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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
(NO FEE REQUIRED)
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[NO FEE REQUIRED]
For the transition period from to
Commission File Number 0-24000
ERIE INDEMNITY COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0466020
(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:
Class A Common Stock, stated value $.0292 per share
Class B Common Stock, stated value $70 per share
(Title 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. [ ]
Aggregate market value of voting stock of non-affiliates: There is no active
market for the Class B voting stock and no Class B voting stock has been sold in
the last year upon which a price could be established.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: 64,847,751 Class A shares and
3,070 Class B shares of Common Stock outstanding on February 28, 2001.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 2000 (the "Annual Report") are incorporated by
reference into Parts I, II and IV of this Form 10-K Report.
2. Portions of the Registrant's Proxy Statement relating to the Annual
Meeting of Shareholders to be held April 24, 2001 are incorporated by
reference into Parts I and III of this Form 10-K Report.
1
INDEX
PART ITEM NUMBER AND CAPTION PAGE
- -------- ----------------------- ----
I Item 1. Business 3
I Item 2. Properties 14
I Item 3. Legal Proceedings 14
I Item 4. Submission of Matters to a
Vote of Security Holders 14
II Item 5. Market for Registrant's Common Stock
and Related Shareholder Matters 15
II Item 6. Selected Consolidated Financial Data 15
II Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16
II Item 7a. Quantitative and Qualitative Disclosure
about Market Risk 16
II Item 8. Financial Statements and Supplementary
Data 16
II Item 9. Changes In and Disagreements With
Accountants on Accounting and Financial
Disclosures 16
III Item 10. Directors and Executive Officers
of the Registrant 17
III Item 11. Executive Compensation 23
III Item 12. Security Ownership of Certain
Beneficial Owners and Management 23
III Item 13. Certain Relationships and Related
Transactions 23
IV Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 24
2
PART I
Item 1. Business
Erie Indemnity Company (the "Company") is a Pennsylvania
corporation formed in 1925 to be the attorney-in-fact for Erie Insurance
Exchange (the "Exchange"), a Pennsylvania-domiciled reciprocal insurance
exchange. The Company's principal business activity consists of management of
the affairs of the Exchange with fees from the Exchange accounting for
approximately 74% of the Company's consolidated revenues. The Company also
participates in the property/casualty insurance business through its three
wholly owned subsidiaries, Erie Insurance Company ("Erie Insurance Co."), Erie
Insurance Company of New York ("Erie NY") and Erie Insurance Property and
Casualty Company ("Erie P&C") and through its management of the Flagship City
Insurance Company ("Flagship"), a subsidiary of the Exchange. The Company and
Exchange also own a 21.6% and 53.5% common stock interest, respectively, in Erie
Family Life Insurance Company ("EFL"), an affiliated life insurance company.
Together with the Exchange, the Company and its subsidiaries and affiliates
operate collectively under the name Erie Insurance Group("The ERIE").
The ERIE is a regional insurance group that underwrites a broad
line of personal and commercial coverages. Insurance products are marketed
primarily in the Mid-Atlantic and Northeast regions through approximately 6,800
independent agents comprising approximately 1,400 insurance agencies. The
property/casualty insurers managed by the Company are licensed to do business in
sixteen states and in the District of Columbia and at December 31, 2000,
operated in ten states and the District of Columbia. In the third quarter 2001,
The ERIE intends to write all lines of insurance in its newest state, Wisconsin.
Branch offices are maintained throughout the ten contiguous states in which the
Company does business.
As of December 31, 2000, the Company had 3,440 full-time
employees, of which 1,694 provide claims specific services exclusively for the
property/casualty insurance companies of The ERIE and 116 perform general
services exclusively for EFL. Both the Exchange and EFL reimburse the Company
monthly for the cost of these services. None of the Company's employees is
covered by a collective bargaining agreement. The Company believes that its
relationship with its employees is good.
The Company's wholly-owned subsidiaries, Erie Insurance Co. and
Erie NY, participate in an intercompany pooling agreement with the Exchange. The
pooling agreement provides for the Exchange to assume all premiums and losses,
including related asset and liability amounts, from all property/casualty
affiliates of The ERIE. This pooling agreement further provides for Erie
Insurance Co. and Erie NY to share proportionately in the results of all of The
ERIE's property/casualty insurance operations. Erie Insurance Co.'s and Erie
NY's proportionate share of the reinsurance pool are 5.0 percent and 0.5
percent, respectively.
3
Information About Business Segments
Reference is made to Note 14 of the Notes to the Consolidated
Financial Statements included in the Annual Report, page 46 for information as
to total revenue and net income attributable to the two business segments
(management operations and property/casualty insurance operations) in which the
Company is engaged.
Management Operations
For services performed in its role as attorney-in-fact for the
Policyholders of the Exchange, the Company charges the Exchange a management fee
computed as a percentage of the affiliated assumed(Erie Insurance Co., Erie NY,
Erie P&C and Flagship) and direct premiums written by the Exchange. The
management fee is compensation for: (a) acting as attorney-in-fact for the
Exchange, (b) managing the business and affairs of the Exchange, and (c) paying
certain general administrative expenses not part of the settlement of losses or
the management of investments.
The Company's Board of Directors may change the management fee at
its discretion. However, the maximum fee level which can be charged the
Exchange, is limited by the agreement between the Exchange and the Company (or
its property/casualty affiliates), to 25 percent of the affiliated assumed and
direct written premium. The Board considers several factors in determining the
management fee rate, including the relative financial position of the Exchange
and the Company and the long-term capital needs of the Exchange to ensure its
continued growth, competitiveness, and superior financial strength, which
ultimately benefits The ERIE.
The management fee charged the Exchange was set at the following
rates:
January 1, 1998 to December 31, 1998 24.25 percent
January 1, 1999 to December 31, 2000 25.00 percent
In December 2000, the Board voted to maintain the 25 percent management fee rate
for all of 2001.
All premiums collected, less the management fee paid to the
Company, are retained by the Exchange for the purpose of paying losses, loss
adjustment expenses, investment expenses and other miscellaneous expenses
including insurance-related taxes, licenses and fees and for other purposes that
are to the benefit of the shareholders. The Company pays certain loss adjustment
and investment expenses on behalf of the Exchange and is reimbursed fully for
these expenses by the Exchange.
The Company receives a service agreement fee from the Exchange as
compensation for the management and administration of voluntary assumed
reinsurance business from non-affiliated insurers. The fee of 7% of voluntary
reinsurance premiums assumed from non-affiliated insurers is compensation for
accounting and operating expenses in connection with the administration of this
business.
The Company collects service charges from policyholders for
providing extended payment terms on policies written by the insurers managed by
the Company. These charges, as well as the service agreement fee described above
are included in service agreement revenue in the Consolidated Statements of
Operations.
4
Property/Casualty Insurance Operations
Industry
One of the distinguishing features of the property/casualty
insurance industry in general is that its products are priced before its costs
are known, as premium rates are generally determined before losses are reported.
Current prices must be established from forecasts of the ultimate costs expected
to arise from exposures underwritten during the coverage period when the rates
are applied. This unique pricing environment affects the financial statements
primarily through the loss reserves. Changes in statutory, "regulatory" and case
law can significantly affect the liabilities associated with known risks after
the insurance contract is in place. Property/casualty insurance companies'
ability to increase prices in response to declines in profitability are limited
by the large number of competitors and the similarity of products offered, as
well as regulatory constraints.
The profitability of the property/casualty insurance business can
be influenced by many external factors some of which include rate competition,
the severity and frequency of claims, natural disasters, state regulation of
premium rates, and other areas of competition defaults of reinsurers, investment
market conditions, general business conditions, court decisions that define and
may expand the extent of coverage and the amount of compensation due for
injuries and losses.
Lines of Business
The property/casualty insurers managed by the Company underwrite a
broad range of insurance for risks of all sizes. In 2000, personal lines
comprised 74.3% of direct and affiliated assumed premium revenue while
commercial lines constituted the remaining 25.7%. The core products in the
personal lines are private passenger automobile (75.8%) and homeowners (21.5%)
while the core commercial lines consist principally of multi-peril (36.1%),
automobile (31.4%) and workers compensation (28.9%).
