Erie Indemnity Reports Third Quarter 2021 Results

Net Income per Diluted Share was $1.72 for the Quarter and $4.64 for the Nine Months of 2021

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Oct 28, 2021, 16:15 ET

ERIE, Pa., Oct. 28, 2021 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter and nine months ending September 30, 2021. Net income was $90.2 million, or $1.72 per diluted share, in the third quarter of 2021, compared to $89.2 million, or $1.71 per diluted share, in the third quarter of 2020. Net income was $242.8 million, or $4.64 per diluted share, in the first nine months of 2021, compared to $230.5 million, or $4.41 per diluted share, in the first nine months of 2020.

The uncertainty resulting from the COVID-19 pandemic continues to evolve and the pandemic's ultimate impact and duration remain uncertain at this time.

3Q and Nine Months 2021
(in thousands)	3Q'21		3Q'20		2021		2020
Operating income	$	95,103	$	96,225	$	256,263	$	273,105
Investment income	20,598		16,438		55,004		18,796
Interest and other expense, net	1,575		967		4,690		1,596
Income before income taxes	114,126		111,696		306,577		290,305
Income tax expense	23,903		22,480		63,759		59,786
Net income	$	90,223	$	89,216	$	242,818	$	230,519

3Q 2021 Highlights

Operating income before taxes decreased $1.1 million, or 1.2 percent, in the third quarter of 2021 compared to the third quarter of 2020.

Management fee revenue - policy issuance and renewal services increased $20.3 million, or 4.2 percent, in the third quarter of 2021 compared to the third quarter of 2020.
Management fee revenue - administrative services decreased $0.4 million, or 2.9 percent, in the third quarter of 2021 compared to the third quarter of 2020.
Cost of operations - policy issuance and renewal services

Commissions increased $14.9 million in the third quarter of 2021 compared to the third quarter of 2020, driven by the growth in direct and affiliated assumed written premium, primarily in lines of business that pay a higher commission rate. To a lesser extent, there was also an increase in agent incentive compensation for the third quarter of 2021 compared to the third quarter of 2020.
Non-commission expense increased $5.9 million in the third quarter of 2021 compared to the third quarter of 2020. Information technology costs increased $3.8 million primarily due to increased hardware and software costs as well as increased personnel costs. Sales and advertising increased $1.3 million primarily due to personnel costs. Administrative and other costs increased $0.5 million primarily driven by increased building and equipment depreciation compared to the same period in 2020. Personnel costs in all expense categories for the third quarter of 2021 were impacted by higher medical costs compared to the prior year as the COVID-19 pandemic reduced elective procedures in 2020 and higher incentive plan award accruals due to increase direct written premium growth.

Income from investments before taxes totaled $20.6 million in the third quarter of 2021 compared to $16.4 million in the third quarter of 2020. Net investment income was $18.9 million in the third quarter of 2021 compared to $10.6 million in the third quarter of 2020. Included in net investment income is $11.5 million of limited partnership earnings in the third quarter of 2021 compared to $3.6 million in the third quarter of 2020. Net realized gains on investments were $1.6 million in the third quarter of 2021 compared to $5.9 million in the third quarter of 2020.

Nine Months 2021 Highlights

Operating income before taxes decreased $16.8 million, or 6.2 percent, in the first nine months of 2021 compared to the first nine months of 2020.

Management fee revenue - policy issuance and renewal services increased $50.8 million, or 3.6 percent, in the first nine months of 2021 compared to the first nine months of 2020.
Management fee revenue - administrative services decreased $0.5 million, or 1.1 percent, in the first nine months of 2021 compared to the first nine months of 2020.
Cost of operations - policy issuance and renewal services

Commissions increased $39.0 million in the first nine months of 2021 compared to the first nine months of 2020, driven by the growth in direct and affiliated assumed written premium, primarily in lines of business that pay a higher commission rate. To a lesser extent, there was also an increase in agent incentive compensation for the first nine months 2021 compared to the first nine months of 2020. For the nine months ended September 30, 2020, lower claims frequency and related loss expense due to the COVID-19 pandemic impacted agent compensation related to the profitability component.
Non-commission expense increased $26.8 million for the nine months ended September 30, 2021 compared to the same period in 2020. Underwriting and policy processing expense increased $2.6 million primarily due to increased personnel costs and underwriting report costs. Information technology costs increased $10.9 million primarily due to increased hardware and software costs and personnel costs. Administrative and other costs increased $12.6 million primarily driven by increased building and equipment depreciation, professional fees and personnel costs compared to the same period in 2020. Personnel costs in all expense categories were impacted by higher medical costs compared to the prior year as the COVID-19 pandemic reduced elective procedures in 2020 and higher incentive plan award accruals due to increase direct written premium growth.

