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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
(NO FEE REQUIRED)
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[NO FEE REQUIRED]
For the transition period from to
Commission File Number 2-39458
ERIE FAMILY LIFE INSURANCE COMPANY
(Exact name of Company as specified in its charter)
Pennsylvania 25-1186315
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Erie Insurance Place, Erie, Pennsylvania 16530
(Address of principal executive offices) (Zip code)
Company's telephone number, including area code (814) 870-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.40 par value
(Title of class)
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate the number of shares outstanding of each of the Company's classes of
common stock, as of the latest practicable date: 9,450,000 shares of Common
Stock outstanding on February 15, 2001.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's Annual Report to shareholders for the fiscal year
ended December 31, 2000 (the "Annual Report") are incorporated by reference into
Parts II and IV of this Form 10-K Report.
1
INDEX
ITEM NUMBER AND CAPTION PAGE
Part I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 8
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 8
Part III
Item 10. Directors and Executive Officers of the Registrant 9
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and
Management 20
Item 13. Certain Relationships and Related Transactions 22
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 23
2
PART I
ITEM 1. BUSINESS
Erie Family Life Insurance Company (hereinafter referred to as the
"Company" or "Erie Family Life") was incorporated in the Commonwealth of
Pennsylvania on May 23, 1967 and commenced business on September 1, 1967.
The Company is primarily engaged in the business of underwriting and
selling nonparticipating individual and group life insurance policies,
including universal life. Erie Family Life also sells individual and
group annuities. During the last quarter of 2000, the Company issued its
first disability income product. This product is designed to protect the
Policyholder's mortgage if the insured becomes disabled by providing the
owner with income to maintain home mortgage payments for the duration of
the loan. Erie Family Life's common stock is owned by Erie Indemnity
Company (21.6%) and by Erie Insurance Exchange (53.5%). The remaining
stock is held by the public, predominantly by directors, agents and
employees of Erie Indemnity Company.
Erie Indemnity Company is a Pennsylvania business corporation formed in
1925 to be the attorney-in-fact for Erie Insurance Exchange, a
Pennsylvania-domiciled reciprocal insurance exchange. The Erie Indemnity
Company's principal business activity consists of the management of the
Exchange. The Erie Indemnity Company also is engaged in the
property/casualty insurance business through its wholly owned
subsidiaries, Erie Insurance Company (Erie Insurance Co.), Erie Insurance
Company of New York (Erie NY) and Erie Insurance Property & Casualty
Company (Erie P&C) and through its management of Flagship City Insurance
Company (Flagship), a subsidiary of the Erie Insurance Exchange. Together
with the Erie Insurance Exchange, the Erie Indemnity Company and its
subsidiaries and affiliates, including Erie Family Life, operate
collectively under the name "Erie Insurance Group."
Products
The Company's portfolio of life insurance includes permanent life,
endowment and term policies, including whole life, mortgage and
decreasing term, group, and universal life insurance. In terms of face
value, new life business issued in 2000 and 1999 had a ratio of 8:1 and
5:1, respectively, of term insurance to whole life insurance coverage.
Contributing to the increased ratio of term to whole life insurance face
value was the introduction of the Company's new life insurance product in
late 1999, the ERIE Flagship Term. This new insurance product is designed
for sale of face amounts of $300,000 and above.
Life insurance premiums and annuity deposits have been the primary
sources of cash inflows for the Company.
Classes of Life Insurance
Percentage of Total Sales, Net of Reinsurance
For the year ended December 31,
Class 2000 1999 1998 1997 1996
----- ---- ---- ---- ---- ----
Ordinary Life (including Term,
Whole Life and Universal Life) 94.2% 93.7% 93.4% 93.3% 93.3%
Group and other 5.8 6.3 6.6 6.7 6.7
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
3
Certain elements of revenue and expense reflect the requirements of
Financial Accounting Standard (FAS) 97. FAS 97 prescribes a uniform
method by which life insurance companies record certain long-term
contracts, specifically annuities, universal life, and other
interest-sensitive products. This method involves separating the premium
income into the "premium" portion (shown in revenue) which represents
insurance protection purchased, and the "deposit" portion, which
represents funds to be held at interest for future uses. Under this
standard, the "deposit" portion of the premium received is accounted for
using methods applicable to comparable "interest bearing obligations" of
other types of financial institutions.
The Erie Insurance Group affiliated property and casualty insurance
companies periodically purchase annuities from the Company in connection
with the structured settlement of claims. Structured settlement annuities
sold to affiliated property/casualty companies totaled $16,167,642,
$23,312,225 and $17,883,171 in 2000, 1999, and 1998, respectively. Also
included in the annuity deposits are annuity contracts purchased by the
Erie Insurance Group Retirement Plan for Employees. These annuity
contracts totaled $5,626,892 in 2000, $5,321,738 in 1999 and $6,413,460
in 1998.
Classes of Deposits
For the year ended December 31,
Class 2000 1999 1998 1997 1996
----- ---- ---- ---- ---- ----
Universal Life Deposit $ 11,198,124 $ 11,792,172 $ 10,692,515 $ 10,733,738 $ 9,465,576
Annuity Deposit 51,060,326 67,114,641 56,727,779 58,306,640 58,250,822
------------- ------------- --------------- -------------- --------------
$ 62,258,450 $ 78,906,813 $ 67,420,294 $ 69,040,378 $ 67,716,398
Annuity product offerings compete with other available investment
products including, but not limited to, common and preferred stocks,
bonds, mutual funds and other instruments. The Company's ability to
attract policyholders depends in large part on the relative
attractiveness of its products compared to those other available
products. Factors such as the interest rate environment and the
performance of the stock market influence this ability.
The Company reinsures a portion of its business under a number of
different reinsurance agreements. The primary purpose of this reinsurance
is to enable the Company to write a policy in an amount larger than the
Company is willing to assume for itself. The secondary purposes are to
receive commissions on the reinsurance ceded and in some instances to
participate in the profits of the reinsured business by way of an
"experience rating refund." The Company currently reinsures with other
insurance companies the portion of the insurance coverage above
acceptable retentions. The retention limits on an acceptable risk is
$300,000 per life for individual and group coverage. For its disability
income product, the Company has a 50% coinsurance agreement with its
reinsurer. For its Erie Flagship Term product, the Company has a 50%
coinsurance agreement with a maximum retention of $300,000 with its
reinsurers.
Marketing
The Company markets its products through independent agents in ten
jurisdictions. The 2000 statutory direct premium revenue for those
jurisdictions is made up of: Pennsylvania (66.69%), Maryland (7.03%),
Ohio (6.88%), Virginia (6.58%), North Carolina (3.54%), West Virginia
(3.21%), Indiana (2.85%), Tennessee (.94%), Illinois (.38%), and the
District of Columbia (.06%). The policies sold are evaluated by the
Company's Underwriting Department which accepts or declines applicants
for insurance. Premium on policies which are accepted may be standard or
rated, depending on the nature of the risk.
In the third quarter 2001, the ERIE Insurance Group will expand its
marketing territory into the state of Wisconsin. In Wisconsin, the
Company intends to write all lines of life, health and annuity products
it currently offers.
4
Competition
The Company operates in a highly competitive industry which consists of
numerous stock and mutual life insurance companies. A large number of
established insurance companies compete in states in which the Company
transacts business and many of these companies offer more diversified
lines of insurance coverage and have substantially greater financial
resources than does the Company. Competition is based primarily on price,
product features, availability of insurance products and the financial
strength of the Company.
Federal legislative initiatives on financial services reform, begun in
1997, culminated in the enactment of Senate Bill 900, the Financial
Services Modernization Act, which significantly changes the way insurance
companies, banks and securities firms are regulated. The elimination of
some regulatory barriers to banks entering the insurance market, privacy
initiatives concerning the consumer data held by financial institutions
and the interjection of federal government agencies into the
traditionally state-regulated insurance industry may materially change
the ground rules under which insurance products are marketed.
Additionally, current and proposed future federal measures may affect the
way the life insurance industry distributes, prices, and services their
products. These proposals may include possible changes to laws governing
the taxation of insurance companies and life insurance products.
