Erie Insurance Group, (NASDAQ: ERIE) is a multi-line insurance company, offering auto, home, commercial and life insurance through a network of independent insurance agents. ERIE’s geographic presence extends to 11 states and the District of Columbia, including Illinois, Indiana, Maryland, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and Wisconsin.
Erie Indemnity Company (Indemnity) operates as attorney-in-fact for the subscribers at Erie Insurance Exchange (Exchange). The Exchange is a subscriber (policyholder)-owned reciprocal insurer that writes property/casualty insurance. The Company’s primary function is to perform certain services for the Exchange relating to sales, underwriting and issuance of policies on behalf of the Exchange. This is done in accordance with a subscribers agreement (a limited power of attorney) executed by each subscriber (policyholder), appointing the Company as their common attorney-in-fact to transact business on their behalf and to manage their affairs at the Exchange. It earns a management fee from the Exchange for these services. The Company operates its business as three segments: management operations, insurance underwriting operations and investment operations.
The Exchange and its wholly owned subsidiary, Flagship City Insurance Company (Flagship) and the Indemnity’s wholly owned subsidiaries, Erie Insurance Company (EIC), Erie Insurance Company of New York (ENY) and the Erie Insurance Property and Casualty Company (EPC), comprise the Property and Casualty Group. The Property and Casualty Group is a regional insurance group operating in 11 Midwestern, Mid-Atlantic, and Southeastern states, and the District of Columbia. The Property and Casualty Group primarily writes personal auto insurance, which comprises 48% of its direct premiums. Indemnity owns 21.6% of the common stock of the Erie Family Life Insurance Company (EFL), an affiliated life insurance company, and the Exchange owns the remaining 78.4%. EFL underwrites and sells non-participating individual and group life insurance policies and fixed annuities. The Indemnity, together with the members of the Property and Casualty Group and EFL, operate collectively as the Erie Insurance Group (Group).
Management Operations
For the Company’s services as attorney-in-fact, it charges the policyholders of the Exchange a management fee of up to 25%. Management fees accounted for approximately 81% of its total revenue during the year ended December 31, 2009.
Insurance Underwriting Operations
The members of the Property and Casualty Group pool their underwriting results. Under the reinsurance pooling arrangement, the Exchange assumes 94.5% of the pool, and the Company’s property/casualty insurance subsidiaries assume the remaining 5.5% of the pool. The Property and Casualty Group is focused on insuring standard and preferred risks, with personal lines comprising 72% of direct written premiums and commercial lines comprising the remaining 28% of direct written premiums in 2009. During 2009, the principal personal lines products based on direct written premiums were private passenger automobile (48%) and homeowners (21%). During 2009, the principal commercial lines products based on direct written premiums were commercial multi-peril (11%), commercial automobile (8%) and workers compensation (6%).
The Property and Casualty Group writes business in Illinois, Indiana, Maryland, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, Wisconsin and the District of Columbia. The states of Pennsylvania, Maryland and Virginia made up 64% of the Property and Casualty Group’s direct written premium during 2009. The Property and Casualty Group is represented by over 2,000 independent agencies comprising over 9,200 licensed representatives and is the Company’s sole distribution channel. The Property and Casualty Group maintains 23 field offices throughout its operating region to provide claims services to policyholders and marketing support for the independent agencies that represent the Company.
Investment operations
The Company generates revenues from its fixed maturity, equity security and alternative investment portfolios. It makes investments in private equity, mezzanine and real estate partnerships. In addition, the investment operations segment includes the Company’s 21.6% investment in EFL.
Lundquist resigned in 1997, leaving Jan Kvarnström at the helm. Esselte once again revamped its operations under new leadership. It adopted a holding company structure with three independent subsidiaries--Esselte Office Products Inc., Meto, and Nielsen & Bainbridge. The latter was divested in 1998, positioning Esselte to focus on its office products business and Meto subsidiaries.
