Exhibit 99.2
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three Three Twelve Twelve
months months months months
ended ended ended ended
December 31 December 31 December 31 December 31
2005 2004 2005 2004
Operating Revenue:
Management fee revenue-net $ 202,083 $ 208,549 $ 888,558 $ 893,087
Premiums earned 54,102 53,626 215,824 208,202
Service agreement revenue 5,128 5,649 20,568 21,855
Total operating revenue 261,313 267,824 1,124,950 1,123,144
Operating Expenses:
Cost of management operations 171,008 162,891 710,237 684,491
Losses and loss adjustment expenses
incurred 36,927 40,579 140,385 153,220
Policy acquisition and other
underwriting expenses 13,274 11,300 50,109 47,205
Total operating expenses 221,209 214,770 900,731 884,916
Investment Income - Unaffiliated:
Investment income, net of expenses 16,397 15,940 61,555 60,988
Net realized (losses) gains on
investments (837 ) 11,734 15,620 18,476
Equity in earnings of limited
partnerships 7,274 2,889 38,062 8,655
Total investment income - unaffiliated 22,834 30,563 115,237 88,119
Income before income taxes and equity
in earnings of Erie Family
Life Insurance Company 62,938 83,617 339,456 326,347
Provision for income taxes 19,492 23,275 111,733 105,140
Equity in earnings of Erie Family Life
Insurance Company, net of tax 714 978 3,381 5,206
Net income $ 44,160 $ 61,320 $ 231,104 $ 226,413
Net income per share - basic
Class A common stock $ 0.72 $ 0.96 $ 3.69 $ 3.54
Class B common stock $ 107.45 $ 146.36 $ 558.34 $ 539.88
Net income per share - diluted $ 0.66 $ 0.87 $ 3.34 $ 3.21
Weighted average shares outstanding
Basic:
Class A common stock 60,121,604 63,046,985 62,392,860 63,508,873
Class B common stock 2,837 2,876 2,843 2,877
Diluted shares 67,007,993 69,984,804 69,293,649 70,492,292
Dividends declared per share
Class A non-voting common $ 0.360 $ 0.325 $ 1.335 $ 0.97
Class B common $ 54.00 $ 48.75 $ 200.25 $ 145.50
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ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS - SEGMENT BASIS
(Amounts in thousands, except per share data)
Three Three Twelve Twelve
months months months months
ended ended ended ended
December 31 December 31 December 31 December 31
2005 2004 2005 2004
MANAGEMENT OPERATIONS
Management fee revenue $ 213,845 $ 220,687 $ 940,274 $ 945,066
Service agreement revenue 5,128 5,649 20,568 21,855
Total revenue from management operations 218,973 226,336 960,842 966,921
Cost of management operations 180,962 172,372 751,573 724,329
Income from management operations 38,011 53,964 209,269 242,592
INSURANCE UNDERWRITING OPERATIONS
Premiums earned 54,102 53,626 215,824 208,202
Losses and loss adjustment expenses incurred 36,927 40,579 140,386 153,220
Policy acquisition and other underwriting
expenses 15,081 13,956 60,488 59,346
Total losses and expenses 52,008 54,535 200,874 212,566
Underwriting gain (loss) 2,094 (909 ) 14,950 (4,364 )
INVESTMENT OPERATIONS
Net investment income 16,397 15,940 61,555 60,988
Net realized (losses) gains on investments (837 ) 11,734 15,620 18,476
Equity in earnings of limited 7,274 2,889 38,062 8,655
partnerships
Equity in earnings of Erie Family Life
Insurance Company 768 1,053 3,636 5,598
Net revenue from investment operations 23,602 31,616 118,873 93,717
Income before income taxes 63,707 84,671 343,092 331,945
Provision for income taxes 19,547 23,351 111,988 105,532
Net income $ 44,160 $ 61,320 $ 231,104 $ 226,413
Net income per share - Class A basic $ 0.72 $ 0.96 $ 3.69 $ 3.54
Net income per share - Class B basic $ 107.45 $ 146.36 $ 558.34 $ 539.88
Net income per share - diluted $ 0.66 $ 0.87 $ 3.34 $ 3.21
WEIGHTED AVERAGE SHARES OUTSTANDING -
DILUTED 67,008 69,985 69,294 70,492
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Amounts presented on a segment basis are presented gross of
intercompany/intersegment items
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ERIE INDEMNITY COMPANY
RECONCILIATION OF OPERATING INCOME TO NET INCOME
(Amounts in thousands, except per share data)
Definition on Non-GAAP and Operating Measures
Management believes that investors' understanding of the Company's performance
is enhanced by the disclosure of the following non-GAAP financial measure. The
Company's method of calculating this measure may differ from those used by other
companies and therefore comparability may be limited.
