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ERIE, Pa., Aug. 1 /PRNewswire-FirstCall/ -- Erie Indemnity Company(Nasdaq: ERIE) today announced strong financial results for the secondquarter 2007. The Company also announced that Jeffrey A. Ludrof, presidentand chief executive officer, will be leaving the Company and the board ofdirectors for personal reasons and that John J. Brinling Jr. will serve asinterim president & CEO while the Board begins a search for a replacementfor Mr. Ludrof. In addition, the Company announced that the board ofdirectors has unanimously elected Thomas B. Hagen as Chairman of the Board. (Logo: http://www.newscom.com/cgi-bin/prnh/20041112/ERIELOGO ) Key points for the second quarter 2007: -- Net income was $70.5 million for the second quarter of 2007, a 25.3 percent increase from $56.3 million for the same period in 2006. Net income per share-diluted increased to $1.11 per share, compared to $0.86 per share in the comparable quarter in 2006. -- Net operating income per share (excluding net realized gains or losses on investments and related taxes) increased by 25.6 percent to $1.09 per share in the second quarter of 2007, from $0.87 per share, for the same period one year ago. -- Management fee revenue increased 2.1 percent to $256.5 million, from $251.1 million for the same period one year ago. Gross margins from management operations decreased to 21.4% in the second quarter of 2007 from 22.0% in the second quarter of 2006. -- Direct written premiums increased in the second quarter of 2007. -- Substantial improvement in the second quarter 2007 from insurance underwriting operations. -- Net revenue from investment operations increased to $37.8 million, or 28.3 percent, from $29.5 million for the second quarters of 2007 and 2006, respectively. -- The 2007 annualized effective tax rate of 32.7 percent was benefited by the settlement of IRS examinations on the years 2001 and 2002 totaling $1.0 million and a reduction to the interest expense on uncertain tax positions of $0.5 million. "Due to personal reasons, I have decided to leave The ERIE," said Mr.Ludrof. "I have enjoyed a long and successful career at this company, butafter considering the recent passing of Bill Hirt, as well as the excellentfinancial and operational shape of The ERIE, I think that this is the idealmoment -- for myself, my family and for The ERIE -- to move on to somethingnew. I am confident that, from a business perspective, the timing of mydecision could not be better. Mr. Ludrof continued, "It is evident from our second quarter resultsthat the Company is in outstanding financial shape. In addition, at $4.6billion the policyholder surplus in Erie Insurance Exchange is the highestit has ever been. As the soft market persists, we continue to take along-term view of our business, managing in a steady, consistent manner.This discipline has produced positive second quarter results for ErieIndemnity Company within every segment of the business including increaseddirect written premiums. With a seamless transition to John Brinling as theinterim president and CEO, I have no doubt that the Company will continueto perform well." "On behalf of the Company and the board, I would like to thank Jeff forhis many years of service to Erie Indemnity Company and Erie InsuranceGroup," said Mr. Hagen. "We recognize that he is doing what he needs to dopersonally, and wish him the best in the future. We also want to thank Johnfor agreeing to return to the Company and fill this position on an interimbasis while we begin the process of finding a full-time president & CEO." Biographical information on Mr. Hagen, Mr. Brinling and Mr. Ludroffollows the financial information in this release. Key drivers of Second Quarter 2007 Performance (Unaudited) (Unaudited) Three months ended Six months ended June 30, June 30, (dollars in thousands) 2007 2006 Change 2007 2006 Change Management Operations: Management fee revenues $256,462 $251,104 2.1% $485,106 $484,039 0.2% P&C Group* direct written premium (DWP) $1,028,247 $1,019,005 0.9% $1,946,425 $1,961,773 (0.8)% Drivers of P&C Group* DWP Policies in force - year-over- year 3,848,180 3,781,558 66,622 Policy retention - year-over- year 89.9% 89.0% 0.9 pts Avg premium per policy - year-over- year $984 $1,026 $(42) Insurance Underwriting Operations: GAAP combined ratio 84.8 99.4 (14.6)pts 87.0 92.9 (5.9)pts Prior accident year reserve development - (redundancy) deficiency** (4.3) 0.3 (4.6)pts (7.4) (3.9) (3.5)pts Catastrophe loss ratio 2.2 9.2 (7.0)pts 1.3 4.9 (3.6)pts Investment Operations: Equity in earnings of limited partnerships $20,180 $14,058 43.5% $32,698 $18,200 79.7% * P&C Group = Property and Casualty Group ** Excludes salvage and subrogation recoveries Details of Second Quarter 2007 Results - Segment Basis: Management operations Management fee revenue increased 2.1 percent for the quarter ended June30, 2007, benefiting from 0.9% growth in the direct written premiums of theProperty and Casualty Group and the management fee rate being set at itsmaximum level of 25% for 2007 up from 24.75% in 2006. This highermanagement fee rate in 2007 increased management fee revenue by $4.9million, or $0.05 per share-diluted for the six months ended June 30, 2007. Growth in policies in force is the result of the Company's expansion ofits independent agency force through appointments and other marketinginitiatives as well as improved policyholder retention. Through the firsthalf of 2007 the Company appointed 129 new agencies, bringing our totalagencies to 1,891 at June 30, 2007. The Company expects to meet its goal of200 new agency appointments during 2007. In 2006, the Company appointed 139new agencies. Due to continued soft market conditions, the Property and CasualtyGroup has been implementing rate reductions to be more price competitive,which resulted in a $56 million decrease in written premiums in the firsthalf of 2007. An additional $31 million in rate reductions are forecast forthe remainder of the year. The most significant rate reductions have beenin the Group's largest line of business, private passenger auto. The cost of management operations increased 3.2 percent to $207.4million in the second quarter of 2007, from $201.0 million for the sameperiod in 2006. Commission costs, the largest component of the cost ofmanagement operations, increased 2.7 percent to $148.9 million from $145.0million in the second quarter 2006. Normal commissions increased 0.9percent, or $1.1 million, in line with the Property and Casualty growth inpremium, while estimates for agent bonuses and promotional incentivesincreased $2.2 million in the second quarter of 2007. Second quarter costs of management operations, excluding commissions,increased 4.5 percent to $58.5 million in 2007 from $56.0 million in 2006.Personnel costs increased by 4.6 percent in the second quarter of 2007, dueto (1) an increase in salary expense from increases in the average payrates offset by lower staffing levels and (2) an increase of less than 1%in employee benefits costs as the second quarter of 2007 was favorablyimpacted by a reduction in pension costs due to an increase in the discountrate, while the second quarter of 2006 included the recognition of aone-time full curtailment benefit related to the termination of the retireehealth benefit plan. Insurance underwriting operations The Company's insurance underwriting operations generated gains of $7.9million and $0.3 million in the second quarters of 2007 and 2006,respectively. The GAAP combined ratio of the Company was 84.8 in the secondquarter of 2007 compared to 99.4 in the second quarter of 2006, andProperty and Casualty Group's adjusted statutory combined ratio was 77.7and 92.3 in the second quarter of 2007 and 2006, respectively. -- Earned premiums declined $1.7 million for the second quarter of 2007 reflecting the trend of rate decreases. -- Development of prior accident year loss reserves, excluding salvage and subrogation recoveries, continued to be favorable in the second quarter 2007. -- The second quarter of 2007 included tornados and flooding in Ohio, North Carolina and Virginia, while 2006 included hail storms in Indiana. Catastrophe losses incurred for the first half of 2007 and 2006 were $1.4 million and $5.3 million, respectively. The majority of this positive development in the second quarter of 2007resulted from favorable developments of reserves on prior accident quartersfor automobile bodily injury and uninsured/underinsured motorist bodilyinjury. Improvements in accident quarter loss ratios in these lines were aresult of improved frequency and severity trends. In the second quarter of2006, there was a strengthening of pre-1986 automobile catastrophicliability injury reserves based on a claim by claim review, which increasedour share of the reserves by $1.4 million. The strengthening of certainother catastrophic injury reserves was due to increasing