SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994 - Commission file number 2-39458
ERIE FAMILY LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1186315
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Erie Insurance Place, Erie, Pennsylvania 16530
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (814) 870-2000
Securities registered pursuant to Section 12 (b) of the Act:
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods that the registrant was
required to file such reports) and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X . No _____.
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the close of the period covered by this report.
Outstanding common stock at December 31, 1994 - 3,150,000 shares
The common stock is the only class of stock which the Registrant is presently
authorized to issue.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December 31,
1994 are incorporated by reference into Parts II and IV.
1
<PAGE>
PART I
ITEM 1. BUSINESS
Erie Family Life Insurance Company (hereinafter referred to as "The
Company", the "Registrant" or "Erie Family Life") was incorporated in the
state of Pennsylvania on May 23, 1967 and commenced business on September
1, 1967. The Company is primarily engaged in the business of underwriting
and selling non-participating individual and group life insurance
policies, including universal life. Erie also sells individual and group
annuities.
Products
The Company's portfolio of life insurance includes the usual forms of
permanent life, endowment and term policies, including whole life, family
income, mortgage and decreasing term, group insurance, and universal life.
In terms of face value, new life business issued in 1994 had a ratio of
3:1 of term insurance to whole life coverage.
Life insurance premiums and annuity deposits have been the primary sources
of cash inflows for the Company.
Classes of Life Insurance
Percentage of Total Sales
For the year ended December 31,
Class 1994 1993 1992 1991 1990
Ordinary Life (including Total
and Permanent Disability and
Additional Accidental Death) 92.1% 92.3% 91.9% 92.1% 91.9%
Group 7.9 7.7 8.1 7.9 8.1
100.0% 100.0% 100.0% 100.0% 100.0%
Certain elements of revenue and expense reflect the requirements of
Financial Accounting Standard (FAS) 97. FAS 97 prescribes a uniform method
by which life insurance companies record certain long-term contracts,
specifically annuities, universal life, and other interest sensitive
products. This method involves separating the premium income into the
"premium" portion (shown in the sales figures) which represents insurance
protection purchased, and the "deposit" portion, which represents funds to
be held at interest for future uses. Under this standard, the latter
portion of the premium income is accounted for using methods applicable to
comparable "interest bearing obligations" of other types of financial
institutions.
2
<PAGE>
ITEM 1. BUSINESS (Cont.)
Structured Settlement annuities sold to affiliate companies represent
$11,431,965 in annuity deposits in 1994, $7,516,908 in 1993 and $9,307,063
in 1992. Also included in the annuity deposits are annuity contracts
purchased by the Erie Insurance Group Retirement Plan for Employees. These
annuity contracts purchased totaled $8,880,714 in 1994 and $2,648,425 in
1992.
Classes of Deposits
Total Deposits
For the year ended December 31,
<TABLE>
<CAPTION>
Class 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Universal Life Deposit $ 7,482,156 $ 6,130,390 $ 5,543,162 $ 4,560,411 $ 3,461,648
Annuity Deposit 62,048,541 50,550,323 53,526,178 44,040,442 26,221,282
$69,530,697 $56,680,713 $59,069,340 $48,600,853 $29,682,930
</TABLE>
The Registrant reinsures with other insurance companies the portion of the
insurance coverage above acceptable retentions. Beginning October 1, 1989,
the retention limit on an acceptable risk was increased to $225,000 on each
individual life written. Prior to 1989, the limit was $125,000.
The Company reinsures under a number of different reinsurance agreements.
The primary purpose of reinsurance is to enable the Company to write a
policy in an amount larger than the risk it is willing to assume for itself.
The secondary purposes are to receive commissions on the reinsurance ceded
and in some instances to participate in the profits of the reinsured
business by way of an "experience rating refund".
Marketing
The Company markets its products through independent agents throughout
Pennsylvania, Maryland, Virginia, West Virginia, Ohio, Indiana, Tennessee,
North Carolina and the District of Columbia. The policies sold are evaluated
by the Company's Underwriting Department which selects or declines
applicants for insurance. Premium on policies which are accepted may be
standard or rated, depending on the nature of the risk.
3
<PAGE>
ITEM 1. BUSINESS (Cont.)
Competition
The Company operates in a highly competitive field which consists of many
stock and mutual insurance companies. A large number of established
insurance companies compete in states in which the Company transacts
business and many of these companies offer more diversified lines of
insurance coverage and have substantially greater financial resources than
does the Company. Competition is based primarily on price and availability
of insurance products, while considering the financial strength of the
Company.
Insurance Regulation
The Company is subject to supervision and regulation by the insurance
departments of the states in which it does business. Although the extent of
the regulation varies from state to state, generally the supervisory
agencies are vested with broad administrative powers relating to the
granting and revocation of licenses to transact business, regulation of
trade practices, licensing of agents, approval of policy forms, deposits of
security for the benefits of policy owners and investments and maintenance
of specified reserves and capital, all designed primarily for the protection
of policy owners. In accordance with the rules of the National Association
of Insurance Commissioners, the Company has been examined every four years
by one or more of the state supervisory agencies. The latest such
examination of the Company was conducted by the Pennsylvania and Ohio
Insurance Departments and covered the four years ended December 31, 1990.
The Commonwealth of Pennsylvania has adopted the minimum risk-based capital
requirements on domestic insurance companies that were developed by the
National Association of Insurance Commissioners (NAIC). The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of activity
based on the perceived degree of risk. These formulas determine a ratio of
the company's regulatory total adjusted capital to its authorized control
level risk-based capital, as defined by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of which
requires specified corrective action. The levels and ratios are as follows.
Ratio of Total Adjusted Capital to
Authorized Control Level Risk-Based
Regulatory Event Capital (Less Than or Equal to)
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level .7
Erie Family Life has regulatory total adjusted capital of $56 million and
$51 million at December 31, 1994, and 1993, respectively, and a ratio of
total adjusted capital to authorized control level risk-based capital of 5.8
and 5.7 at December 31, 1994, and 1993, respectively. These levels far
exceed the minimum risk-based capital requirements.
At the Annual Meeting of Stockholders held on May 26, 1994, the Stockholders
approved a proposal to redomesticate the Company to Indiana from its current
domiciliary state of Pennsylvania. The redomestication approved by the
Stockholders is subject to regulatory approval by the states of Pennsylvania
and Indiana. The Company is still awaiting regulatory approval from the
state of Indiana.
The purpose for the redomestication was to eliminate the requirement for the
payment by the Company of retaliatory premium taxes on nonqualified
annuities because of the imposition of a 2% annuity tax in Pennsylania.
4
<PAGE>
ITEM 1. BUSINESS (Cont.)
Life Reserves
In accordance with generally accepted accounting principles (GAAP), the
Company is required to establish and maintain as liabilities, actuarial
reserves to meet its obligations on life insurance policies and annuities.
These reserves are amounts which, with additions from premiums to be
received on outstanding policies and with interest on such reserves
compounded annually at certain assumed rates, are calculated to be
sufficient to meet policy obligations at death or maturity in accordance
with the mortality tables employed when the policies are issued.
The interest factors used in the computation of insurance reserves are:
Basis of Assumption
Years of Policy
Issue Type Interest Mortality Withdrawal
1967-1975 All Life 4% graded to 3 1/2% 1955-60 Basic Modified
Select Plus Ultimate Linton B
1976-1980 All Life 6% graded to 4% 1955-60 Basic Linton B
Select Plus Ultimate
1981-1988 Permanent 7 1/4% graded to 6% 85% of 1965-70 150% of
Life Select and Ultimate Linton A
1981-1988 Other 7 1/4% graded to 6% 85% or 90% of Pricing
Life 1965-70 Select and Assumptions
Ultimate
1988-1994 All Life 7% graded to 6% Multiple of 1965-70 Pricing
and Annual Select and Ultimate Assumptions
Renewable
Term
1987-1994 Universal 7 1/2% graded to 6% 85% or 90% of Pricing
Life 1965-70 Select and Assumptions
Ultimate
Investments
In accordance with standard insurance practice, the Registrant invests
its funds principally in corporate bonds and preferred and common
stocks. In 1994, the Company's real estate held for investment purposes
constituted 0.4% of the Company's total assets while mortgage loans
accounted for 1.4% and Other Invested Assets accounted for 0.4%. The
Registrant owns no real property and no tangible personal property used
in the operation of its business except office supplies and forms. The
real estate owned by the Company is leased to an affiliate, Erie
Indemnity Company (EIC), for rentals of $423,120 per year through
December 31, 1995. Also, on January 12, 1989, the Company made a first
mortgage loan to EIC in the amount of $2,500,000. The proceeds of the
loan were used to purchase and construct a branch office facility. The
mortgage note was paid in full on June 3, 1994. In addition, the Company
makes policy loans to its policyholders, and at December 31, 1994, such
policy loans constituted 0.6% of the Registrant's total assets.
Annual increases in the number and
5
<PAGE>
ITEM 1. BUSINESS (Cont.)
dollar amount of policy loans, generally, will vary with changes in
short term rates of interest. When short term rates are high, policy
loans are also expected to increase.
Subject to certain laws that prescribe the nature, quality and
percentage of the various types of investments which may be made by
insurance companies, the Company manages its investments to meet
diversification, yield and liquidity objectives.
Employees
Services of seventy-seven full-time employees are provided through an
affiliate, Erie Indemnity Company. All employees are salaried and nine
are officers. These employee expenses along with other operating
expenses are paid by the Erie Indemnity Company and reimbursed on a
monthly basis. None of the employees are covered by collective
bargaining agreements and the Erie Indemnity Company believes its
employee relations are satisfactory.
Other Data
The Company's Lapse Rate for 1994 was 8.4%.
Reinsurance Profitability - Not Applicable.
New Types of Insurance - Not Applicable.
Total Insurance In Force for the last five years Net of
Reinsurance was:
1994 - $7,481,537,000
1993 - $6,428,223,000
1992 - $5,545,197,000
1991 - $4,678,254,000
1990 - $3,866,244,000
6
<PAGE>
ITEM 2. PROPERTIES
The Registrant owns no real property and no tangible personal property used in
the operation of its business except office supplies and forms. The Registrant
does, however, own real property for investment purposes as outlined under ITEM
1 - INVESTMENTS. The executive and administrative offices of the Registrant are
located in the headquarters office of Erie Insurance Group in Erie,
Pennsylvania. The Registrant pays other members of the group an amount
determined by an arm's length agreement for office space and for the use of
facilities, equipment and services.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not involved in any material pending legal proceedings other
than ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
There were no matters submitted for vote to stockholders during fourth quarter
1994.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Currently there is no market on which the Registrant's stock is traded.
The Company had 1,153 recordholders of Common Stock at December 31,
1994.
Date Dividends Declared Date Dividends Paid Dividends per Share
January 17, 1993 April 1, 1993 .275
March 31, 1993 July 1, 1993 .275
June 21, 1993 October 1, 1993 .275
September 27, 1993 January 1, 1994 .275
March 1, 1994 April 1, 1994 .30
March 1, 1994 July 1, 1994 .30
July 21, 1994 October 1, 1994 .30
September 29, 1994 January 1, 1995 .30
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The information contained in "Selected Financial Data" on Page 13 of the
Company's Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATION
The information set forth on pages 13 through 17 of the Company's 1994 Annual
Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The 1994 Financial Statements and the report of the registrant's independent
accountants on pages 18 through 25 of the Company's 1994 Annual Report are
incorported herein by reference, as is the unaudited information set forth in
the Notes to the Financial Statements under the caption "Unaudited Quarterly
Summary of Operations" on page 25.
ITEM 9. CHANGE IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
8
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 12/31/94 Held During the Last Five Years
<S> <C>
Samuel P. Black, Jr. 1 Director since 1967. Chairman, Samuel P. Black & Associates, Inc.-
92 Insurance Agency, Erie, PA. Director--Erie Insurance Company,
Flagship City Insurance Company, Erie Insurance Property &
Casualty Company and Erie Indemnity Company, Attorney-in-Fact
for Erie Insurance Exchange.
J. Ralph Borneman, Jr. Director since 1992. President and Chief Executive Officer of Body-
56 Borneman Associates Inc. (Insurance Agency). President Body-
Borneman, Ltd. and Body-Borneman, Inc. Director--Erie Insurance
Company, Erie Indemnity Company, Attorney-in-Fact for Erie
Insurance Exchange, Erie Insurance Company of New York and
National Penn Bankshares.
John J. Brinling, Jr. Executive Vice President of the Company since December
47 1990. Division Officer 1984-present.
Robert H. Dreyer Senior Vice President of the Company since 1990. Chief
57 Actuary 1983-Present.
Philip A. Garcia Senior Vice President and Controller and Division Officer since
38 October 1993. Vice President and Manager of the Life Accounting
Department of the Company prior to 1993.
Susan Hirt Hagen 1,* Director since 1980. Managing Partner, Hagen, Herr &
59 Peppin, Consultants in Group Relations since 1990, Consultant in
Conflict Management 1987-1990; Director--Erie Insurance Company
and Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange.
Thomas B. Hagen * Secretary of Commerce, Commonwealth of Pennsylvania, since January
59 1995; Chairman, Hagen & Company, business consultants, since 1994;
Special Consultant to the Chairman of the Board of
the Erie Indemnity Company, Attorney-in-Fact for
the Erie Insurance Exchange from September 1993 to
February 1995; Chairman of the Board and Chief
Executive Officer of the Erie Indemnity Company,
Attorney-in-Fact for the Erie Insurance Exchange,
Erie Family Life Insurance Company and Erie
Insurance Company from November 1990, and of
Flagship City Insurance Company and Erie Insurance
Property & Casualty Company, since 1992 and 1993,
respectively, to September 1993; President of the
Erie Indemnity Company, Attorney-in-Fact for the
Erie Insurance Exchange and Erie Insurance Company
and Executive Vice President of Erie Family Life
Insurance Company from 1982 to November 1990;
Director, the Erie Indemnity Company,
Attorney-in-Fact for the Erie Insurance Exchange
and Erie Insurance Company, General Public
Utilities Corporation and Erie Small Business
Investment Company; Director, the former First
National Bank of Pennsylvania and First National
Pennsylvania Corporate 1985-1992.
