ITEM 1. BUSINESS
Erie Family Life Insurance Company (hereinafter referred to as "The Company", the "Registrant" or "Erie Family Life") was incorporated in the Commonwealth of Pennsylvania on May 23, 1967 and commenced business on September 1, 1967. The Company is primarily engaged in the business of underwriting and selling non-participating individual and group life insurance policies, including universal life. Erie Family Life also sells individual and group annuities. Erie Family Life is owned 21.6 % by Erie Indemnity Company and 52.2% by Erie Insurance Exchange. The remaining stock is held by the public, predominantly agents and employees of the Erie Insurance Group.
Erie Indemnity Company is a Pennsylvania business corporation formed in 1925 to be the attorney-in-fact for Erie Insurance Exchange, a Pennsylvania-domiciled reciprocal insurance exchange. The Erie Indemnity Company's principal business activity consists of management of the Exchange. The Erie Indemnity Company also is engaged in the property/casualty insurance business through its wholly owned subsidiaries, Erie Insurance Company (Erie Insurance Co.), Erie Insurance Company of New York (Erie NY) and Erie Insurance Property & Casualty Company (Erie P&C) and through its management of Flagship City Insurance Company (Flagship), a subsidiary of the Erie Insurance Exchange. Together with the Erie Insurance Exchange, the Erie Indemnity Company and its subsidiaries and affiliates, including Erie Family Life, operate collectively under the name "Erie Insurance Group."
Products
The Company's portfolio of life insurance includes the usual forms of permanent life, endowment and term policies, including whole life, family income, mortgage and decreasing term, group, and universal life insurance. In terms of face value, new life business issued in 1996 had a ratio of 4:1 of term insurance to whole life insurance coverage.
Life insurance premiums and annuity deposits have been the primary sources of cash inflows for the Company.
Classes of Life Insurance Percentage of Total Sales
For the year ended December 31,
Certain elements of revenue and expense reflect the requirements of Financial Accounting Standard (FAS) 97. FAS 97 prescribes a uniform method by which life insurance companies record certain long-term
contracts, specifically annuities, universal life, and other interest sensitive products. This method involves separating the premium income into the "premium" portion (shown in the sales figures) which represents insurance protection purchased, and the "deposit" portion, which represents funds to be held at interest for future uses. Under this standard, the "deposit" portion of the premium income is accounted for using methods applicable to comparable "interest bearing obligations" of other types of financial institutions.
Structured settlement annuities sold to affiliate companies represented $13,504,953 in annuity deposits in 1996, $22,018,313 in 1995 and $11,431,965 in 1994. Also included in the annuity deposits are annuity contracts purchased by the Erie Insurance Group Retirement Plan for Employees. These annuity contracts purchased totaled $4,894,042 in 1996, $6,024,125 in 1995 and $8,880,714 in 1994.
Classes of Deposits Total Deposits
For the year ended December 31,
The Registrant reinsures with other insurance companies the portion of the insurance coverage above acceptable retentions. Beginning January 1, 1995, the retention limit on an acceptable risk was increased to $300,000 on each individual life written. Prior to January 1, 1995, the limit was $225,000.
The Company reinsures under a number of different reinsurance agreements. The primary purpose of this reinsurance is to enable the Company to write a policy in an amount larger than the risk it is willing to assume for itself. The secondary purposes are to receive commissions on the reinsurance ceded and in some instances to participate in the profits of the reinsured business by way of an "experience rating refund."
Marketing
The Company markets its products through independent agents throughout Pennsylvania, Maryland, Virginia, West Virginia, Ohio, Indiana, Tennessee, North Carolina and the District of Columbia. The policies sold are evaluated by the Company's Underwriting Department which selects or declines applicants for insurance. Premium on policies which are accepted may be standard or rated, depending on the nature of the risk.
Competition
The Company operates in a highly competitive industry which consists of numerous stock and mutual life insurance companies. A large number of established insurance companies compete in states in which the Company transacts business and many of these companies offer more diversified lines of insurance coverage and have substantially greater financial resources than does the Company. Competition is based primarily on price, product features, availability of insurance products and the financial strength of the Company.
