Back to GetFilings.com
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, 1996
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 registrant 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)
Registrant'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
(Tile of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate 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 Registrant'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 Registrant's classes of
common stock, as of the latest practicable date: 9,450,000 shares of Common
Stock outstanding on February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Annual Report to shareholders for the fiscal year
ended December 31, 1996 (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
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a
Vote of Security Holders 8
Item 5. Market for Registrant's Common Stock
and Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes In and Disagreements With
Accountants on Accounting and Financial
Disclosure 9
Item 10. Directors and Executive Officers
of the Registrant 10
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain
Beneficial Owners and Management 19
Item 13. Certain Relationships and Related
Transactions 21
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 22
2
PART I
ITEM 1. BUSINESS
Erie Family Life Insurance Company (hereinafter referred to as "The
Company", the "Registrant" 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 non-participating individual and group life
insurance policies, including universal life. Erie Family Life also sells
individual and group annuities. Erie Family Life is owned 21.6 % by Erie
Indemnity Company and 52.2% by Erie Insurance Exchange. The remaining
stock is held by the public, predominantly agents and employees of the
Erie Insurance Group.
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 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 the usual forms of
permanent life, endowment and term policies, including whole life, family
income, mortgage and decreasing term, group, and universal life
insurance. In terms of face value, new life business issued in 1996 had a
ratio of 4:1 of term insurance to whole life insurance coverage.
Life insurance premiums and annuity deposits have been the primary
sources of cash inflows for the Company.
Classes of Life Insurance
Percentage of Total Sales
For the year ended December 31,
Class 1996 1995 1994 1993 1992
----- ---- ---- ---- ---- ----
Ordinary Life (including Total
and Permanent Disability and
Additional Accidental Death) 93.3% 91.8% 92.1% 92.3% 91.9%
Group 6.7 8.2 7.9 7.7 8.1
------- ----- ------ ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
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
3
contracts, specifically annuities, universal life, and other interest
sensitive products. This method involves separating the premium income
into the "premium" portion (shown in the sales figures) 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 income is accounted for
using methods applicable to comparable "interest bearing obligations" of
other types of financial institutions.
Structured settlement annuities sold to affiliate companies represented
$13,504,953 in annuity deposits in 1996, $22,018,313 in 1995 and
$11,431,965 in 1994. Also included in the annuity deposits are annuity
contracts purchased by the Erie Insurance Group Retirement Plan for
Employees. These annuity contracts purchased totaled $4,894,042 in 1996,
$6,024,125 in 1995 and $8,880,714 in 1994.
Classes of Deposits
Total Deposits
For the year ended December 31,
Class 1996 1995 1994 1993 1992
----- ---- ---- ---- ---- ----
Universal Life Deposit $ 9,465,576 $ 8,490,667 $ 7,482,156 $ 6,130,390 $ 5,543,162
Annuity Deposit 58,250,822 66,051,230 62,048,541 50,550,323 53,526,178
------------- ------------- --------------- -------------- --------------
$ 67,716,398 $ 74,541,897 $ 69,530,697 $ 56,680,713 $ 59,069,340
The Registrant reinsures with other insurance companies the portion of
the insurance coverage above acceptable retentions. Beginning January 1,
1995, the retention limit on an acceptable risk was increased to $300,000
on each individual life written. Prior to January 1, 1995, the limit was
$225,000.
The Company reinsures 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 risk it 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."
Marketing
The Company markets its products through independent agents throughout
Pennsylvania, Maryland, Virginia, West Virginia, Ohio, Indiana,
Tennessee, North Carolina and the District of Columbia. The policies sold
are evaluated by the Company's Underwriting Department which selects or
declines applicants for insurance. Premium on policies which are accepted
may be standard or rated, depending on the nature of the risk.
4
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.
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 administrative 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 security 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, the Company is examined
periodically by one or more of the state supervisory agencies. The latest
such examination of the Company was conducted by the Pennsylvania and
Ohio Insurance Departments and covered the four years ended December 31,
1995.
The Commonwealth of Pennsylvania has adopted the minimum risk-based
capital requirements on domestic insurance companies that were developed
by the National Association of Insurance Commissioners (NAIC). 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.
Companies below specific trigger points or ratios are classified within
certain levels, each of which requires specified corrective action. 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 $84 million and
$76 million at December 31, 1996, and 1995, respectively, and a ratio of
total adjusted capital to authorized control level risk-based capital of
7.1 at both December 31, 1996 and 1995. The Company's ratios
significantly exceed the minimum NAIC risk-based capital requirements.
5
Life Reserves
In accordance with generally accepted accounting principles (GAAP), the
Company is required to establish and maintain as liabilities, 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.
