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ERIE INDEMNITY COMPANY
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(Exact name of registrant as specified in its charter)
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Pennsylvania
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25-0466020
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(State or other jurisdiction of
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(IRS Employer
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incorporation or organization)
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Identification No.)
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100 Erie Insurance Place,
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Erie,
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Pennsylvania
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16530
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(Address of principal executive offices)
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(Zip Code)
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814
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870-2000
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(Registrant’s telephone number, including area code)
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Class A common stock,
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stated value $0.0292 per share
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ERIE
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NASDAQ Stock Market, LLC
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(Title of each class)
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(Trading Symbol)
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(Name of each exchange on which registered)
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Large accelerated filer
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☒
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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PART
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ITEM NUMBER AND CAPTION
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PAGE
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•
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Interest rate risk - the risk of adverse changes in the value of fixed income securities as a result of increases in market interest rates.
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•
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Investment credit risk - the risk that the value of certain investments may decrease due to the deterioration in financial condition of, or the liquidity available to, one or more issuers of those securities or, in the case of structured securities, due to the deterioration of the loans or other assets that underlie the securities, which, in each case, also includes the risk of permanent loss.
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•
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Sector/Concentration risk - the risk that the portfolio may be too heavily concentrated in the securities of one or more issuers, sectors, or industries. Events or developments that have a negative impact on any particular industry, group of related industries, or geographic region may have a greater adverse effect on our investment portfolio to the extent that the portfolio is concentrated within those issuers, sectors, or industries.
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•
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Liquidity risk - the risk that we will not be able to convert investment securities into cash on favorable terms and on a timely basis, or that we will not be able to sell them at all, when desired. Disruptions in the financial markets or a lack of buyers for the specific securities that we are trying to sell, could prevent us from liquidating securities or cause a reduction in prices to levels that are not acceptable to us.
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2014
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2015
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2016
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2017
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2018
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2019
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Erie Indemnity Company Class A common stock
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$
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100
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(1)
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$
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110
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$
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132
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$
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147
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$
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165
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$
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210
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Standard & Poor's 500 Stock Index
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100
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(1)
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101
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113
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138
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132
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174
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Standard & Poor's Supercomposite Insurance Industry Group Index
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100
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(1)
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104
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123
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143
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129
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165
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(1)
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Assumes $100 invested at the close of trading, including reinvestment of dividends, on the last trading day preceding the first day of the fifth preceding fiscal year, in our Class A common stock, the Standard & Poor's 500 Stock Index, and the Standard & Poor's Supercomposite Insurance Industry Group Index.
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||||||||||||||||||
(in thousands, except per share data)
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Years Ended December 31,
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||||||||||||||||||
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2019
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2018
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2017
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2016
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2015
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Operating Data:
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Operating revenue (1)
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$
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2,477,298
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$
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2,382,212
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$
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1,691,774
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$
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1,596,631
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$
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1,505,508
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Operating expenses (1)
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2,119,959
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2,037,869
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1,401,522
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1,303,114
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1,272,967
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Investment income
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39,967
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25,796
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28,592
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27,839
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33,708
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Interest expense and other (income), net
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601
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(1,181
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)
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3,149
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1,265
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—
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Income before income taxes
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396,705
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371,320
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315,695
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320,091
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266,249
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Net income (2)
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316,821
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288,224
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196,999
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210,366
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174,678
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Per Share Data:
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Net income per Class A share – diluted (2)
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$
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6.06
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$
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5.51
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$
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3.76
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$
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4.01
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$
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3.33
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Book value per share – Class A common and equivalent B shares
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21.67
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18.62
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16.40
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15.62
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14.72
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Dividends declared per Class A share
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3.665
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3.42
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3.1875
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2.9725
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2.773
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Dividends declared per Class B share
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549.75
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513.00
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478.125
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445.875
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415.95
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Financial Position Data:
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Investments
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$
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824,609
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$
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795,197
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$
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803,835
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$
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771,450
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$
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688,476
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Receivables from Erie Insurance Exchange and affiliates
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468,636
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449,873
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418,328
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378,540
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348,055
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Current and long-term borrowings
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97,821
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99,730
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74,728
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24,766
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—
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Total assets
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2,016,240
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1,778,327
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1,665,859
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1,548,955
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1,407,296
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Total equity (3)
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1,133,253
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973,672
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857,344
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816,910
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769,503
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(1)
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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.
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(2)
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The corporate tax rate was 35% for years 2015-2017 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.
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(3)
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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.
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Page Number
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•
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dependence upon our relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange;
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•
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dependence upon our relationship with the Exchange and the growth of the Exchange, including:
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◦
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general business and economic conditions;
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◦
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factors affecting insurance industry competition;
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◦
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dependence upon the independent agency system; and
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◦
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ability to maintain our reputation for customer service;
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•
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dependence upon our relationship with the Exchange and the financial condition of the Exchange, including:
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◦
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the Exchange's ability to maintain acceptable financial strength ratings;
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◦
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factors affecting the quality and liquidity of the Exchange's investment portfolio;
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◦
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changes in government regulation of the insurance industry;
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◦
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emerging claims and coverage issues in the industry; and
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◦
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severe weather conditions or other catastrophic losses, including terrorism;
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•
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costs of providing policy issuance and renewal services to the Exchange under the subscriber's agreement;
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•
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ability to attract and retain talented management and employees;
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•
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ability to ensure system availability and effectively manage technology initiatives;
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•
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difficulties with technology or data security breaches, including cyber attacks;
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•
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ability to maintain uninterrupted business operations;
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•
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factors affecting the quality and liquidity of our investment portfolio;
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•
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our ability to meet liquidity needs and access capital; and
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•
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outcome of pending and potential litigation.
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Years ended December 31,
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||||||||||||||||||
(dollars in thousands, except per share data)
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2019
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% Change
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2018
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% Change
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2017
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||||||||||
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||||||||
Operating income
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$
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357,339
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|
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3.8
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%
|
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$
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344,343
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|
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18.6
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%
|
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$
|
290,252
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|
Total investment income
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39,967
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54.9
|
|
|
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25,796
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(9.8
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)
|
|
|
28,592
|
|
|||
Interest expense, net
|
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856
|
|
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(65.2
|
)
|
|
|
2,460
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|
|
98.8
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|
|
|
1,238
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|
|||
Other income (expense)
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255
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(93.0
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)
|
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|
3,641
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NM
|
|
|
|
(1,911
|
)
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Income before income taxes
|
|
396,705
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|
|
6.8
|
|
|
|
371,320
|
|
|
17.6
|
|
|
|
315,695
|
|
|||
Income tax expense
|
|
79,884
|
|
|
(3.9
|
)
|
|
|
83,096
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|
|
(30.0
|
)
|
|
|
118,696
|
|
|||
Net income
|
|
$
|
316,821
|
|
|
9.9
|
|
%
|
|
$
|
288,224
|
|
|
46.3
|
|
%
|
|
$
|
196,999
|
|
Net income per share - diluted
|
|
$
|
6.06
|
|
|
9.9
|
|
%
|
|
$
|
5.51
|
|
|
46.4
|
|
%
|
|
$
|
3.76
|
|
•
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An active market is one in which transactions for the assets being valued occur with sufficient frequency and volume to provide reliable pricing information.
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•
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An inactive (illiquid) market is one in which there are few and infrequent transactions, where the prices are not current, price quotations vary substantially, and/or there is little information publicly available for the asset being valued.
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•
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Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
|
•
|
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.
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|
|
Years ended December 31,
|
|||||||||||||||||
(dollars in thousands)
|
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Policy issuance and renewal services
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Direct and affiliated assumed premiums written by the Exchange
|
|
$
|
7,486,030
|
|
|
5.2
|
|
%
|
|
$
|
7,112,846
|
|
|
6.9
|
%
|
|
$
|
6,656,501
|
|
Management fee rate
|
|
24.2
|
%
|
|
|
|
|
24.2
|
%
|
|
|
|
|
25.0
|
%
|
||||
Management fee revenue
|
|
1,811,619
|
|
|
5.2
|
|
|
|
1,721,309
|
|
|
3.4
|
|
|
1,664,125
|
|
|||
Change in allowance for management fee returned on cancelled policies (1)
|
|
(1,162
|
)
|
|
NM
|
|
|
|
(1,742
|
)
|
|
NM
|
|
|
(1,500
|
)
|
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Management fee revenue - policy issuance and renewal services, net (2)
|
|
$
|
1,810,457
|
|
|
5.3
|
|
%
|
|
$
|
1,719,567
|
|
|
3.4
|
%
|
|
$
|
1,662,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Administrative services
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Direct and affiliated assumed premiums written by the Exchange
|
|
$
|
7,486,030
|
|
|
5.2
|
|
%
|
|
$
|
7,112,846
|
|
|
N/A
|
%
|
|
$
|
—
|
|
Management fee rate
|
|
0.8
|
%
|
|
|
|
|
0.8
|
%
|
|
|
|
|
—
|
|
||||
Management fee revenue
|
|
59,888
|
|
|
5.2
|
|
|
|
56,903
|
|
|
N/A
|
|
|
—
|
|
|||
Change in contract liability (3)
|
|
(2,633
|
)
|
|
17.9
|
|
|
|
(3,209
|
)
|
|
N/A
|
|
|
N/A
|
|
|||
Change in allowance for management fee returned on cancelled policies (1)
|
|
(51
|
)
|
|
17.0
|
|
|
|
(62
|
)
|
|
N/A
|
|
|
N/A
|
|
|||
Management fee revenue - administrative services, net
|
|
57,204
|
|
|
6.7
|
|
|
|
53,632
|
|
|
N/A
|
|
|
—
|
|
|||
Administrative services reimbursement revenue
|
|
582,010
|
|
|
0.3
|
|
|
|
580,336
|
|
|
N/A
|
|
|
—
|
|
|||
Total revenue from administrative services
|
|
$
|
639,214
|
|
|
0.8
|
|
%
|
|
$
|
633,968
|
|
|
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 affiliated assumed premiums written by the Exchange in 2019 and 2018, compared to 2017.
|
(3)
|
Management fee revenue - administrative services is recognized over time as the services are performed. See Part II, Item 8. "Financial Statements -
|
|
|
Years ended December 31,
|
||||||||||||||||||
(dollars in thousands)
|
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Management fee revenue - policy issuance and renewal services, net
|
|
$
|
1,810,457
|
|
|
5.3
|
|
%
|
|
$
|
1,719,567
|
|
|
3.4
|
|
%
|
|
$
|
1,662,625
|
|
Service agreement revenue
|
|
27,627
|
|
|
(3.7
|
)
|
|
|
28,677
|
|
|
(1.6
|
)
|
|
|
29,149
|
|
|||
|
|
1,838,084
|
|
|
5.1
|
|
|
|
1,748,244
|
|
|
3.3
|
|
|
|
1,691,774
|
|
|||
Cost of policy issuance and renewal services
|
|
1,537,949
|
|
|
5.5
|
|
|
|
1,457,533
|
|
|
4.0
|
|
|
|
1,401,522
|
|
|||
Operating income - policy issuance and renewal services
|
|
$
|
300,135
|
|
|
3.2
|
|
%
|
|
$
|
290,711
|
|
|
0.2
|
|
%
|
|
$
|
290,252
|
|
|
|
Years ended December 31,
|
|||||||||||||||||
(dollars in thousands)
|
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total commissions
|
|
$
|
1,024,654
|
|
|
4.2
|
|
%
|
|
$
|
983,758
|
|
|
3.8
|
%
|
|
$
|
947,481
|
|
Non-commission expense (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Underwriting and policy processing
|
|
$
|
154,934
|
|
|
3.8
|
|
%
|
|
$
|
149,234
|
|
|
5.8
|
%
|
|
$
|
141,095
|
|
Information technology
|
|
167,600
|
|
|
16.0
|
|
|
|
144,495
|
|
|
3.7
|
|
|
139,303
|
|
|||
Sales and advertising
|
|
52,362
|
|
|
(5.8
|
)
|
|
|
55,608
|
|
|
1.7
|
|
|
54,656
|
|
|||
Customer service
|
|
32,353
|
|
|
9.9
|
|
|
|
29,447
|
|
|
13.9
|
|
|
25,858
|
|
|||
Administrative and other
|
|
106,046
|
|
|
11.6
|
|
|
|
94,991
|
|
|
2.0
|
|
|
93,129
|
|
|||
Total non-commission expense
|
|
513,295
|
|
|
8.3
|
|
|
|
473,775
|
|
|
4.3
|
|
|
454,041
|
|
|||
Total cost of policy issuance and renewal services
|
|
$
|
1,537,949
|
|
|
5.5
|
|
%
|
|
$
|
1,457,533
|
|
|
4.0
|
%
|
|
$
|
1,401,522
|
|
(1)
|
2018 and 2017 amounts have been reclassified between categories to conform to the current period presentation.