Insurance Regulation
The Company is subject to supervision and regulation by the insurance departments of the states in which it does business. Although the extent of the regulation varies from state to state, generally the supervisory agencies are vested with broad administrative powers relating to the granting and revocation of licenses to transact business, regulation of trade practices, licensing of agents, approval of policy forms, deposits of security for the benefits of policy owners and investments and maintenance of specified reserves and capital, all designed primarily for the protection of policy owners. In accordance with the rules of the National Association of Insurance Commissioners, the Company is examined periodically by one or more of the state supervisory agencies. The latest such examination of the Company was conducted by the Pennsylvania and Ohio Insurance Departments and covered the four years ended December 31, 1995.
The Commonwealth of Pennsylvania has adopted the minimum risk-based capital requirements on domestic insurance companies that were developed by the National Association of Insurance Commissioners (NAIC). The formulas for determining the amount of risk-based capital specify various weighing factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. These formulas determine a ratio of the company's regulatory total adjusted capital to its authorized control level risk-based capital, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. The NAIC levels and ratios are as follows:
Ratio of Total Adjusted Capital to NAIC Required Authorized Control Level Risk-Based Regulatory Event Capital (Less Than or Equal to)
Company action level 2 (or 2.5 with negative trends) Regulatory action level 1.5 Authorized control level 1 Mandatory control level .7
Erie Family Life has regulatory total adjusted capital of $84 million and $76 million at December 31, 1996, and 1995, respectively, and a ratio of total adjusted capital to authorized control level risk-based capital of 7.1 at both December 31, 1996 and 1995. The Company's ratios significantly exceed the minimum NAIC risk-based capital requirements.
Life Reserves
In accordance with generally accepted accounting principles (GAAP), the Company is required to establish and maintain as liabilities, actuarial reserves to meet its obligations on life insurance policies and annuities. These reserves are amounts which, with additions from premiums to be received on outstanding policies and with interest on such reserves compounded annually at certain assumed rates, are calculated to be sufficient to meet policy obligations at death or maturity in accordance with the mortality tables employed when the policies are issued.
The interest factors used in the computation of material reserves are:
Basis of Assumption
Investments
In accordance with standard insurance practice, the Registrant invests its funds principally in corporate bonds and preferred and common stocks. In 1996, the Company's real estate held for investment purposes constituted 0.2% of the Company's total assets while mortgage loans accounted for 1.2% and other invested assets accounted for 0.9%. The real estate owned by the Company is leased to an affiliate, Erie Indemnity Company (Indemnity), for rentals of $423,120 per year through December 31, 2000. In addition, the Company makes policy loans to its Policyholders, and at December 31, 1996, such policy loans constituted 0.6% of the Registrant's total assets. Annual increases in the number and dollar amount of policy loans, generally, will vary with changes in short-term rates of interest. When short-term rates are high, policy loans are also expected to increase.
Subject to certain laws that prescribe the nature, quality and percentage of the various types of investments which may be made by insurance companies, the Company manages its investments to meet diversification, yield and liquidity objectives.
Employees
Services of seventy-nine full-time Employees are provided through an affiliate, Erie Indemnity Company. All employees are salaried and ten are officers. These Employee expenses along with other operating expenses are paid by the Erie Indemnity Company and reimbursed on a monthly basis. None of the Employees are covered by collective bargaining agreements and the Company believes its Employee relations are good.
Other Data
The Company's Lapse Rate for 1996 was 8.2%.
Reinsurance Profitability - Not Applicable.
New Types of Insurance - Not Applicable.
Total Insurance In Force for the last five years Net of Reinsurance was:
1996 - $9,646,962,000 1995 - $8,370,940,000 1994 - $7,481,537,000 1993 - $6,428,223,000 1992 - $5,545,197,000
ITEM 2.
