Erie Indemnity Reports Third Quarter 2020 Results

ERIE, Pa., Oct. 29, 2020 /PRNewswire/ -- Erie Indemnity Company ERIE today announced financial results for the quarter and nine months ending September 30, 2020.  Net income was $89.2 million, or $1.71 per diluted share, in the third quarter of 2020, compared to $94.2 million, or $1.80 per diluted share, in the third quarter of 2019.  Net income was $230.5 million, or $4.41 per diluted share, in the first nine months of 2020, compared to $257.2 million, or $4.92 per diluted share, in the first nine months of 2019.

The significant disruption to the economy and financial markets resulting from the COVID-19 pandemic that began in the first quarter of 2020 continues to evolve and the pandemic's ultimate impact and duration remain highly uncertain at this time.  While the Exchange experienced declines in new business premium in the second quarter of 2020 due to the pandemic, new business premiums grew 10.4% in the third quarter of 2020 compared to the same period in 2019.  The financial markets substantially recovered in the third quarter from the financial volatility negatively impacting our portfolio in the first quarter of 2020, improving our investment results in the third quarter.

3Q and Nine Months 2020

(in thousands)

3Q'20

3Q'19



2020

2019



Operating income

$

96,225



$

105,907





$

273,105



$

288,639





Investment income

16,438



13,606





18,796



33,053





Interest and other expense, net

967



11





1,596



637





Income before income taxes

111,696



119,502





290,305



321,055





Income tax expense

22,480



25,333





59,786



63,821





Net income

$

89,216



$

94,169





$

230,519



$

257,234



















 

                                3Q 2020 Highlights                               

Operating income before taxes decreased $9.7 million, or 9.1 percent, in the third quarter of 2020 compared to the third quarter of 2019.

  • Management fee revenue - policy issuance and renewal services increased $10.1 million, or 2.1 percent, in the third quarter of 2020 compared to the third quarter of 2019.
  • Management fee revenue - administrative services increased $0.5 million, or 3.3 percent, in the third quarter of 2020 compared to the third quarter of 2019.
  • Cost of operations - policy issuance and renewal services
    • Commissions increased $6.2 million in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by direct and affiliated assumed written premium growth.
    • Non-commission expense increased $13.2 million in the third quarter of 2020 compared to the third quarter of 2019. Underwriting and policy processing expense increased $3.2 million primarily due to increases in personnel costs and underwriting report costs. Administrative and other costs increased $8.8 million primarily driven by higher incentive plan award accruals due to the Exchange's lower combined ratio and the change in the company stock price, which experienced an increase in the third quarter of 2020 compared to a decrease in the same period in 2019. Increased professional fees also contributed to the increase in administrative and other costs compared to the same period in 2019.

Income from investments before taxes totaled $16.4 million in the third quarter of 2020 compared to $13.6 million in the third quarter of 2019.  Net realized gains on investments were $5.9 million in the third quarter of 2020 compared to $1.7 million in the third quarter of 2019.  Net investment income was $7.0 million in the third quarter of 2020 compared to $8.7 million in the third quarter of 2019.  Earnings from limited partnerships were $3.6 million in the third quarter of 2020 compared to earnings of $3.3 million in the third quarter of 2019.

                          Nine Months 2020 Highlights                          

Operating income before taxes decreased $15.5 million, or 5.4 percent, in the first nine months of 2020 compared to the first nine months of 2019.

  • Management fee revenue - policy issuance and renewal services increased $26.2 million, or 1.9 percent, in the first nine months of 2020 compared to the first nine months of 2019.
  • Management fee revenue - administrative services increased $1.9 million, or 4.5 percent, in the first nine months of 2020 compared to the first nine months of 2019.
  • Cost of operations - policy issuance and renewal services
    • Commissions increased $20.4 million in the first nine months of 2020 compared to the first nine months of 2019, primarily driven by a 1.9% increase in direct and affiliated assumed written premium growth and increases in agent incentive compensation due to improved agent profitability.
    • Non-commission expense increased $21.9 million in the first nine months of 2020 compared to the first nine months of 2019. Information technology costs increased $6.4 million primarily due to increases in hardware and software costs, personnel costs, and professional fees. Underwriting and policy processing expense increased $6.0 million primarily due to increases in personnel costs and underwriting report costs. Administrative and other costs increased $6.3 million primarily driven by increases in personnel costs and professional fees. Increased personnel costs in all categories included higher incentive plan award accruals due to Exchange's lower combined ratio and higher vacation accruals as employees took less vacation in the first nine months of 2020 as a result of the COVID-19 pandemic.