Income from investments before taxes totaled $55.0 million in the first nine months of 2021 compared to $18.8 million in the first nine months of 2020. Net investment income was $49.6 million in the first nine months of 2021 compared to $20.4 million in the first nine months of 2020. Included in net investment income is $26.7 million of limited partnership earnings in the first nine months of 2021 and $2.4 million of limited partnership losses in the first nine months of 2020. Net realized gains on investments were $5.2 million in the first nine months of 2021 compared to $1.6 million in the first nine months of 2020.

Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on October 29, 2021. 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 12^th largest homeowners insurer, 13^th largest automobile insurer and 13th 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 16th 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;
emerging claims and coverage issues in the industry; and
severe weather conditions or other catastrophic losses, including terrorism;

potential impacts of the COVID-19 pandemic on the growth and financial condition of the Exchange;
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;
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;
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 September 30,				Nine months ended September 30,
	2021		2020		2021		2020
	(Unaudited)				(Unaudited)
Operating revenue
Management fee revenue - policy issuance and renewal services	$	504,891	$	484,551	$	1,462,880	$	1,412,096
Management fee revenue - administrative services	14,471		14,910		43,985		44,494
Administrative services reimbursement revenue	162,410		147,710		473,133		451,229
Service agreement revenue	6,067		6,310		18,048		19,418
Total operating revenue	687,839		653,481		1,998,046		1,927,237

Operating expenses
Cost of operations - policy issuance and renewal services	430,326		409,546		1,268,650		1,202,903
Cost of operations - administrative services	162,410		147,710		473,133		451,229
Total operating expenses	592,736		557,256		1,741,783		1,654,132
Operating income	95,103		96,225		256,263		273,105

Investment income
Net investment income	18,858		10,645		49,605		20,353
Net realized investment gains	1,610		5,915		5,183		1,635
Net impairment recoveries (losses) recognized in earnings	130		(122)		216		(3,192)
Total investment income	20,598		16,438		55,004		18,796

Interest expense, net	1,034		3		3,082		8
Other expense	541		964		1,608		1,588
Income before income taxes	114,126		111,696		306,577		290,305
Income tax expense	23,903		22,480		63,759		59,786
Net income	$	90,223	$	89,216	$	242,818	$	230,519

Net income per share
Class A common stock – basic	$	1.94	$	1.92	$	5.21	$	4.95
Class A common stock – diluted	$	1.72	$	1.71	$	4.64	$	4.41
Class B common stock – basic and diluted	$	291	$	287	$	782	$	742

Weighted average shares outstanding – Basic
Class A common stock	46,189,035		46,189,030		46,188,729		46,188,544
Class B common stock	2,542		2,542		2,542		2,542

Weighted average shares outstanding – Diluted
Class A common stock	52,305,245		52,310,429		52,307,859		52,312,588
Class B common stock	2,542		2,542		2,542		2,542

Dividends declared per share
Class A common stock	$	1.035	$	0.965	$	3.105	$	2.895
Class B common stock	$	155.25	$	144.75	$	465.75	$	434.25

Erie Indemnity Company
Statements of Financial Position
(in thousands)

	September 30, 2021		December 31, 2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	235,996	$	161,240
Available-for-sale securities	30,627		17,697
Equity securities	10		19
Receivables from Erie Insurance Exchange and affiliates, net	503,413		494,637
Prepaid expenses and other current assets	55,003		52,561
Accrued investment income	6,104		6,146
Total current assets	831,153		732,300

Available-for-sale securities, net	906,877		910,539
Equity securities	86,270		94,071
Fixed assets, net	277,939		265,341
Agent loans, net	59,462		62,449
Deferred income taxes, net	17,153		12,341
Other assets	57,704		40,081
Total assets	$	2,236,558	$	2,117,122

Liabilities and shareholders' equity
Current liabilities:
Commissions payable	$	280,540	$	262,338
Agent bonuses	88,556		110,158
Accounts payable and accrued liabilities	148,282		150,706
Dividends payable	48,200		48,200
Contract liability	35,853		36,917
Deferred executive compensation	10,757		17,319
Current portion of long-term borrowings	2,075		2,031
Total current liabilities	614,263		627,669

Defined benefit pension plans	192,808		164,346
Long-term borrowings	92,273		93,833
Contract liability	18,098		18,878
Deferred executive compensation	14,477		14,904
Other long-term liabilities	17,783		9,444
Total liabilities	949,702		929,074

Shareholders' equity	1,286,856		1,188,048
Total liabilities and shareholders' equity	$	2,236,558	$	2,117,122