UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to ______
Commission file number 2-39458
ERIE FAMILY LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1186315
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Erie Insurance Place, Erie, Pennsylvania 16530
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (814) 870-2000
Indicate by check mark whether the registrant (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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: 9,450,000 shares of Common
Stock outstanding on April 28, 2000.
1
<PAGE>
INDEX
ERIE FAMILY LIFE INSURANCE COMPANY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Statements of Financial Position--March 31, 2000 and December 31, 1999
Statements of Operations--Three months ended March 31, 2000 and 1999
Statements of Comprehensive Income--Three months ended March 31, 2000
and 1999
Statements of Cash Flows--Three months ended March 31, 2000 and 1999
Notes to Financial Statements--March 31, 2000
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE>
PART I. FINANCIAL INFORMATION
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, December 31,
ASSETS 2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Investments:
Fixed Maturities at fair value (amortized cost
of $677,417 and $651,659, respectively) $ 657,333 $ 628,877
Equity Securities at fair value
(cost of $127,466 and $124,674, respectively) 152,711 142,095
Real Estate 1,438 1,458
Policy Loans 6,897 6,724
Real Estate Mortgage Loans 8,417 9,975
Other Invested Assets 37,384 28,331
--------- ---------
Total Invested Assets $ 864,180 $ 817,460
Cash and Cash Equivalents 8,896 27,358
Premiums Receivable from Policyholders 3,888 4,056
Reinsurance Recoverable 87 464
Other Receivables 209 171
Accrued Investment Income 14,364 10,896
Deferred Policy Acquisition Costs 78,960 77,588
Reserve Credit for Reinsurance Ceded 7,060 6,927
Prepaid Federal Income Taxes 0 758
Other Assets 8,835 8,854
--------- ---------
Total Assets $ 986,479 $ 954,532
========= =========
<FN>
See notes to financial statements.
</FN>
</TABLE>
3
<PAGE>
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, December 31,
2000 1999
LIABILITIES AND SHAREHOLDERS' EQUITY ----------- ------------
(Unaudited)
<S> <C> <C>
Liabilities:
Policy Liabilities and Accruals:
Future Life Policy Benefits $ 71,557 $ 70,329
Policy and Contract Claims 1,896 1,305
Annuity Deposits 570,112 569,218
Universal Life Deposits 97,791 94,640
Supplementary Contracts Not
Including Life Contingencies 584 581
Other Policyholder Funds 4,729 5,623
Federal Income Taxes Payable 2,159 0
Deferred Income Taxes 25,373 17,853
Reinsurance Premium Due 176 692
Accounts Payable and Accrued Expenses 4,569 5,116
Note Payable to Erie Indemnity Company 15,000 15,000
Due to Affiliate 1,825 1,513
Dividends Payable 1,701 1,559
--------- ---------
Total Liabilities $ 797,472 $ 783,429
--------- ---------
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 Income (Loss) 10,755 ( 2,344)
Retained Earnings 173,842 169,037
--------- ---------
Total Shareholders' Equity $ 189,007 $ 171,103
--------- ---------
Total Liabilities and Shareholders' Equity $ 986,479 $ 954,532
========= =========
<FN>
See notes to financial statements.