Esselte's office products arm purchased L. Leitz International GmbH for $337.7 million in 1998. By adding Germany's largest office supply manufacturer to its arsenal, Esselte secured a position as the world's leading manufacturer in the office supplies industry. The two companies fit well together, and Esselte gained a stronger foothold in markets where its performance had traditionally been weak. Leitz's past investment in automation and technology was also considered a benefit and was expected to add cost savings to Esselte's existing operations. The company also acquired U.S. printer label manufacturer CoStar that year.
Meto was sold to shareholders in 1999 in a move that pared Esselte down to its Office Products business. Kvarnström moved into the chairman position that year, and Anders Igel was named CEO. By now, Esselte had undergone an intense transformation, changing from a large conglomerate into a streamlined office products supplier. The dramatic changes positioned it to face the challenges of the new millennium which included a severe recession and weak economies that affected most of the company's markets. The firm continued to take action in order to maintain profitability. It divested its Monti printing business in 2000 and its Letraset graphics and Tarifold filing system holdings in 2001. That year it also restructured its Curtis operations.
Perhaps the most significant move in the company's history came in 2002 when J.W. Childs Associates L.P., a Boston buyout firm, made a $550 million cash offer for Esselte. This type of transaction, a public-to-private-buyout, was gaining popularity in Europe. Before 1999, the value of such deals in Europe hovered around EUR 300 million. By 2001, the value of this type of buyout had reached EUR 6 billion. J.W. Child's purchase was expected to boost profitability in Esselte, and this prompted company board members to recommend the offer. Esselte's largest shareholder, Ratos, agreed to sell its interest to J.W. Childs in May 2002. The transaction was completed in July. Magnus Nicolin was named Esselte's new president and CEO.
As a private company, Esselte had the financial wherewithal to pursue an aggressive growth strategy that included geographic expansion, acquisition, and investment in current brands. Nicolin commented on Esselte's new parent in a May 2003 Office Products International article. "JW Childs is a strong owner and is more committed to the company's growth," he claimed. "It has the desire to add value and support new initiatives." Holding JW Childs to its word, Esselte made several key moves after the change in ownership.
In August 2002 the company revamped its sales and marketing operations in Europe and created the Esselte Sales Group Europe division to provide enhanced customer services, support, and trade marketing. It completed a management realignment in 2003 and set several initiatives in place that increased productivity and operational efficiency and improved waste reduction. Acquisition activity also resumed with the purchase of the consumer products division of Centis Inc. in March 2003. The deal included JM, Duo Tang, Century Craft, and Centis Canada, which were integrated into Esselte's Filing Americas division.
The company's key brands at this time were Pendaflex, DYMO, Esselte, and Leitz. It added the Xyron brand to product line in October 2003. In early 2004, Esselte bought Universal Trade Stationers, leading to the creation of its first office in Ireland. It also purchased EJA CZ of the Czech Republic. In May 2004 it completed a EURO 150 million bond offering.
In the coming years, Esselte planned to strengthen its brands through product innovation, marketing and investment, and by expanding its customer base. Additional growth in China, one of the fastest-growing countries in the world, and in the Eastern European region was at the forefront of Esselte's expansion strategy. J.W. Childs' cash infusion came at a crucial moment in Esselte's history and left it well positioned in the industry. Esselte had indeed experienced a wave of changes over the past decade but it appeared as though it was on track for growth in the years to come as the world's largest office supply manufacturer.
Principal Subsidiaries: Esselte Sverige AB (Sweden); Esselte UK Ltd.; Esselte Leitz GmbH & Co. KG (Germany); Esselte de Mexico S.A. de C.V.; Esselte S.A. (France); Esselte Canada Inc.; Esselte S.r.l. (Italy); Esselte Australia Pty Ltd.; Esselte Ltd. (Hong Kong).
Principal Operating Units: Filing Americas; Filing Europe; Sales Group Europe; DYMO; Workspace; Esselte Asia Pacific.
Principal Competitors: Avery Dennison Corporation; MeadWestvaco Corporation; Smead Manufacturing Company.
