ERIE, Pa., Oct. 25, 2018
/PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for
the quarter ending September 30, 2018. Net income was
$80.4 million, or $1.54 per diluted share, in the third quarter of
2018, compared to $58.5 million, or
$1.12 per diluted share, in the third
quarter of 2017. Net income was $225.9
million, or $4.32 per diluted
share, in the first nine months of 2018, compared to $164.9 million, or $3.15 per diluted share, in the first nine months
of 2017.
3Q and Nine Months
2018
|
(dollars in
thousands)
|
3Q'18
|
3Q'17
|
|
2018
|
2017
|
|
Operating
income
|
$
|
96,695
|
|
$
|
81,239
|
|
|
$
|
269,585
|
|
$
|
231,627
|
|
|
Investment
income
|
8,431
|
|
8,418
|
|
|
20,801
|
|
21,458
|
|
|
Interest expense and
other, net
|
655
|
|
792
|
|
|
1,708
|
|
2,031
|
|
|
Income before income
taxes
|
104,471
|
|
88,865
|
|
|
288,678
|
|
251,054
|
|
|
Income tax
expense
|
24,025
|
|
30,322
|
|
|
62,768
|
|
86,108
|
|
|
Net income
|
$
|
80,446
|
|
$
|
58,543
|
|
|
$
|
225,910
|
|
$
|
164,946
|
|
|
|
|
|
|
|
|
|
Operating income before taxes increased $15.5 million, or 19.0 percent, in the third
quarter of 2018 compared to the third 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 $16.1 million, or 3.7
percent, in the third quarter of 2018 compared to the third quarter
of 2017.
- Management fee revenue allocated to administrative services was
$13.5 million in the third quarter of
2018. No management fee revenue was allocated to
administrative services in the third quarter of 2017.
- Cost of operations - policy issuance and renewal
services
-
- Commissions increased $8.1
million in the third quarter of 2018 compared to the third
quarter of 2017, as a result of the 7.1 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 third quarter of 2017.
- Non-commission expense increased $5.9
million in the third quarter of 2018 compared to the same
period in 2017. Information technology costs increased
$4.0 million primarily due to higher
professional fees. Administrative and other expenses
increased $2.4 million primarily due
to higher professional fees and personnel costs. Personnel
costs in all expense categories were impacted 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 $140.2 million in the third quarter of 2018, but
had no net impact on operating income.
Income from investments before taxes totaled $8.4 million in both the third quarters of 2018
and 2017. Net investment income was $7.7 million in the third quarter of 2018
compared to $6.0 million in the third
quarter of 2017, while earnings on limited partnerships were
$0.8 million in the third quarter of
2018 compared to $1.5 million in the
third quarter of 2017.
Income before income taxes increased $15.6 million in the third quarter of 2018, while
income tax expense decreased $6.3
million in the third quarter of 2018, due to the lower
income tax rate of 21% which became effective January 1, 2018.
Nine Months 2018
Highlights
|
Operating income before taxes increased $38.0 million, or 16.4 percent, in the first nine
months of 2018 compared to the first nine 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 $43.3 million, or 3.4
percent, in the first nine months of 2018 compared to the first
nine months of 2017.
- Management fee revenue allocated to administrative services was
$39.9 million in the first nine
months of 2018. No management fee revenue was allocated to
administrative services in the first nine months of 2017.
- Cost of operations - policy issuance and renewal
services
-
- Commissions increased $31.9
million in the first nine months of 2018 compared to the
first nine months of 2017, as a result of the 6.9 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 nine months of 2017.
- Non-commission expense increased $12.9
million for the nine months ended September 30, 2018
compared to the same period in 2017. Underwriting and policy
processing costs increased $5.3
million primarily due to increased personnel costs and
underwriting report costs. Information technology costs
increased $2.7 million primarily due
to increased personnel costs. Customer service costs
increased $3.4 million primarily due
to increased personnel costs and credit card processing fees.
Personnel costs in all expense categories were higher due to
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 as well as
increased pension and medical costs. The total increase in
personnel costs was 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 $432.6 million in the first nine months of 2018,
but had no net impact on operating income.