|
|
|
Years ended December 31,
|
|||||||||||||||||
(dollars in thousands)
|
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Management fee revenue - administrative services, net
|
|
$
|
57,204
|
|
|
6.7
|
|
%
|
|
$
|
53,632
|
|
|
N/A
|
%
|
|
$
|
—
|
|
Administrative services reimbursement revenue
|
|
582,010
|
|
|
0.3
|
|
|
|
580,336
|
|
|
N/A
|
|
|
—
|
|
|||
Total revenue allocated to administrative services
|
|
639,214
|
|
|
0.8
|
|
|
|
633,968
|
|
|
N/A
|
|
|
—
|
|
|||
Administrative services expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Claims handling services
|
|
506,491
|
|
|
0.1
|
|
|
|
505,843
|
|
|
N/A
|
|
|
—
|
|
|||
Investment management services
|
|
33,640
|
|
|
4.9
|
|
|
|
32,065
|
|
|
N/A
|
|
|
—
|
|
|||
Life management services
|
|
41,879
|
|
|
(1.3
|
)
|
|
|
42,428
|
|
|
N/A
|
|
|
—
|
|
|||
Operating income - administrative services
|
|
$
|
57,204
|
|
|
6.7
|
|
%
|
|
$
|
53,632
|
|
|
N/A
|
%
|
|
$
|
—
|
|
(dollars in thousands)
|
|
2019
|
|
% Change
|
|
2018
|
|
% Change
|
|
2017
|
|||||||||
Net investment income
|
|
$
|
33,399
|
|
|
10.6
|
%
|
|
$
|
30,209
|
|
|
22.6
|
|
%
|
|
$
|
24,639
|
|
Net realized investment gains (losses)
|
|
6,103
|
|
|
NM
|
|
|
(2,010
|
)
|
|
NM
|
|
|
|
1,334
|
|
|||
Net impairment losses recognized in earnings
|
|
(195
|
)
|
|
NM
|
|
|
(1,581
|
)
|
|
NM
|
|
|
|
(182
|
)
|
|||
Equity in earnings (losses) of limited partnerships
|
|
660
|
|
|
NM
|
|
|
(822
|
)
|
|
NM
|
|
|
|
2,801
|
|
|||
Total investment income
|
|
$
|
39,967
|
|
|
54.9
|
%
|
|
$
|
25,796
|
|
|
(9.8
|
)
|
%
|
|
$
|
28,592
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
||||||
Securities sold:
|
|
|
|
|
|
|
||||||
Available-for-sale securities
|
|
$
|
4,619
|
|
|
$
|
(1,297
|
)
|
|
$
|
1,240
|
|
Equity securities
|
|
(1
|
)
|
|
(111
|
)
|
|
—
|
|
|||
Equity securities change in fair value
|
|
1,485
|
|
|
(708
|
)
|
|
—
|
|
|||
Other
|
|
—
|
|
|
106
|
|
|
94
|
|
|||
Net realized investment gains (losses)
|
|
$
|
6,103
|
|
|
$
|
(2,010
|
)
|
|
$
|
1,334
|
|
(dollars in thousands)
|
|
2019
|
|
% to
total
|
|
2018
|
|
% to
total
|
||||||
Fixed maturities
|
|
$
|
730,701
|
|
|
82
|
%
|
|
$
|
748,523
|
|
|
88
|
%
|
Equity securities:
|
|
|
|
|
|
|
|
|
||||||
Preferred stock
|
|
64,752
|
|
|
7
|
|
|
11,853
|
|
|
1
|
|
||
Common stock
|
|
2,381
|
|
|
0
|
|
|
—
|
|
|
—
|
|
||
Limited partnerships
|
|
26,775
|
|
|
3
|
|
|
34,821
|
|
|
4
|
|
||
Other investments (1)
|
|
69,126
|
|
|
8
|
|
|
58,394
|
|
|
7
|
|
||
Total investments
|
|
$
|
893,735
|
|
|
100
|
%
|
|
$
|
853,591
|
|
|
100
|
%
|
(1)
|
Other investments primarily include agent loans. Agent loans are included with other assets in the Statements of Financial Position.
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Non-investment
|
|
Fair
|
||||||||||||
Industry Sector
|
|
AAA
|
|
AA
|
|
A
|
|
BBB
|
|
grade
|
|
value
|
||||||||||||
Basic materials
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,199
|
|
|
$
|
4,241
|
|
|
$
|
7,210
|
|
|
$
|
14,650
|
|
Communications
|
|
0
|
|
|
5,028
|
|
|
8,396
|
|
|
10,828
|
|
|
19,880
|
|
|
44,132
|
|
||||||
Consumer
|
|
0
|
|
|
3,108
|
|
|
14,415
|
|
|
43,298
|
|
|
34,913
|
|
|
95,734
|
|
||||||
Diversified
|
|
0
|
|
|
0
|
|
|
0
|
|
|
1,059
|
|
|
513
|
|
|
1,572
|
|
||||||
Energy
|
|
0
|
|
|
0
|
|
|
4,573
|
|
|
19,144
|
|
|
9,533
|
|
|
33,250
|
|
||||||
Financial
|
|
0
|
|
|
4,309
|
|
|
50,815
|
|
|
101,178
|
|
|
13,094
|
|
|
169,396
|
|
||||||
Industrial
|
|
0
|
|
|
0
|
|
|
9,276
|
|
|
12,606
|
|
|
15,625
|
|
|
37,507
|
|
||||||
Structured securities (2)
|
|
95,659
|
|
|
160,162
|
|
|
15,347
|
|
|
4,653
|
|
|
0
|
|
|
275,821
|
|
||||||
Technology
|
|
0
|
|
|
3,016
|
|
|
8,243
|
|
|
15,586
|
|
|
8,524
|
|
|
35,369
|
|
||||||
Utilities
|
|
0
|
|
|
0
|
|
|
2,732
|
|
|
14,384
|
|
|
6,154
|
|
|
23,270
|
|
||||||
Total
|
|
$
|
95,659
|
|
|
$
|
175,623
|
|
|
$
|
116,996
|
|
|
$
|
226,977
|
|
|
$
|
115,446
|
|
|
$
|
730,701
|
|
(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)
|
|
2019
|
|
2018
|
||||||||||||
|
|
Preferred Stock
|
|
Common
stock |
|
Preferred Stock
|
|
Common
stock |
||||||||
Communications
|
|
$
|
1,052
|
|
|
$
|
2,381
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Consumer
|
|
508
|
|
|
0
|
|
|
0
|
|
|
0
|
|
||||
Energy
|
|
1,881
|
|
|
0
|
|
|
0
|
|
|
0
|
|
||||
Financial services
|
|
53,513
|
|
|
0
|
|
|
11,853
|
|
|
0
|
|
||||
Industrial
|
|
980
|
|
|
0
|
|
|
0
|
|
|
0
|
|
||||
Utilities
|
|
6,818
|
|
|
0
|
|
|
0
|
|
|
0
|
|
||||
Total
|
|
$
|
64,752
|
|
|
$
|
2,381
|
|
|
$
|
11,853
|
|
|
$
|
0
|
|
|
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
||||||
Net cash provided by operating activities
|
|
$
|
364,527
|
|
|
$
|
263,585
|
|
|
$
|
197,126
|
|
Net cash used in investing activities
|
|
(124,634
|
)
|
|
(81,398
|
)
|
|
(74,663
|
)
|
|||
Net cash used in financing activities
|
|
(169,571
|
)
|
|
(131,491
|
)
|
|
(95,814
|
)
|
|||
Net increase in cash
|
|
$
|
70,322
|
|
|
$
|
50,696
|
|
|
$
|
26,649
|
|
|
|
Payments due by period
|
||||||||||||||||||
(in thousands)
|
|
Total
|
|
2020
|
|
2021-2022
|
|
2023-2024
|
|
2025 and thereafter
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long-term debt (1)
|
|
$
|
166,832
|
|
|
$
|
6,183
|
|
|
$
|
12,366
|
|
|
$
|
12,366
|
|
|
$
|
135,917
|
|
Home office expansion (2)
|
|
38,881
|
|
|
29,414
|
|
|
9,467
|
|
|
0
|
|
|
0
|
|
|||||
Operating leases (3)
|
|
22,498
|
|
|
11,832
|
|
|
10,309
|
|
|
357
|
|
|
0
|
|
|||||
Other commitments (4)
|
|
349,850
|
|
|
203,753
|
|
|
130,492
|
|
|
12,489
|
|
|
3,116
|
|
|||||
Gross contractual obligations (5)
|
|
578,061
|
|
|
251,182
|
|
|
162,634
|
|
|
25,212
|
|
|
139,033
|
|
|||||
Estimated reimbursements from affiliates (6)
|
|
127,224
|
|
|
70,030
|
|
|
48,750
|
|
|
6,632
|
|
|
1,812
|
|
|||||
Net contractual obligations
|
|
$
|
450,837
|
|
|
$
|
181,152
|
|
|
$
|
113,884
|
|
|
$
|
18,580
|
|
|
$
|
137,221
|
|
(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.
|
(2)
|
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 2020. This project is primarily being funded by the senior secured draw term loan credit facility included in long-term debt in the table above. Included in these amounts are obligations for furniture and fixtures and information technology costs for the office building.
|
(3)
|
Operating leases represent the total commitment for the lease components of our operating lease agreements. Non-lease component commitments related to these contracts are included in other commitments. See Part II, Item 8. "Financial Statements and Supplementary Data - Note 2, Significant Accounting Policies and Note 8, Leases, of Notes to Financial Statements" contained within this report.
|
(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)
|
The obligation for our unfunded Supplemental Employee Retirement Plan (SERP) for our executive and senior management is not included in gross contractual obligations. The accumulated benefit obligation for this plan at December 31, 2019 is $23.4 million. We expect to have sufficient cash flows from operations to meet the future benefit payments as these become due.