Income from investments before taxes totaled $18.8 million in the first nine months of 2020 compared to $33.1 million in the first nine months of 2019.  Net investment income was $22.8 million in the first nine months of 2020 compared to $25.2 million in the first nine months of 2019. Net realized gains on investments were $1.6 million in the first nine months of 2020 compared to $5.5 million in the first nine months of 2019.  Net impairment losses of $3.2 million in the first nine months of 2020 were driven by the COVID-19 pandemic's impact on the financial markets.  Losses from limited partnerships were $2.4 million in the first nine months of 2020 compared to earnings of $2.5 million in the first nine months of 2019.

Webcast Information

Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on October 30, 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 11th 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:

  • potential impacts of the COVID-19 pandemic on the growth and financial condition of the Erie Insurance Exchange ("Exchange");
  • potential impacts of the COVID-19 pandemic on our operations, the business operations of our customers and/or independent agents, or our third-party vendor operations;
  • 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

September 30,



Nine months ended

September 30,





2020



2019



2020



2019





(Unaudited)



(Unaudited)

Operating revenue

















Management fee revenue - policy issuance and renewal services, net



$

484,551





$

474,427





$

1,412,096





$

1,385,923



Management fee revenue - administrative services, net



14,910





14,430





44,494





42,576



Administrative services reimbursement revenue



147,710





142,730





451,229





431,305



Service agreement revenue



6,310





7,155





19,418





20,754



  Total operating revenue



653,481





638,742





1,927,237





1,880,558





















Operating expenses

















Cost of operations - policy issuance and renewal services



409,546





390,105





1,202,903





1,160,614



Cost of operations - administrative services



147,710





142,730





451,229





431,305



Total operating expenses



557,256





532,835





1,654,132





1,591,919



Operating income



96,225





105,907





273,105





288,639





















Investment income

















Net investment income



7,030





8,652





22,772





25,199



Net realized investment gains



5,915





1,696





1,635





5,501



Net impairment losses recognized in earnings



(122)





(31)





(3,192)





(193)



Equity in earnings (losses) of limited partnerships



3,615





3,289





(2,419)





2,546



Total investment income



16,438





13,606





18,796





33,053





















Interest expense, net



3





111





8





832



Other (expense) income



(964)





100





(1,588)





195



Income before income taxes



111,696





119,502





290,305





321,055



Income tax expense



22,480





25,333





59,786





63,821



Net income



$

89,216





$

94,169





$

230,519





$

257,234





















Net income per share

















Class A common stock – basic



$

1.92





$

2.02





$

4.95





$

5.52



Class A common stock – diluted



$

1.71





$

1.80





$

4.41





$

4.92



Class B common stock – basic



$

287





$

303





$

742





$

829



Class B common stock – diluted



$

287





$

303





$

742





$

828





















Weighted average shares outstanding – Basic

















Class A common stock



46,189,030





46,189,006





46,188,544





46,188,767



Class B common stock



2,542





2,542





2,542





2,542





















Weighted average shares outstanding – Diluted

















Class A common stock



52,310,429





52,325,125





52,312,588





52,317,275



Class B common stock



2,542





2,542





2,542





2,542





















Dividends declared per share

















Class A common stock



$

0.965





$

0.90





$

2.895





$

2.70



Class B common stock



$

144.75





$

135.00





$

434.25





$

405.00



 

Erie Indemnity Company

Statements of Financial Position

(in thousands)







September 30,

2020



December 31,

2019





(Unaudited)





Assets









Current assets:









Cash and cash equivalents



$

216,355





$

336,739



Available-for-sale securities



13,429





32,810



Equity securities



0





2,381



Receivables from Erie Insurance Exchange and affiliates, net



501,192





468,636



Prepaid expenses and other current assets



52,008





44,943



Federal income taxes recoverable



3,965





462



Accrued investment income



5,973





5,433



Total current assets



792,922





891,404













Available-for-sale securities, net



894,625





697,891



Equity securities



94,435





64,752



Limited partnership investments



10,006





26,775



Fixed assets, net



254,908





221,379



Agent loans, net



58,339





60,978



Deferred income taxes, net



21,618





17,186



Other assets



32,489





35,875



Total assets



$

2,159,342





$

2,016,240













Liabilities and shareholders' equity









Current liabilities:









Commissions payable



$

275,594





$

262,963



Agent bonuses



85,709





96,053



Accounts payable and accrued liabilities



148,075





134,957



Dividends payable



44,940





44,940



Contract liability



37,420





35,938



Deferred executive compensation



12,701





10,882



Current portion of long-term borrowings



2,021





1,979



Total current liabilities



606,460





587,712













Defined benefit pension plans



169,358





145,659



Long-term borrowings



94,337





95,842



Contract liability



19,140





18,435



Deferred executive compensation



11,335





13,734



Other long-term liabilities



11,495





21,605



Total liabilities



912,125





882,987













Shareholders' equity



1,247,217





1,133,253



Total liabilities and shareholders' equity



$

2,159,342





$

2,016,240



 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/erie-indemnity-reports-third-quarter-2020-results-301161772.html

SOURCE Erie Indemnity Company

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