FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from to
Commission File Number 2-39458
ERIE FAMILY LIFE INSURANCE COMPANY
(Exact name of Company as specified in its charter)
Pennsylvania 25-1186315
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Erie Insurance Place, Erie, Pennsylvania 16530
(Address of principal executive offices) (Zip code)
Company's telephone number, including area code (814) 870-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.40 par value
(Title of class)
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate the number of shares outstanding of each of the Company's classes of
common stock, as of the latest practicable date: 9,450,000 shares of Common
Stock outstanding on February 29, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's Annual Report to shareholders for the fiscal year
ended December 31, 1999 (the "Annual Report") are incorporated by reference into
Parts II and IV of this Form 10-K Report.
1
<PAGE>
INDEX
ITEM NUMBER AND CAPTION PAGE
Part I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 8
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 8
Part III
Item 10. Directors and Executive Officers of the Registrant 9
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and
Management 20
Item 13. Certain Relationships and Related Transactions 22
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 23
2
<PAGE>
PART I
ITEM 1. BUSINESS
Erie Family Life Insurance Company (hereinafter referred to as the
"Company" or "Erie Family Life") was incorporated in the Commonwealth 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 nonparticipating individual and group life insurance policies,
including universal life. Erie Family Life also sells individual and
group annuities. Erie Family Life's common stock is owned by Erie
Indemnity Company (21.6%) and by Erie Insurance Exchange (53.2%). The
remaining stock is held by the public, predominantly by directors, agents
and employees of Erie Indemnity Company.
Erie Indemnity Company is a Pennsylvania business corporation formed in
1925 to be the attorney-in-fact for Erie Insurance Exchange, a
Pennsylvania-domiciled reciprocal insurance exchange. The Erie Indemnity
Company's principal business activity consists of the management of the
Exchange. The Erie Indemnity Company also is engaged in the
property/casualty insurance business through its wholly owned
subsidiaries, Erie Insurance Company (Erie Insurance Co.), Erie Insurance
Company of New York (Erie NY) and Erie Insurance Property & Casualty
Company (Erie P&C) and through its management of Flagship City Insurance
Company (Flagship), a subsidiary of the Erie Insurance Exchange. Together
with the Erie Insurance Exchange, the Erie Indemnity Company and its
subsidiaries and affiliates, including Erie Family Life, operate
collectively under the name "Erie Insurance Group."
Products
The Company's portfolio of life insurance includes permanent life,
endowment and term policies, including whole life, mortgage and
decreasing term, group, and universal life insurance. In terms of face
value, new life business issued in 1999 had a ratio of 5:1 of term
insurance to whole life insurance 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, Net of Reinsurance
For the year ended December 31,
<TABLE>
<CAPTION>
Class 1999 1998 1997 1996 1995
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ordinary Life (including Term,
Whole Life and Universal Life 93.7% 93.4% 93.3% 93.3% 91.8%
Group 6.3 6.6 6.7 6.7 8.2
------ ------ ------ ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
3
<PAGE>
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 revenue) which represents insurance
protection purchased, and the "deposit" portion, which represents funds
to be held at interest for future uses. Under this standard, the
"deposit" portion of the premium received is accounted for using methods
applicable to comparable "interest bearing obligations" of other types of
financial institutions.
The Erie Insurance Group affiliated property and casualty insurance
companies periodically purchase annuities from the Company in connection
with the structured settlement of claims. Structured settlement annuities
sold to affiliated property/casualty companies totaled $23,312,225,
$17,883,171 and $17,780,582 in 1999, 1998, and 1997, respectively. Also
included in the annuity deposits are annuity contracts purchased by the
Erie Insurance Group Retirement Plan for Employees. These annuity
contracts totaled $5,321,738 in 1999, $6,413,460 in 1998 and $1,992,060
in 1997.
Classes of Deposits
For the year ended December 31,
<TABLE>
<CAPTION>
Class 1999 1998 1997 1996 1995
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Universal Life Deposit $11,792,172 $10,692,515 $10,733,738 $ 9,465,576 $ 8,490,667
Annuity Deposit 67,114,641 56,727,779 58,306,640 58,250,822 66,051,230
----------- ----------- ----------- ----------- -----------
$78,906,813 $67,420,294 $69,040,378 $67,716,398 $74,541,897
</TABLE>
The Company reinsures a portion of its business under a number of
different reinsurance agreements. The primary purpose of this reinsurance
is to enable the Company to write a policy in an amount larger than the
Company 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." The Company currently reinsures with other
insurance companies the portion of the insurance coverage above
acceptable retentions. The retention limits on an acceptable risk is
$300,000 on each individual life policy written.
Marketing
The Company markets its products through independent agents in ten
jurisdictions. The 1999 statutory direct premium revenue for those
jurisdictions is made up of: Pennsylvania (69.54%), Maryland (6.47%),
Virginia (5.60%), West Virginia (3.43%), Ohio (7.20%), Indiana (2.76%),
Tennessee (1.75%), North Carolina (2.84%), the District of Columbia
(.01%) and Illinois (.40%). 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.
4
<PAGE>
Competition
The Company operates in a highly competitive industry which consists of
numerous stock and mutual life 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,
product features, availability of insurance products and the financial
strength of the Company.
Federal legislative initiatives on financial services reform, begun in
1997, culminated in the enactment of Senate Bill 900, the Financial
Modernization Reform Act, which significantly changes the way insurance
companies, banks and securities firms are regulated. The elimination of
some regulatory barriers to banks entering the insurance market, privacy
initiatives concerning the consumer data held by financial institutions
and the interjection of federal government agencies into the
traditionally state-regulated insurance industry may materially change
the ground rules under which insurance products are marketed.
Additionally, current and proposed future federal measures may affect the
way the life insurance industry distributes, prices, and services their
products. These proposals may include possible changes to laws governing
the taxation of insurance companies and life insurance products.
In addition to competing insurance products from current and future
sources, the Company's interest sensitive products compete with other
available investment products including but not limited to common and
preferred stocks, bonds, mutual funds and other instruments.
Life Reserves
The Company establishes and maintains 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.
Reserves 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, lapses 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. Variations are
inherent in such calculations due to the estimates and assumptions
necessary in the calculations. Interest rate assumptions for non-interest
sensitive life insurance range from 3.5% to 4% on policies issued in 1980
and prior years and 6% to 7.25% on policies issued in 1981 and subsequent
years. Mortality and withdrawal assumptions are based on tables typically
used in the industry.
Annuities are subject to varying interest rates determined at the
discretion of the Company subject to certain minimums. During 1999,
deposits to individual annuities earned interest at rates ranging from 5%
to 5.75%. 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.
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 regulatory 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
securities as 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 (NAIC), the Company is
examined periodically by one or more of the state supervisory agencies.
The latest such examination of the Company was conducted by the
Pennsylvania Insurance Department and covered the five years ended
December 31, 1995.
5
<PAGE>
The Commonwealth of Pennsylvania follows the statutory accounting
practices minimum risk-based capital requirements on domestic insurance
companies that were developed by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each of
which requires specified corrective action. The formulas for determining
the amount of risk-based capital specify various weighing 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.
The NAIC levels and ratios are as follows:
Ratio of Total Adjusted Capital to
NAIC Required 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 $128 million
and a ratio of total adjusted capital to authorized control level
risk-based capital of more than 5:1 at December 31, 1999. The Company's
ratios significantly exceed the minimum NAIC risk-based capital
requirements.
Employees
Services of 106 full-time Employees are provided through Erie Indemnity
Company. Five of the employees are officers. Employee expenses along with
other operating expenses are paid by the Erie Indemnity Company and
reimbursed by the Company on a monthly basis. None of the Employees are
covered by collective bargaining agreements and the Company believes its
Employee relations are good.
Other Data
The Company's Lapse Rate for 1999 was 8.0%.
Reinsurance Profitability - Not Applicable.
New Types of Insurance - Not Applicable.
Total Insurance In Force for the last five years Net of
Reinsurance was:
1999 - $13,031,595,000
1998 - $11,961,512,000
1997 - $10,754,141,000
1996 - $ 9,646,962,000
1995 - $ 8,370,940,000
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995: Statements contained herein expressing the beliefs of management and the
other statements which are not historical facts contained in this report, are
forward-looking statements that involve risks and uncertainties. These risks and
uncertainties include but are not limited to: legislative, judicial, and
regulatory changes, the impact of competitive products and pricing, product
development, geographic spread of risk, catastrophic events, better (or worse)
mortality rates and securities market fluctuations.
6
<PAGE>
ITEM 2. PROPERTIES
The Company owns real property for investment purposes as provided in Schedule I
"Summary of Investments other than Investments in Related Parties." This
investment property is leased to the Erie Indemnity Company. Rental income for
1999 was $303,000. The executive and administrative offices of the Company are
located in the headquarters office of Erie Insurance Group in Erie,
Pennsylvania. The Company 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 Company 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 SECURITY HOLDERS
There were no matters submitted for a vote to shareholders during the fourth
quarter of 1999.
7
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The information set forth on page 29 of the Company's 1999 Annual Report is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained in "Selected Financial Data" on Page 21 of the
Company's 1999 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 22 through 28 of the Company's 1999 Annual
Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth on page 27 of the Company's 1999 Annual Report is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The 1999 Financial Statements and the Company's Independent Auditors' Report on
pages 30 through 43 of the Company's 1999 Annual Report are incorporated herein
by reference, as is the unaudited information set forth in the Notes to the
Financial Statements under the caption "Quarterly Results of Operations
(Unaudited)" on pages 42 through 43.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
8
<PAGE>
PART III
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 04/01/00 Held During the Last Five Years
<S> <C>
Peter B. Bartlett 1,3C,4,5 Director since 1996. Partner, Brown Brothers Harriman & Co. since 1974; Director--the
66 Company, Erie Insurance Company and Erie Indemnity Company, Attorney-in-Fact
for Erie Insurance Exchange and Kennametal, Inc.
Samuel P. Black, III 2,4,5 Director since 1997. President, Treasurer and Secretary, Samuel P. Black & Associates,
58 Inc.--insurance agency; Director--the Company, 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. 3,4 Director since 1992. President and Chief Executive Officer, Body-Borneman Associates,
61 Inc., insurance agency. President, Body-Borneman, Ltd. and Body-Borneman, Inc.,
insurance agencies. Director--the Company, Erie Insurance Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance Company of New York and
National Penn Bancshares.
John J. Brinling, Jr. Executive Vice President of the Company since December 1990. Division Office 1984-present.
53
Robert H. Dreyer Senior Vice President of the Company since 1990. Chief Actuary 1983-Present.
62
Philip A. Garcia Executive Vice President and Chief Financial Officer of the Company, Erie Insurance
43 Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange,
Flagship City Insurance Company, Erie Insurance Property & Casualty Company and Erie
Insurance Company of New York since October 1997. Senior Vice President and Controller
1993 - 1997. Director--Flagship City Insurance Company, Erie Insurance Property &
Casualty Company and Erie Insurance Company of New York.
<FN>
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Executive Compensation Committee
4 Member of Nominating Committee
5 Member of Investment Committee
C Committee Chairman
</FN>
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 04/01/00 Held During the Last Five Years
<S> <C>
Patricia A. Goldman 2,4C Director since 1996. Retired; Senior Vice President for Communications, USAir, Inc.
58 1988 - 1994; Director--the Company, Erie Insurance Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange and Crown Central Petroleum Company.
Susan Hirt Hagen 1,* Director since 1980. Managing Partner, Hagen, Herr & Peppin, Group Relations Consultants
64 since 1990; Director--the Company, Erie Insurance Company and Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange, since 1980; Director--Erie Insurance
Property & Casualty Company, Erie Insurance Company of New York, and Flagship City
Insurance Company since 1995.
F. William Hirt 1C,* Director since 1967. Chairman of the Board of the Company, Erie Insurance Company, Erie
74 Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance
Property & Casualty Company and Flagship City Insurance Company since September 1993;
Chairman of the Board of Erie Insurance Company of New York since April 1994. Chairman of
the Executive Committee of the Company and the Erie Indemnity Company, Attorney-in-Fact
for Erie Insurance Exchange since November 1990; Interim President and Chief Executive
Officer of the Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange, Erie Insurance Company, Erie Insurance Property & Casualty Company, Flagship
City Insurance Company and Erie Insurance Company of New York from January 1, 1996 to
February 12, 1996; Chairman of the Board, Chief Executive Officer and Chairman of the
Executive Committee of the Company, Erie Indemnity Company, Attorney-in-Fact for Erie
Insurance Exchange and Erie Insurance Company for more than five years prior thereto;
Director--the Company, Erie Insurance Company, Flagship City Insurance Company, Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance
Property & Casualty Company and Erie Insurance Company of New York.
Gwendolyn S. King 4 Director since 1999. Retired; Senior Vice President for Corporate and Public Affairs,
60 PECO Energy Company 1992 - 1998; Director - the Company, Erie Insurance Company and Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Lockheed Martin Corp.,
Monsanto Company and Marsh & McLennan Companies.
Martin J. Lippert 2 Director since 1999. Vice Chairman, Executive Vice President and Chief Information Officer
40 of Systems and Technology, Royal Bank of Canada 1997 - Present; Executive Vice President,
Mellon Bank 1995 - 1997; Director - the Company, Erie Insurance Company and Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange.
<FN>
1 Member of Executive Committee
2 Member of Audit Committee
4 Member of Nominating Committee
* F. William Hirt is the brother of Susan Hirt Hagen.
C Committee Chairman
</FN>
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 04/01/00 Held During the Last Five Years
<S> <C>
Stephen A. Milne 1, 5 President, Chief Executive Officer and Director of the Company, Erie Indemnity Company,
51 Attorney-in-Fact for Erie Insurance Exchange, and Erie Insurance Company since
February 12, 1996. President and Chief Executive Officer of the Company, Erie Insurance
Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Flagship
City Insurance Company, Erie Insurance Property & Casualty Company and Erie Insurance
Company of New York since 1996; Executive Vice President of the Erie Insurance Company,
Erie Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Flagship City
Insurance Company, Erie Insurance Property & Casualty Company and Erie Insurance Company
of New York 1994 - 1996. Director--Erie Insurance Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange and Erie Insurance Company of New York,
Flagship City Insurance Company and Erie Insurance Property & Casualty Company.
Timothy G. NeCastro Senior Vice President and Controller of the Company, Erie Insurance Company, Erie
39 Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Flagship City Insurance
Company, Erie Insurance Property & Casualty Company and Erie Insurance Company of New York
since 1997. Department Manager - Internal Audit 1996 - 1997.
John M. Petersen 1 Director since 1980. Retired; President and Chief Executive Officer of the Company, Erie
71 Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance Company,
Flagship City Insurance Company and Erie Insurance Property & Casualty Company 1993 -
1995 and Erie Insurance Company of New York 1994 - 1995; President, Treasurer and Chief
Financial Officer of the Erie Indemnity Company, Attorney-in-Fact for the Erie Insurance
Exchange, Erie Insurance Company and Erie Family Life Insurance Company 1990 - 1993, and
of Flagship City Insurance Company and Erie Insurance Property & Casualty Company
since 1992 and 1993, respectively, to September 1993; President, Treasurer and Chief
Financial Officer of the Company and Executive Vice President, Treasurer and Chief
Financial Officer of the Erie Indemnity Company, Attorney-in-Fact for the Erie
Insurance Exchange and Erie Insurance Company for more than five years prior thereto;
Director--the Company, 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 Spectrum Control.
<FN>
1 Member of Executive Committee
5 Member of Investment Committee
</FN>
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 04/01/00 Held During the Last Five Years
<S> <C>
Jan R. Van Gorder 1 Director since 1990. Senior Executive Vice President, Secretary and General Counsel of
52 the Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange,
and Erie Insurance Company since 1990 and of Flagship City Insurance Company and Erie
Insurance Property & Casualty Company since 1992 and 1993, respectively and of Erie
Insurance Company of New York since 1994. Senior Vice President, Secretary and General
Counsel of the Company, Erie Insurance Company and Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange for more than five years prior thereto;
Director--the Company, Erie Insurance Company, Flagship City Insurance Company, Erie
Insurance Property & Casualty Company, Erie Insurance Company of New York and Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange.
Harry H. Weil 2C,3,5 Director since 1995. Retired; Reed, Smith, Shaw & McClay, Attorneys, since 1998, Partner
66 1969 to 1997, Associate 1964 to 1969; Director--the Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance Company and Calgon Carbon
Corporation.
Douglas F. Ziegler Senior Vice President, Treasurer and Chief Investment Officer of the Company since 1993.
49 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 and Erie
Insurance Company of New York. Director--Erie Insurance Company of New York.
Robert C. Wilburn 3 Director since 1999. Distinguished Service Professor, Carnegie Mellon University since
56 1999; Retired, President and Chief Executive Officer, Colonial Williamsburg Foundation,
1992 - 1999; Director - the Company, Erie Insurance Company and Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange.
<FN>
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Executive Compensation Committee
5 Member of Investment Committee
C Committee Chairman
</FN>
</TABLE>
12
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The Company is a member of an insurance holding company system pursuant to
Pennsylvania law under which insurance companies are required to have
nominating, audit and executive compensation committees composed solely of
directors who are not officers, employees or controlling shareholders of the
Company or any entity controlling the Company. Insurance companies can satisfy
this requirement if the insurance company is controlled by an insurer or a
publicly held corporation that has committees that comply with this requirement.
Erie Indemnity Company, holder of 21.6% of the Company's stock directly and
53.2% of the Company's stock as attorney-in-fact for Erie Insurance Exchange,
has committees which meet these requirements.
The following table sets forth the compensation during each of the three fiscal
years ended December 31, 1999, 1998, and 1997, paid to the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company during 1999 for services rendered in all capacities to
the Company, Erie Indemnity Company, Erie Insurance Exchange (the "Exchange")
and their subsidiaries and affiliates.
Annual Compensation
Name and Other Annual All Other
Principal Position Year Salary Bonus(1) Compensation Compensation(2)
Stephen A. Milne 1999 $633,600 $495,201 $2,595 $64,649
President and Chief 1998 587,892 436,683 2,924 66,051
Executive Officer 1997 539,462 173,989 1,722 66,219
Jan R. Van Gorder 1999 $335,482 $150,653 $2,614 $26,492
Senior Executive Vice 1998 321,032 142,340 3,439 27,887
President, Secretary 1997 321,032 102,761 2,976 26,263
& General Counsel
Philip A. Garcia 1999 $244,720 $119,302 $763 $13,475
Executive Vice 1998 224,040 97,641 779 20,677
President & Chief 1997 160,703 58,555 572 4,470
Financial Officer
John J. Brinling, 1999 $238,168 $101,575 $2,454 $24,875
Jr., Executive 1998 224,686 102,132 3,279 25,731
Vice President of 1997 214,395 68,166 2,835 27,209
EFL
Jeffrey A. Ludrof 1999 $216,432 $95,769 $76 $13,063
Executive Vice 1998 171,019 74,860 -0- 5,444
President 1997 159,831 -0- -0- 3,581
(1) The amounts indicated in the bonus column above represent amounts earned
by the named executives during 1999 under the Company's Annual Incentive
Plan. The purpose of the Annual Incentive Plan is to promote the best
interests of the Erie Insurance Exchange while enhancing shareholder
value of the Company by basing a portion of selected employees'
compensation on the performance of such employee and the Company.
Performance measures are established by the Executive Compensation
Committee based on the attainment of individual performance goals and the
Company's financial goals compared to a selected peer group. The amounts
indicated also include reimbursement of club dues for Mr. Milne in the
amount of $56,912 and a special merit bonus of $90,662 in addition to
reimbursement for other minor perquisites. For the other named
executives, the amounts indicated include reimbursements for minor
perquisites in the amounts of $10,192, $16,794, $3,804 and $7,985 for
Messrs. Van Gorder, Garcia, Brinling, and Ludrof, respectively.
13
<PAGE>
(2) Amounts indicated in the "Other Annual Compensation" column include the
taxable value of group term life insurance in excess of $50,000 and the
associated tax reimbursement for the named executive officers. The
amounts exclude Long-Term Incentive Plan benefits awarded in February,
2000. (See Long-Term Incentive Plan Awards in Last Fiscal Year table ).
(3) Amounts shown include matching contributions made by the Company pursuant
to the Company's Employee Savings Plan, premiums paid by the Company on
behalf of the named individuals on the split dollar plan insurance
policies and miscellaneous expense reimbursements. For the year 1999,
contributions made to the Employee Savings Plan amounted to $14,308,
$9,084, $6,461, $7,145 and $6,365, on behalf of Messrs. Milne, Van
Gorder, Garcia, Brinling and Ludrof, respectively. For the year 1998,
contributions made to the Employee Savings Plan amounted to $15,507,
$10,391, $6,559, $7,911 and $5,444 on behalf of Messrs. Milne, Van
Gorder, Garcia, Brinling and Ludrof, respectively. For the year 1997,
contributions made to the Employee Savings Plan amounted to $12,194,
$8,676, $4,470, $6,432 and $3,581 on behalf of Messrs. Milne, Van Gorder,
Garcia, Brinling and Ludrof, respectively. Premiums paid during 1999 for
split dollar life insurance policies for Messrs. Milne, Van Gorder,
Garcia, Brinling and Ludrof, respectively, were as follows: $50,341,
$17,408, $7,014, $17,730 and $6,698. Premiums paid during 1998 for split
dollar life insurance policies for Messrs. Milne, Van Gorder, Garcia,
Brinling and Ludrof, respectively, were as follows: $50,544, $17,496,
$14,118, $17,820 and $-0-. Premiums paid during 1997 for split dollar
life insurance policies for Messrs. Milne, Van Gorder, Garcia, Brinling
and Ludrof, respectively, were as follows: $51,531, $17,587, $-0-,
$17,700 and $-0-. 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. For the year 1999, no
miscellaneous expense reimbursements were incurred for Messrs. Milne, Van
Gorder, Garcia, Brinling and Ludrof. For the year 1998, no miscellaneous
expense reimbursements were incurred for Messrs. Milne, Van Gorder,
Garcia, Brinling and Ludrof. For the year 1997, miscellaneous expenses
reimbursements amounted to $2,494, $-0-, $3,077, $-0- and $-0- for
Messrs. Milne, Van Gorder, Garcia, Brinling and Ludrof, respectively.
Agreements with Executive Officers
The Company has entered into employment agreements with the following
senior executive officers of the Company: Stephen A. Milne, President and
Chief Executive Officer of the Company; Jan R. Van Gorder, Senior Executive
Vice President, Secretary and General Counsel of the Company; Philip A.
