,443
|
)
|
(5,427
|
)
|
||||||
Pension and other postretirement plans
|
|
1,559
|
|
327
|
|
1,232
|
|
|
0
|
|
0
|
|
0
|
|
||||||
OCI (loss)
|
|
8,493
|
|
1,783
|
|
6,710
|
|
|
(6,870
|
)
|
(1,443
|
)
|
(5,427
|
)
|
||||||
AOCI (loss), end of period
|
|
$
|
(156,425
|
)
|
$
|
(32,851
|
)
|
$
|
(123,574
|
)
|
|
$
|
(204,414
|
)
|
$
|
(42,928
|
)
|
$
|
(161,486
|
)
|
(1)
|
ASU 2016-01 required a reclassification of unrealized losses of equity securities from AOCI to retained earnings at January 1, 2018.
|
(2)
|
Effective January 1, 2019, amounts reclassified from AOCI related to amortization of prior service costs and net actuarial loss were recorded during interim periods. Prior to 2019, amounts reclassified for these items were recorded on an annual basis. These components are included in the computation of net periodic pension cost. See Note 9, "Postretirement Benefits", for additional information.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
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.
|
|
|
Three months ended March 31,
|
||||||||
(dollars in thousands, except per share data)
|
|
2019
|
2018
|
% Change
|
||||||
|
|
(Unaudited)
|
|
|
||||||
Operating income
|
|
$
|
86,122
|
|
$
|
77,567
|
|
11.0
|
|
%
|
Total investment income
|
|
9,795
|
|
6,163
|
|
58.9
|
|
|
||
Interest expense, net
|
|
449
|
|
553
|
|
(18.7
|
)
|
|
||
Other income
|
|
47
|
|
44
|
|
7.3
|
|
|
||
Income before income taxes
|
|
95,515
|
|
83,221
|
|
14.8
|
|
|
||
Income tax expense
|
|
20,204
|
|
17,463
|
|
15.7
|
|
|
||
Net income
|
|
$
|
75,311
|
|
$
|
65,758
|
|
14.5
|
|
%
|
Net income per share - diluted
|
|
$
|
1.44
|
|
$
|
1.26
|
|
14.5
|
|
%
|
|
|
Three months ended March 31,
|
||||||||
(dollars in thousands)
|
|
2019
|
2018
|
% Change
|
||||||
|
|
(Unaudited)
|
|
|
||||||
Policy issuance and renewal services
|
|
|
|
|
|
|||||
Direct and affiliated assumed premiums written by the Exchange
|
|
$
|
1,784,520
|
|
$
|
1,682,794
|
|
6.0
|
|
%
|
Management fee rate
|
|
24.2
|
%
|
24.2
|
%
|
|
|
|||
Management fee revenue
|
|
431,854
|
|
407,236
|
|
6.0
|
|
|
||
Change in allowance for management fee returned on cancelled policies
(1)
|
|
(871
|
)
|
(1,258
|
)
|
30.8
|
|
|
||
Management fee revenue - policy issuance and renewal services, net
|
|
$
|
430,983
|
|
$
|
405,978
|
|
6.2
|
|
%
|
|
|
|
|
|
|
|||||
Administrative services
|
|
|
|
|
|
|||||
Direct and affiliated assumed premiums written by the Exchange
|
|
$
|
1,784,520
|
|
$
|
1,682,794
|
|
6.0
|
|
%
|
Management fee rate
|
|
0.8
|
%
|
0.8
|
%
|
|
|
|||
Management fee revenue
|
|
14,276
|
|
13,462
|
|
6.0
|
|
|
||
Change in contract liability
(2)
|
|
(310
|
)
|
(374
|
)
|
17.1
|
|
|
||
Change in allowance for management fee returned on cancelled policies
(1)
|
|
(15
|
)
|
(14
|
)
|
(5.8
|
)
|
|
||
Management fee revenue - administrative services, net
|
|
13,951
|
|
13,074
|
|
6.7
|
|
|
||
Administrative services reimbursement revenue
|
|
142,480
|
|
145,963
|
|
(2.4
|
)
|
|
||
Total revenue from administrative services
|
|
$
|
156,431
|
|
$
|
159,037
|
|
(1.6
|
)
|
%
|
(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)
|
Management fee revenue - administrative services is recognized over time as the services are performed. See Part I, Item 1. "Financial Statements - Note 3, Revenue, of Notes to Financial Statements" contained within this report.