</FN>
</TABLE>
4
<PAGE>
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Policy:
Life Premiums, net of premiums ceded of
$903 and $733, respectively $ 9,797 $ 9,221
Group Premiums 675 623
-------- --------
Total Policy Revenue $ 10,472 $ 9,844
Investment Income, net of expenses of
$442 and $408, respectively 15,734 13,370
Net Realized Gains on Investments 2,249 825
Other Income 305 237
-------- --------
Total Revenues $ 28,760 $ 24,276
-------- --------
Benefits and Expenses:
Death Benefits, net of reinsurance recoveries
of $1,023 and $626, respectively $ 2,726 $ 2,561
Interest on Annuity Deposits 8,552 7,304
Interest on Universal Life Deposits 1,458 1,274
Surrender and Other Benefits 275 283
Increase in Future Life Policy Benefits, net of
the increase in reserve credit for reinsurance
ceded of $133 and $171, respectively 1,094 1,158
Amortization of Deferred Policy
Acquisition Costs 1,478 1,594
Commissions, net of reinsurance reimbursements
of $379 and $215, respectively 477 533
General Expenses 2,218 1,735
Taxes, Licenses and Fees 534 401
-------- --------
Total Benefits and Expenses $ 18,812 $ 16,843
-------- --------
Income From Operations $ 9,948 $ 7,433
Provision for Federal Income Taxes:
Current 2,975 2,305
Deferred 467 246
-------- --------
Total Provision for Federal Income Taxes 3,442 2,551
-------- --------
Net Income $ 6,506 $ 4,882
======== ========
Net Income Per Share $ 0.69 $ 0.52
======== ========
Dividends Declared Per Share $ 0.18 $ 0.165
======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
5
<PAGE>
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands)
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Net Income $ 6,506 $ 4,882
-------- --------
Unrealized Gains (Losses) on Securities:
Unrealized Holding Gains (Losses) Arising
During Period 22,402 ( 9,895)
Less: Reclassification Adjustment for Gains
Included in Net Income ( 2,249) ( 825)
-------- --------
Net Unrealized Holding Gains (Losses)
Arising During Period $ 20,153 ($ 10,720)
-------- --------
Income Tax (Expense) Benefit Related to
Unrealized Gains (Losses) ( 7,054) 3,752
-------- --------
Other Comprehensive Income (Loss),
Net of Tax $ 13,099 ($ 6,968)
-------- --------
Comprehensive Income (Loss) $ 19,605 ($ 2,086)
======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
6
<PAGE>
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands)
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,506 $ 4,882
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization of bond and mortgage
premium 53 70
Amortization of deferred policy acquisition costs 1,478 1,594
Real estate depreciation 21 21
Deferred federal income taxes 467 246
Realized gains on investments ( 2,249) ( 825)
Decrease in premiums receivable 168 339
(Increase) decrease in other receivables ( 38) 142
Increase in accrued investment income ( 3,468) ( 2,628)
Policy acquisition costs deferred ( 2,849) ( 2,962)
Decrease (Increase) in other assets 19 ( 285)
Decrease in reinsurance recoverables
and reserve credits 244 333
Increase in future life policy benefits and claims 1,819 783
Decrease in other policyholder funds ( 893) ( 3,664)
Decrease in reinsurance premium due ( 516) ( 146)
Increase in federal income taxes payable 2,917 521
Decrease in accounts payable and due to affiliate ( 237) ( 93)
-------- --------
Net cash provided by (used in) operating activities $ 3,442 ($ 1,672)
-------- --------
Cash flows from investing activities:
Purchase of investments:
Fixed maturities ($ 36,557) ($ 55,917)
Equity securities ( 7,342) ( 12,058)
Mortgage loans 0 ( 66)
Other invested assets ( 1,011) ( 849)
Sales/maturities of investments:
Fixed maturities 14,676 32,502
Equity securities 2,867 6,429
Other invested assets 1,589 16
Principal payments received on mortgage loans 1,558 38
Loans made to policyholders ( 457) ( 348)
Payments received on policy loans 284 249
-------- --------
Net cash used in investing activities ($ 24,393) ($ 30,004)
-------- --------
<FN>
See notes to financial statements.
</FN>
</TABLE>
7
<PAGE>
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS (Unaudited) -- Continued
<TABLE>
<CAPTION>
(Amounts in thousands)
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from financing activities:
Increase in annuity and supplementary
contracts $ 897 $ 13,606
Increase in universal life deposits 3,151 3,167
Dividends paid to shareholders ( 1,559) ( 1,417)
-------- --------
Net cash provided by financing
activities $ 2,489 $ 15,356
-------- --------
Net decrease in cash and cash equivalents ( 18,462) ( 16,320)
Cash and cash equivalents at beginning of year 27,358 44,809
-------- --------
Cash and cash equivalents at end of quarter $ 8,896 $ 28,489
======== ========
Supplemental disclosures of cash flow information: Cash paid during the period for:
Interest $ 59 $ 53
Income taxes 0 1,700
<FN>
See notes to financial statements.