pharmaceuticalcosts and a deterioration in the health of the claimants. Investment operations Net revenue from investment operations increased 28.3 percent in thesecond quarter of 2007 to $37.8 million compared to $29.5 million in thesecond quarter of 2006. Equity in earnings of limited partnerships contributed significantly tothe improved investment performance, increasing by $6.1 million in thesecond quarter of 2007. Optimal market conditions resulted in a higherreturn on capital on mezzanine debt and private equity partnershipinvestments by some of our more seasoned limited partnerships and realizedgains on sales of commercial properties owned by our real estate limitedpartnerships. Net realized gains on investments were $2.2 million in the secondquarter of 2007 compared to losses of $0.6 million in 2006. Included in netrealized gains on investments are impairment charges of $2.0 million and$1.3 million during the second quarters of 2007 and 2006, respectively.Impairment charges recorded on fixed maturity and equity securities duringthe first six months of 2007 and 2006 were $2.6 million and $3.4 million,respectively. As part of our capital management strategy, the Company repurchased313,110 shares of our Class A common stock at a cost of $16.7 millionduring the second quarter of 2007, or $53.26 per share. In the first halfof 2007, 595,649 shares were repurchased at a cost of $31.7 million. TheCompany had approximately $98 million in outstanding repurchase authorityunder this program at June 30, 2007 that expires in December 2009. Biographical Data on Hagen, Brinling and Ludrof Mr. Hagen is currently chairman/owner of Custom Group Industrieslocated in Erie, Pa., and has served in that capacity for more than fiveyears. He is also the general partner of the Hagen Family LimitedPartnership, which is a record owner of 17.5 percent of the Company's ClassA nonvoting common stock. Mr. Hagen was elected to the Erie IndemnityCompany Board of Directors in April, 2007. He previously served as a memberof the Board of Directors of the Company for 19 years until 1998 and as thechief executive officer of the Company from Nov. 1990 through Sept. 1993.Mr. Hagen served as Pennsylvania's Secretary of Commerce in theadministration of former Governor Tom Ridge. In addition to serving on theBoard of Directors of Erie Indemnity Company Mr. Hagen also serves on theboards of Bliley Technologies, Inc., Erie, Pa. and the Pennsylvania HousingFinance Agency (PHFA), Harrisburg, Pa. He is also a member of the Board ofDirectors and first vice chairman of the Pennsylvania Chamber of Businessand Industry. Mr. Brinling joined Erie Insurance in 1968 as an adjuster in thePittsburgh Branch Office. He was promoted to district sales manager inPittsburgh in 1972 and two years later became the branch sales manager forthe Columbus Branch. In 1980, he was promoted to vice president and managerof the Marketing Department in the Home Office and in 1984 to senior vicepresident and division officer of Erie Family Life Insurance Company. Mr.Brinling was appointed executive vice president of Erie Family Life in 1990and remained in that capacity until his retirement in January, 2007. Mr.Brinling earned the Chartered Property Casualty Underwriter (CPCU)designation in 1979 and a master's degree in business administration fromPenn State University in 1990. He is a member of the Society of the CPCUand the National Association of Insurance and Financial Advisors (NAIFA).Mr. Brinling currently serves on the board of directors of the DisasterMedical Assistance Team (DMAT) PA-3 and is vice chairman of the board oftrustees of St. Vincent Health Center. He serves on the board of directorsof the Erie County United Way and is on the board of visitors at PennState-Behrend. Mr. Ludrof joined The ERIE in 1981 as a claims adjuster in theAllentown/Bethlehem Branch and has held several leadership positions inboth corporate and field insurance operations. He became a district salesmanager in 1985, and remained with the Allentown/Bethlehem Branch until1989 when he was promoted to assistant vice president of the WesternMid-Atlantic Region. He was promoted to senior vice president and divisionofficer of Corporate Claims in 1994. In 1999 he was promoted to executivevice president of Insurance Operations, a position he held for nearly threeyears until being named President and CEO in May 2002. Mr. Ludrof is amember in the Society of Chartered Property Casualty