ITEM 2. PROPERTIES
The Registrant owns no real property and no tangible personal property used in the operation of its business except office supplies and forms. The Registrant does, however, own real property for investment purposes as outlined under ITEM 1 - INVESTMENTS. The executive and administrative offices of the Registrant are located in the headquarters office of Erie Insurance Group in Erie, Pennsylvania. The Registrant pays other members of the group an amount determined by an arm's length agreement for office space and for the use of facilities, equipment and services.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not involved in any material pending legal proceedings other than ordinary routine litigation incidental to its business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted for a vote to shareholders during the fourth quarter of 1996.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Currently there is no market on which the Registrant's stock is traded. The Company had 1,146 recordholders of Common Stock at December 31, 1996.
Date Dividends Declared Date Dividends Paid Dividends per Share*
March 2, 1995 April 1, 1995 .113 April 25, 1995 July 3, 1995 .113 June 22, 1995 October 2, 1995 .113 September 21, 1995 January 2, 1996 .113 February 29, 1996 April 1, 1996 .125 May 1, 1996 July 1, 1996 .125 June 17, 1996 October 1, 1996 .125 September 17, 1996 January 2, 1997 .125
*Adjusted to reflect a three-for-one stock split which was effective May 2, 1996.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information contained in "Selected Financial Data" on Page 10 of the Company's 1996 Annual Report is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION
The information set forth on pages 11 through 18 of the Company's 1996 Annual Report is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The 1996 Financial Statements and the Registrant's independent auditor's report on pages 20 through 28 of the Company's 1996 Annual Report are incorporated herein by reference, as is the unaudited information set forth in the Notes to the Financial Statements under the caption "Unaudited Quarterly Summary of Operations" on page 28.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The Company is a member of an insurance holding company system pursuant to Pennsylvania law under which insurance companies are required to have nominating, audit and executive compensation committees composed solely of directors who are not officers, employees or controlling shareholders of the Company or any entity controlling the Company. Insurance companies can satisfy this requirement if the insurance company is controlled by an insurer or a publicly held corporation that has committees that comply with this requirement. Erie Indemnity Company, holder of 21.6% of the Company's stock directly and 52.2% of the Company's stock as attorney-in-fact for Erie Insurance Exchange, has committees which meet these requirements.
The following table sets forth the compensation paid by the Company during each of the three fiscal years ended December 31, 1994, 1995, and 1996, to the chief executive officer of the Company and the four other most highly compensated executive officers of the Company during 1996 for services rendered in all capacities to the Company, EFL, Erie Insurance Exchange (the "Exchange") and their subsidiaries and affiliates.
Annual Compensation
Name and Other Annual All Other Principal Position Year Salary Bonus Compensation Compensation (1) - - --------------------------------------------------------------------------------
F. William Hirt 1996 $ 0 $ 11,220 $ 0 $ 0 Chief Executive Officer(2) 01/01/96-02/11/96
Stephen A. Milne 1996 $467,305 $ 39,351 $ 1,014 $ 26,020 Chief Executive 1995 245,611 26,623 927 39,993 Officer (3) 1994 189,512 34,943 965 4,433 02/12/96-12/31/96
Jan R. Van Gorder 1996 $312,555 $ 25,433 $ 1,014 $ 26,431 Executive Vice 1995 296,095 26,725 1,029 29,625 President, Secretary 1994 278,442 25,590 1,029 14,834 & General Counsel
Thomas M. Sider 1996 $267,295 $ 26,844 $ 1,014 $ 24,231 Executive Vice 1995 231,901 26,696 941 22,410 President & Chief 1994 190,049 22,571 941 21,109 Financial Officer
