Erie Indemnity Reports First Quarter 2021 Results

Rhea-AI Summary

Erie Indemnity Company (NASDAQ: ERIE) reported a net income of $73.6 million ($1.41 per diluted share) for Q1 2021, compared to $59.3 million ($1.13 per diluted share) in Q1 2020. Operating income decreased by 11.2% to $76.1 million. Management fee revenue saw a 2.7% increase, but costs rose significantly, with non-commission expenses up $11.7 million. Investment income turned positive at $18.0 million, overcoming a $9.2 million loss in the prior year. The group remains a major player in the insurance market, ranking 11th in homeowners and 12th in automobile insurance.

Positive

• Net income increased to $73.6 million in Q1 2021, up from $59.3 million in Q1 2020.
• Investment income improved to $18.0 million, recovering from a loss of $9.2 million in the previous year.
• Management fee revenue from policy issuance and renewal services increased by $12.0 million, or 2.7%.

Negative

• Operating income decreased by $9.6 million, or 11.2%, compared to the same quarter last year.
• Non-commission expense increased by $11.7 million, impacting overall profitability.
• Costs associated with information technology increased by $4.2 million.

ERIE, Pa., April 29, 2021 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending March 31, 2021.  Net income was $73.6 million, or $1.41 per diluted share, in the first quarter of 2021, compared to $59.3 million, or $1.13 per diluted share, in the first quarter of 2020. 

The uncertainty resulting from the COVID-19 pandemic continues to evolve and the pandemic's ultimate impact and duration remain uncertain at this time. 

1Q 2021
(in thousands)	1Q'21			1Q'20
Operating income	$	76,095		$	85,691
Investment income (loss)	17,988			(9,195)
Interest and other expense, net	1,528			369
Income before income taxes	92,555			76,127
Income tax expense	18,989			16,801
Net income	$	73,566		$	59,326

 

1Q 2021 Highlights

Operating income before taxes decreased $9.6 million, or 11.2 percent, in the first quarter of 2021 compared to the first quarter of 2020.

• Management fee revenue - policy issuance and renewal services increased $12.0 million, or 2.7 percent, in the first quarter of 2021 compared to the first quarter of 2020.
• Management fee revenue - administrative services increased $0.1 million, or 0.5 percent, in the first quarter of 2021 compared to the first quarter of 2020.
• Cost of operations - policy issuance and renewal services
• Commissions increased $9.4 million in the first quarter of 2021 compared to the first quarter of 2020, driven by the growth in direct and affiliated assumed written premium, primarily in lines of business that pay a higher commission rate. To a lesser extent, there was also an increase in agent incentive compensation for the first quarter of 2021 compared to the first quarter of 2020.
• Non-commission expense increased $11.7 million in the first quarter of 2021 compared to the first quarter of 2020. Underwriting and policy processing expense decreased $0.8 million primarily due to lower personnel costs. Information technology costs increased $4.2 million primarily due to increased hardware and software costs and professional fees. Administrative and other costs increased $8.5 million primarily driven by increased professional fees and higher incentive plan award accruals due to improved performance in the first quarter of 2021 compared to the same period in 2020.

Income from investments before taxes totaled $18.0 million in the first quarter of 2021 compared to a loss from investments of $9.2 million in the first quarter of 2020.  Net investment income was $17.1 million in the first quarter of 2021 compared to $4.7 million in the first quarter of 2020.  Included in net investment income is $9.0 million of limited partnership earnings in the first quarter of 2021 and $3.7 million of limited partnership losses in the first quarter of 2020.  Net realized gains on investments were $0.8 million in the first quarter of 2021 compared to net realized losses of $10.8 million in the first quarter of 2020.  Investment losses experienced during the first quarter of 2020 were primarily due to the significant financial market volatility resulting from the COVID-19 pandemic.

Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on April 30, 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 11^th largest homeowners insurer and 12^th largest automobile insurer in the United States based on direct premiums written and the 16^th 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 ended March  31,
		2021				2020
		(Unaudited)
Operating revenue
Management fee revenue - policy issuance and renewal services, net		$	455,718			$	443,750
Management fee revenue - administrative services, net		14,847				14,771
Administrative services reimbursement revenue		153,533				151,554
Service agreement revenue		6,079				6,662
Total operating revenue		630,177				616,737
Operating expenses
Cost of operations - policy issuance and renewal services		400,549				379,492
Cost of operations - administrative services		153,533				151,554
Total operating expenses		554,082				531,046
Operating income		76,095				85,691
Investment income
Net investment income		17,097				4,664
Net realized investment gains (losses)		804				(10,806)
Net impairment recoveries (losses) recognized in earnings		87				(3,053)
Total investment income (loss)		17,988				(9,195)
Interest expense, net		1,009				3
Other expense		519				366
Income before income taxes		92,555				76,127
Income tax expense		18,989				16,801
Net income		$	73,566			$	59,326
Net income per share
Class A common stock – basic		$	1.58			$	1.27
Class A common stock – diluted		$	1.41			$	1.13
Class B common stock – basic and diluted		$	237			$	191
Weighted average shares outstanding – Basic
Class A common stock		46,188,860				46,188,789
Class B common stock		2,542				2,542
Weighted average shares outstanding – Diluted
Class A common stock		52,315,958				52,324,350
Class B common stock		2,542				2,542
Dividends declared per share
Class A common stock		$	1.035			$	0.965
Class B common stock		$	155.25			$	144.75

 

 

Erie Indemnity Company Statements of Financial Position (in thousands)
		March 31, 2021				December 31, 2020
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	135,192			$	161,240
Available-for-sale securities		16,847				17,697
Equity securities		146				19
Receivables from Erie Insurance Exchange and affiliates, net		481,481				494,637
Prepaid expenses and other current assets		62,401				52,561
Accrued investment income		5,860				6,146
Total current assets		701,927				732,300
Available-for-sale securities, net		901,475				910,539
Equity securities		92,785				94,071
Fixed assets, net		282,268				265,341
Agent loans, net		59,916				62,449
Deferred income taxes, net		16,454				12,341
Other assets		44,273				40,081
Total assets		$	2,099,098			$	2,117,122
Liabilities and shareholders' equity
Current liabilities:
Commissions payable		$	272,670			$	262,338
Agent bonuses		30,766				110,158
Accounts payable and accrued liabilities		168,127				150,706
Dividends payable		48,200				48,200
Contract liability		35,799				36,917
Deferred executive compensation		13,825				17,319
Current portion of long-term borrowings		2,053				2,031
Total current liabilities		571,440				627,669
Defined benefit pension plans		174,228				164,346
Long-term borrowings		93,311				93,833
Contract liability		18,276				18,878
Deferred executive compensation		16,648				14,904
Other long-term liabilities		17,062				9,444
Total liabilities		890,965				929,074
Shareholders' equity		1,208,133				1,188,048
Total liabilities and shareholders' equity		$	2,099,098			$	2,117,122

 

 

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SOURCE Erie Indemnity Company

FAQ

What were Erie Indemnity's financial results for Q1 2021?

Erie Indemnity reported a net income of $73.6 million for Q1 2021, which is $1.41 per diluted share.

How did Erie Indemnity's investment income change in Q1 2021?

In Q1 2021, Erie Indemnity's investment income was $18.0 million, compared to a loss of $9.2 million in Q1 2020.

What factors contributed to the increase in Erie Indemnity's management fee revenue for Q1 2021?

Management fee revenue increased due to a $12.0 million rise in policy issuance and renewal services.

How did non-commission expenses impact Erie Indemnity's Q1 2021 results?

Non-commission expenses increased by $11.7 million in Q1 2021, affecting overall profitability.

What is Erie Indemnity's position in the insurance market?

Erie Indemnity is the 11th largest homeowners insurer and 12th largest automobile insurer in the U.S.