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Erie Indemnity Reports First Quarter 2020 Results

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ERIE, Pa., May 7, 2020 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending March 31, 2020.  Net income was $59.3 million, or $1.13 per diluted share, in the first quarter of 2020, compared to $75.3 million, or $1.44 per diluted share, in the first quarter of 2019.

On March 11, 2020, the outbreak of the coronavirus ("COVID-19") was declared a global pandemic.  The impacts of the pandemic and efforts to mitigate the spread of the virus have had significant adverse impacts on economic conditions and financial markets.  We did not experience significant financial impacts on our core businesses of policy issuance and renewal services and administrative services in the first quarter of 2020.  However, the financial market volatility did have a significant impact on our first quarter 2020 investment portfolio.

1Q 2020

(in thousands)

1Q'20

1Q'19


Operating income

$

85,691


$

86,122



Investment (loss) income

(9,195)


9,795



Interest expense and other income, net

369


402



Income before income taxes

76,127


95,515



Income tax expense

16,801


20,204



Net income

$

59,326


$

75,311







 

                                                1Q 2020 Highlights                                                

Operating income before taxes decreased $0.4 million, or 0.5 percent, in the first quarter of 2020 compared to the first quarter of 2019.

  • Management fee revenue - policy issuance and renewal services increased $12.8 million, or 3.0 percent, in the first quarter of 2020 compared to the first quarter of 2019.
  • Management fee revenue - administrative services increased $0.8 million, or 5.9 percent, in the first quarter of 2020 compared to the first quarter of 2019.
  • Cost of operations - policy issuance and renewal services
    • Commissions increased $9.0 million in the first quarter of 2020 compared to the first quarter of 2019. The increase was primarily driven by the growth in direct and affiliated assumed premiums written by the Exchange of 3.5 percent in the first quarter of 2020.  The estimated agent incentive payouts at March 31, 2020 are based on actual underwriting results for the two prior years and current year-to-date actual results and forecasted results for the remainder of 2020.  Therefore, fluctuations in the current quarter underwriting results can impact the estimated incentive payout on a quarter-to-quarter basis.
    • Non-commission expense increased $5.0 million in the first quarter of 2020 compared to the first quarter of 2019.  Underwriting and policy processing expense increased $3.1 million primarily due to increased personnel costs and underwriting report costs.  Information technology costs increased $3.0 million primarily due to increased professional fees and personnel costs.  Administrative and other expenses decreased $2.2 million primarily driven by a decrease in long-term incentive plan cost due to a decrease in the company stock price in the first quarter of 2020 compared to an increase in the first quarter of 2019.

Loss from investments before taxes totaled $9.2 million in the first quarter of 2020 compared to income of $9.8 million in the first quarter of 2019.  Net realized losses were $10.8 million in the first quarter of 2020 compared to net realized gains of $2.5 million in the first quarter of 2019 driven by decreases in the fair value of equity securities due to significant financial market volatility resulting from the COVID-19 pandemic.  Net impairment losses of $3.1 million in the first quarter of 2020 were also driven by the COVID-19 pandemic's impact on the financial markets.  Losses from limited partnerships were $3.7 million in the first quarter of 2020 compared to losses of $1.1 million in the first quarter of 2019.

Webcast Information

Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on May 8, 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 March 31,



2020


2019



(Unaudited)

Operating revenue





Management fee revenue - policy issuance and renewal services, net


$

443,750



$

430,983


Management fee revenue - administrative services, net


14,771



13,951


Administrative services reimbursement revenue


151,554



142,480


Service agreement revenue


6,662



6,692


Total operating revenue


616,737



594,106







Operating expenses





Cost of operations - policy issuance and renewal services


379,492



365,504


Cost of operations - administrative services


151,554



142,480


Total operating expenses


531,046



507,984


Operating income


85,691



86,122







Investment income





Net investment income


8,369



8,517


Net realized investment (losses) gains


(10,806)



2,503


Net impairment losses recognized in earnings


(3,053)



(78)


Equity in losses of limited partnerships


(3,705)



(1,147)


Total investment (loss) income


(9,195)



9,795







Interest expense, net


3



449


Other (expense) income


(366)



47


Income before income taxes


76,127



95,515


Income tax expense


16,801



20,204


Net income


$

59,326



$

75,311







Net income per share





Class A common stock – basic


$

1.27



$

1.62


Class A common stock – diluted


$

1.13



$

1.44


Class B common stock – basic and diluted


$

191



$

243







Weighted average shares outstanding – Basic





Class A common stock


46,188,789



46,188,337


Class B common stock


2,542



2,542







Weighted average shares outstanding – Diluted





Class A common stock


52,324,350



52,312,036


Class B common stock


2,542



2,542







Dividends declared per share





Class A common stock


$

0.965



$

0.90


Class B common stock


$

144.75



$

135.00


 

 

Erie Indemnity Company
Statements of Financial Position
(in thousands)












March 31,

2020


December 31,

2019



(Unaudited)



Assets





Current assets:





Cash and cash equivalents


$

228,646



$

336,739


Available-for-sale securities


34,818



32,810


Equity securities


0



2,381


Receivables from Erie Insurance Exchange and affiliates, net


482,238



468,636


Prepaid expenses and other current assets


58,715



44,943


Federal income taxes recoverable


0



462


Accrued investment income


5,657



5,433


Total current assets


810,074



891,404







Available-for-sale securities, net


716,835



697,891


Equity securities


58,014



64,752


Limited partnership investments


22,492



26,775


Fixed assets, net


238,296



221,379


Agent loans, net


59,877



60,978


Deferred income taxes, net


19,281



17,186


Other assets


32,624



35,875


Total assets


$

1,957,493



$

2,016,240







Liabilities and shareholders' equity





Current liabilities:





Commissions payable


$

270,328



$

262,963


Agent bonuses


29,661



96,053


Accounts payable and accrued liabilities


130,035



134,957


Dividends payable


44,940



44,940


Contract liability


35,810



35,938


Deferred executive compensation


10,910



10,882


Federal income taxes payable


18,040



0


Current portion of long-term borrowings


2,000



1,979


Total current liabilities


541,724



587,712







Defined benefit pension plans


153,558



145,659


Long-term borrowings


95,342



95,842


Contract liability


18,461



18,435


Deferred executive compensation


11,983



13,734


Other long-term liabilities


19,433



21,605


Total liabilities


840,501



882,987







Shareholders' equity


1,116,992



1,133,253


Total liabilities and shareholders' equity


$

1,957,493



$

2,016,240


 

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/erie-indemnity-reports-first-quarter-2020-results-301054113.html

SOURCE Erie Indemnity Company

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