Erie Indemnity Reports Second Quarter 2021 Results

Rhea-AI Summary

Erie Indemnity Company (NASDAQ: ERIE) reported its Q2 2021 financial results, with net income of $79.0 million, or $1.51 per diluted share, slightly down from $82.0 million, or $1.57 per diluted share in Q2 2020. For the first half of 2021, net income reached $152.6 million, or $2.92 per diluted share, compared to $141.3 million in H1 2020. Operating income decreased 6.7% in Q2 and 8.9% in the first half compared to last year, while management fee revenue rose 3.8% and 3.3% respectively.

Positive

• Net investment income rose to $13.7 million in Q2 2021 from $5.0 million in Q2 2020.
• Management fee revenue from policy issuance and renewal services increased by $18.5 million in Q2 2021.

Negative

• Operating income before taxes decreased by $6.1 million, or 6.7%, in Q2 2021 compared to Q2 2020.
• Non-commission expenses increased by $9.2 million in Q2 2021, indicating rising operational costs.

ERIE, Pa., July 29, 2021 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter and six months ending June 30, 2021.  Net income was $79.0 million, or $1.51 per diluted share, in the second quarter of 2021, compared to $82.0 million, or $1.57 per diluted share, in the second quarter of 2020.  Net income was $152.6 million, or $2.92 per diluted share, in the first six months of 2021, compared to $141.3 million, or $2.70 per diluted share, in the first six months 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. 

2Q and First Half 2021
(in thousands)	2Q'21			2Q'20				1H21			1H20
Operating income	$	85,065		$	91,189			$	161,160		$	176,880
Investment income	16,418			11,553				34,406			2,358
Interest and other expense, net	1,587			260				3,115			629
Income before income taxes	99,896			102,482				192,451			178,609
Income tax expense	20,867			20,505				39,856			37,306
Net income	$	79,029		$	81,977			$	152,595		$	141,303

 

2Q 2021 Highlights

Operating income before taxes decreased $6.1 million, or 6.7 percent, in the second quarter of 2021 compared to the second quarter of 2020.

• Management fee revenue - policy issuance and renewal services increased $18.5 million, or 3.8 percent, in the second quarter of 2021 compared to the second quarter of 2020.
• Management fee revenue - administrative services decreased $0.1 million, or 1.0 percent, in the second quarter of 2021 compared to the second quarter of 2020.
• Cost of operations - policy issuance and renewal services
• Commissions increased $14.7 million in the second quarter of 2021 compared to the second 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 second quarter of 2021 compared to the second quarter of 2020.
• Non-commission expense increased $9.2 million in the second quarter of 2021 compared to the second quarter of 2020. Underwriting and policy processing expense increased $3.3 million primarily due to increased personnel costs and underwriting report costs. Information technology costs increased $2.9 million primarily due to increased hardware and software costs as well as increased personnel costs. Administrative and other costs increased $3.6 million primarily driven by increased building and equipment depreciation and professional fees in the second quarter of 2021 compared to the same period in 2020. Personnel costs in all expense categories for the second quarter of 2021 were impacted by higher medical costs compared to the prior year as the COVID-19 pandemic reduced elective procedures in 2020.

Income from investments before taxes totaled $16.4 million in the second quarter of 2021 compared to $11.6 million in the second quarter of 2020.  Net investment income was $13.7 million in the second quarter of 2021 compared to $5.0 million in the second quarter of 2020.  Included in net investment income is $6.2 million of limited partnership earnings in the second quarter of 2021 and $2.3 million of limited partnership losses in the second quarter of 2020.  Net realized gains on investments were $2.8 million in the second quarter of 2021 compared to $6.5 million in the second quarter of 2020.

First Half 2021 Highlights

Operating income before taxes decreased $15.7 million, or 8.9 percent, in the first six months of 2021 compared to the first six months of 2020.

• Management fee revenue - policy issuance and renewal services increased $30.4 million, or 3.3 percent, in the first six months of 2021 compared to the first six months of 2020.
• Management fee revenue - administrative services decreased $0.1 million, or 0.2 percent, in the first six months of 2021 compared to the first six months of 2020.
• Cost of operations - policy issuance and renewal services
• Commissions increased $24.1 million in the first six months of 2021 compared to the first six months 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 six months 2021 compared to the first six months of 2020.
• Non-commission expense increased $20.8 million for the six months ended June 30, 2021 compared to the same period in 2020. Underwriting and policy processing costs increased $2.5 million primarily due to increased underwriting report costs and personnel costs. Information technology costs increased $7.2 million primarily due to increased hardware and software costs and personnel costs. Administrative and other costs increased $12.1 million primarily driven by increased personnel costs and professional fees compared to the same period in 2020. Personnel costs in all expense categories were impacted by higher pension costs and higher medical costs compared to the prior year as the COVID-19 pandemic reduced elective procedures in 2020.

Income from investments before taxes totaled $34.4 million in the first six months of 2021 compared to $2.4 million in the first six months of 2020.  Net investment income was $30.7 million in the first six months of 2021 compared to $9.7 million in the first six months of 2020.  Included in net investment income is $15.2 million of limited partnership earnings in the first six months of 2021 and $6.0 million of limited partnership losses in the first six months of 2020.  Net realized gains on investments were $3.6 million in the first six months of 2021 compared to net realized losses of $4.3 million in the first six months of 2020.

Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on July 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 12^th largest homeowners insurer, 13^th largest automobile insurer and 13th largest commercial lines insurer in the United States based on direct premiums written.  Founded in 1925, Erie Insurance is a Fortune 500 company and the 16th largest property/casualty insurer in the United States based on total lines net premium written.  Rated A+ (Superior) by A.M. Best, ERIE has more than 6 million policies in force and operates in 12 states and the District of Columbia. 

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; an
• 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 June 30,								Six months ended June 30,
		2021				2020				2021				2020
		(Unaudited)								(Unaudited)
Operating revenue
Management fee revenue - policy issuance and renewal services		$	502,271			$	483,795			$	957,989			$	927,545
Management fee revenue - administrative services		14,667				14,813				29,514				29,584
Administrative services reimbursement revenue		157,190				151,965				310,723				303,519
Service agreement revenue		5,902				6,446				11,981				13,108
Total operating revenue		680,030				657,019				1,310,207				1,273,756
Operating expenses
Cost of operations - policy issuance and renewal services		437,775				413,865				838,324				793,357
Cost of operations - administrative services		157,190				151,965				310,723				303,519
Total operating expenses		594,965				565,830				1,149,047				1,096,876
Operating income		85,065				91,189				161,160				176,880
Investment income
Net investment income		13,650				5,044				30,747				9,708
Net realized investment gains (losses)		2,769				6,526				3,573				(4,280)
Net impairment (losses) recoveries recognized in earnings		(1)				(17)				86				(3,070)
Total investment income		16,418				11,553				34,406				2,358
Interest expense, net		1,039				2				2,048				5
Other expense		548				258				1,067				624
Income before income taxes		99,896				102,482				192,451				178,609
Income tax expense		20,867				20,505				39,856				37,306
Net income		$	79,029			$	81,977			$	152,595			$	141,303
Net income per share
Class A common stock – basic		$	1.70			$	1.76			$	3.28			$	3.03
Class A common stock – diluted		$	1.51			$	1.57			$	2.92			$	2.70
Class B common stock – basic and diluted		$	255			$	264			$	491			$	455
Weighted average shares outstanding – Basic
Class A common stock		46,188,289				46,187,808				46,188,573				46,188,299
Class B common stock		2,542				2,542				2,542				2,542
Weighted average shares outstanding – Diluted
Class A common stock		52,302,370				52,302,981				52,309,163				52,313,667
Class B common stock		2,542				2,542				2,542				2,542
Dividends declared per share
Class A common stock		$	1.035			$	0.965			$	2.070			$	1.930
Class B common stock		$	155.25			$	144.75			$	310.50			$	289.50

 

 

Erie Indemnity Company
Statements of Financial Position
(in thousands)
		June 30, 2021					December 31, 2020
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	156,038				$	161,240
Available-for-sale securities		20,856					17,697
Equity securities		207					19
Receivables from Erie Insurance Exchange and affiliates, net		504,013					494,637
Prepaid expenses and other current assets		59,574					52,561
Accrued investment income		6,121					6,146
Total current assets		746,809					732,300
Available-for-sale securities, net		915,942					910,539
Equity securities		93,798					94,071
Fixed assets, net		280,402					265,341
Agent loans, net		60,070					62,449
Deferred income taxes, net		17,971					12,341
Other assets		48,652					40,081
Total assets		$	2,163,644				$	2,117,122
Liabilities and shareholders' equity
Current liabilities:
Commissions payable		$	284,234				$	262,338
Agent bonuses		62,694					110,158
Accounts payable and accrued liabilities		150,346					150,706
Dividends payable		48,200					48,200
Contract liability		35,742					36,917
Deferred executive compensation		8,581					17,319
Current portion of long-term borrowings		2,064					2,031
Total current liabilities		591,861					627,669
Defined benefit pension plans		184,111					164,346
Long-term borrowings		92,795					93,833
Contract liability		18,135					18,878
Deferred executive compensation		13,773					14,904
Other long-term liabilities		17,867					9,444
Total liabilities		918,542					929,074
Shareholders' equity		1,245,102					1,188,048
Total liabilities and shareholders' equity		$	2,163,644				$	2,117,122

 

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SOURCE Erie Indemnity Company

FAQ

What were Erie Indemnity's financial results for Q2 2021?

In Q2 2021, Erie Indemnity reported net income of $79.0 million, or $1.51 per diluted share.

How did Erie Indemnity's net income compare between Q2 2021 and Q2 2020?

Net income in Q2 2021 was $79.0 million, down from $82.0 million in Q2 2020.

What was the increase in management fee revenue for Erie Indemnity in Q2 2021?

Management fee revenue from policy issuance and renewal services increased by $18.5 million, or 3.8%, in Q2 2021.

How did operating income change for Erie Indemnity in the first half of 2021?

Operating income before taxes decreased by 8.9% in the first half of 2021 compared to the same period in 2020.

What were Erie's net investment income figures for Q2 2021?

Net investment income was $13.7 million in Q2 2021, up from $5.0 million in Q2 2020.