PR Newswire | Feb 25, 2021 04:25PM EST

02/25 16:15 CDT

Erie Indemnity Reports Full Year and Fourth Quarter 2020 ResultsNet Income per Diluted Share was $1.20 for the Quarter and $5.61 for the Year ERIE, Pa., Feb. 25, 2021

ERIE, Pa., Feb. 25, 2021 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the full year and quarter ending December 31, 2020. Net income was $293.3 million, or $5.61 per diluted share, in 2020, compared to $316.8 million, or $6.06 per diluted share, in 2019. Net income was $62.8 million, or $1.20 per diluted share, in the fourth quarter of 2020, compared to $59.6 million, or $1.14 per diluted share, in the fourth quarter of 2019.

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. Although the Exchange experienced declines in new business premiums in the first half of 2020 due to business disruptions and recessionary conditions, new business premiums grew 10.8% in the second half of 2020 compared to the same period in 2019. The financial markets substantially recovered during the remainder of 2020 from the volatility impacting our portfolio in the first quarter of 2020, resulting in overall realized and unrealized gains.

4Q and Full Year 2020

(dollars in thousands) 4Q'20 4Q'19 2020 2019

Operating income $65,052$68,700$338,157$357,339

Investment income 14,071 6,914 32,867 39,967

Interest expense and other 913 (36) 2,509 601 (income), net

Income before income taxes 78,210 75,650 368,515 396,705

Income tax expense 15,425 16,063 75,211 79,884

Net income $62,785$59,587$293,304$316,821



2020 Full Year Highlights

Operating income before taxes decreased $19.2 million, or 5.4 percent, in 2020 compared to 2019.

* Management fee revenue - policy issuance and renewal services increased $31.3 million, or 1.7 percent, in 2020 compared to 2019. * Management fee revenue allocated to administrative services increased $2.3 million, or 4.0 percent, in 2020 compared to 2019. * Cost of operations - policy issuance and renewal services * Commissions increased $26.6 million in 2020 compared to 2019 resulting from higher direct and affiliated assumed premiums written by the Exchange and higher agent incentive compensation. The Exchange experienced a significant decrease in automobile claims frequency and related loss expense beginning in March 2020 that continued through May 2020 driven by the COVID-19 pandemic, which contributed to an increase in the profitability component of the agent incentive bonuses. * Non-commission expense increased $24.3 million in 2020 compared to 2019. Underwriting and policy processing costs increased $5.7 million primarily due to increased personnel costs and underwriting report costs. Information technology costs increased $6.2 million primarily due to increased personnel costs and hardware and software costs. Administrative and other expenses increased $9.3 million primarily driven by increased personnel costs. Increased personnel costs in all categories included higher incentive plan award accruals related to underwriting performance in 2020 compared to targets and higher vacation accruals as employees took less vacation in 2020 as a result of the COVID-19 pandemic.

* The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $609.4 million in 2020 and $582.0 million in 2019, but had no net impact on operating income.

Income from investments before taxes totaled $32.9 million in 2020 compared to $40.0 million in 2019. Net realized gains on investments were $6.4 million in 2020 compared to $6.1 million in 2019. Net investment income was $29.8 million in 2020 compared to $34.1 million in 2019.

4Q 2020 Highlights

Operating income before taxes decreased $3.6 million, or 5.3 percent, in the fourth quarter of 2020 compared to the fourth quarter of 2019.

* Management fee revenue - policy issuance and renewal services increased $5.2 million, or 1.2 percent, in the fourth quarter of 2020 compared to the fourth quarter of 2019. * Management fee revenue allocated to administrative services increased $0.3 million, or 2.3 percent in the fourth quarter of 2020 compared to the fourth quarter of 2019. * Cost of operations - policy issuance and renewal services * Commissions increased $6.2 million in the fourth quarter of 2020 compared to the fourth quarter of 2019 primarily driven by direct and affiliated assumed written premium growth. * Non-commission expense increased $2.5 million in the fourth quarter of 2020 compared to the fourth quarter of 2019. Administrative and other expenses increased $2.9 million primarily driven by an increase in long-term incentive plan costs due to an increase in the company stock price in the fourth quarter of 2020 compared to a decrease in the company stock price in the fourth quarter of 2019 and increased personnel costs.

* The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $158.2 million and $150.7 million in the fourth quarter of 2020 and 2019, respectively, but had no net impact on operating income.