Garcia, Executive Vice President and Chief Financial Officer of the
Company; Jeffrey A. Ludrof, Executive Vice President of the Company and
John J. Brinling, Jr., Executive Vice President of EFL. At a meeting of the
Board of Directors held on December 14, 1999, the Board of Directors
extended the term of each executive officer's employment agreement for one
year. The employment agreements have the following principal terms:
(a) A four-year term for Mr. Milne, expiring in December 2003, and for the
other executives a two-year term expiring in December 2001, unless the
agreement is theretofore terminated in accordance with its terms, with
or without cause, or due to the disability or death of the officer or
notice of nonrenewal is given by the Company or the executive 30 days
before any anniversary date;
(b) A minimum annual base salary at least equal to the executive's annual
base salary at the time the agreement was executed, subject to periodic
review to reflect the executive's performance and responsibilities,
competitive compensation levels and the impact of inflation;
(c) The eligibility of the executive under the Company's incentive
compensation programs and employee benefit plans;
(d) The establishment of the terms and conditions upon which the
executive's employment may be terminated by the Company and the
compensation of the executive in such circumstances. The agreements
provide generally, among other things, that if the employment of an
executive is terminated without Cause (as defined in the agreement) by
the Company or by the executive for Good Reason (as defined in the
agreement) then the executive shall be entitled to receive: (i) an
amount equal to the sum of three times the executive's highest annual
14
<PAGE>
base salary during the preceding three years plus an amount equal to
three times the total of the executive's highest award during the
preceding three years under the Company's Annual Incentive Plan; (ii)
any award or other compensation to which the executive is entitled
under the Company's Long-Term Incentive Plan; (iii) continuing
participation in any employee benefit plans for a period of three
years following termination to the extent the executive and his
dependents were eligible to participate in such programs immediately
prior to the executive's termination; and (iv) immediate vesting and
nonforfeitability of accrued benefits under the Company's Supplemental
Retirement Plan for Certain Members of the Erie Insurance Group
Retirement Plan for Employees ("Supplemental Employee Retirement
Plan");
(e) Provisions relating to confidentiality and nondisclosure following an
executive's termination; and
(f) An agreement by the executive not to compete with the Company for a
period of one year following his termination, unless his termination
was without Cause.
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.
Long-Term Incentive Plan
The Company has established a Long-Term Incentive Plan that is designed to
enhance the growth and profitability of the Company by providing the incentive
of long-term rewards to key employees who are capable of having a significant
impact on the performance of the Company; to attract and retain employees of
outstanding competence and ability and to further align the interests of such
employees with those of the shareholders of the Company. The Plan was approved
by shareholders in 1997 as a performance-based plan under the Internal Revenue
Code of 1986, as amended (the Code). Each of the named executives has been
granted awards of phantom share units under the Company's Long-Term Incentive
Plan based upon a target award calculated as a percentage of the executive's
base salary. The total value of any phantom share units will be determined at
the end of the performance period based upon the growth in the Company's
retained earnings. Each executive will then be entitled to receive restricted
shares of Class A Common Stock of the Erie Indemnity Company equal to the dollar
value of the phantom share units at the end of the performance period. The
vesting period for the restricted shares of Class A Common Stock issued to each
executive is three years after the end of the performance period. If an
executive ceases to be an employee prior to the end of the performance period,
the executive forfeits all phantom share units awarded. If an executive ceases
to be an employee prior to the end of the vesting period, the executive forfeits
all unvested restricted shares previously granted. The following table sets
forth target awards granted to the Company's five highest paid executive
officers (i) for the three-year performance period 1999 through 2001, (ii) for
the three-year performance period of 1998 through 2000 and (iii) for the
three-year performance period of 1997 through 1999.
15
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
Name Number of Shares, Performance Estimated Future Payouts
Units or Other or Other Period Under Non-Stock
Rights (#) Until Maturation Price-Based Plans
or Payout
- ------------------------------------------------------------------------------------------------------------------------------------
Phantom Share Units Threshold Target Maximum
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Milne, S. 45,656 1997-1999 -0- $188,812 (1)
76,286 1998-2000 -0- $377,623 (1)
79,863 1999-2001 -0- $420,000 (1)
Van Gorder, J. 27,170 1997-1999 -0- $112,361 (1)
22,699 1998-2000 -0- $112,361 (1)
33,574 1999-2001 -0- $176,568 (1)
Garcia, P. 12,668 1997-1999 -0- $ 52,390 (1)
14,155 1998-2000 -0- $ 70,070 (1)
24,054 1999-2001 -0- $126,500 (1)
Brinling, J. 18,145 1997-1999 -0- $ 75,038 (1)
15,159 1998-2000 -0- $ 75,038 (1)
23,767 1999-2001 -0- $124,992 (1)
Ludrof, J. 13,493 1997-1999 -0- $ 55,801 (1)
12,062 1998-2000 -0- $ 59,707 (1)
23,673 1999-2001 -0- $124,498 (1)
<FN>
(1) There is no maximum payout limitation for a specific performance
period. However, the maximum value of phantom share units that may be
earned by any named executive in any year shall not exceed $500,000.
</FN>
</TABLE>
16
<PAGE>
Pension Plan
The following table sets forth the estimated total annual benefits payable upon
retirement at age 65 under the Erie Insurance Group Retirement Plan for
Employees and the Supplemental Employee Retirement Plan collectively, (the
"Retirement Plans").
PENSION PLAN TABLE
Years of Service
Remuneration 15 20 25 30 35
- --------------------------------------------------------------------------------
$ 150,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000 $ 90,000
200,000 60,000 80,000 100,000 120,000 120,000
250,000 75,000 100,000 125,000 150,000 150,000
300,000 90,000 120,000 150,000 180,000 180,000
350,000 105,000 140,000 175,000 210,000 210,000
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
The compensation covered by the Retirement Plans is the base salary reported in
the Summary Compensation Table.
Under the Retirement Plans, 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: Stephen A. Milne - 23 years, Jan R. Van
Gorder - 19 years, John J. Brinling, Jr. - 30 years, Philip A. Garcia - 19 years
and Jeffrey A. Ludrof - 19 years.
The benefits under Retirement Plans 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 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
$135,000, but adjusted periodically for cost of living increases) that can be
paid to each eligible employee. A Supplemental Employee Retirement Plan for
senior management is in effect which provides benefits in excess of the earnings
limitations imposed by the Code similar to those provided to all other full time
employees as if the Code limitations were not in effect. Those benefits are
incorporated into the Pension Plan Table.
Director Compensation
The annual retainer for the directors of all members of the Group, including the
Company, is $25,000, plus $1,500 for each meeting attended and $1,500 for each
committee meeting attended plus an additional $2,000 per year for each committee
chairperson. The directors are also reimbursed for their expenses incurred in
attending meetings. Officers of the Company who serve as directors are not
compensated for attendance at meetings of the Board of Directors and its
committees. The Erie Indemnity Company also has a deferred compensation plan for
certain directors of the Company. The Company receives an allocated portion of
its share of these charges. The total amount allocated to the Company in 1999
for directors fees and other charges was $109,189. Director Petersen also is
compensated pursuant to a consulting arrangement as disclosed in Item 13.
17
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee (the "Compensation Committee") of the
Company presently consists of Peter B. Bartlett, Chairman, J. Ralph Borneman,
Jr., Harry H. Weil and Robert C. Wilburn. No member of the Compensation
Committee is a former or current officer or employee of the Company or any of
its affiliates1. 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 Compensation Committee, 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 Compensation Committee.
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.
- -----------------------------------------
1. J. Ralph Borneman, Jr. is an officer and a principal shareholder of
the insurance agencies named herein which receive commissions in the ordinary
course of business from the Company. Mr. Borneman does not qualify as an outside
director for purposes of approving performance-based incentive plans as
qualified under section 162(m) of the Code. Mr. Borneman has excused himself
from voting on such plans as a member of the Compensation Committee.
- -----------------------------------------
Report of the Executive Compensation Committee of the Company
The Compensation 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 the Compensation
Committee by the Board of Directors. The Board of Directors has authorized the
Compensation Committee to consider the compensation of the four highest paid
officers, including the Chief Executive Officer. The Compensation Committee is
currently composed of four directors who are not officers or employees of the
Company or any of its affiliates. The purpose of the Compensation Committee is
to determine the level and composition of compensation that is sufficient to
attract and retain top quality executives for the Company.
The objectives of the Company's executive compensation practices are to: (1)
attract, reward and retain key executive talent and (2) to motivate executive
officers to perform to the best of their abilities and to achieve short-term and
long-term corporate objectives that will contribute to the overall goal of
enhancing shareholder value and policyholder security. To that end, compensation
comparisons are made to benchmark positions at other insurers in terms of
compensation levels and composition of the total compensation mix.
Under Section 162(m) of the Code, the Company is not allowed a federal income
tax deduction for compensation, under certain circumstances, paid to certain
executive officers to the extent that such compensation exceeds $1 million per
officer in any fiscal year. No officer of the Company has received compensation
in excess of $1 million in any fiscal year to date with the exception of Stephen
A. Milne, President and Chief Executive Officer of the Company, in 1999 and
1998. The Compensation Committee may consider adopting policies with respect to
this limitation on deductibility when appropriate.
The Compensation Committee reviewed the salary ranges and base salaries of the
four highest paid executives, including the Chief Executive Officer, in 1999.
The Compensation 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 such responsibilities and duties. The Compensation
Committee then reviews the salary ranges for the Chief Executive Officer and the
other three highest paid executives, comparing the ranges to third party data
compiled for similar positions with other property and casualty and life
insurers. In reviewing the salary ranges for the four highest paid executives,
including the Chief Executive Officer, the Compensation Committee references
Sibson's Management Compensation Survey published annually by Sibson & Company,
Inc., which summarizes compensation data for more than 100 insurance companies.
The data is reported by position, company asset size and premium volume. The
unique aspects 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 base salaries. The
Compensation Committee also consulted data obtained from Towers Perrin, a
nationally recognized consulting firm with specific expertise in the insurance
industry, to make recommendations regarding executive compensation.
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 established for each position. Executives with a
broader range of skills, experience and consistently high performance with the
Company may receive compensation above the midpoint for the established salary
range.
18
<PAGE>
Compensation for the Chief Executive Officer consists primarily of salary,
annual incentive and long-term incentive payments and minor perquisites which
amount to less than 10% of the Chief Executive Officer's salary and bonus. The
Board of Directors approved adoption of an annual incentive plan and long-term
incentive plan for senior executives of the Company as recommended by the
Executive Committee at its meeting of March 11, 1997 (the "Annual Incentive
Plan" and the "Long-Term Incentive Plan," respectively). The purpose of the
Annual Incentive Plan is to promote the best interests of the Company while
enhancing shareholder value of the Company and to promote the attainment of
significant business objectives for the Company by basing a portion of the
executives' compensation on the attainment of both premium growth and
underwriting profitability goals. The annual incentive awards will be paid in
cash only.
Annual Incentive Plan target award levels, expressed as a percentage of base
salary, are established annually by the Compensation Committee. Payments under
the Annual Incentive Plan are based on a combination of individual executive
performance and the Company's performance.
The Long-Term Incentive Plan, which was approved by shareholders on April 27,
1998, for purposes of qualifying the plan as a performance-based plan under
Section 162(m) of the Code, is designed to maximize returns to shareholders by
linking executive compensation to the overall profitability of the Company.
Target award amounts, expressed as a percentage of base salary, are determined
by comparisons to peer companies and approved by the Compensation Committee.
Performance factors applicable to the Company, such as property and casualty
insurance loss ratios, investment portfolio returns, overall Company
profitability, as well as other factors are considered in evaluating the Chief
Executive Officer's performance. Such performance factors were considered in
approving Mr. Milne's 1999 compensation. Compensation of the next three most
highly compensated individuals is determined by the Compensation 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.
Compensation of the next highest paid executives (other than the four highest
paid executives) is based upon the Company's established standard compensation
policies and is not determined by the Compensation Committee.
The Company's Executive Compensation Committee:
Peter B. Bartlett, Chairman
J. Ralph Borneman, Jr.
Harry H. Weil
Robert C. Wilburn
19
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of 2/29/00
(a) Shares beneficially owned directly or indirectly by all affiliates:
Name & Address Shares
of Beneficial Beneficially Percent of
Owner Owned Class
Erie Indemnity Company 2,043,900(1) 21.6%(1)
100 Erie Insurance Place Direct
Erie, PA 16530
Erie Insurance Exchange 5,035,652(1) 53.3%(1)
100 Erie Insurance Place Direct
Erie, PA 16530
(b) Shares beneficially owned directly or indirectly by all Directors and
Officers:
Name & Address Shares
of Beneficial Beneficially Percent of
Owner Owned Class
Samuel P. Black, III 132,397 1.40%
1091 Dutch Road
Fairview, PA 16415
J. Ralph Borneman 1,536 .02%
160 N. Funk Road
Boyertown, PA 19512
Patricia A. Goldman 100 --
30261/2Q Street, NW
Washington, DC 20007
Susan Hirt Hagen 154,782 1.64%
5727 Grubb Rd.
Erie, PA 16506
F. William Hirt 167,034 1.77%
3270 Kingston Court
Erie, PA 16506
Gwendolyn S. King 300 --
1506 Hamilton Street, NW
Washington, DC 20011
Stephen A. Milne 200 --
100 Culbertson Drive
Lake City, PA 16423
20
<PAGE>
(b) Shares beneficially owned directly or indirectly by all Directors and
Officers:
Name & Address Shares
of Beneficial Beneficially Percent of
Owner Owned Class
John M. Petersen 92,141 .98%
124 Voyageur Dr.
Erie, PA 16505
Jan R. Van Gorder 75 --
6796 Manchester Beach Road
Fairview, PA 16415
Harry H. Weil 100 --
7 Foxwood Drive
Pittsburgh, PA 15238
Robert C. Wilburn 500 --
P.O. Box 376
Blairsville, PA 15717
John J. Brinling, Jr. 1,260 .01%
1522 Sumner Drive
Erie, PA 16505
Robert H. Dreyer 600 .01%
465 Hawthorne Trace
Fairview, PA 16415
Philip Alan Garcia 1,275 .01%
786 Stockbridge Drive
Erie, PA 16505
Douglas F. Ziegler 570 --
378 Ridgeview Drive
Erie, PA 16505
Officers and directors
as a group (15 persons) 552,870(2) 5.85%(2)
(1)The Exchange is a reciprocal insurance exchange controlled by its
subscribers, each of whom has designated Erie Indemnity Company as such
subscriber's attorney-in-fact for certain purposes, including Erie
Indemnity's holding of Common Stock of the Company. There are two H.O.
Hirt Trusts, one for the benefit of F. William Hirt and one for the
benefit of Susan Hirt Hagen. Each of the H.O. Hirt Trusts is the record
owner of 1,170 shares of Class B Common Stock, or 38.11% of the
outstanding shares of the Company's Class B Common Stock. The trustees
of the H.O. Hirt Trusts are F. William Hirt, Susan Hirt Hagen and
Banker's Trust Company of New York. Mr. Hirt and Mrs. Hagen, who are
brother and sister, are each the beneficial owner of 1,170 shares of
Class B Common Stock held by the H.O. Hirt Trusts. An additional 13.4%
of the Erie Indemnity Company voting stock is beneficially owned by
Samuel P. Black, III.
(2) Includes direct and indirect beneficial ownership and shares owned by
and with spouses.
(c) There are no contractual arrangements known to the Company which may result
in a change in control of the Company.
21
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors Borneman and Black 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 the companies' standard commission schedules and agents' contracts.
Such payments made in 1999 to the agencies for commissions written on
insurance policies from the property and casualty affiliated insurers and
Erie Family Life Insurance Company amounted to $2,976,832 and $472,633 for
the Borneman and the Black insurance agencies, respectively. Of these
amounts, the Company paid commissions of $84,999 and $26,220 to the
Borneman and the Black insurance agencies, respectively.
Director Borneman, in his capacity as an insurance agent, placed a worker's
compensation insurance policy covering employees of the Company with
Fireman's Fund Insurance Company. Although director Borneman has received
no compensation to date in connection with the placement of that policy, in
the future he may be entitled to receive a commission from Fireman's Fund
in accordance with Fireman's Fund's standard commission schedules and
agents' contracts for placing that insurance policy.
John M. Petersen, a director and former President and Chief Executive
Officer, and previous Chief Investment Officer of the Erie Insurance Group
of Companies, who retired as an employee of the Company on December 31,
1995, entered into a consulting arrangement with the Company effective
January 2, 1996. Under the terms of the arrangement, the Company engaged
Mr. Petersen as a consultant to furnish the Company, the Erie Insurance
Exchange, and Erie Indemnity Company and its pension trust, with investment
services with respect to their investments in common stocks. As
compensation for services rendered by Mr. Petersen, a fee of .15 of 1
percent, on an annualized basis, of the total fair market value of the
common stocks under management, is paid to Mr. Petersen. The Company also
pays for all necessary and reasonable expenses related to Mr. Petersen's
consulting services performed under this arrangement. The compensation paid
to Mr. Petersen under this arrangement in 1999 by the Company, the Erie
Insurance Exchange, the Erie Indemnity Company, and the pension trust was
$100,049, $4,565,267, $137,688 and $141,767, respectively.
Director Bartlett is a partner of Brown Brothers Harriman & Co. ("Brown
Brothers"). During 1999, the Company and its affiliates invested
approximately $26,037,121 in various limited partnerships, of which Brown
Brothers through its Corporate Finance Division is the general partner,
and, as the general partner, was paid management fees by Partnerships, of
which $825,259 was the combined amount allocable to the Company, the Erie
Insurance Exchange and the Erie Indemnity Company, based upon their limited
partnership interests. The Company and its affiliates also purchased other
investments worth $19,800,000 through Brown Brothers, and commissions paid
Brown Brothers by the Company and its affiliates on these investments
amounted to $245,613. Director Bartlett has not and will not receive any
compensation from Brown Brothers with respect to any income earned by Brown
Brothers or its Corporate Finance Division from the management of the
investments by the Company and its affiliates in such limited partnerships
or from any of the commissions paid by the Company or its affiliates.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements of the Company and the report
of independent certified public accountants are incorporated herein by
reference to pages 30 through 43 in the Company's annual report to
shareholders for the year ended December 31, 1999.
Independent Auditors' Report
Statements of Financial Position - December 31, 1999 and 1998
Statements of Operations for the years ended December 31, 1999,
1998 and 1997
Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997
Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Notes to Financial Statements
(2) The following financial statement schedules are included in this
report on FORM 10-K:
Page
Independent Auditors' Report on Schedules 26
Schedule I - Summary of Investments other than
Investments in Related Parties 27
Schedule III - Supplementary Insurance Information 28
Schedule IV - Reinsurance 29
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.
23
<PAGE>
(3) Exhibits:
Exhibit
Number Description of Exhibit
3.1* Amended and Restated By-laws of Registrant
10.1** 1997 Annual Incentive Plan of Erie Indemnity Company
10.2** Erie Indemnity Company Long-Term Incentive Plan
10.3** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Stephen A. Milne
10.4** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Jan R. Van Gorder
10.5** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Philip A. Garcia
10.6** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and John J. Brinling, Jr.
10.7 Employment Agreement effective June 30, 1999 by and
between Erie Indemnity Company and Jeffrey A. Ludrof
10.8 Employment Agreement effective December 15, 1999 by and
between Erie Indemnity Company and Douglas F. Ziegler
10.9 Addendum to Employment Agreement effective December 15,
1999 by and between Erie Indemnity Company and
Stephen A. Milne
10.10 Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Jan R. Van Gorder
10.11 Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Philip A. Garcia
10.12 Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and John J. Brinling
10.13 Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Jeffrey A. Ludrof
13 1999 Annual Report to Shareholders. Reference is made to
the Annual Report furnished to the Commission, herewith.
27 Financial Data Schedule
- ------------------
* Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K Annual Report for the year ended
December 31, 1998 that was filed with the Commission on March 9, 1999.
** Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K Annual Report for the year ended
December 31, 1997 that was filed with the Commission on March 11,
1998.