|
(6)
|
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)
|
|
At December 31,
|
||||||
|
|
2019
|
|
2018
|
||||
Fair value of fixed maturity portfolio
|
|
$
|
730,701
|
|
|
$
|
748,523
|
|
Fair value assuming 100-basis point rise in interest rates
|
|
$
|
710,534
|
|
|
$
|
735,806
|
|
Effective duration (as a percentage) (1)
|
|
2.8
|
|
|
1.6
|
|
|
|
|
||
(in thousands)
|
|
|
||
Fixed maturities:
|
|
December 31, 2018
|
||
2019
|
|
$
|
265,006
|
|
2020
|
|
55,808
|
|
|
2021
|
|
46,647
|
|
|
2022
|
|
19,911
|
|
|
2023
|
|
37,645
|
|
|
Thereafter
|
|
317,446
|
|
|
Total
|
|
$
|
742,463
|
|
Fair value
|
|
$
|
748,523
|
|
|
|
At December 31, 2019
|
|||||||||
(dollars in thousands)
|
|
Amortized cost
|
|
Fair value
|
|
Percent of total
|
|||||
AAA, AA, A
|
|
$
|
386,046
|
|
|
$
|
388,278
|
|
|
53
|
%
|
BBB
|
|
224,373
|
|
|
226,977
|
|
|
31
|
|
||
Total investment grade
|
|
610,419
|
|
|
615,255
|
|
|
84
|
|
||
BB
|
|
49,866
|
|
|
51,177
|
|
|
7
|
|
||
B
|
|
53,782
|
|
|
54,310
|
|
|
8
|
|
||
CCC, CC, C, and below
|
|
10,883
|
|
|
9,959
|
|
|
1
|
|
||
Total non-investment grade
|
|
114,531
|
|
|
115,446
|
|
|
16
|
|
||
Total
|
|
$
|
724,950
|
|
|
$
|
730,701
|
|
|
100
|
%
|
|
|
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
|
%
|
|
|
Proportional Cost Allocation
|
Description of the Matter
|
|
For the year ended December 31, 2019, the Company’s administrative services reimbursement revenue totaled $582 million. The Company’s primary function, as attorney-in-fact, is to perform certain services on behalf of the subscribers at the Erie Insurance Exchange (Exchange) and its insurance subsidiaries, in accordance with the Subscriber’s Agreement and the service agreements with each of the Exchange’s insurance subsidiaries. As explained in Note 2 of the financial statements, pursuant to approved service agreements, administrative services, which include costs associated with claims handling services, life insurance related operating activities, investment management, and operating overhead incurred by the Company on behalf of the Exchange and its insurance subsidiaries, are reimbursed to the Company at cost and recorded as administrative services reimbursement revenue. To determine the proportional cost allocation to each entity, the Company determines utilization statistics using numerous variables including, among others, employee count, square footage, vehicle count, and project hours.
Auditing management’s proportional cost allocations was complex due to the number of costs that are included in the allocations and the judgment applied in determining the utilization statistics used to determine the proportional allocations to each entity.
|
How We Addressed the Matter in Our Audit
|
|
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s proportional cost allocations process. This included, among others, testing management’s review controls over the determination of the utilization statistics and ultimate allocation of costs to the Exchange and its insurance subsidiaries.
To test the Company’s proportional cost allocations, our procedures included, among others, evaluating that the costs included in the allocations are in accordance with the Subscriber’s Agreement and the service agreements with each of the Exchange’s insurance subsidiaries. We tested the completeness and accuracy of the costs subjected to allocation through testing of the reconciliation of the costs recorded in the source systems to the costs that are allocated. We evaluated the allocation of costs to the Exchange and its insurance subsidiaries with the costs allocated in prior periods.
|
|
|
2019
|
|
2018
|
|
2017
|
||||||
Operating revenue
|
|
|
|
|
|
|
||||||
Management fee revenue - policy issuance and renewal services, net
|
|
$
|
1,810,457
|
|
|
$
|
1,719,567
|
|
|
$
|
1,662,625
|
|
Management fee revenue - administrative services, net
|
|
57,204
|
|
|
53,632
|
|
|
—
|
|
|||
Administrative services reimbursement revenue
|
|
582,010
|
|
|
580,336
|
|
|
—
|
|
|||
Service agreement revenue
|
|
27,627
|
|
|
28,677
|
|
|
29,149
|
|
|||
Total operating revenue
|
|
2,477,298
|
|
|
2,382,212
|
|
|
1,691,774
|
|
|||
|
|
|
|
|
|
|
||||||
Operating expenses
|
|
|
|
|
|
|
||||||
Cost of operations - policy issuance and renewal services
|
|
1,537,949
|
|
|
1,457,533
|
|
|
1,401,522
|
|
|||
Cost of operations - administrative services
|
|
582,010
|
|
|
580,336
|
|
|
—
|
|
|||
Total operating expenses
|
|
2,119,959
|
|
|
2,037,869
|
|
|
1,401,522
|
|
|||
Operating income
|
|
357,339
|
|
|
344,343
|
|
|
290,252
|
|
|||
|
|
|
|
|
|
|
||||||
Investment income
|
|
|
|
|
|
|
||||||
Net investment income
|
|
33,399
|
|
|
30,209
|
|
|
24,639
|
|
|||
Net realized investment gains (losses)
|
|
6,103
|
|
|
(2,010
|
)
|
|
1,334
|
|
|||
Net impairment losses recognized in earnings
|
|
(195
|
)
|
|
(1,581
|
)
|
|
(182
|
)
|
|||
Equity in earnings (losses) of limited partnerships
|
|
660
|
|
|
(822
|
)
|
|
2,801
|
|
|||
Total investment income
|
|
39,967
|
|
|
25,796
|
|
|
28,592
|
|
|||
|
|
|
|
|
|
|
||||||
Interest expense, net
|
|
856
|
|
|
2,460
|
|
|
1,238
|
|
|||
Other income (expense)
|
|
255
|
|
|
3,641
|
|
|
(1,911
|
)
|
|||
Income before income taxes
|
|
396,705
|
|
|
371,320
|
|
|
315,695
|
|
|||
Income tax expense
|
|
79,884
|
|
|
83,096
|
|
|
118,696
|
|
|||
Net income
|
|
$
|
316,821
|
|
|
$
|
288,224
|
|
|
$
|
196,999
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
||||||
Earnings Per Share
|
|
|
|
|
|
|
||||||
Net income per share
|
|
|
|
|
|
|
||||||
Class A common stock – basic
|
|
$
|
6.80
|
|
|
$
|
6.19
|
|
|
$
|
4.23
|
|
Class A common stock – diluted
|
|
$
|
6.06
|
|
|
$
|
5.51
|
|
|
$
|
3.76
|
|
Class B common stock – basic
|
|
$
|
1,020
|
|
|
$
|
928
|
|
|
$
|
635
|
|
Class B common stock – diluted
|
|
$
|
1,020
|
|
|
$
|
928
|
|
|
$
|
634
|
|
|
|
|
|
|
|
|
||||||
Weighted average shares outstanding – Basic
|
|
|
|
|
|
|
||||||
Class A common stock
|
|
46,188,836
|
|
|
46,188,637
|
|
|
46,186,831
|
|
|||
Class B common stock
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|||
|
|
|
|
|
|
|
||||||
Weighted average shares outstanding – Diluted
|
|
|
|
|
|
|
||||||
Class A common stock
|
|
52,319,860
|
|
|
52,315,213
|
|
|
52,337,463
|
|
|||
Class B common stock
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
|
2019
|
|
2018
|
|
2017
|
||||||
Net income
|
|
$
|
316,821
|
|
|
$
|
288,224
|
|
|
$
|
196,999
|
|
|
|
|
|
|
|
|
||||||
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|||
Change in unrealized holding gains (losses) on available-for-sale securities
|
|
11,718
|
|
|
(9,937
|
)
|
|
(190
|
)
|
|||
Pension and other postretirement plans
|
|
1,698
|
|
|
35,712
|
|
|
(8,105
|
)
|
|||
Total other comprehensive income (loss), net of tax
|
|
13,416
|
|
|
25,775
|
|
|
(8,295
|
)
|
|||
Comprehensive income
|
|
$
|
330,237
|
|
|
$
|
313,999
|
|
|
$
|
188,704
|
|
|
|
2019
|
|
2018
|
||||
Assets
|
|
|
|
|
||||
Current assets:
|
|
|
|
|
||||
Cash and cash equivalents
|
|
$
|
336,739
|
|
|
$
|
266,417
|
|
Available-for-sale securities
|
|
32,810
|
|
|
402,339
|
|
||
Equity securities
|
|
2,381
|
|
|
—
|
|
||
Receivables from Erie Insurance Exchange and affiliates
|
|
468,636
|
|
|
449,873
|
|
||
Prepaid expenses and other current assets
|
|
44,943
|
|
|
36,892
|
|
||
Federal income taxes recoverable
|
|
462
|
|
|
8,162
|
|
||
Accrued investment income
|
|
5,433
|
|
|
5,263
|
|
||
Total current assets
|
|
891,404
|
|
|
1,168,946
|
|
||
|
|
|
|
|
||||
Available-for-sale securities
|
|
697,891
|
|
|
346,184
|
|
||
Equity securities
|
|
64,752
|
|
|
11,853
|
|
||
Limited partnership investments
|
|
26,775
|
|
|
34,821
|
|
||
Fixed assets, net
|
|
221,379
|
|
|
130,832
|
|
||
Deferred income taxes, net
|
|
17,186
|
|
|
24,101
|
|
||
Other assets
|
|
96,853
|
|
|
61,590
|
|
||
Total assets
|
|
$
|
2,016,240
|
|
|
$
|
1,778,327
|
|
|
|
|
|
|
||||
Liabilities and shareholders' equity
|
|
|
|
|
||||
Current liabilities:
|
|
|
|
|
||||
Commissions payable
|
|
$
|
262,963
|
|
|
$
|
241,573
|
|
Agent bonuses
|
|
96,053
|
|
|
103,462
|
|
||
Accounts payable and accrued liabilities
|
|
134,957
|
|
|
111,291
|
|
||
Dividends payable
|
|
44,940
|
|
|
41,910
|
|
||
Contract liability
|
|
35,938
|
|
|
33,854
|
|
||
Deferred executive compensation
|
|
10,882
|
|
|
13,107
|
|
||
Current portion of long-term borrowings
|
|
1,979
|
|
|
1,870
|
|
||
Total current liabilities
|
|
587,712
|
|
|
547,067
|
|
||
|
|
|
|
|
||||
Defined benefit pension plans
|
|
145,659
|
|
|
116,866
|
|
||
Contract liability
|
|
18,435
|
|
|
17,873
|
|
||
Deferred executive compensation
|
|
13,734
|
|
|
13,075
|
|
||
Long-term borrowings
|
|
95,842
|
|
|
97,860
|
|
||
Other long-term liabilities
|
|
21,605
|
|
|
11,914
|
|
||
Total liabilities
|
|
