Erie Indemnity Reports Full Year and Fourth Quarter 2020 Results

Net Income per Diluted Share was $1.20 for the Quarter and $5.61 for the Year

February 25, 2021 4:15 PM EST

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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 (income), net

913

(36)

2,509

601

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 endedDecember 31,

Twelve months endedDecember 31,

2020

2019

2020

2019

(Unaudited)

Operating revenue

Management fee revenue - policy issuance and renewal services, net

$

429,698

$

424,534

$

1,841,794

$

1,810,457

Management fee revenue - administrative services, net

14,969

14,628

59,463

57,204

Administrative services reimbursement revenue

158,206

150,705

609,435

582,010

Service agreement revenue

6,379

6,873

25,797

27,627

  Total operating revenue

609,252

596,740

2,536,489

2,477,298

Operating expenses

Cost of operations - policy issuance and renewal services

385,994

377,335

1,588,897

1,537,949

Cost of operations - administrative services

158,206

150,705

609,435

582,010

  Total operating expenses

544,200

528,040

2,198,332

2,119,959

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 investment gains

4,757

602

6,392

6,103

Net impairment losses recognized in earnings

(86)

(2)

(3,278)

(195)

Total investment income

14,071

6,914

32,867

39,967

Interest expense, net

723

24

731

856

Other (expense) income

(190)

60

(1,778)

255

Income before income 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

Earnings Per Share

Net income per share

Class A common stock – basic

$

1.35

$

1.28

$

6.30

$

6.80

Class A common stock – diluted

$

1.20

$

1.14

$

5.61

$

6.06

Class B common stock – basic and diluted

$

202

$

192

$

945

$

1,020

Weighted average shares outstanding – Basic

Class A common stock

49,189,001

46,189,033

46,188,659

46,188,836

Class B common stock

2,542

2,542

2,542

2,542

Weighted average shares outstanding – Diluted

Class A common stock

52,315,670

52,327,607

52,313,360

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, 2020

December 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 Exchange and affiliates, net

494,637

468,636

Prepaid expenses and other current assets

49,897

44,943

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 liabilities

150,706

134,957

Dividends payable

48,200

44,940

Contract liability

36,917

35,938

Deferred executive compensation

17,319

10,882

Current portion of long-term borrowings

2,031

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' equity

$

2,117,122

$

2,016,240

 

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SOURCE Erie Indemnity Company



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