FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 1999
Commission file number 0-24000
ERIE INDEMNITY COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0466020
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Erie Insurance Place, Erie, Pennsylvania 16530
(Address of principal executive offices) (Zip Code)
(814) 870-2000
Registrant's telephone number, including area code
Not applicable
Former name, former address and former fiscal year, if changed since last
report.
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 periods
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 issuer's
classes of common stock, as of the latest practical date.
Class A Common Stock, no par value, with a stated value of
$.0293 per share-- 66,392,662 shares as of April 30,
1999.
Class B Common Stock, no par value, with a stated value of
$70.00 per share-- 3,070 shares as of April 30, 1999.
The common stock is the only class of stock the Registrant is presently
authorized to issue.
1
<PAGE>
INDEX
ERIE INDEMNITY COMPANY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Position--March 31, 1999 and
December 31, 1998
Consolidated Statements of Operations--Three months ended March 31, 1999
and 1998
Consolidated Statements of Comprehensive Income--Three months ended
March 31, 1999 and 1998
Consolidated Statements of Cash Flows--Three months ended March 31, 1999
and 1998
Notes to Consolidated Financial Statements--March 31, 1999
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
------------------ ------------------
(Unaudited)
<S> <C> <C>
INVESTMENTS
Fixed Maturities Available-for-Sale at fair value
(amortized cost of $447,664,722 and
$421,101,561, respectively) $ 463,381,401 $ 441,353,427
Equity Securities (cost of $179,274,261 and
$169,976,774, respectively) 216,659,989 202,804,068
Real Estate Mortgage Loans 8,325,586 8,287,129
Other Invested Assets 19,359,905 17,493,496
------------------ ------------------
Total Investments $ 707,726,881 $ 669,938,120
Cash and Cash Equivalents 36,185,628 53,580,043
Accrued Investment Income 9,083,486 7,252,439
Note Receivable from Erie Family Life
Insurance Company 15,000,000 15,000,000
Premiums Receivable from Policyholders 114,541,765 114,695,231
Prepaid Federal Income Tax 0 2,508,908
Reinsurance Recoverable from Erie Insurance
Exchange 389,539,140 381,301,722
Other Receivables from Erie Insurance
Exchange and Affiliates 117,035,169 108,612,264
Reinsurance Recoverable Non-affiliates 920,884 938,894
Deferred Policy Acquisition Costs 10,858,877 10,863,107
Property and Equipment 13,159,933 12,388,650
Equity in Erie Family Life Insurance Company 38,690,414 39,478,746
Other Assets 40,292,351 36,873,922
------------------ ------------------
Total Assets $ 1,493,034,528 $ 1,453,432,046
================== ==================
(Continued)
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
3
<PAGE>
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
------------------ ------------------
(Unaudited)
<S> <C> <C>
LIABILITIES
Unpaid Losses and Loss Adjustment Expenses $ 441,048,698 $ 426,164,578
Unearned Premiums 224,800,820 229,056,597
Accrued Commissions 78,419,221 85,005,699
Accounts Payable and Accrued Expenses 30,784,156 20,252,904
Deferred Income Taxes 17,585,697 17,121,777
Federal Income Tax Payable 12,094,657 0
Dividends Payable 8,082,767 8,099,100
Employee Benefit Obligations 13,963,238 12,508,130
------------------ ------------------
Total Liabilities $ 826,779,254 $ 798,208,785
------------------ ------------------
SHAREHOLDERS' EQUITY
Capital Stock
Class A Common, stated value $.0292
per share; authorized 74,996,930 shares; issued
67,032,000 shares; outstanding 66,563,905 shares $ 1,955,100 $ 1,955,100
Class B Common, stated value $70.00
per share; authorized 3,070 shares;
issued and outstanding 3,070 shares 214,900 214,900
Additional Paid-In Capital 7,830,000 7,830,000
Accumulated Other Comprehensive Income 38,667,719 40,178,626
Retained Earnings 630,369,421 605,044,635
------------------ ------------------
Total Contributed Capital and Retained Earnings $ 679,037,140 $ 655,223,261
------------------ ------------------
Treasury Stock (468,095 shares repurchased in 1999) 12,781,866 0
------------------ ------------------
Total Shareholders' Equity $ 666,255,274 $ 655,223,261
------------------ ------------------
Total Liabilities and
Shareholders' Equity $ 1,493,034,528 $ 1,453,432,046
================== ==================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
4
<PAGE>
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
MANAGEMENT OPERATIONS:
Management Fee Revenue $ 121,834,206 $ 117,323,655
Service Agreement Revenue 3,729,109 2,999,321
Other Operating Revenue 336,783 373,961
------------------ ------------------
Total Revenue from Management Operations 125,900,098 120,696,937
Cost of Management Operations 91,533,524 86,936,086
------------------ ------------------
Net Revenue From
Management Operations $ 34,366,574 $ 33,760,851
------------------ ------------------
INSURANCE UNDERWRITING OPERATIONS:
Premiums Earned $ 28,606,923 $ 27,461,062
Losses and Loss Adjustment Expenses Incurred 21,391,170 18,497,390
Policy Acquisition and Other Underwriting
Expenses 7,823,099 7,536,191
------------------ ------------------
Total Losses and Expenses 29,214,269 26,033,581
------------------ ------------------