Operating income is net income excluding realized capital gains and losses and
related federal income taxes. Equity in earnings or losses of Erie Family Life
Insurance Company and equity in earnings or losses of limited partnerships are
not excluded from the calculation of operating income. Both of these categories
include the respective investment's realized capital gains and losses, as well
as unrealized gains and losses, as these investments are accounted for under the
equity method.
Net income is the GAAP measure that is most directly comparable to operating
income.
The Company uses operating income to evaluate the results of operations. It
reveals trends in the Company's management services, insurance underwriting and
investment operations that may be obscured by the net effects of realized
capital gains and losses. Realized capital gains and losses may vary
significantly between periods and are generally driven by business decisions and
economic developments such as capital market condition, the timing of which is
unrelated to management services and the insurance underwriting processes of the
Company. The Company believes it is useful for investors to evaluate these
components separately and in the aggregate when reviewing the Company's
performance. The Company is aware that the price to earnings multiple commonly
used by investors as a forward-looking valuation technique uses operating income
as the denominator. Operating income should not be considered as a substitute
for net income and does not reflect the overall profitability of the Company's
business.
The following table reconciles operating income and net income for the periods
ended December 31, 2005 and 2004:
Three months Three months Twelve months Twelve months
ended ended ended ended
December 31 December 31 December 31 December 31
2005 2004 2005 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(in thousands)
Operating income $ 44,704 $ 53,693 $ 220,951 $ 214,404
Net realized (losses) gains on
investments (837 ) 11,734 15,620 18,476
Income tax benefit (expense) on realized
(losses) gains 293 (4,107 ) (5,467 ) (6,467 )
Realized (losses) gains, net of income
tax benefit (expense) (544 ) 7,627 10,153 12,009
Net income $ 44,160 $ 61,320 $ 231,104 $ 226,413
Three months Three months Twelve months Twelve months
ended ended ended ended
December 31 December 31 December 31 December 31
2005 2004 2005 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Per Share Information - Diluted
Operating income $ 0.67 $ 0.76 $ 3.19 $ 3.04
Net realized (losses) gains on
investments (0.02 ) 0.17 0.23 0.26
Income tax benefit (expense) on realized
(losses) gains 0.01 (0.06 ) (0.08 ) (0.09 )
Realized (losses) gains, net of income
tax benefit (expense) (0.01 ) 0.11 0.15 0.17
Net income $ 0.66 $ 0.87 $ 3.34 $ 3.21
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ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in thousands, except per share data)
December 31 December 31
2005 2004
ASSETS
Investments
Fixed maturities $ 972,210 $ 974,512
Equity securities
Preferred stock 170,773 143,851
Common stock 95,561 58,843
Other invested assets 158,044 135,508
Total investments 1,396,588 1,312,714
Cash and cash equivalents 31,666 50,061
Equity in Erie Family Life Insurance Company 55,843 58,728
Premiums receivable from policyholders 267,632 275,721
Receivables from affiliates 1,176,419 1,144,625
Other assets 173,113 140,955
Total assets $ 3,101,261 $ 2,982,804