All exhibits for which provision is made in the applicable accounting
regulations 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 fourth quarter ended December 31, 1999.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 7, 2000 ERIE FAMILY LIFE INSURANCE COMPANY
(Registrant)
Principal Officers
/s/ Stephen A. Milne
Stephen A. Milne, President and CEO
/s/ Jan R. Van Gorder
Jan R. Van Gorder, Executive Vice President, Secretary & General Counsel
/s/ Philip A. Garcia
Philip A. Garcia, Executive Vice President & CFO
/s/ Timothy G. NeCastro
Timothy G. NeCastro, Senior Vice President & Controller
Board of Directors
/s/ Peter B. Bartlett /s/ Martin J. Lippert
Peter B. Bartlett Martin J. Lippert
/s/ Samuel P. Black, III /s/ Stephen A. Milne
Samuel P. Black, III Stephen A. Milne
/s/ J. Ralph Borneman /s/ John M. Petersen
J. Ralph Borneman John M. Petersen
/s/ Patricia A. Goldman /s/ Jan R. Van Gorder
Patricia A. Goldman Jan R. Van Gorder
/s/ Harry H. Weil
Susan Hirt Hagen Harry H. Weil
/s/ F. William Hirt /s/ Robert C. Wilburn
F. William Hirt Robert C. Wilburn
/s/ Gwendolyn S. King
Gwendolyn S. King
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders
Erie Family Life Insurance Company
We have audited the statements of financial position of Erie Family Life
Insurance Company (Company) as of December 31, 1999 and 1998 and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1999, as contained in the 1999
annual report, incorporated by reference in the annual report on Form 10-K for
the year ended December 31, 1999. 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, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1999
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 11, 2000
26
<PAGE>
SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
<TABLE>
<CAPTION>
December 31, 1999
Cost or Amount at which
Amortized Market Shown in the
Type of Investment Cost Value Balance Sheet
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Maturities Available-for-sale
U. S. Treasuries $ 4,585,535 $ 4,582,844 $ 4,582,844
U. S. Government Agency 4,804,139 4,818,964 4,818,964
States & Political Subdivisions 2,055,000 2,100,000 2,100,000
Special Revenue 6,859,827 7,079,506 7,079,506
Public Utilities 61,886,149 59,711,927 59,711,927
U. S. Banks, Trusts, and Insurance Companies 115,615,642 111,568,778 111,568,778
U. S. Industrial and Miscellaneous 396,128,081 382,309,479 382,309,479
Foreign Governments - Agency 2,991,409 2,880,330 2,880,330
Foreign Banks, Trusts, and Insurance Companies 9,980,619 9,537,300 9,537,300
Foreign Industrial and Miscellaneous 46,751,618 44,287,744 44,287,744
- ----------------------------------------------------------------------------------------------------------------------------
Total Fixed Maturities available-for-sale $ 651,658,019 $ 628,876,872 $ 628,876,872
- ----------------------------------------------------------------------------------------------------------------------------
Equity Securities
Common Stock:
U. S. Banks, Trusts and Insurance Companies $ 9,188,158 $ 10,776,392 $ 10,776,392
U. S. Industrial and Miscellaneous 50,646,155 71,682,130 71,682,130
Foreign Industrial and Miscellaneous 1,240,913 935,625 935,625
Non-Redeemable Preferred Stocks:
U. S. Banks, Trusts and Insurance Companies 25,889,215 24,349,150 24,349,150
U. S. Industrial and Miscellaneous 24,836,611 22,446,580 22,446,580
Foreign Banks, Trusts, and Insurance Companies 12,873,364 11,904,540 11,904,540
- ----------------------------------------------------------------------------------------------------------------------------
Total Equity Securities $ 124,674,416 $ 142,094,417 $ 142,094,417
- ----------------------------------------------------------------------------------------------------------------------------
Real Estate
Investment Property $ 1,458,588 $ 1,458,588 $ 1,458,588
Policy Loans 6,723,729 6,723,729 6,723,729
Mortgage Loans 9,974,967 9,974,967 9,974,967
Other Invested Assets 26,576,744 28,330,875 28,330,875
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments $ 821,066,463 $ 817,459,448 $ 817,459,448
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<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>
1999
Ordinary Life Insurance $ 68,227,117 $ 163,615,744 $ 152,484 $ 1,095,052
Group Life Insurance 0 1,353,530 0 209,500
Annuities 9,361,203 569,218,451 0 0
Supplemental Contracts 0 580,693 0 0
- -----------------------------------------------------------------------------------------
Total $ 77,588,320 $ 734,768,418 $ 152,484 $ 1,304,552
- -----------------------------------------------------------------------------------------
1998
Ordinary Life Insurance $ 61,387,166 $ 144,849,922 $ 138,375 $ 1,594,030
Group Life Insurance 0 1,043,324 0 207,000
Annuities 9,529,094 524,122,492 0 0
Supplemental Contracts 0 607,094 0 0
- -----------------------------------------------------------------------------------------
Total $ 70,916,260 $670,622,832 $ 138,375 $ 1,801,030
- -----------------------------------------------------------------------------------------
1997
Ordinary Life Insurance $ 55,958,508 $ 127,064,469 $ 131,926 $ 1,839,677
Group Life Insurance 0 1,189,498 0 210,000
Annuities 8,608,577 489,444,701 0 0
Supplemental Contracts 0 876,054 0 0
- -----------------------------------------------------------------------------------------
Total $ 64,567,085 $ 618,574,722 $ 131,926 $ 2,049,677
- -----------------------------------------------------------------------------------------
</TABLE>
28
<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>
1999
Ordinary Life Insurance $ 39,051,763 $ 18,233,337 $ 19,153,251 $ 4,285,692 $ 8,888,107
Group Life Insurance 2,629,179 83,209 1,884,469 0 684,489
Annuities 4,693 37,855,115 31,185,418 526,887 1,369,212
Supplemental Contracts 0 41,235 17,007 0 2,969
- --------------------------------------------------------------------------------------------------------
Total $ 41,685,635 $ 56,212,896 $ 52,240,145 $ 4,812,579 $ 10,944,777
- --------------------------------------------------------------------------------------------------------
1998
Ordinary Life Insurance $ 35,732,584 $ 16,128,825 $ 17,265,146 $ 4,147,159 $ 8,828,794
Group Life Insurance 2,501,243 75,545 834,674 0 623,339
Annuities 4,729 36,073,973 29,775,077 248,396 447,308
Supplemental Contracts 0 51,000 95,026 0 3,583
- --------------------------------------------------------------------------------------------------------
Total $ 38,238,556 $ 52,329,343 $ 47,969,923 $ 4,395,555 $ 9,903,024
- --------------------------------------------------------------------------------------------------------
1997
Ordinary Life Insurance $ 32,826,827 $ 14,659,150 $ 18,511,338 $ 3,607,634 $ 7,911,668
Group Life Insurance 2,363,002 82,350 1,367,179 0 590,861
Annuities 3,643 35,110,681 27,614,299 87,332 1,088,065
Supplemental Contracts 0 62,111 51,604 0 4,163
- --------------------------------------------------------------------------------------------------------
Total $ 35,193,472 $ 49,914,292 $ 47,544,420 $ 3,694,966 $ 9,594,757
- --------------------------------------------------------------------------------------------------------
<FN>
(a) Net of reinsurance ceded
</FN>
</TABLE>
<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, 1999
Life Insurance in force $ 14,424,095,000 $ 1,425,913,000 $ 33,412,000 $ 13,031,594,000 0.26%
Premiums for the year
Life Insurance 42,972,242 3,920,479 0 39,051,763 0.00%
Group 2,517,605 0 116,267 2,633,872 4.41%
- ----------------------------------------------------------------------------------------------------------------------------
Total Premiums $ 45,489,847 $ 3,920,479 $ 116,267 $ 41,685,635 0.28%
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1998
Life Insurance in force $ 13,235,757,000 $ 1,307,123,000 $ 32,878,000 $ 11,961,512,000 0.27%
Premiums for the year
Life Insurance 39,786,469 4,053,885 0 35,732,584 0.00%
Group 2,409,053 0 96,919 2,505,972 3.87%
- ----------------------------------------------------------------------------------------------------------------------------
Total Premiums $ 42,195,522 $ 4,053,885 $ 96,919 $ 38,238,556 0.25%
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1997
Life Insurance in force $ 11,888,559,000 $ 1,167,467,000 $ 33,049,000 $ 10,754,141,000 0.31%
Premiums for the year
Life Insurance 36,587,421 3,760,594 0 32,826,827 0.00%
Group 2,257,474 0 109,171 2,366,645 4.61%
- ----------------------------------------------------------------------------------------------------------------------------
Total Premiums $ 38,844,895 $ 3,760,594 $ 109,171 $ 35,193,472 0.31%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
3.1* Amended and Restated By-laws of Registrant
10.1** 1997 Annual Incentive Plan of Erie Indemnity Company
10.2** Erie Indemnity Company Long-Term Incentive Plan
10.3** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Stephen A. Milne
10.4** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Jan R. Van Gorder
10.5** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Philip A. Garcia
10.6** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and John J. Brinling, Jr.
10.7 Employment Agreement effective June 30, 1999 by and
between Erie Indemnity Company and Jeffrey A. Ludrof 31
10.8 Employment Agreement effective December 15, 1999 by and
between Erie Indemnity Company and Douglas F. Ziegler 46
10.9 Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Stephen A. Milne 61
10.10 Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Jan R. Van Gorder 62
10.11 Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Philip A. Garcia 63
10.12 Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and John J. Brinling 64
10.13 Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Jeffrey A. Ludrof 65
13 1999 Annual Report to Shareholders. Reference is made
to the Annual Report furnished to the Commission, herewith. 66
27 Financial Data Schedule 98
* Such exhibit is incorporated by reference to the like titled exhibit in
the Registrant's Form 10-K Annual Report for the year ended December 31,
1998 that was filed with the Commission on March 9, 1999.
** Such exhibit is incorporated by reference to the like titled exhibit in
the Registrant's Form 10-K Annual Report for the year ended December 31,
1997 that was filed with the Commission on March 11, 1998.
30
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") made effective as of the 30th
day of June, 1999 (the "Effective Date") by and between ERIE INDEMNITY COMPANY,
a Pennsylvania corporation with its principal place of business at Erie,
Pennsylvania (the "Company"), and JEFFREY A. LUDROF (the "Executive");
WITNESSETH:
WHEREAS, the Company has determined that it is in the best
interests of the Company and its shareholders to secure the continued employment
of the Executive on the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS, the Executive desires and is willing to accept
employment with the Company on the terms and subject to the conditions set forth
herein;
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Term. The Company hereby agrees to continue the employment
of the Executive and the Executive hereby agrees to continue to serve the
Company pursuant to the terms and conditions of this Agreement as Executive Vice
President of the Company, or in such other position with the Company of at least
commensurate responsibility and authority in all material respects, for a term
commencing on the Effective Date hereof and expiring on December 15, 2000,
unless earlier terminated pursuant to Section 5 hereof. Notwithstanding the
foregoing, the Executive shall serve in said office(s) at the pleasure of the
Company's Board of Directors (the "Board of Directors") and the Executive may be
removed from said office(s) at any time with or without Cause, as hereinafter
defined, pursuant to Sections 5(b) or 5(d) hereof; provided that any such
removal shall be without prejudice to any contract rights the Executive may have
hereunder. Subject to Section 8(a)(6) and Section 8(b) hereof, this Agreement
shall expire by its terms on December 15, 2000.
2. Duties and Responsibilities. The Executive's duties
hereunder shall be those which shall be prescribed by the Company's Bylaws, as
amended from time to time, and by the Board of Directors or any committee
thereof from time to time and shall include such executive authority, duties,
powers and responsibilities as customarily attend the office as Executive Vice
President of a company comparable to the Company. The Executive shall discharge
such duties consistent with sound business practices and in accordance with law
and the Company's general employment policies, in each case, as in effect from
time to time, in all material respects and the Executive shall use best efforts
to promote the best interests of the Company. During the term of this Agreement,
the Executive's position (including the Executive's status and reporting
requirements), authority, duties, powers and responsibilities shall at all times
be at least commensurate in all material respects with the most significant of
those held, exercised or assigned to the Executive as of the Effective Date. The
Executive shall devote the Executive's knowledge, skill and all of the
31
<PAGE>
Executive's professional time, attention and energies (reasonable absences for
vacations and illness excepted), to the business of the Company in order to
perform such assigned duties faithfully, competently and diligently. It is
understood and agreed between the parties that the Executive may (i) engage in
charitable and community activities, including serving on boards of directors or
trustees of and holding other leadership positions in non-profit organizations
unless the objectives and requirements of such positions are determined by the
Board of Directors to be inconsistent with the performance of the Executive's
duties hereunder, and, (ii) manage personal investments, so long as such
activities do not interfere or conflict with the Executive's performance of
responsibilities and obligations hereunder. It is expressly agreed that any such
activities engaged in by the Executive as of the Effective Date shall not
thereafter be deemed to interfere with the Executive's obligations and
responsibilities hereunder. The Executive agrees that the approval of the Board
of Directors or a committee thereof shall be required before the Executive first
accepts a position as director of any for-profit corporation after the date
hereof.
3. Compensation. During the term of this Agreement, the
Executive shall receive, for all services rendered to the Company hereunder,
the following (hereinafter referred to collectively as "Compensation"):
(a) Salary. The Executive shall be paid an annual
base salary at an annual rate at least equal to the annual
rate being paid or payable to the Executive by the Company in
the month in which the Effective Date occurs, with such
increases thereafter as shall be determined from time to time
to be fair and reasonable by the Board of Directors or by the
Executive Compensation Committee of the Board of Directors
(the "Committee") in its discretion after taking into account,
among other things, the authority, duties, powers and
responsibilities of the Executive's position, the Executive's
performance, the Company's performance, the compensation of
persons in comparable positions at the Company and at other
comparable companies, and the effect of inflation. The
Executive's annual base salary shall not be reduced after any
such increase. The Executive's annual base salary shall be
payable in equal installments in accordance with the Company's
general salary payment policies, but no less frequently than
bi-weekly.
(b) Incentive Compensation. The Executive shall be
eligible for awards under the Company's incentive compensation
plans, if any, applicable to senior executive officers of the
Company or to key employees of the Company or its
subsidiaries, including, but not limited to, management
incentive plans and stock option plans, in accordance with and
subject to the terms thereof (including any provisions
providing for changes in the level of or termination of
benefits thereunder), on a basis commensurate with the
Executive's position and authorities, duties, powers and
responsibilities.
(c) Employee Benefit Plans. The Executive and the
Executive's "dependents," as that term may be defined under
the applicable employee benefit plan(s) of the Company, shall
be included, to the extent eligible thereunder and subject to
the terms of the plans (including any provisions for changing
the level of or termination of benefits thereunder), in all
32
<PAGE>
plans, programs and policies which provide benefits for
Company employees and their dependents on a basis commensurate
with the Executive's position and authorities, duties, powers
and responsibilities including, without limitation, health
care insurance, health and welfare plans, pension and
retirement plans, group life insurance plans, split dollar
life insurance plans, short and long-term disability plans,
survivors' benefits, executive supplemental benefits, holidays
and other similar or comparable benefits made available to the
Company's employees and senior executive officers
(hereinafter, such plans, programs and policies shall be
collectively referred to as the "Erie Benefit Plans"). Such
plans, programs and policies shall include, but are not
limited to, the Erie Insurance Group Retirement Plan for
Employees, the Erie Insurance Group Employee Savings Plan, the
Erie Insurance Group Deferred Compensation Plan, the Erie
Insurance Group Split Dollar Life Insurance Plan, the Erie
Insurance Group Supplemental Executive Retirement Plan, and
the Erie Insurance Group Health Protection, Prescription Drug,
Dental Assistance and Vision Care Plans.
(d) Perquisites. The Executive shall be entitled to
all perquisites which the Company from time to time makes
available to senior executive officers of the Company. Such
perquisites shall include, but are not limited to, parking,
club dues, tax preparation assistance, and an annual physical
examination.
(e) Expenses and Working Facilities. The Executive is
hereby authorized to incur, and shall be reimbursed by the
Company for, any and all reasonable and necessary business
related expenses, including, but not limited to, expenses for
business travel, entertainment, gifts and similar matters,
which expenses are incurred by the Executive on behalf of the
Company or any of its subsidiaries, upon presentation of
itemized accounts of such expenses in accordance with Company
policies. The Executive shall be furnished during the term of
this Agreement with offices and other working facilities in
the Company's principal executive offices located in Erie,
Pennsylvania (or other location of the principal executive
offices within the Erie metropolitan area) and secretarial and
other assistance suitable to the Executive's position and
adequate for the performance of duties hereunder.
(f) Performance Appraisal. The Executive's
performance may be evaluated by the Board of Directors or the
Committee from time to time. The Executive shall be entitled
to such additional remuneration, including but not limited to
annual bonuses based on performance, as the Board of Directors
or the Committee may, in its discretion, determine from time
to time.
4. Absences. The Executive shall be entitled to
vacations in accordance with the Company's vacation policy in effect from
time to time (but in no event shall the Executive be entitled to fewer vacation
days than under the Company's vacation policy as in effect on the Effective
Date) and to absences because of illness or other incapacity, and shall also be
entitled to such other absences, whether for holiday, personal time,
conventions, or for any other purpose, as are granted to
the Company's other senior executive officers or as are approved by the Board of
Directors or the Committee, which approval shall not be unreasonably withheld.
33
<PAGE>
5. Termination. The Executive's employment hereunder
may be terminated only as follows:
(a) Expiration of Term of Office. Upon the expiration
of the term of the office(s) to which the Executive has been
elected or appointed as set forth in Section 1 hereof, the
Board of Directors may (i) determine that the Executive should
not continue in such office(s) or (ii) that the Executive
should not be elected or appointed to an office with duties,
authorities, powers and responsibilities that are at least
commensurate with those of said office(s), in either case, for
reasons other than for Cause (if the reasons for such
noncontinuance, nonreelection or nonreappointment constitute
Cause, then Section 5(d) hereof will apply).
(b) By the Company Without Cause. The Company may at
any time terminate the Executive's employment hereunder
without Cause only by the affirmative vote of a majority of
the entire Board of Directors, and upon no less than thirty
(30) days' prior written notice to the Executive.
(c) By the Executive Without Good Reason. The
Executive may at any time terminate employment hereunder for
any reason upon no less than thirty (30) days' written notice
to the Company. Section 5(e) shall apply to any termination of
employment by the Executive for Good Reason.
(d) By the Company For Cause. The Company may
terminate the Executive's employment hereunder for Cause. In
such event, the Company shall give to the Executive prompt
written notice (in addition to any notice which may be
required by Section 5(d)(1) hereof) specifying in reasonable
detail the basis for such termination. For purposes of this
Agreement, "Cause" shall mean any of the following conduct by
the Executive:
(1) The deliberate and intentional
breach of any material provision of
this Agreement, which breach
Executive shall have failed to cure
within thirty (30) days after
Executive's receipt of written
notice from the Company specifying
the specific nature of the
Executive's breach;
(2) The deliberate and intentional
engaging by Executive in gross
misconduct that is materially and
demonstrably inimical to the best
interests, monetary or otherwise, of
the Company; or
(3) Conviction of a felony or conviction
of any crime involving moral
turpitude, fraud or deceit.
34
<PAGE>
For purposes of this definition, no act, or failure to act, on the Executive's
part shall be considered "deliberate and intentional" unless done, or omitted to
be done, by the Executive not in good faith and without reasonable belief that
such action or omission was in the best interest of the Company.
(e) By the Executive for Good Reason. The Executive
may terminate employment hereunder for Good Reason upon
providing thirty (30) days written notice to the Company after
the Executive reasonably becomes aware of the circumstances
giving rise to such Good Reason. For purposes of this
Agreement, "Good Reason" means the following conduct of the
Company, unless the Executive shall have consented thereto in
writing:
(1) Material breach of any material
provision of this Agreement by the
Company, which breach shall not have
been cured by the Company within
thirty (30) days after Company's
receipt from the Executive or the
Executive's agent of written notice
specifying in reasonable detail the
nature of the Company's breach;
(2) The assignment to the Executive of
any duties inconsistent in any
material respect with the
Executive's position (including any
reduction of the Executive's status
and reporting requirements),
authority, duties, powers or
responsibilities with the Company as
contemplated by Section 2 of this
Agreement, or any other action by
the Company, including the removal
of the Executive from or any failure
to reelect or reappoint the
Executive to the office(s) specified
in Section 2 or a commensurate
office(s) (other than for Cause),
which results in a diminution of the
Executive's authority, duties,
position, responsibilities or
status, excluding for this purpose
any isolated, insubstantial and
inadvertent action respecting the
Executive not taken in bad faith and
which is remedied by the Company
within thirty (30) days after
receipt of written notice from the
Executive to the Company;
(3) The Company's relocation of the
Executive out of the Company's
principal executive offices or the
relocation of the Company's
principal executive offices to a
location outside the Erie,
Pennsylvania metropolitan area,
except for required short-term
travel on the Company's behalf to
the extent necessary for the
Executive to carry out his normal
duties in the ordinary course of
business;
(4) The failure of the Company to obtain
the assumption in writing of its
obligations to perform this
Agreement by any successor as
provided in Section 14 hereof not
less than five days prior to a
merger, consolidation or sale as
contemplated in Section 14; or
35
<PAGE>
(5) A reduction in the overall level of
compensation of the Executive. For
purposes of this subsection 5, the
following shall not constitute a
reduction in the overall level of
compensation of the Executive: (i)
changes in the cash/stock mix of
compensation payable to the
Executive; (ii) a reduction in the
overall level of compensation of the
Executive resulting from the failure
to achieve corporate, business unit
and/or individual performance goals
established for purposes of
incentive compensation for any year
or other period; provided that the
aggregate short-term incentive
opportunity, when combined with the
Executive's base salary, provides,
in the aggregate, an opportunity for
the Executive to realize at least
the same overall level of
compensation as was paid in the
immediately prior year or period at
target performance levels; and
provided, further, that such target
performance levels are reasonable at
all times during the measurement
period, taking into account the fact
that one of the purposes of such
compensation is to incent the
Executive; (iii) reductions in
compensation resulting from changes
to any Erie Benefit Plan (provided
that such changes are generally
applicable to all participants in
such Erie Benefit Plan); and (iv)
any combination of the foregoing.
(f) Disability. In the event that the Executive shall
be unable to perform the Executive's duties hereunder on a
full time basis for a period of one hundred-eighty (180)
consecutive calendar days by reason of incapacity due to
illness, accident or other physical or mental disability, then
the Company may, at its discretion, terminate the Executive's
employment hereunder if the Executive, within ten (10) days
after receipt of written notice of termination (which notice
may be given before or after the end of the entire 180 day
period), shall not have returned to the performance of all of
his duties hereunder on a full-time basis.
(g) Death. The Executive's employment under
this Agreement shall terminate upon the Executive's death.
(h) Mutual Written Agreement. This Agreement
and the Executive's employment hereunder may be terminated
at any time by the mutual written agreement of the Executive
and the Company.
36
<PAGE>
6. Compensation in the Event of Termination. In the event that the
Executive's employment hereunder terminates prior to the expiration of this
Agreement for any reason provided in Section 5 hereof, the Company shall pay the
Executive, compensation and provide the Executive and the Executive's eligible
dependents with benefits as follows:
(a) Executive's Nonreelection to Office; Termination
By Company Without Cause; Termination By Executive for Good
Reason. In the event that the Executive's employment hereunder
is terminated: (i) because the Executive does not continue in
office pursuant to Section 5(a) hereof; or (ii) by the Company
without Cause pursuant to Section 5(b) hereof; or (iii) by the
Executive for Good Reason pursuant to Section 5(e) hereof,
then in any such event the Company shall pay or provide, as
applicable, the following compensation and benefits to the
Executive:
(1) Three (3) times the following: (A)
the highest annual base salary paid
or payable to the Executive in the
then current year or any one (1) of
the three (3) calendar years
preceding Executive's termination of
employment hereunder; plus (B) an
amount equal to the sum of the
Executive's highest award(s) under
the Company's Annual Incentive Plans
for any one (1) of the three (3)
calendar years preceding the date of
the termination of Executive's
employment hereunder (such total is
referred to herein as "Covered
Compensation"). Such payment to the
Executive by the Company shall be
paid in a lump sum unless the
Executive elects, and so notifies
the Company in writing prior to the
termination of the Executive's
employment hereunder, to receive
such payment in three (3) equal
annual installments. The lump sum or
first payment, as the case may be,
shall be paid within sixty (60) days
after the date of the termination of
the Executive's employment
hereunder;
(2) Any awards or other compensation to
which the Executive is entitled
under any of the Company's
compensation plans or Erie Benefit
Plans to the extent not covered in
subsection (1) hereof;
(3) Any award to which the Executive
would be entitled under the
Company's Long-Term Incentive Plan
as in effect on December 16, 1997,
calculated under the provision of
that Plan as if the Executive ceases
to be an Employee of the Company by
reason of death, disability or
normal retirement;
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(4) Continuing coverage for all purposes
(including eligibility, coverage,
vesting and benefit accruals, as
applicable), for a period of three
(3) years after the date of the
termination of Executive's
employment hereunder, to the extent
not prohibited by law, for the
Executive and the Executive's
eligible dependents under all of the
Erie Benefit Plans in effect and
applicable to Executive and the
Executive's eligible dependents as
of the date of termination. In the
event that the Executive and/or the
Executive's eligible dependents,
because of the Executive's
terminated status, cannot be covered
or fully covered under any or all of
the Erie Benefit Plans, the Company
shall continue to provide the
Executive and/or the Executive's
eligible dependents with the same
level of such coverage in effect
prior to termination, payable from
the general assets of the Company if
necessary. Notwithstanding the
foregoing, the Executive may elect
(by giving written notice to the
Company prior to the termination of
employment hereunder), on a benefit
by benefit basis, to receive in lieu
of continuing coverage, cash in an
amount equal to the present value
(using a 6.5% discount rate over
three years) of the projected cost
to the Company of providing such
benefit for such three year period.
The aggregate amount of cash to
which the Executive is entitled
pursuant to the preceding sentence
shall be payable by the Company to
the Executive within sixty (60) days
after the date of the termination of
Executive's employment hereunder;
and
(5) For a period of three (3) years
after the date of the termination of
Executive's employment hereunder,
such perquisites as are made
available to the Executive as of the
date of the termination of
Executive's employment hereunder.
The Executive's subsequent death, disability or attainment of age 65 or any
other age shall in no way affect or limit the Company's obligations under this
Section 6(a).
(b) Termination By the Company for Cause. In the
event that the Company shall terminate the Executive's
employment hereunder for Cause pursuant to Section 5(d), this
Agreement shall forthwith terminate and the obligations of the
parties hereto shall be as set forth in Section 8 hereof.
(c) Termination by the Executive Without Good Reason.
In the event that the Executive shall terminate employment
hereunder other than for Good Reason pursuant to Section 5(c),
this Agreement shall forthwith terminate and the obligations
of the parties hereto shall be as set forth in Section 8
hereof.
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(d) Disability. In the event that the Company elects
to terminate the Executive's employment hereunder pursuant to
Section 5(f), the Executive shall continue to receive from the
date of such termination through the expiration date of this
Agreement, sixty percent (60%) of the then current annual base
salary to which the Executive was entitled pursuant to Section
3(a) hereof immediately preceding such termination, in
accordance with the payroll practices of the Company for
senior executive officers, reduced, however, by the amount of
any proceeds from Social Security and disability insurance
policies provided by and at the expense of the Company.