John J. Brinling, 1996 $202,126 $ 34,652 $ 946 $ 24,098 Jr., Executive 1995 184,104 20,853 877 28,837 Vice President of 1994 176,365 19,527 877 22,682 EFL
Alvin L. Irwin 1996 $175,868 $ 19,436 $ 6,060 $ 633,680 Senior Vice 1995 171,273 17,978 6,325 3,192 President (4) 1994 167,072 16,360 3,665 3,010
(1) Amounts shown include matching contributions made by the Company pursuant to the Company's Employee Savings Plan and premiums paid by the Company on behalf oft the named individuals on the Split Dollar Plan insurance policies. For the year 1996, contributions made to the Employee Savings Plans amounted to $-0-, $11,729, $8,869, $8,024, $6,026 and $4,278 on behalf of Messrs. Hirt, Milne, VanGorder, Sider, Brinling, and Irwin, respectively. For the year 1995, contributions to the Employee Savings Plan amounted to $-0-, $5,424, $6, 849, $6,143, $4,910, and $3,192 on behalf of Messrs. Hirt, Milne, VanGorder, Sider, Brinling, and Irwin. For the year 1994, contributions made to the Employee Savings Plan amounted to $-0-. $4,433, $6,190, $4,788. $4,478 and $3,010 on behalf of Messrs. Hirt, Milne, VanGorder, Sider, Brinling, and Irwin, respectively. Premiums paid during 1996 for Split Dollar Life insurance policies for Messrs. Hirt, Milne, VanGorder, Sider, Brinling, and Irwin, respectively, are as follows: $-0-, $14,291, $17,742, $16,207, $18,072, and $-0-. Premiums paid during 1995 for Split Dollar Life insurance policies for Messrs. Hirt, Milne, VanGorder, Sider, Brinling, and Irwin, respectively, are as follows: $-0-, $28,786, $17,420, $16,267, $18,144, and $-0-. Premiums paid during 1994 for Split Dollar Life insurance policies for Messrs. Hirt, Milne, VanGorder, Sider, Brinling, and Irwin are as follows: $-0-, $-0-, $8,644, $16,321, $18,204, and $-0-. The Company is entitled to recover the premiums from any proceeds paid on such Split Dollar Life insurance policies and has retained a collateral interest in each policy to the extent of the premiums paid with respect to such policies. The total benefit accruing to Mr. Irwin under the Supplemental Employee Retirement Plan of the Company amounted to $629,402 and is reported on the table in 1996.
(2) Mr. Hirt served as Chief Executive Officer of the Company for the period January 1, 1996 thru February 11, 1996.
(3) Mr. Milne became President and Chief Executive Officer of the Company and a Company Director on February 12, 1996.
(4) Mr. Irwin retired effective December 31, 1996 after 30 years of service.
Stock Options and Stock Appreciation Rights
The Company does not have a stock option plan, nor has it ever granted any stock option or stock appreciation right to any of the persons named in the Summary Compensation Table.
Pension Plan
The following table sets forth the estimated annual benefits payable upon retirement at age 65 under the Erie Insurance Group Retirement Plan for Employees.
PENSION PLAN TABLE
Years of Service Remuneration 15 20 25 30 35 - - ------------------------------------------------------------------- $ 200,000 60,000 80,000 100,000 120,000 120,000 225,000 67,500 90,000 112,500 135,000 135,000 250,000 75,000 100,000 125,000 150,000 150,000 300,000 90,000 120,000 150,000 180,000 180,000 350,000 105,000 140,000 175,000 210,000 210,000 400,000 120,000 160,000 200,000 240,000 240,000 450,000 135,000 180,000 225,000 270,000 270,000 500,000 150,000 200,000 250,000 300,000 300,000 550,000 165,000 220,000 275,000 330,000 330,000 600,000 180,000 240,000 300,000 360,000 360,000 650,000 195,000 260,000 325,000 390,000 390,000 700,000 210,000 280,000 350,000 420,000 420,000 750,000 225,000 300,000 375,000 450,000 450,000
The compensation covered by such plan is the base salary reported in the Summary Compensation Table.
Under the pension plan, credited years of service is capped at 30 years. Credited years of service for each of the individuals named in the Summary Compensation Table is as follows: F. William Hirt - 30 years, Stephen A. Milne - 19 years, Jan R. Van Gorder - 16 years, Thomas M. Sider - 26 years, John J. Brinling, Jr. - 29 years and Alvin Irwin - 30 years.