The interest factors used in the computation of material reserves are:
Basis of Assumption
Years of Policy
Issue Type Interest Mortality Withdrawal
1967 - 1975 All Life 4% graded to 3 1/2% 1955-60 Basic Modified
Select Plus Ultimate Linton B
1976 - 1980 All Life 6% graded to 4% 1955-60 Basic Linton B
Select Plus Ultimate
1981 - 1988 Permanent 7 1/4% graded to 6% 85% of 1965-70 150% of
Life Select and Ultimate Linton A
1981 - 1988 Other 7 1/4% graded to 6% 85% or 90% of Pricing
Life 1965-70 Select and Assumptions
Ultimate
1988 - 1996 All Life 7% graded to 6% Multiple of 1965-70 Pricing
and Annual Select and Ultimate Assumptions
Renewable
Term
1987 - 1996 Universal 7 1/2% graded to 6% 85% or 90% of Pricing
Life 1965-70 Select and Assumptions
Ultimate
Investments
In accordance with standard insurance practice, the Registrant invests
its funds principally in corporate bonds and preferred and common stocks.
In 1996, the Company's real estate held for investment purposes
constituted 0.2% of the Company's total assets while mortgage loans
accounted for 1.2% and other invested assets accounted for 0.9%. The real
estate owned by the Company is leased to an affiliate, Erie Indemnity
Company (Indemnity), for rentals of $423,120 per year through December
31, 2000. In addition, the Company makes policy loans to its
Policyholders, and at December 31, 1996, such policy loans constituted
0.6% of the Registrant's total assets. Annual increases in the number and
dollar amount of policy loans, generally, will vary with changes in
short-term rates of interest. When short-term rates are high, policy
loans are also expected to increase.
6
Subject to certain laws that prescribe the nature, quality and percentage
of the various types of investments which may be made by insurance
companies, the Company manages its investments to meet diversification,
yield and liquidity objectives.
Employees
Services of seventy-nine full-time Employees are provided through an
affiliate, Erie Indemnity Company. All employees are salaried and ten are
officers. These Employee expenses along with other operating expenses are
paid by the Erie Indemnity Company and reimbursed 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 1996 was 8.2%.
Reinsurance Profitability - Not Applicable.
New Types of Insurance - Not Applicable.
Total Insurance In Force for the last five years Net of
Reinsurance was:
1996 - $9,646,962,000
1995 - $8,370,940,000
1994 - $7,481,537,000
1993 - $6,428,223,000
1992 - $5,545,197,000
7
ITEM 2. PROPERTIES
The Registrant owns no real property and no tangible personal property used in
the operation of its business except office supplies and forms. The Registrant
does, however, own real property for investment purposes as outlined under ITEM
1 - INVESTMENTS. The executive and administrative offices of the Registrant are
located in the headquarters office of Erie Insurance Group in Erie,
Pennsylvania. The Registrant pays other members of the group an amount
determined by an arm's length agreement for office space and for the use of
facilities, equipment and services.
ITEM 3. LEGAL PROCEEDINGS
The Registrant 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 1996.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Currently there is no market on which the Registrant's stock is traded.
The Company had 1,146 recordholders of Common Stock at December 31, 1996.
Date Dividends Declared Date Dividends Paid Dividends per Share*
March 2, 1995 April 1, 1995 .113
April 25, 1995 July 3, 1995 .113
June 22, 1995 October 2, 1995 .113
September 21, 1995 January 2, 1996 .113
February 29, 1996 April 1, 1996 .125
May 1, 1996 July 1, 1996 .125
June 17, 1996 October 1, 1996 .125
September 17, 1996 January 2, 1997 .125
*Adjusted to reflect a three-for-one stock split which was effective May 2,
1996.
8
ITEM 6. SELECTED FINANCIAL DATA
The information contained in "Selected Financial Data" on Page 10 of the
Company's 1996 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATION
The information set forth on pages 11 through 18 of the Company's 1996 Annual
Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The 1996 Financial Statements and the Registrant's independent auditor's report
on pages 20 through 28 of the Company's 1996 Annual Report are incorporated
herein by reference, as is the unaudited information set forth in the Notes to
the Financial Statements under the caption "Unaudited Quarterly Summary of
Operations" on page 28.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
9
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 12/31/96 Held During the Last Five Years
Peter B. Bartlett 3 Partner, Brown Brothers Harriman & Co. Since 1974; Director, the Company,
62 Kennametal, Inc., Finmar Reinsurance Corporation until March 1995 and The
Swedish American Chamber of Commerce, Inc.
Samuel P. Black, Jr. 1 Director since 1967. Chairman of the Board, Samuel P. Black & Associates, Inc.--
94 insurance agency; Director--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. Director since 1992. President and Chief Executive Officer of Body-Borneman
58 Associates Inc., insurance agency. President Body-Borneman, Ltd. and Body-
Borneman, Inc., insurance agencies. Director--Erie Insurance Company, Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Erie
Insurance Company of New York and National Penn Bankshares.
John J. Brinling, Jr. Executive Vice President of the Company since December 1990. Division Officer
49 1984-present.
Robert H. Dreyer Senior Vice President of the Company since 1990. Chief Actuary 1983-Present.