(e) Death. In the event of the death of the Executive
during the term of this Agreement, the then current annual
base salary to which the Executive was entitled pursuant to
Section 3(a) hereof immediately preceding the Executive's
death shall be paid, in twelve (12) equal monthly installments
following the date of death, to the last beneficiary
designated by the Executive under the Company's group life
insurance policy maintained by the Company or such other
written designation expressly provided to the Company for the
purposes hereof or, failing either such designation, to the
Executive's estate.
(f) Mutual Written Consent. In the event that the
Executive and the Company shall terminate the Executive's
employment by mutual written agreement, the Company shall pay
such compensation and provide such benefits, if any, as the
parties may mutually agree upon in writing.
The Executive shall not be required to mitigate the amount of any payment
provided for in this Section 6 by seeking employment or otherwise, nor shall any
amounts received from employment or otherwise by the Executive offset in any
manner the obligations of the Company hereunder except as specifically provided
in Section 6(d) hereof.
7. Certain Additional Payments by the Company. Notwithstanding
anything in this Agreement to the contrary, in the event it is determined that
any payment or distribution by the Company to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (a "Payment"), is subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any successor provision, on excess parachute payments, as that
term is used and defined in Sections 4999 and 280G of the Code, then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount equal to the then current rate of tax under said Section
4999 multiplied by the total of the amounts so paid or payable, including the
Gross-Up Payment, which are deemed to be a part of an excess parachute payment.
8. Effect of Expiration of Agreement or Termination of
Executive's Employment. Upon the expiration of this Agreement by its terms or
the termination of the Executive's employment hereunder, neither the Company nor
the Executive shall have any remaining duties or obligations hereunder except
that:
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(a) The Company shall:
(1) Pay the Executive's accrued salary
and any other accrued benefits under
Sections 3(a), (b), and (c) hereof;
(2) Reimburse the Executive for expenses
already incurred in accordance with
Section 3(e) hereof;
(3) Pay or otherwise provide for any
benefits, payments or continuation
or conversion rights in accordance
with the provisions of any Erie
Benefit Plan of which the Executive
or any of the Executive's dependents
is or was a participant or as
otherwise required by law;
(4) Pay the Executive and the
Executive's beneficiaries any
compensation and/or provide the
Executive or the Executive's
eligible dependents any benefits, as
the case may be, due pursuant to
Section 6 or Section 7 hereof; and
(5) Unless the employment of the
Executive is terminated by the
Company for Cause, pay the Executive
or the Executive's beneficiaries the
full amount or amounts accrued under
the Supplemental Executive
Retirement Plan of the Company (the
"SERP") as in effect on the
Effective Date (or as such benefits
may be enhanced by subsequent
amendments or supplements to such
SERP), as though, solely for
purposes of determining any
otherwise applicable actuarial
reduction factors, the event of the
termination of Executive's
employment hereunder or expiration
of this Agreement occurred on the
Executive's Normal Retirement Date
as defined in such SERP. Accrued
benefits under the SERP shall be
fully vested and nonforfeitable upon
such termination (including
termination on account of the
Executive's death) or expiration.
Any reductions in SERP benefits that
would otherwise apply pursuant to
Section 10.1 of the Company's
Retirement Plan for Employees (or
pursuant to any successor provision
of such plan or any successor plan)
relating to Section 415(b) of the
Code shall not be applicable for
purposes hereof. No further approval
by the Board of Directors or the
Committee with respect to payments
under the SERP in accordance with
the preceding sentences shall be
required. Unreduced payments may
begin at age 55, but in no event
would payments be made under this
Section 8(a)(5) before the Executive
reaches age fifty-five (55). The
Company shall purchase for the
Executive, naming the Executive
and/or the Executive's designee the
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owner, a paid up annuity, from an
insurer reasonably acceptable to the
Executive but in any event having an
A.M. Best rating of A+ or better (or
other comparable rating), that will
pay to the Executive an amount equal
to the benefit to which the
Executive would otherwise be
entitled under the SERP and payable
at the times such SERP benefit would
be payable in accordance with the
provisions hereof. Upon the purchase
and delivery to the Executive of
such an annuity, the Executive shall
release the Company from any further
obligation under the SERP. The
Company further agrees to pay the
Executive immediately upon
termination, a cash payment (the
"Tax Gross-up") equal to the sum of
the following: (i) all taxes
(federal, state, local, and payroll
taxes) incurred and due and owing by
the Executive, arising from the cost
of the annuity purchased by the
Company to meet the requirements of
this Section 8(a)(5), and (ii) any
such taxes incurred and due and
owing with respect to the amount
paid in (i).
(6) Continue to remain bound by the
terms of Section 12 hereof.
(b) The Executive shall remain bound by the terms of
Sections 9 and 13 hereof for a period of thirty six (36)
months after the expiration of the Agreement by its terms;
provided, that the Executive shall not be bound by the terms
of Section 9(b) after the termination of employment (other
than a termination of the Executive by the Company for Cause)
if such termination occurs after the expiration of this
Agreement by its terms.
9. Covenants as to Confidential Information and Competitive
Conduct. The Executive hereby acknowledges and agrees as follows: (i) this
Section 9 is necessary for the protection of the legitimate business interests
of the Company, (ii) the restrictions contained in this Section 9 with regard to
geographical scope, length of term and types of restricted activities are
reasonable; (iii) the Executive has received adequate and valuable new
consideration for entering into this Agreement, and (iv) the Executive's
expertise and capabilities are such that this obligation hereunder and the
enforcement hereof by injunction or otherwise will not adversely affect the
Executive's ability to earn a livelihood.
(a) Confidentiality of Information and Nondisclosure.
The Executive acknowledges and agrees that the Executive's
employment by the Company under this Agreement necessarily
involves knowledge of and access to confidential and
proprietary information pertaining to the business of the
Company and its subsidiaries. Accordingly, the Executive
agrees that at all times during the term of this Agreement and
at any time thereafter, the Executive will not, directly or
indirectly, without the express written approval of the
Company, unless directed by applicable legal authority
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(including any court of competent jurisdiction, governmental
agency having supervisory authority over the business of the
Company or the subsidiaries, or any legislative or
administrative body having supervisory authority over the
business of the Company or its subsidiaries) having
jurisdiction over the Executive, disclose to or use, or
knowingly permit to be so disclosed or used, for the benefit
of himself, any person, corporation or other entity other than
the Company, (i) any information concerning any financial
matters, customer relationships, competitive status, supplier
matters, internal organizational matters, current or future
plans, or other business affairs of or relating to the Company
or its subsidiaries, (ii) any management, operational, trade,
technical or other secrets or any other proprietary
information or other data of the Company or its subsidiaries,
or (iii) any other information related to the Company or its
subsidiaries or which the Executive should reasonably believe
will be damaging to the Company or its subsidiaries which has
not been published and is not generally known outside of the
Company. The Executive acknowledges that all of the foregoing
constitutes confidential and proprietary information, which is
the exclusive property of the Company.
(b) Restrictive Covenant. During the term of, and for
a period of one (1) year (the "Restrictive Period") after the
termination of the Executive's employment hereunder for any
reason (other than a termination of the Executive hereunder
pursuant to Section 5(a), 5(b) or 5(e), hereof), the Executive
shall not render, directly, or indirectly, services to any
person, firm, corporation, association or other entity which
conducts the same or similar business as the Company or its
subsidiaries at the date of the Executive's termination of
employment hereunder within the states in which the Company or
any of its subsidiaries is then licensed and doing business at
the date of the Executive's termination of employment
hereunder without the prior written consent of the Board of
Directors, which may be withheld in its discretion. In the
event the Executive violates any of the provisions contained
in this Section 9(b) hereof, the Restrictive Period shall be
increased by the period of time from the commencement by the
Executive of any violation until such violation has been cured
to the satisfaction of the Company. The Executive further
agrees that at no time during the Restrictive Period will the
Executive attempt to directly or indirectly solicit or hire
employees of Company or its subsidiaries or induce any of them
to terminate their employment with the Company or any of the
subsidiaries. Notwithstanding the foregoing, the performance
by the Executive of rights and duties under an agency
agreement with the Company shall not constitute a breach of
this Section 9(b).
(c) Company Remedies. The Executive acknowledges and
agrees that any breach of this Section 9 will result in
immediate and irreparable harm to the Company, and that the
Company cannot be reasonably or adequately compensated by
damages in an action at law. In the event of a breach by the
Executive of the provisions of this Section 9, the Company
shall be entitled, to the extent permitted by law, immediately
to cease to pay or provide the Executive or the Executive's
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dependents any compensation or benefit being, or to be, paid
or provided to the Executive pursuant to Section 3, Section 6
or Section 8 of this Agreement, and also to obtain immediate
injunctive relief restraining the Executive from conduct in
breach of the covenants contained in this Section 9. Nothing
herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach,
including the recovery of damages from the Executive.
10. Resolution of Differences Over Breaches of Agreement.
Except as otherwise provided herein, in the event of any controversy, dispute or
claim arising out of, or relating to, this Agreement, or the breach thereof, or
arising out of any other matter relating to the Executive's employment with the
Company, the parties may seek recourse only for temporary or preliminary
injunctive relief to the courts having jurisdiction thereof and if any relief
other than injunctive relief is sought, the Company and the Executive agree that
such underlying controversy, dispute or claim shall be settled by arbitration
conducted in Erie, Pennsylvania in accordance with this Section 10 and the
Commercial Arbitration Rules of the American Arbitration Association ("AAA").
The matter shall be heard and decided, and awards rendered by a panel of three
(3) arbitrators (the "Arbitration Panel"). The Company and the Executive shall
each select one arbitrator from the AAA National Panel of Commercial Arbitrators
(the "Commercial Panel") and AAA shall select a third arbitrator from the
Commercial Panel. The award rendered by the Arbitration Panel shall be final and
binding as between the parties hereto and their heirs, executors,
administrators, successors and assigns, and judgment on the award may be entered
by any court having jurisdiction thereof. Except as provided in Section 11
hereof, each party shall bear sole responsibility for all expenses and costs
incurred by such party in connection with the resolution of any controversy,
dispute or claim in accordance with this Section 10.
11. Payment of Executive's Legal Fees. If the Executive is
required to bring any action to enforce rights or to collect moneys due under
this Agreement, the Company shall pay to the Executive the fees and expenses
incurred by the Executive in bringing and pursuing such action if the Executive
is successful, in whole or in part, on the merits or otherwise (including by way
of a settlement involving a payment of money by the Company to the Executive),
in such action. The Company shall pay such fees and expenses in advance of the
final disposition of such action upon receipt of an undertaking from the
Executive to repay to the Company such advances if the Executive is not
ultimately successful, in whole or in part, on the merits or otherwise, in such
action.
12. Severance Pay upon Termination of Employment after
Expiration of the Agreement. Notwithstanding the expiration of this Agreement by
its terms and notwithstanding the terms of any corporate severance policy then
in effect and applicable to the Executive, if the employment of the Executive is
terminated without Cause by the Company, by the Executive for Good Reason or
upon the expiration of the term of the office(s) to which the Executive has been
elected or appointed as set forth in Section 1 hereof (for reasons other than
for Cause), in any case, within thirty-six (36) months after the expiration of
this Agreement by its terms, then (i) the Company shall pay to the Executive
severance compensation in an amount equal to two (2) times the Executive's
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Covered Compensation as determined on the date of such termination, and (ii) the
Executive and the Executive's eligible dependents shall be entitled to
continuing coverage under the Company's then-existing group health plans
(including medical, dental, prescription drug and vision plans, if any) for a
period of two (2) years after the date of the termination of the Executive's
employment, to the extent not prohibited by law and subject to the terms of such
plans including provisions as to deductibles and copayments and changes in
levels of coverage that are generally applicable to employees. The payment to
the Executive by the Company pursuant to subsection (i) of the preceding
sentence shall be paid in a lump sum unless the Executive elects, and so
notifies the Company in writing prior to the Executive's termination of
employment, to receive such payment in two (2) equal annual installments. The
lump sum or first payment, as the case may be, shall be paid within thirty (30)
days after the date of termination of the Executive's employment.
13. Release. The Executive hereby acknowledges and agrees that
neither the Company nor any of its representatives or agents will be obligated
to pay any compensation or benefit which the Executive has a right to be paid or
provided to the Executive or the Executive's dependents pursuant to Section 6,
Section 8 or Section 12 of this Agreement, unless the Executive, if requested by
the Company in its sole discretion, executes a release in a form reasonably
acceptable to the Company, which releases any and all claims the Executive has
or may have against the Company or its subsidiaries, agents, officers,
directors, successors or assigns.
14. Waiver. The waiver by a party hereto of any breach
by the other party hereto of any provision of this Agreement shall not operate
or be construed as a waiver of any other or subsequent breach by a party hereto.
15. Assignment. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company, and the Company
shall be obligated to require any successor to expressly acknowledge and assume
its obligations hereunder. This Agreement shall inure to the extent provided
hereunder to the benefit of and be enforceable by the Executive or the
Executive's legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. The Executive may not delegate any of the
Executive's duties, responsibilities, obligations or positions hereunder to any
person and any such purported delegation shall be void and of no force and
effect.
16. Notices. Any notices required or permitted to be given
under this Agreement shall be sufficient if in writing, and if personally
delivered or when sent by first class certified or registered mail, postage
prepaid, return receipt requested--in the case of the Executive, to his
residence address as set forth below, and in the case of the Company, to the
address of its principal place of business as set forth below, to the attention
of the Chairman of the Board, or in case the Executive is the Chairman of the
Board, to the Chairman of the Compensation Committee of the Board -- or to such
other person or at such other address with respect to each party as such party
shall notify the other in writing.
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17. Construction of Agreement.
(a) Governing Law. This Agreement shall be governed
by and construed under the laws of the Commonwealth of
Pennsylvania.
(b) Severability. In the event that any one or more
of the provisions of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions shall not in any
way be affected or impaired thereby.
(c) Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience of
reference only and shall not constitute a part of this
Agreement.
18. Entire Agreement. This Agreement contains the entire
agreement of the parties concerning the Executive's employment and all promises,
representations, understandings, arrangements and prior agreements on such
subject are merged herein and superseded hereby. The provisions of this
Agreement may not be amended, modified, repealed, waived, extended or discharged
except by an agreement in writing signed by the party against whom enforcement
of any amendment, modification, repeal, waiver, extension or discharge is
sought. No person acting other than pursuant to a resolution of the Board of
Directors or the Committee shall have authority on behalf of the Company to
agree to amend, modify, repeal, waive, extend or discharge any provision of this
Agreement or anything in reference thereto or to exercise any of the Company's
rights to terminate or to fail to extend this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
officers thereunto duly authorized, and the Executive has hereunto set his hand
all as of the day and year first above written.
ATTEST: ERIE INDEMNITY COMPANY
/s/ J. R. Van Gorder By: /s/ F. William Hirt
J. R. Van Gorder F. William Hirt
Secretary Chairman of the Board
WITNESS:
/s/ Deborah Miller /s/ Jeffrey A. Ludrof
Deborah Miller Jeffrey A. Ludrof
Executive Secretary 170 Gateway Drive
Fairview, PA 16415
45
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") made effective as of the 15th
day of December, 1999 (the "Effective Date") by and between ERIE INDEMNITY
COMPANY, a Pennsylvania corporation with its principal place of business at
Erie, Pennsylvania (the "Company"), and DOUGLAS F. ZIEGLER (the "Executive");
WITNESSETH:
WHEREAS, the Company has determined that it is in the best
interests of the Company and its shareholders to secure the continued employment
of the Executive on the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS, the Executive desires and is willing to accept
employment with the Company on the terms and subject to the conditions set forth
herein;
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Term. The Company hereby agrees to continue the employment
of the Executive and the Executive hereby agrees to continue to serve the
Company pursuant to the terms and conditions of this Agreement as Senior Vice
President of the Company, or in such other position with the Company of at least
commensurate responsibility and authority in all material respects, for a term
commencing on the Effective Date hereof and expiring on December 15, 2001,
unless earlier terminated pursuant to Section 5 hereof. Notwithstanding the
foregoing, the Executive shall serve in said office(s) at the pleasure of the
Company's Board of Directors (the "Board of Directors") and the Executive may be
removed from said office(s) at any time with or without Cause, as hereinafter
defined, pursuant to Sections 5(b) or 5(d) hereof; provided that any such
removal shall be without prejudice to any contract rights the Executive may have
hereunder. Subject to Section 8(a)(6) and Section 8(b) hereof, this Agreement
shall expire by its terms on December 15, 2001.
2. Duties and Responsibilities. The Executive's duties
hereunder shall be those which shall be prescribed by the Company's Bylaws, as
amended from time to time, and by the Board of Directors or any committee
thereof from time to time and shall include such executive authority, duties,
powers and responsibilities as customarily attend the office as Executive Vice
President of a company comparable to the Company. The Executive shall discharge
such duties consistent with sound business practices and in accordance with law
and the Company's general employment policies, in each case, as in effect from
time to time, in all material respects and the Executive shall use best efforts
to promote the best interests of the Company. During the term of this Agreement,
the Executive's position (including the Executive's status and reporting
requirements), authority, duties, powers and responsibilities shall at all times
be at least commensurate in all material respects with the most significant of
those held, exercised or assigned to the Executive as of the Effective Date. The
Executive shall devote the Executive's knowledge, skill and all of the
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Executive's professional time, attention and energies (reasonable absences for
vacations and illness excepted), to the business of the Company in order to
perform such assigned duties faithfully, competently and diligently. It is
understood and agreed between the parties that the Executive may (i) engage in
charitable and community activities, including serving on boards of directors or
trustees of and holding other leadership positions in non-profit organizations
unless the objectives and requirements of such positions are determined by the
Board of Directors to be inconsistent with the performance of the Executive's
duties hereunder, and, (ii) manage personal investments, so long as such
activities do not interfere or conflict with the Executive's performance of
responsibilities and obligations hereunder. It is expressly agreed that any such
activities engaged in by the Executive as of the Effective Date shall not
thereafter be deemed to interfere with the Executive's obligations and
responsibilities hereunder. The Executive agrees that the approval of the Board
of Directors or a committee thereof shall be required before the Executive first
accepts a position as director of any for-profit corporation after the date
hereof.
3. Compensation. During the term of this Agreement, the
Executive shall receive, for all services rendered to the Company hereunder, the
following (hereinafter referred to collectively as "Compensation"):
(a) Salary. The Executive shall be paid an annual
base salary at an annual rate at least equal to the annual
rate being paid or payable to the Executive by the Company in
the month in which the Effective Date occurs, with such
increases thereafter as shall be determined from time to time
to be fair and reasonable by the Board of Directors or by the
Executive Compensation Committee of the Board of Directors
(the "Committee") in its discretion after taking into account,
among other things, the authority, duties, powers and
responsibilities of the Executive's position, the Executive's
performance, the Company's performance, the compensation of
persons in comparable positions at the Company and at other
comparable companies, and the effect of inflation. The
Executive's annual base salary shall not be reduced after any
such increase. The Executive's annual base salary shall be
payable in equal installments in accordance with the Company's
general salary payment policies, but no less frequently than
bi-weekly.
(b) Incentive Compensation. The Executive shall be
eligible for awards under the Company's incentive compensation
plans, if any, applicable to senior executive officers of the
Company or to key employees of the Company or its
subsidiaries, including, but not limited to, management
incentive plans and stock option plans, in accordance with and
subject to the terms thereof (including any provisions
providing for changes in the level of or termination of
benefits thereunder), on a basis commensurate with the
Executive's position and authorities, duties, powers and
responsibilities.
(c) Employee Benefit Plans. The Executive and the
Executive's "dependents," as that term may be defined under
the applicable employee benefit plan(s) of the Company, shall
be included, to the extent eligible thereunder and subject to
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the terms of the plans (including any provisions for changing
the level of or termination of benefits thereunder), in all
plans, programs and policies which provide benefits for
Company employees and their dependents on a basis commensurate
with the Executive's position and authorities, duties, powers
and responsibilities including, without limitation, health
care insurance, health and welfare plans, pension and
retirement plans, group life insurance plans, split dollar
life insurance plans, short and long-term disability plans,
survivors' benefits, executive supplemental benefits, holidays
and other similar or comparable benefits made available to the
Company's employees and senior executive officers
(hereinafter, such plans, programs and policies shall be
collectively referred to as the "Erie Benefit Plans"). Such
plans, programs and policies shall include, but are not
limited to, the Erie Insurance Group Retirement Plan for
Employees, the Erie Insurance Group Employee Savings Plan, the
Erie Insurance Group Deferred Compensation Plan, the Erie
Insurance Group Split Dollar Life Insurance Plan, the Erie
Insurance Group Supplemental Executive Retirement Plan, and
the Erie Insurance Group Health Protection, Prescription Drug,
Dental Assistance and Vision Care Plans.
(d) Perquisites. The Executive shall be entitled to
all perquisites which the Company from time to time makes
available to senior executive officers of the Company. Such
perquisites shall include, but are not limited to, parking,
club dues, tax preparation assistance, and an annual physical
examination.
(e) Expenses and Working Facilities. The Executive is
hereby authorized to incur, and shall be reimbursed by the
Company for, any and all reasonable and necessary business
related expenses, including, but not limited to, expenses for
business travel, entertainment, gifts and similar matters,
which expenses are incurred by the Executive on behalf of the
Company or any of its subsidiaries, upon presentation of
itemized accounts of such expenses in accordance with Company
policies. The Executive shall be furnished during the term of
this Agreement with offices and other working facilities in
the Company's principal executive offices located in Erie,
Pennsylvania (or other location of the principal executive
offices within the Erie metropolitan area) and secretarial and
other assistance suitable to the Executive's position and
adequate for the performance of duties hereunder.
(f) Performance Appraisal. The Executive's
performance may be evaluated by the Board of Directors or the
Committee from time to time. The Executive shall be entitled
to such additional remuneration, including but not limited to
annual bonuses based on performance, as the Board of Directors
or the Committee may, in its discretion, determine from time
to time.
4. Absences. The Executive shall be entitled to vacations in
accordance with the Company's vacation policy in effect from time to time (but
in no event shall the Executive be entitled to fewer vacation days than under
the Company's vacation policy as in effect on the Effective Date) and to
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absences because of illness or other incapacity, and shall also be entitled to
such other absences, whether for holiday, personal time, conventions, or for any
other purpose, as are granted to the Company's other senior executive officers
or as are approved by the Board of Directors or the Committee, which approval
shall not be unreasonably withheld.
5. Termination. The Executive's employment hereunder
may be terminated only as follows:
(a) Expiration of Term of Office. Upon the expiration
of the term of the office(s) to which the Executive has been
elected or appointed as set forth in Section 1 hereof, the
Board of Directors may (i) determine that the Executive should
not continue in such office(s) or (ii) that the Executive
should not be elected or appointed to an office with duties,
authorities, powers and responsibilities that are at least
commensurate with those of said office(s), in either case, for
reasons other than for Cause (if the reasons for such
noncontinuance, nonreelection or nonreappointment constitute
Cause, then Section 5(d) hereof will apply).
(b) By the Company Without Cause. The Company may at
any time terminate the Executive's employment hereunder
without Cause only by the affirmative vote of a majority of
the entire Board of Directors, and upon no less than thirty
(30) days' prior written notice to the Executive.