The benefits under such plan are computed on the basis of straight-life annuity amounts and a life annuity with a ten-year certain benefit. The benefits listed in the Pension Plan Table are not subject to deduction for Social Security or other offset amounts. The information in the foregoing table does not reflect certain limitations imposed by the Internal Revenue Code of 1986, as amended (the "Code"). Beginning in 1994, the Code prohibits the inclusion of earnings in excess of $150,000 per year (adjusted periodically for cost-of-living increases) in the average earnings used to calculate benefits. The Code also limits the maximum annual pension (currently $120,000, but adjusted annually for cost-of-living increases) that can be paid to each eligible employee. A Supplemental Employee Retirement Plan for senior management is in effect which provides benefits in excess of the earnings limitations imposed by the Internal Revenue Code of 1986 as amended.
Director Compensation
Effective January 1, 1995, the annual retainer for directors of all members of the Group, including the registrant, increased to $15,000, plus $1,200 for each meeting attended and $800 for each committee meeting attended (unless the committee meeting is held the same day as a Board of Directors meeting, for which committee meeting $500 will be paid) plus an additional $2,000 per year for each committee chairperson. In addition, all directors are reimbursed for their expenses incurred in attending meetings. Officers of the Company who serve as directors are not compensated separately for attendance at meetings of the Board of Directors and its committees. Director Petersen also is compensated pursuant to a consulting arrangement as disclosed in Item 13.
Agreements with Executive Officers
Upon the recommendation of the Executive Compensation Committee of the Company's Board of Directors the Company has entered into employment agreements with the following four of the Company's senior executive officers: John J. Brinling, Jr., Executive Vice President of the Company in November, 1995; Stephen A. Milne, President and CEO of the Company; Thomas M. Sider, Executive Vice President and Chief Financial Officer of the Company, and Jan R. Van Gorder, Executive Vice President, General Counsel and Secretary of the Company. The employment agreements have the following principal terms:
(a) A three year term expiring in November , 1998 unless the agreement is theretofore terminated in accordance with its terms with or without cause or due to disability or death of the officer or notice of non-renewal is given by the Company or the executive 30 days before any anniversary date;
(b) A minimum annual base salary at least equal to the executive's annual base salary at the time the agreement was executed, subject to periodic review to reflect the executive's performance and responsibilities, competitive compensation levels and the impact of inflation;
(c) The eligibility of the executive under the Company's incentive compensation programs and employee benefit plans;
(d) The establishment of the terms and conditions upon which the executive's employment may be terminated by the Company and the compensation of the executive in such circumstances. The agreements provide generally, among other things, that if the employment of an executive is terminated without Cause (as defined in the agreement) by the Company or by the executive for Good Reason (as defined in the agreement) then the executive shall be entitled to receive an amount equal to the sum of: (i) three times his highest annual base salary during the preceding three years plus an amount equal to the total of the executive's highest awards during the preceding three years under the Company's bonus and other short-term incentive compensation plans and (ii) any award or other compensation to which the executive is entitled under any of the Company's incentive compensation programs and employee benefit plans as well as for the continuing participation, for a period of three years following termination, in all life, medical and dental insurance programs and other benefit plans to
the extent the executive and his dependents were eligible to participate in such programs immediately prior to his termination;
(e) Provisions relating to confidentiality and non-disclosure following an executive's termination; and
(f) An agreement by the executive not to compete with the Company for a period of one year following his termination, unless his termination was without Cause.
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee (the "Committee") of the Company presently consists of Peter B. Bartlett, Chairman, J. Ralph Borneman, Jr., Seth E. Schofield and Harry H. Weil. No member of the Committee is a former or current officer or employee of the Company or any of its affiliates. Furthermore, no executive officer of the Company serves as a member of a compensation committee of another entity one of whose executive officers serves on the Committee of the Company or as a director of the Company, nor does any executive officer of the Company serve as a director of another entity, one of whose executive officers serves on the Committee of the Company. Mr. Borneman is the President and a principal shareholder of Body- Borneman Associates, Inc., Body-Borneman, Inc. and Body-Borneman, Ltd., all of which are independent insurance agencies representing a number of insurers, including the Company and its insurance affiliates.
