ERIE, Pa., Feb. 22, 2018 /PRNewswire/ -- Erie Indemnity
Company (NASDAQ: ERIE) today
announced financial results for the full year and quarter ending
December 31, 2017. Net income was $197.0 million, or $3.76 per diluted share, for the full year 2017,
compared to $210.4 million, or
$4.01 per diluted share, in
2016. Net income was $32.1
million, or $0.61 per diluted
share, in the fourth quarter of 2017, compared to $45.8 million, or $0.87 per diluted share, in the fourth quarter of
2016. Net income was reduced by $10.1
million for the fourth quarter and year ended
December 31, 2017 due to the enactment of the Tax Cuts and
Jobs Act ("TCJA") on December 22,
2017, which reduced fourth quarter and full year Class A
diluted earnings per share by $0.19.
4Q and Full Year
2017
|
(dollars in
thousands)
|
4Q'17
|
4Q'16
|
|
2017
|
2016
|
|
|
Operating
income
|
$
|
57,958
|
|
$
|
56,685
|
|
|
$
|
288,372
|
|
$
|
292,364
|
|
|
|
Investment income,
net of interest expense
|
6,683
|
|
13,438
|
|
|
27,323
|
|
27,727
|
|
|
|
Income before income
taxes
|
64,641
|
|
70,123
|
|
|
315,695
|
|
320,091
|
|
|
|
Income tax
expense
|
32,588
|
|
24,337
|
|
|
118,696
|
|
109,725
|
|
|
|
Net income
|
$
|
32,053
|
|
$
|
45,786
|
|
|
$
|
196,999
|
|
$
|
210,366
|
|
|
|
Gross margin from
operations
|
14.4
|
%
|
14.9
|
%
|
|
17.0
|
%
|
18.3
|
%
|
|
|
2017 Full Year
Highlights
|
Operating income before taxes decreased $4.0 million, or 1.4 percent, in 2017 compared to
2016.
- Management fee revenue increased $95.2
million, or 6.1 percent, in 2017 compared to 2016.
- Commissions increased $53.7
million in 2017 compared to 2016 as a result of the 6.0
percent increase in direct and assumed premiums written by the
Exchange.
- Non-commission expense increased $45.5
million in 2017 compared to 2016. Underwriting and policy
processing costs increased $7.0
million primarily due to increased personnel costs and
underwriting report costs. Information technology costs increased
$19.2 million primarily due to
increased professional fees, hardware and software costs and
personnel costs. Customer service costs increased $3.2 million primarily due to increased personnel
costs and credit card processing fees. Administrative and other
costs increased $17.5 million
primarily driven by increased personnel costs, including higher
incentive plan costs. The incentive plan cost increase was driven
by an increase in long-term incentive plan cost due to the increase
in the company stock price during 2017 coupled with lower incentive
plan cost in the prior year due to incentive compensation that was
forfeited by senior executives who separated from service during
2016. Additionally, the employee incentive plan program was
expanded to additional employee groups beginning in 2017. Personnel
costs in all expense categories were impacted by increased medical
and pension costs.
- The gross margin for 2017 was 17.0 percent, compared to 18.3
percent for 2016.
Income from investments before taxes and net of interest expense
totaled $27.3 million in 2017
compared to $27.7 million in
2016. Net investment income and realized investment gains
were $25.9 million in 2017 compared
to $21.2 million in 2016.
Earnings from limited partnerships were $2.8
million in 2017 compared to $7.0
million in 2016.
Income tax expense in 2017 was impacted by the enactment of the
TCJA, which reduced the corporate income tax rate from 35% to
21%. Income tax expense increased by $10.1 million related to the TCJA, which included
an increase of $19.9 million related
to the re-measurement of our net deferred tax asset partially
offset by a deferred tax benefit of $9.8
million primarily related to the acceleration of pension
contributions.
Operating income before taxes increased $1.3 million, or 2.2 percent, in the fourth
quarter of 2017 compared to the fourth quarter of 2016.
- Management fee revenue increased $21.9
million, or 5.9 percent, in the fourth quarter of 2017
compared to the fourth quarter of 2016.
- Commissions increased $10.1
million in the fourth quarter of 2017 compared to the fourth
quarter of 2016 as a result of the 6.0 percent increase in direct
and assumed premiums written by the Exchange.
