Erie Indemnity Reports Third Quarter 2021 Results

Rhea-AI Summary

Erie Indemnity Company (NASDAQ: ERIE) reported a net income of $90.2 million, or $1.72 per diluted share, for Q3 2021, showing a slight increase from $89.2 million in Q3 2020. For the first nine months, net income rose to $242.8 million, or $4.64 per diluted share, compared to $230.5 million in the same period last year. While management fee revenue from policy issuance and renewal services increased by 4.2%, operating income fell by 1.2% in Q3 2021. The company faces uncertain impacts from COVID-19, affecting its operations and financial metrics.

Positive

• Net income increased to $90.2 million in Q3 2021, up from $89.2 million in Q3 2020.
• Net income for the first nine months rose to $242.8 million, compared to $230.5 million in the previous year.
• Management fee revenue from policy issuance and renewal services increased by $20.3 million, or 4.2%, in Q3 2021.

Negative

• Operating income before taxes decreased by $1.1 million, or 1.2%, in Q3 2021 compared to the same period in 2020.
• Non-commission expenses rose by $26.8 million in the first nine months of 2021 compared to the same period in 2020.

ERIE, Pa., Oct. 28, 2021 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter and nine months ending September 30, 2021.  Net income was $90.2 million, or $1.72 per diluted share, in the third quarter of 2021, compared to $89.2 million, or $1.71 per diluted share, in the third quarter of 2020.  Net income was $242.8 million, or $4.64 per diluted share, in the first nine months of 2021, compared to $230.5 million, or $4.41 per diluted share, in the first nine 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. 

3Q and Nine Months 2021
(in thousands)	3Q'21			3Q'20				2021			2020
Operating income	$	95,103		$	96,225			$	256,263		$	273,105
Investment income	20,598			16,438				55,004			18,796
Interest and other expense, net	1,575			967				4,690			1,596
Income before income taxes	114,126			111,696				306,577			290,305
Income tax expense	23,903			22,480				63,759			59,786
Net income	$	90,223		$	89,216			$	242,818		$	230,519

 

3Q 2021 Highlights

Operating income before taxes decreased $1.1 million, or 1.2 percent, in the third quarter of 2021 compared to the third quarter of 2020.

• Management fee revenue - policy issuance and renewal services increased $20.3 million, or 4.2 percent, in the third quarter of 2021 compared to the third quarter of 2020.
• Management fee revenue - administrative services decreased $0.4 million, or 2.9 percent, in the third quarter of 2021 compared to the third quarter of 2020.
• Cost of operations - policy issuance and renewal services
• Commissions increased $14.9 million in the third quarter of 2021 compared to the third 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 third quarter of 2021 compared to the third quarter of 2020.
• Non-commission expense increased $5.9 million in the third quarter of 2021 compared to the third quarter of 2020. Information technology costs increased $3.8 million primarily due to increased hardware and software costs as well as increased personnel costs. Sales and advertising increased $1.3 million primarily due to personnel costs. Administrative and other costs increased $0.5 million primarily driven by increased building and equipment depreciation compared to the same period in 2020. Personnel costs in all expense categories for the third quarter of 2021 were impacted by higher medical costs compared to the prior year as the COVID-19 pandemic reduced elective procedures in 2020 and higher incentive plan award accruals due to increase direct written premium growth.

Income from investments before taxes totaled $20.6 million in the third quarter of 2021 compared to $16.4 million in the third quarter of 2020.  Net investment income was $18.9 million in the third quarter of 2021 compared to $10.6 million in the third quarter of 2020.  Included in net investment income is $11.5 million of limited partnership earnings in the third quarter of 2021 compared to $3.6 million in the third quarter of 2020.  Net realized gains on investments were $1.6 million in the third quarter of 2021 compared to $5.9 million in the third quarter of 2020.

Nine Months 2021 Highlights

Operating income before taxes decreased $16.8 million, or 6.2 percent, in the first nine months of 2021 compared to the first nine months of 2020.

• Management fee revenue - policy issuance and renewal services increased $50.8 million, or 3.6 percent, in the first nine months of 2021 compared to the first nine months of 2020.
• Management fee revenue - administrative services decreased $0.5 million, or 1.1 percent, in the first nine months of 2021 compared to the first nine months of 2020.
• Cost of operations - policy issuance and renewal services
• Commissions increased $39.0 million in the first nine months of 2021 compared to the first nine 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 nine months 2021 compared to the first nine months of 2020. For the nine months ended September 30, 2020, lower claims frequency and related loss expense due to the COVID-19 pandemic impacted agent compensation related to the profitability component.
• Non-commission expense increased $26.8 million for the nine months ended September 30, 2021 compared to the same period in 2020. Underwriting and policy processing expense increased $2.6 million primarily due to increased personnel costs and underwriting report costs. Information technology costs increased $10.9 million primarily due to increased hardware and software costs and personnel costs. Administrative and other costs increased $12.6 million primarily driven by increased building and equipment depreciation, professional fees and personnel costs compared to the same period in 2020. Personnel costs in all expense categories were impacted by higher medical costs compared to the prior year as the COVID-19 pandemic reduced elective procedures in 2020 and higher incentive plan award accruals due to increase direct written premium growth.