See "Selected Segment Information" contained on page 28 of the
Annual Report for the distribution of direct premiums written for The ERIE.
Reinsurance
Reference is made to Note 12 of the "Notes to Consolidated Financial
Statements" contained in the Annual Report for the year ended December 31, 2000,
page 44 through 45 incorporated herein by reference, for a complete discussion
of reinsurance transactions.
5
Combined Ratios
The combined ratio is a standard industry measurement of the
results of property/casualty insurance underwriting operations. The statutory
combined ratio is the sum of the ratio of incurred losses and loss adjustment
expenses to net premiums earned ("loss ratio"), the ratio of underwriting
expenses incurred to net premiums written ("expense ratio") and, the ratio of
dividends to policyholders to net premiums earned ("dividend ratio"). The
generally accepted accounting principles ("GAAP") combined ratio is calculated
in the same manner except that it is based on GAAP reported amounts and the
denominator for each component is net premiums earned. A combined ratio under
100% generally indicates an underwriting profit; a combined ratio over 100%
generally indicates an underwriting loss. Investment income, federal income
taxes and other non-underwriting income or expense are not reflected in the
combined ratio. The profitability of The ERIE is a function of income and
expense from both its underwriting and investment operations.
The ratios shown in the table below for the Company's
property/casualty insurance subsidiaries Erie Insurance Co. and Erie NY, are
prepared in accordance with GAAP and with statutory accounting practices ("SAP")
prescribed or permitted by state insurance authorities.
Combined Ratios
Year Ended December 31,
2000 1999 1998
------ ------ ------
GAAP Combined Ratio 108.4% 103.0% 99.5%
===== ===== =====
Statutory operating ratios:
Loss ratio 80.1 74.6 70.4
Expense and dividend ratio 28.2 28.2 28.6
----- ----- -----
Statutory Combined Ratio 108.3% 102.8% 99.0%
===== ===== =====
Increased loss severity in the Company's private passenger automobile as well as
in commercial lines, combined with adverse development on assumed reinsurance
losses from 1999 European windstorms, contributed to the increased combined
ratio in 2000 compared to 1999.
Seasonal Factors
The Company's management fee is earned when premiums are written.
Historically, due to policy renewal and sales patterns, writings are strongest
in the second and third quarters of the calendar year. While loss and loss
adjustment expenses are not entirely predictable, historically such costs have
been greater during the third and fourth quarters, influenced by the weather in
the geographic regions where the Company and affiliated property/casualty
insurers operate.
6
Financial Condition-Investments
The Company's investment strategy takes a long-term perspective
emphasizing investment quality, diversification and superior investment returns
while also providing for liquidity to meet the short and long-term commitments
of the Company. Investments are managed on a total return approach that focuses
on current income and capital appreciation. The Company's investment portfolio,
at market value, increased to $810,815,025 at December 31, 2000, which
represents 48.2% of total assets. Investment income reflected on the
Consolidated Statements of Operations is affected by shifts in the types of
investments in the portfolio, changes in interest rates and other factors. Net
investment income, including net realized gains on investments, was $65,368,162
in 2000 compared to $58,089,690 in 1999, and $45,711,491 in 1998. Limited
partnership income increased $4,092,360 to $4,733,285 in 2000 predominantly as
the result of the $29,125,820 increase in limited partnership investments during
the year. Fixed income and real estate limited partnerships, which comprise 69
percent of the total limited partnerships, produce a predictable earnings stream
while private equity limited partnerships, which comprise 31 percent of the
total limited partnerships, tend to provide a less predictable earnings stream.
Included in investments is a 21.6% common stock interest in EFL of
$5,491,946 at December 31, 2000, which is accounted for under the equity method
of accounting. EFL, which was organized in 1967 as a Pennsylvania-domiciled life
insurance company, has an A.M. Best and Company Inc. ("A.M. Best") rating of A+
(Superior). EFL is primarily engaged in the business of underwriting and selling
non-participating individual and group life insurance policies, including
universal life and individual and group annuity products in ten states and the
District of Columbia. EFL most recently introduced its first accident and health
product, disability income, in 2000. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations", on pages 20 through page 22
of the Annual Report for the year ended December 31, 2000 for additional
discussion.
Financial Ratings
Insurance companies are rated by rating agencies to provide
insurance consumers and investors with meaningful information on specific
insurance companies. Higher ratings generally indicate financial stability and a
strong ability to pay claims. The ratings are generally based upon factors
relevant to policyholders and are not directed toward return to investors.
The Exchange, Flagship, Erie Insurance Co., Erie P&C and Erie NY
all have current ratings of A++ (Superior) from A.M. Best with respect to their
financial strength and claims-paying ability. In evaluating an insurer's
financial and operating performance, A.M. Best reviews the insurer's
profitability, leverage and liquidity as well as the insurer's book of business,
the adequacy and soundness of its reinsurance, the quality and estimated market
value of its assets, the adequacy of its loss reserves and the experience and
competency of its management. Management believes that this A.M. Best rating of
A++ (Superior) is an important factor in marketing The ERIE's property/casualty
insurance to its agents and customers.
7
Competition
The property/casualty markets in which the Company operates are
highly competitive. Property/casualty insurers generally compete on the basis of
customer service, price, brand recognition, coverages offered, claim handling
ability, financial stability and geographic coverage. In addition, because the
insurance products of The ERIE are marketed exclusively through independent
insurance agents, most of which represent more than one company, The ERIE faces
competition to retain qualified independent agencies and commonly competes for
business within each agency.
Market competition bears directly on the price charged for
insurance products and services provided within the insurance regulatory
framework. Growth is driven by a company's ability to provide insurance services
at a price that is reasonable and acceptable to the customer. In addition, the
marketplace is affected by available capacity of the insurance industry. Surplus
expands and contracts primarily in conjunction with profit levels generated by
the industry. Growth is evaluated based on a company's ability to retain
existing customers and to attract new customers as well as movement in the
average premium per policy charged by the Company.
The Company, in managing the property/casualty insurers of The
ERIE, has followed several strategies which the management of the Company
believes have resulted in underwriting performance which exceed those of the
property/casualty industry in general. First, the Company employs an
underwriting philosophy and product mix targeted to produce an Erie Insurance
Group-wide underwriting profit, i.e., a combined ratio of less than 100%,
through careful risk selection, adequate pricing and prompt fair claims
settlement practices. The careful selection of risks allows for lower claims
frequency and loss severity, thereby enabling insurance to be offered at
favorable prices. The Company, as well as the property/casualty industry,
experienced increased loss severity in private passenger automobile and in
commercial lines in 2000. This caused the loss and loss adjustment expense to
outpace premiums earned. The Company's SAP combined ratio was 108.3 in 2000,
better than the projected industry wide ratio of 110.3. Second, management
focuses on consistently providing superior service to policyholders and agents
in both underwriting and claims handling. The ERIE's ability to provide superior
customer service is reflected in the Group policy retention and new policy
growth rates. Policy growth in 2000 when compared to the same period in 1999 was
strong as policy retention rates and new policy growth improved. Policies in
force increased 6.5% to 2,865,553 from 2,689,849 in 1999 and 5.1% in 1999 from
2,558,730 in 1998. Policy retention (the percentage of existing policyholders
who renew their policies) was 91.0%, 90.5% and 89.9% for the years ended
December 31, 2000, 1999 and 1998 respectively. See "Selected Segment
Information" contained on page 28 of the Annual Report for policy in force
counts and retention rates for The ERIE.
8
Third, the Company maintains a business model designed to provide
the advantages of localized marketing and claims servicing with the economies of
scale from centralized accounting, administrative, underwriting, investment,
information management and other support services.