|
|
|
Three months ended March 31,
|
||||||||
(dollars in thousands)
|
|
2019
|
2018
|
% Change
|
||||||
|
|
(Unaudited)
|
|
|
||||||
Commissions:
|
|
|
|
|
|
|||||
Total commissions
|
|
$
|
242,982
|
|
$
|
234,094
|
|
3.8
|
|
%
|
Non-commission expense:
|
|
|
|
|
|
|||||
Underwriting and policy processing
|
|
$
|
38,685
|
|
$
|
38,594
|
|
0.2
|
|
%
|
Information technology
|
|
39,430
|
|
33,949
|
|
16.1
|
|
|
||
Sales and advertising
|
|
12,810
|
|
14,772
|
|
(13.3
|
)
|
|
||
Customer service
|
|
8,316
|
|
8,245
|
|
0.9
|
|
|
||
Administrative and other
|
|
23,281
|
|
18,976
|
|
22.7
|
|
|
||
Total non-commission expense
|
|
122,522
|
|
114,536
|
|
7.0
|
|
|
||
Total cost of policy issuance and renewal services
|
|
$
|
365,504
|
|
$
|
348,630
|
|
4.8
|
|
%
|
|
|
Three months ended March 31,
|
||||||||
(dollars in thousands)
|
|
2019
|
2018
|
% Change
|
||||||
|
|
(Unaudited)
|
|
|
||||||
Management fee revenue - administrative services, net
|
|
$
|
13,951
|
|
$
|
13,074
|
|
6.7
|
|
%
|
Administrative services reimbursement revenue
|
|
142,480
|
|
145,963
|
|
(2.4
|
)
|
|
||
Total revenue allocated to administrative services
|
|
156,431
|
|
159,037
|
|
(1.6
|
)
|
|
||
Administrative services expenses
|
|
|
|
|
|
|||||
Claims handling services
|
|
124,199
|
|
128,105
|
|
(3.0
|
)
|
|
||
Investment management services
|
|
8,783
|
|
8,288
|
|
6.0
|
|
|
||
Life management services
|
|
9,498
|
|
9,570
|
|
(0.8
|
)
|
|
||
Operating income - administrative services
|
|
$
|
13,951
|
|
$
|
13,074
|
|
6.7
|
|
%
|
|
|
Three months ended March 31,
|
|||||||
(dollars in thousands)
|
|
2019
|
2018
|
% Change
|
|||||
|
|
(Unaudited)
|
|
|
|||||
Net investment income
|
|
$
|
8,517
|
|
$
|
6,820
|
|
24.9
|
%
|
Net realized investment gains (losses)
|
|
2,503
|
|
(465
|
)
|
NM
|
|
||
Net impairment losses recognized in earnings
|
|
(78
|
)
|
0
|
|
NM
|
|
||
Equity in losses of limited partnerships
|
|
(1,147
|
)
|
(192
|
)
|
NM
|
|
||
Total investment income
|
|
$
|
9,795
|
|
$
|
6,163
|
|
58.9
|
%
|
|
|
Three months ended March 31,
|
||||||
(in thousands)
|
|
2019
|
|
2018
|
||||
Securities sold:
|
|
(Unaudited)
|
||||||
Fixed maturities
|
|
$
|
1,918
|
|
|
$
|
(345
|
)
|
Equity securities
|
|
0
|
|
|
(59
|
)
|
||
Equity securities change in fair value
(1)
|
|
585
|
|
|
(61
|
)
|
||
Net realized investment gains (losses)
(2)
|
|
$
|
2,503
|
|
|
$
|
(465
|
)
|
(1)
|
The fair value of our equity portfolio is based upon exchange traded prices provided by a nationally recognized pricing service.
|
(2)
|
See Part I, Item 1. "Financial Statements - Note 6, Investments, of Notes to Financial Statements" contained within this report for additional disclosures regarding net realized investment gains (losses).
|
|
|
Three months ended March 31,
|
||||||
(in thousands)
|
|
2019
|
|
2018
|
||||
|
|
(Unaudited)
|
||||||
Private equity
|
|
$
|
(1,195
|
)
|
|
$
|
336
|
|
Mezzanine debt
|
|
(5
|
)
|
|
78
|
|
||
Real estate
|
|
53
|
|
|
(606
|
)
|
||
Equity in losses of limited partnerships
|
|
$
|
(1,147
|
)
|
|
$
|
(192
|
)
|
|
|
Carrying value at
|
|
|
|
Carrying value at
|
|
|
||||||
(dollars in thousands)
|
|
March 31, 2019
|
|
% to total
|
|
December 31, 2018
|
|
% to total
|
||||||
|
|
(Unaudited)
|
|
|
|
|
|
|
||||||
Fixed maturities
|
|
$
|
674,919
|
|
|
87
|
%
|
|
$
|
748,523
|
|
|
88
|
%
|
Equity securities:
|
|
|
|
|
|
|
|
|
||||||
Preferred stock
|
|
12,410
|
|
|
2
|
|
|
11,853
|
|
|
1
|
|
||
Limited partnerships:
|
|
|
|
|
|
|
|
|
||||||
Private equity
|
|
26,691
|
|
|
3
|
|
|
28,271
|
|
|
3
|
|
||
Mezzanine debt
|
|
1,118
|
|
|
0
|
|
|
1,152
|
|
|
0
|
|
||
Real estate
|
|
2,229
|
|
|
0
|
|
|
5,398
|
|
|
1
|
|
||
Other investments
(1)
|
|
62,316
|
|
|
8
|
|
|
58,394
|
|
|
7
|
|
||
Total investments
|
|
$
|
779,683
|
|
|
100
|
%
|
|
$
|
853,591
|
|
|
100
|
%
|
(1)
|
Other investments primarily include agent loans. Agent loans are included with other assets in the Statements of Financial Position.