882,987
|
|
|
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
|
|
(116,868
|
)
|
|
(130,284
|
)
|
||
Retained earnings
|
|
2,377,558
|
|
|
2,231,417
|
|
||
Total contributed capital and retained earnings
|
|
2,279,343
|
|
|
2,119,762
|
|
||
Treasury stock, at cost; 22,110,132 shares held
|
|
(1,158,910
|
)
|
|
(1,157,625
|
)
|
||
Deferred compensation
|
|
12,820
|
|
|
11,535
|
|
||
Total shareholders' equity
|
|
1,133,253
|
|
|
973,672
|
|
||
Total liabilities and shareholders' equity
|
|
$
|
2,016,240
|
|
|
$
|
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, 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
|
|
Net income
|
|
|
|
|
316,821
|
|
|
|
316,821
|
|
||||||||||||||
Other comprehensive income
|
|
|
|
13,416
|
|
|
|
|
13,416
|
|
||||||||||||||
Dividends declared:
|
|
|
|
|
|
|
|
|
||||||||||||||||
Class A $3.665 per share
|
|
|
|
|
(169,283
|
)
|
|
|
(169,283
|
)
|
||||||||||||||
Class B $549.75 per share
|
|
|
|
|
(1,397
|
)
|
|
|
(1,397
|
)
|
||||||||||||||
Net purchase of treasury stock (1)
|
|
|
24
|
|
|
|
0
|
|
|
24
|
|
|||||||||||||
Deferred compensation
|
|
|
|
|
|
(2,208
|
)
|
2,208
|
|
0
|
|
|||||||||||||
Rabbi trust distribution (2)
|
|
|
|
|
|
923
|
|
(923
|
)
|
0
|
|
|||||||||||||
Balance, December 31, 2019
|
$
|
1,992
|
|
$
|
178
|
|
$
|
16,483
|
|
$
|
(116,868
|
)
|
$
|
2,377,558
|
|
$
|
(1,158,910
|
)
|
$
|
12,820
|
|
$
|
1,133,253
|
|
|
|
2019
|
|
2018
|
|
2017
|
||||||
Cash flows from operating activities
|
|
|
|
|
|
|
||||||
Management fee received
|
|
$
|
1,845,075
|
|
|
$
|
1,751,247
|
|
|
$
|
1,627,558
|
|
Administrative services reimbursements received
|
|
588,255
|
|
|
574,698
|
|
|
—
|
|
|||
Service agreement fee received
|
|
27,627
|
|
|
28,677
|
|
|
29,149
|
|
|||
Net investment income received
|
|
34,511
|
|
|
37,489
|
|
|
31,281
|
|
|||
Limited partnership distributions
|
|
1,931
|
|
|
7,173
|
|
|
5,128
|
|
|||
Decrease in reimbursements collected from affiliates
|
|
—
|
|
|
—
|
|
|
(4,720
|
)
|
|||
Commissions paid to agents
|
|
(895,563
|
)
|
|
(853,758
|
)
|
|
(800,627
|
)
|
|||
Agents bonuses paid
|
|
(115,795
|
)
|
|
(134,314
|
)
|
|
(122,743
|
)
|
|||
Salaries and wages paid
|
|
(186,460
|
)
|
|
(182,537
|
)
|
|
(171,547
|
)
|
|||
Pension contributions and employee benefits paid
|
|
(42,728
|
)
|
|
(115,525
|
)
|
|
(89,981
|
)
|
|||
General operating expenses paid
|
|
(236,128
|
)
|
|
(208,036
|
)
|
|
(199,084
|
)
|
|||
Administrative services expenses paid
|
|
(582,528
|
)
|
|
(580,338
|
)
|
|
—
|
|
|||
Income taxes paid
|
|
(72,817
|
)
|
|
(58,814
|
)
|
|
(106,250
|
)
|
|||
Interest paid
|
|
(853
|
)
|
|
(2,377
|
)
|
|
(1,038
|
)
|
|||
Net cash provided by operating activities
|
|
364,527
|
|
|
263,585
|
|
|
197,126
|
|
|||
|
|
|
|
|
|
|
||||||
Cash flows from investing activities
|
|
|
|
|
|
|
||||||
Purchase of investments:
|
|
|
|
|
|
|
||||||
Available-for-sale securities
|
|
(956,818
|
)
|
|
(392,895
|
)
|
|
(391,181
|
)
|
|||
Equity securities
|
|
(66,760
|
)
|
|
(4,087
|
)
|
|
—
|
|
|||
Limited partnerships
|
|
(48
|
)
|
|
(243
|
)
|
|
(410
|
)
|
|||
Other investments
|
|
(1,032
|
)
|
|
—
|
|
|
—
|
|
|||
Proceeds from investments:
|
|
|
|
|
|
|
||||||
Available-for-sale securities sales
|
|
687,347
|
|
|
235,323
|
|
|
144,317
|
|
|||
Available-for-sale securities maturities/calls
|
|
303,798
|
|
|
134,396
|
|
|
194,980
|
|
|||
Equity securities
|
|
16,109
|
|
|
4,162
|
|
|
—
|
|
|||
Limited partnerships
|
|
3,722
|
|
|
3,387
|
|
|
10,768
|
|
|||
Purchase of fixed assets
|
|
(102,039
|
)
|
|
(56,297
|
)
|
|
(28,927
|
)
|
|||
Proceeds from disposal of fixed assets
|
|
777
|
|
|
6,014
|
|
|
0
|
|
|||
Loans to agents
|
|
(17,611
|
)
|
|
(42,594
|
)
|
|
(9,153
|
)
|
|||
Collections on agent loans
|
|
7,921
|
|
|
6,436
|
|
|
4,943
|
|
|||
Repayment of note receivable from Erie Family Life Insurance
|
|
—
|
|
|
25,000
|
|
|
—
|
|
|||
Net cash used in investing activities
|
|
(124,634
|
)
|
|
(81,398
|
)
|
|
(74,663
|
)
|
|||
|
|
|
|
|
|
|
||||||
Cash flows from financing activities
|
|
|
|
|
|
|
||||||
Dividends paid to shareholders
|
|
(167,651
|
)
|
|
(156,474
|
)
|
|
(145,765
|
)
|
|||
Net (payments) proceeds from long-term borrowings
|
|
(1,920
|
)
|
|
24,983
|
|
|
49,951
|
|
|||
Net cash used in financing activities
|
|
(169,571
|
)
|
|
(131,491
|
)
|
|
(95,814
|
)
|
|||
|
|
|
|
|
|
|
||||||
Net increase in cash and cash equivalents
|
|
70,322
|
|
|
50,696
|
|
|
26,649
|
|
|||
Cash and cash equivalents, beginning of year
|
|
266,417
|
|
|
215,721
|
|
|
189,072
|
|
|||
Cash and cash equivalents, end of year
|
|
$
|
336,739
|
|
|
$
|
266,417
|
|
|
$
|
215,721
|
|
|
|
|
|
|
|
|
||||||
Supplemental disclosure of noncash transactions
|
|
|
|
|
|
|
||||||
Transfer of investments from limited partnerships to equity securities
|
|
$
|
3,310
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liability incurred to purchase fixed assets
|
|
$
|
6,800
|
|
|
$
|
8,453
|
|
|
$
|
—
|
|
Operating lease assets obtained in exchange for new operating lease liabilities
|
|
$
|
35,483
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
||||||
Management fee revenue - policy issuance and renewal services, net
|
|
$
|
1,810,457
|
|
|
$
|
1,719,567
|
|
|
$
|
1,662,625
|
|
|
|
|
|
|
|
|
||||||
Management fee revenue - administrative services, net
|
|
57,204
|
|
|
53,632
|
|
|
—
|
|
|||
Administrative services reimbursement revenue
|
|
582,010
|
|
|
580,336
|
|
|
—
|
|
|||
Total administrative services
|
|
$
|
639,214
|
|
|
$
|
633,968
|
|
|
$
|
—
|
|
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
|||||||||||||||||||||||||||
|
|
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
|
|
$
|
314,227
|
|
|
46,188,836
|
|
|
$
|
6.80
|
|
|
$
|
285,864
|
|
|
46,188,637
|
|
|
$
|
6.19
|
|
|
$
|
195,386
|
|
|
46,186,831
|
|
|
$
|
4.23
|
|
Dilutive effect of stock-based awards
|
|
0
|
|
|
30,224
|
|
|
—
|
|
|
0
|
|
|
25,776
|
|
|
—
|
|
|
0
|
|
|
49,832
|
|
|
—
|
|
||||||
Assumed conversion of Class B shares
|
|
2,594
|
|
|
6,100,800
|
|
|
—
|
|
|
2,360
|
|
|
6,100,800
|
|
|
—
|
|
|
1,613
|
|
|
6,100,800
|
|
|
—
|
|
||||||
Class A – Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income available to Class A stockholders on Class A equivalent shares
|
|
$
|
316,821
|
|
|
52,319,860
|
|
|
$
|
6.06
|
|
|
$
|
288,224
|
|
|
52,315,213
|
|
|
$
|
5.51
|
|
|
$
|
196,999
|
|
|
52,337,463
|
|
|
$
|
3.76
|
|
Class B – Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income available to Class B stockholders
|
|
$
|
2,594
|
|
|
2,542
|
|
|
$
|
1,020
|
|
|
$
|
2,360
|
|
|
2,542
|
|
|
$
|
928
|
|
|
$
|
1,613
|
|
|
2,542
|
|
|
$
|
635
|
|
Class B – Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income available to Class B stockholders
|
|
$
|
2,593
|
|
|
2,542
|
|
|
$
|
1,020
|
|
|
$
|
2,359
|
|
|
2,542
|
|
|
$
|
928
|
|
|
$
|
1,613
|
|
|
2,542
|
|
|
$
|
634
|
|
•
|
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.
|
|
|
December 31, 2019
|
||||||||||||||
|
|
Fair value measurements using:
|
||||||||||||||
(in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||
Corporate debt securities (1)
|
|
$
|
454,880
|
|
|
$
|
2,683
|
|
|
$
|
443,873
|
|
|
$
|
8,324
|
|
Residential mortgage-backed securities (1)
|
|
125,343
|
|
|
0
|
|
|
125,343
|
|
|
0
|
|
||||
Commercial mortgage-backed securities (1)
|
|
67,541
|
|
|
0
|
|
|
64,220
|
|
|
3,321
|
|
||||
Collateralized debt obligations (1)
|
|
77,856
|
|
|
0
|
|
|
77,856
|
|
|
0
|
|
||||
Other debt securities
|
|
5,081
|
|
|
0
|
|
|
5,081
|
|
|
0
|
|
||||
Total available-for-sale securities
|
|
730,701
|
|
|
2,683
|
|
|
716,373
|
|
|
11,645
|
|
||||
Equity securities - nonredeemable preferred and common stock (1)
|
|
|
|
|
|
|
|
|
||||||||
Financial services sector
|
|
53,513
|
|
|
14,927
|
|
|
38,586
|
|
|
0
|
|
||||
Utilities sector
|
|
6,818
|
|
|
3,190
|
|
|
3,628
|
|
|
0
|
|
||||
Communications sector
|
|
3,433
|
|
|
3,433
|
|
|
0
|
|
|
0
|
|
||||
Energy sector
|
|
1,881
|
|
|
0
|
|
|
1,881
|
|
|
0
|
|
||||
Other sectors
|
|
1,488
|
|
|
0
|
|
|
1,488
|
|
|
0
|
|
||||
Total equity securities
|
|
67,133
|
|
|
21,550
|
|
|
45,583
|
|
|
0
|
|
||||
Total
|
|
$
|
797,834
|
|
|
$
|
24,233
|
|
|
$
|
761,956
|
|
|
$
|
11,645
|
|
|
|
December 31, 2018
|
||||||||||||||
|
|
Fair value measurements using:
|
||||||||||||||
(in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
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 2018, we began selling off our municipal bonds as part of a portfolio rebalancing and invested proceeds in short-term U.S. Treasuries. In 2019, proceeds from sales and maturities of the remaining municipal bond portfolio and short-term U.S. Treasuries were reinvested in corporate debt, structured securities and preferred stock.
|
(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.