59
Philip A. Garcia Senior Vice President and Controller and Division Officer since October 1993. Vice
40 President and Manager of the Life Accounting Department of the Company prior to
1993.
Patricia A. Goldman 2 Retired; Senior Vice President for Communications, USAir, Inc. from 1988 to
54 1994; Director, the Company and Crown Central Petroleum Corporation.
Susan Hirt Hagen 1,* Director since 1980. Managing Partner, Hagen, Herr & Peppin, Group Relations
61 Consultants since 1990; Associate, Center for Practice of Conflict Management
1972-1990; Director--Erie Insurance Company and Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange, since 1980; Director, Erie
Insurance Property & Casualty Company, Erie Insurance Company of New York,
and Flagship City Insurance Company since 1995.
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Investment Committee
* F. William Hirt is the brother of Susan Hirt Hagen and the brother-in-law of
Thomas B. Hagen. Susan Hirt Hagen is the wife of Thomas B. Hagen.
10
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 12/31/96 Held During the Last Five Years
Thomas B. Hagen* Director since 1980. Former Secretary of Community and Economic Developement of the
61 Commonwealth of Pennsylvania January 1995 to March 1997; Chairman, Hagen & Company,
business consultants from 1994 to January 1995, Special Consultant to the Chairman of
the Board of the Erie Indemnity Company, Attorney-in-Fact for the Erie
Insurance Exchange from September 1993 to January 1995; Chairman of the Board
and Chief Executive Officer of the Erie Indemnity Company,
Attorney-in-Fact for the Erie Insurance Exchange, Erie Family Life
Insurance Company and Erie Insurance Company from November 1990, and of
Flagship City Insurance Company and Erie Insurance Property & Casualty
Company, since 1992 and 1993, respectively, to September 1993;
President of the Erie Indemnity Company, Attorney-in-Fact for the Erie
Insurance Exchange and Erie Insurance Company and Executive Vice President
of Erie Family Life Insurance Company from 1982 to November 1990; Director,
the Erie Indemnity Company, Attorney-in-Fact for the Erie
Insurance Exchange and Erie Insurance Company, General Public Utilities
Corporation 1988-1995. Erie Small Business Investment Company 1985-1995.
F. William Hirt 1C,* Chairman of the Board. Director since 1967. Chairman of the Board of the Erie
71 Insurance 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--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 Integra
Financial Corporation.
Dr. Irvin H. Kochel 2 Director since 1970. Retired Assistant Vice President Emeritus, The
73 Pennsylvania State University; Director--Erie Insurance Company and Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange.
1 Member of Executive Committee
2 Member of Audit Committee
C Committee Chairman
* F. William Hirt is the brother of Susan Hirt Hagen and the brother-in-law of
Thomas B. Hagen. Susan Hirt Hagen is the wife of Thomas B. Hagen.
11
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 12/31/96 Held During the Last Five Years
Edmund J. Mehl 1,2C Director since 1969. Retired Chairman and Chief Executive Officer, Dispatch
73 Printing, Inc.; Director--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.
Stephen A. Milne 1,3 President, Chief Executive Officer and Director since February 12, 1996.
48 President and Chief Executive Officer of the Erie Insurance Company and Erie
Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange since
February 12, 1996. President and Chief Executive Officer of Flagship City
Insurance Company, Erie Insurance Property & Casualty Company and Erie
Insurance Company of New York since March 11, 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-February 1996. Owner, Bennett-Damascus
Insurance Agency March 1991-December 31, 1993; Senior Vice President-Agency
Division Erie Insurance Group 1988-1991. Director--Erie Insurance
Company, Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange and Erie Insurance Company of New York, Flagship City Insurance
Company and Erie Insurance Property & Casualty Company.
John M. Petersen 1,3 Director since 1980. Retired; President and Chief Executive Officer of the Erie
68 Indemnity Company, Attorney-in-Fact for Erie Insurance Exchange, Erie Family
Life Insurance Company, Erie Insurance Company, Flagship City Insurance
Company and Erie Insurance Property & Casualty Company from 1993 to 1995 and
Erie Insurance Company of New York from 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 from November 1990, 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 Erie Family Life
Insurance 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 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, Inc.
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Investment Committee
C Committee Chairman
12
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 12/31/96 Held During the Last Five Years
Seth E. Schofield Director since 1991. Retired; Chairman of the Board and Chief Executive
57 Officer, USAir, Inc. from 1992 to January 1996; President and Chief Executive
Officer, USAir, Inc. from June 1991 to July 1992; President and Chief
Operating Officer, USAir, Inc. from June 1990 to June 1991; Executive Vice
President, USAir, Inc. from 1989 to June 1990; Chairman of the Board and a
Director, Greater Pittsburgh Chamber of Commerce; Director, USAir, Inc.,
the Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange, Erie Insurance Company, PNC Bank, N.A., USX Corporation, Calgon
Carbon Corporation, and a member of the Desai Capital Management Advisory
Board.
