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, 1997
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
(Tile 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 28, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's Annual Report to shareholders for the fiscal year
ended December 31, 1997 (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 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a
Vote of Security Holders 7
Item 5. Market for Company's Common Stock
and Related Stockholder Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes In and Disagreements With
Accountants on Accounting and Financial
Disclosure 7
Item 10. Directors and Executive Officers
of the Company 8
Item 11. Executive Compensation 13
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 "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 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 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 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 1997 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 1997 1996 1995 1994 1993
----- ---- ---- ---- ---- ----
Ordinary Life (including Total
and Permanent Disability and
Additional Accidental Death) 93.3% 93.3% 91.8% 92.1% 92.3%
Group 6.7 6.7 8.2 7.9 7.7
------ ------ ------ ------ ------
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.
Structured settlement annuities sold to affiliate companies represented
$17,780,582 in annuity deposits in 1997, $13,504,953 in 1996 and
$22,018,313 in 1995. Also included in the annuity deposits are annuity
contracts purchased by the Erie Insurance Group Retirement Plan for
Employees. These annuity contracts purchased totaled $1,992,060 in 1997,
$4,894,042 in 1996 and $6,024,125 in 1995.
Classes of Deposits
Total Deposits
For the year ended December 31,
Class 1997 1996 1995 1994 1993
----- ---- ---- ---- ---- ----
Universal Life Deposit $ 10,733,738 $ 9,465,576 $ 8,490,667 $ 7,482,156 $ 6,130,390
Annuity Deposit 58,306,640 58,250,822 66,051,230 62,048,541 50,550,323
------------- ------------- ------------ ------------ ------------
$ 69,040,378 $ 67,716,398 $ 74,541,897 $ 69,530,697 $ 56,680,713
The Company 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 policy 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.
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.
4
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
Insurance Department and covered the five 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 $91 million and
a ratio of total adjusted capital to authorized control level risk-based
capital of 6:1 at December 31, 1997. The Company's ratios significantly
exceed the minimum NAIC risk-based capital requirements.
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.
5
Annuities are subject to varying interest rates determined at the
discretion of the Company subject to certain minimums. During 1997,
annuity deposits earned interest at rates ranging from 5.00% 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.
Employees
Services of eighty-one full-time Employees are provided through 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 1997 was 9.0%.
Reinsurance Profitability - Not Applicable.
New Types of Insurance - Not Applicable.
Total Insurance In Force for the last five years Net of
Reinsurance was:
1997 - $ 10,754,141,000
1996 - $ 9,646,962,000
1995 - $ 8,370,940,000
1994 - $ 7,481,537,000
1993 - $ 6,428,223,000
ITEM 2. PROPERTIES
The Company owns no real property and no tangible personal property used in the
operation of its business except office supplies and forms. The Company does,
however, own real property for investment purposes as described under ITEM 1
INVESTMENTS. 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 arm's length
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.
6
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 1997.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Currently there is no market on which the Company's stock is traded. The
Company had 1,145 recordholders of Common Stock at December 31, 1997.
Date Dividends Declared Date Dividends Paid Dividends per Share*
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
March 5, 1997 April 1,1997 .135
April 29, 1997 July 1, 1997 .135
June 17, 1997 October 1, 1997 .135
September 15, 1997 January 2, 1998 .135
*Adjusted to reflect a three-for-one stock split which was effective May 2,
1996.
ITEM 6. SELECTED FINANCIAL DATA
The information contained in "Selected Financial Data" on Page 14 of the
Company's 1997 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 15 through 22 of the Company's 1997 Annual
Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The 1997 Financial Statements and the Company's independent auditor's report on
pages 24 through 32 of the Company's 1997 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 32.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
7
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 04/01/98 Held During the Last Five Years
Peter B. Bartlett 3C,4,5 Director since 1996. Partner, Brown Brothers Harriman & Co. since
64 1974; Director--Erie Insurance Company and Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange and Kennametal, Inc.
Samuel P. Black, III 2 Director since 1997. President, Treasurer and Secretary, Samuel P.