|
|
|
December 31, 2019
|
||||||||||||||
(in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||
Pricing services
|
|
$
|
730,551
|
|
|
$
|
2,683
|
|
|
$
|
716,373
|
|
|
$
|
11,495
|
|
Internal modeling
|
|
150
|
|
|
0
|
|
|
0
|
|
|
150
|
|
||||
Total available-for-sale securities
|
|
730,701
|
|
|
2,683
|
|
|
716,373
|
|
|
11,645
|
|
||||
Equity securities priced using pricing services
|
|
67,133
|
|
|
21,550
|
|
|
45,583
|
|
|
0
|
|
||||
Total
|
|
$
|
797,834
|
|
|
$
|
24,233
|
|
|
$
|
761,956
|
|
|
$
|
11,645
|
|
|
|
December 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
|
|
$
|
8,048
|
|
Syndicated loan model
|
Market residual yield (1)
|
-489 - +566
|
+76
|
Decrease
|
Commercial mortgage-backed securities
|
|
2,143
|
|
Relative value pricing model
|
Credit spread (2)
|
+49 - +53
|
+51
|
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 December 31, 2019
|
||||||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Corporate debt securities
|
|
$
|
12,577
|
|
|
$
|
10
|
|
|
$
|
146
|
|
|
$
|
2,020
|
|
|
$
|
(7,415
|
)
|
|
$
|
11,542
|
|
|
$
|
(10,556
|
)
|
|
$
|
8,324
|
|
Residential mortgage-backed securities
|
|
0
|
|
|
4
|
|
|
15
|
|
|
921
|
|
|
(32
|
)
|
|
0
|
|
|
(908
|
)
|
|
0
|
|
||||||||
Commercial mortgage-backed securities
|
|
0
|
|
|
(9
|
)
|
|
(21
|
)
|
|
478
|
|
|
(1,068
|
)
|
|
7,281
|
|
|
(3,340
|
)
|
|
3,321
|
|
||||||||
Collateralized debt obligations
|
|
0
|
|
|
0
|
|
|
1
|
|
|
2,300
|
|
|
0
|
|
|
0
|
|
|
(2,301
|
)
|
|
0
|
|
||||||||
Total Level 3 available-for-sale securities
|
|
$
|
12,577
|
|
|
$
|
5
|
|
|
$
|
141
|
|
|
$
|
5,719
|
|
|
$
|
(8,515
|
)
|
|
$
|
18,823
|
|
|
$
|
(17,105
|
)
|
|
$
|
11,645
|
|
(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
|
|
(1)
|
These amounts are reported 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)
|
|
2019
|
|
2018
|
|
2017
|
||||||
Available-for-sale securities:
|
|
|
|
|
|
|
||||||
Corporate debt securities
|
|
$
|
38
|
|
|
$
|
(554
|
)
|
|
$
|
—
|
|
Commercial mortgage-backed securities
|
|
30
|
|
|
—
|
|
|
—
|
|
|||
Net unrealized gains (losses) on Level 3 securities held at reporting date
|
|
$
|
68
|
|
|
$
|
(554
|
)
|
|
$
|
—
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
||||||||||||
(in thousands)
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
||||||||
Agent loans
|
|
$
|
67,696
|
|
|
$
|
71,602
|
|
|
$
|
58,006
|
|
|
$
|
54,110
|
|
Long-term borrowings
|
|
98,080
|
|
|
101,888
|
|
|
99,730
|
|
|
94,057
|
|
|
|
December 31, 2019
|
||||||||||||||
(in thousands)
|
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Estimated fair value
|
||||||||
Corporate debt securities (1)
|
|
$
|
450,295
|
|
|
$
|
6,289
|
|
|
$
|
1,704
|
|
|
$
|
454,880
|
|
Residential mortgage-backed securities (1)
|
|
124,337
|
|
|
1,056
|
|
|
50
|
|
|
125,343
|
|
||||
Commercial mortgage-backed securities (1)
|
|
67,210
|
|
|
479
|
|
|
148
|
|
|
67,541
|
|
||||
Collateralized debt obligations (1)
|
|
78,059
|
|
|
44
|
|
|
247
|
|
|
77,856
|
|
||||
Other debt securities
|
|
5,049
|
|
|
71
|
|
|
39
|
|
|
5,081
|
|
||||
Total available-for-sale securities
|
|
$
|
724,950
|
|
|
$
|
7,939
|
|
|
$
|
2,188
|
|
|
$
|
730,701
|
|
|
|
December 31, 2018
|
||||||||||||||
(in thousands)
|
|
Amortized cost
|
|
Gross unrealized gains
|
|
Gross unrealized losses
|
|
Estimated fair value
|
||||||||
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 2018, we began selling off our municipal bonds as part of a portfolio rebalancing and invested proceeds in short-term U.S. Treasuries. In 2019, proceeds from sales and maturities of the remaining municipal bond portfolio and short-term U.S. Treasuries were reinvested in corporate debt, structured securities and preferred stock.
|
|
|
December 31, 2019
|
||||||
|
|
Amortized
|
|
Estimated
|
||||
(in thousands)
|
|
cost
|
|
fair value
|
||||
Due in one year or less
|
|
$
|
32,613
|
|
|
$
|
32,655
|
|
Due after one year through five years
|
|
336,377
|
|
|
339,033
|
|
||
Due after five years through ten years
|
|
120,716
|
|
|
122,068
|
|
||
Due after ten years
|
|
235,244
|
|
|
236,945
|
|
||
Total available-for-sale securities
|
|
$
|
724,950
|
|
|
$
|
730,701
|
|
|
|
December 31, 2019
|
|||||||||||||||||||||||||
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|||||||||||||||||||||
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
No. of
|
|||||||||||||
(dollars in thousands)
|
|
value
|
|
losses
|
|
value
|
|
losses
|
|
value
|
|
losses
|
|
holdings
|
|||||||||||||
Corporate debt securities
|
|
$
|
25,804
|
|
|
$
|
342
|
|
|
$
|
15,699
|
|
|
$
|
1,362
|
|
|
$
|
41,503
|
|
|
$
|
1,704
|
|
|
158
|
|
Residential mortgage-backed securities
|
|
16,712
|
|
|
50
|
|
|
0
|
|
|
0
|
|
|
16,712
|
|
|
50
|
|
|
7
|
|
||||||
Commercial mortgage-backed securities
|
|
21,981
|
|
|
147
|
|
|
372
|
|
|
1
|
|
|
22,353
|
|
|
148
|
|
|
30
|
|
||||||
Collateralized debt obligations
|
|
20,889
|
|
|
33
|
|
|
41,010
|
|
|
214
|
|
|
61,899
|
|
|
247
|
|
|
49
|
|
||||||
Other debt securities
|
|
2,350
|
|
|
39
|
|
|
0
|
|
|
0
|
|
|
2,350
|
|
|
39
|
|
|
2
|
|
||||||
Total available-for-sale securities
|
|
$
|
87,736
|
|
|
$
|
611
|
|
|
$
|
57,081
|
|
|
$
|
1,577
|
|
|
$
|
144,817
|
|
|
$
|
2,188
|
|
|
246
|
|
Quality breakdown of available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investment grade
|
|
$
|
76,315
|
|
|
$
|
287
|
|
|
$
|
46,390
|
|
|
$
|
218
|
|
|
$
|
122,705
|
|
|
$
|
505
|
|
|
100
|
|
Non-investment grade
|
|
11,421
|
|
|
324
|
|
|
10,691
|
|
|
1,359
|
|
|
22,112
|
|
|
1,683
|
|
|
146
|
|
||||||
Total available-for-sale securities
|
|
$
|
87,736
|
|
|
$
|
611
|
|
|
$
|
57,081
|
|
|
$
|
1,577
|
|
|
$
|
144,817
|
|
|
$
|
2,188
|
|
|
246
|
|
|
|
December 31, 2018
|
|||||||||||||||||||||||||
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|||||||||||||||||||||
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
No. of
|
|||||||||||||
(dollars in thousands)
|
|
value
|
|
losses
|
|
value
|
|
losses
|
|
value
|
|
losses
|
|
holdings
|
|||||||||||||
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
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
||||||
Available-for-sale securities (1)
|
|
$
|
22,496
|
|
|
$
|
24,978
|
|
|
$
|
23,669
|
|
Equity securities
|
|
1,418
|
|
|
628
|
|
|
—
|
|
|||
Cash equivalents and other
|
|
10,546
|
|
|
5,628
|
|
|
2,486
|
|
|||
Total investment income
|
|
34,460
|
|
|
31,234
|
|
|
26,155
|
|
|||
Less: investment expenses
|
|
1,061
|
|
|
1,025
|
|
|
1,516
|
|
|||
Investment income, net of expenses
|
|
$
|
33,399
|
|
|
$
|
30,209
|
|
|
$
|
24,639
|
|
(1)
|
Includes interest earned on note receivable from EFL of $1.6 million in 2018 and $1.7 million in 2017. The note was repaid in full in 2018.
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
||||||
Available-for-sale securities:
|
|
|
|
|
|
|
||||||
Gross realized gains
|
|
$
|
6,258
|
|
|
$
|
1,892
|
|
|
$
|
2,996
|
|
Gross realized losses
|
|
(1,639
|
)
|
|
(3,189
|
)
|
|
(1,756
|
)
|
|||
Net realized gains (losses) on available-for-sale securities
|
|
4,619
|
|
|
(1,297
|
)
|
|
1,240
|
|
|||
Equity securities
|
|
1,484
|
|
|
(819
|
)
|
|
—
|
|
|||
Miscellaneous
|
|
0
|
|
|
106
|
|
|
94
|
|
|||
Net realized investment gains (losses)
|
|
$
|
6,103
|
|
|
$
|
(2,010
|
)
|
|
$
|
1,334
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
||||||
Equity securities: (1)
|
|
|
|
|
|
|
||||||
Net gains (losses) recognized during the period
|
|
$
|
1,484
|
|
|
$
|
(819
|
)
|
|
$
|
—
|
|
Less: net gains (losses) recognized on securities sold
|
|
360
|
|
|
(86
|
)
|
|
—
|
|
|||
Net unrealized gains (losses) recognized on securities held at reporting date
|
|
$
|
1,124
|
|
|
$
|
(733
|
)
|
|
$
|
—
|
|
(1)
|
Effective January 1, 2018, changes in unrealized gains and losses on equity securities are included in net realized investment gains (losses).
|
|
|
|
|
|
|
(in thousands)
|
|
2019
|
|
2018
|
||||
Land, buildings, and building improvements
|
|
$
|
5,068
|
|
|
$
|
—
|
|
Leasehold improvements
|
|
1,313
|
|
|
617
|
|
||
Software
|
|
191,709
|
|
|
163,735
|
|
||
Equipment
|
|
14,546
|
|
|
15,075
|
|
||
Furniture, fixtures, and equipment
|
|
1,934
|
|
|
—
|
|
||
Projects in progress
|
|
22,992
|
|
|
10,392
|
|
||
Construction in progress
|
|
122,801
|
|
|
66,088
|
|
||
Total fixed assets, gross
|
|
360,363
|
|
|
255,907
|
|
||
Less: Accumulated depreciation and amortization
|
|
(138,984
|
)
|
|
(125,075
|
)
|
||
Fixed assets, net
|
|
$
|
221,379
|
|
|
$
|
130,832
|
|
(in thousands)
|
|
2019
|
|
2018
|
||||
Operating lease assets
|
|
$
|
22,401
|
|
|
$
|
—
|
|
|
|
|
|
|
||||
Operating lease liabilities - current
|
|
$
|
11,289
|
|
|
$
|
—
|
|
Operating lease liabilities - long-term
|
|
10,665
|
|
|
—
|
|
||
Total operating lease liabilities
|
|
$
|
21,954
|
|
|
$
|
—
|
|
(in thousands)
|
|
|
|
Year
|
|
Principal payments
|
|
2020
|
$
|
1,979
|
|
2021
|
|
2,019
|
|
2022
|
|
2,109
|
|
2023
|
|
2,226
|
|
2024
|
|
2,302
|
|
Thereafter
|
|
87,445
|
|
(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.
|
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
||||
Employee pension plan:
|
|
|
|
|
|
|
|
|
|
||||
Discount rate
|
|
3.59
|
%
|
|
4.47
|
%
|
|
3.73
|
%
|
|
4.24
|
%
|
|
Expected return on assets
|
|
6.00
|
|
|
6.75
|
|
|
6.75
|
|
|
7.00
|
|
|
Compensation increases (1)
|
|
3.21
|
|
|
3.32
|
|
|
3.32
|
|
|
3.32
|
|
|
SERP:
|
|
|
|
|
|
|
|
|
|
|
|||
Discount rate – pre-retirement/post-retirement
|
|
3.59/3.09
|
|
|
4.47/3.97
|
|
|
3.73/3.23
|
|
|
4.24/3.74
|
|
|
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 3.21% in 2019 and 3.32% in 2018 and 2017 would produce similar results.