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Unpaid losses and loss adjustment expenses $ 1,019,459 $ 943,034
Unearned premiums 454,409 472,553
Other liabilities 348,791 300,336
Total liabilities 1,822,659 1,715,923
Total shareholders' equity 1,278,602 1,266,881
Total liabilities and shareholders' equity $ 3,101,261 $ 2,982,804
Book value per share $ 18.81 $ 18.14
Shares outstanding 67,962 69,852
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ERIE INDEMNITY COMPANY
RECONCILIATION OF PROPERTY AND CASUALTY GROUP TO INDEMNITY RESULTS
Three months Three months Twelve months Twelve months
ended ended ended ended
December 31 December 31 December 31 December 31
2005 2004 2005 2004
(Dollars in thousands)
Property and Casualty Group Insurance
Underwriting Operations (SAP Basis)
Direct underwriting results
Direct written premium $ 894,504 $ 912,859 $ 3,956,942 $ 3,997,330
Premiums earned 975,151 977,254 3,984,648 3,877,844
Loss and loss adjustment expenses incurred 696,336 712,609 2,561,504 2,623,731
Policy acquisition and other underwriting
expenses 255,684 263,340 1,100,772 1,105,028
Total losses and expenses 952,020 975,949 3,662,276 3,728,759
Direct underwriting income 23,131 1,305 322,372 149,085
Nonaffiliated reinsurance underwriting
results
Assumed voluntary-less ceded retrocessions 8,488 12,857 59,289 22,731
Assumed involuntary 3,381 (11,888 ) (12,508 ) (26,748 )
Ceded reinsurance (12,130 ) (3,866 ) (2,646 ) 20,521
Nonaffiliated reinsurance underwriting gain
(loss) 23,999 4,835 49,427 (24,538 )
Net Underwriting Gain (SAP Basis) $ 47,130 $ 6,140 $ 371,799 $ 124,547
Erie Indemnity Insurance Underwriting
Operations (SAP to GAAP Basis)
Percent of pool assumed by the Indemnity
Company 5.50 % 5.50 % 5.50 % 5.50 %
Indemnity preliminary underwriting gain (SAP
basis) $ 2,592 $ 338 $ 20,449 $ 6,850
Excess-of-loss premiums ceded to the Exchange (731 ) (1,104 ) (3,262 ) (3,628 )
Excess-of-loss changes to recoveries under
the agreement 114 (1,652 ) (2,226 ) (7,740 )
SAP to GAAP adjustments 119 1,509 (11 ) 154
Indemnity Underwriting Gain (Loss) before
tax- (GAAP Basis) $ 2,094 $ (909 ) $ 14,950 $ (4,364 )
Net Property & Casualty Group (SAP Basis)
Loss and LAE Ratio 69.2 % 72.4 % 63.2 % 68.4 %
Underwriting ratio 26.7 28.0 26.7 26.8
Policyholder dividends ratio 0.9 0.3 0.6 0.4
Statutory combined ratio 96.8 100.7 90.5 95.6
Adjusted combined ratio, excluding profit
component 93.1 95.4 85.7 90.1
Loss ratio points from prior accident year
reserve development-(redundancy) deficiency 2.0 1.6 (1.9 ) (1.5 )
Loss ratio points from salvage and
subrogation recoveries collected (0.8 ) (0.7 ) (1.5 ) (1.5 )
Total loss ratio point impact from accident
years - deficiency (redundancy) 1.2 0.9 (3.4 ) (3.0 )
Loss ratio points from catastrophes 0.7 0.9 0.5 1.9
Erie Indemnity Company
GAAP combined ratio 96.1 101.7 93.1 102.1
GAAP loss ratio points from catastrophes 0.7 0.9 0.5 1.9
SAP Basis represents statutory accounting principles as codified by the National
Association of Insurance Commissioners (NAIC)
5 Selected financial data of Erie Insurance Exchange:
The selected financial data below is derived from the Erie Insurance Exchange's
financial statements prepared in accordance with Statutory Accounting
Principles. In the opinion of management, all adjustments consisting only of
normal recurring accruals, considered necessary for a fair presentation have
been included. The financial data set forth below is only a summary.