- Non-commission expense increased $10.4
million in the fourth quarter of 2017 compared to the fourth
quarter of 2016. Information technology costs increased
$4.0 million primarily due to an
increase in hardware and software costs and personnel costs.
Customer service costs increased $1.3
million primarily due to increased personnel costs and
credit card processing fees. Administrative and other costs
increased $5.0 million primarily due
to increased personnel costs. Personnel costs in all expense
categories were impacted by increased medical and pension
costs.
- The gross margin in the fourth quarter of 2017 was 14.4
percent, compared to 14.9 percent in the fourth quarter of
2016.
Income from investments before taxes and net of interest expense
totaled $6.7 million in the fourth
quarter of 2017, compared to $13.4
million in the fourth quarter of 2016. Earnings from
limited partnerships were $0.9
million in the fourth quarter of 2017 compared to earnings
of $7.3 million in the fourth quarter
of 2016.
Income tax expense in the fourth quarter of 2017 included an
increase of $10.1 million due to the
enactment of the TCJA.
Webcast Information
Indemnity has scheduled a
conference call and live audio broadcast on the Web for 10:00
AM ET on February 23, 2018. Investors may access
the live audio broadcast by logging on to
www.erieinsurance.com. Indemnity recommends visiting the
website at least 15 minutes prior to the Webcast to download and
install any necessary software. A Webcast audio replay will
be available on the Investor Relations page of the Erie Insurance
website by 12:30 PM ET.
Erie Insurance Group
According to A.M. Best Company,
Erie Insurance Group, based in Erie, Pennsylvania, is the 10th largest
homeowners insurer and 11th largest automobile insurer
in the United States based on direct premiums written and
the 15th 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 more than
5 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 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 services to the Exchange under the
subscriber's agreement;
- credit risk from the Exchange;
- 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
December
31,
|
|
|
Twelve months
ended
December
31,
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
(Unaudited)
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
|
Management fee
revenue, net
|
|
$
|
394,034
|
|
|
$
|
372,169
|
|
|
$
|
1,662,625
|
|
|
$
|
1,567,431
|
Service agreement
revenue
|
|
7,368
|
|
|
7,444
|
|
|
29,149
|
|
|
29,200
|
Total operating
revenue
|
|
401,402
|
|
|
379,613
|
|
|
1,691,774
|
|
|
1,596,631
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Commissions
|
|
226,943
|
|
|
216,837
|
|
|
947,481
|
|
|
893,800
|
Salaries and employee
benefits
|
|
59,168
|
|
|
51,777
|
|
|
240,181
|
|
|
213,356
|
All other operating
expenses
|
|
57,333
|
|
|
54,314
|
|
|
215,740
|
|
|
197,111
|
Total operating
expenses
|
|
343,444
|
|
|
322,928
|
|
|
1,403,402
|
|
|
1,304,267
|
Operating
income
|
|
57,958
|
|
|
56,685
|
|
|
288,372
|
|
|
292,364
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
|
|
|
|
|
|
Net investment
income
|
|
6,424
|
|
|
5,663
|
|
|
24,608
|
|
|
20,547
|
Net realized (losses)
gains on investments
|
|
(205)
|
|
|
643
|
|
|
1,334
|
|
|
672
|
Net impairment losses
recognized in earnings
|
|
0
|
|
|
(71)
|
|
|
(182)
|
|
|
(416)
|
Equity in earnings of
limited partnerships
|
|
902
|
|
|
7,304
|
|
|
2,801
|
|
|
7,025
|