Thomas M. Sider Executive Vice President and Chief Financial Officer of the Company since
47 October 1993. Executive Vice President and Chief Financial Officer of the Erie
Insurance Company, Erie Indemnity Company, Attorney-in-Fact for Erie
Insurance Exchange, Flagship City Insurance Company, Erie Insurance Company
of New York, and Erie Insurance Property & Casualty Company. Treasurer of
the E.I. Holding Corp. and E.I. Service Corp. Director--Flagship City Insurance
Company, Erie Insurance Property & Casualty Company, E.I. Holding Corp.,
Erie Insurance Company of New York and E.I. Service Corp.
Jan R. Van Gorder 1 Senior Executive Vice President, Secretary and General Counsel since 1990.
49 Director since September 1990. Senior Executive Vice President, Secretary and
General Counsel of the Erie Insurance Company, Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange 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 April 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--Erie Insurance Company, Flagship City
Insurance Company, Erie Insurance Property & Casualty Company, Erie
Insurance Company of New York and Erie Indemnity Company, Attorney-in-Fact
for Erie Insurance Exchange.
Harry H. Weil 2,3C Director since April 25, 1995. Senior Partner, Reed, Smith, Shaw & McClay,
63 Attorneys, since 1980, Partner 1969 to 1980, Associate 1964 to 1969; Director--
Erie Indemnity Company, Attorney-in-Fact for Erie Insurance
Exchange, Erie Insurance Company, Calgon Carbon Corporation and
Pittsburgh Tube Company.
Douglas F. Ziegler Senior Vice President, Treasurer and Chief Investment Officer of the Company
46 since October 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.
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Investment Committee
C Committee Chairman
13
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
52.2% of the Company's stock as attorney-in-fact for Erie Insurance Exchange,
has committees which meet these requirements.
The following table sets forth the compensation paid by the
Company during each of the three fiscal years ended December 31, 1994, 1995, and
1996, to the chief executive officer of the Company and the four other most
highly compensated executive officers of the Company during 1996 for services
rendered in all capacities to the Company, EFL, Erie Insurance Exchange (the
"Exchange") and their subsidiaries and affiliates.
Annual Compensation
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation (1)
- - --------------------------------------------------------------------------------
F. William Hirt 1996 $ 0 $ 11,220 $ 0 $ 0
Chief Executive
Officer(2)
01/01/96-02/11/96
Stephen A. Milne 1996 $467,305 $ 39,351 $ 1,014 $ 26,020
Chief Executive 1995 245,611 26,623 927 39,993
Officer (3) 1994 189,512 34,943 965 4,433
02/12/96-12/31/96
Jan R. Van Gorder 1996 $312,555 $ 25,433 $ 1,014 $ 26,431
Executive Vice 1995 296,095 26,725 1,029 29,625
President, Secretary 1994 278,442 25,590 1,029 14,834
& General Counsel
Thomas M. Sider 1996 $267,295 $ 26,844 $ 1,014 $ 24,231
Executive Vice 1995 231,901 26,696 941 22,410
President & Chief 1994 190,049 22,571 941 21,109
Financial Officer
John J. Brinling, 1996 $202,126 $ 34,652 $ 946 $ 24,098
Jr., Executive 1995 184,104 20,853 877 28,837
Vice President of 1994 176,365 19,527 877 22,682
EFL
Alvin L. Irwin 1996 $175,868 $ 19,436 $ 6,060 $ 633,680
Senior Vice 1995 171,273 17,978 6,325 3,192
President (4) 1994 167,072 16,360 3,665 3,010
14
(1) Amounts shown include matching contributions made by the Company pursuant
to the Company's Employee Savings Plan and premiums paid by the Company
on behalf oft the named individuals on the Split Dollar Plan insurance
policies. For the year 1996, contributions made to the Employee Savings
Plans amounted to $-0-, $11,729, $8,869, $8,024, $6,026 and $4,278 on
behalf of Messrs. Hirt, Milne, VanGorder, Sider, Brinling, and Irwin,
respectively. For the year 1995, contributions to the Employee Savings
Plan amounted to $-0-, $5,424, $6, 849, $6,143, $4,910, and $3,192 on
behalf of Messrs. Hirt, Milne, VanGorder, Sider, Brinling, and Irwin. For
the year 1994, contributions made to the Employee Savings Plan amounted
to $-0-. $4,433, $6,190, $4,788. $4,478 and $3,010 on behalf of Messrs.
Hirt, Milne, VanGorder, Sider, Brinling, and Irwin, respectively.
Premiums paid during 1996 for Split Dollar Life insurance policies for
Messrs. Hirt, Milne, VanGorder, Sider, Brinling, and Irwin, respectively,
are as follows: $-0-, $14,291, $17,742, $16,207, $18,072, and $-0-.