Income from investments before taxes totaled $20.8 million in the first nine months of 2018
compared to $21.5 million in the
first nine months of 2017. Net realized losses on investments
were $0.5 million in the first nine
months of 2018 compared to net realized gains of $1.5 million in the first nine months of 2017 and
earnings on limited partnerships were $0.4
million in the first nine months of 2018 compared to
$1.9 million in the first nine months
of 2017, while net investment income was $21.6 million in the first nine months of 2018
compared to $18.2 million in the
first nine months of 2017.
Income before income taxes increased $37.6 million in the first nine months of 2018,
while income tax expense decreased $23.3
million in the first nine months of 2018, due to the lower
income tax rate of 21% which became effective January 1, 2018.
Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the
Web for 10:00 AM ET on October 26, 2018.
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 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
September
30,
|
|
Nine months
ended
September
30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Operating
revenue
|
|
|
|
|
|
|
|
|
Management fee
revenue - policy issuance and renewal services, net
|
|
$
|
451,361
|
|
|
$
|
435,214
|
|
|
$
|
1,311,911
|
|
|
$
|
1,268,591
|
|
Management fee
revenue - administrative services, net
|
|
13,521
|
|
|
—
|
|
|
39,894
|
|
|
—
|
|
Administrative
services reimbursement revenue
|
|
140,172
|
|
|
—
|
|
|
432,642
|
|
|
—
|
|
Service agreement
revenue
|
|
7,072
|
|
|
7,278
|
|
|
21,297
|
|
|
21,781
|
|
Total operating
revenue
|
|
612,126
|
|
|
442,492
|
|
|
1,805,744
|
|
|
1,290,372
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Cost of operations -
policy issuance and renewal services
|
|
375,259
|
|
|
361,253
|
|
|
1,103,517
|
|
|
1,058,745
|
|
Cost of operations -
administrative services
|
|
140,172
|
|
|
—
|
|
|
432,642
|
|
|
—
|
|
Total operating
expenses
|
|
515,431
|
|
|
361,253
|
|
|
1,536,159
|
|
|
1,058,745
|
|
Operating
income
|
|
96,695
|
|
|
81,239
|
|
|
269,585
|
|
|
231,627
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
|
|
|
|
|
|
Net investment
income
|
|
7,659
|
|
|
5,982
|
|
|
21,583
|
|
|
18,202
|
|
Net realized
investment gains (losses)
|
|
0
|
|
|
899
|
|
|
(497)
|
|
|
1,539
|
|
Net impairment losses
recognized in earnings
|
|
0
|
|
|
0
|
|
|
(646)
|
|
|
(182)
|
|
Equity in earnings of
limited partnerships
|
|
772
|
|
|
1,537
|
|
|
361
|
|
|
1,899
|
|
Total investment
income
|
|
8,431
|
|
|
8,418
|
|
|
20,801
|
|
|
21,458
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
|
709
|
|
|
377
|
|
|
1,864
|
|
|
800
|
|
Other income
(expense)
|
|
54
|
|
|
(415)
|
|
|
156
|
|
|
(1,231)
|
|
Income before income
taxes
|
|
104,471
|
|
|
88,865
|
|
|
288,678
|
|
|
251,054
|
|
Income tax
expense
|
|
24,025
|
|
|
30,322
|
|
|
62,768
|
|
|
86,108
|
|
Net
income
|
|
$
|
80,446
|
|
|
$
|
58,543
|
|
|
$
|
225,910
|
|
|
$
|
164,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share
|
|
|
|
|
|
|
|
|
Class A common
stock – basic
|
|
$
|
1.73
|
|
|
$
|
1.26
|
|
|
$
|
4.85
|
|
|
$
|
3.54
|
|
Class A
common stock – diluted
|
|
$
|
1.54
|