Underwriting (Loss) Gain $ (607,346) $ 1,427,481
------------------ ------------------
INVESTMENT OPERATIONS:
Equity in Earnings of Erie Family
Life Insurance Company $ 1,055,907 $ 1,405,476
Net Investment Income 10,465,587 8,914,663
Net Realized Gain on Investments 3,248,852 996,778
------------------ ------------------
Total Revenue from Investment Operations 14,770,346 11,316,917
------------------ ------------------
Income Before Income Taxes 48,529,574 46,505,249
Provision for Income Taxes 15,122,016 14,806,190
------------------ ------------------
Net Income $ 33,407,558 $ 31,699,059
================== ==================
Net Income per Share $ 0.45 $ 0.43
================== ==================
Weighted Average Shares Outstanding 74,353,142 74,400,000
Dividends Declared per Share:
Class A non-voting Common $ 0.12 $ 0.1075
------------------ ------------------
Class B Common $ 18.00 $ 16.125
------------------ ------------------
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
5
<PAGE>
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
Net Income $ 33,407,558 $ 31,699,059
------------------ ------------------
Unrealized Gains on Securities:
Unrealized Holding Gains Arising During Period 924,380 14,754,846
Less: Reclassification Adjustment for
Gains Included in Net Income 3,248,852 996,778
------------------ ------------------
Net Unrealized Holding (Losses) Gains
Arising During Period $ (2,324,472) $ 13,758,068
Income Tax Benefit (Expense) Related to
Unrealized Gains or Losses 813,565 (4,815,324)
------------------ ------------------
Other Comprehensive (Loss) Income, Net of Tax $ (1,510,907) $ 8,942,744
------------------ ------------------
Comprehensive Income $ 31,896,651 $ 40,641,803
================== ==================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
6
<PAGE>
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 33,407,558 $ 31,699,059
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 523,748 478,676
Deferred income tax expense 454,322 355,086
Amortization of deferred policy acquisition costs 5,491,516 5,209,936
Realized gain on investments (3,248,852) (996,778)
Net amortization of bond discount 32,434 (48,741)
Undistributed earnings of Erie Family Life (749,322) (1,098,891)
Deferred compensation 170,548 535,507
Increase in accrued investment income (1,831,047) (1,207,927)
Increase in receivables (16,488,846) (27,215,535)
Policy acquisition costs deferred (5,487,286) (5,264,786)
Increase in prepaid expenses and other assets (3,983,075) (1,952,609)
Increase (decrease) in accounts payable and
accrued expenses 11,815,814 (69,452)
Increase in accrued commissions (6,586,478) (3,117,492)
Increase in income taxes payable 14,603,565 14,721,731
Increase in loss reserves 14,884,120 6,958,267
Decrease in unearned premiums (4,255,776) (1,361,086)
------------------ -----------------
Net cash provided by operating activities $ 38,752,943 $ 17,624,965
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments:
Fixed maturities (46,246,669) (18,971,576)
Equity securities (19,726,916) (12,634,645)
Mortgage loans (66,286) 0
Other invested assets (1,960,150) (4,121,398)
Sales/maturities of investments:
Fixed maturities 19,857,423 7,020,218
Equity securities 13,359,432 9,383,875
Mortgage loans 27,893 31,850
Other invested assets 219,308 255,883
Purchase of property and equipment (295,141) (102,038)
Purchase of computer software (999,891) (823,534)
Loans to agents 1,264,632 358,982
Collections on agent loans (700,026) (472,824)
------------------ -----------------
Net cash used in investing activities $ (35,266,391) $ (20,075,207)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders $ (8,099,101) $ (7,255,446)
Treasury stock (12,781,866) 0
------------------ -----------------
Net cash used in financing activities $ (20,880,967) $ (7,255,446)
------------------ -----------------
Net decrease in cash and cash equivalents (17,394,415) (9,705,688)
Cash and cash equivalents at beginning of period 53,580,043 53,148,495
------------------ -----------------
Cash and cash equivalents at end of period $ 36,185,628 $ 43,442,807
================== =================
Supplemental disclosures of cash flow information:
Cash paid during the three months ended March 31, 1999 and 1998 for income taxes
was $60,880 and $35,481, respectively.
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
7
<PAGE>
ERIE INDEMNITY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements, which include the
accounts of the Erie Indemnity Company and its' wholly owned subsidiaries Erie
Insurance Company, Erie Insurance Company of New York and Erie Insurance
Property & Casualty Company, have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 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, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Form 10-K for the year ended December 31,
1998.
NOTE B -- EARNINGS PER SHARE
Earnings per share is based on the weighted average number of Class A shares
outstanding (66,985,142 in 1999, 67,032,000 in 1998), giving effect to the
conversion of the weighted average number of Class B shares outstanding (3,070
in 1999 and 1998) at a rate of 2,400 Class A shares for one Class B share as set
out in the Articles of Incorporation. Weighted average equivalent shares
outstanding totaled 74,353,142 at March 31, 1999 and 74,400,000 for the same
period a year ago.
