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Erie Indemnity Reports Full Year and Fourth Quarter 2016 Results

ERIE, Pa., Feb. 23, 2017 /PRNewswire/ -- Erie Indemnity Company (ERIE) today announced financial results for the full year and quarter ending December 31, 2016.  Net income was $210.4 million, or $4.01 per diluted share, for the full year 2016, compared to $174.7 million, or $3.33 per diluted share, in 2015.  Net income was $45.8 million, or $0.87 per diluted share, in the fourth quarter of 2016, compared to $30.1 million, or $0.57 per diluted share, in the fourth quarter of 2015.  The growth in 2016 for the fourth quarter and full year was driven by increased net revenue from operations as revenue growth outpaced the growth in expenses.

"We continue to grow profitably," said Tim NeCastro, President and CEO.  "The dedicated work of our Agents and Employees has once again enabled us to beat the industry forecast for 2016 and as we embark upon 2017, we are well positioned for continued long-term growth and value creation."

 

4Q and Total Year 2016

(dollars in thousands)

4Q'15

4Q'16


2015

2016



Net revenue from operations

$

41,839


$

56,685



$

232,541


$

292,364




Investment income, net of interest expense

4,244


13,438



33,708


27,727




Income before income taxes

46,083


70,123



266,249


320,091




Income tax expense

15,950


24,337



91,571


109,725




Net income

$

30,133


$

45,786



$

174,678


$

210,366




Gross margin from operations

11.7

%

14.9

%


15.4

%

18.3

%



 

2016 Total Year Highlights

Net revenue from operations before taxes increased $59.8 million, or 25.7 percent, in 2016 compared to 2015.

  • Management fee revenue increased $91.9 million, or 6.2 percent, in 2016 compared to 2015.
  • Commissions increased $45.9 million in 2016 compared to 2015 as a result of the 6.2 percent increase in direct and assumed premiums written by the Exchange.
  • Non-commission expense decreased $14.6 million in 2016 compared to 2015. Information technology costs decreased $2.1 million primarily due to decreased personnel costs somewhat offset by an increase in professional fees. Customer service costs decreased $4.7 million primarily due to decreased credit card processing fees and personnel costs. Administrative and other costs decreased $7.8 million due to decreased personnel costs, including incentive compensation forfeited by senior executives who separated from service during 2016, somewhat offset by an increase in professional fees. Personnel costs in all expense categories were impacted by decreased pension costs primarily due to an increase in the pension discount rate as well as decreased medical costs.
  • The gross margin for 2016 was 18.3 percent, compared to 15.4 percent for 2015.

Income from investments before taxes totaled $27.8 million in 2016, compared to $33.7 million in 2015.  Earnings from limited partnerships were $7.0 million in 2016 compared to earnings of $17.0 million in 2015.

 

4Q 2016 Highlights

Net revenue from operations before taxes increased $14.8 million, or 35.5 percent, in the fourth quarter of 2016 compared to the fourth quarter of 2015.

  • Management fee revenue increased $23.3 million, or 6.7 percent, in the fourth quarter of 2016 compared to the fourth quarter of 2015.
  • Commissions increased $10.1 million in the fourth quarter of 2016 compared to the fourth quarter of 2015 as a result of the 6.4 percent increase in direct and assumed premiums written by the Exchange.
  • Non-commission expense decreased $1.8 million in the fourth quarter of 2016 compared to the fourth quarter of 2015. Information technology costs increased $4.3 million primarily due to an increase in professional fees. Customer service costs decreased $1.8 million primarily due to decreased credit card processing fees and personnel costs. Administrative and other costs decreased $4.0 million due to decreased personnel costs, including incentive compensation forfeited by senior executives who separated from service during 2016, somewhat offset by an increase in professional fees. Personnel costs in all expense categories were impacted by decreased pension costs primarily due to an increase in the pension discount rate.
  • The gross margin in the fourth quarter of 2016 was 14.9 percent, compared to 11.7 percent in the fourth quarter of 2015.

Income from investments before taxes totaled $13.5 million in the fourth quarter of 2016, compared to $4.2 million in the fourth quarter of 2015.  Earnings from limited partnerships were $7.3 million in the fourth quarter of 2016 compared to earnings of $0.1 million in the fourth quarter of 2015.

Webcast Information
Indemnity has scheduled a conference call and live audio broadcast on the Web for 10:00 AM ET on February 24, 2017.  Investors may access the live audio broadcast by logging on to www.erieinsurance.com.  Indemnity recommends visiting the website at least 15 minutes prior to the Webcast to download and install any necessary software.  A Webcast audio replay will be available on the Investor Relations page of the Erie Insurance website by 12:30 PM ET.

About Erie Insurance
According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 10th largest homeowners insurer and 12th largest automobile insurer in the United States based on direct premiums written and the 15th largest property/casualty insurer in the United States based on total lines net premium written. The Group, rated A+ (Superior) by A.M. Best Company, has more than 5 million policies in force and operates in 12 states and the District of Columbia. Erie Insurance Group is a FORTUNE 500 company.

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 Exchange and the management fee under the agreement with the subscribers at the Exchange;
  • costs of providing services to the Exchange under the subscriber's agreement and investments in new technology and systems;
  • credit risk from 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;
    • emerging claims and coverage issues in the industry; and
    • severe weather conditions or other catastrophic losses, including terrorism;
  • ability to attract and retain talented management and employees;
  • ability to maintain uninterrupted business operations and difficulties with technology or data security breaches, including cyber attacks;
  • factors affecting the quality and liquidity of our investment portfolio;
  • our ability to meet liquidity needs and access capital; and
  • outcome of pending and potential litigation.