Life Reserves
The Company establishes and maintains actuarial reserves to meet its
obligations on life insurance policies and annuities. These reserves are
amounts which, with additions from premiums to be received on outstanding
policies and with interest on such reserves compounded annually at
certain assumed rates, are calculated to be sufficient to meet policy
obligations at death or maturity in accordance with the mortality tables
employed when the policies are issued.
Reserves for life insurance and income-paying annuity future policy
benefits have been computed primarily by the net level premium method
with assumptions as to anticipated mortality, withdrawals, lapses and
investment yields. Deferred annuity future policy benefit liabilities
have been established at accumulated values without reduction for
surrender charges. Reserves for universal life and investment contracts
are based on the contract account balance, if future benefit payments in
excess of the account balance are not guaranteed, or the present value of
future benefit payments when such payments are guaranteed. Variations are
inherent in such calculations due to the estimates and assumptions
necessary in the calculations. Interest rate assumptions for non-interest
sensitive life insurance range from 3.5% to 4% on policies issued in 1980
and prior years and 6% to 7.25% on policies issued in 1981 and subsequent
years. Mortality and withdrawal assumptions are based on tables typically
used in the industry.
Annuities are subject to varying interest rates determined at the
discretion of the Company subject to certain minimums. During 2000,
deposits to individual annuities earned interest at rates ranging from 5%
to 6.25%. Management believes the fair value of annuity and universal
life deposits approximates the amounts recorded in the financial
statements, since these obligations are generally subject to fluctuating
interest rates.
Insurance Regulation
The Company is subject to supervision and regulation by the insurance
departments of the states in which it does business. Although the extent
of the regulation varies from state to state, generally the supervisory
agencies are vested with broad regulatory powers relating to the granting
and revocation of licenses to transact business, regulation of trade
practices, licensing of agents, approval of policy forms, deposits of
securities as for the benefits of policy owners, and investments and
maintenance of specified reserves and capital, all designed primarily for
the protection of policy owners. In accordance with the rules of the
National Association of Insurance Commissioners (NAIC), the Company is
examined periodically by one or more of the state supervisory agencies.
The last completed examination of the Company was conducted by the
Pennsylvania Insurance Department and covered the five years ended
December 31, 1995. The Company has received notification from the
Pennsylvania Insurance Department of its intentions to examine, in 2001,
the five year period ended December 31, 2000.
5
The Commonwealth of Pennsylvania follows the statutory accounting
practices minimum risk-based capital requirements on domestic insurance
companies that were developed by the NAIC. Companies below specific
trigger points or ratios are classified within certain levels, each
of which requires specified corrective action. The formulas for
determining the amount of risk-based capital specify various weighing
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. These formulas determine
a ratio of the company's regulatory total adjusted capital to its
authorized control level risk-based capital, as defined by the NAIC.
The NAIC levels and ratios are as follows:
Ratio of Total Adjusted Capital to
NAIC Required Authorized Control Level Risk-Based
Regulatory Event Capital (Less Than or Equal to)
Company action level 2 (or 2.5 with negative trends)
Regulatory action level 1.5
Authorized control level 1
Mandatory control level .7
Erie Family Life has regulatory total adjusted capital of $126 million
and a ratio of total adjusted capital to authorized control level
risk-based capital of more than 4.5:1 at December 31, 2000. The Company's
ratios significantly exceed the minimum NAIC risk-based capital
requirements.
In 1998, the NAIC completed a process to codify statutory accounting
practices for certain insurance enterprises (Codification). These
codified statutory accounting principles will be effective beginning
January 1, 2001. The Codification will result in changes to the Company's
statutory-basis financial statements. The impact will not be material to
the Company's statutory surplus.
Employees
Services of 116 full-time Employees are provided through Erie Indemnity
Company. Five of the employees are officers. Employee expenses along with
other operating expenses are paid by the Erie Indemnity Company and
reimbursed by the Company on a monthly basis. None of the Employees are
covered by collective bargaining agreements and the Company believes its
Employee relations are good.
Other Data
The Company's Lapse Rate for 2000 and 1999 was 8.5% and
8.0%, respectively.
Total Life Insurance In Force for the last five years Net of
Reinsurance was:
2000 - $13,918,295,000
1999 - $13,031,594,000
1998 - $11,961,512,000
1997 - $10,754,141,000
1996 - $ 9,646,962,000
"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.
6
ITEM 2. PROPERTIES
The Company owns real property for investment purposes as provided in Schedule I
"Summary of Investments other than Investments in Related Parties." This
investment property is leased to the Erie Indemnity Company. Rental income for
2000 was $308,732. The executive and administrative offices of the Company are
located in the headquarters office of Erie Insurance Group in Erie,
Pennsylvania. The Company pays other members of the group an amount determined
by an agreement for office space and for the use of facilities, equipment and
services.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings other than
ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted for a vote to shareholders during the fourth
quarter of 2000.
7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The information set forth on page 27 of the Company's 2000 Annual Report is
incorporated herein by reference.
The following sets forth the range of high and low closing prices of the
Company's stock by quarter:
2000 1999
Low High Low High
----- ----- ----- -----
First Quarter 17 5/8 20 3/4 17 1/2 21 1/8
Second Quarter 17 3/8 21 18 1/2 21
Third Quarter 18 19 1/2 19 21 1/2
Fourth Quarter 16 19 20 1/8 21 15/16
ITEM 6. SELECTED FINANCIAL DATA
The information contained in "Selected Financial Data" on page 20 of the
Company's 2000 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth on pages 21 through 27 of the Company's 2000 Annual
Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth on pages 25 and 26 of the Company's 2000 Annual Report
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The 2000 Financial Statements and the Company's Independent Auditors' Report on
pages 29 through 43 of the Company's 2000 Annual Report are incorporated herein
by reference, as is the unaudited information set forth in the Notes to the
Financial Statements under the caption "Quarterly Results of Operations
(Unaudited)" on pages 42 through 43.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 12/31/00 Held During the Last Five Years
Samuel P. Black, III 1,3,4 Director since 1997. President, Treasurer and Secretary, Samuel P. Black &
58 Associates, Inc.-insurance agency; Director--the Company, Erie Insurance
Company, Flagship City Insurance Company, Erie Insurance Property & Casualty
Company and Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange.
J. Ralph Borneman, Jr.3,4 Director since 1992. President and Chief Executive Officer, Body-Borneman
62 Associates, Inc., insurance agency. President, Body-Borneman,Ltd. and Body-
Borneman, Inc., insurance agencies. Director-the Company, Erie Insurance
Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange, Erie Insurance Company of New York and National Penn Bancshares.
John J. Brinling, Jr. Executive Vice President of the Company since December 1990. Division
53 Officer 1984 - Present. Director--Erie Insurance Company of New York.
Patricia Garrison-Corbin 2,4,5C Director since 2000. President, P.G. Corbin & Company 1987 - Present.
53 Director-the Company, Erie Insurance Company and Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange.
Robert H. Dreyer Senior Vice President of the Company since 1990. Chief Actuary 1983- Present.
63
Philip A. Garcia Executive Vice President and Chief Financial Officer of the Company,Erie
44 Insurance Company, Erie Indemnity Company, Attorney-in-Fact for Erie
Insurance Exchange, Flagship City Insurance Company, Erie Insurance Property
& Casualty Company and Erie Insurance Company of New York since October 1997.
Senior Vice President and Controller 1993 - 1997. Director-Flagship City
Insurance Company, Erie Insurance Property & Casualty Company and Erie
Insurance Company of New York.
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Executive Compensation Committee
4 Member of Nominating Committee
5 Member of Investment Committee
C Committee Chairman
9
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 12/31/00 Held During the Last Five Years
Susan Hirt Hagen 1,* Director since 1980. Managing Partner, Hagen, Herr & Peppin, Group
65 Relations Consultants since 1990; Director-the Company, Erie Insurance
Company and Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange, since 1980.