Underwriters and theSociety of Certified Insurance Counselors. Mr. Ludrof also serves onseveral industry and community boards. He serves on the Board of Governorsfor the National Association of Independent Insurers. Mr. Ludrof serves onthe board of the Insurance Institute for Highway Safety and is a boardmember and current President of the Erie Regional Chamber and GrowthPartnership. Erie Indemnity Company provides management services to the membercompanies of the Erie Insurance Group, which includes the Erie InsuranceExchange, Flagship City Insurance Company, Erie Insurance Company, ErieInsurance Property and Casualty Company, Erie Insurance Company of New Yorkand Erie Family Life Insurance Company. According to A.M. Best Company, Erie Insurance Group, based in Erie,Pennsylvania, is the 15th largest automobile insurer in the United Statesbased on direct premiums written and the 22nd largest property/casualtyinsurer in the United States based on total lines net premium written. TheGroup, rated A+ (Superior) by A.M. Best Company, has almost 3.8 millionpolicies in force and operates in 11 states and the District of Columbia.Erie Insurance Group ranked 463 on the FORTUNE 500 and Erie IndemnityCompany is included in Forbes Magazine's PLATINUM 400 list of thebest-managed companies in America. News releases and more information about Erie Insurance Group areavailable at http://www.erieinsurance.com "Safe Harbor" Statement Under the Private Securities Litigation ReformAct of 1995: Certain forward-looking statements contained herein involverisks and uncertainties. These statements include certain discussionsrelating to management fee revenue, cost of management operations,underwriting, premium and investment income volume, business strategies,profitability and business relationships and the Company's other businessactivities during 2007 and beyond. In some cases, you can identifyforward-looking statements by terms such as "may," "will," "should,""could," "would," "expect," "plan," "intend," "anticipate," "believe,""contemplate," "estimate," "project," "predict," "potential" and similarexpressions. These forward-looking statements reflect the Company's currentviews about future events, are based on assumptions and are subject toknown and unknown risks and uncertainties that may cause results to differmaterially from those anticipated in those statements. Many of the factorsthat will determine future events or achievements are beyond our ability tocontrol or predict. Erie Indemnity Company Consolidated Statements of Operations (Dollars in thousands, except per share data) Three months ended Six months ended June 30, June 30, 2007 2006 2007 2006 (Unaudited) (Unaudited) Operating revenue Management fee revenue, net $242,324 $237,233 $458,343 $457,334 Premiums earned 52,122 53,825 104,096 107,852 Service agreement revenue 7,299 6,506 14,717 14,098 Total operating revenue 301,745 297,564 577,156 579,284 Operating expenses Cost of management operations 195,969 189,939 375,855 373,093 Losses and loss adjustment expenses incurred 29,789 38,635 62,023 68,688 Policy acquisition and other underwriting expenses 11,695 12,079 23,689 26,580 Total operating expenses 237,453 240,653 461,567 468,361 Investment income - unaffiliated Investment income, net of expenses 14,138 14,603 28,116 29,603 Net realized gains (losses) on investments 2,222 (632) 4,112 152 Equity in earnings of limited partnerships 20,180 14,058 32,698 18,200 Total investment income - unaffiliated 36,540 28,029 64,926 47,955 Income before income taxes and equity in earnings of Erie Family Life Insurance Company 100,832 84,940 180,515 158,878 Provision for income taxes 31,505 30,015 56,098 55,092 Equity in earnings of Erie Family Life Insurance Company, net of tax 1,159 1,330 2,430 1,935 Net income $70,486 $56,255 $126,847 $105,721 Net income per share: Class A common stock - basic $1.22 $0.95 $2.19 $1.76 Class A common stock - diluted 1.11 0.86 1.99 1.59 Class B common stock - basic and diluted 187.31 144.90 336.32 265.30 Weighted average shares outstanding: Class A common stock - basic 57,337,436 59,063,615 57,513,372 59,842,796 Class A common stock - diluted 63,556,114 65,554,096 63,734,450 66,527,677 Class B common stock - basic and diluted 2,571 2,670 2,572 2,751 Dividends declared per share: Class A common stock $0.40 $0.36 $0.80 $0.72 Class B common stock 60.00 54.00 120.00 108.00 Erie Indemnity Company Consolidated Statements of Operations - Segment