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-F)

 

Erie Indemnity Company

Statements of Operations

(dollars in thousands, except per share data)




Three months ended
December 31,


Twelve months ended
December 31,



2016


2015


2016


2015



(Unaudited)





Operating revenue









Management fee revenue, net


$

372,169



$

348,885



$

1,567,431



$

1,475,511


Service agreement revenue


7,444



7,495



29,200



29,997


Total operating revenue


379,613



356,380



1,596,631



1,505,508











Operating expenses









Commissions


216,837



206,691



893,800



847,880


Salaries and employee benefits


51,777



55,998



213,356



226,713


All other operating expenses


54,314



51,852



197,111



198,374


Total operating expenses


322,928



314,541



1,304,267



1,272,967


Net revenue from operations


56,685



41,839



292,364



232,541











Investment income









Net investment income


5,663



4,469



20,547



17,791


Net realized gains on investments


643



617



672



492


Net impairment losses recognized in earnings


(71)



(923)



(416)



(1,558)


Equity in earnings of limited partnerships


7,304



81



7,025



16,983


Total investment income


13,539



4,244



27,828



33,708


Interest expense, net


101





101




Income before income taxes


70,123



46,083



320,091



266,249


Income tax expense


24,337



15,950



109,725



91,571


Net income


$

45,786



$

30,133



$

210,366



$

174,678




















Earnings Per Share









Net income per share









Class A common stock – basic


$

0.98



$

0.65



$

4.52



$

3.75


Class A common stock – diluted


$

0.87



$

0.57



$

4.01



$

3.33


Class B common stock – basic


$

147



$

97



$

678



$

563


Class B common stock – diluted


$

147



$

97



$

677



$

562











Weighted average shares outstanding – Basic









Class A common stock


46,188,895



46,179,559



46,188,952



46,186,671


Class B common stock


2,542



2,542



2,542



2,542











Weighted average shares outstanding – Diluted









Class A common stock


52,413,119



52,506,600



52,435,303



52,498,811


Class B common stock


2,542



2,542



2,542



2,542











Dividends declared per share









Class A common stock


$

0.7825



$

0.7300



$

2.9725



$

2.7730


Class B common stock


$

117.375



$

109.500



$

445.875



$

415.950


 


Erie Indemnity Company
Reconciliation of Net Income to Operating Income

Reconciliation of net income to operating income

We disclose operating income, a non-GAAP financial measure, to enhance our investors' understanding of our performance.  Our method of calculating this measure may differ from those used by other companies, and therefore comparability may be limited.

We define operating income as net income excluding realized capital gains and losses, impairment losses, and related federal income taxes.

We use operating income to evaluate the results of our operations.  It reveals trends that may be obscured by the net effects of realized capital gains and losses including impairment losses.  Realized capital gains and losses, including impairment losses, may vary significantly between periods and are generally driven by business decisions and economic developments such as capital market conditions which are not related to our ongoing operations.  We are aware that the price to earnings multiple commonly used by investors as a forward-looking valuation technique uses operating income as the denominator.  Operating income should not be considered as a substitute for net income prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and does not reflect our overall profitability.

The following table reconciles net income and operating income:



Three months ended
December 31,


Twelve months ended
December 31,

(in thousands, except per share data)


2016


2015


2016


2015



(Unaudited)



Net income


$

45,786



$

30,133



$

210,366



$

174,678


Net realized (gains) losses and impairments on investments


(572)



306



(256)



1,066


Income tax expense (benefit)


199



(107)



89



(373)


Realized (gains) losses and impairments, net of income taxes


(373)



199



(167)



693


Operating income


$

45,413



$

30,332



$

210,199



$

175,371











Per Class A common share-diluted:









Net income


$

0.87



$

0.57



$

4.01



$

3.33


Net realized (gains) losses and impairments on investments


0.00



0.01



0.00



0.02


Income tax expense (benefit)


0.00



0.00



0.00



(0.01)


Realized (gains) losses and impairments, net of income taxes


0.00



0.01



0.00



0.01


Operating income


$

0.87



$

0.58



$

4.01



$

3.34


 

 

 

Erie Indemnity Company

Statements of Financial Position

(in thousands)




December 31, 2016


December 31, 2015

Assets





Current assets:





Cash and cash equivalents


$

189,072



$

182,889


Available-for-sale securities


56,138



62,067


Receivables from Erie Insurance Exchange and affiliates


378,540



348,055


Prepaid expenses and other current assets


30,169



24,697


Federal income taxes recoverable


5,260



11,947


Accrued investment income


6,337



5,491


Total current assets


665,516



635,146







Available-for-sale securities


657,153



537,874


Limited partnership investments


58,159



88,535


Fixed assets, net


69,142



59,087


Deferred income taxes, net


53,889



40,686


Note receivable from Erie Family Life Insurance Company


25,000



25,000


Other assets


20,096



20,968


Total assets


$

1,548,955



$

1,407,296







Liabilities and shareholders' equity





Current liabilities:





Commissions payable


$

210,559



$

195,542


Agent bonuses


114,772



106,752


Accounts payable and accrued liabilities


88,153



88,532


Dividends payable


36,441



33,996


Deferred executive compensation


19,675



20,877


Total current liabilities


469,600



445,699







Defined benefit pension plan


221,827



172,700


Employee benefit obligations


756



1,234


Deferred executive compensation


13,233



16,580


Long-term borrowings


24,766




Other long-term liabilities


1,863



1,580


Total liabilities


732,045



637,793







Shareholders' equity


816,910



769,503


Total liabilities and shareholders' equity


$

1,548,955



$

1,407,296


 

 

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