Three months Three months Twelve months Twelve months
ended ended ended ended
December 31 December 31 December 31 December 31
2005 2004 2005 2004
(In thousands)
Statutory Accounting Basis
Premiums earned $ 925,833 $ 930,526 $ 3,762,260 $ 3,672,486
Losses and loss adjustment expenses 640,099 671,462 2,371,660 2,502,313
Insurance underwriting and other expenses 240,649 251,620 1,034,139 1,041,843
880,748 923,082 3,405,799 3,544,156
Net underwriting gain 45,085 7,444 356,461 128,330
Net investment income 85,620 80,209 370,977 282,388
Net realized (losses) gains (3,086 ) 86,355 438,487 162,905
Federal income tax expense (30,393 ) (61,099 ) (379,563 ) (180,824 )
Net income $ 97,226 $ 112,909 $ 786,362 $ 392,799
(In thousands)
As of As of
December 31 December 31
2005 2004
Statutory Accounting Basis
Cash and invested assets $ 7,917,615 $ 7,199,447
Other assets 1,152,648 1,070,315
Total assets $ 9,070,263 $ 8,269,762
Claims and unearned premium reserves $ 5,058,764 $ 4,973,136
Other liabilities 629,749 492,568
Total liabilities 5,688,513 5,465,704
Policyholders' surplus 3,381,750 2,804,058
Total liabilities and policyholders' surplus $ 9,070,263 $ 8,269,762
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Management fee revenue by line of business-Segment basis:
Three months Three months Twelve months Twelve months
ended ended ended ended
December 31 December 31 % December 31 December 31 %
2005 2004 Change 2005 2004 Change
(in thousands)
Private passenger auto $ 102,926 $ 109,137 -5.7 $ 456,948 $ 471,809 -3.1
Commercial auto 17,390 17,692 -1.7 78,416 77,648 1.0
Homeowners 40,945 42,241 -3.1 174,770 174,856 0.0
Commercial multi-peril 24,065 23,535 2.3 105,727 103,837 1.8
Workers' compensation 17,377 17,071 1.8 82,945 81,390 1.9
All other lines of business 9,742 9,411 3.5 40,968 39,626 3.4
212,445 219,087 -3.0 939,774 949,166 -1.0
Change in allowance for
management fee returned on
cancelled policies 1,400 1,600 -12.5 500 (4,100 ) N/A
Management fee revenue, after
changes in allowance $ 213,845 $ 220,687 -3.1 $ 940,274 $ 945,066 -0.5
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Growth rate of policies in force for Property and Casualty Group insurance
operations:
Private 12-mth. 12-mth. All other 12-mth. Total 12-mth.
passenger growth growth personal lines growth Personal growth
Date auto rate Homeowners rate of business rate lines rate
12/31/2003 1,672,621 5.1 1,327,842 7.9 272,547 9.2 3,273,010 6.6
03/31/2004 1,678,496 3.4 1,335,763 5.8 275,970 7.2 3,290,229 4.7
06/30/2004 1,686,524 2.2 1,347,409 4.2 278,547 5.3 3,312,480 3.3
09/30/2004 1,682,561 1.0 1,350,899 2.6 278,707 3.4 3,312,167 1.9
12/31/2004 1,670,804 (0.1 ) 1,347,671 1.5 278,974 2.4 3,297,449 0.8
03/31/2005 1,661,955 (1.0 ) 1,343,803 0.6 279,927 1.4 3,285,685 (0.1 )
06/30/2005 1,658,278 (1.7 ) 1,350,491 0.2 282,670 1.5 3,291,439 (0.6 )
09/30/2005 1,651,629 (1.8 ) 1,354,487 0.3 285,134 2.3 3,291,250 (0.6 )
12/31/2005 1,640,563 (1.8 ) 1,353,912 0.5 286,604 2.7 3,281,079 (0.5 )
Growth rate of policies in force for Property and Casualty Group insurance
operations:
12-mth. CML* 12-mth. 12-mth. All other 12-mth. Total 12-mth.