Basis (Amounts in thousands, except per share data) Three months ended Six months ended June 30, June 30, 2007 2006 2007 2006 (Unaudited) (Unaudited) Management Operations Management fee revenue $256,462 $251,104 $485,106 $484,039 Service agreement revenue 7,299 6,506 14,717 14,098 Total revenue from management operations 263,761 257,610 499,823 498,137 Cost of management operations 207,392 201,028 397,777 394,854 Income from management operations 56,369 56,582 102,046 103,283 Insurance Underwriting Operations Premiums earned 52,122 53,825 104,096 107,852 Losses and loss adjustment expenses incurred 29,789 38,635 62,023 68,688 Policy acquisition and other underwriting expenses 14,410 14,861 28,530 31,524 Total losses and expenses 44,199 53,496 90,553 100,212 Underwriting gain 7,923 329 13,543 7,640 Investment Operations Investment income, net of expenses 14,138 14,603 28,116 29,603 Net realized gains (losses) on investments 2,222 (632) 4,112 152 Equity in earnings of limited partnerships 20,180 14,058 32,698 18,200 Equity in earnings of Erie Family Life Insurance Company 1,247 1,430 2,613 2,081 Net revenue from investment operations 37,787 29,459 67,539 50,036 Income before income taxes 102,079 86,370 183,128 160,959 Provision for income taxes 31,593 30,115 56,281 55,238 Net income $70,486 $56,255 $126,847 $105,721 Net income per share - Class A basic $1.22 $0.95 $2.19 $1.76 Net income per share - Class A diluted 1.11 0.86 1.99 1.59 Net income per share - Class B basic and diluted 187.31 144.90 336.32 265.30 Weighted average shares outstanding - Class A diluted 63,556 65,554 63,734 66,528 Amounts presented on a segment basis are gross ofintercompany/intersegment items. Erie Indemnity Company Reconciliation of Operating Income to Net Income Definition of Non-GAAP and Operating Measures We believe that investors' understanding of our performance is enhanced by the disclosure of the following non-GAAP financial measure. Our method of calculating this measure may differ from those used by other companies and therefore comparability may be limited. Operating income is net income excluding realized capital gains and losses and related federal income taxes. Equity in earnings or losses of Erie Family Life Insurance Company and equity in earnings or losses of limited partnerships are not excluded from the calculation of operating income. Both of these categories include the respective investment's realized capital gains and losses, as well as unrealized gains and losses, as these investments are accounted for under the equity method. Net income is the GAAP measure that is most directly comparable to operating income. We use operating income to evaluate the results of operations. It reveals trends in our management services, insurance underwriting and investment operations that may be obscured by the net effects of realized capital gains and losses. Realized capital gains and losses may vary significantly between periods and are generally driven by business decisions and economic developments such as capital market condition, the timing of which is unrelated to our management services and insurance underwriting processes. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. We are aware that the price to earnings multiple commonly used by investors as a forward-looking valuation technique uses operating income as the denominator. Operating income should not be considered as a substitute for net income and does not reflect our overall profitability. The following table reconciles operating income and net income for the periods ended June 30, 2007 and 2006: (in thousands, except per share data) (Unaudited) (Unaudited) Three months ended Six months ended June 30, June 30, 2007 2006 2007 2006 Operating income $69,042 $56,666 $124,174 $105,622 Net realized gains (losses) on investments 2,222 (632) 4,112 152 Income tax (expense) benefit on realized gains (losses) (778) 221 (1,439) (53) Realized gains (losses), net of income taxes 1,444 (411) 2,673 99 Net income $70,486 $56,255 $126,847 $105,721 (Unaudited) (Unaudited) Three months ended Six months ended June 30, June 30, Per Class A Share - Diluted 2007 2006 2007 2006 Operating income $1.09 $0.87 $1.95 $1.59 Net realized gains (losses) on investments 0.03 (0.01) 0.06 0.00 Income tax (expense) benefit on realized gains (losses) (0.01) 0.00 (0.02) 0.00 Realized gains (losses), net of income taxes 0.02 (0.01) 0.04 0.00 Net income $1.11 $0.86 $1.99 $1.59 Erie Indemnity