Press Release
Erie Indemnity Reports Second Quarter 2017 Results
2Q and First Half 2017 | ||||||||||||||
(dollars in thousands) |
2Q'17 |
2Q'16 |
1H'17 |
1H'16 |
||||||||||
Operating income |
$ |
83,044 |
$ |
85,759 |
$ |
149,578 |
$ |
153,424 |
||||||
Investment income, net of interest expense |
6,191 |
7,404 |
12,611 |
9,963 |
||||||||||
Income before income taxes |
89,235 |
93,163 |
162,189 |
163,387 |
||||||||||
Income tax expense |
30,708 |
31,854 |
55,786 |
56,183 |
||||||||||
Net income |
$ |
58,527 |
$ |
61,309 |
$ |
106,403 |
$ |
107,204 |
||||||
Gross margin from operations |
18.5 |
% |
20.2 |
% |
17.6 |
% |
19.2 |
% |
2Q 2017 Highlights |
Operating income decreased
- Management fee revenue increased
$24.7 million , or 5.9 percent, in the second quarter of 2017 compared to the second quarter of 2016. - Commissions increased
$15.6 million in the second quarter of 2017 compared to the second quarter of 2016, as a result of the 5.7 percent increase in direct and assumed premiums written by the Exchange. The remaining portion of the increase in the second quarter of 2017 was due to higher agent incentive costs related to profitable growth, compared to the second quarter of 2016. - Non-commission expense increased
$11.8 million in the second quarter of 2017 compared to the second quarter of 2016. Information technology costs increased$7.1 million primarily due to increased professional fees and personnel costs. Underwriting and policy processing costs increased$1.9 million primarily due to increased personnel costs and underwriting report costs. Administrative and other expenses increased$2.6 million driven by increased professional fees and personnel costs. - The gross margin in the second quarter of 2017 was 18.5 percent compared to 20.2 percent in the second quarter of 2016.
Income from investments before taxes totaled
First Half 2017 Highlights |
Operating income decreased
- Management fee revenue increased
$49.3 million , or 6.3 percent, in the first six months of 2017 compared to the first six months of 2016. - Commissions increased
$27.4 million in the first six months of 2017 compared to the first six months of 2016, as a result of the 6.2 percent increase in direct and assumed premiums written by the Exchange. - Non-commission expense increased
$25.8 million in the first six months of 2017 compared to the first six months of 2016. Information technology costs increased$13.6 million primarily due to increased professional fees. Underwriting and policy processing costs increased$3.9 million primarily due to increased personnel costs and underwriting report costs. Administrative and other expenses increased$9.4 million primarily driven by increased personnel costs, including higher incentive plan costs and pension expenses. The incentive plan cost increase was driven by the long-term incentive plan due to the increase in the company stock price during the first six months of 2017. Additionally, the employee incentive plan program was expanded to additional employee groups beginning in 2017. - The gross margin in the first six months of 2017 was 17.6 percent compared to 19.2 percent in the first six months of 2016.
Income from investments before taxes totaled
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According to A.M. Best Company, Erie Insurance Group, based in Erie,
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
- dependence upon our relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange;
- costs of providing services to the Exchange under the subscriber's agreement and investments in new technology and systems;
- credit risk from 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;
- ability to attract and retain talented management and employees;
- ability to maintain uninterrupted business operations and difficulties with technology or data security breaches, including cyber attacks;
- 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.