</FN>
</TABLE>
8
<PAGE>
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
All amounts are in thousands of dollars,except per share data.
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1999.
NOTE B -- INVESTMENTS
Management considers all fixed maturities and marketable equity securities
available-for-sale. Marketable equity securities consist primarily of common and
non-redeemable 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 shareholders' equity. Management determines the appropriate
classification of fixed maturities at the time of purchase and reevaluates such
designation as of each statement of financial position date.
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
March 31, 2000
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasuries and Government
Agencies $ 12,378 $ 310 $ 96 $ 12,592
States and Political Subdivisions 195 8 0 203
Special Revenue 9,523 236 0 9,759
Public Utilities 61,813 719 2,516 60,016
U.S. Banks, Trusts and Insurance
Companies 113,633 830 3,845 110,618
U.S. Industrial and Miscellaneous 411,488 2,332 14,155 399,665
Foreign Governments-Agency 2,992 0 137 2,855
Foreign Banks, Trusts and Insurance
Companies 9,981 0 379 9,602
Foreign Industrial and Miscellaneous 49,750 296 3,816 46,230
--------- -------- -------- ---------
Total Bonds $ 671,753 $ 4,731 $ 24,944 $ 651,540
Redeemable Preferred Stock 5,664 129 0 5,793
--------- -------- -------- ---------
Total Fixed Maturities $ 677,417 $ 4,860 $ 24,944 $ 657,333
--------- -------- -------- ---------
Equity Securities:
Common Stock $ 62,725 $ 35,306 $ 5,778 $ 92,253
Non-Redeemable Preferred Stock 64,741 300 4,583 60,458
--------- -------- -------- ---------
Total Equity Securities $ 127,466 $ 35,606 $ 10,361 $ 152,711
--------- -------- -------- ---------
Total Available-for-Sale Securities $ 804,883 $ 40,466 $ 35,305 $ 810,044
========= ======== ======== =========
</TABLE>
9
<PAGE>
ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (Continued)
If management determines that any declines in market value of these investments
are other than temporary, the securities will be written-down to the realizable
value and reflected in income. If a bond is in default of interest payments and
it is determined that liquidation of the security would be in the Company's best
interest, the security will be sold to return the proceeds to income producing
assets.
At March 31, 2000, the amortized cost of the Company's five largest investments
in corporate debt securities totaled $35.4 million, none of which individually
exceeded $8.0 million. These investments had a market value of $34.9 million.
Real estate investments are carried on the statements of financial position at
cost, less allowances for depreciation and possible losses. Commercial mortgage
loans on real estate are carried at their unpaid balances, adjusted for
amortization of premium or discount, less allowances for possible loan losses.
Policy loans are carried at their unpaid balances. Other invested assets include
investments in U.S. domestic and foreign private equity and real estate limited
partnerships. The private equity limited partnerships are carried at their
equity in the estimated market values. At March 31, 2000 and December 31, 1999,
net unrealized gains on private equity limited partnerships totaled $7.5 million
and $1.2 million, respectively, net of deferred taxes. These amounts are
included in total shareholders' equity as accumulated other comprehensive income
(loss). 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 partnerships.
The fair values of the Company's investments in real estate, mortgage loans,
policy loans, and other invested assets, approximate the values presented in the
financial statements.
NOTE C - SEGMENT AND PREMIUM INFORMATION
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 following is a detail of life premiums and annuity and universal life
deposits by major product grouping.
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Life insurance premiums earned:
Term $ 6,645 $ 6,133
Whole life 1,279 1,190
Universal life 2,776 2,631
Other 675 623
-------- --------
Total direct premiums earned $ 11,375 $ 10,577
Reinsurance, net 903 733
-------- --------
Total policy revenue $ 10,472 $ 9,844
======== ========
Deposits:
Universal life $ 2,777 $ 2,925
Annuity 11,780 18,227
-------- --------
Total deposits $ 14,557 $ 21,152
======== ========
</TABLE>
NOTE D -- GEOGRAPHIC EXPANSION
On March 7, 2000 the Company announced the Erie Insurance Group's intention to
expand its marketing territory into Wisconsin. Wisconsin is the tenth state that
will be served by the Company, in addition to the District of Columbia. In
Wisconsin, the Company plans on writing all lines of life and annuity products
it currently offers.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and related notes found on pages 3 through 10, since they
contain important information that is helpful in evaluating the Company's
operating results and financial condition.
