Segment Information

12 Months Ended

Dec. 31, 2014

Segment Reporting [Abstract]

Segment Information

Note 5. Segment Information

Our reportable segments include management operations, property and casualty insurance operations, life insurance operations, and investment operations.  Accounting policies for segments are the same as those described in the summary of significant accounting policies (see Note 2, “Significant Accounting Policies”).  Assets are not allocated to the segments, but rather, are reviewed in total for purposes of decision-making.  No single customer or agent provides 10% or more of revenues.

Management operations

Our management operations segment consists of Indemnity serving as attorney-in-fact for the Exchange.  Indemnity operates in this capacity solely for the Exchange.  We evaluate profitability of our management operations segment principally on the gross margin from management operations.  Indemnity earns a management fee from the Exchange for providing sales, underwriting, and policy issuance services.  Management fee revenue, which is eliminated upon consolidation, is calculated as a percentage not to exceed 25% of all the direct premiums written by the Exchange and the other members of the Property and Casualty Group, which are assumed by the Exchange under an intercompany pooling arrangement.  The Property and Casualty Group issues policies with annual terms only.  Management fees are recorded upon policy issuance or renewal, as substantially all of the services required to be performed by Indemnity have been satisfied at that time.  Certain activities are performed and related costs are incurred by us subsequent to policy issuance in connection with the services provided to the Exchange; however, these activities are inconsequential and perfunctory.  Although these management fee revenues and expenses are eliminated upon consolidation, the amount of the fee directly impacts the allocation of our consolidated net income between the noncontrolling interest, which bears the management fee expense and represents the interests of the Exchange subscribers (policyholders), and Indemnity’s interest, which earns the management fee revenue and represents the Indemnity shareholder interest in net income.

The year ended December 31, 2012 includes an adjustment that reduced commission expense by $6 million.  This amount represents the reimbursement by the North Carolina Reinsurance Facility (NCRF) for commissions Indemnity paid to agents on the surcharges collected on behalf of the NCRF which was incorrectly recorded as a benefit to the Exchange in prior periods.

Property and casualty insurance operations

Our property and casualty insurance operations segment includes personal and commercial lines.  Personal lines consist primarily of personal auto and homeowners and are marketed to individuals.  Commercial lines consist primarily of commercial multi-peril, commercial auto, and workers compensation and are marketed to small- and medium-sized businesses.  Our property and casualty policies are sold by independent agents.  Our property and casualty insurance underwriting operations are conducted through the Exchange and its subsidiaries and include assumed involuntary and ceded reinsurance business and run-off activity of the previously assumed voluntary reinsurance business.  We evaluate profitability of the property and casualty insurance operations principally based upon net underwriting results represented by the combined ratio.

Life insurance operations

Our life insurance operations segment includes traditional and universal life insurance products and fixed annuities marketed to individuals using the same independent agency force utilized by our property and casualty insurance operations.  We evaluate profitability of the life insurance segment principally based upon segment net income, including investments, which for segment purposes are reflected in the investment operations segment.  At the same time, we recognize that investment-related income is integral to the evaluation of the life insurance segment because of the long duration of life products.  In 2014, investment activities on life insurance-related assets generated revenues of $105 million, resulting in EFL reporting income before income taxes of $49 million, before intercompany eliminations.  In 2013, investment activities on life insurance-related assets generated revenues of $111 million, resulting in EFL reporting income before income taxes of $48 million, before intercompany eliminations.  In 2012, investment activities on life insurance-related assets generated revenues of $104 million, resulting in EFL reporting income before income taxes of $46 million, before intercompany eliminations.

Investment operations

The investment operations segment includes returns from our fixed maturity, equity security and limited partnership investment portfolios to support our underwriting business.  The Indemnity and Exchange portfolios are managed with the objective of maximizing after-tax returns on a risk-adjusted basis, while the EFL portfolio is managed to be closely aligned to its liabilities and to maintain a sufficient yield to meet profitability targets.  We actively evaluate the portfolios for impairments and record impairment writedowns on investments in instances where the fair value of the investment is substantially below cost, and it is concluded that the decline in fair value is other-than-temporary.  Investment-related income for the life operations is included in the investment segment results.

The following tables summarize the components of the Consolidated Statements of Operations by reportable business segment:

	Erie Insurance Group
	Year ended December 31, 2014
(in millions)	Management operations		Property and casualty insurance operations			Life insurance operations			Investment operations			Eliminations			Consolidated
Premiums earned/life policy revenue			$	5,260		$	86					$	(2	)	$	5,344
Net investment income									$	462		(16		)	446
Net realized investment gains									193						193
Net impairment losses recognized in earnings									(4		)				(4		)
Equity in earnings of limited partnerships									113						113
Management fee revenue	$	1,376										(1,376		)	—
Service agreement and other revenue	31					1									32
Total revenues	1,407		5,260			87			764			(1,394		)	6,124
Cost of management operations	1,184											(1,184		)	—
Insurance losses and loss expenses			3,859			105						(6		)	3,958
Policy acquisition and underwriting expenses			1,502			38						(204		)	1,336
Total benefits and expenses	1,184		5,361			143			—			(1,394		)	5,294
Income (loss) before income taxes	223		(101		)	(56		)	764			—			830
Provision for income taxes	78		(35		)	(20		)	234			—			257
Net income (loss)	$	145	$	(66	)	$	(36	)	$	530		$	—		$	573

	Erie Insurance Group
	Year ended December 31, 2013
(in millions)	Management operations		Property and casualty insurance operations		Life insurance operations			Investment operations			Eliminations			Consolidated
Premiums earned/life policy revenue			$	4,820	$	80					$	(2	)	$	4,898
Net investment income								$	434		(12		)	422
Net realized investment gains								771						771
Net impairment losses recognized in earnings								(13		)				(13		)
Equity in earnings of limited partnerships								161						161
Management fee revenue	$	1,266									(1,266		)	—
Service agreement and other revenue	31				1									32
Total revenues	1,297		4,820		81			1,353			(1,280		)	6,271
Cost of management operations	1,088										(1,088		)	—
Insurance losses and loss expenses			3,365		107						(5		)	3,467
Policy acquisition and underwriting expenses			1,387		37						(187		)	1,237
Total benefits and expenses	1,088		4,752		144			—			(1,280		)	4,704
Income (loss) before income taxes	209		68		(63		)	1,353			—			1,567
Provision for income taxes	73		24		(22		)	444			—			519
Net income (loss)	$	136	$	44	$	(41	)	$	909		$	—		$	1,048

	Erie Insurance Group
	Year ended December 31, 2012
(in millions)	Management operations		Property and casualty insurance operations			Life insurance operations			Investment operations		Eliminations			Consolidated
Premiums earned/life policy revenue			$	4,422		$	73				$	(2	)	$	4,493
Net investment income									$	449	(11		)	438
Net realized investment gains									418					418
Net impairment losses recognized in earnings									0					0
Equity in earnings of limited partnerships									131					131
Management fee revenue	$	1,157									(1,157		)	—
Service agreement and other revenue	31					1								32
Total revenues	1,188		4,422			74			998		(1,170		)	5,512
Cost of management operations	983										(983		)	—
Insurance losses and loss expenses			3,384			101					(5		)	3,480
Policy acquisition and underwriting expenses			1,284			31					(182		)	1,133
Total benefits and expenses	983		4,668			132			—		(1,170		)	4,613
Income (loss) before income taxes	205		(246		)	(58		)	998		—			899
Provision for income taxes	72		(86		)	(20		)	314		—			280
Net income (loss)	$	133	$	(160	)	$	(38	)	$	684	$	—		$	619