Report of the Executive Compensation Committee of the Company
The Committee is charged with the duty of recommending to the Board of Directors the compensation of the three highest paid officers of the Company and such other officers as are determined by the Board of Directors, recommending to the Board of Directors all forms of bonus compensation including incentive programs that would be appropriate for the Company and to undertake such other responsibilities as may be delegated to it by the Board of Directors. The Board has authorized the Compensation Committee to consider the compensation of the four highest paid officers, including the CEO. The Committee is composed of four directors who are not officers or employees of the Company, the Exchange or EFL or any of their affiliates or subsidiaries. The purpose of the Committee is to determine the level and composition of compensation that is sufficient to attract and retain top quality executives for the Company.
Compensation Philosophy: The objectives of the executive compensation practices are to (1) attract, reward and retain key executive talent and (2) to motivate executive officers to perform to the best of their abilities and to achieve short-term and long-term corporate objectives that will contribute to the overall goal of enhancing stockholder and policyholder value. To that end, compensation comparisons will be made to benchmark positions at other insurers in terms of compensation levels and composition of the total compensation mix.
Under federal tax laws, the Company is not allowed a federal income tax deduction for compensation paid to certain executive officers to the extent that compensation exceeds $1 million per officer in any fiscal year. No officer of the Company has received compensation in excess of $1 million in any fiscal year to date. The Compensation Committee may consider adopting policies with respect to this limitation on deductibility when appropriate.
The Committee reviewed the salary ranges and base salaries of the four highest paid executives including the chief executive officer in 1996. The Committee has position descriptions for the four highest paid executives of the Company, including the chief executive officer, which define the responsibilities and duties of each position. The position descriptions also delineate the functional areas of accountability and the qualifications and skills required to perform such responsibilities and duties. The Committee then reviews the salary ranges for the chief executive officer and the other three highest paid senior executives, comparing the ranges to third party data compiled for similar positions with other property and casualty insurers. In reviewing the salary ranges for the four highest paid executives, including the chief executive officer, the Committee references Sibson's Management Compensation Survey published annually by Sibson & Company, Inc., which
summarizes compensation data for more than 100 insurance companies. The data is reported by position and by company asset size and by premium volume. The unique aspects of each position, its duties and responsibilities, the effect on the performance of the Company, the number of employees supervised directly and other criteria are also considered in setting the base salaries. The Committee also secured the services of Towers Perrin, a nationally recognized consulting firm with specific expertise in the insurance industry, to do a detailed analysis of competitive compensation levels and make recommendations. In addition, Towers Perrin made specific recommendations to the Committee regarding the compensation for Mr. Milne as he assumed the responsibilities of chief executive officer.
The level of compensation for each executive reflects his or her skills, experience and job performance. Normally, base salary will not be less than the minimum for the salary range established for each position. Executives with a broader range of skills, experience and consistently high performance with the Company may receive compensation above the midpoint for the established salary range.
A promotional salary increase may also be added to the executive's compensation when the executive assumes new responsibilities or has increased accountability for results. Significant changes in duties and responsibilities may also result in a higher salary range.
Compensation for the chief executive officer consists primarily of salary and bonus and minor perquisites which amount to less than 10% of the chief executive officer's salary and bonus. No long-term incentive plans (which provide incentives for performance occurring over longer periods of time) are currently utilized in determining the compensation of the chief executive officer, although external data indicates its prevalence among competitor companies. Stock options, stock appreciation rights and restricted stock are not currently part of the executive compensation package for any executives of the Company.
Performance factors applicable to the Company, such as property and casualty insurance loss ratios, investment portfolio returns, overall company profitability, as well as other factors are considered indirectly in evaluating the chief executive officer's performance.