56 Black & Associates, Inc.--insurance agency; President & Treasurer, Curti-Sergi
Company, life and employee benefits 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. 3,4 Director since 1992. President and Chief Executive Officer of Body-
59 Borneman 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 Bancshares.
John J. Brinling, Jr. Executive Vice President of the Company since December 1990. Division
51 Officer 1984-present.
Robert H. Dreyer Senior Vice President of the Company since 1990. Chief Actuary 1983-
60 Present.
Philip A. Garcia Executive Vice President and Chief Financial Officer of the Company,
41 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
October 1997. Senior Vice President and Controller and Division Officer
1993 - October 1997. Vice President and Manager of the Life Accounting
Department of the Company prior to 1993. Director - Flagship City
Insurance Company, Erie Insurance Property & Casualty Company and Erie
Insurance Company of New York.
2 Member of Audit Committee
3 Member of Executive Compensation Committee
4 Member of Nominating Committee
5 Member of Investment Committee
C Committee Chairman
8
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 04/01/98 Held During the Last Five Years
Patricia A. Goldman 2,4 Director since 1996. Retired; Senior Vice President for Communications,
56 USAir, Inc. from 1988 to 1994; Director, Erie Insurance Company, Erie Indemnity
Company, Attorney-in-Fact for Erie Insurance Exchange and Crown Central Petroleum
Corporation.
Susan Hirt Hagen 1,* Director since 1980. Managing Partner, Hagen, Herr & Peppin, Group
62 Relations 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.
Thomas B. Hagen * Director since 1980. Chairman, Custom Engineering Co., Chairman,
62 Team Pennsylvania Foundation since 1997; Secretary of Commerce and Secretary of
Community and Economic Development of the Commonwealth of Pennsylvania 1995
to 1997; Special Consultant to the Chairman of the Board of the Erie
Indemnity Company, Attorney-in-Fact for the Erie Insurance Exchange from
1993 to 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 1990, and of Flagship City Insurance Company and Erie
Insurance Property & Casualty Company, from 1992 and 1993, respectively, to
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 1990; Director, the Erie
Indemnity Company, Attorney-in-Fact for the Erie Insurance Exchange and
Erie Insurance Company and GPU, Inc.
1 Member of Executive Committee
2 Member of Audit Committee
4 Member of Nominating 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.
9
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 04/01/98 Held During the Last Five Years
F. William Hirt 1C,* Chairman of the Board. Director since 1967. Chairman of the Board of
72 the Erie 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
74 Pennsylvania State University; Director--Erie Insurance Company and Erie Indemnity
Company, Attorney-in-Fact for Erie Insurance Exchange.
Edmund J. Mehl 1,2C,4 Director since 1969. Retired Chairman and Chief Executive Officer,
74 Dispatch 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.
1 Member of Executive Committee
2 Member of Audit Committee
4 Member of Nominating 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.
10
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 04/01/98 Held During the Last Five Years
Stephen A. Milne 1,5 President, Chief Executive Officer and Director since February 12, 1996.
49 President and Chief Executive Officer 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 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-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.
Timothy G. NeCastro Senior Vice President and Controller of the Company, Erie Insurance
37 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 November
1997.
John M. Petersen 1,5 Director since 1980. Retired; President and Chief Executive Officer of the
69 Erie 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.
1 Member of Executive Committee
5 Member of Investment Committee
11
Present Principal Position with Erie
Name and Age Family Life and Other Material Positions
as of 04/01/98 Held During the Last Five Years
Seth E. Schofield 3,4C Director since 1991. Retired; Chairman of the Board and Chief Executive
58 Officer, USAir, Inc. from 1992 to January 1996; President and Chief Executive
Officer, USAir, Inc. from 1991 to 1992; President and Chief Operating
Officer, USAir, Inc. from 1990 to 1991; Executive Vice President, USAir,
Inc. from 1989 to 1990; Chairman of the Board and a Director, Greater
Pittsburgh Chamber of Commerce; Director, the Erie Indemnity Company,
Attorney-in-Fact for Erie Insurance Exchange, Erie Insurance Company, PNC
Bank, N.A., USX Corporation, Calgon Carbon Corporation, and Desai Capital
Management.
Jan R. Van Gorder 1 Senior Executive Vice President, Secretary and General Counsel since
50 1990. 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 2,3,5C Director since 1995. Senior Partner, Reed, Smith, Shaw & McClay,
64 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 and Calgon Carbon Corporation
Douglas F. Ziegler Senior Vice President, Treasurer and Chief Investment Officer of the
47 Company 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 and Erie Insurance
Company of New York. Director - 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
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
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, 1997, 1996, and 1995, to the chief
executive officer of the Company and the four other most highly compensated
executive officers of the Company during 1997 for services rendered in all
capacities to the Company, Erie Indemnity Company, Erie Insurance Exchange (the
"Exchange") and their subsidiaries and affiliates.