OVERALL
Beta: 0.75
Market Cap (Mil.): $3,954.47
Shares Outstanding (Mil.): 55.86
Annual Dividend: 2.06
Yield (%): 2.91
FINANCIALS
ERIE.O Industry Sector
P/E (TTM): 12.22 24.39 24.66
EPS (TTM): 208.10 -- --
ROI: -- 6.00 4.68
ROE: 5.46 11.42 9.23
Statistics:
Private Company
Incorporated:1913 as SLT
Employees:6,500
Sales: $1.2 billion (2003)
NAIC:422120 Stationery and Office Supplies Wholesalers; 333313 Office Machinery Manufacturing
Key Dates:
1913: Thirteen Swedish businesses join together to form SLT.
1964: The company launches a major restructuring effort to streamline operations.
1970: SLT changes its name to Esselte AB.
1976: Oxford Pendaflex Corporation is acquired.
1978: Esselte purchases DYMO Industries Inc.
1981: Letraset Ltd. is added to the company's holdings.
1992: Company operations are split into two companies.
2002: J.W. Childs Associates L.P. acquires Esselte.
Name Age Since Current Position
Hagen, Thomas 75 2007 Independent Chairman of the Board
Cavanaugh, Terrence 57 2008 President, Chief Executive Officer, Director
Dall, Marcia 47 2009 Chief Financial Officer, Executive Vice President
Tanous, James 63 2007 Executive Vice President, General Counsel, Secretary
Kearns, John 51 2010 Executive Vice President - Sales & Marketing
Zavasky, Michael 58 2008 Executive Vice President – Insurance Operations
Dufala, George 39 2010 Executive Vice President - Services
Ziegler, Douglas 60 1993 Senior Vice President, Chief Investment Officer, Treasurer
Borneman, J. Ralph 72 1992 Director
Hagen, Susan 75 1980 Independent Director
Wilburn, Robert 67 1999 Independent Director
Lilly, Claude 64 2000 Independent Director
Hartz, C. Scott 65 2003 Independent Director
Palmer, Thomas 63 2006 Independent Director
Morrison, Lucian 74 2006 Independent Director
Hagen, Jonathan 48 2005 Independent Director
Vorsheck, Elizabeth 55 2007 Independent Director
Sheffield, Martin 61 2010 Independent Director
Stover, Richard 68 2010 Independent Director
Address:
U.S. Headquarters:
44 Commerce Road
Stamford, Connecticut
U.S.A.
Erie Indemnity Company (Indemnity) operates as attorney-in-fact for the subscribers at Erie Insurance Exchange (Exchange). The Exchange is a subscriber (policyholder)-owned reciprocal insurer that writes property/casualty insurance. The Company’s primary function is to perform certain services for the Exchange relating to sales, underwriting and issuance of policies on behalf of the Exchange. This is done in accordance with a subscribers agreement (a limited power of attorney) executed by each subscriber (policyholder), appointing the Company as their common attorney-in-fact to transact business on their behalf and to manage their affairs at the Exchange. It earns a management fee from the Exchange for these services. The Company operates its business as three segments: management operations, insurance underwriting operations and investment operations.
The Exchange and its wholly owned subsidiary, Flagship City Insurance Company (Flagship) and the Indemnity’s wholly owned subsidiaries, Erie Insurance Company (EIC), Erie Insurance Company of New York (ENY) and the Erie Insurance Property and Casualty Company (EPC), comprise the Property and Casualty Group. The Property and Casualty Group is a regional insurance group operating in 11 Midwestern, Mid-Atlantic, and Southeastern states, and the District of Columbia. The Property and Casualty Group primarily writes personal auto insurance, which comprises 48% of its direct premiums. Indemnity owns 21.6% of the common stock of the Erie Family Life Insurance Company (EFL), an affiliated life insurance company, and the Exchange owns the remaining 78.4%. EFL underwrites and sells non-participating individual and group life insurance policies and fixed annuities. The Indemnity, together with the members of the Property and Casualty Group and EFL, operate collectively as the Erie Insurance Group (Group).
Management Operations
For the Company’s services as attorney-in-fact, it charges the policyholders of the Exchange a management fee of up to 25%. Management fees accounted for approximately 81% of its total revenue during the year ended December 31, 2009.
