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Erie Indemnity Reports Full Year and Fourth Quarter 2019 Results

February 28, 2020 GMT
Erie Insurance. (PRNewsFoto/Erie Insurance) (PRNewsfoto/Erie Insurance)
Erie Insurance. (PRNewsFoto/Erie Insurance) (PRNewsfoto/Erie Insurance)

ERIE, Pa., Feb. 27, 2020 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the full year and quarter ending December 31, 2019. Net income was $316.8 million, or $6.06 per diluted share, in 2019, compared to $288.2 million, or $5.51 per diluted share, in 2018. Net income was $59.6 million, or $1.14 per diluted share, in the fourth quarter of 2019, compared to $62.3 million, or $1.19 per diluted share, in the fourth quarter of 2018.

4Q and Full Year 2019

(dollars in thousands)

4Q'19

4Q'18


2019

2018


Operating income

$

68,700


$

74,758



$

357,339


$

344,343



Investment income

6,914


4,995



39,967


25,796



Interest expense and other (income), net

(36)


(2,889)



601


(1,181)



Income before income taxes

75,650


82,642



396,705


371,320



Income tax expense

16,063


20,328



79,884


83,096



Net income

$

59,587


$

62,314



$

316,821


$

288,224


























2019 Full Year Highlights

















Operating income before taxes increased $13.0 million, or 3.8 percent, in 2019 compared to 2018.

  • Management fee revenue - policy issuance and renewal services increased $90.9 million, or 5.3 percent, in 2019 compared to 2018.
  • Management fee revenue allocated to administrative services increased $3.6 million, or 6.7 percent, in 2019 compared to 2018.
  • Cost of operations - policy issuance and renewal services
    • Commissions increased $40.9 million in 2019 compared to 2018 as a result of the 5.2 percent increase in direct and affiliated assumed premiums written by the Exchange, somewhat offset by lower agent incentive costs related to less profitable growth.
    • Non-commission expense increased $39.5 million in 2019 compared to 2018. Underwriting and policy processing costs increased $5.7 million primarily due to increased underwriting report costs and other policy acquisition costs. Information technology costs increased $23.1 million primarily due to increased professional fees and hardware and software costs. Sales and advertising costs decreased $3.2 million due to decreased personnel costs. Customer service costs increased $2.9 million primarily due to increased credit card processing fees and personnel costs. Administrative and other expenses increased $11.1 million primarily driven by an increase in long-term incentive plan costs due to a higher company stock price in 2019 compared to 2018 and several multi-year commitments made to support community development initiatives. Personnel costs in all expense categories were impacted by increased medical expenses, somewhat offset by lower estimated costs for incentive plans related to sales and underwriting performance in 2019 compared to targets.
  • The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $582.0 million in 2019 and $580.3 million in 2018, but had no net impact on operating income.

Income from investments before taxes totaled $40.0 million in 2019 compared to $25.8 million in 2018. Net realized gains on investments were $6.1 million in 2019 compared to net realized losses of $2.0 million in 2018. Net investment income was $33.4 million in 2019 compared to $30.2 million in 2018.

















4Q 2019 Highlights

















Operating income before taxes decreased $6.1 million, or 8.1 percent, in the fourth quarter of 2019 compared to the fourth quarter of 2018.

  • Management fee revenue - policy issuance and renewal services increased $16.9 million, or 4.1 percent, in the fourth quarter of 2019 compared to the fourth quarter of 2018.
  • Management fee revenue allocated to administrative services increased $0.9 million, or 6.5 percent in the fourth quarter of 2019 compared to the fourth quarter of 2018.
  • Cost of operations - policy issuance and renewal services
    • Commissions increased $10.1 million in the fourth quarter of 2019 compared to the fourth quarter of 2018 as a result of the 4.1 percent increase in direct and affiliated assumed premiums written by the Exchange.
    • Non-commission expense increased $13.2 million in the fourth quarter of 2019 compared to the fourth quarter of 2018. Underwriting and policy processing costs increased $1.8 million primarily due to increased underwriting report costs and other policy acquisition costs. Information technology costs increased $6.0 million primarily due to increased professional fees and hardware and software costs. Administrative and other expenses increased $5.0 million primarily due to increased personnel costs and several multi-year commitments made to support community development initiatives.
  • The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $150.7 million and $147.7 million in the fourth quarter of 2019 and 2018, respectively, but had no net impact on operating income.

Income from investments before taxes totaled $6.9 million in the fourth quarter of 2019 compared to $5.0 million in the fourth quarter of 2018. Net realized gains on investments were $0.6 million in the fourth quarter of 2019 compared net realized losses of $1.5 million in the fourth quarter of 2018. Net investment income was $8.2 million in the fourth quarter of 2019 compared to $8.6 million in the fourth quarter of 2018.

Webcast Information

Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on February 28, 2020. Investors may access the pre-recorded audio broadcast by logging on to www.erieinsurance.com.

Erie Insurance Group

According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 9th largest homeowners insurer and 12th largest automobile insurer in the United States based on direct premiums written and the 16th largest property/casualty insurer in the United States based on total lines net premium written. The Group, rated A+ (Superior) by A.M. Best Company, has nearly 6 million policies in force and operates in 12 states and the District of Columbia. Erie Insurance Group is a FORTUNE 500 company.

