Erie Indemnity Reports Second Quarter 2019 Results

Net Income per Diluted Share up 10.1 percent for the Quarter and 12.1 percent for the First Half of 2019

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Jul 25, 2019, 16:15 ET

ERIE, Pa., July 25, 2019 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter and six months ending June 30, 2019. Net income was $87.8 million, or $1.68 per diluted share, in the second quarter of 2019, compared to $79.7 million, or $1.52 per diluted share, in the second quarter of 2018. Net income was $163.1 million, or $3.12 per diluted share, in the first six months of 2019, compared to $145.5 million, or $2.78 per diluted share, in the first six months of 2018.

2Q and First Half 2019
(in thousands)	2Q'19		2Q'18		1H'19		1H'18
Operating income	$	96,610	$	95,323	$	182,732	$	172,890
Investment income	9,652		6,207		19,447		12,370
Interest expense and other income, net	224		544		626		1,053
Income before income taxes	106,038		100,986		201,553		184,207
Income tax expense	18,284		21,280		38,488		38,743
Net income	$	87,754	$	79,706	$	163,065	$	145,464

2Q 2019 Highlights

Operating income before taxes increased $1.3 million, or 1.3 percent, in the second quarter of 2019 compared to the second quarter of 2018.

Management fee revenue - policy issuance and renewal services increased $25.9 million, or 5.7 percent, in the second quarter of 2019 compared to the second quarter of 2018.
Management fee revenue - administrative services increased $0.9 million, or 6.7 percent, in the second quarter of 2019 compared to the second quarter of 2018.
Cost of operations - policy issuance and renewal services

Commissions increased $11.7 million in the second quarter of 2019 compared to the second quarter of 2018, as a result of the 5.6 percent increase in direct and affiliated assumed premiums written by the Exchange, partially offset by lower agent incentive costs related to less profitable growth, compared to the second quarter of 2018.
Non-commission expense increased $13.7 million in the second quarter of 2019 compared to the second quarter of 2018. Information technology costs increased $6.2 million primarily due to increased professional fees. Customer service costs increased $1.5 million primarily due to increased personnel costs. Administrative and other expenses increased $4.7 million primarily driven by an increase in long-term incentive plan cost due to a higher company stock price during the second quarter of 2019 compared to the second quarter of 2018. Personnel costs in all expense categories for the second quarter of 2019 were impacted by additional bonuses awarded to all employees of approximately $1.1 million.

The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $146.1 million in the second quarter of 2019, but had no net impact on operating income.

Income from investments before taxes totaled $9.7 million in the second quarter of 2019 compared to $6.2 million in the second quarter of 2018. Net realized gains increased $1.3 million in the second quarter of 2019 compared to the second quarter of 2018. Net investment income was $8.0 million in the second quarter of 2019 compared to $7.1 million in the second quarter of 2018. Earnings from limited partnerships were $0.4 million in the second quarter of 2019 compared to losses of $0.2 million in the second quarter of 2018.

First Half 2019 Highlights

Operating income before taxes increased $9.8 million, or 5.7 percent, in the first six months of 2019 compared to the first six months of 2018.

Management fee revenue - policy issuance and renewal services increased $50.9 million, or 5.9 percent, in the first six months of 2019 compared to the first six months of 2018.
Management fee revenue allocated to administrative services increased $1.8 million, or 6.7 percent, in the first six months of 2019 compared to the first six months of 2018.
Cost of operations - policy issuance and renewal services

Commissions increased $20.6 million in the first six months of 2019 compared to the first six months of 2018, as a result of the 5.8 percent increase in direct and affiliated assumed premiums written by the Exchange, partially offset by lower agent incentive costs related to less profitable growth, compared to the first six months of 2018.
Non-commission expense increased $21.7 million for the six months ended June 30, 2019 compared to the same period in 2018. Information technology costs increased $11.7 million primarily due to increased professional fees. Administrative and other expenses increased $9.0 million primarily driven by an increase in long-term incentive plan cost due to a higher company stock price during the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Personnel costs in all expense categories were impacted by additional bonuses awarded to all employees of approximately $1.1 million for the six months ended June 30, 2019 and $4.8 million for the six months ended June 30, 2018.

The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $288.6 million in the first six months of 2019, but had no net impact on operating income.