F. William Hirt 1C,* Director since 1967. Chairman of the Board of the Company, Erie Insurance
75 Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange, Erie Insurance Property & Casualty Company and Flagship City
Insurance Company since September 1993; Chairman of the Board of Erie
Insurance Company of New York since April 1994. Chairman of the Executive
Committee of the Company and the Erie Indemnity Company, Attorney-in-Fact
for Erie Insurance Exchange since November 1990; Interim President and
Chief Executive Officer of the Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance Company, Erie
Insurance Property & Casualty Company, Flagship City Insurance Company and
Erie Insurance Company of New York from January 1, 1996 to February 12,
1996; Chairman of the Board, Chief Executive Officer and Chairman of the
Executive Committee of the Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange and Erie Insurance Company for
more than five years prior thereto; Director--the Company, Erie Insurance
Company, Flagship City Insurance Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance Property &
Casualty Company and Erie Insurance Company of New York.
Samuel P. Katz 2,3 Director since 2000. Founder, President and Chief Executive Officer, Enter
51 Sport Capital Advisors, Inc. 1997 - Present; Partner, Stafford Capital
Partners, L.P. 1994 - 1997; Director-- the Company, Erie Insurance Company
and Erie Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange.
Claude C. Lilly, III 2 Director since 2000. Interim Dean, Belk College of Business Administration,
54 University of North Carolina, Charlotte 1998 - Present; James H. Harris
Chair of Risk Management and Insurance, Belk College of Business
Administration, University of North Carolina, Charlotte, August 1997 -
Present; Chief Executive Officer, Quinstone, Inc., 1995 - 1996; Director--
the Company, Erie Insurance Company and Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange.
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Executive Compensation Committee
* F. William Hirt is the brother of Susan Hirt Hagen.
C Committee Chairman
10
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 12/31/00 Held During the Last Five Years
Stephen A. Milne 1,5 Director since 1996. President and Chief Executive Officer of the Company,
52 Erie Insurance Company, Erie Indemnity Company, Attorney-in-Fact for Erie
Insurance Exchange, Flagship City Insurance Company, Erie Insurance
Property & Casualty Company and Erie Insurance Company of New York since
1996; Executive Vice President of the Erie Insurance Company, Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Flagship
City Insurance Company, Erie Insurance Property & Casualty Company and Erie
Insurance Company of New York 1994 - 1996. Director--the Company, Erie
Insurance Company, Erie Indemnity Company, Attorney-in-Fact for Erie
Insurance Exchange and Erie Insurance Company of New York, Flagship City
Insurance Company and Erie Insurance Property & Casualty Company.
Henry N. Nassau 1,5 Director since 2000. Managing Director, General Counsel and Secretary,
46 Internet Capital Group 1999 - Present; Partner and Chairman of the Business
Dept., Dechert, Price & Rhoads 1987 - 1999; Director-- the Company, Erie
Insurance Company and Erie Indemnity Company, Attorney-in-Fact for Erie
Insurance Exchange.
Timothy G. NeCastro Senior Vice President and Controller of the Company, Erie Insurance
40 Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange, Flagship City Insurance Company, Erie Insurance Property &
Casualty Company and Erie Insurance Company of New York since 1997.
Department Manager - Internal Audit 1996 - 1997.
John M. Petersen 1,4C Director since 1980. Retired; President and Chief Executive Officer of the
72 Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange, Erie Insurance Company, Flagship City Insurance Company and Erie
Insurance Property & Casualty Company 1993 - 1995 and Erie Insurance
Company of New York 1994 - 1995; President, Treasurer and Chief Financial
Officer of the Erie Indemnity Company, Attorney-in-Fact for the Erie
Insurance Exchange, Erie Insurance Company and Erie Family Life Insurance
Company 1990 - 1993, and of Flagship City Insurance Company and Erie
Insurance Property & Casualty Company since 1992 and 1993, respectively, to
September 1993; President, Treasurer and Chief Financial Officer of the
Company and Executive Vice President, Treasurer and Chief Financial Officer
of the Erie Indemnity Company, Attorney-in-Fact for the Erie Insurance
Exchange and Erie Insurance Company for more than five years prior thereto;
Director--the Company, Erie Insurance Company, Flagship City Insurance
Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange, Erie Insurance Property & Casualty Company, Erie Insurance
Company of New York, and Spectrum Control.
1 Member of Executive Committee
4 Member of Nominating Committee
5 Member of Investment Committee
C Committee Chairman
11
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 12/31/00 Held During the Last Five Years
Jan R. Van Gorder 1 Director since 1990. Senior Executive Vice President, Secretary and General
53 Counsel of the Company, Erie Indemnity Company, Attorney-in-Fact for Erie
Insurance Exchange, and Erie Insurance Company since 1990 and of Flagship
City Insurance Company and Erie Insurance Property & Casualty Company since
1992 and 1993, respectively and of Erie Insurance Company of New York since
1994. Senior Vice President, Secretary and General Counsel of the Company,
Erie Insurance Company and Erie Indemnity Company, Attorney-in-Fact for
Erie Insurance Exchange for more than five years prior thereto;
Director--the Company, Erie Insurance Company, Flagship City Insurance
Company, Erie Insurance Property & Casualty Company, Erie Insurance Company
of New York and Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange.
Douglas F. Ziegler Senior Vice President, Treasurer and Chief Investment Officer of the
50 Company since 1993. Senior Vice President, Treasurer and Chief Investment
Officer of the Erie Insurance Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange, Flagship City Insurance
Company and Erie Insurance Property & Casualty Company and Erie Insurance
Company of New York. Director--Erie Insurance Company of New York.
Robert C. Wilburn 2C,3C,4,5 Director since 1999. Distinguished Service Professor, Carnegie Mellon
57 University since 1999; President and Chief Executive Officer, Colonial
Williamsburg Foundation 1992 - 1999; Director - the Company, Erie Insurance
Company and Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange.
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Executive Compensation Committee
4 Member of Nominating Committee
5 Member of Investment Committee
C Committee Chairman
12
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The Company is a member of an insurance holding company system pursuant to
Pennsylvania law under which insurance companies are required to have
nominating, audit and executive compensation committees composed solely of
directors who are not officers, employees or controlling shareholders of the
Company or any entity controlling the Company. Insurance companies can satisfy
this requirement if the insurance company is controlled by an insurer or a
publicly held corporation that has committees that comply with this requirement.
Erie Indemnity Company, holder of 21.6% of the Company's stock directly and
53.5% of the Company's stock as attorney-in-fact for Erie Insurance Exchange,
has committees which meet these requirements.
The following table sets forth the compensation during each of the three fiscal
years ended December 31, 2000, 1999, and 1998, awarded to, earned by or paid to
the Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company during 2000 for services rendered
in all capacities to the Company, Erie Indemnity Company, Erie Insurance
Exchange (the "Exchange") and their subsidiaries and affiliates.
Annual Long-Term
Compensation
Name and Other Annual Restricted LTIP All Other
Principal Position Year Salary Bonus Compensation Stock Awards Payouts Compensation
- ------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Stephen A. Milne 2000 $ 677,606 $ 627,417 $ 5,913 $ 162,971 $ 73,476 $ 74,145
President and Chief 1999 633,600 495,201 2,595 0 0 64,649
Executive Officer 1998 587,892 436,683 2,924 0 0 66,051
Jan R. Van Gorder 2000 $ 359,167 $ 268,681 $ 4,120 $ 97,002 $ 43,726 $ 28,046
Senior Executive Vice 1999 335,482 150,653 2,614 0 0 26,492
President, Secretary 1998 321,032 142,340 3,439 0 0 27,887
& General Counsel
Jeffrey A. Ludrof 2000 $ 273,985 $ 203,145 $ 1,362 $ 48,173 $ 21,715 $ 18,265
Executive Vice 1999 216,432 95,769 76 0 0 13,063
President 1998 171,019 74,860 0 0 0 5,444
Philip A. Garcia 2000 $ 262,177 $ 198,593 $ 1,813 $ 45,222 $ 20,398 $ 14,809
Executive Vice 1999 244,720 119,302 763 0 0 13,475
President & Chief 1998 224,040 97,641 779 0 0 20,677
Financial Officer
John J. Brinling Jr. 2000 $ 248,530 $ 160,129 $ 2,246 $ 64,807 $ 30,780 $ 29,375
Executive Vice 1999 238,168 101,575 2,454 0 0 24,875
President of 1998 224,686 102,132 3,279 0 0 25,731
EFL
(1) All amounts exhibited above are before individual income taxes. The
amounts indicated in the "Bonus" column above represent amounts earned by
the named executives during 2000, 1999 and 1998, under the Company's
Annual Incentive Plan. The purpose of the Annual Incentive Plan is to
promote the best interests of the Erie Insurance Exchange while enhancing
shareholder value of the Company by basing a portion of selected
employees' compensation on the performance of such employee and the
Company. Performance measures are established by the Executive
Compensation Committee based on the attainment of individual performance
goals and the Company's financial goals compared to a selected peer
group. The amounts indicated also include reimbursement for minor
perquisites in the amounts of $16,708, $10,696, $9,253, $10,274 and
$14,771 for Messrs. Milne, Van Gorder, Ludrof, Garcia, and Brinling,
respectively.