Finally, a careful agent selection process exists in which The
ERIE seeks to be the lead underwriter with its agents in order to enhance the
agency relationship and the likelihood of receiving the most desirable
underwriting opportunities from its agents. The Company has ongoing, direct
communications with its agency force. Agents have a number of company sponsored
venues including an Agents Advisory Council forum which shares ideas, concerns
and suggestions with the senior management of the ERIE annually with the goal of
improving communications and service. These efforts have resulted in outstanding
agency penetration and the ability to sustain long-term agency partnerships.
Reserves
Loss reserves are established to account for the estimated
ultimate costs of loss and loss adjustment expenses for claims that have been
reported but not yet settled and claims that have been incurred but not yet
reported. The estimated loss reserve for reported claims is based primarily upon
a case-by-case evaluation of the type of risk involved and knowledge of the
circumstances surrounding each claim and the insurance policy provisions
relating to the type of loss. Estimates of reserves for unreported claims and
loss settlement expenses are determined on the basis of historical information
by line of business as adjusted to current conditions. Inflation is implicitly
provided for in the reserving function through analysis of costs, trends and
reviews of historical reserving results.
The process of estimating the liability for unpaid losses and loss
adjustment expenses is inherently judgmental and can be influenced by factors
subject to variation. Possible sources of variation include claim frequency and
severity, changing rates of inflation as well as changes in other economic
conditions, judicial trends and legislative changes. It is unlikely that future
losses and loss adjustment expenses will develop exactly as projected. The
Company continually refines reserves as experience develops and new information
becomes known. The Company reflects adjustments to reserves in the results of
operations in the periods in which the estimates are changed. With the exception
of reserves relating to certain workers compensation cases, which have been
discounted at 2.5% in 2000, 1999 and 1998, loss reserves are not discounted.
For a reconciliation of beginning and ending property/casualty
unpaid losses and loss adjustment expense reserves for each of the last three
years, see Note 9 of the Notes to Consolidated Financial Statements contained in
the Annual Report page 43.
9
The following table sets forth the development of the Company's
net reserves for unpaid losses and loss adjustment expenses from 1994 through
2000. The table has been computed on a statutory basis without reflecting the
estimated salvage and subrogation to be recovered on these losses in the future
(See following discussion in "Financial Regulation" section).
Year Ended December 31,
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ -------
(in millions)
Reserve for unpaid
losses and loss
adjustment expense $105.7 $ 98.1 $ 94.4 $ 92.5 $ 87.7 $ 82.0 $ 71.3
======
Development of
Liability as of:
One year later 104.4 93.7 90.2 88.5 79.7 67.0
------
Two years later 95.5 89.7 88.7 81.5 67 3
-----
Three years later 90.4 88.2 82.8 71.1
-----
Four years later 87.6 83.3 72.2
-----
Five years later 82.4 73.5
-----
Six years later 72.4
-----
Cumulative
(Deficiency) excess ( 6.3) ( 1.1) 2.1 0.1 ( 0.4) ( 1.1)
====== ======= ===== ====== ====== =======
Cumulative amount of
liability paid
through:
One year later $ 38.9 $ 33.6 $ 31.3 $ 32.6 $ 29.3 $ 22.1
====== ====== ====== ====== ====== ======
Two years later $ 52.4 $ 48.3 $ 48.7 $ 44.7 $ 36.2
====== ====== ====== ====== ======
Three years later $ 59.2 $ 57.8 $ 53.9 $ 44.7
====== ====== ====== ======
Four years later $ 63.5 $ 59.4 $ 49.8
====== ====== ======
Five years later $ 62.5 $ 53.2
====== ======
Six years later $ 55.0
======
Adverse development on loss reserves established for the year ended December 31,
1999 was the result of an increase in loss severity experienced by the Company
on its direct business and additional losses on its voluntary assumed
reinsurance business related to the December 1999 European windstorms. The top
line shows the estimated liability that was recorded at the end of each of the
indicated years for all current and prior year unpaid losses and loss expenses.
The upper portion of the table shows re-estimations of the original recorded
reserve as of the end of each successive year. The estimate is increased or
decreased as payments are made and more information becomes known about the
development of remaining unpaid claims. The lower portion of the table shows the
cumulative amount paid in succeeding years for losses incurred prior to the
Statement of Financial Position date. The cumulative deficiency or redundancy
represents the aggregate amount by which original estimates of reserves as of
that year-end have changed in subsequent years. An excess in reserves means that
reserves established in prior years exceeded actual losses and loss adjustment
expenses or were reevaluated at less than the originally reserved amount. A
deficiency in reserves means that the reserves established in prior years were
less than actual losses and loss adjustment expenses or were reevaluated at more
than the originally reserved amount.
Government Regulation
The property/casualty insurers managed by the Company are subject
to supervision and regulation in the states in which they transact business. The
primary purpose of such supervision and regulation is the protection of
policyholders. The extent of such regulation varies, but generally derives from
state statutes which delegate regulatory, supervisory and administrative
authority to state insurance departments. Accordingly, the authority of the
10
state insurance departments includes the establishment of standards of solvency
which must be met and maintained by insurers, the licensing to do business of
insurers and agents, the nature of the limitations on investments, the approval
of premium rates for property/casualty insurance, the provisions which insurers
must make for current losses and future liabilities, the deposit of securities
for the benefit of policyholders, the approval of policy forms, notice
requirements for the cancellation of policies and the approval of certain
changes in control. In addition, many states have enacted variations of
competitive rate-making laws which allow insurers to set certain premium rates
for certain classes of insurance without having to obtain the prior approval of
the state insurance department. State insurance departments also conduct
periodic examinations of the affairs of insurance companies and require the
filing of annual and other reports relating to the financial condition of
insurance companies.
The Company's property/casualty insurance subsidiaries may be
required, under the solvency or guarantee laws of the various states in which
they are licensed, to pay assessments to fund policyholder losses or liabilities
of insolvent insurance companies. Depending on state law, insurers can be
assessed an amount that is generally equal to between 1% and 2% of premiums
written for the relevant lines of insurance in that state each year to pay the
claims of an insolvent insurer. Certain states permit these assessments, or a
portion thereof, to be recorded as an offset to future premium taxes. The
property/casualty insurers managed by the Company have made accruals for their
portion of assessments related to such insolvencies based upon the most current
information furnished by the guaranty associations.
The Company's property/casualty insurers are also required to
participate in various involuntary insurance programs for automobile insurance,
as well as other property and casualty lines, in states in which such companies
operate. These involuntary programs provide various insurance coverages to
individuals or other entities that otherwise are unable to purchase such
coverage in the voluntary market. These programs include joint underwriting
associations, assigned risk plans, fair access to insurance requirements
("FAIR") plans, reinsurance facilities and windstorm plans. Legislation
establishing these programs generally provides for participation in proportion
to voluntary writings of related lines of business in that state. Generally,
state law requires participation in such programs as a condition to doing
business in that state. The loss ratio on insurance written under involuntary
programs has traditionally been greater than the loss ratio on insurance in the
voluntary market; however, the impact of these involuntary programs on the
property/casualty insurers managed by the Company has been immaterial.
Pennsylvania regulations limit the amount of dividends EFL can pay
its shareholders and limit the amount of dividends the Erie Insurance Co. and
Erie Insurance Property and Casualty Company can pay to the Company, while New
York state regulates the amount of dividends Erie NY can pay to the Company. The
limitations are fully described and reference is made herein to Note 13 of the
"Notes to Consolidated Financial Statements" contained in pages 45 through 46 in
the Annual Report for the year ended December 31, 2000, incorporated by
reference.