Compensation of the next three most highly compensated individuals is determined by the Committee and is based upon the factors and processes enumerated, i.e., a determination of a salary range based upon market data and evaluation of the executive with respect to the executive's job description and his or her position within the salary range.
Compensation of the next highest paid executives (other than the four highest paid executives) is based upon the Company's established standard compensation policies and is not determined by the Committee. As with the chief executive officer and the next three most highly compensated executive officers, no long-term incentive plans are maintained for this executive.
ERIE INDEMNITY COMPANY EXECUTIVE COMPENSATION COMMITTEE
Peter B. Bartlett, Chairman J. Ralph Borneman, Jr. Seth E. Schofield Harry H. Weil
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of 2/28/97
(a) Name & Address Shares of Beneficial Beneficially Percent of Owner Owned Class
Erie Indemnity Company 2,043,900(1) 21.6%(1) 100 Erie Insurance Place Direct Erie, PA 16530
Erie Insurance Exchange 4,932,900(1) 52.2%(1) 100 Erie Insurance Place Direct Erie, PA
(b) Shares beneficially owned directly or indirectly by all Directors and Officers:
Name & Address Shares of Beneficial Beneficially Percent of Owner Owned Class
Peter B. Bartlett 0 NA 65 Egbert Street Bay Head, NJ 08742
Samuel P. Black, Jr. 68,118 .72% 400 French St., Suite 100 Erie, PA 16507
J. Ralph Borneman 1,536 .02% Box 552 17 East Philadelphia Ave. Boyertown, PA 19512
Patricia A. Goldman 0 NA 3026 1/2 Q Street, NW Washington, DC 20007
Susan Hirt Hagen 300 -- 5727 Grubb Rd. Erie, PA 16506
Thomas B. Hagen 154,482 1.63% 5727 Grubb Rd. Erie, PA 16506
F. William Hirt 167,034 1.77% 3270 Kingston Court S. Erie, PA 16506
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (Cont.)
(b) Shares beneficially owned directly or indirectly by all Directors and Officers:
Name & Address Shares of Beneficial Beneficially Percent of Owner Owned Class
Dr. Irvin H. Kochel 6,249 .07% 4737 Reese Road Erie, PA 16510
Edmund J. Mehl 12,150 .13% 504 Frontier Dr. Erie, PA 16505
Stephen A. Milne 0 NA 100 Culbertson Drive Lake City, PA 16423
John M. Petersen 89,141 .94% 124 Voyageur Dr. Erie, PA 16505
Seth E. Schofield 0 NA 9500 South Ocean Drive #1601 Jensen Beach, FL 34957
Jan R. Van Gorder 75 -- 6796 Manchester Beach Road Fairview, PA 16415
Harry H. Weil 0 NA 7 Foxwood Drive Pittsburgh, PA 15238
John J. Brinling, Jr. 1,260 .01% 1522 Sumner Drive Erie, PA 16505
Robert H. Dreyer 600 .01% 465 Hawthorne Trace Fairview, PA 16415
Philip Alan Garcia 1,275 .01% 786 Stockbridge Drive Erie, PA 16505
Thomas M. Sider 285 -- 11810 Old Lake Road North East, PA 16428
Douglas F. Ziegler 270 -- 378 Ridgeview Drive Erie, PA 16505
Officers and directors as a group (19 persons) 502,775(2) 5.32%(2)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (Cont.)
(1) Erie Insurance Exchange (the "Exchange") is a reciprocal insurance exchange controlled by its subscribers, each of whom has designated Erie Indemnity Company as such subscriber's attorney-in-fact for certain purposes, including Indemnity's holding of Common Stock of the Company. 76.2% of the outstanding voting stock of Erie Indemnity Company is owned beneficially by a trust established by H. O. Hirt, the father of F. William Hirt and Susan H. Hagen and the father-in-law of Thomas B. Hagen. Mr. Hirt and Mrs. Hagen are beneficiaries of the trust and are co-trustees with Mellon Bank, N.A. An additional 12.7% of the Erie Indemnity Company voting stock is beneficially owned by Samuel P. Black, Jr.