<FN>
1 Member of Executive Committee
2 Member of Audit Committee
C Committee Chairman
* F. William Hirt is the brother of Susan Hirt Hagen and the brother-in-law of
Thomas B. Hagen. Susan Hirt Hagen is the wife of Thomas B. Hagen.
</FN>
</TABLE>
9
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Cont.)
<TABLE>
<CAPTION>
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 12/31/94 Held During the Last Five Years
<S> <C>
F. William Hirt 1C,* Chairman of the Board. Director since 1967. Chairman of the
69 Board of the Erie Insurance Company, Erie Indemnity
Company, Attorney-in-Fact for Erie Insurance Exchange,
and Erie Insurance Company of New York. Director--Erie
Insurance Company, Flagship City Insurance Company,
Erie Indemnity Company, Attorney-in-Fact for Erie
Insurance Exchange, Erie Insurance Property & Casualty
Company, Erie Insurance Company of New York and Integra
Financial.
Thomas H. Hubbard Director since 1967. Financial Consultant,
71 Butcher & Singer--Division of Wheat First Securities, Ashtabula,
Ohio--September 1990-April 1991. Vice President, Parker/ Hunter,
Inc., Investments, Ashtabula, Ohio 1976-1990. Partner in Markko
Vineyard, Conneaut, Ohio since 1968. Director--Erie Insurance
Company and Erie Indemnity Company, Attorney-in-Fact for Erie
Insurance Exchange.
Stephen E. Jones, Esq. Director since 1967. Rear Admiral USNR(Ret.)
88 of Counsel, Knox McLaughlin Gornall & Sennett, P.C., Erie, PA.
Director-Erie Insurance Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange and Erie Plastics,
Corry, PA.
Dr. Irvin H. Kochel 2 Director since 1970. Assistant Vice President
71 Emeritus, The Pennsylvania State University, Erie, PA. Director--
Erie Insurance Company and Erie Indemnity Company, Attorney-
in-Fact for Erie Insurance Exchange.
Edmund J. Mehl 1,2C Director since 1969. Retired Chairman and Chief Executive Officer,
70 Dispatch Printing, Inc., Erie, PA. Director-- Erie
Insurance Company and Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange,
Flagship City Insurance Company and Erie Insurance
Property & Casualty Company and Erie Insurance
Company of New York.
<FN>
1 Member of Executive Committee
2 Member of Audit Committee
C Committee Chairman
* F. William Hirt is the brother of Susan Hirt Hagen and the brother-in-law of
Thomas B. Hagen. Susan Hirt Hagen is the wife of Thomas B. Hagen.
</FN>
</TABLE>
10
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Cont.)
<TABLE>
<CAPTION>
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 12/31/94 Held During the Last Five Years
<S> <C>
John M. Petersen 1 President and Chief Executive Officer. Director since 1980.
66 President and Chief Executive Officer of the Erie Insurance
Company, and Erie Indemnity Company, Attorney-in-Fact for Erie
Insurance Exchange. Chairman, President and Chief Executive
Officer of the Flagship City Insurance Company, Erie Insurance
Property & Casualty Company, Erie Insurance Company of New
York, E.I. Holding Corp. and E.I. Service Corp. Director--Erie
Insurance Company, Flagship City Insurance Company, Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange, Erie Insurance Property & Casualty Company, Erie
Insurance Company of New York, E.I. Service Corp., E.I. Holding
Corp., Spectrum Control, Inc., and Gallery of History.
Bruno Pisano Vice President and Manager of the Policy
45 Processing and Systems Department of the Company since 1988.
Seth E. Schofield Chairman of the Board and Chief Executive Officer, USAir,
55 Inc. since July 1992; President and Chief Executive Officer, USAir,
Inc. from June 1991 to July 1992; President and Chief Operating
Officer, USAir, Inc. from June 1990 to June 1991; Executive Vice
President, USAir, Inc. from 1989 to June 1990; Chairman of the
Board and a Director, Greater Pittsburgh Chamber of Commerce;
Director, USAir, Inc., the Erie Indemnity Company, Attorney-in-
Fact for Erie Insurance Exchange, Erie Insurance Company, PNC
Bank, N.A., Greater Washington Board of Trade, Flight Safety
Foundation and USX Corporation.
Thomas M. Sider Executive Vice President and Chief Financial Officer of the
45 Company since October 1993. Executive Vice President and Chief
Financial Officer of the Erie Insurance Company, Erie Indemnity
Company, Attorney-in-Fact for Erie Insurance Exchange, Flagship
City Insurance Company, Erie Insurance Company of New York,
and Erie Insurance Property & Casualty Company. Treasurer of
the E.I. Holding Corp. and E.I. Service Corp. Director--Flagship
City Insurance Company, Erie Insurance Property & Casualty
Company, E.I. Holding Corp., Erie Insurance Company of New
York and E.I. Service Corp.
<FN>
1 Member of Executive Committee
</FN>
</TABLE>
11
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Cont.)
<TABLE>
<CAPTION>
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 12/31/94 Held During the Last Five Years
<S> <C>
Jan R. Van Gorder 1 Senior Executive Vice President, Secretary and General
47 Counsel since 1990. Director since September 1990. Senior
Executive Vice President, Secretary and General Counsel of the
Erie Insurance Company, Erie Insurance Property & Casualty
Company, Flagship City Insurance Company, Erie Insurance
Company of New York and Erie Indemnity Company, Attorney-in-
Fact for Erie Insurance Exchange. Secretary of the E.I. Holding
Corp. and E.I. Service Corp. Director--Erie Insurance Company,
Flagship City Insurance Company, Erie Insurance Property &
Casualty Company, Erie Insurance Company of New York, Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange, E.I. Holding Corp. and E.I. Service Corp.
Douglas F. Ziegler Senior Vice President, Treasurer and Chief Investment Officer
44 of the Company since October 1993. Senior Vice
President, Treasurer and Chief Investment Officer of
the Erie Insurance Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange, Flagship
City Insurance Company and Erie Insurance Property &
Casualty Company.
<FN>
1 Member of Executive Committee
</FN>
</TABLE>
12
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the annual compensation paid by the
Company during each of the three fiscal years ended December 31, 1994 to the
Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company during 1994 for services rendered
in all capacities to the Company and its affiliates.
The amounts listed in the table below represent the total compensation
paid to the listed executives by the Erie Insurance Group. The Erie Insurance
Group includes the Company, Erie Indemnity Company and its subsidiaries and Erie
Insurance Exchange and its subsidiary. The amount of total compensation
allocated to the registrant is as follows: John M. Petersen - 10%, Jan R. Van
Gorder - 5%, Thomas M. Sider - 10%, Stephen A. Milne - 0%, John J. Brinling, Jr.
- 100%.
Annual Compensation
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation(1)
John M. Petersen 1994 $725,363 $74,993 $8,100 $69,058
President & Chief 1993 427,379 94,643 5,383 10,828
Executive Officer 1992 391,914 40,893 4,866 221,480
Jan R. Van Gorder 1994 $287,682 $25,590 $1,029 $14,834
Executive Vice 1993 261,769 18,981 642 14,853
President, Secretary 1992 242,452 11,173 642 12,200
& General Counsel
Thomas M. Sider 1994 $199,289 $22,571 $941 $21,109
Executive Vice 1993 168,243 17,604 66 20,836
President & Chief
Financial Officer
Stephen A. Milne 1994 $198,752 $34,943 $965 $4,433
Executive Vice
President - Insurance
Operations(2)
John J. Brinling, 1994 $185,605 $19,527 $877 $22,682
Jr., Executive 1993 164,530 19,712 642 22,006
Vice President of 1992 147,973 14,616 642 22,011
EFL
(1) Amounts shown include matching contributions made by the Company
pursuant to the Company's Employee Savings Plans and premiums
paid by the Company on behalf of the named individuals on Split
Dollar Life insurance policies. For the year 1994, contributions
made to the Employee Savings Plans amounted to $17,500, $6,190,
$4,788, $4,433 and $4,478 on behalf of Messrs. Petersen, Van
Gorder, Sider, Milne and Brinling, respectively. For the year
1993, contributions made to the Employee Savings Plans amounted
to $10,828, $5,917, $4,467 and $3,748 on behalf of Messrs.
Petersen, Van Gorder, Sider and Brinling, respectively. For the
year 1992, contributions made to the Employee Savings Plans
amounted to $4,364,
13
<PAGE>
$4,364 and $3,807 on behalf of Messrs. Petersen, Van Gorder
and Brinling, respectively. Premiums paid during 1994 for
Split Dollar Life insurance policies for Messrs. Petersen,
Van Gorder, Sider, Milne and Brinling, respectively, are as
follows: $51,558, $8,644, $16,321, $0 and $18,204.
Premiums paid during 1993 for Split Dollar Life insurance
policies for Messrs. Petersen, Van Gorder, Sider and Brinling,
respectively, are as follows: $0, $8,936, $16,369 and $18,258.
Premiums paid during 1992 for Split Dollar Life insurance
policies for Messrs. Petersen, Van Gorder and Brinling,
are as follows: $217,116, $7,836 and $18,204. The Company is
entitled to recover the premiums from any proceeds paid on such
Split Dollar Life insurance policies and has retained a
collateral interest in each policy to the extent of the
premiums paid with respect to such policies.
(2) Mr. Milne became an officer of the Company on January 11, 1994.
Mr. Milne had been previously employed by the Company; his last
position with the Company at that time was Senior Vice President
Agency Division, a position he held from 1988 to 1991.
Stock Options and Stock Appreciation Rights
The Company does not have a stock option plan, nor has it ever granted
any stock option or stock appreciation right to any of the persons named in the
Summary Compensation Table.
Pension Plan
The following table sets forth the estimated annual benefits payable
upon retirement at age 65 under the Erie Insurance Group Retirement Plan for
Employees.
PENSION PLAN TABLE
Years of Service
Remuneration 15 20 25 30 35
$ 125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 75,000
150,000 45,000 60,000 75,000 90,000 90,000
175,000 52,500 70,000 87,500 105,000 105,000
200,000 60,000 80,000 100,000 120,000 120,000
225,000 67,500 90,000 112,500 135,000 135,000
250,000 75,000 100,000 125,000 150,000 150,000
300,000 90,000 120,000 150,000 180,000 180,000
400,000 120,000 160,000 200,000 240,000 240,000
450,000 135,000 180,000 225,000 270,000 270,000
500,000 150,000 200,000 250,000 300,000 300,000
550,000 165,000 220,000 275,000 330,000 330,000
600,000 180,000 240,000 300,000 360,000 360,000
650,000 195,000 260,000 325,000 390,000 390,000
700,000 210,000 280,000 350,000 420,000 420,000
750,000 225,000 300,000 375,000 450,000 450,000
800,000 240,000 320,000 400,000 480,000 480,000
850,000 255,000 340,000 425,000 510,000 510,000
900,000 270,000 360,000 450,000 540,000 540,000
950,000 285,000 380,000 475,000 570,000 570,000
1,000,000 300,000 400,000 500,000 600,000 600,000
The compensation covered by such plan is the base salary reported in the
Summary Compensation Table.
14
<PAGE>
Under the pension plan, credited years of service is capped at 30 years
Credited years of service for each of the individuals named in the Summary
Compensation Table is as follows: John M. Petersen - 30 years, Jan R. Van
Gorder - 14 years, Thomas M. Sider - 24 years, Stephen A. Milne - 17 years
and John J. Brinling, Jr. - 27 years.
The benefits under such plan are computed on the basis of straight-life
annuity amounts and a life annuity with a ten-year certain benefit. The benefits
listed in the Pension Plan Table are not subject to deduction for Social
Security or other offset amounts. The information in the foregoing table does
not reflect certain limitations imposed by the Internal Revenue Code of 1986, as
amended (the "Code"). Beginning in 1994, the Code prohibits the inclusion of
earnings in excess of $150,000 per year (adjusted periodically for
cost-of-living increases) in the average earnings used to calculate benefits.
The Code also limits the maximum annual pension (currently $120,000, but
adjusted annually for cost-of-living increases) that can be paid to each
eligible employee.
Director Compensation
In 1994, directors of the Company, other than directors who are also officers
of the Company and who are not separately compensated for attendance at meetings
of the Board of Directors and its committees, received an annual retainer of
$13,000 for serving as such, plus $1,000 for each meeting attended and $800 for
each committee meeting attended ($2,000 in the case of the chairperson of the
committee). In addition, all directors are reimbursed for their expenses
incurred in attending meetings. Effective January 1, 1995, the annual retainer
for directors increased to $15,000, plus $1,200 for each meeting attended and
$800 for each committee meeting attended (unless the committee meeting is held
the same day as the Board of Directors meeting, for which committee meeting $500
will be paid) plus an additional $2,000 per year for each committee chairperson.
Compensation Committee Interlocks and Insider Participation
Pursuant to Pennsylvania Insurance Holding Company laws, the Executive
Compensation Committee (the Committee) of the Company's affiliate, Erie
Indemnity Company, serves as the executive compensation committee of the
Company. The Committee of the Company consists of Peter B. Bartlett, Chairman,
J. Ralph Borneman, Jr. and Seth E. Schofield. No member of the Committee is a
former or current officer or employee of the Company or any of its affiliates.
Furthermore, no executive officer of the Company serves as a member of a
compensation committee of another entity one of whose executive officers serves
on the Committee of the Company or as a director of the Company, nor does any
executive officer of the Company serve as a director of another entity, one of
whose executive officers serves on the Committee of the Company. Mr. Borneman is
the President and a principal shareholder of Body-Borneman Associates, Inc.,
Body-Borneman, Inc. and Body-Borneman, Ltd., all of which are independent
insurance agencies representing a number of insurers, including the Company and
its insurance affiliates.
Report of the Executive Compensation Committee of the Company
The Committee is charged with the duty of recommending to the Board of
Directors the compensation of the three highest paid officers of the Company
and such other officers as are determined by the Board of Directors,
recommending to the Board of Directors all forms of bonus compensation
including incentive programs that would be appropriate for the Company
and to undertake such other responsibilities as may be delegated to it
by the Board of Directors. The Committee is composed of three directors
who are not officers or employees of the Company or any of its affiliates.