Premiums paid during 1995 for Split Dollar Life insurance policies for
Messrs. Hirt, Milne, VanGorder, Sider, Brinling, and Irwin, respectively,
are as follows: $-0-, $28,786, $17,420, $16,267, $18,144, and $-0-.
Premiums paid during 1994 for Split Dollar Life insurance policies for
Messrs. Hirt, Milne, VanGorder, Sider, Brinling, and Irwin are as
follows: $-0-, $-0-, $8,644, $16,321, $18,204, and $-0-. The Company is
entitled to recover the premiums from any proceeds paid on such Split
Dollar Life insurance policies and has retained a collateral interest in
each policy to the extent of the premiums paid with respect to such
policies. The total benefit accruing to Mr. Irwin under the Supplemental
Employee Retirement Plan of the Company amounted to $629,402 and is
reported on the table in 1996.
(2) Mr. Hirt served as Chief Executive Officer of the Company for the period
January 1, 1996 thru February 11, 1996.
(3) Mr. Milne became President and Chief Executive Officer of the Company and
a Company Director on February 12, 1996.
(4) Mr. Irwin retired effective December 31, 1996 after 30 years of service.
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.
15
Pension Plan
The following table sets forth the estimated annual benefits
payable upon retirement at age 65 under the Erie Insurance Group Retirement Plan
for Employees.
PENSION PLAN TABLE
Years of Service
Remuneration 15 20 25 30 35
- - -------------------------------------------------------------------
$ 200,000 60,000 80,000 100,000 120,000 120,000
225,000 67,500 90,000 112,500 135,000 135,000
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
The compensation covered by such plan is the base salary
reported in the Summary Compensation Table.
16
Under the pension plan, 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: F. William Hirt - 30 years,
Stephen A. Milne - 19 years, Jan R. Van Gorder - 16 years, Thomas M. Sider - 26
years, John J. Brinling, Jr. - 29 years and Alvin Irwin - 30 years.
The benefits under such plan 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 Internal
Revenue Code of 1986, as amended (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
$120,000, but adjusted annually 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 Internal Revenue Code of 1986 as amended.
Director Compensation
Effective January 1, 1995, the annual retainer for directors of
all members of the Group, including the registrant, increased to $15,000, plus
$1,200 for each meeting attended and $800 for each committee meeting attended
(unless the committee meeting is held the same day as a Board of Directors
meeting, for which committee meeting $500 will be paid) plus an additional
$2,000 per year for each committee chairperson. In addition, all directors are
reimbursed for their expenses incurred in attending meetings. Officers of the
Company who serve as directors are not compensated separately for attendance at
meetings of the Board of Directors and its committees. Director Petersen also is
compensated pursuant to a consulting arrangement as disclosed in Item 13.
Agreements with Executive Officers
Upon the recommendation of the Executive Compensation Committee
of the Company's Board of Directors the Company has entered into employment
agreements with the following four of the Company's senior executive officers:
John J. Brinling, Jr., Executive Vice President of the Company in November,
1995; Stephen A. Milne, President and CEO of the Company; Thomas M. Sider,
Executive Vice President and Chief Financial Officer of the Company, and Jan R.
Van Gorder, Executive Vice President, General Counsel and Secretary of the
Company. The employment agreements have the following principal terms:
(a) A three year term expiring in November , 1998 unless the
agreement is theretofore terminated in accordance with its terms with or without
cause or due to disability or death of the officer or notice of non-renewal 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 an
amount equal to the sum of: (i) three times his highest annual base salary
during the preceding three years plus an amount equal to the total of the
executive's highest awards during the preceding three years under the Company's
bonus and other short-term incentive compensation plans and (ii) any award or
other compensation to which the executive is entitled under any of the Company's
incentive compensation programs and employee benefit plans as well as for the
continuing participation, for a period of three years following termination, in
all life, medical and dental insurance programs and other benefit plans to
17
the extent the executive and his dependents were eligible to participate in such
programs immediately prior to his termination;
(e) Provisions relating to confidentiality and non-disclosure
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.
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee (the "Committee") of the Company
presently consists of Peter B. Bartlett, Chairman, J. Ralph Borneman, Jr., Seth
E. Schofield and Harry H. Weil. No member of the Committee is a former or
current officer or employee of the Company or any of its affiliates.
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 Committee of the Company 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 Committee of the Company. 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.
Report of the Executive Compensation Committee of the Company
The 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 it by the Board of Directors. The Board
has authorized the Compensation Committee to consider the compensation of the
four highest paid officers, including the CEO. The Committee is composed of four
directors who are not officers or employees of the Company, the Exchange or EFL
or any of their affiliates or subsidiaries. The purpose of the Committee is to
determine the level and composition of compensation that is sufficient to
attract and retain top quality executives for the Company.
Compensation Philosophy: The objectives of the 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 stockholder and policyholder value. To that end,
compensation comparisons will be made to benchmark positions at other insurers
in terms of compensation levels and composition of the total compensation mix.
