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Erie Indemnity Reports Second Quarter 2018 Results

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Erie Indemnity Reports Second Quarter 2018 Results

Net Income per Diluted Share up 36.2 percent for the Quarter and 36.8 percent for the First Half of 2018

PR Newswire

ERIE, Pa., July 26, 2018 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending June 30, 2018.  Net income was $79.7 million, or $1.52 per diluted share, in the second quarter of 2018, compared to $58.5 million, or $1.12 per diluted share, in the second quarter of 2017.  Net income was $145.5 million, or $2.78 per diluted share, in the first six months of 2018, compared to $106.4 million, or $2.03 per diluted share, in the first six months of 2017.

2Q and First Half 2018

(dollars in thousands)

2Q'18

2Q'17


1H'18

1H'17


Operating income

$

95,323


$

83,448



$

172,890


$

150,388



Investment income

6,207


6,451



12,370


13,040



Interest expense and other, net

544


664



1,053


1,239



Income before income taxes

100,986


89,235



184,207


162,189



Income tax expense

21,280


30,708



38,743


55,786



Net income

$

79,706


$

58,527



$

145,464


$

106,403










Erie Insurance. (PRNewsFoto/Erie Insurance)

 

2Q 2018 Highlights

Operating income before taxes increased $11.9 million, or 14.2 percent, in the second quarter of 2018 compared to the second quarter of 2017, as the growth in total operating revenue outpaced the growth in total operating expenses.

  • Management fee revenue - policy issuance and renewal services increased $13.3 million, or 3.0 percent, in the second quarter of 2018 compared to the second quarter of 2017.
  • Management fee revenue allocated to administrative services was $13.3 million in the second quarter of 2018. No management fee revenue was allocated to administrative services in the second quarter of 2017.
  • Cost of operations - policy issuance and renewal services
    • Commissions increased $10.2 million in the second quarter of 2018 compared to the second quarter of 2017, as a result of the 6.5 percent increase in direct and assumed premiums written by the Exchange, slightly offset by lower agent incentive costs related to less profitable growth, compared to the second quarter of 2017.
    • Non-commission expense increased $4.3 million in the second quarter of 2018 compared to the second quarter of 2017.  Underwriting and policy processing costs increased $2.1 million primarily due to increased underwriting report costs.  Customer service costs increased $1.3 million primarily due to increased personnel costs and credit card processing fees.  Administrative and other expenses increased $2.0 million primarily due to a sales and use tax refund recorded in the second quarter of 2017.
  • The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $146.5 million in the second quarter of 2018, but had no net impact on operating income.

Income from investments before taxes totaled $6.2 million in the second quarter of 2018 compared to $6.5 million in the second quarter of 2017.  Net investment income was $7.1 million in the second quarter of 2018 compared to $6.2 million in the second quarter of 2017, while impairments on investments were $0.6 million in the second quarter of 2018 compared to $0.1 million in the second quarter of 2017 and losses on limited partnerships were $0.2 million in the second quarter of 2018 compared to earnings of $0.1 million in the second quarter of 2017.

Income before income taxes increased $11.8 million in the second quarter of 2018, while income tax expense decreased $9.4 million in the second quarter of 2018, due to the lower income tax rate of 21% which became effective January 1, 2018.

First Half 2018 Highlights

Operating income before taxes increased $22.5 million, or 15.0 percent, in the first six months of 2018 compared to the first six months of 2017, as the growth in total operating revenue outpaced the growth in total operating expenses.

  • Management fee revenue - policy issuance and renewal services increased $27.2 million, or 3.3 percent, in the first six months of 2018 compared to the first six months of 2017.
  • Management fee revenue allocated to administrative services was $26.4 million in the first six months of 2018. No management fee revenue was allocated to administrative services in the first six months of 2017.
  • Cost of operations - policy issuance and renewal services
    • Commissions increased $23.8 million in the first six months of 2018 compared to the first six months of 2017, as a result of the 6.7 percent increase in direct and assumed premiums written by the Exchange, slightly offset by lower agent incentive costs related to less profitable growth, compared to the first six months of 2017.
    • Non-commission expense increased $7.0 million in the first six months of 2018 compared to the first six months of 2017.  Underwriting and policy processing costs increased $5.3 million primarily due to increased personnel costs and underwriting report costs.  Information technology costs decreased $1.3 million primarily due to lower professional fees and hardware and software costs, somewhat offset by higher personnel costs.  Customer service costs increased $2.9 million primarily due to increased personnel costs and credit card processing fees.  Personnel costs in all expense categories were impacted by additional bonuses of approximately $4.8 million awarded to all employees as a result of tax savings realized from the lower corporate income tax rate that became effective January 1, 2018.  These increased personnel costs were somewhat offset by lower estimated costs for incentive plan awards related to underwriting performance.
  • The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $292.5 million in the first six months of 2018, but had no net impact on operating income.

Income from investments before taxes totaled $12.4 million in the first six months of 2018 compared to $13.0 million in the first six months of 2017.  Net investment income was $13.9 million in the first six months of 2018 compared to $12.2 million in the first six months of 2017, while net realized losses on investments were $0.5 million in the first six months of 2018 compared to net realized gains of $0.6 million in the first six months of 2017 and losses on limited partnerships were $0.4 million in the first six months of 2018 compared to earnings of $0.4 million in the first six months of 2017.