Insurance Underwriting Operations
The members of the Property and Casualty Group pool their underwriting results. Under the reinsurance pooling arrangement, the Exchange assumes 94.5% of the pool, and the Company’s property/casualty insurance subsidiaries assume the remaining 5.5% of the pool. The Property and Casualty Group is focused on insuring standard and preferred risks, with personal lines comprising 72% of direct written premiums and commercial lines comprising the remaining 28% of direct written premiums in 2009. During 2009, the principal personal lines products based on direct written premiums were private passenger automobile (48%) and homeowners (21%). During 2009, the principal commercial lines products based on direct written premiums were commercial multi-peril (11%), commercial automobile (8%) and workers compensation (6%).
The Property and Casualty Group writes business in Illinois, Indiana, Maryland, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, Wisconsin and the District of Columbia. The states of Pennsylvania, Maryland and Virginia made up 64% of the Property and Casualty Group’s direct written premium during 2009. The Property and Casualty Group is represented by over 2,000 independent agencies comprising over 9,200 licensed representatives and is the Company’s sole distribution channel. The Property and Casualty Group maintains 23 field offices throughout its operating region to provide claims services to policyholders and marketing support for the independent agencies that represent the Company.
Investment operations
The Company generates revenues from its fixed maturity, equity security and alternative investment portfolios. It makes investments in private equity, mezzanine and real estate partnerships. In addition, the investment operations segment includes the Company’s 21.6% investment in EFL.
Lundquist resigned in 1997, leaving Jan Kvarnström at the helm. Esselte once again revamped its operations under new leadership. It adopted a holding company structure with three independent subsidiaries--Esselte Office Products Inc., Meto, and Nielsen & Bainbridge. The latter was divested in 1998, positioning Esselte to focus on its office products business and Meto subsidiaries.
Esselte's office products arm purchased L. Leitz International GmbH for $337.7 million in 1998. By adding Germany's largest office supply manufacturer to its arsenal, Esselte secured a position as the world's leading manufacturer in the office supplies industry. The two companies fit well together, and Esselte gained a stronger foothold in markets where its performance had traditionally been weak. Leitz's past investment in automation and technology was also considered a benefit and was expected to add cost savings to Esselte's existing operations. The company also acquired U.S. printer label manufacturer CoStar that year.
Meto was sold to shareholders in 1999 in a move that pared Esselte down to its Office Products business. Kvarnström moved into the chairman position that year, and Anders Igel was named CEO. By now, Esselte had undergone an intense transformation, changing from a large conglomerate into a streamlined office products supplier. The dramatic changes positioned it to face the challenges of the new millennium which included a severe recession and weak economies that affected most of the company's markets. The firm continued to take action in order to maintain profitability. It divested its Monti printing business in 2000 and its Letraset graphics and Tarifold filing system holdings in 2001. That year it also restructured its Curtis operations.
Perhaps the most significant move in the company's history came in 2002 when J.W. Childs Associates L.P., a Boston buyout firm, made a $550 million cash offer for Esselte. This type of transaction, a public-to-private-buyout, was gaining popularity in Europe. Before 1999, the value of such deals in Europe hovered around EUR 300 million. By 2001, the value of this type of buyout had reached EUR 6 billion. J.W. Child's purchase was expected to boost profitability in Esselte, and this prompted company board members to recommend the offer. Esselte's largest shareholder, Ratos, agreed to sell its interest to J.W. Childs in May 2002. The transaction was completed in July. Magnus Nicolin was named Esselte's new president and CEO.
As a private company, Esselte had the financial wherewithal to pursue an aggressive growth strategy that included geographic expansion, acquisition, and investment in current brands. Nicolin commented on Esselte's new parent in a May 2003 Office Products International article. "JW Childs is a strong owner and is more committed to the company's growth," he claimed. "It has the desire to add value and support new initiatives." Holding JW Childs to its word, Esselte made several key moves after the change in ownership.
In August 2002 the company revamped its sales and marketing operations in Europe and created the Esselte Sales Group Europe division to provide enhanced customer services, support, and trade marketing. It completed a management realignment in 2003 and set several initiatives in place that increased productivity and operational efficiency and improved waste reduction. Acquisition activity also resumed with the purchase of the consumer products division of Centis Inc. in March 2003. The deal included JM, Duo Tang, Century Craft, and Centis Canada, which were integrated into Esselte's Filing Americas division.
