Erie Indemnity Reports Second Quarter 2023 Results

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ERIE - Erie Indemnity Company Reports Strong Net Income Growth in Q2 and First Half of 2023

Positive

• Net income per diluted share rose to $2.25 for Q2 2023 and $3.90 for the first six months, reflecting a significant increase from the same periods in 2022.
• Operating income before taxes increased by 29.0% in Q2 2023 compared to Q2 2022, demonstrating robust financial performance.
• Management fee revenue from policy issuance and renewal services showed a substantial increase, indicating a positive trend in the company's core operations.

Negative

• None.

Net Income per Diluted Share was $2.25 for the Quarter and $3.90 for the Six Months of 2023

ERIE, Pa., July 27, 2023  Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter and six months ending June 30, 2023.  Net income was $117.9 million, or $2.25 per diluted share, in the second quarter of 2023, compared to $80.1 million, or $1.53 per diluted share, in the second quarter of 2022.  Net income was $204.1 million, or $3.90 per diluted share, in the first six months of 2023, compared to $148.8 million, or $2.84 per diluted share, in the first six months of 2022.

2Q and First Half 2023
(in thousands)	2Q'23	2Q'22		1H'23	1H'22
Operating income	$      134,158	$      104,000		$    244,701	$    188,312
Investment income (loss)	11,627	(2,094)		6,895	915
Interest expense and other (income), net	(3,305)	558		(6,642)	1,084
Income before income taxes	149,090	101,348		258,238	188,143
Income tax expense	31,238	21,201		54,145	39,377
Net income	$      117,852	$        80,147		$    204,093	$    148,766

 

2Q 2023 Highlights

Operating income before taxes increased $30.2 million, or 29.0 percent, in the second quarter of 2023 compared to the second quarter of 2022.

• Management fee revenue - policy issuance and renewal services increased $88.8 million, or 16.3 percent, in the second quarter of 2023 compared to the second quarter of 2022.
• Management fee revenue - administrative services increased $1.2 million, or 8.0 percent, in the second quarter of 2023 compared to the second quarter of 2022.
• Cost of operations - policy issuance and renewal services
• Commissions increased $43.7 million in the second quarter of 2023 compared to the second quarter of 2022, 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 $16.1 million in the second quarter of 2023 compared to the second quarter of 2022.  Underwriting and policy processing expense increased $3.7 million primarily due to increased personnel and postage costs.  Information technology costs increased $3.3 million primarily due to increased personnel costs and professional fees.  Sales and advertising expense increased $1.8 million primarily due to increased agent related costs.  Administrative and other costs increased $7.7 million primarily due to an increase in personnel costs, partially offset by a decrease in professional fees.  Personnel costs were impacted by increased compensation including higher estimated costs for incentive plan awards due to increased direct written premium and policies in force growth, partially offset by lower pension costs due to an increase in the discount rate compared to 2022.

Income from investments before taxes totaled $11.6 million in the second quarter of 2023 compared to loss from investments before taxes of $2.1 million in the second quarter of 2022.  Net investment income was $13.5 million in the second quarter of 2023 compared to $8.3 million in the second quarter of 2022.  Net investment income included less than $0.1 million of limited partnership earnings in the second quarter of 2023 compared to losses of $0.3 million in the second quarter of 2022.  Net realized and unrealized losses on investments were $1.7 million in the second quarter of 2023 compared to $10.3 million in the second quarter of 2022. 

First Half 2023 Highlights

Operating income before taxes increased $56.4 million, or 29.9 percent, in the first six months of 2023 compared to the first six months of 2022.

• Management fee revenue - policy issuance and renewal services increased $158.9 million, or 15.4 percent, in the first six months of 2023 compared to the first six months of 2022.
• Management fee revenue - administrative services increased $2.0 million, or 7.1 percent, in the first six months of 2023 compared to the first six months of 2022.
• Cost of operations - policy issuance and renewal services
• Commissions increased $71.3 million in the first six months of 2023 compared to the first six months of 2022, 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 $33.1 million in the six months ended June 30, 2023 compared to the first six months of 2022.  Underwriting and policy processing expense increased $6.4 million primarily due to increased personnel and postage costs.  Information technology costs increased $14.8 million primarily due to increased professional fees, personnel costs, and hardware and software costs.  Sales and advertising expense increased $1.9 million primarily due to increased personnel and agent related costs.  Administrative and other costs increased $10.6 million primarily due to an increase in personnel costs, partially offset by a decrease in professional fees.  Personnel costs were impacted by increased compensation including higher estimated costs for incentive plan awards due to increased direct written premium and policies in force growth, partially offset by lower pension costs due to an increase in the discount rate compared to 2022.