|
(in thousands)
|
|
Projected Benefit Obligation in Excess of Plan Assets
|
|
||||||
|
|
2019
|
|
2018
|
|
||||
Projected benefit obligation
|
|
$
|
1,054,467
|
|
|
$
|
886,165
|
|
|
Plan assets
|
|
907,625
|
|
|
767,569
|
|
|
(in thousands)
|
|
Accumulated Benefit Obligation in Excess of Plan Assets
|
|
||||||
|
|
2019
|
|
2018
|
|
||||
Accumulated benefit obligation
|
|
$
|
23,411
|
|
|
$
|
18,908
|
|
|
Plan assets
|
|
—
|
|
|
—
|
|
|
(1)
|
In 2019, there was one new SERP participant. In 2018, there were five new SERP participants.
|
|
|
|
|
||||||||||
|
|
Target asset
allocation
|
|
Target asset
allocation
|
|
Actual asset
allocation
|
|
Actual asset
allocation
|
|
||||
Asset allocation:
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
||||
Equity securities:
|
|
|
|
|
|
|
|
|
|
||||
U.S. equity securities
|
|
27
|
%
|
(1)
|
25
|
%
|
|
28
|
%
|
|
24
|
%
|
|
Non-U.S. equity securities
|
|
18
|
|
(2)
|
16
|
|
|
18
|
|
|
14
|
|
|
Total equity securities
|
|
45
|
|
|
41
|
|
|
46
|
|
|
38
|
|
|
Debt securities
|
|
54
|
|
(3)
|
58
|
|
|
53
|
|
|
61
|
|
|
Other
|
|
1
|
|
(4)
|
1
|
|
|
1
|
|
|
1
|
|
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
(1)
|
U.S. equity securities – 22% seek to achieve excess returns relative to the Russell 2000 Index. The remaining 78% of the allocation to U.S. equity securities are comprised of equity index funds that track the S&P 500.
|
(2)
|
Non-U.S. equity securities – 11% are allocated to international small cap investments, while another 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.
|
(3)
|
Debt securities – 33% are allocated to long U.S. Treasury Strips, 67% are allocated to U.S. corporate bonds with an emphasis on long duration bonds rated A or better.
|
(4)
|
Institutional money market fund.
|
|
|
December 31, 2019
|
|
||||||||||||||
|
|
Fair value measurements of plan assets using:
|
|
||||||||||||||
(in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
||||||||
Equity securities:
|
|
|
|
|
|
|
|
|
|
||||||||
U.S. equity securities
|
|
$
|
248,585
|
|
|
$
|
0
|
|
|
$
|
248,585
|
|
|
$
|
0
|
|
|
Non-U.S. equity securities
|
|
165,752
|
|
|
0
|
|
|
165,752
|
|
|
0
|
|
|
||||
Total equity securities
|
|
414,337
|
|
|
0
|
|
|
414,337
|
|
|
0
|
|
|
||||
Debt securities
|
|
482,497
|
|
|
0
|
|
|
482,497
|
|
|
0
|
|
|
||||
Other
|
|
10,791
|
|
|
10,791
|
|
|
0
|
|
|
0
|
|
|
||||
Total
|
|
$
|
907,625
|
|
|
$
|
10,791
|
|
|
$
|
896,834
|
|
|
$
|
0
|
|
|
|
|
|
|
||||||||||||||
|
|
December 31, 2018
|
|
||||||||||||||
|
|
Fair value measurements of plan assets using:
|
|
||||||||||||||
(in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
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
|
|
|
(in thousands)
|
|
|
|
Year ending
December 31,
|
|
Expected future
benefit payments
|
|
2020
|
$
|
23,788
|
|
2021
|
|
25,903
|
|
2022
|
|
29,031
|
|
2023
|
|
32,497
|
|
2024
|
|
35,722
|
|
2025 - 2029
|
|
229,518
|
|
(2)
|
The incentive compensation deferral plan was effective beginning January 1, 2017. Funding of the rabbi trust for plan payments began in 2018.
|
(in thousands)
|
|
|
||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||
Current income tax expense
|
|
$
|
76,535
|
|
|
$
|
84,454
|
|
|
$
|
81,689
|
|
Deferred income tax expense (benefit)
|
|
3,349
|
|
|
(1,358
|
)
|
|
26,912
|
|
|||
Other income tax expense
|
|
—
|
|
|
—
|
|
|
10,095
|
|
|||
Income tax expense
|
|
$
|
79,884
|
|
|
$
|
83,096
|
|
|
$
|
118,696
|
|
(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, 2019 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 (loss) to retained earnings was required at January 1, 2018 as a result of new accounting guidance.
|
(3)
|
A one-time adjustment was made in 2017 to reclassify stranded tax effects of the components of AOCI (loss) resulting from enactment of TCJA from AOCI (loss) to retained earnings. See Note 2, "Significant Accounting Policies".
|
(4)
|
These components of AOCI (loss) are included in the computation of net periodic pension cost. See Note 10, "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 (loss) of $10.3 million were recognized at the 21% corporate rate following the enactment of the TCJA.
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
||||||
|
|
|
|
|
|
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
|
||||||
Net income
|
|
$
|
316,821
|
|
|
$
|
288,224
|
|
|
$
|
196,999
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
||||||
Depreciation and amortization
|
|
16,813
|
|
|
13,368
|
|
|
14,831
|
|
|||
Deferred income tax expense (benefit)
|
|
3,349
|
|
|
(1,358
|
)
|
|
26,912
|
|
|||
Other income tax expense (1)
|
|
—
|
|
|
—
|
|
|
10,095
|
|
|||
Lease amortization expense
|
|
13,959
|
|
|
—
|
|
|
—
|
|
|||
Realized (gains) losses and impairments on investments
|
|
(5,908
|
)
|
|
3,591
|
|
|
(1,152
|
)
|
|||
Equity in (earnings) losses of limited partnerships
|
|
(660
|
)
|
|
822
|
|
|
(2,801
|
)
|
|||
Loss (gain) on disposal of fixed assets
|
|
75
|
|
|
(3,047
|
)
|
|
98
|
|
|||
Net amortization of bond premium
|
|
1,203
|
|
|
5,601
|
|
|
7,038
|
|
|||
Decrease in deferred compensation
|
|
(1,541
|
)
|
|
(3,886
|
)
|
|
(2,681
|
)
|
|||
Limited partnership distributions
|
|
1,931
|
|
|
7,173
|
|
|
5,128
|
|
|||
Increase in receivables from affiliates
|
|
(19,505
|
)
|
|
(30,804
|
)
|
|
(39,788
|
)
|
|||
(Increase) decrease in accrued investment income
|
|
(170
|
)
|
|
1,590
|
|
|
(516
|
)
|
|||
Decrease (increase) in federal income taxes recoverable
|
|
7,700
|
|
|
21,738
|
|
|
(24,640
|
)
|
|||
Decrease (increase) in prepaid pension
|
|
28,798
|
|
|
(47,335
|
)
|
|
(27,265
|
)
|
|||
Increase in prepaid expenses and other assets
|
|
(11,338
|
)
|
|
(727
|
)
|
|
(7,636
|
)
|
|||
(Decrease) increase in accounts payable and accrued expenses
|
|
(3,627
|
)
|
|
11,039
|
|
|
17,183
|
|
|||
Increase in commissions payable
|
|
21,390
|
|
|
13,449
|
|
|
17,565
|
|
|||
(Decrease) increase in accrued agent bonuses
|
|
(7,409
|
)
|
|
(19,066
|
)
|
|
7,756
|
|
|||
Increase in contract liability
|
|
2,646
|
|
|
3,213
|
|
|
—
|
|
|||
Net cash provided by operating activities
|
|
$
|
364,527
|
|
|
$
|
263,585
|
|
|
$
|
197,126
|
|
(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, 2019
|
||||||||||||||||||
(in thousands, except per share data)
|
|
First
quarter
|
|
Second
quarter
|
|
Third
quarter
|
|
Fourth
quarter
|
|
Year
|
||||||||||
Operating revenue
|
|
$
|
594,106
|
|
|
$
|
647,710
|
|
|
$
|
638,742
|
|
|
$
|
596,740
|
|
|
$
|
2,477,298
|
|
Operating expenses
|
|
507,984
|
|
|
551,100
|
|
|
532,835
|
|
|
528,040
|
|
|
2,119,959
|
|
|||||
Investment income
|
|
9,795
|
|
|
9,652
|
|
|
13,606
|
|
|
6,914
|
|
|
39,967
|
|
|||||
Interest expense and other (income), net
|
|
402
|
|
|
224
|
|
|
11
|
|
|
(36
|
)
|
|
601
|
|
|||||
Income before income taxes
|
|
95,515
|
|
|
106,038
|
|
|
119,502
|
|
|
75,650
|
|
|
396,705
|
|
|||||
Net income
|
|
$
|
75,311
|
|
|
$
|
87,754
|
|
|
$
|
94,169
|
|
|
$
|
59,587
|
|
|
$
|
316,821
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings per share (1)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net income per share
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Class A common stock – basic
|
|
$
|
1.62
|
|
|
$
|
1.88
|
|
|
$
|
2.02
|
|
|
$
|
1.28
|
|
|
$
|
6.80
|
|
Class A common stock – diluted
|
|
$
|
1.44
|
|
|
$
|
1.68
|
|
|
$
|
1.80
|
|
|
$
|
1.14
|
|
|
$
|
6.06
|
|
Class B common stock – basic and diluted
|
|
$
|
243
|
|
|
$
|
283
|
|
|
$
|
303
|
|
|
$
|
192
|
|
|
$
|
1,020
|
|
(1)
|
The cumulative sum of quarterly basic and diluted net income per share amounts may not equal total basic and diluted net income per share for the year due to differences in weighted average shares and equivalent shares outstanding for each of the periods presented.
|
|
|
Year ended December 31, 2018
|
||||||||||||||||||
(in thousands, except per share data)
|
|
First
quarter
|
|
Second
quarter
|
|
Third
quarter
|
|
Fourth
quarter
|
|
Year
|
||||||||||
Operating revenue
|
|
$
|
572,160
|
|
|
$
|
621,458
|
|
|
$
|
612,126
|
|
|
$
|
576,468
|
|
|
$
|
2,382,212
|
|
Operating expenses
|
|
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 (1)
|
|
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 (2)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
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)
|
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".
|
(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.
|
/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 27, 2020
|
|
February 27, 2020
|
|
February 27, 2020
|
|
Name
|
|
Age as of 12/31/2019
|
|
Principal Occupation and Positions for Past Five Years
|
|
|
|
|
|
President & Chief Executive Officer:
|
|
|
|
|
Timothy G. NeCastro
|
|
59
|
|
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
|
|
50
|
|
Executive Vice President, Claims & Customer Service since November 2016; Senior Vice President, Customer Service, January 2011 through November 2016.
|
|
|
|
|
|
Gregory J. Gutting
|
|
56
|
|
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
|
|
61
|
|
Executive Vice President and Chief Information Officer since August 2012; Director, EFL, EIC, Flagship, ENY and EPC.
|
|
|
|
|
|
Douglas E. Smith
|
|
45
|
|
Executive Vice President, Sales & Products since November 2016; Senior Vice President, Personal Lines, November 2008 through October 2016.