11
Financial Regulation
The Company's property/casualty insurance subsidiaries are
required to file financial statements prepared using SAP with state regulatory
authorities. The adjustments necessary to reconcile the Company's
property/casualty insurance subsidiaries' net income and shareholders' equity
prepared in accordance with SAP to net income and shareholders' equity prepared
in accordance with GAAP are as follows:
Net Income
-------------------------------
Year Ended
December 31,
-------------------------------
2000 1999
------------- --------------
(in thousands)
SAP amounts.................................... $ 5,091 $ 9,546
Adjustments:
Deferred policy acquisition
costs....................................... 1,798 542
Deferred income taxes........................ 32 226
Federal alternative minimum
tax credit recoverable...................... 188 0
Salvage and subrogation...................... 221 158
Incurred premium adjustment.................. ( 798) ( 542)
Other........................................ 10 ( 59)
------------ ------------
GAAP amounts................................... $ 6,542 $ 9,871
============ ============
Shareholders' Equity
--------------------------------------------
As of December 31,
--------------------------------------------
2000 1999 1998
------------- ------------- -------------
(in thousands)
SAP amounts.................................... $ 89,637 $ 81,709 $ 74,348
Adjustments:
Deferred policy acquisition
costs....................................... 13,202 11,405 10,863
Deferred income taxes........................ 3,569 3,350 4,143
Salvage and subrogation...................... 3,349 3,128 2,970
Statutory reserves........................... 865 2,656 2,619
Incurred premium adjustment.................. ( 12,202) ( 11,405) ( 10,863)
Unrealized gains net of
deferred taxes.............................. 2,331 38 7,653
Federal alternative minimum
tax credit recoverable...................... 0 0 ( 1,020)
Other........................................ 7 ( 3) 0
------------ ----------- ------------
GAAP amounts................................... $ 100,758 $ 90,878 $ 90,713
============ ============ ============
12
In 1998, the National Association of Insurance Commissioners
("NAIC") completed a process to codify SAP for certain insurance enterprises
("Codification"). These codified statutory accounting principles will be
effective January 1, 2001. The Codification will result in changes to the
Company's SAP financial statements only. The most significant change will be the
recording of statutory deferred taxes which will result in an increase to
statutory surplus of the Company's property/casualty insurance subsidiaries of
$4,940 as of January 1, 2001.
The NAIC has adopted risk-based capital ("RBC") standards that
require insurance companies to calculate and, report statutory capital and
surplus needs based on a formula measuring underwriting, investment and other
business risks inherent in an individual company's operations. These RBC
standards have not affected the operation of the Company as each of the
property/casualty insurance subsidiaries and affiliates has statutory capital
and surplus in excess of RBC requirements.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995: Certain forward-looking statements contained herein involve risks and
uncertainties. Many factors could cause future results to differ materially from
those discussed. Examples of such factors include variations in catastrophe
losses due to changes in weather patterns or other natural causes; changes in
insurance regulations or legislation that disadvantage the members of the Group
in the marketplace and recession, economic conditions or stock market changes
affecting pricing or demand for insurance products or ability to generate
investment income. Growth and profitability have been and will be potentially
materially affected by these and other factors.
13
Item 2. Properties
The Company and its subsidiaries, the Exchange and its subsidiary,
Flagship, and EFL share a corporate home office complex in Erie, Pennsylvania
which contains 358,202 square feet and is owned by the Exchange. At December 31,
2000 in addition to the Erie branch office, the Company also operated 21
additional field offices in 10 states. Of these sites, 16 provide both agency
support and claims services and are referred to as "Branch Offices", while the
remaining 5 provide only claims services and are considered "Claims Offices".
The Company owns three of its field offices. Three field offices
are owned by and leased from the Exchange. The annual rent expense incurred by
the Company for the field offices and home office complex totaled $10,702,752 in
2000. One office is owned by and leased from EFL at an annual rental in 2000 of
$308,732. The remaining 14 offices are leased from various unaffiliated parties
at an aggregate annual rental in 2000 of approximately $1,556,473. Total rent
and operating expenses for all office space occupied by the Company in 2000 was
$18,203,686, of which $10,947,913, or approximately 60%, was reimbursed for
office space used by it's affiliates.
Item 3. Legal Proceedings
Information concerning the legal proceedings of the Company is
incorporated by reference to the section "Legal Proceedings" in the Company's
definitive Proxy Statement with respect to the Company's Annual Meeting of
Shareholders to be held on April 24, 2001 to be filed with the Securities and
Exchange Commission within 120 days of December 31, 2000 (the "Proxy
Statement")
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of 2000.
14
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
Reference is made to "Market Price of and Dividends on the Common
Stock and Related Shareholder Matters" on page 48 of the Annual Report for the
year ended December 31, 2000, incorporated herein by reference, for information
regarding the high and low sales prices for the Company's stock and additional
information regarding such stock of the Company.
As of February 28, 2001, there were approximately 1,149 beneficial
shareholders of record of the Company's Class A non-voting common stock and 27
beneficial shareholders of record of the Company's Class B voting common stock.
On March 13, 2001, the Board of Directors approved the
recommendation of the Executive Committee to terminate the Stock Redemption
Plan. The Plan had entitled estates of qualified shareholders to cause the
Company to redeem shares of stock of the Company at a price equal to the fair
market value of the stock at the time of redemption, subject to certain
limitations. No shares were ever redeemed under the Plan.
Of the 64,847,751 shares of the Company's Class A common stock
outstanding as of February 28, 2001, approximately 22,042,432 shares are freely
transferable without restriction or further registration under the Securities
Act of 1933 (the Act), as amended unless purchased by affiliates of the Company
as that terms is defined in Rule 144 under the Act. The 42,013,891 remaining
outstanding shares of Class A common stock (the Restricted Shares) are held by
the Company's directors, executive officers and their affiliates and are
restricted securities that are eligible to be sold publicly pursuant to an
effective registration statement under the Act or in accordance with the
applicable exemption, including Rule 144, from the registration requirements
under the Act. The Company is unable to estimate the amount of Restricted Shares
that may be sold under Rule 144 since this amount will depend in part on the
price for the Class A common stock, the personal circumstances of the sellers
and other factors. Sales of a substantial number of Restricted Shares in the
public market, or the availability of such shares, could adversely affect the
price of the Class A common stock.
In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated for purposes of Rule 144) who beneficially
has owned Restricted Shares for at least two years, including affiliates of the
Company, is entitled to sell within any three-month period a number of shares
that does not exceed the greater of: (1) one percent of the number of shares of
Class A common stock then outstanding, or (2) the average weekly trading volume
of the Class A common stock in The NASDAQ Stock MarketSM during the four
calendar weeks preceding the date on which notice of sale is filed with the SEC.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. However, a person (or persons whose shares are aggregated for purposes
of Rule 144) who is deemed not to have been an affiliate of the Company at any
time during the 90 days preceding a sale, and who beneficially has owned the
Restricted Shares for at least three years at the time of sale, would be
entitled to sell such shares under Rule 144(k) without regard to the aforesaid
limitations.
Item 6. Selected Consolidated Financial Data
Reference is made to "Selected Consolidated Financial Data" on
page 15 of the Annual Report for the year ended December 31, 2000, incorporated
herein by reference.
15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Reference is made to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 16 through 26 of the
Annual Report for the year ended December 31, 2000, incorporated herein by
reference.
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
Reference is made to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 22 through 23 of the
Annual Report for the year ended December 31, 2000, incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
Reference is made to the "Consolidated Financial Statements"
included on pages 29 through 33 and to the "Quarterly Results of Operations"
contained in the "Notes to Consolidated Financial Statements" on page 47 of the
Annual Report for the year ended December 31, 2000, incorporated herein by
reference.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosures
None.
16
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Certain information as to the Directors of the Company is as
follows:
Age Present Principal Position with Erie
as of Indemnity Company and Other Material
Name 12/31/00 Positions Held During the Last Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel P. Black, III 58 Director since 1997. President, Treasurer and Secretary, Samuel P. Black &
1,3,4,6 Associates, Inc.--insurance agency; Director--the Company, Erie Insurance
Company, Flagship City Insurance Company, Erie Insurance Property &
Casualty Company and Erie Family Life Insurance Company.
J. Ralph Borneman, Jr. 3,4 62 Director since 1992. President and Chief Executive Officer, Body-Borneman
Associates, Inc., insurance agency. President, Body-Borneman, Ltd. and
Body-Borneman, Inc., insurance agencies. Director--the Company, Erie Insurance
Company, Erie Family Life Insurance Company, Erie Insurance Company of New York
and National Penn Bancshares.