13
(2) Amounts indicated in the "Other Annual Compensation" column include the
taxable value of group term life insurance in excess of $50,000 and the
associated tax reimbursement for the named executive officers. Amounts
also include dividends paid on behalf of the Long-Term Incentive Plan.
(3) The "Restricted Stock Awards" column includes Long-Term Incentive Plan
benefits awarded in February 2000 that remain restricted at December 31,
2000. The shares were valued using the share price at December 31, 2000;
these values are noted in the "Summary Compensation Table". For Messrs.
Milne, Van Gorder, Ludrof, Garcia, and Brinling, respectively, the number
of shares awarded were: 5,467, 3,254, 1,616, 1,517 and 2,174. See
"Long-Term Incentive Plan Awards in Last Fiscal Year" table for a
detailed description of the Plan. Long-Term Incentive Plan dividends
earned in the current year are reported in "Other Annual Compensation"
when paid or in "All Other Compensation" when deferred.
(4) The "LTIP Payouts" column includes Long-Term Incentive Plan benefits
awarded in February 2000 that became unrestricted at December 31, 2000.
These shares were distributed in January 2001 and valued using the actual
share price at the time of payment. The number of shares distributed for
Messrs. Milne, Van Gorder, Ludrof, Garcia and Brinling, respectively,
were: 1,507, 897, 445, 506 and 346. Messr. Brinling deferred the
distribution of 543 shares; these shares were valued using the share
price as of December 31, 2000.
(5) Amounts shown in the "All Other Compensation" column include
matching contributions made by the Company pursuant to the Company's
Employee Savings Plan, premiums paid by the Company on behalf of the
named individuals on the split dollar life insurance policies, expenses
for spousal travel, and deferred dividends and related earnings. For the
year 2000, contributions made to the Employee Savings Plan amounted to
$20,143, $10,736, $8,214, $7,831 and $7,456, on behalf of Messrs. Milne,
Van Gorder, Ludrof, Garcia and Brinling, respectively. For the year 1999,
contributions made to the Employee Savings Plan amounted to $14,308,
$9,084, $6,365, $6,461 and $7,145 on behalf of Messrs. Milne, Van Gorder,
Ludrof, Garcia and Brinling, respectively. For the year 1998,
contributions made to the Employee Savings Plan amounted to $15,507,
$10,391, $5,444, $6,559 and $7,911 on behalf of Messrs. Milne, Van
Gorder, Ludrof, Garcia and Brinling, respectively. Premiums paid during
2000 for split dollar life insurance policies for Messrs. Milne, Van
Gorder, Ludrof, Garcia, and Brinling, respectively, were: $50,132,
$17,310, $6,674, $6,978 and $17,634. Premiums paid during 1999 for split
dollar life insurance policies for Messrs. Milne, Van Gorder, Ludrof,
Garcia and Brinling, respectively, were as follows: $50,341, $17,408,
$6,698, $7,014 and $17,730. Premiums paid during 1998 for split dollar
life insurance policies for Messrs. Milne, Van Gorder, Ludrof, Garcia and
Brinling, respectively, were as follows: $50,544, $17,496, $-0-, $14,118
and $17,820. The Company is entitled to recover the premiums from any
proceeds paid on such split dollar life insurance policies and has
retained a collateral interest in each policy to the extent of the
premiums paid with respect to such policies. Expenses for spousal travel
were $3,870, $-0-, $3,377, $-0- and $3,377, for Messrs. Milne, Van
Gorder, Ludrof, Garcia and Brinling, respectively. Messr. Brinling also
had deferred dividends of $881 and interest on deferred dividends of $27.
Agreements with Executive Officers
The Company has entered into employment agreements with the following
senior executive officers of the Company: Stephen A. Milne, President and
Chief Executive Officer of the Company; Jan R. Van Gorder, Senior Executive
Vice President, Secretary and General Counsel of the Company; Philip A.
Garcia, Executive Vice President and Chief Financial Officer of the
Company; Jeffrey A. Ludrof, Executive Vice President of the Company and
John J. Brinling, Jr., Executive Vice President of EFL. At a meeting of the
Board of Directors held on December 12, 2000, the Board of Directors
extended the term of each executive officer's employment agreement for one
year. The employment agreements have the following principal terms:
14
(a) A four-year term for Mr. Milne, expiring in December 2004, and for the
other executives a two-year term expiring in December 2002, unless the
agreement is theretofore terminated in accordance with its terms, with
or without cause, or due to the disability or death of the officer or
notice of nonrenewal is given by the Company or the executive 30 days
before any anniversary date;
(b) A minimum annual base salary at least equal to the executive's annual
base salary at the time the agreement was executed, subject to
periodic review to reflect the executive's performance and
responsibilities, competitive compensation levels and the impact of
inflation;
(c) The eligibility of the executive under the Company's incentive
compensation programs and employee benefit plans;
(d) The establishment of the terms and conditions upon which the
executive's employment may be terminated by the Company and the
compensation of the executive in such circumstances. The agreements
provide generally, among other things, that if the employment of an
executive is terminated without Cause (as defined in the agreement) by
the Company or by the executive for Good Reason (as defined in the
agreement) then the executive shall be entitled to receive: (i) an
amount equal to the sum of three times the executive's highest annual
base salary during the preceding three years plus an amount equal to
three times the total of the executive's highest award during the
preceding three years under the Company's Annual Incentive Plan; (ii)
any award or other compensation to which the executive is entitled
under the Company's Long-Term Incentive Plan; (iii) continuing
participation in any employee benefit plans for a period of three
years following termination to the extent the executive and his
dependents were eligible to participate in such programs immediately
prior to the executive's termination; and (iv) immediate vesting and
nonforfeitability of accrued benefits under the Company's Supplemental
Retirement Plan for Certain Members of the Erie Insurance Group
Retirement Plan for Employees ("Supplemental Employee Retirement
Plan");
(e) Provisions relating to confidentiality and nondisclosure following an
executive's termination; and
(f) An agreement by the executive not to compete with the Company for a
period of one year following his termination, unless his termination
was without Cause.
Stock Options and Stock Appreciation Rights
The Company does not have a stock option plan, nor has it ever granted any stock
option or stock appreciation right to any of the persons named in the Summary
Compensation Table.
Long-Term Incentive Plan
The Company has established a Long-Term Incentive Plan that is designed to
enhance the growth and profitability of the Company by providing the incentive
of long-term rewards to key employees who are capable of having a significant
impact on the performance of the Company; to attract and retain employees of
outstanding competence and ability and to further align the interests of such
employees with those of the shareholders of the Company. The Plan was approved
by shareholders in 1997 as a performance-based plan under the Internal Revenue
Code of 1986, as amended (the Code). Each of the named executives has been
granted awards of phantom share units under the Company's Long-Term Incentive
Plan based upon a target award calculated as a percentage of the executive's
base salary. The total value of any phantom share units will be determined at
the end of the performance period based upon the growth in the Company's
retained earnings. Each executive will then be entitled to receive restricted
shares of Class A Common Stock of the Erie Indemnity Company equal to the dollar
value of the phantom share units at the end of the performance period. The
vesting period for the restricted shares of Class A Common Stock issued to each
executive is three years after the end of the performance period. If an
executive ceases to be an employee prior to the end of the performance period,
the executive forfeits all phantom share units awarded. If an executive ceases
to be an employee prior to the end of the vesting period, the executive forfeits
all unvested restricted shares previously granted. The following table sets
forth target awards granted to the Company's five highest paid executive
officers (i) for the three-year performance period 2000 through 2002, (ii) for
the three-year performance period of 1999 through 2001 and (iii) for the
three-year performance period of 1998 through 2000.
