Erie Indemnity Reports First Quarter 2020 Results
ERIE, Pa., May 7, 2020 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending March 31, 2020. Net income was $59.3 million, or $1.13 per diluted share, in the first quarter of 2020, compared to $75.3 million, or $1.44 per diluted share, in the first quarter of 2019.
On March 11, 2020, the outbreak of the coronavirus ("COVID-19") was declared a global pandemic. The impacts of the pandemic and efforts to mitigate the spread of the virus have had significant adverse impacts on economic conditions and financial markets. We did not experience significant financial impacts on our core businesses of policy issuance and renewal services and administrative services in the first quarter of 2020. However, the financial market volatility did have a significant impact on our first quarter 2020 investment portfolio.
1Q 2020
---
(in thousands) 1Q'20 1Q'19
Operating income $
85,691 $
86,122
Investment (loss) income (9,195) 9,795
Interest expense and
other income, net 369 402
Income before income
taxes 76,127 95,515
Income tax expense 16,801 20,204
Net income $
59,326 $
75,311
1Q 2020 Highlights
---
Operating income before taxes decreased $0.4 million, or 0.5 percent, in the first quarter of 2020 compared to the first quarter of 2019.
-- Management fee revenue - policy issuance and renewal services increased
$12.8 million, or 3.0 percent, in the first quarter of 2020 compared to
the first quarter of 2019.
-- Management fee revenue - administrative services increased $0.8 million,
or 5.9 percent, in the first quarter of 2020 compared to the first
quarter of 2019.
-- Cost of operations - policy issuance and renewal services
-- Commissions increased $9.0 million in the first quarter of 2020
compared to the first quarter of 2019. The increase was primarily
driven by the growth in direct and affiliated assumed premiums
written by the Exchange of 3.5 percent in the first quarter of 2020.
The estimated agent incentive payouts at March 31, 2020 are based on
actual underwriting results for the two prior years and current
year-to-date actual results and forecasted results for the remainder
of 2020. Therefore, fluctuations in the current quarter
underwriting results can impact the estimated incentive payout on a
quarter-to-quarter basis.
-- Non-commission expense increased $5.0 million in the first quarter
of 2020 compared to the first quarter of 2019. Underwriting and
policy processing expense increased $3.1 million primarily due to
increased personnel costs and underwriting report costs.
Information technology costs increased $3.0 million primarily due to
increased professional fees and personnel costs. Administrative and
other expenses decreased $2.2 million primarily driven by a decrease
in long-term incentive plan cost due to a decrease in the company
stock price in the first quarter of 2020 compared to an increase in
the first quarter of 2019.
Loss from investments before taxes totaled $9.2 million in the first quarter of 2020 compared to income of $9.8 million in the first quarter of 2019. Net realized losses were $10.8 million in the first quarter of 2020 compared to net realized gains of $2.5 million in the first quarter of 2019 driven by decreases in the fair value of equity securities due to significant financial market volatility resulting from the COVID-19 pandemic. Net impairment losses of $3.1 million in the first quarter of 2020 were also driven by the COVID-19 pandemic's impact on the financial markets. Losses from limited partnerships were $3.7 million in the first quarter of 2020 compared to losses of $1.1 million in the first quarter of 2019.
Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on May 8, 2020. 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 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 nearly 6 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.
"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:
-- 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.
Erie Indemnity Company
Statements of Operations
(dollars in thousands, except
per share data)
Three months ended March 31,
2020 2019
(Unaudited)
Operating revenue
Management fee revenue -
policy issuance and renewal
services, net $
443,750 $
430,983
Management fee revenue -
administrative services, net 14,771 13,951
Administrative services
reimbursement revenue 151,554 142,480
Service agreement revenue 6,662 6,692
Total operating revenue 616,737 594,106
Operating expenses
Cost of operations -policy
issuance and renewal services 379,492 365,504
Cost of operations -
administrative services 151,554 142,480
Total operating expenses 531,046 507,984
Operating income 85,691 86,122
Investment income
Net investment income 8,369 8,517
Net realized investment
(losses) gains (10,806) 2,503
Net impairment losses
recognized in earnings (3,053) (78)
Equity in losses of limited
partnerships (3,705) (1,147)
Total investment (loss) income (9,195) 9,795
Interest expense, net 3 449
Other (expense) income (366) 47
Income before income taxes 76,127 95,515
Income tax expense 16,801 20,204
Net income $
59,326 $
75,311
Net income per share
Class A common stock - basic $
1.27 $
1.62
Class A common stock - diluted $
1.13 $
1.44
Class B common stock - basic
and diluted $
191 $
243
Weighted average shares
outstanding - Basic
Class A common stock 46,188,789 46,188,337
Class B common stock 2,542 2,542
Weighted average shares
outstanding - Diluted
Class A common stock 52,324,350 52,312,036
Class B common stock 2,542 2,542
Dividends declared per share
Class A common stock $
0.965 $
0.90
Class B common stock $
144.75 $
135.00
Erie Indemnity Company
Statements of Financial Position
(in thousands)
March 31, December 31,
2020 2019
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $
228,646 $
336,739
Available-for-sale securities 34,818 32,810
Equity securities 0 2,381
Receivables from Erie Insurance
Exchange and affiliates, net 482,238 468,636
Prepaid expenses and other current
assets 58,715 44,943
Federal income taxes recoverable 0 462
Accrued investment income 5,657 5,433
Total current assets 810,074 891,404
Available-for-sale securities, net 716,835 697,891
Equity securities 58,014 64,752
Limited partnership investments 22,492 26,775
Fixed assets, net 238,296 221,379
Agent loans, net 59,877 60,978
Deferred income taxes, net 19,281 17,186
Other assets 32,624 35,875
Total assets $
1,957,493 $
2,016,240
Liabilities and shareholders' equity
Current liabilities:
Commissions payable $
270,328 $
262,963
Agent bonuses 29,661 96,053
Accounts payable and accrued
liabilities 130,035 134,957
Dividends payable 44,940 44,940
Contract liability 35,810 35,938
Deferred executive compensation 10,910 10,882
Federal income taxes payable 18,040 0
Current portion of long-term
borrowings 2,000 1,979
Total current liabilities 541,724 587,712
Defined benefit pension plans 153,558 145,659
Long-term borrowings 95,342 95,842
Contract liability 18,461 18,435
Deferred executive compensation 11,983 13,734
Other long-term liabilities 19,433 21,605
Total liabilities 840,501 882,987
Shareholders' equity 1,116,992 1,133,253
Total liabilities and shareholders'
equity $
1,957,493 $
2,016,240
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SOURCE Erie Indemnity Company