NOTE C -- INVESTMENTS
Management considers all fixed maturities and marketable equity securities
available-for-sale. Marketable equity securities consist primarily of common and
nonredeemable preferred stocks 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.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
March 31, 1999
Fixed Maturities:
U.S. Treasuries & Government
Agencies $ 13,017 $ 494 $ 0 $ 13,511
States & Political Subdivisions 49,617 3,262 13 52,866
Special Revenue 129,865 6,485 20 136,330
Public Utilities 15,255 167 64 15,358
U. S. Industrial & Miscellaneous 222,267 5,871 705 227,433
Foreign Industrial & Miscellaneous 5,658 99 120 5,637
Foreign Governments-Agency 1,991 0 119 1,872
------------- ------------ ------------- -------------
Total Bonds $ 437,670 $ 16,378 $ 1,041 $ 453,007
Redeemable Preferred Stock 9,995 568 189 10,374
------------- ------------ ------------- -------------
Total Fixed Maturities $ 447,665 $ 16,946 $ 1,230 $ 463,381
------------- ------------ ------------- -------------
Equity Securities:
Common Stock $ 65,180 $ 41,761 $ 8,530 $ 98,411
Non-Redeemable Preferred Stock 114,094 6,060 1,905 118,249
------------- ------------ ------------- -------------
Total Equity Securities $ 179,274 $ 47,821 $ 10,435 $ 216,660
------------- ------------ ------------- -------------
Total Available-for-Sale Securities $ 626,939 $ 64,767 $ 11,665 $ 680,041
============= ============ ============= =============
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1998
Fixed Maturities:
U.S. Treasuries & Government
Agencies $ 13,018 $ 689 $ 0 $ 13,707
States & Political Subdivisions 48,307 3,293 0 51,600
Special Revenue 132,025 7,215 5 139,235
Public Utilities 13,116 300 0 13,416
U.S. Industrial & Miscellaneous 195,296 9,028 629 203,695
Foreign Industrial & Miscellaneous 5,159 165 86 5,238
Foreign Governments-Agency 1,990 0 181 1,809
------------- ------------ ------------- -------------
Total Bonds $ 408,911 $ 20,690 $ 901 $ 428,700
Redeemable Preferred Stock 12,191 577 115 12,653
------------- ------------ ------------- -------------
Total Fixed Maturities $ 421,102 $ 21,267 $ 1,016 $ 441,353
------------- ------------ ------------- -------------
Equity Securities:
Common Stock $ 60,622 $ 37,626 $ 8,018 $ 90,230
Non-Redeemable Preferred Stock 109,355 4,813 1,594 112,574
------------- ------------ ------------- -------------
Total Equity Securities $ 169,977 $ 42,439 $ 9,612 $ 202,804
------------- ------------ ------------- -------------
Total Available-for-Sale Securities $ 591,079 $ 63,706 $ 10,628 $ 644,157
============= ============ ============= =============
</TABLE>
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Deferred income taxes increased by $9,597 at March 31, 1999 and by $5,342,948 at
December 31, 1998 related to the change in unrealized gains (losses) on
available-for-sale securities.
Mortgage loans on real estate are recorded at unpaid balances, adjusted for
amortization of premium or discount. A valuation allowance is provided for
impairment in net realizable value based on periodic valuations. The change in
the allowance is reflected on the income statement in realized gain (loss) on
investments.
Other invested assets (primarily investments in real estate and private equity
limited partnerships) are recorded under the equity method of accounting.
NOTE D -- SUMMARIZED FINANCIAL STATEMENT INFORMATION OF AFFILIATE
The Company has a 21.63% investment in Erie Family Life Insurance Company (EFL)
and accounts for this investment using the equity method. The following
represents summarized financial statement information for EFL:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
Revenues $ 24,275,845 $ 23,771,476
Benefits and expenses 16,843,190 13,755,036
------------------ ------------------
Income before income taxes 7,432,655 10,016,440
Income taxes 2,550,976 3,518,631
------------------ ------------------
Net income $ 4,881,679 $ 6,497,809
================== ==================
Dividends paid to shareholders $ 1,417,500 $ 1,275,750
================== ==================
Net unrealized appreciation on investment
securities at March 31, net of deferred taxes $ 19,204,023 $ 22,692,021
================== ==================
</TABLE>
NOTE E -- NOTE RECEIVABLE FROM ERIE FAMILY LIFE INSURANCE COMPANY
On December 29, 1995, EFL issued a surplus note to the Company in return for
cash of $15 million. The note 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 EFL and are 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.
EFL accrued $241,875 in the first quarter of 1999 to be paid to the Company.
NOTE F -- TREASURY STOCK
In December 1998, the Board of Directors of the Company authorized the
repurchase of up to $70 million of its Class A common stock from January 1, 1999
through December 31, 2001. The Company's repurchase of shares of common stock
are recorded as "Treasury Stock" and result in a reduction of "Shareholders'
Equity." Treasury shares are recorded on the Consolidated Statements of
Financial Position at cost.
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.
OPERATING RESULTS
Financial Overview
Consolidated net income increased by 5.4% for the first quarter of 1999 to
$33,407,558, or $.45 per share, from $31,699,059 or $.43 per share, for the
first quarter of 1998. The improved management and investment operating segments
were largely responsible for the increase in net income for the quarter.
Insurance underwriting operations were affected by winter storm-related
catastrophe losses in the first quarter of 1999 of about $1.3 million, which
contributed to an underwriting loss for the quarter.
RESULTS OF OPERATIONS
Analysis of Management Operations
Management fee revenue derived from the management operations of the Company,
serving as attorney-in-fact for the Erie Insurance Exchange (the Exchange),
increased 3.8% to $121,834,206 for the three months ended March 31, 1999 from
$117,323,655 for the three months ended March 31, 1998.
The direct and affiliated assumed premiums written of the Exchange, upon which
management fee is based, grew by .7% or $3,527,934, for the first quarter of
1999 compared to the first quarter of 1998. The rate of growth in management fee
revenue was greater than the rate of growth in direct and affiliated assumed
premium of the Exchange because the management fee rate charged the Exchange in
the first quarter of 1999 was 25% compared to a rate of 24.25% charged in the
first quarter of 1998. The Company's Board of Directors has the authority to
change the management fee rate at its discretion, but cannot exceed a rate of
25%. The relatively flat premium growth is primarily the result of a very
competitive sales environment for private passenger automobile and commercial
insurance and the previously announced price reductions in the private passenger
automobile business. On July 31, 1998 the Erie Insurance Group filed to lower
its private passenger auto insurance rates in Pennsylvania by 7.0%, or about $53
million, beginning January 1, 1999. On October 27, 1998 the Pennsylvania
Insurance Department approved this filing. This reduction was sought as a result
of favorable loss experience in Pennsylvania combined with competitive pricing
conditions experienced by the Exchange and its affiliated insurance companies.