The purpose of the Committee is to determine the level and composition of
compensation that is sufficient to attract and retain top quality executives
for the Company. It is the opinion of the Committee that the senior
executives of the Company should receive compensation comparable to that
paid by other insurers of comparable size and financial performance.
The Committee has position descriptions for the four highest paid
executives of the Company, including the chief executive officer, which define
the responsibilities and duties of each position. The position descriptions also
delineate the functional areas of accountability and the qualifications and
skills required to perform
15
<PAGE>
such responsibilities and duties. The Committee then reviews the salary ranges
for the chief executive officer and the other three highest paid senior
executives, comparing the ranges to third party data compiled for similar
positions with other insurers. The salary range defines the minimum and maximum
level of compensation for the position. In reviewing the salary ranges for the
four highest paid executives, including the chief executive officer, the
Committee references Sibson's Management Compensation Survey published annually
by Sibson & Company, which summarizes compensation data for 119 insurance
companies. The data is reported by position and by company size, as ranked by
premium volume. The Committee also uses compensation data obtained from the
National Association of Independent Insurers annual survey on executive
compensation and gathers data on other comparable insurers. The unique aspect of
each position, its duties and responsibilities, the effect on the performance of
the Company, the number of employees supervised directly and other criteria are
also considered in setting the salary ranges. Adjustments to the salary ranges
are made as warranted by the Committee's review.
During 1994 the Committee conducted a special survey on the
competitiveness of the total compensation, including base salary, annual bonus
and other forms of short-term compensation, for the four highest paid executives
of the Company.
Hay Management Consultants, a management consulting firm, which
specializes in compensation maters, was retained to conduct a study of total
cash compensation for the Company's four highest paid executive positions. In
addition, Sibson & Company, a management consulting firm, also undertook a study
on the competitiveness of the Company's total cash compensation for the four
highest paid executive officers based upon a selected group of peer companies.
The information developed by Hay Management Consultants and Sibson & Company was
used for adjusting compensation levels for the four highest paid executive
positions.
The level of compensation for each executive reflects his or her skills,
experience and job performance. Normally, base salary will not be less than the
minimum for the salary range. Executives with a broader range of skills,
experience and consistently high performance with the Company may receive
compensation slightly above the mid-point for the established salary range.
A promotional salary increase may also be added to the executive's
compensation when the executive assumes new responsibilities or has increased
accountability for results. Significant changes in duties and responsibilities
may result in a higher salary range.
Compensation for the chief executive officer consists primarily of salary
and bonus and minor perquisites which amount to less than 10% of the chief
executive officer's salary and bonus. No long-term incentive plans (which
provide incentives of performance occurring over longer periods of time) are
currently utilized in determining the compensation of the chief executive
officer. Stock options, stock appreciation rights and restricted stock are not
currently part of the executive compensation package for any executive of the
Company. The compensation for the chief executive officer is determined as
previously outlined.
Performance factors applicable to the Company, such as investment
portfolio returns and overall company profitability as well as other factors are
considered indirectly in evaluating the chief executive officer's performance.
Such performance factors were considered in approving Mr. Petersen's 1994
compensation.
Compensation of the next three most highly compensated individuals is
determined by the Committee and is based upon the factors and processes
enumerated, i.e., a determination of a salary range based upon market data and
evaluation of the executive with respect to the executive's job description and
his or her position within the salary range.
16
<PAGE>
Compensation of the next highest paid named executives (other than the
four highest paid executives) is based upon the Company's established standard
compensation policies and is not determined by the Committee. As with the chief
executive officer and the next three most highly compensated executive officers,
no long-term incentive plans are maintained for these executives.
EXECUTIVE COMPENSATION COMMITTEE
Peter B. Bartlett, Chairman
J. Ralph Borneman, Jr.
Seth E. Schofield
17
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a)
Name & Address Amount & Nature
Title of of Beneficial of Beneficial Percent of
Class Owner Ownership Class
12-31-94 $1.10 Erie Indemnity Company 681,300 (1) 21.6%(1)
Par Value 100 Erie Insurance Place Direct
Common Stock Erie, PA 16530
(b) Shares beneficially owned directly or indirectly by all Directors
and Officers:
Name & Address Amount & Nature
Title of of Beneficial of Beneficial Percent of
Class Owner Ownership Class
12-31-94 $1.10 Erie Insurance Exchange 1,644,300 (1) 52.2%(1)
Par Value 100 Erie Insurance Place Direct
Common Stock Erie, PA 16530
12-31-94 $1.10 Samuel P. Black, Jr. 22,706 .72%
Par Value 400 French St., Suite 100
Common Stock Erie, PA 16507
12-31-94 $1.10 J. Ralph Borneman 512 .02%
Par Value Box 552
Common Stock 17 East Philadelphia Ave.
Boyertown, PA 19512
12-31-94 $1.10 Susan Hirt Hagen 100 --
Par Value 5727 Grubb Rd.
Common Stock Erie, PA 16506
12-31-94 $1.10 Thomas B. Hagen 51,494 1.63%
Par Value 5727 Grubb Rd.
Common Stock Erie, PA 16506
12-31-94 $1.10 F. William Hirt 55,678 1.77%
Par Value 3270 Kingston Court S.
Common Stock Erie, PA 16506
12-31-94 $1.10 Thomas H. Hubbard 23,683 .75%
Par Value Box 245
Common Stock Ashtabula, OH 44004-0245
12-31-94 $1.10 Stephen E. Jones, Esq. 10,632 .34%
Par Value 120 West 10th St.
Common Stock Erie, PA
18
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(Cont.)
(b) Shares beneficially owned directly or indirectly by all Directors and
Officers:
Name & Address Amount & Nature
Title of of Beneficial of Beneficial Percent of
Class Owner Ownership Class
12-31-94 $1.10 Dr. Irvin H. Kochel 2,723 .09%
Par Value 4737 Reese Road
Common Stock Erie, PA 16510
12-31-94 $1.10 Edmund J. Mehl 4,050 .13%
Par Value 504 Frontier Dr.
Common Stock Erie, PA 16505
12-31-94 $1.10 John M. Petersen 31,450 1.00%
Par Value 124 Voyageur Dr.
Common Stock Erie, PA 16505
12-31-94 $1.10 Seth E. Schofield 600 .02%
Par Value 2341 South Queen St.
Common Stock Arlington, VA 22202
12-31-94 $1.10 Jan R. Van Gorder 25 --
Par Value 6796 Manchester Beach Road
Common Stock Fairview, PA 16415
12-31-94 $1.10 John J. Brinling, Jr. 210 .01%
Par Value 1522 Sumner Drive
Common Stock Erie, PA 16505
12-31-94 $1.10 Robert H. Dreyer 300 .01%
Par Value 465 Hawthorne Trace
Common Stock Fairview, PA 16415
12-31-94 $1.10 Philip Alan Garcia 425 .01%
Par Value 786 Stockbridge Drive
Common Stock Erie, PA 16505
12-31-94 $1.10 Bruno Pisano 100 --
Par Value 3119 French Street
Common Stock Erie, PA 16504
19
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(Cont.)
(b) Shares beneficially owned directly or indirectly by all Directors and
Officers:
Name & Address Amount & Nature
Title of of Beneficial of Beneficial Percent of
Class Owner Ownership Class
12-31-94 $1.10 Thomas M. Sider 90 --
Par Value 11810 Old Lake Road
Common Stock North East, PA 16428
12-31-94 $1.10 Douglas F. Ziegler 90 --
Par Value 378 Ridgeview Drive
Common Stock Erie, PA 16505
12-31-94 $1.10 All officers and directors
Par Value as a group (18 persons) 204,868(2) 6.50%(2)
Common Stock
(1) Erie Insurance Exchange (the "Exchange") is a reciprocal insurance
exchange controlled by its subscribers, each of whom has designated
Erie Indemnity Company ("Indemnity") as such subscriber's
attorney-in-fact for certain purposes, including Indemnity's holding of
Common Stock of the Company. 76% of the outstanding voting stock of
Erie Indemnity Company is owned beneficially by a trust established by
H. O. Hirt, the father of F. William Hirt and Susan H. Hagen and the
father-in-law of Thomas B. Hagen. Mr. Hirt and Mrs. Hagen are
beneficiaries of the trust and are co-trustees with Mellon Bank, N.A.
An additional 13.3% of indemnity stock is beneficially owned by
Samuel P. Black, Jr.
(2) Includes direct and indirect beneficial ownership and shares owned by
and with spouses.
(c) There are no contractual arrangements known to the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors Black and Borneman are officers and principal shareholders of
insurance agencies which receive insurance commissions in the ordinary
course of business from Erie Family Life and its affiliates in accordance
with such companies standard commission schedules and agents contracts.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements of the registrant and the report
of independent certified public accountants are incorporated herein by
reference to pages 18 to 25 in the registrant's annual report to
stockholders for the year ended December 31, 1994.
Report of Independent Certified Public Accountants
Balance Sheets - December 31, 1994 and 1993
Statements of Income for the years ended December 31, 1994, 1993 and 1992
Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992
Statements of Stockholders' Equity for the years ended December 31, 1994,
1993 and 1992
Notes to Financial Statements
(2) The following financial statement schedules are included in this
report on FORM 10-K:
Page
Report of Independent Certified Public
Accountants on Schedules 23
Schedule I - Summary of Investments other than
investments in related parties 24
Schedule III - Supplementary Insurance Information 25
Schedule IV - Reinsurance 26
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore, have been omitted.
(3) Exhibits:
Exhibit 13 - Annual Report to Stockholders
Exhibit 27 - Financial Data Schedule
All exhibits for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore, have
been omitted.
(b) No reports on Form 8-K have been filed or were required to be
filed during the last quarter of the period covered by this
report.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: March 2, 1995 ERIE FAMILY LIFE INSURANCE COMPANY
(registrant)
Principal Officers
/s/ F. William Hirt
F. William Hirt, Chairman of the Board
/s/ John M. Petersen
John M. Petersen, President and C.E.O.