|
|
|
|
|
|
Dionne Wallace Oakley
|
|
52
|
|
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, 2019, 2018 and 2017
|
•
|
Statements of Comprehensive Income for the three years ended December 31, 2019, 2018 and 2017
|
•
|
Statements of Financial Position as of December 31, 2019 and 2018
|
•
|
Statements of Shareholders' Equity for the three years ended December 31, 2019, 2018 and 2017
|
•
|
Statements of Cash Flows for the three years ended December 31, 2019, 2018 and 2017
|
•
|
Notes to Financial Statements
|
|
Page
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Exhibit
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Number
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Description of Exhibit
|
|
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3.8
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3.10
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|
|
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4.1*
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|
|
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|
|
10.12
|
|
|
|
|
|
10.104
|
|
|
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|
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10.145
|
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|
|
|
|
10.153
|
|
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|
|
|
10.154
|
|
|
|
|
|
10.156
|
|
|
|
|
|
10.157
|
|
|
|
|
|
10.158
|
|
|
|
|
|
10.159
|
|
|
|
|
|
10.162
|
|
|
|
|
|
10.163
|
|
|
|
|
|
10.166
|
|
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10.169
|
|
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|
|
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Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
10.170
|
|
|
|
|
|
10.171
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|
|
|
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|
10.173
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|
|
|
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10.174
|
|
|
|
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10.175
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|
|
|
|
|
10.177
|
|
|
|
|
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10.178
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|
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|
|
10.179
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|
|
|
|
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10.180
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|
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10.181
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|
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10.182
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|
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10.183
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10.184
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10.185
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10.186
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10.187
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|
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Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
10.188
|
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10.190
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10.192
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10.193
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10.194
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10.195
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10.196
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|
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10.197
|
|
|
|
|
|
10.198
|
|
|
|
|
|
10.199*
|
|
|
|
|
|
10.200*
|
|
|
|
|
|
10.201*
|
|
|
|
|
|
10.202*
|
|
|
|
|
|
10.203*
|
|
|
|
|
|
10.204*
|
|
|
|
|
|
14.3
|
|
|
|
|
|
14.4
|
|
|
|
|
|
23*
|
|
|
|
|
|
31.1*
|
|
|
|
|
|
31.2*
|
|
|
|
|
|
32*
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
101.INS*
|
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
|
|
|
|
101.SCH*
|
|
Inline XBRL Taxonomy Extension Schema Document.
|
|
|
|
101.CAL*
|
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
|
101.DEF*
|
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
|
101.LAB*
|
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
|
|
|
101.PRE*
|
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
104*
|
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
|
February 27, 2020
|
ERIE INDEMNITY COMPANY
|
|
|
(Registrant)
|
|
|
|
|
By:
|
/s/ Timothy G. NeCastro
|
|
|
Timothy G. NeCastro, President and CEO
|
|
|
(Principal Executive Officer)
|
|
February 27, 2020
|
/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/ C. Scott Hartz
|
J. Ralph Borneman, Jr.
|
|
C. Scott Hartz
|
|
|
|
/s/ Eugene C. Connell
|
|
/s/ Brian A. Hudson, Sr.
|
Eugene C. Connell
|
|
Brian A. Hudson, Sr.
|
|
|
|
/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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
|
Section 7.8(c) of the Plan is amended and restated in its entirety to read as follows:
|
(c)
|
The actuarial equivalent present value of a retirement benefit, deferred vested pension or survivor benefit shall be calculated and paid on the basis of the “applicable mortality table”, as defined in Section 417(e)(3)(B) of the Code, and the “applicable interest rate”, as defined in Section 417(e)(3)(C) of the Code, for the fourth calendar month preceding the first day of the Plan Year in which the distribution is payable; provided, however, that actuarial equivalent present value determinations under this Section 7.8 for the period beginning December 31, 2019 and ending December 30, 2020 shall be calculated and paid on the basis of the “applicable mortality table”, as defined in Section 417(e)(3)(B) of the Code, and the “applicable interest rate”, as defined in Section 417(e)(3)(C) of the Code for the second calendar month preceding the month in which the distribution is payable if such determination results in a larger present value and, provided further, that in the event the Alternative Present Value (as hereinafter defined) of the applicable benefit is a larger amount, such larger amount shall be paid (provided such Alternative Present Value calculation does not exceed $5,000). For purposes of this Section 7.8, the “Alternative Present Value” of a retirement benefit, deferred vested pension or survivor benefit shall be based on the Accrued Pension earned by the Participant at the earlier of his termination of employment, or December 30, 1995, determined by using the UP-1984 mortality table (reflecting a one-year setback for Participants and a two-year setback for Beneficiaries) and a 6% interest rate.
|
2.
|
Section 11.6 of the Plan is amended and restated in its entirety to read as follows:
|
(a)
|
For periods before December 31, 2019, any determination of actuarial equivalence required by the provisions of this Plan, when not otherwise specified in the Plan, shall be made on the basis of the mortality table referenced in IRS Revenue Ruling 2001-62, (GAR ’94) with an annual interest rate of 6%.
|
(b)
|
For periods on and after December 31, 2019, any determination of actuarial equivalence required by the provisions of this Plan, when not otherwise specified in the Plan, shall be made on the basis of the “applicable mortality table” for such period, as defined in Section 417(e)(3)(B) of the Code and the “applicable interest rate”, as defined in Section 417(e)(3)(C) of the Code, for the fourth calendar month preceding the first day of the Plan Year for which the determination is being made; provided, however, that with respect to any Plan benefit payable on or after December 31, 2019 to a Participant in the Plan on December 30, 2019, the application of this subsection (b) shall not result in the payment of a Plan benefit that is less favorable to the Participant than the benefit determined as of the same determination date, using the factors identified in subsection (a) above.
|
|
|
ERIE INDEMNITY COMPANY
|
|
|
|
ATTEST:
|
|
|
|
|
|
/s/ Maureen Krowicki
|
|
By: /s/ Brian W. Bolash
|
|
|
|
|
|
Title: Senior Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
2.11
|
“Compensation” for any period shall mean the rate of base compensation of a Covered Employee from the Employers during the period. For this purpose, “base compensation” shall mean regular base salary in the case of an employee compensated on a salaried basis, and regular base wages in the case of an employee compensated on an hourly basis, and in all cases shall exclude Form W-2 income in the form of overtime compensation, bonuses, commissions, deferred compensation plan payments, severance pay under any severance benefit plan and any other form of special or extraordinary compensation, but shall include Form W-2 income paid as a lump sum in lieu of merit increase and compensation excluded from Form W-2 income because of salary reduction agreements in connection with plans described in Section 125, 132(f)(4) or 401(k) of the Code, or resulting from deferred compensation contracts for the period in question. Compensation shall exclude any differential wage payments made on behalf of a Covered Employee who is on military leave. Effective for each Plan Year beginning on and after December 31, 1989, in no event shall the amount of Compensation taken into account under the Plan exceed the adjusted annual limitation permitted under Section 401(a)(17) of the Code for such Plan Year. Such adjusted annual limitation shall be, for each Plan Year beginning on
|
|
|
ERIE INDEMNITY COMPANY
|
|
|
|
ATTEST:
|
|
|
|
|
|
/s/ Maureen Krowicki
|
|
By: /s/ Brian W. Bolash
|
|
|
|
|
|
Title: Senior Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
|
Section 2.2 is hereby amended and restated in its entirety to read as follows:
|
2.2
|
“Actuary” shall mean the actuary or firm of actuaries chosen with respect to settlor functions by the Company, and chosen with respect to fiduciary functions by the Administrator, but in all cases independent of the Company or Administrator, who is, or in the case of a firm one or more of whose members is, an enrolled actuary under the provisions of Section 3042 of the Employee Retirement Income Security Act of 1974.
|
2.
|
Section 2.8 of the Plan is hereby amended and restated in its entirety to read as follows:
|
2.8
|
“Board of Directors” or “Board” shall mean the Board of Directors of the Company. References to actions or decisions by the Board include actions or decisions by the Board’s authorized designee.
|
3.
|
The last sentence of the first paragraph of Section 2.35 is hereby amended and restated in its entirety to read as follows:
|
4.
|
Section 2.37 is hereby amended and restated in its entirety to read as follows:
|
2.37
|
“Trust Agreement” shall mean the trust agreement entered into with a Trustee as provided in Section 9.1, together with all amendments, modifications and supplements, thereto.
|
5.
|
Section 3.1 is hereby amended and restated in its entirety to read as follows:
|
(a)
|
Any member of the committee who ceases to be an Employee (or, if appointment was made by job title, who ceases to hold the relevant title or a successor title) will automatically cease to be a committee member unless otherwise expressly agreed.
|
(b)
|
Any individual who is a member of the administrative committee may resign by delivering his written resignation to the Appointing Officer.
|
(c)
|
The Appointing Officer may add or remove committee members in his or her sole discretion. In making appointments, the Appointing Officer shall not be limited to any particular person or group, and nothing herein contained shall be construed to prevent any Participant, director, officer, employee or shareholder of the Employers from service as a member of the administrative committee.
|
(d)
|
Members of the administrative committee will not be compensated from the Trust Fund for services performed in such capacity, but the Company or Trust Fund will reimburse such individuals for expenses reasonably and necessarily incurred by them in such capacity, subject to compliance with such expense reimbursement policies as may be established from time to time.
|
(e)
|
The Appointing Officer shall maintain such documentation of committee membership as may be necessary or advisable, and shall provide any notice of membership changes that may be required to the Trustee and other persons.
|
6.
|
Section 3.2(f) is hereby amended and restated in its entirety to read as follows:
|
7.
|
Section 3.3 is hereby amended and restated in its entirety to read as follows:
|
8.
|
Section 3.8 is hereby amended and restated in its entirety to read as follows:
|
(i)
|
|
(a)
|
Determination by the Administrator Conclusive. The Administrator’s determination of factual matter relating to Participants, Beneficiaries and alternate payees including, without limitation, a Participant’s Credited Service, Service and any other factual matters, shall be conclusive. The Administrator and the Company and its respective officers and directors shall be entitled to rely upon all tables, valuations, certificates and reports furnished by an actuary, any accountant for the Plan, the Trustee or any investment managers and upon opinions given by any legal counsel for the Plan insofar as such reliance is consistent with ERISA. The actuary, the Trustee and other service providers may act and rely upon all information reported to them by the Administrator and/or the Company and need not inquire into the accuracy thereof nor shall be charged with any notice to the contrary. In accordance with Section 11.10, the Administrator may rely on the Employer’s records, and to the extent a claimant asserts entitlement to benefits or other rights based upon facts not contained in the Plan’s records, such person shall be required to provide satisfactory affirmative evidence of such facts, and the Administrator shall have the sole and exclusive discretion to determine whether the affirmative evidence is satisfactory.
|
(b)
|
Arbitration. In the event that a claimant’s claim is denied by the Administrator and the claimant has exhausted all remedies (including all mandatory levels of appeal) under the Plan’s claims procedures, the claimant or the Administrator will have the right to compel binding arbitration with respect to the claim. The process and procedure shall be governed by the Employer’s arbitration policy, if any, and if none, by the rules of the American Arbitration Association for commercial transactions. Claims may not be litigated or arbitrated on a class action basis or on bases involving claims brought in a representative capacity on behalf of any other similarly situated party. The arbitrator will be bound by the substantive terms of the Plan and ERISA (including, but not limited to, the standard of review required by ERISA, which requires the arbitrator to defer to the Administrator and its factual findings and interpretations unless such findings and interpretations are arbitrary and capricious and requires that any assertions the claimant wishes to present to an arbitrator or court first have been presented in the claims and appeals process). All claims pertaining to the Plan shall be
|
(c)
|
Forum Selection. Any arbitration proceeding or civil action with respect to a claim involving the Plan must, unless otherwise agreed by the Administrator or required by law, take place in Erie, Pennsylvania (and, in the case of a civil action, in the federal district court serving Erie, Pennsylvania). Enforcement of an arbitrator’s award may be sought in federal court in accordance with the Federal Arbitration Act, with any such enforcement action to be filed in the federal district court serving Erie, Pennsylvania
|
9.