Annual Compensation
Name and Other Annual All Other(2)
Principal Position Year Salary Bonus(1) Compensation Compensation
Stephen A. Milne 1997 $539,462 $174,697 $ 1,014 $ 66,219
Chief Executive 1996 467,305 39,351 1,014 26,020
Officer 1995 245,611 26,623 927 39,993
Jan R. Van Gorder 1997 $321,032 $103,469 $ 2,268 $ 26,263
Executive Vice 1996 312,555 25,433 1,014 26,431
President, Secretary 1995 296,095 26,725 1,029 29,625
& General Counsel
John J. Brinling, 1997 $214,395 $ 68,733 $ 2,268 $ 27,209
Jr., Executive 1996 202,126 34,652 946 24,098
Vice President of 1995 184,104 20,853 877 28,837
EFL
Philip A. Garcia 1997 $160,703 $ 58,744 $ 383 $ 4,470
Executive Vice 1996 142,255 9,039 332 3,966
President & Chief 1995 132,617 7,905 201 3,114
Financial Officer(3)
Dennis M. Geib 1997 $166,533 $ 52,127 $ 1,943 $ 4,094
Senior Vice 1996 158,261 10,157 1,900 4,072
President 1995 148,365 8,868 1,841 3,300
(1) The amounts indicated in the bonus column above represent amounts earned
by the named executives during 1997 under the Company's annual incentive
plan. The purpose of the annual incentive plan is to promote the best
interests of the Erie Insurance Group 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 Company financial goals
compared to a selected peer group.
13
(2) Amounts shown 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 Plan insurance
policies and miscellaneous expense reimbursements. For the year 1997,
contributions made to the Employee Savings Plans amounted to $12,194,
$8,676, $6,432, $4,470, and $4,094 on behalf of Messrs. Milne, Van
Gorder, Brinling, Garcia and Geib, respectively. For the year 1996,
contributions to the Employee Savings Plan amounted to $11,729, $8,689,
$6,026, $3,966, and $4,072 on behalf of Messrs. Milne, Van Gorder,
Brinling, Garcia and Geib. For the year 1995, contributions made to the
Employee Savings Plan amounted to $5,424, $6,849, $4,910, $3,114, and
$3,300 on behalf of Messrs. Milne, Van Gorder, Brinling, Garcia and Geib,
respectively. Premiums paid during 1997 for Split Dollar Life insurance
policies for Messrs. Milne, Van Gorder, Brinling, Garcia and Geib,
respectively, are as follows: $51,531, $17,587, $17,700, $-0- and $-0-.
Premiums paid during 1996 for Split Dollar Life insurance policies for
Messrs. Milne, Van Gorder, Brinling, Garcia and Geib, respectively, are
as follows: $14,291, $17,742, $18,072, $-0- and $-0-. Premiums paid
during 1995 for Split Dollar Life insurance policies for Messrs. Milne,
Van Gorder, Brinling, Garcia and Geib are as follows: $28,786, $17,420,
$18,144, $-0- 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. For the year 1997,
miscellaneous expense reimbursements amounted to $2,494, $-0-, $3,077,
$-0- and $-0- for Messrs. Milne, Van Gorder, Brinling, Garcia and Geib.
For the year 1996, no miscellaneous expenses were incurred for Messrs.
Milne, Van Gorder, Brinling, Garcia and Geib. For the year 1995,
miscellaneous expense reimbursements amounted to $5,783, $5,356, $5,783,
$-0- and $-0- for Messrs. Milne, Van Gorder, Brinling, Garcia and Geib,
respectively.
(3) Mr. Garcia became Executive Vice President and Chief Financial Officer
on October 2, 1997.
Agreements with Executive Officers
Upon the recommendation of the Executive Compensation Committee of the Company's
Board of Directors the Company entered into employment agreements in December,
1997 with the following four senior executive officers of the Company: John J.
Brinling, Jr., Executive Vice President of the Company; Stephen A. Milne,
President and Chief Executive Officer; Philip A. Garcia, Executive Vice
President and Chief Financial Officer of the Company, and Jan R. Van Gorder,
Senior Executive Vice President, Secretary and General Counsel of the Company.