Under federal tax laws, the Company is not allowed a federal income
tax deduction for compensation paid to certain executive officers to the extent
that compensation exceeds $1 million per officer in any fiscal year. No officer
of the Company has received compensation in excess of $1 million in any fiscal
year to date. The Compensation Committee may consider adopting policies with
respect to this limitation on deductibility when appropriate.
The Committee reviewed the salary ranges and base salaries of the four
highest paid executives including the chief executive officer in 1996. The
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 Committee then
reviews the salary ranges for the chief executive officer and the other three
highest paid senior executives, comparing the ranges to third party data
compiled for similar positions with other property and casualty insurers. In
reviewing the salary ranges for the four highest paid executives, including the
chief executive officer, the Committee references Sibson's Management
Compensation Survey published annually by Sibson & Company, Inc., which
18
summarizes compensation data for more than 100 insurance companies. The data is
reported by position and by company asset size and by 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 Committee
also secured the services of Towers Perrin, a nationally recognized consulting
firm with specific expertise in the insurance industry, to do a detailed
analysis of competitive compensation levels and make recommendations. In
addition, Towers Perrin made specific recommendations to the Committee regarding
the compensation for Mr. Milne as he assumed the responsibilities of chief
executive officer.
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.
A promotional salary increase may also be added to the executive's
compensation when the executive assumes new responsibilities or has increased
accountability for results. Significant changes in duties and responsibilities
may also result in a higher salary range.
Compensation for the chief executive officer consists primarily of
salary and bonus and minor perquisites which amount to less than 10% of the
chief executive officer's salary and bonus. No long-term incentive plans (which
provide incentives for performance occurring over longer periods of time) are
currently utilized in determining the compensation of the chief executive
officer, although external data indicates its prevalence among competitor
companies. Stock options, stock appreciation rights and restricted stock are not
currently part of the executive compensation package for any executives of the
Company.
Performance factors applicable to the Company, such as property and
casualty insurance loss ratios, investment portfolio returns, overall company
profitability, as well as other factors are considered indirectly in evaluating
the chief executive officer's performance.
Compensation of the next three most highly compensated individuals is
determined by the 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 Committee. As with the chief
executive officer and the next three most highly compensated executive officers,
no long-term incentive plans are maintained for this executive.
ERIE INDEMNITY COMPANY
EXECUTIVE COMPENSATION COMMITTEE
Peter B. Bartlett, Chairman
J. Ralph Borneman, Jr.
Seth E. Schofield
Harry H. Weil
19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of 2/28/97
(a)
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 4,932,900(1) 52.2%(1)
100 Erie Insurance Place Direct
Erie, PA
(b) Shares beneficially owned directly or indirectly by all Directors and
Officers:
Name & Address Shares
of Beneficial Beneficially Percent of
Owner Owned Class
Peter B. Bartlett 0 NA
65 Egbert Street
Bay Head, NJ 08742
Samuel P. Black, Jr. 68,118 .72%
400 French St., Suite 100
Erie, PA 16507
J. Ralph Borneman 1,536 .02%
Box 552
17 East Philadelphia Ave.
Boyertown, PA 19512
Patricia A. Goldman 0 NA
3026 1/2 Q Street, NW
Washington, DC 20007
Susan Hirt Hagen 300 --
5727 Grubb Rd.
Erie, PA 16506
Thomas B. Hagen 154,482 1.63%
5727 Grubb Rd.
Erie, PA 16506
F. William Hirt 167,034 1.77%
3270 Kingston Court S.
Erie, PA 16506
20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (Cont.)
(b) Shares beneficially owned directly or indirectly by all Directors and
Officers:
Name & Address Shares
of Beneficial Beneficially Percent of
Owner Owned Class
Dr. Irvin H. Kochel 6,249 .07%
4737 Reese Road
Erie, PA 16510
Edmund J. Mehl 12,150 .13%
504 Frontier Dr.
Erie, PA 16505
Stephen A. Milne 0 NA
100 Culbertson Drive
Lake City, PA 16423
John M. Petersen 89,141 .94%
124 Voyageur Dr.
Erie, PA 16505
Seth E. Schofield 0 NA
9500 South Ocean Drive #1601
Jensen Beach, FL 34957
Jan R. Van Gorder 75 --
6796 Manchester Beach Road
Fairview, PA 16415
Harry H. Weil 0 NA
7 Foxwood Drive
Pittsburgh, PA 15238
John J. Brinling, Jr. 1,260 .01%
1522 Sumner Drive
Erie, PA 16505
Robert H. Dreyer 600 .01%
465 Hawthorne Trace
Fairview, PA 16415
Philip Alan Garcia 1,275 .01%
786 Stockbridge Drive
Erie, PA 16505
Thomas M. Sider 285 --
11810 Old Lake Road
North East, PA 16428
Douglas F. Ziegler 270 --
378 Ridgeview Drive
Erie, PA 16505
Officers and directors
as a group (19 persons) 502,775(2) 5.32%(2)
21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (Cont.)