FINANCIAL OVERVIEW
First quarter net income increased $1,624,744 or 33.3%, for 2000, to $6,506,424,
or $.69 per share. Strong investment gains and solid premium growth contributed
to the financial results in 2000.
REVENUES
Analysis of Policy Revenue
Total policy revenue increased $628,492, or 6.4%, to $10,472,002 in the first
quarter of 2000. Contributing to this growth was increased premiums on
traditional life insurance policies of 6.5% to $7,923,380 for the quarter ended
March 31, 2000. Total policies in force on traditional life insurance products
increased 4.4% to 160,147 at March 31, 2000 compared to 153,385 policies at
March 31, 1999.
Analysis of Investment-related Income
Net investment income increased $2,364,180, or 17.7%, in the first quarter of
2000 due to increased levels of investment from cash flows generated by the
Company's operations and by cash from annuity and universal life deposits.
Net realized gains on investments increased to $2,248,737 at March 31, 2000
compared to $824,849 at March 31, 1999. Total invested assets of the Company
were $864,180,147 at March 31, 2000, an increase of $46,720,266, or 5.7%, over
the December 31, 1999 levels.
BENEFITS AND EXPENSES
Analysis of Policy-related Benefits and Expenses
Net death benefits on life insurance policies increased 6.4% in the first
quarter of 2000 to $2,725,779, compared to $2,561,242, for the same period in
1999. 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. Management believes
that its underwriting philosophy and practices are sound.
Interest expense incurred on deposits increased 16.7% to $10,009,989 in the
first quarter of 2000, from $8,577,541 in the first quarter of 1999. The
increase in interest expense was the result of an increase in the credited
interest rate on annuity deposits in the first quarter of 2000 combined with the
$45,630,300 increase in deposits at March 31, 2000 when compared to March 31,
1999. The interest rate credited on universal life deposits ranges from 6.0% to
6.75% in 2000 and 1999 while the rate credited on annuity deposits in 2000
increased to a range of 5.25% to 6.25% from 5.00% to 5.75% in 1999.
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 2000 first quarter increase in future
life policy benefits was $1,094,240, compared to $1,158,021 in the first quarter
of 1999, a decrease of 5.5%.
Analysis of Other Expenses
Total operating expenses, excluding taxes, licenses and fees increased 18.7%
to $2,682,591 at March 31, 2000 compared to $2,260,625 at March 31, 1999.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Certain operating expenses of the Company are paid by the Erie Indemnity
Company, the management Company of the Erie Insurance Exchange, and reimbursed
monthly by the Company. Additionally, a portion of the Erie Insurance Group
common overhead expenses attributed to the Company are also reimbursed monthly.
These expenses comprise the majority of the Company's general expenses.
General 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 salaries,
employee benefits and bonuses paid to branch sales Employees for the production
of life and annuity business, are all deferred.
General expenses, net of deferred policy acquisition costs, increased 29.9% to
$2,255,965 at March 31, 2000. During 1999, certain operating expenses, including
salaries and benefits, associated with the implementation of the Company's
policy administration system, CyberLife, were capitalized and therefore not
charged against income in 1999. The capitalization of these costs ended in the
fall of 1999; wage costs and amortization are now being charged against income.
Excluding the effect of the 1999 capitalized costs, general expenses would have
increased 6.6% from the first quarter 1999.
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 as deferred policy acquisition costs (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. During
the first quarter of 2000 commission expense decreased $55,378 to $477,158. A
portion of this decrease is the result of a decrease in promotional incentive
costs to Agents for the Company's participation in the "Caribbean Classic"
contest, that ended in August 1999. The commission allowance received from
reinsurers has also increased due primarily to the introduction of the "Erie
Flagship Term" plans. These plans provide a 100% allowance on new business.