/s/ Thomas M. Sider
Thomas M. Sider, Executive Vice President & CFO
/s/ Philip A. Garcia
Philip A. Garcia, Senior Vice President & Controller
Board of Directors
Samuel P. Black, Jr. Stephen E. Jones
/s/ J. Ralph Borneman /s/ Dr. Irvin H. Kochel
J. Ralph Borneman Dr. Irvin H. Kochel
/s/ Edumnd J. Mehl
Susan Hirt Hagen Edmund J. Mehl
/s/ John M. Petersen
Thomas B. Hagen John M. Petersen
/s/ F. William Hirt /s/ Seth E. Schofield
F.William Hirt Seth E. Schofield
/s/ Jan R. Van Gorder
Thomas H. Hubbard Jan R. Van Gorder
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
Erie Family Life Insurance Company
We have audited the balance sheets of Erie Family Life
Insurance Company as of December 31, 1994 and 1993 and the related statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1994, as contained in the 1994 annual report,
incorporated by reference in the annual report on Form 10-K for the year ended
December 31, 1994. In connection with our audits of the financial statements, we
also have audited the financial statement schedules, as listed in the
accompanying index. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Erie Family
Life Insurance Company as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ Brown Schwab Bergquist & Co
Erie, Pennsylvania
February 17, 1995
23
<PAGE>
SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
<TABLE>
<CAPTION>
December 31, 1994
Cost or Amount at which
Amortized Market Shown in the
Cost Value Balance Sheet
<S> <C> <C> <C>
Type of Investment
Fixed Maturities
Held-to-Maturity
Bonds and Notes
Governments $ 541,184 $ 549,676 $ 541,184
Political Subdivisions 1,140,000 1,174,200 1,140,000
Special Revenue 8,413,257 7,356,761 8,413,257
Public Utilities 62,197,442 54,920,967 62,197,442
Industrial and Misc. 86,134,179 76,851,613 86,134,179
Redeemable Preferred Stocks
Public Utilities 19,010 30,798 19,010
Banks, Trusts and
Insurance Companies 2,000,000 1,660,000 2,000,000
Total Fixed Maturities
Held-to-Maturity $ 160,445,072 $ 142,544,015 $ 160,445,072
Fixed Maturities
Available-for-Sale
Bonds and Notes
U.S. Treasuries $ 6,121,887 $ 5,868,300 $ 5,868,300
Political Subdivisions 1,868,344 2,036,950 2,036,950
Special Revenue 37,317,102 35,521,340 35,521,340
Public Utilities 28,833,112 27,844,600 27,844,600
Industrial and Misc. 106,140,718 104,580,675 104,580,675
Total Fixed Maturities
Available-for-Sale $ 180,281,163 $ 175,851,865 $ 175,851,865
Equity Securities
Common Stocks
Banks, Trusts and
Insurance Companies $ 790,311 $ 1,080,715 $ 1,080,715
Industrial and Misc. 6,677,716 7,044,856 7,044,856
Non-Redeemable Preferred Stocks
Public Utilities 2,414,273 2,316,375 2,316,375
Banks, Trusts and
Insurance Companies 63,453,075 59,298,250 59,298,250
Industrial and Misc. 43,045,443 38,621,420 38,621,420
Total Equity Securities $ 116,380,818 $ 108,361,616 $ 108,361,616
Real Estate
Investment Property $ 1,898,628 $ 1,898,628 $ 1,898,628
Policy Loans 3,181,311 3,181,311 3,181,311
Mortgage Loans 7,633,399 7,633,399 7,633,399
Other Invested Assets 2,257,143 2,257,143 2,257,143
Total Investments $ 472,077,534 $ 441,727,977 $ 459,629,034
</TABLE>
24
<PAGE>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
At December 31,
Deferred Future
Policy Policy Other
Acquisition Benefits & Unearned Policy
Segment Costs Deposits Premium Claims
<S> <C> <C> <C> <C>
1994
Ordinary Life Insurance $ 38,740,281 79,503,597 98,700 723,638
Group Life Insurance 0 653,979 0 73,847
Annuities 6,211,514 341,242,154 0 0
Supplemental Contracts 0 767,457 0 0
Total $ 44,951,795 422,167,187 98,700 797,485
1993
Ordinary Life Insurance $ 33,419,935 67,423,466 80,070 1,070,429
Group Life Insurance 0 616,218 0 84,930
Annuities 5,062,903 281,489,139 0 0
Supplemental Contracts 0 882,586 0 0
Total $ 38,482,838 350,411,409 80,070 1,155,359
1992
Ordinary Life Insurance $ 29,633,435 57,340,298 101,111 1,159,056
Group Life Insurance 0 750,891 0 415,017
Annuities 4,049,792 228,018,439 0 0
Supplemental Contracts 0 843,311 0 0
Total $ 33,683,227 286,952,939 101,111 1,574,073
</TABLE>
<PAGE>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
For the Years Ended December 31,
Amortization
Net Life & of Deferred Other
Policy Investment Annuity Acquisition Operating
Segment Revenues (a) Income Benefits Costs Expenses
<S> <C> <C> <C> <C> <C>
1994
Ordinary Life Insurance 22,931,783 9,651,029 5,856,784 1,700,028 8,245,639
Group Life Insurance 1,717,589 46,571 799,772 0 330,111
Annuities 244,111 25,800,361 18,128,885 279,737 2,297,726
Supplemental Contracts 0 68,288 36,737 0 2,813
Total 24,893,483 35,566,249 24,822,178 1,979,765 10,876,289
1993
Ordinary Life Insurance 20,440,636 8,517,118 6,019,207 1,634,843 6,912,809
Group Life Insurance 1,552,939 52,933 1,251,698 0 298,612
Annuities 163,247 22,283,079 16,284,434 457,921 1,726,956
Supplemental Contracts 0 75,481 20,634 0 3,026
Total 22,156,822 30,928,611 23,575,973 2,092,764 8,941,403
1992
Ordinary Life Insurance 17,837,380 7,901,634 5,713,595 1,510,926 6,581,651
Group Life Insurance 1,370,885 73,149 1,322,609 0 225,919
Annuities 207,103 20,088,190 13,678,336 329,279 1,623,557
Supplemental Contracts 0 69,653 39,437 0 3,486
Total 19,415,368 28,132,626 20,753,977 1,840,205 8,434,613
<FN>
(a) Net of reinsurance ceded
</FN>
</TABLE>
25
<PAGE>
SCHEDULE IV - REINSURANCE
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of Amount
Gross Other From Other Net Assumed
Amount Companies Companies Amount to Net
<S> <C> <C> <C> <C> <C>
December 31, 1994
Life Insurance in force $ 8,468,890,000 987,353,000 N/A 7,481,537,000 -0-
Premiums for the year
Life Insurance 26,117,501 3,185,718 -0- 22,931,783 -0-
Other 1,961,700 0 -0- 1,961,700 -0-
Total Premiums $ 28,079,201 3,185,718 -0- 24,893,483 -0-
December 31, 1993
Life Insurance in force $ 7,265,509,000 837,286,000 N/A 6,428,223,000 -0-
Premiums for the year
Life Insurance 22,573,306 2,132,670 -0- 20,440,636 -0-
Other 1,716,186 0 -0- 1,716,186 -0-
Total Premiums $ 24,289,492 2,132,670 -0- 22,156,822 -0-
December 31, 1992
Life Insurance in force $ 6,298,326,000 753,129,000 N/A 5,545,197,000 -0-
Premiums for the year
Life Insurance 20,252,646 2,415,266 -0- 17,837,380 -0-
Other 1,591,207 13,219 -0- 1,577,988 -0-
Total Premiums $ 21,843,853 2,428,485 -0- 19,415,368 -0-
</TABLE>
26
<PAGE>
INCORPORATED BY REFERENCE, PAGE 13 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31
<S> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990
Policy Revenue $ 24,893,483 $ 22,156,822 $ 19,415,368 $ 16,845,423 $ 14,892,197
Investment & Other Income 41,875,339 42,630,274 39,107,928 22,436,810 16,324,087
Total Revenue $ 66,768,822 $ 64,787,096 $ 58,523,296 $ 39,282,233 $ 31,216,284
Benefits & Expenses 40,289,316 36,910,821 33,181,761 28,276,198 22,366,465
Operating Income Before Taxes 26,479,506 27,876,275 25,341,535 11,006,035 8,849,819
Federal Income Tax (Benefit):
Current 8,179,901 8,275,631 7,791,598 3,923,121 2,609,102
Deferred 1,469,927 1,496,402 1,655,339 (538,121) 374,723
Total Federal Income Tax 9,649,828 9,772,033 9,446,937 3,385,000 2,983,825
Cumulative effect on prior years
on changing the method of
accounting for income taxes 0 (567,610) 0 0 0
Net Income $ 16,829,678 $ 17,536,632 $ 15,894,598 $ 7,621,035 $ 5,865,994
Earnings per share $ 5.34 $ 5.57 $ 5.05 $ 2.42 $ 1.86
Cash dividends declared per share 1.20 1.10 1.00 0.92 0.84
Total Assets $ 528,632,132 $ 455,135,563 $ 376,485,292 $ 297,626,775 $ 226,771,232
Stockholders Equity $ 90,855,581 $ 89,744,886 $ 75,427,308 $ 63,388,207 $ 53,041,027
Book Value per share $ 28.84 $ 28.49 $ 23.95 $ 20.12 $ 16.84
Average Number of
Shares Outstanding 3,150,000 3,150,000 3,150,000 3,150,000 3,150,000
</TABLE>
<PAGE>
INCORPORATED BY REFERENCE, PAGES 13 AND 14 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION &
RESULTS OF OPERATION
The following discussion and analysis should be read in conjuntion with the
financial statements and related notes found on pages 18-25, since they contain
important information that is helpful in evaluating our operating results and
financial condition.
OVERVIEW
Erie Family Life Insurance Company (the Company) is incorporated in the
Commonwealth of Pennsylvania. The Company is primarily engaged in the business
of underwriting and selling non-participating individual and group life
insurance policies, including universal life and annuity products. The Company
markets its products through independent Agents and is licensed in 11 states in
the Eastern U.S. and is subject to supervision and regulations of the states in
which it does business. A large portion of the Company's business is written in
Pennsylvania.
Net Income decreased to $16,829,678, or $5.34 per share, in 1994
from $17,536,632, or $5.57 per share in 1993, a decrease of 4%. Policy revenues
grew by 12% in 1994 and life insurance in force grew by more than $1.2 billion
during 1994, with total life insurance in force at December 31, 1994 growing to
almost $8.5 billion. Investment income, net of expenses, grew by 15% to
$35,566,249 in 1994 from $30,928,611 in 1993. Total assets increased by 16% to
$528,632,132.
REVENUES, BENEFITS, AND EXPENSES
Premium Income. Life premiums
increased 12.2% to $22,931,783 in 1994 from $20,440,636 in 1993 and $17,837,380
in 1992. New life insurance coverage placed during 1994 was $1,884,722,000,
compared to $1,580,014,000 in 1993 and $1,581,894,000 in 1992. This represents
an increase of 19.3% in 1994 and a decrease of 0.1% in 1993. First year life
insurance premiums were $5,563,765 in 1994, $4,567,631 in 1993 and $4,584,839 in
1992, an increase of 21.8% in 1994 and a decrease of 0.4% in 1993. Renewal
premium increased 9.4% in 1994. Improved persistency on the large pool of life
insurance business issued during 1993, and a declining policy lapse ratio for
the Company as a whole, was largely responsible for the increase in renewal
premiums.
First-year and single universal life and annuity deposits were
$53,965,315 in 1994, $42,602,356 in 1993 and $45,924,906 in 1992, representing
an increase of 26.7% in 1994 and a decrease of 7.2% in 1993.
Net Investment
Income. Net investment income in 1994 was $35,566,249 compared to $30,928,611 in
1993 and $28,132,626 in 1992, an increase of 15.0% in 1994 and 9.9% in 1993. The
ratio of net investment income to mean invested assets during 1994 was 8.33%
compared to 8.67% in 1993 and 9.85% in 1992. Fueling the growth in investment
income was the Company's cash flows generated from annuity and universal life
deposits and operating income.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 14 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
Realized Gain on Investments. In 1994, the
Company had realized gains of $4,411,334. This entire amount consisted of gains
from the sale of securities. In 1993, the Company had realized gains on
investments of $10,433,318. This amount consisted of gains on the sale and
maturity of securities of $12,408,318 net of $1,200,000 in losses for a
write-down of a limited partnership interest and $775,000 in losses for a
write-down of a mortgage loan that became impaired during the period. During
1992, the Company generated realized gains of $9,647,470. This amount consisted
of gains on the sale and maturity of securities of $10,149,677, less losses of
$502,207 for securities that became impaired during the period.
Death Benefits.
Net death benefits on life insurance policies decreased 12.3% in 1994 to
$4,068,876, compared to $4,639,349 in 1993 and $4,762,945 in 1992. From 1992
through 1994 net death benefits dropped by 14.6%, compared to an increase in the
Company's life insurance in force of 34.5%, over the same period. However, death
benefit experience must be analyzed for long-term trends, rather than over short
periods where unusual fluctuations may influence the results. This is
particularly true for a company the size of Erie Family Life, which is growing
rapidly. The Company believes that its underwriting philosophy and practices are
sound and positively contribute to the mortality results experienced over the
last several years.
The Company's lapse ratio, as reported to the Pennsylvania
Insurance Department, fell to 8.4% in 1994, a positive trend which has continued
for several years. The lapse ratio was 9.1% in 1993 and 10.2% in 1992. The lapse
ratio is an important measure of the success of the Company's sales and service
efforts. Consequently, it is closely monitored as a barometer of future life
insurance product profitability and premium growth. The .7% decline in the lapse
ratio in 1994 is reflective of management's policy conservation efforts and the
Company's sales practices. The decline in the policy lapse ratio made a real
contribution to the growth in Company life insurance premiums in 1994.
Interest on Annuity and Universal Life Deposits. Total interest credited on
deposits rose 13% to $20,145,355 from $17,832,577 in 1993. This increase in
interest expense was due to $69,530,697 in new annuity and universal life
deposits made by Policyholders during 1994 as well as higher credited interest
rates on these funds. At December 31, 1994 annuity deposits accruing interest
were $341 million and universal life deposits accruing interest were $36
million. During 1994, the interest rate credited on universal life deposits rose
from a 6.00% to 6.75% range on January 1, 1994 to a 6.50% to 7.25% range on
December 31, 1994. The rates credited on annuity deposits rose from a 4.75% to
5.75% range at the beginning of 1994, to a 5.35% to 6.50% range at the end of
1994.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 14 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
Commissions. In 1994, commission expenses increased 27.8% or $498,840 to
$2,293,450. Most of this commission increase was due to an increase in life
insurance premiums of 12.2% along with an increase in the average commission
rate. The average commission rate increased due to an increase in persistency
for policies in their second policy year. Second year renewal commission rates
are higher than third and subsequent year commission rates and increases in
second year persistency will result in an increase in the average commission
rate. The commission costs, which vary with and are primarily related to the
production of new business, have been deferred. These costs are being amortized
over the premium paying period of the related policies in proportion to the
ratio of the annual premium revenue to the total anticipated premium revenue
(see Note 3 of the Notes to Financial Statements).
General Expenses, Taxes,
Licenses and Fees. General expenses amounted to $5,775,026 compared to
$5,120,063 in 1993 and $4,829,293 in 1992. The increase in operating expense was
due primarily to increases in Employee salaries and benefits and data processing
expenses. Employee salary and benefit expenses rose due to Employee merit pay
increases and Employee benefit cost increases. The increase in data processing
expense was due to the Company's commitment of resources to several information
systems projects during 1994. In the long run these information system
investments will enable the Company to respond to the needs of Agents and
Policyholders more quickly and effectively, and allow the Company to control
operating expenses.
Certain operating expenses of the Company are paid by Erie
Indemnity Company and reimbursed monthly by the Company. Additionally, a portion
of the common overhead expenses of the Erie Insurance Group are allocated to
Erie Family Life. These expenses comprise the majority of Company general
expenses. Erie Indemnity Company is a 21.6% shareholder of Erie Family Life
Insurance Company stock and the management company for the Erie Insurance
Exchange.
Taxes, licenses and fees increased $781,083 to $2,807,813 in 1994. The
increase was due to increased assessments made by the state life insurance
guaranty associations. These assessments totaled $1,072,000 in 1994, $604,000 in
1993 and $725,000 in 1992. The assessments are mandated by the state life
insurance guaranty associations and are used by them to guarantee the life,
annuity and health insurance policies of companies that have become insolvent.
About $300,000 of the 1994 assessments, $330,000 of the 1993 assessments and
$490,000 of the 1992 assessments can be recovered as credits on the Company's
state premium tax returns. These credits have generally remained available, but
are not guaranteed by the states. In 1991, the Pennsylvania legislature enacted
a new law that imposed a 2% premium tax on all non-qualified annuity premiums.
This tax increased the Company's premium taxes by $522,000 in 1994, $500,000 in
1993 and $531,000 in 1992.
<PAGE>
INCORPORATED BY REFERENCE, PAGES 14 AND 15 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
Federal Income Taxes. The Revenue Reconciliation Act
of 1990 changed the way life insurance companies calculate their tax liability.
Prior to 1990, the Internal Revenue Code allowed life insurance companies to
deduct commissions and other policy acquisition expenses in the year incurred.
The Revenue Reconciliation Act of 1990 mandates that life insurance companies
capitalize the cost of acquiring new business and amortize the expense over the
premium-paying-period of the underlying policies. This change postpones the
deduction of policy acquisition expenses to later years, thereby increasing
current year federal income taxes over what they would have been under the old
law. The Company amortizes these policy acquisition expenses on a straight-line
basis over a period of 120 months, beginning with the first month in the second
half of the taxable year.
The Revenue Reconciliation Act of 1993 increased the
Company's tax rate from 34% to
35%. The Company's effective federal income tax rates in 1994, 1993 and 1992
differ primarily due to the recognition of, or limitations on, capital losses.