|
|
$
|
1.12
|
|
|
$
|
4.32
|
|
|
$
|
3.15
|
|
Class B common
stock – basic
|
|
$
|
259
|
|
|
$
|
189
|
|
|
$
|
728
|
|
|
$
|
531
|
|
Class B common
stock – diluted
|
|
$
|
259
|
|
|
$
|
189
|
|
|
$
|
727
|
|
|
$
|
531
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – Basic
|
|
|
|
|
|
|
|
|
Class A common
stock
|
|
46,188,941
|
|
|
46,188,949
|
|
|
46,188,522
|
|
|
46,186,109
|
|
Class B common
stock
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – Diluted
|
|
|
|
|
|
|
|
|
Class A common
stock
|
|
52,317,438
|
|
|
52,316,876
|
|
|
52,313,642
|
|
|
52,342,450
|
|
Class B common
stock
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
per share
|
|
|
|
|
|
|
|
|
Class A common
stock
|
|
$
|
0.8400
|
|
|
$
|
0.7825
|
|
|
$
|
2.5200
|
|
|
$
|
2.3475
|
|
Class B common
stock
|
|
$
|
126.000
|
|
|
$
|
117.375
|
|
|
$
|
378.000
|
|
|
$
|
352.125
|
|
Erie Indemnity
Company Statements of Financial Position (in
thousands)
|
|
|
|
September
30,
2018
|
|
December
31,
2017
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
244,688
|
|
|
$
|
215,721
|
|
Available-for-sale
securities
|
|
105,031
|
|
|
71,190
|
|
Receivables from Erie
Insurance Exchange and affiliates
|
|
463,620
|
|
|
418,328
|
|
Prepaid expenses and
other current assets
|
|
44,014
|
|
|
34,890
|
|
Federal income taxes
recoverable
|
|
0
|
|
|
29,900
|
|
Note receivable from
Erie Family Life Insurance Company
|
|
25,000
|
|
|
25,000
|
|
Accrued investment
income
|
|
6,504
|
|
|
6,853
|
|
Total current
assets
|
|
888,857
|
|
|
801,882
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
599,164
|
|
|
687,523
|
|
Equity
securities
|
|
12,511
|
|
|
—
|
|
Limited partnership
investments
|
|
37,088
|
|
|
45,122
|
|
Fixed assets,
net
|
|
121,684
|
|
|
83,149
|
|
Deferred income
taxes, net
|
|
37,660
|
|
|
19,390
|
|
Other
assets
|
|
62,539
|
|
|
28,793
|
|
Total
assets
|
|
$
|
1,759,503
|
|
|
$
|
1,665,859
|
|
|
|
|
|
|
Liabilities and
shareholders' equity
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Commissions
payable
|
|
$
|
257,015
|
|
|
$
|
228,124
|
|
Agent
bonuses
|
|
79,308
|
|
|
122,528
|
|
Accounts payable and
accrued liabilities
|
|
113,204
|
|
|
104,533
|
|
Dividends
payable
|
|
39,119
|
|
|
39,116
|
|
Contract
liability
|
|
34,086
|
|
|
—
|
|
Deferred executive
compensation
|
|
11,071
|
|
|
15,605
|
|
Federal income taxes
payable
|
|
9,310
|
|
|
0
|
|
Current portion of
long-term borrowings
|
|
1,395
|
|
|
0
|
|
Total current
liabilities
|
|
544,508
|
|
|
509,906
|
|
|
|
|
|
|
Defined benefit
pension plans
|
|
154,736
|
|
|
207,530
|
|
Employee benefit
obligations
|
|
69
|
|
|
423
|
|
Contract
liability
|
|
17,903
|
|
|
—
|
|
Deferred executive
compensation
|
|
13,104
|
|
|
14,452
|
|
Long-term
borrowings
|
|
98,332
|
|
|
74,728
|
|
Other long-term
liabilities
|
|
9,828
|
|
|
1,476
|
|
Total
liabilities
|
|
838,480
|
|
|
808,515
|
|
|
|
|
|
|
Shareholders'
equity
|
|
921,023
|
|
|
857,344
|
|
Total liabilities
and shareholders' equity
|
|
$
|
1,759,503
|
|
|
$
|
1,665,859
|
|
View original content to download
multimedia:http://www.prnewswire.com/news-releases/erie-indemnity-reports-third-quarter-2018-results-300737069.html
SOURCE Erie Indemnity Company