Erie Indemnity Reports Second Quarter 2022 Results

Rhea-AI Summary

Erie Indemnity Company (NASDAQ: ERIE) reported Q2 2022 net income of $80.1 million, or $1.53 per diluted share, up from $79.0 million, or $1.51 in Q2 2021. For the first half of 2022, net income was $148.8 million, or $2.84 per diluted share, down from $152.6 million. Operating income before taxes increased by 22.3% in Q2 and 16.8% for the first half. Management fee revenue - policy issuance rose 8.4% in Q2. However, net investment income declined, with losses totaling $17.6 million for the first half.

Positive

• Q2 2022 operating income before taxes increased $18.9 million, or 22.3% year-over-year.
• Management fee revenue from policy issuance and renewal services rose $42.3 million, or 8.4% in Q2 compared to 2021.
• First half operating income before taxes increased by $27.2 million, or 16.8% year-over-year.

Negative

• Net investment income decreased to $8.3 million in Q2, down from $13.7 million in Q2 2021.
• Total net realized and unrealized losses on investments for the first half were $17.6 million, compared to gains of $3.6 million in the previous year.
• Net income for the first six months fell to $148.8 million, down from $152.6 million in 2021.

Net Income per Diluted Share was $1.53 for the Quarter and $2.84 for the Six Months of 2022

ERIE, Pa., July 28, 2022 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter and six months ending June 30, 2022.  Net income was $80.1 million, or $1.53 per diluted share, in the second quarter of 2022, compared to $79.0 million, or $1.51 per diluted share, in the second quarter of 2021.  Net income was $148.8 million, or $2.84 per diluted share, in the first six months of 2022, compared to $152.6 million, or $2.92 per diluted share, in the first six months of 2021.

2Q and First Half 2022
(in thousands)	2Q'22	2Q'21		1H'22	1H'21
Operating income	$      104,000	$        85,065		$    188,312	$    161,160
Investment (loss) income	(2,094)	16,418		915	34,406
Interest expense and other, net	558	1,587		1,084	3,115
Income before income taxes	101,348	99,896		188,143	192,451
Income tax expense	21,201	20,867		39,377	39,856
Net income	$        80,147	$        79,029		$    148,766	$    152,595

 

2Q 2022 Highlights

Operating income before taxes increased $18.9 million, or 22.3 percent, in the second quarter of 2022 compared to the second quarter of 2021.

• Management fee revenue - policy issuance and renewal services increased $42.3 million, or 8.4 percent, in the second quarter of 2022 compared to the second quarter of 2021.
• Management fee revenue - administrative services decreased $0.2 million, or 1.3 percent, in the second quarter of 2022 compared to the second quarter of 2021.
• Cost of operations - policy issuance and renewal services
• Commissions increased $14.3 million in the second quarter of 2022 compared to the second quarter of 2021, primarily driven by the growth in direct and affiliated assumed written premium, partially offset by a decrease in agent incentive compensation.
• Non-commission expense increased $9.4 million in the second quarter of 2022 compared to the second quarter of 2021. Information technology costs increased $5.0 million primarily due to increased hardware and software costs and increased professional fees. Administrative and other costs increased $5.5 million primarily due to an increase in professional fees and increased personnel costs related to compensation. Personnel costs in all expense categories were also impacted by lower estimated costs for incentive plan awards related to underwriting performance.

Loss from investments before taxes totaled $2.1 million in the second quarter of 2022 compared to income from investments before taxes of $16.4 million in the second quarter of 2021.  Net investment income was $8.3 million in the second quarter of 2022 compared to $13.7 million in the second quarter of 2021.  Included in net investment income is $0.3 million of limited partnership losses in the second quarter of 2022 compared to earnings of $6.2 million in the second quarter of 2021.  Net realized and unrealized losses on investments were $10.3 million in the second quarter of 2022 compared to net realized and unrealized gains of $2.8 million in the second quarter of 2021.

First Half 2022 Highlights

Operating income before taxes increased $27.2 million, or 16.8 percent, in the first six months of 2022 compared to the first six months of 2021.

• Management fee revenue - policy issuance and renewal services increased $74.6 million, or 7.8 percent, in the first six months of 2022 compared to the first six months of 2021.
• Management fee revenue - administrative services decreased $0.7 million, or 2.5 percent, in the first six months of 2022 compared to the first six months of 2021.
• Cost of operations - policy issuance and renewal services
• Commissions increased $34.0 million in the first six months of 2022 compared to the first six months of 2021, primarily driven by the growth in direct and affiliated assumed written premium, partially offset by a decrease in agent incentive compensation.
• Non-commission expense increased $13.6 million in the first six months of 2022 compared to the first six months of 2021. Information technology costs increased $4.3 million primarily due to increased hardware and software costs. Administrative and other costs increased $8.6 million primarily driven by increased professional fees. Personnel costs in all expense categories were also impacted by lower estimated costs for incentive plan awards related to underwriting performance.