(1) Erie Insurance Exchange (the "Exchange") is a reciprocal insurance
exchange controlled by its subscribers, each of whom has designated
Erie Indemnity Company as such subscriber's attorney-in-fact for
certain purposes, including Indemnity's holding of Common Stock of the
Company. 76.2% of the outstanding voting stock of Erie Indemnity
Company is owned beneficially by a trust established by H. O. Hirt,
the father of F. William Hirt and Susan H. Hagen and the father-in-law
of Thomas B. Hagen. Mr. Hirt and Mrs. Hagen are beneficiaries of the
trust and are co-trustees with Mellon Bank, N.A. An additional 12.7%
of the Erie Indemnity Company voting stock is beneficially owned by
Samuel P. Black, Jr.
(2) Includes direct and indirect beneficial ownership and shares owned by
and with spouses.
(c) There are no contractual arrangements known to the Registrant which may
result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors Black and Borneman 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 such companies standard commission schedules and agents' contracts.
The retired President and CEO and previous Chief Investment Officer of the
Erie Insurance Group of Companies, and current director, John M. Petersen,
entered into a consulting arrangement with Erie Indemnity Company effective
January 2, 1996. Under the terms of the arrangement, Erie Indemnity Company
engaged Mr. Petersen as a consultant to furnish Erie Indemnity Company and
its pension trust, Erie Insurance Exchange, and Erie Family Life Insurance
Company, with investment services with respect to their investments in
common stocks. The amount paid Mr. Petersen pursuant to this arrangement in
1996 was $2,078,758.
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements of the Registrant and the
report of independent certified public accountants are incorporated
herein by reference to pages 20 through 28 in the Registrant's annual
report to shareholders for the year ended December 31, 1996.
Independent Auditor Report
Statements of Financial Position - December 31, 1996 and 1995
Statements of Operations for the years ended December 31, 1996,
1995 and 1994 Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 Statements of Shareholders'
Equity for the years ended December 31, 1996, 1995 and 1994 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 25
Schedule I - Summary of Investments other than
investments in related parties 26
Schedule V - Supplementary Insurance Information 27
Schedule VI - Reinsurance 28
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 13 - Annual Report to Shareholders
Exhibit 27 - Financial Data Schedule
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 last quarter of the period covered by this report.
23
SIGNATURES
Pursuant to the requirements of Section 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 11, 1997 ERIE FAMILY LIFE INSURANCE COMPANY
(Registrant)
Principal Officers
/s/ F. William Hirt
F. William Hirt, Chairman of the Board
/s/ Stephan A. Milne
Stephen A. Milne, President and C.E.O.
/s/ Thomas M. Sider
Thomas M. Sider, Executive Vice President & CFO
/s/ Philip A. Garcia
Philip A. Garcia, Senior Vice President & Controller
Board of Directors
/s/ Peter B. Bartlett /s/ Irvin H. Kochel
Peter B. Bartlett Dr. Irvin H. Kochel
/s/ Samuel P. Black, Jr. /s/ Edmund J. Mehl
Samuel P. Black, Jr. Edmund J. Mehl
/s/ J. Ralph Borneman /s/ Stephen A. Milne
J. Ralph Borneman Stephen A. Milne
/s/ Patricia A. Goldman /s/ John M. Petersen
Patricia A. Goldman John M. Petersen
/s/ Susan Hirt Hagen /s/ Seth E. Schofield
Susan Hirt Hagen Seth E. Schofield
/s/ Thomas B. Hagen /s/ Jan R. Van Gorder
Thomas B. Hagen Jan R. Van Gorder
/s/ Harry H. Weil
F. William Hirt Harry H. Weil
24
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, 1996 and 1995 and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996, as contained in the 1996
annual report, incorporated by reference in the annual report on Form 10-K for
the year ended December 31, 1996. In connection with our audits of the financial
statements, we also have audited the financial statement schedules, as listed in
the accompanying index. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Erie Family Life Insurance
Company as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ Brown Schwab Bergquist & Co.