Company Consolidated Statements of Financial Position (Amounts in thousands, except per share data) June 30, December 31, 2007 2006 (Unaudited) ASSETS Investments Fixed maturities $827,777 $836,738 Equity securities Preferred stock 139,800 133,401 Common stock 122,899 117,246 Other invested assets 266,454 235,672 Total investments 1,356,930 1,323,057 Cash and cash equivalents 27,292 60,241 Equity in Erie Family Life Insurance Company 57,784 57,162 Premiums receivable from policyholders 257,632 247,187 Receivables from affiliates 1,187,993 1,220,058 Other assets 134,179 131,656 Total assets $3,021,810 $3,039,361 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Unpaid losses and loss adjustment expenses $1,036,362 $1,073,570 Unearned premiums 436,996 424,282 Other liabilities 344,460 379,661 Total liabilities 1,817,818 1,877,513 Total shareholders' equity 1,203,992 1,161,848 Total liabilities and shareholders' equity $3,021,810 $3,039,361 Book value per share $19.00 $18.17 Shares outstanding 63,356 63,952 Erie Indemnity Company Reconciliation of Property and Casualty Group to Indemnity Results (Dollars in thousands) (Unaudited) (Unaudited) Three months ended Six months ended June 30, June 30, 2007 2006 2007 2006 Property & Casualty Group Insurance Underwriting Operations (SAP Basis) Direct underwriting (Unaudited) (Unaudited) results Direct written premium $1,028,247 $1,019,005 $1,946,425 $1,961,773 Premiums earned 963,691 988,196 1,905,849 1,972,025 Loss and loss adjustment expenses incurred 542,795 703,672 1,115,123 1,226,162 Policy acquisition and other underwriting expenses 281,669 283,868 538,771 585,342 Total losses and expenses 824,464 987,540 1,653,894 1,811,504 Direct underwriting income 139,227 656 251,955 160,521 Nonaffiliated reinsurance underwriting results Assumed voluntary-less ceded retrocessions (652) 4,455 (3,550) 5,144 Assumed involuntary 23,643 17,366 22,279 7,071 Less: Ceded 6,843 2,412 14,659 9,610 Nonaffiliated reinsurance underwriting gain 16,148 19,409 4,070 2,605 Net underwriting gain (SAP Basis) $155,375 $20,065 $256,025 $163,126 Erie Indemnity Insurance Underwriting Operations (SAP to GAAP Basis) Percent of pool assumed by the Indemnity Company 5.50% 5.50% 5.50% 5.50% Indemnity preliminary underwriting gain (SAP Basis) $8,546 $1,104 $14,081 $8,972 Excess-of-loss changes to recoveries under the agreement 0 (392) 0 (538) SAP to GAAP adjustments (623) (383) (538) (794) Indemnity underwriting gain before tax (GAAP Basis) $7,923 $329 $13,543 $7,640 Property & Casualty Group (SAP Basis) Net basis Loss and LAE ratio 55.6% 69.9% 58.9% 62.5% Underwriting ratio 26.7 27.0 26.9 29.2 Policyholder dividends ratio 0.1 0.3 0.2 0.1 Statutory combined ratio 82.4 97.2 86.0 91.8 Adjusted combined ratio, excluding profit component 77.7 92.3 81.5 87.2 Direct business Loss ratio points from prior accident year reserve development - (redundancy) deficiency (4.3) 0.3 (7.4) (3.9) Loss ratio points from prior accident years from salvage and subrogation recoveries collected (1.8) (1.6) (2.4) (2.3) Total loss ratio points from prior accident years (6.1) (1.3) (9.8) (6.2) Loss ratio points from catastrophes 2.1 9.1 1.3 4.9 Erie Indemnity Company GAAP combined ratio 84.8 99.4 87.0 92.9 GAAP loss ratio points from catastrophes 2.2 9.2 1.3 4.9 SAP Basis represents statutory accounting principles as codified by theNational Association of Insurance Commissioners (NAIC) Selected financial data of Erie Insurance Exchange: The selected financial data below is derived from the Erie Insurance Exchange's financial statements prepared in accordance with Statutory Accounting Principles. In the opinion of management, all adjustments consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. The financial data set forth below is only a summary. (Unaudited) (Unaudited) (in thousands) Three months ended Six months ended Statutory Accounting June 30, June 30, Basis 2007 2006 2007 2006 Premiums earned $913,316 $940,026 $1,802,867 $1,868,434 Losses, loss adjustment expenses and underwriting expenses 766,464 920,659 1,560,891 1,713,806 Net underwriting gain 146,852 19,367 241,976 154,628 Total investment income 212,935 77,160 349,581 203,169 Income before income taxes 359,787 96,527 591,557 357,797 Federal income tax expense 110,527 31,602 182,519 120,625 Net income $249,260 $64,925 $409,038 $237,172 (In thousands) As of As of Statutory Accounting Basis June 30, December 31, 2007 2006 (Unaudited) Cash and invested