Patricia Garrison-Corbin 53 Director since 2000. President, P.G.
2,4,5C Corbin & Company 1987 - Present. Director--the Company, Erie Insurance Company
and Erie Family Life Insurance Company.
Susan Hirt Hagen 1,6C 65 Director since 1980. Managing Partner, Hagen, Herr & Peppin, Group Relations
Consultants since 1990; Director--the Company, Erie Insurance Company and Erie
Family Life Insurance Company, since 1980.
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
6 Member of Charitable Giving Committee
C Committee Chairman
17
Age Present Principal Position with Erie
as of Indemnity Company and Other Material
Name 12/31/00 Positions Held During the Last Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
F. William Hirt 1C,6 75 Director since 1965. Chairman of the Board of the Company, Erie Insurance
Company, Erie Family Life Insurance Company, 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 Family Life Insurance
Company since November 1990; Interim President and Chief Executive Officer of
the Company, Erie Family Life Insurance Company, 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 Family Life Insurance Company and Erie Insurance
Company for more than five years prior thereto; Director--the Company, Erie
Insurance Company, Flagship City Insurance Company, Erie Family Life Insurance
Company, Erie Insurance Property & Casualty Company and Erie Insurance Company
of New York.
Samuel P. Katz 2,3 51 Director since 2000. Principal, Entersport Capital Advisors, Inc. and Community
Sports Partners, LLC. 1997 - Present; Partner, Stafford Capital Partners, L.P.
1994 - 1997; Director--the Company, Erie Insurance Company and Erie Family Life
Insurance Company.
Claude C. Lilly, III 2 54 Director since 2000. Professor and Dean, University of North Carolina,
Charlotte 1997 - Present; Professor, Florida State University 1978 - 1997;
Director-- the Company, Erie Insurance Company and Erie Family Life Insurance
Company.
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Executive Compensation Committee
6 Member of Charitable Giving Committee
C Committee Chairman
18
Age Present Principal Position with Erie
as of Indemnity Company and Other Material
Name 12/31/00 Positions Held During the Last Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen A. Milne 1,5 52 Director since 1996. President and Chief Executive Officer of the Company, Erie
Insurance Company, Erie Family Life Insurance Company, Flagship City Insurance
Company, Erie Insurance Property & Casualty Company and Erie Insurance Company
of New York since 1996; Executive Vice President of the Company, Erie Insurance
Company, Flagship City Insurance Company, Erie Insurance Property & Casualty
Company and Erie Insurance Company of New York 1994 - 1996. Director--the
Company, Erie Insurance Company, Erie Family Life Insurance Company, Erie
Insurance Company of New York, Flagship City Insurance Company and Erie
Insurance Property & Casualty Company.
Henry N. Nassau 1,5 46 Director since 2000. General Counsel, Internet Capital Group 1999 - Present;
Partner, Dechert, Price & Rhoades 1987 - 1999; Director-- the Company, Erie
Insurance Company and Erie Family Life Insurance Company.
John M. Petersen 1,4C 72 Director since 1979. Retired; President and Chief Executive Officer of the
Company, Erie Family Life Insurance Company, Erie Insurance Company, Flagship
City Insurance Company and Erie Insurance Property & Casualty Company 1993 -
1995 and Erie Insurance Company of New York 1994 - 1995; President, Treasurer
and Chief Financial Officer of the Company, Erie Insurance Company and Erie
Family Life Insurance Company 1990 - 1993, and of Flagship City Insurance
Company and Erie Insurance Property & Casualty Company since 1992 and 1993,
respectively, to September 1993; President, Treasurer and Chief Financial
Officer of the Erie Family Life Insurance Company and Executive Vice President,
Treasurer and Chief Financial Officer of the Company and Erie Insurance Company
for more than five years prior thereto; Director--the Company, Erie Insurance
Company, Flagship City Insurance Company, Erie Family Life Insurance Company,
Erie Insurance Property & Casualty Company, Erie Insurance Company of New York,
and Spectrum Control.
1 Member of Executive Committee
4 Member of Nominating Committee
5 Member of Investment Committee
C Committee Chairman
19
Age Present Principal Position with Erie
as of Indemnity Company and Other Material
Name 12/31/00 Positions Held During the Last Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
Jan R. Van Gorder 1 53 Director since 1990. Senior Executive Vice President, Secretary and General
Counsel of the Company, Erie Family Life Insurance Company and Erie Insurance
Company since 1990 and of Flagship City Insurance Company and Erie Insurance
Property & Casualty Company since 1992 and 1993, respectively and of Erie
Insurance Company of New York since 1994. Senior Vice President, Secretary and
General Counsel of the Company, Erie Insurance Company and Erie Family Life
Insurance Company for more than five years prior thereto; Director--the
Company, Erie Insurance Company, Flagship City Insurance Company, Erie
Insurance Property & Casualty Company, Erie Insurance Company of New York
and Erie Family Life Insurance Company.
Robert C. Wilburn 2C,3C,4,5 57 Director since 1999. President and Chief Executive Officer, The Gettysburg
National Battlefield Museum Foundation since 2000; Distinguished Service
Professor, Carnegie Mellon University since 1999; Retired, President and Chief
Executive Officer, Colonial Williamsburg Foundation, 1992 - 1999;Director - the
Company, Erie Insurance Company and Erie Family Life Insurance Company.
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
20
(b) Certain information as to the executive officers of the
Company is as follows:
Age Principal Occupation for Past
as of Five Years and Positions with
Name 12/31/00 Erie Insurance Group
- ------------------------------------------------------------------------------------------------------------------------------------
President & Chief Executive Officer
- -----------------------------------
Stephen A. Milne 52 President, Chief Executive Officer and a Director of the Company, EFL and Erie
Insurance Co. since 1996 and President and Chief Executive Officer of Flagship,
Erie P&C and Erie NY since 1996;Executive Vice President - Insurance Operations
of the Company, Erie Insurance Co., Flagship, Erie P&C and Erie NY 1994 - 1996.
Director Flagship and Erie P&C 1996 - present; Director, Erie NY 1994 -
present.
Executive Vice Presidents
- -------------------------
Jan R. Van Gorder, Esq. 53 Senior Executive Vice President, Secretary and General Counsel of the Company,
EFL and Erie Insurance Co. since 1990, and of Flagship and Erie P&C since 1992
and 1993, respectively, and of Erie NY since April 1994; Senior Vice President,
Secretary and General Counsel of the Company, EFL and Erie Insurance Co. for
more than five years prior thereto; Director, the Company, EFL, Erie Insurance
Co., Erie NY, Flagship and Erie P&C.
Philip A. Garcia 44 Executive Vice President and Chief Financial Officer since 1997; Senior Vice
President and Controller 1993 - 1997. Director, the Erie NY, Flagship and Erie
P&C.
Jeffrey A. Ludrof 41 Executive Vice President - Insurance Operations of the Company, Erie Insurance
Co., Flagship, Erie P&C, and Erie NY since June 16, 1999; Senior Vice President
1994 - 1999; Regional Vice President 1993 - 1994. Director Erie NY, Flagship
and Erie P&C.
21
Age Principal Occupation for Past
as of Five Years and Positions with
Name 12/31/00 Erie Insurance Group
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice Presidents
- ----------------------
Eugene C. Connell 46 Senior Vice President since 1990.
Michael J. Krahe 47 Senior Vice President since 1999; Vice President 1994 - 1999.
George R. Lucore 50 Senior Vice President since 1995; Regional Vice President 1993 - 1995.
David B. Miller 46 Senior Vice President since 1996; Independent Insurance Agent 1991 - 1996.
Thomas B. Morgan 37 Senior Vice President since October 2000; Assistant Vice President and Branch
Manager 1997 - October 2000; Independent Insurance Agent 1988 - 1997.
Timothy G. NeCastro 40 Senior Vice President and Controller since 1997; Department Manager - Internal
Audit November 1996 - 1997.