Income before income taxes increased $22.0 million in the first six months of 2018, while income tax expense decreased $17.0 million in the first six months of 2018, due to the lower income tax rate of 21% which became effective January 1, 2018.

Webcast Information
Indemnity has scheduled a conference call and live audio broadcast on the Web for 10:00 AM ET on July 27, 2018.  Investors may access the live audio broadcast by logging on to www.erieinsurance.com.  Indemnity recommends visiting the website at least 15 minutes prior to the Webcast to download and install any necessary software.  A Webcast audio replay will be available on the Investor Relations page of the Erie Insurance website by 12:30 PM ET.

Erie Insurance Group
According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 9th largest homeowners insurer and 11th 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 more than 5 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;
  • credit risk from the Exchange;
  • 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 June 30,


Six months ended June 30,



2018


2017


2018


2017



(Unaudited)


(Unaudited)

Operating revenue









Management fee revenue - policy issuance and renewal services, net


$

454,572



$

441,319



$

860,550



$

833,377


Management fee revenue - administrative services, net


13,299





26,373




Administrative services reimbursement revenue


146,507





292,470




Service agreement revenue


7,080



7,245



14,225



14,503


     Total operating revenue


621,458



448,564



1,193,618



847,880











Operating expenses









Cost of operations - policy issuance and renewal services


379,628



365,116



728,258



697,492


Cost of operations - administrative services


146,507





292,470




     Total operating expenses


526,135



365,116



1,020,728



697,492


Operating income


95,323



83,448



172,890



150,388











Investment income









Net investment income


7,104



6,239



13,924



12,220


Net realized investment (losses) gains


(32)



124



(497)



640


Net impairment losses recognized in earnings


(646)



(61)



(646)



(182)


Equity in (losses) earnings of limited partnerships


(219)



149



(411)



362


Total investment income


6,207



6,451



12,370



13,040











Interest expense, net


602



257



1,155



423


Other income (expense)


58



(407)



102



(816)


Income before income taxes


100,986



89,235



184,207



162,189


Income tax expense


21,280



30,708



38,743



55,786


Net income


$

79,706



$

58,527



$

145,464



$

106,403




















Net income per share









Class A common stock – basic


$

1.71



$

1.26



$

3.12



$

2.28


Class A common stock – diluted


$

1.52



$

1.12



$

2.78



$

2.03


Class B common stock – basic


$

257



$

189



$

469



$

343


Class B common stock – diluted


$

257



$

188



$

468



$

343











Weighted average shares outstanding – Basic









Class A common stock


46,188,705



46,180,852



46,188,309



46,184,666


Class B common stock


2,542



2,542



2,542



2,542











Weighted average shares outstanding – Diluted









Class A common stock


52,312,849



52,299,395



52,311,741



52,355,214


Class B common stock


2,542



2,542



2,542



2,542











Dividends declared per share









Class A common stock


$

0.8400



$

0.7825



$

1.6800



$

1.5650


Class B common stock


$

126.000



$

117.375



$

252.000



$

234.750



 

 

Erie Indemnity Company
Statements of Financial Position
(in thousands)













June 30,
2018


December 31,
2017



(Unaudited)



Assets





Current assets:





Cash and cash equivalents


$

198,412



$

215,721


Available-for-sale securities


107,369



71,190


Receivables from Erie Insurance Exchange and affiliates


445,211



418,328


Prepaid expenses and other current assets


45,426



34,890


Federal income taxes recoverable


0



29,900


Note receivable from Erie Family Life Insurance Company


25,000



25,000


Accrued investment income


6,647



6,853


Total current assets


828,065



801,882







Available-for-sale securities


598,059



687,523


Equity securities


12,488




Limited partnership investments


39,651



45,122


Fixed assets, net


94,651



83,149


Deferred income taxes, net


31,527



19,390


Other assets


47,834



28,793


Total assets


$

1,652,275



$

1,665,859







Liabilities and shareholders' equity





Current liabilities:





Commissions payable


$

253,328



$

228,124


Agent bonuses


56,482



122,528


Accounts payable and accrued liabilities


97,139



104,533


Dividends payable


39,119



39,116


Contract liability


33,137




Deferred executive compensation


8,801



15,605


Federal income taxes payable


8,933



0


Current portion of long-term borrowings


925



0


Total current liabilities


497,864



509,906







Defined benefit pension plans


145,667



207,530


Employee benefit obligations


194



423


Contract liability


17,452




Deferred executive compensation


11,688



14,452


Long-term borrowings


98,800



74,728


Other long-term liabilities


422



1,476


Total liabilities


772,087



808,515







Shareholders' equity


880,188



857,344


Total liabilities and shareholders' equity


$

1,652,275



$

1,665,859


 


Cision View original content with multimedia:http://www.prnewswire.com/news-releases/erie-indemnity-reports-second-quarter-2018-results-300685900.html

SOURCE Erie Indemnity Company

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