assets $8,946,203 $8,494,655 Other assets 1,085,925 1,021,489 Total assets $10,032,128 $9,516,144 Claims and unearned premium reserves $4,945,518 $4,993,365 Other liabilities 498,448 435,683 Total liabilities 5,443,966 5,429,048 Policyholders' surplus 4,588,162 4,087,096 Total liabilities and policyholders' surplus $10,032,128 $9,516,144 Management fee revenue by major lines of business - Segment basis: Three months ended Six months ended June 30, % June 30, % (in thousands) 2007 2006 Change 2007 2006 Change Private passenger auto $118,693 $117,381 1.1% $227,369 228,436 -0.5% Homeowners 51,566 50,558 2.0 88,659 87,213 1.7 Commercial multi-peril 30,116 29,561 1.9 58,880 58,998 -0.2 Workers' compensation 21,321 20,620 3.4 44,297 44,935 -1.4 Commercial auto 22,125 21,910 1.0 42,916 43,108 -0.4 All other lines of business 13,241 12,174 8.8 24,485 22,849 7.2 257,062 252,204 1.9% 486,606 485,539 0.2% Change in allowance for management fee returned on cancelled policies (600) (1,100) (1,500) (1,500) Management fee revenue, net of allowance $256,462 $251,104 2.1% $485,106 $484,039 0.2% Management fee rate 25.00% 24.75% 25.00% 24.75% Growth rates of policies in force for Property and Casualty Group insurance operations by major lines of business: Private 12-mth. 12-mth. Passenger growth growth Date Auto rate Homeowners rate 06/30/2005 1,658,278 (1.7)% 1,350,491 0.2% 09/30/2005 1,651,629 (1.8) 1,354,487 0.3 12/31/2005 1,640,563 (1.8) 1,353,912 0.5 03/31/2006 1,636,048 (1.6) 1,356,885 1.0 06/30/2006 1,637,472 (1.3) 1,366,633 1.2 09/30/2006 1,636,947 (0.9) 1,373,763 1.4 12/31/2006 1,633,882 (0.4) 1,377,965 1.8 03/31/2007 1,635,714 0.0 1,384,856 2.1 06/30/2007 1,644,561 0.4 1,398,034 2.3 12-mth. Total 12-mth. All Other growth Personal growth Date Personal Lines rate Lines rate 06/30/2005 282,670 1.5% 3,291,439 (0.6)% 09/30/2005 285,134 2.3 3,291,250 (0.6) 12/31/2005 286,604 2.7 3,281,079 (0.5) 03/31/2006 289,964 3.6 3,282,897 (0.1) 06/30/2006 294,409 4.2 3,298,514 0.2 09/30/2006 298,361 4.6 3,309,071 0.5 12/31/2006 301,497 5.2 3,313,344 1.0 03/31/2007 305,591 5.4 3,326,161 1.3 06/30/2007 311,761 5.9 3,354,356 1.7 12-mth. 12-mth. 12-mth. growth CML* growth Workers' growth Date CML* Auto rate Multi-Peril rate Comp. rate 06/30/2005 118,445 1.2% 212,100 1.1% 57,398 (5.5)% 09/30/2005 118,555 1.3 212,939 1.4 56,877 (5.0) 12/31/2005 118,728 1.2 213,347 1.8 56,218 (4.6) 03/31/2006 118,587 1.0 214,461 2.3 55,254 (4.7) 06/30/2006 119,471 0.9 217,134 2.4 54,871 (4.4) 09/30/2006 119,555 0.8 217,763 2.3 54,379 (4.4) 12/31/2006 119,801 0.9 218,542 2.4 53,923 (4.1) 03/31/2007 119,907 1.1 219,300 2.3 53,498 (3.2) 06/30/2007 121,587 1.8 223,670 3.0 53,955 (1.7) 12-mth. Total 12-mth. All Other growth CML* growth Date CML* Lines rate Lines rate 06/30/2005 88,981 2.1% 476,924 0.5% 09/30/2005 90,074 2.4 478,445 0.7 12/31/2005 90,227 2.7 478,520 1.0 03/31/2006 90,301 2.8 478,603 1.2 06/30/2006 91,568 2.9 483,044 1.3 09/30/2006 92,687 2.9 484,384 1.2 12/31/2006 92,687 2.7 484,953 1.3 03/31/2007 92,857 2.8 485,562 1.5 06/30/2007 94,612 3.3 493,824 2.2 12-mth. Total growth Date All Lines rate 06/30/2005 3,768,363 (0.5)% 09/30/2005 3,769,695 (0.5) 12/31/2005 3,759,599 (0.3) 03/31/2006 3,761,500 0.1 06/30/2006 3,781,558 0.4 09/30/2006 3,793,455 0.6 12/31/2006 3,798,297 1.0 03/31/2007 3,811,723 1.3 06/30/2007 3,848,180 1.8 CML* = Commercial Policy retention trends for Property and Casualty Group insurance operations by major lines of business: Private All Passenger CML* CML* Workers' Other Total Date Auto Auto Homeowners Multi-Peril Comp. Lines All Lines 06/30/2005 89.8% 87.8% 87.8% 85.0% 85.8% 85.5% 88.3% 09/30/2005 89.9 88.0 88.0 85.1 86.0 85.6 88.4 12/31/2005 90.0 87.9 88.2 85.4 86.2 86.0 88.6 03/31/2006 90.1 88.0 88.6 85.9 86.0 86.2 88.8 06/30/2006 90.3 87.7 88.9 85.9 85.9 86.5 89.0 09/30/2006 90.5 87.8 89.2 86.0 85.8 86.7 89.2 12/31/2006 90.8 87.7 89.4 86.0 85.7 87.1 89.5 03/31/2007 91.0 88.0 89.7 86.1 86.2 87.2 89.7 06/30/2007 91.1 88.1 89.9 86.0 86.3 87.6 89.9 CML* = Commercial Average premium per policy trends for Property and Casualty Group insurance operations by major lines of business: Private 12-mth. 12-mth. Passenger percent Home- percent Date Auto change owners change 06/30/2005 $1,186 2.4% $549 7.6% 09/30/2005 1,179 0.3 546 2.8 12/31/2005 1,174 (1.3) 543 (0.5) 03/31/2006 1,161 (2.7) 539 (2.4) 06/30/2006 1,140 (3.9) 535 (2.6) 09/30/2006 1,122 (4.8) 530 (2.9) 12/31/2006 1,110 (5.5) 526 (3.1) 03/31/2007 1,100 (5.3) 524 (2.8) 