CML* growth multi- growth Workers' growth CML* lines growth CML* growth
Date auto rate peril rate comp. rate of business rate lines rate
12/31/2003 115,171 6.6 206,533 8.3 62,282 5.7 86,409 8.3 470,395 7.5
03/31/2004 115,760 5.3 206,937 6.2 61,378 2.1 86,344 6.1 470,419 5.4
06/30/2004 117,060 3.7 209,795 4.1 60,735 (1.9 ) 87,172 4.0 474,762 3.1
09/30/2004 117,090 2.4 210,012 2.4 59,863 (4.1 ) 87,921 2.5 474,886 1.5
12/31/2004 117,287 1.8 209,623 1.5 58,931 (5.4 ) 87,815 1.6 473,656 0.7
03/31/2005 117,382 1.4 209,619 1.3 57,949 (5.6 ) 87,877 1.8 472,827 0.5
06/30/2005 118,445 1.2 212,100 1.1 57,398 (5.5 ) 88,981 2.1 476,924 0.5
09/30/2005 118,555 1.3 212,939 1.4 56,877 (5.0 ) 90,074 2.4 478,445 0.7
12/31/2005 118,728 1.2 213,347 1.8 56,218 (4.6 ) 90,227 2.7 478,520 1.0
Growth rate of policies in force for Property and Casualty Group insurance
operations:
12-mth.
Total all growth
Date lines rate
12/31/2003 3,743,405 6.7
03/31/2004 3,760,648 4.7
06/30/2004 3,787,242 3.2
09/30/2004 3,787,053 1.8
12/31/2004 3,771,105 0.7
03/31/2005 3,758,512 (0.1 )
06/30/2005 3,768,363 (0.5 )
09/30/2005 3,769,695 (0.5 )
12/31/2005 3,759,599 (0.3 )
*CML = Commercial
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Policy retention trends for Property and Casualty Group insurance operations:
Private CML* All other
passenger CML* multi- Workers' lines of
Date auto auto Homeowners peril comp. business Total
12/31/2003 91.6 % 89.8 % 89.5 % 87.5 % 88.1 % 88.2 % 90.2 %
03/31/2004 91.2 89.7 89.0 87.6 88.1 87.5 89.8
06/30/2004 90.7 89.0 88.4 86.7 86.7 86.8 89.2
09/30/2004 90.3 88.5 87.9 86.0 86.2 86.0 88.7
12/31/2004 90.0 88.3 87.6 85.3 85.8 85.8 88.4
03/31/2005 89.9 88.2 87.6 85.5 85.9 85.5 88.3
06/30/2005 89.8 87.8 87.8 85.0 85.8 85.5 88.3
09/30/2005 89.9 88.0 88.0 85.1 86.0 85.6 88.4
12/31/2005 90.0 87.9 88.2 85.4 86.2 86.0 88.6
*CML = Commercial
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PROPERTY & CASUALTY GROUP ADJUSTED COMBINED RATIO BY
MAJOR LINES OF BUSINESS (SAP BASIS) - DIRECT BUSINESS
Three months Three months ended Twelve months Twelve months
ended December 31 ended ended
December 31 2004 December 31 December 31
2005 - 2005 2004
Private passenger auto 107.5 % 103.9 % 95.9 % 94.8 %
Home protector 73.0 % 61.3 % 70.0 % 73.1 %
Other personal lines 108.4 % 80.4 % 80.8 % 79.3 %
Total personal 98.4 % 92.1 % 88.5 % 88.9 %
Commercial multi-peril 81.6 % 81.5 % 75.9 % 78.7 %
Commercial auto 94.0 % 94.5 % 85.7 % 91.0 %
Workers' compensation 89.3 % 146.2 % 94.7 % 114.2 %
Other commercial lines 62.8 % 59.3 % 57.7 % 71.4 %
Total commercial 86.3 % 102.8 % 83.1 % 92.3 %
Grand total-direct business only• 94.7 % 95.2 % 86.8 % 89.9 %
• The adjusted statutory combined ratio removes the profit component of the
management fee earned by the Company.
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