(c) By the Executive Without Good Reason. The
Executive may at any time terminate employment hereunder for
any reason upon no less than thirty (30) days' written notice
to the Company. Section 5(e) shall apply to any termination of
employment by the Executive for Good Reason.
(d) By the Company For Cause. The Company may
terminate the Executive's employment hereunder for Cause. In
such event, the Company shall give to the Executive prompt
written notice (in addition to any notice which may be
required by Section 5(d)(1) hereof) specifying in reasonable
detail the basis for such termination. For purposes of this
Agreement, "Cause" shall mean any of the following conduct by
the Executive:
(1) The deliberate and intentional
breach of any material provision of
this Agreement, which breach
Executive shall have failed to cure
within thirty (30) days after
Executive's receipt of written
notice from the Company specifying
the specific nature of the
Executive's breach;
(2) The deliberate and intentional
engaging by Executive in gross
misconduct that is materially and
demonstrably inimical to the best
interests, monetary or otherwise, of
the Company; or
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(3) Conviction of a felony or conviction
of any crime involving moral
turpitude, fraud or deceit.
For purposes of this definition, no act, or failure to act, on the Executive's
part shall be considered "deliberate and intentional" unless done, or omitted to
be done, by the Executive not in good faith and without reasonable belief that
such action or omission was in the best interest of the Company.
(e) By the Executive for Good Reason. The Executive
may terminate employment hereunder for Good Reason upon
providing thirty (30) days written notice to the Company after
the Executive reasonably becomes aware of the circumstances
giving rise to such Good Reason. For purposes of this
Agreement, "Good Reason" means the following conduct of the
Company, unless the Executive shall have consented thereto in
writing:
(1) Material breach of any material
provision of this Agreement by the
Company, which breach shall not have
been cured by the Company within
thirty (30) days after Company's
receipt from the Executive or the
Executive's agent of written notice
specifying in reasonable detail the
nature of the Company's breach;
(2) The assignment to the Executive of
any duties inconsistent in any
material respect with the
Executive's position (including any
reduction of the Executive's status
and reporting requirements),
authority, duties, powers or
responsibilities with the Company as
contemplated by Section 2 of this
Agreement, or any other action by
the Company, including the removal
of the Executive from or any failure
to reelect or reappoint the
Executive to the office(s) specified
in Section 2 or a commensurate
office(s) (other than for Cause),
which results in a diminution of the
Executive's authority, duties,
position, responsibilities or
status, excluding for this purpose
any isolated, insubstantial and
inadvertent action respecting the
Executive not taken in bad faith and
which is remedied by the Company
within thirty (30) days after
receipt of written notice from the
Executive to the Company;
(3) The Company's relocation of the
Executive out of the Company's
principal executive offices or the
relocation of the Company's
principal executive offices to a
location outside the Erie,
Pennsylvania metropolitan area,
except for required short-term
travel on the Company's behalf to
the extent necessary for the
Executive to carry out his normal
duties in the ordinary course of
business;
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(4) The failure of the Company to obtain
the assumption in writing of its
obligations to perform this
Agreement by any successor as
provided in Section 14 hereof not
less than five days prior to a
merger, consolidation or sale as
contemplated in Section 14; or
(5) A reduction in the overall level of
compensation of the Executive. For
purposes of this subsection 5, the
following shall not constitute a
reduction in the overall level of
compensation of the Executive: (i)
changes in the cash/stock mix of
compensation payable to the
Executive; (ii) a reduction in the
overall level of compensation of the
Executive resulting from the failure
to achieve corporate, business unit
and/or individual performance goals
established for purposes of
incentive compensation for any year
or other period; provided that the
aggregate short-term incentive
opportunity, when combined with the
Executive's base salary, provides,
in the aggregate, an opportunity for
the Executive to realize at least
the same overall level of
compensation as was paid in the
immediately prior year or period at
target performance levels; and
provided, further, that such target
performance levels are reasonable at
all times during the measurement
period, taking into account the fact
that one of the purposes of such
compensation is to incent the
Executive; (iii) reductions in
compensation resulting from changes
to any Erie Benefit Plan (provided
that such changes are generally
applicable to all participants in
such Erie Benefit Plan); and (iv)
any combination of the foregoing.
(f) Disability. In the event that the Executive shall
be unable to perform the Executive's duties hereunder on a
full time basis for a period of one hundred-eighty (180)
consecutive calendar days by reason of incapacity due to
illness, accident or other physical or mental disability, then
the Company may, at its discretion, terminate the Executive's
employment hereunder if the Executive, within ten (10) days
after receipt of written notice of termination (which notice
may be given before or after the end of the entire 180 day
period), shall not have returned to the performance of all of
his duties hereunder on a full-time basis.
(g) Death. The Executive's employment under
this Agreement shall terminate upon the Executive's death.
(h) Mutual Written Agreement. This Agreement
and the Executive's employment hereunder may be terminated at any time by
the mutual written agreement of the Executive and the Company.
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6. Compensation in the Event of Termination. In the event that the
Executive's employment hereunder terminates prior to the expiration of this
Agreement for any reason provided in Section 5 hereof, the Company shall pay the
Executive, compensation and provide the Executive and the Executive's eligible
dependents with benefits as follows:
(a) Executive's Nonreelection to Office; Termination
By Company Without Cause; Termination By Executive for Good
Reason. In the event that the Executive's employment hereunder
is terminated: (i) because the Executive does not continue in
office pursuant to Section 5(a) hereof; or (ii) by the Company
without Cause pursuant to Section 5(b) hereof; or (iii) by the
Executive for Good Reason pursuant to Section 5(e) hereof,
then in any such event the Company shall pay or provide, as
applicable, the following compensation and benefits to the
Executive:
(1) Three (3) times the following: (A)
the highest annual base salary paid
or payable to the Executive in the
then current year or any one (1) of
the three (3) calendar years
preceding Executive's termination of
employment hereunder; plus (B) an
amount equal to the sum of the
Executive's highest award(s) under
the Company's Annual Incentive Plans
for any one (1) of the three (3)
calendar years preceding the date of
the termination of Executive's
employment hereunder (such total is
referred to herein as "Covered
Compensation"). Such payment to the
Executive by the Company shall be
paid in a lump sum unless the
Executive elects, and so notifies
the Company in writing prior to the
termination of the Executive's
employment hereunder, to receive
such payment in three (3) equal
annual installments. The lump sum or
first payment, as the case may be,
shall be paid within sixty (60) days
after the date of the termination of
the Executive's employment
hereunder;
(2) Any awards or other compensation to
which the Executive is entitled
under any of the Company's
compensation plans or Erie Benefit
Plans to the extent not covered in
subsection (1) hereof;
(3) Any award to which the Executive
would be entitled under the
Company's Long-Term Incentive Plan
as in effect on December 16, 1997,
calculated under the provision of
that Plan as if the Executive ceases
to be an Employee of the Company by
reason of death, disability or
normal retirement;
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(4) Continuing coverage for all purposes
(including eligibility, coverage,
vesting and benefit accruals, as
applicable), for a period of three
(3) years after the date of the
termination of Executive's
employment hereunder, to the extent
not prohibited by law, for the
Executive and the Executive's
eligible dependents under all of the
Erie Benefit Plans in effect and
applicable to Executive and the
Executive's eligible dependents as
of the date of termination. In the
event that the Executive and/or the
Executive's eligible dependents,
because of the Executive's
terminated status, cannot be covered
or fully covered under any or all of
the Erie Benefit Plans, the Company
shall continue to provide the
Executive and/or the Executive's
eligible dependents with the same
level of such coverage in effect
prior to termination, payable from
the general assets of the Company if
necessary. Notwithstanding the
foregoing, the Executive may elect
(by giving written notice to the
Company prior to the termination of
employment hereunder), on a benefit
by benefit basis, to receive in lieu
of continuing coverage, cash in an
amount equal to the present value
(using a 6.5% discount rate over
three years) of the projected cost
to the Company of providing such
benefit for such three year period.
The aggregate amount of cash to
which the Executive is entitled
pursuant to the preceding sentence
shall be payable by the Company to
the Executive within sixty (60) days
after the date of the termination of
Executive's employment hereunder;
and
(5) For a period of three (3) years
after the date of the termination of
Executive's employment hereunder,
such perquisites as are made
available to the Executive as of the
date of the termination of
Executive's employment hereunder.
The Executive's subsequent death, disability or attainment of age 65 or any
other age shall in no way affect or limit the Company's obligations under this
Section 6(a).
(b) Termination By the Company for Cause. In the
event that the Company shall terminate the Executive's
employment hereunder for Cause pursuant to Section 5(d), this
Agreement shall forthwith terminate and the obligations of the
parties hereto shall be as set forth in Section 8 hereof.
(c) Termination by the Executive Without Good Reason.
In the event that the Executive shall terminate employment
hereunder other than for Good Reason pursuant to Section 5(c),
this Agreement shall forthwith terminate and the obligations
of the parties hereto shall be as set forth in Section 8
hereof.
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(d) Disability. In the event that the Company elects
to terminate the Executive's employment hereunder pursuant to
Section 5(f), the Executive shall continue to receive from the
date of such termination through the expiration date of this
Agreement, sixty percent (60%) of the then current annual base
salary to which the Executive was entitled pursuant to Section
3(a) hereof immediately preceding such termination, in
accordance with the payroll practices of the Company for
senior executive officers, reduced, however, by the amount of
any proceeds from Social Security and disability insurance
policies provided by and at the expense of the Company.
(e) Death. In the event of the death of the Executive
during the term of this Agreement, the then current annual
base salary to which the Executive was entitled pursuant to
Section 3(a) hereof immediately preceding the Executive's
death shall be paid, in twelve (12) equal monthly installments
following the date of death, to the last beneficiary
designated by the Executive under the Company's group life
insurance policy maintained by the Company or such other
written designation expressly provided to the Company for the
purposes hereof or, failing either such designation, to the
Executive's estate.
(f) Mutual Written Consent. In the event that the
Executive and the Company shall terminate the Executive's
employment by mutual written agreement, the Company shall pay
such compensation and provide such benefits, if any, as the
parties may mutually agree upon in writing.
The Executive shall not be required to mitigate the amount of any payment
provided for in this Section 6 by seeking employment or otherwise, nor shall any
amounts received from employment or otherwise by the Executive offset in any
manner the obligations of the Company hereunder except as specifically provided
in Section 6(d) hereof.
7. Certain Additional Payments by the Company. Notwithstanding
anything in this Agreement to the contrary, in the event it is determined that
any payment or distribution by the Company to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (a "Payment"), is subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any successor provision, on excess parachute payments, as that
term is used and defined in Sections 4999 and 280G of the Code, then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount equal to the then current rate of tax under said Section
4999 multiplied by the total of the amounts so paid or payable, including the
Gross-Up Payment, which are deemed to be a part of an excess parachute payment.
8. Effect of Expiration of Agreement or Termination of
Executive's Employment. Upon the expiration of this Agreement by its terms or
the termination of the Executive's employment hereunder, neither the Company nor
the Executive shall have any remaining duties or obligations hereunder except
that:
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(a) The Company shall:
(1) Pay the Executive's accrued salary
and any other accrued benefits under
Sections 3(a), (b), and (c) hereof;
(2) Reimburse the Executive for expenses
already incurred in accordance with
Section 3(e) hereof;
(3) Pay or otherwise provide for any
benefits, payments or continuation
or conversion rights in accordance
with the provisions of any Erie
Benefit Plan of which the Executive
or any of the Executive's dependents
is or was a participant or as
otherwise required by law;
(4) Pay the Executive and the
Executive's beneficiaries any
compensation and/or provide the
Executive or the Executive's
eligible dependents any benefits, as
the case may be, due pursuant to
Section 6 or Section 7 hereof; and
(5) Unless the employment of the
Executive is terminated by the
Company for Cause, pay the Executive
or the Executive's beneficiaries the
full amount or amounts accrued under
the Supplemental Executive
Retirement Plan of the Company (the
"SERP") as in effect on the
Effective Date (or as such benefits
may be enhanced by subsequent
amendments or supplements to such
SERP), as though, solely for
purposes of determining any
otherwise applicable actuarial
reduction factors, the event of the
termination of Executive's
employment hereunder or expiration
of this Agreement occurred on the
Executive's Normal Retirement Date
as defined in such SERP. Accrued
benefits under the SERP shall be
fully vested and nonforfeitable upon
such termination (including
termination on account of the
Executive's death) or expiration.
Any reductions in SERP benefits that
would otherwise apply pursuant to
Section 10.1 of the Company's
Retirement Plan for Employees (or
pursuant to any successor provision
of such plan or any successor plan)
relating to Section 415(b) of the
Code shall not be applicable for
purposes hereof. No further approval
by the Board of Directors or the
Committee with respect to payments
under the SERP in accordance with
the preceding sentences shall be
required. Unreduced payments may
begin at age 55, but in no event
would payments be made under this
Section 8(a)(5) before the Executive
reaches age fifty-five (55). The
Company shall purchase for the
Executive, naming the Executive
and/or the Executive's designee the
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owner, a paid up annuity, from an
insurer reasonably acceptable to the
Executive but in any event having an
A.M. Best rating of A+ or better (or
other comparable rating), that will
pay to the Executive an amount equal
to the benefit to which the
Executive would otherwise be
entitled under the SERP and payable
at the times such SERP benefit would
be payable in accordance with the
provisions hereof. Upon the purchase
and delivery to the Executive of
such an annuity, the Executive shall
release the Company from any further
obligation under the SERP. The
Company further agrees to pay the
Executive immediately upon
termination, a cash payment (the
"Tax Gross-up") equal to the sum of
the following: (i) all taxes
(federal, state, local, and payroll
taxes) incurred and due and owing by
the Executive, arising from the cost
of the annuity purchased by the
Company to meet the requirements of
this Section 8(a)(5), and (ii) any
such taxes incurred and due and
owing with respect to the amount
paid in (i).
(6) Continue to remain bound by the
terms of Section 12 hereof.
(b) The Executive shall remain bound by the terms of
Sections 9 and 13 hereof for a period of thirty six (36)
months after the expiration of the Agreement by its terms;
provided, that the Executive shall not be bound by the terms
of Section 9(b) after the termination of employment (other
than a termination of the Executive by the Company for Cause)
if such termination occurs after the expiration of this
Agreement by its terms.
9. Covenants as to Confidential Information and Competitive
Conduct. The Executive hereby acknowledges and agrees as follows: (i) this
Section 9 is necessary for the protection of the legitimate business interests
of the Company, (ii) the restrictions contained in this Section 9 with regard to
geographical scope, length of term and types of restricted activities are
reasonable; (iii) the Executive has received adequate and valuable new
consideration for entering into this Agreement, and (iv) the Executive's
expertise and capabilities are such that this obligation hereunder and the
enforcement hereof by injunction or otherwise will not adversely affect the
Executive's ability to earn a livelihood.
(a) Confidentiality of Information and Nondisclosure.
The Executive acknowledges and agrees that the Executive's
employment by the Company under this Agreement necessarily
involves knowledge of and access to confidential and
proprietary information pertaining to the business of the
Company and its subsidiaries. Accordingly, the Executive
agrees that at all times during the term of this Agreement and
at any time thereafter, the Executive will not, directly or
indirectly, without the express written approval of the
Company, unless directed by applicable legal authority
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(including any court of competent jurisdiction, governmental
agency having supervisory authority over the business of the
Company or the subsidiaries, or any legislative or
administrative body having supervisory authority over the
business of the Company or its subsidiaries) having
jurisdiction over the Executive, disclose to or use, or
knowingly permit to be so disclosed or used, for the benefit
of himself, any person, corporation or other entity other than
the Company, (i) any information concerning any financial
matters, customer relationships, competitive status, supplier
matters, internal organizational matters, current or future
plans, or other business affairs of or relating to the Company
or its subsidiaries, (ii) any management, operational, trade,
technical or other secrets or any other proprietary
information or other data of the Company or its subsidiaries,
or (iii) any other information related to the Company or its
subsidiaries or which the Executive should reasonably believe
will be damaging to the Company or its subsidiaries which has
not been published and is not generally known outside of the
Company. The Executive acknowledges that all of the foregoing
constitutes confidential and proprietary information, which is
the exclusive property of the Company.
(b) Restrictive Covenant. During the term of, and for
a period of one (1) year (the "Restrictive Period") after the
termination of the Executive's employment hereunder for any
reason (other than a termination of the Executive hereunder
pursuant to Section 5(a), 5(b) or 5(e), hereof), the Executive
shall not render, directly, or indirectly, services to any
person, firm, corporation, association or other entity which
conducts the same or similar business as the Company or its
subsidiaries at the date of the Executive's termination of
employment hereunder within the states in which the Company or
any of its subsidiaries is then licensed and doing business at
the date of the Executive's termination of employment
hereunder without the prior written consent of the Board of
Directors, which may be withheld in its discretion. In the
event the Executive violates any of the provisions contained
in this Section 9(b) hereof, the Restrictive Period shall be
increased by the period of time from the commencement by the
Executive of any violation until such violation has been cured
to the satisfaction of the Company. The Executive further
agrees that at no time during the Restrictive Period will the
Executive attempt to directly or indirectly solicit or hire
employees of Company or its subsidiaries or induce any of them
to terminate their employment with the Company or any of the
subsidiaries. Notwithstanding the foregoing, the performance
by the Executive of rights and duties under an agency
agreement with the Company shall not constitute a breach of
this Section 9(b).
(c) Company Remedies. The Executive acknowledges and
agrees that any breach of this Section 9 will result in
immediate and irreparable harm to the Company, and that the
Company cannot be reasonably or adequately compensated by
damages in an action at law. In the event of a breach by the
Executive of the provisions of this Section 9, the Company
shall be entitled, to the extent permitted by law, immediately
to cease to pay or provide the Executive or the Executive's
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dependents any compensation or benefit being, or to be, paid
or provided to the Executive pursuant to Section 3, Section 6
or Section 8 of this Agreement, and also to obtain immediate
injunctive relief restraining the Executive from conduct in
breach of the covenants contained in this Section 9. Nothing
herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach,
including the recovery of damages from the Executive.
10. Resolution of Differences Over Breaches of Agreement.
Except as otherwise provided herein, in the event of any controversy, dispute or
claim arising out of, or relating to, this Agreement, or the breach thereof, or
arising out of any other matter relating to the Executive's employment with the
Company, the parties may seek recourse only for temporary or preliminary
injunctive relief to the courts having jurisdiction thereof and if any relief
other than injunctive relief is sought, the Company and the Executive agree that
such underlying controversy, dispute or claim shall be settled by arbitration
conducted in Erie, Pennsylvania in accordance with this Section 10 and the
Commercial Arbitration Rules of the American Arbitration Association ("AAA").
The matter shall be heard and decided, and awards rendered by a panel of three
(3) arbitrators (the "Arbitration Panel"). The Company and the Executive shall
each select one arbitrator from the AAA National Panel of Commercial Arbitrators
(the "Commercial Panel") and AAA shall select a third arbitrator from the
Commercial Panel. The award rendered by the Arbitration Panel shall be final and
binding as between the parties hereto and their heirs, executors,
administrators, successors and assigns, and judgment on the award may be entered
by any court having jurisdiction thereof. Except as provided in Section 11
hereof, each party shall bear sole responsibility for all expenses and costs
incurred by such party in connection with the resolution of any controversy,
dispute or claim in accordance with this Section 10.
11. Payment of Executive's Legal Fees. If the Executive is
required to bring any action to enforce rights or to collect moneys due under
this Agreement, the Company shall pay to the Executive the fees and expenses
incurred by the Executive in bringing and pursuing such action if the Executive
is successful, in whole or in part, on the merits or otherwise (including by way
of a settlement involving a payment of money by the Company to the Executive),
in such action. The Company shall pay such fees and expenses in advance of the
final disposition of such action upon receipt of an undertaking from the
Executive to repay to the Company such advances if the Executive is not
ultimately successful, in whole or in part, on the merits or otherwise, in such
action.
12. Severance Pay upon Termination of Employment after
Expiration of the Agreement. Notwithstanding the expiration of this Agreement by
its terms and notwithstanding the terms of any corporate severance policy then
in effect and applicable to the Executive, if the employment of the Executive is
terminated without Cause by the Company, by the Executive for Good Reason or
upon the expiration of the term of the office(s) to which the Executive has been
elected or appointed as set forth in Section 1 hereof (for reasons other than
for Cause), in any case, within thirty-six (36) months after the expiration of
this Agreement by its terms, then (i) the Company shall pay to the Executive
severance compensation in an amount equal to two (2) times the Executive's
Covered Compensation as determined on the date of such termination, and (ii) the
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Executive and the Executive's eligible dependents shall be entitled to
continuing coverage under the Company's then-existing group health plans
(including medical, dental, prescription drug and vision plans, if any) for a
period of two (2) years after the date of the termination of the Executive's
employment, to the extent not prohibited by law and subject to the terms of such
plans including provisions as to deductibles and copayments and changes in
levels of coverage that are generally applicable to employees. The payment to
the Executive by the Company pursuant to subsection (i) of the preceding
sentence shall be paid in a lump sum unless the Executive elects, and so
notifies the Company in writing prior to the Executive's termination of
employment, to receive such payment in two (2) equal annual installments. The
lump sum or first payment, as the case may be, shall be paid within thirty (30)
days after the date of termination of the Executive's employment.
13. Release. The Executive hereby acknowledges and agrees that
neither the Company nor any of its representatives or agents will be obligated
to pay any compensation or benefit which the Executive has a right to be paid or
provided to the Executive or the Executive's dependents pursuant to Section 6,
Section 8 or Section 12 of this Agreement, unless the Executive, if requested by
the Company in its sole discretion, executes a release in a form reasonably
acceptable to the Company, which releases any and all claims the Executive has
or may have against the Company or its subsidiaries, agents, officers,
directors, successors or assigns.
14. Waiver. The waiver by a party hereto of any breach
by the other party hereto of any provision of this Agreement shall not operate
or be construed as a waiver of any other or subsequent breach by a party hereto.
15. Assignment. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company, and the Company
shall be obligated to require any successor to expressly acknowledge and assume
its obligations hereunder. This Agreement shall inure to the extent provided
hereunder to the benefit of and be enforceable by the Executive or the
Executive's legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. The Executive may not delegate any of the
Executive's duties, responsibilities, obligations or positions hereunder to any
person and any such purported delegation shall be void and of no force and
effect.
16. Notices. Any notices required or permitted to be given
under this Agreement shall be sufficient if in writing, and if personally
delivered or when sent by first class certified or registered mail, postage
prepaid, return receipt requested--in the case of the Executive, to his
residence address as set forth below, and in the case of the Company, to the
address of its principal place of business as set forth below, to the attention
of the Chairman of the Board, or in case the Executive is the Chairman of the
Board, to the Chairman of the Compensation Committee of the Board -- or to such
other person or at such other address with respect to each party as such party
shall notify the other in writing.
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17. Construction of Agreement.
(a) Governing Law. This Agreement shall be
governed by and construed under the laws of the Commonwealth
of Pennsylvania.
(b) Severability. In the event that any one or more
of the provisions of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions shall not in any
way be affected or impaired thereby.
(c) Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience of
reference only and shall not constitute a part of this
Agreement.