Income from investments before taxes totaled $6.9 million in the first six months of 2023 compared to $0.9 million in the first six months of 2022.  Net investment income was $15.7 million in the first six months of 2023 compared to $18.8 million in the first six months of 2022.  Net investment income included $10.7 million of limited partnership losses in the first six months of 2023 compared to earnings of $2.5 million in the first six months of 2022.  Net realized and unrealized losses on investments were $7.0 million in the first six months of 2023 compared to $17.6 million in the first six months of 2022.

Webcast Information

Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on July 28, 2023.  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, 12^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;
• 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 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 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,
		2023		2022		2023		2022
		(Unaudited)				(Unaudited)
Operating revenue
Management fee revenue - policy issuance and renewal services		$        633,339		$        544,555		$   1,191,429		$     1,032,547
Management fee revenue - administrative services		15,636		14,476		30,825		28,789
Administrative services reimbursement revenue		184,466		160,675		357,293		324,002
Service agreement revenue		6,429		6,437		12,788		12,915
Total operating revenue		839,870		726,143		1,592,335		1,398,253
Operating expenses
Cost of operations - policy issuance and renewal services		521,246		461,468		990,341		885,939
Cost of operations - administrative services		184,466		160,675		357,293		324,002
Total operating expenses		705,712		622,143		1,347,634		1,209,941
Operating income		134,158		104,000		244,701		188,312
Investment income
Net investment income		13,535		8,268		15,718		18,772
Net realized and unrealized investment losses		(1,737)		(10,324)		(7,019)		(17,603)
Net impairment losses recognized in earnings		(171)		(38)		(1,804)		(254)
Total investment income (loss)		11,627		(2,094)		6,895		915
Interest expense		—		895		—		1,894
Other income		3,305		337		6,642		810
Income before income taxes		149,090		101,348		258,238		188,143
Income tax expense		31,238		21,201		54,145		39,377
Net income		$        117,852		$          80,147		$      204,093		$        148,766
Net income per share
Class A common stock – basic		$              2.53		$              1.72		$            4.38		$              3.19
Class A common stock – diluted		$              2.25		$              1.53		$            3.90		$              2.84
Class B common stock – basic and diluted		$               380		$               258		$             657		$               479
Weighted average shares outstanding – Basic
Class A common stock		46,189,026		46,188,845		46,188,923		46,188,803
Class B common stock		2,542		2,542		2,542		2,542
Weighted average shares outstanding – Diluted
Class A common stock		52,299,974		52,296,139		52,298,298		52,298,321
Class B common stock		2,542		2,542		2,542		2,542
Dividends declared per share
Class A common stock		$              1.19		$              1.11		$            2.38		$              2.22
Class B common stock		$          178.50		$          166.50		$        357.00		$          333.00

 

Erie Indemnity Company Statements of Financial Position (in thousands)
		June 30, 2023		December 31, 2022
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$       142,996		$       142,090
Available-for-sale securities		63,510		24,267
Receivables from Erie Insurance Exchange and affiliates, net		591,008		524,937
Prepaid expenses and other current assets		66,399		79,201
Accrued investment income		8,890		8,301
Total current assets		872,803		778,796
Available-for-sale securities, net		857,442		870,394
Equity securities		77,220		72,560
Fixed assets, net		422,903		413,874
Agent loans, net		60,367		60,537
Other assets		34,776		43,295
Total assets		$    2,325,511		$    2,239,456
Liabilities and shareholders' equity
Current liabilities:
Commissions payable		$       347,795		$       300,028
Agent bonuses		37,443		95,166
Accounts payable and accrued liabilities		164,718		165,915
Dividends payable		55,419		55,419
Contract liability		39,046		36,547
Deferred executive compensation		7,672		12,036
Total current liabilities		652,093		665,111
Defined benefit pension plans		55,075		51,224
Contract liability		18,892		17,895
Deferred executive compensation		13,539		13,724
Deferred income taxes, net		15,647		14,075
Other long-term liabilities		25,353		29,019
Total liabilities		780,599		791,048
Shareholders' equity		1,544,912		1,448,408
Total liabilities and shareholders' equity		$    2,325,511		$    2,239,456

 

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SOURCE Erie Indemnity Company

FAQ

What was Erie Indemnity Company's net income per diluted share for Q2 2023?

Erie Indemnity Company's net income per diluted share for Q2 2023 was $2.25.

How did Erie Indemnity Company's operating income before taxes change in Q2 2023?

Erie Indemnity Company's operating income before taxes increased by 29.0% in Q2 2023 compared to Q2 2022.

What was the percentage increase in management fee revenue from policy issuance and renewal services in Q2 2023?

Management fee revenue from policy issuance and renewal services increased by 16.3% in Q2 2023 compared to Q2 2022.