The employment agreements have the following principal terms:
(a) For Mr. Milne a four year term expiring in December, 2001 and for the
other executives a two year term expiring in December, 1999, 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 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; (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 the extent the executive and his dependents were eligible
to participate in such programs immediately prior to his
termination; and (iii) accrued benefits under the Company's
Supplemental Executive Retirement Plan become immediately vested and
nonforfeitable.
14
(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.
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 PLANS - AWARDS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------------------------------------
Name Number of Shares, Performance Estimated Future Payouts
Shares, Units or or Other Period Under Non-Stock
Other Rights (#) Until Maturation Price-Based Plans
or Payout
- --------------------------------------------------------------------------------------------------------------------------
Phantom Share Units Threshold Target Maximum(1)
- --------------------------------------------------------------------------------------------------------------------------
Milne, S. 45,839 1997-1999 -0- $188,812
Van Gorder, J. 27,279 1997-1999 -0- $112,361
Brinling, J. 18,218 1997-1999 -0- $ 75,038 NONE
Garcia, P. 12,719 1997-1999 -0- $ 52,390
Geib, D. 14,120 1997-1999 -0- $ 58,160
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 interest of such
employees with those of shareholders of the Company. 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 executives' 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
shares of restricted Class A Common Stock of the Company equal to the dollar
value of the phantom share units at the end of the performance period. The
vesting period for the restricted Class A common shares 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.
(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.
15
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.
PENSION PLAN TABLE
Years of Service
Remuneration 15 20 25 30 35
- --------------------------------------------------------------------------
$ 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
The compensation covered by such plan is the base salary reported in the Summary
Compensation Table.
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: Stephen A. Milne - 21 years, Jan R. Van Gorder
- - 17 years, John J. Brinling, Jr. - 30 years, Philip A. Garcia - 17 years and
Dennis Geib - 17 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 $130,000, 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 Internal
Revenue Code of 1986 (as amended) similar to these provided to all other full
time employees as if the IRS limitations were not in effect. These benefits are
incorporated into the Pension Plan Table.
Director Compensation
The annual retainer for 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. 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. The total amount allocated to the Company for
directors fees in 1997 was $111,068. Director Petersen also is compensated
pursuant to a consulting arrangement as disclosed in Item 13.
16
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 or any of its
affiliates. 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.
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 are
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, under certain circumstances, 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 1997. 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 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 make recommendations regarding executive
compensation.
17
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 approved adoption of an annual incentive plan and long-term incentive plan
for senior executives of the Company as recommended by the Executive
Compensation Committee at its meeting of March 11, 1997. The purpose of the
annual incentive plan is to promote the best interests of the Company and to
promote the attainment of significant business objectives for the Company by
basing a portion of the executives' compensation on the attainment of both
premium growth and underwriting profitability goals. The annual incentive plan
will be paid in cash only.
Annual Incentive Plan target award levels, expressed as a percent of base
salary, are established annually by the Executive Compensation Committee and
approved by the Board of Directors. Payments under the Annual Incentive Plan are
based on a combination of individual executive performance and company
performance.
The Long-Term Incentive Program, which was approved by shareholders April 29,
1997, is designed to maximize returns to stockholders by linking executive
compensation to the overall profitability of the Company. Target award amounts,
expressed as a percentage of base salary, are determined by comparisons to peer
companies and approved by the Executive Compensation Committee and the Board of
Directors.
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 in evaluating the Chief
Executive Officer's performance. Such performance factors were considered in
approving Mr. Milne's 1997 compensation.
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.
Erie Indemnity Company Executive Compensation Committee:
Peter B. Bartlett, Chairman
J. Ralph Borneman, Jr.
Seth E. Schofield
Harry H. Weil
18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of 2/28/98
(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 --
65 Egbert Street
Bay Head, NJ 08742
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
Patricia A. Goldman 100 --
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
Erie, PA 16506
Dr. Irvin H. Kochel 6,249 .07%
4637 Reese Road
Erie, PA 16510
19
(b) Shares beneficially owned directly or indirectly by all Directors and
Officers:
Name & Address Shares
of Beneficial Beneficially Percent of
Owner Owned Class
Edmund J. Mehl 12,150 .13%
504 Frontier Dr.
Erie, PA 16505
Stephen A. Milne 200 --
100 Culbertson Drive
Lake City, PA 16423
John M. Petersen 89,141 .94%
124 Voyageur Dr.
Erie, PA 16505
Seth E. Schofield 0 --
8600 South Ocean Drive #1106
Jensen Beach, FL 34957
Jan R. Van Gorder 75 --
6796 Manchester Beach Road
Fairview, PA 16415
Harry H. Weil 100 --
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
Timothy G. NeCastro 0 --
124 West 37th Street
Erie, PA 16508
Douglas F. Ziegler 270 --
378 Ridgeview Drive
Erie, PA 16505
Officers and directors
as a group (19 persons) 567,169(2) 6.00%(2)
20
(1) 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 13.4% of the Erie
Indemnity Company 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.
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.
Such payments to the agencies for commissions written on insurance policies
from the property and casualty affiliated insurers and Erie Family Life
Insurance Company amounted to $2,540,612 and $626,760 for the Body-Borneman
Agency and the Black and Associates Agency respectively. Of these amounts,
the Company paid commissions of $108,845 to the Body-Borneman Agency and
$58,668 to the Black and Associates Agency in 1997.
Director Mehl is the retired Chairman and Chief Executive Officer of
Dispatch Printing, Inc., a company owned by his family members. Payments
for printing services from the company, and its affiliates, to Dispatch
Printing, Inc. amounted to $65,507 in 1997.
Director and former President and CEO, and previous Chief Investment
Officer of the Erie Insurance Group of Companies, John M. Petersen, 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 stock 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 1997, was $2,836,883 of which $30,393 was allocated to the
Company.
21
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 24 through 32 in the Company's annual report to
shareholders for the year ended December 31, 1997.
Independent Auditor Report
Statements of Financial Position - December 31, 1997 and 1996
Statements of Operations for the years ended December 31, 1997,
1996 and 1995
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995
Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995
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.
22
(3) Exhibits:
Exhibit
Number Description of Exhibit
10.1 1997 Annual Incentive Plan of Erie Indemnity Company
10.2 Erie Indemnity Company Long-Term Incentive Plan
10.3 Employment Agreement dated December 16, 1997 by and between
Erie Indemnity Company and Stephen A. Milne
10.4 Employment Agreement dated December 16, 1997 by and between
Erie Indemnity Company and Jan R. Van Gorder
10.5 Employment Agreement dated December 16, 1997 by and between
Erie Indemnity Company and Philip A. Garcia
10.6 Employment Agreement dated December 16, 1997 by and between
Erie Indemnity Company and John J. Brinling, Jr.
13 1997 Annual Report to Security Holders. Reference is made to
the Annual Report furnished to the Commission, herewith.
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 Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 11, 1998 ERIE FAMILY LIFE INSURANCE COMPANY
(Registrant)
Principal Officers
/s/ Stephan A. Milne
Stephen A. Milne, President and C.E.O.
/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/ Peter B. Bartlett /s/ Irvin H. Kochel
Peter B. Bartlett Dr. Irvin H. Kochel
/s/ Samuel P. Black, III /s/ Edmund J. Mehl
Samuel P. Black, III 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/ F. William Hirt /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, 1997 and 1996 and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997, as contained in the 1997
annual report, incorporated by reference in the annual report on Form 10-K for
the year ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1997
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 17, 1998
25
SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1997
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 $ 4,267,607 $ 4,810,992 $ 4,810,992
U. S. Government Agency 27,519,035 27,945,095 27,945,095
States & Political Subdivisions 2,058,330 2,213,302 2,213,302
Special Revenue 14,209,832 15,315,426 15,315,426
Public Utilities 80,490,970 82,745,511 82,745,511
U. S. Banks, Trusts, and Insurance Companies 99,820,214 105,584,765 105,584,765
U. S. Industrial and Miscellaneous 285,565,364 297,590,104 297,590,104
Foreign Governments - Agency 2,987,776 2,347,500 2,347,500
Foreign Banks, Trusts, and Insurance Companies 5,000,000 5,099,000 5,099,000
Foreign Industrial and Miscellaneous 13,873,515 14,525,792 14,525,792
- -----------------------------------------------------------------------------------------------------------------------------------