In April 1999 the Erie Insurance Group filed in several jurisdictions to reduce
private passenger auto insurance rates further by 2.4%, or about $25 million,
annually beginning October 1, 1999.
Service agreement revenue totaled $3,729,109 and $2,999,321 for the quarters
ended March 31, 1999 and 1998, respectively. The Company is reimbursed by the
Exchange for a portion of service charges collected by the property/casualty
insurers of the Group from Policyholders for the costs incurred by the Company
in providing extended payment terms on policies written by them. Service charges
totaled $1,669,171 for the three months ended March 31, 1999 compared to
$1,508,081 during the same period in 1998. Also included in service agreement
revenue is service income received from the Exchange as compensation for the
management and administration of voluntary assumed reinsurance from
non-affiliated insurers. The Company receives a 7.0% service fee on the premiums
from this business. These fees totaled $2,059,938 and $1,491,240 for the three
months ended March 31, 1999 and 1998, respectively on voluntary assumed
reinsurance premiums of $29,449,111 and $21,303,425 in the first quarter of 1999
and 1998, respectively.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
The cost of management operations increased 5.3% for the first quarter of 1999
to $91,533,524 from $86,936,086 during the first quarter of 1998.
Net revenue from the Company's management operations increased 1.8% to
$34,366,574 for the three months ended March 31, 1999 from $33,760,851 for the
same period in 1998. The gross margin from management operations (net revenue
divided by total revenue), of 27.3% in the first quarter of 1999, was slightly
less than the gross margin of 28.0% reported in the first quarter of 1998.
Commissions are the largest component of the cost of management operations. The
Company is responsible for the payment of commissions to the independent Agents
who sell insurance products for the Company's subsidiaries and the Exchange, and
its subsidiary, Flagship City Insurance Company. The Agents receive commissions
based on fixed percentage fee schedules with different commission rates by
product line of insurance. Also included in commission expense are the costs of
promotional incentives for Agents and Agent contingency awards. Agent
contingency awards are based upon the underwriting profitability of the
insurance written and serviced by the Agent within the Erie Insurance Group of
companies.
Commission costs totaled $60,634,972 for the first quarter of 1999, a 4.5%
increase over the $58,042,379 reported in the first quarter of 1998. Commission
costs grew faster than the rate of growth in written premiums due to increased
provisions for agency contingency and incentive awards and an increase in the
average commission rate.
The cost of management operations excluding commission costs, increased 6.9% for
the three months ended March 31, 1999 to $30,898,552 from $28,893,707 recorded
in the first quarter of 1998. Personnel costs, including salaries, employee
benefits, and payroll taxes, are the second largest component in cost of
operations. The Company's personnel costs totaled $17,370,497 for the three
month period ended March 31, 1999, compared to $17,551,152 for the same period
in 1998, a decrease of 1.0%. The 1999 decline is the result of a slight drop in
employment and increased expense reimbursements from the Exchange. As
attorney-in-fact for the Exchange, the Company pays almost all expenses of the
Group and allocates those costs to the respective Company responsible for them
in accordance with intercompany agreements.
The cost of management operations was also affected by non-recurring information
technology consulting and corporate litigation costs incurred during the first
quarter of 1999. Such costs amounted to about $1,250,000 during the quarter.
Analysis of Insurance Underwriting Operations
Insurance underwriting results are produced from the Company's property and
casualty insurance subsidiaries, Erie Insurance Company and Erie Insurance
Company of New York, which together assume a 5.5% share of the underwriting
results of the Erie Insurance Group under an intercompany reinsurance pooling
arrangement, generated a loss of $607,346 in the first quarter of 1999 compared
to a profit of $1,427,481 in the first quarter of 1998. In the first quarter of
1999, premiums earned increased 4.2% to $28,606,923 compared to $27,461,062 for
the same period in 1998. Losses, loss adjustment expenses and other underwriting
expenses incurred increased at a faster rate than premiums earned, up 12.2% for
the first quarter of 1999 amounting to $29,214,269 compared to $26,033,581 for
the prior year's first quarter. Winter storm-related catastrophe losses of $1.3
million contributed to an increase in the loss and loss adjustment expenses
incurred of 15.6% to $21,391,170 in the first quarter of 1999, compared to
$18,497,390 for the same period in 1998. Catastrophe losses in the first
quarter of 1998 totaled $215,000.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
The GAAP combined ratio for the Company's property and casualty insurance
operations was 102.1% for the three months ended March 31, 1999 compared to a
ratio of 94.8% for the same period in 1998. The GAAP combined ratio represents
the ratio of loss, loss adjustment, acquisition, and other underwriting expenses
incurred to premiums earned.
Analysis of Investment Operations
Total revenue from investment operations for the first quarter of 1999 increased
30.5% to $14,770,346 from $11,316,917 in the first quarter of 1998. This growth
was driven by a $2,252,074 increase in non-recurring realized gains on
investments combined with a $1,550,924 increase in net investment income.