Statements of Operations (dollars in thousands, except per share data)
|
||||||||||||||||
Three months ended |
Six months ended |
|||||||||||||||
2017 |
2016 |
2017 |
2016 |
|||||||||||||
(Unaudited) |
(Unaudited) |
|||||||||||||||
Operating revenue |
||||||||||||||||
Management fee revenue, net |
$ |
441,319 |
$ |
416,665 |
$ |
833,377 |
$ |
784,123 |
||||||||
Service agreement revenue |
7,245 |
7,219 |
14,503 |
14,489 |
||||||||||||
Total operating revenue |
448,564 |
423,884 |
847,880 |
798,612 |
||||||||||||
Operating expenses |
||||||||||||||||
Commissions |
251,383 |
235,794 |
471,861 |
444,508 |
||||||||||||
Salaries and employee benefits |
60,774 |
55,025 |
120,514 |
108,314 |
||||||||||||
All other operating expenses |
53,363 |
47,306 |
105,927 |
92,366 |
||||||||||||
Total operating expenses |
365,520 |
338,125 |
698,302 |
645,188 |
||||||||||||
Operating income |
83,044 |
85,759 |
149,578 |
153,424 |
||||||||||||
Investment income |
||||||||||||||||
Net investment income |
6,236 |
4,891 |
12,214 |
9,553 |
||||||||||||
Net realized investment gains (losses) |
124 |
399 |
640 |
(689) |
||||||||||||
Net impairment losses recognized in earnings |
(61) |
0 |
(182) |
(345) |
||||||||||||
Equity in earnings of limited partnerships |
149 |
2,114 |
362 |
1,444 |
||||||||||||
Total investment income |
6,448 |
7,404 |
13,034 |
9,963 |
||||||||||||
Interest expense, net |
257 |
— |
423 |
— |
||||||||||||
Income before income taxes |
89,235 |
93,163 |
162,189 |
163,387 |
||||||||||||
Income tax expense |
30,708 |
31,854 |
55,786 |
56,183 |
||||||||||||
Net income |
$ |
58,527 |
$ |
61,309 |
$ |
106,403 |
$ |
107,204 |
||||||||
Earnings Per Share |
||||||||||||||||
Net income per share |
||||||||||||||||
Class A common stock - basic |
$ |
1.26 |
$ |
1.32 |
$ |
2.28 |
$ |
2.30 |
||||||||
Class A common stock - diluted |
$ |
1.12 |
$ |
1.17 |
$ |
2.03 |
$ |
2.04 |
||||||||
Class B common stock - basic and diluted |
$ |
189 |
$ |
197 |
$ |
343 |
$ |
345 |
||||||||
Class B common stock - diluted |
$ |
188 |
$ |
197 |
$ |
343 |
$ |
345 |
||||||||
Weighted average shares outstanding - Basic |
||||||||||||||||
Class A common stock |
46,180,852 |
46,188,867 |
46,184,666 |
46,188,967 |
||||||||||||
Class B common stock |
2,542 |
2,542 |
2,542 |
2,542 |
||||||||||||
Weighted average shares outstanding - Diluted |
||||||||||||||||
Class A common stock |
52,299,395 |
52,392,862 |
52,355,214 |
52,458,394 |
||||||||||||
Class B common stock |
2,542 |
2,542 |
2,542 |
2,542 |
||||||||||||
Dividends declared per share |
||||||||||||||||
Class A common stock |
$ |
0.7825 |
$ |
0.7300 |
$ |
1.565 |
$ |
1.460 |
||||||||
Class B common stock |
$ |
117.3750 |
$ |
109.5000 |
$ |
234.750 |
$ |
219.000 |
Statements of Financial Position (in thousands)
|
||||||||
|
|
|||||||
(Unaudited) |
||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ |
144,709 |
$ |
189,072 |
||||
Available-for-sale securities |
72,057 |
56,138 |
||||||
Receivables from Erie Insurance Exchange and affiliates |
411,422 |
378,540 |
||||||
Prepaid expenses and other current assets |
36,023 |
30,169 |
||||||
Federal income taxes recoverable |
0 |
5,260 |
||||||
Accrued investment income |
6,874 |
6,337 |
||||||
Total current assets |
671,085 |
665,516 |
||||||
Available-for-sale securities |
672,625 |
657,153 |
||||||
Limited partnership investments |
53,230 |
58,159 |
||||||
Fixed assets, net |
71,119 |
69,142 |
||||||
Deferred income taxes, net |
51,811 |
53,889 |
||||||
Note receivable from |
25,000 |
25,000 |
||||||
Other assets |
22,355 |
20,096 |
||||||
Total assets |
$ |
1,567,225 |
$ |
1,548,955 |
||||
Liabilities and shareholders' equity |
||||||||
Current liabilities: |
||||||||
Commissions payable |
$ |
232,905 |
$ |
210,559 |
||||
Agent bonuses |
62,845 |
114,772 |
||||||
Accounts payable and accrued liabilities |
86,844 |
88,153 |
||||||
Dividends payable |
36,441 |
36,441 |
||||||
Deferred executive compensation |
9,898 |
19,675 |
||||||
Federal income taxes payable |
2,088 |
0 |
||||||
Total current liabilities |
431,021 |
469,600 |
||||||
Defined benefit pension plans |
219,972 |
221,827 |
||||||
Employee benefit obligations |
462 |
756 |
||||||
Deferred executive compensation |
11,810 |
13,233 |
||||||
Long-term borrowings |
49,742 |
24,766 |
||||||
Other long-term liabilities |
1,004 |
1,863 |
||||||
Total liabilities |
714,011 |
732,045 |
||||||
Shareholders' equity |
853,214 |
816,910 |
||||||
Total liabilities and shareholders' equity |
$ |
1,567,225 |
$ |
1,548,955 |
(
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