Erie Indemnity Reports First Quarter 2023 Results

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Apr 27, 2023, 16:15 ET

Net Income was $86.2 million, Earnings per Diluted Share was $1.65

ERIE, Pa., April 27, 2023 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending March 31, 2023. Net income was $86.2 million, or $1.65 per diluted share, in the first quarter of 2023, compared to $68.6 million, or $1.31 per diluted share, in the first quarter of 2022.

1Q 2023
(in thousands)	1Q'23	1Q'22
Operating income	$ 110,543	$ 84,312
Investment (loss) income	(4,732)	3,009
Interest expense and other (income), net	(3,337)	526
Income before income taxes	109,148	86,795
Income tax expense	22,907	18,176
Net income	$ 86,241	$ 68,619

1Q 2023 Highlights

Operating income before taxes increased $26.2 million, or 31.1 percent, in the first quarter of 2023 compared to the first quarter of 2022.

Management fee revenue - policy issuance and renewal services increased $70.1 million, or 14.4 percent, in the first quarter of 2023 compared to the first quarter of 2022.

Management fee revenue - administrative services increased $0.9 million, or 6.1 percent, in the first quarter of 2023 compared to the first quarter of 2022.

Cost of operations - policy issuance and renewal services

Commissions increased $27.7 million in the first quarter of 2023 compared to the first quarter of 2022, primarily driven by the growth in direct and affiliated assumed written premium, partially offset by a decrease in agent incentive compensation.

Non-commission expense increased $17.0 million in the first quarter of 2023 compared to the first quarter of 2022. Underwriting and policy processing expense increased $2.7 million primarily due to increased personnel and underwriting report costs. Information technology costs increased $11.5 million primarily due to increased professional fees, hardware and software costs, and personnel costs. Administrative and other costs increased $2.9 million primarily due to an increase in personnel costs related to compensation and building occupancy costs, partially offset by a decrease in professional fees. Personnel costs in all expense categories were also impacted by lower pension costs due to an increase in the discount rate compared to 2022.

Loss from investments before taxes totaled $4.7 million in the first quarter of 2023 compared to income from investments before taxes of $3.0 million in the first quarter of 2022. Net investment income was $2.2 million in the first quarter of 2023 compared to $10.5 million in the same period of 2022. Included in net investment income is $10.8 million of limited partnership losses in the first quarter of 2023 compared to earnings of $2.8 million in the first quarter of 2022. Net realized and unrealized losses on investments were $5.3 million in the first quarter of 2023 compared to $7.3 million in the first quarter of 2022.

Webcast Information

Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on April 28, 2023. 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, 13^th largest automobile insurer and 13^th largest commercial lines insurer in the United States based on direct premiums written. Founded in 1925, Erie Insurance is a Fortune 500 company and the 19^th largest property/casualty insurer in the United States based on total lines net premium written. Rated A+ (Superior) by A.M. Best, ERIE has more than 6 million policies in force and operates in 12 states and the District of Columbia.

News releases and more information are available on ERIE's website 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 Erie Insurance Exchange ("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;

litigation and regulatory actions;

emergence of significant unexpected events, including pandemics and inflation;

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;

outcome of pending and potential litigation;

factors affecting the quality and liquidity of our investment portfolio; and

our ability to meet liquidity needs and access capital.

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,
	2023	2022
	(Unaudited)
Operating revenue
Management fee revenue - policy issuance and renewal services	$ 558,090	$ 487,992
Management fee revenue - administrative services	15,189	14,313
Administrative services reimbursement revenue	172,827	163,327
Service agreement revenue	6,359	6,478
Total operating revenue	752,465	672,110

Operating expenses
Cost of operations - policy issuance and renewal services	469,095	424,471
Cost of operations - administrative services	172,827	163,327
Total operating expenses	641,922	587,798
Operating income	110,543	84,312

Investment income
Net investment income	2,183	10,504
Net realized and unrealized investment losses	(5,282)	(7,279)
Net impairment losses recognized in earnings	(1,633)	(216)
Total investment (loss) income	(4,732)	3,009

Interest expense	—	999
Other income	3,337	473
Income before income taxes	109,148	86,795
Income tax expense	22,907	18,176
Net income	$ 86,241	$ 68,619

Net income per share
Class A common stock – basic	$ 1.85	$ 1.47
Class A common stock – diluted	$ 1.65	$ 1.31
Class B common stock – basic and diluted	$ 278	$ 221

Weighted average shares outstanding – Basic
Class A common stock	46,188,819	46,188,761
Class B common stock	2,542	2,542

Weighted average shares outstanding – Diluted
Class A common stock	52,296,621	52,300,501
Class B common stock	2,542	2,542

Dividends declared per share
Class A common stock	$ 1.19	$ 1.11
Class B common stock	$ 178.50	$ 166.50

Erie Indemnity Company Statements of Financial Position (in thousands)

	March 31, 2023	December 31, 2022
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$ 122,376	$ 142,090
Available-for-sale securities	57,470	24,267
Receivables from Erie Insurance Exchange and affiliates, net	533,306	524,937
Prepaid expenses and other current assets	62,738	79,201
Accrued investment income	8,191	8,301
Total current assets	784,081	778,796

Available-for-sale securities, net	858,196	870,394
Equity securities	72,963	72,560
Fixed assets, net	417,339	413,874
Agent loans, net	59,315	60,537
Other assets	32,075	43,295
Total assets	$ 2,223,969	$ 2,239,456

Liabilities and shareholders' equity
Current liabilities:
Commissions payable	$ 322,910	$ 300,028
Agent bonuses	20,565	95,166
Accounts payable and accrued liabilities	168,142	165,915
Dividends payable	55,419	55,419
Contract liability	37,187	36,547
Deferred executive compensation	7,345	12,036
Total current liabilities	611,568	665,111

Defined benefit pension plans	53,522	51,224
Contract liability	18,142	17,895
Deferred executive compensation	12,634	13,724
Deferred income taxes, net	16,081	14,075
Other long-term liabilities	25,055	29,019
Total liabilities	737,002	791,048

Shareholders' equity	1,486,967	1,448,408
Total liabilities and shareholders' equity	$ 2,223,969	$ 2,239,456