Partially offsetting this increase was a decrease in the earnings recognized
from the Company's 21.63% ownership of Erie Family Life Insurance Company to
$1,055,907 in the first quarter of 1999 from $1,405,476 recorded in the first
quarter of 1998. The Company records this investment under the equity method of
accounting.
FINANCIAL CONDITION
Investments
The Company's investment strategy takes a long-term perspective emphasizing
investment quality, diversification and superior investment returns. Investments
are managed on a total return approach that focuses on current income and
capital appreciation. The Company's investment strategy also provides for
liquidity to meet the short and long-term commitments of the Company. At March
31, 1999, the Company's investment portfolio of investment-grade bonds, common
stock and preferred stock, all of which are readily marketable, and cash and
short-term investments, totaled $716 million, or 48%, of total assets. These
resources provide the liquidity the Company requires to meet demands on its
funds.
At March 31, 1999, 96.1% of total investments consist of fixed maturities and
equity securities. Mortgage loans and other invested assets represented only
3.9% of total investments at that date. Mortgage loans or real estate and other
invested assets have the potential for higher returns, but also carry more risk,
including less liquidity and greater uncertainty in the rate of return.
Consequently, these investments have been kept to a minimum.
The Company's investments are subject to certain risks, including interest rate
and reinvestment risk. Fixed maturity and preferred stock security values
generally fluctuate inversely with movements in interest rates. The Company's
corporate and municipal bond investments may contain call and sinking fund
features which may result in early redemptions. Declines in interest rates could
cause early redemptions or prepayments which could require the Company to
reinvest at lower rates.
At March 31, 1999, the Company's five largest investments in corporate debt
securities totaled $29.2 million, none of which individually exceeded $9.6
million. These investments had a market value of $30.4 million.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
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. Operating cash flows are
generated from management operations as the attorney-in-fact for the Exchange,
the net cash flow from the Erie Insurance Company's 5% and the Erie Insurance
Company of New York's .5% participation in the underwriting results of the
reinsurance pool with the Exchange, and the Company's investment income from
affiliated and non-affiliated investments. With respect to the management fee,
funds are generally received from the Exchange on a premiums collected basis.
The Company pays commissions on premiums collected rather than written premiums.
The Company generates sufficient net positive cash flow from its operations to
fund its commitments, repurchase its common stock, and build its investment
portfolio, thereby increasing future investment returns. The Company also
maintains a high degree of liquidity in its investment portfolio in the form of
readily marketable fixed maturities, common stocks and short-term investments.
Net cash flows provided by operating activities for the three months ended March
31, 1999 and 1998, were $38,752,943 and $17,624,965, respectively.
Dividends declared and paid to shareholders in the three months ended March 31,
1999 and 1998, totaled $8,099,101 and $7,255,446, respectively. There are no
regulatory restrictions on the payment of dividends to the Company's
shareholders, although there are state law restrictions on the payment of
dividends from the Company's insurance subsidiaries to the Company. Dividends
from subsidiaries are not material to the Company's cash flow.
Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to deferred tax assets and
liabilities resulted in net deferred tax liabilities at March 31, 1999 of
$17,585,697 and at December 31, 1998 of $17,121,777.
The National Association of Insurance Commissioners (NAIC) standard for
measuring the solvency of insurance companies, referred to as Risk Based Capital
(RBC), is a method of measuring 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 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, 1998, the Exchange, its subsidiary
Flagship City Insurance Company and the Company's property/casualty insurance
subsidiaries' all had Risk Based Capital levels substantially in excess of
levels that would require regulatory action.
At March 31, 1999 and December 31, 1998, the Company's receivables from its
affiliates totaled $506,574,309 and $489,913,986, respectively. These
receivables, primarily due from the Exchange, as a result of the management fee,
expense reimbursements and the intercompany reinsurance pool, represent a
concentration of credit risk.
STOCK REDEMPTION PLAN
The Erie Indemnity Company Stock Redemption Plan entitles estates of qualified
shareholders to cause the Company to redeem shares of stock of the Company at a
price equal to the fair market value of the stock at time of redemption. The
redemption amount is limited to an aggregation of: (1) an initial amount of $10
million as of December 31, 1995 and (2) beginning in 1996 and annually
thereafter, an additional annual amount as determined by the Board is its sole
discretion, not to exceed 20% of the Company's net income from management
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
operations during the prior fiscal year. This aggregate amount is reduced by
redemption amounts paid. However, at no time shall the aggregate redemption
limitation exceed 20% of the Company's retained earnings determined as of the
close of the prior year. In addition, the plan limits the repurchase from any
single shareholder's estate to 33% of total share holdings of such shareholder.
On March 11, 1997, the Board approved an increase in the redemption amount of
$16,655,226 to $41,005,412. On April 28, 1998, the Board approved an increase
in the redemption amount of $17,791,624 to $58,797,036. On April 27, 1999
the Board approved an increase in the redemption amount of $19,190,347 to
$77,987,383. As of March 31, 1999, no shares have been redeemed under the Stock
Redemption Plan.
STOCK REPURCHASE PLAN
At the December 16, 1998 regular meeting of the Board of Directors of the Erie
Indemnity Company, the board approved a stock repurchase plan beginning January
1, 1999, under which the Company may repurchase as much as $70 million of its
outstanding Class A common stock through December 31, 2001. The Company may
purchase the shares from time to time in the open market or through privately
negotiated transactions, depending on prevailing market conditions and
alternative uses of the Company's capital. During the first quarter of 1999,
468,095 shares were repurchased at a total cost of $12,781,866 or an average
price of $27.31.