News releases and more information about Erie Insurance Group are available at www.erieinsurance.com.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:
Statements contained herein that are not historical fact are forward-looking statements and, as such, are subject to risks and uncertainties that could cause actual events and results to differ, perhaps materially, from those discussed herein. Forward-looking statements relate to future trends, events or results and include, without limitation, statements and assumptions on which such statements are based that are related to our plans, strategies, objectives, expectations, intentions, and adequacy of resources. Examples of forward-looking statements are discussions relating to premium and investment income, expenses, operating results, and compliance with contractual and regulatory requirements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Among the risks and uncertainties, in addition to those set forth in our filings with the Securities and Exchange Commission, that could cause actual results and future events to differ from those set forth or contemplated in the forward-looking statements include the following:

  • dependence upon our relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange;
  • dependence upon our relationship with the Exchange and the growth of the Exchange, including:
    • general business and economic conditions;
    • factors affecting insurance industry competition;
    • dependence upon the independent agency system; and
    • ability to maintain our reputation for customer service;
  • dependence upon our relationship with the Exchange and the financial condition of the Exchange, including:
    • the Exchange’s ability to maintain acceptable financial strength ratings;
    • factors affecting the quality and liquidity of the Exchange’s investment portfolio;
    • changes in government regulation of the insurance industry;
    • emerging claims and coverage issues in the industry; and
    • severe weather conditions or other catastrophic losses, including terrorism;
  • costs of providing policy issuance and renewal services to the Exchange under the subscriber’s agreement;
  • ability to attract and retain talented management and employees;
  • ability to ensure system availability and effectively manage technology initiatives;
  • difficulties with technology or data security breaches, including cyber attacks;
  • ability to maintain uninterrupted business operations;
  • factors affecting the quality and liquidity of our investment portfolio;
  • our ability to meet liquidity needs and access capital; and
  • outcome of pending and potential litigation.

A forward-looking statement speaks only as of the date on which it is made and reflects our analysis only as of that date. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions, or otherwise.

Erie Indemnity Company

Statements of Operations

(dollars in thousands, except per share data)





Three months ended
December 31,


Twelve months ended
December 31,



2019


2018


2019


2018



(Unaudited)





Operating revenue









Management fee revenue - policy issuance and renewal
services, net


$

424,534



$

407,656



$

1,810,457



$

1,719,567


Management fee revenue - administrative services, net


14,628



13,738



57,204



53,632


Administrative services reimbursement revenue


150,705



147,694



582,010



580,336


Service agreement revenue


6,873



7,380



27,627



28,677


Total operating revenue


596,740



576,468



2,477,298



2,382,212











Operating expenses









Cost of operations - policy issuance and renewal services


377,335



354,016



1,537,949



1,457,533


Cost of operations - administrative services


150,705



147,694



582,010



580,336


Total operating expenses


528,040



501,710



2,119,959



2,037,869


Operating income


68,700



74,758



357,339



344,343











Investment income









Net investment income


8,200



8,626



33,399



30,209


Net realized investment gains (losses)


602



(1,513)



6,103



(2,010)


Net impairment losses recognized in earnings


(2)



(935)



(195)



(1,581)


Equity in (losses) earnings of limited partnerships


(1,886)



(1,183)



660



(822)


Total investment income


6,914



4,995



39,967



25,796











Interest expense, net


24



596



856



2,460


Other income


60



3,485



255



3,641


Income before income taxes


75,650



82,642



396,705



371,320


Income tax expense


16,063



20,328



79,884



83,096


Net income


$

59,587



$

62,314



$

316,821



$

288,224




















Earnings Per Share









Net income per share









Class A common stock – basic


$

1.28



$

1.34



$

6.80



$

6.19


Class A common stock – diluted


$

1.14



$

1.19



$

6.06



$

5.51


Class B common stock – basic and diluted


$

192



$

201



$

1,020



$

928











Weighted average shares outstanding – Basic









Class A common stock


46,189,033



46,188,978



46,188,836



46,188,637


Class B common stock


2,542



2,542



2,542



2,542











Weighted average shares outstanding – Diluted









Class A common stock


52,327,607



52,319,918



52,319,860



52,315,213


Class B common stock


2,542



2,542



2,542



2,542











Dividends declared per share









Class A common stock


$

0.9650



$

0.9000



$

3.6650



$

3.4200


Class B common stock


$

144.750



$

135.000



$

549.750



$

513.000



Erie Indemnity Company

Statements of Financial Position

(in thousands)





December 31, 2019


December 31, 2018

Assets





Current assets:





Cash and cash equivalents


$

336,739



$

266,417


Available-for-sale securities


32,810



402,339


Equity securities


2,381




Receivables from Erie Insurance Exchange and affiliates


468,636



449,873


Prepaid expenses and other current assets


44,943



36,892


Federal income taxes recoverable


462



8,162


Accrued investment income


5,433



5,263


Total current assets


891,404



1,168,946







Available-for-sale securities


697,891



346,184


Equity securities


64,752



11,853


Limited partnership investments


26,775



34,821


Fixed assets, net


221,379



130,832


Deferred income taxes, net


17,186



24,101


Other assets


96,853



61,590


Total assets


$

2,016,240



$

1,778,327







Liabilities and shareholders' equity





Current liabilities:





Commissions payable


$

262,963



$

241,573


Agent bonuses


96,053



103,462


Accounts payable and accrued liabilities


134,957



111,291


Dividends payable


44,940



41,910


Contract liability


35,938



33,854


Deferred executive compensation


10,882



13,107


Current portion of long-term borrowings


1,979



1,870


Total current liabilities


587,712



547,067







Defined benefit pension plan


145,659



116,866


Contract liability


18,435



17,873


Deferred executive compensation


13,734



13,075


Long-term borrowings


95,842



97,860


Other long-term liabilities


21,605



11,914


Total liabilities


882,987



804,655







Shareholders' equity


1,133,253



973,672


Total liabilities and shareholders' equity


$

2,016,240



$

1,778,327


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SOURCE Erie Indemnity Company