18. Entire Agreement. This Agreement contains the entire
agreement of the parties concerning the Executive's employment and all promises,
representations, understandings, arrangements and prior agreements on such
subject are merged herein and superseded hereby. The provisions of this
Agreement may not be amended, modified, repealed, waived, extended or discharged
except by an agreement in writing signed by the party against whom enforcement
of any amendment, modification, repeal, waiver, extension or discharge is
sought. No person acting other than pursuant to a resolution of the Board of
Directors or the Committee shall have authority on behalf of the Company to
agree to amend, modify, repeal, waive, extend or discharge any provision of this
Agreement or anything in reference thereto or to exercise any of the Company's
rights to terminate or to fail to extend this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
officers thereunto duly authorized, and the Executive has hereunto set his hand
all as of the day and year first above written.
ATTEST: ERIE INDEMNITY COMPANY
/s/ J. R. Van Gorder By: /s/ F. William Hirt
J. R. Van Gorder F. William Hirt
Secretary Chairman of the Board
WITNESS:
/s/ Charlotte F. Drobniewski /s/ Douglas F. Ziegler
Charlotte F. Drobniewski Douglas F. Ziegler
Executive Secretary 378 Ridgeview Drive
Erie, PA 16505
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EXHIBIT 10.9
ADDENDUM TO EMPLOYMENT AGREEMENT
This Addendum (the "Addendum") is made effective as of the 15th day of
December, 1999 and is intended to amend a certain Employment Agreement (the
"Agreement") by and between Erie Indemnity Company and Stephen A. Milne
effective as of December 16, 1997.
WHEREAS, the Company has determined that it is in the best interest of
the Company and its Shareholders to secure the continued employment of the
Executive in accordance with the terms of the Agreement; and
WHEREAS, the Board of Directors of the Company at its meeting of March
9, 1999 agreed to extend the term of the Agreement for a period of one (1)
additional year which extended the term of the Agreement to expire on December
15, 2002 instead of December 15, 2001; and
WHEREAS, the Board of Directors of the Company at its meeting of
December 14, 1999 has again agreed to extend the term of the Agreement for a
period of one (1) additional year as contained herein; and
WHEREAS, the Executive is agreeable to the extension of the Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties agree
as follows:
1. Paragraph 1 of the Agreement with respect to the Term is hereby
amended by extending the Term to expire on December 15, 2003.
2. All other terms and conditions of the Agreement remain in full force
and effect.
ATTEST: ERIE INDEMNITY COMPANY
/s/ Mark T. Torok By: /s/ F. William Hirt
Mark T. Torok F. William Hirt
Assistant Secretary Chairman of the Board
WITNESS:
/s/ Charlotte F. Drobniewski /s/ Stephen A. Milne
Charlotte F. Drobniewski Stephen A. Milne
Executive Secretary 6200 Ruhl Road
Fairview, PA 16415
61
EXHIBIT 10.10
ADDENDUM TO EMPLOYMENT AGREEMENT
This Addendum (the "Addendum") is made effective as of the 15th day of
December, 1999 and is intended to amend a certain Employment Agreement (the
"Agreement") by and between Erie Indemnity Company and Jan R. Van Gorder
effective as of December 16, 1997.
WHEREAS, the Company has determined that it is in the best interest of
the Company and its Shareholders to secure the continued employment of the
Executive in accordance with the terms of the Agreement; and
WHEREAS, the Board of Directors of the Company at its meeting of March
9, 1999 agreed to extend the term of the Agreement for a period of one (1)
additional year which extended the term of the Agreement to expire on December
15, 2000 instead of December 15, 1999; and
WHEREAS, the Board of Directors of the Company at its meeting of
December 14, 1999 has again agreed to extend the term of the Agreement for a
period of one (1) additional year as contained herein; and
WHEREAS, the Executive is agreeable to the extension of the Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties agree
as follows:
1. Paragraph 1 of the Agreement with respect to the Term is hereby
amended by extending the Term to expire on December 15, 2001.
2. All other terms and conditions of the Agreement remain in full force
and effect.
ATTEST: ERIE INDEMNITY COMPANY
/s/ Mark T. Torok By: /s/ F.William Hirt
Mark T. Torok F. William Hirt
Assistant Secretary Chairman of the Board
WITNESS:
/s/ Sheila M. Hirsch /s/ Jan R. Van Gorder
Sheila M. Hirsch Jan R. Van Gorder
Executive Secretary 6796 Manchester Beach Rd.
Fairview, PA 16415
62
EXHIBIT 10.11
ADDENDUM TO EMPLOYMENT AGREEMENT
This Addendum (the "Addendum") is made effective as of the 15th day of
December, 1999 and is intended to amend a certain Employment Agreement (the
"Agreement") by and between Erie Indemnity Company and Philip A. Garcia
effective as of December 16, 1997.
WHEREAS, the Company has determined that it is in the best interest of
the Company and its Shareholders to secure the continued employment of the
Executive in accordance with the terms of the Agreement; and
WHEREAS, the Board of Directors of the Company at its meeting of March
9, 1999 agreed to extend the term of the Agreement for a period of one (1)
additional year which extended the term of the Agreement to expire on December
15, 2000 instead of December 15, 1999; and
WHEREAS, the Board of Directors of the Company at its meeting of
December 14, 1999 has again agreed to extend the term of the Agreement for a
period of one (1) additional year as contained herein; and
WHEREAS, the Executive is agreeable to the extension of the Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties agree
as follows:
1. Paragraph 1 of the Agreement with respect to the Term is hereby
amended by extending the Term to expire on December 15, 2001.
2. All other terms and conditions of the Agreement remain in full force
and effect.
ATTEST: ERIE INDEMNITY COMPANY
/s/ Mark T. Torok By: /s/ F. William Hirt
Mark T. Torok F. William Hirt
Assistant Secretary Chairman of the Board
WITNESS:
/s/ Cori Coccarelli /s/ Philip A. Garcia
Cori Coccarelli Philip A. Garcia
786 Stockbridge Drive
Erie, PA 16505
63
EXHIBIT 10.12
ADDENDUM TO EMPLOYMENT AGREEMENT
This Addendum (the "Addendum") is made effective as of the 15th day of
December, 1999 and is intended to amend a certain Employment Agreement (the
"Agreement") by and between Erie Indemnity Company and John J. Brinling, Jr.
effective as of December 16, 1997.
WHEREAS, the Company has determined that it is in the best interest of
the Company and its Shareholders to secure the continued employment of the
Executive in accordance with the terms of the Agreement; and
WHEREAS, the Board of Directors of the Company at its meeting of March
9, 1999 agreed to extend the term of the Agreement for a period of one (1)
additional year which extended the term of the Agreement to expire on December
15, 2000 instead of December 15, 1999; and
WHEREAS, the Board of Directors of the Company at its meeting of
December 14, 1999 has again agreed to extend the term of the Agreement for a
period of one (1) additional year as contained herein; and
WHEREAS, the Executive is agreeable to the extension of the Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties agree
as follows:
1. Paragraph 1 of the Agreement with respect to the Term is hereby
amended by extending the Term to expire on December 15, 2001.
2. All other terms and conditions of the Agreement remain in full force
and effect.
ATTEST: ERIE INDEMNITY COMPANY
/s/ Mark T. Torok By: /s/ F. William Hirt
Mark T. Torok F. William Hirt
Assistant Secretary Chairman of the Board
WITNESS:
/s/ Sheila M. Hirsch /s/ John J. Brinling
Sheila M. Hirsch John J. Brinling, Jr.
Executive Secretary 5691 Culpepper Drive
Erie, PA 16506
64
EXHIBIT 10.13
ADDENDUM TO EMPLOYMENT AGREEMENT
This Addendum (the "Addendum") is made effective as of the 15th day of
December, 1999 and is intended to amend a certain Employment Agreement (the
"Agreement") by and between Erie Indemnity Company and Jeffrey A. Ludrof
effective as of June 30, 1999.
WHEREAS, the Company has determined that it is in the best interest of
the Company and its Shareholders to secure the continued employment of the
Executive in accordance with the terms of the Agreement; and
WHEREAS, the Board of Directors of the Company at its meeting of
December 14, 1999 has again agreed to extend the term of the Agreement for a
period of one (1) additional year as contained herein; and
WHEREAS, the Executive is agreeable to the extension of the Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties agree
as follows:
1. Paragraph 1 of the Agreement with respect to the Term is hereby
amended by extending the Term to expire on December 15, 2001.
2. All other terms and conditions of the Agreement remain in full force
and effect.
ATTEST: ERIE INDEMNITY COMPANY
/s/ Mark T. Torok By: /s/ F. William Hirt
Mark T. Torok F. William Hirt
Assistant Secretary Chairman of the Board
WITNESS:
/s/ Sheila M. Hirsch /s/ Jeffrey A. Ludrof
Sheila M. Hirsch Jeffrey A. Ludrof
Executive Secretary 170 Gateway Drive
Fairview, PA 16415
65
INCORPORATED BY REFERENCE, PAGE 21 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
SELECTED FINANCIAL DATA
(All amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Total policy revenue $ 41,686 $ 38,239 $ 35,194 $ 31,116 $ 28,074
Net investment & other income 56,905 53,088 50,642 46,617 41,519
Net realized gains on investments 4,333 4,883 5,201 4,987 7,484
Total revenues $ 102,924 $ 96,210 $ 91,037 $ 82,720 $ 77,077
Total benefits & expenses 67,998 62,269 60,834 56,077 50,673
Income from operations $ 34,926 $ 33,941 $ 30,203 $ 26,643 $ 26,404
Provision for federal income taxes 11,601 11,856 10,643 8,977 8,522
Net income $ 23,325 $ 22,085 $ 19,560 $ 17,666 $ 17,882
Net income per share $ 2.47 $ 2.34 $ 2.07 $ 1.87 $ 1.89
FINANCIAL POSITION
Total assets $ 954,532 $ 917,606 $ 832,534 $ 740,651 $ 673,794
Shareholders' equity $ 171,103 $ 182,531 $ 160,380 $ 132,631 $ 128,905
Book value per share $ 18.11 $ 19.32 $ 16.97 $ 14.03 $ 13.64
Dividends declared per share $ 0.66 $ 0.60 $ 0.54 $ 0.50 $ 0.453
Average number of
shares outstanding 9,450 9,450 9,450 9,450 9,450
<FN>
All per share data has been adjusted to give retroactive effect for the three-for-one common stock split effective May 2, 1996.
</FN>
</TABLE>
66
<PAGE>
INCORPORATED BY REFERENCE, PAGE 22 OF THE COMPANY'S 1999 ANNUAL REPORT TO
SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATION
The following discussion and analysis should be read in conjunction with the
financial statements and related notes found on pages 30-43, as they contain
important information that is helpful in evaluating the Company's operating
results and financial condition.
OVERVIEW
Erie Family Life Insurance Company (the Company) is a Pennsylvania life
insurance company formed to underwrite and sell nonparticipating individual and
group life insurance policies, including universal life. The Company also sells
individual and group annuities. The Company markets its products through
independent Agents throughout nine states and the District of Columbia. The
Company is owned 21.63 percent by Erie Indemnity Company and 53.2 percent by
Erie Insurance Exchange.
RESULTS OF OPERATIONS
FINANCIAL OVERVIEW
Net income increased to $23,324,697, or $2.47 per share, in 1999 from
$22,085,479, or $2.34 per share, in 1998, an increase of 5.6 percent. Solid
premium growth and investment gains contributed to the strong financial results
in 1999. Life insurance in force increased by more than $1.2 billion to almost
$14.4 billion at December 31, 1999.
REVENUES
Analysis of Policy Revenue
Total policy revenue increased by $3,447,080, or 9.0 percent, to $41,685,636 in
1999. Premiums on traditional life insurance policies increased $2,430,867, or
8.2 percent, for the year ended December 31, 1999 and $2,349,619, or 8.6
percent, for the year ended December 31, 1998. The growth in ordinary life
premiums in 1999 was largely due to growth in the renewal of policies written in
prior years. Renewal premiums increased 9.5 percent in 1999 to $27,319,929.
Policies in force on traditional products increased 4.6 percent to 199,842 in
1999 from 191,046 in 1998. Universal life products generated premiums and
deposits, net of reinsurance, of $9,522,851, $8,657,657 and $7,741,194 in 1999,
1998 and 1997, respectively. Policies in force on universal life products
increased 5.3 percent to 40,716 in 1999 from 38,657 in 1998. Group premiums
increased 5.1 percent to $2,633,872 in 1999 and 5.9 percent to $2,505,972 in
1998.
Total annuity and universal life deposits were $78,906,813, $67,420,294 and
$69,040,378 in 1999, 1998 and 1997, respectively. First-year and single
universal life and annuity deposits increased 18.9 percent to $60,419,179 in
1999 and 0.3 percent to $50,820,133 in 1998. Annuity deposits recorded in
connection with annuity contracts purchased by the Erie Insurance Group
Retirement Plan for retired vested Employees receiving benefits were $5,321,738,
$6,413,460 and $1,992,060 for the years ended December 31, 1999, 1998 and 1997,
respectively. Also included in annuity deposits are annuities purchased by
affiliated property/casualty insurance companies for use in connection with the
structured settlement of insurance claims. Structured settlement annuity
deposits sold to Erie Insurance Group affiliate companies totaled $23,312,225,
$17,883,171 and $17,780,582 in 1999, 1998 and 1997, respectively.
Analysis of Investment-related Income
Net investment income increased $3,883,554, or 7.4 percent, for the year ended
December 31, 1999 and $2,415,051, or 4.8 percent, for the year ended December
31, 1998. The ratio of net investment income to mean invested assets remained
the same at 7.2 percent in 1999 and 1998, and 7.5 percent in 1997. The majority
of the increase in income generated by the investment portfolio was due to
increased levels of investment from cash flows of the Company's operations and
by cash flows of annuity and universal life deposits. Net cash provided in 1999
from annuity deposits and universal life deposits was $45,069,558 and
$13,285,885, respectively.
During 1999, 1998 and 1997, the Company generated net realized gains on
investments of $4,333,318, $4,882,586 and $5,201,365, respectively, primarily
from the sale of equity securities and fixed maturity investments.
67
<PAGE>
INCORPORATED BY REFERENCE, PAGE 22 AND 23 OF THE COMPANY'S 1999 ANNUAL REPORT TO
SHAREHOLDERS
BENEFITS AND EXPENSES
Analysis of Policy-related Benefits and Expenses
Net death benefits on life insurance policies increased 21.0 percent in 1999 to
$10,231,135 compared to $8,459,035 in 1998 and $11,117,175 in 1997. Random
fluctuations in death benefits incurred can be expected when mortality results
are measured over a short time period due to the small number of claims
involved. These short-term fluctuations can influence quarterly or annual
results without impacting long-term profitability. Company management believes
that its underwriting philosophy and practices continue to be sound.
Total interest credited on annuity and universal life deposits increased
$1,968,737, or 5.7 percent, for the year ended December 31, 1999 and $2,936,673,
or 9.3 percent, for the year ended December 31, 1998. This increase in interest
expense was primarily due to new annuity and universal life deposits of
$78,906,813 received from Policyholders during 1999 and $67,420,294 received
during 1998. At December 31, 1999, annuity deposits accruing interest were $569
million, an increase of 8.6 percent from December 31, 1998, and universal life
deposits accruing interest were $95 million, an increase of 16.3 percent from
December 31, 1998. The interest rate credited on universal life deposits ranged
from 6.25 percent to 7.00 percent in 1999 and 1998. The rate credited on annuity
deposits ranged from 5.00 percent to 5.75 percent in 1999 and 5.00 percent to
6.00 percent in 1998.
Surrender and other benefits decreased by $155,614 to $660,394 for the year
ended December 31, 1999 and increased by $512,690 to $816,008 for the year ended
December 31, 1998. Surrender and other benefits include life surrender benefits,
matured endowments, disability benefits, interest on death benefits and changes
in the Company's share of the Pennsylvania Employees Group Life Insurance
(PEGLI) pool. PEGLI is a voluntary reinsurance pool that provides reinsurance
coverage to primary insurers who insure Commonwealth of Pennsylvania employees
upon their retirement. The CIGNA group administers the plan and provides
information to determine each company's share of pool assets and liabilities on
a yearly basis. During 1999, the change in the Company's share of the PEGLI pool
resulted in a decrease in benefits of $467,133 compared to decreases of $279,584
in 1998 and $904,897 in 1997. The change in the Company's share of the PEGLI
pool is subject to fluctuations inherent in the underwriting of life insurance
products.
The liability for future life policy benefits is computed considering various
factors such as anticipated mortality, future investment yields, withdrawals and
anticipated credit for reinsurance. The 1999 increase in future life policy
benefits totaled $4,857,577 compared to $4,172,578 in 1998 and $4,538,298 in
1997.
Generally, the costs incurred by the Company to acquire business, including
underwriting, commission and bonus costs, are capitalized and deferred. For
traditional products, these costs are amortized and charged against earnings
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.
For interest-sensitive products such as universal life and annuities, these
costs are amortized in proportion to future anticipated profits on these
products. The amortization of deferred policy acquisition costs (DAC) increased
$417,024, or 9.5 percent, for the year ended December 31, 1999 and $700,589, or
19.0 percent, for the year ended December 31, 1998. The growth in amortization
expense in 1999 and 1998 was affected by a decrease in underlying interest rate
assumptions.
Analysis of Other Expenses
Total operating expenses, excluding taxes, licenses and fees, increased slightly
to $9,330,979 in 1999 compared to $9,322,391 in 1998 and $8,124,173 in 1997.
Certain operating expenses of the Company are paid by Erie Indemnity Company,
the management company of the Erie Insurance Exchange, and reimbursed monthly by
the Company. Additionally, a portion of Erie Insurance Group common overhead
expenses attributable to the Company are also reimbursed monthly. These expenses
comprise a majority of the Company's general expenses.
General expenses, a component of total operating expenses, include wages and
salaries, Employee benefits, data processing expenses, occupancy expenses and
other office and general administrative expenses of the Company. Certain general
expenses of the Company, related to the acquisition and underwriting of new
policies, are deferred as policy acquisition costs. Medical inspection and exam
fees related to new business production, wages, salaries and Employee benefits
of underwriting personnel, and bonuses paid to branch sales Employees for the
production of life and annuity business, are all deferred.
68
<PAGE>
INCORPORATED BY REFERENCE, PAGE 23 AND 24 OF THE COMPANY'S 1999 ANNUAL REPORT TO
SHAREHOLDERS
General expenses decreased $428,083, or 5.7 percent, for the year ended December
31, 1999 and increased $1,186,485, or 18.7 percent, for the year ended December
31, 1998. In 1999, the CyberLife policy administration system became a
production system. The costs associated with the system will be charged to
operations over the expected useful life of the system. Such charges will be
comprised of amortization expense of software development costs and intercompany
reimbursements related to property and equipment charges that will amount to
approximately $850,000 annually. Once placed into production, CyberLife
amortization and intercompany charges amounted to $215,000 in 1999, as the
system was in production only part of the year. CyberLife project charges not
capitalized in 1999 and 1998 and charged to operations were approximately
$500,000 and $680,000, respectively. There were no CyberLife system expenses
charged to operations in 1997.
Another component of total operating expenses is commissions to independent
Agents. Direct commission costs include new and renewal commissions, production
bonuses and promotional incentives to Agents. These direct commission expenses
are reported on the Statements of Operations net of commissions received from
reinsurers. The reported expense is also affected by the amount of commission
expenses capitalized to the DAC. Commissions, which vary with and are related
primarily to the production of new business, have been deferred and are
capitalized as DAC. Most first-year and incentive commissions and some
second-year commissions qualify for deferral as DAC.
Commission expense increased $437,198, or 24.6 percent, to $2,213,775 in 1999
from $1,776,577 in 1998. Total renewal premiums, on which commissions are based,
most of which are not capitalized as DAC, increased $3,700,505, or 7.2 percent,
in 1999. Ceded reinsurance commissions, netted against this expense, totaled
$1,566,702 in 1999, $1,653,737 in 1998 and $1,462,295 in 1997. Commission
expense increased only slightly in 1998 from $1,765,563 in 1997.
Taxes, licenses and fees increased $1,032,638 to $1,613,991 in 1999 and declined
$889,231 to $581,353 in 1998. Included in 1998 is a $954,000 refund due the
Company from the Pennsylvania Life and Health Insurance Guaranty Association
resulting from a recalculation of annuity assessments paid in previous years.
FINANCIAL CONDITION
RESERVE LIABILITIES
The Company's primary commitment is its obligation to meet the payment of future
policy 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 charges) plus interest earned on those deposits. At December 31, 1999,
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 as the underlying policy reserves are generally also of a long-term
nature.
INVESTMENTS
The Company's investment strategies are designed and portfolios are structured
to match the features of the life insurance and annuity products sold by the
Company. 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 managed on a total return approach that focuses on
current income and capital appreciation.
At December 31, 1999, the Company's investment portfolio consisting of
marketable short-term investments, investment-grade bonds, common stocks and
preferred stocks totaled $777 million, or 81.4 percent, of total assets. These
resources provide the liquidity the Company requires to meet known and
unforeseen demands on its funds. At December 31, 1999, 76.9 percent of total
invested assets were invested in fixed maturities. Preferred stock represents
7.2 percent, or $59 million, and common stock represents 10.2 percent, or $83
million, of total invested assets at December 31, 1999, while real estate,
policy loans, mortgage loans and other invested assets (investments in real
estate and private equity limited partnerships) make up 5.7 percent of total
invested assets. Mortgage loans and limited partnership 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.
69
<PAGE>
INCORPORATED BY REFERENCE, PAGE 24 TO 26 OF THE COMPANY'S 1999 ANNUAL REPORT TO
SHAREHOLDERS
Distribution of Invested Assets
at December 31,
Carrying Value
(In thousands)
1999 1998
------ ------
Fixed maturities available-
for-sale $ 628,877 $ 605,523
Equity securities:
Preferred stock 58,700 78,479
Common stock 83,395 57,315
Other invested assets 46,488 33,565
--------- ---------
Total invested assets $ 817,460 $ 774,882
========= =========
Fixed Maturities
The Company's fixed maturities consist of investments in bonds and redeemable
preferred stock. 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 managed with the goal of achieving reasonable returns while
limiting exposure to risk.
Diversification of Fixed Maturities
at December 31, 1999
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
U. S. treasuries and
government agencies $ 9,390 $ 75 $ 63 $ 9,402
States, political subdivisions
and special revenue 8,915 265 0 9,180
Public utilities 61,886 765 2,939 59,712
U. S. banks, trusts and
insurance companies 115,616 693 4,740 111,569
U. S. industrial and
miscellaneous 396,128 2,257 16,077 382,308
Foreign issuers, dollar
denominated 59,724 295 3,313 56,706
--------- ------- -------- ----------
Total fixed maturities $ 651,659 $ 4,350 $ 27,132 $ 628,877
========= ======= ======== ==========
</TABLE>
Fixed maturity investments consist of high-quality, marketable bonds, 98.4
percent, or $616 million, of which are rated at investment-grade levels (Baa/BBB
or better). Included in this investment-grade category are $351 million of bonds
characterized as of the "highest" quality or "Class 1" securities as defined by
the National Association of Insurance Commissioners (NAIC). The
below-investment-grade category consisted of $20 million of "medium" quality
bonds, and $1 million of "low" quality bonds. 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.