YEAR 2000 READINESS DISCLOSURE
Erie Indemnity Company and the property/casualty insurance companies it manages
are dependent on electronic processing and information systems to conduct
business. Like all companies with such dependencies, the Company is continually
faced with significant decisions and technology challenges. Among these
challenges is the so-called "Year 2000 Issue," the inability of many computer
systems to recognize dates beginning with the year 2000 and beyond. The Year
2000 Issue presents a risk management issue which is perhaps more pervasive than
any previous issue faced by businesses of all types. To effectively manage the
risks associated with the Year 2000 Issue, management has taken measures over
the past six years designed to reduce the Company's potential for business
interruption. References to the Company in the description below, including cost
information, pertain to the Company and the property/casualty insurance
companies under its management.
The effect of the Year 2000 Issue cannot be measured exactly with certainty; any
forecasts about the effect of the Year 2000 Issue and remediation projections
are necessarily forward-looking statements and are subject to the risks and
uncertainties noted on page 17.
Company's State of Readiness
Exposure to systems failure is a risk faced by the Company every day. Unlike
these other risks, the date change to the Year 2000 is predictable. Efforts to
mitigate The ERIE's exposure through effective identification, remediation and
contingency planning are organized and being conducted on all major business
processes to minimize the risks.
To assure that the Company effectively addresses this risk at all levels of the
organization, management has in place a structure that provides oversight of
Year 2000 risk management activities, which are being conducted within the major
business units of the Company. Oversight by Executive and Senior Management is
being facilitated through a dedicated project office. This office, (the Y2K
Office) is working in consultation with each business unit to assure consistency
and adequacy of risk management activities and to collect companywide project
status and cost information.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Within each business unit, each key business process is being evaluated to
assure that underlying systems and components exposed to potential Year 2000
failure are appropriately identified and addressed. Underlying system components
include internal operating systems (hardware and software), infrastructure
elements including non-information technology components and systems,
communications systems and devices, internally developed mainframe applications,
personal computer hardware and software, external parties and providers and
peripheral devices.
Each underlying component supporting key business processes was identified and
mission critical business processes were prioritized during 1998. Priority was
assigned based on the relative importance of the component to the business
process and based on the importance of the business process relative to other
business processes.
Efforts to remediate non-compliant internal components (principally mainframe
applications) began in the mid-1990's as a routine part of systems development
and maintenance. Remediation of the Company's mainframe applications was
completed and component testing conducted during the first quarter of 1999.
To supplement component testing and to provide a greater degree of assurance
that business functions will be uninterrupted, full systems Year 2000 simulation
testing was completed during March and April of 1999. Full systems testing
included simultaneous testing of underlying components necessary to the support
of key business processes. Testing environments that closely approximate
operating environments for mainframe and LAN-based PC applications were
developed for use during this testing. The results of testing did not indicate
that key business processing applications will encounter any serious problems in
the year 2000 due to the inability to recognize dates in the year 2000.
As testing is nearing completion, each business unit is consulting with the Y2K
Office to develop contingency plans to address the possibility of component or
business process failures and addresses both business continuity and system
recovery. Management anticipates completion of these plans during the first nine
months of 1999.
Cost to Address Year 2000 Issues
Prior to 1998, the Company did not establish a specific budget to address the
Year 2000 Issue. By including Year 2000 changes in the scope of each system
development and maintenance project, the Year 2000 Issue became an extension of
all system projects. It is estimated that through March 31, 1999 costs incurred
for specific Y2K activities including programming, testing, integrated test
planning, and administrative efforts approximate $1.8 million. This estimate
includes the cost of our internal efforts based on rates for personnel engaged
in these activities. Future costs will be incurred as testing and contingency
planning continues during 1999.In addition, the cost of consulting resources
engaged during the first quarter of 1999 amounted to $91,000. No additional
consulting charges are expected to be incurred for the remainder of the year.
Management believes that the cost of testing and administrative support will
approximate $800,000 during the remaining nine months of 1999 based on the
project plans for these activities. This estimate includes the cost of personnel
involved in testing and the cost to maintain the technical test environment.
Any costs that may be incurred to replace non-compliant software and hardware
during 1999 are not expected to be significant.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
In addition to these costs, the Company will incur internal personnel costs and
certain other planned expenditures for items which will enable business
continuity plans to be executed. Costs for the development and testing of
contingency plans during 1999 have not been estimated in detail but are not
expected to be material to the financial position or results of operations of
the Company.
Risk of the Company's Year 2000 Issues
The proper functioning of the Company's computer systems and applications is
critical to the continued operations of the Company. By addressing the Year 2000
Issue over several years in the ordinary course of business, the costs and
uncertainty associated with it have been reduced significantly. Management does
not believe that critical business operations of the Company will be adversely
affected to any significant degree by the Year 2000 Issue.
It is possible that certain key external parties will certify their systems as
year 2000 compliant when in fact they are not. The inability of the Company to
respond to uncontrollable circumstances is always a concern. For example, if
numerous key third parties are unable to support the operations of the Company,
operations could be adversely affected. The Company, as part of overall risk
management, is preparing contingency plans during 1999 in response to the
possibility of key third party failure. Management does not anticipate these
scenarios as having a greater than remote possibility of occurrence.
Company's Contingency Plans if a Vendor or the Company Fail to Address Year 2000
Issues
This risk described above will be addressed through contingency planning. The
level of contingency planning will be commensurate with the relative importance
of the external party to the operations of the Company and the relative risk
that the party will be unable to operate satisfactorily in 2000. Such
contingency plans are being developed and will be finalized during the first
nine months of 1999.