15
LONG-TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
Name Number of Shares, Performance Estimated Future Payouts
Units or Other or Other Period Under Non-Stock
Rights (#) Until Maturation Price-Based Plans
or Payout
- -------------------------------------------------------------------------------------------------------------------------------
Phantom Share Units Threshold Target Maximum
- -------------------------------------------------------------------------------------------------------------------------------
Milne, S. 75,602 1998-2000 -0- $377,623 (1)
79,031 1999-2001 -0- $420,000 (1)
97,047 2000-2002 -0- $513,600 (1)
Van Gorder, J. 22,495 1998-2000 -0- $112,361 (1)
33,224 1999-2001 -0- $176,568 (1)
35,365 2000-2002 -0- $187,162 (1)
Garcia, P. 14,028 1998-2000 -0- $ 70,070 (1)
23,083 1999-2001 -0- $126,500 (1)
25,815 2000-2002 -0- $136,620 (1)
Brinling, J. 15,023 1998-2000 -0- $ 75,038 (1)
23,520 1999-2001 -0- $124,992 (1)
25,035 2000-2002 -0- $132,492 (1)
Ludrof, J. 11,953 1998-2000 -0- $ 59,707 (1)
23,427 1999-2001 -0- $124,498 (1)
25,815 2000-2002 -0- $136,620 (1)
(1) There is no maximum payout limitation for a specific performance
period. However, the maximum value of phantom share units that may be
earned by any named executive in any year shall not exceed $500,000.
16
Pension Plan
The following table sets forth the estimated total annual benefits payable upon
retirement at age 65 under the Erie Insurance Group Retirement Plan for
Employees and the Supplemental Employee Retirement Plan collectively, (the
"Retirement Plans").
PENSION PLAN TABLE
Years of Service
Remuneration 15 20 25 30 35
- ------------------------------------------------------------------------------
$ 150,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000 $ 90,000
200,000 60,000 80,000 100,000 120,000 120,000
250,000 75,000 100,000 125,000 150,000 150,000
300,000 90,000 120,000 150,000 180,000 180,000
350,000 105,000 140,000 175,000 210,000 210,000
400,000 120,000 160,000 200,000 240,000 240,000
450,000 135,000 180,000 225,000 270,000 270,000
500,000 150,000 200,000 250,000 300,000 300,000
550,000 165,000 220,000 275,000 330,000 330,000
600,000 180,000 240,000 300,000 360,000 360,000
650,000 195,000 260,000 325,000 390,000 390,000
700,000 210,000 280,000 350,000 420,000 420,000
750,000 225,000 300,000 375,000 450,000 450,000
800,000 240,000 320,000 400,000 480,000 480,000
The compensation covered by the Retirement Plans is the base salary reported in
the Summary Compensation Table.
Under the Retirement Plans, credited years of service is capped at 30 years.
Credited years of service for each of the individuals named in the Summary
Compensation Table is as follows: Stephen A. Milne - 24 years, Jan R. Van Gorder
- - 20 years, John J. Brinling, Jr. - 30 years, Philip A. Garcia - 20 years and
Jeffrey A. Ludrof - 20 years.
The benefits under Retirement Plans are computed on the basis of straight-life
annuity amounts and a life annuity with a ten-year certain benefit. The benefits
listed in the Pension Plan Table are not subject to deduction for Social
Security or other offset amounts. The information in the foregoing table does
not reflect certain limitations imposed by the Code. Beginning in 1994, the Code
prohibits the inclusion of earnings in excess of $150,000 per year (adjusted
periodically for cost of living increases) in the average earnings used to
calculate benefits. The Code also limits the maximum annual pension (currently
$140,000, but adjusted periodically for cost of living increases) that can be
paid to each eligible employee. A Supplemental Employee Retirement Plan for
senior management is in effect which provides benefits in excess of the earnings
limitations imposed by the Code similar to those provided to all other full time
employees as if the Code limitations were not in effect. Those benefits are
incorporated into the Pension Plan Table.
Director Compensation
The annual retainer for the directors of all members of the Group, including the
Company, is $25,000, plus $1,500 for each meeting attended and $1,500 for each
committee meeting attended plus an additional $2,000 per year for each committee
chairperson. The directors are also reimbursed for their expenses incurred in
attending meetings. Officers of the Company who serve as directors are not
compensated for attendance at meetings of the Board of Directors and its
committees. The Erie Indemnity Company also has a deferred compensation plan for
certain directors of the Company. The Company receives an allocated portion of
its share of these charges. The total amount allocated to the Company in 2000
for directors fees and other charges was $131,281. Director Petersen also is
compensated pursuant to a consulting arrangement as disclosed in Item 13.
17
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee (the "Compensation Committee") of the
Company presently consists of Robert C. Wilburn, Chairman, Samuel P. Black, III,
J. Ralph Borneman, Jr., and Samuel P. Katz. No member of the Compensation
Committee is a former or current officer or employee of the Company or any of
its affiliates(1). Furthermore, no executive officer of the Company serves as a
member of a compensation committee of another entity, one of whose executive
officers serves on the Compensation Committee, or as a director of the Company,
nor does any executive officer of the Company serve as a director of another
entity, one of whose executive officers serves on the Compensation Committee.
Mr. Borneman is the President and a principal shareholder of Body-Borneman
Associates, Inc., Body-Borneman, Inc. and Body-Borneman, Ltd., all of which are
independent insurance agencies representing a number of insurers, including the
Company and its insurance affiliates. Mr. Black is the President, Treasurer and
Secretary and a principal shareholder of Samuel P. Black & Associates, Inc.,
which is an independent insurance agency representing a number of insurers,
including the Company and its insurance affiliates.
- ---------------------------------------------------
1. J. Ralph Borneman, Jr. is an officer and a principal shareholder of the
insurance agencies named herein which receive commissions in the ordinary
course of business from the Company. Mr. Borneman does not qualify as an
outside director for purposes of approving performance-based incentive
plans as qualified under section 162(m) of the Code. Mr. Borneman has excused
himself from voting on such plans as a member of the Compensation Committee.
Samuel P. Black, III is an officer of the insurance agencies named herein
which receive commissions in the ordinary course of business from the
Company. Mr. Black does not qualify as an outside director for purposes of
approving performance-based incentive plans as qualified under section 162(m)
of the Code. Mr. Black has excused himself from voting on such plans as
a member of the Compensation Committee.
Report of the Executive Compensation Committee of the Company
The Compensation Committee is charged with the duty of recommending to the Board
of Directors the compensation of the three highest paid officers of the Company
and such other officers as are determined by the Board of Directors;
recommending to the Board of Directors all forms of bonus compensation,
including incentive programs, that would be appropriate for the Company and to
undertake such other responsibilities as may be delegated to the Compensation
Committee by the Board of Directors. The Board of Directors has authorized the
Compensation Committee to consider the compensation of the four highest paid
officers, including the Chief Executive Officer. The Compensation Committee is
currently composed of four directors who are not officers or employees of the
Company or any of its affiliates. The purpose of the Compensation Committee is
to determine the level and composition of compensation that is sufficient to
attract and retain top quality executives for the Company.
The objectives of the Company's executive compensation practices are to: (1)
attract, reward and retain key executive talent and (2) to motivate executive
officers to perform to the best of their abilities and to achieve short-term and
long-term corporate objectives that will contribute to the overall goal of
enhancing shareholder value and policyholder security. To that end, compensation
comparisons are made to benchmark positions at other insurers in terms of
compensation levels and composition of the total compensation mix.
Under Section 162(m) of the Code, the Company is not allowed a federal income
tax deduction for compensation, under certain circumstances, paid to certain
executive officers to the extent that such compensation exceeds $1 million per
officer in any fiscal year. Stephen A. Milne, President and Chief Executive
Officer of the Company is the only officer of the Company who has received
compensation in excess of $1 million in any fiscal year to date. The
Compensation Committee may consider adopting policies with respect to this
limitation on deductibility when appropriate.
The Compensation Committee reviewed the salary ranges and base salaries of the
four highest paid executives, including the Chief Executive Officer, in 2000.