Management believes that having all fixed maturities classified as
available-for-sale securities will allow the Company to meet its liquidity needs
and provide greater flexibility for its investment managers to respond to
changes in market conditions or strategic direction. Securities classified as
available-for-sale are carried at market value with unrealized gains and losses
included in shareholders' equity. At December 31, 1999 and 1998, net unrealized
(losses) gains on fixed maturities available-for-sale amounted to $(14.8)
million and $18.9 million, respectively, net of deferred taxes.
70
<PAGE>
INCORPORATED BY REFERENCE, PAGE 26 OF THE COMPANY'S 1999 ANNUAL REPORT TO
SHAREHOLDERS
Equity Securities
Equity securities consist of common and nonredeemable preferred stocks which are
carried on the Statements of Financial Position at market value. At December 31,
1999 and 1998, common and nonredeemable preferred stock held by the Company had
net unrealized gains of $11.3 million and $7.3 million, respectively, net of
deferred taxes. As with the bond portfolio, the Company's nonredeemable
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 nonredeemable preferred stocks are of the "highest" or
"high" quality, as defined by the NAIC. The common stock portfolio provides
liquidity, diversification and income opportunities to meet the earnings
objectives of the Company.
Diversification of Equity Securities
at December 31, 1999
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Carrying
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Common stock:
U. S. banks, trusts and
insurance companies $ 9,188 $ 2,150 $ 561 $ 10,777
U. S. industrial and
miscellaneous 50,646 26,021 4,985 71,682
Foreign industrial and
miscellaneous 1,241 0 305 936
Preferred stock:
U. S. banks, trusts and
insurance companies 25,889 274 1,814 24,349
U. S. industrial and
miscellaneous 24,837 0 2,390 22,447
Foreign banks, trusts and
insurance companies 12,873 0 969 11,904
---------- --------- --------- ----------
Total equities maturities $ 124,674 $ 28,445 $ 11,024 $ 142,095
========== ========= ========= ==========
</TABLE>
71
<PAGE>
INCORPORATED BY REFERENCE, PAGE 27 OF THE COMPANY'S 1999 ANNUAL REPORT TO
SHAREHOLDERS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates is
concentrated in the investment portfolio. The Company monitors this exposure
through periodic reviews of asset and liability positions. Estimates of cash
flows and the impact of interest rate fluctuations relating to the investment
portfolio are monitored regularly.
Principal cash flows and related weighted-average interest rates by expected
maturity dates for financial instruments sensitive to interest rates are as
follows:
December 31,1999 Principal Weighted-average
(Dollars in thousands) cash flows interest rate
------------ ------------------
Fixed maturities and
short-term bonds:
2000 $ 7,654 7.2%
2001 30,925 6.1%
2002 56,105 7.0%
2003 60,293 7.1%
2004 34,270 7.8%
Thereafter 460,606 7.9%
----------
Total $ 649,853
==========
Market Value $ 628,877
==========
December 31,1998 Principal Weighted-Average
(Dollars in thousands) Cash Flows Interest Rate
------------ ------------------
Fixed maturities and
short-term bonds:
1999 $ 31,985 5.5%
2000 11,808 7.1%
2001 26,500 6.1%
2002 44,116 6.7%
2003 55,375 7.0%
Thereafter 414,365 7.9%
==========
Total $ 584,149
----------
Market Value $ 616,508
==========
Actual cash flows may differ from those stated as a result of calls and
prepayments.
EQUITY PRICE RISK
The Company's portfolio of marketable equity securities, which is carried on the
Statements of Financial Position at estimated fair value, has exposure to price
risk. This risk is defined as the potential loss in estimated fair value
resulting from an adverse change in prices. The Company's objective is to earn
competitive relative returns by investing in a diverse portfolio of
high-quality, liquid securities. Portfolio characteristics are analyzed
regularly and market risk is actively managed through a variety of techniques.
The Company's holdings are diversified across industries, and concentrations in
any one company or industry are limited by parameters established by Company
management and Board of Directors.
72
<PAGE>
INCORPORATED BY REFERENCE, PAGE 27 AND 28 OF THE COMPANY'S 1999 ANNUAL REPORT TO
SHAREHOLDERS
LIQUIDITY AND CAPITAL RESOURCES
GENERAL CONSIDERATIONS & ANALYSIS
Liquidity is a measure of the Company's ability to secure enough cash to meet
its contractual obligations and operating needs. Generally, insurance premiums
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 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 1999 was $12.8 million compared to
$19.8 million in 1998, and $15.0 million in 1997. The Company's liquidity
position remains strong as invested assets increased 5.5 percent to $817 million
at December 31, 1999.
Annuity and universal life deposits, which do not appear as revenue on the
financial statements, are a source of funds. 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 revenue.
The Company's commitments for expenditures as of December 31, 1999 are primarily
for policy death benefits, policy surrenders and withdrawals, general operating
expenses, federal income taxes and dividends to shareholders. 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 and its
liquid assets and marketable securities will enable the Company to meet
foreseeable cash requirements. As an added measure of liquidity, the Company has
arranged for a $10 million line of credit with a commercial bank. There were no
borrowings under this credit line in 1999, 1998 or 1997.
REGULATORY CONSIDERATIONS
Risk-Based Capital
The Commonwealth of Pennsylvania follows the statutory accounting practices
minimum Risk-Based Capital (RBC) requirements for domestic insurance companies
that were developed by the NAIC. The NAIC standard set for measuring RBC is a
method of calculating the minimum amount of capital appropriate for an insurance
company to support its overall business operations in consideration of its size
and risk profile. The RBC formula is used by the state insurance regulators as
an early warning tool to identify, for the purpose of initiating regulatory
action, insurance companies that potentially are inadequately capitalized. In
addition, the formula defines minimum capital standards that will supplement the
current system of low fixed minimum capital and surplus requirements on a
state-by-state basis. At December 31, 1999, the Company substantially exceeded
the minimum risk-based capital levels that require regulatory action.
Surplus Note
A surplus note in the amount of $15 million was issued by the Company to the
Erie Indemnity Company during 1995. Interest on this note is charged at an
annual rate of 6.45 percent.
All payments of interest and principal on the note may be repaid only out of
unassigned surplus of the Company, subject to approval of the Pennsylvania
Insurance Commissioner. The note will be payable on demand on or after December
31, 2005. Payment of principal and/or interest is subordinated to payment of all
other liabilities of the Company.
YEAR 2000
The computer systems of the Company successfully made the transition to the Year
2000. The Company's internal operating systems (hardware and software),
infrastructure elements, communications systems, and personal computer hardware
and software continued to function properly into the Year 2000. No external
vendor or business partner experienced century change disruptions that
materially affected the Company. The Company did not experience any business
interruptions related to the Year 2000. The Company's total cost of testing,
contingency planning and administrative support, including cost of personnel
involved, cost to construct the technical test environment and cost of
consulting resources totaled $180,000 and $5,000 for the years ended December
31, 1999 and 1998, respectively.
73
<PAGE>
INCORPORATED BY REFERENCE, PAGE 28 AND 29 OF THE COMPANY'S 1999 ANNUAL REPORT TO
SHAREHOLDERS
FACTORS THAT MAY AFFECT FUTURE RESULTS
GEOGRAPHIC EXPANSION
The Company continues to seek quality growth by expanding its operating
territories. The expansion into new operating territories offers the opportunity
for growth in premiums. Over the last several years, geographic expansion has
made a contribution to the premium growth rate of the Company. In 1999 the
Company began operations in the state of Illinois and expanded its operating
territory westward in the state of Tennessee. The Company anticipates that such
expansion will continue to contribute positively to its growth and
profitability.
FINANCIAL SERVICES REFORM
Federal legislative initiatives on financial services reform, begun in 1997,
culminated in the enactment of Senate Bill 900, the Financial Modernization
Reform Act, which significantly changes the way insurance companies, banks and
securities firms are regulated. The elimination of some regulatory barriers to
banks entering the insurance market, privacy initiatives concerning the consumer
data held by financial institutions and the interjection of federal government
agencies into the traditionally state-regulated insurance industry may
materially change the ground rules under which insurance products are marketed.
Additionally, current and proposed future federal measures may affect the way
the life insurance industry distributes, prices, and services their products.
These proposals may include possible changes to the tax laws governing the
taxation of insurance companies and life insurance products.
MARKETING CONSIDERATIONS
The Company offers insurance products that include investment features that
compete with numerous other investment alternatives commercially available. The
Company's ability to attract policyholders depends in large part on the relative
attractiveness of its products compared to those other available products.
Factors such as the interest rate environment and the performance of the stock
market influence this ability but are not controllable by management.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995: Statements contained herein expressing the beliefs of management such as
those contained in the "Benefits and Expenses," "Quantitative and Qualitative
Disclosures About Market Risk," "Liquidity and Capital Resources,"
"Investments," and "Factors That May Affect Future Results" sections hereof, and
the other statements which are not historical facts contained in this report,
are forward-looking statements that involve risks and uncertainties. These risks
and uncertainties include but are not limited to: legislative, judicial, and
regulatory changes, the impact of competitive products and pricing, product
development, geographic spread of risk, catastrophic events, better (or worse)
mortality rates, securities market fluctuations and technological difficulties
and advancements.
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
Currently there is no market on which the Registrant's stock is traded. The
Company had 1,057 shareholders of record of common stock on December 31, 1999.
Date Dividends Declared Dividends Declared per Share
March 4, 1999 $ .165
April 27, 1999 .165
June 15, 1999 .165
September 14, 1999 .165
------
$ .660
February 17, 1998 $ .150
April 28, 1998 .150
June 5, 1998 .150
September 16, 1998 .150
------
$ .600
74
<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, 1999
Fixed Maturities - Available For Sale 77%
Common Stock 10%
Preferred Stock 7%
Other Invested Assets 6%
Graph #2 DIVERSIFICATION OF FIXED MATURITIES
AT DECEMBER 31, 1999 - CARRYING/MARKET VALUE
U.S. Industrial & Miscellaneous 61%
U.S. Banks, Trusts and Insurance Companies 18%
Public Utilities 10%
Foreign 9%
States Political Subdivisions &
Special Revenue 1%
U.S. Treasuries 1%
Graph #3 QUALITY* OF BOND PORTFOLIO
AT DECEMBER 31, 1999 - CARRYING/MARKET VALUE
Aaa/AAA 5%
Aa/AA 17%
A/A 39%
Baa/BBB 37%
Ba/BB 2%
* As rated by Standard & Poor's or Moody's Investor's Service, Inc.
Graph #4 DIVERSIFICATION OF EQUITY SECURITIES
AT DECEMBER 31, 1999 - CARRYING/MARKET VALUE
(1) U.S. Industrial & Miscellaneous 50%
(2) U.S. Banks & Insurance 17%
(2) U.S. Industrial & Miscellaneous 16%
(1) U.S. Banks & Insurance 8%
(2) Foreign Banks & Insurance 8%
(1) Foreign Industrial & Miscellaneous 1%
(1) Common Stock
(2) Preferred Stock
75
<PAGE>
INCORPORATED BY REFERENCE, PAGE 30 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Erie Family Life Insurance Company
Erie, Pennsylvania
We have audited the accompanying statements of financial position of Erie Family
Life Insurance Company as of December 31, 1999 and 1998, and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. 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, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1999
in conformity with generally accepted accounting principles.
/s/ Brown Schwab Bergquist & Co.
Erie, Pennsylvania
February 11, 2000
76
<PAGE>
INCORPORATED BY REFERENCE, PAGE 32 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
As of December 31, 1999 and 1998
(Dollars in thousands)
ASSETS 1999 1998
-------- --------
Invested assets:
Fixed maturities at fair value
(amortized cost of $651,659
and $576,475, respectively) $628,877 $605,523
Equity securities, at fair value
(cost of $124,674 and
$124,610, respectively) 142,095 135,794
Real estate 1,458 1,541
Policy loans 6,724 6,013
Real estate mortgage loans 9,975 10,070
Other invested assets 28,331 15,941
-------- --------
Total invested assets $817,460 $774,882
Cash and cash equivalents 27,358 44,808
Premiums receivable from policyholders 4,056 3,831
Reinsurance recoverable 464 569
Other receivables 171 355
Accrued investment income 10,896 10,282
Deferred policy acquisition costs 77,588 70,916
Reserve credit for reinsurance ceded 6,927 5,995
Prepaid federal income taxes 758 0
Other assets 8,854 5,968
-------- --------
Total assets $954,532 $917,606
======== ========
77
<PAGE>
INCORPORATED BY REFERENCE, PAGE 32 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
-------- --------
LIABILITIES
Policy liabilities and accruals:
Future life policy benefits $ 70,329 $ 64,539
Policy and contract claims 1,305 1,801
Annuity deposits 569,218 524,123
Universal life deposits 94,640 81,354
Supplementary contracts not
including life contingencies 581 607
Other policyholder funds 5,623 8,166
Federal income taxes payable 0 612
Deferred income taxes 17,853 31,252
Reinsurance premium due 692 302
Accounts payable and accrued expenses 5,116 4,215
Note payable to Erie Indemnity Company 15,000 15,000
Due to affiliate 1,513 1,686
Dividends payable 1,559 1,418
-------- --------
Total liabilities $783,429 $735,075
-------- --------
SHAREHOLDERS' EQUITY
Common stock, $.40 par value per share;
authorized 15,000,000 shares;
9,450,000 shares issued and outstanding $ 3,780 $ 3,780
Additional paid-in capital 630 630
Accumulated other comprehensive (loss) income ( 2,344) 26,172
Retained earnings 169,037 151,949
-------- --------
Total shareholders' equity $171,103 $182,531
-------- --------
Total liabilities and shareholders' equity $954,532 $917,606
======== ========
See accompanying notes to financial statements.
78
<PAGE>
INCORPORATED BY REFERENCE, PAGE 31 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues
Policy
Life premiums $ 39,052 $ 35,733 $ 32,827
Group premiums 2,634 2,506 2,367
-------- -------- --------
Total policy revenue $ 41,686 $ 38,239 $ 35,194
Net investment income 56,213 52,329 49,914
Net realized gains on investments 4,333 4,883 5,201
Other income 692 759 728
-------- -------- --------
Total revenues $102,924 $ 96,210 $ 91,037
Benefits and expenses
Death benefits $ 10,231 $ 8,459 $ 11,117
Interest on annuity deposits 31,202 29,870 27,663
Interest on universal life deposits 5,289 4,652 3,922
Surrender and other benefits 660 816 303
Increase in future life policy benefits 4,858 4,173 4,538
Amortization of deferred policy
acquisition costs 4,813 4,396 3,695
Commissions 2,214 1,777 1,766
General expenses 7,117 7,545 6,359
Taxes, licenses and fees 1,614 581 1,471
-------- -------- --------
Total benefits and expenses $ 67,998 $ 62,269 $ 60,834
-------- -------- --------
Income from operations $ 34,926 $ 33,941 $ 30,203
Provision for federal income taxes 11,601 11,856 10,643
-------- -------- --------
Net income $ 23,325 $ 22,085 $ 19,560
-------- -------- --------
Net income per share $ 2.47 $ 2.34 $ 2.07
======== ======== ========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
79
<PAGE>
INCORPORATED BY REFERENCE, PAGE 34 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Total
Shareholder Comprehensive Retained
Equity Income (Loss) Earnings
----------- ------------- --------
<S> <C> <C> <C>
Balance, January 1, 1997 $132,631 $121,077
Comprehensive income
Net income 19,560 $19,560 19,560
Other comprehensive income, net of tax 13,292 13,292
-------
Comprehensive income $32,852
-------
Dividends declared,
$.54 per share ( 5,103) ( 5,103)
-------- --------
Balance, December 31, 1997 $160,380 $135,534
-------- --------
Comprehensive income
Net income $ 22,085 $22,085 $ 22,085
Other comprehensive income, net of tax 5,736 5,736
-------
Comprehensive income $27,821
-------
Dividends declared,
$.60 per share ( 5,670) ( 5,670)
-------- --------
Balance, December 31, 1998 $182,531 $151,949
-------- --------
Comprehensive loss
Net income $ 23,325 $23,325 $ 23,325
Other comprehensive loss, net of tax ( 28,516) ( 28,516)
-------
Comprehensive loss ($ 5,191)
-------
Dividends declared,
$.66 per share ( 6,237) ( 6,237)
-------- --------
Balance, December 31, 1999 $171,103 $169,037
======== ========
</TABLE>
80
<PAGE>
INCORPORATED BY REFERENCE, PAGE 34 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Common Additional
Income (Loss) Stock Paid-in Capital
-------------- ------ ---------------
<S> <C> <C> <C>
Balance, January 1, 1997 $ 7,144 $3,780 $630
Comprehensive income
Net income
Other comprehensive income, net of tax 13,292
Comprehensive income
Dividends declared,
$.54 per share
------- ------ ----
Balance, December 31, 1997 $20,436 $3,780 $630
------- ------ ----
Comprehensive income
Net income
Other comprehensive income, net of tax 5,736
Comprehensive income
Dividends declared,
$.60 per share
------- ------ ----
Balance, December 31, 1998 $26,172 $3,780 $630
------- ------ ----
Comprehensive loss
Net income
Other comprehensive loss, net of tax
Comprehensive loss ( 28,516)
Dividends declared,
$.66 per share
------- ------ ----
Balance, December 31, 1999 ($ 2,344) $3,780 $630
------- ------ ----
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
81
<PAGE>
INCORPORATED BY REFERENCE, PAGE 33 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $23,325 $22,085 $19,560
Adjustments to reconcile net income to net
cash provided by operating activities:
Net amortization of bond and mortgage
premium 273 453 1,294
Amortization of deferred policy acquisition
costs 4,813 4,396 3,695
Real estate depreciation 83 83 86
Deferred federal income tax expense 1,955 3,755 1,638
Realized gains on investments ( 4,333) ( 4,883) ( 5,201)
Increase in premiums receivable ( 225) ( 359) ( 497)
Decrease (increase) in other receivables 184 ( 172) 385
Increase in accrued investment income ( 614) ( 9) ( 481)
Policy acquisition costs deferred ( 11,485) ( 10,745) ( 10,236)
(Increase) decrease in other assets ( 2,886) ( 2,789) 1,498
Increase in reinsurance recoverables and
reserve credits ( 828) ( 1,171) ( 980)
Increase in future life policy benefits and
claims 5,294 4,877 5,726
(Decrease) increase in other policyholder funds ( 2,543) 1,571 832
Increase (decrease) in reinsurance premium
due 390 ( 123) 222
(Decrease) increase in federal income taxes
payable ( 1,370) 759 ( 833)
Increase (decrease) in accounts payable and
due to affiliate 728 2,076 ( 1,745)
------- ------- -------
Net cash provided by operating activities $12,761 $19,804 $14,963
------- ------- -------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
82
<PAGE>
INCORPORATED BY REFERENCE, PAGE 33 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments:
Fixed maturities ($181,008) ($138,282) ($76,211)
Equity securities ( 52,798) ( 61,358) ( 38,955)
Mortgage loans ( 66) ( 160) ( 1,223)
Other invested assets ( 12,618) ( 9,537) ( 857)
Sales/maturities of investments:
Fixed maturities 108,947 98,877 49,663
Equity securities 53,672 51,509 42,921
Other invested assets 1,950 1,048 404
Principal payments received on mortgage loans 162 139 129
Loans made to policyholders ( 1,568) ( 1,549) ( 1,374)
Payments received on policy loans 857 636 656
-------- -------- -------
Net cash used in investing activities ($ 82,470) ($ 58,677) ($24,847)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in annuity deposits and supplementary
contracts $ 45,069 $ 34,459 $38,861
Increase in universal life deposits 13,286 12,464 12,034
Dividends paid to shareholders ( 6,096) ( 5,529) ( 5,008)
-------- -------- -------
Net cash provided by financing activities $ 52,259 $ 41,394 $45,887
-------- -------- -------
Net (decrease) increase in cash and cash
equivalents ($ 17,450) $ 2,521 $36,003
Cash and cash equivalents at beginning of year 44,808 42,287 6,284
-------- -------- -------
Cash and cash equivalents at end of year $ 27,358 $ 44,808 $42,287
-------- -------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,199 $ 1,115 $ 968
Income taxes 11,016 7,342 9,838
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
83
<PAGE>
INCORPORATED BY REFERENCE, PAGE 35 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
Dollars in thousands, except per share data.
NOTE 1. NATURE OF BUSINESS
Erie Family Life Insurance Company (the Company),
a Pennsylvania-domiciled insurer, 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 nine states and the
District of Columbia and is subject to supervision and
regulations of the states in which it operates. A majority
of the Company's business is written in Pennsylvania, Ohio,
Maryland and Virginia. See also Note 6.
The Company is owned 21.6% by the Erie Indemnity Company
(EIC) and 53.2% by the Erie Insurance Exchange (Exchange).
In 1999, the Exchange purchased 92,677 shares of the
Company's common stock increasing its ownership to 5,025,577
shares.
EIC is the attorney-in-fact for the Exchange. As management
company of the Erie Insurance Group of companies, EIC pays
operating expenses of the Company. The Company reimburses
EIC for direct expenses and its share of common expenses.
The Company also sells a significant amount of annuities
to affiliated companies of the Erie Insurance Group.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles
that differ from statutory accounting practices prescribed
or permitted for insurance companies by regulatory
authorities.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
The development of liabilities for future policy benefits
for the Company's products requires management to make
estimates and assumptions regarding mortality, morbidity,
lapse, expense, and investment experience. Such estimates
are primarily based on historical experience and, future
expectations of mortality, morbidity, expense, persistency,
and investment assumptions. Actual results could differ
materially from those estimates. Management monitors actual
experience, and where circumstances warrant, revises its
assumptions and the related future policy benefit estimates.
84
<PAGE>
INCORPORATED BY REFERENCE, PAGES 35 AND 36 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments
Fixed maturities and marketable equity securities are
classified as available-for-sale. Equity securities consist
of common and nonredeemable preferred stock while fixed
maturities consist of bonds, notes and redeemable preferred
stock. Available-for-sale securities are stated at fair
value, with the unrealized gains and losses, net of tax,
reported as a separate component of comprehensive income and
shareholders' equity. There are no securities classified as
"trading" securities or "held-to-maturity" securities.
Realized gains and losses on sales of investments, including
losses from declines in value of specific securities
determined by management to be other-than-temporary, are
recognized in income on the specific identification method.
Interest and dividend income is recorded as earned.
Mortgage loans on commercial real estate are recorded at
unpaid balances, adjusted for amortization of premium or
discount. A valuation allowance would be provided for
impairment in net realizable value based on periodic
valuations.
Other invested assets include investments in U.S. domestic
and foreign private equity and real estate limited
partnerships. The private equity limited partnerships invest
in small-to medium-sized companies. The private equity
limited partnerships are carried at their equity in the
estimated market values. Real estate limited partnerships
are recorded using the equity method, which approximates the
Company's share of the carrying value of the real estate
investments held by the partherships.
The Company has not held or issued derivative financial
instruments.
Financial instruments
Fair values of available-for-sale securities are based on
quoted market prices, where available, or dealer quotations.
The carrying value of receivables and liabilities arising in
the ordinary course of business approximates their fair
values.
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-term maturity of these
investments.
Deferred policy acquisition costs
The costs of acquiring new business, principally commissions
and certain costs of issuing policies, are deferred for
traditional life insurance. These costs, including
underwriting and medical examinations, are amortized over
the premium paying period of the related policies in
proportion to the total anticipated premium revenue stream.
Anticipated premium revenue is estimated using the same
assumptions as 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.