Income from investments before taxes totaled $14.1 million in the fourth quarter of 2020 compared to $6.9 million in the fourth quarter of 2019. Net realized gains on investments were $4.8 million in the fourth quarter of 2020 compared to $0.6 million in the fourth quarter of 2019. Net investment income was $9.4 million in the fourth quarter of 2020 compared to $6.3 million in the fourth quarter of 2019. Included in net investment income is $1.8 million of limited partnership earnings in the fourth quarter of 2020 and $1.9 million in limited partnership losses in the fourth quarter of 2019.

Webcast Information

Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on February 26, 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 11th largest homeowners insurer and 12th largest automobile insurer in the United States based on direct premiums written and the 16th 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:

* 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 Twelve months ended December 31, December 31,

2020 2019 2020 2019

(Unaudited)

Operating revenue

Management fee revenue - policy issuance and $429,698 $424,534 $1,841,794$1,810,457renewal services, net

Management fee revenue - administrative 14,969 14,628 59,463 57,204 services, net

Administrative services158,206 150,705 609,435 582,010 reimbursement revenue

Service agreement 6,379 6,873 25,797 27,627 revenue

Total operating 609,252 596,740 2,536,489 2,477,298 revenue



Operating expenses

Cost of operations - policy issuance and 385,994 377,335 1,588,897 1,537,949 renewal services

Cost of operations - 158,206 150,705 609,435 582,010 administrative services

Total operating 544,200 528,040 2,198,332 2,119,959 expenses

Operating income 65,052 68,700 338,157 357,339



Investment income

Net investment income 9,400 6,314 29,753 34,059

Net realized investment4,757 602 6,392 6,103 gains

Net impairment losses (86) (2) (3,278) (195) recognized in earnings

Total investment income14,071 6,914 32,867 39,967



Interest expense, net 723 24 731 856

Other (expense) income (190) 60 (1,778) 255

Income before income 78,210 75,650 368,515 396,705 taxes

Income tax expense 15,425 16,063 75,211 79,884

Net income $62,785 $59,587 $293,304 $316,821





Earnings Per Share

Net income per share

Class A common stock - $1.35 $1.28 $6.30 $6.80 basic

Class A common stock - $1.20 $1.14 $5.61 $6.06 diluted

Class B common stock - $202 $192 $945 $1,020 basic and diluted



Weighted average shares outstanding - Basic

Class A common stock 49,189,00146,189,03346,188,659 46,188,836

Class B common stock 2,542 2,542 2,542 2,542



Weighted average shares outstanding - Diluted

Class A common stock 52,315,67052,327,60752,313,360 52,319,860

Class B common stock 2,542 2,542 2,542 2,542



Dividends declared per share

Class A common stock $3.035 $0.965 $5.930 $3.665

Class B common stock $455.25 $144.75 $889.50 $549.75







Erie Indemnity Company

Statements of Financial Position

(in thousands)



December 31, 2020December 31, 2019

Assets

Current assets:

Cash and cash equivalents $161,240 $336,739

Available-for-sale securities 17,697 32,810

Equity securities 19 2,381

Receivables from Erie Insurance 494,637 468,636 Exchange and affiliates, net

Prepaid expenses and other current 49,897 44,943 assets

Federal income taxes recoverable 2,664 462

Accrued investment income 6,146 5,433

Total current assets 732,300 891,404



Available-for-sale securities, net 910,539 697,891

Equity securities 94,071 64,752

Fixed assets, net 265,341 221,379

Agent loans, net 62,449 60,978

Deferred income taxes, net 12,341 17,186

Other assets 40,081 62,650

Total assets $2,117,122 $2,016,240



Liabilities and shareholders' equity

Current liabilities:

Commissions payable $262,338 $262,963

Agent bonuses 110,158 96,053

Accounts payable and accrued 150,706 134,957 liabilities

Dividends payable 48,200 44,940

Contract liability 36,917 35,938

Deferred executive compensation 17,319 10,882

Current portion of long-term borrowings2,031 1,979

Total current liabilities 627,669 587,712



Defined benefit pension plan 164,346 145,659

Long-term borrowings 93,833 95,842

Contract liability 18,878 18,435

Deferred executive compensation 14,904 13,734

Other long-term liabilities 9,444 21,605

Total liabilities 929,074 882,987



Shareholders' equity 1,188,048 1,133,253

Total liabilities and shareholders' $2,117,122 $2,016,240 equity

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SOURCE Erie Indemnity Company