|
Section 3.9 is hereby amended and restated in its entirety to read as follows:
|
(a)
|
No claimant shall be permitted to commence any civil action or arbitration proceeding to recover Plan benefits or to enforce or clarify rights under the Plan under Section 502 or Section 510 of ERISA or under any other provision of law, whether or not statutory, until the claims review procedure set forth herein has been exhausted in its entirety; and
|
(b)
|
In any such civil action or arbitration proceeding all explicit and all implicit determinations by the Administrator (including, but not limited to, determinations as to whether the claim, or a request for a review of a denied claim, was timely filed) shall be afforded the maximum deference permitted by law.
|
10.
|
Section 3.10 is hereby amended and restated in its entirety to read as follows:
|
(a)
|
Twelve months after the claimant knew or reasonably should have known of the principal facts on which the claim is based; or
|
(b)
|
Ninety days after the claimant has exhausted the claims review procedure.
|
11.
|
Section 9.1(a) is hereby amended and restated in its entirety to read as follows:
|
(a)
|
The Company has established a trust with a Trustee for the purpose of receiving and holding contributions made by the Company as well as interest and other income on investments of such funds, and for the purpose of paying the pensions and other benefits provided by the Plan and paying any expenses incident to the operation of the Plan or Trust Fund as otherwise provided herein. The Trustee is to manage and operate the Trust Fund in accordance with the terms of the Trust Agreement and to receive, hold, invest and reinvest the funds of the Trust.
|
12.
|
Section 9.1(b) is hereby amended and restated in its entirety to read as follows:
|
(b)
|
The Trust Agreement may be modified as provided therein. The Administrator may remove any Trustee and may select any successor trustee. Pensions under the Plan may alternatively be provided through the purchase of annuity contracts issued by an insurance company. In lieu of a Trust Agreement and Trust Fund, the Administrator may elect to have the Plan utilize a contract or contracts of insurance for the purpose of receiving and holding contributions made by the Company and for the purpose of paying pensions and other benefits provided by the Plan, and in such event the references hereunder to “Trust Agreement”, “Trustee” and “Trust Fund” shall be deemed to be references to “Insurance Contract”, “Insurance Carrier” and “Insured Fund” respectively. With respect to any Trust Agreement or Insurance Contract, the Company may be a party with respect to the Company’s rights and obligations as settlor of the Plan’s Trust Fund or Insured Fund, but is not a Plan fiduciary. In the event that any Trust Agreement or Insurance Contract grants powers to the Company (other than powers relating to the Company’s corporate obligations or role as settlor of the Plan’s Trust Fund or Insured Fund), the Company shall act as the Administrator’s agent and shall act for and solely at the direction of the Administrator in exercising such powers.
|
13.
|
The last paragraph of Section 9.1 is hereby amended and restated in its entirety to read as follows:
|
14.
|
Section 11.13(c)(ii) is hereby amended and restated to read as follows:
|
(ii)
|
Compensation shall be determined by the Administrator consistent with the requirements of USERRA, and shall reflect the Administrator’s best estimate of the earnings the individual would have received but for the qualified military service.
|
15.
|
The second-to-last paragraph of Section 12.1 is hereby amended and restated to read as follows:
|
16.
|
Section 13.2(e) is hereby amended and restated to read as follows:
|
(e)
|
“Permissive Aggregation Group” means any plan of an Employer which is not part of the Required Aggregation Group, but is treated as if it were at the option of the Administrator, provided such group continues to meet the requirements of Internal Revenue Code Sections 401(a)(4) and 410.
|
|
|
ERIE INDEMNITY COMPANY
|
|
|
|
ATTEST:
|
|
|
|
|
|
/s/ Maureen Krowicki
|
|
By: /s/ Brian W. Bolash
|
|
|
|
|
|
Title: Senior Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8
|
“Compensation” for any period means the rate of base salary or the wages paid by an Employer to an Employee during the period. For this purpose, the “rate of base salary or the wages paid” shall exclude Form W-2 income in the form of overtime compensation, bonuses, commissions, deferred compensation plan payments, severance pay under any severance benefit plan and any other form of special or extraordinary compensation, but shall include Form W-2 income paid as a lump sum in lieu of merit increase and compensation excluded from Form W-2 income because of salary reduction agreements in connection with plans described in Sections 125, 132(f)(4) or 401(k) of the Code or resulting from deferred compensation contracts for the period in question. For Plan Years beginning on and after January 1, 2015, the “rate of base salary or the wages paid” shall include an amount, determined under the Company’s vacation conversion program, that is paid to the Employee as Form W-2 income and/or is excluded from Form W-2 income on account of such Employee’s salary reduction agreement applicable to such amount. Compensation shall exclude any differential wage payments made on behalf of a Covered Employee who is on military leave. Effective for each Plan Year beginning on and after December 31, 1989, in no event shall the amount of Compensation taken into account under the Plan exceed the adjusted annual limitation permitted under
|
|
|
ERIE INDEMNITY COMPANY
|
|
|
|
ATTEST:
|
|
|
|
|
|
/s/ Maureen Krowicki
|
|
By: /s/ Brian W. Bolash
|
|
|
|
|
|
Title: Senior Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
“Board” means the Board of Directors of the Company. References to actions or decisions by the Board include actions or decisions by the Board’s authorized designee.
|
1.38
|
“Trust Agreement” means the Trust Agreement entered into with a Trustee as provided in Section 8.1, together with all amendments, modifications and supplements thereto.
|
(f)
|
The Company may amend the provisions of this Article in accordance with Article 12. The Administrator may amend the policies adopted hereunder in its discretion, provided that it acts in a reasonable and non-discriminatory fashion in making such changes.
|
(a)
|
Any member of the committee who ceases to be an Employee (or, if appointment was made by job title, who ceases to hold the relevant title
|
(b)
|
Any individual who is a member of the administrative committee may resign by delivering his written resignation to the Appointing Officer.
|
(c)
|
The Appointing Officer may add or remove committee members in his or her sole discretion. In making appointments, the Appointing Officer shall not be limited to any particular person or group, and nothing herein contained shall be construed to prevent any Participant, director, officer, employee or shareholder of the Employers from serving as a member of the administrative committee.
|
(c)
|
Members of the administrative committee will not be compensated from the Trust Fund for services performed in such capacity, but the Company or Trust Fund will reimburse such individual for expenses reasonably incurred by them in such capacity, subject to compliance with such expense reimbursement policies as may be established from time to time.
|
(d)
|
The Administrator shall be the “named fiduciary” for purposes of ERISA; provided, however, that Participants and Beneficiaries with Employer Accounts under the Plan shall be considered “named fiduciaries” solely to the extent of those fiduciary duties and responsibilities which are directly related to the exercise of voting rights with respect to Plan interests invested in the Erie Indemnity Stock Fund (and not to other aspects of Plan operation and/or administration). .
|
(e)
|
The Appointing Officer shall maintain such documentation of committee membership as may be necessary or advisable, and shall provide any notice of membership changes that may be required to the Trustee and other persons.
|
10.2
|
Determination by the Administrator Conclusive
The Administrator’s determination of factual matters relating to Participants, Beneficiaries and alternate payees shall be conclusive. The Administrator and the Company and its respective officers and directors shall be entitled to rely upon all tables, valuations, certificates and reports furnished by any accountant for the Plan, the Trustee or any investment managers and upon opinions given by any legal counsel for the Plan insofar as such reliance is consistent with ERISA. The Trustee and other service providers may act and rely upon all information reported to them by the Administrator and/or the Company and need not inquire into the accuracy thereof nor shall be charged with any notice to the contrary. In accordance with Section 11.10, the Administrator may rely on the Employer’s records, and to the extent a claimant asserts entitlement to benefits or other rights based upon facts not contained in the Plan’s records, |
10.3
|
Exhaustion of Administrative Remedies.
The exhaustion of the claims review procedure is mandatory for resolving every claim and dispute involving the Plan. As to such claims and disputes: |
(a)
|
No claimant shall be permitted to commence any civil action or demand arbitration to recover Plan benefits or to enforce or clarify rights under the Plan under Section 502 or Section 510 of ERISA or under any other provision of law, whether or not statutory, until the claims review procedure set forth herein has been exhausted in its entirety; and
|
(b)
|
In any such civil action or arbitration proceeding all explicit and all implicit determinations by the Administrator (including, but not limited to, determinations as to whether the claim, or a request for a review of a denied claim, was timely filed) shall be afforded the maximum deference permitted by law.
|
10.4
|
Arbitration
|
10.5
|
Forum Selection
|
10.6
|
Deadline to File Civil Action or Demand Arbitration.
No civil action or arbitration proceeding, as applicable, to recover Plan benefits or to enforce or clarify rights under the Plan under Section 502 or Section 510 of ERISA or under any other provision of law, whether or not statutory, may be brought by any claimant on any matter pertaining to the Plan unless the civil action or arbitration proceeding, as applicable, is commenced in the proper forum before the earlier of: |
(a)
|
Twelve months after the claimant knew or reasonably should have known of the principal facts on which the claim is based; or
|
(b)
|
Ninety days after the claimant has exhausted the claims review procedure.
|
(3)
|
Compensation and Test Compensation shall be determined for the individual during the period of qualified military service. The amount of Compensation and Test Compensation shall be determined by the Administrator consistent with the requirements of the USERRA, and shall reflect the Administrator’s best estimate of the earnings the individual would have received but for the qualified military service.
|
(b)
|
impermissibly divest a Participant of any portion of his Total Account hereunder that has accrued to him prior to the effective date of such amendment, or reduce or eliminate such Participant’s vested status or other rights pertaining thereto in
|
(b)
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Notwithstanding anything to the contrary contained herein, Trustee’s fees and other expenses incident to the operation and management of the Plan incurred after the termination of the Plan may, at the discretion of the Administrator, be paid from assets of the Trust Fund that are not part of any Participant’s Total Account.
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ERIE INDEMNITY COMPANY
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ATTEST:
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/s/ Maureen Krowicki
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By: /s/ Brian W. Bolash
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Title: Senior Vice President
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ERIE INDEMNITY COMPANY
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By:
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/s/ Brian W. Bolash
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Brian W. Bolash
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Senior Vice President, Secretary and
General Counsel |
(1)
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Registration Statement (Form S-8 No. 333-218739) pertaining to the Erie Indemnity Company Incentive Compensation Deferral Plan,
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(2)
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Registration Statement (Form S-8 No. 333-188244) pertaining to the Erie Indemnity Company Equity Compensation Plan,
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(3)
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Registration Statement (Form S-8 No. 333-148705) pertaining to the Erie Indemnity Company 2004 Long-Term Incentive Plan, Erie Indemnity Company 1997 Long-Term Incentive Plan, and Erie Indemnity Company Deferred Compensation Plan for Outside Directors,
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(4)
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Registration Statement (Form S-8 No. 333-82062) pertaining to the Erie Indemnity Company Long-Term Incentive Plan, and
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(5)
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Registration Statement (Form S-8 No. 333-53318) pertaining to the Erie Indemnity Company Long-Term Incentive Plan
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Date:
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February 27, 2020
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/s/ Timothy G. NeCastro
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Timothy G. NeCastro
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President & CEO
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Date:
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February 27, 2020
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/s/ Gregory J. Gutting
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Gregory J. Gutting
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Executive Vice President & CFO
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(1)
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The Annual Report on Form 10-K of the Company for the annual period ended December 31, 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
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Timothy G. NeCastro
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Timothy G. NeCastro
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President & CEO
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/s/ Gregory J. Gutting
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Gregory J. Gutting
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Executive Vice President & CFO
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February 27, 2020
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