Erie Indemnity Reports Full Year and Fourth Quarter 2023 Results
- Strong financial results for Erie Indemnity Company in 2023, with net income per diluted share at $8.53 for the year and $2.12 for the quarter.
- Operating income before taxes increased by 38.3% in 2023 compared to 2022, showing significant growth.
- Management fee revenue and net investment income also saw positive growth in 2023.
- ERIE remains a Fortune 500 company and is rated A+ (Superior) by A.M. Best.
- Erie Insurance Group is the 12th largest homeowners insurer, 12th largest automobile insurer, and 13th largest commercial lines insurer in the United States based on direct premiums written.
- None.
Insights
The reported increase in net income per diluted share from $5.71 to $8.53 year-over-year represents a significant growth in profitability for Erie Indemnity Company. This could be indicative of a robust operational performance and efficient cost management, which are key factors in evaluating a company's financial health. The substantial rise in operating income before taxes by 38.3% further underscores the company's expanding margins. Investors may interpret these results as a positive signal, potentially influencing the stock's performance in the market.
From an investment perspective, the growth in management fee revenue suggests an increase in policy issuance and renewal services, reflecting potentially higher customer retention and acquisition rates. However, the rise in non-commission expenses, particularly in information technology, points to increased investment in digital infrastructure, which could be a strategic move to enhance long-term competitiveness despite short-term margin pressure.
It's also noteworthy that the company has managed to reduce net impairment losses on investments, which may reflect a strategic shift in the investment portfolio or better market conditions. This, combined with an increase in net investment income, could be a sign of effective asset management.
An increase of 17% in management fee revenue from policy issuance and renewal services indicates a strong market position and growth in Erie Indemnity's core business activities. The insurance industry often relies on these fees as a stable revenue source and growth in this area can be a good indicator of customer base expansion and improved product penetration.
The report highlights a growth in direct and affiliated assumed written premium, which is a measure of the total premium collected before reinsurance costs. This growth can be a testament to the company's underwriting capabilities and market demand for its insurance products. Given the competitive nature of the insurance market, such performance differentiates Erie Indemnity and may contribute to investor confidence.
However, the increase in personnel costs, driven by higher compensation and incentive plan awards, could indicate a tightening labor market or a strategy to attract and retain talent. These costs need to be carefully managed to maintain profitability without compromising on service quality and operational efficiency.
The reported financials by Erie Indemnity Company reveal broader economic trends such as increased consumer demand for insurance products, possibly influenced by economic recovery or changes in consumer behavior. The growth in policies in force suggests a healthy consumer base which is a positive sign for the economy as a whole.
Moreover, the increase in investment income, despite limited partnership losses, could be reflective of the current investment climate and interest rate environment. The ability to generate higher investment income in such a climate could be indicative of a well-diversified investment strategy and prudent financial management.
Lastly, the reported decrease in advertising expenses leading to cost savings could be a strategic response to changing market dynamics, where digital marketing might be becoming more cost-effective compared to traditional advertising channels.
Net Income per Diluted Share was
4Q and Full Year 2023 | ||||||
(in thousands) | 4Q'23 | 4Q'22 | 2023 | 2022 | ||
Operating income | $ 127,084 | $ 81,430 | $ 520,256 | $ 376,214 | ||
Investment income | 9,771 | 288 | 28,968 | 632 | ||
Interest expense and other (income), net | (3,069) | (243) | (12,712) | 394 | ||
Income before income taxes | 139,924 | 81,961 | 561,936 | 376,452 | ||
Income tax expense | 28,996 | 16,471 | 115,875 | 77,883 | ||
Net income | $ 110,928 | $ 65,490 | $ 446,061 | $ 298,569 | ||
2023 Full Year Highlights |
Operating income before taxes increased
- Management fee revenue - policy issuance and renewal services increased
$354.2 million - Management fee revenue - administrative services increased
$5.3 million 9.2% in 2023 compared to 2022. - Cost of operations - policy issuance and renewal services
- Commissions increased
$169.0 million - Non-commission expense increased
$46.9 million $9.4 million $18.6 million $20.0 million
- Commissions increased
- The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by
$737.1 million $668.3 million
Income from investments before taxes totaled
4Q 2023 Highlights |
Operating income before taxes increased
- Management fee revenue - policy issuance and renewal services increased
$98.0 million - Management fee revenue - administrative services increased
$1.8 million - Cost of operations - policy issuance and renewal services
- Commissions increased
$53.1 million - Non-commission expense increased