Impact of Accounting Pronouncements. In May 1993, FAS 115, "Accounting for
Certain Investments in Debt and Equity Securities" was issued by the Financial
Accounting Standards Board. Effective January 1, 1994, the Company adopted the
FAS 115 standard. This statement requires different reporting for debt and
equity securities in the balance sheet and income statement based on Company
investment and trading practices. The effect of this accounting standard on the
Company's balance sheet at January 1, 1994, was an increase in invested assets
of $14,612,895, an increase in deferred taxes of $5,114,513 and an increase in
stockholders' equity of $9,498,382. The adoption of this accounting standard had
no effect on the Company's statement of income.
LIQUIDITY AND CAPITAL RESOURCES
We define liquidity as the Company's ability to generate sufficient cash flows
to meet the short-term cash requirements of our operation. Generally, insurance
premiums and deposits are collected prior to claims and benefit disbursements
and these funds are invested to provide necessary cash flows in future years.
The Company's major sources of cash from operations are life insurance premiums,
annuity and universal life deposits and investment income. The net positive cash
flow is used to fund Company commitments and to build the investment portfolio,
thereby increasing future investment returns. Net cash provided by operating
activities in 1994 was $12,805,742, compared to $5,270,735 in 1993, and
$3,200,953 in 1992. The Company's liquidity position remains strong as invested
assets grew by 18% during 1994 to $460 million at December 31, 1994. The
majority of invested assets are very liquid marketable securities.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 15 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
Premium from
the sale of new policies combined with the premium on existing policies
accounted for approximately 37.3% of total revenue in 1994, 34.2% in 1993, and
33.2% in 1992. Investment income, net of expenses, generated 53.3% of total
revenue in 1994, 47.7% in 1993 and 48.1% in 1992. Also, the Company had a
realized gain on investments which generated 6.6% of total revenue in 1994,
16.1% in 1993 and 16.5% in 1992.
Annuity and universal life deposits, which do
not appear as revenue on the financial statements, also generate cash. These
deposits do not involve a mortality or morbidity risk and are accounted for
using methods applicable to comparable "interest-bearing obligations" of other
types of financial institutions. This method of accounting records deposits as a
liability rather than as a revenue. Annuity and universal life deposits were
$69,530,697 in 1994, $56,680,713 in 1993, and $59,069,340 in 1992.
The Company's
current commitments for expenditures as of December 31, 1994, are primarily for
policy death benefits, policy surrenders and withdrawals, general operating
expense, federal income taxes, and dividends to stockholders. These commitments
are met by cash flows from policy revenue, annuity and universal life deposits
and investment income. Management believes its cash flow from operations, its
liquid assets and marketable securities, and its line of credit with PNC Bank
will enable the Company to meet any foreseeable cash requirements. At December
31, 1994, the Company's line of credit with PNC Bank totaled $10 million, none
of which was outstanding.
As a Pennsylvania domiciled insurance company, Erie
Family Life may pay dividends within the preceding twelve months of not more
than the greater of 10% of its statutory surplus as regards Policyholders as
shown on its last annual statement or the statutory net gain from operations
after dividends to Policyholders and Federal income taxes and before realized
gains or losses for the period covered by such statement. Accordingly, the
maximum dividend payout which may be made in 1995 without prior Pennsylvania
commissioner approval is $8,679,000.
The Commonwealth of Pennsylvania has
adopted the minimum risk-based capital requirements for domestic insurance
companies that were developed by the National Association of Insurance
Commissioners (NAIC). The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial balances
or various levels of activity based on the perceived degree of risk. These
formulas determine a ratio of the Company's regulatory total adjusted capital to
its authorized control level risk-based capital, as defined by the NAIC.
Companies below specific trigger points or ratios are classified within certain
levels, each of which requires specified corrective action. The levels and
ratios are as follows.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 15 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
Ratio of Total Adjusted Capital to
Authorized Control Level Risk-Based
Regulatory Event Capital (Less Than or Equal to)
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level .7
Erie Family Life has regulatory total adjusted capital of $56 million and $51
million at December 31, 1994, and 1993, respectively, and a ratio of total
adjusted capital to authorized control level risk-based capital of 5.8 and 5.7
at December 31, 1994, and 1993, respectively. These levels far exceed the
minimum risk-based capital requirements.
During 1994, Pennsylvania adopted the
NAIC Model Actuarial Opinion and Memorandum Regulation. As a result, the
Company's actuarial opinion for 1994 and 1993, included the results of an asset
adequacy analysis, based primarily on cash flow testing. The testing consisted
of 20-year projections of existing business under each of nine different
interest rate scenarios. The cash flows and projected market value surplus
results were positive, under all nine scenarios.
RESERVE LIABILITIES
The
Company's primary commitment is its obligation to meet the payment of future
benefits under the terms of its life insurance and annuity contracts. To meet
these future obligations, the Company establishes life insurance reserves based
upon the type of policy, the age of the insured, and the number of years the
policy has been in force. The Company also establishes annuity and universal
life reserves based on the amount of Policyholder deposits (less applicable
policy changes) plus interest earned on those deposits. On December 31, 1994,
there was no material difference between the carrying value and fair value of
the Company's investment-type policies. These life insurance and annuity
reserves are supported primarily by the Company's long-term, fixed-income
investments because the underlying policy reserves are generally also of a
long-term nature.
INVESTMENTS
The Company's investment strategies and portfolios
are structured to match the features of the life insurance and annuity products
sold by the Company. Erie Family Life's annuities and life insurance policies
are long-term products, therefore the Company's investment strategy takes a
long-term perspective emphasizing investment quality, diversification, and
superior investment returns. The Company's investments are prudently managed on
a total return approach that focuses on current income and capital appreciation.
<PAGE>
INCORPORATED BY REFERENCE, PAGES 15 AND 16 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
The Company's invested assets are also exceptionally liquid in order to meet the
short and long-term commitments to Policyholders. At December 31, 1994 Erie
Family Life's investment portfolio of cash and money market investments,
investment grade bonds, common stocks, and preferred stocks, all of which are
extremely marketable, totaled $451 million or 85.4% of total assets. These
resources provide the liquidity the Company requires to meet unforeseen demands
on its funds.
The total invested assets of the Company consist of investments in
fixed maturities, preferred stock, common stock, real estate, mortgage and
policy loans and other invested assets. At December 31, 1994, 73.2% of total
invested assets were invested in fixed maturities. Preferred stocks represent
21.8% or $100 million and common stocks represent 1.8% or $8 million of total
invested assets at December 31, 1994, while real estate and mortgage loans make
up only 2.1% of total invested assets. Mortgage loan and real estate investments
have the potential for higher returns but also carry more risk, including less
liquidity and greater uncertainty of rate of return. Consequently these
investments have been kept to a minimum. Invested assets at December 31, 1994
and 1993 consisted of the following:
Invested Assets
(thousands)
1994 1993
Fixed Maturities
Held-to-Maturity $160,445 $131,148
Available-for-Sale 175,852 122,506
Equity Securities
Preferred Stock 100,236 108,059
Common Stock 8,126 4,365
Real Estate 1,899 2,002
Mortgage Loans 7,633 11,604
Policy Loans 3,181 2,810
Other Invested Assets 2,257 5,880
Total Invested Assets $459,629 $388,374
<PAGE>
INCORPORATED BY REFERENCE, PAGE 16 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
Fixed Maturities
The Company's fixed maturities at December 31, 1994 consist of investments in
bonds of $334 million and investments in redeemable preferred stock of $2
million. It is the Company's objective that the fixed maturity portfolio be of
very high quality and well diversified within each market sector. The portfolio
is conservatively managed with the goal of achieving reasonable returns while
limiting exposure to risk.
At December 31, 1994 the carrying value of fixed
maturities was $336,296,937, or 73.2% of total invested assets. At December 31,
1994, the amortized cost, estimated market values, gross unrealized gains, gross
unrealized losses, and carrying value for fixed maturities were as follows:
Fixed Maturities at 12-31-94
(thousands)
<TABLE>
<CAPTION>
Gross Gross
Amortized Market Unrealized Unrealized Carrying
Cost Values Gains Losses Value
<S> <C> <C> <C> <C> <C>
U.S. Treasury
& Agency $ 12,223 $ 10,728 $ 15 $ 1,510 $ 11,969
Mortgage-Backed
Certificates 1,480 1,567 96 9 1,480
Industrial &
Miscellaneous 194,155 182,963 2,723 13,915 192,595
Public Utilities 91,068 82,828 241 8,481 90,080
Political Subdivision 3,008 3,211 203 0 3,177
Special Revenue 38,792 37,099 410 2,103 36,996
Total Fixed Maturities $340,726 $318,396 $3,688 $26,018 $336,297
</TABLE>
The bond investments included in the fixed maturity category consist of
high-quality, marketable securities, 98.1% or $329.9 million of which, are rated
at investment grade levels (Baa/BBB or better). Included in this
investment-grade category are $240 million of bonds characterized as of the
"highest" quality or "Class 1" securities as defined by the NAIC. Below
investment-grade bonds totaled $4.4 million at December 31, 1994 and are a very
manageable 1.0% of total invested assets. Included in the below investment-grade
category are $4.4 million of "medium" quality bonds and none of the bonds are
considered "low" quality. All of the securities classified as
below-investment-grade are current and in good standing. Generally, the fixed
maturity
securities in the Company's portfolio are rated by external rating agencies. If
not externally rated, they are rated by the Company on a basis consistent with
the basis used by the rating agencies.
<PAGE>
INCORPORATED BY REFERENCE, PAGES 16 AND 17 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
If management determines that any
declines in market value of these investments are other than temporary, the
securities will be written-down to the realizable value of the investment and
reflected in the income statement. If a bond is in default of interest payments
and it is determined that liquidation of the security would be in the Company's
best interest, the security will be sold to return the proceeds to income
producing assets. During 1993, the Company recorded provisions for loss on
other-than-temporary declines in the market values of investment securities and
losses on mortgage loans and limited partnership of $1.5 million.
At December
31, 1994, the Company's five largest bond investments totaled $39,567,820, none
of which individually exceeded $12.8 million. These investments had a market
value of $35.9 million. The top three bonds are government agencies and have a
cost of $27.8 million and a market value of $25.6 million.
In compliance with
FAS 115, "Accounting for Certain Investments in Debt and Equity Securities," the
Company has classified 52% of its fixed maturity portfolio as available-for-sale
at December 31, 1994. Management believes this level of available-for-sale
securities is sufficient for the Company to meet its liquidity needs and
provides the flexibility necessary to respond to changes in the securities
markets. Securities classified as available-for-sale are carried at market value
with unrealized gains and losses included in stockholders' equity. Fixed
maturities classified as available-for-sale at December 31, 1994 were previously
carried at the lower of amortized cost or fair value (see Note 3 of the Notes to
Financial Statements). The carrying value of investments in prior years was not
restated for the adoption of FAS 115. At December 31, 1994, fixed maturities
available-for-sale had a cost of $180,281,163 and a market value of
$175,851,865, representing an unrealized loss of $4,429,298. Fixed maturities
classified as held-to-maturity are carried at the lower of cost or market value.
The held-to-maturity category includes only fixed maturities which management
has both the positive intent and ability to hold until maturity (see Note 3 of
the Notes to Financial Statements).
Equity Securities
Equity securities consist
of common and preferred stocks which are carried on the balance sheet at current
market value. At December 31, 1994, common and preferred stock held by the
Company had a cost of $116,380,818 and a market value of $108,361,616,
representing an unrealized loss of $8,019,202. As with the held-to-maturity
portfolio, the Company's preferred stock portfolio provides a source of highly
predictable current income that is very competitive with high-grade bonds. These
securities are well diversified within each market sector and support the
investment return provided to Policyholders. The preferred stocks are of very
high-quality and extremely marketable, 96.2% or $96.5 million of which are of
the "highest" or "high" quality, as defined by the NAIC. The remaining $3.8
million of preferred stocks have a "medium" NAIC rating. There are no preferred
stocks in Erie Family Life's portfolio rated in the "low," "lowest," or "in or
near default" quality categories established by the NAIC.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 17 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
Equity Securities, 12-31-94
(thousands)
Gross Gross
Market Unrealized Unrealized
Cost Value Gains Losses
Common Stocks
Banks & Insurance $ 790 $ 1,081 $ 325 $ 34
Industrial &
Miscellaneous 6,678 7,045 969 602
Preferred Stocks
Public Utilities 2,414 2,316 8 106
Banks & Insurance 63,453 59,299 1,383 5,537
Industrial &
Miscellaneous 43,046 38,621 184 4,609
Total Equity
Securities $116,381 $108,362 $2,869 $10,888
Other Investments
Real estate investments are carried on the balance sheet at cost, less
allowances for depreciation and possible losses. Commercial mortgage loans on
real estate are carried at their unpaid balances, adjusted for amortization of
premium or discount, less allowances for possible loan losses. Policy loans are
carried at their unpaid balances.
The fair values of the Company's investments
in real estate, mortgage loans, policy loans, and other invested assets,
approximate the book values presented in the financial statements.
Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments.
In October 1994, the Financial Accounting Standards Board issued Statement No.
119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments." FAS 119 requires increased disclosures about derivative
products, which are defined to include futures, forward, swap, or option
contracts, or other financial instruments with similar characteristics. FAS 119
also requires that fair value information of derivative financial instruments be
presented without combining, aggregating, or netting the fair value of
derivative and nonderivative financial instruments. This statement is effective
for financial statements issued by the Company for fiscal years ending after
December 15, 1994. Management has determined that the only derivative financial
instruments held by the Company consist of options written by the Company on
equity securities held in the Company's portfolio. At December 31, 1994, these
options totaled $33,248.
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Currently there is no market on which the Registrant's
stock is traded. The Company had 1,153 stockholders of common stock on December
31, 1994.
