Erie Indemnity Reports First Quarter 2020 Results
ERIE, Pa., May 7, 2020 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending March 31, 2020. Net income was $59.3 million, or $1.13 per diluted share, in the first quarter of 2020, compared to $75.3 million, or $1.44 per diluted share, in the first quarter of 2019.
On March 11, 2020, the outbreak of the coronavirus ("COVID-19") was declared a global pandemic. The impacts of the pandemic and efforts to mitigate the spread of the virus have had significant adverse impacts on economic conditions and financial markets. We did not experience significant financial impacts on our core businesses of policy issuance and renewal services and administrative services in the first quarter of 2020. However, the financial market volatility did have a significant impact on our first quarter 2020 investment portfolio.
1Q 2020 | |||||||
(in thousands) | 1Q'20 | 1Q'19 | |||||
Operating income | $ | 85,691 | $ | 86,122 | |||
Investment (loss) income | (9,195) | 9,795 | |||||
Interest expense and other income, net | 369 | 402 | |||||
Income before income taxes | 76,127 | 95,515 | |||||
Income tax expense | 16,801 | 20,204 | |||||
Net income | $ | 59,326 | $ | 75,311 | |||
1Q 2020 Highlights |
Operating income before taxes decreased $0.4 million, or 0.5 percent, in the first quarter of 2020 compared to the first quarter of 2019.
- Management fee revenue - policy issuance and renewal services increased $12.8 million, or 3.0 percent, in the first quarter of 2020 compared to the first quarter of 2019.
- Management fee revenue - administrative services increased $0.8 million, or 5.9 percent, in the first quarter of 2020 compared to the first quarter of 2019.
- Cost of operations - policy issuance and renewal services
- Commissions increased $9.0 million in the first quarter of 2020 compared to the first quarter of 2019. The increase was primarily driven by the growth in direct and affiliated assumed premiums written by the Exchange of 3.5 percent in the first quarter of 2020. The estimated agent incentive payouts at March 31, 2020 are based on actual underwriting results for the two prior years and current year-to-date actual results and forecasted results for the remainder of 2020. Therefore, fluctuations in the current quarter underwriting results can impact the estimated incentive payout on a quarter-to-quarter basis.
- Non-commission expense increased $5.0 million in the first quarter of 2020 compared to the first quarter of 2019. Underwriting and policy processing expense increased $3.1 million primarily due to increased personnel costs and underwriting report costs. Information technology costs increased $3.0 million primarily due to increased professional fees and personnel costs. Administrative and other expenses decreased $2.2 million primarily driven by a decrease in long-term incentive plan cost due to a decrease in the company stock price in the first quarter of 2020 compared to an increase in the first quarter of 2019.
Loss from investments before taxes totaled $9.2 million in the first quarter of 2020 compared to income of $9.8 million in the first quarter of 2019. Net realized losses were $10.8 million in the first quarter of 2020 compared to net realized gains of $2.5 million in the first quarter of 2019 driven by decreases in the fair value of equity securities due to significant financial market volatility resulting from the COVID-19 pandemic. Net impairment losses of $3.1 million in the first quarter of 2020 were also driven by the COVID-19 pandemic's impact on the financial markets. Losses from limited partnerships were $3.7 million in the first quarter of 2020 compared to losses of $1.1 million in the first quarter of 2019.
Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on May 8, 2020. 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:
- 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 CompanyStatements of Operations(dollars in thousands, except per share data) | ||||||||
Three months ended March 31, | ||||||||
2020 | 2019 | |||||||
(Unaudited) | ||||||||
Operating revenue | ||||||||
Management fee revenue - policy issuance and renewal services, net | $ | 443,750 | $ | 430,983 | ||||
Management fee revenue - administrative services, net | 14,771 | 13,951 | ||||||
Administrative services reimbursement revenue | 151,554 | 142,480 | ||||||
Service agreement revenue | 6,662 | 6,692 | ||||||
Total operating revenue | 616,737 | 594,106 | ||||||
Operating expenses | ||||||||
Cost of operations - policy issuance and renewal services | 379,492 | 365,504 | ||||||
Cost of operations - administrative services | 151,554 | 142,480 | ||||||
Total operating expenses | 531,046 | 507,984 | ||||||
Operating income | 85,691 | 86,122 | ||||||
Investment income | ||||||||
Net investment income | 8,369 | 8,517 | ||||||
Net realized investment (losses) gains | (10,806) | 2,503 | ||||||
Net impairment losses recognized in earnings | (3,053) | (78) | ||||||
Equity in losses of limited partnerships | (3,705) | (1,147) | ||||||
Total investment (loss) income | (9,195) | 9,795 | ||||||
Interest expense, net | 3 | 449 | ||||||
Other (expense) income | (366) | 47 | ||||||
Income before income taxes | 76,127 | 95,515 | ||||||
Income tax expense | 16,801 | 20,204 | ||||||
Net income | $ | 59,326 | $ | 75,311 | ||||
Net income per share | ||||||||
Class A common stock – basic | $ | 1.27 | $ | 1.62 | ||||
Class A common stock – diluted | $ | 1.13 | $ | 1.44 | ||||
Class B common stock – basic and diluted | $ | 191 | $ | 243 | ||||
Weighted average shares outstanding – Basic | ||||||||
Class A common stock | 46,188,789 | 46,188,337 | ||||||
Class B common stock | 2,542 | 2,542 | ||||||
Weighted average shares outstanding – Diluted | ||||||||
Class A common stock | 52,324,350 | 52,312,036 | ||||||
Class B common stock | 2,542 | 2,542 | ||||||
Dividends declared per share | ||||||||
Class A common stock | $ | 0.965 | $ | 0.90 | ||||
Class B common stock | $ | 144.75 | $ | 135.00 | ||||
Erie Indemnity CompanyStatements of Financial Position(in thousands) | ||||||||
March 31, 2020 | December 31, 2019 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 228,646 | $ | 336,739 | ||||
Available-for-sale securities | 34,818 | 32,810 | ||||||
Equity securities | 0 | 2,381 | ||||||
Receivables from Erie Insurance Exchange and affiliates, net | 482,238 | 468,636 | ||||||
Prepaid expenses and other current assets | 58,715 | 44,943 | ||||||
Federal income taxes recoverable | 0 | 462 | ||||||
Accrued investment income | 5,657 | 5,433 | ||||||
Total current assets | 810,074 | 891,404 | ||||||
Available-for-sale securities, net | 716,835 | 697,891 | ||||||
Equity securities | 58,014 | 64,752 | ||||||
Limited partnership investments | 22,492 | 26,775 | ||||||
Fixed assets, net | 238,296 | 221,379 | ||||||
Agent loans, net | 59,877 | 60,978 | ||||||
Deferred income taxes, net | 19,281 | 17,186 | ||||||
Other assets | 32,624 | 35,875 | ||||||
Total assets | $ | 1,957,493 | $ | 2,016,240 | ||||
Liabilities and shareholders' equity | ||||||||
Current liabilities: | ||||||||
Commissions payable | $ | 270,328 | $ | 262,963 | ||||
Agent bonuses | 29,661 | 96,053 | ||||||
Accounts payable and accrued liabilities | 130,035 | 134,957 | ||||||
Dividends payable | 44,940 | 44,940 | ||||||
Contract liability | 35,810 | 35,938 | ||||||
Deferred executive compensation | 10,910 | 10,882 | ||||||
Federal income taxes payable | 18,040 | 0 | ||||||
Current portion of long-term borrowings | 2,000 | 1,979 | ||||||
Total current liabilities | 541,724 | 587,712 | ||||||
Defined benefit pension plans | 153,558 | 145,659 | ||||||
Long-term borrowings | 95,342 | 95,842 | ||||||
Contract liability | 18,461 | 18,435 | ||||||
Deferred executive compensation | 11,983 | 13,734 | ||||||
Other long-term liabilities | 19,433 | 21,605 | ||||||
Total liabilities | 840,501 | 882,987 | ||||||
Shareholders' equity | 1,116,992 | 1,133,253 | ||||||
Total liabilities and shareholders' equity | $ | 1,957,493 | $ | 2,016,240 | ||||
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SOURCE Erie Indemnity Company