Total investment
income
|
|
7,121
|
|
|
13,539
|
|
|
28,561
|
|
|
27,828
|
Interest expense,
net
|
|
438
|
|
|
101
|
|
|
1,238
|
|
|
101
|
Income before income
taxes
|
|
64,641
|
|
|
70,123
|
|
|
315,695
|
|
|
320,091
|
Income tax
expense
|
|
32,588
|
|
|
24,337
|
|
|
118,696
|
|
|
109,725
|
Net
income
|
|
$
|
32,053
|
|
|
$
|
45,786
|
|
|
$
|
196,999
|
|
|
$
|
210,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per
Share
|
|
|
|
|
|
|
|
|
Net income per
share
|
|
|
|
|
|
|
|
|
Class A common
stock – basic
|
|
$
|
0.69
|
|
|
$
|
0.98
|
|
|
$
|
4.23
|
|
|
$
|
4.52
|
Class A
common stock – diluted
|
|
$
|
0.61
|
|
|
$
|
0.87
|
|
|
$
|
3.76
|
|
|
$
|
4.01
|
Class B common
stock – basic
|
|
$
|
103
|
|
|
$
|
147
|
|
|
$
|
635
|
|
|
$
|
678
|
Class B common
stock – diluted
|
|
$
|
103
|
|
|
$
|
147
|
|
|
$
|
634
|
|
|
$
|
677
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – Basic
|
|
|
|
|
|
|
|
|
Class A common
stock
|
|
46,188,972
|
|
|
46,188,895
|
|
|
46,186,831
|
|
|
46,188,952
|
Class B common
stock
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – Diluted
|
|
|
|
|
|
|
|
|
Class A common
stock
|
|
52,322,478
|
|
|
52,413,119
|
|
|
52,337,463
|
|
|
52,435,303
|
Class B common
stock
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
Dividends declared
per share
|
|
|
|
|
|
|
|
|
Class A common
stock
|
|
$
|
0.8400
|
|
|
$
|
0.7825
|
|
|
$
|
3.1875
|
|
|
$
|
2.9725
|
Class B common
stock
|
|
$
|
126.000
|
|
|
$
|
117.375
|
|
|
$
|
478.125
|
|
|
$
|
445.875
|
Erie Indemnity
Company Statements of Financial Position
|
(in
thousands)
|
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
215,721
|
|
|
$
|
189,072
|
Available-for-sale
securities
|
|
71,190
|
|
|
56,138
|
Receivables from Erie
Insurance Exchange and affiliates
|
|
418,328
|
|
|
378,540
|
Prepaid expenses and
other current assets
|
|
34,890
|
|
|
30,169
|
Federal income taxes
recoverable
|
|
29,900
|
|
|
5,260
|
Note receivable from
Erie Family Life Insurance Company
|
|
25,000
|
|
|
0
|
Accrued investment
income
|
|
6,853
|
|
|
6,337
|
Total current
assets
|
|
801,882
|
|
|
665,516
|
|
|
|
|
|
Available-for-sale
securities
|
|
687,523
|
|
|
657,153
|
Limited partnership
investments
|
|
45,122
|
|
|
58,159
|
Fixed assets,
net
|
|
83,149
|
|
|
69,142
|
Deferred income
taxes, net
|
|
19,390
|
|
|
53,889
|
Note receivable from
Erie Family Life Insurance Company
|
|
0
|
|
|
25,000
|
Other
assets
|
|
28,793
|
|
|
20,096
|
Total
assets
|
|
$
|
1,665,859
|
|
|
$
|
1,548,955
|
|
|
|
|
|
Liabilities and
shareholders' equity
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Commissions
payable
|
|
$
|
228,124
|
|
|
$
|
210,559
|
Agent
bonuses
|
|
122,528
|
|
|
114,772
|
Accounts payable and
accrued liabilities
|
|
104,533
|
|
|
88,153
|
Dividends
payable
|
|
39,116
|
|
|
36,441
|
Deferred executive
compensation
|
|
15,605
|
|
|
19,675
|
Total current
liabilities
|
|
509,906
|
|
|
469,600
|
|
|
|
|
|
Defined benefit
pension plan
|
|
207,530
|
|
|
221,827
|
Employee benefit
obligations
|
|
423
|
|
|
756
|
Deferred executive
compensation
|
|
14,452
|
|
|
13,233
|
Long-term
borrowings
|
|
74,728
|
|
|
24,766
|
Other long-term
liabilities
|
|
1,476
|
|
|
1,863
|
Total
liabilities
|
|
808,515
|
|
|
732,045
|
|
|
|
|
|
Shareholders'
equity
|
|
857,344
|
|
|
816,910
|
Total liabilities
and shareholders' equity
|
|
$
|
1,665,859
|
|
|
$
|
1,548,955
|
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SOURCE Erie Indemnity Company