Total Fixed Maturities available-for-sale $ 535,792,643 $ 558,177,487 $ 558,177,487
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Securities
Common Stock
U. S. Banks, Trusts and Insurance Companies $ 730,500 $ 939,375 $ 939,375
U. S. Industrial and Miscellaneous 27,648,458 27,400,370 27,400,370
Non-Redeemable Preferred Stocks:
Public Utilities 4,000,000 4,050,080 4,050,080
U. S. Banks, Trusts and Insurance Companies 55,302,065 62,183,928 62,183,928
U. S. Industrial and Miscellaneous 12,440,871 14,240,640 14,240,640
Foreign Banks, Trusts, and Insurance Companies 7,765,000 7,967,500 7,967,500
Foreign Industrial and Miscellaneous 3,900,000 4,060,000 4,060,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Equity Securities $ 111,786,894 $ 120,841,893 $ 120,841,893
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate
Investment Property $ 1,624,306 $ 1,624,306 $ 1,624,306
Policy Loans 5,099,671 5,099,671 5,099,671
Mortgage Loans 10,049,733 10,049,733 10,049,733
Other Invested Assets 7,240,282 7,240,282 7,240,282
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments $ 671,593,529 $ 703,033,372 $ 703,033,372
- -----------------------------------------------------------------------------------------------------------------------------------
26
SCHEDULE V - SUPPLEMENTARY INSURANCE INFORMATION
At December 31,
------------------------------------------------------------------------------------
Deferred Future
Policy Policy Other
Acquisition Benefits & Unearned Policy
Segment Costs Deposits Premium Claims
- ---------------------------------------------------------------------------------------------------------------------
1997
Ordinary Life Insurance $ 55,958,508 127,064,469 131,926 1,839,677
Group Life Insurance 0 1,189,498 0 210,000
Annuities 8,608,577 489,444,701 0 0
Supplemental Contracts 0 876,054 0 0
- ---------------------------------------------------------------------------------------------------------------------
Total $ 64,567,085 618,574,722 131,926 2,049,677
- ---------------------------------------------------------------------------------------------------------------------
1996
Ordinary Life Insurance $ 50,586,096 107,704,284 119,145 1,612,105
Group Life Insurance 0 1,135,755 0 91,000
Annuities 7,440,332 450,570,003 0 0
Supplemental Contracts 0 889,669 0 0
- ---------------------------------------------------------------------------------------------------------------------
Total $ 58,026,428 560,299,711 119,145 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
- ---------------------------------------------------------------------------------------------------------------------
27
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
- ----------------------------------------------------------------------------------------------------------------------------------
1997
Ordinary Life Insurance $ 32,826,827 14,659,150 18,511,338 3,607,634 7,911,668
Group Life Insurance 2,363,002 82,350 1,367,179 0 590,861
Annuities 3,643 35,110,681 27,614,299 87,332 1,088,065
Supplemental Contracts 0 62,111 51,604 0 4,163
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 35,193,472 49,914,292 47,544,420 3,694,966 9,594,757
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
(a) Net of reinsurance ceded
SCHEDULE VI - REINSURANCE
Percentage
Ceded to Assumed of Amount
Gross Other From Other Net Assumed
Amount Companies Companies Amount to Net
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1997
Life Insurance in force $ 11,888,559,000 1,167,467,000 33,049,000 10,754,141,000 0.31%
Premiums for the year
Life Insurance 36,587,421 3,760,594 0 32,826,827 -0-
Group 2,257,474 0 109,171 2,366,645 4.61%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Premiums $ 38,844,895 3,760,594 109,171 35,193,472 0.31%
- -----------------------------------------------------------------------------------------------------------------------------------
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%
- -----------------------------------------------------------------------------------------------------------------------------------
28
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
10.1 1997 Annual Incentive Plan of Erie Indemnity Company 30
10.2 Erie Indemnity Company Long-Term Incentive Plan 35
10.3 Employment Agreement dated December 16, 1997 by and
between Erie Indemnity Company and Stephen A. Milne 45
10.4 Employment Agreement dated December 16, 1997 by and
between Erie Indemnity Company and Jan R. Van Gorder 62
10.5 Employment Agreement dated December 16, 1997 by and
between Erie Indemnity Company and Philip A. Garcia 79
10.6 Employment Agreement dated December 16, 1997 by and
between Erie Indemnity Company and John J. Brinling, Jr. 96
13 1997 Annual Report to Security Holders. Reference is made
to the Annual Report furnished to the Commission, herewith. 113
27 Financial Data Schedule 148
29