James R. Roehm 52 Senior Vice President since 1991.
John P. Sommerwerck 50 Senior Vice President and Chief Information Officer since May 2000
Barry P. Stiles 51 Senior Vice President since 1999; Vice President 1993 - 1999.
Michael S. Zavasky 48 Senior Vice President since 1998; Vice President and Managing Director of
Reinsurance 1990 - 1998.
Douglas F. Ziegler 50 Senior Vice President, Treasurer and Chief Investment Officer since 1993.
Regional Vice Presidents
- ------------------------
George D. Dufala 29 Regional Vice President since April 2000; Assistant Vice President 1993 - April
2000.
Douglas N. Fitzgerald 44 Regional Vice President since 1993.
Terry L. Hamman 46 Regional Vice President since 1995; Assistant Vice President 1993 - 1995.
Eric D. Root 32 Regional Vice President since April 2000; Branch manager 1996 - April 2000.
22
Item 11. Executive Compensation
The answer to this item is incorporated by reference to the
Company's Proxy Statement relating to the Annual Meeting of Shareholders to be
held on April 24, 2001, except for the Performance Graph, which has not been
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The answer to this item is incorporated by reference to the
Company's Proxy Statement relating to the Annual Meeting of Shareholders to be
held on April 24, 2001.
Item 13. Certain Relationships and Related Transactions
Since the formation of the Company and the Exchange in 1925, the
Company, as the attorney-in-fact appointed by the policyholders of the Exchange,
has managed the property/casualty insurance operations of the Exchange. The
Company's operations are interrelated with the operations of the Exchange, and
the Company's results of operations are largely dependent on the success of the
Exchange.
The Company believes that its various transactions with the
Exchange and EFL are fair and reasonable and have been on terms no less
favorable to the Company than the terms that approximate those which could have
been negotiated with an independent third party.
Reference is made to Note 10 of the "Notes to Consolidated
Financial Statements" on pages 43 through 44 of the Annual Report for the year
ended December 31, 2000, incorporated herein by reference, for a complete
discussion of related party transactions.
Information with respect to certain relationships with Company
directors is incorporated by reference to the Company's Proxy Statement relating
to the Annual Meeting of Shareholders to be held on April 24, 2001.
23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial statements, financial statement schedules and exhibits
filed:
(1) Consolidated Financial Statements
Page*
----
Erie Indemnity Company and Subsidiaries:
Independent Auditors' Report on the
Consolidated Financial Statements............................. 29
Consolidated Statements of Operations
for the three years ended
December 31, 2000, 1999 and 1998.............................. 30
Consolidated Statements of Financial
Position as of December 31, 2000
and 1999 ................................................... 31
Consolidated Statements of Cash Flows
for the three years ended
December 31, 2000, 1999 and 1998.............................. 32
Consolidated Statements of Shareholders'
Equity for the three years ended
December 31, 2000, 1999 and 1998.............................. 33
Notes to Consolidated Financial Statements...................... 34
(2) Financial Statement Schedules
Page
----
Erie Indemnity Company and Subsidiaries:
Report of Independent Auditors on Schedules.................... 30
Schedule I. Summary of Investments - Other
than Investments in Related
Parties...................................... 31
Schedule IV. Reinsurance...................................... 32
Schedule VI. Supplemental Information
Concerning Property/Casualty
Insurance Operations......................... 33
All other schedules have been omitted since they are not required, not
applicable or the information is included in the financial statements or notes
thereto.
* Refers to the respective page of Erie Indemnity Company's 2000 Annual Report
to Shareholders. The "Consolidated Financial Statements" and "Notes to
Consolidated Financial Statements and Auditors' Report" thereon on pages 29 to
47 are incorporated by reference. With the exception of the portions of such
Annual Report specifically incorporated by reference in this Item and Items 1,
5, 6, 7, 7a and 8, such Annual Report shall not be deemed filed as part of this
Form 10-K Report or otherwise subject to the liabilities of Section 18 of the
Securities Exchange Act of 1934.
24
(3) Exhibits
Exhibit
Number Description of Exhibit
3.1* Articles of Incorporation of Registrant
3.2** Amended and Restated By-laws of Registrant
3.3## Amended and Restated By-laws of Registrant
dated March 9, 1999
4A* Form of Registrant's Class A Common
Stock certificate
4B* Form of Registrant's Class B Common
Stock certificate
10.1*** Retirement Plan for Employees of Erie
Insurance Group, effective as of
December 31, 1989
10.2*** Restatement of Supplemental Retirement
Plan for Certain Members of the Erie
Insurance Group Retirement Plan for
Employees, effective as of January 1,
1990
10.3*** Deferred Compensation Plan of
Registrant
10.4*** Retirement Plan for Outside Directors
of Registrant, effective as of
January 1, 1991
10.5*** Employee Savings Plan of Erie Insurance
Group, effective as of April 1, 1992
10.6*** Amendment to Employee Savings Plan of
Erie Insurance Group
10.7*** Supplemental 401(k) Plan of Erie Insurance
Group effective as of January 1, 1994
10.8*** Service Agreement dated January 1, 1989
between Registrant and Erie Insurance
Company
10.9*** Service Agreement dated June 21, 1993
between Registrant and Erie Insurance
Property & Casualty Company
10.10*** Service Agreement dated June 21, 1993
between Registrant and Flagship City
Insurance Company
10.11*** Reinsurance Pooling Agreement dated
January 1, 1992 between Erie Insurance
Company and Erie Insurance Exchange
25
Exhibit
Number Description of Exhibit
10.12*** Form of Subscriber's Agreement whereby
policyholders of Erie Insurance Exchange
appoint Registrant as their
Attorney-in-Fact
10.13* Stock Redemption Plan of Registrant dated
December 14, 1989
10.14* Stock Purchase Agreement dated December 20,
1991, between Registrant and Erie Insurance
Exchange relating to the capital stock of
Erie Insurance Company
10.15** Property Catastrophe Excess of Loss
Reinsurance Agreement dated January 1,
1994 between Erie Insurance Exchange
and Erie Insurance Co.
10.16**** Stock Redemption Plan of Registrant as
restated December 12, 1995
10.17**** Property Catastrophe Excess of Loss
Reinsurance Agreement dated January 1, 1995
between Erie Insurance Exchange and Erie
Insurance Company of New York
10.18**** Service Agreement dated January 1, 1995
between Registrant and Erie Insurance
Company of New York
10.19***** Consulting Agreement for Investing Services
dated January 2, 1996 between Erie Indemnity
Company and John M. Petersen
10.20***** Agreement dated April 29, 1994 between Erie
Indemnity Company and Thomas M. Sider
10.21****** Aggregate Excess of Loss Reinsurance
Agreement effective January 1, 1997 between
Erie Insurance Exchange, by and through its
Attorney-in-Fact, Erie Indemnity Company and
Erie Insurance Company and its wholly-owned
subsidiary Erie Insurance Company of New York
10.22# 1997 Annual Incentive Plan of Erie Indemnity
Company
10.23# Erie Indemnity Company Long-Term Incentive Plan
10.24# Employment Agreement dated December 16, 1997 by
and between Erie Indemnity Company and Stephen A.
Milne
10.25# Employment Agreement dated December 16, 1997 by
and between Erie Indemnity Company and Jan R. Van
Gorder
26
Exhibit
Number Description of Exhibit
10.26# Employment Agreement dated December 16, 1997 by
and between Erie Indemnity Company and Philip A.
Garcia
10.27# Employment Agreement effective December 16, 1997
by and between Erie Indemnity Company and John J.
Brinling, Jr.
10.28### Employment Agreement effective June 30, 1999 by
and between Erie Indemnity Company and Jeffrey A.
Ludrof
10.29### Employment Agreement effective December 15, 1999
By and between Erie Indemnity Company and
Douglas F. Ziegler
10.30### Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Stephen A. Milne
10.31### Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Jan R. Van Gorder
10.32### Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Philip A. Garcia
10.33### Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and John J. Brinling, Jr.
