Segment Information

12 Months Ended

Dec. 31, 2012

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.

Additionally, 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 in prior periods.  This amount was incorrectly recorded as a benefit to the Exchange in prior periods.  If these amounts had been correctly recorded, Indemnity’s commission expense would have been lower by $0.5 million and $0.7 million, for the years ended December 31, 2011 and 2010, respectively.

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 voluntary reinsurance from nonaffiliated domestic and foreign sources, assumed involuntary and ceded reinsurance business.  The Exchange exited the assumed voluntary reinsurance business effective December 31, 2003, and therefore unaffiliated reinsurance includes only 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 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.  In 2011, investment activities on life insurance-related assets generated revenues of $109 million, resulting in EFL reporting income before income taxes of $50 million, before intercompany eliminations.  In 2010, investment activities on life insurance-related assets generated revenues of $107 million, resulting in EFL reporting income before income taxes of $50 million, before intercompany eliminations.

Investment operations

The investment operations segment performance is evaluated based upon appreciation of assets, rate of return and overall return.  Investment-related income for the life insurance 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, 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

	Erie Insurance Group
	Year ended December 31, 2011
(in millions)	Management operations		Property and casualty insurance operations			Life insurance operations			Investment operations			Eliminations			Consolidated
Premiums earned/life policy revenue			$	4,149		$	67					$	(2	)	$	4,214
Net investment income									$	444		(11		)	433
Net realized investment losses									(4		)				(4		)
Net impairment losses recognized in earnings									(2		)				(2		)
Equity in earnings of limited partnerships									149						149
Management fee revenue	$	1,067										(1,067		)	—
Service agreement and other revenue	33					1									34
Total revenues	1,100		4,149			68			587			(1,080		)	4,824
Cost of management operations	892											(892		)	—
Insurance losses and loss expenses			3,349			100						(5		)	3,444
Policy acquisition and underwriting expenses			1,178			27						(183		)	1,022
Total benefits and expenses	892		4,527			127			—			(1,080		)	4,466
Income (loss) before income taxes	208		(378		)	(59		)	587			—			358
Provision for income taxes	73		(132		)	(21		)	170			—			90
Net income (loss)	$	135	$	(246	)	$	(38	)	$	417		$	—		$	268

	Erie Insurance Group
	Year ended December 31, 2010
(in millions)	Management operations		Property and casualty insurance operations			Life insurance operations			Investment operations			Eliminations			Consolidated
Premiums earned/life policy revenue			$	3,925		$	64					$	(2	)	$	3,987
Net investment income									$	444		(11		)	433
Net realized investment gains									313						313
Net impairment losses recognized in earnings									(6		)				(6		)
Equity in earnings of limited partnerships									128						128
Management fee revenue	$	1,009										(1,009		)	—
Service agreement and other revenue	34					1									35
Total revenues	1,043		3,925			65			879			(1,022		)	4,890
Cost of management operations	841											(841		)	—
Insurance losses and loss expenses			2,815			90						(5		)	2,900
Policy acquisition and underwriting expenses			1,113			32						(176		)	969
Goodwill impairment									22						22
Total benefits and expenses	841		3,928			122			22			(1,022		)	3,891
Income (loss) before income taxes	202		(3		)	(57		)	857			—			999
Provision for income taxes	71		(1		)	(20		)	289			—			339
Net income (loss)	$	131	$	(2	)	$	(37	)	$	568		$	—		$	660