Press Release
Erie Indemnity Reports Third Quarter 2020 Results
The significant disruption to the economy and financial markets resulting from the COVID-19 pandemic that began in the first quarter of 2020 continues to evolve and the pandemic's ultimate impact and duration remain highly uncertain at this time. While the Exchange experienced declines in new business premium in the second quarter of 2020 due to the pandemic, new business premiums grew 10.4% in the third quarter of 2020 compared to the same period in 2019. The financial markets substantially recovered in the third quarter from the financial volatility negatively impacting our portfolio in the first quarter of 2020, improving our investment results in the third quarter.
3Q and Nine Months 2020 |
||||||||||||||
(in thousands) |
3Q'20 |
3Q'19 |
2020 |
2019 |
||||||||||
Operating income |
$ |
96,225 |
$ |
105,907 |
$ |
273,105 |
$ |
288,639 |
||||||
Investment income |
16,438 |
13,606 |
18,796 |
33,053 |
||||||||||
Interest and other expense, net |
967 |
11 |
1,596 |
637 |
||||||||||
Income before income taxes |
111,696 |
119,502 |
290,305 |
321,055 |
||||||||||
Income tax expense |
22,480 |
25,333 |
59,786 |
63,821 |
||||||||||
Net income |
$ |
89,216 |
$ |
94,169 |
$ |
230,519 |
$ |
257,234 |
||||||
3Q 2020 Highlights |
Operating income before taxes decreased
- Management fee revenue - policy issuance and renewal services increased
$10.1 million , or 2.1 percent, in the third quarter of 2020 compared to the third quarter of 2019. - Management fee revenue - administrative services increased
$0.5 million , or 3.3 percent, in the third quarter of 2020 compared to the third quarter of 2019. - Cost of operations - policy issuance and renewal services
- Commissions increased
$6.2 million in the third quarter of 2020 compared to the third quarter of 2019, primarily driven by direct and affiliated assumed written premium growth. - Non-commission expense increased
$13.2 million in the third quarter of 2020 compared to the third quarter of 2019. Underwriting and policy processing expense increased$3.2 million primarily due to increases in personnel costs and underwriting report costs. Administrative and other costs increased$8.8 million primarily driven by higher incentive plan award accruals due to the Exchange's lower combined ratio and the change in the company stock price, which experienced an increase in the third quarter of 2020 compared to a decrease in the same period in 2019. Increased professional fees also contributed to the increase in administrative and other costs compared to the same period in 2019.
Income from investments before taxes totaled
Nine Months 2020 Highlights |
Operating income before taxes decreased
- Management fee revenue - policy issuance and renewal services increased
$26.2 million , or 1.9 percent, in the first nine months of 2020 compared to the first nine months of 2019. - Management fee revenue - administrative services increased
$1.9 million , or 4.5 percent, in the first nine months of 2020 compared to the first nine months of 2019. - Cost of operations - policy issuance and renewal services
- Commissions increased
$20.4 million in the first nine months of 2020 compared to the first nine months of 2019, primarily driven by a 1.9% increase in direct and affiliated assumed written premium growth and increases in agent incentive compensation due to improved agent profitability. - Non-commission expense increased
$21.9 million in the first nine months of 2020 compared to the first nine months of 2019. Information technology costs increased$6.4 million primarily due to increases in hardware and software costs, personnel costs, and professional fees. Underwriting and policy processing expense increased$6.0 million primarily due to increases in personnel costs and underwriting report costs. Administrative and other costs increased$6.3 million primarily driven by increases in personnel costs and professional fees. Increased personnel costs in all categories included higher incentive plan award accruals due to Exchange's lower combined ratio and higher vacation accruals as employees took less vacation in the first nine months of 2020 as a result of the COVID-19 pandemic.
Income from investments before taxes totaled
Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on
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
- 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.