The company's key brands at this time were Pendaflex, DYMO, Esselte, and Leitz. It added the Xyron brand to product line in October 2003. In early 2004, Esselte bought Universal Trade Stationers, leading to the creation of its first office in Ireland. It also purchased EJA CZ of the Czech Republic. In May 2004 it completed a EURO 150 million bond offering.
In the coming years, Esselte planned to strengthen its brands through product innovation, marketing and investment, and by expanding its customer base. Additional growth in China, one of the fastest-growing countries in the world, and in the Eastern European region was at the forefront of Esselte's expansion strategy. J.W. Childs' cash infusion came at a crucial moment in Esselte's history and left it well positioned in the industry. Esselte had indeed experienced a wave of changes over the past decade but it appeared as though it was on track for growth in the years to come as the world's largest office supply manufacturer.
Principal Subsidiaries: Esselte Sverige AB (Sweden); Esselte UK Ltd.; Esselte Leitz GmbH & Co. KG (Germany); Esselte de Mexico S.A. de C.V.; Esselte S.A. (France); Esselte Canada Inc.; Esselte S.r.l. (Italy); Esselte Australia Pty Ltd.; Esselte Ltd. (Hong Kong).
Principal Operating Units: Filing Americas; Filing Europe; Sales Group Europe; DYMO; Workspace; Esselte Asia Pacific.
Principal Competitors: Avery Dennison Corporation; MeadWestvaco Corporation; Smead Manufacturing Company.
OVERALL
Beta: 0.75
Market Cap (Mil.): $3,954.47
Shares Outstanding (Mil.): 55.86
Annual Dividend: 2.06
Yield (%): 2.91
FINANCIALS
ERIE.O Industry Sector
P/E (TTM): 12.22 24.39 24.66
EPS (TTM): 208.10 -- --
ROI: -- 6.00 4.68
ROE: 5.46 11.42 9.23
Statistics:
Private Company
Incorporated:1913 as SLT
Employees:6,500
Sales: $1.2 billion (2003)
NAIC:422120 Stationery and Office Supplies Wholesalers; 333313 Office Machinery Manufacturing
Key Dates:
1913: Thirteen Swedish businesses join together to form SLT.
1964: The company launches a major restructuring effort to streamline operations.
1970: SLT changes its name to Esselte AB.
1976: Oxford Pendaflex Corporation is acquired.
1978: Esselte purchases DYMO Industries Inc.
1981: Letraset Ltd. is added to the company's holdings.
1992: Company operations are split into two companies.
2002: J.W. Childs Associates L.P. acquires Esselte.
Name Age Since Current Position
Hagen, Thomas 75 2007 Independent Chairman of the Board
Cavanaugh, Terrence 57 2008 President, Chief Executive Officer, Director
Dall, Marcia 47 2009 Chief Financial Officer, Executive Vice President
Tanous, James 63 2007 Executive Vice President, General Counsel, Secretary
Kearns, John 51 2010 Executive Vice President - Sales & Marketing
Zavasky, Michael 58 2008 Executive Vice President – Insurance Operations
Dufala, George 39 2010 Executive Vice President - Services
Ziegler, Douglas 60 1993 Senior Vice President, Chief Investment Officer, Treasurer
Borneman, J. Ralph 72 1992 Director
Hagen, Susan 75 1980 Independent Director
Wilburn, Robert 67 1999 Independent Director
Lilly, Claude 64 2000 Independent Director
Hartz, C. Scott 65 2003 Independent Director
Palmer, Thomas 63 2006 Independent Director
Morrison, Lucian 74 2006 Independent Director
Hagen, Jonathan 48 2005 Independent Director
Vorsheck, Elizabeth 55 2007 Independent Director
Sheffield, Martin 61 2010 Independent Director
Stover, Richard 68 2010 Independent Director
Address:
U.S. Headquarters:
44 Commerce Road
Stamford, Connecticut
U.S.A.