The Compensation Committee has position descriptions for the four highest paid
executives of the Company, including the Chief Executive Officer, which define
the responsibilities and duties of each position. The position descriptions also
delineate the functional areas of accountability and the qualifications and
skills required to perform such responsibilities and duties. The Compensation
Committee then reviews the salary ranges for the Chief Executive Officer and the
other three highest paid executives, comparing the ranges to third party data
compiled for similar positions with other property and casualty and life
insurers.
18
In reviewing the salary ranges for the four highest paid executives, including
the Chief Executive Officer, the Compensation Committee references Sibson's
Management Compensation Survey published annually by Sibson & Company, Inc.,
which summarizes compensation data for more than 100 insurance companies. The
data is reported by position, company asset size and premium volume. The unique
aspects of each position, its duties and responsibilities, the effect on the
performance of the Company, the number of employees supervised directly and
other criteria are also considered in setting the base salaries. The
Compensation Committee also consulted data obtained from Towers Perrin, a
nationally recognized consulting firm with specific expertise in the insurance
industry, to make recommendations regarding executive compensation.
The level of compensation for each executive reflects his or her skills,
experience and job performance. Normally, base salary will not be less than the
minimum for the salary range established for each position. Executives with a
broader range of skills, experience and consistently high performance with the
Company may receive compensation above the midpoint for the established salary
range.
Compensation for the Chief Executive Officer consists primarily of salary,
annual incentive and long-term incentive payments and minor perquisites which
amount to less than 10% of the Chief Executive Officer's salary and bonus. The
Board of Directors approved adoption of an annual incentive plan and long-term
incentive plan for senior executives of the Company as recommended by the
Executive Committee at its meeting of March 11, 1997 (the "Annual Incentive
Plan" and the "Long-Term Incentive Plan," respectively). The purpose of the
Annual Incentive Plan is to promote the best interests of the Exchange while
enhancing shareholder value of the Company and to promote the attainment of
significant business objectives for the Company and its affiliates by basing a
portion of the executives' compensation on the attainment of both premium growth
and underwriting profitability goals. The annual incentive awards will be paid
in cash only.
Annual Incentive Plan target award levels, expressed as a percentage of base
salary, are established annually by the Compensation Committee. Payments under
the Annual Incentive Plan are based on a combination of individual executive
performance and the performance of the Company and its affiliates.
The Long-Term Incentive Plan, which was approved by shareholders on April 27,
1997, for purposes of qualifying the plan as a performance-based plan under
Section 162(m) of the Code, is designed to maximize returns to shareholders by
linking executive compensation to the overall profitability of the Company and
its affiliates. Target award amounts, expressed as a percentage of base salary,
are determined by comparisons to peer companies and approved by the Compensation
Committee.
Performance factors applicable to the Company and its affiliates, such as
property and casualty insurance loss ratios, investment portfolio returns,
overall profitability, as well as other factors are considered in evaluating the
Chief Executive Officer's performance. Such performance factors were considered
in approving Mr. Milne's 2000 compensation. Compensation of the next three most
highly compensated individuals is determined by the Compensation Committee and
is based upon the factors and processes enumerated, i.e., a determination of a
salary range based upon market data and evaluation of the executive with respect
to the executive's job description and his or her position within the salary
range.
Compensation of the next highest paid executives (other than the four highest
paid executives) is based upon the Company's established standard compensation
policies and is not determined by the Compensation Committee.
The Company's Executive Compensation Committee:
Robert C. Wilburn, Chairman
Samuel P. Black, III
J. Ralph Borneman, Jr.
Samuel P. Katz
19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of 2/15/01
(a) Shares beneficially owned directly or indirectly by all affiliates:
Name & Address Shares
of Beneficial Beneficially Percent of
Owner Owned Class
Erie Indemnity Company 2,043,900(1) 21.6%(1)
100 Erie Insurance Place Direct
Erie, PA 16530
Erie Insurance Exchange 5,055,562(1) 53.5%(1)
100 Erie Insurance Place Direct
Erie, PA 16530
(b) Shares beneficially owned directly or indirectly by all Directors and
Officers:
Name & Address Shares
of Beneficial Beneficially Percent of
Owner Owned Class
Samuel P. Black, III 132,397 1.40%
1091 Dutch Road
Fairview, PA 16415
J. Ralph Borneman 1,536 .02%
160 N. Funk Road
Boyertown, PA 19512
Susan Hirt Hagen 154,782 1.64%
5727 Grubb Rd.
Erie, PA 16506
F. William Hirt 167,034 1.77%
3270 Kingston Court
Erie, PA 16506
Stephen A. Milne 200 --
100 Culbertson Drive
Lake City, PA 16423
John M. Petersen 92,141 .98%
124 Voyageur Dr.
Erie, PA 16505
Jan R. Van Gorder 75 --
6796 Manchester Beach Road
Fairview, PA 16415
20
(b) Shares beneficially owned directly or indirectly by all Directors and
Officers:
Name & Address Shares
of Beneficial Beneficially Percent of
Owner Owned Class
Robert C. Wilburn 500 --
P.O. Box 376
Blairsville, PA 15717
John J. Brinling, Jr. 1,260 .01%
1522 Sumner Drive
Erie, PA 16505
Robert H. Dreyer 600 .01%
465 Hawthorne Trace
Fairview, PA 16415
Philip A. Garcia 1,275 .01%
786 Stockbridge Drive
Erie, PA 16505
Douglas F. Ziegler 570 --
378 Ridgeview Drive
Erie, PA 16505
Officers and directors
as a group (12 persons) 552,370(2) 5.85%(2)
(1)The Exchange is a reciprocal insurance exchange controlled by its
subscribers, each of whom has designated Erie Indemnity Company (EIC)
as such subscriber's attorney-in-fact for certain purposes, including
EIC's holding of Common Stock of the Company. There are two H.O. Hirt
Trusts, one for the benefit of F. William Hirt and one for the benefit
of Susan Hirt Hagen. Each of the H.O. Hirt Trusts is the record owner
of 1,170 shares of Class B Common Stock, or 38.11% of the outstanding
shares of EIC's Class B Common Stock. The trustees of the H.O. Hirt
Trusts are F. William Hirt, Susan Hirt Hagen and Banker's Trust Company
of New York. Mr. Hirt and Mrs. Hagen, who are brother and sister, are
each the beneficial owner of 1,170 shares of Class B Common Stock held
by the H.O. Hirt Trusts. An additional 13.4% of the EIC voting stock is
beneficially owned by Samuel P. Black, III.
(2)Includes direct and indirect beneficial ownership and shares owned by
and with spouses.
(c) There are no contractual arrangements known to the Company which may result
in a change in control of the Company.
21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors Borneman and Black are officers and principal shareholders of
insurance agencies which receive insurance commissions in the ordinary
course of business from Erie Family Life and its affiliates in accordance
with the companies' standard commission schedules and agents' contracts.
Such payments made in 2000 to the agencies for commissions written on
insurance policies from the property and casualty affiliated insurers and
Erie Family Life Insurance Company amounted to $3,233,667 and $454,198 for
the Borneman and the Black insurance agencies, respectively. Of these
amounts, the Company paid commissions of $96,583 and $8,360 to the Borneman
and the Black insurance agencies, respectively.
Director Borneman, in his capacity as an insurance agent, placed a worker's
compensation insurance policy covering employees of the Company with
Fireman's Fund Insurance Company. Although director Borneman has received
no compensation to date in connection with the placement of that policy, in
the future he may be entitled to receive a commission from Fireman's Fund
in accordance with Fireman's Fund's standard commission schedules and
agents' contracts for placing that insurance policy.
John M. Petersen, a director and former President and Chief Executive
Officer, and previous Chief Investment Officer of the Erie Insurance Group
of Companies, who retired as an employee of the Company on December 31,
1995, entered into a consulting arrangement with the Company effective
January 2, 1996. Under the terms of the arrangement, the Company engaged
Mr. Petersen as a consultant to furnish the Company, the Erie Insurance
Exchange, and Erie Indemnity Company and its pension trust, with investment
services with respect to their investments in common stocks. As
compensation for services rendered by Mr. Petersen, a fee of .15 of 1
percent, on an annualized basis, of the total fair market value of the
common stocks under management, is paid to Mr. Petersen. The Company also
pays for all necessary and reasonable expenses related to Mr. Petersen's
consulting services performed under this arrangement. The compensation paid
to Mr. Petersen under this arrangement in 2000 by the Company, the Erie
Insurance Exchange, the Erie Indemnity Company, and the pension trust was
$120,521, $5,926,850, $145,010 and $166,372, respectively.
