ERIE, Pa., July 26, 2018
/PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for
the quarter ending June 30, 2018. Net income was
$79.7 million, or $1.52 per diluted share, in the second quarter of
2018, compared to $58.5 million, or
$1.12 per diluted share, in the
second quarter of 2017. Net income was $145.5 million, or $2.78 per diluted share, in the first six months
of 2018, compared to $106.4 million,
or $2.03 per diluted share, in the
first six months of 2017.
2Q and First Half
2018
|
(dollars in
thousands)
|
2Q'18
|
2Q'17
|
|
1H'18
|
1H'17
|
|
Operating
income
|
$
|
95,323
|
|
$
|
83,448
|
|
|
$
|
172,890
|
|
$
|
150,388
|
|
|
Investment
income
|
6,207
|
|
6,451
|
|
|
12,370
|
|
13,040
|
|
|
Interest expense and
other, net
|
544
|
|
664
|
|
|
1,053
|
|
1,239
|
|
|
Income before income
taxes
|
100,986
|
|
89,235
|
|
|
184,207
|
|
162,189
|
|
|
Income tax
expense
|
21,280
|
|
30,708
|
|
|
38,743
|
|
55,786
|
|
|
Net income
|
$
|
79,706
|
|
$
|
58,527
|
|
|
$
|
145,464
|
|
$
|
106,403
|
|
|
|
|
|
|
|
|
|
Operating income before taxes increased $11.9 million, or 14.2 percent, in the second
quarter of 2018 compared to the second quarter of 2017, as the
growth in total operating revenue outpaced the growth in total
operating expenses.
- Management fee revenue - policy issuance and renewal services
increased $13.3 million, or 3.0
percent, in the second quarter of 2018 compared to the second
quarter of 2017.
- Management fee revenue allocated to administrative services was
$13.3 million in the second quarter
of 2018. No management fee revenue was allocated to administrative
services in the second quarter of 2017.
- Cost of operations - policy issuance and renewal
services
-
- Commissions increased $10.2
million in the second quarter of 2018 compared to the second
quarter of 2017, as a result of the 6.5 percent increase in direct
and assumed premiums written by the Exchange, slightly offset by
lower agent incentive costs related to less profitable growth,
compared to the second quarter of 2017.
- Non-commission expense increased $4.3
million in the second quarter of 2018 compared to the second
quarter of 2017. Underwriting and policy processing costs
increased $2.1 million primarily due
to increased underwriting report costs. Customer service
costs increased $1.3 million
primarily due to increased personnel costs and credit card
processing fees. Administrative and other expenses increased
$2.0 million primarily due to a sales
and use tax refund recorded in the second quarter of 2017.
- The administrative services reimbursement revenue and
corresponding cost of operations increased both total operating
revenue and total operating expenses by $146.5 million in the second quarter of 2018, but
had no net impact on operating income.
Income from investments before taxes totaled $6.2 million in the second quarter of 2018
compared to $6.5 million in the
second quarter of 2017. Net investment income was
$7.1 million in the second quarter of
2018 compared to $6.2 million in the
second quarter of 2017, while impairments on investments were
$0.6 million in the second quarter of
2018 compared to $0.1 million in the
second quarter of 2017 and losses on limited partnerships were
$0.2 million in the second quarter of
2018 compared to earnings of $0.1
million in the second quarter of 2017.
Income before income taxes increased $11.8 million in the second quarter of 2018,
while income tax expense decreased $9.4
million in the second quarter of 2018, due to the lower
income tax rate of 21% which became effective January 1, 2018.
First Half 2018
Highlights
|
Operating income before taxes increased $22.5 million, or 15.0 percent, in the first six
months of 2018 compared to the first six months of 2017, as the
growth in total operating revenue outpaced the growth in total
operating expenses.
- Management fee revenue - policy issuance and renewal services
increased $27.2 million, or 3.3
percent, in the first six months of 2018 compared to the first six
months of 2017.
- Management fee revenue allocated to administrative services was
$26.4 million in the first six months
of 2018. No management fee revenue was allocated to administrative
services in the first six months of 2017.
- Cost of operations - policy issuance and renewal
services
-
- Commissions increased $23.8
million in the first six months of 2018 compared to the
first six months of 2017, as a result of the 6.7 percent increase
in direct and assumed premiums written by the Exchange, slightly
offset by lower agent incentive costs related to less profitable
growth, compared to the first six months of 2017.