|
|
|
At March 31, 2019
|
||||||||||||||||||||||
(in thousands)
|
|
(Unaudited)
|
||||||||||||||||||||||
Industry Sector
|
|
AAA
|
|
AA
|
|
A
|
|
BBB
|
|
Non- investment
grade
|
|
Fair
value
|
||||||||||||
Basic materials
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
14,887
|
|
|
$
|
14,887
|
|
Communications
|
|
0
|
|
|
1,984
|
|
|
0
|
|
|
3,529
|
|
|
21,603
|
|
|
27,116
|
|
||||||
Consumer
|
|
0
|
|
|
0
|
|
|
1,018
|
|
|
18,727
|
|
|
49,597
|
|
|
69,342
|
|
||||||
Diversified
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
1,336
|
|
|
1,336
|
|
||||||
Energy
|
|
0
|
|
|
0
|
|
|
0
|
|
|
3,968
|
|
|
15,819
|
|
|
19,787
|
|
||||||
Financial
|
|
0
|
|
|
1,992
|
|
|
13,948
|
|
|
19,625
|
|
|
16,381
|
|
|
51,946
|
|
||||||
Government-municipal
|
|
13,839
|
|
|
8,858
|
|
|
4,755
|
|
|
0
|
|
|
0
|
|
|
27,452
|
|
||||||
Industrial
|
|
0
|
|
|
0
|
|
|
2,492
|
|
|
4,191
|
|
|
22,238
|
|
|
28,921
|
|
||||||
Structured securities
(2)
|
|
97,360
|
|
|
28,113
|
|
|
8,024
|
|
|
997
|
|
|
0
|
|
|
134,494
|
|
||||||
Technology
|
|
0
|
|
|
0
|
|
|
0
|
|
|
3,477
|
|
|
13,085
|
|
|
16,562
|
|
||||||
U.S. Treasury
|
|
74,710
|
|
|
205,246
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
279,956
|
|
||||||
Utilities
|
|
0
|
|
|
0
|
|
|
0
|
|
|
992
|
|
|
2,128
|
|
|
3,120
|
|
||||||
Total
|
|
$
|
185,909
|
|
|
$
|
246,193
|
|
|
$
|
30,237
|
|
|
$
|
55,506
|
|
|
$
|
157,074
|
|
|
$
|
674,919
|
|
(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)
|
|
At March 31, 2019
|
|
At December 31, 2018
|
||||
|
|
(Unaudited)
|
|
|
||||
Financial
|
|
$
|
12,410
|
|
|
$
|
11,853
|
|
Total
|
|
$
|
12,410
|
|
|
$
|
11,853
|
|
|
|
|
(in thousands)
|
|
2019
|
|
2018
|
||||
|
|
(Unaudited)
|
||||||
Net cash provided by (used in) operating activities
|
|
$
|
24,240
|
|
|
$
|
(40,230
|
)
|
Net cash provided by (used in) investing activities
|
|
63,758
|
|
|
(16,739
|
)
|
||
Net cash used in financing activities
|
|
(42,370
|
)
|
|
(39,125
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
|
$
|
45,628
|
|
|
$
|
(96,094
|
)
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
ITEM 6.
|
EXHIBITS
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
10.1*
|
|
|
|
|
|
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.
|
|
|
|
Erie Indemnity Company
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
May 2, 2019
|
By:
|
/s/ Timothy G. NeCastro
|
|
|
|
|
Timothy G. NeCastro, President & CEO
|
|
|
|
|
|
|
|
|
By:
|
/s/ Gregory J. Gutting
|
|
|
|
|
Gregory J. Gutting, Executive Vice President & CFO
|
|
1.
|
Section 7.3 of the Plan is hereby amended in its entirety and shall read as follows, effective January 1, 2019:
|
7.3
|
Safe Harbor Distribution
|
(a)
|
the distribution is not in excess of the amount of the immediate and heavy financial need of the Eligible Applicant including any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from such distribution; and
|
(b)
|
the Eligible Applicant has obtained all other forms of distribution and nontaxable loans currently available from all plans maintained by an Employer.
|
2.
|
Section 11.3 of the Plan is hereby amended in its entirety and shall read as follows, effective April 1, 2019:
|
11.3
|
Expenses
|
|
|
ERIE INDEMNITY COMPANY
|
|
|
|
ATTEST:
|
|
|
|
|
|
/s/ William D. Gheres
|
|
By:
/s/ Gregory J. Gutting
|
|
|
|
|
|
Title:
EVP & Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
May 2, 2019
|
|
|
|
|
|
|
/s/ Timothy G. NeCastro
|
|
|
Timothy G. NeCastro
|
|
|
President & CEO
|
Date:
|
May 2, 2019
|
|
|
|
|
|
|
/s/ Gregory J. Gutting
|
|
|
Gregory J. Gutting
|
|
|
Executive Vice President & CFO
|
(1)
|
The
Quarterly
Report on Form
10-Q
of the Company for the
quarterly
period ended
March 31, 2019
(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
|
|
|
|
|
|
May 2, 2019
|
|