Erie, Pennsylvania
February 18, 1997
25
SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1996
Cost or Amount at which
Amortized Market Shown in the
Cost Value Balance Sheet
Type of Investment
Fixed Maturities
Available-for-Sale
Bonds and Notes
U. S. Treasuries $ 6,476,927 $ 6,943,977 $ 6,943,977
Foreign Governments 2,986,046 2,970,000 2,970,000
Political Subdivisions 4,676,466 5,003,331 5,003,331
Special Revenue 24,697,215 25,021,613 25,021,613
Public Utilities 90,987,333 91,538,151 91,538,151
Industrial and Misc. 370,740,927 374,435,097 374,435,097
Foreign Industrial and Misc. 7,062,274 7,547,530 7,547,530
Redeemable Preferred Stocks
Banks, Trusts and
Insurance Companies 2,000,000 2,070,000 2,070,000
Total Fixed Maturities
Available-for-Sale $ 509,627,188 $ 515,529,699 $ 515,529,699
Equity Securities
Common Stocks
Industrial and Misc. $ 5,500,006 $ 5,985,570 $ 5,985,570
Non-Redeemable Preferred Stocks
Public Utilities 4,000,000 3,940,000 3,940,000
U. S. Banks, Trusts and
Insurance Companies 78,622,165 81,682,550 81,682,550
Foreign Banks, Trusts and
Insurance Companies 3,000,000 3,180,000 3,180,000
Industrial and Misc. 16,440,871 17,804,025 17,804,025
Foreign Industrial and Misc. 3,900,000 3,960,000 3,960,000
Total Equity Securities $ 111,463,042 $ 116,552,145 $ 116,552,145
Real Estate
Investment Property $ 1,710,329 $ 1,710,329 $ 1,710,329
Policy Loans 4,381,657 4,381,657 4,381,657
Mortgage Loans 8,955,760 8,955,760 8,955,760
Other Invested Assets 6,787,226 6,787,226 6,787,226
Total Investments $ 642,925,202 $ 653,916,816 $ 653,916,816
26
SCHEDULE V - SUPPLEMENTARY INSURANCE INFORMATION
At December 31,
Deferred Future
Policy Policy Other
Acquisition Benefits & Unearned Policy
Segment Costs Deposits Premium Claims
1996
Ordinary Life Insurance $ 50,586,096 109,754,695 119,145 1,612,105
Group Life Insurance 0 1,135,755 0 91,000
Annuities 7,440,332 450,570,003 0 0
Supplemental Contracts 0 839,258 0 0
Total $ 58,026,428 562,299,711 119,145 1,703,105
1995
Ordinary Life Insurance $ 43,893,056 93,756,432 104,951 823,618
Group Life Insurance 0 984,149 0 73,408
Annuities 6,869,236 405,346,808 0 0
Supplemental Contracts 0 872,745 0 0
Total $ 50,762,292 500,960,134 104,951 897,026
1994
Ordinary Life Insurance $ 38,740,281 79,503,597 98,700 723,638
Group Life Insurance 0 653,979 0 73,847
Annuities 6,211,514 341,242,154 0 0
Supplemental Contracts 0 767,457 0 0
Total $ 44,951,795 422,167,187 98,700 797,485
SCHEDULE V - 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
1996
Ordinary Life Insurance $29,038,797 13,165,970 17,434,872 2,456,879 7,078,531
Group Life Insurance 2,073,494 75,877 1,040,741 0 483,232
Annuities 3,871 32,641,980 25,061,905 684,471 1,785,210
Supplemental Contracts 0 65,142 47,430 0 4,280
Total $31,116,162 45,948,969 43,584,948 3,141,350 9,351,253
1995
Ordinary Life Insurance $25,764,413 11,329,270 14,372,964 1,813,419 7,541,883
Group Life Insurance 1,854,910 59,239 1,035,599 0 360,556
Annuities 454,674 29,509,614 22,664,856 544,708 2,281,533
Supplemental Contracts 0 64,689 53,930 0 4,101
Total $28,073,997 40,962,812 38,127,349 2,358,127 10,188,073
1994
Ordinary Life Insurance $22,931,783 9,651,029 8,430,107 1,700,028 6,882,372
Group Life Insurance 1,717,589 46,571 837,533 0 330,111
Annuities 244,111 25,800,361 18,128,885 279,737 2,297,726
Supplemental Contracts 0 68,288 36,737 0 2,813
Total $24,893,483 35,566,249 27,433,262 1,979,765 9,513,022
(a) Net of reinsurance ceded
27
SCHEDULE VI - REINSURANCE
Percentage
Ceded to Assumed of Amount
Gross Other From Other Net Assumed
Amount Companies Companies Amount to Net
December 31, 1996
Life Insurance in force $ 10,766,917,000 1,151,610,000 31,655,000 9,646,962,000 0.33%
Premiums for the year
Life Insurance 32,673,673 3,634,876 0 29,038,797 -0-
Group 1,994,659 0 82,706 2,077,365 3.98%
Total Premiums $ 34,668,332 3,634,876 82,706 31,116,162 0.27%
December 31, 1995
Life Insurance in force $ 9,537,687,000 1,197,855,000 31,108,000 8,370,940,000 0.37%
Premiums for the year
Life Insurance 29,118,897 3,354,484 0 25,764,413 -0-
Group 2,205,144 0 104,440 2,309,584 4.52%
Total Premiums $ 31,324,041 3,354,484 104,440 28,073,997 0.37%
December 31, 1994
Life Insurance in force $ 8,438,925,000 987,353,000 29,965,000 7,481,537,000 0.40%
Premiums for the year
Life Insurance 26,117,501 3,185,718 0 22,931,783 -0-
Group 1,867,982 0 93,718 1,961,700 4.78%
Total Premiums $ 27,985,483 3,185,718 93,718 24,893,483 0.38%
28