10.34### Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Jeffry A. Ludrof
10.35 Addendum to Employment Agreement effective December
15, 2000 by and between Erie Indemnity Company
and Stephen A. Milne
10.36 Addendum to Employment Agreement effective December
15, 2000 by and between Erie Indemnity Company
and Jan R. Van Gorder
10.37 Addendum to Employment Agreement effective December
15, 2000 by and between Erie Indemnity Company
and Philip A. Garcia
10.38 Addendum to Employment Agreement effective December
15, 2000 by and between Erie Indemnity Company
and John J. Brinling, Jr.
10.39 Addendum to Employment Agreement effective December
15, 2000 by and between Erie Indemnity Company
and Jeffry A. Ludrof
10.40 Addendum to Employment Agreement effective December
15, 2000 by and between Erie Indemnity Company
and Douglas F. Ziegler
27
11 Statement re computation of per share
earnings
13 2000 Annual Report to Shareholders.
Reference is made to the Annual Report
furnished to the Commission, herewith.
21 Subsidiaries of Registrant
27 Financial Data Schedule
99.1## Report of the Special Committee to the
Board of Directors
* Such exhibit is incorporated by reference to the like numbered
exhibit in Registrant's Form 10 Registration Statement
Number 0-24000 filed with the Securities and Exchange Commission on
May 2, 1994.
** Such exhibit is incorporated by reference to the like numbered
exhibit in Registrant's Form 10/A Registration Statement Number
0-24000 filed with the Securities and Exchange Commission on August
3, 1994.
*** Such exhibit is incorporated by reference to the like titled but
renumbered exhibit in Registrant's Form 10 Registration Statement
Number 0-24000 filed with the Securities and Exchange Commission on
May 2, 1994.
**** Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K annual report for the year ended
December 31, 1995 that was filed with the Commission on March 25,
1996.
***** Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K/A amended annual report for the year
ended December 31, 1995 that was filed with the Commission on April
25, 1996.
****** Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K annual report for the year ended
December 31, 1996 that was filed with the Commission on March 21,
1997.
# Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K annual report for the year ended
December 31, 1997 that was filed with the Commission on March 25,
1998.
## Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K annual report for the year ended
December 31, 1998 that was filed with the Commission on March 30,
1999.
### Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K annual report for the year ended
December 31, 1999 that was filed with the Commission on March 23,
2000.
(b) Reports on Form 8-K:
During the quarter ended December 31, 2000, The Company did not file any
reports on Form 8-K.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 13, 2001 ERIE INDEMNITY COMPANY
(Registrant)
Principal Officers
/s/ Stephen A. Milne
Stephen A. Milne, President and CEO
/s/ Jan R. Van Gorder
Jan R. Van Gorder, Executive Vice President, Secretary & General Counsel
/s/ Philip A. Garcia
Philip A. Garcia, Executive Vice President & CFO
/s/ Timothy G. NeCastro
Timothy G. NeCastro, Senior Vice President & Controller
Board of Directors
/s/ Samuel P. Black, III /s/ Claude C. Lilly, III
Samuel P. Black, III Claude C. Lilly, III
/s/ J. Ralph Borneman, Jr. /s/ Stephen A. Milne
J. Ralph Borneman, Jr. Stephen A. Milne
/s/ Patricia Garrison-Corbin
Patricia Garrison-Corbin Henry N. Nassau
/s/ John M. Petersen
Susan Hirt Hagen John M. Petersen
/s/ F. William Hirt /s/ Jan R. Van Gorder
F. William Hirt Jan R. Van Gorder
/s/ Samuel P. Katz /s/ Robert C. Wilburn
Samuel P. Katz Robert C. Wilburn
29
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders
Erie Indemnity Company
We have audited the consolidated statements of financial position of Erie
Indemnity Company and subsidiaries (Company) as of December 31, 2000 and 1999
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 2000, as
contained in the 2000 annual report, incorporated by reference in the annual
report on Form 10-K for the year ended December 31, 2000. In connection with our
audits of the financial statements, we also have audited the financial statement
schedules, as listed in the accompanying index. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Erie Indemnity
Company and subsidiaries as of December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
/s/ Brown, Schwab, Bergquist & Co.
Brown, Schwab, Bergquist & Co.
Erie, Pennsylvania
February 5, 2001
30
SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2000
Amount at which
Cost or Shown in the
Amortized Fair Consolidated Statements
Type of Investment Cost Value of Financial Position
- -------------------------------------------------------------------------------------------------------
(In Thousands)
Available-for-sale securities:
Fixed maturities:
U.S. treasuries & government agencies $ 11,216 $ 11,612 $ 11,612
States and political subdivisions 50,337 51,959 51,959
Special revenues 110,855 114,566 114,566
Public utilities 23,221 23,564 23,564
U.S. industrial and miscellaneous 267,231 266,061 266,061
Foreign 30,082 29,914 29,914
Redeemable Preferred Stocks 31,230 33,870 33,870
Equity securities:
Common stock:
U.S. banks, trusts and insurance companies 3,651 3,798 3,798
U.S. industrial and miscellaneous 63,662 86,605 86,605
Foreign 7,100 4,962 4,962
Non-redeemable preferred stock:
U.S. banks, trusts and insurance companies 22,094 22,125 22,125
U.S. industrial and miscellaneous 62,266 61,134 61,134
Foreign 26,195 25,822 25,822
----------- ----------- -------------
Total available-for-sale securities: $ 709,140 $ 735,992 $ 735,992
----------- ----------- -------------
Real estate mortgage loans $ 6,581 $ 6,581 $ 6,581
Other invested assets 60,661 68,242 68,242
----------- ----------- -------------
Total investments $ 776,382 $ 810,815 $ 810,815
=========== =========== =============
31
SCHEDULE IV - REINSURANCE
Percentage
Ceded to Assumed of amount
Other from Other Net Assumed
Direct Companies Companies Amount to Net
-----------------------------------------------------------------------------
December 31,2000
Premiums for the year
Property and Liability Insurance $ 377,569,981 $ 382,394,388 $ 128,532,601 $ 123,708,194 103.9%
-----------------------------------------------------------------------------
December 31,1999
Premiums for the year
Property and Liability Insurance $ 351,227,872 $ 356,608,390 $ 122,604,391 $ 117,223,873 104.6%
-----------------------------------------------------------------------------
December 31,1998
Premiums for the year
Property and Liability Insurance $ 338,162,409 $ 343,051,100 $ 117,828,137 $ 112,939,446 104.3%
-----------------------------------------------------------------------------
32
SCHEDULE VI - SUPPLMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
Deferred
Policy Reserves for Discount, if Net
Acquisition Unpaid Loss any deducted Unearned Earned Investment
Costs &LAE Expenses from reserves Premiums Premiums Income
---------------------------------------------------------------------------------
@ 12/31/00
Consolidated P&C Entities $ 13,202 $ 477,879 $ 1,509 $ 263,855 $ 123,708 $ 18,381
Unconsolidated P&C Entities 0 0 0 0 0 0
Proportionate share of
registrant & subsidiaries 0 0 0 0 0 0
Total $ 13,202 $ 477,879 $ 1,509 $ 263,855 $ 123,708 $ 18,381
@ 12/31/99
Consolidated P&C Entities $ 11,405 $ 432,895 $ 1,377 $ 237,452 $ 117,224 $ 16,765
Unconsolidated P&C Entities 0 0 0 0 0 0
Proportionate share of
registrant & subsidiaries 0 0 0 0 0 0
Total $ 11,405 $ 432,895 $ 1,377 $ 237,452 $ 117,224 $ 16,765
@ 12/31/98
Consolidated P&C Entities $ 10,863 $ 426,165 $ 1,562 $ 229,686 $ 112,939 $ 16,887
Unconsolidated P&C Entities 0 0 0 0 0 0
Proportionate share of
registrant & subsidiaries 0 0 0 0 0 0
Total $ 10,863 $ 426,165 $ 1,562 $ 229,686 $ 112,939 $ 16,887
33
Loss and Losses Adjustment Expense Amortization
Incurred Related to of Deferred Net
(1) (2) Policy Loss & LAE Premiums
Current Year Prior Years Acquisition Costs Paid Written
----------------------------------------------------------------------------
@ 12/31/00
Consolidated P&C Entities $ 93,416 $ 6,148 $ 22,793 $ 92,236 $ 128,044
Unconsolidated P&C Entities 0 0 0 0 0
Proportionate share of
registrant & subsidiaries 0 0 0 0 0
Total $ 93,416 $ 6,148 $ 22,793 $ 92,236 $ 128,044
@ 12/31/99
Consolidated P&C Entities $ 88,422 $ (703) $ 22,507 $ 84,192 $ 118,426
Unconsolidated P&C Entities 0 0 0 0 0
Proportionate share of
registrant & subsidiaries 0 0 0 0 0
Total $ 88,422 $ (703) $ 22,507 $ 84,192 $ 118,426
@ 12/31/98
Consolidated P&C Entities $ 80,627 $ (746) $ 21,357 $ 77,923 $ 115,094
Unconsolidated P&C Entities 0 0 0 0 0
Proportionate share of
registrant & subsidiaries 0 0 0 0 0
Total $ 80,627 $ (746) $ 21,357 $ 77,923 $ 115,094
*Workers compensation incurred but not reported (IBNR) loss and loss adjustment
reserves were discounted at 2.5% in 2000,1999 and 1998.
