Erie Indemnity Reports First Quarter 2020 Results

Net Income was $59.3 million, Earnings per Diluted Share was $1.13

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May 07, 2020, 16:15 ET

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 11^th largest homeowners insurer and 12^th largest automobile insurer in the United States based on direct premiums written and the 16^th 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