Income from investments before taxes totaled $55.0 million in the first nine months of 2021 compared to $18.8 million in the first nine months of 2020.  Net investment income was $49.6 million in the first nine months of 2021 compared to $20.4 million in the first nine months of 2020.  Included in net investment income is $26.7 million of limited partnership earnings in the first nine months of 2021 and $2.4 million of limited partnership losses in the first nine months of 2020.  Net realized gains on investments were $5.2 million in the first nine months of 2021 compared to $1.6 million in the first nine months of 2020.

Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on October 29, 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 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;
• 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 September 30,									Nine months ended September 30,
		2021				2020					2021				2020
		(Unaudited)									(Unaudited)
Operating revenue
Management fee revenue - policy issuance and renewal services		$	504,891			$	484,551				$	1,462,880			$	1,412,096
Management fee revenue - administrative services		14,471				14,910					43,985				44,494
Administrative services reimbursement revenue		162,410				147,710					473,133				451,229
Service agreement revenue		6,067				6,310					18,048				19,418
Total operating revenue		687,839				653,481					1,998,046				1,927,237
Operating expenses
Cost of operations - policy issuance and renewal services		430,326				409,546					1,268,650				1,202,903
Cost of operations - administrative services		162,410				147,710					473,133				451,229
Total operating expenses		592,736				557,256					1,741,783				1,654,132
Operating income		95,103				96,225					256,263				273,105
Investment income
Net investment income		18,858				10,645					49,605				20,353
Net realized investment gains		1,610				5,915					5,183				1,635
Net impairment recoveries (losses) recognized in earnings		130				(122)					216				(3,192)
Total investment income		20,598				16,438					55,004				18,796
Interest expense, net		1,034				3					3,082				8
Other expense		541				964					1,608				1,588
Income before income taxes		114,126				111,696					306,577				290,305
Income tax expense		23,903				22,480					63,759				59,786
Net income		$	90,223			$	89,216				$	242,818			$	230,519
Net income per share
Class A common stock – basic		$	1.94			$	1.92				$	5.21			$	4.95
Class A common stock – diluted		$	1.72			$	1.71				$	4.64			$	4.41
Class B common stock – basic and diluted		$	291			$	287				$	782			$	742
Weighted average shares outstanding – Basic
Class A common stock		46,189,035				46,189,030					46,188,729				46,188,544
Class B common stock		2,542				2,542					2,542				2,542
Weighted average shares outstanding – Diluted
Class A common stock		52,305,245				52,310,429					52,307,859				52,312,588
Class B common stock		2,542				2,542					2,542				2,542
Dividends declared per share
Class A common stock		$	1.035			$	0.965				$	3.105			$	2.895
Class B common stock		$	155.25			$	144.75				$	465.75			$	434.25

 

Erie Indemnity Company
Statements of Financial Position
(in thousands)
		September 30, 2021				December 31, 2020
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	235,996			$	161,240
Available-for-sale securities		30,627				17,697
Equity securities		10				19
Receivables from Erie Insurance Exchange and affiliates, net		503,413				494,637
Prepaid expenses and other current assets		55,003				52,561
Accrued investment income		6,104				6,146
Total current assets		831,153				732,300
Available-for-sale securities, net		906,877				910,539
Equity securities		86,270				94,071
Fixed assets, net		277,939				265,341
Agent loans, net		59,462				62,449
Deferred income taxes, net		17,153				12,341
Other assets		57,704				40,081
Total assets		$	2,236,558			$	2,117,122
Liabilities and shareholders' equity
Current liabilities:
Commissions payable		$	280,540			$	262,338
Agent bonuses		88,556				110,158
Accounts payable and accrued liabilities		148,282				150,706
Dividends payable		48,200				48,200
Contract liability		35,853				36,917
Deferred executive compensation		10,757				17,319
Current portion of long-term borrowings		2,075				2,031
Total current liabilities		614,263				627,669
Defined benefit pension plans		192,808				164,346
Long-term borrowings		92,273				93,833
Contract liability		18,098				18,878
Deferred executive compensation		14,477				14,904
Other long-term liabilities		17,783				9,444
Total liabilities		949,702				929,074
Shareholders' equity		1,286,856				1,188,048
Total liabilities and shareholders' equity		$	2,236,558			$	2,117,122

 

View original content to download multimedia:https://www.prnewswire.com/news-releases/erie-indemnity-reports-third-quarter-2021-results-301408965.html

SOURCE Erie Indemnity Company

FAQ

What were Erie Indemnity's financial results for Q3 2021?

Erie Indemnity reported a net income of $90.2 million, or $1.72 per diluted share, for Q3 2021.

How did Erie Indemnity's net income change in the first nine months of 2021?

Net income increased to $242.8 million, or $4.64 per diluted share, in the first nine months of 2021, up from $230.5 million in the same period in 2020.

What trends were noted in Erie Indemnity's management fee revenue?

Management fee revenue from policy issuance and renewal services increased by 4.2%, amounting to $20.3 million in Q3 2021.

Did operating income increase or decrease for Erie Indemnity in Q3 2021?

Operating income before taxes decreased by $1.1 million, or 1.2%, in Q3 2021 compared to Q3 2020.

What are the implications of COVID-19 on Erie Indemnity's operations?

The ongoing uncertainty from COVID-19 continues to impact Erie Indemnity's operations and financial outcomes.