- Non-commission expense increased $7.0
million in the first six months of 2018 compared to the
first six months of 2017. Underwriting and policy processing
costs increased $5.3 million
primarily due to increased personnel costs and underwriting report
costs. Information technology costs decreased $1.3 million primarily due to lower professional
fees and hardware and software costs, somewhat offset by higher
personnel costs. Customer service costs increased
$2.9 million primarily due to
increased personnel costs and credit card processing fees.
Personnel costs in all expense categories were impacted by
additional bonuses of approximately $4.8
million awarded to all employees as a result of tax savings
realized from the lower corporate income tax rate that became
effective January 1, 2018.
These increased personnel costs were somewhat offset by lower
estimated costs for incentive plan awards related to underwriting
performance.
- The administrative services reimbursement revenue and
corresponding cost of operations increased both total operating
revenue and total operating expenses by $292.5 million in the first six months of 2018,
but had no net impact on operating income.
Income from investments before taxes totaled $12.4 million in the first six months of 2018
compared to $13.0 million in the
first six months of 2017. Net investment income was
$13.9 million in the first six months
of 2018 compared to $12.2 million in
the first six months of 2017, while net realized losses on
investments were $0.5 million in the
first six months of 2018 compared to net realized gains of
$0.6 million in the first six months
of 2017 and losses on limited partnerships were $0.4 million in the first six months of 2018
compared to earnings of $0.4 million
in the first six months of 2017.
Income before income taxes increased $22.0 million in the first six months of 2018,
while income tax expense decreased $17.0
million in the first six months of 2018, due to the lower
income tax rate of 21% which became effective January 1, 2018.
Webcast Information
Indemnity has scheduled a
conference call and live audio broadcast on the Web for 10:00
AM ET on July 27, 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
9th largest homeowners insurer and 11th
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 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 policy issuance and renewal 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
June 30,
|
|
Six months ended June
30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Operating
revenue
|
|
|
|
|
|
|
|
|
Management fee
revenue - policy issuance and renewal services, net
|
|
$
|
454,572
|
|
|
$
|
441,319
|
|
|
$
|
860,550
|
|
|
$
|
833,377
|
|
Management fee
revenue - administrative services, net
|
|
13,299
|
|
|
—
|
|
|
26,373
|
|
|
—
|
|
Administrative
services reimbursement revenue
|
|
146,507
|
|
|
—
|
|
|
292,470
|
|
|
—
|
|
Service agreement
revenue
|
|
7,080
|
|
|
7,245
|
|
|
14,225
|
|
|
14,503
|
|
Total operating
revenue
|
|
621,458
|
|
|
448,564
|
|
|
1,193,618
|
|
|
847,880
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Cost of operations -
policy issuance and renewal services
|
|
379,628
|
|
|
365,116
|
|
|
728,258
|
|
|
697,492
|
|
Cost of operations -
administrative services
|
|
146,507
|
|
|
—
|
|
|
292,470
|
|
|
—
|
|
Total operating
expenses
|
|
526,135
|
|
|
365,116
|
|
|
1,020,728
|
|
|
697,492
|
|
Operating
income
|
|
95,323
|
|
|
83,448
|
|
|
172,890
|
|
|
150,388
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
|
|
|
|
|
|
Net investment
income
|
|
7,104
|
|
|
6,239
|
|
|
13,924
|
|
|
12,220
|
|
Net realized
investment (losses) gains
|
|
(32)
|
|
|
124
|
|
|
(497)
|
|
|
640
|
|
Net impairment losses
recognized in earnings
|
|
(646)
|
|
|
(61)
|
|
|
(646)
|
|
|
(182)
|
|