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements of the Company and the report
of independent certified public accountants are incorporated herein by
reference to pages 29 through 43 in the Company's annual report to
shareholders for the year ended December 31, 2000.
Independent Auditors' Report
Statements of Financial Position - December 31, 2000 and 1999
Statements of Operations for the years ended December 31, 2000,
1999 and 1998
Statements of Cash Flows for the years ended December 31, 2000,
1999 and 1998
Statements of Shareholders' Equity for the years ended December
31, 2000, 1999 and 1998
Notes to Financial Statements
(2) The following financial statement schedules are included in this
report on FORM 10-K:
Page
Independent Auditors' Report on Schedules 26
Schedule I - Summary of Investments other than
Investments in Related Parties 27
Schedule III - Supplementary Insurance Information 28
Schedule IV - Reinsurance 30
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore, have been omitted.
(3) Exhibits:
Exhibit
Number Description of Exhibit
3.1* Amended and Restated By-laws of Registrant
10.1** 1997 Annual Incentive Plan of Erie Indemnity Company
10.2** Erie Indemnity Company Long-Term Incentive Plan
10.3** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Stephen A. Milne
10.4** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Jan R. Van Gorder
10.5** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Philip A. Garcia
10.6** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and John J. Brinling,Jr.
10.7*** Employment Agreement effective June 30, 1999 by and
between Erie Indemnity Company and Jeffrey A. Ludrof
10.8*** Employment Agreement effective December 15, 1999 by and
between Erie Indemnity Company and Douglas F. Ziegler
10.9*** Addendum to Employment Agreement effective December 15,
1999 by and between Erie Indemnity Company and Stephen
A. Milne
10.10*** Addendum to Employment Agreement effective December 15,
1999 by and between Erie Indemnity Company and Jan R.
Van Gorder
10.11*** Addendum to Employment Agreement effective December 15,
1999 by and between Erie Indemnity Company and Philip
A. Garcia
10.12*** Addendum to Employment Agreement effective December 15,
1999 by and between Erie Indemnity Company and John J.
Brinling
23
(3) Exhibits: (CONTINUED)
Exhibit
Number Description of Exhibit
10.13*** Addendum to Employment Agreement effective December 15,
1999 by and between Erie Indemnity Company and Jeffrey
A. Ludrof
10.14 Addendum to Employment Agreement effective December 15,
2000 by and between Erie Indemnity Company and Stephen
A. Milne
10.15 Addendum to Employment Agreement effective December 15,
2000 by and between Erie Indemnity Company and Jan R.
Van Gorder
10.16 Addendum to Employment Agreement effective December 15,
2000 by and between Erie Indemnity Company and Philip
A. Garcia
10.17 Addendum to Employment Agreement effective December 15,
2000 by and between Erie Indemnity Companyand John J.
Brinling
10.18 Addendum to Employment Agreement effective December 15,
2000 by and between Erie Indemnity Company and Jeffrey
A. Ludrof
10.19 Addendum to Employment Agreement effective December 15,
2000 by and between Erie Indemnity Company and Douglas
F. Ziegler
13 2000 Annual Report to Shareholders. Reference is made
to the Annual Report furnished to the Commission,
herewith.
27 Financial Data Schedule
99.1 Audit Committee Charter
- ------------------
* Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K Annual Report for the year ended
December 31, 1998 that was filed with the Commission on March 9, 1999.
** Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K Annual Report for the year ended
December 31, 1997 that was filed with the Commission on March 11,
1998.
*** Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K Annual Report for the year ended
December 31, 1999 that was filed with the Commission on March 28,
2000.
All exhibits for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore,
have been omitted.
(b) No reports on Form 8-K have been filed or were required to be filed
during the fourth quarter ended December 31, 2000.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 13, 2001 ERIE FAMILY LIFE INSURANCE COMPANY
(Registrant)
Principal Officers
/s/ Stephen A. Milne
Stephen A. Milne, President and CEO
/s/ Jan R. Van Gorder
Jan R. Van Gorder, Executive Vice President, Secretary & General Counsel
/s/ Philip A. Garcia
Philip A. Garcia, Executive Vice President & CFO
/s/ Timothy G. NeCastro
Timothy G. NeCastro, Senior Vice President & Controller
Board of Directors
/s/ Samuel P. Black, III /s/ Claude C. Lilly, III
Samuel P. Black, III Claude C. Lilly, III
/s/ J. Ralph Borneman, Jr. /s/ Stephen A. Milne
J. Ralph Borneman, Jr. Stephen A. Milne
/s/ Patricia Garrison-Corbin
Patricia Garrison-Corbin Henry N. Nassau
/s/ John M. Petersen
Susan Hirt Hagen John M. Petersen
/s/ F. William Hirt /s/ Jan R. Van Gorder
F. William Hirt Jan R. Van Gorder
/s/ Samuel P. Katz /s/ Robert C. Wilburn
Samuel P. Katz Robert C. Wilburn
25
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders
Erie Family Life Insurance Company
We have audited the statements of financial position of Erie Family Life
Insurance Company (Company) as of December 31, 2000 and 1999 and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 2000, as contained in the 2000
annual report, incorporated by reference in the annual report on Form 10-K for
the year ended December 31, 2000. In connection with our audits of the financial
statements, we also have audited the financial statement schedules, as listed in
the accompanying index. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Erie Family Life Insurance
Company as of December 31, 2000 and 1999, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2000
in conformity with accounting principles generally accepted in the United States
of America. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ Brown, Schwab, Bergquist & Co.
Brown, Schwab, Bergquist & Co.