|
||||||||||||||||
Statements of Operations |
||||||||||||||||
(dollars in thousands, except per share data) |
||||||||||||||||
Three months ended |
Nine months ended |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
(Unaudited) |
(Unaudited) |
|||||||||||||||
Operating revenue |
||||||||||||||||
Management fee revenue - policy issuance and renewal services, net |
$ |
484,551 |
$ |
474,427 |
$ |
1,412,096 |
$ |
1,385,923 |
||||||||
Management fee revenue - administrative services, net |
14,910 |
14,430 |
44,494 |
42,576 |
||||||||||||
Administrative services reimbursement revenue |
147,710 |
142,730 |
451,229 |
431,305 |
||||||||||||
Service agreement revenue |
6,310 |
7,155 |
19,418 |
20,754 |
||||||||||||
Total operating revenue |
653,481 |
638,742 |
1,927,237 |
1,880,558 |
||||||||||||
Operating expenses |
||||||||||||||||
Cost of operations - policy issuance and renewal services |
409,546 |
390,105 |
1,202,903 |
1,160,614 |
||||||||||||
Cost of operations - administrative services |
147,710 |
142,730 |
451,229 |
431,305 |
||||||||||||
Total operating expenses |
557,256 |
532,835 |
1,654,132 |
1,591,919 |
||||||||||||
Operating income |
96,225 |
105,907 |
273,105 |
288,639 |
||||||||||||
Investment income |
||||||||||||||||
Net investment income |
7,030 |
8,652 |
22,772 |
25,199 |
||||||||||||
Net realized investment gains |
5,915 |
1,696 |
1,635 |
5,501 |
||||||||||||
Net impairment losses recognized in earnings |
(122) |
(31) |
(3,192) |
(193) |
||||||||||||
Equity in earnings (losses) of limited partnerships |
3,615 |
3,289 |
(2,419) |
2,546 |
||||||||||||
Total investment income |
16,438 |
13,606 |
18,796 |
33,053 |
||||||||||||
Interest expense, net |
3 |
111 |
8 |
832 |
||||||||||||
Other (expense) income |
(964) |
100 |
(1,588) |
195 |
||||||||||||
Income before income taxes |
111,696 |
119,502 |
290,305 |
321,055 |
||||||||||||
Income tax expense |
22,480 |
25,333 |
59,786 |
63,821 |
||||||||||||
Net income |
$ |
89,216 |
$ |
94,169 |
$ |
230,519 |
$ |
257,234 |
||||||||
Net income per share |
||||||||||||||||
Class A common stock – basic |
$ |
1.92 |
$ |
2.02 |
$ |
4.95 |
$ |
5.52 |
||||||||
Class A common stock – diluted |
$ |
1.71 |
$ |
1.80 |
$ |
4.41 |
$ |
4.92 |
||||||||
Class B common stock – basic |
$ |
287 |
$ |
303 |
$ |
742 |
$ |
829 |
||||||||
Class B common stock – diluted |
$ |
287 |
$ |
303 |
$ |
742 |
$ |
828 |
||||||||
Weighted average shares outstanding – Basic |
||||||||||||||||
Class A common stock |
46,189,030 |
46,189,006 |
46,188,544 |
46,188,767 |
||||||||||||
Class B common stock |
2,542 |
2,542 |
2,542 |
2,542 |
||||||||||||
Weighted average shares outstanding – Diluted |
||||||||||||||||
Class A common stock |
52,310,429 |
52,325,125 |
52,312,588 |
52,317,275 |
||||||||||||
Class B common stock |
2,542 |
2,542 |
2,542 |
2,542 |
||||||||||||
Dividends declared per share |
||||||||||||||||
Class A common stock |
$ |
0.965 |
$ |
0.90 |
$ |
2.895 |
$ |
2.70 |
||||||||
Class B common stock |
$ |
144.75 |
$ |
135.00 |
$ |
434.25 |
$ |
405.00 |
|
||||||||
Statements of Financial Position |
||||||||
(in thousands) |
||||||||
|
|
|||||||
(Unaudited) |
||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ |
216,355 |
$ |
336,739 |
||||
Available-for-sale securities |
13,429 |
32,810 |
||||||
Equity securities |
0 |
2,381 |
||||||
Receivables from |
501,192 |
468,636 |
||||||
Prepaid expenses and other current assets |
52,008 |
44,943 |
||||||
Federal income taxes recoverable |
3,965 |
462 |
||||||
Accrued investment income |
5,973 |
5,433 |
||||||
Total current assets |
792,922 |
891,404 |
||||||
Available-for-sale securities, net |
894,625 |
697,891 |
||||||
Equity securities |
94,435 |
64,752 |
||||||
Limited partnership investments |
10,006 |
26,775 |
||||||
Fixed assets, net |
254,908 |
221,379 |
||||||
Agent loans, net |
58,339 |
60,978 |
||||||
Deferred income taxes, net |
21,618 |
17,186 |
||||||
Other assets |
32,489 |
35,875 |
||||||
Total assets |
$ |
2,159,342 |
$ |
2,016,240 |
||||
Liabilities and shareholders' equity |
||||||||
Current liabilities: |
||||||||
Commissions payable |
$ |
275,594 |
$ |
262,963 |
||||
Agent bonuses |
85,709 |
96,053 |
||||||
Accounts payable and accrued liabilities |
148,075 |
134,957 |
||||||
Dividends payable |
44,940 |
44,940 |
||||||
Contract liability |
37,420 |
35,938 |
||||||
Deferred executive compensation |
12,701 |
10,882 |
||||||
Current portion of long-term borrowings |
2,021 |
1,979 |
||||||
Total current liabilities |
606,460 |
587,712 |
||||||
Defined benefit pension plans |
169,358 |
145,659 |
||||||
Long-term borrowings |
94,337 |
95,842 |
||||||
Contract liability |
19,140 |
18,435 |
||||||
Deferred executive compensation |
11,335 |
13,734 |
||||||
Other long-term liabilities |
11,495 |
21,605 |
||||||
Total liabilities |
912,125 |
882,987 |
||||||
Shareholders' equity |
1,247,217 |
1,133,253 |
||||||
Total liabilities and shareholders' equity |
$ |
2,159,342 |
$ |
2,016,240 |
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SOURCE
Robert Scalise, 814-881-7500, Robert.scalise@erieinsurance.com