Equity in (losses)
earnings of limited partnerships
|
|
(219)
|
|
|
149
|
|
|
(411)
|
|
|
362
|
|
Total investment
income
|
|
6,207
|
|
|
6,451
|
|
|
12,370
|
|
|
13,040
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
|
602
|
|
|
257
|
|
|
1,155
|
|
|
423
|
|
Other income
(expense)
|
|
58
|
|
|
(407)
|
|
|
102
|
|
|
(816)
|
|
Income before income
taxes
|
|
100,986
|
|
|
89,235
|
|
|
184,207
|
|
|
162,189
|
|
Income tax
expense
|
|
21,280
|
|
|
30,708
|
|
|
38,743
|
|
|
55,786
|
|
Net
income
|
|
$
|
79,706
|
|
|
$
|
58,527
|
|
|
$
|
145,464
|
|
|
$
|
106,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share
|
|
|
|
|
|
|
|
|
Class A common
stock – basic
|
|
$
|
1.71
|
|
|
$
|
1.26
|
|
|
$
|
3.12
|
|
|
$
|
2.28
|
|
Class A
common stock – diluted
|
|
$
|
1.52
|
|
|
$
|
1.12
|
|
|
$
|
2.78
|
|
|
$
|
2.03
|
|
Class B common
stock – basic
|
|
$
|
257
|
|
|
$
|
189
|
|
|
$
|
469
|
|
|
$
|
343
|
|
Class B common
stock – diluted
|
|
$
|
257
|
|
|
$
|
188
|
|
|
$
|
468
|
|
|
$
|
343
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – Basic
|
|
|
|
|
|
|
|
|
Class A common
stock
|
|
46,188,705
|
|
|
46,180,852
|
|
|
46,188,309
|
|
|
46,184,666
|
|
Class B common
stock
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – Diluted
|
|
|
|
|
|
|
|
|
Class A common
stock
|
|
52,312,849
|
|
|
52,299,395
|
|
|
52,311,741
|
|
|
52,355,214
|
|
Class B common
stock
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
per share
|
|
|
|
|
|
|
|
|
Class A common
stock
|
|
$
|
0.8400
|
|
|
$
|
0.7825
|
|
|
$
|
1.6800
|
|
|
$
|
1.5650
|
|
Class B common
stock
|
|
$
|
126.000
|
|
|
$
|
117.375
|
|
|
$
|
252.000
|
|
|
$
|
234.750
|
|
Erie Indemnity
Company Statements of Financial Position (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
198,412
|
|
|
$
|
215,721
|
|
Available-for-sale
securities
|
|
107,369
|
|
|
71,190
|
|
Receivables from Erie
Insurance Exchange and affiliates
|
|
445,211
|
|
|
418,328
|
|
Prepaid expenses and
other current assets
|
|
45,426
|
|
|
34,890
|
|
Federal income taxes
recoverable
|
|
0
|
|
|
29,900
|
|
Note receivable from
Erie Family Life Insurance Company
|
|
25,000
|
|
|
25,000
|
|
Accrued investment
income
|
|
6,647
|
|
|
6,853
|
|
Total current
assets
|
|
828,065
|
|
|
801,882
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
598,059
|
|
|
687,523
|
|
Equity
securities
|
|
12,488
|
|
|
—
|
|
Limited partnership
investments
|
|
39,651
|
|
|
45,122
|
|
Fixed assets,
net
|
|
94,651
|
|
|
83,149
|
|
Deferred income
taxes, net
|
|
31,527
|
|
|
19,390
|
|
Other
assets
|
|
47,834
|
|
|
28,793
|
|
Total
assets
|
|
$
|
1,652,275
|
|
|
$
|
1,665,859
|
|
|
|
|
|
|
Liabilities and
shareholders' equity
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Commissions
payable
|
|
$
|
253,328
|
|
|
$
|
228,124
|
|
Agent
bonuses
|
|
56,482
|
|
|
122,528
|
|
Accounts payable and
accrued liabilities
|
|
97,139
|
|
|
104,533
|
|
Dividends
payable
|
|
39,119
|
|
|
39,116
|
|
Contract
liability
|
|
33,137
|
|
|
—
|
|
Deferred executive
compensation
|
|
8,801
|
|
|
15,605
|
|
Federal income taxes
payable
|
|
8,933
|
|
|
0
|
|
Current portion of
long-term borrowings
|
|
925
|
|
|
0
|
|
Total current
liabilities
|
|
497,864
|
|
|
509,906
|
|
|
|
|
|
|
Defined benefit
pension plans
|
|
145,667
|
|
|
207,530
|
|
Employee benefit
obligations
|
|
194
|
|
|
423
|
|
Contract
liability
|
|
17,452
|
|
|
—
|
|
Deferred executive
compensation
|
|
11,688
|
|
|
14,452
|
|
Long-term
borrowings
|
|
98,800
|
|
|
74,728
|
|
Other long-term
liabilities
|
|
422
|
|
|
1,476
|
|
Total
liabilities
|
|
772,087
|
|
|
808,515
|
|
|
|
|
|
|
Shareholders'
equity
|
|
880,188
|
|
|
857,344
|
|
Total liabilities
and shareholders' equity
|
|
$
|
1,652,275
|
|
|
$
|
1,665,859
|
|
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SOURCE Erie Indemnity Company