The statements containing the beliefs of management about the Company's state of
readiness for Year 2000 Issues are necessarily forward-looking statements that
involve risks and uncertainties. These risks and uncertainties include but are
not limited to: human or mechanical errors in correcting Year 2000 Issues;
incorrect or improper (intentional or otherwise) representations by third
parties as to their compliance or remediation efforts; the failure of third
parties to follow through on their remediation efforts; and the inability to
identify and/or locate processing chips that are subject to Year 2000 problems.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
"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 "Financial Condition - Investments", and the "Liquidity
and Capital Resources" 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, weather and weather-related events, other types of catastrophic events,
securities markets fluctuations, and technological difficulties and
advancements.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The H.O. Hirt Trusts collectively own 2,340 shares of the Company's Class B
Common Stock, which has the exclusive right to vote in the election of directors
of the Company. Since such shares represent 76.22% of the outstanding share of
the Company Class B Common Stock, the vote of the H.O. Hirt Trusts is sufficient
to determine the outcome of any election of directors. The trustees of the H.O.
Hirt Trusts are F. William Hirt, Chairman of the Board of the Company, a
director of the Company, a beneficial owner of more that 10% of the Company's
outstanding Class A Common Stock and a beneficiary of one of the two H.O. Hirt
Trusts; his sister, Susan Hirt Hagen, a director of the Company, a beneficial
owner of more than 10% of the Company's outstanding Class A Common Stock and a
beneficiary of the other H.O. Hirt Trust and Mellon Bank, N.A. Under the
provisions of the H.O. Hirt Trusts, the shares of the company's Class B Common
Stock held by the H.O. Hirt Trusts are to be voted as directed by a majority of
the three trustees.
Under the Pennsylvania Insurance Company Law and the Company's By-laws, the
candidates for the election as directors of the Company are to be nominated by a
committee consisting solely of persons who are not officers or employees of the
Company or of any entity controlling, controlled by or under common control with
the Company and who are not beneficial owners of a controlling interest in the
voting securities of the Company. On March 11, 1998, the Nominating Committee of
the Company's Board of Directors nominated 12 persons as candidates for election
as directors of the Company at the Company's April 28, 1998 annual meeting of
shareholders. The 12 persons nominated did not include Thomas B. Hagen, the
husband of Susan Hirt Hagen, as a candidate for election as a director of the
Company at such annual meeting. Thomas B. Hagen had served as a director of the
Company since 1979.
On April 2, 1998, Susan Hirt Hagen, a director, filed duplicate petitions in the
Orphans' Court Division of the Court of Common Pleas of Erie County,
Pennsylvania (the "Court") seeking the removal of Mellon Bank N.A. ("Mellon") as
a co-trustee of the H.O. Hirt Trusts. The principal basis for the alleged relief
was the allegation that Mellon, as the owner of an insurance agency, was a
competitor of the Company. Among the relief requested by Susan Hirt Hagen in the
petitions was the grant of a preliminary injunction against Mellon from voting
the Class B Common Stock held by the H.O. Hirt Trusts for the purpose of the
election of directors at the Company's April 28, 1998 Annual Meeting of
Shareholders. Because of the potential substantial harm to the Company if the
preliminary injunction was granted, the Company filed a petition to intervene in
the preliminary injunction proceedings which the Court granted on April 21, 1998
and an order denying Susan Hirt Hagen's request for a preliminary injunction. On
April 28, 1998, the Company's 1998 Annual Meeting of Shareholders was held as
scheduled and each of the candidates for election as a director of the Company
named in the Company's April 1, 1998 proxy statement was elected as a director
of the Company with the affirmative votes of Mellon and F. William Hirt as a
majority of the trustees of the H.O. Hirt Trusts.
On June 3, 1998, the Company, because of its substantial interest in the outcome
of any matter involving a change in Mellon's status as a co-trustee of the H.O.
Hirt Trusts, petitioned the Court to intervene in the trial of the issues
remaining under Susan Hirt Hagen's petitions to remove Mellon as a co-trustee.
On June 24, 1998, the Court denied the Company's petition, and, on July 13,
1998, the Company appealed the Court's denial to the Superior Court of
Pennsylvania. On August 5, 1998, Susan Hirt Hagen, a director of the Company,
filed a motion with the Superior Court of Pennsylvania to quash the Company's
appeal. On August 17, 1998, the Company filed its response to Susan Hirt Hagen's
motion to quash the Company's appeal. On October 19, 1998, the Superior Court of
Pennsylvania denied without prejudice Susan Hirt Hagen's motion to quash the
Company's appeal, and the Superior Court of Pennsylvania established a schedule
for the submission of briefs on the merits of the Company's appeal.
19
<PAGE>
Item 1. Legal Proceedings (Continued)
During June and July 1998, substantial discovery took place involving Susan Hirt
Hagen's petitions to remove Mellon as co-trustee. Preceding the scheduled trial
date of July 30, 1998, discussions took place between counsel for Mellon and
counsel for Susan Hirt Hagen concerning a possible basis for settlement of the
pending litigation. These discussions involved the circumstances under which
Mellon might resign as co-trustee of the H.O. Hirt Trusts and the establishment
of procedures pursuant to which a successor trustee would be appointed by the
Court or by agreement of Susan Hirt Hagen and F. William Hirt. After a hearing
conducted on July 30, 1998, the Court by letter advised counsel for all parties
that the Court would not approve the settlement proposal that had been presented
during the July 30, 1998 hearing, and that Mellon was to advise the Court on or
before August 21, 1998 whether a revised settlement proposal would be submitted
or whether the petitions to remove Mellon as co-trustee should be scheduled for
trial by the Court for some later unspecified date.