Taxes, licenses and fees increased $133,060 to $533,940 in the first quarter of
2000 compared to $400,880 in the first quarter of 1999. A portion of this is the
result of an increase in state premium tax expense due to increased premium
volume and decreased guarantee association tax credits allowed to offset premium
tax expenses.
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. On March 31, 2000, 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 prudently on a total return
approach that focuses on current income and capital appreciation. The Company
has not held or issued derivative financial instruments in 2000 or 1999.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
The Company's invested assets are liquid in order to meet commitments to our
Policyholders. At March 31, 2000, the Company's investment portfolio consisting
of cash, marketable short-term investments, investment grade bonds, common
stock, and preferred stock, totaled $803 million or 81.4% of total assets. These
resources provide the liquidity the Company requires to meet the unforeseen
demands on its funds.
The Company's investments are subject to certain risks, including interest rate
and price risk. The Company monitors exposure to interest rate risk 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. Price 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. Portfolio holdings are diversified across industries and
concentrations in any one company or industry are limited by parameters
established by management and the Company's Board of Directors.
LIQUIDITY AND CAPITAL RESOURCES
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 for the three months ended March 31,
2000 was $3,442,000 compared to cash used in operating activities of 1,672,000
for the three months ended March 31, 1999. The Company's liquidity position
remains strong as invested assets increased by almost $47 million during the
first three months of 2000 to $864 million.
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 a revenue. Annuity and universal life deposits were $14,557,260 in the
first quarter of 2000 and $21,151,535 in the first quarter of 1999.
The Company's current commitments for expenditures as of March 31, 2000 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 any foreseeable cash requirements. As an added measure of
liquidity, the Company has arranged for a $10 million line of credit with a
commercial bank. At March 31, 2000 and 1999, there were no borrowings on this
line of credit.
The Company's 1999 year-end Risk Based Capital Analysis as reflected in its 1999
statutory annual statement shows total adjusted capital of $128,324,572 and
authorized control level risk based capital of $26,506,217. These results are
indicative of the strong capital position of the Company and are well in excess
of levels that would require regulatory action.
********************
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995: Certain forward-looking statements contained herein involve risks and
uncertainties. Many factors could cause future results to differ materially from
those discussed. Examples of such factors include but are not limited to: better
(or worse) mortality rates, changes in insurance regulations or legislation that
disadvantage the Company in the marketplace and recession, economic conditions
or stock market changes affecting pricing or demand for insurance products or
ability to generate investment income. Growth and profitability have been and
will be potentially materially affected by these and other factors.
13
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
On April 25, 2000, the Registrant held its Annual Meeting of Shareholders:
A. The following Directors were elected for a one-year term and until a
successor is elected and qualified:
Peter B. Bartlett Martin J. Lippert
Samuel P. Black, III Stephen A. Milne
J. Ralph Borneman, Jr. John M. Petersen
Patricia A. Goldman Jan R. Van Gorder, Esq.
F. William Hirt Harry H. Weil, Esq.
Gwendolyn S. King Robert C. Wilburn
B. The following other matter was voted upon at the meeting and the following
number of votes were cast with respect to such matter:
The proposal to ratify the selection of Brown, Schwab, Bergquist &
Company as independent public accountants to perform the annual audit
of the Company financial statements for the year ending December 31,
2000 was ratified. This proposal received 8,690,430 affirmative votes,
406 negative votes with 6,367 abstentions.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
All other exhibits for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore, have been omitted.
The Company did not file any reports on Form 8-K during the three-month period
ended March 31, 2000.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Erie Family Life Insurance Company
(Registrant)
Date: May 10, 2000 \s\ Stephen A. Milne
(Stephen A. Milne, President & CEO)
\s\ Philip A. Garcia
(Philip A. Garcia, Executive Vice President & CFO)
15
<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 MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000033416
<NAME> ERIE FAMILY LIFE INSURANCE COMPANY
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
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10,472
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