$1.2 million $2.9 million $2.4 million $0.8 million
- Commissions increased
- The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by
$192.7 million $175.6 million
Income from investments before taxes totaled
Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on February 27, 2024. 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
News releases and more information are available on
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"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, including technological innovations;
- dependence upon the independent agency system; and
- ability to maintain our brand, including 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;
- emergence of significant unexpected events, including pandemics and economic or social inflation;
- 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 subscribers at 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;
- compliance with complex and evolving laws and regulations and outcome of pending and potential litigation;
- factors affecting the quality and liquidity of our investment portfolio; and
- 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 | Twelve months ended | |||||||
2023 | 2022 | 2023 | 2022 | |||||
(Unaudited) | ||||||||
Operating revenue | ||||||||
Management fee revenue - policy issuance and renewal services | $ 601,595 | $ 503,633 | $ 2,442,073 | $ 2,087,846 | ||||
Management fee revenue - administrative services | 16,693 | 14,877 | 63,669 | 58,323 | ||||
Administrative services reimbursement revenue | 192,728 | 175,613 | 737,139 | 668,268 | ||||
Service agreement revenue | 6,651 | 6,512 | 26,059 | 25,687 | ||||
Total operating revenue | 817,667 | 700,635 | 3,268,940 | 2,840,124 | ||||
Operating expenses | ||||||||
Cost of operations - policy issuance and renewal services | 497,855 | 443,592 | 2,011,545 | 1,795,642 | ||||
Cost of operations - administrative services | 192,728 | 175,613 | 737,139 | 668,268 | ||||
Total operating expenses | 690,583 | 619,205 | 2,748,684 | 2,463,910 | ||||
Operating income | 127,084 | 81,430 | 520,256 | 376,214 | ||||
Investment income | ||||||||
Net investment income | 14,212 | 3,979 | 44,572 | 28,585 | ||||
Net realized and unrealized investment gains (losses) | 3,408 | (3,453) | (5,838) | (27,286) | ||||
Net impairment losses recognized in earnings | (7,849) | (238) | (9,766) | (667) | ||||
Total investment income | 9,771 | 288 | 28,968 | 632 | ||||
Interest expense | — | — | — | 2,009 | ||||
Other income | 3,069 | 243 | 12,712 | 1,615 | ||||
Income before income taxes | 139,924 | 81,961 | 561,936 | 376,452 | ||||
Income tax expense | 28,996 | 16,471 | 115,875 | 77,883 | ||||
Net income | $ 110,928 | $ 65,490 | $ 446,061 | $ 298,569 | ||||
Earnings Per Share | ||||||||
Net income per share | ||||||||
Class A common stock – basic | $ 2.38 | $ 1.41 | $ 9.58 | $ 6.41 | ||||
Class A common stock – diluted | $ 2.12 | $ 1.25 | $ 8.53 | $ 5.71 | ||||
Class B common stock – basic and diluted | $ 357 | $ 211 | $ 1,437 | $ 962 | ||||
Weighted average shares outstanding – Basic | ||||||||
Class A common stock | 46,189,041 | 46,189,028 | 46,188,981 | 46,188,916 | ||||
Class B common stock | 2,542 | 2,542 | 2,542 | 2,542 | ||||
Weighted average shares outstanding – Diluted | ||||||||
Class A common stock | 52,301,676 | 52,298,903 | 52,299,411 | 52,297,990 | ||||
Class B common stock | 2,542 | 2,542 | 2,542 | 2,542 | ||||
Dividends declared per share | ||||||||
Class A common stock | $ 1.275 | $ 1.190 | $ 4.845 | $ 4.520 | ||||
Class B common stock | $ 191.25 | $ 178.50 | $ 726.75 | $ 678.00 | ||||
Erie Indemnity Company Statements of Financial Position (in thousands) | ||||
December 31, 2023 | December 31, 2022 | |||
Assets | ||||
Current assets: | ||||
Cash and cash equivalents (includes restricted cash of | $ 144,055 | $ 142,090 | ||
Available-for-sale securities | 82,017 | 24,267 | ||
Receivables from Erie Insurance Exchange and affiliates, net | 625,338 | 524,937 | ||
Prepaid expenses and other current assets | 69,321 | 79,201 | ||
Accrued investment income | 9,458 | 8,301 | ||
Total current assets | 930,189 | 778,796 | ||
Available-for-sale securities, net | 879,224 | 870,394 | ||
Equity securities | 84,253 | 72,560 | ||
Fixed assets, net | 442,610 | 413,874 | ||
Agent loans, net | 58,434 | 60,537 | ||
Defined benefit pension plan | 34,320 | 0 | ||
Other assets, net | 42,934 | 43,295 | ||
Total assets | $ 2,471,964 | $ 2,239,456 | ||
Liabilities and shareholders' equity | ||||
Current liabilities: | ||||
Commissions payable | $ 353,709 | $ 300,028 | ||
Agent incentive compensation | 68,077 | 95,166 | ||
Accounts payable and accrued liabilities | 175,622 | 165,915 | ||
Dividends payable | 59,377 | 55,419 | ||
Contract liability | 41,210 | 36,547 | ||
Deferred executive compensation | 10,982 | 12,036 | ||
Total current liabilities | 708,977 | 665,111 | ||
Defined benefit pension plans | 26,260 | 51,224 | ||
Contract liability | 19,910 | 17,895 | ||
Deferred executive compensation | 20,936 | 13,724 | ||
Deferred income taxes, net | 11,481 | 14,075 | ||
Other long-term liabilities | 21,565 | 29,019 | ||
Total liabilities | 809,129 | 791,048 | ||
Shareholders' equity | 1,662,835 | 1,448,408 | ||
Total liabilities and shareholders' equity | $ 2,471,964 | $ 2,239,456 | ||
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SOURCE Erie Indemnity Company
FAQ
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