On August 4, 1998, the Company filed a further petition with the Court seeking
the right to intervene in the proceedings insofar as the proceedings would
entail the possible approval of any settlement of the petitions to remove Mellon
as co-trustee or the appointment of a successor trustee to Mellon. On October
21, 1998, Mellon submitted to the Court a Petition to Resign Pursuant to and
upon the Fulfillment of Certain Conditions Precedent (the "Mellon Petition"). On
October 29, 1998, the Court conducted a hearing at which time, among other
things, the Court heard testimony from two potential successor corporate
trustees to Mellon, each of which potential successors (either Bankers Trust or
Bank Boston), the Court was advised, had the approval of Mellon, Susan Hirt
Hagen and F. William Hirt. During that same hearing, the Court indicated that it
would accept the Mellon Petition and would in the future enter an order
providing for the granting of the Mellon Petition, in conjunction with a further
hearing on the matter of the appointment of a successor corporate co-trustee and
the final Court approval thereof. On November 2, 1998, the Court scheduled such
a further hearing for January 6, 1999.
On January 6, 1999, with the concurrence of all parties, the Court accepted the
resignation of Mellon as co-trustee of the H.O. Trusts and released Mellon from
all further obligations with respect to the H.O. Hirt Trusts. On the same date,
the Court appointed Bankers Trust as the successor co-trustee of the H.O. Hirt
Trusts. On January 26, 1999, the Court assessed $637,500 in costs incurred by
Mellon in connection with the removal litigation against Susan Hirt Hagen.
On March 3, 1999 Bankers Trust filed with the Court a Petition to Accept
Resignation of Trustee (the "Bankers Trust Petition") in which Bankers Trust
requested the Court that its resignation as corporate Co-Trustee of the H. O.
Hirt Trusts be accepted and a successor corporate Trustee be appointed. On March
4, 1999 the Court appointed Judge William R. Cunningham to serve in the Orphans'
Court to preside over the matter of the Bankers Trust Petition, and a hearing
was fixed for May 7, 1999. On or about May 6, 1999 Bankers Trust filed a
petition for Citation to Show Cause why Declaratory Relief Should not be Granted
("Bankers Trust Declaratory Action Petition"). The Bankers Trust Declaratory
Action Petition seeks a determination by the Court whether a provision of the
Pennsylvania Insurance Company Law, Section 40 P.S. ss.991.1405(c)(4) provides
the exclusive means by which persons may be nominated and elected to the Board,
or whether the Trustees have the power to nominate and elect to the Board
persons other than those designated by the Nominating Committee.
On May 7, 1999 the Court issued an Order approving the resignation of Bankers
Trust Company as the corporate Trustee effective upon the entry of an Order
appointing a successor corporate Trustee. Also on May 7, 1999 the Court issued
an Order setting a schedule for the filing and determination of objections to
the Bankers Trust Declaratory Action Petition, indicating that any objections to
the Petition must be filed on or before May 25, 1999; responses to the
objections must be filed on or before June 15, 1999; and the Court set Oral
Argument on any objections and responses on June 29, 1999. Thereafter, if
necessary, a Hearing on the merits of the Declaratory Action Petition would be
held on July 28, 1999.
20
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held April 27, 1999.
a. The following directors were elected at the Annual Meeting of
Shareholders for a one-year term and until a successor is elected
and qualified:
Peter B. Bartlett Edmund J. Mehl
Samuel P. Black, III Stephen A. Milne
J. Ralph Borneman, Jr. John M. Petersen
Patricia A. Goldman Jan R. Van Gorder
Susan H. Hagen Harry H. Weil
F. William Hirt
b. The following other matter was voted upon at the meeting and the
following number of affirmative votes were cast the respect to
such matter:
The proposal to ratify the selection of Brown, Schwab, Bergquist
& Co. as independent public accountants to perform the annual
audit of the Company's financial statements for the year ending
December 31, 1999. This proposal received 3,012 affirmative votes
with no negative votes or 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 applicable, and therefore, have been omitted.
The Company did not file any reports on Form 8-K during the three-month period
ended March 31, 1999.
21
<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 Indemnity Company
(Registrant)
Date: May 10, 1999
\s\ Stephen A. Milne
(Stephen A. Milne, President & CEO)
\s\ Philip A. Garcia
(Philip A. Garcia, Executive Vice President & CFO)
22
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS FDS CONTAINS INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF
THE ERIE INDEMNITY COMPANY FOR THE QUARTER ENDED MARCH 31, 1999 AND IS
QUALIFIED IN REFERENCE TO THE COMPANY'S FORM 10-Q
</LEGEND>
<CIK> 0000922621
<NAME> ERIE INDEMNITY COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 463,381
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 216,660
<MORTGAGE> 8,325
<REAL-ESTATE> 0
<TOTAL-INVEST> 707,727
<CASH> 36,186
<RECOVER-REINSURE> 921
<DEFERRED-ACQUISITION> 10,859
<TOTAL-ASSETS> 1,493,035
<POLICY-LOSSES> 441,049
<UNEARNED-PREMIUMS> 224,801
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
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0
0
<COMMON> 2,170
<OTHER-SE> 664,085
<TOTAL-LIABILITY-AND-EQUITY> 1,493,035
28,606
<INVESTMENT-INCOME> 11,521
<INVESTMENT-GAINS> 3,249
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<UNDERWRITING-OTHER> 21,391
<INCOME-PRETAX> 48,530
<INCOME-TAX> 15,122
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<NET-INCOME> 33,408
<EPS-PRIMARY> .45
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