PR Newswire | Oct 29, 2020 04:16PM EDT

10/29 15:15 CDT

Erie Indemnity Reports Third Quarter 2020 ResultsNet Income per Diluted Share was $1.71 for the Quarter and $4.41 for the Nine Months of 2020 ERIE, Pa., Oct. 29, 2020

ERIE, Pa., Oct. 29, 2020 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter and nine months ending September 30, 2020. Net income was $89.2 million, or $1.71 per diluted share, in the third quarter of 2020, compared to $94.2 million, or $1.80 per diluted share, in the third quarter of 2019. Net income was $230.5 million, or $4.41 per diluted share, in the first nine months of 2020, compared to $257.2 million, or $4.92 per diluted share, in the first nine months 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. 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, net967 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 $9.7 million, or 9.1 percent, in the third quarter of 2020 compared to the third quarter of 2019.

* 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 $16.4 million in the third quarter of 2020 compared to $13.6 million in the third quarter of 2019. Net realized gains on investments were $5.9 million in the third quarter of 2020 compared to $1.7 million in the third quarter of 2019. Net investment income was $7.0 million in the third quarter of 2020 compared to $8.7 million in the third quarter of 2019. Earnings from limited partnerships were $3.6 million in the third quarter of 2020 compared to earnings of $3.3 million in the third quarter of 2019.

Nine Months 2020 Highlights

Operating income before taxes decreased $15.5 million, or 5.4 percent, in the first nine months of 2020 compared to the first nine months of 2019.

* 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 $18.8 million in the first nine months of 2020 compared to $33.1 million in the first nine months of 2019. Net investment income was $22.8 million in the first nine months of 2020 compared to $25.2 million in the first nine months of 2019. Net realized gains on investments were $1.6 million in the first nine months of 2020 compared to $5.5 million in the first nine months of 2019. Net impairment losses of $3.2 million in the first nine months of 2020 were driven by the COVID-19 pandemic's impact on the financial markets. Losses from limited partnerships were $2.4 million in the first nine months of 2020 compared to earnings of $2.5 million in the first nine months of 2019.

Webcast InformationIndemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on October 30, 2020. Investors may access the pre-recorded audio broadcast by logging on to www.erieinsurance.com.

Erie Insurance GroupAccording 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:

* 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 Nine months ended September 30, September 30,

2020 2019 2020 2019

(Unaudited) (Unaudited)

Operating revenue

Management fee revenue - policy issuance and $484,551 $474,427 $1,412,096$1,385,923renewal services, net

Management fee revenue - administrative 14,910 14,430 44,494 42,576 services, net

Administrative services147,710 142,730 451,229 431,305 reimbursement revenue

Service agreement 6,310 7,155 19,418 20,754 revenue

Total operating 653,481 638,742 1,927,237 1,880,558 revenue



Operating expenses

Cost of operations - policy issuance and 409,546 390,105 1,202,903 1,160,614 renewal services

Cost of operations - 147,710 142,730 451,229 431,305 administrative services

Total operating 557,256 532,835 1,654,132 1,591,919 expenses

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 investment5,915 1,696 1,635 5,501 gains

Net impairment losses (122) (31) (3,192) (193) recognized in earnings

Equity in earnings (losses) of limited 3,615 3,289 (2,419) 2,546 partnerships

Total investment income16,438 13,606 18,796 33,053



Interest expense, net 3 111 8 832

Other (expense) income (964) 100 (1,588) 195

Income before income 111,696 119,502 290,305 321,055 taxes

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 - $1.92 $2.02 $4.95 $5.52 basic

Class A common stock - $1.71 $1.80 $4.41 $4.92 diluted

Class B common stock - $287 $303 $742 $829 basic

Class B common stock - $287 $303 $742 $828 diluted



Weighted average shares outstanding - Basic

Class A common stock 46,189,03046,189,00646,188,544 46,188,767

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



Weighted average shares outstanding - Diluted

Class A common stock 52,310,42952,325,12552,312,588 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

Erie Indemnity Company

Statements of Financial Position

(in thousands)



September 30,December 31, 2020 2019

(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 Erie Insurance Exchange and affiliates, net501,192 468,636

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 Erie Indemnity Company