34
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
- ------ ---------------------- ------------
3.1* Articles of Incorporation of Registrant
3.2** Amended and Restated By-laws of Registrant
3.3## Amended and Restated By-laws of Registrant
dated March 9, 1999
4A* Form of Registrant's Class A Common
Stock certificate
4B* Form of Registrant's Class B Common
Stock certificate
10.1*** Retirement Plan for Employees of Erie
Insurance Group, effective as of
December 31, 1989
10.2*** Restatement of Supplemental Retirement
Plan for Certain Members of the Erie
Insurance Group Retirement Plan for
Employees, effective as of January 1,
1990
10.3*** Deferred Compensation Plan of
Registrant
10.4*** Retirement Plan for Outside Directors
of Registrant, effective as of
January 1, 1991
10.5*** Employee Savings Plan of Erie Insurance
Group, effective as of April 1, 1992
10.6*** Amendment to Employee Savings Plan of
Erie Insurance Group
10.7*** Supplemental 401(k) Plan of Erie Insurance
Group effective as of Janaury 1, 1994
10.8*** Service Agreement dated January 1, 1989
between Registrant and Erie Insurance
Company
10.9*** Service Agreement dated June 21, 1993
between Registrant and Erie Insurance
Property & Casualty Company
10.10*** Service Agreement dated June 21, 1993
between Registrant and Flagship City
Insurance Company
10.11*** Reinsurance Pooling Agreement dated
January 1, 1992 between Erie Insurance
Company and Erie Insurance Exchange
35
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
- ------ ---------------------- ------------
10.12*** Form of Subscriber's Agreement whereby
policyholders of Erie Insurance Exchange
appoint Registrant as their
Attorney-in-Fact
10.13* Stock Redemption Plan of Registrant dated
December 14, 1989
10.14* Stock Purchase Agreement dated December 20,
1991, between Registrant and Erie Insurance
Exchange relating to the capital stock of
Erie Insurance Company
10.15** Property Catastrophe Excess of Loss
Reinsurance Agreement dated January 1,
1994 between Erie Insurance Exchange
and Erie Insurance Co.
10.16**** Stock Redemption Plan of Registrant
restated as of December 12, 1995
10.17**** Property Catastrophe Excess of Loss
Reinsurance Agreement dated January 1, 1995
between Erie Insurance Exchange and Erie
Insurance Company of New York
10.18**** Service Agreement dated January 1, 1995
between Registrant and Erie Insurance
Company of New York
10.19***** Consulting Agreement for Investing Services
dated January 2, 1996 between Erie Indemnity
Company and John M. Petersen
10.20***** Agreement dated April 29, 1994 between Erie
Indemnity Company and Thomas M. Sider
10.21****** Aggregate Excess of Loss Reinsurance
Agreement effective January 1, 1997 between
Erie Insurance Exchange, by and through its
Attorney-in-Fact, Erie Indemnity Company and
Erie Insurance Company and its wholly-owned
subsidiary Erie Insurance Company of New York
10.22# 1997 Annual Incentive Plan of Erie Indemnity
Company
10.23# Erie Indemnity Company Long-Term Incentive Plan
10.24# Employment Agreement dated December 16, 1997 by
and between Erie Indemnity Company and Stephen A.
Milne
10.25# Employment Agreement dated December 16, 1997 by
and between Erie Indemnity Company and Jan R. Van
Gorder
36
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
- ------ ---------------------- ------------
10.26# Employment Agreement dated December 16, 1997 by
and between Erie Indemnity Company and Philip A.
Garcia
10.27# Employment Agreement effective December 16, 1997
by and between Erie Indemnity Company and John J.
Brinling, Jr.
10.28### Employment Agreement effective June 30, 1999 by
and between Erie Indemnity Company and Jeffrey A.
Ludrof
10.29### Employment Agreement effective December 15, 1999
By and between Erie Indemnity Company and
Douglas F. Ziegler
10.30### Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Stephen A. Milne
10.31### Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Jan R. Van Gorder
10.32### Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Philip A. Garcia
10.33### Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and John J. Brinling, Jr.
10.34### Addendum to Employment Agreement effective December
15, 1999 by and between Erie Indemnity Company
and Jeffry A. Ludrof
10.35 Addendum to Employment Agreement effective December
15, 2000 by and between Erie Indemnity Company
and Stephen A. Milne 39
10.36 Addendum to Employment Agreement effective December
15, 2000 by and between Erie Indemnity Company
and Jan R. Van Gorder 40
10.37 Addendum to Employment Agreement effective December
15, 2000 by and between Erie Indemnity Company
and Philip A. Garcia 41
10.38 Addendum to Employment Agreement effective December
15, 2000 by and between Erie Indemnity Company
and John J. Brinling, Jr. 42
10.39 Addendum to Employment Agreement effective December
15, 2000 by and between Erie Indemnity Company
and Jeffry A. Ludrof 43
10.40 Addendum to Employment Agreement effective December
15, 2000 by and between Erie Indemnity Company
and Douglas F. Ziegler 44
37
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
- ------ ---------------------- ------------
11 Statement re computation of per share
earnings 45
13 2000 Annual Report to Shareholders.
Reference is made to the Annual Report
furnished to the Commission, herewith. 46-94
21 Subsidiaries of Registrant 95
27 Financial Data Schedule 96
99.1## Report of the Special Committee to the
Board of Directors
* Such exhibit is incorporated by reference to the like numbered
exhibit in Registrant's Form 10 Registration Statement
Number 0-24000 filed with the Securities and Exchange Commission on
May 2, 1994.
** Such exhibit is incorporated by reference to the like numbered
exhibit in Registrant's Form 10/A Registration Statement Number
0-24000 filed with the Securities and Exchange Commission on August
3, 1994.
*** Such exhibit is incorporated by reference to the like titled but
renumbered exhibit in Registrant's Form 10 Registration Statement
Number 0-24000 filed with the Securities and Exchange Commission on
May 2, 1994.
**** Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K annual report for the year ended
December 31, 1995 that was filed with the Commission on March 25,
1996.
***** Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K/A amended annual report for the year
ended December 31, 1995 that was filed with the Commission on April
25, 1996.
****** Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K annual report for the year ended
December 31, 1996 that was filed with the Commission on March 21,
1997.
# Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K annual report for the year ended
December 31, 1997 that was filed with the Commission on March 25,
1998.
## Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K annual report for the year ended
December 31, 1998 that was filed with the Commission on March 30,
1999.
### Such exhibit is incorporated by reference to the like titled exhibit
in the Registrant's Form 10-K annual report for the year ended
December 31, 1999 that was filed with the Commission on March 23,
2000.
38