Date Dividends Declared Dividends per Share Declared
January 17, 1993 .275
March 31, 1993 .275
June 21, 1993 .275
September 27, 1993 .275
March 1, 1994 .30
March 1, 1994 .30
July 21, 1994 .30
September 29, 1994 .30
<PAGE>
Index to Graphs included in the Investment Section
of The Management's Discussion and Analysis
Graph #1 DISTRIBUTION OF INVESTED ASSETS
at December 31, 1994
Fixed Maturities - Available For sale 38.3%
Fixed Maturities - Held to Maturity 34.9%
Equity Securities - Preferred Stock 21.8%
Equity Securities - Common Stock 1.8%
Mortgage Loans 1.7%
Policy Loans 0.7%
Other Invested Assets 0.5%
Real Estate 0.4%
Graph #2 DIVERSIFICATION OF FIXED MATURITIES
at December 31, 1994 - Carrying Value
Industrial & Miscellaneous 57.3%
Public Utilities 26.8%
Special Revenue 11.0%
U.S. Treasury & Agency 3.6%
Political Subdivision 0.9%
Mortgage Backed Certificates 0.4%
Graph #3 QUALITY* OF BOND PORTFOLIO
at December 31, 1994 - Carrying Value
A/A $132.1 Mill 39.5%
BBB/Baa $72.9 Mil 21.8%
AAA/Aaa $65.1 Mil 19.5%
AA/Aa $59.8 Mil 17.9%
BB/Ba $4.4 Mi 1.3%
* As rated by Standard & Poor's or Moody's Investor's Service, Inc.
Graph #4 DIVERSIFICATION OF EQUITY SECURITIES
at December 31, 1994 - Market Value
(2) Banks & Insurance 54.7%
(2) Industrial & Miscellaneous 35.6%
(1) Industrial & Miscellaneous 6.5%
(2) Public Utilities 2.1%
(1) Banks & Insurance 1.1%
(1) Common Stock
(2) Preferred Stock
<PAGE>
INCORPORATED BY REFERENCE, PAGE 18 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Erie Family Life Insurance Company:
We have audited the accompanying balance sheets of Erie Family
Life Insurance Company as of December 31, 1994 and 1993, and the related
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Erie Family
Life Insurance Company as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As described in Note 3 to the financial statements, the
Company changed its method of accounting for debt and equity securities in 1994.
In 1993, the Company changed its method of accounting for income taxes and
reinsurance activities as described in Notes 5 and 8.
/s/ Brown Schwab Bergquist & Co.
Erie, Pennsylvania
February 17, 1995
<PAGE>
INCORPORATED BY REFERENCE, PAGE 20 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
BALANCE SHEETS
As of December 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Investments
Fixed maturities:
Held-to-maturity, at amortized cost
(fair value of $142,544,015 and
$131,130,047 respectively) $160,445,072 $131,147,518
Available-for-sale, at fair value
in 1994 (amortized cost of
$180,281,163) and at amortized
cost in 1993 (fair value of
$137,118,998) 175,851,865 122,506,103
Equity securities, at fair value
(cost of $116,380,818 and
$106,504,461, respectively) 108,361,616 112,423,627
Real estate 1,898,628 2,002,325
Policy loans 3,181,311 2,809,916
Mortgage loans on real estate 7,633,399 11,604,602
Other invested assets 2,257,143 5,880,089
Total investments $459,629,034 $388,374,180
Cash, including short-term cash
investments of $7,262,914
and $14,982,672, respectively 6,559,213 14,800,790
Premiums receivable 2,300,721 1,980,265
Reinsurance recoverable 312,249 367,872
Other receivables 261,578 318,585
Accrued investment income 8,388,301 5,909,881
Deferred policy acquisition costs 44,951,795 38,482,838
Reserve credit for reinsurance ceded 3,385,623 2,265,294
Prepaid federal income taxes 851,320 964,079
Other assets 1,992,298 1,671,779
Total assets $528,632,132 $455,135,563
</TABLE>
<PAGE>
INCORPORATED BY REFERENCE, PAGE 20 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
<S> <C> <C>
LIABILITIES
Policy liabilities and accruals:
Future life policy benefits $ 44,050,175 $ 40,318,762
Policy and contract claims 797,485 1,155,359
Annuity deposits 341,242,154 281,489,139
Universal life deposits 36,107,402 27,744,208
Supplementary contracts not
including life contingencies 767,456 859,300
Other policyholder funds 6,352,476 1,648,912
Deferred federal income tax 2,897,964 7,856,720
Reinsurance premium due 193,135 130,198
Accounts payable and accrued
liabilities 4,131,617 3,606,997
Due to affiliate 1,236,687 581,082
Total liabilities $437,776,551 $365,390,677
STOCKHOLDERS' EQUITY
Common stock, $1.10 par value
per share; authorized
5,000,000 shares;
3,150,000 shares issued
and outstanding $ 3,465,000 $ 3,465,000
Additional paid-in capital 945,000 945,000
Net unrealized (depreciation)
appreciation on investment
securities, net of deferred
taxes of ($4,356,975) and
$2,071,708, respectively ( 8,091,525) 3,847,458
Retained earnings 94,537,106 81,487,428
Net stockholders' equity $ 90,855,581 $ 89,744,886
Total liabilities and
stockholders' equity $528,632,132 $455,135,563
</TABLE>
See Notes to Financial Statements.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 19 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Revenues
Policy
Life premiums $22,931,783 $20,440,636 $17,837,380
Group 1,961,700 1,716,186 1,577,988
Total policy
revenues $24,893,483 $22,156,822 $19,415,368
Investment income, net
of expenses 35,566,249 30,928,611 28,132,626
Realized gains on
investments 4,411,334 10,433,318 9,647,470
Other income 1,897,756 1,268,345 1,327,832
Total revenues $66,768,822 $64,787,096 $58,523,296
Benefits and expenses
Death benefits $ 4,068,876 $ 4,639,349 $ 4,762,945
Interest on annuity
deposits 18,163,588 16,302,627 13,715,332
Interest on universal
life deposits 1,981,767 1,529,950 1,296,879
Surrender and other
benefits 607,947 1,104,047 978,821
Increase in liability
for future life
policy benefits 2,611,084 2,300,681 2,152,966
Amortization of deferred
policy acquisition
costs 1,979,765 2,092,764 1,840,205
Commissions 2,293,450 1,794,610 1,464,927
General expenses 5,775,026 5,120,063 4,829,293
Taxes, licenses,
and fees 2,807,813 2,026,730 2,140,393
Total benefits
and expenses $40,289,316 $36,910,821 $33,181,761
Income from
operations $26,479,506 $27,876,275 $25,341,535
</TABLE>
See Notes to Financial Statements.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 19 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF INCOME - CONTINUED Years
Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Federal income taxes
Current $ 8,179,901 $ 8,275,631 $ 7,791,598
Deferred 1,469,927 1,496,402 1,655,339
Total federal
income taxes $ 9,649,828 $ 9,772,033 $ 9,446,937
Income before cumulative
effect of accounting
change $16,829,678 $18,104,242 $15,894,598
Cumulative effect on
years prior to 1993 on
changing the method
of accounting for
income taxes ( 567,610)
Net income $16,829,678 $17,536,632 $15,894,598
Earnings per share:
Income before cumulative
effect of accounting
change $ 5.34 $ 5.75 $ 5.05
Cumulative effect of
accounting change ( .18)
Net income per
share $ 5.34 $ 5.57 $ 5.05
</TABLE>
See Notes to Financial Statements.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 22 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Net
Unrealized
Appreciation
(Depreciation) Net
Additional on Available- Stock-
Common Paid-In for-Sale Retained holders'
Stock Capital Securities Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance at
December 31,
1991 $3,465,000 $945,000 $ 4,307,000 $54,671,207 $63,388,207
Net income 15,894,598 15,894,598
Net change
during year ( 705,497) ( 705,497)
Dividends
declared,
$1.00 per
share ( 3,150,000) ( 3,150,000)
Balance at
December 31,
1992 $3,465,000 $945,000 $ 3,601,503 $67,415,805 $75,427,308
Net income 17,536,632 17,536,632
Net change
during year 245,955 245,955
Dividends
declared,
$1.10 per
share ( 3,465,009) ( 3,465,009)
Balance at
December 31,
1993 $3,465,000 $945,000 $ 3,847,458 $81,487,428 $89,744,886
Net income 16,829,678 16,829,678
Net change
during year ( 21,437,365) ( 21,437,365)
FAS 115
cumulative
effect,
net of
deferred
taxes of
$5,114,513 9,498,382 9,498,382
Dividends
declared,
$1.20 per
share ( 3,780,000) ( 3,780,000)
Balance at
December 31,
1994 $3,465,000 $945,000 ($ 8,091,525) $94,537,106 $90,855,581
</TABLE>
See Notes to Financial Statements.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 21 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $16,829,678 $ 17,536,632 $ 15,894,598
Cumulative effect of
accounting change 567,610
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Net amortization of
bond and mortgage
premium and discount 55,548 ( 110,504) ( 518,359)
Amortization of deferred
policy acquisition
costs 1,979,765 2,092,764 1,840,205
Real estate depreciation 103,697 103,697 103,697
Deferred federal
income taxes 1,469,927 1,496,402 1,655,339
Realized gain on
investments ( 4,411,334) ( 10,433,318) ( 9,647,470)
Increase in premiums
receivable ( 320,456) ( 58,835) ( 200,939)
(Increase) decrease in
other receivables 57,007 ( 152,775) 173,420
(Increase) decrease in
accrued investment
income ( 2,478,420) 191,202 ( 2,421,873)
Increase in deferred
policy acquisition costs ( 8,448,722) ( 6,892,375) ( 6,962,997)
(Increase) decrease in
other assets ( 320,519) 16,554 ( 276,590)
Increase in reinsurance
receivables and reserve
credits ( 1,064,706) ( 693,648) ( 641,392)
Increase in future life
policy benefits and
claims 3,373,539 2,695,932 3,289,302
Increase in other
policyholder funds 4,703,564 211,168 680,458
Increase (decrease) in
reinsurance premium due 62,937 ( 201,771) 48,476
Increase (decrease) in
federal income taxes
currently payable 112,759 ( 1,100,744) ( 552,670)
Increase in accounts
payables and due to
affiliate 1,101,478 2,744 737,748
Net cash provided by
operating activities $12,805,742 $ 5,270,735 $ 3,200,953
</TABLE>
See Notes to Financial Statements.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 21 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31, 1994, 1993 and
1992
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturity securities:
Held-to-maturity:
Maturities $11,255,303 $ 88,310,672 $ 35,167,016
Sales 45,579,973 26,053,959
Purchases ( 40,754,128) ( 151,500,059) ( 133,770,724)
Available-for-sale:
Maturities 3,107,563
Sales 36,191,487
Purchases ( 95,059,515)
Equity securities:
Sales 18,402,366 67,925,034 38,768,871
Purchases ( 26,662,706) ( 99,291,194) ( 42,693,638)
Purchase of mortgage loans ( 2,000,000) ( 3,981,471) ( 1,576,887)
Principal payments received
on mortgage loans 5,991,967 2,041,570 1,795,073
Loans made to
policyholders ( 821,201) ( 698,874) ( 658,227)
Payments received on
policy loans 449,806 507,962 238,468
Purchase of other
invested assets ( 1,644,339) ( 4,121,771)
Sale of other invested
assets 6,172,966 1,270,754 13,270
Net cash used in
investing activities ($85,370,431) ($ 53,957,404) ($ 76,662,819)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in annuity
deposits and
supplementary contracts $59,661,171 $ 53,511,342 $ 54,120,628
Increase in universal
life deposits 8,363,194 6,832,482 6,152,279
Borrowed money ( 1,290,000)
Dividends paid to
stockholders ( 3,701,253) ( 3,386,256) ( 3,087,000)
Net cash provided by
financing activities $64,323,112 $ 55,667,568 $ 57,185,907
Net increase (decrease) in
cash and short-term cash
investments ($ 8,241,577) $ 6,980,899 ($ 16,275,959)
Cash and short-term cash
investments at beginning
of year 14,800,790 7,819,891 24,095,850
Cash and short-term cash
investments at end of year $ 6,559,213 $ 14,800,790 $ 7,819,891
</TABLE>
See Notes to Financial Statements.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 22 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
Note 1. Nature of Business
Erie Family Life Insurance Company (the Company) was
incorporated in the Commonwealth of Pennsylvania on May 23,
1967. The Company is engaged in the business of underwriting and
selling nonparticipating individual and group life insurance
policies, including universal life, and annuity products. The
Company markets its products through independent agents in
eleven states and is subject to supervision and regulations of
the states in which it does business. A majority of the
Company's business is written in Pennsylvania, Ohio, Maryland
and Virginia.
Note 2. Basis of Presentation
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP).
Such basis of presentation includes the following:
(a) Policy reserves are computed according to the Company's
estimates of mortality, investment yields, lapses,
withdrawals, and other benefits and expenses.
(b) Commissions and other costs of acquiring new business
are recognized as deferred policy acquisition costs and
are amortized over either the premium paying period of
policies and contracts or in relation to the present
value of estimated gross profit on the policies, as
applicable.
(c) Income tax effects of temporary differences between
financial statement income and taxable income, relating
primarily to policy reserves and acquisition costs, are
provided.
(d) The effect of revaluing available-for-sale securities
to their respective fair values, net of deferred taxes,
is reflected as a separate component of stockholders'
equity.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 22 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 3. Significant Accounting Policies
(a) Investments
Investments are shown on the following bases:
Fixed maturities held-to-maturity which consists of
bonds, notes, and redeemable preferred stocks - at
cost, adjusted for amortization of premium or
discount and other-than-temporary market value
declines.
Fixed maturities available-for-sale which consists
of bonds and notes - at fair value.
Equity securities which consists of common and
nonredeemable preferred stocks - at fair value.
Fair values are determined by quoted market prices for
those instruments that are actively traded in financial
markets. In cases where quoted market prices are not
available, the Company uses the services of various
brokerage companies to assist in pricing.
Realized gains and losses on sales of investments are
recognized on a specific identification basis.
