Indemnity Supplemental Information

6 Months Ended

Jun. 30, 2012

Indemnity Supplemental Information

Indemnity Supplemental Information

Note 14.  Indemnity Supplemental Information

Consolidating Statement of Financial Position

	Erie Insurance Group
	June 30, 2012
(in millions)	Indemnity	Exchange	Reclassifications		Erie
	shareholder	noncontrolling	and		Insurance
Assets	interest	interest	eliminations		Group
Investments
Available-for-sale securities, at fair value:
Fixed maturities	$    510	$  7,569	$     –		$  8,079
Equity securities	26	605	–		631
Trading securities, at fair value	28	2,490	–		2,518
Limited partnerships	199	1,083	–		1,282
Other invested assets	1	19	–		20
Total investments	764	11,766	–		12,530
Cash and cash equivalents	13	227	–		240
Premiums receivable from policyholders	–	1,073	–		1,073
Reinsurance recoverable	–	168	–		168
Deferred income taxes	21	–	–		21
Deferred acquisition costs	–	500	–		500
Other assets	115	395	–		510
Receivables from the Exchange and other affiliates	277	–	(277	)	–
Note receivable from EFL	25	–	(25	)	–
Total assets	$1,215	$14,129	$(302	)	$15,042
Liabilities
Losses and loss expense reserves	$        –	$  3,613	$     –		$  3,613
Life policy and deposit contract reserves	–	1,706	–		1,706
Unearned premiums	–	2,331	–		2,331
Deferred income taxes	–	235	–		235
Other liabilities	449	413	(302	)	560
Total liabilities	449	8,298	(302	)	8,445
Shareholders’ equity and noncontrolling interest
Total Indemnity shareholders’ equity	766	–	–		766
Noncontrolling interest in consolidated entity – Exchange	–	5,831	–		5,831
Total equity	766	5,831	–		6,597
Total liabilities, shareholders’ equity and noncontrolling interest	$1,215	$14,129	$(302	)	$15,042

Consolidating Statement of Financial Position

	Erie Insurance Group
	December 31, 2011
(in millions)	Indemnity	Exchange	Reclassifications		Erie
	shareholder	noncontrolling	and		Insurance
Assets	interest	interest	eliminations		Group
Investments
Available-for-sale securities, at fair value:
Fixed maturities	$    548	$  7,292	$      –		$  7,840
Equity securities	25	564	–		589
Trading securities, at fair value	27	2,308	–		2,335
Limited partnerships	208	1,082	–		1,290
Other invested assets	1	19	–		20
Total investments	809	11,265	–		12,074
Cash and cash equivalents	11	174	–		185
Premiums receivable from policyholders	–	976	–		976
Reinsurance recoverable	–	166	–		166
Deferred income taxes	19	–	–		19
Deferred acquisition costs	–	487	–		487
Other assets	119	322	–		441
Receivables from the Exchange and other affiliates	254	–	(254	)	–
Note receivable from EFL	25	–	(25	)	–
Total assets	$1,237	$13,390	$(279	)	$14,348
Liabilities
Losses and loss expense reserves	$        –	$  3,499	$     –		$  3,499
Life policy and deposit contract reserves	–	1,671	–		1,671
Unearned premiums	–	2,178	–		2,178
Deferred income taxes	–	147	–		147
Other liabilities	456	383	(279	)	560
Total liabilities	456	7,878	(279	)	8,055
Shareholders’ equity and noncontrolling interest
Total Indemnity shareholders’ equity	781	–	–		781
Noncontrolling interest in consolidated entity – Exchange	–	5,512	–		5,512
Total equity	781	5,512	–		6,293
Total liabilities, shareholders’ equity and noncontrolling interest	$1,237	$13,390	$(279	)	$14,348

Note receivable from EFL – Indemnity is due $25 million from EFL in the form of a surplus note that was issued in 2003.  The note may be repaid only out of unassigned surplus of EFL.  Both principal and interest payments are subject to prior approval by the Pennsylvania Insurance Commissioner.  The note bears an annual interest rate of 6.7% and will be payable on demand on or after December 31, 2018, with interest scheduled to be paid semi-annually, subject to prior approval by the Pennsylvania Insurance Commissioner.  For the six month period ended June 30, 2012 and 2011, Indemnity recognized interest income on the note of $0.8 million.

Income attributable to Indemnity shareholder interest

	Indemnity Shareholder Interest
		Three months ended			Six months ended
(in millions)		June 30,			June 30,
	Percent	2012		2011	2012	2011
Management operations:
Management fee revenue, net	100.0%	$308		$285	$577	$536
Service agreement revenue	100.0%	8		9	15	17
Total revenue from management operations		316		294	592	553
Cost of management operations	100.0%	257		230	487	441
Income from management operations before taxes		59		64	105	112
Life insurance operations: (1) (2)
Total revenue	21.6% (2)	–		–	–	10
Total benefits and expenses	21.6% (2)	–		–	–	7
Income from life insurance operations before taxes		–		–	–	3
Investment operations:
Net investment income		4		4	8	8
Net realized (losses) gains on investments		(1	)	6	2	7
Net impairment losses recognized in earnings		0		0	0	0
Equity in earnings of limited partnerships		3		7	4	18
Income from investment operations before taxes		6		17	14	33
Income from operations before income taxes		65		81	119	148
Provision for income taxes		22		29	40	52
Net income		$  43		$  52	$  79	$  96

(1) Earnings on life insurance related invested assets are integral to the evaluation of the life insurance operations because of the long duration of life products.  On that basis, for presentation purposes, the life insurance operations in the table above include life insurance related investment results.  However, the life insurance investment results are included in the investment operations segment discussion in Note 5. “Segment Information”.

(2) Prior to and through March 31, 2011, Indemnity retained a 21.6% ownership interest in EFL, which accrued to the Indemnity shareholder interest, and the Exchange retained a 78.4% ownership interest in EFL, which accrued to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest.  Due to the sale of Indemnity’s 21.6% ownership interest in EFL to the Exchange on March 31, 2011, 100% of EFL’s life insurance results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011.

Indemnity’s components of direct cash flows as included in the Consolidated Statements of Cash Flows

	Indemnity Shareholder Interest
(in millions)	Six months ended June 30,
	2012		2011
Management fee received	$ 555		$ 521
Service agreement fee received	15		17
Net investment income received	14		13
Limited partnership distributions	6		10
Decrease in reimbursements collected from affiliates	(1	)	(18	)
Commissions and bonuses paid to agents	(320	)	(313	)
Salaries and wages paid	(67	)	(62	)
Pension contribution and employee benefits paid	(30	)	(11	)
General operating expenses paid	(68	)	(68	)
Income taxes paid	(38	)	(28	)
Net cash provided by operating activities	66		61
Net cash provided by (used in) investing activities	33		(181	)
Net cash used in financing activities	(97	)	(142	)
Net increase (decrease) in cash and cash equivalents	2		(262	)
Cash and cash equivalents at beginning of period	11		310
Cash and cash equivalents at end of period	$   13		$   48