Erie, Pennsylvania
February 5, 2001
26
SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2000
Cost or Amount at which
Amortized Market Shown in the
Type of Investment Cost Value Balance Sheet
- ---------------------------------------------------------------------------------------------------------
Fixed Maturities Available-for-sale
U. S. Treasuries $ 4,318,206 $ 4,757,153 $ 4,757,153
U. S. Government Agency 7,795,361 8,185,698 8,185,698
States & Political Subdivisions 195,000 202,800 202,800
Special Revenue 9,458,211 9,728,737 9,728,737
Public Utilities 71,731,753 72,067,274 72,067,274
U. S. Banks, Trusts, and Insurance Companies 127,125,341 125,179,076 125,179,076
U. S. Industrial and Miscellaneous 404,824,067 397,644,630 397,644,630
Foreign Governments - Agency 2,993,415 2,945,400 2,945,400
Foreign Banks, Trusts, and Insurance Companies 12,944,594 13,051,540 13,051,540
Foreign Industrial and Miscellaneous 53,692,283 49,888,712 49,888,712
- ---------------------------------------------------------------------------------------------------------
Total Fixed Maturities available-for-sale $ 695,078,231 $ 683,651,020 $ 683,651,020
- ---------------------------------------------------------------------------------------------------------
Equity Securities
Common Stock:
U. S. Banks, Trusts and Insurance Companies $ 7,447,287 $ 8,143,791 $ 8,143,791
U. S. Industrial and Miscellaneous 53,930,548 64,987,750 64,987,750
Foreign Industrial and Miscellaneous 702,500 393,125 393,125
Non-Redeemable Preferred Stocks:
U. S. Industrial and Miscellaneous 10,950,223 10,822,000 10,822,000
Foreign Banks, Trusts and Insurance Companies 37,251,892 36,639,736 36,639,736
Foreign Industrial and Miscellaneous 17,106,260 16,931,592 16,931,592
- ---------------------------------------------------------------------------------------------------------
Total Equity Securities $ 127,388,710 $ 137,917,994 $ 137,917,994
- ---------------------------------------------------------------------------------------------------------
Real Estate
Investment Property $ 1,375,730 $ 1,375,730 $ 1,375,730
Policy Loans 7,765,849 7,765,849 7,765,849
Mortgage Loans 8,284,167 8,284,167 8,284,167
Limited Partnerships 35,503,620 42,074,104 42,074,104
- ---------------------------------------------------------------------------------------------------------
Total Investments $ 875,396,307 $ 881,068,864 $ 881,068,864
- ---------------------------------------------------------------------------------------------------------
27
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
At December 31,
-----------------------------------------------------------
Deferred Future
Policy Policy Other
Acquisition Benefits & Unearned Policy
Segment Costs Deposits Premium Claims
- --------------------------------------------------------------------------------------------
2000
Ordinary Life Insurance $ 76,186,624 $ 182,496,788 $ 133,629 $ 2,282,586
Group Life & Other 0 2,125,073 0 191,000
Annuities 8,536,549 584,174,301 0 0
Corporate 0 0 0 0
- --------------------------------------------------------------------------------------------
Total $ 84,723,173 $ 768,796,162 $ 133,629 $ 2,473,586
- --------------------------------------------------------------------------------------------
1999
Ordinary Life Insurance $ 68,227,117 $ 163,615,744 $ 152,484 $ 1,095,052
Group Life & Other 0 1,934,223 0 209,500
Annuities 9,361,203 569,218,451 0 0
Corporate 0 0 0 0
- --------------------------------------------------------------------------------------------
Total $ 77,588,320 $ 734,768,418 $ 152,484 $ 1,304,552
- --------------------------------------------------------------------------------------------
1998
Ordinary Life Insurance $ 61,387,166 $ 144,849,922 $ 138,375 $ 1,594,030
Group Life & Other 0 1,650,418 0 207,000
Annuities 9,529,094 524,122,492 0 0
Corporate 0 0 0 0
- --------------------------------------------------------------------------------------------
Total $ 70,916,260 $ 670,622,832 $ 138,375 $ 1,801,030
- --------------------------------------------------------------------------------------------
28
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION (CONTINUED)
For the Years Ended December 31,
-------------------------------------------------------------------------------
Amortization
Net Life & of Deferred Other
Policy Investment Annuity Acquisition Operating
Segment Revenues (a) Income Benefits Costs Expenses
- --------------------------------------------------------------------------------------------------------------
2000
Ordinary Life Insurance $ 41,972,932 $ 11,635,149 $ 23,356,604 $ 3,391,694 $ 11,684,234
Group Life & Other 2,561,769 134,268 958,087 0 255,700
Annuities 2,023 38,255,613 33,659,401 1,752,845 1,490,971
Corporate 0 9,451,007 0 0 0
- --------------------------------------------------------------------------------------------------------------
Total $ 44,536,724 $ 59,476,037 $ 57,974,092 $ 5,144,539 $ 13,430,905
- --------------------------------------------------------------------------------------------------------------
1999
Ordinary Life Insurance $ 39,051,763 $ 10,237,994 $ 19,154,171 $ 3,321,111 $ 8,478,603
Group Life & Other 2,629,179 118,090 1,907,370 0 652,474
Annuities 4,693 36,111,734 31,178,605 1,491,468 1,813,700
Corporate 0 8,812,224 0 0 0
- --------------------------------------------------------------------------------------------------------------
Total $ 41,685,635 $ 55,280,042 $ 52,240,146 $ 4,812,579 $ 10,944,777
- --------------------------------------------------------------------------------------------------------------
1998
Ordinary Life Insurance $ 35,732,584 $ 8,730,573 $ 17,294,972 $ 3,823,613 $ 9,582,023
Group Life & Other 2,501,243 103,935 805,999 0 546,001
Annuities 4,729 33,259,325 29,868,952 571,942 (225,000)
Corporate 0 9,873,862 0 0 0
- --------------------------------------------------------------------------------------------------------------
Total $ 38,238,556 $ 51,967,695 $ 47,969,923 $ 4,395,555 $ 9,903,024
- --------------------------------------------------------------------------------------------------------------
(a) Net of reinsurance ceded
29
SCHEDULE IV - REINSURANCE
Percentage
Ceded to Assumed of Amount
Gross Other From Other Net Assumed
Amount Companies Companies (1) Amount to Net
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 2000
Life Insurance in force $ 16,509,613,000 $ 2,591,318,000 0 $ 13,918,295,000 0.00%
Premiums for the year
Life Insurance 46,683,551 4,710,619 0 41,972,932 0.00%
Annuities 2,023 0 0 2,023 0.00%
Group Life & Other 2,563,504 1,735 0 2,561,769 0.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Premiums $ 49,249,078 $ 4,712,354 0 $ 44,536,724 0.00%
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999
Life Insurance in force $ 14,424,095,000 $ 1,425,913,000 $ 33,412,000 $ 13,031,594,000 0.26%
Premiums for the year
Life Insurance 42,972,242 3,920,479 0 39,051,763 0.00%
Annuities 4,693 0 0 4,693 0.00%
Group Life & Other 2,512,912 0 116,267 2,629,179 4.42%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Premiums $ 45,489,847 $ 3,920,479 $ 116,267 $ 41,685,635 0.28%
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1998
Life Insurance in force $ 13,235,757,000 $ 1,307,123,000 $ 32,878,000 $ 11,961,512,000 0.27%
Premiums for the year
Life Insurance 39,786,469 4,053,885 0 35,732,584 0.00%
Annuities 4,729 0 0 4,729 0.00%
Group Life & Other 2,404,324 0 96,919 2,501,243 3.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Premiums $ 42,195,522 $ 4,053,885 $ 96,919 $ 38,238,556 0.25%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) - The assumed business in prior years related solely to life insurance assumed from the Pennsylvania Employees'
Group Life Insurance (PEGLI) pool. During 2000, the state recaptured this assumed business, thus, the Company
no longer participates in the pool insuring the PEGLI.
30
EXHIBIT INDEX
(Persuant to Item 601 of Regulation S-K)
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
3.1* Amended and Restated By-laws of Registrant
10.1** 1997 Annual Incentive Plan of Erie Indemnity Company
10.2** Erie Indemnity Company Long-Term Incentive Plan
10.3** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Stephen A. Milne
10.4** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Jan R. Van Gorder
10.5** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Philip A. Garcia
10.6** Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and John J. Brinling, Jr.
10.7*** Employment Agreement effective June 30, 1999 by and
between Erie Indemnity Company and Jeffrey A. Ludrof
10.8*** Employment Agreement effective December 15, 1999 by and
between Erie Indemnity Company and Douglas F. Ziegler
10.9*** Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Stephen A. Milne
10.10*** Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Jan R. Van Gorder
10.11*** Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Philip A. Garcia
10.12*** Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and John J. Brinling
10.13*** Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Jeffrey A. Ludrof
10.14 Addendum to Employment Agreement effective December 15, 2000
by and between Erie Indemnity Company and Stephen A. Milne 32
10.15 Addendum to Employment Agreement effective December 15, 2000
by and between Erie Indemnity Company and Jan R. Van Gorder 33
10.16 Addendum to Employment Agreement effective December 15, 2000
by and between Erie Indemnity Company and Philip A. Garcia 34
10.17 Addendum to Employment Agreement effective December 15, 2000
by and between Erie Indemnity Company and John J. Brinling 35
10.18 Addendum to Employment Agreement effective December 15, 2000
by and between Erie Indemnity Company and Jeffrey A. Ludrof 36
10.19 Addendum to Employment Agreement effective December 15, 2000
by and between Erie Indemnity Company and Douglas F. Ziegler 37
13 2000 Annual Report to Shareholders. Reference is made
to the Annual Report furnished to the Commission, herewith. 38
27 Financial Data Schedule 67
99.1 Audit Committee Charter 68
* Such exhibit is incorporated by reference to the like titled exhibit in
the Registrant's Form 10-K Annual Report for the year ended December 31,
1998 that was filed with the Commission on March 9, 1999.
** Such exhibit is incorporated by reference to the like titled exhibit in
the Registrant's Form 10-K Annual Report for the year ended December 31,
1997 that was filed with the Commission on March 11, 1998.
*** Such exhibit is incorporated by reference to the like titled exhibit in
the Registrant's Form 10-K Annual Report for the year ended December 31,
1999 that was filed with the Commission on March 28, 2000.
31