Income from investments before taxes totaled $19.4 million in the first six months of 2019 compared to $12.4 million in the first six months of 2018. Net realized gains on investments were $3.8 million in the first six months of 2019 compared to net realized losses of $0.5 million in the first six months of 2018. Net investment income was $16.5 million in the first six months of 2019 compared to $13.9 million in the first six months of 2018, while losses on limited partnerships were $0.7 million in the first six months of 2019 compared to $0.4 million in the first six months of 2018.

Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on July 26, 2019. 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 9^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 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.

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"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,
	2019		2018		2019		2018
	(Unaudited)				(Unaudited)
Operating revenue
Management fee revenue - policy issuance and renewal services, net	$	480,513	$	454,572	$	911,496	$	860,550
Management fee revenue - administrative services, net	14,195		13,299		28,146		26,373
Administrative services reimbursement revenue	146,095		146,507		288,575		292,470
Service agreement revenue	6,907		7,080		13,599		14,225
Total operating revenue	647,710		621,458		1,241,816		1,193,618

Operating expenses
Cost of operations - policy issuance and renewal services	405,005		379,628		770,509		728,258
Cost of operations - administrative services	146,095		146,507		288,575		292,470
Total operating expenses	551,100		526,135		1,059,084		1,020,728
Operating income	96,610		95,323		182,732		172,890

Investment income
Net investment income	8,030		7,104		16,547		13,924
Net realized investment gains (losses)	1,302		(32)		3,805		(497)
Net impairment losses recognized in earnings	(84)		(646)		(162)		(646)
Equity in earnings (losses) of limited partnerships	404		(219)		(743)		(411)
Total investment income	9,652		6,207		19,447		12,370

Interest expense, net	272		602		721		1,155
Other income	48		58		95		102
Income before income taxes	106,038		100,986		201,553		184,207
Income tax expense	18,284		21,280		38,488		38,743
Net income	$	87,754	$	79,706	$	163,065	$	145,464

Net income per share
Class A common stock – basic	$	1.88	$	1.71	$	3.50	$	3.12
Class A common stock – diluted	$	1.68	$	1.52	$	3.12	$	2.78
Class B common stock – basic	$	283	$	257	$	525	$	469
Class B common stock – diluted	$	283	$	257	$	525	$	468

Weighted average shares outstanding – Basic
Class A common stock	46,188,994		46,188,705		46,188,668		46,188,309
Class B common stock	2,542		2,542		2,542		2,542

Weighted average shares outstanding – Diluted
Class A common stock	52,314,700		52,312,849		52,313,371		52,311,741
Class B common stock	2,542		2,542		2,542		2,542

Dividends declared per share
Class A common stock	$	0.90	$	0.84	$	1.80	$	1.68
Class B common stock	$	135.00	$	126.00	$	270.00	$	252.00

Erie Indemnity Company
Statements of Financial Position
(in thousands)

	June 30, 2019		December 31, 2018
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	338,262	$	266,417
Available-for-sale securities	61,210		402,339
Receivables from Erie Insurance Exchange and affiliates	483,319		449,873
Prepaid expenses and other current assets	42,300		36,892
Federal income taxes recoverable	7,791		8,162
Accrued investment income	4,365		5,263
Total current assets	937,247		1,168,946

Available-for-sale securities	627,898		346,184
Equity securities	12,445		11,853
Limited partnership investments	30,344		34,821
Fixed assets, net	173,055		130,832
Deferred income taxes, net	19,090		24,101
Other assets	89,568		61,590
Total assets	$	1,889,647	$	1,778,327

Liabilities and shareholders' equity
Current liabilities:
Commissions payable	$	267,403	$	241,573
Agent bonuses	51,357		103,462
Accounts payable and accrued liabilities	124,794		111,291
Dividends payable	41,913		41,910
Contract liability	35,374		33,854
Deferred executive compensation	12,605		13,107
Current portion of long-term borrowings	1,914		1,870
Total current liabilities	535,360		547,067

Defined benefit pension plans	129,674		116,866
Long-term borrowings	96,860		97,860
Contract liability	18,339		17,873
Deferred executive compensation	13,199		13,075
Other long-term liabilities	32,761		11,914
Total liabilities	826,193		804,655

Shareholders' equity	1,063,454		973,672
Total liabilities and shareholders' equity	$	1,889,647	$	1,778,327