In May 1993, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115). The Company adopted the
provisions of the new standard for investments held as
of January 1, 1994. In accordance with FAS 115, prior
period financial statements have not been restated to
reflect the change in accounting principle. The
cumulative effect, as of January 1, 1994, of adopting
FAS 115 increased the opening balance of stockholders'
equity by $9,498,382 (net of $5,114,513 in deferred
income taxes) to reflect the net unrealized gains on
securities classified as available-for-sale previously
carried at amortized cost or lower of cost or market
value. Adoption of FAS 115 did not have any effect on
deferred policy acquisition costs.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 22 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 3. Significant Accounting Policies (Continued)
At December 31, 1994, the amortized cost, estimated
fair values, unrealized gains, and unrealized losses
for investments in fixed maturities held-to-maturity
were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Unrealized Unrealized
Cost Fair Values Gains Losses
<S> <C> <C> <C> <C>
U. S. Government $ 541,184 $ 549,676 $ 13,413 $ 4,921
Political
subdivision 1,140,000 1,174,200 34,200 0
Special revenue 8,413,257 7,356,761 185,621 1,242,117
Public utility 62,216,452 54,951,765 34,191 7,298,878
Industrial and
miscellaneous 88,134,179 78,511,613 71,883 9,694,449
Total fixed
maturities held-
to-maturity $160,445,072 $142,544,015 $339,308 $18,240,365
</TABLE>
At December 31, 1993, the amortized cost, estimated
fair values, unrealized gains, and unrealized losses
for investments in fixed maturities held-to maturity
were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Unrealized Unrealized
Cost Fair Values Gains Losses
<S> <C> <C> <C> <C>
Political
subdivisions $ 1,140,000 $ 1,185,600 $ 45,600 $ 0
Special revenue 4,490,000 4,219,200 119,200 390,000
Public utilities 50,876,918 50,941,214 541,392 477,096
Industrial and
miscellaneous 71,873,797 71,697,073 842,959 1,019,683
Mortgage-backed
certificates 2,766,803 3,086,960 321,291 1,134
Total fixed
maturities held-
to-maturity $131,147,518 $131,130,047 $1,870,442 $1,887,913
</TABLE>
<PAGE>
INCORPORATED BY REFERENCE, PAGE 23 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 3. Significant Accounting Policies (Continued)
At December 31, 1994, the amortized cost, estimated
fair values, unrealized gains, and unrealized losses
for investments in fixed maturities available-for-sale
were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Unrealized Unrealized
Cost Fair Values Gains Losses
<S> <C> <C> <C> <C>
U. S. Treasuries $ 6,121,887 $ 5,868,300 $ 14,687 $ 268,274
Political
subdivisions 1,868,344 2,036,950 168,606 0
Special revenue 37,317,102 35,521,340 307,076 2,102,838
Public utilities 28,833,112 27,844,600 194,982 1,183,494
Industrial and
miscellaneous 106,140,718 104,580,675 2,662,726 4,222,769
Total fixed
maturities
available-for-
sale $180,281,163 $175,851,865 $3,348,077 $7,777,375
</TABLE>
At December 31, 1993, the amortized cost, estimated
fair values, unrealized gains, and unrealized losses
for investments in fixed maturities available-for-sale
were as follows:
<TABLE>
<CAPTION>
Amortized Estimated Unrealized Unrealized
Cost Fair Values Gains Losses
<S> <C> <C> <C> <C>
U. S. Treasuries $ 3,011,483 $ 3,240,000 $ 228,517 $ 0
Political
subdivisions 1,868,643 2,334,550 465,907 0
Special revenue 16,887,315 17,555,000 899,052 231,367
Public utilities 15,777,433 16,775,000 1,057,604 60,037
Industrial and
miscellaneous 76,806,041 87,125,025 10,499,876 180,892
Mortgage-backed
certificates 8,155,188 10,089,423 1,940,985 6,750
Total fixed
maturities
available-for-
sale $122,506,103 $137,118,998 $15,091,941 $479,046
</TABLE>
<PAGE>
INCORPORATED BY REFERENCE, PAGE 23 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 3. Significant Accounting Policies (Continued)
At December 31, 1994, cost, fair values, unrealized
gains, and unrealized losses for investments in equity
securities were as follows:
<TABLE>
<CAPTION>
Unrealized Unrealized
Actual Cost Fair Values Gains Losses
<S> <C> <C> <C> <C>
Common stock:
Banks, trusts
and insurance
companies $ 790,311 $ 1,080,715 $ 325,248 $ 34,844
Industrial and
miscellaneous 6,677,716 7,044,856 969,221 602,081
Preferred stock:
Public utilities 2,414,273 2,316,375 8,352 106,250
Banks, trusts
and insurance
companies 63,453,075 59,298,250 1,381,500 5,536,325
Industrial and
miscellaneous 43,045,443 38,621,420 185,000 4,609,023
Total equity
securities $116,380,818 $108,361,616 $2,869,321 $10,888,523
</TABLE>
At December 31, 1993, cost, fair values, unrealized
gains, and unrealized losses for investments in equity
securities were as follows:
<TABLE>
<CAPTION>
Unrealized Unrealized
Actual Cost Fair Values Gains Losses
<S> <C> <C> <C> <C>
Common stock:
Banks, trusts
and insurance
companies $ 790,311 $ 1,244,754 $ 531,943 $ 77,500
Industrial and
miscellaneous 2,844,530 3,120,417 275,887 0
Non-redeemable
preferred stock:
Public utilities 4,271,282 4,935,245 698,963 35,000
Banks, trusts
and insurance
companies 80,235,092 83,996,417 4,365,325 604,000
Industrial and
miscellaneous 18,363,246 19,126,794 763,548 0
Total equity
securities $106,504,461 $112,423,627 $6,635,666 $716,500
</TABLE>
<PAGE>
INCORPORATED BY REFERENCE, PAGE 23 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 3. Significant Accounting Policies (Continued)
The Company adopted the provisions of FAS 115 as of
January 1, 1994. FAS 115 requires management to
determine the appropriate classification of securities
at the date of adoption, and thereafter at the date
individual investment securities are acquired. The
appropriateness of such classification is also
reassessed at each balance sheet date.
Prior to the adoption of FAS 115, the Company stated
its fixed maturities at the lower of amortized cost or
fair value. Marketable equity securities were stated at
fair value. Under both the newly adopted accounting
standard and the Company's former accounting practices,
premiums and discounts on investments in debt
securities are amortized over their contractual lives.
Realized gains and losses, including losses from
declines in value of specific securities determined by
management to be other-thantemporary, are included in
income. Realized gains and losses are determined on the
basis of the specific securities sold.
Net unrealized gains and losses on investments in fixed
maturities available-for-sale and equity securities are
credited to or charged directly against stockholders'
equity. At December 31, 1994, net unrealized losses on
these securities of $8,091,525 consisted of $6,217,398
in unrealized gains less $18,665,898 in unrealized
losses and a deferred tax benefit of $4,356,975. No
securities are held for trading purposes.
The following is a summary of fixed maturities
held-to-maturity at December 31, 1994, by remaining
term to maturity:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Values
<S> <C> <C>
Maturity during the year
ending December 31
1995 $ 0 $ 0
1996-1999 3,046,131 2,207,195
2000-2004 18,694,514 17,891,830
Subsequent to 2004 136,685,417 120,754,192
Redeemable preferred stock 2,019,010 1,690,798
$160,445,072 $142,544,015
</TABLE>
Bonds having an amortized value of $1,002,982 and
$1,002,728 at December 31, 1994 and 1993, respectively,
were on deposit with various regulatory authorities as
required by law.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 23 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 3. Significant Accounting Policies (Continued)
At December 31, 1994, the Company did not have
investments in securities of any single issuer which
exceeded 10% of net stockholders' equity, except for
federal home loan debentures.
(b) Deferred Policy Acquisition Costs
The costs of acquiring new business, principally
commissions and certain costs of issuing policies,
including underwriting salaries and medical
examinations, all of which vary with and are primarily
related to the production of new business, have been
deferred. For life insurance, these costs are being
amortized over the premium paying period of the related
policies in proportion to the ratio of the annual
premium revenue to the total anticipated premium
revenue. Anticipated premium revenue was estimated
using the same assumptions which were used for
computing liabilities for future policy benefits. The
amount of costs to be deferred would be reduced to the
extent future policy premiums and anticipated
investment income would not exceed related costs.
Universal life and annuity deferred acquisition costs
are being amortized in relation to the present value of
estimated future gross profits on the contracts.
Unamortized acquisition costs are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance at
beginning
of year $38,482,838 $33,683,227 $28,560,436
Additions 8,448,722 6,892,375 6,962,996
Amortization ( 1,979,765) ( 2,092,764) ( 1,840,205)
Balance at end
of year $44,951,795 $38,482,838 $33,683,227
</TABLE>
<PAGE>
INCORPORATED BY REFERENCE, PAGE 24 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 3. Significant Accounting Policies (Continued)
(c) Policy Revenues and Deposits
Premiums on traditional life insurance contracts are
reported as earned revenue when due. For certain
long-duration contracts (primarily universal life and
annuity contracts) deposits are recorded in a
policyholder account which is classified as a
liability. Revenue is recognized as amounts are
assessed against the policyholder account for mortality
coverage and contract expenses. Premiums on life
insurance contracts and deposits on annuity and
universal life contracts are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Life insurance
premiums:
First year $ 5,563,765 $ 4,567,631 $ 4,584,839
Renewal 17,368,018 15,873,005 13,252,541
$22,931,783 $20,440,636 $17,837,380
Annuity and universal
life deposits, net
of loading:
First year
and single $53,965,315 $42,602,356 $45,924,906
Renewal 15,565,382 14,078,357 13,144,434
$69,530,697 $56,680,713 $59,069,340
</TABLE>
Included in the amount of 1994, 1993 and 1992 first
year and single deposits on annuity and universal life
deposits are $8,880,714, $0 and $2,648,425,
respectively, of deposits on annuity contracts
purchased by the Erie Insurance Group Retirement Plan
for Employees. Structured settlement annuities sold to
the Erie Insurance Exchange and Erie Insurance Company
totalled $11,431,965, $7,516,908, and $9,307,063 in
1994, 1993, and 1992, respectively.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 24 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 3. Significant Accounting Policies (Continued)
(d) Policy Liabilities and Accruals
Liabilities for life insurance and income-paying
annuity future policy benefits have been computed
primarily by the net level premium method with
assumptions as to anticipated mortality, withdrawals,
and investment yields. Deferred annuity future policy
benefit liabilities have been established at
accumulated values without reduction for surrender
charges. Reserves for universal life and investment
contracts are based on the contract account balance, if
future benefit payments in excess of the account
balance are not guaranteed, or the present value of
future benefit payments when such payments are
guaranteed. Significant assumptions pertinent to policy
liabilities follow:
<TABLE>
<CAPTION>
Years
of Issue Policy Type Interest Mortality Withdrawal
<S> <C> <C> <C> <C>
1967-1975 All life 4% graded 1955-60 Basic Select Modified
to 3 1/2% Plus Ultimate Linton B
1976-1980 All life 6% graded 1955-60 Basic Select Linton B
to 4% Plus Ultimate
1981-1988 Permanent life 7 1/4% graded 85% of 1965-70 150% of
to 6% Select and Ultimate Linton A
1981-1988 Other life 7 1/4% graded 85% or 90% of 1965- Pricing
to 6% 70 assumptions
Select and Ultimate
1988-1994 All life and 7% graded Multiple of 1965- Pricing
annual renew- to 6% 70 assumptions
able term Select and Ultimate
1987-1994 Universal life 7 1/4% graded 85% or 90% of 1965- Pricing
to 6% 70 assumptions
Select and Ultimate
</TABLE>
Annuities are subject to variable interest rates
determined at the discretion of the Company subject to
certain minimums. During 1994, annuity deposits earned
interest at rates ranging from 4.75 percent to 6.50
percent. Management believes the fair value of annuity
and universal life deposits approximates the amounts
recorded in the financial statements, since these
obligations are generally subject to fluctuating
interest rates.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 24 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 3. Significant Accounting Policies (Continued)
(e) Liability for unpaid policy and contract claims
Activity in the liability for unpaid policy and
contract claims is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance at
January 1 $1,155,359 $1,574,073 $1,027,679
Less reinsurance
recoverables ( 271,806) ( 340,513) ( 320,174)
Less unpaid matured
endowments ( 12,567)
Net balance at
January 1 $ 883,553 $1,220,993 $ 707,505
Total death claims
incurred 4,068,876 4,639,349 4,762,945
Total death claims
paid 4,267,147 4,976,789 4,249,457
Net balance at
December 31 $ 685,282 $ 883,553 $1,220,993
Plus reinsurance
recoverables 112,203 271,806 340,513
Plus unpaid matured
endowment 12,567
Balance at
December 31 $ 797,485 $1,155,359 $1,574,073
</TABLE>
(f) Mortgage Loans and Other Invested Assets
Mortgage loans are comprised primarily of commercial
real estate mortgage loans and are carried on the
balance sheets at unpaid balances adjusted for
amortization of premium or discount, less allowance for
possible losses. Other invested assets are comprised
primarily of investments in limited partnerships and
are valued at cost less reductions for other than
temporary declines in value. The fair values of
mortgage loans and other invested assets approximate
the amounts presented in the financial statements. Fair
values were determined based on analyses of cash flows
and use of appraisals.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 24 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 3. Significant Accounting Policies (Continued)
(g) Segment Information
All of the operations of the Company are considered
"life insurance" operations.
(h) Earnings per Share
Earnings per share amounts are based on the weighted
average number of common shares outstanding during each
of the respective years.
(i) Income Taxes and Accounting Change
Income tax provisions are based on earnings reported
for financial statement purposes. Provisions for income
taxes include deferred taxes resulting from changes in
cumulative temporary differences between the tax bases
and financial statement bases of assets and
liabilities.
Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the
date of enactment.
(j) Cash Equivalents
The Company considers all highly liquid investments
purchased with an original maturity of three months or
less to be cash equivalents. Carrying amounts
approximate fair value because of the short maturity of
these investments.