Income from investments before taxes totaled $0.9 million in the first six months of 2022 compared to $34.4 million in the first six months of 2021.  Net investment income was $18.8 million in the first six months of 2022 compared to $30.7 million in the first six months of 2021.  Included in net investment income is $2.5 million of limited partnership earnings in the first six months of 2022 compared to $15.2 million in the first six months of 2021.  Net realized and unrealized losses on investments totaled $17.6 million in the first six months of 2022 compared to net realized and unrealized gains of $3.6 million in the first six months of 2021.

Webcast Information

Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on July 29, 2022.  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, 13^th largest automobile insurer and 13^th 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 19^th 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 are available on ERIE's website 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;
• emergence of significant unexpected events, including pandemics;
• 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;
• outcome of pending and potential litigation;
• 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,
		2022		2021		2022		2021
		(Unaudited)				(Unaudited)
Operating revenue
Management fee revenue - policy issuance and renewal services		$         544,555		$        502,271		$    1,032,547		$        957,989
Management fee revenue - administrative services		14,476		14,667		28,789		29,514
Administrative services reimbursement revenue		160,675		157,190		324,002		310,723
Service agreement revenue		6,437		5,902		12,915		11,981
Total operating revenue		726,143		680,030		1,398,253		1,310,207
Operating expenses
Cost of operations - policy issuance and renewal services		461,468		437,775		885,939		838,324
Cost of operations - administrative services		160,675		157,190		324,002		310,723
Total operating expenses		622,143		594,965		1,209,941		1,149,047
Operating income		104,000		85,065		188,312		161,160
Investment income
Net investment income		8,268		13,650		18,772		30,747
Net realized and unrealized investment (losses) gains		(10,324)		2,769		(17,603)		3,573
Net impairment (losses) recoveries recognized in earnings		(38)		(1)		(254)		86
Total investment (loss) income		(2,094)		16,418		915		34,406
Interest expense		895		1,039		1,894		2,048
Other income (expense)		337		(548)		810		(1,067)
Income before income taxes		101,348		99,896		188,143		192,451
Income tax expense		21,201		20,867		39,377		39,856
Net income		$           80,147		$          79,029		$       148,766		$        152,595
Net income per share
Class A common stock – basic		$                1.72		$               1.70		$              3.19		$               3.28
Class A common stock – diluted		$                1.53		$               1.51		$              2.84		$               2.92
Class B common stock – basic and diluted		$                 258		$                255		$               479		$                491
Weighted average shares outstanding – Basic
Class A common stock		46,188,845		46,188,289		46,188,803		46,188,573
Class B common stock		2,542		2,542		2,542		2,542
Weighted average shares outstanding – Diluted
Class A common stock		52,296,139		52,302,370		52,298,321		52,309,163
Class B common stock		2,542		2,542		2,542		2,542
Dividends declared per share
Class A common stock		$                1.11		$             1.035		$              2.22		$             2.070
Class B common stock		$           166.50		$          155.25		$         333.00		$          310.50

 

Erie Indemnity Company Statements of Financial Position (in thousands)
		June 30,   2022		December 31, 2021
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$           90,324		$         183,702
Available-for-sale securities		57,150		38,396
Receivables from Erie Insurance Exchange and affiliates, net		538,283		479,123
Prepaid expenses and other current assets		50,508		56,206
Accrued investment income		6,839		6,303
Total current assets		743,104		763,730
Available-for-sale securities, net		832,577		907,689
Equity securities		71,448		87,743
Fixed assets, net		402,475		374,802
Agent loans, net		61,865		58,683
Deferred income taxes, net		20,491		145
Other assets		48,262		49,265
Total assets		$      2,180,222		$     2,242,057
Liabilities and shareholders' equity
Current liabilities:
Commissions payable		$         305,984		$         270,746
Agent bonuses		55,146		120,437
Accounts payable and accrued liabilities		141,861		138,317
Dividends payable		51,693		51,693
Contract liability		35,836		34,935
Deferred executive compensation		6,045		12,637
Short-term borrowings		40,000		—
Current portion of long-term borrowings		—		2,098
Total current liabilities		636,565		630,863
Defined benefit pension plans		148,078		130,383
Long-term borrowings		—		91,734
Contract liability		17,740		17,686
Deferred executive compensation		11,199		14,571
Other long-term liabilities		27,234		14,342
Total liabilities		840,816		899,579
Shareholders' equity		1,339,406		1,342,478
Total liabilities and shareholders' equity		$      2,180,222		$     2,242,057

 

 

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SOURCE Erie Indemnity Company

FAQ

What were Erie's net income results for Q2 2022?

Erie Indemnity Company's net income for Q2 2022 was $80.1 million, or $1.53 per diluted share.

How did Erie perform in the first half of 2022?

For the first half of 2022, Erie's net income decreased to $148.8 million, or $2.84 per diluted share.

What changes occurred in Erie's management fee revenue for Q2 2022?

Management fee revenue for policy issuance and renewal services increased by $42.3 million, or 8.4%, in Q2 2022 compared to the same period in 2021.

What was the impact of investments on Erie’s financial results in 2022?

Erie reported net investment losses of $17.6 million for the first half of 2022, a significant decline from gains in the same period in 2021.

Did Erie Indemnity Company see growth in operating income in Q2 2022?

Yes, operating income before taxes increased by $18.9 million, or 22.3% in Q2 2022 compared to Q2 2021.