06/30/2007 1,094 (4.0) 520 (2.8) All Other 12-mth Total 12-mth. Personal percent Personal percent Date Lines change Lines change 06/30/2005 $346 5.5% $851 3.3% 09/30/2005 347 3.3 846 0.6 12/31/2005 348 0.3 841 (1.6) 03/31/2006 349 0.6 832 (3.0) 06/30/2006 348 0.6 818 (3.9) 09/30/2006 348 0.3 806 (4.7) 12/31/2006 349 0.3 797 (5.2) 03/31/2007 349 0.0 791 (4.9) 06/30/2007 351 0.9 786 (3.9) 12-mth. 12-mth. percent Workers' percent Date CML* Auto change Comp. change 06/30/2005 $2,780 1.2% $6,102 12.2% 09/30/2005 2,789 0.8 6,104 8.2 12/31/2005 2,781 (0.3) 6,212 6.7 03/31/2006 2,778 (0.8) 6,270 4.4 06/30/2006 2,730 (1.8) 6,143 0.7 09/30/2006 2,705 (3.0) 6,047 (0.9) 12/31/2006 2,687 (3.4) 5,985 (3.7) 03/31/2007 2,664 (4.1) 5,914 (5.7) 06/30/2007 2,627 (3.8) 5,901 (3.9) All Other 12-mth. Total 12-mth. CML* Percent CML* percent Date Lines Change Lines change 06/30/2005 $1,708 3.8% $2,503 4.2% 09/30/2005 1,694 1.2 2,490 1.9 12/31/2005 1,705 (0.1) 2,501 0.6 03/31/2006 1,710 (0.6) 2,501 (0.5) 06/30/2006 1,676 (1.9) 2,444 (2.4) 09/30/2006 1,669 (1.5) 2,416 (3.0) 12/31/2006 1,657 (2.8) 2,393 (4.3) 03/31/2007 1,641 (4.0) 2,365 (5.4) 06/30/2007 1,616 (3.6) 2,333 (4.5) 12-mth. Total percent Date All Lines change 06/30/2005 $1,061 3.8% 09/30/2005 1,055 1.2 12/31/2005 1,052 (0.8) 03/31/2006 1,044 (2.1) 06/30/2006 1,026 (3.3) 09/30/2006 1,011 (4.2) 12/31/2006 1,001 (4.8) 03/31/2007 991 (5.1) 06/30/2007 984 (4.1) CML* = Commercial Property & Casualty Group Adjusted Combined Ratio by Major Lines of Business (SAP Basis) - Direct Business Three Months Ended June 30, 2007 Prior Year** Current Reserve Accident Development Year Calendar* Deficiency Catastrophe Excluding Year (Redundancy) Losses Catastrophes Private Passenger Auto 76.1% -9.6% 0.2% 85.5% Homeowners 89.9% 3.4% 1.6% 84.9% Other Personal Lines 99.8% 18.8% 0.1% 80.9% Total Personal 80.9% -4.9% 2.0% 83.8% Commercial Multi-Peril 83.8% -3.3% 0.1% 87.0% Commercial Auto 72.6% -10.8% 0.0% 83.4% Workers' Compensation 77.2% 4.5% 0.0% 72.7% Other Commercial Lines 49.0% -0.6% 0.0% 49.6% Total Commercial 76.6% -3.1% 0.2% 79.5% Grand Total-Direct Business Only 79.6% -4.3% 2.1% 81.8% Three Months Ended June 30, 2006 Prior Year** Current Reserve Accident Development Year Calendar* Deficiency Catastrophe Excluding Year (Redundancy) Losses Catastrophes Private Passenger Auto 96.0% 1.7% 0.7% 93.6% Homeowners 102.0% -1.4% 6.6% 96.8% Other Personal Lines 94.3% 8.5% 0.3% 85.5% Total Personal 97.6% 1.1% 7.6% 88.9% Commercial Multi-Peril 93.1% -9.2% 1.3% 101.0% Commercial Auto 79.3% -5.0% 0.2% 84.1% Workers' Compensation 94.0% 6.8% 0.0% 87.2% Other Commercial Lines 90.3% 18.2% 0.0% 72.1% Total Commercial 89.4% -1.8% 1.5% 89.7% Grand Total-Direct Business Only 95.1% 0.3% 9.1% 85.7% Six Months Ended June 30, 2007 Prior Year** Current Reserve Accident Development Year Calendar* Deficiency Catastrophe Excluding Year (Redundancy) Losses Catastrophes Private Passenger Auto 79.9% -12.0% 0.1% 91.8% Homeowners 83.8% -2.9% 1.1% 85.6% Other Personal Lines 89.4% 6.6% 0.1% 82.7% Total Personal 81.3% -8.7% 1.3% 88.7% Commercial Multi-Peril 88.7% -2.2% 0.1% 90.8% Commercial Auto 75.2% -11.5% 0.0% 86.7% Workers' Compensation 90.2% 2.5% 0.0% 87.7% Other Commercial Lines 47.2% -12.6% 0.0% 59.8% Total Commercial 82.6% -4.2% 0.1% 86.7% Grand Total-Direct Business Only 81.8% -7.4% 1.3% 87.9% Six Months Ended June 30, 2006 Prior Year** Current Reserve Accident Development Year Calendar* Deficiency Catastrophe Excluding Year (Redundancy) Losses Catastrophes Private Passenger Auto 91.8% -3.4% 0.4% 94.8% Homeowners 87.3% -5.3% 3.5% 89.1% Other Personal Lines 84.3% 4.7% 0.2% 79.4% Total Personal 90.3%*** -3.6% 4.0% 89.9% Commercial Multi-Peril 87.3% -4.5% 0.8% 91.0% Commercial Auto 78.6% -3.4% 0.1% 81.9% Workers' Compensation 77.8% -6.1% 0.0% 83.9% Other Commercial Lines 75.1% -1.2% 0.0% 76.3% Total Commercial 81.4%*** -4.5% 0.9% 85.0% Grand Total-Direct Business Only 87.6%*** -3.9% 4.9% 86.6% *The calendar year combined ratio represents the adjusted statutory combined ratio, which removes the profit component of the management fee earned by the Company. **The prior accident year reserve development does not include the effects of salvage and subrogation recoveries. *** Year to date calendar year combined ratios for 2006 are shown exclusive of the first quarter of 2006 write off of eCommerce assets. Including these in underwriting expenses would have contributed 4.0 points to the combined ratio calculations.