(k) Reclassifications
Certain amounts as previously reported have been
reclassified to conform to the current year's
presentation.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 24 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 4. Statutory Net Income and Stockholders' Equity, Dividend
Restrictions, and Accounting Practices
A reconciliation of net income as filed with regulatory
authorities to net income reported in the accompanying financial
statements for the years ended December 31, 1994, 1993 and 1992,
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Statutory net income $ 9,678,535 $ 6,335,124 $10,232,786
Reconciling items:
Policy liabilities
and accruals 898,212 330,948 ( 271,012)
Deferred policy
acquisition costs,
net of amortization 6,468,957 4,799,611 5,122,791
Investment valuation
differences 1,494,951 8,537,233 2,674,845
Deferred taxes ( 1,469,927) ( 2,064,012) ( 1,655,339)
Other, net ( 241,050) ( 402,272) ( 209,473)
GAAP net income $16,829,678 $17,536,632 $15,894,598
</TABLE>
A reconciliation of stockholders' equity as filed with
regulatory authorities to stockholders' equity reported in the
accompanying financial statements as of December 31, 1994 and
1993, follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Statutory stockholders' equity $46,695,870 $42,516,235
Reconciling items
Asset valuation and interest
maintenance reserves 19,558,985 16,974,670
Investment valuation differences ( 14,741,044) 3,213,837
Deferred policy acquisition costs 44,951,795 38,482,838
Policy liabilities and accruals ( 230,680) ( 1,381,346)
Deferred taxes ( 2,897,964) ( 7,856,720)
Deferred and uncollected premiums ( 3,171,594) ( 2,876,669)
Other, net 690,213 672,041
GAAP stockholders' equity $90,855,581 $89,744,886
</TABLE>
<PAGE>
INCORPORATED BY REFERENCE, PAGE 24 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 4. Statutory Net Income and Stockholders' Equity, Dividend
Restrictions, and Accounting Practices (Continued)
As a Pennsylvania domiciled insurance company, the Company may
pay dividends within the preceding twelve months of not more
than the greater of (i) 10% of its statutory surplus as shown on
its last annual statement or (ii) the statutory net gain from
operations after dividends to policyholders and federal income
taxes and before realized gains or losses for the period covered
by such statement. Accordingly, the maximum dividend payout
which may be made in 1995 without prior Pennsylvania
Commissioner approval is $8,679,000.
Erie Family Life Insurance Company prepares its statutory
financial statements in accordance with accounting practices
prescribed by the Pennsylvania Insurance Department. Prescribed
statutory accounting practices include a variety of publications
of the National Association of Insurance Commissioners (NAIC),
as well as state laws, regulations, and general administrative
rules.
Note 5. Federal Income Taxes
Differences between total tax expense and the amount computed by
applying the federal income tax rate of 35% in 1994 and 1993 and
34% in 1992 to income from operations are set forth as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Federal income taxes
at statutory rates $9,267,827 $9,756,696 $8,616,122
Realized benefit on
investment losses ( 75,102)
Dividends received
deduction and
tax-exempt interest ( 398,527) ( 609,550) ( 596,266)
Effect on deferred
taxes of new tax law 126,136
Calculation of deferred
taxes at the small
life insurance
company rates 1,539,686
Other 780,528 498,751 ( 37,503)
Income tax expense $9,649,828 $9,772,033 $9,446,937
Income taxes paid $8,067,142 $9,376,375 $8,344,268
</TABLE>
<PAGE>
INCORPORATED BY REFERENCE, PAGE 25 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 5. Federal Income Taxes (Continued)
Temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities that give rise
to deferred tax assets (liabilities) at December 31, 1994 and
1993, relate to the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Deferred policy acquisition costs ($13,711,784) ($11,816,864)
Liability for future life and
annuity policy benefits 6,613,659 6,059,607
Investments 4,276,711 ( 2,014,999)
Other ( 76,550) ( 84,464)
($ 2,897,964) ($ 7,856,720)
</TABLE>
The Omnibus Budget Reconciliation Act (OBRA) of 1993 enacted
August 10, 1993 increased the deferred tax liability and
increased the 1993 income tax provision by $126,136.
In February, 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109 (FAS
109), "Accounting for Income Taxes." Effective January 1, 1993,
the Company adopted the FAS 109 standards. A deferred tax charge
of $567,610, or $.18 per share, is reported in the first quarter
1993 statement of income and represents the cumulative effect of
this accounting change. The change also had the effect of
increasing the deferred tax liability by $229,000 relating to
net unrealized appreciation reflected in stockholders' equity.
Note 6. Analysis of Investment Gains (Losses) and Income
Investment gains (losses) during the year are composed as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Realized gains
(losses):
Held-to-maturity ($ 167,535) $ 5,939,490 $2,409,490
Available-for-sale 3,673,188 6,862,998 6,971,346
Mortgage loans ( 775,000) 266,634
Other invested
assets 905,681 ( 1,594,170)
$ 4,411,334 $10,433,318 $9,647,470
</TABLE>
<PAGE>
INCORPORATED BY REFERENCE, PAGE 25 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 6. Analysis of Investment Gains (Losses) and Income
(Continued)
Changes in unrealized gains (losses) include the following for
the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Equity securities ($13,938,368) $810,651 ($ 80,642)
Debt securities
available-for-
sale ( 19,042,193)
Deferred federal
income taxes 11,543,196 ( 564,696)* ( 624,855)
Net unrealized
capital gains
(losses) ($21,437,365) $245,955 ($705,497)
<FN>
*Includes $229,000 effect of implementing SFAS #109.
</FN>
</TABLE>
Investment income consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Dividends $ 9,413,996 $ 8,226,162 $ 6,289,051
Interest 26,085,767 22,467,010 21,598,323
Other 461,320 595,775 725,448
Less expenses ( 394,834) ( 360,336) ( 480,196)
$35,566,249 $30,928,611 $28,132,626
</TABLE>
Note 7. Related Party Transactions
The Erie Family Life Insurance Company is owned 21.6% by
the Erie Indemnity Company and 52.2% by the Erie Insurance
Exchange.
The Erie Indemnity Company (EIC) is the attorney-in-fact for the
Erie Insurance Exchange (Exchange). Certain operating expenses
of the Company are paid by EIC and common expenses are
allocated. Such allocated expenses comprise the major portion of
Company general expenses.
The Company owns certain real estate which it leases to EIC for
rentals of $423,120 per year through December 31, 1995. The real
estate is recorded net of accumulated depreciation of $922,119
and $818,422 at December 31, 1994 and 1993, respectively.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 25 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 7. Related Party Transactions (Continued)
The employees of the Company participate in the pension and
other employee benefit plans of the Erie Indemnity Company. The
benefits are based on years of service and salary. Pension costs
are funded by the Erie Indemnity Company in amounts sufficient
to at least meet ERISA minimum funding requirements. Pension and
other benefit costs allocated to the Company equalled $164,792,
$106,166 and $68,676 in 1994, 1993 and 1992, respectively.
The Exchange and Erie Insurance Company (a wholly-owned
subsidiary of the Erie Indemnity Company) periodically purchase
annuities from the Erie Family Life Insurance Company in
connection with the structured settlement of claims.
Periodically the Erie Insurance Group Retirement Plan for
Employees purchases from Erie Family Life Insurance Company,
individual annuities for some terminated vested employees or
beneficiaries receiving benefits (excluding disabled and
deferred vested participants). These are non-participating
annuity contracts under which the Erie Family Life Insurance
Company has unconditionally contracted to provide specified
benefits to beneficiaries in return for a fixed premium from the
Plan.
Annuity deposit balances outstanding relating to pension
annuities sold to the Erie Insurance Group Retirement Plan are
approximately $23,650,000 and $15,600,000 at December 31, 1994
and 1993, respectively. The reserves held for the sale of
structured settlement annuities to the Erie Insurance Exchange
and Erie Insurance Company equal $59,306,000 and $48,375,000 at
December 31, 1994 and 1993, respectively.
Note 8. Reinsurance and Accounting Change
The Company cedes insurance to other insurers and reinsurers
under various contracts which cover individual risks.
Reinsurance is ceded under excess of loss contracts. These
reinsurance arrangements minimize losses arising from large
risks or from hazards of an unusual nature.
A contingent liability exists with respect to reinsurance
receivables and the reserve credit for reinsurance ceded which
would become a liability in the event that such reinsurance
companies are unable to meet their obligations under the
existing reinsurance agreements. These agreements do not relieve
the Company of its primary obligation to its policyholders.
<PAGE>
INCORPORATED BY REFERENCE, PAGE 25 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 8. Reinsurance and Accounting Change (Continued)
The Company adopted SFAS #113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts," in
1993 and elected to apply the provisions retroactively to
January 1, 1992. The change has no effect on the Statement of
Income or Net Income, but eliminates the prior practice of
offsetting assets and liabilities relating to reinsurance
contracts.
The Company has an insignificant amount of reinsurance assumed
activity. Policy revenues and benefit expense reflected in the
statements of income have been reduced by the following amounts
due to reinsurance cessions:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Policy revenues $3,185,718 $2,132,670 $2,428,485
Death benefits 695,567 902,124 733,295
Future life policy
benefits 1,120,329 813,965 589,943
</TABLE>
Note 9. Unaudited Quarterly Summary of Operations
The following summaries of operations for the four quarters of
1994 and 1993 are unaudited. In the opinion of the Company's
management, all adjustments - consisting only of normal
recurring accruals - necessary for a fair presentation of the
interim periods presented have been included.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1994
Policy revenues $ 5,938,807 $ 6,161,076 $ 6,435,291 $ 6,358,309
Investment income 8,336,576 8,619,825 9,087,090 9,522,758
Realized gain (loss)
on investments 2,533,962 1,068,629 1,063,897 ( 255,154)
Other income 281,023 471,849 355,490 789,394
Total revenues $17,090,368 $16,321,379 $16,941,768 $16,415,307
Income from
operations $ 7,282,936 $ 5,442,339 $ 7,391,656 $ 6,362,575
Federal income
taxes 2,558,323 1,945,424 2,760,038 2,386,043
Net income $ 4,724,613 $ 3,496,915 $ 4,631,618 $ 3,976,532
Earnings
per share $ 1.50 $ 1.11 $ 1.47 $ 1.26
</TABLE>
<PAGE>
INCORPORATED BY REFERENCE, PAGE 25 OF THE COMPANY'S 1994 ANNUAL
REPORT TO STOCKHOLDERS
NOTES TO FINANCIAL STATEMENTS
Note 9. Unaudited Quarterly Summary of Operations (Continued)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1993
Policy revenues $ 4,971,612 $ 5,516,820 $ 5,817,524 $ 5,850,866
Investment income 7,593,682 7,654,301 7,743,235 7,937,393
Realized gain on
investments 2,652,382 2,370,676 1,845,207 3,565,053
Other income 212,057 314,144 251,756 490,388
Total revenues $15,429,733 $15,855,941 $15,657,722 $17,843,700
Income from
operations $ 6,882,113 $ 6,735,510 $ 6,668,973 $ 7,589,679
Federal income
taxes 2,268,293 2,302,166 2,502,224 2,699,350
Cumulative effect on
years prior to
1993 on changing
the method of
accounting for
income taxes ( 567,610)
Net income $ 4,046,210 $ 4,433,344 $ 4,166,749 $ 4,890,329
Earnings
per share $ 1.29 $ 1.41 $ 1.32 $ 1.55
</TABLE>
The effect of the accounting change, recognized in the first
quarter, was a reduction of net income per share of $.18.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1994 FORM 10-K OF THE ERIE FAMILY LIFE INSURANCE COMPANY
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<CIK> 0000033416
<NAME> ERIE FAMILY LIFE INSURANCE COMPANY
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993 DEC-31-1992
<PERIOD-END> DEC-31-1994 DEC-31-1993 DEC-31-1992
<DEBT-HELD-FOR-SALE> 175,851,865 122,506,103 0
<DEBT-CARRYING-VALUE> 160,445,072 131,147,518 0
<DEBT-MARKET-VALUE> 142,544,015 131,130,047 0
<EQUITIES> 108,361,616 112,423,627 0
<MORTGAGE> 7,633,399 11,604,602 0
<REAL-ESTATE> 1,898,628 2,002,325 0
<TOTAL-INVEST> 459,629,034 388,374,180 0
<CASH> 6,559,213 14,800,790 0
<RECOVER-REINSURE> 312,249 367,872 0
<DEFERRED-ACQUISITION> 44,951,795 38,482,838 0
<TOTAL-ASSETS> 528,632,132 455,135,563 0
<POLICY-LOSSES> 422,167,187 350,411,409 0
<UNEARNED-PREMIUMS> 98,700 80,070 0
<POLICY-OTHER> 797,485 1,155,359 0
<POLICY-HOLDER-FUNDS> 6,352,475 1,648,912 0
<NOTES-PAYABLE> 0 0 0
<COMMON> 4,410,000 4,410,000 0
0 0 0
0 0 0
<OTHER-SE> 86,445,581 85,334,886 0
<TOTAL-LIABILITY-AND-EQUITY> 528,632,132 455,135,563 0
24,893,483 22,156,822 19,415,368
<INVESTMENT-INCOME> 35,566,249 30,928,611 28,132,626
<INVESTMENT-GAINS> 4,411,334 10,433,318 9,647,470
<OTHER-INCOME> 1,897,756 1,268,345 1,327,832
<BENEFITS> 27,433,262 25,876,654 22,906,943
<UNDERWRITING-AMORTIZATION> 1,979,765 2,092,764 1,840,205
<UNDERWRITING-OTHER> 10,876,289 8,941,403 8,434,613
<INCOME-PRETAX> 26,479,506 27,876,275 25,341,535
<INCOME-TAX> 9,649,828 9,772,033 9,446,937
<INCOME-CONTINUING> 16,829,678 18,104,242 15,894,598
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 (567,610) 0
<NET-INCOME> 16,829,678 17,536,632 15,894,598
<EPS-PRIMARY> 5.34 5.57 5.05
<EPS-DILUTED> 5.34 5.57 5.05
<RESERVE-OPEN> 0 0 0
<PROVISION-CURRENT> 0 0 0
<PROVISION-PRIOR> 0 0 0
<PAYMENTS-CURRENT> 0 0 0
<PAYMENTS-PRIOR> 0 0 0
<RESERVE-CLOSE> 0 0 0
<CUMULATIVE-DEFICIENCY> 0 0 0
</TABLE>