85
<PAGE>
INCORPORATED BY REFERENCE, PAGE 36 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Universal life and annuity deferred acquisition costs are
amortized in relation to the present value of estimated
future gross profits on the contracts over a 20-year period.
Deferred policy acquisition costs are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $70,916 $64,567 $58,026
Additions 11,485 10,745 10,236
Amortization ( 4,813) ( 4,396) ( 3,695)
------- ------- -------
Balance at end of year $77,588 $70,916 $64,567
======= ======= =======
</TABLE>
Insurance liabilities
Liabilities for life insurance and income-paying annuity
future policy benefits are computed primarily by the net
level premium method with assumptions as to anticipated
mortality, withdrawals, lapses and investment yields.
Deferred annuity future policy benefit liabilities are
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.
Variations are inherent in such calculations due to the
estimates and assumptions necessary in the calculations.
Interest rate assumptions for non-interest sensitive life
insurance range from 3.5% to 4% on policies issued in 1980
and prior years and 6% to 7.25% on policies issued in 1981
and subsequent years. Mortality and withdrawal assumptions
are based on tables typically used in the industry.
Annuities are credited with varying interest rates
determined at the discretion of the Company subject to
certain minimums. During 1999, deposits to individual
annuities earned interest at rates ranging from 5% to 5.75%.
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.
Liability for guaranty fund assessments
The Company may be required, under the solvency or guaranty
laws of the various states in which it is licensed, to pay
assessments up to prescribed limits to fund policyholder
losses or liabilities of insolvent life insurance companies.
Certain states permit these assessments, or a portion
thereof, to be recovered as an offset to future premium
taxes.
Assessments are recognized when they are imposed or
information indicates it is probable one will be imposed,
and an event obligating the Company has occurred and the
amount is reasonably estimated. When the assessment is
subject to credit against future premium taxes and judged to
be recoverable, it may be capitalized and amortized on a
basis consistent with the credits to be realized under
applicable state law. The Company's estimated liability for
guaranty fund and other assessments was $14 at December 31,
1999 and 1998.
86
<PAGE>
INCORPORATED BY REFERENCE, PAGES 36 AND 37 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recognition of premium revenues and losses
Premiums on traditional life insurance contracts are
reported as earned revenue when due. Reserves for future
policy benefits are established as premiums are earned. For
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.
Reinsurance
The Statements of Operations are reflected net of
reinsurance activities. Gross revenue and benefits and
expenses incurred are reduced for amounts expected to be
recovered under reinsurance agreements. Reinsurance
transactions are recorded "gross" on the Statements of
Financial Position.
Income taxes
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 taxes are provided on a liability
method whereby deferred tax assets are recognized for
deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary
differences. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Software development costs
In March of 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This SOP provided guidance on
accounting for the costs of computer software developed or
obtained for internal use. The Company adopted this SOP in
the first quarter of 1998. Software development costs,
principally related to the CyberLife project, totaling
$2,495 and $1,541 at December 31, 1999 and 1998
respectively, are capitalized and included in other assets.
These costs are being amortized on a straight-line basis
over the expected useful life of the asset.
Earnings per share
Earnings per share amounts are based on the weighted average
number of common shares outstanding during each of the
respective years.
87
<PAGE>
INCORPORATED BY REFERENCE, PAGE 37 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 3. INVESTMENTS
The following tables summarize the cost and market value of
securities at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------- ------- ------- --------
December 31, 1999
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U. S. treasuries and
government agencies $ 9,390 $ 75 $ 63 $ 9,402
States and political
subdivisions 2,055 45 0 2,100
Special revenue 6,860 220 0 7,080
Public utilities 61,886 765 2,939 59,712
U. S. banks, trusts
and insurance companies 113,616 615 4,740 109,491
U. S. industrial
and miscellaneous 396,128 2,257 16,077 382,308
Foreign governments- agency 2,991 0 111 2,880
Foreign banks, trusts and
insurance companies 9,981 0 443 9,538
Foreign industrial and miscellaneous 46,752 295 2,759 44,288
-------- ------- ------- --------
Total bonds 649,659 4,272 27,132 626,799
Redeemable preferred stock:
U.S. banks, trusts and
insurance companies 2,000 78 0 2,078
-------- ------- ------- --------
Total fixed maturities $651,659 $ 4,350 $27,132 $628,877
======== ======= ======= ========
Equity Securities:
Common stock:
U. S. banks, trusts
and insurance companies $ 9,188 $ 2,150 $ 561 $ 10,777
U. S. industrial and miscellaneous 50,646 26,021 4,985 71,682
Foreign industrial and miscellaneous 1,241 0 305 936
Non-redeemable preferred stock:
U. S. banks, trusts and
insurance companies 25,889 274 1,814 24,349
U. S. industrial and miscellaneous 24,837 0 2,390 22,447
Foreign banks, trusts and
insurance companies 12,873 0 969 11,904
-------- ------- ------- --------
Total equity securities $124,674 $28,445 $11,024 $142,095
======== ======= ======= ========
Total available-for-sale securities $776,333 $32,795 $38,156 $770,972
======== ======= ======= ========
</TABLE>
88
<PAGE>
INCORPORATED BY REFERENCE, PAGE 38 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------- -------- -------- --------
December 31, 1998
<S> <C> <C> <C> <C>
Fixed Maturities:
U. S. treasuries and
government agencies $ 20,431 $ 1,360 $ 27 $ 21,764
States and political
subdivisions 2,056 107 0 2,163
Special revenue 11,065 783 0 11,848
Public utilities 70,265 3,731 455 73,541
U. S. banks, trusts
and insurance companies 113,543 8,531 1,086 120,988
U. S. industrial
and miscellaneous 331,432 17,019 1,202 347,249
Foreign governments- agency 2,990 0 308 2,682
Foreign industrial and miscellaneous 24,693 908 313 25,288
-------- ------- ------- --------
Total fixed maturities $576,475 $32,439 $ 3,391 $605,523
======== ======= ======= ========
Equity Securities:
Common stock:
U. S. banks, trusts
and insurance companies $ 7,254 $ 4,523 $ 172 $ 11,605
U. S. industrial and miscellaneous 40,574 11,751 6,615 45,710
Non-redeemable preferred stock:
Public utilities 4,000 40 0 4,040
U. S. banks, trusts and
insurance companies 43,057 1,864 151 44,770
U. S. industrial and miscellaneous 12,951 216 529 12,638
Foreign banks, trusts and
insurance companies 12,874 441 384 12,931
Foreign industrial and miscellaneous 3,900 200 0 4,100
-------- ------- ------- --------
Total equity securities $124,610 $19,035 $ 7,851 $135,794
======== ======= ======= ========
Total available-for-sale securities $701,085 $51,474 $11,242 $741,317
======== ======= ======= ========
</TABLE>
89
<PAGE>
INCORPORATED BY REFERENCE, PAGE 38 AND 39 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 3. INVESTMENTS (CONTINUED)
Sources of net investment income follow for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Fixed maturities $47,068 $42,068 $39,466
Equity securities 7,134 8,120 8,942
Other 3,706 3,668 2,919
------- ------- -------
Total investment income $57,908 $53,856 $51,327
Investment expense 1,695 1,527 1,413
------- ------- -------
Net investment income $56,213 $52,329 $49,914
======= ======= =======
</TABLE>
Sources of realized gains and losses on investments reflected in
operations follow for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Realized gains:
Fixed maturities $1,755 $1,936 $1,264
Equity securities 5,218 3,657 4,466
Other, net 0 180 0
------ ------ ------
Total gains $6,973 $5,773 $5,730
------ ------ ------
Realized losses:
Fixed maturities $ 360 $ 207 $ 353
Equity securities 2,280 683 176
------ ------ ------
Total losses $2,640 $ 890 $ 529
------ ------ ------
Net realized gains on investments $4,333 $4,883 $5,201
====== ====== ======
</TABLE>
The following is a summary of fixed maturities at December 31,
1999, by remaining term to contractual maturity:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
--------- ----------
<S> <C> <C>
Due in one year or less $ 7,662 $ 7,649
Due after one year through five years 217,826 213,038
Due after five years through ten years 110,620 106,160
Due after ten years 315,551 302,030
-------- --------
$651,659 $628,877
======== ========
</TABLE>
90
<PAGE>
INCORPORATED BY REFERENCE, PAGE 39 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 3. INVESTMENTS (CONTINUED)
Bonds having a fair value of $1,898 at December 31, 1999 were on
deposit with various regulatory authorities as required by law.
Fixed maturities (bonds) having a fair value of $15,019 are
pledged as collateral on a $10,000 line of credit with a bank.
There were no borrowings on the line during 1999 and 1998.
Net unrealized gains and losses on investments are credited or
charged directly to other comprehensive income. At December 31,
1999, net unrealized losses on investment securities of $2,344
consisted of $34,652 in unrealized gains less $38,258 in
unrealized losses and a deferred tax benefit of $1,262.
Changes in unrealized (losses) gains include the following for
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Equity securities $ 6,237 $ 2,129 $ 3,966
Fixed maturities ( 51,830) 6,664 16,482
Other invested assets 1,723 31 0
Deferred federal income tax
benefit (expense) 15,354 ( 3,088) ( 7,156)
------- ------- -------
(Decrease) increase in
unrealized (losses) gains ($28,516) $ 5,736 $13,292
======= ======= =======
</TABLE>
NOTE 4. COMPREHENSIVE INCOME
The Company adopted the provisions of the Statement of Financial
Accounting Standards (FAS) No. 130, "Reporting Comprehensive
Income," in 1998. Comprehensive income is defined as any change
in equity from transactions and other events originating from
nonowner sources. The components of other comprehensive income
follow for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized holding (losses) gains arising
during period ($48,203) $13,707 $25,649
Less: reclassification adjustment for gains
included in net income 4,333 4,883 5,201
------- ------- -------
Net unrealized holdings (losses) gains
arising during period ($43,870) $ 8,824 $20,448
------- ------- -------
Income tax benefit (expense) related to
unrealized (losses) or gains $15,354 ($ 3,088) ($ 7,156)
------- ------- -------
Other comprehensive (loss) income, net
of tax ($28,516) $ 5,736 $13,292
======= ======= =======
</TABLE>
91
<PAGE>
INCORPORATED BY REFERENCE, PAGES 39 AND 40 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 5. LIABILITY FOR UNPAID POLICY AND CONTRACT CLAIMS
Activity in the liability for unpaid policy and contract claims
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Balance at January 1 $ 1,801 $2,050 $ 1,703
Less reinsurance recoverables ( 449) ( 163) ( 133)
------- ------ -------
Net balance at January 1 $ 1,352 $1,887 $ 1,570
Total death claims incurred 10,231 8,459 11,117
Total death claims paid,
net of reinsurance recoveries 10,462 8,994 10,800
------- ------ -------
Net balance at December 31 $ 1,121 $1,352 $ 1,887
Plus reinsurance recoverables 184 449 163
Balance at December 31 $ 1,305 $1,801 $ 2,050
======= ====== =======
</TABLE>
NOTE 6. LIFE PREMIUMS AND ANNUITY & UNIVERSAL LIFE DEPOSITS
The Company offers a range of products and services, but
operates as one reportable life insurance segment. The Company's
portfolio of life insurance includes permanent life, endowment
and term policies, including whole life, mortgage and decreasing
term, group, and universal life insurance. The face value of new
life business issued in 1999 had a ratio of 5:1 of term
insurance to whole life insurance coverage.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Life Insurance Premiums earned:
Term $27,256 $25,258 $23,168
Whole life 5,092 4,781 4,637
Universal life 10,625 9,748 8,783
Other 2,508 2,405 2,255
------- ------- -------
Total direct premiums earned 45,481 42,192 38,843
Reinsurance, net 3,795 3,953 3,649
------- ------- -------
$41,686 $38,239 $35,194
======= ======= =======
Deposits:
Universal life $11,792 $10,692 $10,734
Annuity 67,115 56,728 58,306
------- ------- -------
$78,907 $67,420 $69,040
======= ======= =======
</TABLE>
Annuity deposits in 1999, 1998 and 1997 included $5,322, $6,413
and $1,992, respectively, of deposits on annuity contracts
purchased by the Erie Insurance Group Retirement Plan for
Employees. Structured settlement annuities sold to affiliated
property and casualty companies of the Erie Insurance Group
totaled $23,312, $17,883 and $17,781, in 1999, 1998 and 1997,
respectively.
92
<PAGE>
INCORPORATED BY REFERENCE, PAGE 40 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 7. FEDERAL INCOME TAXES
The provision for federal income taxes consists of the following
for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current $ 9,646 $ 8,101 $ 9,005
Deferred 1,955 3,755 1,638
------- ------- -------
$11,601 $11,856 $10,643
======= ======= =======
</TABLE>
A reconciliation of the provision for income taxes with amounts
determined by applying the statutory federal income tax rates to
pre-tax income is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Federal income taxes at statutory rates $12,224 $11,879 $10,571
Dividends received deduction and
tax-exempt interest ( 85) ( 182) ( 299)
Other ( 538) 159 371
------- ------- -------
Provision for federal income taxes $11,601 $11,856 $10,643
======= ======= =======
</TABLE>
Temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities that give rise
to deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
-------- --------
<S> <C> <C>
Deferred policy acquisition costs $23,538 $21,523
Liability for future life and annuity policy benefits ( 5,577) ( 6,117)
Unrealized (losses) gains ( 1,262) 14,092
Other 1,154 1,754
------- -------
Deferred income tax liability $17,853 $31,252
======= =======
</TABLE>
NOTE 8. RELATED PARTY TRANSACTIONS
Expense reimbursements
Reimbursements to EIC for operating expenses paid on behalf
of the Company are made on a monthly basis. The amount of
these reimbursements for the Company totaled $14,740,
$14,305 and $13,038 in 1999, 1998 and 1997, respectively.
The Employees of the Company participate in the pension and
other Employee benefit plans of EIC. The benefits are based
on years of service and salary. Pension costs are funded by
EIC in amounts sufficient to at least meet ERISA minimum
funding requirements. Pension and other benefit costs
reimbursed by the Company to EIC equaled $115, $181 and $183
in 1999, 1998 and 1997, respectively.
93
<PAGE>
INCORPORATED BY REFERENCE, PAGES 40 AND 41 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 8. RELATED PARTY TRANSACTIONS (CONTINUED)
Annuities purchased by affiliates
The Erie Insurance Group affiliated property and casualty
insurance companies periodically purchase annuities from the
Company in connection with the structured settlement of
claims. Also, the Erie Insurance Group Retirement Plan for
Employees purchases from the 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 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 $42,131 and $38,774 at December 31, 1999 and 1998,
respectively. The reserves held for structured settlement
annuities sold to the affiliated property and casualty
insurance companies equal $149,920 and $128,382 at December
31, 1999 and 1998, respectively. See also Note 6.
Note payable to EIC
The $15,000 note payable to EIC bears an annual interest
rate of 6.45% and all payments of interest and principal of
the note may be repaid only out of unassigned surplus of the
Company, subject to prior approval of the Pennsylvania
Insurance Commissioner. Interest on the surplus note is
scheduled to be paid semi-annually. The note will be payable
on demand on or after December 31, 2005. During 1999, 1998
and 1997, the Company paid interest to EIC totaling $968 in
each year.
Property and equipment
The Company owns certain real estate it leases to EIC. The
real estate is recorded net of accumulated depreciation of
$1,362 and $1,279 at December 31, 1999 and 1998,
respectively. Rentals paid to the Company under this lease
agreement totaled $303 in 1999 and $343 in 1998. Future
minimum rentals under this agreement are as follows:
2000 $ 309
2001 312
2002 318
2003 321
2004 328
Thereafter 1,122
------
Total $2,710
======
EIC purchases certain software and equipment for use by the
Company. Depreciation and applicable interest are charged to
the Company throughout the estimated useful life of the
asset and included in general expenses. Depreciation and
interest charged the Company in 1999 and 1998 amounted to
$574 and $384, respectively.
94
<PAGE>
INCORPORATED BY REFERENCE, PAGE 41 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 9. REINSURANCE
The Company cedes insurance to other insurers and reinsurers
under individual risk contracts. Reinsurance arrangements
mitigate losses arising from large risks.
Amounts recoverable or credited under reinsurance contracts are
included in total assets as reinsurance recoverable or reserve
credit for reinsurance ceded. The cost of reinsurance related to
long-duration contracts is accounted for over the life of the
reinsured policies using assumptions consistent with those used
to account for the underlying policies.
A contingent liability exists with respect to reinsurance
receivables and the reserve credit for reinsurance ceded which
would become a liability in the event 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.
Policy revenues, benefits and expenses reflected in the
Statements of Operations have been reduced by the following
amounts due to reinsurance cessions:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Policy revenue $3,920 $4,054 $3,761
Death benefits 1,766 1,490 1,319
Future life policy benefits 932 953 842
Commissions 1,567 1,654 1,462
</TABLE>
The Company has an insignificant amount of assumed reinsurance
activity.
NOTE 10. STATUTORY INFORMATION
The Company prepares its statutory financial statements in
accordance with accounting practices prescribed by the
Pennsylvania Insurance Department. Accounting principles used to
prepare statutory financial statements differ from financial
statements prepared on the basis of generally accepted
accounting principles.
95
<PAGE>
INCORPORATED BY REFERENCE, PAGES 41 AND 42 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 10. STATUTORY INFORMATION (CONTINUED)
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, 1999, 1998 and 1997,
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Statutory net income $14,372 $13,787 $12,924
Reconciling items:
Policy liabilities and accruals 3,743 2,344 1,024
Deferred policy acquisition costs,
net of amortization 6,672 6,349 6,540
Investment valuation differences 349 2,360 1,015
Deferred taxes ( 1,955) ( 3,755) ( 1,638)
Capitalized salaries and benefits 953 1,541 0
Other ( 809) ( 541) ( 305)
------- ------- -------
GAAP net income $23,325 $22,085 $19,560
======= ======= =======
</TABLE>
A reconciliation of shareholders' equity as filed with
regulatory authorities to shareholders' equity reported in the
accompanying financial statements as of December 31, 1999 and
1998, follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Statutory shareholders' equity $ 99,181 $ 85,907
Reconciling items:
Asset valuation and interest
maintenance reserves 45,084 37,324
Investment valuation differences ( 25,824) 30,745
Deferred policy acquisition costs 77,588 70,916
Surplus note ( 15,000) ( 15,000)
Policy liabilities and accruals 10,190 6,447
Deferred taxes ( 17,853) ( 31,252)
Deferred and uncollected premiums ( 5,458) ( 4,807)
Capitalized salaries and benefits, net of amortization 2,495 1,541
Other 700 710
-------- --------
GAAP shareholders' equity $171,103 $182,531
======== ========
</TABLE>
The amount of dividends the Company can pay to its shareholders
without the prior approval of the Pennsylvania Insurance
Commissioner is limited by statute to the greater of: (a) 10
percent of its statutory surplus as regards policyholders as
shown on its last annual statement on file with the
commissioner, or (b) the net income as reported for the period
covered by such annual statement, but shall not include pro rata
distribution of any class of the insurer's own securities.
Accordingly, the maximum dividend payout which may be made in
2000 without prior Pennsylvania Commissioner approval is
$14,372. Dividends declared to shareholders totaled $6,237 in
1999, and $5,670 in 1998.
96
<PAGE>
INCORPORATED BY REFERENCE, PAGE 42 AND 43 OF THE COMPANY'S 1999 ANNUAL
REPORT TO SHAREHOLDERS
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following results 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>
1999
Total policy revenue $ 9,844 $10,978 $10,176 $10,688
Net investment income 13,370 13,930 14,139 14,774
Net realized gains (losses) on investments 825 1,826 2,236 ( 554)
Other income 237 135 219 101
------- ------- ------- -------
Total revenues $24,276 $26,869 $26,770 $25,009
======= ======= ======= =======
Income from operations $ 7,433 $ 9,339 $ 9,450 $ 8,704
Provision for federal income taxes 2,551 3,460 2,718 2,872
------- ------- ------- -------
Net income $ 4,882 $ 5,879 $ 6,732 $ 5,832
======= ======= ======= =======
Net income per share $ 0.52 $ 0.62 $ 0.71 $ 0.62
======= ======= ======= =======
Comprehensive (loss) income ($ 2,086) ($ 4,831) ($ 4,162) $ 5,888
======= ======= ======= =======
1998
Total policy revenue $ 8,981 $ 9,833 $ 9,494 $ 9,931
Net investment income 12,790 12,996 12,575 13,968
Net realized gains on investments 1,836 866 775 1,406
Other income 164 226 238 131
------- ------- ------- -------
Total revenues $23,771 $23,921 $23,082 $25,436
======= ======= ======= =======
Income from operations $10,017 $ 8,617 $ 5,910 $ 9,397
Provision for federal income taxes 3,519 3,053 2,247 3,037
------- ------- ------- -------
Net income $ 6,498 $ 5,564 $ 3,663 $ 6,360
======= ======= ======= =======
Net income per share $ 0.69 $ 0.59 $ 0.39 $ 0.67
======= ======= ======= =======
Comprehensive income (loss) $ 8,754 $ 7,877 ($ 2,464) $13,654
======= ======= ======= =======
1997
Total policy revenue $ 8,468 $ 8,814 $ 8,661 $ 9,251
Net investment income 12,401 12,211 12,419 12,883
Net realized gains on investments 622 746 2,508 1,325
Other income 140 186 190 212
------- ------- ------- -------
Total revenues $21,631 $21,957 $23,778 $23,671
======= ======= ======= =======
Income from operations $ 6,586 $ 6,997 $ 9,058 $ 7,562
Provision for federal income taxes 2,185 2,384 3,531 2,543
------- ------- ------- -------
Net income $ 4,401 $ 4,613 $ 5,527 $ 5,019
======= ======= ======= =======
Net income per share $ 0.47 $ 0.49 $ 0.58 $ 0.53
======= ======= ======= =======
Comprehensive (loss) income ($ 5,748) $15,107 $15,701 $ 7,792
======= ======= ======= =======
</TABLE>
97
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ERIE
FAMILY LIFE INSURANCE COMPANY'S STATEMENT OF FINANCIAL POSITION AND STATEMENT OF
OPERATIONS DATED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000033416
<NAME> ERIE FAMILY LIFE INSURANCE COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 628,877
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 142,095
<MORTGAGE> 9,975
<REAL-ESTATE> 1,458
<TOTAL-INVEST> 817,460
<CASH> 27,358
<RECOVER-REINSURE> 464
<DEFERRED-ACQUISITION> 77,588
<TOTAL-ASSETS> 954,532
<POLICY-LOSSES> 734,768
<UNEARNED-PREMIUMS> 152
<POLICY-OTHER> 1,305
<POLICY-HOLDER-FUNDS> 5,623
<NOTES-PAYABLE> 0
0
0
<COMMON> 4,410
<OTHER-SE> 166,693
<TOTAL-LIABILITY-AND-EQUITY> 954,532
41,686
<INVESTMENT-INCOME> 56,213
<INVESTMENT-GAINS> 4,333
<OTHER-INCOME> 692
<BENEFITS> 52,240
<UNDERWRITING-AMORTIZATION> 4,813
<UNDERWRITING-OTHER> 10,945
<INCOME-PRETAX> 34,926
<INCOME-TAX> 11,601
<INCOME-CONTINUING> 23,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,325
<EPS-BASIC> 2.47
<EPS-DILUTED> 2.47
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