(2) Includes direct and indirect beneficial ownership and shares owned by and with spouses.
(c) There are no contractual arrangements known to the Registrant which may result in a change in control of the Company.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors Black and Borneman are officers and principal shareholders of insurance agencies which receive insurance commissions in the ordinary course of business from Erie Family Life and its affiliates in accordance with such companies standard commission schedules and agents' contracts.
The retired President and CEO and previous Chief Investment Officer of the Erie Insurance Group of Companies, and current director, John M. Petersen, entered into a consulting arrangement with Erie Indemnity Company effective January 2, 1996. Under the terms of the arrangement, Erie Indemnity Company engaged Mr. Petersen as a consultant to furnish Erie Indemnity Company and its pension trust, Erie Insurance Exchange, and Erie Family Life Insurance Company, with investment services with respect to their investments in common stocks. The amount paid Mr. Petersen pursuant to this arrangement in 1996 was $2,078,758.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements of the Registrant and the report of independent certified public accountants are incorporated herein by reference to pages 20 through 28 in the Registrant's annual report to shareholders for the year ended December 31, 1996.
Independent Auditor Report Statements of Financial Position - December 31, 1996 and 1995 Statements of Operations for the years ended December 31, 1996, 1995 and 1994 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 Notes to Financial Statements
(2) The following financial statement schedules are included in this report on FORM 10-K:
Page
Independent Auditors' Report on Schedules 25
Schedule I - Summary of Investments other than investments in related parties 26
Schedule V - Supplementary Insurance Information 27
Schedule VI - Reinsurance 28
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.
(3) Exhibits:
Exhibit 13 - Annual Report to Shareholders
Exhibit 27 - Financial Data Schedule
All exhibits for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.
(b) No reports on Form 8-K have been filed or were required to be filed during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 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 11, 1997 ERIE FAMILY LIFE INSURANCE COMPANY (Registrant)
Principal Officers
/s/ F. William Hirt F. William Hirt, Chairman of the Board
/s/ Stephan A. Milne Stephen A. Milne, President and C.E.O.
/s/ Thomas M. Sider Thomas M. Sider, Executive Vice President & CFO
/s/ Philip A. Garcia Philip A. Garcia, Senior Vice President & Controller
Board of Directors
/s/ Peter B. Bartlett /s/ Irvin H. Kochel Peter B. Bartlett Dr. Irvin H. Kochel
/s/ Samuel P. Black, Jr. /s/ Edmund J. Mehl Samuel P. Black, Jr. Edmund J. Mehl
/s/ J. Ralph Borneman /s/ Stephen A. Milne J. Ralph Borneman Stephen A. Milne
/s/ Patricia A. Goldman /s/ John M. Petersen Patricia A. Goldman John M. Petersen
/s/ Susan Hirt Hagen /s/ Seth E. Schofield Susan Hirt Hagen Seth E. Schofield
/s/ Thomas B. Hagen /s/ Jan R. Van Gorder Thomas B. Hagen Jan R. Van Gorder
/s/ Harry H. Weil F. William Hirt Harry H. Weil
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders Erie Family Life Insurance Company
We have audited the statements of financial position of Erie Family Life Insurance Company (Company) as of December 31, 1996 and 1995 and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996, as contained in the 1996 annual report, incorporated by reference in the annual report on Form 10-K for the year ended December 31, 1996. In connection with our audits of the financial statements, we also have audited the financial statement schedules, as listed in the accompanying index. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Erie Family Life Insurance Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
/s/ Brown Schwab Bergquist & Co.
Erie, Pennsylvania February 18, 1997
SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
SCHEDULE V - SUPPLEMENTARY INSURANCE INFORMATION
SCHEDULE V - SUPPLEMENTARY INSURANCE INFORMATION (CONTINUED)
SCHEDULE VI - REINSURANCE